Wednesday, March 24, 2010

Corporate, Banking, and Economic Aristocracy in America

Many Conservative radio and television talk-show personalities take pride in referring to themselves as "Reagan Conservatives." While I agree with values represented by catch phrases such as: "personal responsibility", "limited government", "peace through military strength", "right to life", and "traditional family values" there is one aspect of Reagan Conservatism that has been very damaging to America. And that has to do with Reagan's economic policy. And I am not talking about his "trickle-down economic" tax cuts for the rich but his relaxation of anti-trust laws in America.

Robert Bork, Milton Freedman, Paul Volcker and Alan Greenspan were great advocates of our current "laissez-faire," "free market," "Chicago school," "just-in-time," "Walmart" economy. Robert Bork argued in his book "The Antitrust Paradox" against current anti-trust laws claiming that globalization and consolidation was more efficient and efficiency would bring about a greater consumer welfare. Robert Bork argued that the anti-trust laws should produce the effect of lower prices to the consumer only. With lower prices the sole goal of our economy, Bork and other economists were of the opinion that markets would run most efficiently when dominated by 2 or 3 global companies. Thus competition as well as efficiency would be preserved.

However, anyone who accepts Robert Bork's premise that the free market's only goal should be lower prices via efficiency as reflected in Adam Smith's "Wealth of Nations" is forgetting the original intent of the Founding Father's which is expressed in Alexander Hamilton's "Report on Manufactures". Free Trade vs. Protectionism was an issue at the heart of the Civil War. Northern States favored tariffs to protect their developing industries. The South had a low cost of manual labor, had little need of mechanization, and favored the freedom to purchase from whichever country sold goods at the lowest price. Protectionism proved superior during the Civil War as the North had 10 times the GDP of the South and then was able to blockade, out produce, and starve the South into defeat.

President William McKinley stated the United States' stance under the Republican Party as thus: "Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man. [It is said] that protection is immoral…. Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefiting mankind everywhere. Well, they say, ‘Buy where you can buy the cheapest'…. Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: ‘Buy where you can pay the easiest.' And that spot of earth is where labor wins its highest rewards."

Protectionists view laws concerning Environmental Protection, Product Safety, Child Labor, Anti-Trust, Occupational Safety, Equal Opportunity, Intellectual Property, and Minimum Wage burden companies and place then at a disadvantage when they compete, both domestically and abroad, with goods and services produced by companies unfettered by such restrictions. Tariffs, quotas, and subsidies can even the playing field.

Critics of protectionism claim that the benefits of free trade over protectionism is 100:1 because of increased efficiency. Chicago School Economists said that out-sourcing jobs to the 3rd-world would raise the standard of living in those countries even if workers rights are not observed.

It is interesting how Free-Trade became a Republican mantra. During the Great Depression, FDR blamed Herbert Hoover's protectionist policies in worsening the Depression via the inactment of the Smoot-Hawley Tariff Act. Since then, free trade, which was once a major plank in the Dixiecrat platform has since been co-opted by the Republican party.

However, the real cause of the Great Depression was the fault of people borrowing money to invest in the stock market creating an economic bubble. Following the stock market crash on Black Tuesday on Oct 29, 1929, Banks began to fail because of fractional reserve lending. Fractional Reserve Banking means that Banks only have to have 1/10th of the money they lend on hand as fractional reserves. When stocks crashed, most US banks lost their reserves and could not operate. The Federal Reserve purposefully tightened the money supply and denied loans to most small banks which were forced to fail. Failing banks resulted in fewer business loans which resulted in layoffs, and rising unemployment. High Unemployment led to the beginning of the Socialization of America.

The original intent of the Founding Fathers was not efficiency and the lowest price, but stability, security, self-sufficiency and freedom. Under the ideals of the Founders, the producers of goods and services were to be free from any outside influence to negotiate with the consumer. There was to be no middle man. The producer was to have equal and free access to raw materials, as well as equal access to the consumer. However, under our current system, there are many obstacles and middle men. Our free market is far from being free and instead economic policy and products are controlled by a few ultra-rich, elite, corporate, government, and banking aristocrats. When companies and farms consolidate to form mega-conglomerates, jobs are lost because there is no need for a duplication of services. But the price of efficiency is security and stability.

Having robber barons, corporate czars, and kings is efficient, but because evil exists and we cannot guarantee that our CEO's will always be just, it has always been important that power is delegated to the local level to the individual as much as possible. Unfortunately, there has been both a Right Wing and Left Wing Conspiracy in America. Economic and Political Power is controlled by a few ultra-elite. Our current economic system benefits only a select few who amass huge amounts of capital and political power. Our current system at the same time is set up so large numbers of Americans are set up to fail. These same ulta-elite then turn to the poor and disadvantaged promising them social programs funded by the working middle class. The AMT is a great example of how this works. AMT only allows an upper middle class worker who makes between $100,000 and $500,000 to deduct so much from his tax return before AMT kicks in and requires that he pay at least 28% in income taxes. However, for those who make over $500,000, AMT doesn't apply and capital gains on stocks only requires 15% in taxes imposes no limits to deductions.

As I have said in other posts, who cares if a US produced good cost 10$ while the same good from China is only 5$. It's much better in the long run to keep 10$ in your local economy then send 5$ to China or into the pocket of an ultra-rich CEO. Remember that 10$ spent locally means 10$ toward a local job, 10$ more for someones health care and retirement program. If instead, I send 5$ to China, that is 5$ that the US government will end up borrowing back to fund social programs to stimulate job creation, and provide unemployment, health care and social security benefits to my unemployed neighbors.

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