Market socialism may become permanent, expert says - East Valley Tribune: Business

Market socialism may become permanent, expert says

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Posted: Tuesday, November 11, 2008 5:09 pm | Updated: 10:09 pm, Fri Oct 7, 2011.

With the election of Sen. Barack Obama to the presidency, the United States may be moving into an era of more state ownership and involvement in commercial activity along the lines of the social democratic economies in Europe, according to an Arizona State University business professor.

The most notable feature of the trend is that it was started in a Republican administration, which will make it politically easier for the incoming Democrats to provide aid to the automakers and other troubled industries, said Gerry Keim, associate dean for MBA programs at the W.P. Carey School of Business at ASU.

Keim and other ASU professors spoke this week about the implications of the new administration for business and the economy at a forum for MBA students and also in interviews with the Tribune.

Keim believes Obama will move aggressively to help the automakers and other distressed companies that employ millions of workers.

"I understand all of the arguments against doing that, but politically at the beginning of a new administration that is facing the scariest economic times since the Depression, it's difficult to be against (help for companies) that employ a large number of people," he said.

Keim also thinks the Democrats will stay true to their New Deal tradition by moving a stimulus package that would create jobs by refurbishing the nation's infrastructure rather than putting money in consumer's pockets.

But overall he doesn't believe Obama and the Democrats in Congress will move as far to the left as some of their critics think. For example, he thinks Obama will not be as protectionist in trade policy as he indicated during the campaign. Keim bases that belief on the preferences of the economic advisers that Obama has put on his team.

Although the labor unions that supported his candidacy favor trade barriers to protect American jobs, Keim said Obama may be able to appeal directly to union members over the heads of their leaders, as Ronald Reagan did in the 1980s.

"Trade increases the overall size of the economic pie, but it also does create dislocations," Keim said. "The Democrats may be more concerned with those dislocations ... But I cannot believe (Obama) will pursue protectionist policies."

Anthony Sanders, a finance professor, believes the management of the Troubled Asset Relief Program, the official name of the $750 billion bailout for the financial industry, will cause problems for Obama.

That's because the Bush administration is using much of the money for purposes other than the original intent of acquiring troubled loans, many of them subprime home mortgages, from the nation's financial institutions, he said.

"The idea is to purchase the loans and modify them before they go into default. But the longer we wait to do this, the more likely they will default," Sanders said.

And loans that go into default are much more expensive to administer than if modifications are made that help borrowers avoid that situation, Sanders said.

The Bush administration has been moving more rapidly this week to help troubled homeowners renegotiate delinquent loans held by Fannie Mae and Freddie Mac. Also several large banks including Citigroup, JPMorgan Chase and Bank of America have announced programs to modify mortgage payments and slow foreclosures.

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