Capitalism Becomes a Victim of Recession

Donald Lambro
Friday, May 01, 2009

WASHINGTON -- Capitalism has taken a beating lately, as it often does in a prolonged recession, even though government precipitated the crisis in the first place.

But this time the enemies of capitalism have grown bolder, maybe more persuasive, and arguably more effective than its defenders -- certainly more devious in cloaking increasing state controls, central planning and federal ownership with softer terms to beguile voters into giving them the power to manage and control much of our economy.

Increased spending for every problem is now called "investment." Reregulation of the nation's financial system and centers of production is called "reform." Demand for more control over economic decision-making is called "fixing the economy."

Disturbing signals that capitalism has been losing ground among our body politic can be seen in a recent Rasmussen Reports poll finding that only 53 percent of American adults believe capitalism is better than socialism.

Twenty percent disagreed, saying socialism is preferable, while 27 percent said they were not sure which was better.

The younger they are, the more they liked socialism. People under 30 were about evenly divided: 37 percent favored capitalism; 33 percent said socialism was better; and 30 percent were just undecided.

Support for capitalism grows with experience and age. Among people in their 30s, 49 percent said capitalism is the best system, compared to 26 percent who supported socialism.

People 40 and older overwhelmingly support capitalism -- a mere 13 percent said socialism is better.

Capitalism's popularity rises and falls with the economy. It was hugely popular in the Roaring '20s when the economy was running flat-out, taxes were low, government spending was modest, and regulation was minimal.

Then capitalism became the enemy with the crash of 1929 that heralded the Great Depression. Politicians and people blamed Wall Street, bankers, speculators and anyone with money.

Capitalism experienced a resurgence in the 1950s with the boom of the postwar years that weakened in the 1960s when John F. Kennedy ran on getting the economy "moving again" by cutting income tax rates. To those who criticized cutting taxes for the rich, Kennedy replied, "A rising tide lifts all boats." By the end of the decade, the Treasury was flush with cash and the budget was in surplus.

But no president in recent memory was a greater champion of capitalism than Ronald Reagan, who redefined it in heroic terms. The people who ran it and made it work for everyone were entrepreneurs, risk-takers and bold investors who dreamed of building great enterprises that would span the globe.

He declared the 1980s "the age of the entrepreneur" and was its biggest cheerleader, delivering economic sermons in praise of the free-enterprise system that would expand wealth, jobs and opportunity if only government would get out of the way. As the economy plunged into the recession of 1981-1982, he told a dispirited nation that government wasn't the answer to our problems -- government was the problem. As it is now.

He cut taxes, eliminated burdensome regulations, turned on the spigot to increase oil exploration, opened global markets to U.S. goods, started the North American Free Trade Agreement, and the economy took off.

Newspaper headlines said Reagan had made "capitalism fashionable again."

Now we are again in a deep recession, and Barack Obama has ridden it to the pinnacle of power by saying that the economy has been gunned down by Wall Street, bankers, speculators and unfettered capitalism. Obama became the anti-Reagan. Government, he said, is the answer to all our economic problems, and we need lots of it. Income taxes will have to be raised on those very entrepreneurs, investors and risk-takers that Reagan saw as the pioneers of economic progress. And the government will "invest" those taxes as it sees fit in government-run green technology and nationalized healthcare. Oil exploration and all other fossil fuels will be taxed and curtailed. Trade will be restricted and demoted. The heroes of Obama's centralized economy will be administrators, czars, regulators and overseers in Washington.

"What Obama proposes is a 'post-material economy,'" and that's not good, writes Washington Post economic columnist Robert J. Samuelson.

"He would deemphasize the production of ever-more private goods and services, harnessing the economy to achieve broad social goals" like curbing global warming and creating government health insurance. "In the process, he sets aside the standard logic of economic progress.

"Since the dawn of the Industrial Age, this has been simple: produce more with less," i.e., increasing productivity, Samuelson continues. "Mass markets developed for clothes, cars, computers and much more because declining costs expanded production. Living standards rose. By contrast, the logic of the 'post-material economy' is just the opposite: Spend more and get less."

Obama is betting $9 trillion in debt that it will work. Wise economists like Samuelson know that it can't.

Obama thinks the age of free-market capitalism is ending, and that we are entering the Age of the Managed Economy where government redirects the nation's resources and its capital to achieve broad, untested social reforms.

"Those who predict capitalism's demise have to contend with one important historical fact," Harvard Professor Dani Rodrik writes in the current issue of The International Economy. It "has an almost unlimited capacity to reinvent itself." It has survived countless crises over the centuries and has outlived all of its adversaries. It will survive Obama, too.