Jeremy Siegel on Socialism, Capitalism, and Why It's Different This Time

After the 2008 economic bust, the U.S. government took substantial ownership stakes in General Motors (NYSE: GM  ) , Citigroup (NYSE: C  ) , JPMorgan Chase (NYSE: JPM  ) , and dozens of other companies.

Capitalism, some said, was dead. And they were right, at least temporarily.

But compared with other busts, we've been lucky. After past global financial crises, economies clung to socialism as a new way forward, dramatically limiting the ensuing recovery. We're not seeing that today. Despite handwringing and rhetoric, global economies still embrace capitalism. That's an overlooked fact that bodes well for our future, as Wharton professor Jeremy Siegel told me during our recent chat . Have a look:

What do you think? Share your thoughts in the comments section below.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Citigroup and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (23) | Recommend This Article (25)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 04, 2012, at 2:52 AM, MichaelDSimms wrote:

    Don't know about capitalism but corruption is alive and well. If you buy a politician, it pays for it's self 1000 times over. How many small business owners have received government bailouts?

    Unfortunately not many can afford a Senator.

  • Report this Comment On January 04, 2012, at 1:10 PM, ibuildthings wrote:

    When the majority of the population is honest, well-educated people with great integrity, you need fewer laws and more forms of government are workable. But most people act mostly in their own self-interest. Human nature. Therefore, capitalism with well-thought-out laws works best.

  • Report this Comment On January 04, 2012, at 1:26 PM, ibuildthings wrote:

    Most of our political disagreement is really disagreement on the nations' "social contract". You have 4 kinds of social contract:

    Social conservative, economic conservative

    Social conservative, economic liberal

    Social liberal, economic conservative

    Social liberal, economic liberal

    Social con, economic con:

    This contract requires personal behavior that has fewer of the expensive social problem people. (Alcoholics, drug addiction, broken homes, unwanted kids, etc). It is supported by the "family values" crowd. When someone fails, the safety net is private charity and/or family members, who have the right to require behavioral changes if those behaviors were the cause of the failure. If your failure is due to luck, someone will take care of you until you get back on your feet.

    Social con, economic lib:

    Same conservative behavior, which is cheaper to the society. But the government is more in charge of charity, and there will probably be more laws pertaining to business. Here, if you fail for any reason, they will take care of you but they will beg you to change your ways if you are failing due to behavioral issues.

    Social lib, economic con:

    This is the libertarian model. Do anything you please in your personal life, but don't ask the taxpayers to pay for the outcome. Period.

    Social lib, economic lib:

    This one says, "we have no prescribed behavior, do anything you please, and if you fail, it is society's job to take care of you". This one won't work for very long.

    Pick one of the first three.

  • Report this Comment On January 04, 2012, at 2:44 PM, gesualdo1 wrote:

    "...economies clung to socialism as a new way forward, dramatically limiting the ensuing recovery."

    Or put another way, Western economies adopted policies which shored up demand and provided a social safety net, thereby averting the complete collapse of capitalism predicted by Marx.

    I'd be interested to see any evidence for the claim socialism limited the post-depression recovery in any way, dramatically or not. What ended the depression was the greatest demand side stimulus of all - WWII. Keynes was and still is correct.

  • Report this Comment On January 04, 2012, at 2:47 PM, DJDynamicNC wrote:

    "After past global financial crises, economies clung to socialism as a new way forward, dramatically limiting the ensuing recovery."

    I can't watch the video, so I'll assume this statement is qualified in the interview since it's a very bold claim to make unsupported.

    If you think social security and the minimum wage - two big socialist initiatives - are "limiting" recovery, then I think you have a very curious definition of recovery. Growth matters, but so does distribution.

  • Report this Comment On January 04, 2012, at 3:38 PM, swindlersb wrote:

    Morgan,

    Any chance you could make the audio of the great interviews you've been doing recently available as podcasts on Itunes?

  • Report this Comment On January 04, 2012, at 3:54 PM, TMFHousel wrote:

    swindlersb,

    We're putting together something similar, yes. Stay tuned.

  • Report this Comment On January 04, 2012, at 6:40 PM, CaptainWidget wrote:

    <<I'd be interested to see any evidence for the claim socialism limited the post-depression recovery in any way, dramatically or not. What ended the depression was the greatest demand side stimulus of all - WWII. Keynes was and still is correct.>>

    I find the idea that you can improve productivity by blowing things up and having workers march to their death laughable.

    The idea that the worst war in the history of mankind SAVED our economy is an example of beancounters with no grasp on reality spending too much time looking at balance sheets, and not enough time looking at the world around them.

  • Report this Comment On January 04, 2012, at 6:42 PM, racchole wrote:

    Corruption exists without government. That buzz word does not belong in this type of discussion.

