Capitalism and Democracy no longer mean the same thing

Just a quick thought:

Capitalism and Democracy are decoupling.


China is emerging as the first model of genuine capitalism run by a non-democratic state.

The strongest argument against China being capitalist used to point out that about 50% of its GDP is Investment which is stimulated artificially through financial repression (50% is not sustainable). But today we see exactly the same kinds of things at home. The developed-capitalist countries’ central banks are printing unlimited amounts of currency (literally in the case of Japan), causing incredible financial repression – negative real yields on German Bunds and Treasuries; massive excess liquidity is being pumped into european banks. The result is a similar misallocation of capital. And then you have all the bank bailouts which are proceeding exactly like China’s ‘special investment vehicle’ shenanigans in the late 90s. hmm.

On the other hand, the democratic countries are becoming less capitalist, and some capitalist countries are becoming less democratic. For example:

  1. Again, because it is the single most important macro-economic event at the moment: Central bank interference is completely skewing the markets, due to massive injections of cash which forces money out of bonds (low yields), cash (real or anticipated inflation) and into stocks or junk bonds. They are basically preventing bankruptcies big and small.
  2. In the US the democratic process is hindering capitalism – complete political paralysis over the fiscal cliff is causing huge economic uncertainty. The reason for the paralysis is not genuine ideological difference – that comes down to simple maths – but political parties engaged in PR warfare over who looks like the good guy. it doesn’t matter whether things go to shit as long as you aren’t the one getting blamed.
  3. In Italy, a decision to play by capitalist rules forced a suspension of democracy in which Monti was brought in without any democratic mandate to lead the country since June 2011.

The connections between capitalism and democracy, so long held to be synonymous, are breaking up.


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