Tag Archives: capitalism flaws

Unemployment Exists Because Capitalism Wishes for it to Exist

unemployment-grads-cartoon1Why is the world able to create an internet that connect billions of people in real time, yet it is unable to match the chronically underemployed with the hundreds of millions in the world that exist without even their basic needs being met? The answer of course is capitalism. In America, where 1 in 60 Americans is a millionaire, these spectacular results can be directly attributed to capitalism. Yet, where 1 in 6 is undernourished and 25% are underemployed, capitalism is also the culprit. Capitalism is the dominant cause for both our nation’s prosperity and for our failing underclass. If full employment of our people is a goal, then capitalism will require repair of its major flaws. To understand how capitalism impacts unemployment, let’s first look at its impact on trade.

Trade has improved man’s lot. Just a century ago, a man would come upon the earth, begin to work in his youth, and continue working until infirmed to live a year in the care of his children before departing the earth at age 50. Now, after preparation for industry through his teens, a man toils for 45 years to improve his life. He then retires for 10 years, consuming his savings until lingering two years in an institution and departing in his mid 70s. This advancement was made possible by the expansion of trade.

Trade improves life by increasing one’s marginal value of happiness, health, and longevity. When two people barter for goods or services, they expect to gain, at minimum, par value in the trade, at least a unique difference in their life if not an expansion in their life’s core value. For a trade to occur, each must expect that the other’s goods will provide this marginal value, thus increasing life’s value to both parties.

The marginal value of each traded good or service comes from some combination of hours of toil and raw material that has been taken from the earth. The hours of toil may have come from hundreds of sources depending on the complexity of its “equivalency hours”. As an example, equivalency hours for a house might include a 1,000 hours of direct assembly, but also hours in the construction of all the house’s sub components. The finished product reflects indirect hours to build the lighting fixtures, quarry and polish the granite cabinet tops, design its architecture, manufacture and construct the saw mills and dry wall plants that supply the sub products, and thousands of other integrated time components.

For so many to add their labor to the creation of a sophisticated, complex product, its marginal value to life must be deemed high. The more innovative and engineered, and the more integrated the sub-products become, the higher its hour equivalency becomes. By increasing hour equivalency of one product, thousands of degrees of freedom of sophistication break out into the economy. These degrees of freedom can be used to create even more sophisticated products with highly prized equivalency hours taking from and contributing to the same growing economy, creating marginal value for the entire nation as perceived by other economies willingness to trade.

A nation’s flow of trade then can be enhanced by fewer, more integrated, and more highly sophisticated equivalency hours that trade on par with other nation’s relatively more hours of lesser sophistication plus greater tonnage of raw materials in a balance of national equivalency. Some say that this stratification of hour equivalency causes an imbalance of trade, exacerbating structural unemployment throughout the world that now threatens to drag the advanced economies into depression. Yet, no matter what degree of productive sophistication societies reach, they should always be able to balance equivalency hours to enable trade between their own citizens and with the rest of the world.

Others say that workers are no longer required in such great numbers to create sophisticated products because the hour equivalency of sophisticated products is being dramatically reduced through increased productivity. Therefore, the resulting decrease in national hour equivalency creates structural unemployment. At the same time that the complexity of toil is increasing in our products, each product requires less man-hours, freeing up labor to idleness.

Yet if labor is freed, then that labor should be available to create additional goods for trade with others that are also currently idle and available to create goods to trade in return. Natural supply and demand for goods and services can and should expand to fill all available equivalency hours. Yet since it does not, some artificial barrier keeps this natural balance from occurring.

If we find that trade is limited while millions remain structurally unemployed for years, at some point we must allow ourselves to question the status quo rationale for why structural unemployment exists. We must seriously begin to ask the question, “What are the real limitations to trade?” What causes equivalency hours to be left unconsumed, manifested as high unemployment?

