American Capitalism

Audio-book Review
By Chet Yarbrough

(Blog:awalkingdelight)
Website: chetyarbrough.blog

Americana, A 400-Year History of American Capitalism


By Bhu Srinvasan

Narrated by Scott Brick, Bhu Srinvasan

Bhu Srinivasan (Author, American citizen born in India, Emigrated at age 8 to the United States with his mother.)

“Americana” is homage to the muscular success of capitalism in the United States.  It appears it takes someone born outside America to unapologetic-ally endorse the gift of capitalism to the world. It seems Bhu Srinvasan lives the American dream in the 21st century. 

Srinvasan “leans in” by arguing libertarian-ism’s strengths outweigh its weaknesses.  “Americana” speeds through the history of great men (because women’s contribution is largely ignored) who settle America in the 17th century.  With the help of English entrepreneurs willing to risk investment in the voyage of the Mayflower, the egg of American capitalism is hatched. 

Mayflower Replica

(The Original Mayflower Sailed September 6,1620 and landed on Cape Cod 66 days later, which was 500 miles north of its intended destination in Virginia.)

The investors expect a return on their investment.  They finance the expedition based on an expectation of success from a settlement in Virginia.  The first years of the Pilgrims’ progress is nearly a bust.  The author explains the initial investment is nearly lost but recovered by an agreement among the settlers to buy out their Mayflower investors.  The buyout is a success because the settlers find a ready market for American goods in England; particularly beaver furs which were provided to settlers by native inhabitants.

With growth of the fur trade, new settlers come to America.

The beaver fur business is expanded with new settlers who learn how the Indians ply their trade.  Competition grows and undoubtedly many tribes are shut out of the trade.

This, as in many more stories told by Srinvasan, reminds on of the boon and bane of capitalism.  That is not Srinvasan’s intent, but the effect of competition from acquired knowledge, new technology, and entrepreneurship is repeated many times.  There are winners and losers in the growth of capitalism.

There is an “end justifies means” theme in Srinvasan’s view of America.  The reality of quality-of-life improvements in America makes Srinvasan’s view a worthy subject of contemplation.  America is the most economically successful nation in the modern world.

“Americana” glosses over issues of slavery, racism, corporatism, and many of the harsh realities of a transactional economic system. 

Carnegie, Vanderbilt, Ford, Rockefeller, Morgan, Edison, Westinghouse, Watson, Gates, and Jobs are a few examples given for the success of American Capitalism. 

What is missed is the “blood in the water” from changes wrought by these men of steel, automobiles, energy, finance, communications, transportation, and technology.  With each advance in American ingenuity, there is a general rise in America’s standard of living.  Indeed, Bhu Srinvasan himself is a tribute to the success one can have in 21st century America. But, Srinvasan tells only one side of the story.

Homelessness in America is a disgrace.  Rat infested ghettos in large American cities perpetuate poverty and crime.  A deteriorating education system is gamed by the wealthy who neglect what can be done to help the poorly educated. 

Corporations have a duty to educate people displaced by technology.  Government needs to move beyond the transactional value of health care to provide basic health services to all Americans.  Environmental degradation needs to be abated before the world’s 6th extinction. 

To ignore the price paid by a growing underclass in America, is side-stepped by Srivasan’s “…History of American Capitalism”. 

America capitalism can do better.  We are no longer a struggling economy like that which existed in the days of the Pilgrims and later so-called robber barons.

Srinvasan is an excellent primer on capitalism but that is history; not a prediction of a future where homelessness, a deteriorating environment, a failing education system, inadequate health care, and racial injustice are ignored.

AMERICAN TAXATION

Audio-book Review
By Chet Yarbrough

(Blog:awalkingdelight)
Website: chetyarbrough.blog

A Fine Mess (A Global Quest for A Simpler, Fairer, and More Efficient Tax System

By: T. R. Reid

Narrated by T. R. Reid

T. R. Reid is a reporter for the “Washington Post”.  He is not an economist.  However, he suggests there are more equitable ways of taxing the American public than presently used by the government.

Reid’s travels around the world investigating other countries tax systems are the basis for his theory for cleaning up America’s “…Fine Mess”.

Reid suggests a tax overhaul is due in America.  The last major revision was over 30 years ago.  He argues a mess has been created by incremental tax changes that have greatly exacerbated the wealth gap in America.  Reid illustrates the many ways in which the American tax system is a mess.  An often-quoted factoid is “Warren Buffet is taxed at a lower rate than his secretary”.

