Charles K Rowley is Duncan Black Professor of Economics at George
Mason University and General Director of The Locke Institute. He is the
co-author of Economic Contractions in the United States: A Failure of
Government, published this month by The Institute of Economic Affairs
and The Locke Institute.
Over the period 1980 to 2000, the economy of the United States benefited immensely from the ‘Great Moderation’, a twenty-year period of pro-capitalist political economy ushered in by Ronald Reagan.
But the dynamism of the US has subsequently been undermined, first by the rapid growth of public spending under George W. Bush, and now by President Obama’s rush to socialize the American economy.
Right out of the starting gate, Obama resorted to crude Keynesianism, ostensibly to move the US economy out of recession. The massive budget-deficits initiated by the Obama administration, and supported by an overly compliant Congress, will have a minimally favorable impact on the recession at the price of major long-term harm to economic growth. Indeed, these deficits, together with those planned for the decade yet to come, threaten to impose significant damage on the US economy, indeed to destroy what remains of its growth-engine, laissez faire capitalism.
According to the White House’s own estimates, the federal budget deficit in 2009 will be $1.6 trillion, approximately 11.2% of the overall economy, the highest since the end of World War II. By 2019, the accumulated national debt will represent 76.5% of the overall economy, the highest proportion since just after the end of World War II. Unlike 1945, however, the US economy in 2019 will not stand hegemonic over a war-shattered world. The economies of China and India will, by then, be in excellent shape to challenge a poorly-performing state-capitalist US economy.
In such a debt-dominated environment, the dollar will no longer be acceptable as an international reserve currency. As the dollar collapses, and as rest of the world threatens further to reduce its dollar-holdings, either the US government will hyper-inflate to wipe out its debt, or real interest rates on US government securities will increase dramatically, policies that must choke off private investment.
With significant parts of its financial and industrial bases even now infiltrated by government ownership and/or control, bureaucratic sloth will increasingly have replaced capitalist entrepreneurship as the US slides towards Second World economic status.
But this is far from all. The Obama administration is promoting new laws designed to socialize significant sectors of the United States economy:
- His proposed healthcare bill includes a public-payer option that will significantly expand the role of the state in the largest industry in the US.
- His card-check bill will strengthen union power by weakening the secret ballot in votes to unionize US firms, taking the US unions to a position enjoyed by British unions before the Thatcher reforms.
- His cap and trade bill will deploy a government-designed auction system to regulate yet further the US energy industry, pressuring firms to adopt green standards without any compelling cost-benefit analysis. T
- he global-poverty bill, that he sponsored as a US Senator in 2007, will force the US to comply with UN demands for increasing aid to Third World countries at a time when all the evidence suggests that such aid destroys incentives for development.
These bills are meeting resistance in the US Senate because of vote considerations, with a number of Democrats eyeing the 2010 elections. The House of Representatives still remains strongly supportive, although the situation may change if voters turn increasingly hostile.
Barack Obama is deploying all the substantial powers of the presidency to ‘persuade’ Congress to vote through his agenda against perceived voter resistance. Like Mao Tse Tung through 1934-35, Obama through 2009-10 is engaged in a ‘long march’ to socialism.
If he succeeds, even if he loses a working majority in Congress in the 2010 elections, he can fall back on his veto to maintain the new status quo. Even if he pays the ultimate price in 2012, with a defeat in the presidential election, he will ‘own’ legislation that will have transformed the US economy from laissez-faire to state capitalism. And that will be quite an achievement for a left-leaning Democrat.