And another good piece from Salon: I was especially taken by the sentiments in bold.
Now, should I post this at the BR to invite countering comments, or would I not hear it properly refuted... hmmm, tough one.
Smart investors have anticipated the predictable changes in government spending patterns coming from the change of administration and placed their bets on the companies and sectors that are most likely to benefit from the Bush administration: defense, energy, tobacco. Meanwhile, entertainment and technology stocks, the pillars of both economic growth in the past decade and of the Democratic Party's campaign funds, are quickly crumbling in Wall Street.
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While investors' flight from frothy dot-coms with no real business plan is justified, the wholesale flight away from serious new economy firms and towards old economy firms has serious consequences.
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The Bush presidency is unlikely to see these kinds of virtuous circles. Despite the GOP's self-image as a party of entrepreneurs, it largely represents corporations run by private-sector bureaucrats living off the public budget or wielding massive market power in stagnant markets. These firms thrive on various forms of oligopolistic rent and cost-plus contracts, not entrepreneurial profit. Their productivity gains are likely to be measured in fractions of 1 percent, in contrast to the dynamism of the electronics-entertainment complex. Their contribution to growth comes from the consumption of nonrenewable materials rather than the materials-conserving pattern in the electronics industry.
Because this sector has lower productivity growth, a shift in cash and investment toward those industries will probably increase inflationary pressures in the economy. This means higher interest rates as the Fed will be forced to contain the inflationary combination of slower productivity growth and a fiscal stimulus composed of bigger defense budgets, more pork and a shrinking federal surplus.
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Just as Paul Volcker had to keep interest rates high to offset Reagan's fiscal profligacy, Bush's impending deficits will force Greenspan to imitate his predecessor at the Fed and increase interest rates. This is why Greenspan has asked Bush to make his tax cuts contingent on real, not imaginary surpluses.
The tax cut debate is, therefore, a highly entertaining sideshow diverting individual taxpayers' attention away from the GOP's old-economy favoritism and its stock market effects.
salon.com |
