Yet, in spite of the stimulus, prices continue to drop; the economy
lost 467,000 jobs in June and unemployment went up to 9.5 percent. The
fiscal rescue plan is not working. Only about 14 percent of the
provided money has been spent. Moreover the total amount of capital
lost is $14 trillion while the new capital provided by the government
is $2 trillion, hardly sufficient to create an inflationary
environment. There might be yet another stimulus. Some doubt, however,
that in absence of velocity it will work, while others see it as a plot
for replacing private-sector with government jobs.
WIDESPREAD THEORY
Most economists share a view that the market is self-correcting and
that the market run by a government declines. The new widespread theory
behind stimulus is that the free market system is inherently unstable,
even self-destructive, and that the government must do the job. But the
notion that socialistic economy is superior to market economy is
laughable in Berlin, Moscow, Beijing and beyond.
True or not, in the U.S., the market has been gradually replaced by the
socialistic sector. This sector -- federal, state, and local -- has
grown from 25 percent of the GDP in 1950 to about 50 percent in the
1990s. Today the debt of the socialistic sector alone exceeds the
entire GDP. The socialistic portion simply dwarfs the free market. Such
transformation has consequences. The shortage of capital that we are
experiencing is typical for this type of economy.
RESEMBLES BLACK HOLE
Indeed, the U.S. government balance sheet is a bottomless pit,
resembling a Black Hole. The government spending resulted in the
trillions of, impossible to repay, liabilities. The healthcare alone
has $34 trillion in unfunded liabilities. Also on state level other
untenable Soviet-style programs have been adding to the debt. Yet
socialistic economic sector continues to expand.
During the past 30 years the Japanese economy underwent similar
socialistic transformation and developed similar credit problems. The
Japanese government pursued a similar strategy in the 1990s. It failed
miserably. It could not get out of the deflationary grip. Since then
the Japanese economy has contracted 15 percent.
In the 1940s following the Yalta Agreement, a number of countries in
Eastern Europe found themselves under the dictate of the Red Army and
were forced to replace free market with socialism. This transformation
caused loss of productivity, lack of profit, shortage of capital, and
ultimately severe indebtedness. These economies had contracted
brutally. In the end the entire Soviet economy had crumbled leaving
millions in poverty.
The U.S. government laid down a foundation for transformation to
socialistic economy with Johnson's Great Society programs, Medicare and
Medicaid. Richard Nixon's Environmental Protection Agency, Bush's
Americans with Disabilities Act, George W's expansion of the
prescription benefits for seniors added to the pot. The FDR's Social
Security is underfunded and will need huge inflow of new capital. The
inflated cost of education, thanks to Education Act of 1965, has been
restraining growth of the housing market, disabling this very important
engine of economic growth.
REVISE ASSISTANCE PROGRAMS
I do not advocate leaving the poor without assistance, but these
programs must be revised and put on sustainable path. While government
is spending trillions it doesn't have and at the same time draining
productive sector from capital, it creates the foundation for Soviet
type economic collapse.
Meanwhile the spending increases in the president's budget, coupled
with tax increases enacted by Congress and state legislatures, will
wreck any chance of restoring the economic power of the consumer. And
in spite of the proposed tax increases, the government's spending
programs will increase deficit. The program to buy CO2 emissions will
increase the cost of energy intensive products creating greater burden
for the consumer. The new health program will require huge, still
undefined tax resources. It will strengthen deflationary pressures and
weaken the consumer.
Sadly there are no attempts to reduce government spending. Rather there
are attempts to portrait the socialistic, Soviet-type, economic crisis
as the failure of the free market.
Jarosinski lives in Waitsfield.
