It’s Not Socialism…It’s Better.

Posted on by realadmin

“It’s Socialism!” One thing that we can absolutely count on is that this will be the blanket Republican response to any proposal that benefits average people. Have the audacity to suggest that the wealthiest nation on Earth should provide universal health coverage? It’s socialism…even though every other developed nation has better coverage at lower cost than we do. Propose an aggressive response to climate change to protect our planet and provide good jobs for millions of Americans? It’s socialism…despite the fact that both international insurance companies and even our own military consider it a life-changing threat. Or how about allowing workers who have seen their buying power decline for decades be allowed to negotiate on more equal footing with employers? Well, that’s clearly socialism and must be stamped out immediately.

The list goes on and on. In fact, we can expect that pretty much every pro-consumer policy proposal related to the economy will be viciously painted with the dreaded scarlet “S.” And not just any flavor of socialism either. No, not the brand of social equality enjoyed by Germany, Australia, the Scandinavian countries, or even Canada, each of which provide higher overall qualities of life as measured by the 2018 World Happiness Report. Nor the many aspects of socialism that exist in the US today such as Social Security, roads and bridges, even our military which, like every other military in the world, embraces many shades of socialism.

No, those flavors of socialism would dilute their intended narrative. Instead, the Republican brand of socialism is the big, bad variety that strips people of basic civil rights and throws them in jail never to be heard from again. In their mind, socialism forces people to labor away as virtual slaves in order to feed an insatiable state ever hungry for higher taxation, until these hard working citizens see their individual freedoms disappear. They imagine the old Soviet-style socialism where the central government forgoed constitutional rights, liberties, and representation – at least by Western standards – and implemented a police-state that owned all property and dictated economic and political activity.

This is the image Republicans want us to see, and fear, so even the slightest whiff of social equality can be manipulated to depict horrific, dystopian scenarios that harken back to the old USSR, the Cold War, and an era when Senator McCarthy was able to ruin countless American lives because we believed we’d be “better dead than red.”

But that was then, not now. And since then the world has changed a lot. Soviet-style socialism has all but disappeared from the political landscape. What mostly remains are moderate forms of democratic socialism where human rights and the foundations of capitalism are retained, but which embrace social programs that provide a more balanced, hopeful existence to society.

Yet in the Republican narrative there’s no difference. Socialism is evil, period. Although that’s conveniently simplistic, it’s hardly realistic. Consider that every nation – including the US – has to some degree provided for the economic security of society, it’s just a matter of how much and who benefits. In fact, for roughly 25 years following WWII many nations successfully expanded their economies in ways that benefited both employers and employees, both capitalists and consumers.

Then the oil crisis and inflation of the early 1970’s provided a political opening to replace social priorities with economic ones. And in the nearly four decades since Reagan and Thatcher came to power western societies implemented policies that shifted resources from society to business, from consumers to capitalists. They did this under the pretense of Supply-Side Economics, the idea that economies are driven by suppliers and capitalists, not consumers and employees.

This devalued the way we viewed the economic contribution of consumers and set off a shift toward unprecedented levels of economic inequality and social instability. In fact, according to research by economists Emmanuel Saez and Gabriel Zucman the concentration of US wealth in the top .1% has increased from about “7% in 1978 to 22% in 2012,” and according to the authors “almost all of this increase is due to the rise of the share of wealth owned by the 0.1% richest families.” This level of inequality has not been seen since just before the Great Depression.

Yet not only is inequality at historic levels, but personal incomes have not kept up with productivity. Consider how wage growth has fallen far short of productivity growth, meaning that more economic benefits have gone to suppliers and fewer to employees. In fact, according to the Economic Policy Institute, since 1973 productivity grew 77% versus just 12.4% for wages. And if you click through to the EPI chart you’ll see that this divergence really exploded right around the time Reagan was elected, resulting in a slew of supply-side policies.

This was no coincidence. They rolled back regulations and consumer protections. They attacked unions and employee rights. They successfully pushed back on social programs. So in spite of the currently rosy low unemployment numbers and strong GDP growth, consumers are struggling.

Healthcare costs are spiraling out of control to the point where medical costs can exceed housing. Consumer debt marches ever higher. Job security and benefits are declining in the gig economy. And all the while capitalists and employers soak up greater chunks of income and wealth, leaving less and less for consumers and employees.

Long-term this is an unsustainable model, because at some point there won’t be enough consumers to grow the economy. Then what? Simple, it’ll mark the beginning of the end of a sustainable economy. At some point people will have such a small share of wealth and income that they’ll become permanent economic slaves to the wealthy capitalists who intentionally created these high levels of inequality.

