Capitalism - The Gift That Keeps On Taking: Part IV

Part Four in a finally ending series with which Michael puts the final nail in the coffin containing any hopes of being Facebook Friends with Larry Summers.

Part One: Most Americans are not capitalists. They might want to be capitalists, but no matter how much you, or that hardworking barista, that well paid techno-nerd, small farmer, or gangsta-rapping bank teller may want to be capitalists, you are not capitalists. You are workers.

Part Two: If your car ran like Capitalism -- some days humming along great, other days needing a government tow truck to get it to a shop where the mechanic can only promise more booms and breakdowns after it's "fixed" -- you wouldn't call your car "self-regulating." You'd call it junk.

Part Three: Such blind greed should have been rebelled against decades ago: villagers with torches, workers with hammers, farmers with sickles, let-them-eat-cake capitalist swine chased naked and screaming through the streets, and high paid corporate heads high on sticks held aloft by gleeful children.

What Is Capitalism?

Unregulated, it is a Ponzi Scheme. This is a term that's been tossed around quite a bit recently, and not everyone knows what it is. A Ponzi Scheme is like a Pyramid Scheme: Someone promises a return on an investment ("Give me twenty bucks, and I'll pay you a dividend of one buck each week for a year"). $52 for a $20 investment? How do they do it? (It's a secret! I have special investments that have great returns!) So you give them your money, and when the dividends start rolling in you tell two friends, who rush to be a part of the bonanza, and in turn each of them tell two friends, etc...and, just like that old shampoo commercial, a pyramid grows. But the truth of the Ponzi Scheme is there are no special, ultra-secret investments, or even cleaner, silky hair. The first investors are simply paid off with the money from the later investors, who are in turn paid off with the money of the latest investors. Ponzi Schemes, just like Pyramid Schemes and Multi-Level Marketing Schemes, require an ever-expanding pool of investors to keep going -- which must grow geometrically. (Hence the term "Pyramid.") But when the inflow of cash stops -- and it always does with a Ponzi/Pyramid scheme because at some point you simply can't find enough new people -- the whole thing collapses...normally right after the people who started it have cashed out and flown the coop.

And so it is with the Market. It's all about fast talkers and greedy suckers. A broker says "Hey, I've got a hot property! It'll go through the roof soon!" So a bunch of people buy it, which pushes the price up. Other people see the "value" going up, they want to be part of the bonanza, and when they buy the price goes up even more! Mind you, during all of this frenzied buying the actual company may not have changed at all -- nothing may have actually changed except the Capitalist's manipulation of the public perception of the value of the stock. Then, when the Capitalists think the run is over, they sell. Remember, the Capitalists make money buying low and selling high -- selling you stock after they've driven the price as high as they can. And when they sell, the price starts to drop. Seeing the price go down, other people lose confidence and sell, which makes the "value" go down even more. People who bought high are selling low, and the latecomers are wiped out. It's like when those people at the top of the Pyramid Scheme top out, or the early investors in the Ponzi scheme cash in, leaving everyone else wondering where their money went. The only difference is Capitalism's victims never want to believe that the underlying scheme, Capitalism, is the actual scam.

We were all told real estate values would never go down. Buildings, land, location -- nothing had changed, but suddenly everything had more value, and low interest rates meant this was a chance for everyone to own a piece of the American Dream! Despite the fact that real wages had been going down for thirty years, while prices for everything have gone through the roof, we were all encouraged to buy! It was Bush's "Ownership Society" (remember that?) Buy now, and watch your equity grow! It didn't matter it was a 50-year mortgage you'd die before paying off -- you would have a house that only increased in value, and the Ponzi scheme would have a new stream of cash.

And who were the last invited to this particular round of Ponzi-mania? High-risk loan applicants. Make no mistake, they were a tiny, tiny drop in the actual financial slop pot, but the Capitalist Bankers scanned the financial horizon, and realized they had expanded their pyramid as wide as they could with people who could reliably pay. Again, a Ponzi scheme must grow, or collapse. But finally workers in underpaid, minimum wage America just couldn't even afford the freakishly low payments on monstrously overpriced homes, and the money stopped flowing. Properties were sold, prices dropped, and the whole thing collapsed. There simply wasn't enough money coming in to keep the Ponzi Scheme going. And now, with promises of change and lessons learned, the Capitalists hope all the wannabe Capitalists will blame a few bad players, and not notice it was the Scheme itself that caused the misery. And after the bailouts and pardons, they hope they can start it all over again.

