George Will

Economic policy during a second Joe Biden term would be even worse than policy during a second Donald Trump term. Both, however, would continue a bipartisan consensus that for decades has grown broader, deeper and more economically and culturally debilitating. Americans are sleepwalking toward convulsive pain, a consequence of decades of easy money policies to prevent minor pains.

Social outcomes that are deemed flaws of capitalism — increased inequality and corporate power — are actually largely consequences of government. It has grown excessively interventionist and confident as it and the nation have become addicted to prolonged low interest rates, the “socialization of risk” and the resulting misallocation of capital. Because of government’s “paternalistic fear,” a “bailout culture” has grown: “A safety net once meant to catch the poor at the precipice of hunger was extended under the financial markets.” This was the result of a vow by the Ayn Rand-reading Alan Greenspan, appointed Federal Reserve chairman by Ronald Reagan.

So argues Ruchir Sharma, investor and chairman of Rockefeller International, in his invigorating “What Went Wrong With Capitalism.” This nation has become “the biggest deficit spender in the capitalist world” by increasing increments of risk-aversion and pleasure-delivery by government.

President John F. Kennedy’s proposed tax cuts, enacted after his assassination, were, Sharma says, an American first: a tax stimulus to fuel an ongoing expansion. President Lyndon B. Johnson’s innovation was a spending stimulus to accelerate an ongoing expansion. In 2017, Trump “instituted tax cuts later in a recovery than any previous president, pushing the practice of constant stimulus to a new extreme” — and pushing the deficit to a peacetime record.

Because of the fiscal follies during the pandemic — “forgivable loans” (hitherto called grants), cash downpours (recipients, including most Americans, many of them gainfully employed, fattened bank deposits by $3.5 trillion) — the government issued more debt in 12 months than it had in the first two centuries after 1776.

Hitherto, the “cleansing effect” of large recessions culled weak companies, causing a 20 percent increase in bankruptcies. But because of the bailout culture, during the pandemic corporate bankruptcies declined. Did you even notice Biden’s $36 billion bailout of the Teamsters’ retirement plan in 2022? Sharma on the indiscriminate “impulse to rescue”:

“By the summer of 2020, the Fed owned debt issued by major companies in virtually every industry … even a utility held by Berkshire Hathaway. In effect, the government was offering unsolicited financial aid to Warren Buffett.”

In 1987, after the Black Monday stock market crash, a ripple in an expansion, Greenspan declared the Fed’s “readiness to serve as a source of liquidity to support the economic and financial system.” That is, to support everything. His wielding the central bank for stimulus during an economic expansion was, Sharma says, a step toward government operating “in permanent crisis mode.” and toward almost four decades of what the political class relishes: cheap money.

Since Greenspan’s 1987 promise, Sharma writes, “the stock market has grown from half the size of the U.S. economy to two times larger,” disproportionately benefiting the wealthy. But economic stability can disguise loss of dynamism. The economy was in recession half the time in the late 19th century, one-fifth of the time between 1945 and 1980, and just one-tenth of the time since then.

But, Sharma argues, the business cycle is dampened by piling up debt. In the bailout culture, slowing growth stimulates financial markets, which anticipate fresh gushers of government money. Especially benefiting the wealthy.

Between the 1790s and 1970, Sharma writes, the nation “ran consistent surpluses, with significant deficits only during five crises: the War of 1812, the Civil War, the Great Depression, and the two world wars.” Since 1970, there have been significant deficits every year but four.

Conservatives’ faith that tax cuts will pay for themselves is mirrored by progressives’ faith that their “investments” pay for themselves. The result is the same: debt.

Greenspan’s successor, Ben S. Bernanke, said the Fed’s bond-buying was designed to drive down interest rates, thereby driving up asset prices for a “wealth effect”: Feeling richer, Americans would spend more. This was not demand management, it was the manufacturing of demand; government planning, not capitalism, wherein market forces allocate wealth.

Socializing risk benefits the rich most, but others, too. Total U.S. social spending — including health and pension benefits delivered by private employers but mandated or subsidized by government — is about 30 percent of gross domestic product, and the welfare state is world’s second-most (behind France) generous. But everyone eventually loses from what Sharma calls “a business culture pickled in debt.”