If you ask the average American what he believes the name for the United States Economy is, odds are you would say capitalistic economy; probably, based on factors such as: ease of starting a company, general belief that the market determines the price, and maybe some grounding in the idea of the invisible hand made famous by Adam Smith. Realistically, the United States has become more and socialistic since the days of the Great Depression. In doing so, control over the economy has gradually become one that falls on the shoulder of the president of the United States. For someone who has many other duties to the country, the President has a lot to worry about on top of staying up to date on economic theories. Further, nowhere in the three requirements to run for president[1] does it say that you need to be well versed in economic policy. Increasingly, executive power has meant more in the economy. One similar case can be seen from a young Eastern European country called Belarus. Although Belarus has only been recognized as an independent state for a short period of time, they have experienced much of the same economic indecisiveness. There was a short lived attempt to become a capitalist society followed by executive intervention that returned the country to a socialist base. Clearly these two polar opposite nations in terms of wealth, have utilized similar policies that may lead them to a similar fate.
In the United States of America, there are certain executive powers that people generally do not recognize as important powers. The main power that can be overlooked is that of appointment into office. This is a means by which the president intervenes in the economy. One of the most instrumental positions in policy making is that of Secretary of the Treasury. Under previous president George W. Bush, this role was extremely important in helping with the financial crisis that is still playing itself out. Under current President Barrack Obama, Tim Geithner assumes this role. This position is filled by appointment from the President. In most cases the President appoints someone who sees eye to eye ideologically so that there will not be any problem with passing his policies. Thus, the President of the United States picks who will have arguably the largest effect on economic policy over the next four years.
In terms of prior backgrounds before entering the seat of the Secretary of the Treasury, most of the appointed are people who have made their fortunes in the private sector and decide to take a short break to give something back to their country. Because the salary for this position is a measly $191,300[2], often millions of dollars less than they were previously making, this position is only accepted because of power. Tim Geithner served as President of the Federal Reserve Bank of New York prior to taking his seat in the cabinet. Hank Paulson, who served under the Bush administration previously worked as Chief Executive Officer at Goldman Sachs. As the current economic crisis exploded in late 2008, there were wide speculations about whether or not Paulson did not do justice to all of the firms that collapsed (or didn’t collapse because of government intervention) because of his ties to Wall St. To the general public, the faces and names of Wall St. don’t mean much, but to people who live and there, these are friends and families. People tend to be much more lax when they are dealing with a place they come from. In addition, Paulson cannot possibly keep an open mind in reforming the market, when he is planning on going back to work in the same place that he is placing government restrictions. The person in charge of handing over the reins to this powerful seat: President of the United States. Clearly, this is a huge power that is often overlooked when considering the powers of a President.
In addition to appointing the Treasury Secretary, the President also appoints the Chairman of the Federal Reserve Bank. In essence this bank controls the flow of money in the United States. The person at this seat can control interest rates and inflation as he sees fit to help the market. Essentially, the Chairman of the Fed controls the money in the market, and the Treasury Secretary controls the policies. As previously stated, both of these positions fall under the umbrella of presidential appointments.
These are only two powers that the President holds, but they play a necessary role in how the President personally jumps into the economy. First and foremost, one of the most interesting aspects of each election is the tax debate. Should they lower the tax rate and trust the public with the money they have earned at twenty percent, or should they raise it to thirty percent and use more tax dollars for public works projects and things that make it a better environment to live in? This often shapes the way that people vote. However, many of the non- decisive voting factors are policies that shape the economy in a much larger way.
