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What Went Wrong with Capitalism
A century of expanding government has distorted financial markets, stoked massive inequality, and soaked America in debt.
What went wrong with capitalism? Ruchir Sharma’s explanation is unlike any you will have heard before. Progressives are partly right when they mock modern capitalism as “socialism for the rich,” but what really happened in recent decades is that the government expanded in just about every measurable dimension, from spending and regulation to the sheer scale of its rescues each time the economy wobbled. The result, Sharma says, is “socialized risk,” expensive government guarantees, for everyone—welfare for the poor, entitlements for the middle class, and bailouts for the rich.
The Reagan and Thatcher Revolution of the 1980s did little to reverse this trend; it just changed the way governments finance themselves. They now rely more on borrowing than taxing. Over the last forty years, governments and central banks have pumped so much money into the economy that the markets can no longer allocate capital efficiently. Capitalism is now so deeply addicted to debt, even the return of inflation in recent years—which ended four decades of easy money—has not weaned its leaders off their habit. Many high-profile symbols of capitalism gone wrong, including the rise of monopolies and billionaires, are effectively creatures of a borrow and bailout culture. They thrive in a system soaked in too much government support. Conservatives and liberals find themselves surprisingly united in support of bigger government, whether to fight climate change, to revive manufacturing, to out-compete China, or contain Russia. President Biden is leading the way and has put the United States on course to become the developed world’s biggest deficit spender and biggest debtor.
Voters say they are disillusioned with capitalism, but a system so distorted by government interventions is a dysfunctional version of free market ideals. As a result, productivity and economic growth have slowed sharply, shrinking the pie for everyone, and stoking popular anger. Since these flaws developed as the government expanded, building an even bigger state will only double down on what’s gone wrong. The answer Sharma offers is a series of seven fixes to restore the balance between state support and economic freedom and lay the path to a happier future.
What went wrong with capitalism? Ruchir Sharma’s explanation is unlike any you will have heard before. Progressives are partly right when they mock modern capitalism as “socialism for the rich,” but what really happened in recent decades is that the government expanded in just about every measurable dimension, from spending and regulation to the sheer scale of its rescues each time the economy wobbled. The result, Sharma says, is “socialized risk,” expensive government guarantees, for everyone—welfare for the poor, entitlements for the middle class, and bailouts for the rich.
The Reagan and Thatcher Revolution of the 1980s did little to reverse this trend; it just changed the way governments finance themselves. They now rely more on borrowing than taxing. Over the last forty years, governments and central banks have pumped so much money into the economy that the markets can no longer allocate capital efficiently. Capitalism is now so deeply addicted to debt, even the return of inflation in recent years—which ended four decades of easy money—has not weaned its leaders off their habit. Many high-profile symbols of capitalism gone wrong, including the rise of monopolies and billionaires, are effectively creatures of a borrow and bailout culture. They thrive in a system soaked in too much government support. Conservatives and liberals find themselves surprisingly united in support of bigger government, whether to fight climate change, to revive manufacturing, to out-compete China, or contain Russia. President Biden is leading the way and has put the United States on course to become the developed world’s biggest deficit spender and biggest debtor.
Voters say they are disillusioned with capitalism, but a system so distorted by government interventions is a dysfunctional version of free market ideals. As a result, productivity and economic growth have slowed sharply, shrinking the pie for everyone, and stoking popular anger. Since these flaws developed as the government expanded, building an even bigger state will only double down on what’s gone wrong. The answer Sharma offers is a series of seven fixes to restore the balance between state support and economic freedom and lay the path to a happier future.
384 pages, Paperback
First published June 11, 2024
412 people are currently reading
2701 people want to read
About the author
Ruchir Sharma
7 books346 followersRuchir Sharma is the Chairman of Rockefeller International and Founder and Chief Investment Officer of Breakout Capital – an investment firm focused on emerging markets and partnered with Rockefeller Capital Management. Ruchir came to Rockefeller from Morgan Stanley Investment Management, where over a 25 year career he rose to become Chief Global Strategist and Head of Emerging Markets, managing close to $20 billion in assets. As a global investor and author, he travels frequently to different countries, meeting with political and business leaders. From his extensive travels and field research, Ruchir developed a pioneering system of 10 rules for identifying promising economies, which he captured in a 2016 New York Times bestseller, The Rise and Fall of Nations. Recognized that year by Barron’s as “Wall Street’s New Global Thinker,” Ruchir was a New York Times contributing opinion writer from 2016 to 2021 and is currently a contributing editor for the Financial Times.
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Displaying 1 - 30 of 84 reviews
July 26, 2024
Thought provoking and scary - all that is wrong with our world today . Governments and debt . For anyone who has grown up in socialist India , a truly scary spectacle is unfolding as the world deals with growing government control of economies .
Highlights of the book -
1. India and China has similar average incomes in 1990 , since then China has risen 40x to $12500 while India is up only 7x to $2400
2. It was Reagan who started the US deficit in the 70s , leading to a 40 year period where capitalism has become addicted to debt . The Keynesian idea of running deficits in bad times and tightening in good times has given way to deficits all the time . However nobody has retreated government , all regulation and government departments have only grown since the New Deal
3. When government has become the dominant buyer and seller in markets , it distorts price signals that guide capital ,money starts to flow down paths of least regulatory resistance or most government support . It is more than markets can invest effectively . Each crisis brings bigger bailouts leaving capitalism more mired in debt , dysfunctional and fragile
4. Combined stimulus was 1% of gdp in 1980 , 3% in 2001 , 12% in 2008 and 35% in 2020 in 7 of the largest capitalist economies . US federal spending remained 25% of gdp through the 2020s and deficit 6% of gdp ( peaked at 15% of gdp in 2020) US debt is 137% of GDP . Easy money inflates markets , US markets are now 4.5 x economy
5. Economies began to slow in 2010s because of slowing birth rates , simply fewer adults in the workforce . However more worrying was a productivity slump to barely 1% per year , largely due to a bigger government . Creative destruction no longer occurs and old and weak firms survive each downturn on government support . There is no more rough cyclical justice of recessions forcing bankruptcies , which is what keeps markets vibrant and competitive . The cleansing effect of recessions therefore has disappeared, recoveries last longer but are weaker . Weaker firms not getting killed means lower productivity
6. The Roaring 20s began with a downturn so harsh it was called the ‘ forgotten depression ‘ . In WWI , debt to gdp went to 40% of gdp , leading to runaway inflation . Rates shot to 20% , production fell and bankruptcies soared , Treasury and Fed left markets alone and markets had a quick round of cleansing , quickly over by 1922. A massive productivity boom followed with GdP growth of 8% . The 20s only saw crazy debt in the last 2 years leading to the crash of 1929
7. The depression left deep fears of joblessness . WWII saw spending at 44% of gdp and debt over 100% of gdp , but the government prioritised employment for every returning GI and social benefits . Welfare state still stayed smaller than Europe
8. JFK was the first to propose a tax cut to fuel an expansion leading to an inflation free boom in the 1960s . Johnson who followed continued to spend on the Vietnam war as well as social welfare , feeding inflation . This led to Nixon imposing controls on wages and prices just ahead of his reelection in 1972 but Paul Volcker had to step in with a show of force to rein in inflation from 15%
9. George HW Bush cut a deal that spending on new entitlement would have to be paid for with new revenues , Clinton followed through by raising taxes on the rich and cutting spending to leave a budget in surplus . What followed was a massive productivity boom . However this course was quickly abandoned by George Bush Jr in the wars of Iraq and Afghanistan
10. Between 1980 and 2020 the economy was in debt for less than 5 years and the budget was in significant deficit meaning the government financed spending with borrowing
11. The 90s productivity boom was fed by Chinese workers and ex Soviet state workers who entered labour markets for the first time putting downward pressure on wages , which along with technology and growing competition kept inflation in check . Even as gains from globalisation moderated , the expansion was driven by debt
12. The Greenspan put entered markets in 1987 post crash when the fed resolved to serve as a source of liquidity to support the financial system : the start of the easy money era . From 1989 to 1992 rates fell from 10% to 3% , Greenspan kept them low despite a recovery , motivated by the mysterious ‘ joblessness of the recovery ‘. He kept cutting rates even in 1997 given the Russia crisis , though tech prices were in bubble zone , pouring gasoline on an overheating economy . They were concerned about going the Japan way - weak growth tipping into deflation. However central bank easy money is what fuels asset bubbles , the bursting of which leads to bad deflation. Inflation roared back in 2000 with all the easy money - people made purchases that were irrational since money was so cheap
13. When real estate markets collapse in 2008 rates were so low they couldn’t cut further . So the Fed borrows from the Japan example and started buying all manner of bonds . From 2008-10 they pumped in 1.2 trillion , more money than was printed in the prior century . Central banks couldn’t control where it went , and it went into financial assets and not the real economy , transferring money to the rich who own disproportionate amount of risky assets
