August 1, 2010

The New Economic Reality!

We are in the midst of a Great Recession that could have been a depression. The net worth of all Americans has been negatively affected, as has their optimism and willingness to go on spending binges as they have over the last several decades. Controlling the binge is a good thing; however, it means that we must find another engine for our growth rather than the American consumer. The good news is there is a new engine, and an established one, that will drive us to prosperity again.
The new engine is exports. The rest of the world is rushing to catch up to our life style and wealth. They want to consume and someone is going to fill their desire. People throughout the world are looking to increase their consumption of goods and services. If we do not meet this demand there are other nations clawing to fill their needs. These consumers are in China, Iran, Southeast Asia, India, Pakistan, Eastern Europe, South and Central America, Africa and the list goes on and on and on…... A great success story is how well GM is doing in China as one of the major car producers in that country. Increasing our exports, means we need to compete with the rest of the world. To compete we will need to become more efficient and this is where the second engine will excel – CAPITALISM!
The second engine is capitalism. We invented capitalism (Actually, we stole the concept from Adam Smith who was a Scottish Economist and Moral Philosopher). Even though stolen, we perfected and implemented it better than any nation on earth. Unfortunately, we have lost site of what capitalism is all about and we need to rediscover it if we are going to be the envy of the world.
When Adam Smith conceived capitalism, he envisioned many consumers, not influenced by outside forces, demanding the goods and services that met their rational self-interest. In order for the system to optimize the living standards of individuals he saw the need to have many producers looking out for their rational self-interest by efficiently meeting the consumers wants and needs. In this world, the producer achieved his objective by delivering a product that best met the needs of the consumer at the lowest cost possible.
What Adam Smith did not take fully into account was if one producer could gain an edge on other producers, his rational self-interest would not always be to meet the needs of consumers. If he could control the market, it is in rational self-interest to do so. It was in the rational self-interest for the U.A.W. to gain control of the labor market for the auto industry; even though the rational self-interest of the consumer, lower car prices, would have been better served with more unions to compete with the U.A.W. and more auto companies to compete with the Big Three. Unfortunately, the competition came from foreign companies who were not part of the oligopoly of the Big Three and the U.A.W.
Capitalism works only if markets are free. Many of our existing markets are no longer free because our government has failed to protect us from tyranny from within; oligopolies taking over major markets including, but not limited to, autos, banking, health insurance, computers and energy. The government has failed in being the honest umpire in these markets. Part of the reason is that these oligopolies have bought off the umpire with campaign contributions. The NFL policies its referees to make sure they are not bought off. Under existing law, it is legal for our representatives to accept bribes from oligopolies in the form of campaign contributions. That is why we need to  
Fix Congress First 
Until this is done, not much will change. Unions and oligopolies cannot vote. Why are they allowed to buy votes? 

7 comments:

  1. Oh my god. Another capitalist amnesiac. Read history you bonehead. Capitalism died 60 years before Communism. It was called the fgreat Depression. Capitalism has no longevity or stability without governement regulation. Plain and simple. Anything else is simply pie-in-the-sky voodoo. Right up there with the Easter Bunny.

    ReplyDelete
  2. Capitalism indeed needs an umpire (government regulation). Without it our free markets are susceptible to the creation of oligopolies and then they are no longer free. Indeed that is exactly what is happening. Oligopolies have bought off our representatives and they refuse to enforce anti-trust laws. This needs to change

    ReplyDelete
  3. Our laws are written by the corporations who give the most money to the party in charge. The government is not an honest broker so can not referee between companies. There is no law written in the last 35 years that does not favor one company at the expense of every other.
    Only large egg producers can afford to pay the salary of a federal egg inspector. The big companies say that this is needed to keep the egg supply 'healthy'. So all small egg producers go out of business. But are our eggs safer? Same with ground beef and all other foods. The government assists the large companies to force the smaller out at the expense of the citizen.
    Lorenzo Poe

    ReplyDelete
  4. Sir:

    There is NO need to reinvent the wheel. For about 2 decades now I asked our MBA faculty, Wall Street colleagues, economic development officials etc. HOW they explain (subscribing to our ideological dogma that markets and invisible hand, inventor in a garage etc. know the best) that GERMANY has been:

    1) "Spoiling" its workforce with highest wages in the world

    2) giving workers benefits (5+ weeks of actually taken annual vacation, TRUE universal health care, tuition free university education, unemployment benefits they can take a family to vacation in Crete, etc.), all this something 90% of American workers even cannot dream about (also being shut down by the right)

    3) Carrying huge burden of German unification (just IMAGINE that Canada used to be US state, then for 40 yrs mismanaged by communism. Imagine that 100 million of such poor Canadians - 1/3 of US population, like East Germany's 20 mil were 1/3 of West Germany's 60 mil people) are getting the same benefits, everything like us. Would American do what West Germany did? When we say that we even "cannot afford" extending health insurance to 40 million uninsured?

    4)Unlike US which has been since WWII getting HUGE free ride by printing the world's reserve currency, Germans and EU do not print Euros w/o abandon and do not get free ride from a reserve currency and euro is rather strong and Wall Street is not laughing it off anymore

    So DESPITE all above, CONTRARY to our beloved Anglo-Saxon "free market" dogma, Germany has, year after year, for decades HUGE trade surpluses, source of healthy and true prosperity.

    German fine-tuned system of education (with emphasis not on lawyering, "creative" financing and marketing tricks), sensible governmental ECONOMIC policies + CULTURAL VALUES, a different social contract (unlike individualistic max profit now to be glorified) is producing high-value-added TANGIBLE stuff that the rest of the world is willing to pay from.

    You smart call for export as new engine is NOTHING new, "socialist" Germany, many EU countries and communist China do that w/o paying homage to American theoreticians or born-again capitalists.

    As you know, only last year (2009) 15-times larger export machine, China, overtook Germany in export surpluses.

    But like British before us, also deeply in debt, Americans are CULTURALY unable to rearrange their priorities, send rich and middle class kids to study engineering, have CEO engineers not financiers and marketers. We also have 9-times as many lawyers per capita as Japan or Germany. We met our enemy and it is us.

    Your (correct) cry to seek salvation in exports WILL NOT work because American dogma "government is bad", small entrepreneur is genius who knows the best.

    As China etc. will over time manage to wean themselves out from being robbed by being abuse by US reserve currency (which the Fed is printing w/o abandon) the chicken will come to roost in earnest.

    So yes, exports but not with our political, economical and value system. Impossible.

    ReplyDelete
  5. Thanks Anonymous said. about Germany.

    The dogma that "government is bad" will lead to our demise. Sclerotic thinking indeed, the world is a little more complex than that.

    ReplyDelete
  6. I am an American. That means I want Americans to have reasonable incomes. I'm not interested in a few Americans being billionaires.

    Iam not on this planet for them.

    Outsourcing is unacceptable. Government must exercise some form of Protectionism -- the most sensible is the elimination of oligopolies and quasi-monopolies.

    This means controlling campaign contributions-- getting rid of this semantic that they are individuals in matters beyond economics -- the corporate state is an anti-American concept.

    We need judges who are free from corporate influence. Change the representation of judges criteria, all classes need representation.

    ReplyDelete
  7. We need judges who are free from corporate influence. Change the representation of judges criteria, all classes need representation. So where do we find these people? do they even exist?

    ReplyDelete