- A “two-track” plan to fix capitalism…
- But it’s not a failure of capitalism…
- Jim Rickards: Are you ready for a NEW kind of market crash?…
Dear Reader,
I was referred yesterday to a recent Newsweek article that had escaped my notice.
Its title read:
“Capitalism Isn’t Working for the Poor. Let’s Try Something Else,” by title.
Its author was a certain Thomas C. Foley — a Republican.
Yet did not Mr. Reagan argue that a rising tide lifts all boats?
Have not most Republicans cling to the “trickle down” theory to enrich the impoverished?
Yet here this Republican heretic called into question the top-down capitalist creed.
A “Two-Track” Proposal to “Fix” Capitalism
Here Martin Luther tacks his 95 Theses to the church door:
- American incomes for the bottom 25 percent haven’t grown nearly as fast as they have for the top 25 percent. The bottom 25 percent are not much better off than they were 40 years ago and are even worse off than the bottom 25 percent in some countries with a less robust free market.
- To placate lower income voters, politicians keep tweaking capitalism to redistribute wealth to those at the bottom. This has come in the form of more progressive taxes, subsidized health care and housing, food stamps, higher minimum wages and child tax credits. All of these are intended to level the playing field, but they also function as a parking brake on free markets, which ultimately diminishes the system’s economic potential.
- It’s time to admit that our “one size fits all” capitalist system isn’t working for everyone. We should fix it; not with even more tweaks or a European-style welfare state, but with a two-track system that provides a free-market system for those who thrive in it and another system for those who don’t.
Just so. Yet what “two-track” system do you intend, Mr. Foley?
The “70-30” Model
- The current 100 percent free-market system could be replaced by a new 70-30 system, where 70 percent or more of workforce participants remain in the free market and up to 30 percent of the workforce are given a stabilized income.
Is this not the theory of Universal Basic Income? No, argues this Republican creative and innovative fellow.
Here he sketches a sharp distinction between the two-track system and the universal system:
- This two-track system is similar to, but distinct from, a Universal Basic Income because it isn’t universal — it would be offered as an option for those Americans who prefer security to taking their chances in the free market and would only be available to people who work.
- This two-part system would stabilize the incomes and improve the well-being of lower income people who opt in to the system, while liberating the free market system in the remainder of the economy to maximize growth and economic potential.
- The stabilized income would start around $30,000 and increase to over $40,000 by the age of retirement. Those workers receiving it could work for the government or in the private sector, but in either case, they would be paid by the government. If they worked for a private employer, the employer would pay the government the market wage for the employee, and the government would pay the worker their stabilized income amount. The government would absorb or benefit from any difference.
Henceforth I omit additional details — you have the overall flavor.
Misdiagnosing the Disease
This fellow observes the symptoms of an illness. That is, he observes the languishing lower classes in their miseries.
Yet I believe he misdiagnoses the illness itself.
He centers blame on capitalism. Yet in reality he centers blame upon a perverted and distorted capitalism.
He mistakes a grotesque mask of capitalism for the thing itself. Let us consult the record…
The bottom 90% of American earners advanced steadily from the early 1940s through the early 1970s.
The tiptop 1% of earners lost ground to the bottom 90% across the same stretch.
That is, capitalism did not fail “the poor.” Capitalism advanced the poor.
Yet the capitalistic era ended.
Capitalism Ended With the Gold Standard
In 1971 old Dick Nixon slammed shut the gold window… and murdered the gold standard.
A liberated Federal Reserve finally struck the golden shackles that had previously constrained it… set the printing press whirring… and went amok.
By the early 1980s the tiptop 1% went leaping ahead… and began showing society their dust.
The financialization of the American economy was underway.
The financialized economy demands perpetually expanding credit — that is, debt — to keep the show going.
Thus the financialized economy redirected savings and productive economic investment towards speculation.
The Reverse-Robin Hood Economy
As I have argued before: The financialized economy is a reverse-Robin Hood economy.
It famishes the lower and middling classes… and fattens the topmost classes.
The finance industry contributed some 10% to the gross domestic product in 1970.
By 2010, the finance industry contributed over 20% to the gross domestic product.
And as weeds choke a flowering garden, finance choked the flowering of labor.
Labor’s share of Gross National Income came in at 51% in 1970.
And by 2022? Labor’s share of Gross National Income sunk to 43%.
Labor Lost $149 Trillion!
Eight percentage points may not appear vast across 52 years. It may appear that labor absorbed a setback — but not a trouncing.
Have another guess, says economics commentator Charles Hugh Smith:
- If wage earners’ share of Gross Domestic Income had remained at 51% instead of declining to 43%, wage earners would have received an additional $149 trillion over those 52 years. That’s roughly $3 trillion a year, which works out to an additional $22,000 annually for America’s 134 million full-time workers or an additional $18,000 annually for the nation’s entire work force (full-time, part-time, self-employed, gig workers) of 163 million.
The trickle-down theory of economic progress argues you must first feed the horses in order to feed the sparrows.
The trickle-down theory contains much justice — poor men do not open businesses. Poor men do not provide employment.
Poor men fill no mouths with bread.
Yet is the trickle-down theory actual capitalism?
NOT a Failure of Capitalism
The Federal Reserve has long overfed the horses. And the sparrows have scratched along on the leavings.
Yet they label it a failure of capitalism!
I do not believe that it is.
I refer you once again to the 1940s-1970s… when American labor advanced against American capital
Let us hear no more — then — of capitalism’s failures to elevate the poor.
Let us hear no more of “two-track” systems for capitalism and labor.
Let us hear, instead, of earnest proposals to shutter perhaps the greatest engine of inequality in American life.
What is that great engine of inequality in American life? It is not the engine of capitalism.
It is instead the engine of anti-capitalism.
It is the Federal Reserve.
Brian Maher
for Freedom Financial News