There are many economists that would agree with Mr. Reid.  The most famous is the French economist Thomas Piketty who wrote “Capital in the Twenty-First Century”. 

Reid argues the U.S. has the highest corporate tax rate in the world but the lowest corporate taxes collected.  Having the high rate and collecting it are two different things. 

Reid notes corporations like Caterpillar, Apple, Microsoft and others spent millions of dollars to set up legal tax shelters that reduce corporate tax to single digits; to as low as zero for some. 

Reid goes on to explain how billions of dollars are kept in corporate accounts outside of America to avoid taxation, and how that money is not repatriated to the U.S. because of current tax law.  (Ironically, during Trump’s administration, corporate rate was reduced from 35% to 21%; and continues to be a significantly uncollected tax.) 

Reid persuasively argues that a tax overhaul should be made based on the principle of BBLR, a “Broad Based Low Rate” tax.  The purpose of a tax overhaul would be to eliminate loopholes, broaden and reduce tax rates while equalizing citizen’ tax burden.  Schemes for creating tax shelters would be eliminated.   

As is widely known, millions of dollars are spent by American citizens and corporations to file tax returns.

Preparing and paying taxes is laborious and confusing task for many Americans.  Even basic tax return filings are difficult for many American citizens to complete.  How many do not file because of that difficulty?  Some buy software to file taxes.  Add to software purchases and there is only growing tax-preparation costs to file for others. Those costs are borne by individual tax payers. The expense of our inefficient, and inequitable tax system multiplies geometrically when you add corporation efforts to avoid taxes.

America’s taxing inequity is glaring.  Millions of dollars are spent to avoid taxation through creation of tax shelters.  The formation of these shelters costs millions in lawyer, tax consultant, and auditing fees but save billions of dollars for corporations and the super-wealthy who legally (sometimes illegally) reduce taxable income.

Reid’s point is that America’s “…Fine Mess” can be made simpler, fairer, and more efficient by creating a completely new tax system.  He suggests the corporate tax might be eliminated and replaced by a flat rate with no loopholes.

Reid argues for a “Value Added Tax”.  A VAT would be a combination of local taxes and federal taxes on all consumable goods. 

After collection, this tax would be distributed between States, and cities, as well as the Federal Government.  The purpose of these taxes would be for maintenance of local services (like education, public safety, public works, and administration), and Federally mandated services (like national defense, health, education, and public welfare).

Reid’s argument is that VAT’ enforcement would require less supervision by the government because a VAT applies at each stage of the production of goods.  Each stage of production is rebated for taxes paid by the handler that adds value. The VAT is a combination of taxes at each stage of production which is reported to the government for reimbursement.  The reimbursements must add up to the final tax charged to the consumer.  If the numbers are not the same, the IRS will be able to tell which manufacturer failed to pay their tax.

A simple computer program would be able to monitor the collection of the tax because it must balance to all reimbursements of added value.  In theory, a VAT eliminates much of the need for a massive Internal Revenue Service which Reid suggests is unable to adequately monitor the present taxation system.  Reid notes that it is impossible for the IRS to closely monitor today’s taxing system because of the complicated nature of its Congressionally legislated structure.   

Another BBLR tax recommended by Reid is a financial transaction tax that would be low but capitalize on every financial transaction in the United States. 

This transaction tax would be less than a penny per dollar but capable of raising billions of dollars based on the many financial transactions that occur in the U.S. 

Reid offers the example of Hedge Funds that specialize in massive trades for short periods of time.  These Hedge Fund trades move the stock market by fractions that reap millions for traders.  With a tax on financial transactions revenue would be created for Federal Government programs that serve the health, education, and welfare of the nation.

What concerns a listener about Reid’s argument for a Value Added Tax is its potential for continued inequity.  The poor may have to pay the same price for food, energy, and shelter as the rich.  Reid does not adequately address that concern except to suggest a system would be established to offset that inequity.

Another concern, inadequately addressed by Reid, is the impact on Hedge Fund traders business if they lose the advantage of small changes in quick trades. Will Hedge Fund transactions disappear?

Political will is another issue not adequately addressed by Reid.  What majority of congress men and women will stand up to the many lobbyists who support them in their election?   Will most Republicans and Democrats co-opt or fight special interests that object to a massive change in the American tax system? 

Finally, how would America deal with the lost jobs for tax lawyers, tax preparers, software developers, and corporations that benefit from tax preparation and tax avoidance schemes?