There are natural reasons for unemployment, which are asymptotic limits to trade, that have hardly ever been approached. If they were, perhaps mankind could rest on the understanding that nothing can be done to change our structurally unemployed fate. Yet these should really be the only rationale we should accept for such widespread unemployment:

* Saturation: Every person on earth has filled his desires to own every product or service

* Obsolescence: All lesser products have been replaced with others that fulfill our needs

* Raw material depletion: Elements have simply been consumed from the face of the earth

*Economic Nirvana: All humans are working to the limits of a healthy blend of body and soul. All have maximized their potential to contribute to society through an expansion of their natural skills through education and technology. All of society’s needs that can be fulfilled by the limits of science are being met. Work has been directed to its highest societal priorities given our times. A balance has been reached of work toward creating future innovation, toward planting seeds for tomorrow’s champions, and toward maximizing society’s output for each other.

Perhaps economic nirvana will never be reached, but there are also temporary, artificial constraints caused by an inability of man’s imperfect economic systems through either central planning or the invisible hand to perfectly match natural demand. These constraints of course can be modified to lessen their impact on unemployment. Yet even without modification, they do not come close to causing the devastating worldwide unemployment we face:

* Distribution limitations: The product cannot endure the limits of man’s ability to reach all consumers intact

* Inefficient market cycles: Causing temporary mismatches in growth of worker and consumer priorities

Therefore, if natural and temporary constraints are not the cause of increasing structural unemployment that is devastating the Western world, a more destructive artificial constraint to structural unemployment must exist. To understand this constraint with clarity, we must first examine the value of currency in an economy.

The complex array of man’s products and services creates a market with such a wide spectrum of hour equivalencies that one could only hope to clear the market by using currency as an intermediary in the transaction. Currency, having been secured by stashes of gold as recent as 42 years ago, created the illusion of a safe medium that could be used by buyers and sellers to clear trades without barter. With currency, buyers and sellers have expanded world trade exponentially over the past five centuries.

Yet while currency solved one of man’s great problems, it also added a naked fungibility to some of mankind’s greatest character flaws, greed and power. As an intermediate step toward fiat currency, currency required the backing of gold as a source of security. Ubiquitous yet rare enough, Gold became Western gold merchants alchemy, along with property rights laws, to strip the wealth of kings and peasants alike. Using gold, they inserted themselves into every commercial transaction as market makers, extracting with every transaction a percentage of the trade, that they then accumulated into real assets. Today this accumulation represents amongst their descendancy, the band of 1500, half of the world’s wealth.

As opposed to the assets held by the majority of the worlds inhabitants, the goal of true wealth, that of the band, is to grow ownership of assets which are non-depreciating; land, rare metals, minerals, stored energy and water. All other assets, whether real or contractual, are depreciating, most barely able to survive the generation in which they are born. Currency depreciates but is necessary as a transferring medium and thus 20% of the band’s portfolios are liquid. Industry is a good investment, as in aggregate it appreciates. Individual business values rise for a time and can be used to advance positions in real assets, but as with all other depreciating assets, individual businesses eventually fail and take their spot in the dust heap of all other depreciating assets.

For the past 500 years, the lineage of the band of 1500 has executed a goal of accumulating non-depreciating wealth that once acquired, is passed down from generation to generation. The means of extracting real wealth is the basis of the system of capitalism. The means and ends of Capitalism are certainly not limited to the band of 1500. It is this hope and share of Capitalism’s benefits that keeps all encumbered to its mechanisms as we all witness semblances of those ascending toward the ranks of the 1500. With this possibility intact, capitalism endures as the means for all of us to prosper. Yet those in the stratosphere of the system have the intergenerational means to sustain their prosperity.

The modern world has become conditioned by experience and by law to accept capitalism as the dominant method of commerce, including debt derived money, interest, and return on equity. The economic model of capitalism requires owners of wealth to invest equity and to lend currency to enterprises that will employ the world’s people. Because the band of 1500 owns half of the world’s wealth, the world is dependent on the band of 1500 to participate in employment and growth, for they are the capitalists of capitalism. If they do not invest, if they restrict credit, jobs do not materialize and the world’s output suffers.

Capitalism would be less flawed if the goals of the band of 1500 were aligned with full employment, but they are not. The world’s non-depreciating assets are finite and human population is growing. If each new soul wishes to gain non-depreciating wealth of land, rare metals, raw materials, stored energy, and water, then their accumulation must be gained at the expense of others. For the band of 1500 to continue to accumulate real wealth, the rest of the world must hand it over to them a bit at a time as the world churns in business cycles with apparent wins and losses that ultimately create net real asset wins for the band and net real asset losses for most of the remaining seven billion on the earth.

