11 reasons America's a new socialist economy
How free market ideology backfired, sabotaging capitalistic democracy
By Paul B. Farrell, MarketWatch
Last update: 6:45 p.m. EDT July 21, 2008
ARROYO GRANDE, Calif. (MarketWatch) -- Welcome to the conservative's worse nightmare: The law of unintended consequences. Why? Nobody wants to admit it, folks, but the conservatives' grand ideology is backfiring, actually turning the world's greatest capitalistic democracy into the world's newest socialist economy.
A little history: The core principles of conservative economic ideology are grounded in Nobel economist Milton Friedman's 1962 classic "Capitalism and Freedom." Too late to stop President Lyndon Johnson's Great Society, those principles became the battle cries energizing conservatives since Reagan: Unrestricted free markets, free enterprise and free trade; deregulation, privatization and globalization; trickle-down economics and trickle-up wealth to an elite plutocracy destined to rule the new American capitalist utopia.
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So what happened? Are you guys nuts? Hey, I'm talking to all you blind Beltway politicians (in both parties) ... plus the Old Boys Club running Wall Street (into the ground) ... plus all you fat-cat CEOs (with megamillion parachutes) ... and all your buddies scamming everybody else to get on the Forbes 400. You are proof of Lord Acton's warning: "Power corrupts and absolute power corrupts absolutely."
It's backfiring! You folks turned our America from a great capitalistic democracy into a meddling socialist economy. Still you don't get it. You're acting like teen addicts tripping on an overdose of "greed-is-good" testosterone while your caricature of conservative economics would at best make a one-line joke on Jay Leno.
Here are 11 reasons your manipulations are sabotaging the great principles of leaders like Friedman and Reagan:
1. Dumber than a fifth grader with cognitive dissonance
Kids know what it means. They know most adults today can't see past the end of their noses. Liberals tune out candidate McBush for being lost in the past. Conservatives can't hear Obama without seeing that turban.
Cognitive dissonance simply means most brains cannot see past their own narrow ideologies. They dismiss any data that contradicts their old ideologies. Whether you're a conservative Republican or liberal Democrat, you only hear what you already know is "true." All else is tuned out.
2. Where did all the leaders go with their moral character?
Friedman's economics requires leaders of moral character. Did it run into Lord Acton's warning: "Power corrupts, absolute power corrupts absolutely?" Former Ford and Chrysler CEO Lee Iacocca said yes in "Where Have All the Leaders Gone?"
Friedman's great conservative principles have been commandeered by myopic ideologues whose idea of leadership is balancing the demands of self-interest lobbyists with the need for campaign donations. Unfortunately, a new "change" president won't be enough; there are 537 elected officials in Washington controlled by 42,000 special interest lobbyists.
3. Fed and U.S. Treasury adopted Enron accounting tricks
Bad news: Enron failed several years ago because of its off-balance-sheet accounting scam. The Fed's doing the same thing: Dumping Bear's $30 billion liabilities onto the taxpayer's "balance sheet." Next Treasury proposes adding $5.3 trillion more from Fannie Mae and Freddie Mac.
Unfortunately clever accounting tricks by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke aren't going to fool foreign lenders analyzing America's creditworthiness. Worse-case scenario: U.S. Treasury bills with less than a triple-A rating.
With 90 banks on the brink and already too many bail-outs, our so-called leaders are running out of magic bullets. So now the taxpayer's "balance sheet" has become the all-purpose "dumping ground" and it's overcrowding fast as our leaders raise the white flag of socialism.
4. Deregulation creating new socialist housing system
Back in 1999 a Democratic president and Republican Congress were in love with a fantasy called the "new economics." Enthusiastic lobbyists invented the brilliant idea of dismantling the wall between commercial and investment banking: They killed the Glass-Steagall Act that was keeping the sleazy hands of short-term hustlers out of the pockets of long-term lenders.
Flash forward: We lost 85-year-old Bear Sterns and $32 billion IndyMac. Lehman's iffy. And 90 banks. With the virtual takeover of Freddie and Fanny, Wall Street's grand experiment with free-market ideology is backfiring, having socialized the housing market. They have nobody to blame but their self-centered greed.
5. Trade deficits outsourced more of America's wealth than jobs
One look at Forbes lists of fat cats and you know the 21st Century doesn't just belong to Asia, it belongs to everyone but America. Why? Once again, remember Warren Buffett's famous "Farmer's Story" in Fortune: "We were taught in Economics 101 that countries could not for long sustain large, ever-growing trade deficits ... our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than they produce -- that's the trade deficit -- we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own."
