Rethinking our economy


Imagine you live in a town where everyone needs to have widgets. Because everyone needs to have widgets, there are about twelve different companies dedicated to making widgets. Since all these companies compete against each other and the supply matches the demand, the price of widgets is low. But then one company becomes innovative and creates a higher quality widget at a relatively cheaper price. As time goes on, only about 2-3 companies are left who produce the widgets. Since these 2-3 companies all produce equal quality widgets, they each claim they have to raise the price of the widgets because the quality is so high. While the owners of each company never talk to each other, they watch each other and keep the prices of the widgets about the same, slowly raising the price.

The workers, seeing their bosses make more and more money from the widgets, demand that they get a share of the profit. They go on strike until the bosses begin to share their profit with the employees via benefits and an increase in wage. The bosses, however, don’t want to give up their total profits, so they increase the prices of the widgets. The workers realize this and demand more money and benefits; after all, the cost of living in the town has gone up because the price of a necessary item (the widgets) has gone up. The cycle continues until the bosses realize that the widgets are going to simply cost too much.

Thus, the bosses begin to have the widgets produced overseas at a much cheaper price, but keep the price of the widgets the same. Because people in the town are now out of jobs (since the 2-3 widget producing companies are the only ones left and they’ve shipped the jobs overseas) they struggle to pay for the widgets. The bosses open stores in the town where people can buy the widgets and employ the people to work in those stores, though at a reduced rate and with no unionized labor; thus, the employees are at the mercy of the stores.

People begin to rise up against these bosses and demand the government do something. The bosses, realizing the government could bring an end to all their profit-making ways, contribute money to politicians. Two companies contribute funds to one politician while another company contributes money to another politician. Either way, whichever politician wins will owe his victory to one of the companies, meaning he won’t be able to come down against them. And even if he can, there are multiple politicians in the town; so long as the company can purchase the majority of them, nothing can be done to the companies. The town is then left without recourse to change the way things are.

What is sad about the above scenario is that it’s not hypothetical; I believe it adequately summarizes the United States’ economy post-WWII. Since WWII, more and more small businesses and small corporations have been consumed by bigger corporations. In doing this, we’ve moved from a three class system (rich, middle-class, and poor) to a two class system: Job creators and the employed. Some may not see the problem with having these two classes, but think on it for a moment.

A job creator has no reliance on the employed. If he opens his business in America he is typically leaving it open for skilled labor only. Even then, if he can ship it overseas to make money then he will do so. Thus, the employed are almost literally a dime a dozen, but completely reliant upon the job creators. Why do we value the job creators so much? Because we apparently base the strength of our economy on the number of people employed, or number of people who have jobs. But this is a false measure for the strength of the economy. Having a job is nothing more than being a wage slave – your income is completely artificial and in a bad economy, that income is cut. Thus, you may have a “job,” but that doesn’t mean the economy is healthy – we could employ all the out of work people in America and put them on minimum wage, but it wouldn’t mean our economy is healthy.

To go back to our analogy, let’s assume that a mid-level manager for one of the widget companies makes a comfortable salary because he’d educated. Yet, within 10 years the majority of the town has the same education, meaning there are others out there who are willing to work this manager’s job for less pay. He is then left with having to take a major pay cut or lose his job entirely. This is why being paid a wage isn’t always ideal, that same wage can be devalued in an instance even if the product you sell isn’t.

Instead, the real measure of a strong economy is how many people own capital producing property. This means that, in some way, they have control over their income through being part-owners in a business or complete owners in a business. In this case, one’s income is only reduced when (1) the demand for the product is reduced and/or (2) a better product comes along. Thus, to paraphrase G.K. Chesterton, the problem with Capitalism isn’t too many capitalists, it’s too few. Or, the problem isn’t that people own private property, it’s that too few people own private property. We are the town in the analogy where only a handful of companies ultimately run everything, meaning that capital producing private property is held by a few people. To liberals this is a social injustice, but to conservatives this must be understood as the destruction of the free market. In other words, the current system we have in our nation is not a free market system; it’s something that neither conservatives nor liberals can tolerate (hence the Tea Party and Occupy protests being so similar in their complaints, but different in their solutions).

