| I'd like to thank my friend, John Pinto, for the opportunity to review my economics and political thought, by responding to his column across this page. First of all, it is erroneous to lump collectivists into "communists, or socialists, or liberals and progressives." Collectivists in economics hold that things should be owned by the group and used for the benefit of all rather than being owned by individuals. Communists and socialists fall under this category, but liberals and progressives do not necessarily favor state ownership unlike the former. While economic liberals believe in strong government involvement and regulation of the economy especially in the areas of environmental protection, worker health and safety, and consumer protection, I don't think they want to strip individuals of their right to own property. Indeed, they believe that the tax system should be progressive, meaning wealthier folks should pay higher taxes. In a parallel vein, progressives favor government regulation of business practices to ensure competition and free enterprise. It is therefore more appropriate to compare liberals and progressives to conservatives who favor minimal role of government in the economy. While I partly agree that the Great Depression may have influenced some people to embrace the collectivist idea, I believe that the roots of the Great Depression were the following: (1) concentration of wealth in the hands of a few, therefore economic prosperity was dependent on high spending and investment of the rich. Like today, these are susceptible to economic fluctuations and less stable than our expenses on daily basic needs; (2) concentration of corporate power in the hands of a few, when consolidations and mergers eliminated competitions in major industries. By 1929, 200 of the biggest corporations controlled 50% of the U.S. corporate wealth, and when a few went under, the whole economy suffered; (3) bad banking structure, where banks opened at the rate of four to five per day, but without many federal restrictions to determine start-up capital or how much the bank could lend. As a result, most of these banks were highly insolvent; (4) Foreign balance of payments, as a result of the U.S. involvement in the aftermath of World War I as a creditor nation. By the end of the 1920s, the United States controlled much of the world's gold supply because it insisted on payments by gold bullions. While I agree that the Hawley-Smoot Tariff Act (1930), a protectionist law, produced a negative effect on United States exports, it was only part of the problem. John Maynard Keynes was a British economist who rejected traditional theories of the free market, and favored vast government spending -- even deficit spending -- in times of recession, and when the economy had recovered, he argued that the government should reduce spending. Government involvement in the economy increased most significantly during the New Deal of the 1930s, and many of the most important laws and institutions that define American's modern economy can be traced to that era: federal authority in banking, agriculture, and public welfare; the Securities and Exchange Commission; the Federal Deposit Insurance Corporation; and the Social Security System. I disagree with Mr. Pinto that collectivist policies caused the devastating inflation of the '70s, together with high taxes and high interest rates. On the contrary, I thought that it was the government's failure to raise taxes to pay for the Vietnam War and the war against poverty that led to accelerating inflation, followed by the 1973-1974 oil embargo by the Organization of Petroleum Exporting Countries (OPEC) that pushed energy prices up and created shortages. The economic program of the '80s advocated tax cuts, on the theory that benefits would extend to lower-income people as well because higher investment would lead to new job opportunities and higher wages. However, these tax cuts benefited mainly wealthier Americans, while slashing social programs. It was the combination of tax cuts and higher military spending that resulted in the federal budget deficit that swelled even beyond the levels during the early '80s recession. It was the Federal Reserve's (a collectivist institution) quick move to control price increases or raise interest rates that aborted re-ignition of inflation. If you ask me, the government has kept Keynesian economics principles ready to use whenever needed. Asian countries that embraced the collectivist idea have their reasons for doing so, primarily due to the unequal wealth distribution that left the majority of their people in poverty. The free-market model being "adopted" partially by some of them is a must in this era of globalization, regardless of ideological differences. Developed countries under the capitalist system or mixed economies find these collectivist nations a fertile ground because of their cheap educated/skilled labor and market potential. It is a symbiotic relationship; not because a free market system is better than the other. I think this "marriage by convenience" between traditionally warring economic systems is only as good as relationships last between and among leaders of the day. To my mind, today's capitalists, motivated by profit, actually help build not only the economic might of selected collectivist nations, but their military might, as well. Then, when they are ready to "spread their wings," no, we will clip those wings. These "markets" shouldn't be more powerful than us. And how do we clip those wings? Either through support of "democratic rebels" or outright war. Have we truly reflected on the costs and benefits of war in both our country and in a developing -- or a third world -- nation? It is not unfortunate that here in the U.S. we have reasonable people in leadership positions who care for the needs of poor people, the need to preserve the environment for future generations, and the need to keep the people's welfare over that of wealthy corporations. I came here as an immigrant and now a citizen, believing that my country of choice, a democracy, cares for its people and their rights over the excesses of the influential few. I wouldn't exchange it for any other place on earth. |
| The great economic debate by John S. Pinto and Heidi M. Pascual |
| The great economic debate of the last century was between free-marketers and collectivists. The free marketers are also known as capitalists and the collectivists are known as communists, or socialists, or liberals and now they call themselves progressives. Communism got its impetus at the beginning of the 20th century. Karl Marx's Communist Manifesto was embraced by the intellectuals of the time and the way I see it, they saw it as a way to impose order on society. World War I created some of the conditions that led to the ascendancy of communism. By commandeering the financial and human resources in society, it was believed that a handful of people in government could manage affairs better than the messy way in which free peoples tend to manage their affairs. Another event that gave impetus to the collectivist idea was the Great Depression. The depression was attributed to a failure of the free-markets, but as history has shown, this was a false allegation. The great tax increases of 1931 and the Smoot-Hawley tariff bill were primarily to blame for the Great Depression. John Maynard Keynes, an economist whose ideas were embraced by many 20th century politicians, believed that the economy was like a machine. If you put doses of money in it or pull money out at the right times, he believed that you could achieve an equilibrium. Other economists pointed out that an economy is an aggregate of individual actions. The idea that equilibrium can be achieved is nonsense in the real world. In fact, it has been shown that a vibrant economy is full of constant disequilibria. There is a constant turnover of businesses as free markets rationally allocate resources efficiently. Collectivist policies brought us devastating inflation of the '70s and together with high taxes and high interest rates, we were heading into Greater Depression. Since the 1980s, when we took a step back from Keynesian economics, the United States has undergone an economic revival. Almost all Asian countries fell under the spell of the collectivist idea. China went hard core communist as did North Vietnam and North Korea, while others such as India used a softer approach called Democratic Socialism. Today, all of these countries, other than North Korea, have loosened their governmental control.With the free-market model taking hold, the results have been astonishing. We have all read about the economies of China and India. The economies of many other Asian nations have started to blossom. Even Japan, which stagnated when it took a collectivist approach, is coming back after economic reforms. Unfortunately, here in the United States, we still have the collectivists trying to run our lives, what with smoking bans, minimum wages, and other mandates that they say will make our lives better. If you believe this, I have some land I want you to look at. |
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