Cutting it Deep: Supply-Side is NOT Capitalism; Right Wingers HATE Capitalism!

Let's start by making something crystal clear; for all of their talk, the right wing is not a fan of capitalism.They like it when their heroes make a lot of money, but as organized crime, Enron and Jack Abramoff have proven over many years, it is possible to make a ton of money doing something that isn't capitalism.

I suppose we're supposed to be relieved by the current spike in the Dow Jones Industrial Average. It is a sign that the economy has bottomed out. But we can't allow ourselves to fall into this trap again, folks. The Dow going to 10.000 means diddly squat when it comes to the overall economy. And if we don't gain some perspective, and do so soon, we're in danger of allowing ourselves to be taken in by another bubble. A rising Dow should be seen as a warning sign, not as a hopeful sign. The stock market is no longer about capitalism, which is why the right wing loves it so much.

You see, capitalism is supposed to work this way:

Someone identifies a need in the marketplace, fills that need by creating a product or service, charges a price for that product or service, and makes money. It's really quite simple. The problem is, that system has been bastardized in the last 30 years or so, with neocons in charge, and I think we've forgotten how capitalism is supposed to work. If we're to pull ourselves out of this current economic mess, we'd better figure it out, and do so quickly. 

Once upon a time, the stock market had a noble purpose.

Americans need cars. For years, Ford made cars. People purchased those cars. Ford hired people to build those cars, and thus created a greater market for their own cars. Ford workers went home and spent money on groceries and food, and bought gas for their cars. The money they spent created more jobs, and the money those people made created more jobs, and so on. That's how the economy is supposed to work. Working people spend money and create more jobs for working people, etc. Money flows through the system and everyone gets what they need, for the most part.

These workers also paid taxes, which lessened the tax burden on others, including Ford. When everyone's working under a fair tax system, everyone pays a fair share of taxes.

In order to grow, Ford needed investment, so they issued stock, which is an equity portion of their company’s overall value. People would buy a share of Ford stock, and thus invest their money in the company, so that it can make more cars, and make more money, hire more people, who would then spend more money in the economy, and everyone becomes richer.

That is capitalism, folks.

At noon on January 20, 1981, our economy changed, and our view of capitalism was altered completely, and not in a good way. That was the time Ronald Reagan became president, and our economy switched to a different model completely; a model that can’t possibly lead to a good end, because it stands traditional capitalism on its ear, and it is and always has been, unsustainable. It’s called “supply-side” capitalism, and it’s a sham. It's the economic equivalent of selling snake oil, and a lot of us have been sucked in, to the point that we're about to fall into the economic abyss if we don't change our view quickly.

Look at the model above. In that scenario, Ford’s success was good for everyone. Ford hired lots of people, who spent a lot of money in the economy, and made other businesses possible. Entrepreneurs sprang up all over the country, as the need for new products and services cropped up, for people to spend their new-found wealth on.

Supply-side economics ignores the consumer completely. It puts all of the emphasis on the company and the investor, and nothing on the consumer, or even the public at large. Basically, in the supply-side model, all of the emphasis is on the investment, and little to none on the end result of that investment. And that is why our economy is in the toilet. It no longer matters how much a company sells, or how much money it makes overall. If a company can convince investors they'll make money on their stock, almost nothing else matters. Consumers should drive investment; investment can’t drive consumers. Our system is broken, and supply-side broke it,. Yet, the idiots on the right can’t see it, because they’ve been drinking the artificially flavored beverage for too long, and they can’t look at it objectively.

I'm sure those of you who have been around for awhile often wonder why the world has changed so drastically over the past 30 years? It used to be a family could afford a house and a car on one income, remember? Why, in this era of supposedly “low inflation” has the price of real estate gone through the roof? Why are CEOs making tens of millions of dollars for losing money for their companies?

The answer is simple. I’m going to pick on Ford for a moment here, but I don’t mean to; they’re a product of the times.They're not doing anything unusual, given the current market.

Ford no longer makes money solely by selling cars. They also make money by financing their cars and others. They also make money by creating stock, selling the stock, buying back the stock, investing in other companies, buying and selling that stock, etc. They still have to make and sell cars, but their goal is no longer to sell as many cars as possible. Their goal now is to save the most money, and make the stock look good to investors, so that more investors will want to buy it.Most companies, Ford included, have found all sorts of ways to make lots of money without selling their own signature product — cars — so they're no longer as concerned about making them as they once were.

