The Economy of Change
The unprecedented economic events of the past few months have brought with them many changes to our nation — enacted by both George W. Bush and Barack Obama. Throughout, the debate has centered around the contrasting theories of how much our government can do, how much it should do, and what it actually will do to lessen the impact of the financial crisis. With trillions of dollars on the line, the solutions put forth will play a critical role in how this country progresses over the coming decades. While the course of action seems to be determined at this time with the $787,000,000,000 stimulus package, the perception of this package’s effects is the most important component. To prepare for the upcoming onslaught of spin and exaggeration by politicians, everyone must be briefed on what is really going on.
In order to understand it, the philosophical ideals of both the Democrats and Republicans must be explained. The Democratic position is tied directly to their calls for extremely quick action on the stimulus package. They are trying to portray this crisis as the catastrophic asteroid that could destroy everything we know. They need it to be a huge problem, quite frankly, because the $787 billion they proposed is a lot of money. But when the economy recovers, their stimulus package and their party will be viewed as the saviors – the Bruce Willis of Armageddon – regardless of what actually brought us out of the crisis.
On the other side, Republican positions vary. Some see no need for a stimulus, others agree that a stimulus is needed, but would prefer not to rush to judgment when such a large amount of money is at stake. Many are probably riding the wave of public opinion against this bill for political expediency. More importantly, however, they need this crisis to be seen as a recession that would heal itself over time without the government’s intervention.
With these two conflicting viewpoints, the important question is which scenario is closest to reality. The problem, predictably, is that no one knows for sure. The economy’s current situation is serious – sure. But no one, certainly not the politicians, know exactly how serious it is or how their actions will affect it. This allows everyone with a voice to make a claim, whether true or not, that supports their point of view. The result is a war for public opinion that has already begun through the varied methods of information proliferation.
In the long-term, this battle will decide the fate of Capitalism in America. For years, the Democratic Party has been championing increased government involvement in economic issues, more government programs, and more regulation, whether or not it is warranted. If you listen to the speeches of Democratic leaders, they will position our government as the solution to your problems. With the timing of the economic downturn, they were provided with strong ammunition to support their cause. When the economy gets better, they can credit the stimulus package and government as the source of improvement.
But continuing with the thought that bailouts and stimulus packages will solve all of our woes would be catastrophic. Already, the events of the past year have taught everyone from homeowners to corporations that mistakes are not punished. Homeowners who bought homes they could not afford are now being provided a way to lower their mortgage rate, just as firms from AIG to GM were given billions because they failed. Even if this was necessary, now everyone sees that failure is acceptable and that Uncle Sam will be there to help. But as we all know, there is not enough help to go around. If we keep rewarding failure then failure is what we will receive.
So with all of that in mind, we can take a look at the future of capitalism. Some have described the current economic state as “temporary socialism,” and it is certainly at least the latter of those two terms. The transience of this socialist state is not settled yet. There are Americans who want socialism and feel that government must play a bigger role. Right now, the precedent has been set for our government to spend money in virtually any way it deems appropriate. If they continue to do that, the free market system that got us this far will cease to exist as we know it.
Many Democrats in Washington know that this is the golden opportunity to legitimize and validate their big government theories, and increase the power of our government. The result of this, unless their measures are defeated, will be more and more government as time goes on in the name of solving the crisis. But will this be temporary? Unfortunately, there are very few cases of the government giving up its power once it has taken it. Take, for example, the right to bail out a corporation, as we have seen done many times. Now the government has a precedent to bail out a company. They can bail out any company, even if the economy as a whole is doing fine.
For students, this may seem reassuring that the company they will work for can wholly neglect smart business practices and still survive via aid to pay their employees. But, as a whole, the moral hazard that will result from each additional bailout will cause great harm to the economy by encouraging risks that were not meant to be taken. As a nation, it is imperative that our government relinquishes its newly acquired economic and financial abilities once the economy is restored.
