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OVERLEVERAGING TEACHES CAPITALISM

Economic education is almost nonexistent in this country, so people are not taught  the benefits of capitalism.  This lack of education spills into our political debate, and can cause decisions (elections), that people do not often realize will greatly affect their economic opportunities.  The financial crisis of 2008 opened the door for anti-capitalist voices to be heard, and allowed for the election of a President that has socialistic views.  Whether Mr. Obama is a “Socialist” or not, he certainly advocates socialist policies. (http://www.youtube.com/watch?v=baIFocVnJpc&feature=related, and http://www.youtube.com/watch?v=fpAyan1fXCE).  These socialist policies were rejected in two years which is faster than other historical lurches toward socialism in US history.  I believe that people being overleveraged, and seeing what is possible well above their current tax bracket helped put the brakes on this socialist agenda. 

There is no doubt that there has been excessive availability of credit, and people have become overleveraged in recent years.  This availability of credit before the financial crisis was arguably the greatest in the history of the United States.  Many people lived well beyond their means at all levels of the economic scale.  Whether it was buying a flat screen TV, a car, or even a house beyond one’s means, people lived at levels of 10, 20, even 50% beyond their actual income level.  This extra credit sloshing around the country gave people the experience of living at a greater level of affluence than their income justified.  As a result, there are long term debt problems that are currently being worked through by many of these people. 

America has experimented with socialism throughout her history.  The two most recent moves  were spearheaded by FDR & LBJ.  FDR was elected in 1932 pushing through the “New Deal”.  It never revived the economy (WWII did that), but the Democrats held the White House and the House of Representatives until 1946.  LBJ took office in 1963 with a reelection in 1964.  He oversaw “The Great Society” which pushed additional socialist policies onto the country.  Even though Nixon was elected in 1968 & 1972 (no friend to free markets http://www.econreview.com/events/wageprice1971b.htm), Democrats continued to control Congress during those terms.  Many believe that this move toward socialism did not get rejected until the election of Ronald Reagan in 1980.  These two recent forays into socialism did not run out of steam for roughly 15 years each.  After riding a wave of “Hope & Change” in the 2008 election, the Democrats had historic losses in 2010 (6 Senate, and 63 House seats).  There must be a reason that the reversal happened so quickly this time around. 

Anyone living beyond their means from the 1990s through 2007 has had quite a rude awakening in recent years.  Many are saddled with debt, have seen their home values drop, and are unemployed.  With the average unemployment check of roughly $300 per week (http://www.usatoday.com/money/economy/employment/2010-07-15-unemployment15_CV_N.htm), government assistance cannot look like a great answer.  The solution for these people is to have a booming economy, so they can return to living at their old consumption levels.  Whether it was at their old salary + 20% or something similar, they want to return or exceed that standard of living high water mark.

These people are more likely to want a path that is proven and has worked in the past to revive the economy.  They are less likely to give the benefit of the doubt on something that is not working, and has vague goals like “fundamentally transforming the United States of America” (http://www.youtube.com/watch?v=_cqN4NIEtOY).  With looming debt, and the possibilities that they have personally experienced, two years might have been too long already for them to allow this latest socialist experiment.

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