Two of the most recent cases of these economy changing factors are that of the “bailout of the banks,” and the “bailout of the car industry.” The pressing question for the last quarter of 2008 was should the government bailout companies like AIG, Bank of America, and Citigroup when they are private companies that made their own mistakes? After Fed Chairman Ben Bernanke utilized all of his power to stimulate the economy by lowering interest rates to the lowest they have ever been, it was the President’s turn to give it a shot. Unlike other economic problems, this one happened to be setting in when a sitting president was leaving office, and another was coming in. This allowed for collaboration between both cabinets to solve a problem as well as the voting population to vote based on how their candidate would handle the problem. Part of the problem was resolved in the Emergency Economic Stimulation Act of 2008[3]. This was the “de facto” power of President Bush. The economy was falling and it was up to the president to save it. However, no where does it state that the President is Responsible to save the private sector as it is failing. The agencies that were recently bailed out of their problems were saved because the president thought it was a good idea for the economy, is it his position to make this assumption? This was clearly an executive intervention into the economy and it only started the ball rolling for President Obama.
The banking industry is the lifeblood of the economic cycle. This argument to bail out the banking industry makes it sound obvious, if the economy cannot survive without it, the government should help them out. However, once government intervention hit the car industry, the government was testing its powers. This assumption of power came at the hands of President Obama as he gave dwindling companies like General Motors, Chrysler, and Ford loans when they were going under. If the banking industry is the lifeblood of the economic cycle, what does that make cars? Is it necessary to bail out these companies that failed to recognize industry trends in their planning cycle simply because it would help the economy in the short term? President Obama went as far as firing a CEO in Mr. Wagner from General Motors if they wished to continue receiving government funds. [4] These are assumed powers that deal with the economy and they are setting president for potential government intervention and regulation of all industries.[5] The line that previously stood at the private sector has been crossed and may continue to extend until the current economic crisis is over.
The fact that the government now owns stock in many major banks can be quite scary. The idea for a central bank in the United States died a long time ago when President Andrew Jackson killed it because it was funding politically connected businesses.[6] The idea of corruption entering politics is scary, but the idea of corruption becoming a part of the economy could be detrimental to the current system. Multiple studies have been done that find a company becomes significantly less profitable when it is owned by the government.[7] President Bush assumed this power of intervention when he was in office and President Obama has taken it farther.
Because of these recent events that have clearly altered the de facto power of the president, combined with the powers of appointment that the position has always held, there can be no denying the claim that the country’s economy is moving farther and farther away from the capitalistic country we used to be and toward the socialist economy we now are, or are becoming. It is extremely interesting to compare this economic structure with that of Belarus; a transition country that has not been in existence for less than 25 years. Belarus has been in flux in terms of going back and forth between capitalistic and socialistic policies. What is extremely surprising is that the economy of the United States and that of Belarus is so similar despite having polar opposite economic power. Further, in both cases the executive branch has played a major role in shaping policy.
The country of Belarus initially started passing capitalistic laws and regulations during the early 1990’s, but in 1994 President Lukashenko changed the pace of capitalism. It was during this period that banks were renationalized since they were previously deemed private when the country received its independence. The current President has assumed government regulation and intervention in almost all sectors of the economy. About 80% of all industry lies in the states control.[8] This is astronomical, but it was the President that assumed the power to intervene in the economy; much like that of President Obama. There are striking and notable differences which are that President Lukashenko changed the constitution to allow him presidency for life, and that the most recent elections were not conducted fairly.[9] Obviously these are massive differences between the two states, but nationalization of banks and executive intervention are clearly not. With the United States government taking stake in the large banks and effectively regulating them, it is not a stretch to say they are in the process of nationalizing banks the same way that Belarus has done.
How has nationalization of banking done for them? As we stated before, lending is the lifeblood of a capitalist economy, and in terms of financial freedom, Belarus ranks low on the list. The banking lending system has scored a 10 on a scale of 100 (100 being free) because of the government guiding the system.[10] This is extremely low considering the world average is 49.1. Further, this is a huge impediment for economic growth in the country. In addition to this, government regulation has cause a brain drain in the investment sector because the country has made it so difficult to invest that anyone who knows how has moved to freer countries to do it in. The overall score of 45 for Belarus leaves them 167th on the list which is quite far away from the United States in the 6 spot with a score of 80.7. However, with rising socialistic intervention from the executive branch, the potential for the United States to fall significantly is rising.
