Posts Tagged ‘Capitalism’

American capitalism is dead.

I’m sensationalizing a bit with the first sentence, but the reality is that American capitalism is on life support. We’re propping up a facade of capitalism and millions of people are blaming “deregulation” (to slander the ideals of capitalism) on this long drawn out “recession”. I’m using a lot of “quotes” here because “deregulation” is a misnomer and the “recession” is really a depression masked by bogus inflation numbers and massive government deficit spending and a decline in the value of the US Dollar. That last sentence was a mouthful, so let’s start with these myths…

Deregulation is defined as the act of freeing from regulation, particularly government regulation. The idea that the federal government deregulated the banks is much like the idea that The Constitution clearly uses the words “separation of church and state”. Deregulation, in the sense that is being used to slander capitalism, was merely a change in the regulations by the government that created holes that thousands of bankers and millions of consumers took advantage of.

Nobody can take a loan out for 125% of the value of their home and honest think there is nothing wrong with that. Just like nobody can offer a loan at 125% of the value of a home and not think there is nothing wrong with that. Just like nobody in the Federal government can pickup a newspaper from 10 years ago about 125% loans and not think there is something wrong. If you can, you’re exactly why we are in the banking mess we are today.

 

Recession is defined as a decline in GDP, employment, and trading lasting a period of six months to a year. Earlier, I referred to bogus inflation numbers and massive government deficit spending and a decline in the value of the USD. First, the inflation numbers don’t require a rocket scientist (because supposed economists clearly aren’t capable of the math)  to figure out that they are false.

Simply take a look at what goes into calculating the Consumer Price Index (CPI). You will find few line items where the government is not heavily subsidizing/regulating that industry. Given that the federal government is more than $14 trillion in debt, it’s pretty clear that inflation numbers are considerably underestimated. If you didn’t follow that last part, I’ll help explain: if is costs you $3.15 for a gallon of milk at the grocery store but the federal government is providing subsidizes to milk producers to the tune of $0.50/gallon, the true cost of a gallon of milk for you is actually $3.65. I’ll admit that I haven’t done the research to find out the exact $/gallon of milk the subsidizes equate to, but you can get the point. Now, count this over the hundreds of entitlement programs the Federal government spends money on, and you have a real problem with the calculation of the CPI (inflation).

To further exacerbate the national debt issue, people don’t really consider the buildup of interest on the national debt as part of the total problem. This isn’t that unusual. A lot of people in business often forget about how borrowing money from a bank or investors requires payments that impact the actual bottom line of the company. Here’s a simple way to think about it: when the Federal government was over budget by $455 billion in 2008, the total increase in national debt was actually more than $1 trillion.

This all compounds!

When you include the devaluation of the USD abroad and the fact that we purchase so much product from overseas and that it takes 6+ months for that devaluation to ripple its way into our prices, you get rest assured that there are much higher prices coming to a store near you very soon…

 

Now, let’s get back to capitalism. At the beginning of this article, I needed to dismiss the myth of low inflation over the last decade so that we could really see that this “recession” is indeed a depression (I’m betting that decades from now, we will finally admit in our history textbooks that the numbers were wrong and that this is a depression).

Capitalism has been slandered by the myth of deregulation. Deregulation was a change in regulation that anyone sane and honorable would have realized had massive holes that were being taken advantage of. Nobody wanted to halt the good times, so our governments (which could have done something about it) did nothing for years! That’s NOT deregulation. It wasn’t an act of capitalism. Plenty of people warned for years about pending doom, and they were dismissed as pessimistic and bearish.

However, these aren’t the true measure of capitalism’s comatose state. The true measure is that we look to our politicians to “create jobs” and provide “bailouts”. What is capitalistic about bailouts? NOTHING! What is capitalistic about too big to fail? NOTHING! The funniest part about “too big to fail” is that the giant banks that were too big to fail were merged with existing banks, making those new banks too bigger to fail! Why weren’t the banks broken up into smaller pieces with the non-profitable sections written off and offset by “bailout” money? But I digress, and that’s for another sub-1000 word blog.

The Capitalist mindset in this economy would be this: What can I improve, change, or invent that would make a profit, provide jobs, and improve our economy. Instead, we are waiting for Obama to create more Federal jobs, and the “Republicans” are spewing forth their usual taxes rhetoric. Even Sarah Palin is talking about how can the federal government create jobs and stimulate the economy. What would best stimulate the economy would be a strong USD position, 10% reduction in all federal government spending and an increase in taxes. Of course, anyone will say I’m crazy and it wouldn’t work. Because it obviously didn’t work in the 90s when Clinton did it, right?

