Schumpeter’s diagnosis of capitalism seems to be fully validated by the financial crisis and severe recession, except that he was wrong on his main prediction – that capitalism’s flaws would cause it to lose its vitality. The reality is that Democratic Capitalism has flourished despite episodes of depression, war, prohibition, and intrusive interventionist policies. It is therefore a mistake to engage in a critical assessment of capitalism while world economies are still close to the ebb of the business cycle. Free markets cannot abolish the business cycle in the same way that free trade and free capital flows cannot abolish investment bubbles. While we are at the depth of recession, it is hard to see light. But we should also have a better understanding of what caused the “tsunami” before blaming democratic capitalism and free markets of being its main culprits. This is what I try to summarize in section 1. In section 2 and 3, I will try to summarize the performance
