Destroying our economy

Capitalism has had every opportunity to prove its own effectiveness

What puzzles me about the current economic crisis is that we know what is happening, and why it is happening, but nobody talks about it. 

Capitalism is a very simple system. Any investment advisor will sit you down and explain how it works.

Capitalism is the fixed belief that if you have money then you have the right for that money to increase at n per cent per annum compounded monthly.

This is an exponential curve. The size of n, the interest rate, is not important. It is the compounding that makes it exponential. It tends to infinity. 

Capitalism is a system of infinite, systemic greed.

This is not individual greed. It doesn’t matter whether the individual is greedy or not: the system is greedy.

I put my money in the bank. It doesn’t matter whether I am greedy or generous, the interest will continue to add up. And your investment advisor will point out that if you leave it in long enough, you will be a multimillionaire. 

Can’t we satisfy the capitalists by growing the pie, and then giving everyone a bigger share? You can’t have an infinite pie. There will always be a point where the rich get richer and that money has to come from somewhere so it comes from the middle class and the poor.

As the income disparity in a society increases it destroys the market economy.

In a market economy, the purpose of a business is to create a customer. If you have no customers you have no business. If the rich people take all the money, then there are no consumers, no market and no economy.

This is why countries with vast disparities in wealth cannot develop. This can work for a society of subsistence agriculture, but not for a society of cities.

This is what became clear in the Great Depression. They called it “poverty in the midst of plenty.” While some people were burning crops to keep up the price, other people were starving.

The thing that Hitler and FDR did to cure the Great Depression was to create the Second World War. It meant hiring millions of new government employees called soldiers and spending vast sums of money on weapons systems.

Just as in a financial crisis the government is the lender of last resort, so in a market crisis the government is the consumer of last resort.

The important point was that after the war the lesson was learned.

The United States immediately entered into the Cold War with all the massive military expenditures that entailed, and also began a massive public works program on the Interstate Highway System.

They committed 10 per cent of their GDP to the Marshall Plan to rebuild Europe.

They also developed a new invention called the credit card. There was now a way to finance consumption through consumer debt. Every previous war had been followed by a depression, but this war was followed by a boom. 

They also began to put in place those social programs that were called economic stabilizers.

Unemployment insurance, family allowances, old age pensions and welfare programs guaranteed that if people lost their jobs they didn’t stop being consumers.

The negative spiral of lost jobs, lost consumption, lost jobs, lost consumption, more lost jobs, more lost consumption would have a bottom. People could lose their jobs but still remain consumers.

That meant recessions but no depression. The social safety net would allow the market to bounce back. The social safety net for individuals was actually a social safety net for the market.

The greed of the capitalist class was also tamed by income taxes, capital gains taxes, inheritance taxes, surtaxes, minimum taxes and inflation - and, of course, the protection of the bankruptcy laws.

The old answers worked. They created the 60-year post-war boom.

Why is nobody talking about this?

Robert Johannson is a recovering Shakespeare scholar, a recovering politician, a recovering United Church minister, an unrepentant playwright and a student of math and physics.

Published in Volume 66, Number 12 of The Uniter (November 17, 2011)

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