Has Capitalism Hit the Fan?

~ LaVoix

One of our anonymous posters, Mao, posted a link to “Capitalism Hits the Fan: A lecture by Richard Wolff on the economic meltdown”. Here is my response:

First of all, it should be noted that pure capitalism went out long ago - as soon as government intervenes, it is no longer a pure system.  The checks and balances cannot occur. Thus it is not capitalism that has hit the fan but government intervention that has hit the fan.

Capitalism worked pretty well until industrialization came along.  Individuals produced things, sold things.  If something was in short supply, and/or many people wanted it, the price went up -- motivating others to grow that crop or make that product.  This worked quite well until the advent of industrialization.  With high costs of machinery, etc. start-ups costs are high, prohibiting many individuals from going into business.  The well-to-do and well-connected could afford it or borrow money.  Laborers had few choices. 

Early government interventions benefited the workers - child labor laws, limited work day/week, Wagner Act (right of unions to organize), Social Security, minimum wage and so on.  Government fiscal policies were implemented to create stability; taxes, interest rates, and government control of the money supply were utilized.  Unions also achieved some real gains. The Small Business Administration was created to lend money to budding entrepreneurs.

As Professor Wolff pointed out, between 1820-1970 the buying power of the American worker went up every decade.  Even during the great depression of the 1930s.  (Although wages went down, prices went down even more.)  Professor Wolff gave a wonderful overview of why America was so successful for so long -- and then what went wrong.

Why have wages stagnated since 1970?
1. Technology replaced workers. One or two workers could produce as much with machines as a hundred workers did before.
2. Global competition for our American companies. Europe and Japan rebuilt after WWII and learned from our success. (I should also point out that wages of workers overseas were much lower than American wages.)
3. Increasing numbers of workers entering the labor force – immigration from other countries, plus more women entering the work force. (I should also note that large numbers of baby boomers born in 1946 and later were entering the work force as well.)

When there is a large supply of labor and not as many jobs, labor costs will stagnate. I will add here that under pure capitalism, prices will also go down. That happened in some areas, for example the price of television sets and other electronics have gone down.  But other things – costs of cars and housing – have increased.

Why didn't capitalism work?

Essentially, Americans were too addicted to their material possessions. As wages stagnated, they worked more hours.  As they worked more hours, they had to buy more goods/services – cars, clothes, day care/nanny, fast food, cleaning/laundry services – to compensate for the things they weren't doing themselves.  They bought more luxurious things (clothes, jewelry, toys, cars and houses) than they actually needed or could afford.  More important, they went into massive debt.

And, corporations did what corporations do – make the largest possible profit. Unfortunately the government made policies that allowed them to do it. Corporations created lending institutions – lending their increased profits (more productivity, stagnant wages) to the workers, who bought the products – with interest, of course. Not only did the corporation not have to pay the labor force increased wages, but now they got to lend money to them to buy the material goods they produced. This created MASSIVE profits for the corporations, who “invested” in tech companies; when that bubble burst, interest rates were lowered (government intervention) and the housing market became the bubble. Of course that bubble burst as well. One of the most fascinating parts of the video for me was when the corporations tried to expand the bubble overseas, Professor Wolff said “THE REST OF THE WORLD REFUSED TO PLAY.” I would like to think so. The workers and the government should have refused to play long ago. But they were in on it themselves – irrational exuberance.  Their responsible role was to balance, but instead they joined in the fun.  Then when things looked grim, the government (taxpayers) propped up the corporations with bailouts and gave cash to the workers in the form of rebates. 

The question then becomes where do we go from here. Some folks advocate socialism or communism to replace our current system.  But in fact, countries who have gone the socialist or communist route have backpedaled and introduced competitive aspects back in. As they discovered, capitalism has its good points – motivating people to work and produce.

The system is not the problem – WE are the problem. In truth, we must learn to measure our “wealth”, our measure of ourselves, some other way. Material possessions make our lives easier, they are not WHO WE ARE AS A PERSON. When keeping up luxurious appearances is more important than real job skills, personal responsibility, inner character and ethical behavior, something is very wrong.  And when fiscal policy enables those who are out of control – instead of rewarding those who are responsible – then something is SERIOUSLY wrong.

We the people are the government and so it is up to us to put pressure on our representatives to correct the fiscal policies that have propped up costs -- especially housing and automobiles, probably the two largest expenditures in the family budget.   Just as important, we can make rational decisions about our expenditures.  Vote with our wallet, as well as at the polling booth.

That's my perspective on the situation - I invite you to contribute your's.   :)