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Economy Title: Capitalism is the problem Capitalism is the problem By Steve Lachman Posted: 12:01am on Sep 15, 2011; Modified: 8:39am on Sep 15, 2011 Republicans and Democrats, in their own ways, try to solve our economic doldrums by placing Band- Aids on the systemic problems of capitalism. Republicans think reducing the tax burden on the wealthy would free up money to invest in capital, thereby creating jobs. Democrats think government investment in infrastructure creates jobs and future opportunity. Unfortunately for the Republicans, the tax burden on the wealthy is already so minimal that reducing it further wouldn’t add significantly to available capital. To the extent that money is freed up, it is more likely to be spent abroad than in the United States. And depriving the government of its meager funding would force the U.S. to default on its current debt, eliminate its safety net and/or undercut the production of social capital (especially in the areas of education and health) necessary for future prosperity. On the Democratic side, short-term investment in infrastructure doesn’t solve our jobs problem in a long-term way unless there is a market for our products. And there won’t be a market for those products unless there is money to purchase those products and we can produce them at a competitive price. Capitalism needs three things: free capital to invest in production, labor and a market for its products. As firms become more profitable, they employ more workers. As they employ more workers, unemployment decreases and labor demands higher wages. This decreases corporate profitability. When profitability decreases, investors invest where labor is cheaper (e.g., China). With products being produced in both places, price competition increases and profits decrease further. Eventually, production exceeds demand and must be scaled back. The result is unemployment. Unemployment decreases the money available to buy goods and prices drop even more, reducing profitability. Without profit, there is no capital available to invest in new production, and the economy stalls. In this cycle of competition, capitalism thrives if it has new markets for its products; new sources of cheap labor so it can produce goods cheaply enough to undercut competitors; and new products to drive the economy. The world has become integrated, so there really are no new markets anymore. China provides an example of a new source of cheap labor, but the result has been to displace American workers. Countries used to forestall this international competition through tariffs and other forms of protectionism, but these have been canceled by the North American Free Trade Agreement and the World Trade Organization. So America really has three choices. Option 1:It can continue to limp along, piling up debt while decreasing its standard of living. Option 2:It can adopt a state-run economy (i.e., socialism). This would distribute wealth more evenly but, as conservatives point out, deprives us of a certain measure of freedom. For better or worse, this is not currently politically acceptable. Option 3:It could develop a new industry to provide an avenue for investment capital and employment — only a temporary fix. A couple decades ago, that new industry was the computer industry. This evolved into the information technology industry. But now these gadgets are mainly produced abroad and often by foreign companies. So, what’s the next big thing? Two thoughts come to mind: space travel and nuclear fusion energy. If we are wedded to this capitalist religion, then the government and private sector must invest heavily in future technologies. Otherwise, we should embrace either a stagnant economy or socialism. Steve Lachman is an assistant professor of legal writing at the Dickinson School of Law. He may be reached at stevelachman@gmail.com. Read more: http://www.centredaily.com/2011/09/15/2914262/capitalism-is-the- problem.html#ixzz1Y2RR6j7v
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