Wall Street Journal Editor Warns That The Current Capitalism Is Harming The U.S.

 Most Americans support capitalism (even most progressives). But capitalism must be regulated. Without regulations, the excesses of the capitalist system can actually cause harm to a country and its citizens.

Here are some thoughts from Wall Street Journal editor-at-large Gerard Baker in an editorial in his newspaper. He is warning his fellow capitalists that today's capitalism is getting out of hand.

“The widespread popular dissatisfaction with the working of modern American capitalism may be the product of some real, objective problems in the way American capitalism is working: income and wealth inequality on a scale not seen in a century; the concentration of economic, cultural and increasingly political power in a class of technology leaders whose products are dissolving the bonds that keep society together; the tightening nexus between business elites and the people who control the political process; rampant corruption and a political establishment that doesn’t seem interested in accountability; the revival, after decades of stable prices, of inflationary pressures that are pushing the cost of living to painful levels.

These are the conditions that historically have made for collapsing popular faith in the system and demands for something radical to replace it.

At some point disintegrating cohesion produces costs — social, economic and political — that undermine the benefits of the inequality and erode support for the system itself.

By almost all measures, American income and wealth inequality have been increasing sharply in recent decades and social and economic mobility falling.

The New York Federal Reserve reported in June that the labor share of income — wages and salaries — fell to its lowest level in 80 years as returns to capital continue to soar. Studies of intergenerational mobility suggest the inequality is becoming embedded in what looks increasingly like a class-based socioeconomic model. The proportion of Americans earning more than their parents has dropped precipitously in the past 50 years and is expected to drop further. With the adoption of artificial intelligence promising — or threatening — to return ever greater rewards to a diminishing number of those best placed to exploit it, the trends will intensify.

Most of the causes of America’s economic dysfunction are the result of a capitalism that has mutated into a system run by and for large corporate interests. If you look at America today and see a perfectly functioning free-market economy, a ‘neoliberal’ utopia guided by the invisible hand of Adam Smith, then you need to take off those rose-tinted spectacles and take a closer look: oligopoly-level industrial concentration in almost every sector, endemic cronyism, the application of regulation, legislation and policy for the benefit of big companies, a ruinously expensive healthcare system run principally for the benefit of insurers and pharmaceutical companies. In short, the steady accretion of market, economic and political power by a business-political class that promotes its own well-being at the expense of competition, the market and ultimately the people."

Public's View Of Both Capitalism And Big Business Fall

 

The charts above are from the Gallup Poll -- done between August 1st and 20th of a nationwide sample of 1,094 adults, with a 4 point margin of error.

Capitalism Needs A Social Democracy To Benefit All Citizens

Donald Trump has been unable, so far, to find any charge that works against Kamala Harris. He's tried crazy nicknames. He's tried intentionally mispronouncing her name. Nothing has worked. Now he's going for the ridiculous - calling her a "communist".

It isn't even remotely true, but that has never bothered Trump in the past. He will say anything, even an outrageous lie, to get what he wants.

The truth is that Harris is a social democrat. She believes that capitalism must be tempered with regulations and social programs to benefit all citizens.

An unregulated capitalism with government social programs will not work. It will eventually results in a few rich people, a tiny management middle class, and the huge majority of citizens stuck in poverty.

Republicans want you to believe that freeing the rich capitalists from government regulation will allow them to "trickle down" much of their wealth to the rest of the population, thus eliminating the need for any social programs. It's a crazy idea, and it's never worked.

The rich don't want to share their wealth, even though they gained it on the backs of working people. They will always (as we have seen in the past) pay as little as possible to the workers creating their wealth - even if it leaves those workers in poverty.

To prevent this, there are three things needed - regulations, government social programs, and labor unions. These three entities assure that production is shared with everyone and not just hogged by those at the top.

That is not communism. It's not even socialism. It's just common sense capitalism. It allows the rich to get and remain rich, while ensuring that others have what they need to survive in the economy.

