Opinion. Economy. December 8, 2010.

Somebody explain to me!

America has always been proud of its free market economy and its "invisible hand." One of its greatest exponents is Milton Friedman. His postulates indicate:

- What the government do, he does wrong. [I think it is evident and correct].

- Hence the less government and the less intervention, better (mainly in economic subjects).

- The least possible taxes. The state dont need it because is small and dont do much?

- This is how the concepts of "free market" and "invisible hand" appears, where the search of personal good would also achieve the collective good.

- Important note, the role of government is to preserve the state: rule of law, sovereignty over the territory, protection of citizens, to exercise justice and taxation. [In this sense, it is obvious that, in Mexico the state no longer exists, there is no control of the territory, can not protect its citizens, no justice, rule of law and is even losing the monopoly of taxation]

Alan Greenspan, free market advocate, in the midle of the crisis said something like: I always believed in the pursuit of personal good and free market, and worked. But the crisis of 2008, proved I was wrong.

Ok, in the capitalist ring, on the other corner is John Maynard Keynes, whose economic contributions are credited to the recovery from the crisis of the 30's.

And what Mr. Keynes proposes?

- A low participatory state in times of stability but an active and a participatory state in the economy in times of crisis. A state regulator and controller of economic activities to avoid collapse. A state with the strong institutions, enough to intervene decisively and quickly in the economy.

- In summary, a more participatory and much larger state than the free market.

If Greenspan accepted that the "free market" was not working, then we go with Keynes. And that's more or less what the U.S. did.

We have goverment buying U.S. banks (and Mexicans: "Obamanex"), insurance companies, automotive companies, etc. printing money at an accelerated pace (QE1, QE2), low rates (cheap money), reducing taxes, etc.

Everything perfect right?

Everything the government does have a cost.

- So if "do much" "spend "a lot". If I spend "a lot" I should increase my income.

- EU is "doing much"  -spending a lot- but, also reducing their income -lower taxes-. (So far so good). How the government is going to pay for all this? What programs are going to cut, what programs will reduce, and so on.?

The trouble is that there is nothing of this, the government has initiated programs that involve more spending, not cuts to reduce the spending but the income. This means one thing: MORE DEBT.

And how do you intend to pay that debt? For a person or a State being in debt is not good, nor bring anything good. Examples: Greece, Dubai, Ireland, etc. And nobody says how to fix the problem, the current prescription is: "more debt." And so where does it lead?

Here is a very serious structural imbalance.

Prologue: When a financial bubble exploits, there is always another bubble forming. The last was the subprime bubble. Now what next?

- Is it gold? as a refuge of currencies unsubstantiated and real value.