14. While there were odd bailouts before , the first sweeping bailout was in the savings and loans crisis in 1980s . LTCM reduce was orchestrated by the fed bringing in the moral hazard that still continues . While many government loans form 2008 were repaid , the message to markets was that the govt wouldnt allow companies to fail, a message which distorted capitalism
15. As the fed spoke of tightening , we got the repo crisis of 2019 leading the fed to lend repo loans at rock bottom rates , bailing out many hedge funds who bet on government bonds
16. The pandemic response was unprecedented. In the pandemic all 14 swap lines with foreign banks were restored , a 2.2 trillion relief package was announced and spending touched 45% of GDP , snuffing out the recession in just 8 weeks . There was simply no appetite for pain
17. Cheap money and regulatory forbearance fuelled the rise of zombie companies - almost 30%
18. Cheap money favours the large companies who spend and invest more leading to oligopolies and higher profits / valuations . Small firms can’t compete and big firms have nobody snapping at their heels , so the leader can also cruise on lower investments . Outcome is low productivity. The top 10 firms are 34% of market cap an all time high and the list has stayed remarkably consistent . Smaller firms are also unable to keep up with the growing maze of regulation
19. Cheap money has led to wild inequalities . The top 1% own 35% of American wealth , largely driven by gains in financial assets , as cheap money feeds into asset prices far longer than it does into the real economy . The number of billionaires has grown exponentially, leading to a new gilded age like of the robber barons . As millennials face the prospect of no savings and homes , they have turned towards socialism . As inequality rises poor families can’t invest in education leading to lifelong poor outcomes
20. Productivity fell between 1970-90 but sharply from 2005 . A combination of zombie companies ( permanent output losses , zombie congestion leads to healthy firms dying ) , bureaucracy and larger oligopolies dominating markets with no competition . While 90s saw surging productivity , post 2005 fed experiments with free money have dampened it
21. Places where capitalism works with a decent welfare cover - Switzerland , middle class owns 70% of assets , goods produced command high premium due to complexity of manufacture , production is decentralised. Taiwan with only 24 million people is the chip hub of the world . It spends only 20% of GDP but heavily on research and education . Its productivity grew 4% as manufacturing is over 30% of gdp . Vietnams doi moi reforms saw the state privatise aggressively , bring deficits in control , build infrastructure , high quality schools and prioritise free trade . Japan Korea and Taiwan have grown 5% or more for 5 decades and Vietnam for 3 decades . China has gone off course just when Jinping undid the decontrol of the economy and reintroduced bureaucratic control
Highlights of the book -
1. India and China has similar average incomes in 1990 , since then China has risen 40x to $12500 while India is up only 7x to $2400
2. It was Reagan who started the US deficit in the 70s , leading to a 40 year period where capitalism has become addicted to debt . The Keynesian idea of running deficits in bad times and tightening in good times has given way to deficits all the time . However nobody has retreated government , all regulation and government departments have only grown since the New Deal
3. When government has become the dominant buyer and seller in markets , it distorts price signals that guide capital ,money starts to flow down paths of least regulatory resistance or most government support . It is more than markets can invest effectively . Each crisis brings bigger bailouts leaving capitalism more mired in debt , dysfunctional and fragile
4. Combined stimulus was 1% of gdp in 1980 , 3% in 2001 , 12% in 2008 and 35% in 2020 in 7 of the largest capitalist economies . US federal spending remained 25% of gdp through the 2020s and deficit 6% of gdp ( peaked at 15% of gdp in 2020) US debt is 137% of GDP . Easy money inflates markets , US markets are now 4.5 x economy
5. Economies began to slow in 2010s because of slowing birth rates , simply fewer adults in the workforce . However more worrying was a productivity slump to barely 1% per year , largely due to a bigger government . Creative destruction no longer occurs and old and weak firms survive each downturn on government support . There is no more rough cyclical justice of recessions forcing bankruptcies , which is what keeps markets vibrant and competitive . The cleansing effect of recessions therefore has disappeared, recoveries last longer but are weaker . Weaker firms not getting killed means lower productivity
6. The Roaring 20s began with a downturn so harsh it was called the ‘ forgotten depression ‘ . In WWI , debt to gdp went to 40% of gdp , leading to runaway inflation . Rates shot to 20% , production fell and bankruptcies soared , Treasury and Fed left markets alone and markets had a quick round of cleansing , quickly over by 1922. A massive productivity boom followed with GdP growth of 8% . The 20s only saw crazy debt in the last 2 years leading to the crash of 1929
7. The depression left deep fears of joblessness . WWII saw spending at 44% of gdp and debt over 100% of gdp , but the government prioritised employment for every returning GI and social benefits . Welfare state still stayed smaller than Europe
8. JFK was the first to propose a tax cut to fuel an expansion leading to an inflation free boom in the 1960s . Johnson who followed continued to spend on the Vietnam war as well as social welfare , feeding inflation . This led to Nixon imposing controls on wages and prices just ahead of his reelection in 1972 but Paul Volcker had to step in with a show of force to rein in inflation from 15%
9. George HW Bush cut a deal that spending on new entitlement would have to be paid for with new revenues , Clinton followed through by raising taxes on the rich and cutting spending to leave a budget in surplus . What followed was a massive productivity boom . However this course was quickly abandoned by George Bush Jr in the wars of Iraq and Afghanistan
10. Between 1980 and 2020 the economy was in debt for less than 5 years and the budget was in significant deficit meaning the government financed spending with borrowing
11. The 90s productivity boom was fed by Chinese workers and ex Soviet state workers who entered labour markets for the first time putting downward pressure on wages , which along with technology and growing competition kept inflation in check . Even as gains from globalisation moderated , the expansion was driven by debt
12. The Greenspan put entered markets in 1987 post crash when the fed resolved to serve as a source of liquidity to support the financial system : the start of the easy money era . From 1989 to 1992 rates fell from 10% to 3% , Greenspan kept them low despite a recovery , motivated by the mysterious ‘ joblessness of the recovery ‘. He kept cutting rates even in 1997 given the Russia crisis , though tech prices were in bubble zone , pouring gasoline on an overheating economy . They were concerned about going the Japan way - weak growth tipping into deflation. However central bank easy money is what fuels asset bubbles , the bursting of which leads to bad deflation. Inflation roared back in 2000 with all the easy money - people made purchases that were irrational since money was so cheap
13. When real estate markets collapse in 2008 rates were so low they couldn’t cut further . So the Fed borrows from the Japan example and started buying all manner of bonds . From 2008-10 they pumped in 1.2 trillion , more money than was printed in the prior century . Central banks couldn’t control where it went , and it went into financial assets and not the real economy , transferring money to the rich who own disproportionate amount of risky assets
14. While there were odd bailouts before , the first sweeping bailout was in the savings and loans crisis in 1980s . LTCM reduce was orchestrated by the fed bringing in the moral hazard that still continues . While many government loans form 2008 were repaid , the message to markets was that the govt wouldnt allow companies to fail, a message which distorted capitalism
15. As the fed spoke of tightening , we got the repo crisis of 2019 leading the fed to lend repo loans at rock bottom rates , bailing out many hedge funds who bet on government bonds
16. The pandemic response was unprecedented. In the pandemic all 14 swap lines with foreign banks were restored , a 2.2 trillion relief package was announced and spending touched 45% of GDP , snuffing out the recession in just 8 weeks . There was simply no appetite for pain
17. Cheap money and regulatory forbearance fuelled the rise of zombie companies - almost 30%
18. Cheap money favours the large companies who spend and invest more leading to oligopolies and higher profits / valuations . Small firms can’t compete and big firms have nobody snapping at their heels , so the leader can also cruise on lower investments . Outcome is low productivity. The top 10 firms are 34% of market cap an all time high and the list has stayed remarkably consistent . Smaller firms are also unable to keep up with the growing maze of regulation
19. Cheap money has led to wild inequalities . The top 1% own 35% of American wealth , largely driven by gains in financial assets , as cheap money feeds into asset prices far longer than it does into the real economy . The number of billionaires has grown exponentially, leading to a new gilded age like of the robber barons . As millennials face the prospect of no savings and homes , they have turned towards socialism . As inequality rises poor families can’t invest in education leading to lifelong poor outcomes
20. Productivity fell between 1970-90 but sharply from 2005 . A combination of zombie companies ( permanent output losses , zombie congestion leads to healthy firms dying ) , bureaucracy and larger oligopolies dominating markets with no competition . While 90s saw surging productivity , post 2005 fed experiments with free money have dampened it
21. Places where capitalism works with a decent welfare cover - Switzerland , middle class owns 70% of assets , goods produced command high premium due to complexity of manufacture , production is decentralised. Taiwan with only 24 million people is the chip hub of the world . It spends only 20% of GDP but heavily on research and education . Its productivity grew 4% as manufacturing is over 30% of gdp . Vietnams doi moi reforms saw the state privatise aggressively , bring deficits in control , build infrastructure , high quality schools and prioritise free trade . Japan Korea and Taiwan have grown 5% or more for 5 decades and Vietnam for 3 decades . China has gone off course just when Jinping undid the decontrol of the economy and reintroduced bureaucratic control
March 2, 2025
These are the problems I had with this manifesto.
