29 Oct Socialism and De-Risking
“The American brand of capitalism has been replaced by an American brand of socialism.” – The Lonely Realist
TLR is a huge fan of laissez-faire capitalism, crediting it for America’s geopolitical preeminence, 200 years of wealth-creation and an ever-increasing American standard of living. Because America’s brand of capitalism enthusiastically embraces cut-throat competition, America’s free enterprise system has been derided by some as excessively aggressive, which competitors (notably those from socialized European countries) have labeled “vulture capitalism.” Although a “vulture capitalist” often is a person who sells off a company’s assets and slashes employment, vulture capitalism’s focus is on maximizing shareholder value, thereby subsuming the stakeholder interests of employees, customers, suppliers and society at large (previously discussed here). Yet, America’s brand of vulture capitalism has been the reason for American businesses’ unparalleled success. It is why American companies are world-beaters, prevailing over their international competitors and attaining unparalleled growth and size. The American brand of capitalism accordingly has been an essential building block upon which America – and American democracy – has flourished. It is why innovation has been synonymous with American industry, why America has led the world in job growth, and why America has been a magnet for immigrant aspirations. While critics correctly fault it for furthering income inequality, widening the wealth gap between economic winners and losers, and encouraging aggregations of wealth and power, that is the price America has paid for its economic and geopolitical success.
Not surprisingly, there are any number of Americans and American businesses that don’t want to pay that price. They want the government to pay …, and to finance the costs by printing Dollars and/or increasing taxes –, which necessarily enlarges the role of government in Americans’ lives and in America’s economy … the very definition of socialism. As a result, America’s successful, laissez-faire brand of capitalism has been whittled away. While there has been exhaustive media coverage of Federal and State intrusions into personal decision-making (from abortion rights to gun rights) and business discretion (from energy policy to tariffs), the most alarming attack on America’s economic future has been via Federal and State governments’ socialization of economic risk. This creeping socialism has burdened already over-leveraged governments with an ever-broader range of obligations that properly belong on the balance sheets of Americans and American companies. Any number of clever catchphrases are used to excuse the additional financial burden, a principal one of which is “too big to fail,” a 21st Century invention applied by successive Administrations to relieve banks, brokerages, auto companies, airlines, etc. from the consequences of their risk-taking and resulting financial failure. America’s government has further extended its largesse to farmers, owners of coastal homes, workers displaced by health issues, retirees, etc., and, most recently, former students. The list goes on and on. These are in addition to decades’-old laws that effectively insure individuals through Social Security, Medicare, Medicaid, Federal Deposit Insurance, Pension Benefit Guarantees, etc., and complementary State and local laws designed to protect selected constituencies from a variety of actual and conjectural risks. All have been given a subsidized free ride by both Democrats and Republicans cravenly seeking votes.
Meanwhile, special interests lobby elected officials in a sustained effort to reap profits while simultaneously transferring risk and liability to government. The practice of privatizing profits and socializing losses did not begin with COVID, although the pandemic saw both accelerated and newly-invented forms of socialized risk-transfer. Examples are legion (using an alphabet soup of acronyms: PPP, EIDL, LWAP, PEUC, PUA, etc.) and are perhaps best illustrated by the 2020 airline bailout, the excuse for which was the claim that America’s airline companies would fail without government subsidies. The Federal response was to hand over $54 billion, a sum sufficient to allow those publicly-owned airlines and their employees to wait-out the pandemic and thereafter return to full service (which didn’t quite work out that way!). Had there been no Federal bailout, airlines would have been forced to seek financing through America’s capital markets (isn’t that what capitalism is all about?) and, if that had proven unsuccessful, would have sought protection from creditors by filing for Chapter 11 bankruptcy (another uniquely successful American invention), which has long been the practice in an airline industry renowned for its boom-and-bust cycles. During good times, airlines happily pocketed their profits and reveled at being an integral part of America’s private enterprise system. But when they faced challenging times, they pled for government support on the basis that they are equivalent to a public utility. That doesn’t sound like laissez-faire capitalist thinking, does it?
This is a trend not limited to the government’s response to COVID. While the Democratic Party has been roundly criticized for proposing blatantly Statist legislation (among which are the Green New Deal, Build Back Better and the American Jobs Plan), the Trump Administration was equally enamored with bigger, more intrusive government, fashioning agricultural subsidies, tariff preferences, distortive tax incentives, labor relocations, and national security directives that limited individual and business choices and encouraged government-directed, and not free-market, economic actions. While Democrats are vocal risk-socialists, Republicans remain closeted in tacit denial of their practicing Statism. Both political parties have been the sponsors of ever-greater disruptions created over two consecutive decades of massive deficit spending (both Democrats and Republicans having embraced Keynesianism), which impacts virtually all aspects of supply and demand, the allocation of national resources, and the trajectory of business planning. Politically-driven risk-insuring most decidedly has favored collectivism over American individualism. (It’s chilling to note that Marxist theory treats socialism as a transitional social state in the overthrow of capitalism.)
Laissez-faire capitalism accordingly has become a relic of America’s successful past as Federal and State governments (including in the bright red States of Texas and Florida) establish voter-friendly and economically-foolish rules (by legislation, regulation and executive order) that underwrite a broad range of risks. The end of American economic outperformance isn’t a function of Progressive or Trumpist extremism. It isn’t about wokism or “slash-and-burn capitalism.” It’s about a creeping economic risk mutation that portends an end to America’s economic outperformance.
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Finally (from a good friend)