One must agree with Reid’s assessment of America’s tax system.  It is a “A Fine Mess”.  The question is–Do our elected representatives have the political will to clean it up; or at least make it fairer? 

Incremental change of the tax code only makes it less intelligible. In Reid’s opinion, it is all or nothing.  Reid implies “go big” or “go home” because nothing will change if the entire tax code is not replaced.

THE PLAY IS NOT THE THING

By Chet Yarbrough

There are four plays in New York that please some of the people some of the time but not all the people all the time; i.e. “Network”, “Ink, “Tootsie”, and “All My Sons”.  All were excellent Tony Award candidates.  All four had something in common.  Each exposed moral turpitude; three on a corporate level, and one on a personal level.*

Ayn Rand’s mistaken thought that “Virtue of Selfishness” is a social and economic good is eviscerated by these four plays.  They splendidly demonstrate “…Selfishness” is personally, socially, and economically harmful. 

“Network” addresses corporate media and its overarching effect on the public’s understanding of the truth.  “Ink” is about corporate media and how sensationalism and circulation are a volatile mixture that distorts reality.  “Tootsie” is about the personal consequence of lying.  And “All My Sons” is about a CEO’s responsibility to the public.

A book titled “Skunk Works” is a paean to “boys with toys” (before recognition of women at work) and corporate greed. Ben Rich is an engineer that worked for Kelly Johnson at Lockheed.

Kelly Johnson headed Lockheed’s famous design team that created the U-2 spy plane, and the famous Black Bird in the 1960’s. Being an engineer, Rich had a detailed understanding of the facts in plane design, but facts are dead things without a good story. Leo Janos is a writer who turns Rich’s facts into tales of Buck Roger’s daring-do, but a failure of corporate morality.

Ironically, Lockheed became the talk of the century in the 1970’s; not for their incredible design work, but for bribery.  Italy, West Germany, Japan, Netherlands, and Saudi Arabia are paid $22 million dollars to buy airplanes designed by Lockheed. That American law violation leads to the resignation of the Lockheed board.

“Skunk Works” is an entertaining and enlightening history of military weaponry. It illustrates the difference between a scientific research company and an industrial production company. Different skills are needed for managers of research than managers of production.**   

The play “All My Sons” is about a CEO that produces engines for WWII military combat planes in the 1940s.  The assembly manager calls his CEO to explain there is a crack in the blocks of twenty (or more) of the engines they manufacture.

The decision is made by the CEO to weld the cracks to make them look complete and unblemished.  The planes with those cracked blocks fail, and 21 pilots are killed. 

The company is sued.  The managing partner who made the call to the CEO is sent to prison because the CEO denies ever having told the process manager to conceal the defect.  The truth is revealed many years later.  The CEO rationalizes his action based on a selfish belief that he and his family’s life were more important than his process partner’s sentence to prison, or the pilot’s lost lives.  Is their a parallel in today’s Boeing arguments?

In “Skunk Works”, the inefficiency of government is exposed. On the one hand, inefficiency offers more time for deliberative decision; on the other, it impedes productivity and increases cost. Finally, the story opens military competition among nations that leaves only hope that the destructive power of nations will not destroy life on earth.

The last chapters of Rich’s story argue that government bureaucracy gets in the way of military innovation. He argues there is too much oversight and too many regulations increase costs and discourage innovative change.


Of course, the other side of the argument is about what happens when profit becomes more important than honesty or morality. Two Boeing planes, their pilots and passengers are dead as a result of inadequate oversight and what, at best, might be called self-interest.

Boeing 737 Max Malaysia Crash on March 11, 2019 kills 157 people.

The defense industry, like all human enterprises, has its Bernie Madoffs (the stockbroker maven who stole investment funds) and Angelo Mozillos (the ex-Coutrywide CEO who paid a fine for his questionable mortgage lending practices).

Oversight and regulation are essential to all forms of society because of the nature of humankind.  “Network” has the famous line “I’m as mad as hell, and I’m not going to take this anymore!”

Yes, you will be mad. and yes, we do take it again and again.

*It always comes down to a personal level, but the consequence is magnified by corporate immorality.  

**Science and engineer managers rely on worker autonomy.  Process managers rely on set rules for assembly line workers that manufacture complex products. It is science and engineering knowledge, more than rules of production, that determine product.  But, assembly experience, more than science and engineering knowledge, completes product.