1. Conservative and Liberal economic views can and do exist and coexist in capitalism. Did Reaganism and Clintonism both create economic juggernauts in their time? Yes, but this author sees everything in a binary manner. To him, conservative economic theory works, and everything else creates an existential threat to the Capitalistic system. He quips that the Clinton administration's success was only due to capital gains tax accrued from the .com bubble and that the success of Swiss socialism was due to hard work that only the Swiss possess, which is an interesting spin and that Scandinavian success is due to something else ridiculous. This type of thinking is rudemantory and lazy.
2. Would tariffs replacing income tax work in the 21st century? We would all love it if this worked. I would love nothing more than to pocket ten grand a year and let Tariffs take care of all our needs in society but this feels like a fantasy, and 19th-century American economics does not correlate with modern American globalism. The author again gives no data and no plan on how this would work.
3. The Author painting the American worker as lazy is insulting and false. The American workforce is one of the hardest-working labor forces in the world, and they deserve respect.
4. The idea that the only ones deserving welfare are the starving is cruel and counterproductive. We want to help our fellow citizens before they are at rock bottom. Starving people are not productive, and no one wants this level of poverty in the United States.
5. Referring to the Soviet Union as socialist is wrong. The Soviet Union was communist. Even a middle school social studies student would know this.
6. I noticed how the Author avoided the success of the FDR, Truman, and Eisenhower administrations, who collectively created the largest middle class in the history of the world through liberal economic strategies. This era also distributed wealth through taxing the rich.
1. Conservative and Liberal economic views can and do exist and coexist in capitalism. Did Reaganism and Clintonism both create economic juggernauts in their time? Yes, but this author sees everything in a binary manner. To him, conservative economic theory works, and everything else creates an existential threat to the Capitalistic system. He quips that the Clinton administration's success was only due to capital gains tax accrued from the .com bubble and that the success of Swiss socialism was due to hard work that only the Swiss possess, which is an interesting spin and that Scandinavian success is due to something else ridiculous. This type of thinking is rudemantory and lazy.
2. Would tariffs replacing income tax work in the 21st century? We would all love it if this worked. I would love nothing more than to pocket ten grand a year and let Tariffs take care of all our needs in society but this feels like a fantasy, and 19th-century American economics does not correlate with modern American globalism. The author again gives no data and no plan on how this would work.
3. The Author painting the American worker as lazy is insulting and false. The American workforce is one of the hardest-working labor forces in the world, and they deserve respect.
4. The idea that the only ones deserving welfare are the starving is cruel and counterproductive. We want to help our fellow citizens before they are at rock bottom. Starving people are not productive, and no one wants this level of poverty in the United States.
5. Referring to the Soviet Union as socialist is wrong. The Soviet Union was communist. Even a middle school social studies student would know this.
6. I noticed how the Author avoided the success of the FDR, Truman, and Eisenhower administrations, who collectively created the largest middle class in the history of the world through liberal economic strategies. This era also distributed wealth through taxing the rich.
November 4, 2024
This is one of the worst non-fiction books I have eve r read. The author clearly started with a desired endpoint and then crafted a narrative to fit that forgone conclusion, cherry picking data and anecdotes along the way. The only new idea (for someone of his political leaning), is the idea that growth of 4+% is no longer feasible in the current era and should not be the target we organize our economic policy around. I'm only glad that I did not have to pay money to read this.
September 22, 2024
Ruchir Sharma has made quite a name for himself in the literary world by writing on interesting topics related to economics and wealth in a simplistic but insightful manner. My favourite book though is Democracy on the Road where he talked about Indian politics with lovely snippets about his time covering some of India’s leaders through their rallies and speeches. With his latest venture >What Went Wrong with Capitalism, Sharma has fallen short of his otherwise high standards of sharing something thought-provoking. The book in itself brings out a good discussion point - as to whether capitalism in its truest form has flourished and if not, why so? It starts off well with an insight into capitalism’s history, and shares some good data sets to substantiate the point. But after the half-way mark, it starts to ramble along, repeating the same story though with new data. It feels like the author is trying too hard to make a case for failures of capitalism which is not that easy an argument to make in the first place. Most of the book covers only the US story with only the last chapter dedicated to other world powers - the title thus is also misleading ! This book may well appeal to a 20-year old student than a 30+ professional for it is a 100-page essay expanded into a 300-page book.
April 17, 2025
This was a very well written book and I learned from it. It was easy to read and made sense even to someone who doesn't know a lot about finance. It was an interesting book and I'm glad I read it.
However I really disagreed with Sharma's thesis. You should read it yourself but he basically says that the government bailing out big businesses and spending too much money is a reason why the world economy is not doing well. I feel like he spends too much time focusing on why governments should appease the financial markets but he never asks why the world economy runs on a system which depends on appeasing investment bankers on wall street. He also seems to think of government spending on welfare in abstract terms without considering what welfare cuts actually do to the most vulnerable people in society.
Additionally he decides that countries in the global south have historically struggled financially due to not embracing capitalism and does not consider any other factors such as the long lasting impacts of colonialism, trade embargoes and sanctions or western interventionism.
Lastly this was sold as an analysis of the world economy but perhaps unsurprisingly as the author lives in the US it is very US centric.
Despite these critiques, I would recommend a read. It's always good to hear alternative views points and this book definitely made me think.
However I really disagreed with Sharma's thesis. You should read it yourself but he basically says that the government bailing out big businesses and spending too much money is a reason why the world economy is not doing well. I feel like he spends too much time focusing on why governments should appease the financial markets but he never asks why the world economy runs on a system which depends on appeasing investment bankers on wall street. He also seems to think of government spending on welfare in abstract terms without considering what welfare cuts actually do to the most vulnerable people in society.
Additionally he decides that countries in the global south have historically struggled financially due to not embracing capitalism and does not consider any other factors such as the long lasting impacts of colonialism, trade embargoes and sanctions or western interventionism.
Lastly this was sold as an analysis of the world economy but perhaps unsurprisingly as the author lives in the US it is very US centric.
Despite these critiques, I would recommend a read. It's always good to hear alternative views points and this book definitely made me think.
January 26, 2025
This reviewer expected a bit of a left wing polemical rant, but instead was surprised to find a centrist, balanced, very insightful book about the condition of US/Western economics.
The economic era since 1980 has witnessed the systemic expansion of government at all levels, much of it promulgated by Central Banks willingness to create lots and lots of money. This government intervention has staved off depressions, and misery, but also accrued enormous debts.
These debts and “ easy money” have had serious consequences.
Well written and erudite.
Three take away insights.
1. Easy money has had lots of unintended consequences- most of them unanticipated (why Millennials can’t buy houses; why dodge-coin is a thing, why Tesla stock is booming, how low interest rates give a huge advantage to big companies).
2. Elites have exploited these consequences to grossly advantage themselves. This includes universities and non profits (which have big endowments and thereby a vested interest in easy money) and government bureaucracies.
3. Central Bank expansion now includes bailing out private Hedge Funds- which deliberately have grown large enough to effectively blackmail governments:” underwrite our investments or we will cause a recession”.
A work of erudition and exceptional scholarship. Scholarship as in, synthesizes other works and especially research papers into a whole giving a broad oversight of trends- and from that précis, presents a clear signpost to the immediate future.
Want to invest well? It is obvious that three elements shape everything about the future (next 20 years):
1. overpopulation/demographics and thereby, resource use and allocation (how much to spend on schools, roads, environmental help, health care etc.)
