Summary: Today we examine an article by Robert Reich about the folly of our government’s response to the worst recession since the 1930’s. He describes several examples showing how our government has pushed America into a system of State capitalism. But as a fan of State capitalism, he’s blind to the result. He imagined that State capitalism would benefit the masses. A brilliant man, but not realistic.
The US government has taken large-scale measures to fight the global recession — as required by the crisis — but has ignored common-sense guidelines. Since eventually we must repay this massive government borrowing, the spending should do one of two things, in general:
- generate a future economic return, broadly defined (e.g., investment on transportation, communication, and utilities — including things like water/sewage treatment), or
- minimize pain and suffering during the downturn (financial support and training of the unemployed).
Japan took another path: twenty years of government borrowing with the proceeds lavished on politically powerful constituencies — with no thought of any the long-term gain from the spending. Bridges to nowhere. Large train stations in farming villages (imagine Grand Central built at Petticoat Junction). Now only the debt remains, a crushing burden for future generations.
Despite the warning from Japan’s experience, we have done the same. Reich sees this, but fails to see this as the inevitable result of State Capitalism. That is a system combining capitalism and control by the State. In practice, it means control of both sectors of the nation by governing elites.
Reich believes in elite-driven government serving the public’s benefit, seeing people like himself as the elite. He seldom (if ever) speaks about mobilizing citizen involvement (except in the sense the Pharaohs did). It’s a dream. Government spending with little citizen involvement will benefits only the political powerful. Japan generously ruined their nation to provide an example. We might do the same.
Excerpt from “Why the Dow is Hitting 10,000 Even When Consumers Can’t Buy And Business Cries ‘Socialism’“, Robert Reich, at his blog, 22 September 2009 — Please, no comments about the stock market. They are off-topic on this website and will be deleted.
… how can the Dow be so far up when every business and Wall Street executive I come across tells me government is crushing the economy with its huge deficits, and its supposed “takeover” of health care, autos, housing, energy, and finance? Their anguished cries of “socialism” are almost drowning out all their cheering over the surging Dow. The explanation is simple.
The great consumer retreat from the market is being offset by government’s advance into the market. Consumer debt is way down from its peak in 2006; government debt is way up. Consumer spending is down, government spending is up. Why have new housing starts begun? Because the Fed is buying up Fannie and Freddie’s paper, and government-owned Fannie and Freddie are now just about the only mortgage games remaining in play.
Why are health care stocks booming? Because the government is about to expand coverage to tens of millions more Americans, and the White House has assured Big Pharma and health insurers that their profits will soar. Why are auto sales up? Because the cash-for-clunkers program has been subsidizing new car sales. Why is the financial sector surging? Because the Fed is keeping interest rates near zero, and the rest of the government is still guaranteeing any bank too big to fail will be bailed out. Why are federal contractors doing so well? Because the stimulus has kicked in.
In other words, the Dow is up despite the biggest consumer retreat from the market since the Great Depression because of the very thing so many executives are complaining about, which is government’s expansion. And regardless of what you call it – Keynesianism, socialism, or just pragmatism – it’s doing wonders for business, especially big business and Wall Street. Consumer spending is falling back to 60 to 65 percent of the economy, as government spending expands to fill the gap.
The problem is, our newly expanded government isn’t doing much for average working Americans who continue to lose their jobs and whose belts continue to tighten, and who are getting almost nothing out of the rising Dow because they own few if any shares of stock. Despite the happy Dow and notwithstanding the upbeat corporate earnings, most corporations are still shedding workers and slashing payrolls. And the big banks still aren’t lending to Main Street.
Trickle-down economics didn’t work when the supply-siders were in charge. And it’s not working now, at a time when — despite all their cries of “socialism” — big business and Wall Street are more politically potent than ever.
About Robert Reich
Robert Bernard Reich (born 1946) is an American politician, academic, writer, and political commentator. He served from 1993 to 1997 as the Secretary of Labor under President Bill Clinton. Reich is a former professor at Harvard and Brandeis. He is currently Professor of Public Policy at the Goldman School of Public Policy at the University of California, Berkeley.
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For more information from the FM site
To read other articles about these things, see the following:
- About Financial crisis – what’s happening? how will this end?
- About America – how can we reform it?, esp section 8 – solutions
Reference pages about other topics appear on the right side menu bar, including About the FM website page.
Some posts about solutions to the financial crisis:
- A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
- Slow steps to nationalizing the US financial sector, 7 April 2008 — How this will change our society.
- How should we respond to the crisis?, 24 September 2008
- A solution to our financial crisis, 25 September 2008
- The last opportunity for effective action before disaster strikes, 3 October 2008
- Effective treatment for this crisis will come with “The Master Settlement of 2009″, 5 October 2008
- Dr. Bush, stabilize the economy – stat!, 7 October 2008
- The new President will need new solutions for the economic crisis, 9 October 2008
- New recommendations to solve our financial crisis (and I admit that I was wrong), 23 October 2008
- Everything you need to know about government stimulus programs (read this – it’s about your money), 30 January 2009