Liberals and progressives often refer to the American economic system (derisively of course) as Cowboy Capitalism or Laissez Faire Capitalism because in the US we are supposed to have less government intervention in the economy and more competitive pressures compared to the European system, which is often refered to by conservatives (derisively of course) as a Democratic Socialism or Social Welfare Capitalism.
The reality is that the United States has become an example of Crony Capitalism (aka Corporatism) as I've argued on previous blog entries. Another name we could call the US system is Subsidy Capitalism.
Every major sector of the US economy is subsidies -- massively -- by the Federal government. Many of these subsidies are justified as necessary to help the poor, but in reality they end up profiting big business and high income earners.
Let's get rid of subsidies. conservatives love subsidies because they leave private enterprises in place in the so called free market. Just because private enterprises remain does not mean we have a competitive free market. Subsidies distort the so called market to the point that the market often "fails." and then guess who gets blamed when the market fails? Of course, the market gets blamed. politicians never admit that their well meaning subsidies caused the distortions in the first place.
the Federal Reserve is by far THE biggest source of subsidies in the US economy / financial markets -- and therefore it causes the biggest distortions for two reasons. The subsidies come primarilyt from two sources: first because the Fed acts as a lender of last resort for big finance. Tax payers bail out big finance. It is no surprise that post 2008 the US banking sector is even more concentrated now! Secondly, the Fed facilitates 'inflation' which is a subsidy for debtors and a tax on creditors and savers. Private equity is one industry that benefits tremendously from debt subsidies thanks to the Fed's systematic bias toward ensuring postive inflation and to interest expense write offs.
On top of the Feds subsidies to the financial markets, we have massive Federal subsidies for health insurance (tax deduction for business), housing (interest deductions plus Fannie and Freddie, etc), education (loan interest loans), farm (price supports), infrastructure, banking and finance, green energy, exports. You name it and there is a direct or indirect subsidyscheme! Development economics has proven that subsidies typically benefit high income earners at the expense of low income earners because high income earners have the most to gain from them!!! Subsidies are a terrible way to try to help the disadvantaged. Lets get rid of them.
Living off handouts: it's not just the poor
The Economist Magazine
Sep 19th 2012, 13:20 by Buttonwood
THE latest gaffe by Mitt Romney (not so much Romneygate, as Romney-gated community) brings up a related issue, of how modern states have tended to extend benefits to the better-off, partly because of lobbying and partly as a way of buying the support of the wealthy for the welfare state. All this is well illustrated in Suzanne Mettler's book "The Submerged State", which shows how these hidden subsidies can distort voters' view of the way that government policy works; a 2008 poll found that 57% of Americans denied ever using a government programme. But when shown a list of 21 actual programmes, including student loans and home-mortgage interest deduction, 94% of the deniers turned out to have benefited after all.
Some of these programmes are heavily skewed towards the better-off. According to Ms Mettler, 69% of the benefits of the mortgage interest deduction went to those who earned $100,000 or more; 55% of the benefits from employer-provided retirement benefits* went to those earning $100,000 or more. Only 16% of workers in the lowest income quintile had employer-sponsored (and tax deductible) health insurance compared to 85% of those in the top quintile.
In cash terms, the average subsidy for those earning $200,000 to $500,000 is three times that for those earning $10,000 to $20,000.
And these programmes are large; mortgage-interest tax relief cost $104.5 billion in 2010 while the tax subsidy for retirement benefits was $67 billion. But these programmes are politically very hard to get rid of.
A similar problem dogs the British coalition. The Conservative Party is uneasy about ending child benefits for the higher paid, and has promised not to end the winter fuel subsidy for wealthy pensioners. But if you spare the middle classes from the cuts, more of the burden must fall on the poor.
Universal benefits are very expensive. But targeting benefits requires means-testing, an instrusive process that causes hard cases at the margin. And restricting benefits to the poorest may weaken political support for the whole system, along the lines highlighted by Mr Romney; people may believe that the hard-working "us" are subsidising the feckless "them".
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