Is casino capitalism worth a gamble?

Bad as the past two years have been, are we better off with unfettered “casino capitalism” than with the plethora of regulations and controls the world is now heading towards? The idea is little short of heresy; even advocates of free markets believe the system was broken before the crash (although their solution would be to remove the problem of banks being too big to fail, having an implicit government guarantee, rather than to wrap them in red tape).

Today, though, Alistair Darling, British chancellor, reduced the UK’s estimate of losses from supporting the banks from £50bn to £10bn. Of course, we’ve all become a bit blasé about the size of these numbers; £10bn is still a lot of money (£400 a household); but it is far less serious than we thought. And as this chart from a Martin Wolf column on deregulation shows, the UK and US, with their deregulated economies, grew far faster than Germany, France or – of course – Japan during the past decade, and remain far better off, even after large falls.

Hence the thought: even assuming terrible growth over the next few years in the US and UK as we deal with the burden of our debt overhangs, might we be better off accepting bubbles and an occasional economic implosion than we would be trying to regulate and control?

I suspect this is not the case; choosing to rebase this chart to 1980, instead of 1990, would have shown the Japanese economy apparently doing brilliantly as it lived through its own bubble years. And while going from £50bn to £10bn of losses is great, the fiscal deficit does not just consist of banking losses. If we now have 10 years of deep economic pain, as seems eminently possible, the smoothed growth of France or Germany may appeal. But if the Anglo-Saxon capitalist countries manage to keep growing, just at a slower rate, maybe this would be worth further investigation.

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Christopher Cook is an FT editorial writer. Before joining the FT in 2008 as a Peter Martin Fellow, he worked for three years for the Conservative party.

Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.

Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.


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