Capitalism uses the business cycle as the tool that accomplishes the feat of accumulation. During each cycle, the masses produce value in equivalency hours, consume, and invest. Yet, their investment results in a net loss of non-depreciating assets. 80 percent of new businesses fail every business cycle. 80 percent of investors lose money in the stock market. Real values of equivalent housing decreases. 80 percent of people retire at the end of their working life with less than two years income in liquid assets, and if they are lucky, a depreciating home. The vast majority leaves the planet penniless.

On the other hand, in every business cycle, the band of 1500’s wealth increases. Their liquid assets are invested in the churn while their non-depreciating assets are protected from the down turn through control of the money supply. Liquid assets are invested in the beginning of each business cycle to share in equity and interest returns. Real assets are collected from failing businesses and foreclosed personal assets in the trough of the cycle. In collapses of the capitalist system, currency is pumped into the economy to shore up temporary devaluations of price signals of real, non-depreciating assets while excess supply is secured from the market through controlled purchases directed at these assets using devaluing currency.

The system of Capitalism then relies on the liquid assets of the band of 1500 that are employed in the economy as the capital and base of loaned currency. These assets are then directed to where they can best accumulate real assets, typically in industry that is in the rising phase of its growth, as well as in providing the means by which the seven billion can indebt themselves to the capitalist system through long term loans to purchase depreciating assets.

The limiting factor in the growth of human civilization then, under the capitalist system, is the amount of assets that exist in liquid form as held by capitalists for the transference of man’s endeavors into real, non-depreciating assets. These limits were originally set by the amount of gold that had been extracted from the earth, and then later set by central banks as a means to limit exposure to capitalist collapse. Yet in all cases, the limiting factor is the participation of capitalists from the accumulations of their real wealth.

Could the world simply go around capitalists? Could the world create a new fiat system not tied to old money or real assets? Yes…In so doing, the entirety of mankind could expand its capacity to work toward the betterment of all men, keeping somehow the self-advancement features of capitalism that drive men to succeed, while eliminating the scarcity and maximization of marginal return limitations imposed on us by our current system, thus propelling mankind toward full employment.

Is this a viable option? No, not really, at least not in the short term of a generation or two…We are already witnessing the wild haired expansion of the world’s money supply in the makings of a currency war, as a system control imposed on the masses by today’s capitalists. By placing all the world’s currencies on the ropes, they have left little hope for any attempt at advancing a worldwide currency to succeed in the near term. And any rising third world power that attempts to create a market using its own currency is quickly thwarted and compelled to use the world’s reserve currencies, those held by the band of 1500, as its means of world trade.

China is creating a dominant market that is advancing its own system to circumvent status quo fiat currency. China is quickly expanding a currency system that relies on the talents and treasures of its trading partners and third world raw material vendors. Yet even though China’s system is modified so as not to discriminate amongst third world nations, China’s economic system simply exchanges one set of capitalists with another.

No viable threat to the capitalist system of trade exists or will rise in the near future. Therefore, if structural unemployment is to be solved, then modification of the existing capitalist structure is in order. Capitalists will continue to execute a goal of real wealth accumulation. Therefore, incentives that tie capitalist intergenerational maintenance of real wealth to the requirement that capitalists provide enough investment for full employment is the key to achieving optimum economic output. Unlike liquid assets, real wealth is less fungible and tied to the property laws of the land.

Since our current, long-lived economic system is an inevitability, then creating a business environment that makes the United States the optimum location for job growth investment is the least confrontational option. America’s trade laws, infrastructure, and employment costs must echo that of the world, if the world cannot be coerced to bend to our economic infrastructure. Since that time in our hegemony is beyond us, it is time for America to adapt.

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As America’s Political Process is Upheaved, Our Institutions and World Governments will Share the Responsibility for Our Debt Restructuring

Certainly at any moment in time, if we examine a bell curve of society, we find a percentage of people who are unable to manage a budget or that have impulsive natures regarding credit and materialism, and together as a group, they find themselves over their heads regarding debt and consumption.

