No Returning to Capitalism as We Have Known It

I’m truly a "Free Marketeer."  A graduate of the Wharton School at Penn and a retired vice president of the what used to be known as the world's 'largest and greatest" insurance company, a "mighty pump" (as Fortune magazine then characterized it), whose money pump helped to drive the economy back in the 1950s and ‘60s – the Prudential Insurance Company of America, as it was known then.  That grand prominence, of course, has been diminished, though Prudential Financial is still very much a great company and has been holding up pretty well under the current onslaught.  

What's happened within our capitalistic economy over the past couple of weeks was inevitable, almost prophetic, had we but been able to read the tea leaves.  How could it have progressed in any other way?   

We now have almost three generations of citizens who have experienced few, if any, remarkable economic hardships in their lives.  Nothing has been so serious as to keep them from the shopping malls.  No one in government has asked them for any sacrifices through the Vietnam and Iraq wars.  And everyone in government has told them they can have it all, regardless of the consequences.  Indeed, there would be no consequences.  Just keep consuming, and we will be OK.   

Interest rates were so low (and relatively speaking, still are) that money was almost free.  It was loaned, and then traded creatively on secondary markets, with abandon.  Almost any Joe or Jane could qualify for any kind of a loan.  Extraordinarily obscene amounts of money were being made on Wall Street, by people of just ordinary talents.  But we now all know that sordid story. Now the markers are being called in, and we're about to pay the piper. 

Enter the politicians!  Inevitable.  Like vultures circling far above a wounded animal, waiting for it to die before they pounce and pick at the carcass.  The two presidential candidates know absolutely nothing about economics and can't even begin to understand the current problems, but, of course, that doesn't keep them from mouthing off.  Fire Cox!  Yeah, right.  No doubt, that will take care of everything.  And Nancy Pelosi, Harry Reid, Chris Dodd, and Barney Frank will inevitably agree before this week is out to Hank Paulson's and Ben Bernanke's $700 billion bailout "solution." But not before making Paulson and Bernanke sweat before the TV cameras.  And not before taking the stage themselves and pontificating their righteous and populous views before the American people.  Quite a show, if the consequences were not so terribly serious. 

It's now far too late to let the financial markets sort this out.  The American people are now used to, and indeed demand, instant fixes.  Entitlements have now become, well . . . entitlements. Rescue me from my ill-considered decisions.  Put these CEOs in jail (where, of course, some of them probably deserve to be!).  But, above all, make me whole.  Make this all go away, and do it quickly.  And, as a small business owner, what are you now going to do for me?  You're taking care of the big guys, and I want my share.  And then there's Ford and Chrysler and GM, ad infinitum. 

After Congress acts this week, there will be no returning to capitalism as we have known it.  I'm afraid the march to ever-increasing government meddling has taken one giant step forward, never to look back.  Hey, you can't spend $700 billion of taxpayers' money without the Democrats (and some Republicans) extracting a quid pro quo.   FDR is looking more conservative every day! 

John Hay is a retired executive with the Prudential Insurance Company of America. 

This commentary originally appeared in Volume 3 of "What's a Free Marketeer to Think."
Click here to read the entire volume.