That’s what we’ve become. We don’t manufacture goods and provide services anymore; we make money by shifting money from one pocket to another, and making the bottom line look good on paper. In other words, we've been conned into thinking that investment is equivalent to revenue somehow, and businesspeople have been allowed to fudge their numbers and treat investments as revenues from sales of their products. And it's changed everything.

In previous eras, people could work in a small restaurant their entire lives, and make enough for their family to live on. People worked for one company their entire productive life. Families with one income could buy a house and a car, send their kids to Catholic school if they wanted, and go on vacation for a week every year, all without using a credit card.

Now, people rarely work for the same company their entire life. They get laid off every time there's a downturn. Jobs pay less and less, and the gap between rich and poor has grown precipitously, in part because those on the top of the economic ladder have managed to make unprecedented "profits," even if they don't make anything, or even provide a service. 

Supply-side economics, doesn't make real money; it makes for a positive balance sheet and little more. Because all of the impetus in supply-side goes to spur investors to invest, pretty much just for the sake of investing, we keep having bubble after economic bubble. Investment is now more important than buying and selling goods and services. And the consumer really gets screwed. No one cares that you buy Chinese shit at the dollar store just to survive; as long as the dollar store continues to get that cheap shit from the factories employing slave labor in China and continues to pad its bottom line, so their investors get a return on their investment. It no longer matters when a company lays off 10,000 workers; it’s saved all that money on pay and health insurance, and its bottom line looks good, and that’s all that matters, right? It doesn’t matter if the retailer provides zero customer service and doesn’t even clean its stores, as long as it keeps its payroll under control and provides a dividend, all is fine and dandy.

Supply-side economics is not sustainable, which is why we have to avoid it in the future and return to the old model; the one that made us the economic model for the whole world at one time. We have to get out of the boom-and-bust cycle, and get back to an economy that just grows naturally, as people start businesses and grow businesses through rational investment and increased revenues.

How many bubbles must we go through before we finally get a clue; the Republican Party has had it wrong for the last 30 years. When the 1982 recession happened, the stock market was a little shaky, so speculators turned to real estate and the credit market, with the neocons’ blessing, and little oversight. Through their deregulation  mantra — and may I remind everyone that regulation is mandated by the Constitution, no less — Republicans  gave crooks the green light to do whatever they wanted, as long as it made money. When regulations were loosened or done away with altogether, S&Ls were offering loans to people who shouldn’t have gotten them, including mortgages, and then simply writing off the bad loans when they stopped paying on them.  Does that sound familiar? Yes, folks, we have actually repeated that with the latest Republican economic debacle. Neocons don't actually learn anything. Ever.

The basic problem with supply-side economics is that it doesn’t matter what a company does in the course of business, as long as it can show a profit at the end. That’s what brought about the tech bubble. While there were legitimate dot-com entrepreneurs like Jeff Bezos and Bill Gates, there were a whole lot of people who got into the market solely to take advantage of "venture capitalists." It didn’t matter that many of the dot-coms had no product and had never sold anything; they sold stock to make money, and investors then sold and resold that stock for even more profit. In the Republican economic world, if you sell a billion dollars worth of stock and split the money among the friends who started the “business” with you, guess what? You’re all multi-millionaires,; you don't have to sell anything.

So, what’s the problem with that, right? Don’t the multimillionaires spend a lot of money, too?

Yes, they do. But they don’t buy the same things we buy, and they spend more for things than is prudent, because they have a lot of money, and they don’t care. Plus, there are a lot fewer of them. In short, it's
not good for the economy to have a lot of rich and a lot of poor. A healthy capitalist economy has a huge middle class.

Common sense time; which is better for the economy; ten families making $10 million each, or 2,000 families making $50,000 each? Keep in mind, we’re talking about the same amount of money.

The Republicans who LOVE supply-side economics will tell you there’s no difference, but that's why they're neocons. They’ll tell you that the ten families making $10 million will invest in things that will bring everyone else wealth. But that’s not realistic; those 2,000 families will spend a lot more on groceries than the 10 rich families. The 2,000 families will buy 1,975 cars, on average, possibly even more. How many cars will the purchased by the 10 families? Maybe 50, if we’re lucky? And suppose they invest half of their money? After the management of the company scrapes off their share, and the companies doctor the books to make the investments look like profit, how much will really be left? Rich people do not generate nearly as much money for the economy as middle class people do. In fact, I would argue that poor people generate more wealth than rich people, mostly because there are more of them, and they spend 100% of whatever they have.