JOB CREATION

Audio-book Review
By Chet Yarbrough

(Blog:awalkingdelight)
Website: chetyarbrough.blog

The New Geography of Jobs

By Enrico Moretti

Narrated by Sean Pratt

Enrico Moretti (American author, econonomist, and Professor of Economics at the University of CA.)

Enrico Moretti suggests jobs in America have a new geography.  As a professor of economics, Moretti notes how technology reshuffles the nature and location of jobs around the world.  Great manufacturing cities like Detroit, Pittsburgh, and Chicago are losing jobs in the 21st century.  More jobs are moving to places like Seattle, Portland, Silicon Valley, and Austin.  Tech employment is creating more jobs away from historic manufacturing hubs.

Manufacturing job losses 1997 to 2012 as a percentage of working age populations.

Manufacturing jobs are declining in American cities. That decline is memorialized in a New York Times magazine; distributed in the May 5, 2019 Sunday paper.  The human cost to Lordstown, Ohio, when G.M. closes its Cruze automobile manufacturing plant, is heartbreaking.

In the early years of tech, companies like Apple, Microsoft, and Google chose business locations based on where they wanted to live; not where labor existed.

Moretti suggests new job creators choose city locations based on factors other than manufacturing labor.  Moretti suggests University locations have some effect, but decisions made by early entrepreneurs seem serendipitous; more than reasoned.  Their initial start-ups may be in any community because their ideas are new.  Their technologies are unproven. Their new employees are generally young, inquisitive, college educated, and innovative.  If these new job creators attract investor interest, they grow their companies through culturally shared purpose.

Not only is there the multiplier effect of unrelated domesticate services, there are new technology companies that choose the same communities. The culture grows to what Moretti suggests is enough density to attract the best and brightest in the world.  Incomes rise for all businesses in that community.  Even though these communities become more expensive to live in, they continue to attract tech companies because of the savvy technological depth of the area.

What Moretti notes is that if new tech ideas have legs, innovators locate in the same area.  Like germs on a petri dish, they multiply to create a new culture. 

Moretti acknowledges foreign manufacturers pay their laborers less but, more ominously, he notes foreign countries are doing a better job of educating workers to more fully embrace technology. That embrace begins in grade school and advances through higher education. China’s, Vietnam’s, India’s, Taiwan’s, and South Korea’s emphasis is on science and mathematics.  In the U.S., Moretti cites numerous studies showing the quality of American education, particularly in science and mathematics, is declining. 

Moretti notes manufacturing decline is partly based on automation, but more fundamentally on a deteriorating American education system.

Science Curriculum Ranking in the world.

The irony of Moretti’s observation is that many graduates of American universities are foreign students that are compelled to leave America when they finish their degrees.  They are unable to remain in America because of America’s restrictive immigration policies.  Adding to government immigration policy limit is America’s failing education system; not only at a graduate level, but at the preparatory level of America’s grade and high school curriculums.

As an economist, Moretti explains the multiplier effect of companies that choose to operate in the U.S. and world where labor is best educated; particularly in the field of technology.  Additionally, Moretti suggests foreign governments are proportionately outspending the U.S. in science research and development.  America is falling behind and risks its future as a multi-cultural center and economic power in the world.

Historically, most Americans are immigrants.  Moretti is certainly right in arguing America’s education system must improve, but that improvement needs children of parents who are intent on making their lives better.

What is missed by Moretti is that immigration is important to America; not only for the technological elite, but for first-generation immigrants.   From that pool of humanity, America became the most successful industrial nation in the world.  That prominent position is threatened by America’s current leadership.

JOBS TODAY AND TOMORROW

Audio-book Review
By Chet Yarbrough

(Blog:awalkingdelight)
Website: chetyarbrough.blog

The Industries of the Future

By Alec Ross

Narrated by Alec Ross

Alec Ross (Author, American technology policy expert)

Alec Ross’s book about future industries is founded on world travel and observation.  Ross is an historian by education. His wide-ranging view of sociological change is from personal experience with technology and the information-age.

Ross observes social change around the world as a senior adviser to then Secretary of State, Hillary Clinton.  His dizzying travels explain how mobile phones connect the world and change economic, political, and social opportunity for both third world, and highly industrialized countries. 

Ross’s fundamental argument is that “…Industries of the Future” will be based on information technology.  The forefront of that technology rests on software (coding) and human evolution (genetics).

Despite the current nationalist movement in the world, Trump-like government leaders who focus on nationalist independence and existing manufacturing jobs are job destroyers; not creators. 

