The financial and economic crisis of recent months has reanimated long-moldering, potentially disastrous anticapitalist ideas. With pundits trumpeting that free-market capitalism should be as dead and gone as Soviet-style communism, only 53 percent of Americans claiming to prefer capitalism to socialism, and a left-leaning Democratic Party in total control of Congress, the prospect of a new Dark Age of market-throttling policy—bringing impoverishment, not wealth—is all too real.
George Gilder’s “Silicon Israel” could not have come at a more crucial time. Gilder, author of Wealth and Poverty and many other important books on entrepreneurialism, technology, and culture, shows in high definition how Israel’s once-turgid, state-sickened economy was transformed, virtually overnight, into a new-millennium powerhouse, second only to the United States in technological innovation in key areas like biopharmaceuticals, telecom, and software. This change—the most overwhelming “in the history of economics,” Gilder believes—was achieved by aggressive tax cuts, financial reforms that fueled venture capitalism, and an influx of socialism-loathing Jews from the former Soviet Union, eager to put their talents to use in the free market. It’s a case study in the power of capitalism to change lives for the better. For another, read Jerry Weinberger’s “America’s Food Revolution,” which shows how capitalism helped create one of the world’s great culinary cultures where once there was . . . canned cream-of-mushroom soup.
Still, the crisis reminds us that capitalism, to flourish in a sustained way, requires a moral culture that encourages thrift, self-reliance, industry—a whole array of virtues once known as the work ethic. As Steven Malanga argues in “Whatever Happened to the Work Ethic?,” that culture has weakened, so that instead of frugal savers and independent citizens, we find a nation filled with debtors and rent-seekers demanding bailouts. Cultural renewal is necessary, and Malanga looks to civil society, not government, as its likely source.
Among the rent-seekers have been American banks and financial institutions, frequent beneficiaries of government bailouts over the past quarter-century, as Nicole Gelinas shows in “ ‘Too Big to Fail’ Must Die.” Such interventions, carried out to prevent wider damage to the economy, have kept the market from disciplining excessive financial risk, and thus have stoked more risk, building a giant tower of debt whose collapse we have been watching for two years. We need to develop a way for big or complex financial firms to fail without undue harm to national prosperity, Gelinas argues, or the cycle will begin again—and the next crash will be worse.
Another lesson of the current crisis is that financial markets are far riskier than traditional economic models suggested. Guy Sorman’s “Wild Randomness” profiles Columbia University’s Rama Cont, a cutting-edge thinker in the new field of financial modeling. In Cont’s view, financial markets can become disconnected from the real economy and create dangerous speculative vortices with harmful economic effects. Yet they are also essential to a vibrant economy, having helped drive global growth in recent years. The key is to understand their risks more clearly, Sorman thinks, and in this, Cont’s research—and that of his mentor, mathematician Benoît Mandelbrot—will provide valuable clues.
Our lead story isn’t about the economy, however, but about an old problem: what to do with bad guys once they’ve been arrested. In “The Jail Inferno,” Heather Mac Donald takes a journey into a poorly understood and often scary institution, describing the complexity of managing an unruly, diverse, and often dangerous inmate population. Jails (which are generally for short-term stays, unlike prisons) are getting better at maintaining order, thanks to some of the data-driven innovations of the contemporary policing revolution. But big challenges, including a persistent threat of inmates’ corrupting their jailers, remain. One thing’s for sure: spend a few minutes in a jail, and you’ll abandon any romantic notions about criminals you had going in.
—Brian C. Anderson