Capitalism Works!
Didn't we go over this? No, no it doesn't! And despite what Obama, Clinton, Summers, or any of these brilliant fools think , it cannot be fixed. It's like bailing out a boat that has proven itself no longer seaworthy, and repeatedly sinks. Capitalism was created in a different age, to solve different problems. It did it's job, but society has evolved past it, and it cannot be "fixed" to catch up with our current needs.

It doesn't work anymore. Not by itself.

Here's the thing: we now live in a three-part society.

One aspect is Capitalist: people with money making investments in companies that produce consumer goods and services. (Michael says this while checking out the new Huffington Post app on his for-profit produced iPod Touch!)

One aspect is Socialist: Commonly owned resources -- parks, schools, libraries, clean air, clean water, etc., and commonly provided services -- education, law enforcement, etc., which we collectively pay for and provide for ourselves. (Michael takes a deep breath of federally regulated, cleaner-then-it-would-be-if-left-up-to-Wall-Street air.)

One aspect Communist: Self/Worker owned businesses. (Remember -- all that Stalinist shit wasn't communism. That was Totalitarianism, mixed with "For the People" slogans. Communism simply means the workers own the means of production, and Marx said the Communism without Democracy was unthinkable. Michael thinks Stalin was a punk who gave every worker-owned barbershop or art collective a bad name.)

The big problem of modern societies has been the battle between each of these important aspects for primacy. It's like the movie "Highlander," and the life and death struggle between immortals because "There can be only one!" The battle between Unregulated Capitalism vs. State Socialism vs. the Dictatorship of the Proletariat. Some countries have worked towards a balance, but in the United States Capitalists have fought long and hard against common ownership of anything (except their debts), and in the 1980s the Free Market Zealots started going freaky maniacal against anything that did not turn a profit.

The fact is we all slide fairly effortlessly between each of these seemingly incompatible economic systems each day. We check our Capitalist 401(k)s while driving down publicly financed streets to get our kids to our essentially Socialist schools before we go to the Communist owner-operated/worker owned coffee shop on our way to a corporate cubicle. Even the biggest Capitalists in the country, who blast Federal spending on services, rely on the Socialist network of roads, schools, environmental protections to keep their workers or consumers from rising up in rebellion. What we need, and the only salvation for our society, economy, and our children's future is to stop the battle, and create a new system in which each of these philosophies is responsible for its aspect: A well-regulated market to generate investment in innovation, a government big enough to provide all the services (and that includes Health Care, Transportation, Energy, and Basic Nutrition) a modern society needs for life, liberty, and the pursuit of happiness, and an intercommunal spirit of worker-ownership and responsibility.

How about CapiCommieSocialism? The cool thing is you can put them in any order, which ever you prefer. CommuSocialCapitalism! SocialCapiCommunism! Your turn! The point is we need and use all three all the time. The Stock Market should never be the dominant factor in any nation's economy - it should be a component. A limited, regulated market has it's place, but that place cannot be at the front.

What Is Capitalism?

It is a system of investment in which profit is shared among those who invest their Capital, while those who invest their Labor are considered an unfortunate cost.

What Is Capitalism?

It's the siren song of the Free Marketeers, who've repeatedly crashed our Ship of State on the rocks of Capitalist Greed. And each time the Captains of Wall Street have struck up a new song, convincing the surviving galley slaves to rebuild the ship with their own money and row again -- row -- as they sit in filth, row -- as their homes sink, row -- as their children starve, row -- to a fantasy tomorrowland where all their suffering and sacrifice will be forgotten because they, too, will share in the Capitalist Dream!

What Is Capitalism?

It is a bankrupt casino. And if we bail it out, try to "fix" it without evolving it to our actual needs, our country will be saddled with it's lies, crimes, and mob bosses until it breaks down again, next time sucking the money out of our children's economy.

What Is Capitalism?

As the dominate force in the economy, it is a failure. Milton Friedman was wrong, and I hope somewhere Karl Marx is sitting on Friedman's creaky chest, flicking beard fleas into Milton's dry, cracked piehole. I'm not saying we should spit Capitalism out like the mouthful of rabid maggots it clearly is... okay, I kinda am saying that. But I'm also saying we need first to understand and acknowledge it's failures before we can start to create a new system that addresses the needs of the working many rather than the Capitalist few. Then we need to move on.

Comments

[K.J. Dwyer - Huffpost Blogger]

There is not one, NOT ONE, purely capitalist or socialist or communist economy on the face of the planet, nor has there ever been.

Even at the most restrictive, draconian moments of the "cold war," communist societies had thriving black markets. Why? Because pure communism could not provide the necessary services, products and income necessary for any economy to survive.

Likewise, the United States and other free market societies have always relied on socialist or communist enterprises to deal with everything from education to infrastructure. ALWAYS. This is the nature of the particular enterprises they serve, as you perfectly articulate.