Ultimately, everyone is responsible for their own spending habits. No-one forces us to indebt ourselves or to reach beyond our means to purchase life’s comforts. However, just as a family bathing at the seashore can find them swept out to sea by a breaking riptide in which they are defenselessly broken by one of the world’s destructive forces, a family can also be swept away by the world’s financial forces when its monetary system rises in a feeding frenzy or violently contracts.

When these systemic accelerations and decelerations impact the world, the bell curve of personal budgets violently shifts, trapping not only this lagging tail of incapable and impulsive budget breakers but also a much larger swath of responsible citizens as well. In the most recent financial collapse, this budgetary bell curve was shifted and skewed dramatically by America’s generational monetary flaws, by America’s post-war demographics, by a shift in America’s fortunes, by our lack of institutional oversight, and by institutional entrapment of larger forces that self-servingly swept up Middle America. Together these forces led to a pervasive over consumption and overwhelming debt.

Generational Monetary Flaws – Our capitalistic monetary system, although arguably the best system for advancing societies, still has great flaws, the greatest being its reliance on capital providers and money lenders to create money that over time concentrates wealth back into their hands. This concentration builds to a breaking point about every third generation. Each generation shifts its philosophy from those of its parents, allowing the generational capitalism pattern to play out one generation after the next. After a financial collapse, the first generation is traumatized, the next generation legalistically rebuilds, and the third happens to branch out to become risk takers setting the stage for Ponzi excesses and collapse. Our recent collapse unfortunately happened as usual during our country’s latest risk taking generation.

Demographics – After WWII, our grandparents and parents set about to make up for the war and created a bulge in population, the baby boomers. This generation’s spending patterns were well known as they progressed from childhood into marriage, spending years, and into preparation for retirement. The entire world connected to this generation’s spending patterns and fed into its cycle which could be considered instinctual by nature. The build up to this monetary collapse came as the boomers were in their biggest spending and investing for retirement income period when they met with faced a world that was willing to help them foolishly part with their capital during their largest debt capacity years.

Shift in America’s Fortunes – America had been given the gift of excess wealth during the run-up to the Depression of 1871 from Europe’s banking system that manipulated a Ponzi housing scandal to extract Europe’s population’s wealth out of Europe for America’s rail expansion. Our capitalists came out of that depression with enough of Europe’s capital to “win” the world’s second great round of industrialization and to feed Europe with armaments during two great wars. America exited the two wars with most of the world’s gold and much of her industrial capacity.

We were now the world’s hegemonic power with an immense concentration of power. Our baby boomer leadership chose to spend our power and financial position on two competing motives that together squandered our fortunes. America chose to become the world’s first truly worldwide military superpower to defend ourselves against the next great war, spending more than double the rest of the entire world’s military budget. In addition, our boomer generation found that this war chest could be used to cure some of our societal issues that led to our being the world’s superpower.

America began its war on poverty and bigotry that together with our military expenditures sapped us of our newfound wealth and started us down a path of borrowing against our world reserve currency status to meet our lofty goals. The result of this two pronged philosophy was a national debt that as of this year surpassed our GDP.

Lack of Institutional oversight – America’s constitution was a work of genius in protecting our new nation from tyranny in its infancy. Our founders designed a grand web to catch tyranny from rising from any faction to thwart the progress of America. Yet we did not protect ourselves from our own debt.
So when America’s government began its war on communism, bigotry and poverty, it did so without a built-in constitutional predator to stop the spread of our governmental spending or to suppress the self serving monetary support for our spending folly from the international banking cartel that comprised our Federal Reserve.

For two centuries, our constitutional republic form of government had worked well in slowly advancing our society through dramatic societal shifts resulting in only one civil war, and had supported our laissez faire business growth during the nineteenth and twentieth centuries to make America the dominant economy of the world. Yet, our economy and position as the world’s reserve currency hid the dangers of a reckless Congress until its out of control spending surpassed our ability to enable it. Too late we have found that the Constitution has no protections against entitlement building and imperialistic spending.

