The Economy IS The Colateral Damage of War on Terrorism

Henry C.K. Liu hliu at mindspring.com
Thu Dec 6 11:48:07 MST 2001


The latest economic data for October, 2001 suggest that the US economy
has not fallen off the cliff even after the disruption of 9:11.   Some
on Wall Street are already promoting the spin that a 2002 Q1 recovery is
in sight.  What may actually be happenning is that post 9:11 scrambles
to pop up the economy have foreclosed any prospect of a V recovery, by
the government cushioning the downward slide for a long decline.  The
likelihood of a steady decade long decline is now substantially
increased by knee-jerk government intervention.

The events of 9:11 have directly increased the government's role in the
economy.  However, this is by no means a conventional liberal
countercyclical intervention.  The emphasis of the intervention is still
supplyside, with the major share of tax cuts going to coporations and
high income taxpayers.  The Fed has pumped close to $1 trillion into the
money supply.  There are also open efforts to restructure the economy
toward state capitalism away fom financial capitalism.  The strategy
toward insurance regulation is to permit the rise in premiums levied on
the public and limit the liability faced by big insurers from terrorism
related losses, not withstanding the fact that terrorism is a state
liability rather than an individual liability.  John/Jane Doe does not
cause terrorism by their personal decision, state policies do. Why then
should John/Jane Doe pay for its losses out of his/her own pocket while
big business get bailed out?  The user fee advocates have no answer to
this fundamental question.

Government bailouts are now commonplace, not for the unemployed or for
universal health care, or public education, or social security, but for
corporations facing bankruptcy that trace back to decades of fantasy
business startegy.  Airlines want government to bear insurance and
security costs.  The steel industry now wants exception considerations
on antitrust by looking at market share globally as a criteria in
anti-trust determinations.  Big Steel wants to be bigger, to reduce the
number to a single supplier. To survive even in no competition domestic
market, it wants government to raise protective tariffs and to assume
the health care and pension costs of the entire industry.  The
government that prized itself as the white knight of free market
globalization is promoting protectionism with the back of its free trade
hand. The steel lobby in the OECD wants government to intervene in the
market to reduce g;obal production to keep prices high to save an
obsolete industrial business model, so that steel makers within OECD can
live better than doctors in most of the rest of the world.  The argument
is advanced that unlike the auto industry where the big 5 corner 70% of
the global market, the steel big 5 capture only 20%.  That is called
inefficiency, presumably because it cuases steel prices to fall to their
lowest level in two decades.  Bug Steel wants a conspiracy to fix prices
through a coordinated cut in production, just like OPEC, a cartel.

Increasingly, free market globalization for the advanced economies is
openly a game of head I win, tails you lose.
Free trade and market fundamentalism are not only conceptually flawed,
their supporters are also dishonest.

Henry C.K. Liu



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