New jobs will not come from expanded labor-intensive manufacturing but from the accumulation and use of data.  Ross suggests coding and genetics will determine jobs of the future. 

Ross infers creators of code are tomorrow’s laborers.  Today, learning how to code is a valuable skill that insures employment through and beyond the 21st century. 

Though there is hyperbole in Ross’s suggestion that today’s coders make a high wage of $100,000+ a year, they do make an entry level living wage with vertical mobility.  As the market matures, coder’s income will undoubtedly keep pace with expanding economies.

Ross shows how coding opens the door to automating the manufacturing world.  Human labor to make things will change to coding labor that ultimately leads to machines building machines.

Artificial Intelligence is common today and will be ubiquitous tomorrow.

The automobile industry is increasingly relying on machine assembly of automobiles.  The manufacturing process still requires human supervision, but physical labor will be increasingly code driven.

Numerous examples are noted by Ross.  Driving a car is simpler because of A. I.  Using GPS maps shorten travel time, gauge traffic congestion, and locate lost devices.   The obvious effect of the information-age is reduction in physical labor with employee job change, re-education, and re-employment.  This is a tough reality for today’s laborers; particularly those who work hard every day.  The rise of A. I. contradicts the industrial age’s moral belief that character is enhanced by hard labor. 

The laborer says, “I am not going to lose my job to a machine”.  From a production line laborer or steel worker of a certain age, it is a message once said by Luddites in the nineteenth century. In the industrial age Luddites began dismantling machinery that cost their jobs.

Job upheaval is frightening.  However, Ross suggests the information-age offers the greatest opportunity for the world since the industrial revolution. President Trump’s populist effort to turn back time creates false hope for many hard working Americans.  

Employees in dying professions should be helped by private industry and the government to retrain and embrace inevitable market changes.

What Ross shows is that industrialized nations that choose not react positively; to be proactive to the information age are destined to decline.  Ross shows how third world countries in Africa see opportunities that were never seen before because of technology. 

With a mobile phone, African men and women have become entrepreneurs because they can communicate with wider circles of influence and support. Their phones become banks for loans and payments; and more importantly, for investment in themselves.

Ross explains another opportunity presented by the information age in farming.  As has been known for centuries, farm productivity is improved by appropriate management and use of natural resources and man-made fertilizers.    That customization increases the world’s food supply in ways that could only be approximated in the industrial age.  Coded farm machines replace day laborer planting, cultivation, and harvesting,

With the advent of automated farm management systems, soil preparation, planting, and harvesting operations can be more precisely customized.

The second fundamental argument in Ross’s book regards genetics.  Understanding of genetic science and our ability to manipulate genetic markers is a wild-west opportunity. 

In theory, genetic modification can be a threat to the ecology of the earth, a monumental environmental catastrophe. 

To Ross, genetic modification is a boon for agricultural and human productivity that will lead the world out of environmental and human crises. 

Giant steps have been and are being made in genetic modification of agricultural products.    Ross notes reports of crop productivity increases due to disease resistance coming from genetically modified seeds.  Ross argues that GMO opponents are wrong in suggesting “natural” agricultural products are any safer than genetically modified food products.

Ross sites reports of GMO foods that show they are equally or more nutritionally beneficial to humankind than non-GMO foods.

Many would agree with Ross’s assessment of the success of GMO production.  However, modification of the human genome opens a much higher level of concern. 

There are moral and ethical questions raised by science and religion with experimentation on the human genome.  On the one hand, it raises the possibility of erasing the diseases of humankind.  On the other, there is the fictional account of the “Island of Dr. Moreau”.  Both concerns are expressed in the controversy surrounding the 2018 human gene editing in Hong Kong by Dr. He Jiankui, a Chinese researcher.

Dr. He Jiankui (Claims to have conducted the first human genome-editing of a human embryo)

Ross approaches “The Industries of the Future” from a more historical than scientific perspective.  His book sees great opportunity in information technology, but proof is largely unborn history.  The technological revolution is not like the industrial revolution because it goes beyond Newton’s laws and only touches Einstein’s.  Ross seems more likely right than wrong but only the future will tell, and only history will prove it.

CORPORATISM

Audio-book Review
By Chet Yarbrough

(Blog:awalkingdelight)
Website: chetyarbrough.blog

The Price of Civilization

By Jeffrey Sachs

Narrated by Richard McGonagle

Jeffrey Sachs (Author, American economist, Columbia University Professor)

Jeffrey Sachs skewers modern Presidents and lionizes John Kennedy.  Written before 2016, one wonders what Sachs might have written about President Trump.

