In the fall of 2008, as the global economy was melting down, reporters began calling Allan Meltzer to gauge his response to a New York Times article proclaiming the demise of capitalism.
To Meltzer - one of the world’s foremost economists, who holds an appointment at the Tepper School as the Allan H. Meltzer University Professor of Political Economy – the question was preposterous.
Explaining that capitalism is here to stay, a hypothesis that provides the underpinning of his latest book, Why Capitalism?, Meltzer shared a positive outlook on the spread of capitalism throughout the world and some highlights from his book with Tepper School alumni in a fireside chat-style session at the Rivers Club in Pittsburgh, led by Dean Robert Dammon.
Borrowing an idea from economist John Kenneth Galbraith, Meltzer said he set out to write a book that had “no equations, no charts, no graphs and no tables,” so as to reach the broadest audience possible.
In summary, not only is capitalism not dead, but rather “it’s thriving; it’s expanding,” Meltzer told the audience, about half of whom studied under him at the Tepper School. The success of capitalism lies in both its freedom, which allows for innovation and forgives rebellion, and its adaptability: “a winning combination,” he noted.
“Capitalism adapts to whatever culture or society it’s in,” Meltzer said. For example, he cited the differences between systems in Japan and the United States; in the U.S., people tend to raise their own money to promote ideas, whereas in Japan, innovation is driven by companies.
By contrast, he believes innovation will stagnate in China, because people are not free.
Which is not to say that he believes capitalism is flawless. “We’re losing things like the rule of law and replacing it with the rule of regulation,” Meltzer said.
However, Meltzer chalks problems up to human error such as corruption and greed, not flaws inherent in the system: “People are imperfect. So imperfect people do not make perfect arrangements,” he explained.
Touching on the recent Occupy Wall Street protests that have spread to cities nationwide, Meltzer said: “Fair is in the eye of the beholder,” and suggested that the elite wealthy, or “1 percent” described in the Occupy movement, reflects specialized talents and skill sets: “They’re rock stars; they’re prime athletes. Trial lawyers, skilled surgeons, businessmen who are operating Fortune 500 companies.”
He also expanded his thoughts on the subject of regulation: In moderation, and when applied properly, it can be a useful tool, he said: “We have to have regulation. But we want regulation that does something useful,” rather than serving as an expression of someone’s ideal, he added.
Meltzer has repeatedly suggested that large banks be required to hold equity capital that is proportionate to their assets to avoid failure. Though the notion is unpopular with banks, he suggests that it would have helped more of them survive the recession without the aid of bailout money.
However, if banks do find themselves struggling, they should be allowed to fail, Meltzer said. He repeated one of his most famous quotes, which once was featured in the New York Times crossword puzzle: “Capitalism without failure is like religion without sin,” drawing appreciative laughter from the audience.
“Failing isn’t a disaster. It’s not good, but it’s not terrible. You learn from your mistakes,” Meltzer explained. “We want to design [systems] so the failures are borne by the people who take the risks … Socializing the risk just encourages people to take the risk and repeat the mistake.”
Back to Tepper School homepage