Carping Mounts Over Stimulus Plan and Bailouts

Federal Government Now Owns Two Percent of Total US Equity

Aug 21, 2009

President Obama, the White House Energizer Bunny, battles tirelessly for new programs; meanwhile, voters fault his party's strategy in righting the US financial mess.

In their views, the $787 billion Recovery and Reinvestment Act of 2009 (ARRA) and the attendant bailout tactics are not getting the job done. They say the former is way too futuristic for a stimulus plan and the latter is taking the government where it has never gone before, away from the light of Capitalism into the darkness of Socialism.

CBO Estimates Corroborate Arguments of Stimulus Critics

The dissidents are tired of grandiose infrastructure projects, which although commendable in the long term, don’t make the cash registers “ka-ching!” tomorrow.

Their arguments are bolstered enormously by the Congressional Budget Office (CBO) report that preceded passage of the act by Congress. That forecast estimates the ARRA will provide some stimulus to GDP in 2009, but will not help elevate GDP to positive levels until 2014. (See CBO estimates at the bottom of the page.)

Doubters of Stimulus Plan Also Knock Bailouts

In addition, the disgruntled naysayers suspect the feds are taking over too many private companies, using bailouts that other recent bills enabled. GM (nicknamed “Government Motors”), Chrysler and AIG are examples.

Critics lament the process infects American business with scandalous socialism, the boogeyman of hard-core Republicans and many soft-core moderates.

Strident Voices in the Kingdom of the Blogs and Elsewhere

The June 16 blog of the venerable NEW REPUBLIC says the US needs a second stimulus. In a thinly-disguised message, the blog seemed to say the US really needs a first stimulus.

Disgruntled taxpayers can even go to Care2petitionsite.com to sign a petition, to refund $500 billion in unspent bailout funds to the US Treasury, expressly for paying down the federal deficit.

In Congress, US Senator John Cornyn (R-Texas) has joined with Sen. John Thune (R-South Dakota), in introducing legislation requiring the federal government to end its ownership of the private industries it has acquired over the past 15 months.

How Serious Is the Threat of Socialism?

Amidst all this sound and fury, it’s time to ask: Is America- the bastion of Capitalism starting down the primrose path of Socialism, through the federal government acquiring equity interests in private companies?

The table at the bottom of the page breaks down the makeup of equity ownership in the US, in the first quarter of 2009. Two sectors – Households and Mutual funds - dominated equity ownership with nearly three-fourths of total shares issued, while the federal government’s measly portion was under 2%.

The top-five owners of US equity shares:

The next five make up less than 10 percent of total US equity ownership:

Federal Ownership of Equities Appears Temporary

FED data going back to the mid-1940s shows federal ownership of equities first appeared in the final quarter of 2008, so it can hardly be called an emerging pattern. Rather it stands out like a sore thumb, which seems an apt metaphor, as a fix for a financial emergency that demanded action.

It is said America re-invents itself every generation. This tendency to respond to changing demographics, mores and global interaction requires constant modifications in the way its citizens work, live and govern themselves.

Public Ownership of Resources and Facilities Not New in US

In practicing such flexibility, the federal government becomes involved in enterprises that are essential or advantageous to the public’s welfare. Social Capitalism is one name given to this concept recently, as explained by the internet blog The Ingenesist Project.

In the US scheme, government units own and manage the public school system, public highways and bridges, dams for the reclamation of land and for power (and the management and sale of power), and many other enterprises.

The Tennessee Valley Authority (TVA) is an example of public ownership. The US practices ownership of a business enterprise, as owner of the public railroad corporation Amtrak, which it chartered in 1971.

Rush to Adopt Bailout Tactics Indicates Temporal Nature

In establishing public corporations, the precedence in the US has been lengthy deliberation beforehand, because the concept of private enterprise is so important. Contrast that with the haste of Congress in passing the so-called “Bailout Bills” – the Emergency Stabilization Act of 2008 (TARP) and the Renewable Energy and Job Creation Act of 2008.

The word “emergency,” which connotes temporary, is even in one of the titles.

Tuning up the Stimulus Should Be Number One Now

Most serious critics of the government’s two-pronged strategy seem well-intentioned. They want to leave America unchained, free to energize Capitalism for continued growth and prosperity. The officials in the Obama administration pledge they want that too, once the financial roadblocks are removed.

What is more problematic and deserves attention now is how to rouse Rip Van Winkle – the stimulus program of 2009. It seems to have fallen asleep.

The copyright of the article Carping Mounts Over Stimulus Plan and Bailouts in Investment is owned by Howard Bryan Bonham. Permission to republish Carping Mounts Over Stimulus Plan and Bailouts in print or online must be granted by the author in writing.