One can easily agree with many of Sachs’ observations of what is wrong with America but his solutions are academic; not pragmatic.  Sachs is too much of an idealist. Corporatism is an out sized economic benefactor for the United States but, as Sachs infers, it is also American democracy’s greatest threat.

Government checks and balances are America’s only defense against corporatism.

“The Price of Civilization” is an unsatisfying audio book.  Not because it is irrelevant but because it’s saccharine idealism and disconnection from the real world.

Though much of Sach’s criticism of Obama, George Bush, Bill Clinton, and Ronald Reagan is deserved, his professorial economics is cloying because it ignores political reality and the truth of human nature.

The father of American economics, Adam Smith, is the first to have recognized the critical role of politics in economics.

Politics is a social science of give-and-take in both democratic and autocratic societies. The difference is–politics in democracy is practiced among the many; while in autocracy, politics is practiced among the few.

Just as Adam Smith’s “Wealth of Nations” includes politics in economics, Thomas Hobbes’ “Leviathan”, introduces human nature to government. Thomas Hobbes notes Human nature is both good and bad. As logic dictates, politics in economics is both good and bad.

Sachs is spot-on as an academic economist. But he ignores political reality.  Public policy has always been a matter of “whose ox is getting gored” whether democrats or despots are in control of government.

Sachs cleaves to Platonic and Aristotelian platitudes like “all things in moderation”. To suggest that a philosophical awakening of the millennial generation (those born between 1977 and 1992) will cure American lassitude and political apathy is naive.


Sachs optimistically believes the millennial generation will eschew the luxuries of American dreamers (owning hot cars, nice homes, and beautiful clothes) to become voters for change.  Obama represents those voter’ beliefs but fails politically for the same reason Sachs’ book is a mess.

Changing public policy is not going to occur with an American generation that magically begins believing less is more. Re-election of a new President, whether Democrat or Republican, will not fundamentally change America’s system of choosing corporate winners and losers.

One can agree with Sachs’ observation on 2010’s “Citizens United v. Federal Election Commission” decision. The Supreme Court erred in identifying corporations as individuals with the rights of unlimited corporate donation to electors.

Defeat of gun control legislation shows how entrenched lobbyist organizations can steer the course of public policy, regardless of a democratic majority’s support of policy change.

Sachs is right in his assessment of the wrong-headedness of what he calls “corporatocracy”; i.e. the institutionalization of an election process that is founded on money rather than public representation. 

Human nature gets in the way of doing the right thing.  Humankind naturally seeks freedom.  When freedom of choice is impinged upon, human beings are reluctant to change.   Of course, this is an over simplification but Sachs minimizes mankind’s innate desire for freedom. 

Human nature is not going to change; i.e. it will always contain good and evil intention. Bernard Madoff comes from the same culture as Warren Buffett.  Regulation of human activity impinges on free choice whenever one person thinks they know what is best for another.

Many Americans are disgusted with the political process in 21st century America.  Even the super rich and rich are not satisfied with the status quo.  The rising gap between rich and poor embarrasses the rich. Trump and the Republican party’s approved tax law illustrates contempt for the middle-class, and ignores the poor.

How can America justify a social security tax for a movie actor’s (or sports star’s) income of millions per year when a middle income family makes $40,000 to $132,900 per year and has to contribute the same amount as a multi-millionaire.

A person with a middle class income will pay 6.2 percent of their income for social security. There is a maximum cap of $8,239.80/year/person. One who makes millions of dollars per year will not have to pay more than that $8,239.80/year; i.e. the same maximum amount a middle income person pays. No wonder social security is going broke.

When one is elected to congress every two years, fund raising becomes the elector’s primary focus of attention.  When corporations speak, electors listen.  Lobbyists and corporate money are more important than the aggregate input of voters.  No wonder American voters are apathetic.

Sachs notes Oliver Wendell Holmes dictum about taxes.  Holmes wrote that he loved to pay taxes because taxes are the cost of civilization.  The weakness of that generalization is in the definition of civilization.  If civilization is that stage of human social and cultural development and organization that is considered most advanced, why does the richest country in the world:

  • 1)have citizens living on the street,
  • 2)have citizens imprisoned-to only isolate and punish, and
  • 3)have children dying because of poor medical care.

When an investor turns a portfolio over to a brokerage company, that investor has to “trust but verify” the actions of the brokerage company in regard to overall portfolio performance.  If the broker under performs the market, the investor knows it is time to change brokers. 