The "Free Market" Needs Government Rules To Exist

 The following post is by Robert Reich:

FEW IDEAS have more profoundly poisoned the minds of more people than the notion of a “free market” existing somewhere in the universe, into which government “intrudes.”

 

In this view, your pay simply reflects what you’re worth in the market. If you aren’t paid enough to live on, the market has decided you’re not worth enough. If others rake in billions, the market has decided they must be worth it. 

If millions of people are unemployed or have no idea what they’ll earn next week, that’s also the outcome of market forces.

If corporations decide to lay off their workers and shift jobs overseas, or use computers and software to do what their workers did, that’s also just the market doing its thing.

 

According to this view, whatever we might do to reduce inequality or economic insecurity runs the risk of distorting the market and causing it to be less efficient.

Although the government may need to intervene in the market on occasion — to prevent, say, pollution or unsafe workplaces, or provide public goods such as highways or basic research — these are thought to be exceptions to the general rule that the market knows best. 

The prevailing view is so dominant that it is now almost taken for granted. It is taught in almost every course on introductory economics. It has found its way into everyday public discourse. One hears it expressed by politicians on both sides of the aisle.

The only question left to debate is how much the government should intervene. Conservatives want a smaller government and less intervention in the free market. Liberals want a more activist government that intervenes more in the free market.

BUT THE PREVAILING VIEW, as well as the debate it has spawned, is utterly false. 

There can be no “free market” without government. The “free market” does not exist in the wilds beyond the reach of civilization. 

Competition in the real wild is a contest for survival in which the largest and strongest typically win. As the 17th-century political philosopher Thomas Hobbes put it in his book Leviathan (chapter 13),

“[in nature] there is continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.”

Civilization, by contrast, is defined by rules.

Rules create markets, and governments generate the rules. 

A market — any market — requires that government make and enforce the rules of the game. In most modern democracies, such rules emanate from legislatures, administrative agencies, and courts. 

Government doesn’t “intrude” on the “free market.” It creates the market.

The rules are neither neutral nor universal, and they are not permanent. Different societies at different times have adopted different rules. 

The rules partly mirror a society’s evolving norms and values, but also reflect who in society has the most power to make or influence them.

 

Yet the interminable debate over whether the “free market” is better than “government” makes it impossible for us to examine who exercises this power, how they benefit from doing so, and whether such rules need to be altered so that more people benefit from them.

THE SIZE OF GOVERNMENT is not unimportant, but the rules for how the market functions have far greater impact on an economy and a society. While it’s useful to debate how much the government should tax and spend, regulate and subsidize, these issues are at the margin of the economy. The rules are the economy. 

It is impossible to have a market system without such rules and without the choices that lie behind them. 

Those who argue for “less government” are really arguing for a different government — often one that favors them or their patrons.

So-called “deregulation” of the financial sector in the United States in the 1980s and 1990s, for example, could more appropriately be described as “re-regulation.” It did not mean less government. It meant a different set of rules.

Those new rules initially allowed Wall Street to speculate on a wide assortment of risky but lucrative bets and permitted big banks to push mortgages onto people who couldn’t afford them. 

When the bubble burst in 2008, the government issued rules to protect the assets of the largest banks, subsidize them so they would not go under, and induce them to acquire weaker banks. At the same time, the government enforced other rules that caused millions of people to lose their homes. These were followed by additional rules intended to prevent the banks from engaging in new rounds of risky behavior (although in the view of many experts, these new rules are inadequate).

The critical things to watch out for aren’t the rare big events, such as the 2008 bailout of the Street itself, but the ongoing multitude of small rule changes that continuously alter the economic game. 

The bailout of Wall Street created an implicit guarantee that the government would subsidize the biggest banks if they ever got into trouble again. This gave the biggest banks a financial advantage over smaller banks and fueled their subsequent growth and dominance over the entire financial sector — which enhanced their subsequent political power to get rules they wanted and avoid those they did not.

