There is a growing debate that the deadwood has to be cleared in the US economy for a meaningful recovery to take place. So far the Beltway has avoided and short-circuited normal bankruptcy procedures preferring back-room deals without much transparency like the Bear Stearns - JP Morgan shotgun marriage or complicated schemes like the Chrysler restructuring where FIAT puts up no money and is taxpayer funded. Concern is mounting that this is not a sustainable or viable strategy.
There is little doubt that the corporatist form of capitalism that has developed in the US is vindicating Joseph Schumpeter's worst nightmares. Schumpeter famously argued that the essence of capitalism was creative destruction, by which new economic structures are born from the rubble of older ones. Schumpeter’s biggest fear was that creative destruction would lead capitalism to collapse from within, because society would not be able to handle the chaos. He was right to be afraid. The response of governments worldwide to the financial crisis has been to give the structure of private profit-taking an ever-growing scaffolding of socialized risk.
US policy makers have lately done their utmost to promote the demise of creative destruction. Their vision is a corporatist capitalism that is government funded and guided by public policy. This system as exhibited by the US financial industry that has been operating for years now on a system of political patronage and expanding government involvement in credit allocation primarily in the housing markets, which the Obama administration appears to be expanding on all fronts. Certainly with the massive stimulus programs, the moral hazard for political cronyism is on the rise. This system risks potentially creating a web of ever more parasitic relationships between the public and private sector.
Whilst market discipline would force organic industry reform for businesses to survive the market place, the buzz word of government bail outs give the favored a free ride. The path of the least resistance is to follow the government instead of facing market risks. What is inducing FIAT - a foreign automobile company - to jump into Chrysler, as opposed to putting their own funds and starting a US operation on their own? What keeps large US banks from their breaking themselves up and creating more economically viable and manageable units?
In effect, the US government under the mantra of saving jobs and temptation of expanded political patronage is impeding a natural clearing of the deadwood in the market place. The emerging US economy from this crisis is likely to be debt ridden and uncompetitive in a global markets.
The risks are that the declining productivity will weigh negatively on US government tax revenues, dashing hopes of paying down the surge in public debt. If the US State governments are any harbor to the future, even a small rise in interest rates would create a crushing burden leading to even larger federal deficits. What was originally envisaged as public debt levels of 80% GDP could reach over 100% GDP.
There are growing signs of broad-based concern. This ranges from the 'tea-parties' on the grass roots level to high level figures in the business community like Warren Buffett and Charles Munger.
There is little doubt that the corporatist form of capitalism that has developed in the US is vindicating Joseph Schumpeter's worst nightmares. Schumpeter famously argued that the essence of capitalism was creative destruction, by which new economic structures are born from the rubble of older ones. Schumpeter’s biggest fear was that creative destruction would lead capitalism to collapse from within, because society would not be able to handle the chaos. He was right to be afraid. The response of governments worldwide to the financial crisis has been to give the structure of private profit-taking an ever-growing scaffolding of socialized risk.
US policy makers have lately done their utmost to promote the demise of creative destruction. Their vision is a corporatist capitalism that is government funded and guided by public policy. This system as exhibited by the US financial industry that has been operating for years now on a system of political patronage and expanding government involvement in credit allocation primarily in the housing markets, which the Obama administration appears to be expanding on all fronts. Certainly with the massive stimulus programs, the moral hazard for political cronyism is on the rise. This system risks potentially creating a web of ever more parasitic relationships between the public and private sector.
Whilst market discipline would force organic industry reform for businesses to survive the market place, the buzz word of government bail outs give the favored a free ride. The path of the least resistance is to follow the government instead of facing market risks. What is inducing FIAT - a foreign automobile company - to jump into Chrysler, as opposed to putting their own funds and starting a US operation on their own? What keeps large US banks from their breaking themselves up and creating more economically viable and manageable units?
In effect, the US government under the mantra of saving jobs and temptation of expanded political patronage is impeding a natural clearing of the deadwood in the market place. The emerging US economy from this crisis is likely to be debt ridden and uncompetitive in a global markets.
The risks are that the declining productivity will weigh negatively on US government tax revenues, dashing hopes of paying down the surge in public debt. If the US State governments are any harbor to the future, even a small rise in interest rates would create a crushing burden leading to even larger federal deficits. What was originally envisaged as public debt levels of 80% GDP could reach over 100% GDP.
There are growing signs of broad-based concern. This ranges from the 'tea-parties' on the grass roots level to high level figures in the business community like Warren Buffett and Charles Munger.
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