What Went Wrong with Capitalism - Summary

Capitalism has undergone significant changes over the past century, influenced heavily by the evolving role of government. Contrary to popular belief, the era of small government effectively ended with the Great Depression in the 1930s. Since then, government involvement through spending and regulation has steadily increased in major capitalist economies like the United States. This trend gained momentum from the 1970s onward, despite the rise of free-market ideals. Leaders like Reagan preached reducing government intervention. However, in practice, deficits grew and the regulatory state expanded significantly. Policies like easy money and increasing debt have distorted capitalism. These policies have led to the rise of monopolies, increased inequality, and the prevalence of zombie firms—companies that are unable to generate enough profit to cover their debt obligations. Financial crises have magnified these issues, leading to larger bailouts that extend safety nets beyond the poor to support markets and the wealthy. This interferes with creative destruction, the process where new, innovative firms displace older ones, thereby slowing productivity and growth. Instead of solving these problems, expanding government involvement may worsen them. Revitalizing capitalism requires boosting innovation and productivity, not merely increasing regulation and spending. The evolution and current challenges of capitalism are seen as being misdiagnosed by those advocating for a bigger government, which overlooks the underlying issues.