Tuesday, March 31, 2009

Socialism feeds on crisis

While walking around Neuquén this morning, I noticed an entire wall that had been plastered with copies of this poster. The picture shows a broken Statue of Liberty, and the main caption reads "The capitalist economy is bankrupt." Underneath the main caption, the slogan says "Only the working class can provide the solution: socialism." Leave off the last word of the slogan, and you have a summary of Obama's prescription for rescuing the U.S. economy from its current crisis.

The pendulum of economic policy has moved decidedly to the left all over North and South America in recent years and months. Back in the 1980s and 90s the pendulum was swinging to the right, as governments adopted policies that relied on the power of increased after-tax incentives and free markets to create jobs and boost living standards. Now the emphasis is on higher taxes for the rich and redistributing the money to the poor, relying on the power of consumer demand to boost output. What we have is a new pan-American experiment with demand stimulation, the antithesis of the supply-side emphasis of the Reagan and Thatcher revolutions.

The politics of the right requires, however, that government's role in the economy be minimized, and therein lies the rub. What led to the current crisis was not unfettered capitalism but too much government interference in markets. The Bush administration failed to check the growth and influence of government. Similarly, Argentina's grand experiment in free markets and a fixed exchange rate in the 90s failed because the government couldn't resist the temptation to borrow and spend, and the central bank mismanaged the currency peg.

Argentina has suffered a series of crises since the peso lost two-thirds of its value in early 2002. Each crisis has fueled demands for and/or acceptance of greater government intervention in the economy, in the belief that free market policies failed and only government can fix things. Argentina is now beginning to realize that the Kirchner administration has gone too far to the left. The export sector, faced with huge export tax hikes, is refusing to export. Everyone is getting worried about the increasing power of the unions and their ability to disrupt daily life.

We have seen several "protests" in recent days, where workers go on strike, close off streets and highways and otherwise disrupt the life of the country in order to publicize their demands for higher wages, etc. We happened on one such demonstration this morning, just before I snapped this picture. Four cars had pulled into the intersection of two major downtown streets, and each one turned sideways to block off the traffic approaching the intersection from each direction. Someone dumped some old tires into the middle of the intersection and set them on fire, a process which produces tons of awful smoke. Then people gathered with signs and began chanting and hanging out in the intersection. Instead of breaking it up, the police stationed officers a block away in each direction from the intersection to divert traffic. The government is plainly quite willing to tolerate such actions, and indeed much of the power that President Kirchner enjoys comes from the support of unions and workers.

I'm hopeful that the U.S. won't fall victim to the same problems that now afflict Argentina. Obama has used the economic crisis to advance his agenda, just as the Kirchners have done in Argentina. I worry about Obama's belief in the power of consumer demand and income redistribution, and I'm convinced that the market shares my concerns in spades. I can only hope that the average American voter is not so easily misled as is the average Argentine voter. Argentine living standards have fallen so far behind ours as a result of repeated experiments with income redistribution and government takeovers of industry (and today I read that Obama has decided that the CEO of GM must be fired!) that the people have lost their perspective. "Been down so long it looks like up to me" is a good description of how most people feel here.


CDLIC said...

China and Argentina in Currency Swap


bob wright said...
This comment has been removed by the author.
bob wright said...

On a discouraging note, I see no corrdinated effort by the minority party in the U.S. Congress to put together 1) a cogent list of reasons why the current economic policy is detrimental to our long term prosperity or 2) a clear and a concise set of alternative policies.

We need a new Contract with America.

Please enlighten me if such an effort exists.

bob wright said...

Democrats/Socialists/Liberals have always struck me as being quite adept at generating "Billboard" advertisements for their positions.

i.e. Bush Lied. People Died.

Strikingly simple and strikingly deceptive.

Conservatives/Free Marketers/Libertarians/(OK, Republicans also) need similar verbal spears to chuck at the invaders.

Scott Grannis said...

Re the currency swap: It doesn't really impact the dollar at all. It is basically the Chinese saying they are willing to trust that Argentina won't renege on its part of the deal, which is a risky assumption on the part of the Chinese. China has a reason though, since Argentina is potentially a valuable trading partner.

Scott Grannis said...

The GOP does desperately need a clear message, a responsible agenda, and a charismatic spokesman. There are some promising candidates out there, but none that has swept me off my feet. With luck this crisis will produce one. The Democrats could lose big-time in next year's elections if they continue on their present course and the Republicans can present a better alternative, much like what happened in the 1994 elections with the Contract with America.

Tom Burger said...

What actions can the Republicans complain about? Bush did it all, and received Congressional support at the time. Are there any Republicans, save Ron Paul, who have voting records that would allow them to voice legimate concerns/complaints about Obama's madness?