Janet Yellen and I were taught to revere capitalism. But it's a failing system

Richard Wolff
theguardian.com,

Janet Yellen, the United States' Federal Reserve's new Chair, and I were graduate economics students around the same time at Yale University. The professor who shaped the macroeconomics we learned was James Tobin. He taught us to be Keynesian economists: that is, to accept capitalism as the sole object and focus of our studies, to celebrate it as the best possible system, and to preserve it against its own serious faults. Keynesian economics teaches that to secure capitalism's blessings requires systematic government intervention in the workings of the economy.

Yale doctorates during those years certified that we had learned how the monetary and fiscal policies offered by Keynesianism comprised the government's optimum tools of economic intervention. Central banks (in the US, this meant the Federal Reserve) would administer monetary policy. This meant manipulating the quantity of money in circulation and interest rates. Legislatures and executives would administer fiscal policies, namely, manipulating tax rates and government expenditures. The goals of both monetary and fiscal policies would be to prevent private capitalism's instability (its recurring swings between sharp upturns and downturns), or at least to ensure the downturns were short and shallow (unlike the long and deep 1930s Great Depression that inspired Keynes's work).

Successive Chairs of the Federal Reserve sought to manipulate the nation's monetary system to those ends, so far as possible. Whatever their party affiliation (Bernanke is a Republican, while Yellen is a Democrat) they coordinate their monetary policies with the fiscal policies pursued by the sitting president and Congress. Indeed, policy differences have been limited and rarely arose among them in their shared quest to manage capitalism's inherent and immensely costly instability. Thus, from the standpoint of economics, the two parties are better understood as two wings of one capitalist party in the US sharing virtually dictatorial political influence.

The Federal Reserve has needed to "manage" the monetary system also by bailing out collapsed financial firms on occasion, and much of the entire industry since 2007 (at an historically unprecedented clip costing trillions). Nor did the Fed ever prevent capitalism's cycles. The official downturn counter/measurer, the National Bureau of Economic Research (NBER), lists a dozen capitalist swoons since the end of the Great depression: on average, one every five years.

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http://www.theguardian.com/commentisfree/2014/feb/04/janet-yellen-capitalism-doesnt-always-work