The Modern Liberal Economy

Looking at economics I have noticed that the economy that we are told we live under is not the same thing as the economy that we actually live under. We are told that we live under a Liberal economy, one that prizes free enterprise. Often it is portrayed as if we live under a Laisse-Faire economy, except that there are a few minor rules that must be followed. But that is not the case at all. Instead we live under a hybrid economic system, a combination of Socialism, Keynesian Economics and Monetary Policy. 

Lets briefly look at each in turn.

Socialism is the idea that the economy should be controlled or managed at some level. While it shares many attributes with Communism, the difference is that Socialist normally believe that Socialism can exist whatever the form of government. The second major idea is that wealth should not be concentrated but should instead be redistributed so that there are no extremes of wealth or poverty.  

Keynesian Economics was started by John Maynard Keynes in the 1930's and it was supposed to be the answer to the great depression of that decade. It said that the government should create demand when the private sector was either unable or unwilling to provide demand. Demand meaning economic activity. Without demand, unemployment would rise with all it's attendant social and economic costs. 

Monetary Policy has been around a long time but it only really became influential from the 1960's onward. The basic idea is that the government controls the supply of money so it can borrow or print what it requires and it should do exactly that. Modern Western economies can avoid the old problem of inflation because they have so many checks and balances. These checks and balances mean that debt needs to be so extreme that the entire country would need to default for the policy to fail, Before that happens any number of measures can be made to stop it from happening.

It's hard for many people to accept that we have a Socialist economy, however hardly any government does not try to control the economy and in fact many people insist that the economy be controlled by the government. Hardly any of these people would think of themselves as Socialists. Hardly any of us want old age pensions or unemployment benefits to end, we approve of the redistribution of wealth. But we have mixed feelings about the growth of the government. Keynesian economics was designed in large part to create full employment. Joining Socialism with Keynesianism helped to create and spread big government. In time it came to see  full employment as too hard a task. So that was quietly abandoned and in it's place emerged mass unemployment, which satisfied demand. To administrate the unemployed required a large number of government workers. Most of whom were middle class, they required education up to University and that created more well paying jobs for the middle class. The unemployed existed to create government jobs, that was also true of all other social programs. 

But Socialism also existed in Business and what I call World Socialism, which were related. Business Socialism was there to look after business. The dirty secret of business is that it claims to love competition but in reality it hated competition, it wants to have a stead income that is protected. That could be and was provided, primarily for big business. Regulations were used to protect big business from competition. Sure they had top pay a price but it was a price that they were always prepared to pay. 

The third leg of this Socialism was World Socialism, which was a part, a big part, of the Globalism push. Fifty years ago China and the Chinese were poor. Poverty in China was a given. Today we find it hard to think of poverty existing in China, it does of course, but most of China is no longer poor. Only the United States has more millionaires, which makes sense as it's economy is also the second largest. This is a massive transfer of wealth, an important part of Socialism. A transfer from poor people in rich countries to rich people in poor countries. Through the transfer of factories, expertise and intellectual properties. 

Democracy survives by bribing us with our own money. This transfer was no different, we got to buy cheaper goods and services. Cheap in the short term, but extremely expensive in the long term and all fuelled by debt. From the 1980's Monetary policy became a big part of the economy. Economic activity would be advanced through easy credit, credit cards, loans, both private and public. Debt would provide the lubrication to stop friction from developing within the economy. Debt meant that no one had to miss out.

It also meant that when the Global Financial Crisis hit in 2007 that Keynesian economics could only be paid for by printing money. Governments around the world created stimulus packages under one name or another, all designed to create demand and to keep the economy floating. Monetary policy kept debt high, inflation and interest rates low and the money printers in overdrive. Today more than a decade on we have a quiet inflation at work. It is not very apparent in everyday prices. Unless you want to buy a house or shares or anything that is connected to the financial economy, then you find that everything looks risky. Increasingly it is becoming harder to trust any investment class, everything is doing well. Which is both suspicious and dangerous. 

In the past few decades those in charge have managed to pull rabbit after rabbit out of a hat, how many rabbits are still in that hat?

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