The Advance Stages of Democracy and Capitalism

The Advanced Stages of Democracy and Capitalism

In a Democracy, citizens cast votes for their governmental leaders. These leaders then represent the will of the majority of the people. In theory, this concept is ideal…

In a Democracy, you have candidates that seek an office. In most cases, the candidate is paid for their work as a “public servant”. In essence, this is basically a job for them. A job provides money for food, shelter & clothing, the most basic of human needs. Suffice it to say, just about everyone needs a job.

If you need a job, chances are you are going to embellish a little bit (or a lot). You are going to say things about yourself that aren’t exactly true. You are also going to make promises, many of which are going to be broken

When you get that “job”, you are almost certainly going to want to keep it. You will do things for the people that voted you into office and for those who you want to vote for you to keep you in office. There’s two primary ways to “do” for voters. The first is to pass laws that benefit them. But, the best way to “do” for the voters is to spend money on them. I’ll enumerate on this later. But, this is all ages old, as democracy dates back to 400 B.C. (contrary to the movie “Talledega Nights”). Here’s what I mean by the advance stages of democracy:

In the early forms of democracy, candidates traveled from town to town, spreading their message. If they were lucky, a newspaper existed and information about the candidate would be reported.

In an age of technology, information spreads at the speed of light – literally. Television is the primary medium to spread your message, but those ads require a lot of money. Many candidates take in millions of dollars from voters and spend it feverishly on ads. Money is a necessity to be elected/re-elected – and the more money you have, the greater your chances of winning. Money, in a democracy, at any point, is contrary to the notion of democracy itself. No matter who contributes money, something is expected in return. In any other context, that would be called bribery.

When elected, the elected official will pay back those favors by introducing, promoting, or passing legislation that benefits donors. Almost certainly, there is a significant price tag associated with these favors. Ronald Reagan once said that it is virtually impossible to eliminate a government social program once introduced. Today, we have government sponsored retirement that was doomed to fail from the beginning. Yet, as it teeters on the brink of insolvency while the nation borrows trillions to keep it afloat, those over or near the retirement age vehemently oppose any changes to the program. Even as we see Social Security for what it really is (a Ponzi scheme), changes to Social Security are considered a poison pill for a political career. So, even though this program should be ended, it will never happen.

Before I go any further, let me bring you up to speed on capitalism….

Capitalism existed at one time back in the stone ages. I call it capitalism because there was no governmental influence on the economy and folks were free to make a living (generally by trading) with no consideration even given to the concept of government.

At some point, socialism was introduced. This is a system in which the government owns all of the resources in an economy and dictates the output of a nation. In return, the people are compensated in a one-size (paycheck) fits all approach. The vast majority of the people are equal in terms of finances.

History has taught us that this approach does not work, at least not in the advanced stages of socialism. Since workers are not paid any more or any less for how much work they actually do, they become lazy and efficiency lags. Innovation hardly exists. Workers who simply show up for work and give minimal effort are still entitled to a paycheck. There it is. Entitlement.

This country was founded on capitalism because our founding fathers didn’t want governmental influence in the economy. They felt that if folks were allowed to reap the benefits of their own hard work and innovation, then we would be better off as a whole. Some people would be better off than others. You essentially choose your path – those who are willing to work hard and smart are rewarded better. If you don’t work hard and smart, you aren’t paid as good – but the lazy socialist example is the reason why.

We have learned that efficiency and innovation are associated with capitalism. Eventually, that efficiency and innovation becomes problematic, if not kept in check. Efficiency and innovation in and of themselves is not a problem, but when one person or one firm holds too much, then they do more damage to the economy than good. Here’s what I mean:

I open up a store in my little town. I do a good job of running it, and people respond by frequenting my store more than my competition. As I put other stores out of business, I start making so much money that I can now afford to open another store. My success continues, and I open another store. And another, and another. Eventually, I become so big that I decide to “go public” and sell stock to the general public. Now, the company has so much money that it gets even bigger, and becomes the size of Wal Mart.

The firm now has shareholders. These shareholders are concerned primarily with the bottom line. You can’t blame them. They don’t buy stock for no reason – they expect a return (in the form of dividends). As the dividends grow, the stock price appreciates and investors make more money.

In order to maximize profits, they pay as little as possible. They also look to the vendors with the cheapest goods. Unfortunately, with the advent of a global economy, the cheapest goods are imports. So now, that firm takes the money that that could have gone to American suppliers and sends it overseas, along with the jobs. As those jobs disappear, people become increasingly dependent upon cheap imports, and the cycle worsens. International Economics principles tell us that when all things are equal, those jobs will eventually come back to us as foreign workers demand more money and as our currency weakens on the foreign exchange. All things aren’t equal with China, our largest supplier of cheap goods. They use a fixed exchange rate and therefore have the ability to manipulate the value of their Yuan. Furthermore, China is a socialist country and all resources are owned by the government. The Chinese Government has a large say in what Chinese workers will be paid. So, our dependency on foreign goods will continue, as long as this inequality exists.

As an advocate of capitalism, you might think that I would advocate a hands off approach to the economy. I do. But, when a company gets too large like this, I would certainly advocate intervention by the government. This is to protect opportunities for future entrepreneurs, many of which make up our middle class (or DID).

Governmental influence or intervention in the economy spiked at the turn of the 20^th century, right around the time of World War I and the Great Depression. Since then, the people have come to expect that the government essentially guarantee employment for all. In order to do so, public sector jobs increased dramatically (i.e. The New Deal).  As a result, government got bigger. As the government aimed to provide more jobs, the people came to expect the services provided by these jobs. So, government got bigger yet. Public sector jobs (22 million+) employ 17% of all Americans. These public sector jobs are paid for with taxes, and we’re talking about 22 million+ of jobs – not just a few. This is a hallmark of socialism.

So, as you can see, we are in the advance stages of capitalism in that 500 firms (aka “The Fortune 500”) employ 25 million workers, or 20% of the American workforce. While some big firms are good (i.e. Boeing) others are bad when you consider economies of scale and the disadvantages they produce.

This is where the government should intervene. Instead, they respond with more public sector jobs, and more pork spending. And this is where the advanced stages of democracy and the advanced stages of capitalism collide. The government is expected to guarantee employment. And the politicians know that if they want to be elected/re-elected, they have to spend money to make it (for themselves). And as long as the people continue to hold a sense of entitlement, it will continue.

Did you know that we even have a “food stamp program” that advertises for potential recipients to apply? Call me what you will, but I believe that there SHOULD be a certain stigma associated with collecting welfare. Without it, folks will become dependent upon it and never want to get off the rolls of public assistance.

Anyways, that’s all for now.