So what happens to the wealthy elites? No need to worry about them, they’ll be just fine as they’re comfortably cocooned in mansions and on yachts. Meanwhile the rest of society will languish in economic hellholes as they scrape by on the scraps that their ultra-rich masters missed, or simply considered not worthwhile to exploit.

But we can’t so much as even consider any other future, let alone actually act upon it. Oh no, that would be socialism, that evil form of social governance that will spell the end of economic freedom, or at least that’s what we’re told.

Funny thing is that this only applies to average working people and consumers. Because it turns out that socialism for the capitalists is alive and well, and Republicans don’t want to upset that apple cart.

So while in one breath they contend socialism for average people is evil and must be prevented at all costs, they’re perfectly willing to embrace socialism when it benefits them. Consider that estimates for corporate welfare, programs that directly benefit business interests, range from $90-$170 billion out of the US budget, and that excludes the massive Republican tax cuts, such as Trump’s huge tax cut to business that reduced business tax receipts by $90 Billion in 2018, much of which went to stock buy-backs and other means to enrich capitalists at the expense of everybody else.

But of course when it benefits wealthy capitalists it’s not socialism. We’re told that this corporate welfare, this Fat Cat Socialism, is necessary to grow the economy and create jobs.

Except that it never seems to work out that way.  The jobs are never as plentiful or as good as we’re led to believe, and personal incomes never grow as fast as those of the rich. In fact, too many people see their incomes stagnate, even decline.

On top of this, personal wealth for average people is drying up as well, with much of it going to the ultra-rich. This further exacerbates inequality. Consider that concentrations of wealth at the top have reached levels not seen since just prior to the Great Depression. As a result, for many people the American Dream, the idea that future generations will be as good or better off than prior ones, is becoming just that, a dream.

But we can’t have socialism, or anything that even resembles it. Oh No! Heck, we can’t even talk about it if it benefits anyone other than the rich. And so we keep passing policies like big tax cuts that favor the rich while we reduce spending on policies that benefit average working people.

The predictable result is that the rich keep getting richer – a lot richer – while everyone else does not. This upside-down political reality is not only manifestly unfair to average people, but it’s economically unsustainable.

So how did we get here? Well, the claim that society is best off when it supports business interests over social ones is an idea that’s been peddled for a long time. But it really picked up steam in 1970’s and 1980’s with such ideas as the Friedman Doctrine, which suggested that the only role of business is to maximize shareholder value, and the misappropriation of the Laffer Curve, which suggested that at some point higher taxes will reduce economic activity (for additional insight into why I think Friedman was wrong, you can read my blog post.).  

From here it was a quick jump to make the unsupported claim that business interests occupy the center of the economic universe. This is exemplified by the notion of businesses as “job creators,” an idea that implies that society should support whatever business wants or risk not having jobs. It’s an idea which, to the extent it’s believed, is effectively economic blackmail as it suggests voters must support business priorities, or else risk losing their jobs. And for the most part people have bought into this idea, as have virtually all Republican politicians and way too many Democrats.

The result has been public policies, at both the federal and state levels, that inordinately favor business interests at the expense of consumers and employees. Consider the response to regulations. For example, take pro-consumer regulations that seek to level the economic playing field so consumers, employees and small businesses can better participate in the economy. These might include pro-labor laws, financial disclosure and fair trade practices. In this case big businesses and the politicians who pander to them will tell us these are bad regulations that kill jobs, and will fight hard to prevent them from becoming law.

Alternatively there might be anti-consumer laws that allow businesses to exploit unfair exceptions to free market behavior, such as restrictions on trade that keep product prices high or drive labor compensation down. Predictably, the same business-beholden politicians will label these as job-creating legislation and overwhelmingly vote to enact them. And they will do this under the pretense that businesses are at the center of the economic universe and create the jobs people require to live.

Except there’s one big problem with this idea…it’s wrong. What’s more, the reason why it’s wrong is ridiculously obvious.

You see the claim of businesses as job creators is based on the false premise that jobs are created at the point people are hired. This may seem reasonable on the surface, especially as businesses write the paychecks people need to live. However, filling an open position – hiring – and creating that job, meaning the point it becomes necessary, are two very different things. It’s a distinction that may seem trivial at first, but is in fact of critical importance.

To understand this one need only ask the question: “why do employers hire employees?” This too may seem stupidly obvious…they need them of course. Which is true, but why? After all, employees are expensive, often costing many tens of thousands of dollars each year. So if employers could get by with fewer employees they would. Doing so would allow them to keep more money for themselves. This too is obvious.

