MONEY TALKS - Just check the facts: Our future looks depressing

Unless society makes a serious correction, we are heading for another great depression. Personally, I blame Gorbachev. That's right, Gorby. You remember him, right? Perestroika, glasnost the perpetual wine stain on his forehead?
editor
Jul 25, 2010

 

Unless society makes a serious correction, we are heading for another great depression.

Personally, I blame Gorbachev. That's right, Gorby. You remember him, right? Perestroika, glasnost the perpetual wine stain on his forehead?

But let me tell you why. Our problems today are simply a result of capitalism run amok.

Why is capitalism now out of control? We have practiced "capitalism" since forever. We should be good at it by now.

But then along came communism, capitalism's enemy. As a result, the two economic models were forced into artificial, opposing ideologies. Then communism fell, and the false, ideological construct that capitalism had become was vindicated. Communism was shown to be laughable, therefore its opposite became gospel.

The problem is, capitalism had now become, like the Incredible Hulk, an absurd, angry, green version of itself.

But here's what the war between capitalism and communism obscures. There are two sets of opposing forces in any economy. The first is freedom and control. The second is capital and labor.

In each case, a good, healthy economy balances both sides of the equation.

However, because communism and its brutal manifestation in the world became the bad guys, notions that some control is a good thing in an economy or that the interests of labor must be respected have come to be seen as unworthy of serious people.

The belief that Capitalism or Free Marketism is Right and Communism is Wrong have led us into all sorts of irrational behaviors as a nation. The result of them all is this:

The average American has stopped saving savings rates having reached their lowest levels since the Great Depression. At the same time, average Americans now carry an unprecedented debt-load. The average American's real income has actually fallen slightly since 2000. The average American is in fact no better off than he was in the 1970s.

Meanwhile, the richest segment of the population now earns more than $8 million a year. The multiple from the lowest wage-earners to the highest wage-earners has gone from a few hundred a couple decades ago to several thousand now.

Overall, the economy is adding fewer jobs than there are workers joining the work force each month. And the jobs that are being added are of the burger-flipping and Wal-Mart greeter variety. And the GDP is falsely inflated.

Excuse me? A study last summer revealed that American products marketed under American brands are still being reported as growth by American companies, even though those products are no longer being produced in the United States, and should not, therefore, be considered part of the GDP.

The trade deficit is bad. The federal deficit is bad. The dollar is weak and it is increasingly held outside the U.S.

Yet we think the economy is doing well because the stock market is just going up, up, up. That's because our economy is overvaluing capital. Saving doesn't make you nearly as much money as investing. In fact, financial services is one of the few booming industries left. Here's how much our society values it: the top 20 financial managers receive an average annual income of more than $600 million.

This can actually be good for the average Americans. Privileging investment means more capital is available to build new or expand existing companies and more jobs and better jobs will be created. So you want the balance tipped, it's true. But because it's more than tipped, and because now that investment is fleeing the country and creating jobs outside the U.S. the investment isn't doing much for Americans.

So what's it all mean? No one really knows. Many will tell you it means we're heading for a great depression. It's also conceivable, though not likely, that in a global economy, America will be the capital market to the world, but it's doubtful.

Of course, the key thing to do when making predictions is to keep the timeline vague. Everything happens eventually, so if your timeline is vague enough (and you make enough predictions) you can take credit for predicting pretty much everything.

Comments

JEF (Anonymous)

Mr. White, The U.S. has had a "mixed" economy of capitalism and socialism for decades. The last true capitalist nation was Hong Kong prior to its transfer to the PRC in 1997. Currently, that designation lies with Singapore. I wouldn't blame capitalism for America's savings rate, I'd look to consumerism. That which would have been considered a luxury decades ago is now more-often-than-not viewed as a necessity - TV, cellphone, computer, etc. Also, for the average family, taxes (sales, income, SS and Medicare, etc.) are the largest non-discretionary monthly expense surpassing even the cost of housing. Taxes are not often thought of as an 'expense,' but they are never-the-less a real cost associated with citizenship.

JEF (Anonymous)

Mr. White, check the figures, believe it or not, in 2006 outside of Germany, the U.S. as a country is the world's biggest exporter in addition to being the biggest importer. Oil being our biggest import (Source: CIA - The World Factbook. Don't count the U.S. out. On the world stage we're still the 800 lb. economic gorilla. Many folks had the U.S. headed for the ash heap of history after the financial blow that resulted from 9-11, yet here we are.

Nicholas White ...

Part of what I was trying to argue (apparently unsuccessfully) was that we need to stop thinking in terms of "socialism" and "capitalism." And whatever term you place on our economy, we have developed a system that favors capital too much and is poorly regulated. I'm not necessarily saying we need more regulation, it's more a question of better regulation. Also, the fact that we have the largest exports in the world (2nd only to the entire EU according to The Economist) seems less impressive considering we're still spending more than we're taking in, by a lot. I don't think we should be counted out yet, not because we don't have problems, but because I hope we will have the wisdom to change course before it comes to that.

JEF (Anonymous)

Mr. White wrote: '...to stop thinking in terms of "socialism" and "capitalism.' Reminiscent of the Swedish concept of the 'Middle Way.' Sweden for one has a 28% corporate tax, whereas the U.S.'s top rate is 35%. It has no inheritance (death) tax, but instead hits it's wealthier citizens with a 1.5% annual 'wealth tax.' The rich like Warren Buffet and a host of trust fund liberals like Sens. Kennedy and Kerry would undoubtedly pay their 'fair share' under an annual net-asset tax system. Funny, I don't hear any of the kleptocrats or the second richest man in America suggesting a 'wealth tax.'

JEF (Anonymous)

White writes: '...we have developed a system that favors capital too much and is poorly regulated. I'm not necessarily saying we need more regulation, it's more a question of better regulation.' The so-called sovereign wealth funds of oil rich UAE states, China and others should give the Washington protectionistas headaches as they increasingly turn from buying U.S. Treasuries and instead attempt to use their capital to invest in and purchase hard assets like U.S. corporations. We invest in them, why not vice-versa? Countries that trade with one another tend not to shoot at one another.