Ed Yardeni Follow-Up

“Commanding Heights” is a book by Daniel Yergin and Joseph Stanislaw first published in 1998. It traces the rise of free markets during the last century, as well as the process of globalization. It takes its title from a speech by Vladimir Lenin, who used the phrase "commanding heights" to refer to the segments and industries in an economy that effectively control and support the others, such as oil, railroads, banking and steel. Today, governments around the world are taking power back from free markets, particularly financial markets, under the pretext that they have failed. In fact, the markets were hobbled by a combination of anti-market regulations and the lack of enforcement of regulations that leveled the competitive playing fields. In the US, the power grab is spreading to banking, autos, energy, and health care. Here is a brief chronology of recent developments around the world in this epic power struggle:

(1) It started with TARP, which was proposed by Hank Paulson and Ben Bernanke and enacted by Congress on October 3, 2008. This politicized the financial rescue program in the US. It gave the government the power to dictate how recipients must manage their companies. On October 13, Paulson forced nine major banks to take some of the TARP money even though most of them didn’t need it or want it.
(2) In December, Ken Lewis, the CEO of Bank of America, had buyer’s remorse after having agreed to purchase Merrill Lynch in mid-September. Mr. Lewis contends that Paulson and Bernanke also advised him not to share his second thoughts with BofA shareholders who were about to approve the deal.
(3) On February 26, the Obama administration unveiled its budget, which includes significant increases in spending on social welfare, especially health care. The resulting deficits are projected to total more than $9tn over the next 10 years.
(4) On March 30, 2009, the White House fired Rick Wagoner, the head of General Motors. The Obama administration is orchestrating the restructuring of the auto industry. President Obama declared that the US government stands behind GM's warranties.
(5) The government is pushing legislation aimed at bringing down credit card fees.
(6) The Obama administration is pushing to have student loans made by the government rather than private lenders.
(7) Democrats in Congress are moving to make the Obama administration’s health care proposals filibuster proof by pushing the proposed legislation as part of the budget reconciliation process.
(8) In Russia, the government is in effect nationalizing the industries that were once controlled by the oligarchs, who borrowed too much and must now be rescued by their comrades in the Kremlin.
(9) In China, the government is pumping large sums of money into infrastructure projects aimed at stimulating economic growth to offset the shuttering of thousands of manufacturers as a result of the plunge in exports.
(10) Governments are raising taxes, especially on high income earners. The Bush tax cuts will be allowed to expire at the end of 2010. States from New York to California are raising income tax rates and user fees. Prime Minister Gordon Brown’s government laid out plans on Wednesday for more than $1tn in deficit spending over the next five years, a scale of public debt that critics say is without precedent in Britain. In addition, his government now plans to hike the top marginal income tax rate from 40% to 50%, rather than to 45%.