Sunday, November 16, 2008

A Recession Can Clear The Air

by Charles Morris - November 16th, 2008 - Washington Post

For years now, even Democrats have been drinking the free-market Kool-Aid that the best economy is whatever markets decree it should be. So for most of the past two decades, the U.S. economy has been driven by whatever Wall Street is best at financing -- mostly bigger houses, fancier cars and more electronic toys from Asia. We have become a nation where people struggle to make payments on four-bedroom houses with faux-marble bathrooms and two SUVs in the driveway even as they worry about their lousy health insurance, evaporating pensions, shaky Social Security benefits and tapped-out 401(k)s.

Wall Street, meanwhile, prospered mightily. Financial-sector profits, which typically average about 10 to 15 percent of corporate profits, had leapt to 40 percent by 2007. Total corporate profits also soared, nearly doubling as a share of national income. But instead of triggering an investment boom, the gains were mostly distributed to shareholders.

What has happened to America is that the illusion of Free Markets has been replaced by Corporate Socialism. Wall Street is no longer emblematic of Free Markets. Wall Street has become an advocate of Corporate Socialism, where mergers and acquisitions are engineered with special treatment for insiders and little concern for whether the companies actually advance society.

The premise which defends Free Markets as a superior way to run a society is that competition assures the most effective allocation of assets and labor to serve people with products they need. Wall Street has ended that allocation by eliminating competition to maximize profits based not on serving people with better products, but simply eliminating competition through acquisitions and mergers.

It is outrageous. The reality that financial sector profits have soared to 40% of ALL profits is a red flag that should have gotten the attention of the conservatives in the Republican Party that Free Markets have been subverted. The traditional 10% profit for the financial sector was probably already higher than pure Free Markets would have allocated. Even that level of profits was due to our governments fixation on Wall Street as the method of capital formation. Unfortunately, neither George W. Bush or John McCain or any other major Republican leader seems to understand Free Markets.

The current structure of Wall Street is destructive of Free Markets. Why do they think that so many of the Wall Street types are becoming Democrats? If we expect a return to Free Markets, someone is going to have to go after Wall Street and rein in their power to manipulate the economic engine of our nation. Otherwise we are in the process of killing the goose that laid the golden egg. With the election of Barack Obama we seem to be going the other way. Rather than return to Free Markets, we are about to replace Corporate Socialism with Government Socialism.

That is not going to be an improvement even if we allow a recession to shake out weak companies and bankrupt the citizens who have taken on too much debt.


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