Despite the socialist intervention in the past decade, the economy has been growing, constantly flirting with the 10% range for their Gross Domestic Production for the past 5 years.[11] This growth may lead people to believe that their executive assertion on the private sector has worked, but when you consider the hostile environment for business and investment, it is extremely hard to wage how fast the economy would be growing if it was freer. However, just as President Lukashenko assumed power in the 90’s he seems to have started returning to the ways of the economy before he took office. The way the economy was headed before he exerted his power was toward liberalization. The government has recently started privatizing joint stock corporations. They plan on privatizing more than 500 companies over the next two years.[12] This is important because it shows the cycle coming full circle: The government under the USSR was communist, but became a free market when it was liberated. In 1994 it left its capitalistic direction under Lukashenko and rapidly started moving toward socialism until now when they are realizing it is preventing growth.
This common thread that can be weaved throughout the United States economic movement and that of Belarus is that the executive branch leads the economy each time. As the United States moves toward a socialistic economy, it is Obama that assumes he has the right to do it. In Belarus it was President Lukashenko that led the country through its socialization and now capitalization. However, when presidential powers are brought up in either country, no where does it state that the president determines the classification of the economy. This entire concept brings up problems that can be widely debated: Should the Presidents wield so much economic power? Should there be certain aspects of the Economy that cannot be changed? Should there be elections of powerful economic advisers instead of appointments? The answers to these questions may never be definitely answered. It is important to recognize the de facto power over the economy that current executives have, and whether it is leading each respective country in the direction that it wants to be headed.
[1] The three requirements are: Natural born American citizen, at least 35 years of age, and have lived in the US for at least 14 years.
[2] "Secretary of the Treasury." US Department of Treasury. US Department of Treasury. 21 Apr. 2009
[3] H.R. 1424, 110 Cong., 1 (2009) (enacted).
[4] Forbes, Steve. "Sickening." Forbes 12 Jan. 2009: 16+. Academic Search Premier. EBSCO. Bentley, Waltham, MA. 15 Apr. 2009
[5] Meacham, Jon, and Evan Thomas.. "WE ARE ALL SOCIALISTS NOW. (Cover story)." Newsweek 153.7 (16 Feb. 2009): 22-24. Academic Search Premier. EBSCO. Bentley, Waltham, MA. 15 Apr. 2009
[6] THE WASHINGTON TIMES. "Uncle Sam's heavy hand." Washington Times, The (DC) (27 Mar. 2009): 16-16. Regional Business News. EBSCO. Bentley, Waltham, MA. 15 Apr. 2009
[7] THE WASHINGTON TIMES. "Uncle Sam's heavy hand." Washington Times, The (DC) (27 Mar. 2009): 16-16. Regional Business News. EBSCO. Bentley, Waltham, MA. 15 Apr. 2009
[8] THE ASSOCIATED PRESS. "Central Bank of Belarus Allows Currency To Fall 20%." New York Times (03 Jan. 2009): 2. Academic Search Premier. EBSCO. Bentley, Waltham, MA. 15 Apr. 2009
[9] "Belarus." 2009 Index of Economic Freedom. The Heritage Foundation. 21 Apr. 2009
[10] "Belarus." 2009 Index of Economic Freedom. The Heritage Foundation. 21 Apr. 2009
[11] Belarus. Belarus Foreign Ministry. Economic Development Review 2008. Economic Development Review 2008. Belarus Foreign Ministry. 21 Apr. 2009
[12] "Further Liberalisation Of The Economy Ahead." Emerging Europe Monitor: Russia & CIS 12.9 (Sep. 2008): 10-10. Business Source Premier. EBSCO. Bentley, Waltham, MA. 15 Apr. 2009 http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=33764043&site=ehost-live.
FURTHER READING: There was an article in the New York Times today arguing the opposing position about the United States becoming Socialistic that can be found here: http://www.nytimes.com/2009/04/19/weekinreview/19stevenson.html?_r=1&scp=3&sq=obamanomics&st=cse
Enjoy,
Matthew James
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