Cartoon by: Aaron Lange

Newsweek recently declared, “We are all Socialists now”. It is probably true. What is truly remarkable is that less than 20 years ago Capitalism was triumphant after the fall of the Berlin Wall, the collapse of the Soviet Union and its empire and Red China’s adoption of a market economy. Even more remarkable, the supporters of Socialism did not come up with one new idea or new strategy to gain this victory over Capitalism. What happened? Did Capitalism collapse under its own inherent contradictions? Hardly. Instead Capitalism was a victim of its alleged champion the US Republican Party.

Republicans see themselves as the party of Conservatism, Freedom/Liberty, and Capitalism versus the Democrats who are the party of Liberalism, Security, and Socialism. It is an interesting theory but in practice Republicans have been involved in all of the great financial scandals in US history from Credit Mobilier (Grant) to Teapot Dome (Harding) to Enron (Bush II)

As bad as those scandals were, the real damage done to the ideals of a market economy and Capitalism were the Republican excesses that led to the Great Depression of the 30’s and the current worldwide financial crisis. The Republican Party has brought Capitalism to its knees twice in the past 80 years. Marx, Lenin, Stalin, and Mao Zedong would have loved such a record. As Warren Harding said of his cronies in Teapot Dome, “I can handle my enemies; it’s my friends who are killing me!”

The current financial debacle is not the result of mere incompetence but rather intentional malice. Alan Greenspan, staunch Republican and Ayn Rand groupie, was the darling of Wall Street but he was supposed to be the protector of the banking system and Main Street. Greenspan recklessly gunned the money supply in 1999 and then just as quickly took the money out of the banking system in 2000 thereby causing the Dot.com boom and bust. After 9/11, Greenspan correctly lowered interest rates but he kept them too low far too long which aggravated the current sub-prime crisis. Greenspan also advocated recent financial “innovations” such as credit default swaps which Warren Buffett correctly warned for years would lead to catastrophe.

Rush Limbaugh would argue that anyone can second guess Greenspan after the damage has been done. There were, however, other egregious acts by Bush/Cheney Republicans which were clearly wrong from the outset and should not have even been considered. Warren Buffett has been telling Americans for years that it is wrong to tax dividend income at a rate lower than labor income and favor the investor class over the working class. He is right. Republicans, however, argue that lowering taxes on dividends would stimulate investment. Unfortunately Republicans did it exactly wrong. The correct way to handle double taxation of dividends would be to allow it as a tax deduction at the corporate level thereby making it cheaper to issue stock. If that had been done instead, corporations might have less debt and leverage than they do today.

The other huge mistake was getting rid of the uptick rule on short sales. There is nothing wrong with selling a stock short i.e. selling it before it is purchased. The short seller however should assume some risk and be required to borrow the stock first and not sell it “naked”. Also the short seller should not be able to just flood the market with short sales in a “Bear Raid” and wantonly destroy shareholder value. The “uptick rule” i.e. a stock cannot be sold short unless it is at a price higher than the previous sale, was made after the 1929 stock market crash to prevent Bear Raids. The Republicans eliminated that essential market regulation in 2007 and despite all the chaos since then it still has not been reinstated.

Republicans claim they want free markets. Free markets, however, do not mean the Wild West. Free markets require the rule of law. Republicans claim they hate regulation (except when their failed businesses need to be rescued) but even hockey and rugby have referees to keep the games within reason. There is nothing wrong with Capitalism; it is in fact the best economic system ever tried. On the watch of the Republican Party, however, twice in the past 80 years Capitalism has been perverted into a system whereby the elites of the United States are able to take advantage of the majority of Americans.

The Republican Party is Capitalism’s Benedict Arnold.

Norman Lange CFA
North Olmsted,Ohio
NGL1517@yahoo.com