    This is the argument of economic and political infrastructure and the inevitable human behavior that leads to "corruption" exists regardless of that infrastructure.

  • Report this Comment On January 04, 2012, at 7:21 PM, craigkay wrote:

    I do not think that the Great Depression and the current crisis (The Great Recession) are at all comparable, although it might come to that. The depression of the 30s caused a deflationary spiral that devastated the world and lasted much longer (thus far) than the current recession. Just as an example, in the early 1930s the U.S. unemployment rate reached close to 25%. If you were working one day per week, you were considered employed. That's extreme and certainly nothing like what we have today. I believe that Siegel is engaging in optimism bias as it remains to be seen how the current crisis will play out. However, there is one element that is common to both crises: fear. That has not yet abated in the current crisis and is the more salient factor in whether a particular social or economic system is perceived as viable.

  • Report this Comment On January 04, 2012, at 8:06 PM, hbofbyu wrote:

    When dreamers can't realize their dream innovation dies. Socialism has never worked and never will.

    If you believe otherwise move to North Korea and enjoy the fruits of everyone elses labors.

  • Report this Comment On January 04, 2012, at 10:12 PM, talan123 wrote:

    Didn't a few countries go to fascism instead of socialism?

  • Report this Comment On January 05, 2012, at 12:11 AM, The1MAGE wrote:

    Fascism is socialism lite. It is unfortunate that so many people do not understand this.

    Anyway there is research into the effects that Roosevelt's actions had on the Great Depression, and it is estimated that his actions resulted in extending it by 7 years. Here is the UCLA link:

    http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonge...

    The

    Yet he is still treated as the man who saved us.

    As far as WWII pulling us out, another big myth. In fact there was a big worry about all those people coming back to America, and there being no jobs. In fact many of Roosevelt's actions were being reversed exactly to help that situation at that time, and this resulted in the economy coming back.

    Also it is unfortunate that many people do not know that the Great Depression really started as a result of the Government getting in the way of trade. Forget the exact story, (and too lazy to look it up right now,) but governments were having political fights about trade, tariffs, and taxes, and the result was a big drop in trade between nations.

    People didn't put things right, then Roosevelt was elected, and instituted a bunch of socialistic programs, many of which are still with us today, and the resulting extension of the Depression.

    I do believe there is research showing that every single time the government has attempted to intervene directly in a recession, the result has always backfired resulting in a worse recession.

    The logic of this really starts to make sense when people understand the difference between moving wealth around, and creating wealth. Socialism is so focused on the moving of wealth from point A to point B, while capitalism is more focused on the creation of wealth. (Not always, but it is a very big part of it.) If all your doing is moving wealth around, you are just playing a shell game, and it seems as if people are benefiting, but your fooling yourself.

    While if you focus on the creation of wealth, that wealth has to go into either savings, investments, or spending. And regardless of which action is taken, that is more money and wealth going into the economy, and that is a good thing.

  • Report this Comment On January 05, 2012, at 12:39 AM, BBLBBD wrote:

    The folk who gripe about the current state of affairs fail to realize that it is the size and scope of government that allows for such favoritism, unfair playing fields, and general inequity in modern American life.

    Limit federal government to its intendend role, and we would not even be having these conversations.

    I am sorry to break it to most folks, but yes indeed, the founding fathers were pretty smart guys and when it came to a national government, they knew what they were talking about. Read the Federalist Papers. Did they know more than current politicians, including Obama, HELL YES !

  • Report this Comment On January 05, 2012, at 1:10 AM, polenium wrote:

    Bolllux.

    Unbridled capitalism (grand theft larceny) is what sank the economy and even after 17 trillion dollars worth of life support shows no sign or inclination of restoring it.

    Populism is what rebuilds economies. If that same money were pumped directly into the economy (especially making whole the victims of financial greed and deception) instead of into the pockets of Wall Street fraudsters and corporate piggy banks, the economy would be humming.

    Captitalism practiced without restraint produces 2008s. The most successful economies/societies are social democracies. Capitalism is a system that is designed to concentrate capital (to the point of gross economic injustice if unrestrained)

    There is no element of capitalism designed to redistribute wealth, serve human need or that can be trusted to provide vital services.

  • Report this Comment On January 05, 2012, at 1:12 AM, talan123 wrote:

    Socialism is not Fascism.

    Fascism: A political philosophy, movement, or regime (as that of the Fascisti) that exalts nation and often race above the individual and that stands for a centralizedautocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition

    Socialism: Any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods.

    The founding fathers were not for a weak national government, far from it. They wanted a strong national government. They had lived under the Articles of the Confederation. That weakened central government led to Shay's Rebellion. Militia men, the same that fought for the independence of the independence of this country, took up arms against her for forsaking them to debtor's jail. George Washington himself called for a stronger government after quashing it.