The saying, “One’s greatest strength taken to extremes becomes one’s greatest weakness”, applies to our purposely weak federal government in the case of a rapidly advancing government directed capitalistic economy from the East. While our form of government has protected us fairly well from tyranny, it also has provided us with a fairly constrained federal government and 50 competing state governments to fend off the economic advances of China that has risen from two centuries of infighting to once again challenge the West’s hegemony.

Our constitution protected us only “fairly well” because it too came under attack when in 1913, America’s decision to hold the House of Representatives at 435 representatives led to the ability of our financial elites to wrest financial control over both chambers of Congress and move our nation dangerously close to plutocracy. The result of this shift in power was to remove the government’s oversight of those that would harm America’s financial security and to instead refocus Congress’s attention on guarding our elite’s financial opportunities. This shift set the stage for institutional entrapment.

Institutional Entrapment – While visiting a maple syrup farm, I found myself hiding behind a big maple tree in the midst of a full on cattle stampede as bulls and cows stormed out of the maple forest toward a waiting wagon full of sweet sorghum laced feed provided by their manipulative farmers. These cattle had been programmed to rush headlong in a daily feeding frenzy toward these sugary delights that were fattening them for market.

Like cattle, people are also able to be programmed and manipulated into instinctively acting en masse to meet the needs and desires of manipulative institutions. America’s masses were caught in a rip tide of institutional forces that individually and together overwhelmed our budgetary bell curve and sent us into a frenzy of debt much as Europe was swept into the Long Depression of 1871.

In 1979, China determined to come out of 150 year slump that had been precipitated by the West’s gun boat diplomacy and to implement her strategy to rise to the position of 21st century hegemony. At only 1/8 of America’s GDP, China was determined to implement a decade’s long strategy to build her infrastructure and education to support a gold rush of investment by foreign powers. In 1979, China opened her doors to any companies that would bring intellectual capital with them to educate China to the world’s newest innovations.

40,000 U.S. corporations set up shop in China bringing with them their trade secrets that would have enhanced America’s economic future and bringing millions of jobs that would have employed America’s now 30 million underemployed. Together with international bankers, they lobbied our Congress to establish favorable trade policies so that China could flood America with low cost goods that put many domestic companies out of business, that thrust America’s wages downward, that removed both blue and white collar jobs from our shores, that reduced our GDP and GDP growth, that increased our trade deficits, that reduced our tax base, increased our federal debt, that gutted our shores of thousands of factories, that devastated our world commodity relationships, that harmed our reserve currency status, and that by virtue of these financial insecurities harmed our national security.

Faced with wage pressures, baby boomer expectations of a better life than their parents, and a mounting disparity between the upper quintile that benefited from globalization versus the bottom 80 percent of Americans who found their purchasing power diminished, America rushed to the mega-distribution and retail outlets like Walmart whose shelves were filled 90 percent with low priced, sweet sorghum laced, Chinese goods.

International bankers, intent on providing the capital to meet the needs of the modern gold rush, devised methods to extract capital from America. Beginning in 1980 immediately after China opened her doors, our retirement accounts were designed as 401ks to feed the stock exchanges with funds to funnel to China. Then three subsequent booms were orchestrated to extract more capital from our baby boomers. The last boom was our great housing debacle in which 100 % non-recourse, non income verification loans were offered to Americans during the greatest housing Ponzi ever known, and on top of this Ponzi, international bankers laid a credit default swap scandal that fed a speculative gambling four times the underlying assets that had already been speculatively pushed to 200 percent their underlying real asset values.

Americans, fell subject to a rising swell of asset values and loose credit that was instigated by our political forces, multinational corporations, and international bankers to feed the China gold rush. Our instinctual need to meet consumption desires in the midst of America’s masses’ falling purchasing parity was entrapped by globalization’s desire to feed China’s burgeoning industrial infrastructure through maximum extraction of America’s and the West’s capital by increasing our indebtedness to its utter limits.

So while America’s middle class is not without blame for taking on debt beyond its ability to pay, it must be remembered that its ability to pay was swept out to see with a collapsing economy, caused by multiple factions inside and out of America that were intent on bulging American family debts to meet the hegemonic aspirations of the East and the western institutions that self servingly supported their efforts. Now without isolating and limiting the impact of this massive American private and public debt, our economy will not recover from this financial riptide for twenty years. As we stagnate, China will triple her economy and dwarf ours. Our financial and national security will be threatened.

