Human capitalism

Interesting interview with Nobel Prize winner Edumund Phelps over at Thought Economics concerning where capitalism is headed in the future. A lot of Phelps's statements echo Tyler Cowen on the Great Stagnation. What I really appreciate about the ideas expressed in this interview is an interest in the fundamentals of economics as a study of human beings, rather than a study of abstract structures.

Excerpts:

So why has productivity slowed down? I think there has been an underlying decline in the rate of innovation in the economy. There's not as much tinkering... not as much dreaming... not as much conceiving new-ways to do things... If we go a level below this and look at the cause of that, we see that a huge amount of short-termism which has crept into the system [emphasis added]. CEOs routinely devote their lives to hitting the next quarterly earnings targets... and that doesn't leave very much time for thinking about the medium term future.

America is a country that has subsidies for almost everything.... education, farming... and hidden subsidies for manufacturing and exporting... you name it! There is very little subsidy, however, for work - and almost no subsidy for innovation. There is a tax-credit and some tax-deductibility for research and development expenditures, but research and development expenditures are confined to a small number of industries- and that's not a huge amount of money. We have to make it easier for a young entrepreneur to start a company... to start his innovative project. We have to make it easier for an established company to start a new innovative project.

Modern capitalism ought not to be viewed as merely a system for producing. [...] More generally, though, western society went from a life in which ordinary people were not much involved in the economy, to one where people were engaged in conceiving new ideas, experimenting, tinkering, exploring new possibilities, experiencing the 'new' - this was an intellectual revolution. I like to amuse myself by pointing out that the arts changed alongside. Music became completely different two or three times after 1815- the visual arts such as painting followed the same trend. Modern capitalism offered a new way of life, not just a higher standard of living.

After the interview, Vikas Shah adds his own thoughts on the matter:

As society progressed through industrialisation- it was unsurprising and (largely) appropriate that our thinking became reductivist, we made machines- and those machines, in turn, made us... The world has, though, evolved and modern civilisation- in its highly globalised form, is as much a knowledge economy as a mechanical one.

...

We have had mechanical-capitalism. Now it's time for human-capitalism.

I think that's exactly right, and I think it points to a huge problem in society's perception of capitalism. The link between the market and materialism is almost rock solid in most people's minds. But the true proponents of capitalism (if we must call it that--it really is an ugly word) have argued that the economy is not about things so much as ideas, and I would hasten to add that ideas should not be reduced down to calculations. Capitalism needs a makeover. Maybe we can start with the name (I certainly wouldn't be the first to suggest this). More substantially, from the bits and pieces I've been reading, I think we need to talk about a serious overhaul of our financial system. Wealth does not equal money. Something is wrong with a society that is convinced otherwise.