Capitalism, Democracy and Dichotomies.

The general rule of thumb in polite conversation (even in an election year?), is “never bring up race, politics, and religion”.  There is good reason for this since these issues hint at the utility of our past, present, and future circumstance, while apparently offering some measure of keen insight to our understanding of the same. It seems that the layman however remains in an abyss of bewilderment, while in the aggregate political scientists continue unabated to classify hegemonies and flavors of social governance.

In short Capitalism represents the interests of the market economy (think Wall Street, Goldman Sachs).  “There is general agreement that elements of capitalism include private ownership of the means of production, creation of goods or services for profit or income, the accumulation of capital, competitive markets, voluntary exchange and wage labor.”[1]

 Many people use the term “democracy” as shorthand for liberal democracy, which may include elements such as political pluralism; equality before the law; the right to petition elected officials for redress of grievances; due process; civil liberties; human rights; and elements of civil society outside the government.[2]

Several interesting dichotomies were outlined by Francis Fukuyama.[3]

“Middle class people do not necessarily support democracy in principle: like everyone else, they are self-interested actors who want to protect their property and position. In countries such as China and Thailand, many middle-class people feel threatened by the redistributive demands of the poor and lined up in support of authoritarian governments that protect their class interests”.

In the US although “the Tea Party is anti-elitist in its rhetoric, it’s members vote for conservative politicians who serve the interests of precisely those financiers and corporate elites they claim to despise… (reasons being) a deeply embedded belief in equality of opportunity rather than equality of outcome, and the fact that cultural issues, such as abortion and gun rights, crosscut economic ones.”

From a cautionary perspective, “over the last two generations, the mainstream left has followed a social democratic program that centers on the state provision of … pensions, health care, and education… welfare states have become big, bureaucratic, and inflexible… and most important, they are fiscally unsustainable given the aging of populations”.

The real issue lies in the inflexibility inherent in these systems of social governance. A simple example would be to consider the early development of an area rich in natural resources. A capitalist model may offer early gains all around, but with subsequent wealth distribution, and an increase in living standards/education the onus may shift towards increased regulatory control, class segmentation, external market and internal social protections (welfare, progressive tax system). While the ideal model is inflexible the external environment is not. Competition, dwindling resources, and substitutes will place a strain on profits as other areas play catch-up.

“Left to itself, capitalism produced long term aggregate benefits along with great volatility and inequality…”, but what exists today is a hybrid system of capitalism “tempered and limited by the power of the democratic state and often made subservient to the goals of social stability and solidarity, rather than the other way around”.[4]

Yet it is clear that the American system today is no social panacea, since with increased globalization and developments in China (state capitalism), India, and Brazil, the deficiencies of the system are becoming more apparent. These developing nations are reaping the benefits of a global market, being uniquely positioned to take advantage of the increased flow of natural resources, labor, technology, and capital. The American system of the 21st century  is characterized by the numbing balancing act of their leadership.

“Many people currently admire the Chinese system not just for its economic record but also because it can make large, complex decisions quickly, compared with the agonizing policy paralysis that has struck both the US and Europe…”[5]

While Democrats and Republicans fight (think stagnate), over who gets the bone the irony is that by the time the smoke clears the “bone” will be resting comfortably in an upscale Shenzhen suburb, or rocking in downtown Sao Paulo.


[3] The Future of History, Francis Fukuyama ; Foreign Affairs, Jan/Feb 2012, vol 91 #1 p.53

[4] Making Modernity Work: The reconciliation of Capitalism and Democracy, Gideon Rose ; Foreign Affairs, Jan/Feb 2012, vol 91 #1  p.3

[5] The Future of History, Francis Fukuyama ; Foreign Affairs, Jan/Feb 2012, vol 91 #1 p.57

Unemployment, Housing, and Commodities

In his State of the Union speech, the President spoke of creating jobs, and cutting the deficit. To minorities, members of the second class, and others, there are other painful components that will ensure that this economy flounders well into next year.  Whether one is Republican or Democrat is of little matter since the big three are themselves speeding toward a head-on collision with a rocketing stock market.

High Unemployment with Low Housing Starts

 There is no short term housing boom to assist the unemployment rate. For minorities these rates are higher – with the result that these families will feel the coming pain to a greater extent on a proportional basis. The glut of foreclosures will ensure that this situation remains static for some time. Tragically the bad news doesn’t end here.

Rising Commodity Prices - Oil, Cotton, Wheat

 

Although interest rates are low and inflation seemingly in a benign state, the simple fact is that the prices of commodities are slowly filtering through to the lower classes.  Oil especially affects everything along the supply chain. For all the future glorified expectations of clean energy it is clear that the calvery will not arrive in time. To add insult to injury soon sugar, the sweetener, may also play the role of the unaffordable villian.

Commodity Prices - Sugar & Salmon

 This is not rocket science. Hard times are here, and harder times are coming. The little advice i can give is to encourage people to save… but then everyone knows saving cuts the consumer spend, which doesn’t help the economy. Be scared… I know I am.

From: Top 5% To: The rest (plebes included) :)

Thanks for putting pressure on Obama to concede on the Bush Tax cuts.

Thanks for not supporting the Democrats in the 2010 midterms.

Thanks for two more years of unfettered “Trickle Up Economics”.

We can’t thank you enough. OXOXOXOXOX

Trickle Up Economics

Source : census.gov

Obama, Robin Hood, Little Bernanke, and the Republican Sheriff of Washington.

This is my favorite bedtime story.

Cue the main characters,

  1. Robin Hood was really a brilliant economist who engaged in short term wealth redistribution strategies when unemployment swept the landscape and the costs of the Wall Street (subprime) wars threatened to ruin the economy.
  2. Little John (alias Big Ben Bernanke) was the Fed chief, Robin’s hit man, who as the precursor to the underrated enforcer type will always be saddled with the “lack of good timing”, and “enough is enough” bias.
  3. The Sheriff of Washington is the villain of the piece who plays a pivotal role in securing the assets of the rich and protecting the status quo.

 

Flow of Aggregate Income

 

The main point of the plot is wealth redistribution.[1] The top 20% of households pull in close to 50% of the Aggregate Income. Robin and his band of merry Democrats can’t butcher the wagon trains and spread money willy nilly throughout the countryside.  The disadvantage of this extreme, (while reducing red tape), is that the poor folk lack incentive to keep working and the working folk lack incentive to keep working. Thankfully, a lot of bloodshed is averted by having a progressive tax system. The beauty is that the wagon-trains get hit even before the money gets comfortable in the coffers of the wealthy.

 

Cue Isaac Newton and the apple.[2] The simple truth is that the rules for keeping a bounded system in equilibrium (static) does not apply to a system in motion (dynamic).  This is a perfect segway into the subplot. How can the sinister Sheriff convince the world that gravity works both ways and that “trickle down” economics really works.

Trickle Up Economics

 

The truth is that it doesn’t. The sucking sound you hear is the sound of wealth being continually transferred from the lowest 60 percentile to the top 5 percent of households.  Through good times and bad (shown in red)[3], the spigot keeps flowing.

Cue the Happy Ending…..  are you insane??? There is neither a happy ending nor a soft landing… that is unless you’re part and parcel of the “Top 5%”. Robin and Ben never get the gravity reversing “economic” plot right, (read as unemployed people have no patience) , the Sheriff wins (and in spectacular fashion binds one of Big Ben’s arms), and the people go back to dreaming of venison, while munching on Mickey Dees fries, with tea.

 

 

 

 

 

 

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