Charles K Rowley: Obama’s "Long March" to the Social Market Economy

Charles K Rowley is Duncan Black Professor of Economics at George Mason University and General Director of The Locke Institute. He is the co-author of Economic Contractions in the United States: A Failure of Government, published this month by The Institute of Economic Affairs and The Locke Institute.

Over the period 1980 to 2000, the economy of the United States benefited immensely from the ‘Great Moderation’, a twenty-year period of pro-capitalist political economy ushered in by Ronald Reagan.

But the dynamism of the US has subsequently been undermined, first by the rapid growth of public spending under George W. Bush, and now by President Obama’s rush to socialize the American economy.

Right out of the starting gate, Obama resorted to crude Keynesianism, ostensibly to move the US economy out of recession. The massive budget-deficits initiated by the Obama administration, and supported by an overly compliant Congress, will have a minimally favorable impact on the recession at the price of major long-term harm to economic growth. Indeed, these deficits, together with those planned for the decade yet to come, threaten to impose significant damage on the US economy, indeed to destroy what remains of its growth-engine, laissez faire capitalism. 

According to the White House’s own estimates, the federal budget deficit in 2009 will be $1.6 trillion, approximately 11.2% of the overall economy, the highest since the end of World War II. By 2019, the accumulated national debt will represent 76.5% of the overall economy, the highest proportion since just after the end of World War II. Unlike 1945, however, the US economy in 2019 will not stand hegemonic over a war-shattered world. The economies of China and India will, by then, be in excellent shape to challenge a poorly-performing state-capitalist US economy.