You're absolutely correct that individual segments of the economy need to be relegated to their more apt philosophies and structures. In effect, it's what we do now already, with notable exceptions.

The most obvious being healthcare. Every economist will tell you that left in the free market, healthcare will ultimately ruin the U.S. economy. Costs are completely out of sync with the service it provides and parasitic insurance companies and lawyers have inserted themselves into the mix exacerbating the problem 100 fold. Not to mention that treating health as something to be capitalized on is inherently immoral.

Americans need to grow up and realize that all of the conservative rhetoric vomited by the right and center (and, sad to say, supposed members of the left) will do nothing but march us to our collective economic grave.

[juggernaut1729]

Some Government programs however do resemble a Ponzi scheme. Social security for instance is a huge Ponzi scheme that will collapse in a few decades.

[juggernaut1729]

Capitalism is not a Ponzi scheme at all. Booms and busts in any market are a normal and necessary part of capitalism.

If it were a Ponzi scheme, there would be no net wealth creation in the economy, but we do know that this is far from true. It would be ridiculous to say that there has been no wealth creation in the last 200 years of our existence as a country.

For instance, the Dow Jones went from 66 in 1900 to over 8000 today.

It might go up or might go down tomorrow but this journey from 66 to 8000 represents trillions of dollars of real wealth creation and tens of trillions more will be created in the future.

[Michael Gene Sullivan - Huffpost Blogger]

Going from 66 to 8000 represents a change in perceived value, not real wealth.

People have this notion that the higher the number of the Dow, the better. The last few years should have shown us all that the Dow Jones Average does not represent anything real. Does a higher stock market average mean fewer higher wages for the workers who are the backbone of those companies? No. For the last few decades real wages for the working class have been stagnant, while the actual cost of living has gone up. The fact is a high number on the stock market does not equal a positive effect on the lives of the vast majority of the population. Sometimes those two things overlap, but the second is not dependent on the first.

Here's a basic example: Sunbeam. The CEO cut costs, lowered inventories, and the stock went up. Every Capitalist loved him. Yes, by firing the workers and shutting the factories he made profits soared! Sunbeam died, but for a brief, shining moment stupid, greedy, shortsighted investors who think a high stock average is the point loved it.

[juggernaut1729]

On the contrary, the notion that the stock market does not represent real wealth is false.

The stock market might understate or overstate the value at any given time but it definitely is dependent on the actual underlying value i.e the earnings and the book value of the companies that form the Dow.

Company earnings have gone up many fold in the last 100 years and this is reflected by the Dow. There is unreal about all this wealth.

Also, there are periods of high and low wage growth, but in the long term, wages trend up.

Ours is one of the richest countries in the world. Even our poor people lead very comfortable lives compared to the vast majority of the world's population. This system has served our country well.

We can do better by having smart regulation, better Government intervention in failed markets (such as healthcare) and so on, but the core of the system must remain unchanged if we are to remain a prosperous country.

[Michael Gene Sullivan - Huffpost Blogger]

Oh, and saying "booms and busts in any market are normal" is false. It's like saying breakdowns are part of car ownership. Only if you own a lemon. The idea this boom and bust cycle are natural is part of the Capitalist Mythology that has bedazzled us for too long - that somehow even it's terrible failures prove that the Market works. Crapaganda. There is no other system who's proponents use inconsistencies to prove workability. When someone does that it''s called a religion.

There is an excellent book - "Popular Delusions, and the Madness of Crowds." It is not a critique of Capitalism, but it treats speculation as a sort of insanity, which leads to these "booms" which Capitalist apologists say are normal in that system. What happens in any bubble - and what happened over the last eight years - is nothing short of self delusion, and any system in which that is normal is nuts.

[juggernaut1729]

It is ridiculous to compare the market at large to something as simple as a car.

Is your car affected by the interest rate ? No. Did it refuse to start when two planes flew into the World Trade Centre ? No. Does it give you higher mileage when your neighbor is optimistic about the future and lower mileage he is pessimistic about it ?

The market is nothing but the outcome of the decisions made by hundreds of millions of people all over the world. Their decisions in turn are influenced by dozens of different things....

Booms and busts in a market are as natural as pessimism and optimism are natural for an individual. Do you think it is unnatural for a person to be optimistic about the future at one point of time and pessimistic at another ? How is that inconsistent with human nature ?

The market is only as perfect as ordinary humans are perfect. Just as humans need laws and a mechanism to enforce those laws, the markets need some amount of regulation.

Doing away with markets to cure market failure is like killing all human beings to make crime disappear.

[SingingGuy]

Wow! this is the most, common sense, insightful series of articles I've read on Huff Post ever!

