Inert America: Crossroads to the Future
Page 15
By realigning social policy with the current macro-level trends, freedom of choice is reestablished, and liberty is guaranteed. Of course, liberty without the rule of law and due process is anarchy, and this certainly doesn’t reflect the intent of the framers of the Constitution. Freedom of choice guarantees liberty, and this freedom puts the power back into the hands of the people. The “invisible hand” characterized by Adam Smith in the Wealth of Nations (originally published in 1776) cannot move forward in promoting the common good, if individuals are denied the freedom of action, i.e., choice. Liberty must be the cornerstone of our nation, and it cannot happen without freedom of choice. Liberty, then, takes on a whole new role in promoting economic prosperity, and the common good.
Liberty puts responsibility for action back into the hands of the people. Government is no longer the force that moves people; people are the force that moves our society forward. This, of course, will require a major shift in our social, political, economic, and even philosophical beliefs. As such, this move will certainly change the status quo, and thereby expel entrenched interests. The battle to regain liberty in this country will be difficult. There are too many folks who have a free ride, and far too many who do not value the Protestant work ethic.117
Social policy must promote the common good and not just the interest of a few, even when those few (the minority) are in control of all three houses of government. The rule of the majority of the nation by a minority is not democracy, as so often portrayed when one political party claims victory at election time. This is nothing more than mob rule. It is only their interests that get addressed, even if those interests do a great harm to the rest of the country. Economic prosperity must be promoted through social policies that benefit all, not just special interests.
PRODUCTION AND CONSUMPTION
The key to a prosperous America where the American dream is still possible is drastic changes to our economic system. These changes won’t happen easily or quickly. In September of 2009 in a scathing article in the New York Times, Paul Krugman posits the question, “How Did Economists Get It So Wrong?” as he explores the shortcomings and missteps by economists of all flavors—both micro and macro—that lead to the economic disaster of 2009.118 It’s clear that economists got it wrong as evidenced by the outcome, but getting them to admit it is something entirely different. Moreover, the politics, especially political parties, would also have to take responsibility for the social policies put into place that let economists get it wrong. As stated previously, you really can’t separate the two. Originally, political economy meant the study of the conditions under which production or consumption, within limited parameters, was organized in the nation-states such as the United States. Here we explore production and consumption again within those parameters.
In examining economics and economic theories, you must consider two different concepts—value versus price. In an economic system, production and consumption create the necessity of exchange. In an economic system, supply and demand acts as a driver of price of a given commodity that is used in that exchange. They are related, but the two are distinctly different concepts. The determining factor of price is the law of supply and demand119, the cost of creating a product or delivering a service as drivers of profitability, and the utility of the commodity. These must remain constant whether considered at the micro level of each individual transaction or at the macro level as in the whole of society. Production and consumption, however, drive something vastly different called value. As mentioned in chapter 3, consumption is not independent of production.
The fact that these are often confused by economists is obvious when you trace through the history of economic thought. A few economists like David Ricardo, Karl Marx, and John Maynard Keynes have tried to address the issue, but in the end, did they get it right? The short answer is yes and no. The system of production is different than the economics of production in that the system of production creates value while the economics of production drives price. They misunderstood this point. For example, Marx thought of labor as the key factor of production, and from this he constructed his labor theory of value, which really was a labor theory of price.
Value is created when people work. Work is a function of the production process. How the work is performed is irrelevant to the creation of value in a system of production—work can be mental or physical, but work is work. The output from that work results in a commodity. The price of this commodity may be determined by the cost of labor, the utility of the product, etc. They are inputs into the production process that are collectively called the factors of pro-duction.120 Price, however, is not the same thing as value. People create value in an economic system when they apply their creative abilities to the construction of a commodity or output. As I stated in chapters 2 and 4, American society is both a deterministic and a dynamic system. Later in this chapter, I will illustrate both principles in the context of an American economic system that is driven by a system of production.