We cannot afford to allow this mountain of debt to hold America back from restructuring its economy to meet this national threat. We must now transition from a nation of consumers to one of producers. We must reverse our economy to meet the obligations and expectations of our society. We must also revert to a society that can meet its obligations and the expectations of the world’s creditors.

America’s people cannot be held fully responsible by our institutions and those of the world for the frenzied financial wave that overtook us. We cannot be held in servitude to pay for our banker’s and multinational corporations’ follies and for the foreign investment infrastructure that will raise China’s economy. Those that had the elite power to manipulate and entrap America must now join us in getting our house in order, in isolating and restructuring this debt to share in the pain of its disposal. This is a first and high priority for America.

Those culpable will need to share in the process. Our people will share some responsibility. In the end, after this political process is upheaved, the responsibility will be shared by all that participated in the rip tide of events that shaped our modern crisis.

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Filed under American Governance, American Politics, U.S. Monetary Policy, U.S. Tax Policy

When will America Correct The American Republic Flaw Predicted by Madison?

When asked by a political commentator whether or not he would relax his stance on Medicare and Social Security being off the table as far as debt ceiling negotiations were concerned, Senator Bernie Sanders of Vermont stated today that the vast majority of Americans have stated they want the wealthy to pay more instead of them having to sacrifice to solve the nation’s debt issues. It seems logical that if most are suffering while a privileged few are prospering, that the prosperous may be in some obscure way responsible for others’ misery and that they should be the ones that pull us all out of the economic fire.

When it comes to solving our nation’s fiscal crisis, we are now in the “not in my backyard” stage of negotiations. No-one wants to feel the pain that we will all ultimately endure. The old saying that misery loves company is true for American politics. If any of us are called to sacrifice, we demand to see equal sacrifice by others as well. However, in this early stage of “not in my backyard”, we still are desperately hopeful that the evil doers will be caught and that justice will prevail without any of us having to sacrifice what we all had hoped would be our future prosperity.

Unfortunately, the size and scope of America’s travail is too great for any one American faction to accept full responsibility for its cause or to create a solution through their own efforts. We all must understand our small participation in America’s deterioration in order to rise to the calling for the responsible citizenship that will be required if we are to reverse our nation’s course.

If we cannot dispose of personal responsibility in our quest to blame others for our national predicament, neither can we blame fate itself. For those that say nothing can be done to right our ship of state because it was merely happenstance that placed China in the good fortunes of becoming the next great empire and not some nationalistic conspiracy that created China’s opportunity for preeminence, I would ask did China’s leadership not conspire to achieve world fiscal dominance? Did America not conspire to achieve world military dominance? Did England not conspire to achieve world colonial dominance?

Do most world achievements occur through mere happenstance or are they the result of the greatest minds of the time conspiring to set the stage for dominating implementation? Interestingly, studies have shown that the difference between individual achievers and the vast majority of lesser men is that achievers create a written plan and then set about to implement it. If that is so for accomplished individuals, would it not be more so for great societies? No, fate is not the purveyor of our misfortune.

Our founders wrote in the federalist papers of their concerns for the eventual collapse of our country when they expounded on why previous republics failed. In creating our newest form of Republic, they studied the failures of others stating that when elites were able to place puppet politicians in the functions of government, their republics failed. While our founders created a system of bicameral government, overlapping terms of the house, president, and senate, shared system of government between local, state, and federal systems, all designed to thwart the overtaking of government by the elite, but they failed to realize the concentration of power that capitalism would eventually afford our elite over our political system as the centuries progressed.

China certainly had a strategy for mining America’s wealth but it could not have been exercised if not for the weak underbelly of our political system. That underbelly was the dependence of political leaders on the fortunes of business and banking for their re-elections. This was the incipient crack through which the corruption of our American Republic began, and it is this symbiotic poison that we must now severe if we wish to avoid being dashed against the historical rocks of other failed republics, some of which also were the world’s political giants of their time.

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Filed under American Governance, Multinational Corporations