So employers hire for one reason and one reason only. They hire because without new employees they’d lose business and make less money, business that is driven by customer demand. And this is the crux of the issue.

For although businesses do in fact hire employees, they only do so when the jobs are necessitated by their customers. In other words, jobs are created by consumers, not the businesses who hire. So contrary to what businesses want us to believe, in actuality jobs, as I explain in a blog post, are “created at the moment of consumption.” And that’s why the idea of business-as-job-creators is a myth, a myth perpetrated for the sole purpose of convincing voters to support business interests over their own.

The implications of this are enormous. First, as jobs are created by consumers, and personal consumption drives nearly 70% of GDP, then the proper model of the economy is one where consumers are at the center of the economic universe, not businesses. And if consumers are the primary force driving economic activity, then it’s only logical that public policy should reflect their role more so than the interests of business whose fortunes are determined by the behavior of consumer markets. In fact, not only are consumers job creators, but they create the markets that allow businesses to exist in the first place. 

This means that contrary to the claim that pro-consumer policies represent socialism which is bad for business, policies that strengthen consumers and their ability to consume are actually highly pro-business. Furthermore, public policies that strengthen consumer demand, especially for those with the most immediate need to spend such as the unemployed, will cause money to pulse through the economy faster. This effect increases the flow of money, something economists give the wonkish term Velocity of Money.

This is in contrast to a policy of tax cuts which would have to produce far more economic growth to pay for them than is likely even under the most optimistic scenarios. Worse yet, tax cuts that favor the wealthy strip money from the consumers whose consumption propels economies and creates jobs. And on top of this, policies that weaken the consumer classes for the sake of the rich – which defines our current form of supplier capitalism – are ultimately unsustainable as consumer consumption will at some point decline to the point it is unable to grow the economy. Long-term this represents a massive existential threat, to both consumers and businesses alike.  

So pro-consumer policies, the ones being viciously painted as evil socialism, are anything but, and in fact are more pro-business and economically-sustainable than what Republicans are fighting so hard to perpetuate, which they continue doing even though it risks the long-term demise of society, the economy and their own interests. In fact, what they’re calling socialism is actually a superior form of capitalism, one that not only benefits many more people, but is sustainable for both consumers and business. What such pro-consumer policies do is create a social environment that’s conducive to long-term, sustainable consumption, the fuel of any economy. 

So maybe it’s time to shed the word socialism altogether and call pro-consumer policies what they really are…Sustainable Capitalism. Because Sustainable Capitalism is not socialism…it’s better.

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Was Friedman Wrong?

Posted on by realadmin


I once participated in a comment thread concerning the relative impacts of competition vs. cooperation within free-market capitalism. Specifically, the main issue revolved around whether capitalism nurtured or inhibited social cooperation. This led to discussion about theories purported by the late economist Milton Friedman. A debate ensued about Friedman’s suggestion that the prime directive of managers is to maximize shareholder value, known as the Friedman Doctrine, and whether it has enhanced or degraded the social condition. Or in other words, was Friedman right or wrong? My personal opinion is that he was partially right in the short-run, but mostly wrong in the long-term. In this post I’ll explain my reasoning. But first some historical context will be helpful.

When America was formed we were mostly an agrarian society. Although the economy evolved over the next 70 or so years leading up to the Civil War, we remained largely agrarian. However, after the Civil War, the fall of slavery combined with a massive post-war rebuilding effort spawned the Gilded Age. The result was America’s first elite class of ultra rich. This new social class greatly magnified the gulf between the “haves” and the “have nots.”

In response to this and other factors the Progressive Era emerged and society acted to balance social resources, although this didn’t really take hold until the next major social shock, the Great Depression. First, the New Deal set the stage for a more equal social order. This was followed by the next great shock, WWII, an event that marked both the end of the depression and the start of multi-decade, global growth as the world repaired the damage of the war.

Then in the late 60’s and early 70’s society was shocked again by the one-two punch of the Vietnam War and the Oil Embargo. This created an environment ripe for new economic models. It was into this economic upheaval that the ideas of Milton Friedman rose to prominence.

Milton Friedman (1912 – 2006) was arguably the most influential economist of the late 20th Century. During his career he was best known for rejecting Keynesian economic theory and proposing models focused on the supply-side of the economy. These theories gained traction as both President Ronald Reagan and British Prime Minister Margaret Thatcher launched the supply-side revolution, an event that has impacted society’s economic choices ever since.

