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September 28, 2017


Adam Smith, the founder of modern day economics, understood as early as the 18th century that there were multiple interests involved in capitalist economies; that there were producers, consumers, financiers and the like who had vital interests in the economy. He was brilliant in his time and place, but unfortunately, assumed perfect competition and equality of knowledge between buyers and sellers in the marketplace, assumptions that have never been true and are glaringly obvious today.

Indeed, one of my favorite economists, Joseph E. Stiglitz, won a Nobel Prize in Economics for his study of the inequality of information between buyers and sellers. So, speaking of inequality, want to argue with your CPA on taxes? Your doctor on cancer treatment? Your lawyer on a provision in your will? Good luck! Inequality of information is built into the system and is becoming worse with specialization. In this latter connection, Albert Einstein lamented as late as 1955 that as a physicist he could not talk to fellow physicists at meetings and conventions and did not understand their jargon anymore due to the fact that all of them had become so specialized – and he had not.

Stiglitz, for our purposes in this essay, compares the economy to a pie. He notes that such a pie can expand or contract, and that workers, management, financiers, consumers and other actors in our economy have vital interests in expanding their respective pieces of the pie. The only way the pie can expand is through economic growth. Thus with such growth the pie is expanded, presumably to the benefit of all of the actors in our economy; that is, unless one of the actors hogs all or nearly all of such growth to their own bottom lines, as has been the case for the past 35 years or so. The culprit? The financiers. The victims? Corporate workers and the rest of us. Why even have economic growth if all of its benefits go to one actor in the economy and the rest of us in our respective capacities are burdened with wage inequality, inflation pricing and other such negatives which additionally act to reduce demand and thus keep us on the edge of recession?

It behooves us to look behind these rather simple macro facts and look to the underlying realities. Thus, for instance, we know that economic growth can come only through enhanced demand for goods and services. We know that there is no “magic of the market” (as Reagan proclaimed) in growing the economy. We know that there is no “invisible hand” (as Smith wrote) which naturally inheres to an equilibrium of competing forces in a capitalist economy. We know that the financial sector has hijacked economic growth and worker productivity to its own bottom line. We know that there is nothing “natural” about any economy, that any and all economies are man-made, and that we cannot rely on such slogans that imply otherwise. We know that the rules of a near economic bartering system of long ago have little relevance to today, when billions of dollars in investments and other undertakings can be transacted with the push of a button.

Knowing this, how are we supposed to react? What is government’s role? Why are we allowing financiers to allocate risk in our marketplace (see mortgage fraud, bailouts etc.)? Are we socialists when we want to regulate activities in our own marketplace?  Why are all parties to the economy not effectively represented through regulation of our marketplace, a marketplace that belongs to us and not financiers?

There are more questions than answers in trying to come to grips with the greed and inequalities we see in fairly distributing the fruits of our economy among and between competing sectors for their piece of the pie, but if our capitalist economy is to survive, we must press on in attempting to bring equilibrium to our boom or bust economy by adopting policies that fairly compensate all actors in our economy, much as we did under the New Deal when wages and profits moved in tandem and one paycheck was enough for Americans to buy a car, a house and other such necessities. Wage inequality beginning about 35 years ago is, in my opinion, the leading cause of tepid demand, which in turn (especially with outsourcing and domestic slave wages) has given rise to recessions and near depression during Bush’s Great Recession, all of which never occurred during New Deal days, when the fruits of our economy were more fairly distributed to all sectors of the economy.

I have often written (and here reiterate) that I cling to the faint hope that our capitalistic system can survive, but that as presently practiced, I think will ultimately fail. I am no Nostradamus, but if I am correct, and we remain unenlightened in attending to the peoples’ business of fair play and remuneration and thus allow our system to fail, then my concern is what our next economy will resemble. It would likely be either right or left, neither of which would survive for long and probably marked by chaos and uncertainty while in existence. That need not happen, but unfortunately, Citizens United and its bottomless coffers may rule the day for the financier sector and thus hasten the day of reckoning.

A final note – When people like me agitate for public control of market investment and other such antics of Wall Street financiers to save the economy from ruin, the propaganda mill immediately labels us as socialists. Query> Since when are we socialist when we demand to run our own business? It’s our economy and doesn’t belong to any sector, including that of finance. Socialist? Hardly. As I often write, I am trying to save capitalism for the capitalists, if they will let me.       GERALD         E

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