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Strategy Lab: Are we Economically Socialist?

October 24, 2008 8:01 am

From my latest MSN Strategy Lab journal:

Are we now economically socialist? Communists?

As the global economy struggles for a positive change during this financial crisis, it is apparent that the United States is having an identity crisis. Capitalism has long been the reason for the United States’ economic power. It has allowed our country to expand under creative ideals and allowed the free market system to determine who sinks or swims. Shouldn’t we still be employing these ideals?

With recent government intervention in American International Group, Washington Mutual and Lehman Bros. and the mass infusion of capital into the markets, many citizens should be questioning our economic decisions. Are we still a democracy, or have the Senate and House of Representatives been persuaded to vote in the direction of a few people in power, better known as socialism?

Just a few weeks ago we saw the House veto the bailout bill and then, a few days later, have a change of heart. What changed so drastically from one day to the next? A few details, persuasion from higher authorities or the feeling they were not fulfilling their patriotic duty? (There also could have been some persuasion from the $150-billion dollar sweetener that was added to the bill.) Are we, the American people, satisfied with this outcome?

Find out the answer to this important question as well as my latest stock picks/strategy HERE.

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Written by Andrew Horowitz · Category(s) MarketMash, Strategy, Strategy Lab    |  Tags: • • •   

5 Responses to “Strategy Lab: Are we Economically Socialist?”

  1. Jeff Craig on October 24th, 2008 11:29 am

    I don’t think it’s fair to characterize Socialism as “few people in power”, that to me seems to be more in tune with Socialism’s kissing cousin, Communism.

    Frankly, I’m appalled by the way the bailout is being handled, for a few reasons:
    1. It’s not set up to allow banks who deserve to fail, to fail. Some organizations got themselves into trouble out of sheer greed, and they deserve to fail because of it.
    2. The buying up of MBS is apparently going to involve refinancing the loans associated with the securities. I have no problem with moving these people from an ARM to a Fixed-rate mortgage. I think that’s a good thing to do. My problem is the plan to adjust the principal amount on the loan to what the current market value of the house is. If someone paid $500k for a house, they should be required to pay back $500k. Period.

  2. Alex on October 24th, 2008 5:23 pm

    “A few people in power” is oligarchy, not socialism. FYI. Socialism is an economic ideology, as is capitalism; democracy, republic, oligarchy are political systems. IMHO, neither socialism nor capitalism exists in a pure form anywhere. Technically the US is a republic, but in terms of who’s making the decisions on economic policy lately, I agree we are probably an oligarchy.

    Anyway, I don’t think it does us any good to describe a policy action as “socialist” or “capitalist” as condemnation or praise; what matters is, does the policy work, and is it beneficial?

    The powers that be (in particular, Bernanke and Paulson) believe we’re in a survival crisis; that inaction will lead to a downward spiral not unlike the Great Depression. We’re not there yet, maybe we’re in the 1930 stage. So… if you had 1930 to do over again, would you let it happen the same way?

    It’s fine to question their actions; I do it all the time! But… what do you do?

  3. chris on October 25th, 2008 7:15 am

    Not a free market. If you destroy your company in a free market it stays destroyed. Pundits talk about “free market fundamentalists,” but the label is misleading.

    Not socialism. Our political system is based on divisions. The U.S. can’t solve basic problems like health care and infrastructure investment. Most advanced countries I’ve been to, except Italy, appear to have figured these things out.

    How about: Continuing Criminal Enterprise.

  4. Andrew Horowitz on October 27th, 2008 7:00 am

    Chris:

    How about: Continuing Criminal Enterprise.

    I LIKE IT

    A

  5. John L. on October 29th, 2008 11:11 pm

    We would not have had to clean up such a mess if we had had better regulations to prevent

    a. Excessive leveraging
    b. Shady, packaged loans that were sold to other companies
    c. Lack of collateral

    In short, any business system is like a bumper car that needs rails to keep from going off the road. Regulations are needed to protect the passenger driving the car as well as pedestrian.

    The public is having to foot to bill to clean up the tragic accident created because of all these “bumper cars” that crashed and killed the driver and a lot of bystanders.

    We need better “rails” to guide the bumper cars along but more importantly, we need finanically educated decision makers at all levels of government and industry who can “foresee” what the impact will be of any business system that is allowed to spin out of control.

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