Milton Friedman was also a huge proponent for “free-markets.” Although he supported a number of positions, such as a negative income tax (a form of Universal Basic Income) and opposed the war on drugs, arguably his most well-known and controversial hypothesis was the Friedman Doctrine.

The Friedman Doctrine asserts that the primary goal of corporations is to maximize shareholder value. Or as Friedman himself stated; “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”(Although in the last part of this quote Friedman seems to recognize an inherent weakness in the doctrine, history has shown that his admonition “without deception or fraud” was largely wishful thinking.)

Which begs the question: “is the Friedman model sustainable; economically, socially or politically?” Because if it is not then the theories underpinning the supply-side movement, including the Friedman Doctrine itself, were at best dangerously misguided and at worst just plain wrong. In other words, was Friedman wrong?

My main issue with Friedman’s Doctrine is that it “speaks” almost exclusively to traditional supplier capitalism. Although the widely-held view of capitalism starts and ends with the capitalist – the sources of capital and the suppliers they fund – in reality market economies encompass many deeply-vested participants who make substantial contributions and have sizable interests in outcomes.

And yet Friedman’s “maximize shareholder value” mantra not only ignores these vast segments of economies, but provides moral cover under which supply-side capitalists can openly justify, perpetuate and exacerbate market inequalities. The result is that so-called free markets are anything but free, resulting in an economic environment where market “freedom” is a purchasable commodity only available to those players able to pay the price, which is invariably the economic supply-side.

So here’s the part Friedman misses. In the free-market model, capital is organized into companies that convert this capital into sources of economic supply. We call this process capitalism, to which we attribute many virtues and afford all sorts of political and social concessions. And there is little argument, certainly not from me, that capitalism has in many ways had a tremendous positive social impact. As a result, society has largely tolerated, and often outright supported, the preferential treatment given to traditional supplier capitalism.

And yet capital, the currency of capitalism, is only one side of an economy. Because for capitalism to thrive it must have consumers to buy products and employees to make them. This consumer-side of the economy is every bit as important as capital, arguably even more so as capital investment follows market demand. In other words, in market economies, capital is the dependent variable that adjusts according to the independent variable of consumption. This implies that consumption drives capital (supply), not the other way around as suggested by supply-side theories.

So given that both sides of the equation are critical to market economies we’d expect free markets to result in an economic environment in which both the forces of capital and the forces of consumption are on level ground, or at least relatively so. In fact, a persuasive argument could be made that consumer and labor markets should receive preferential treatment in relation to capital markets.

But that’s not what we see. Because from the earliest accumulations of capital and power, these forces have used their unequal influence to create political, regulatory and legal environments that benefit the interests of capital over the interests of consumers and employees. This behavior fits nicely with Friedman’s Doctrine of “maximize shareholder value.” Because by releasing capitalists from any obligation other than profits, we can expect them to engage in these activities without regard for other market participants. Unsurprisingly, this is precisely what has occurred.

Furthermore, not only must consumers and employees function in an environment in which they’re at a political disadvantage, one that was purposefully created by capital and supplier markets, and then justified by the Friedman Doctrine, but they face an insurmountable structural disadvantage as well.

Consider that companies not only concentrate capital, but they exist indefinitely during which they can also accumulate knowledge and other assets to further protect their relative standing and influence in economies. On top of this, political, economic and academic (Friedman) elites have created a narrative in which traditional, supplier-centric capitalism has acquired a God-like status.

Yet the consumption-side of economies receives no such recognition. In fact consumers, be they of products or jobs, are pretty much taken for granted in economies. This is understandable.

Consider that markets are formed by groups of people making buying decisions. And yet unlike concentrations of capital, consumers largely make consumption decisions independent of each other. As a result, product markets and labor markets, including the consumers and employees who comprise them, are largely unable to concentrate and leverage their needs, their behaviors or their capital. On top of this, individual consumers are mortal, and as such, unlike corporations, are far less able to accumulate assets which might level the playing field. As a result, this puts consumer and labor markets at a structural, permanent disadvantage to capital markets.

So of course we should expect the many prophets of “free-marketism” to recognize this inequity and aggressively seek new economic models and/or policies to make the economy fully free? But of course we don’t see that at all. In fact, history has shown us that their reaction is actually opposite to the free market theory they espouse.

So whenever there are attempts at organizing markets, be they consumption or employment, we hear how such practices are evil, subversive, socialist, unpatriotic and anti-American. As a result, market economies are not so much guided by an Invisible Hand, but rather an Invisible Fist, at least when it comes to the treatment of consumer and labor markets.

