A Critical Crisis in Capitalism? Probably Not

It’s popular at the moment to jump on the band-wagon of ‘Capitalism is Over.’ America has become in many ways a band-wagon nation, instantly for or against systems and philosophies that deserve a bit more quiet contemplation.

Why all the commotion and why all of a sudden?

Life in the United States is in a state of flux which is, in my view, perfectly normal for a growing and inventive society. But ‘growing and inventive’ is, in itself, unsettling. The comforts of daily life are a bit unhinged at the moment, but those hinges have been squeaking for a good long time. WD-40 where are you when we need you?

Consider the laundry-list of wrongs needing righting:

  • we don’t actually produce much anymore, because
  • we have allowed ourselves to be styled as a ‘consumer’ nation and
  • that sad fact ripped the middle class, upon which much depended,
  • such as the single-wage-earner family and
  • children expecting (and motivated) to do better than their parents,
  • which led to a wildly unbalanced income and wealth retention disparity that
  • set us against one another socially, economically and politically.

But it wasn’t capitalism that got us in trouble

Prior to 1980 we had rules and (some would say) restrictions on how capitalism was employed. But it worked so impressively in a rapidly growing world population that capitalists thirsted for removing most of those nasty old rules that got in the way of unfettered expansion.

Of course that’s exactly the reason those rules existed. Uncontrolled growth is the definition of cancer.

Cancer, any reasonable man could deal with. But my god, the world-wide markets yet to be served by an unrestrained version of capitalism simply boggled the mind. A boggled mind, you will find, is generally a very dangerous circumstance for contemplating what is good for society.

They even had a name for it. Globalization

There was work to be done and capitalists were eager to get to it. Fortunately, the environment within the United States Congress was very amenable to the requirements. Congress had recently reinvented the old and withered relationship between itself and political corruption. Lawmakers could (and frequently did) get sent off to the pokey for the simple exchange of money for a piece of needed corporate legislation.

Nasty stuff, that serving time in the Big House for nonsense. But the new model was brilliant. All those aggravating little nuisances were swept away by allowing corporate lobbyists to legally support financial contributions to election campaigns. In other words, Congress enacted a law only for itself that encouraged fraud and corruption and made it legal. Wow, how come we didn’t think of that before?

Manufacturers knew there was a market out there beyond our borders. Post 2nd World War manufacturing proved that. With the only industry left standing, American producers made wads of dough overseas. Big Business now had a compliant Congress and the world was their oyster.

There were a few glitches along the way, but nothing serious

Yeah, someone had to get hurt as factories closed and re-opened in Asia. But eggs and omelets, you know. No one really expected it would be the entire American middle class and, if they did, it would be offset by more selection and way better prices. Under the bus. It was tough for some people but who gave a shit when stock prices were off-the-map and billions were being made.

Then a Nobel Prize winning economist by the name of Milton Friedman redefined the purpose of the corporation. According to Milty, the sole purpose of the corporation was to earn money for the investor. Forget about all that moral  responsibility. Profit-sharing, healthcare, pensions, 401-K programs and even paid vacation time were simply expenses that could be trashed to boost the bottom-line. Uncle Milty had said it was not only a good thing, it was an obligation of the corporation.

Holy shit, there was a second coming of Christ.

Business flagged down a bus and threw the American middle class under it

Caterpillar Tractor, of Peoria, Illinois (pop 118,000) is typical of the route to globalization. Caterpillar is the reason Peoria exists and since the company moved to China its population is down 20% and continues to decline at a rate of 1 ½% per year. Not only were its employees let go, they actually had to go to China to train their replacements, or lose what benefits they were promised. For generations, Caterpillar was where you hoped to work. Look for it now, under the bus.

If you’re looking for a reason the Stock Market just broke a record, the Dow moving past 30,000, the industrial desertion of America is key. Since our move toward globalization, the American securities markets have totally disconnected themselves from our economy.

Why the Dow at 30,000 is meaningless to the average American

Once upon a time, when Ford and GM, U.S. Steel and Firestone Tire actually made stuff here in America, their employees headed a single-earner household, had a boat in the driveway for weekend fishing and their kids had half a chance at a college education. When someone begins a story with once upon a time, you know a fairy-tale is about to follow. And so it is…

…during those times, the NY Stock exchange reflected the American economy and you could make an educated guess at how well we were doing by how well it was doing. No longer. All the above corporations (to the extent they still exist) are supporting a growing Asian middle class.

Then why is the U.S. Market so hot?

Globalization has made the world you and I don’t live in very rich. Jeff Bezos (Amazon CEO) is the wealthiest man in the world at the moment, followed by Elon Musk (Tesla). At the rate they are going, they’ll no doubt be $trillionaires very soon.

But what they represent is a whole sub-population of billionaires, and those massively wealthy individuals have to find somewhere to park their money. Somewhere safe. No matter your particular political or social bias at the moment, the safest currencies at the moment are the American dollar and the British pound. That fact attracts investment and because so much money is chasing so little product—there are only so many safe investments in safe currencies—the bidding is unrelated to value. Stocks that once traded at 10 to 12 times earnings are now trading at 300 to 400 times earnings. It’s wildly unrealistic, the same reason investors pay $400 million for a Picasso (and not a very good one at that).

But don’t blame capitalism, because it’s not the problem

Capitalism is the best tool ever invented for the creation of wealth. It allowed me to operate a small and very profitable business in the 50s, 60s and 70s. My middle class friends all did well and some of them extremely well. But there were rules back then. Various government agencies (the same ones Republicans claim are destroying American productivity) had governance over who did what to whom and under what circumstances.

It worked great, the graduated tax rate was 92% and we were able to pay the cost of government, keep the roads repaired and the bridges from falling down. We had a solid middle class and those below that level had a fair shot at entering it.

Someone removed all the tools from the regulatory toolboxes

I’ll give you three guesses as to who that was…

Image: Karl H. Richter

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