Socialism to the Rescue?
Wednesday, April 1, 2009 | Teeka TiwariRating:
I’ve got a question for you ... How come Rick Wagoner (the former CEO of GM) gets fired for asking for a lousy $13 billion more in federal money, but the guys at the banks (that have taken hundreds of billions) get to keep their jobs?
Don’t get me wrong, I’m not shedding any tears for Wagoner. It just seems that the administration is focusing on the smallest recipient of Federal largesse (the autos) when they should be jaw boning and firing people left and right at the banks.
It was great to see a big time executive held accountable, but it had the stink of misdirection on it. The misdirection being the switching of America’s collective focus from the almost $3 trillion that the Federal government now has out in financial guarantees.
A recent report by the Federal GAO office states that if previous fraud levels remain the same, the US tax payer will be defrauded of hundreds of billions dollars due to these various Federal guarantees. The government even announced that they are backing GM’s car warranties! Oh yeah, sure, that’s not going to get abused!!
Is America going to transform itself into a Welfare State? After World War II Britain made the conscious decision to become a Welfare State. I remember that being taught to us in school (in England) like it was a good thing! I came to America to escape the mediocrity and inefficiency that Welfare States breed.
This country was built by hardworking, risk taking pioneers, but alas the greed of an elite few have given capitalism a world wide black eye.
I am not defending the type of capitalism that pillages and plunders a nation's future to enrich the ultra privileged. Yes, massive mistakes have been made; greed has run amok, but the fundamental system of capitalism works.
As we go through this recession, which has now officially engulfed every state in the union (a feat not seen since the 1970’s) the populist voices will grow louder about the sins of capitalism.
We could very well see massive civil unrest ensue should millions of people end up getting turned out of their homes.
But no matter how ugly it gets, socialism is far uglier. Wealth isn’t distributed in a fairer fashion under socialism ... you still have the moneyed elite that end up getting all of the lucrative government contracts. The average person's standard of living actually goes lower. It’s only the people at the very lowest rung of the economic ladder who see their standard of living improve.
Socially that might sound great, but economically it’s disastrous. People at the lowest economic rung don’t meaningfully contribute to a country's economic growth. Giving them greater wealth has no multiplicative effect in a nation’s economy. They don’t build businesses, they don’t save, and they don’t buy houses.
Imagine that you owned a retail store with multiple lines of products, and instead of putting more money into the products that sell the most you put your money into the products that sell the least (by the way, this was a common practice at Woolworth's in the 1970’s and 1980’s, which hastened their demise). Pretty soon you will be stuck with all this money tied up in merchandise that isn’t producing any income for you, and that’s exactly what happens in socialism. Economic growth grinds to a snail's pace and an entire nation labors for the least efficient members of its society.
The good news is that we got through the great depression with out turning into a socialist state, so the chances are good that we will avoid that bullet this time around.
But be prepared to have a new agenda for America presented to you. Take it from me, I grew up on both sides of the economic fence, socialism is anti American, it is the very antithesis of what makes our country great.
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Teeka Tiwari
Chief Investment Officer
ETF Master Trader