Yet this too is entirely understandable. Because capitalists know that if and when product markets and labor markets get organized, and do so on par with the organization of suppliers & capitalists, it will fundamentally and permanently transform their profit models. In doing so it will result in a massive equalization of economic resources across the economy. It’s hard to imagine any social, political or economic shift more terrifying to capitalists than this. So it’s no surprise that they fight like hell to perpetrate, and whenever possible expand, this state of market inequality.

So is Friedman’s argument irrelevant? Actually he’s only partly wrong, and that’s because he ignored the other side of the economy. In fact it’s entirely possible that his self-interest-centric model could work. What this would require is that the idea of free markets be extended beyond the supply-side to include consumers and labor. Consider the following scenario.

In this hypothetical scenario capital markets function as they always have and continue to pursue Friedman’s directive. What changes is that consumer and labor markets become similarly organized so they can negotiate on equal footing. They accomplish this either through government policy, as a result of new economic models, or both.

If this were to occur then the self-interest model of capitalism could be applied fairly in an environment of universally free markets where all parties in the economy are competing on an even playing field. In this way Friedman’s directive starts to make sense. Of course we know this won’t ever happen, at least not until society demands it.

So while Friedman was right that his doctrine would encourage economic activity that optimizes profits, and thus shareholder value, at least in the short-run, it’s far less socially, politically and economically sustainable in the long-term. And as this is turning out to be the case, then Friedman’s Doctrine has become merely a euphemistic platitude to make capitalists feel better about exploiting systemic inequalities, combined with an academic rationale that allows them to pretend otherwise. So yes, I contend Friedman was wrong.

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Jobs Are Created at the Moment of Consumption

Posted on by realadmin

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Businesses are job creators, or so we are told. This almost universally held presumption is at the core of Trickle-Down economic theory. Without it supply-side economics couldn’t exist. This is because the basic premise of the Trickle-Down theory is that suppliers drive economic prosperity, meaning the “supply-side” of the economy.

What this implies is that economic activity begins with suppliers making investments and hiring employees. The claim is that by infusing money into the economy more people will receive incomes, which they will then subsequently spend thereby stimulating further economic prosperity and hence jobs.

Although it comes in many favors, this notion of job creation suggests that businesses create jobs for the benefit of society. Under this business-as-job-creator perspective we are led to believe that it’s in the best interest of society to implement public policies favoring powerful economic interests. These wealthy elites, so the story goes, will then reward us by creating the jobs we require to live, a scenario where employers are cast as the economic saviors of humanity.

This idea is based on the notion that money diverted to the top of the economic “ladder” will trickle down to the rest of us. The supposed logic in this reasoning is that favoring wealthy interests with lower taxes and fewer regulations will result in more jobs being created, which will in turn stimulate the economy as higher levels of employment produce greater consumption, the primary driver of economic prosperity. It is an odd idea in which suppliers create the consumer demand necessary to fuel their own growth.

However this “manna from heaven” perspective is simply not how economic decisions to create jobs are made, because for it to work businesses must hire people before there is sufficient consumption to justify a larger workforce. Yet businesses rarely hire until they absolutely have to, and certainly not if consumer demand is too weak.

What’s perplexing is that the employer-as-job-creator premise suggests that businesses will do exactly this; expand employment in advance of the economic justification for doing so. Yet supplier resistance to hiring more employees before consumer demand justifies them, as we saw in the length of the recovery after the Great Recession, is entirely logical and precisely the response capitalistic theory predicts.

It boils down to the proverbial chicken and egg paradox of which comes first. In other words, what causes businesses to hire? Do businesses hire in response to greater consumer demand, or does business hiring create the demand that causes employers to expand employment?

The supply-side mantra of job creation strongly favors the latter, that employer hiring drives economic activity and thus stimulates demand. The problem with this mindset is that it has resulted in much public policy being passed on the basis of an idea that’s opposite of how and by whom jobs are really created.

Rather, the real motivation that causes job creation comes not from those doing the hiring, but those doing the buying. It’s because no business owner in his or her right mind is going to hire employees until there is sufficient consumer demand to justify them. To do otherwise is hardly a characteristic of successful entrepreneurs.

So if not suppliers, then how are jobs created? Job creators, as it turns out, consist of those people who generate the demand upon which economic decisions, specifically hiring, are made. These people have a name, they’re called consumers. That’s right, the motivation to create jobs comes not from the businesses that sign paychecks, and who would rather hire fewer employees anyway, but from the customers who buy from businesses, and in doing so motivate them to hire more people.

What this suggests is that jobs are created not by the act of hiring, but the act of buying. This means that jobs occur through the increased consumption that makes them necessary, while the process of hiring is merely a reflexive response to greater consumer demand.