In the capitalist system of production, capital or money is one of the drivers around price because price determines the amount of profit. Profits and profitability cannot be ignored in the system of production because to do so generally results in losses, and losses mean you’re out of business. From this perspective, the profit motive is a powerful motivator.121 However, we can’t ignore that manipulation of government does occur in which social policies and laws are engineered in a fashion to maximize profit. Free market capitalism proponents are benefited by government deregulation of financial industries because it allows those in economic positions of power to manipulate the economic system and drive profits (money) into their hands. For example, deregulation is thought to be the primary culprit behind the banking collapse. It was driven by the lack of oversight by the Federal Reserve because Alan Greenspan, the chairman of the Federal Reserve from 1987 to 2006, thought that that there was no such thing as a housing bubble.122 He is a free-market economist. Additionally, through deregulation, large investment firms were allowed to buy up and store large quantities of oil reserves. By doing so, it appears that demand has greatly exceeded supply. When prices go up, huge profits are made such as witnessed in 2008. The oil is then dumped back into the marketplace, which makes it appear that demand has dropped and that supply has exceeded demand. Most importantly, this type of manipulation by economic forces does not accurately represent a healthy, thriving economic system. Politicians who allow such manipulation through voting on social policies that give businesses the legal means to do so are just as guilty as the ones who actually do the manipulating.123
The real problem with an economic system that allows such manipulation is that it is corrupt. Because it is corrupt, it doesn’t meet the needs of a society as a whole. In America, the capitalist system of production is corrupt. While many criticisms could be heaped at the system as it exists today, I prefer to point out that the biggest problem is that it isn’t putting people to work. When an economic system doesn’t provide a society with the type of structure that allows people to have a job, perform work, and earn money, it collapses and ceases to function. People have to have jobs to earn money to meet their needs. On the most basic level, survival demands an individual be able to obtain food, shelter, and clothing. It short, it is consumption.
From a different perspective, consumption is based on choices, and those choices result in a style of living. This style of living as evidenced by the food you eat, the house you live in, the car your drive, etc. It is possible only through the standard of living afforded to the citizens of the United States because of jobs they hold that result in incomes that allow them to make buying decisions based on that income. People have to work in order to consume. The medium of exchange, in this case the American dollar, allows them to pay for that house, buy that food, pay the mortgage, and pay for college for their children. It provides them with the means to meet the necessities of life—a standard of living.
If a few people have all the mone
y, the primary driver behind the means of production, the rest of America suffers greatly. Prices may be driven by the law of supply and demand, but the basic reality is that if you don’t have a job to make money to use to buy stuff, then the price of any commodity is absolutely irrelevant. On the other hand, if the financial system has been flooded, thereby devaluing the currency and reducing the buying power to almost zero, then you can work as long and as much as you want and still not make enough to pay for the basic necessities of life. From this perspective, the capitalist system of production as an economic system leaves a little to be desired.
The major problem we seem to be faced with is unemployment. Unemployment is a symptom or side effect of the current economic structure, and it is systemic. With high unemployment levels, the system does not meet the needs of society, and it becomes painfully obvious, especially to those who are unemployed. In this scenario, value is not being created. When the system doesn’t create value, the production and consumption of a society forces it into a depression. There is no growth because there is not opportunity to grow. People and companies become reactionary and start to constrict their activities. Recession sets in, and then, without stimulus and a plan to move forward, depression is inevitable.
What so many economists and politicians fail to recognize in their theorizing and implementation of social policies is just how technology plays a role in the system of production and how this influences societal stages of development. As I discussed in chapter 3, American society has transitioned from an agricultural society to an industrialized society that was based on mass production and mass consumption during the 1920s, 1930s, and 1940s. This transition didn’t occur overnight. For one, the technology and infrastructure that facilitated this transition didn’t exist. When new technology is applied to old systems of production, productivity explodes and the output from the old system is drastically increased. With these increases in productivity of the work process, prosperity is experienced across the whole of society as I have shown in figure 2.
Figure 2: Economic Model Resulting in Prosperity
One by-product of applying new technology to old systems of production is that people become expendable because less people are required to achieve the same level of output. This results in fewer jobs, and unemployment begins to rise. As fewer people work, the value of the system of production begins to drop. Remember, people create value. New technology applied to the old system of production didn’t increase value; it just built efficiencies into the production process. You can now make more commodities more quickly with fewer people. However, when unemployment rises, that translates into lower levels of productivity in terms of people who are members of that particular society. As shown in figure 3, when fewer numbers of people are working in the system of production, productivity drops even though consumption continues to rise. The distinction I’m making here is between productivity and production. Productivity is based on value created by people involved in the system of production in a society. Production is simply the output that is the result of the work process. From this perspective, the universal law that humans must work in order to consume is violated.
As I have illustrated in figure 4, the aim of a healthy economic system is to provide people the opportunity to work. By driving and keeping a person productive, and then on the aggregate society level, a nation productive, we can manage the economic system by maximizing the input of people in the production process and controlling the consumption of those outputs. That is to say, we can then manage the economic system.
