It’s not that we don’t know how to fix the economy.
Though an economy is a complex interactive system, its basic structure can be explained relatively simply. Picture the economy as a self-powering machine (no external fuel needed). There are four main parts:
- Labor, which creates energy
- Capital, which channels and enhances the energy, sending the result back to labor and into taxes
- Taxes, which is part of the output of both capital and labor
- Government, which uses taxes to boost performance of the whole system
The parts need lubrication to run, and that’s money. As the parts move, power (GDP) is generated.
Labor creates value by adding work to raw materials to create a product (like a fan) and assembling parts into products (like putting that fan in a car engine). Labor can also add service by improving the efficiency of an existing good or process. A staff of maids is a more efficient way to clean a hotel than having hotel guests clean up after themselves. Insurance is a more efficient way to bear risks in society than going it alone. In our machine, labor is the engine.
Capital channels the work of labor. Capital finances the factories in which Labor creates and assembles goods, and finances the hotels that need cleaning. Capital organizes the risk pools that allow insurance to work. In our machine, Capital is the car that the engine powers.
Taxes divert some of the output of both Labor and Capital to Government to power enhancement of the whole system. Taxes are measured separately to sort out whether a government’s problems are due to functioning or funding.
Government enhances the system by providing internal and external turbo boosts. Internally, it provides infrastructure enhancements that increase efficiency: roads, power grids, R&D for technical advances that are too expensive to fund at the Capital level. It provides regulations to protect against engine burnout and makes sure that Labor and Capital individually are performing optimally (individual benefits, environmental protection, tax incentives, cash flow, monetary policy). Externally, it adds the aerodynamics that reduces drag (global competitiveness) and safety features that protect it during accidents (trade policy, foreign policy, military).
Our car is competing against other cars in a never-ending global race. Each part wants to win, but they each have different priorities.
- The Labor engine wants to run at full capacity but not overheat.
- The Capital car just wants speed. It wants to strip off the safety features to make the car lighter, then take out the engine regulators and make the engine run as hot as possible. In our country, this agenda has taken priority.
- The Government wants to win the race without ruining the car.
What about money in all this? Money is the lubricant essential to run the engine, but it also preserves the outer surface and the leather seats of the car and powers the turbo boost. All the parts need money, and it is essential that all the parts get money. When too much money goes to any one part, the entire car suffers.
If too much money goes to the engine, the car starts to decay, and eventually the engine is pulling a junker: a society whose outward appearance is crumbling: people with money and not enough to buy with it. Without a vehicle, society will shrink and the engine will have nothing to power. We have seen this, but not in this country.
If too much money goes to the car, the engine struggles and will eventually seize up. Society will be a pimped-out car whose engine is on its last legs. This is what we are seeing in this country: a shiny prosperous exterior (corporate profits, investment market) with more money than it can spend and invest ($30,000 playhouses, flying children to summer camp on a private jet, proliferation of hedge funds and derivative investments, mountains of corporate cash including cash they can afford to leave offshore) concealing a deteriorating engine (unemployment high, poverty climbing, life expectancy dropping).
If too much money goes to the enhancement system, you have plenty of lubricant for a car that needs a jump start. In this kind of society, government intervenes between producer and consumer, contracting for what it thinks its citizens need. This creates an artificial economy that is not able to adapt to real needs or evolve. Enhancement needs something to enhance; it is not meant to be a driving force. We have some examples of this in the U.S. (e.g., subsidies) but this is by no means the core of our economy.
So rule one is: if the system is out of balance, everybody loses.
Now, you would think that this interdependence in the economic system would motivate its parts to cooperate, but not so. And in the United States, it has historically been Capital that puts the system out of balance. Corporatists will argue that Capital has earned more, but it has not. Labor and Government both contribute to the overall prosperity of the economy, but Capital has simply rigged the game to get more.
Moreover, we can see the symptoms of a systemic problem in the economy, and we can trace the problem back to too much money in the Capital part of the system.
Put that way, the obvious solution is to redistribute money from Capital back to Labor and Government where it belongs. However, easier said than done. Even though Capital is risking its own survival, it won’t cooperate, and it has control of the wheel. Labor and Government have the ability to rebalance the system, but Capital has done a thorough job of preventing Labor’s attempts to unite through Capital’s control of the media.
Capital divides and distracts Labor:
- Promoting states rights, thus preventing states from uniting against Capital
- Promoting jingoism and fear of globalism, thus preventing countries from uniting against Capital (but not to say this is the only obstacle by any stretch)
- Fomenting distrust and hostility among various demographics at local, state, national, and global levels
- False controversies, for example unemployment vs. deficit: both are important, but instead of deciding how to fix both, we argue over which is the worse problem
- Fabricated issues, for example the “ground zero mosque” that was neither, and raising the debt ceiling, which had been a nonissue until recently
Capital-controlled media limits our exposure to unifying and anti-Capital ideas by ignoring them:
- Rallying speeches by President Obama
- Protests in Wisconsin, Ohio, et al against state legislative action
- Protests in Washington against the Ryan/Heritage Foundation budget
- Town Hall participants demanding higher taxes on the wealthy
Capital presents its alternate version of reality:
- Government overfunding rather than Capital overfunding is the problem
- Capital is the actual engine and Labor is just a noisy muffler dragging behind the car
- Regulations don’t do anything positive to protect the car and are a performance drag
- America was founded as a Christian nation
Capital is also on its way to preventing Labor and Government from uniting by taking control of elections far beyond the power of unlimited campaign spending:
- Laws preventing certain groups from voting or making voting much more difficult
- Promotional voter material that gives voters wrong instructions to vote/process their vote
- Riggable voting machines
- Sympathetic county clerks stationed nationwide
This is a lot to overcome, but seeing your obstacles is the first step to overcoming them. Egypt and now Libya have managed to overcome a lot more resistance than some propaganda. We can do this.
We can start by questioning the assumption at the heart of Capital: the need for speed. Why do we value excessive speed when we know it reduces the safety and overall performance of the car? Why does our country value a stylish exterior (Capital) more than a healthy engine (Labor)? Why does our country value Capital at the expense of Labor? In fact, why do we get pulled into the Capital vs. Labor debate at all?
Why don’t we take for granted the fact that both Labor and Capital are necessary and must be healthy for the economy to thrive, and then turn our attention to the balance and enhancement of the overall system?
Why don’t we run for office or help a progressive who is running?
One thing is certain: the system is overdue for a good cleaning.