Consider, for example, how jobs are created from the simple act of buying vegetables. When we buy vegetables we set in motion numerous business signals, each one creating new demand for employment.

If we work backwards from the checkout counter we start with the checker and bagger. More grocery purchases, including the vegetables we buy and the purchases of other shoppers, places additional demands on checkers and baggers. At some point this forces employers to increase hiring in response to greater shopping activity, something they will only do when absolutely necessary.

However, before we make it to the checkout counter we select our vegetables from the produce aisles. As we do so we often notice employees putting out fresh vegetables. The more we purchase, the faster vegetables must be replenished. When this happens it requires more people to stock the food aisles, an event that signals grocers to hire more people, but only as a last resort.

Of course the faster vegetables move to produce aisles the faster they must be delivered. This means more deliveries, so more drivers are hired. Then as more trucks pick up vegetables, farmers are motivated to plant more acreage. This in turn necessitates that farmers hire more employees, an act they wouldn’t think of doing if it weren’t for the increased buying of grocery shoppers.

Although it may seem this is the end of an extended chain of job creation, it’s hardly the beginning. First, grocery stores are typically located in large buildings, buildings that require numerous employees to build, maintain and protect. Buildings are also expensive assets so they are often financed, requiring loan processors, and insured, requiring employees in the insurance industry. What’s more, employees may receive benefits that are provided by separate industries. So as more employees are added these supporting industries must expand hiring as well.

In addition, delivery drivers require trucks, each of which necessitates employees to manufacture. Also, increased employment is required to repair the vehicles and insure, finance or lease them. Nor can we forget that vehicles rely on gasoline, which requires an extensive petroleum industry plus a vast network of gasoline delivery and service stations, meaning more employees there are needed as well.

Then, to make farmland more productive requires more farming equipment, which is produced by employees and requires even more employment to acquire and service. Farming also requires seed, fertilizers, soil specialists, and of course more land, the purchase of which often includes realtors, attorneys, loan officers, inspectors and title agents, meaning that every one of these industries will need to hire more people.

Yet this is still just the tip of the job creation iceberg as heightened consumer demand causes wave upon wave of hiring throughout the economy. In fact, a single purchase of vegetables will launch a vast chain-reaction of employment as suppliers respond to the buying decisions of consumers. Although the impact of any one consumer is negligible, when this event is multiplied by millions of consumers their collective consumption causes businesses to thrive or fail, fortunes to be made or lost, economies to expand or contract and great numbers of people to be hired or fired. For although shoppers think nothing of creating jobs when they buy the things they need, they are in fact the primary force driving employment.

Interestingly, notice that nowhere in this extended chain of job-creation did employers ever want to hire anybody, but did so only because they had no other option. So the suggestion by suppliers and politicians that because firms hire people in response to increased consumer demand, as well as their motivation to make greater sales and profits, that they deserve to take sole credit for the role of “job creator” is a preposterous and arrogant proposition. Yet they consistently get away with this ruse because so many people, on both the right and the left, have completely and inexplicably bought into the myth.

This is not, however, meant to denigrate the critical role that suppliers do perform in the economy. Suppliers provide an essential service by making available the goods and services consumers require. They do this by forming labor and capital into productive entities called companies. These companies emerge in response to the needs of consumers, who are the ultimate source of economic decisions.

In turn, businesses hire more employees whenever consumer demand necessitates them. So while suppliers provide essential services in the functioning of the economy, the one thing they don’t do is create jobs. That’s the role of consumers.

So if we want to identify the real job creators we should look not to Wall Street, or Corporate America or even Main Street. Rather, job creators are found in shopping malls, at grocery stores and clicking online buy-buttons. These people, the millions of average consumers who purchase things to support their livelihoods, are the real sources of job creation. As a group they represent the fuel which drives the economy, including how jobs are created.

So rather than job creation being based on money “trickling down” from wealthy interests, the real mechanism by which jobs are created is the upward flow of money as increased buying from average consumers forces employers to do something they would otherwise resist, hire more people. In fact, in this model consumers are not only job creators, but business creators as well because without customers business revenue would fall to zero.

This contrasting economic premise is sometimes called Trickle-Up Economics. Yet unlike the trickle-down model where wealth often remains static while waiting for heightened consumption to justify more hiring, increased consumer demand can flood the economy with jobs as employers compete for buyers by accelerating their hiring activity.