My friend, Jim, argues some interesting points in his rebuttal to my last post about progressive taxation.

Jim asserts that wealthy people have no more to lose than poor people or the middle class because a Ferrari may have as much (sentimental) value as a tin cup. While this may hold true in “The Gods Must Be Crazy”, it can hardly be argued in a developed civilization. It also creates a problem for Jim’s recommendation of going to a property tax only system. I say my property is only $1, so I should have to only pay the property taxes on $1. Who is to say what my property value is? What if the Federal government disagrees with the State, which disagrees with the County government about the value of my property? Do the roll one of those D&D dice with only three sides?

Material wealth is the primary foundation of economics. It isn’t about measuring if we are jumping on rainbows. The measure of economic success is purely material. Couple that with the fact that decades of research and intellectual property went into building a Ferrari, billions of marketing dollars, engineering, schooling, etc… Not to take away the incredible economic value of the invention of the concept of a tin cup, but one tin cup hardly holds the economic value of a Ferrari in any stretch of the imagination. Even in an undeveloped society where a Ferrari would have no transportation value for lack of available gasoline, it still provides a greater level of shelter than a tin cup.

Now, getting to his point about stealing. Certainly, stealing is criminal regardless of the value of what is being stolen. Of course, the immediate question then becomes that of ownership. Jim questions “What gives the politically powerful the right to decide for us what we should pay?” The answer to that question in America is simple: We elect them.

Now, Jim will argue that branches of the government and agencies the government have abdicated its authority (The Federal Reserve) to are not elected and are thus stealing from the American public. I can see his argument. However, nowhere in The Constitution does the word “police” occur. Therefore, would that make all police agencies unconstitutional? Hardly. Our Constitution is a broad document that has required clarification through numerous lawsuits and amendments. It is a living document, and as such is subject to the interpretation of those assigned to interpret it: The United States Supreme Court. The IRS, FED, EPA, FDA are all legitimate government agencies that were formed by our government. While there may be X-File style conspiracy theories as to the roots of each agency, each of them can be traced back to an act of our Congress or Executive Branch and all of the agencies do answer (contrary to Jim’s assertion) to the American government. Do these acts make them constitutional? Certainly not. But we can save that for another blogbate…

Jim goes on to argue that a consultant in the Bahamas is not participating in the United States economic system, despite offering services to Americans. How could he not be participating in the United States economic system? While all of his action may indeed take place in the Bahamas, the results of his actions have a very real impact on the United States economic system. Jim’s suggestion would basically allow for the pirating of the US economy. All one would have to do is have their base of operation outside US soil, and you would no longer be “part of the US political system”.

I can see where Jim might be going with all of this. Certainly, the abundance of manufacturing jobs made available by an abolition of government regulations, income tax, and environmental laws would make the US extremely attractive to business. In fact, Detroit automakers could just move their headquarters to Canada (it’s not that far away anyway) and they would no longer be subject to any American law. They could then lease all property in the United States and be completely tax free. Perhaps Jim might be on to something because that might be better than giving them $700 billion dollars…

This brings us back to Jim’s idea of real property being taxed instead of income tax. The great thing about Jim’s plan is that I could make as much money as I wanted and influence lawmakers and the entire political process by simply never owning a piece of property in America. I could setup businesses through out the country that always lease our property instead of own it. Of course, I’d live in the Bahamas like Jim’s fictional character, and none of my companies would ever have to pay any taxes at all. We’d be 100% tax free.

Of course, we’re still paying our leases, so we are indirectly paying taxes because the lenders who own the real property would be paying all the taxes. However, because I can make so much more money on everything my businesses do, I can afford to buyoff the property tax assessors so that the property taxes are very low. Come to think about it, I could setup shell organizations that would be the lenders. So, I would really just be paying myself the lease and then using that extra money to further buyoff lower property taxes.

Sounds absurd, grotesque, illegal… Remember, in Jim’s system, there are no regulatory agencies, so no one would ever find out. It’s a lot like the early years of the United States…

Getting back to progressive income tax being the best example of capitalism, I leave you the reader with this: It’s government leading by example. Join any country club, credit card reward program, any incentive program in America (I’ll argue the world!), and you will find that you must pay a greater price for a greater privilege. Jim can argue that there are all sorts of social programs that redistribute wealth, etc. That’s the other side of the taxation coin. What the government spends has nothing to do with what government intakes (let’s just face it, the national debt makes that very clear).

