Socialism with American characteristics-Peter Diekmeyer (07/05/2018)
May 7, 2018,
U.S.
President Donald Trump praised his close ties with Chinese President Xi Jinping
this week, amidst new trade talks between the two powers.
American
negotiators question Chinese practices ranging from state subsidies to
intellectual property rights violations.
However, despite differing rhetoric, legal systems and capital control regimes, the two economies are increasingly alike.
Both
are essentially state-run, with governments championing key sectors. Current
talks, which are about regulating trade, not freeing it, provide a prime
example. But there are others.
Consider:
American government spending is bigger than France’s
According
to recent calculations by
Truth in Accounting, public sector spending now equates to more than 60%
of America’s gross domestic product. That’s higher than France. It’s even more
than in socialist Scandinavian countries.
Bill
Bergman, TIA’s director of research
calculates that the average American works more than seven months a year to
finance federal, state and local government spending.
The
public, including even many economic experts, don’t realize how lopsided the
situation has become. That’s because the U.S. government increasingly hides or
defers many of its taxes.
Few
Americans will notice the tariffs that the Trump Administration recently
decided to impose on $50 billion worth of Chinese imports. These will be
included in the prices of those goods and thus invisible to consumers.
Government sets price levels
Many
Americans would also be surprised to learn that the U.S. Treasury Department,
through the nominally-independent Federal Reserve, manages consumer price
levels.
The
Fed’s key policy tool, short-term interest rates, also directly affects
corporate profits, real estate valuations and even stock prices.
These
are signs the government wants to boost its control even further.
Janet
Yellen, a former Fed chairman, recently floated a trial balloon suggesting that
the central bank should be allowed to buy stocks on the open market. This could
pave the way for the Fed to set prices for individual stocks, sectors, or the overall
market.
Trillions in business subsidies
The
Federal Reserve’s monetary policies coupled with America’s fractional reserve
banking system and currency monopoly
could be keeping interest rates down by as much as 5
percentage points throughout the yield curve
. If that is correct, the federal government is providing
more than $700 billion in hidden subsidies each year* to businesses.
Governments
in America pick all the major economic winners and losers. The Trump
Administration’s recent tariffs to protect the steel industry are one example.
But
there are others.
Key
sectors, ranging from banking to auto manufacturers, were bailed out during the
last financial crisis. The tech giants are essentially immune from anti-trust
legislation, which is no longer enforced in any material way.
America emulates fishy Chinese economic data
The
American government’s growing share of the economy has had a corrosive effect
on output, which has stagnated for more than a decade. When GDP totals are
adjusted to take into account the debt increases needed to finance stimulus, the
degeneration is deeper and dates back further.
To
hide this fact, the American government appears to be emulating China by
publishing fishy economic data.
U.S.
efforts date back to the early 1980s, when statisticians began changing inflation,
unemployment and GDP calculations. While reasons given by the experts (such as
hedonic adjustments to CPI numbers) always sounded good, the fact that they
generally also cast a better light on the data makes them increasingly
questionable.
In
the early 1990s, government accountants followed suit by refusing to record trillions
of dollars worth of growing pension and medical care liabilities. Those
practices continue to this day.
Socialism with American characteristics
Americans
continue to regard their economy as a free market system.
But
when U.S. and Chinese trade negotiators meet, they, not the free market, will choose
which industries succeed and which ones won’t.
Xi
Jinping describes his country’s economy as “socialism with Chinese
characteristics.”
Trump,
whose policies include increased borrowing, spending and trade regulations, is
less clear about his vision.
However,
the U.S. has moved far from its capitalist origins.
Today,
its economy is better described as “socialism with American characteristics.”
* Non-financial debt as at December 31, 2017 of $14.3 trillion x 5% =
$715 billion.
Check out these other articles by Peter Diekmeyer:
Big Mac Index suggests America in decade-long depression- Peter Diekmeyer (30/04/2018)
|
Peter Diekmeyer is a business writer/editor with Sprott Money News, the National Post and Canadian Defence Review. He has studied in MBA, CA and Law programs and filed reports from more than two dozen countries. |
The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