2. Energy- esp. needed for AI and crypto (Crypto now uses as much energy as Belgium A DAY to keep blockchains functioning) as well as population expansion and environmental restoration.
3. Economic stagnation: most Western economies are at about a 2% growth rate without Central Bank intervention. That is too low to pay for all the stuff a complex society wants its governments to provide.
Well worth reading. Shows how the poor and under resourced are exploited by wealthy elites- many of whom do not even realize they are doing it.
The economic era since 1980 has witnessed the systemic expansion of government at all levels, much of it promulgated by Central Banks willingness to create lots and lots of money. This government intervention has staved off depressions, and misery, but also accrued enormous debts.
These debts and “ easy money” have had serious consequences.
Well written and erudite.
Three take away insights.
1. Easy money has had lots of unintended consequences- most of them unanticipated (why Millennials can’t buy houses; why dodge-coin is a thing, why Tesla stock is booming, how low interest rates give a huge advantage to big companies).
2. Elites have exploited these consequences to grossly advantage themselves. This includes universities and non profits (which have big endowments and thereby a vested interest in easy money) and government bureaucracies.
3. Central Bank expansion now includes bailing out private Hedge Funds- which deliberately have grown large enough to effectively blackmail governments:” underwrite our investments or we will cause a recession”.
A work of erudition and exceptional scholarship. Scholarship as in, synthesizes other works and especially research papers into a whole giving a broad oversight of trends- and from that précis, presents a clear signpost to the immediate future.
Want to invest well? It is obvious that three elements shape everything about the future (next 20 years):
1. overpopulation/demographics and thereby, resource use and allocation (how much to spend on schools, roads, environmental help, health care etc.)
2. Energy- esp. needed for AI and crypto (Crypto now uses as much energy as Belgium A DAY to keep blockchains functioning) as well as population expansion and environmental restoration.
3. Economic stagnation: most Western economies are at about a 2% growth rate without Central Bank intervention. That is too low to pay for all the stuff a complex society wants its governments to provide.
Well worth reading. Shows how the poor and under resourced are exploited by wealthy elites- many of whom do not even realize they are doing it.
December 4, 2024
Sharma is much better at spotting opportunities in emerging markets than at ranting against crony capitalism. Zingales & Rajan are much more eloquent about that.
December 10, 2024
nightmare and a lawyer’s absolute paradise!
This sorry state spans both sides of the Atlantic. The European Union is grappling with its own maze of convoluted regulatory regimes which undergo inexplicable iterations at a speed that is absolutely impossible to keep pace with, let alone comply. An obsession with meeting net zero targets further exacerbates an already chaotic situation.
In the last part of his book, Sharma offers some plausible ways out of the quicksand by making references to the experience of three countries, Taiwan, Vietnam, and Switzerland.
What Went Wrong With Capitalism – a clarion call for setting a crumbling house in order before an imminent collapse.
This sorry state spans both sides of the Atlantic. The European Union is grappling with its own maze of convoluted regulatory regimes which undergo inexplicable iterations at a speed that is absolutely impossible to keep pace with, let alone comply. An obsession with meeting net zero targets further exacerbates an already chaotic situation.
In the last part of his book, Sharma offers some plausible ways out of the quicksand by making references to the experience of three countries, Taiwan, Vietnam, and Switzerland.
What Went Wrong With Capitalism – a clarion call for setting a crumbling house in order before an imminent collapse.
November 27, 2024
Interesting analysis with a lot of economic history to support the core ideas on the impact of government and central banks, and the effects of growing debt.
As with a lot of economic theory, it is an analysis grounded in a specific worldview. Nuance is therefore key, wrong and right are difficult concepts in such matter.
I take this book as one of many insights contributing to a continuous pursuit to understand the world we live in a bit better.
I listened to the audio book. A couple hours shorter would have been sufficient as well.
As with a lot of economic theory, it is an analysis grounded in a specific worldview. Nuance is therefore key, wrong and right are difficult concepts in such matter.
I take this book as one of many insights contributing to a continuous pursuit to understand the world we live in a bit better.
I listened to the audio book. A couple hours shorter would have been sufficient as well.
June 19, 2024
Sometimes you gotta read something you know you will not agree with but…yeah no. 😂 Some fair points, but still a very right-wing viewpoint for sure.
January 29, 2025
Skip to the last chapter, everything is condensed into its recap. Ruchir begins with the story of what is “easy money” and the various forms it has been created due to the ever growing expansion of government’s footprint in the capital markets.
The book itself isn’t linear and I think it is hard to write about economics in a linear fashion.
Ruchir uses the phrase way too late in the book but, this is a “ecosystem” and not a formula. There are various inputs and outputs that are causing this issues today. Not one easy fix.
Every 1/10 sentences were Informative takeaways.
The book itself isn’t linear and I think it is hard to write about economics in a linear fashion.
Ruchir uses the phrase way too late in the book but, this is a “ecosystem” and not a formula. There are various inputs and outputs that are causing this issues today. Not one easy fix.
Every 1/10 sentences were Informative takeaways.
September 23, 2025
The title of this book is misleading as the author doesn’t actually critique capitalism, but rather government spending under capitalism and the actions of central banks. I kept finding myself rolling my eyes at certain lines and sections (like the suggestion to find a govt contractor and ask them how they find it). The chapter on inequality was interesting, probably because it was the only chapter that actually examined the issue rather than just blaming everything on governments.
September 2, 2025
I read a few of Ruchir’s articles in the FT and was intrigued by the title of his book (thinking it would be a general critique of capitalism). Spoilers: it’s not. Ruchir blames pretty much all of the modern economic issues on government spending.
However, it is a good read, and it did change my perspective on the general history and direction of government spending.
However, it is a good read, and it did change my perspective on the general history and direction of government spending.
January 12, 2025
The book is packed with solid arguments and sharp insights into the problems with modern capitalism. While the ideas are strong, I found his writing a bit hard to follow at times, especially with complex concepts. Still, it’s a worthwhile read with practical solutions for fixing the system.
January 22, 2025
I did enjoy it. More of a 3.5 stars. A little bit repetitive but plenty of interesting points.
It did make me believe more that Ireland is probably spending its surplus unwisely as there is already plenty of money circulating in the economy. These are funds that we will need in later years. "No good run lasts forever..."
It did make me believe more that Ireland is probably spending its surplus unwisely as there is already plenty of money circulating in the economy. These are funds that we will need in later years. "No good run lasts forever..."
June 3, 2025
Time to play golf!
November 13, 2025
A very interesting explanation of the problems with the US economy. Government (including the Federal Reserve Bank is too big, intervenes too much in the economy and believes too strongly in easy money (very low interest rates). Very persuasively argued.
The author is a Republican but his ideas will shock many Republicans, as well as most Democrats.
The author is a Republican but his ideas will shock many Republicans, as well as most Democrats.
December 1, 2024
My very simplistic 1 liner for this is that capitalism failed because of the welfare state which looked after the big business as well. The whole book just describes the same.
November 9, 2024
There are a lot of podcasts / videos by the author, which captures the essence of this book. However, read the book for a deeper dive, packed with data, examples, and for context.
January 12, 2025
Ruchir Sharma's What Went Wrong with Capitalism? (2024) is a remarkably well-written compilation of economic events in recent history that reveal capitalism's demise. The clarity of its message destines it to become the bible for MAGA. The view that capitalism has died is pervasive: it can be heard at every cocktail party and in every boardroom. Alexis de Tocqueville might well have predicted this in his 1835 Democracy in America. But the deterioration of capitalism that Sharma sees might reflect more than the slavish devotion of politicians to vote-gathering. It might reflect the changes in America over the past 200 years.
Sharma defines capitalism as the belief that self-interest is crucial for innovation and that property rights are sacred. His mentors are early 19th century "neoliberals" like Adam Smith and John Stuart Mills. Capitalism ensures that each owner has complete control of his property, owning also the entirety of any profits or losses. A sign of capitalism's health is business failure,so perhaps the high point of capitalism was the Great Depression.
But, as Sharma points out repeatedly, today's federal government holds to a "Too Big To Fail" doctrine, immediately jumping in when a business of any size fails – and businesses today are far larger than they were in the 19th century. One of Sharma's many examples is the Penn Central bankruptcy. When signs of bankruptcy arrived in 1975, the federal government was not far behind with funds to reorganize.