The reality is we need a complete reformation of our economic system. The practical aspects of that can be debated and discussed by economists, but I believe the following philosophical principles need to undergird it:

  1. There is no utopia. Any system we developed will have inherent flaws to it, corruption will still exist, and injustices will still happen. The goal is to create a system that minimizes these realities and does all it can to delay them. Within the system there should be a series of checks that allow for penalties when corruption is found, but we should acknowledge that corruption will never be completely eradicated. There will always be the rich and the poor, the have and the have-nots, Peter will always make more than Paul, there will never be economic equality, and so on. The goal is to lessen these realities, not eradicate them.
  2. Any economic system we develop must value human beings as people with inherent rights. In other words, they cannot be part of the collective as they are in Communism, nor can they be means to an end as they are in Industrial Capitalism (or Objective Capitalism). The primary motive in any economy cannot be profit; while it must be a motive, it cannot be the motive. The primary motive needs to be the betterment of individuals and the local community.
  3. We must allow for the free market, but in a true sense of the word. The free market is the best way to value human beings because it allows them to make something of themselves. But the free market must truly be free; when left unregulated or free from government involvement, eventually the free market collapses. When only a handful of companies control the market, it’s not a “free market.” Thus, the government has the obligation to protect the free market, by limiting the growth of certain companies, or by ensuring that in corporations that are necessarily large (such as car companies) the overall power of the company is in the hands of the many and not the few (more on this later). At the same time, this means the government must keep their hands off small businesses and let those businesses develop within reason. It means the government’s job is to protect and support the ownership of private property, not make it more difficult via taxation. Thus, the system cannot be socialist, but it cannot be capitalist (as presently understood) either.
  4. In necessarily large corporations, the power within the company must be divided. While we need leaders and people who are visionaries, as a company grows, so too must its ownership. This simply means that the workers ought to get a share of the profit via direct profit share, not through wage increases. In many ways, this makes all the workers types of owners. On big decisions, such as moving the company or the like, everyone should be allowed to voice their opinion. While this allows for corporations, it takes away the power of the corporations and especially of those at the top – the richest people in the corporations still don’t have enough money to influence elections. It also lowers the gap between rich and middle class (which is a problem). While the owners and CEOs will still make quite a bit of money, in having to share the profits of the company with the workers, that gap is reduced. Furthermore, when people know that working harder will bring in a higher profit bonus, most people will be motivated to do so, which makes for better products put out at a faster rate, which does make for a better economy.
  5. The government must regulate the market to protect the free market. That is, they must protect the market against monopolies and de facto monopolies (when 2-3 companies rule an entire region). In cases where a monopoly become inevitable – such as an energy company – the government holds the job of regulating the cost and preventing the cost from getting too high. They also hold the responsibility to ensure that in large corporations the workers are given a profit share and treated as co-owners.
  6. The government must watch its regulation and not peddle when some companies fail. Failure is a good thing because it allows for learning and growth. While painful it is a necessary part of an economy. Thus, if a company is about to fail, let it fail, even if it’s a large company. The temporary pains won’t destroy the economy, but the government getting involved and ruining the free market will destroy an economy.

The goal in all of this is really to respect and protect the dignity of man. The most important point that I did not include is that we must have a moral society. We must drop the moral relativism that we’ve bought into and realize that objective moral values exist, naturally so, and that when we abandon them there are negative consequences to be had. While the above points would make for a better economy, what would ultimately help the economy is for people to realize that acting ethically allows for a more sustainable economy. Acting ethically may cap a business owner’s income to a few hundred thousand instead of a few hundred million, but it will allow for a stronger economy for everyone else and still give him enough money to live comfortably. But we have to be willing to do what is right and that requires us to reject subjectivism when it comes to ethics.

Thus, if we wish to fix our economy and overhaul it, the first step has to be an ethical one. It has to be a commitment to doing what is right and encouraging others to do what is right as well. The economy we have today was founded in the 60s and 70s, the self-love and individualistic ethos. To fix our economy we have to fix our social ethic, I’m just not sure anyone is willing to do that.

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