When a government under performs when public tax dollars are invested, voters cannot, without revolution, change governments.  Sachs accurately notes there is no difference between Democrats and Republicans in the United States.  Both parties talk the talk but fail to walk the walk. Elected officials are too beholding to lobbyists and corporate America.

Americans are reluctant to pay higher taxes because they see no discernible improvement in their lives.  Why invest in a government (pay more taxes) that fails to produce improved results?

Sachs ideas for correcting America’s ills—

  1. Reduce the deficit by cutting military spending and increasing taxes.
  2. Reduce wealth disparity by investing in and retraining an obsolescent work force.
  3. Invest in and improve education with emphasis on primary and secondary graduation.
  4. Create jobs through infrastructure investment.  He argues that dependence on carbon-based energy is to be reduced by conservation with increased investment in alternative energy sources and more scientific research and development. 
  5. He argues that medical insurance should be provided to all Americans with a plan crafted by the medical community.

All of these goals are exemplary but to get there requires a massive (and unlikely) re-invention of human nature.   One could argue that many of these policies were promoted by the Obama administration, but little changed.

It is counterintuitive for a free society to choose moderate consumption.  Add mistrust of the American government and the likelihood of turning more money over to a government that does not work seems stupid to any rationale human being.

Hitler wrote in Mein Kampf, “Industry, technology, and commerce can thrive only as long as an idealistic national community offers the necessary preconditions.  And these do not lie in material egoism, but in a spirit of sacrifice and joyful renunciation.” 

Hitlerian characters are a threat to America when corporatism is the basis of public policy.

CAPITALIST SELF-INTEREST

Audio-book Review
By Chet Yarbrough

(Blog:awalkingdelight)
Website: chetyarbrough.blog

The Great Coures: Thinking about Capitalism

Lectures by Jerry Z. Muller

 Narrated by Jerry Z. Muller

Jerry Z. Muller (Author, professor of history at the Catholic University of America)

Professor Muller offers an interesting and insightful defense of capitalism.  Jerry Muller’s “Thinking about Capitalism” is an historical account of economic theory. 

Muller explores three economic systems:  
1)market, 2)command, and 3)mixed. In his journey through the history of economic systems, market (aka capitalism) shines brightest.

Muller notes that capitalism is pummeled by many anecdotes of history.  Muller does not deny the excesses of market economies, but Muller suggests capitalism’s benefits far exceed its detriments.

Adam Smith (1723-1790, Scottish economist)

Muller argues capitalism’s storied failures distort its multifaceted values.  In the “Wealth of Nations”, a seminal work on capitalism, Adam Smith clearly explains the value of a capitalist (market) economic system based on self-interest.  Muller notes Smith’s term “self-interest” is often misinterpreted by the public as greed. 

Smith’s definition of self-interest is founded on virtue; i.e. behavior based on high moral values. However,
Self-interest comes in many forms. 

One person’s self-interest may be altruistic in helping others to feel better about themselves.  Another person’s self-interest may be to increase personal wealth to improve their family’s standard of living.  And, self-interest may be associated with greed. The fundamental point is that everyone’s self-interest is a motivation that is ungoverned by an outside force.  Self-interest is a part of human nature.

In a broader sense, there is some truth in the economic cliché of “a rising tide lifts all boats”.  It reflects Adam Smith’s belief in the “invisible hand” that guides one’s life in a market driven economy.  Every individual strives for their own self-interest which offers charity to some, employment to others, and individuated incentive to all. 

Thomas Hobbes (1588-1679)

Thomas Hobbes notes that human nature is both good and bad.  He tempers Smith’s argument for capitalism by suggesting government is necessary to mitigate self-interest that is harmful to the public.

Smith and Thomas Hobbes (author of “The Leviathan) believe self-interest is a universal human characteristic. Smith addresses self-interest as an enlightened Socratic understanding of virtue.  Hobbes is less doctrinaire and implies Socratic virtue is not common in the general population.

Smith argues that capitalism takes the essence of human nature’s natural self-interest to advance civilization.  This advance is not a smooth upward curve but an improving trend.  Bad things do happen in a capitalist society. Hobbes might agree with Smith but only in the context of “rule of law” that mitigates non-virtuous self-interest.

Edmund Burke (1729-1797, Irish statesman)

Muller does not ignore critics of Adam Smith’s “Wealth of Nations”.  Edmund Burke is a noted critic who argues that too many social conventions are sacrificed by disparate self-interests.  He argues that the French revolution is a potential consequence of an economy driven by self-interest. 