Greater privilege = greater price. This is precisely why those who may a higher income should pay a higher tax. I know plenty of people who think I am nuts for justifying paying more as my income increases. In fact, as my income bracket moved up over the years, I often questioned this idea until I met a billionaire a few years ago who shared a story that will stick with me forever.

This billionaire came upon his fortune very rapidly with the growth of the technology industry in the mid-90s. He put his kids into the finest schools, purchased fine cars, homes, took expensive trips, etc. One day, he arrived home from one of his trips to find a note that said one thing: If you ever want to see your daughter alive, pay $10,000,000. Instructions will follow.

The moral of this story is that there are always those who are willing to steal what you have worked hard to produce. I have had accountants, consultants, and employees steal hundreds of thousands of dollars of what I have worked hard to build. They have no regard for the amount of work I have put into building a business, the impact it may have on the families of the employees I employ that they just stole money from. These are not good, kind, well intentioned people who believe in a just system.

Fortunately, the billionaire in my example was able to recover his child unharmed. Those with greater wealth surely have far more attention than those without wealth. Not to say that low income and middle-class children aren’t abducted as well, but greater levels of success attracts those who want to steal from you.

My friend Jim brings up an excellent point about the redistribution of wealth and communism in his reply to my post about Flat Tax being communism. First, I’ll cover his question of why governments levy taxes. Then I’ll get back onto the topic of the flat tax and communism.

Jim is suggesting that income tax is communism but property tax is possibly justifiable if the purpose of government is the protect and to serve. There are a few problems with this, the most important being that the federal government should have absolutely nothing to do with property taxes. Second, the majority of Americans (and this hold true for most of the world) don’t own real property. Now, perhaps Jim is saying that you should pay taxes on all property you own so that you are paying your fair burden of the police and fire services in your area. Again, does this then mean that people who do not own a house are not deserving of police protection? They may be productive members of society that generate income, purchase cars, gasoline, clothing, rent an apartment from a property owner. They too are deserving of protection under the law.

Now, let’s get back to the purpose of government. There are several levels of government, but the purpose of all governments (at least in America) is the protection of life, liberty, and property. Jim is probably thinking to himself that I just proved his point about the property tax. However, life and liberty still come before property. The protection of these three equalities of all Americans takes place in several different ways via several different government agencies: Military, Police, Fire Departments, Department of Homeland Security, Commerce Department, Transportation Authority, FDA, EPA, FBI, CIA, etc.

All American’s are deserving of the services of all of the above, and all Americans should pay into those services. Now, there may be programs that an individual doesn’t support, but I’m not going to tackle that topic in this blog. Instead, I’m going to ask the next logical questions: Who stands to lose the most if our country in invaded, attacked, or bombed? Who stands to lose the most if there is a fire, earthquake, or other natural disaster? Who stands to lose the most if there is a severe disruption in the availability of natural resources, energy, or foreign services and labor? Not the guy making minimum wage, and not the guy paying 15% taxes (unless you implement a flat tax – communism).

The people who stand to lose the most in any of the above events are the business owners, investors, and wealthy Americans who utilize a great deal more of the protective and political power of or governments. Those who make more money stand to lose more money if something disastrous happens in this country. Therefore, they should pay a greater portion of the taxes. Some (like Jim) might say that wreaks of communism as it is a clear redistribution of wealth. Well, while there are certain programs that do redistribute wealth, most of them do not. Also, one need only look at history to know that a growing and increasingly upset lower-class is the demise of any ruling party.

Take any of the above departments and you will find a disproportionate amount of services being provided to those with greater wealth and income. Sure, there is some money redistributed to lower-income citizens, but again… History.

So this brings us back to the flat tax, which is ultimately the greatest form and supporter of capitalism. Yes, you read that right. A progressive taxation system is capitalism at its finest. How many of our Founding Fathers were in what we’d call the lower class? Was Washington? I think not. Jefferson? HA! Hamilton? Perhaps the closest. Franklin? You’ve got to be kidding me!

How many patent, copyright, and trademark lawsuits are there for the little guy? Barely any, but the giants are in the courtroom all the time. The wealthy utilize our legal system far more than the poor. The law, our government is supported and swayed by the wealthy far more than the the poor. Our governments have been created for the protection of all, but those who are wealthy have far more at stake and are easily responsible for a greater tax burden. In fact, it would be foolish to think otherwise because it would put at risk so much of what business owners and investors have works so hard to gain.