Sharma charges that the capitalism contemplated by neoliberals has virtually disappeared as the federal government – perverted by the political lust for votes – turned its attention to social risk insurance. Now, when a business fails or a local disaster occurs, the federal government steps in provide support. The foreseeable but unintended consequence might be that protecting people from loss encourages more risk-taking and more loss, but that's the cost of doing business.
But perhaps what Sharma sees as the death of capitalism reflects the changes in America over the past 200 years. In the 1850s America was a rural nation of villages disconnected from the larger world, a world in which news traveled at the speed of a pony or a newspaper. In that world, the ripples from a failed business were localized. Every tub was on its own bottom and what happened in New York had little effect on San Francisco.
200 years later we are no longer a nation of little-connected dots. With internet, television, telephones, and airlines, information travels at light speed and both people and goods move long distances in once unheard-of times. We are also financially interconnected as never before, with debt connecting us across long distances: mortgages and corporate are owned by mutual, businesses are financed by a dizzying array of loans, again bought by mutual funds. Now if a bank fails in New York, the news is instantly transmitted around the world and anyone connected to that bank, or to New York banks in general, can react instantly by simply transferring balances out of New York banks, or selling mutual funds invested in bank stocks.
The result is what economists call negative externalities: a harm is imposed by one party (the failed business) on another (other businesses or the population) with no mechanism for compensation. A classic example is an upstream business dumping it waste into a river and polluting it for downstream users. If there is a compensatory mechanism, the upstream polluter could be forced to compensate the downstream user, thereby reducing his incentive to pollute and paying the downstream user for the harm done. The economist's solution is a tax on pollution with the proceeds paid to those downstream.
Modern interconnectedness has reshaped the role of government. Now, when a problem emerges in one part of America, the federal government can no longer consider it an isolated event; it must shape its reaction knowing that the problem can be quickly transmitted to other parts of America. What happens in Vegas doesn't stay in Vegas.
It should come as no surprise that government steps in to try to moderate the transmission of trouble. Maybe we should consider this an improvement in governance, not a failure.!
Sharma defines capitalism as the belief that self-interest is crucial for innovation and that property rights are sacred. His mentors are early 19th century "neoliberals" like Adam Smith and John Stuart Mills. Capitalism ensures that each owner has complete control of his property, owning also the entirety of any profits or losses. A sign of capitalism's health is business failure,so perhaps the high point of capitalism was the Great Depression.
But, as Sharma points out repeatedly, today's federal government holds to a "Too Big To Fail" doctrine, immediately jumping in when a business of any size fails – and businesses today are far larger than they were in the 19th century. One of Sharma's many examples is the Penn Central bankruptcy. When signs of bankruptcy arrived in 1975, the federal government was not far behind with funds to reorganize.
Sharma charges that the capitalism contemplated by neoliberals has virtually disappeared as the federal government – perverted by the political lust for votes – turned its attention to social risk insurance. Now, when a business fails or a local disaster occurs, the federal government steps in provide support. The foreseeable but unintended consequence might be that protecting people from loss encourages more risk-taking and more loss, but that's the cost of doing business.
But perhaps what Sharma sees as the death of capitalism reflects the changes in America over the past 200 years. In the 1850s America was a rural nation of villages disconnected from the larger world, a world in which news traveled at the speed of a pony or a newspaper. In that world, the ripples from a failed business were localized. Every tub was on its own bottom and what happened in New York had little effect on San Francisco.
200 years later we are no longer a nation of little-connected dots. With internet, television, telephones, and airlines, information travels at light speed and both people and goods move long distances in once unheard-of times. We are also financially interconnected as never before, with debt connecting us across long distances: mortgages and corporate are owned by mutual, businesses are financed by a dizzying array of loans, again bought by mutual funds. Now if a bank fails in New York, the news is instantly transmitted around the world and anyone connected to that bank, or to New York banks in general, can react instantly by simply transferring balances out of New York banks, or selling mutual funds invested in bank stocks.
The result is what economists call negative externalities: a harm is imposed by one party (the failed business) on another (other businesses or the population) with no mechanism for compensation. A classic example is an upstream business dumping it waste into a river and polluting it for downstream users. If there is a compensatory mechanism, the upstream polluter could be forced to compensate the downstream user, thereby reducing his incentive to pollute and paying the downstream user for the harm done. The economist's solution is a tax on pollution with the proceeds paid to those downstream.
Modern interconnectedness has reshaped the role of government. Now, when a problem emerges in one part of America, the federal government can no longer consider it an isolated event; it must shape its reaction knowing that the problem can be quickly transmitted to other parts of America. What happens in Vegas doesn't stay in Vegas.
It should come as no surprise that government steps in to try to moderate the transmission of trouble. Maybe we should consider this an improvement in governance, not a failure.!
September 20, 2025
Interesting thesis and well written, however this does become somewhat repetitive and despite initially interesting perspective, falls back into familiar ideological territory
August 10, 2024
Read it urgently. Then re-read it. Then buy a copy for a friend and get them to read it.
August 2, 2024
This is a thought-provoking look how capitalism has morphed into a new breed of economic theory in the United States and other nations around the world.
When I started reading it, I assumed it would advocate a particular political solution to the economic problems outlined with our current capitalistic system. However, as I proceeded into the book, I discovered it was much less about politics and much more about the history of our economic development.
Every reader will probably reach different conclusions based on their political persuasion. But it is clear after finishing Ruchir Shama’s book, that our current system which creates “zombie” firms is not sustainable. The author does a good job of not only describing the current “bailout” syndrome of our current system but also how debt and easy money have corroded capitalism.
Unfortunately, the system will not correct itself since there is no political will to do so. Therefore, a crisis will eventually bring down the current system. It’s not a question of “if” but “when” and it won't be pretty.
When I started reading it, I assumed it would advocate a particular political solution to the economic problems outlined with our current capitalistic system. However, as I proceeded into the book, I discovered it was much less about politics and much more about the history of our economic development.
Every reader will probably reach different conclusions based on their political persuasion. But it is clear after finishing Ruchir Shama’s book, that our current system which creates “zombie” firms is not sustainable. The author does a good job of not only describing the current “bailout” syndrome of our current system but also how debt and easy money have corroded capitalism.
Unfortunately, the system will not correct itself since there is no political will to do so. Therefore, a crisis will eventually bring down the current system. It’s not a question of “if” but “when” and it won't be pretty.
June 26, 2024
I read Sharma's The Rise and Fall of Nations a few years back and really liked it. Given how pro markets/capitalism that book was I found it odd to find his name on a book that looks like it should be endorsed by the Democratic Socialist of America.
Turns out Sharma’s criticism comes from the other side, primarily that the government is too big, and the fed prints too much money. Personally, I’m not unsympathetic to those arguments, but I tend to be a bit unsympathetic towards the people who make those arguments as they tend to… I’ll say lack nuance and intellectual consistency.
Sharma defies that stereotype though as he clearly understands monetary and fiscal policy better then I ever will, so not surprisingly he makes a pretty powerful case. The first part of the book is a historical account, pretty much from Coolidge to Biden, showing a steady, non-partisan, expansion in both the role of the federal government and the federal reserve.
In the second part then details some of the obvious as well as the subtle ways that low interest rates, persistent deficits, broadening fed interventions and so on all affect the markets with moral hazards, zombie companies and generally make the allocate of capital less efficient.
The third part begins a lot like The Rise and Fall of Nations with Sharma analyzing a handful of countries where he thinks capitalism is working better, including one socialist country (Vietnam).
I liked this book a lot, it’s succinct and interesting. My only real gripe is that Sharma adopts the snarky tone that seems endemic in nonfiction books these days.
Turns out Sharma’s criticism comes from the other side, primarily that the government is too big, and the fed prints too much money. Personally, I’m not unsympathetic to those arguments, but I tend to be a bit unsympathetic towards the people who make those arguments as they tend to… I’ll say lack nuance and intellectual consistency.
Sharma defies that stereotype though as he clearly understands monetary and fiscal policy better then I ever will, so not surprisingly he makes a pretty powerful case. The first part of the book is a historical account, pretty much from Coolidge to Biden, showing a steady, non-partisan, expansion in both the role of the federal government and the federal reserve.
In the second part then details some of the obvious as well as the subtle ways that low interest rates, persistent deficits, broadening fed interventions and so on all affect the markets with moral hazards, zombie companies and generally make the allocate of capital less efficient.
The third part begins a lot like The Rise and Fall of Nations with Sharma analyzing a handful of countries where he thinks capitalism is working better, including one socialist country (Vietnam).
