Monday, April 13, 2009

A Sign of the Times

This is a paper I wrote for my PSC 101 class. I know it's on my other blog, but I also know that some of you refuse to follow me on Facebook because of politics, let alone my blog about politics.

The United States economy goes through periods of rapid growth, and rapid contraction. In the short history of the U.S., free market capitalism has dominated the marketplace. Recently, we have seen a populous outcry for more regulation, especially on banks. Some policies that have been enacted have done much to expand government power in the economy, and introduce moderate amounts of nationalization and socialism. The American public is very divided on how they want the government to balance regulation and free market principles in weathering this economic storm.

In the first days of October 2008, the Dow Jones Industrial Average evaporated around 20% of the nation’s wealth. Investor confidence waned on news that lending institutions were no longer stable, due to the sub-prime lending market collapse. Mortgage backing giants, and government-sponsored enterprises, Fannie Mae and Freddie Mac, lead the charge of economic uncertainty. The American public was blood thirsty, and wanted to know who was responsible for regulating these industries.

Coming off the back of insolvent banks, George W. Bush authorized $700 billion worth of funds to be allocated to the United States Department of Treasury. Under the command of Hank Paulson, the Treasury Department was to inject liquidity into major baking institutions that were no longer seen as viable. This TARP (troubled assets relief program) plan was a plan to thaw credit markets in order to spur economic development in the short run, and turn into sustainability in the long run.

George W. Bush always touted free market capitalism throughout his 8 years as President. The American public generally accepted capitalism, and his approval numbers did not fluctuate much after the economic collapse. According to Rasmussen Reports, then President Bush’s approval rating was 34% in August 2008, compared with 33% in October of 2008 (Rasmussen 1). In a second poll by Rasmussen Reports, they examined a specific clip of a George Bush speech. “In mid-November, 44% of adults agreed with President Bush’s statement that ‘free-market capitalism is far more than an economic theory. It is the engine of social mobility - the highway to the American Dream.’ Twenty-two percent disagreed, and 33% were undecided” (Rasmussen 2). This demonstrated a plurality of support for capitalism.

Capitalism works by allowing markets to adjust to where they can be sustained. It’s a natural reaction to a simple economic theory of supply and demand. N. Gregory Mankiw compares The Wealth of Nations, a book that was written by Adam Smith, to the Declaration of Independence. He says, “…the two documents share a point of view that was prevalent at the time: Individuals are usually best left to their own devices, without the heavy hand of government guiding their actions” (Mankiw Pg. 11). Mankiw also hits on a point that can pull the U.S.’s capitalistic system out of the current recession. It is the basic economic concept that people respond to incentives (Pg. 9). Once producers lower their prices to where consumers will again be able and willing to purchase said goods, the economy will begin to produce at levels seen before the economic collapse.

Consumer confidence is a key in weathering any economic storm. Consumers must feel comfortable in spending their money, or savings will pile up – leading to smaller amounts of economic output. A recent Gallup Pole suggests that consumers are starting to gain confidence in the economy. 15% of Americans were optimistic about the economy during the first weeks of February, compared with 32% at the end of March (Gallup 1). With this level of up-tick in optimism among consumers, we may see retail markets bounce back, followed by many other sectors of the economy.

Recently, signs of frustration from the American public have come in the form of low support for capitalism. In a recent Rasmussen survey, only 53% of Americans believe capitalism is better than socialism. However, only 20% of respondents said they felt socialism was better than capitalism (Rasmussen 3). This seems to be a gauge of how frustrated the American people are.

Socialism stems from the belief that the government should step in to monitor and regulate businesses and marketplace interactions. The government also plays a larger role in making sure income is evenly distributed throughout the population. Western Europe has fallen into this sort of behavior with their socialized healthcare system. Healthcare is provided for each citizen, regardless of ability to pay for it. Teemed with a progressive tax system, this healthcare is often financed by the upper class. Americans have been reluctant to give the government this much power, due in large part to our founding fathers’ beliefs in a small government that should be restrained by the people.

Partisanship can be a key factor in deciding the attitudes of American citizens in regards to the economy. Typically, the Republican Party is more favored toward free market capitalism, where Democrats favor tougher regulation, and sometimes socialism. Democrats typically believe the government can solve the problem, whereas Republicans often believe government is the problem. In the Rasmussen Reports poll, Republicans favored capitalism 11-to-1 over socialism. Democrats still favored capitalism, but only 39% said it was better than socialism, while 30% supported socialism over capitalism (Rasmussen 3). Independents played their part as well. “As for those not affiliated with either major political party, 48% say capitalism is best, and 21% opt for socialism” (Rasmussen 3). The key factors of the ideological split in both parties come from each party’s respected leaders. Democrats tend to follow the ideological path of Barack Obama and Barney Frank, who believe that tougher regulations need to be put in place in order to correct the financial systems. Republicans, however, are more divided. Some favor complete free market principles penned by Rep. Ron Paul (R-Texas), where many others believe in a moderately regulated system touted by Sen. John McCain (R-Arizona) and Lindsey Graham (R-South Carolina).

One thing is clear in this situation: the American public is very divided on how they want the government to balance regulation and free market principles in weathering this economic storm. The United States is a country that remains to lean center-right on economic principles, and it shows with some of the wide gaps with independents asked about the capitalism vs. socialism dispute. In conclusion, these polls show that although Americans are reluctant to champion the likes of capitalism in these tough economic times, they are not anywhere near embracing socialism.


Gallup. 2009. “Economic Perceptions: Personal vs. National.” Gallup Polls, April 9.

Mankiw, N. Gregory. 2008. Principles of Macroeconomics. Mason, OH; Cengage

Rasmussen Reports 1. 2008. “44% Agree: Free-Market Capitalism is Highway to
American Dream.” Rasmussen Reports, November 18.

Rasmussen Reports 2. 2009. “President Bush Job Approval.” Rasmussen Reports,
January 5.

Rasmussen Reports 3. 2009. “Just 53% Say Capitalism Better Than Socialism.”
Rasmussen Reports, April 9.

Saturday, April 11, 2009