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I understand why Democrats are fuming.

Donald Trump ran up budget deficits in his first three years to levels seen in our history only during major wars and financial crises thanks to tax cuts, military spending and little fiscal discipline. But now that Joe Biden wants to spend more on pandemic relief and prevent the economy from tanking further, many Republicans on cue are rediscovering their deficit hawk wings.

What frauds.

We need to do whatever it takes to help the most vulnerable Americans who have lost jobs, homes or businesses to Covid-19 and to buttress cities overwhelmed by the virus. So, put me down for a double dose of generosity.

But, but, but when this virus clears, we ALL need to have a talk.

There has been so much focus in recent years on the downsides of rapid globalisation and neoliberal free-market groupthink influencing both Democrats and Republicans that weve ignored another, more powerful consensus that has taken hold on both parties: That we are in a new era of permanently low interest rates, so deficits dont matter as long as you can service them, and so the role of government in developed countries can keep expanding which it has with steadily larger bailouts, persistent deficit spending, mounting government debts and increasingly easy money out of central banks to finance it all.

This new consensus has a name: Socialism for the rich and capitalism for the rest, argues Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management, author of The Ten Rules of Successful Nations and one of my favourite contrarian economic thinkers.

Socialism for the rich and capitalism for the rest happens, Sharma explained in a phone interview, when government intervention does more to stimulate the financial markets than the real economy. So, Americas richest 10%, who own more than 80% of US stocks, have seen their wealth more than triple in 30 years, while the bottom 50%, relying on their day jobs in real markets to survive, had zero gains. Meanwhile, mediocre productivity in the real economy has limited opportunity, choice and income gains for the poor and middle class alike.

The best evidence is the last year: Were in the middle of a pandemic that has crushed jobs and small businesses but the stock market is soaring. Thats not right. Thats elephants flying. I always get worried watching elephants fly. It usually doesnt end well.

And even if we raise taxes on the rich and direct more relief to the poor, which I favour, when you keep relying on this much stimulus, argues Sharma, youre going to get lots of unintended consequences. And we are.

For instance, Sharma wrote in July in a Wall Street Journal essay titled The Rescues Ruining Capitalism, that easy money and increasingly generous bailouts fuel the rise of monopolies and keep alive heavily indebted zombie firms, at the expense of startups, which drive innovation. And all of that is contributing to lower productivity, which means slower economic growth and a shrinking of the pie for everyone.

As such, no one should be surprised that millennials and Gen Z are growing disillusioned with this distorted form of capitalism and say that they prefer socialism.

The past few years should have been an era of huge creative destruction. With so many new cheap digital tools of innovation, so much access to cheap high-powered computing and so much easy money, startups should have been exploding. They were not.

Before the pandemic, the US was generating startups and shutting down established companies at the slowest rates since at least the 1970s, Sharma wrote. The number of publicly traded US companies had fallen by nearly half, to around 4,400, since the peak in 1996. (The number of startups has increased in the pandemic, but that may be because so many businesses closed.)

Alas, though, big companies are becoming huge and more monopolistic in this easy money, low interest rate era. Its not only because the internet created global winner-take-all markets, which have enabled companies like Amazon, Google, Facebook and Apple to amass cash piles bigger than the reserves of many nation-states. Its also because they can so easily use their inflated stock prices or cash hoards to buy up budding competitors and suck up all the talent and resources crowding out the little guys, Sharma said.

So, yes, yes, yes we must, right now, help our fellow citizens, who are hurting, through this pandemic. But instead of more cash handouts, maybe we should do it the way the Koreans, Taiwanese, Singaporeans, Chinese and other East Asians have been doing it cash assistance to only the most vulnerable and more investments in infrastructure that improve productivity and create good jobs. The East Asians also focus on making their governments smarter, particularly around delivering things like health care, rather than bigger one reason they have gotten through this pandemic with less pain.

Biden plans a big infrastructure package soon. He totally gets it. I just hope that Congress, and the markets, dont have debt fatigue by the time we get to the most productive medicine: infrastructure.

Going forward, how about more inclusive capitalism for everyone and less knee-jerk socialism for rich people. Economies grow from more people inventing and starting stuff. Without entrepreneurial risk and creative destruction, capitalism doesnt work, Sharma wrote. Disruption and regeneration, the heart of the system, grind to a halt. The deadwood never falls from the tree. The green shoots are nipped in the bud.

Views expressed above are the author's own.

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Read more:
Feeding monopolies and zombies: Made in the USA: Socialism for the Rich. Capitalism for the Rest - The Times of India Blog