A Better Capitalism System
One of the complaints I hear often about Capitalism is the excesses of the 1%. Why we allow these people to earn so much money, much more than they ever need, and yet pay very little in taxes. The argument is one of fairness. Why can’t they pay their fair share? It is hard to argue against that. Their answer to this problem is that we need to move to a democratic socialism government. They want to tax the rich and pay for programs that benefits all citizens. It is our right to have basic healthcare, food, shelter and a job. Who could be against that utopia?
- Feb. 2019
As a conservative who have always supported Capitalism and the free enterprise system, I do concede some of the criticism is valid. Crony capitalism is alive and well and it gives capitalism a bad name. The problem is how do you get rid of it? It seems they go hand in hand. Our current political system is what allows this to go on. The question is, is there a way we can elliminate crony capitalism and still retain the basic principles that lead to properity?
I am proposing some common sense ideas to push us in that direction. Some are easy but others are hard to accomplish. Never the less, it is better to identify them and look for solutions.
The Many Faces of A Better Capitalism System
Here are the areas that needs reform.
2. Federal Reserve, banking
3. Congress, elections, Lobbyists
4. Wall street
9. Government subsidies
How are they related? The areas identified cover a wide range of issues. Why is crony capitalism the center of all these? Let me break it down for you one by one.
Let me first explain what “crony capitalism“ is and why it is destructive. Crony capitalism is what happens when a private company gets too large and too dominant. It exerts pressure on the government to get special privileges. It does this by donating to elected officials, hiring lobbyists, and propose legislations that benefit them at the expense of the public and of their competitors.
This over time leads to a monopoly that begins to defeat the free enterprise system. When a company rely on regulations to stay ahead of its competitors instead of innovation and efficiency.
The free enterprise system of capitalism works best when companies compete on an equal footing. Government stays mostly out of the way but only maintain a level playing field and insure no one cheats or are engaging in illegal activities. This is accomplished by laws and regulations and oversight and enforcement.
The most important rule change and most difficult to accomplish is term limits for Congress. This one change to our election process would reduce the pay for play environment we have today. Officials would not focus so much on fund raising and relections every 2 years for the House or 6 years for the Senate. They would focus on getting legislation passed that will benefit their constituents. A second rule is to pass legislation to prohibit officials that leave office from working as a lobbyist for 5 years. Again, this insures that officials will not use their position to leverage or negotiate a deal that benefits him personally.
Ever since the 1980s, the average wages of the American worker has been steady and have not increased. Despite increased technology and increased productivity of the workers, the wages were stagnant, and barely kept up with inflation. The question is why? One factor which is undisputed, is that the steady influx of illegal immigrants with low skills have put pressure on wages. They have accepted unskilled jobs and were willing to perform them with less demand on compensation. This over time has affected the labor market negatively. A higher population of workers changes the supply and demand curve so that employers are able to pay lower wages.
It is true these workers are doing some jobs that Americans don’t want to do. Such as fruit pickers and farmworkers which are seasonal and labor intensive. They are also exempt from paying the minimum wage required by law.
Combined with the social safety net provided by our government, such as unemployment insurance, disability, and various entitlement programs such as food stamp and housing assistance, and child care credit, an American worker would not want to work for wages below the minimum. Why would They?
The solution is to end this constant influx of illegal immigrants. Our immigration policy should be selective and only allow legal immigrants that possess skills that we need. In case of migrant farm workers, perhaps a guest worker program can be adopted. Over time, as the influx of illegals slow to a trickle, the wages at the bottom rung will rise.
One of the inequities is how our government misuse the tax dollars. The money collected should be going to help all citizens. Yet, we see examples after examples of tax exemptions for corporations, and subsidies going to the farm industry, the oil and gas industries and the green energy industries...
Why do we need this? In some cases, they are wasted. For example, the 500 million loaned to Solyndra, the solar panel company that went bankrupt a few years later.
Our Constitution speak of a limited government and yet, we keep expanding the role of government with ever growing programs. Some of which is full of bureacratic rules and inefficiencies.
