The term socialist has been bandied about lately. While our government is busy nationalizing failed industries we have politicians fighting over who is the least socialist.
We are all socialists.
It isn’t possible to have a large powerful government and claim you still are a free market economy. When the government becomes involved in the economy they will be looking for reasons other than free markets to spread their largess.
Perhaps government could work better if they used free market principles, but just as Adam Smith preached incentives as the key to free markets, we would need to come up with incentives to get the government to behave as a free market.
Our founders believed democracy could work as the incentive for elected officials. Since then elected officials have been successfully changing the system to reduce the influence of the vote.
As Smith wrote in the Wealth of Nations, “The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands. Such are the people who compose a numerous and splendid court, a great ecclesiastical establishment, [and] great fleets and armies.”
With our large economy (3.10 trillion budget in 2009 – not including supplemental bills for the war in Iraq and Afghanistan) we are left with a hybrid economy, capitalism and socialism all mixed in together, with the decision on which will gain prominence by which best benefits those in power at the time.
As the recent bailout has shown on a grand scale, we now capitalize profits and socialize losses.
It hasn’t always been so. The wealth created during the United States’ Gilded Age led to a move from a government-controlled economy to laissez-faire free market.
Following Black Tuesday in 1929 the government moved away from an unfettered free market economy into a socialized concept of the government stimulating and regulating the economy. The Great Depression demonstrated the dangers of un-checked free-market economics, when capitalists went for short-term gain.
The New Deal economy started by Franklin Roosevelt was trickle-up economy. Help those at the bottom who will then have capital to buy goods from the market. Corporations would compete over the capital of the working class.
We became the premier economic world power with trickle-up economics.
Lately McCain supports have been constantly repeating their Plumber Joe mantra how you cannot penalize corporations because they create jobs.
Corporations have never created jobs. Consumers create jobs. Corporations respond to the needs of consumers. If a corporation quits because taxes are too high, a more parsimonious corporation steps in, hires the employees and takes over where the last corporation existed, calculating the higher taxes into the price of their goods.
As long as the consumer creates a market, corporations will fill the need. If not Peet’s then Starbucks, if not Dell then Apple, if not Yahoo! then Google.
The bourgeoisie owned politicians and weren’t going to watch government largess go to working class forever.
In the 1980s a new concept of socialized economics came to America. We took a shot at economist Arthur Laffer’s ideas of supply-side economics -- better known as trickle-down.
This worked well for the political class. Giving benefits to the bourgeoisie was more in their self-interest than giving to the proletariats. Those with spare capital were much better at showing their appreciation than those without (especially as unions lost power – remember the air-traffic controllers?)
The trickle-down concept was simple. If you socialize those at the top of the economy, their buckets will fill, and the benefits will trickle down to the rest, stimulating the economy.
One thing supply-siders didn’t count on was the owner of the buckets having the means to buy bigger buckets. Our economy has spent the last few decades trying to determine if there is a limit to how big of a bucket the rich will use.
We’ve found there isn’t.
Despite how much goes into the top of the buckets, the trickle keeps getting smaller and weaker, with the top end of the economic ladder getting more and more of the socialized benefits.
Trickle-up works the same, but only the opposite.
To stimulate the economy you give the benefits to the lower rungs of the ladder, they will then turn around and spend the capital on the most competitive corporations.
The ideal way to stimulate an economy would fly-over trickle-up economics. You fly over populated areas dumping buckets of money out of small planes.
When money falls out of the sky, people have a strong desire to spend it quickly. It burns a hole in their pockets.
While stimulating through the rich results in a trickle of money getting into the economy, stimulating the non-rich results in close to a 100 percent of the money quickly returning to the economy.
Most Americans would argue fly-over trickle-up is unfair. We Americas are tied to fairness doctrines. We can use the tax system to work as the fly-over. It won’t be as effective, but it will pass the fairness doctrine.
If our government decided it needs to stimulate the economy, the question isn’t are they going to spreads the wealth, but rather whom it is going to spread it to?
They can either spread it to the top of the economic ladder and hope it will trickle down, or they can spread it to the working class, and know the free market will spread it up to the most deserving corporations.
4 comments:
Excellent analysis of the whole econ mess...
Everyone in politics should be required to read this paragraph:
"Corporations have never created jobs. Consumers create jobs. Corporations respond to the needs of consumers. If a corporation quits because taxes are too high, a more parsimonious corporation steps in, hires the employees and takes over where the last corporation existed, calculating the higher taxes into the price of their goods."
Bravo!!!!!!
And we are all socialists, and have been since we banded together to kill the occasional mastodon, bring it back to the caves and then cook it - once fire was discovered.
We should be ecologists, too... but that's another column, another day.
Being a 'Rad Socialist' myself (i.e. a brit!) I have many problems with the trickle down theory, mostly because I tend to think that, by nature, most people are greedy!!
BTW how do I get one of those player things!!?
There are a few different ways to make a music player.
You can go to www.playlist.com, register and then create and add music to a playlist. When you make the playlist it will give you a playlist ID number. Write it down or copy it.
Then go to your blog. Click on customize on the top right of your page. Click on Add a Gadget and search for playlistor. Push the + sign, and then put in the playlist id in the playlistor ID box. Make any other customizations such as color or size you want.
Well done. I was totally able to flow with it to understand it. I agree with Fitzgerald about that same paragraph. This trying to understand politics and economics is all new to me, as you well know. So I sometimes find myself just hearing the same things so many times that I don't question it (I'm not particularly proud of that and am starting to research things more). For example, your statement about corporations not creating jobs. I never thought about it until I read this column. How right you are about it being consumers. You make so much sense. I love all this learning and thank you for how much you teach me.
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