Figure 3: Economic Model Resulting in Poverty
Figure 4: Manageable Economic Model
NECESSITY, THE MOTHER OF ALL INVENTION
Where we are as a nation is just not very clear to most people, including our politicians. We are going through a transition period; it’s a major shift in the social fabric of society that is driven by the three macro-level trends identified in chapter 1. The critical area that this will affect is work—how we work, when we work, and who will work. The short-term implication is an adjustment in the number of jobs. What many politicians, Americans in general, fail to recognize is that the current job losses in our economy in 2009 are necessary. Moreover, these job losses are easily explained by the transitional period we are faced with in the twenty-first century. Let me elaborate. The number of baby boomers retiring within the next decade is somewhere around 80 million. Current job losses are around 7 million in 2008 and 2009 When all the baby boomers retire, who will fill those positions? There would be no one to do all the work. Our focus now must be on policies that facilitate the transition of a workforce of 80 million baby boomers to one with fewer workers to fill those positions.
This can only be accomplished through structural changes within American society. The problems in our economy now are related to structural issues that are causing unemployment. This necessitates major changes in our social, political, economic, and philosophical structure of our society. We will have fewer people to do the work. This is the reason we must prepare this generation and the next generation for the hyperproductivity that must follow suit. What does that mean? How is that related to the macro-level trends identified in chapter 1 and alluded to earlier? What must our politicians do to set policies that can address this issue and other related issues for the twenty-first century while we make this transition from an industrial society to an information society—from a capital-based economy to a knowledge-based economy? These are important questions we will answer in this chapter.
There’s absolutely no way that Franklin Delano Roosevelt (FDR) and the people of the New Deal era could’ve foreseen that their investments in the infrastructure of their day would pave the way to mass production, mass consumption, and mass transit; all prerequisites to meet the needs of the future baby boom generation that was yet to come into existence during the time period of 1946 through 1964.
Although we could contribute such activities to sheer foresight, there is no evidence to support the proposition that government had any preconceived notion that such an infrastructure would be necessary to support the baby boomers of America and usher in prosperity experienced since the 1940s. Foresight is always zero; therefore, to pretend that planning was the instrument that made it all happen is to ignore the obvious flaws that are inherent in government— mainly that government by the people, of the people, and for the people is also run by people. These flaws are inherent in the entire human race, and there’s no evidence that contradicts this fact. They, the people of the New Deal and depression era, simply thought that it was necessary to put people back to work in order to get the country out of the depression of the 1930s.
The government did not know the future. To know the future needs of the baby boomer generation would’ve required a priori knowledge that didn’t exist in their thinking. Their ideas about the depression and what was causing it were only beliefs. These beliefs were not the same as knowledge, and therefore couldn’t be considered to be the truth.
It’s only through an historical interpretation of the events that we can know the truth. Planning that leads to perfect results that are a means to an end can only come from knowledge of future events. For it to be successful, it must be based on truth, because truth can provide a foundation of reality upon which to build. If it is only based on beliefs and belief systems, it is a house of cards that easily crumbles when the storms of life come. The foundation is the same as sand, and with the wind and rain, it washes away, and the foundation ceases to exist. Our society too is crumbling, in large part because the basic economic structure of our society no longer provides a foundation that can support future generations.
ECONOMICS FOR TWENTY-FIRST CENTURY AMERICA
As noted earlier, the key to a prosperous America where the American dream is still possible is drastic changes to our current economic system. This chapter emphasizes what those changes look like, and, more importantly, how they relate to the macro level changes identified in chapter 1
. This chapter is not meant to be a textbook on economics and economic theory, but these are essential areas that need to be explained in order for the reader to understand the forces that have brought us to where we are today in America.
Many economists will disagree with the approach I’ve taken in this chapter. So be it. After many hours of study and reading countless books on these theories, I can honestly say that most of the economic theories that are used today to drive economic and monetary policy in the United States are absolutely wrong. Perhaps they made important contributions at one time, but like sour milk, these theories have passed their sell-by date. It’s time to discard them and start anew. New economic theories and a new economic system will revitalize the American economy and return us to our place of prosperity, if used correctly.
While we are busy making changes, we should make major changes to our economic theory and in our economy. These changes are not mere suggestions for improvement, but they are absolutely necessary for future generations of Americans to have any hope to enjoy the prosperity of their parents. If we hope to leave a powerful nation for future generations, economic prosperity must return.
After conducting an exhaustive review for this book, I have come to one unmistakable conclusion—the American dream is an illusion. Most Americans feel that it is their right to enjoy the American dream. What they don’t understand or accept is that it’s not a guarantee. It’s not a right, and it’s not a reality that most people ever really achieve. Interestingly, most economic theorists posit theories or simply their ideas about how to achieve this dream. Oddly, very few of them ever achieve it. It seems logical to ask, if they know so much, why don’t they have all the money?124 The truth is that they too are working stiffs trying to make ends meets, build a career, and take care of a family. They are no different than the rest of America. They want a piece of the pie, too.