We need to stop all government subsidies. It is not the role of our government to pick winners and losers in the private sector.
This independent agency is given the task of regulating our money supply. They are suppose to set interest rate targets and control the money supply so that our economic cycle is less volatile. It was a mean for the government to control the boom and bust cycle of the past. However, in recent years, it did not perform its duties. It was used to prop up the stock market and to encourage government borrowing. When the interest rate was set at zero percent, it is as if the money is free.
It was a way of transferring wealth indirectly. It hurt the savers and people on fixed income and helped the borrowers especially uncle Sam which was the biggest debtor with 21 trillion dollars and rising.
The federal reserve needs to get back to regulating the money supply instead of “quantitative easing” which is a fancy term for printing money we don’t have.
It should also return our interest rate to a normal range of 4-5% instead of the current low of 2.75%. Historically, this is too low and leads to all kinds of disturbances in our financial and banking industry.
The banking industry should be returned to its main function of savings and lending and getting out of the investment banking business.
The investment industry of wall street is the engine that drives our commerce. It is where companies are formed and grow or die. It is a higher risk industry by its very nature. It is suppose to be fair and regulated. However, in recent years, it has been perverted by high flying individuals with all kinds of exotic instruments such as HFT, hedge funds, derivatives, shorts, and junk bonds...
Wall Street has become worse than a gambling casino. The rules are not clear and there are fortunes that rises and falls based on rumors and inuendos instead of balance sheets.This needs to stop and the agency that should manage this is the SEC. They have the duty to make sure the industry is regulated such that no one person or company can receive special privileges that the rest of the people don’t have. It is called leveling the playing field. With insider trading and other abuses, no wonder it cannot be trusted. We need to reform the SEC with people that know what they are doing. In this high tech environment, we can use technology to track activities that are suspicious. After 9/11, we have these tools. Lets use it to get rid of the criminal elements.
Another huge problem is with compensation In the financial industry. There is no reason why someone working on wall street should receive bonuses bigger than their annual paycheck. This is not a normal pay structure. The people should be paid based on the value added. Every other profession is evaluated this way. The investment banking industry needs to do the same.
Public Education Reform
Our citizens have not been educated properly. Many of our high school graduates have little knowledge about finance and money management. They live paycheck to paycheck, take out huge student loans, and have credit card balances that charges 18% interested rate revolving. All this is bad for his financial well being. They don’t know how to manage their money, save for retirement or invest for a decent return.
Solution, institute a new curriculum for every high school to teach besides math, english, history and civics - personal finance. This will go a long way to help our citizens mange their life going forward.
Our tax system is too complex. The recent tax reform passed by the Trump administration and Comgress is a good start but more needs to be done. We need a straight flat tax system as they have in many parts of the world. A flat tax is actually a fair way to tax, as opposed to a progressive tax structure. In many progressive tax, it is meant to punish achievers. In kost cases, the affluent would just move or relocate or figure out some scheme to off shore thair assets or income. The result is very little tax is actually collected. A better way is called a fair tax system where everyone pays. Also, it can be combined with a consumption tax. This is you tax only what you spend. This is also very popular in many European countries. Called the value added tax.
We have gone way overboard with these social programs. We don’t need assistance from cradle to the grave. Yes, many people needs help. We can always use something to make our lives better. Government programs is not the only answer. In fact, before we had these programs, many private and religious institutions were providing these services. Let them do it. They are closer to the problem and are more efficient in dealing with them. They don’t have a one size fits all mentality.
Our national debt is a looming problem. It may seem like there is an endless pit. But we all know, it is not endless. At some point, our debt will weigh us down so much, we need to default. It is like personal bankruptcy but much worst.
The time to fix this problem is when we are on an economic up turn. While the economy is thriving and tax revenues are high, it is time to pay down the debt.
A better Capitalism is a path forward. We just need to fix the problems that exist in our current system instead of throwing away the baby with the bath water. Democratic socialism is a popular term but it is not a solution. The Democratic party is commiting political suicide by going down this path IMHO.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2019 Jack Lee