We’re All Statists Now – Rebranding the Capitalist System

In today’s Money Morning…big government is the economy…picking winners…this is a dangerous path we’re going down…and more…

It was 1880…

The ideology of Karl Marx was making waves around Europe.

Marxism was fast becoming a direct threat to the capitalist ideals that had flourished in the post-Adam Smith’s ‘Wealth of Nations’ era.

That era saw a transfer of power from the old system of hereditary privilege move to a rising middle class of traders and business owners.

And as Adam Smith had predicted, this new system of free trade grew the pie for everyone.

So, for a while, everyone was happy.

However, Karl Marx’s Das Kapital — written in 1867 — provided a strong critique of the capitalist system.

In particular, he highlighted the growing inequality between the new business owner class and the workers, labouring under the progress of the Industrial Revolution.

Civil unrest was growing.

In the UK, Sir William Harcourt decided to do something…

He was the Liberal treasurer of a pro-market British government of the time.

But he could see vast swathes of the voting public were being seduced by this vision of a workers’ utopia.

So, he enacted the Harcourt Finance Act.

This new law stepped up death taxes and unified the government of London into a more centrally planned system.

In doing so, he coined the phrase ‘We’re all Socialists now.

As if these minor amendments could qualify him as a ‘socialist’ of sorts.

It was pure political spin, of course.

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The real idea was to rebrand capitalism into something more palatable for the voters of the times.

Now it appears, our politicians are doing the same thing again. Spinning their actions into something they aren’t.

But this time it’s to the detriment of free markets…

Big government is the economy

I remembered this old story after reading my colleague Ryan Clarkson-Ledward’s excellent piece in Money Morning on Friday.

You should really read it.

Ryan brilliantly summarised the Morrison government’s latest moves to replace JobSeeker with yet more government largesse.

He wrote:

The much bigger news to come out of yesterday’s recovery announcement is the update to the SME Loan Guarantee Scheme. A program that, like JobKeeper, was first rolled out around this time last year.

It was a fairly simple package, one that would see the government share some of the risk of new loans to small- and medium-sized businesses. A means to prompt lenders, including the big banks, to be more lenient in allocating cash.

However, the first and second iterations of this policy didn’t quite hit the mark. Hamstrung by eligibility restrictions and an unwillingness from lenders to take on the risk.

As of yesterday, though, Morrison has improved the terms once more. With some big changes that will likely see this scheme become the “new” JobKeeper for smaller businesses.

Most notably, the 50/50 split of the guarantee between the government and banks has been upped to an 80/20 split. Meaning the lenders themselves are taking on far less risk.

On top of that, the maximum level of turnover for eligibility has been raised from $50 million to $250 million. Making it far more accessible for a range of businesses.

Furthermore, loan terms have been doubled from five years to 10. As well as the possibility for a 24-month “repayment holiday”. And perhaps most importantly of all, will allow eligible businesses to use the scheme to refinance existing loans.

This is a remarkable policy.

80% risk for who exactly?

People will cheer, but it’s basically the transfer of market risk from private businesses onto taxpayers.

But wait, there’s more.

24-month repayment holidays!

Extended 10-year loans!

It would appear everyone — well, at least if you fall into a convenient political category — should be supported by big government.

While certainly not socialist, it would appear we’re all happy to be statists now, at least when it comes to our own benefit…

Picking winners

It seems we’re living under a new kind of propaganda. And from a supposedly right-wing free market government.

They’re pretending to be capitalists and yet they’re using the power of big government to pick and choose winners.

The real ideology driving government policy is to keep power.

As Paul Keating once said, the horse named ‘Self Interest’ really is the one to back.

Of course, the opposition would probably do much the same, but that doesn’t excuse the current government.

After all, if Liberals won’t stick up for free markets, who will?

Will this help the economy in the short term?


But in the long term it sews the seeds of calamitous social and economic dislocations.

Think about it…

Who decides who is allowed to fail and who isn’t if not the market?

In such a world, the key to success becomes about how close you are to government power.

That gradually destroys innovation, creativity, entrepreneurial progress, and free and fair markets.

And, as Adam Smith told us 250 years ago, the economic pie shrinks for all.

It changes the investing equation too.

In a world where risk is underwritten by someone else, the rational decision for each individual is to take on as much risk as possible!

This is a dangerous path we’re going down.

Good investing,

Ryan Dinse Signature

Ryan Dinse,
Editor, Money Morning

PS: Our Managing Director Greg Canavan has recently spent a lot of time thinking about this new normal we’re living in and what it means for your investments. His answers might surprise you. You should check out his presentation on ‘Life at Zero’ here.

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

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