    Here is a quote from #10

    "A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State."

  • Report this Comment On January 05, 2012, at 1:36 AM, BBLBBD wrote:

    Socialism is Fascism, but wearing a different dress. It was not unbridled capitalism that started this mess, but a form of crony capitalism (fascism) with a leftist tilt (socialism). Central planning benefits only the planners. Limit the number of planners i.e. the beneficiaries of government largess, and only then will we have capitalism.

  • Report this Comment On January 05, 2012, at 4:31 AM, CaptainWidget wrote:

    If you think 2000 to 2008 was "unbridled capitalism", then I can absolutely guarantee you've never so much as opened a lemonade stand, much less a real business. It takes 14 months in my municipality to get something as trivial as a car dealer license. In San Francisco, it costs 1 million drive your own taxi. And the US is, BY FAR, the most regulated banking jurisdiction on earth.

    We get more and more rules restraining capitalism every single day. Only a fool with no knowledge of the actual legislation would call the US "unbridled capitalism". Sometimes I think these people just come on this site to stir up trouble.....

  • Report this Comment On January 05, 2012, at 4:16 PM, DJDynamicNC wrote:

    @the1MAGE - I find your claim that Roosevelt lengthened the Depression intriguing. Can you answer a few questions for me to increase my understanding of how that happened?

    1) Why is it that other countries which did not embrace Roosevelt's policies also remained embroiled in the Great Depression for just as long?

    2) Why is it that the unemployment rate continued to increase under Herbert Hoober - for years after the market crash - until Roosevelt instituted his own policies, at which point the rate immediately began to improve, as per this graph:

    http://silverloc.edublogs.org/files/2010/03/unemployment-det...

    3) Why is it that GDP per American continued to fall until Roosevelt's policies came into effect, and then immediately recovered and climbed for the duration of his term, as per this graph:

    http://upload.wikimedia.org/wikipedia/commons/thumb/d/da/GDP...

    Facts are funny things, but they sure can gum up a good narrative.

    Interestingly, the UCLA paper you cite which defends Hoover and crucifies Roosevelt is by a guy named Lee E. Ohanian, who is a senior fellow at... the Hoover Institute. Founded by Herbert Hoover.

    I'm sure it's unrelated, though.

  • Report this Comment On January 05, 2012, at 4:24 PM, DJDynamicNC wrote:

    @BBLBBD: --> "Limit the number of planners i.e. the beneficiaries of government largess, and only then will we have capitalism." <--

    I take it, then, that you've never used roads, publicly funded hospitals, or medicare? And your environment is not improved in any way by publicly funded police and firefighters? You were educated without any input from the public school system, including teachers who never attended public schooling?

    Because that's an awful lot of government "largesse" just sitting there sullying your precious capitalism. Why, goodness, all that money could be in a vault at Goldman Sachs right now.

  • Report this Comment On January 05, 2012, at 8:41 PM, CaptainWidget wrote:

    <<I take it, then, that you've never used roads, publicly funded hospitals, or medicare? And your environment is not improved in any way by publicly funded police and firefighters? You were educated without any input from the public school system, including teachers who never attended public schooling?>>

    Who's the bigger hypocrit?

    Someone who forfeits half their paycheck against their will to the government, so the government can buy things they don't want, and then partakes in the goods and services the government buys with his money against his will?

    Or the man who denounces capitalism and then VOLUNTARILY partakes in capitalist activities every single day of his life?

    You have to deal the hand you're dealt. Avoiding public roads because they're paid for with tax dollars is a lose/lose proposition. You pay for it whether you want to or not, and then you don't get to enjoy the service you paid for. No logical person would take that position.....and yet you seem to think it's a logical argument to take up against someone........

    Yawn.........

  • Report this Comment On January 06, 2012, at 11:55 AM, DJDynamicNC wrote:

    @Captain: I'm certainly not implying that you or BB should avoid partaking in roads and fire protection - far from it! I'd just like to point out that what you call "government largesse" is what the rest of us rely on every day as the infrastructural backbone of the nation. You may be able to afford personal tests for all your food and medicines, but I need the FDA to check for me (or I suppose we could just let the free market sort it out at the price of whomever happens to be killed by the companies that cut corners).

    Believe me, the government spends plenty of money on things I don't agree with, and I fight those things just as I expect you to fight the things you don't agree with. But a firefighter or a teacher's salary is hardly "largesse" and that framing is doing immeasurable damage to this nation and to millions of lives.

    We can do better.

  • Report this Comment On January 06, 2012, at 11:56 AM, DJDynamicNC wrote:

    "For it is mutual trust, even more than mutual interest that holds human associations together."

    H. L. Mencken

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