This four part series should be mandatory reading for all college freshmen taking an economics course.

Oh, by the way, since so many have said that what President Obama is doing is heading us towards Eurpopean Socialism, I would like to point out that studies have shown that many of the countries that have this brand of "European" Socialism have some of the most literate, most content, most healthy (both physically and mentally)people in the world.

[polysci101]

I agree. I certainly learned alot.

[dsws]

"What Is Capitalism? It's the siren song of the Free Marketeers..."

No! Capitalism, communism, and radical environmentalism are all equally opposites of free markets. The single stupidest thing the left has done in the last 233 years is to go along with the rhetorical conflation of capitalism and free markets.

There are three main factors of production: labor, capital, and natural resources. It takes all of them to make goods efficiently. People start out (at the beginning of whatever period of time you happen to be looking at) with different amounts of each factor, and the goods produced by any particular activity (or the proceeds from selling them) are split up between people who provide factors for that undertaking.

In a free-market economy, the goods are split up according to market prices for each factor of production. But everyone has a self-serving reason why the factor they happen to be providing should get more of the goods. A political economy is leftist to the extent that labor gets a bigger share. It's capitalist to the extent that capital gets a bigger share. And a hypothetical radical-en­vironmenta­list political economy would systematically raise the prices of natural resources for the benefit of the rest of the natural world.

to be continued ...

[dsws]

... continued:

An ideal free market (no externalities, no monopoly/oligopoly, no transaction costs, no asymmetric information, and so on) produces only best-possible outcomes (best-possible in the sense that no possible use of the available technology and factors of production could be better for everyone: the only way to make someone better off is at the expense of someone else). Furthermore, for any best-possible distribution of goods, there's a redistribution of the initial ownership of goods and factors from which a free market will yield that equilibrium distribution.

Recall that most everyone has self-serving justifications for saying that their factors of production should get a bigger slice of the pie --this latter fact is sometimes paraphrased as saying that they really are nothing but self-serving rationalizations. However, there are good reasons for giving labor a bigger piece. In a nutshell, the real world doesn't consist of a single equilibrium from a single set of initial conditions. Over multiple iterations, free markets naturally collapse into capitalism.

[dsws]

"What Is Capitalism? Unregulated, it is a Ponzi Scheme."

Nope. The money to pay off earlier investors doesn't routinely come from later investors: it comes from squeezing the wages of the workers. When the financial markets start functioning as a Ponzi scheme, that's a bubble. Bubbles happen occasionally, and we need regulation to avoid them or mitigate their effects. But they're not particularly a matter of capitalism.

"I'm just saying we need to ... create a new system that accommodates the needs of the working many rather than the Capitalist few"

Worked for Adan Smith. Nobody thinks the political economy should be dedicated to filling a king's treasury any more. If you can come up with an idea as powerful as his, in 200 years it will be horribly distorted in the rhetoric of those who support one of its opposites, and the status quo ante will be all but forgotten.

[Michael Gene Sullivan - Huffpost Blogger]

I realize that it is always dangerous to use terms as they are bandied about in Common Usage, but defining 'Free Market" is kind of a tricky thing. For one person it means the unregulated exchange of goods, to another the unregulated accumulation of stock in a corporation, to yet another the unregulated accumulation of position in the Market as a whole. At this particular time Free Market means all three combined. While correct definition is important the fact is the Free Marketeers are selling unregulated accumulation under the all-important word of "Free".

The point is unregulated Capitalism always devolves into a Ponzi scheme. And if that's the case then it is inherent in the system itself. Capitalism requires taking wages from the workers and giving them to investors, but workers wages can only be cut so much. Requiring new capital streams the Capitalists always tend to deregulations, and Unregulated Capitalism always takes it a step further to Ponzi Scheme.

I'm not exactly disagreeing with you on a theoretical level, but on a practical one. Regardless of what Mr. Smith intended, this is the system that carries his standard. Besides my belief that he would hardly recognize what is done in his name today, I said in the piece that his theory has served it's purpose, but times have changed. Trying to go back to what he really meant is a scholastic exercise, We need a new system that takes into consideration the way things are now.

[dsws]

"defining 'Free Market" is kind of a tricky thing"

Not really: "free market" is a lie, conflating ideal markets (as defined in econ textbooks) with capitalism. We anti-capitalists have been letting them get away with that lie for over 200 years.

But the main thing I'm saying is that to create a new system, we need new theory first and the politics will follow. Adam Smith killed the idea that the political economy should be dedicated to filling a king's treasury. He didn't do it by demanding a new system, or even by explaining what was wrong with the old one; he did it by providing a theory to explain what was going on that everyone was oblivious to.