Just a brief diary to introduce one of my favorite thinkers who addresses why attacking the state is, ultimately, bad for capitalism, which relies on innovation and thus how to fund innovation considering we live in monetary economy.
One of the most interesting thinkers out there right now is Mariana Mazzucato, who studies what she calls “the entrepreneurial state” and innovation. Below are two videos of her giving a talk, both with slightly different slants, so they’re not repetitive. You can also google her if you prefer reading.
In a nut shell, the state has historically acted as the first risk taker, with the private sector taking up innovation only once the state has taken the first dive into risky waters. And, innovation is collective — sorry libertarians, but it’s a fact : )
As she talks about in other places, it is far easier for a monetarily sovereign state (a state that has complete control over its currency, producing it at will and controlling its exchange rate) to be first risk taker because monetary sovereigns can afford to loose money because they can never run out of money — indeed, they can afford to fund innovative risk that fails 100% of the time. Because even if all projects fail, those dollars still fund private bank accounts, which then circulate through the economy, funding our national net income, minus taxes, minus private bank debt, foreign trade.
And again, they can never run out of money because they are the sole manufacturer of the money they create at will.
Of course it’s better for the nation if innovative risk pays off in producing real goods and services society values.
As Mazzucato notes elsewhere: The real risk to modern capitalist economies of scale is private debt, not either public debt (euro using countries) or public “debt” (monetary sovereigns like the US, Britain, Japan, and China, etc...), where bonds are simply a savings account at the central bank. Both The Great Depression and The Great Crash of 07 should have taught us this, but we till go on and on about public “debt” = private sector net savings, and think it’s good to reduce private sector net savings and increase household private bank debt. The Bank of International Settlements has recently written a paper about how household debt drags down growth — pretty radical of some researcher at the BIS : ) www.nakedcapitalism.com/...
Anyway, the state is, or should be, willing to take the risk of innovation because the private sector is loath to do so because failure means loosing money, and the private sector can not live off of private bank debt alone.