05/18/2012 01:06 pm ET Updated Jul 18, 2012

Capitalist Revolution: Forget the Deficit and Learn From Europe

This week, the Republicans threatened another nasty battle on the debt ceiling unless the government cuts more spending -- setting the stage for the same stupid drama we experienced last summer. It is highly irresponsible and dangerous, but should not surprise anyone, for two things that the Republicans love to use to get us worked up are the Deficit and Socialism.

As for the former, the real deficit to worry about is the deficit of common sense, but more on that later. First let's deal with socialism -- the dreaded S-word -- especially as it casts its infamous shadow again over Europe.

The recent elections in France were a shocker and the turmoil in Greece seems to have reached epic proportions, but keep in mind that Europe has long had an uneasy but steady relationship with socialism. Even where capitalism is the norm, such as the United Kingdom or Germany, there exists an undercurrent of socialist tendencies, whether in the form of universal healthcare, protectionism of domestic industries or emphasis on workers' rights. In the more balanced countries of Europe, socialism exists in a unique détente with capitalism; i.e. in the mold of "capitalism with a heart."

Through the thousands of years of its rich history, Europe has experimented with practically every type of economic model in existence and while it is true that nations with an emphasis on free market philosophy have fared better than countries with managed models, the global economic crisis has spared no one and left all of Europe in tatters. The reaction to this mess has been a blind rush towards austerity and a gutting of the public sector in order to forestall sovereign debt defaults and to secure the Euro.

In that context, it becomes easier to understand the results of the French elections, as well as the political upheaval in Greece, Italy and other parts of Europe. While the swing to the left in some cases and to the right in others might indicate inconsistency within the continent, there is one common thread running through it all: people are passing a clear message to their governments that they want change, but not the type of change they have seen so far. In other words, Europeans do not want an extreme solution like austerity to their economic problems, but something less reactive. Given the continent's democratic economic roots, it is reasonable to assume that this means they want capitalism with a heart but not capitalism without a soul. They want balance.

And balance is something that the United States needs as well.

In our hyper-ambitious, single-minded form of capitalism, America has perfected a system that works very well for a select few, but hardly at all for most. The proof of this is everywhere from the staggering disparity in income levels for senior executives and all other workers; to the disproportionately large price paid by the middle class and poor during times of economic crisis; to the silent misery of indentured servitude that exists in Corporate America. Adding insult to injury, our system is rigged to favor those with privilege, access and ruthlessness while relegating everyone else to helpless spectator status. So, why does this go on? Because of the brass ring dubbed the "American dream." As long as people believe that they too might one day attain all that they currently envy, they are happy to soldier on despite their problems.

The catch is that the system is also untenable. Like any lopsided structure that eventually becomes too heavy on one side to stay upright, American capitalism is bound to fail. A game that is rigged cannot go on forever; eventually the dream of possible victory is shattered and then the players have no more motivation to play.

The good news is that even the most diehard supporters of the free market recognize this fact. The bad news, though, is that the solution being proposed to fix the problem will not only fail, but quite possibly make it worse -- as it did recently in Europe. On both sides of the political aisle, but much more on the Republican side, there is a fanatical obsession with the idea of cutting government spending and reducing the deficit, aka austerity. This ideology completely ignores the fact that government spending, including on infrastructure, education, healthcare, technology, law enforcement and public services, contributes significantly to our economic wellbeing -- directly through GDP as well as by providing a reliable system for the pursuit of commerce. Not to mention that without the government's involvement in essential functions, America would be reduced to a private sector playground run by the insiders for the insiders; an exploitative mecca for subprime mortgage peddlers and greedy merchants -- the very reason our system has broken down in the past!

An observant reader might note that the things mentioned above are often labeled socialist and considered a violation of our democratic ideals, which is why the example of Europe is so relevant. Just as the public on that continent is clearly rejecting a single-minded focus on austerity, it is necessary for Americans to do the same. Gutting our government will not yield anything for us but chaos and pain. It will hurt our economy, lower our productivity and expose Americans to unchecked abuse by powerful corporate interests.

The ideal economic system for a developed nation is not pure capitalism but a careful balance between free market principles and government intervention, including spending; a modified form of capitalism that enables the co-existence of personal prosperity with the national good. This is hardly socialism in its traditional form but a common sense compromise that would create harmony, raise the standard of living for many people rather than just some, and create a solid foundation on which to build a sustainable economic future.

Of course, all of this is great, but what about our most immediate problem: unemployment? There too, a balanced system would benefit us greatly. In a climate where unemployment is high and economic growth sluggish, a knee-jerk and drastic reduction of the deficit through cost-cutting would only burden the system even more and hamper our recovery. In pure economic terms, reducing spending at a time when people are looking for work is counter-productive and, frankly, crazy. The belief that lower spending and lower taxes will automatically boost hiring and lead to financial growth is an outlandish trickle-down fantasy that has no basis in reality. And even if trickle-down economics does work, by its nature it is a glacial phenomenon which makes it useless for our current dilemma. The best analogy for this is abandoning a car in middle of the highway in the belief that the passengers can run faster on foot. The only result of this is that a lot of people will find themselves stranded with no way to get to their destination.

The moral of the story is that before we go wild with our deficit-cutting scythe, let's make sure that we are not hacking away at our own feet in the process. And before we start huffing and puffing against the S-word, we should stop and think of what is really going on in Europe right now. Europeans are not shunning free-market principles but demanding a more intelligent and fair system that serves the larger interests of the continent.

America is and always will be a capitalist nation but that does not mean that capitalism itself cannot evolve into a more sophisticated and balanced philosophy that provides for everyone in a way that has not been seen before. If we are truly a civilized country based on principles and not ideologies, we will be open to the idea of experimenting with different methods of achieving prosperity.

And that would not make us socialists or capitalists. It would just make us smart.