The so-called “free market” is a myth that prevents us from examining these rule changes and asking whom they serve. The myth is therefore highly useful to those who do not want such an examination and who don’t want the public to understand how power is exercised and by whom.

THESE UNDERLYING REALITIES are particularly well hidden in an economy where so much of what is owned and traded is becoming intangible and complex. 

Rules governing intellectual property, for example, are harder to see than the rules of an older economy in which property took the tangible forms of land, factories, and machinery.

 

Likewise, monopolies and market power were clearer in the days of giant railroads and oil trusts than they are now, when a Google, Apple, Facebook, Amazon, or Microsoft can gain dominance over an entire network, platform, or communications system.

 

At the same time, contracts were simpler to parse when buyers and sellers were on more or less equal footing, and could easily discover what the other party was promising. That was before the advent of complex mortgages, consumer agreements, franchise systems, and employment contracts, all of whose terms are now largely dictated by one party.

 

Financial obligations were clearer when banking was simpler, and the savings of some were loaned to others who wanted to buy homes or start businesses. In today’s world of elaborate financial instruments, it is sometimes difficult to tell who owes what to whom, or when, or why.

Unbridled Capitalism Is Killing The American Dream

The following is part of a thought-provoking post by  Robert Reich:

FOR THREE DECADES after World War II, America created the largest middle class the world had ever seen. During those years, the earnings of the typical American worker doubled, just as the size of the American economy doubled. 

Over the last 40 years, by contrast, the size of the economy has more than doubled again, but the earnings of the typical American have barely budged (adjusted for inflation).

  

Then, the CEOs of large corporations earned an average of about 20 times the pay of their typical worker. Now, they rake in over 300 times.

 

In the 1950s and 1960s, the richest 1 percent of Americans took home 9 to 10 percent of total income. Today they take home more than 40 percent. 

Then, the economy generated hope. Hard work paid off. The living standards of most people improved through their working lives. Their children enjoyed better lives than they had. Most felt that the rules of the economic game were basically fair.

Although many women, Black people, and Latino people were still blocked from getting a fair share of the economy’s gains, the nation committed itself to changing this. New laws guaranteed equal opportunity, barred discrimination, promoted affirmative action, and expanded educational opportunity for all. 

Today, confidence in the economic system has sharply declined. Its apparent arbitrariness and unfairness have undermined the public’s faith in it. Cynicism abounds. Equal opportunity is no longer high on the nation’s agenda. 

To the contrary, our economic and political system now seems rigged. 

That’s because it is.

THE THREAT TO CAPITALISM is no longer communism or fascism but a steady undermining of the trust modern societies must depend on. 

When most people stop believing they and their children have a fair chance to make it, the tacit social contract begins to unravel. And a nation becomes susceptible to demagogues such as Donald Trump.

 

We have the power to change all this, recreating an economy that works for the many rather than the few. But to determine what must be changed, and to accomplish it, we must first understand what happened and why.

The conventional explanation is that globalization and technological change have made most Americans less competitive. The tasks we used to do can now be done more cheaply by lower-paid workers abroad or by computer-driven machines. Presumably, artificial intelligence will accelerate this trend.

 

The conventional solution — at least among people who call themselves liberals, Democrats, and progressives — has been an activist government that raises taxes on the wealthy, invests the proceeds in excellent schools and other means people need to get ahead, and redistributes to the needy. 

This solution has been vigorously opposed by people who called themselves conservatives and Republicans, who believe the economy will function better for everyone if government is smaller and if taxes and redistributions are curtailed.

BUT THE CONVENTIONAL EXPLANATION for what has happened overlooks a critically important phenomenon — the increasing concentration of political power in a corporate and financial elite that has been able to alter the rules that run the economy.

And the conventional solution is in some ways beside the point, because it takes insufficient account of the corruption of government by these moneyed interests. 

The debate over the merits of the “free market” versus an activist government has diverted attention from how the market has come to be organized differently from the way it was a half-century ago, why its current organization is failing to deliver the widely shared prosperity it delivered then, and what the basic rules of the market should be.