The social structure of France is decimated in the 1789 revolution.  History shows “the terror” of the French revolution murdered innocents.  On the other hand, it reformed an economy that left many behind.  Prior to 1789, only the rich owned land, never went hungry, and inherited wealth. In the 18th century, France’s poor are mired in poverty, often hungry; with little chance for advancement.

Justus Möser (1720-1794, German social theorist)

Muller also cites criticism from Justus Möser , a contemporary of Burke, who believed the rise of capitalism (mercantilism) destroys craftsmanship in local economies.  With trade from other parts of the country and world,
Möser argues insular communities are harmed by prices of similar products replacing local artisan’s goods.

Möser argues mercantilism destroys the fabric of local communities; foments insecurity and social unrest.  Muller, in part, agrees with Möser’s argument. However, Muller notes Möser’s argument is right and wrong. 

With less money being spent for one thing, more money is available to buy or invest in other things.  What Möser ignores is mercantilism’s benefit to consumers and the local economy. Consumers who buy a product for less money have more money to spend or invest in the local economy.  

Möser’s argument is the same concern raised by those who support today’s trade war.  Möser is right in suggesting free trade creates insecurity in local markets.  It also demands adjustments in labor that harm local artisans, but Muller argues there is a net gain in public good and general welfare with free trade.

Max Weber (1864-1920, German sociologist, philosopher, and political economist)

Muller goes on to explain how a confluence of religion and capitalism benefits society with Max Weber’s melding of Protestant Ethic with the Spirit of Capitalism.  Weber makes the idea of living aesthetically and putting aside savings as a prudent way of living life in an uncertain environment.  Creating wealth became a religious calling to some.

Joseph Schumpeter (1883-1950, Austrian political economist)

Muller reviews Joseph Schumpeter’s contribution to the theory of capitalism.  As a 20th century Harvard Business School professor, Schumpeter lectures on the value of “the invisible hand”.  Schumpeter advances the idea of “creative destruction” as a characteristic of capitalism.

Schumpeter outlines the value of entrepreneurs who pursue new ideas, new products, and innovation that replaces dying industries.  He trumpets the growth of capitalism as an engine that perpetuates societal benefit. Some argue that today’s American governance discourages new ideas by dwelling on manufacturing at the expense of technological innovation and change.

Muller examines the other two economic systems; i.e. 2) command, and 3) mixed systems.  Muller implies they fail to meet the historical successes of market capitalism.  A command economic system is autocratic with primary economic decisions made by one ruling agency—like Mao’s communist party, Hitler’s Third Reich, and Stalin’s Great Turn. 

Short term economic benefit of a command system economy hugely disrupts society.  Economic improvement is evident in the short term, but momentum is lost as the gap between haves and have-nots grows. 

In a command economy, the cult of personality takes over and image becomes more important than substance; i.e. who you know becomes more important than productivity.

Muller implies mixed economic systems are a work in progress.  They are represented by leaders like President Xi in China, and President Putin in Russia. 

Xi and Putin retain the concept of communist control of the economy but combine command economics with “Smithian” capitalist ideals. 

China’s mixed economic policy began with Deng Xiaoping, but Xi expands its reach.

Both China and Russia have shown economic improvement in the late 20th and early 21st century.   Xi’s “Road and Belt” plan is part of a command economy, but it relies on the capitalist market principle of influencing trade between nation-states.  China’s long-term success remains to be seen.  Whether it will be a more effective form of economic improvement than Adam Smith’s market-based formula is left to history.

Russia, like Xi, uses capitalist influence to grow its economy.  Russia, in contrast to China, uses its natural resources (oil distribution), rather than a “Road and Belt” policy to expand its influence.

Fundamentally, Muller infers no modern economic system is better than capitalism.  One draws that inference by Muller’s cogent explanation of the value of capitalist self-interest.  Because Adam Smith’s concept of self-interest is an inborn characteristic of human nature, it will prevail over any economic system that requires command control. 

America has been a successful capitalist country in great part because of checks and balances that mitigate command control qualities of mixed economies.  Hobbes assessment of human nature demands some level of command control; even in a capitalist economy. 

One might argue that America’s avoidance of near economic collapse in 2008 is evidence of the importance of a mixed economic theory.  (Interestingly, a December 18, 2018 “…Economist” article, published under the Schumpeter byline, notes that China’s communist party control of businesses during Trump’s trade war have fared better than private businesses.)