Friedman was right: Congressional spending is the biggest cause of inflation, and, wow, those conservatives sure did love blank-check deficit spending the past eight years!
6. Banking system in meltdown, minting penny stocks
The Friedman conservatives apparently understand Joseph Schumpeter's "creative destruction." Yet, our free-market ideologues can't seem to accept that America is now on the "destructive" downside leg of the cycle, in the economy, markets, trade, politics and, yes, sadly, even with their conservative ideology.
You don't have to be smarter than a fifth grader to figure out that our leaders are clueless about the reality of our crumbling banking system, with many banks trading as penny stocks, while the Fed still panders to conservative pre-election politics rather than getting serious about inflation.
7. Ideologues preach savings, but still push spending
A core principle of conservatism is frugality, saving for the future. Grandparents raised me, struggled during the Depression, passed on strong ideals.
Somewhere over the past generation conservatives forget frugality. This distortion peaked in 2003 when consumers were told to spend, not sacrifice, and fuel the economy even as government spent excessively on war. That was a clear breach of every conservative leader's position in earlier wars.
As a result, in one brief generation, as the power of conservative ideologues grew, America's savings rate dropped precipitously from 11% in 1980 to less than zero today.
8. Warning, the market's under 2000 peak, losing money
Imagine you're on Jeff Foxworthy's fabulous show competing to see if you really are smarter than a fifth grader. Question: "If you put $10,000 in the market in March of 2000 when the Dow peaked at 11,722, how much money would you have today if the market's 10% under 11,722?" So you guess $9,000.
But then two fifth graders raise their hands: One asks if the CPI inflation rate should be considered? If so, maybe $5,000 is closer to the right answer. The other kid wants to know if you're buying stuff in Chicago or Singapore.
The truth is, the best answer for most adults is: "You've lost a hell of a lot of money in the market under the grand conservative ideology the past eight years."
9. Inflation and dollars: Is Zimbabwe the new model for the U.S.?
The Los Angeles Times ran a photo of a Zimbabwe $500 million bank note, worth $20 at noon, less at dinner. Why? Inflation's there is running 32 million (yes million!) percent annually. The German company printing their banknotes finally cut them off.
Things may be worse in America, psychologically. Our ideological obsession with "growth" is not working because there is too much collateral damage, namely inflation. Our dollar has lost substantial value to the euro because our dysfunctional leaders are convinced that a trade policy funded by debt makes sense.
Now we owe China $1.3 trillion, sovereign funds want equity not cheap dollar IOUs, and still our clueless Treasury and the Fed continue debasing our currency, printing money like Zimbabwe.
10. Free-market health care failing 47,000,000 Americans
Big Pharma loves free-market conservatism and no-compete Medicare drug programs. Nobody else is happy. Taxpayers get stuck with the bill.
"The Coming Generational Storm" tells us that without massive reforms and big lifestyle changes for taxpayers (especially retirees), within a couple short decades America's entitlement programs will eat up the entire federal budget. Medicare is the biggest cost item in your future, over $50 trillion in unfunded liabilities.
Conservative ideologues naively believe the answer is more pay-out-of-pocket insurance plans, even with 47 million already uninsured because they can't pay. Here as in so many areas of our economy, free-market junkies really are suffering a severe case of cognitive dissonance, as blind to the facts about the uninsured as they are to their outdated free-market fantasies.
11. Conservative free-market policies inflated oil 300%!
Yep, oil inflated 300% in eight short years under the "leadership of two oil men." But, you can't blame them. We put the foxes in the henhouse, knowing full well "real" oil men love digging holes on the supply side, supporting ethanol subsidies and blaming speculators -- it's in their genes! Talk about cognitive dissonance; real oil men thrive on cowboy images of Marlboro Men in Hummers, Navigators and F-150 trucks.
Net result? Another perfect example of "creative destruction" in action as conservative ideology meets "law of unintended consequences," driving GM, the symbol of America capitalism, closer to bankruptcy ... while turning America into a socialist economy. End of Story
talk about cognitive dissonance - that was no discussion of the differences between the relative merits of capitalism and socialism or even the cyclical pendulum swing between between the two that regularly occurs. that article was largely and correctly a diatribe against the corruption that currently pervades our government (at all levels unfortunately) and the need for regulation and oversight. honest capitalists and honest socialists recognize the need for openess, fairness, and oversight for any system to work.
seems to me the first paragraph is a false assertion and the arguements made don't support it as the hypothesis.
posted by enjoyeverysandwich on Jul 22, 2008 at 08:47:38 am #