Taking a Knife to Our Capitalist System
First, the March jobs report showed a big collapse in hiring. The official numbers showed 20,000 new jobs added in February, a far cry from the 170,000 that were expected.
Then, the Atlanta Fed said projected GDP growth for Q1 slowed to a crawl. It estimates Q1 growth will come in at just 0.2%.
And then this. The Washington Post:
Total household net worth in the fourth quarter of 2018 dropped by the largest amount since the fourth quarter of 2008 when the country was amid a steep recession, according to data released Thursday by the Federal Reserve.
Total household net worth is a measure of the assets – such as homes, stocks and bank accounts – owned by American families and nonprofits minus their debts. In the fourth quarter of 2018, it fell by about $3.7 trillion, a 3.5% quarterly decline. Going back to 1952, the start of the Fed’s data, only three quarters – the third and fourth quarters of 2008, and the second quarter of 1962 – posted bigger declines in household net worth, percentage-wise.
Yes, the “recovery” seems to be rolling over. But let’s wait to hear a few more notes before we “guess that tune.”
Irredeemable System
In the meantime, the mob is warming its tar and collecting its feathers. Already, almost every Democrat with his eye on the White House has come forward with a new way to punish the rich.
Tax their incomes, tax their wealth, tax their estates… even prohibit them from becoming billionaires. There was even a proposal from Hawaii Senator Brian Schatz to tax their investment transactions.
We have mixed feelings about this… as we do about so many other things. On the one hand, most people would put us in the “rich” category, even though no club of the truly rich would have us…
On the other hand, the mob has a point. Much of the wealth enjoyed by the rich has come to them unfairly. It’s not the fruit of honest economic expansion – instead, the feds rigged the system.
They suppressed interest rates, dumped $4 trillion into asset markets, and borrowed $13 trillion – since 2009 – to protect the rich from losses.
And on the third hand – if there were such a thing – the mob and the Democrat contenders don’t seem to care what’s really going on. They offer solutions to problems that don’t exist… and remedies that will just make the unfairness worse.
For example, Ms. Alexandria Ocasio-Cortez (AOC) recently gave a speech in Texas. Bloomberg was on the story:
Democrat Alexandria Ocasio-Cortez, whose sudden rise to prominence has made her a target of Republicans and a sometime irritant to her party’s leaders, called capitalism an “irredeemable” system that is to blame for income inequality.
The 29-year-old, first-term U.S. House member from New York and self-described democratic socialist addressed an enthusiastic crowd Saturday at the South by Southwest conference in Austin, Texas, about issues that resonate with her fellow millennials, from universal healthcare to combating climate change.
Really? Is capitalism to blame for income inequality?
Some people will always work harder, get luckier, invest their time and money more wisely, and get richer.
Free System
In a free (capitalist) system, some people will always work harder, get luckier, invest their time and money more wisely, and get richer.
The typical working stiff puts in eight hours a day and doesn’t bother himself too much about the bigger picture. What is he doing? Why? How could he do more, work more efficiently, create a better product or service at a lower price? He doesn’t worry about it.
Some people, on the other hand, get to work at 8 a.m… and stay until 8 p.m. Even after hours, they try to figure out how to make the business more profitable… how to prevent customer complaints… how to beat the competition.
They miss their kids’ soccer games… they can’t remember their wedding anniversary… they stare dull-faced at cocktail parties, ignoring the banal pleasantries of their companions as their brains work on business problems.
Those guys generally earn more money.
Is there something wrong with that? Is there a “solution” that doesn’t make things worse?
Always Scams
The fixes are always scams – tax, regulate, redistribute. And they’re always controlled by the elite… Returning their money to its rightful owners has never been high on their priority list.
And Ms. AOC? Has she got a better idea than all the social reformers and revolutionaries who came before her? Unlike them, is she untainted by sin, by ignorance, or by self-interest?
Should she say who earns what?
Should the heavy hand of the socialist state – instead of the invisible hand of capricious capitalism – determine what products and services are on offer… at what price… and what profit margin?
Human societies have been down that road often enough to know that they usually don’t like where they end up. We got a taste of where they end up from The Washington Post… Household net worth dropped – the fourth biggest drop in half a century.
Capitalism didn’t fail America. We failed capitalism…
When the mob turns against the rich, some of the rich put on rags and join them.
CNBC:
The granddaughter of Roy Disney, co-founder of The Walt Disney Co. with brother Walt Disney, said on CNBC’s “Squawk Box “ that she thinks “CEOs in general are paid far too much.”