The diversion of attention is not accidental.

 

Many of the most vocal proponents of the “free market” — including executives of large corporations and their ubiquitous lawyers and lobbyists, denizens of Wall Street and their political lackeys, and numerous multimillionaires and billionaires — have for many years been actively reorganizing the market for their own benefit and would prefer these issues not be examined.

  

MARKETS DEPEND for their very existence on rules governing property (what can be owned), 

monopoly (what degree of market power is permissible), contracts (what can be exchanged and under what terms), bankruptcy (what happens when purchasers can’t pay up), labor unions (how much power should workers have), and how all of this is enforced.

Such rules do not exist in nature. They must be decided upon, one way or another, by human beings. 

These rules have been altered over the past four decades as large corporations, Wall Street, and wealthy individuals have gained increasing influence over the political institutions responsible for them.

Simultaneously, centers of countervailing power that between the 1930s and 1980s enabled America’s middle and lower-middle classes to exert their own influence — labor unions, small businesses, family farms, and political parties anchored at the local and state levels — have withered. 

The consequence has been a market organized by those with great wealth for the purpose of further increasing their wealth. 

This has resulted in ever-larger upward distributions inside the market, from the middle class and poor to a minority at the top. Because these distributions occur inside the market, they have largely escaped notice.

As we’ll see, the meritocratic claim that people are paid what they are “worth” in the market is a tautology that begs the questions of how the market is organized and whether that organization is morally and economically defensible. 

In reality, income and wealth increasingly depend on who has the power to set the rules of the game.

CEOs of large corporations and Wall Street’s top traders and portfolio managers effectively determine their own pay, advancing market rules that enlarge corporate profits while using inside information to boost their fortunes. 

Meanwhile, the pay of average workers has gone nowhere because they have lost countervailing economic power and political clout. The simultaneous rise of both the working poor and non-working rich offers further evidence that earnings no longer correlate with effort or with the common good.

 

All of this has brought us Donald Trump and America’s lurch toward fascism.

The underlying issue is not the size of government. It’s whom the government is for.

 

The remedy is for the vast majority to regain influence over how the market is organized. This will require a new countervailing power — allying the economic interests of the majority who have not shared the economy’s gains. 

The battle pitting the “free market” against government is needlessly and perversely preventing such an alliance from forming.

The biggest political divide in America in years to come will be between, on the one side, the complex of CEOs of large corporations, top executives and traders at Wall Street banks, private equity and hedge-fund managers, and other moneyed interests who have fixed the economic and political game to their liking. And on the other side, the vast majority who have been left behind. 

Some of the people who have been left behind are susceptible to the lies and bigotry of neofascists like Trump.

But the answer is not to give up on democracy. 

To the contrary, the only way to reverse course is for the vast majority who now lack influence over the rules of the game to become organized and unified, in order to reestablish the countervailing power that was the key to widespread prosperity five decades ago.

IF WE DISPENSE with mythologies that have distracted us, we can make the system work for most of us rather than for only a relative handful.

 

History provides some direction as well as some comfort, especially in America, which has three times in our short history readapted the rules of the political economy to create a more inclusive society, while restraining the political power of wealthy minorities at the top. 

In the 1830s, the Jacksonians targeted the special privileges of elites so the market system would better serve ordinary citizens. 

In the late 19th and early 20th centuries, progressives enacted antitrust laws to break up the giant trusts, created independent commissions to regulate monopolies, and banned corporate political contributions.

 

In the 1930s, New Dealers limited the political power of large corporations and Wall Street while enlarging the countervailing power of labor unions, small businesses, and small investors.

The challenge is not just economic but political. Economics and politics cannot be separated.

It’s time for the Democratic Party and its leaders to give full-bodied voice to the forces — labor unions, small businesses, worker cooperatives, worker-owned businesses, family farmers, nonprofits, bottom-up politics, and all of us who are still committed to the common good — that together can countervail the overwhelming power of the big monied interests.