The buzz word these days is socialism!

National health care = socialism

Obama = socialism

The end of the world is coming!!!

Of course, there are those who have launched their attacks on capitalism. Apparently, capitalism has become the root of all evil. Lack of government regulation leads to all things bad. Supposedly the mortgage crisis was the result of a lack of regulation. However, it was the change in the regulation a decade and a half ago that caused it. It wasn’t a total free market that caused it. Just like the “deregulation” of the energy industry in CA… That didn’t cause the problems. It wasn’t capitalism that caused those problems. It was the government.

To be sure, all socialized programs are not a bad thing. Not that any of us were alive back during pre-revolution times, but we didn’t have an Army. There was no Navy. No Marines. Not even a Coast Guard until the great Alexander Hamilton made it happen.

The socialist organizations listed above are paramount to American security. There are several other social programs that are important to the the well being of America:

  • Police Departments
  • Fire Departments
  • Public Schools
  • CDC
  • Public Highways (although I do believe there should be more toll roads, but even toll roads are socialist)

There are countless others (even at the state level). I’m feeling lazy today, so I’m not going to build an exhaustive list.

However, it is important to note that governments by nature are socialist. Should your Congressman/woman collect payment from taxpayers, they are a socialist. This makes President Obama a socialist. He receives his paycheck from taxpayers. The Senators and Congress members supported by Rush Limbaugh are socialists if they receive taxpayer funds.

I can’t tell you how many times I’ve heard people complain about our “greedy” capitalist society. Quite often they are referring to Walmart, the oil industry, and companies who “ship jobs” overseas. There are others, but one of these poses a serious question for capitalism:

Walmart (and hundreds of other retailers) purchase the majority of their products from China. China is a communist country. Are selling and purchasing communist goods acts of capitalism?

Certainly, a cornerstone of capitalism is the free market, but what is it when that “free market” that a capitalist nation purchases from is a communist country? Some might argue that it qualifies as a mixed market economy, but that is a moot point for various reasons and is irrelevant to the question.

People who complain about the “greed” of capitalism will argue that profit driven capitalism is what drives corporations to purchase cheap products from communist countries like China. However, I argue that it is (1) our fear of inflation that drives companies to find cheaper markets like China and that (2) searching for these cheaper products in a communist country is not capitalism.

It’s not like we don’t know China is a communist country. It’s not like we don’t know that the Chinese government filters all money that we send to Chinese banks when our corporations buy products from their factories. We also know that we could, if we wanted to, manufacture these same products in America or another non-communist country. And we also know that our government has given China, a communist nation, favored nation status. With government intervention in support of a communist nation, how can anyone consider the actions of Walmart and other retailers who purchase from a communist country capitalist greed?

I’m honestly wondering what the hell is going on with our politicians! Perhaps we citizens of America are not sending enough letters and emails. Or maybe we think communism is a good thing. Since when did the federal government buying equity stakes into troubled industries become OK?

Sure, we’ll save a few thousand jobs in the immediate future and cripple the entire country for decades to come. I’m not going to be one of those people who talk about how “The End is Near“, but this communism stuff is really starting to boil my red-blooded American capitalist… well, blood. And if I hear one more person talk about this being socialism, I’ll exercise my Second Amendment rights on you!

Socialism and Communism are not the same thing. In fact, what our Congress and White House are practicing is the opposite of what most socialist believe. Most socialists would say things like, “Damn those billionaire running their banks, squeezing us little folks out of our money. We need a government handout. Where’s my bailout?” That’s not what Pelosi and company are saying.

They are saying, “Those poor defenseless billionaires running their banks and automobile companies are loosing so much money because those evil consumers are not consuming enough to keep them rolling along the way we want the world to work. Those poor businesses need a handout at the expense of the taxpayer.”

Meanwhile, the capitalist will say, “What a bunch of idiots! They pissed away our money and they want us to bail them out despite their antiquated technology and crappy service! We are compassionate, and will give you another chance. Here’s a tax break to go update your crap engines that haven’t improved our dependence on fossil fuels despite the fact we knew it was a problem 30+ years ago. And here’s a tax break for you idiot banks who keep your call centers in the United States instead of outsourcing it to India where we end up with crap service and no answers to any of our problems. If you ef up again, go lobby the communists Pelosi and George W. Bush. Otherwise, invest in a cardboard box.”