I liked this book a lot, it’s succinct and interesting. My only real gripe is that Sharma adopts the snarky tone that seems endemic in nonfiction books these days.
June 29, 2024
An original and insightful diagnosis which will resonate with most people as it did with me! Almost everyone wishes to live in a free-thinking and free-market society. However we see the rise of illiberal economies and Govts like China, Russia and at home here in India. The author’s diagnosis (based on data) is about the expansion of the Govts for a century in almost every measurable dimension - from spending to regulation to the speed of financial rescues in wobbly times. The result is expensive state guarantees for everyone - bailouts for the rich, entitlements for middle class and welfare for the poor. Result has been pumping of so much money in the economy that capital can no longer be efficiently employed making it also less fair slowing economic growth and furling popular anger. Capitalism has been severely distorted through such constant Govt interventions and bailout culture. In his opinion, corrective action rests with reversing this trend and following the example of such successful states as Switzerland, Taiwan and Vietnam.
September 24, 2025
TL;DR - 2.5/5. Sharma raises some interesting critiques of monetary policy, corporate bail-outs, and (the lack of) antitrust action, but they are undermined by a meandering structure, regular self-contradictions, and a broad dismissal of the consequences of capitalist incentives as having any part to blame in the distortion of the current system.
I would recommend to those with an interest in macroeconomics, but would caution anyone without an entry-level understanding to not take all the arguments at face value, as they tend to gloss over counterarguments and the sociopolitical context driving some of these fiscal and monetary decisions.
The good:
- I think Sharma’s critique of central banks’ roles in creating the “easy money” area are largely valid, and the long period of suppressed rates and quantitative easing artificially inflated asset values and contributed to capital and corporate concentration. I think this is the most compelling piece of the book that I haven’t seen as widely discussed compared to the other topics he covers.
- I also believe that his points on corporate bail-outs and their contribution to distorting competition and incentives hold true, if slightly dismissive of the political factors that led to some of them.
- I wholly agree with his stance that the abandonment of antitrust and monopoly enforcement is detrimental to our economy. However, his dismissal of regulatory capture (only mentioned once in the entire book) is naive at best.
- Sharma is clearly well-read on economic history in the US, and provides a mostly neutral summary of major fiscal policy changes from FDR to Biden (he even criticizes his self-proclaimed idol of Reagan for poor decisions, although continues to lionize his ideals later in the book). While his characterizations of these policies later in the book are slightly more biased (spoiler: he doesn’t like FDR and loves Reagan), the initial run-through feels more fair.
The bad:
- Sharma completely dismisses the perverse incentives present in an unmoderated capitalist system and how they will naturally lead to some of the outcomes we are seeing today (e.g., wealth concentration, regulatory capture, monopolistic tendencies, massive social costs from externalities). He will very occasionally mention that some regulation is fine of course (his examples include preventing child labour or extreme inhumane working conditions, as well as the aforementioned antitrust crackdowns), but generally we should avoid interfering with the system in any way. To not address these issues more head-on is a major weak point in a deregulation-focused treatise.
- The book’s arguments are often irrational and self-contradictory in the way they are presented. There were many examples throughout of Sharma making a statement, presenting facts that implied a different story, and concluding by repeating his initial argument. For example, Sharma says, “It is widely believed, but not very true, that the [wage] gap is growing inside companies,” and then provides a stat that CEO pay relative to the median worker has increased from 30x to 400x over the past 25 years, with no recognition that this goes against his position.
- The book tries to be apolitical, casting blame for rising debts and Fed stimulus on both parties, which is largely true. However, he ignores the intentional contributions the political right has made in furthering oligopolies and income inequality, two issues that he agrees should be mitigated. While I am not surprised that some personal bias would inform his writing, it’s ridiculous that Sharma hand-waves the role that corporate lobbying and elite power-broking has had on the development of the political agenda.
- Sharma doesn’t disaggregate fiscal spend when critiquing rising budgets, which leads to questionable implications and an ignorance of democratic will. Some fiscal programs are incredibly necessary and are driven by the demands of the populace (e.g., education, infrastructure, healthcare), but Sharma lumps all of these in with things like administrative bloat and debt payments, characterizing all government spend as unproductive sinks.
- The refusal to recognize any other driver than fiscal and monetary policy interventions lead to some laughable arguments. Sharma argues that we shouldn’t raise income taxes because the wealthy have never paid their fair share via loopholes, and that financial market regulations just lead to investment companies looking for workarounds to profit. Meanwhile, he ignores that the reduction in tax rates coincided with the explosion in deficit spending, and that the financial regulations he discusses (like Glass-Steagall and the Sarbanes-Oxley Act) prevented even further speculation and fraud.
I would recommend to those with an interest in macroeconomics, but would caution anyone without an entry-level understanding to not take all the arguments at face value, as they tend to gloss over counterarguments and the sociopolitical context driving some of these fiscal and monetary decisions.
The good:
- I think Sharma’s critique of central banks’ roles in creating the “easy money” area are largely valid, and the long period of suppressed rates and quantitative easing artificially inflated asset values and contributed to capital and corporate concentration. I think this is the most compelling piece of the book that I haven’t seen as widely discussed compared to the other topics he covers.
- I also believe that his points on corporate bail-outs and their contribution to distorting competition and incentives hold true, if slightly dismissive of the political factors that led to some of them.
- I wholly agree with his stance that the abandonment of antitrust and monopoly enforcement is detrimental to our economy. However, his dismissal of regulatory capture (only mentioned once in the entire book) is naive at best.
- Sharma is clearly well-read on economic history in the US, and provides a mostly neutral summary of major fiscal policy changes from FDR to Biden (he even criticizes his self-proclaimed idol of Reagan for poor decisions, although continues to lionize his ideals later in the book). While his characterizations of these policies later in the book are slightly more biased (spoiler: he doesn’t like FDR and loves Reagan), the initial run-through feels more fair.
The bad:
- Sharma completely dismisses the perverse incentives present in an unmoderated capitalist system and how they will naturally lead to some of the outcomes we are seeing today (e.g., wealth concentration, regulatory capture, monopolistic tendencies, massive social costs from externalities). He will very occasionally mention that some regulation is fine of course (his examples include preventing child labour or extreme inhumane working conditions, as well as the aforementioned antitrust crackdowns), but generally we should avoid interfering with the system in any way. To not address these issues more head-on is a major weak point in a deregulation-focused treatise.
- The book’s arguments are often irrational and self-contradictory in the way they are presented. There were many examples throughout of Sharma making a statement, presenting facts that implied a different story, and concluding by repeating his initial argument. For example, Sharma says, “It is widely believed, but not very true, that the [wage] gap is growing inside companies,” and then provides a stat that CEO pay relative to the median worker has increased from 30x to 400x over the past 25 years, with no recognition that this goes against his position.
- The book tries to be apolitical, casting blame for rising debts and Fed stimulus on both parties, which is largely true. However, he ignores the intentional contributions the political right has made in furthering oligopolies and income inequality, two issues that he agrees should be mitigated. While I am not surprised that some personal bias would inform his writing, it’s ridiculous that Sharma hand-waves the role that corporate lobbying and elite power-broking has had on the development of the political agenda.
- Sharma doesn’t disaggregate fiscal spend when critiquing rising budgets, which leads to questionable implications and an ignorance of democratic will. Some fiscal programs are incredibly necessary and are driven by the demands of the populace (e.g., education, infrastructure, healthcare), but Sharma lumps all of these in with things like administrative bloat and debt payments, characterizing all government spend as unproductive sinks.
- The refusal to recognize any other driver than fiscal and monetary policy interventions lead to some laughable arguments. Sharma argues that we shouldn’t raise income taxes because the wealthy have never paid their fair share via loopholes, and that financial market regulations just lead to investment companies looking for workarounds to profit. Meanwhile, he ignores that the reduction in tax rates coincided with the explosion in deficit spending, and that the financial regulations he discusses (like Glass-Steagall and the Sarbanes-Oxley Act) prevented even further speculation and fraud.
September 9, 2024
Capitalism: A market-driven economic system which seems to have served the world well over the past couple of hundred years as countries have managed to expand the economic pie sufficiently to improve the conditions of their broader population. In other words, the economic system which even communist countries like China had to turn to, when they wanted to aim for sustained economic growth.
In recent years, however, capitalism has become a much maligned term. There is a growing belief that today’s economic ills are a result of decades of unbridled capitalism, leading to clamours for the ‘guiding hand of the government’ to keep in check those who seem to have outgrown the economic system itself. And the clamour is stronger in the rich, democratic countries, where the dividends of capitalism have been received and digested.
