Is the United States or Europe better suited to recover from the Coronavirus-induced financial crisis? It depends on whom you ask and what data indicators you assess. Before the pandemic shut down the planet, the U.S. economy was on a tear, leaving the anemic eurozone eating its dust. In the aftermath of the COVID-19 outbreak, the early numbers suggest both economies are doing rather well, thanks to ultra-aggressive fiscal and monetary stimulus and relief measures. Who will pull ahead late in the race? According to the nicknamed Dr. Doom, America’s supposed “Wild West capitalism” will be no match for Europe’s “social cohesion.”
Nouriel Roubini Talks Covidepression
Nouriel Roubini, an economics professor at NYU, recently spoke with Bloomberg TV to discuss the global economy, the Coronavirus, and the recovery. Undoubtedly one of the best modern minds in his field, Roubini told the business news network that the V-shaped bounce is metastasizing into a U shape, which “could become a W if we don’t find a vaccine and don’t have enough stimulus.”
Not enough stimulus? Okay.
He also lamented on the stock market, noting that what is occurring in the equities arena is not reflective of the real struggles on Main Street, where there is plenty of uncertainty and risk aversion. The S&P 500 and the Nasdaq Composite Index are recording fresh record highs, while the Dow Jones Industrial Average reclaimed 28,000. Outside of the New York Stock Exchange, millions are out of work, small businesses are shutting down, and people are going bankrupt.
But it was his comments on Europe, the U.S. economic system, and the recovery that were worth a deeper dive:
“The European system of greater social cohesion gives you better economic outcomes than the one of the United States that is just Wild West capitalism. That’s why the unemployment rate barely went up in Germany or even in Italy, while in the U.S. we’ve had double-digit unemployment rate and actually even worse, considering underemployment and so on.”
Indeed, Europe might recover faster and better than the United States. We will wait for the results of unlimited quantitative easing and trillions in spending. But is the United States the Wild West?
Going Wild in the West
Was the golden age of western cinema representative of what happened in America’s Old West? If you were to watch a classic Glenn Ford or Sterling Hayden western, you would imagine that everybody shot at each other over a game of cards and a slug of whiskey. Gunslingers were prevalent, and many jurisdictions did not have gun laws or gun control. And yet, the data highlight that overall crime was low, murders were few, and robberies were an anomaly. The American West did not have excessive laws, rules, and regulations like the ones that permeate the land today.
Does today’s capitalism also lack state interventions? Hardly. Although the U.S. economy is mainly capitalistic, it has been placed in a stranglehold by all three levels of government. It is not a free for all, it is not laissez-faire, and it is not the Wild West. Put simply, Roubini misses the mark.
President Donald Trump should be commended for his deregulation campaign. During the 2016 election, Trump promised to remove two regulations for every new one. Four years later, the administration has eliminated eight federal regulations for every new one added. That is not too shabby. But does it go far enough? Consider these five digits: 88,000. This is the number of federal rules and regulations currently on the books — and that does not include state and local laws.
Here is another one: the tax code. The Internal Revenue Code is more than 6,500 pages long, or nearly four million words. Each year, these figures get larger, despite one side of the aisle pledging to embrace tax reform.
You also have the matter of the central bank. The Federal Reserve has initiated a multi-trillion-dollar campaign to cushion the economic blow from the Coronavirus. As part of its unlimited QE approach, the U.S. central bank has, directly and indirectly, bailed out Wall Street, a decade after giving the corridors of financial power a pile of freshly created money.
Whether it is operating a lemonade stand or serving homeless people food, everything is regulated and taxed to death. You cannot sell raw milk or use your vehicle for Uber without attaining permission from a bureaucrat. If the United States were a so-called Wild West capitalist state, you would not need approval to operate a lemonade stand, banks would not be given money from the Leviathan, and the federal regulatory book would be nonexistent. Everyone and everything would be left to to his or her own accord. As eminent Milton Friedman opined in his seminal book, Free to Choose, you would have the freedom to try, succeed, and fail. Today, you may have this freedom, but the government consent is mandatory.
Corporatism or Socialism
Roubini has been an engaging, fun, and knowledgeable economist since he first called the housing bubble more than ten years ago. He has always offered audiences unique analysis on issues of the day, and critics could likely find common ground with Dr. Doom. That said, the facts do not support the claim that the marketplace is left to its own devices as small businesses need to spend thousands of dollars to comply with regulations, and corporations get to influence public policy. Be it socialism or corporatism, the United States has a bastardized version of capitalism.
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