When the Soviet Union collapsed, there was great glee in the “West” especially in America. “We won” they shouted as if their team had won the World Cup. Capitalism, in the struggle against Communism, had carried the day. Khrushchev had the right slogan when he said the Americans, “we will smother you”, he just had the wrong smotheror and the wrong smotheree.
It was Ronald Reagan who did it, we’re told – he stared down Mikhail Gorbachev and in the twinkling of an eye, the Cold War was over and unrestricted capitalism was right after all. Many Americans, especially Republicans, think this way to this day but just because the rooster crows when the sun rises doesn’t mean that the sun rises because of cockle-doodle-doo.
The truth is more mundane. The Soviet economy was in the dumper. The lack of real competition meant that only making arms brought competitive and “improved” goods. It was in tatters long before Reagan left his horse and saddle for politics.
Americans are right to believe that well managed “free enterprise” brings innovation, consumer goods and prosperity to many. The better lesson from today, however, is that when “free enterprise” is not well managed, it brings economic chaos, perhaps as much as the ultra well managed communist economies did.
The American Recession of ’08 took time to crest as all recessions do and is far from over. (Harry S Truman said that a “recession” was when your neighbour loses his job; a depression was when you loseyour job!).
Two articles in CNBC last week graphically describe today’s US economy.
Peter Yastrow, a market strategist, told CNBC “Wall Street is having a hard time figuring out what to do now that the U.S. economy is stuttering.
"What we’ve got right now is almost near panic going on with money managers and people who are responsible for money, "They can not find a yield and you just don’t want to be putting your money into commodities or things that are punts that might work out or they might not depending on what happens with the economy.”
According to Mike Riddell, a fund manager at M&G Investments in London.
"It seems that almost every bit of data about the health of the US economy has disappointed expectations recently."
US house prices have fallen by more than 5 percent year on year, pending home sales have collapsed and existing home sales disappointed, the trend of improving jobless claims has arrested, first quarter GDP wasn’t revised upwards by the 0.4 percent forecast, durables goods orders shrank, manufacturing surveys … were all very disappointing.
What has happened since the laissez-faire economy of the Reagan – Friedman days is astonishing. Instead of the incoming tide raising all boats, only those of the hugely rich rose while the others’ anchors held them fast to the bottom as the water rose and swamped them.
For many years the rich have been getting richer but while the blue/white collar middle classes didn’t do as well, their incomes rose too. Then came the North America Free Trade Agreement (NAFTA) which exported thousands of jobs initially to Mexico but with the longer term payoff to Indians and Chinese. The rising Chinese economy has meant that the USA no longer controlled its own currency. There was mid 90s “Asian Fever” which hit Canada and US exports hard. Then the large US car companies – the backbone of the US economy – failed. And, of course, Wall Street imploded.
One cannot assign blame easily but it’s instructive to note that Canada, with a highly regulated banking system, came out of the Recession (the part that has happened so far) far better than America. As we watch for the “after shock” to hit us, Canada’s advantage will not survive the crippling hit nor will anyone else’s.
Wall Street, bailed out by the US Treasury with borrowed money, is now “business as usual” replete with huge bonuses, severance grants and retirement gifts. Those in charge of this monetary masturbation would have us believe that such pay-outs are the only way good people can be attracted. Somewhat more accurately, economist John Kenneth Galbraith said these payments were “a warm personal gesture by an individual to himself", or in the case of bonuses by a group of individuals, to each other.
In order to see the obscenity up close, consider Bill Gates, a co-founder of Microsoft. Now remember, Mr. Gates didn’t find a cure for some horrible disease as Dr. Jonas Salk did for polio – in fact he discovered nothing that wasn’t on its way anyway and did it the way all robber barons prosperity – brutally.
Mr. Gates is worth US$48 billion which is 48,000 million. Others have similar wealth – Warren Buffet and George Soros, for example. Like the Russian oil barons they have created nothing. This has largely come about by reason of corporatization of governments by the wealthy who literally buy political influence.Have you not pondered why it costs a candidate for the US Senate several million dollars to get a job that pays $162,000 a year?…
These are pay-offs, influence peddling in three piece suits. If you believe, as I do, that in order to achieve peace we need fewer weapons not more, consider that the biggest political pay-offs in America come from the curiously named “Defense Industry”.
There are no quick fixes but we shouldn’t let perfection be the enemy of improvement. I would start with three economic reforms:
First – impose a Tobin tax, defined as a tax on all spot conversions of one currency into another. The tax is intended to put a penalty on short-term financial round-trip excursions into another currency. The pain is minuscule, the tax intake immense.
Second – a wealth tax. This isn’t like taxing your house, something you worked and saved for but an impost on money unearned except by paper shuffling, back room dealings, insider trading and back stabbing. It requires standards to be set and the rate of acceleration of a graduated tax based on the notion that no one is entitled to 1000s of million dollars.
Third – a high earnings tax much like Canada had in World War II. I’m not against the rich or getting rich but opposed to outrageous “warm personal gestures” while ordinary folks of every nation suffer.
I say simply that in these harrowing, about to get worse, times a few warm personal gestures from the super rich to the public weal are in order.