Ruchir Sharma, in his book ‘What Went Wrong with Capitalism’ argues that the ‘guiding hand of the government’ has never been absent. In fact, he goes on to illustrate how this guiding hand has been ever-expanding its role through multitudes of well-intentioned rules and regulations that are but leading to flawed outcomes. The rules meant to contain large corporations are actually creating entry barriers that are preventing younger companies from challenging the hegemony of the big ones.
He measures the expanding role of the government significantly in anecdotal terms but also partly using metrics like public spending as a percent of GDP or size of the budget deficit (including that running a deficit budget has become par for the course, unlike what Keynes had envisaged) or the size of the government, as measured by sheer numbers.
The other thrust of the book is against the arrogance of governments in general and central bankers in particular, who have claimed victory over business cycles. Sharma argues that this easy / free money approach since Greenspan, has done away with the self-correcting, Darwinian construct built into the capitalist framework - survival of the fittest. The end-result is many more zombie companies that continue to consume precious public resources and the distortion of the market mechanism leading to mis-allocation of resources. And financial markets which are 4.5x the GDP (US data) and have become the tail that wags the dog (the economy). By ignoring the asset price bubbles, these actions are building up risks that ‘over years’ could lead to ‘overnight, dramatic’ changes in the world economic order, including the resultant chaos that comes with it.
At the core, his thesis is that the increasing role of the government through the regulatory state and central bank activism has led to a sharp drop in productivity. This relationship between bigger government and smaller productivity is something he explains quite well. In turn, the drop in productivity has led to the gains of capitalism being whittled away. Any solution has to involved pulling back the government and allowing the market forces a freer hand to self-correct.
In the Indian context, he argues pretty much the same. India’s inability to match China’s growth of the last few decades is less about democracy but more about our inability to usher in higher economic freedom. He links it to missing the real promise of capitalism - the equality of opportunity - and confusing it with the socialist ideal - the equality of outcomes.
The contra that he argues was quite surprising to me. As per his analysis, countries like Sweden, often considered very socialist in their public / economic policies, have in fact embraced capitalism i.e. less government, more market forces, much more vigorously in the past few decades and have thus come out the better for it. Similar examples of success include Switzerland and Taiwan, among others.
In summary, quite an eye-opener of a book that challenges a lot of common public wisdom on what ails the global economy. Unfortunately, it’s a tad too long for the arguments it makes and this gets repetitive. Also, Sharma could have used a lot more data than anecdotes, which considering the topic, would have made his argument much stronger. Finally, the narration is very US centric, which may be fine given it remains the flag-bearer of capitalism, but runs the risk of losing the audiences in other geographies.
In recent years, however, capitalism has become a much maligned term. There is a growing belief that today’s economic ills are a result of decades of unbridled capitalism, leading to clamours for the ‘guiding hand of the government’ to keep in check those who seem to have outgrown the economic system itself. And the clamour is stronger in the rich, democratic countries, where the dividends of capitalism have been received and digested.
Ruchir Sharma, in his book ‘What Went Wrong with Capitalism’ argues that the ‘guiding hand of the government’ has never been absent. In fact, he goes on to illustrate how this guiding hand has been ever-expanding its role through multitudes of well-intentioned rules and regulations that are but leading to flawed outcomes. The rules meant to contain large corporations are actually creating entry barriers that are preventing younger companies from challenging the hegemony of the big ones.
He measures the expanding role of the government significantly in anecdotal terms but also partly using metrics like public spending as a percent of GDP or size of the budget deficit (including that running a deficit budget has become par for the course, unlike what Keynes had envisaged) or the size of the government, as measured by sheer numbers.
The other thrust of the book is against the arrogance of governments in general and central bankers in particular, who have claimed victory over business cycles. Sharma argues that this easy / free money approach since Greenspan, has done away with the self-correcting, Darwinian construct built into the capitalist framework - survival of the fittest. The end-result is many more zombie companies that continue to consume precious public resources and the distortion of the market mechanism leading to mis-allocation of resources. And financial markets which are 4.5x the GDP (US data) and have become the tail that wags the dog (the economy). By ignoring the asset price bubbles, these actions are building up risks that ‘over years’ could lead to ‘overnight, dramatic’ changes in the world economic order, including the resultant chaos that comes with it.
At the core, his thesis is that the increasing role of the government through the regulatory state and central bank activism has led to a sharp drop in productivity. This relationship between bigger government and smaller productivity is something he explains quite well. In turn, the drop in productivity has led to the gains of capitalism being whittled away. Any solution has to involved pulling back the government and allowing the market forces a freer hand to self-correct.
In the Indian context, he argues pretty much the same. India’s inability to match China’s growth of the last few decades is less about democracy but more about our inability to usher in higher economic freedom. He links it to missing the real promise of capitalism - the equality of opportunity - and confusing it with the socialist ideal - the equality of outcomes.
The contra that he argues was quite surprising to me. As per his analysis, countries like Sweden, often considered very socialist in their public / economic policies, have in fact embraced capitalism i.e. less government, more market forces, much more vigorously in the past few decades and have thus come out the better for it. Similar examples of success include Switzerland and Taiwan, among others.
In summary, quite an eye-opener of a book that challenges a lot of common public wisdom on what ails the global economy. Unfortunately, it’s a tad too long for the arguments it makes and this gets repetitive. Also, Sharma could have used a lot more data than anecdotes, which considering the topic, would have made his argument much stronger. Finally, the narration is very US centric, which may be fine given it remains the flag-bearer of capitalism, but runs the risk of losing the audiences in other geographies.
January 12, 2025
I really enjoyed this book, even though it frightened me about the future of our democracy and our economy.
Sharma steps away from the partisan bickering and economic cheerleading to analyze what has gone so wrong over recent decades. Sharma points out that anti-capitalism sentiment is growing on the pervasive narrative about how a withered government allowed rich financiers to flourish, but he convincingly demonstrates that these excesses are actually caused by the massive expansion of government intervention which has broken market feedback mechanisms. Examples include the easy money era driven by central bankers which has created zombie companies, oligopolies (and the billionaires who profit from it) and highly distorted financial markets. This has been partnered with the 'permanent deficit' borrowing culture to expand bailouts beyond individual companies/banks to entire industries along with a commitment to perpetual growth in the economy as a whole, Other excesses include governments/central banks seeking to accelerate recoveries. Once market price mechanisms are permanently broken and/or continuously undermined, the excesses are inevitable.
Sharma exposes the myth that it was globalization and financialization that unleashed unbridled market power in recent decades. Yes, barriers to free movement of goods and capital were falling as financial markets grew rapidly, but simultaneously government and central bank support were fundamental to the easy money and bailout culture which has proven to be so deforming.
How do we fix this? Sharma is not optimistic. Basically, it has only happened historically when governments run out of money. Given the excesses across the worlds largest economies today (USA, China, European Union), hitting this wall is going to be highly disruptive and harmful to millions and millions of people all over the world. The USA enjoys the perks and protections of being the world's reserve currency at present, but the inevitable decline in trust/faith that the USA will ever be able to repay its debts is already starting to motivate the quest for alternatives around the world. Sadly, the the two most obvious possible options (EU and China) each have currencies which inspire even less faith than the US dollar as we all race to the bottom.
In the meantime, productivity growth continues to weaken and both American parties seem committed to the same harmful course which has led us (along with the EU, UK, China, Japan) to this place. Sharma does highlight a few examples of taking a different path with success (e.g. Switzerland, Sweden, Taiwan, Vietnam) but the picture looks pretty grim here in early 2025.
If you are interested in macro-economics and political economy, I highly recommend Sharma's thought-provoking and fascinating book. He makes his case by surveying the last hundred+ years and he shows how the popular narratives pushed by so many are misleading or incomplete in their assessment of the root-causes behind the major economic events of the past 50+ years. I really enjoyed this book and I will keep thinking about much of its claims and arguments into the future.
Sadly, this pattern enjoyed wide bi-partisan support in the USA and it is unclear whether 'spend, borrow, bail out, regulate, micromanage' pattern will continue.
Sharma steps away from the partisan bickering and economic cheerleading to analyze what has gone so wrong over recent decades. Sharma points out that anti-capitalism sentiment is growing on the pervasive narrative about how a withered government allowed rich financiers to flourish, but he convincingly demonstrates that these excesses are actually caused by the massive expansion of government intervention which has broken market feedback mechanisms. Examples include the easy money era driven by central bankers which has created zombie companies, oligopolies (and the billionaires who profit from it) and highly distorted financial markets. This has been partnered with the 'permanent deficit' borrowing culture to expand bailouts beyond individual companies/banks to entire industries along with a commitment to perpetual growth in the economy as a whole, Other excesses include governments/central banks seeking to accelerate recoveries. Once market price mechanisms are permanently broken and/or continuously undermined, the excesses are inevitable.