But supply-side economics has made us stupid and short-sighted. The Bentley Motor Company,  one of the most prestigious car makers in the world, recently shut down its factory for a month, because it wasn't selling vehicles. But they are keeping all of their employees, and paying them during the shutdown. Why? Because they make their money selling cars, and their people are trained to make great cars. Imagine an American company doing that. They used to do that, but now they can’t, because their concern is no longer about making the best cars at a great value; their sole concern is making the bottom line look good for investors for the current quarter, or perhaps the current fiscal year, if they're really forward-thinking.

Our entire economy has become about “return on investment,” and all thought about the future has been stymied; stifled by concern over nothing more than the current quarter. Do you know why health insurance companies get away with charging so much? It’s because everyone up and down the line is only concerned with the current fiscal quarter, or the current fiscal year.

Think about it. Apply for health insurance coverage, and there's a one in five chance they’ll turn you down. If they turn you down, and you get sick and show up at the hospital’s emergency room, the hospital must treat you, to a certain extent. The hospital sends you a bill, and you won’t be able to pay it. Yet, the hospital will have to make up the shortfall, so the next year, they raise their prices. The insurance companies are looking at higher bills, so they charge their premium holders more money. Basically, by turning people down, in order to save money on the short run, insurers are costing their paying customers more money.

That's how supply-side economic works. The result doesn't matter to companies anymore; only the bottom line. And the end result is not good for anyone.

Look around you; our neighborhood shopping districts have been completely decimated and replaced by sterile chains, and entrepreneurship is all but dead throughout most sectors of the economy. New centers are popping up all over the country, with the same chains in all of them. And we welcome them, in most cases, because they offer shitty foreign-made goods at discount prices, and we can’t afford to pay for anything more expensive. Wood has given way to plastic, because wood has become too expensive. Supermarkets have slowly replaced raw food with cooked food because we are all forced to work too much to be able to cook for our families. The average American works more, for less money than he or she did 30 years ago, and the only thing keeping most people afloat these days is their ready availability of credit, to the point that nearly every American is in debt up to his or her eyeballs, and I’m not just talking about the government.

Thank supply-side economics for all of this. It’s the reason home prices skyrocketed and crashed in the 80s, and it’s why they skyrocketed even faster in the 2000s and crashed even more this time. It’s why nearly every family needs two incomes just to survive, and why every parent has a growing need to put their children in day care. It’s the reason people can no longer count on having one job for their entire working life, it’s why factories have moved overseas, and it’s why locally-based entrepreneurs have been replaced by chains whose main purpose is to churn out product made by others as cheaply as possible. It’s also why factory farms have replaced family farms, and why our environment is in such grave danger right now.

Supply-side economics has caused our economy to stagnate, as the only “industry” it’s created has been an “investment” industry, the sole purpose of which has been to make phony wealth by selling money that doesn't actually exist.

Is that what we’re about, really?

If President Obama is to create true economic "change we can believe in," He has to start this economy  down the road to the economic model that has been proven to work, in which people work hard to build society, get paid for it, and move the economic engine forward. We have to dial it backward, to a time when everyone worked hard and was paid a decent wage, and in turn saved a little and spent a little, and if he was lucky, he could open a small business of his own. Not a franchise, where he’s forced to buy everything from a large corporation that sets guidelines for wages and other expenses, but his or her own business, reflecting his or her passion.

He started down the right road with the first stimulus package, but we need so much more. We have to invest heavily in the infrastructure, because there is no better way to jump-start the economy. Right now, too much of the country’s money is in the hands of a select few, who somehow feel entitled to it, despite the fact that they didn’t work for any of it. It’s time we re-circulated that money through the economy once more, and into the hands of people who will spend it, and keep the engine humming.

The way you make money in a capitalist system is to make and sell merchandise and provide services. But in order to buy goods and services, people need money. The reason the economy is in bad shape is because all of the money has been funneled to the wrong end.

Republicans don't care much for capitalism. There’s a reason the neocons call this concept “trickle-down.” Aren’t you tired of them “trickling” all over you?

Click here for reuse options!
Copyright 2009 The PCTC Blog

One comment

  1. Wait a minute, perhaps they do like “capitalism”. “Capital” is just a fancy word for money or its surrogates — they do like money. That’s why their philosophy is called “capitalism”. What they don’t like is “market competition”, or free markets in general. They don’t want to be subject to the market; they want the market to be subject to them.
    With Reagan they found a way to get more capital. It’s really like any other religion in which there is a chosen few who are blessed and the hordes of the lost who have not.
    Capitalism as practiced requires concentration of money. In some ways Reagan’s supply-side capitalism is the only real, pure capitalism: it sends society’s money directly to the concentrations of capital. It is in fact what one would do, I believe, if one held the belief that concentrations of capital are the supreme economic good.

Comments are closed.