Under the Trickle-Down Theory, suppliers create jobs at the point of hiring. This implies that employers are job creators. However, under Trickle-Up Economics jobs are created at the point they become necessary, as no rational employer would hire unneeded employees. This means that jobs are in fact created prior to the act of hiring. Under this model the process of job creation occurs as a direct response to increased consumer demand, meaning that employer hiring decisions are dependent on consumption. So it is consumers, not employers, who are the true job creators.

So why are our economic policies so beholden to Trickle-Down Economics rather than Trickle-Up Economics? In a word, money. This is very simple; wealthy economic interests can extract far more wealth from the economy if they remain the center of the economic universe, which is precisely why there is so much money in politics.

Visualize how we depict an atom or a solar system. At the center is a source of energy, such as an atomic nucleus or the sun that interacts with the particles or planets that revolve around it. Under Trickle-Down Economics the center of the economic universe consists of employers, while consumers and employees revolve around this employer-nucleus. In this model employers are perceived as the source of economic prosperity, including both products and jobs. This economic pole-position is extremely valuable to suppliers, especially powerful corporations, as it effectively guarantees that public policy and economic resources will be concentrated on their interests.

Yet a Trickle-Up approach flips the model around by placing consumers and employees, who are essentially one in the same, at the center of the economy, while employers move to the periphery. Although this may seem odd, consider that employers only exist because they have access to two critical resources, consumers to purchase their products and employees to make them. And while  the third leg in this equation is of course capital, few employers will be inclined to expend this capital unless there are sufficient consumers to justify it. It is why tax cuts have a poor record of stimulating job growth. In fact, according to a study from the Congressional Budget Office, the most effective way to stimulate growth is to increase unemployment benefits, which puts money in the hands of consumers who need it the most.

So rather than the destinies of employees and consumers being shaped by the actions of employers, in reality the fortunes of suppliers are driven by the behavior of consumers. The only reason why it doesn’t look this way is because economic interests have rigged the game to their benefit, and to the detriment of everyone else. And the reason why they are able to get away with this is because businesses are better able to concentrate wealth and power than either consumers or employees, which allows them to subvert the system for their narrow interests. What’s more, this employer-centrist mindset has so thoroughly permeated politics and society that it’s nearly impossible to even have a conversation about any alternate economic model.

Earlier I mentioned that the employer-as-job-creator idea is accepted on both sides of the political aisle. Some years ago I had an experience that illustrates the magnitude of the problem. I had the occasion to meet the then chair of the Democratic Party Debbie Wasserman-Schultz. In the few moments we spoke I suggested to her that businesses were not job creators. She responded with a predictably political line about how jobs are created by small businesses, as if the distinction somehow fundamentally separated her from conservatives who, she implied, were aligned with the interests of big businesses.

The problem is that her position still accepted the basic fallacy that employers are at the center of the economy, instead of the millions of consumers who cause businesses to hire in the first place. In other words, she acknowledged that she bought into a core idea – employers create jobs – that is at the root of economic inequality. And she led the Democratic Party!

So I tried to explain how her distinction missed the underlying issue. However, I didn’t even complete my first sentence before her “handler” physically interjected himself between us and shut the conversation down. And we wonder why our political leaders can’t even initiate meaningful conversations, let alone create policy that supports economic equality for average people?

So what can be done to rectify this seemingly insurmountable gulf between the demands of wealthy elites and the needs of average people? There are of course numerous ideas and policy positions tossed around that are intended to address this very issue, such as campaign finance reform, various tax reforms and government programs.

But as the interaction with Representative Wasserman-Schultz illustrated, the problem is more basic. So any meaningful response must address the underlying issues. To this end I propose that nothing productive will occur until we change two things, our mindset and our behavior. It’s something we need to do not just individually, but collectively as well.

The first change, a different mindset, consists of changing the way we perceive economic processes. For example, if asked, most people will probably say that jobs are created by employers. This is entirely understandable. After all, for most of us our livelihoods are dependent on the paychecks we receive from employers.

But although this perception is largely invalid, it’s very hard for people to recognize the influence they have on the economy. The problem is that due to the economic demands of living, and the limited control we have over our respective destinies, people are unable to see how much power they really possess in the aggregate.

In truth consumers are extremely powerful as their actions determine the economic security, or lack thereof, of everyone, whether employers or employees. But in the magnitude of the overall economy individual consumers and households feel powerless, because for the most part they are. There is relatively little any one consumer can do to impact the system. It is this shared sense of powerlessness that makes us vulnerable to the belief there is some “other” who will provide the security we so desperately seek.

And yet it’s an illusion, albeit one that’s strongly supported by economic elites who have a great vested-interest in maintaining their position in the economy. It’s a key reason why it’s so difficult for people to break free from this top-down economic worldview.