Sharma exposes the myth that it was globalization and financialization that unleashed unbridled market power in recent decades. Yes, barriers to free movement of goods and capital were falling as financial markets grew rapidly, but simultaneously government and central bank support were fundamental to the easy money and bailout culture which has proven to be so deforming.
How do we fix this? Sharma is not optimistic. Basically, it has only happened historically when governments run out of money. Given the excesses across the worlds largest economies today (USA, China, European Union), hitting this wall is going to be highly disruptive and harmful to millions and millions of people all over the world. The USA enjoys the perks and protections of being the world's reserve currency at present, but the inevitable decline in trust/faith that the USA will ever be able to repay its debts is already starting to motivate the quest for alternatives around the world. Sadly, the the two most obvious possible options (EU and China) each have currencies which inspire even less faith than the US dollar as we all race to the bottom.
In the meantime, productivity growth continues to weaken and both American parties seem committed to the same harmful course which has led us (along with the EU, UK, China, Japan) to this place. Sharma does highlight a few examples of taking a different path with success (e.g. Switzerland, Sweden, Taiwan, Vietnam) but the picture looks pretty grim here in early 2025.
If you are interested in macro-economics and political economy, I highly recommend Sharma's thought-provoking and fascinating book. He makes his case by surveying the last hundred+ years and he shows how the popular narratives pushed by so many are misleading or incomplete in their assessment of the root-causes behind the major economic events of the past 50+ years. I really enjoyed this book and I will keep thinking about much of its claims and arguments into the future.
Sadly, this pattern enjoyed wide bi-partisan support in the USA and it is unclear whether 'spend, borrow, bail out, regulate, micromanage' pattern will continue.
September 5, 2024
This is an honest book that answers the question posed by the title very well. Ruchir Sharma writes in a lucid way and takes me through the roots of the problem with capitalism (as seen today). Incidentally, this happens in the United States which is often considered the hallmark of this system. He embarks on a " let's save capitalism from the so-called capitalists" mission in this book.
The simple answer, which can be gleaned if one just reads the introduction and conclusion, is what most are looking for : Capitalism does not do well with a growing, meddling state; Easy money and the elimination of "creative destruction" cannot provide the same benefits of a pure-bred capitalist system. The rest of the book just caters to a western audience prompting them to relook their beloved heroes - Roosevelt or Reagan. Both are guilty of the same indictment of expanding the state (one was atleast honest about it, the other was not)
He also argues : Like the utopia of socialism or communism, true capitalism has not been tried yet, and possibly never will. But he believes that 3 examples ( Switzerland, Taiwan and Vietnam) come quite close to the ideals of a capitalist system. Even here, he acknowledges the role of the state in playing a role as a minimal intruder. So the state is not going anywhere.
The way forward, according to him, is to let capitalism work as a system with minimal intrusion no matter the cost; in other words, human progress has a cost. The cost of creative destruction, human lives and multiple generations of failures. The prescription is a hard pill to swallow and may even sound fatalistic in some way - capitalism is a natural system that must be allowed to run its course without risk management. You meddle and you risk losing possible gains.
It somehow also goes contrary to his undefined idea of "human progress" and adds a deterministic flavor to it. His premises run deep : do not meddle with nature, as humans, you cannot conquer it. Such premises according to me contradict the whole point of capitalism and human flourishing. Human progress is and will be the mastery over the unknown and uncertain. Perhaps his warning to governments should be : do not meddle wrongly but keep trying.
I also find his premises Hayekian in the denial of human knowledge. But his lessons on risk-taking and productivity speak to the heart and had me nodding throughout.
Overall, a good read. Would advise readers to stick to the introductory paragraphs and the concluding 2 chapters to gain the essence of the book's key arguments.
The simple answer, which can be gleaned if one just reads the introduction and conclusion, is what most are looking for : Capitalism does not do well with a growing, meddling state; Easy money and the elimination of "creative destruction" cannot provide the same benefits of a pure-bred capitalist system. The rest of the book just caters to a western audience prompting them to relook their beloved heroes - Roosevelt or Reagan. Both are guilty of the same indictment of expanding the state (one was atleast honest about it, the other was not)
He also argues : Like the utopia of socialism or communism, true capitalism has not been tried yet, and possibly never will. But he believes that 3 examples ( Switzerland, Taiwan and Vietnam) come quite close to the ideals of a capitalist system. Even here, he acknowledges the role of the state in playing a role as a minimal intruder. So the state is not going anywhere.
The way forward, according to him, is to let capitalism work as a system with minimal intrusion no matter the cost; in other words, human progress has a cost. The cost of creative destruction, human lives and multiple generations of failures. The prescription is a hard pill to swallow and may even sound fatalistic in some way - capitalism is a natural system that must be allowed to run its course without risk management. You meddle and you risk losing possible gains.
It somehow also goes contrary to his undefined idea of "human progress" and adds a deterministic flavor to it. His premises run deep : do not meddle with nature, as humans, you cannot conquer it. Such premises according to me contradict the whole point of capitalism and human flourishing. Human progress is and will be the mastery over the unknown and uncertain. Perhaps his warning to governments should be : do not meddle wrongly but keep trying.
I also find his premises Hayekian in the denial of human knowledge. But his lessons on risk-taking and productivity speak to the heart and had me nodding throughout.
Overall, a good read. Would advise readers to stick to the introductory paragraphs and the concluding 2 chapters to gain the essence of the book's key arguments.
March 20, 2025
I picked up the book “What Went Wrong with Capitalism” authored by Ruchir Sharma. The book delves into the systemic issues plaguing modern capitalism, offering a thought-provoking critique. I started reading the book with a lot of enthusiasm because of the reputation of the author and the gravity of the subject itself. When you write a book on a highly specialised subject, like Economics in this case, you subscribe yourself to an unwritten undertaking to also “educate” the reader on the subject. Reading a book on Economics is a tedious task as all of us know. The narrative style of the author makes the book a bit tortuous. I had to practically read it twice. The author’s scholarship appears to have taken precedence over his approach to the subject. Though the work of the author is no doubt praiseworthy, the book is more eminently suitable for the library of a university. With these comments I am not in any way downgrading the book. Those who are interested in the subject it is an invaluable tome.
The book argues that capitalism's current challenges stem largely from excessive government intervention, which has distorted markets and exacerbated wealth inequality. Sharma critiques both left and right wing policies, highlighting how government debt and deficit spending have become progressively unsustainable. The book is primarily focussed on the US economy. The book is divided into three parts, with the first section focusing on the historical evolution of capitalism. Sharma contrasts the economic philosophies of figures like Alexander Hamilton and Thomas Jefferson exploring how their ideas have shaped modern economic policies. He also examines the global financial landscape, including the impact of Keynesian economics and the rise of populist policies. Sharma's ability to weave complex economic arguments into an accessible narrative is commendable though his perspective as a financial analyst may limit the scope of his critique. The book is particularly relevant for readers interested in understanding the interplay between government policies and market dynamics.
After a somewhat a sombre and pessimistic analysis on capitalism as it is practiced around the world, the author concludes the book on an optimistic note thus: “Capitalism is still humanity’s best hope for economic and social progress, but only if it is free to work”.
The book argues that capitalism's current challenges stem largely from excessive government intervention, which has distorted markets and exacerbated wealth inequality. Sharma critiques both left and right wing policies, highlighting how government debt and deficit spending have become progressively unsustainable. The book is primarily focussed on the US economy. The book is divided into three parts, with the first section focusing on the historical evolution of capitalism. Sharma contrasts the economic philosophies of figures like Alexander Hamilton and Thomas Jefferson exploring how their ideas have shaped modern economic policies. He also examines the global financial landscape, including the impact of Keynesian economics and the rise of populist policies. Sharma's ability to weave complex economic arguments into an accessible narrative is commendable though his perspective as a financial analyst may limit the scope of his critique. The book is particularly relevant for readers interested in understanding the interplay between government policies and market dynamics.
After a somewhat a sombre and pessimistic analysis on capitalism as it is practiced around the world, the author concludes the book on an optimistic note thus: “Capitalism is still humanity’s best hope for economic and social progress, but only if it is free to work”.
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