“If your CEO salary is 700, 600, 500 times your median workers’ pay, there is nobody on earth, Jesus Christ himself isn’t worth 500 times his median workers’ pay.”
“The problem is that there’s a systematic favoring of people who have accumulated an enormous amount of wealth,” she said.
We’ve never met a CEO who was worth even 10 times his median worker’s pay. Then, again, we never met Jesus Christ.
But if owners want to pay their CEOs even 1,000 times what they pay their median worker, it’s none of our business.
But wait… what if the money itself has been fiddled? If a corporate CEO can borrow at near-zero real cost… why not pay himself millions… and bribe the shareholders by buying back their shares and goosing up the stock price?
It is a wicked world, Dear Reader. And wickedness takes on many shapes and disguises.
Some say capitalism has failed America. More likely, America has failed capitalism. Capitalism needs capital.
Some say capitalism has failed America. More likely, America has failed capitalism. Capitalism needs capital. Real money, in other words. The feds gave it fake money.
And now, in one of the most elegant and subtle scams in history, the elite (pseudo-capitalists) get the gains, while the losses are put onto the backs of the working classes – either in the form of a depreciated currency (as losses are monetized by the Fed), or in the form of the national debt (in which they are socialized by the federal government).
But whoa… that’s a lot to take in.
So, go at it step by step, as if we were dissecting a dead Democrat or a live Republican.
Two Ways
Ms. AOC, for example, said income “inequality” was caused by capitalism and said the system was “irredeemable.”
But let’s get out our scalpel and take a look. Maybe we will see how this thing really works.
To simplify, there are only two ways to do things. Either voluntarily, by win-win deals… or involuntarily, by telling others what to do. Capitalism only makes sense as a voluntary, win-win system.
Socialism is different. An elite decides who gets what, by imposing win-lose deals – price-fixing, involuntary employment, tariffs, taxes, regulations – at the point of a gun.
Of course, there is no such thing as pure capitalism or pure socialism… Even in a communist system, people generally try to get along and go along, making whatever black-market deals they can get away with.
Over time, either the rulers loosen up so more win-win deals can take place (China)… or the system tends to fall behind (North Korea) and eventually falls apart.
And in a capitalist system, there are always some people angling to use the feds’ muscle to force win-lose deals on others. Over time, more and more of them succeed, and the capitalist system becomes more and more corrupt.
Since we live in what is basically a capitalist system, we will turn our knife to our own sclerotic arteries and calcified joints – to see what has happened…
Since we live in what is basically a capitalist system, we will turn our knife to our own sclerotic arteries and calcified joints – to see what has happened…
Family Silver
In a free, capitalist system, poor and middle-income people sell their time. That’s all they have.
Then, if they manage their finances prudently, they accumulate savings and eventually have enough capital to retire comfortably… perhaps passing the house and the family silver on to the next generation.
The rich typically have capital – either inherited or earned – in the form of stocks, bonds, or real estate. This capital is often a bigger source of income than their time.
Even those without much capital of their own can get in on the action. They get jobs as managers – CEOs, for example – and benefit from performance-related compensation, far beyond the actual value of their time.
A young man, right out of law school, for example, may help put together a merger or an acquisition… or paper over a share-buyback scheme… and earn a windfall.
That’s why, for more than 20 years, every mother’s son has been urged to go neither into manufacturing, nor sales, nor mining, nor law, nor agriculture – but to Wall Street. Why? That’s where the money was!
Is there anything wrong with that? Nope. It’s just capitalism in action.
But what if the feds had queered the whole thing by introducing a new kind of money that wasn’t real capital? A money that represented no savings, no invention, no output, no labor, no profit, no forbearance, no sweat, no innovation, and no real increases in GDP?
And what if the feds loaned this fake money to capitalists at fake, artificially low rates? And what if they used this fake money – with $3.6 trillion added since 2009 – to buy the capitalists’ assets, but not the working man’s time?
And what if, when the markets tried to correct the outrageous asset prices… in 2000, and again in 2008… the feds simply added more fake money, and turned Wall Street into a “heads I win… tails you lose” deal… a win-lose deal, where the capitalist insiders won big and the working stiffs were left with $13 trillion more in debt?
Ouch! Now we’re cutting to the bone.
Bill Bonner is the underground news mogul and founder of The Agora publishing company. He’s written the New York Times bestselling book Empire of Debt and most recently published Hormegeddon: How Too Much of A Good Thing Leads to Disaster. He is one of the great writers and minds in America today and also publishes a free daily letter, Bill Bonner’s Diary, which you can sign up for here: bonnerandpartners.com.
