Our Look at Economy 101
Concluding Our Two- Part Discussion
As we discussed last week, the economy is about far more than just economics – it affects almost everything in our lives. With that in mind, last week we went over some important definitions (capitalism, socialism, communism, democratic socialism) so we were clear about pros and cons, possible solutions in our discussions. People tend to throw around words like socialism without much understanding as to what such terms mean. But not us!
So, with some shared definitions in hand and observations of these various systems, where might we wish to go from here as a country?
The K Economy
This, the K economy, may be a new term to some of us. It is, in my view, a very accurate description of where we are today and how destructive this condition is. Many astute observers refer to our current economic profile as a K Economy.
One of the most articulate speakers I have heard on this topic is James Talerico, a candidate for the Texas US Senate seat that is on the ballot for this year. Talarico has said, paraphrasing a bit, the following: This country is not divided by Left and Right: It is divided by Top and Bottom. A very few on the top have locked in all the political power and economic benefits. Everyone else is on the downside, lacking political power or economic opportunity.
This is a model wherein there is impressive economic growth by a few (the branch of the letter K pointing upwards, while many others (most people) loose economic strength and potential. This split is reinforced by excessive influence and political power by those on the upward leg of the K economy.
This indeed where we are today. There is a history to this; we and other countries have been on the K economy track before. It is unsustainable. Eventually, the economy loses its power as the middle class shrinks and the working class finds no opportunity to advance.
At some point, this leads to social and political turmoil that can lead to governments falling, social violence, and other consequences. One would think that those with all the power and wealth would see the inherent instability in such a system, but greed (and a sense of privilege) often blinds them, and so the rot continues until the system fails.
Four Trends That Are Corrupting Capitalism And Ruining Our Country
I have not been shy in the past in saying that I think a properly run system with mostly capitalist elements is the economic system that works best over the long term. I still think that is the case, but the key is having a properly run and regulated system. Capitalism left alone is a powerful economic tool, but, like any human system, is prone to distortion and misuse. It inherently has no social justice component – that is where regulation and social standards come in.
Here are, just as examples, some examples of the kind of drift and excess that a poorly overseen system inflicts on us:
- Excessive consolidation in many key sectors: In many sectors of our economy, there is no economic competition among privately owned companies. When 1-2 entities account for almost all of a sector, the self-correcting nature of capitalism is gone and the system fails. We see that today in, for example, transportation and communications.
- Data Centers swallowing electrical capacity: Artificial Intelligence and other factors are driving phenomenal demands for concentrated energy centers for computing. Communities are finding real effects in pollution, lack of public power, water shortages and/or pollution, constant harmful noise, and few jobs to show for all this. Communities all over the country are starting to push back on hosting these centers. Those in power desperately need those centers. The civil war is on.
- Private equity firms – These are the worst of the worst, vultures that kill off once healthy enterprises to feast off the ruins. Their damaging actions range from snapping up mobile home parks − and driving out the residents who can least afford to lose them, to buying up homes that could be private residences or rentals for communities – thus feeding the national housing shortage, stripping down and selling businesses (hospitals, newspapers) by pieces, starting with the debt they loaded those businesses up with.
No other element in the economy does such damage. And they have bought enough political influence everywhere that they do all this pretty well tax free. Our socio-economic system will never heal until these entities are brought under some sense of justice and functionality beyond feeding the sharks. Taxing these entitites at anything like a normal rate would control their excess and put billions of dollars into our budget process.
- Low odds of getting better for lower & middle class. Opportunity is gone is gone for many, for the reasons listed above. There is a growing list of other countries wherein one can expect to live better and can more realistically hope to advance economically than is the case in the United States. Many now no longer expect a rising generation to do better than their parents did economically. The middle class loses ground every year, the working class looks increasingly like a permanent poor class.
- Using a capitalist, business model in sectors where it does not work: The leading example, of course, is health care. Americans pay more per capita for health care than any other developed country, with uniformly worse results. A huge portion of what we pay goes into private sector insurance companies whose best assurance of making a profit is to deny medical coverage.
In addition, it is unreasonable to expect individual citizens to have any idea what insurance programs to purchase. Which diseases and tests do you want covered? How could one possibly know that? A sane, comprehensive national health care system is the only solution that makes sense – as every other advanced country has already figured out. No system is perfect, but what we have drifted into is the worst of the worst.
The Challenge is More Than Prices
The Economic Policy Institute has done an excellent job of laying out why just focusing on prices/costs is not enough to create a healthy economy.
The affordability debate focuses almost entirely on prices, as if the only way to make life affordable is to make things cheaper. But that approach misses the bigger picture. Affordability depends on both prices and wages. The roots of today’s affordability crisis lie not just in price increases, but also in the long-term suppression of workers’ pay.
For many decades, employers have been suppressing the wages of working people, so that corporate managers and owners can claim an ever-larger share of the income generated by what workers produce. Government policies reinforce these efforts. Policymakers allowed labor standards such as the minimum wage to erode (and at times reduced enforcement of the standards we do have), blocked adequate protections for workers’ right to organize, and promoted macroeconomic policy that allowed unemployment to remain too high for long periods, undermining workers’ leverage.
One way to see this shift is by comparing the growth in workers’ pay to the growth in productivity, which measures how much income is generated on average in an hour of work. If pay for typical workers had kept pace with productivity over the past 45 years, their paychecks today would be significantly larger. Having a “minimum wage,” not a “living wage,” and not tying it to inflation dooms the average worker over time.
Individual businesses that strive to pay a fairer wage at the minimum levels, paying a living wage vs a minimum wage, do so at great competitive risk. A national formula for a living wage, updated annually, relieves that burden and replaces it with a shared national investment.
The Bottom Line
So, where does all that leave us?
For me at least, it is apparent that a system that thrives on capitalism and free markets will over the long haul will do the best pretty well across the board – but only with essential balance and regulation. Capitalism’s greatest strength is found in competition. Its greatest weakness is in consolidation, which inevitably leads to corruption and social-economic distortions. Its worst placement is in areas where competition through informed consumers is not possible (like medical care).
At the end of the day, we know what works best for the most people, and for the global economy. Whether we choose that path or not is a matter of choice, persistence, and understanding that politics, economics, and society at large are completely intertwined. None of these components operate independently of the others.
There have been discussions of a more effective for society version of capitalism. Some have referred to this as capitalism with a conscience. Others see democratic socialism as a similar solution by a different name. Call it what you will, this seems to me the general direction we need to go, with caution and clarity, but with determination to get it right.
Resisting such changes, as many do, will inevitably lead more people to be romanced by traditional socialism, which sounds good to the uninformed, but in the end does not work. My hope is that following the midterm elections and the next presidential election, we will have the vision and the sense of mission to get the country back on track with a healthy economy. An economy that grows where needed, stabilized where needed, and designed to provide minimum security as well as the opportunities to advance for those willing to apply themselves.
Nice if we would run our country with that in mind.
See You Next Week
And I promise, back to shorter posts and perhaps less density than these last two blogs on the economy.
Bill Clontz
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