Yet average consumers must find a way to change their mindset in order to recognize and appreciate their economic power. Until we do it’s unlikely we can have meaningful conversations about changing a system that leaves too many of us feeling powerless.

The second thing we need to change is our economic behavior, specifically our collective economic behavior. We need a mechanism that allows us to reclaim decisions that have been abdicated to an economic monster we have little influence over.

This may seem impossible given the tremendous power imbalance between consumers and suppliers. Yet modern technology, specifically the Internet, has enabled an environment where the possibility for collective action has never been so great. Would, for example, the Tea Party have emerged so quickly and become so powerful if it weren’t for the Internet? Probably not.

So consider what could happen if similar technologies were used to empower consumers nationwide and allow them to wield concentrated power. By harnessing the combined economic influence of numerous buying communities’ people might fundamentally alter the way economic decisions are made, and in doing so regain a greater sense of personal power.

For example, networked communities of consumers might acquire the collective buying power to negotiate better deals and enhance the value of their limited incomes. Such consumer-communities might even become large enough that they can control or own the means of production. These are just a few of the many things that could benefit individual consumers as a result of these networked, consumer unions. In this way communities of people might collectively reclaim economic decisions, and in doing so utilize economic resources more equitably.

I call this process Community Capitalism. Community Capitalism is a model in which economic decisions are influenced not only by a minority of elite special interests, but also by many millions of average consumers whose combined buying behavior creates jobs and shapes economies, including the businesses that operate within them.

Community Capitalism would provide average consumers with a mechanism to reassert their economic power at levels that were previously unimaginable. Such influence would naturally extend into the political sphere as large consumer communities could negate the power of economic elites. This would empower people to comprehend a new mindset in which communities of average consumers interact on the basis of shared political and economic interests, and in doing so shift the balance of power from wealthy elites to consumers and employees.

By leveraging the combined consumption of average people, Community Capitalism could create an economy where the allocation of value is both more equitable and efficient. Maybe then we can finally turn the page on the failures of Trickle-Down economics and create a more equitable Trickle-Up economy. In doing so we would return the influence of consumers to its rightful place in the economic universe. Because ultimately, economic prosperity – including jobs – is created at the moment of consumption.

This post was partially excerpted from the author’s essay The Realism Manifesto: A Vision to Reclaim the American Dream. The Realism Manifesto proposes a vision for how average people might reshape the way political and economic decisions are made, and in doing so reclaim the American Dream. It proposes new ideas which may provide a starting point to take back Government from special interests and the politicians they influence. You may link to a synopsis of the essay here.

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Maybe it’s Time for Realism?

Posted on by realadmin

Government, as an entity that exists to protect the interest of We The People, is broken. To many millions of voters, both liberal and conservative, this is hardly news.

For most American citizens, political representation and economic participation is unfairly allocated to those few people with the money and power to demand and receive preferential treatment. This is because our political landscape is dominated by conflicting agendas and interest groups, few of which represent the needs of the people.

It’s a circumstance that robs average people of political relevancy and economic opportunity, both on the left and on the right. As a result, whether one believes the solution is liberal or conservative, most people recognize that the score is rarely in their favor.

And no, this isn’t simply politics as usual. It didn’t always used to be like this. There have been periods when our politicians could find common ground, or at least enough to benefit the lives of many average people. And during these times average Americans prospered as more people saw their lives improve. Although outcomes were far from perfect, it was sufficient.

So what happened? Money happened. Power happened. Greed happened. And on top of that, deep, divisive partisan ideology happened. Together they formed a toxic brew of special-interest dominated politics resulting in a persistently dysfunctional government.

Of course these forces have always been there, but as long as average people were treated more or less fairly they were kept in check. Our experience with the Gilded Age taught us the risks of corrupt politics and unrestrained greed.

So we changed course, spurred on by the populist movements of the late 19th and early 20th centuries. We adopted a strong populist agenda that resulted in great social and economic mobility for much of society, including prosperity for businesses.

But then things went off course, resulting in inequality that’s unprecedented since before the Depression[i]. Various things contributed to this, but arguably none more than the conscious decision to embrace a virulently individualistic, special-interest fueled political reality.

When Ronald Reagan opined that “Government is the problem”[ii] he set in motion a series of events that unleashed the forces of special-interest power and greed. In doing so we traded the interests of mainstream society for a reality in which political and economic participation is sold to the highest bidders.

So what can we do about it? Liberals blame the conservative policies of the Reagan Era and beyond, and the evidence of the past four decades seems to validate them. Yet Conservatives claim that the problem stems from burdensome liberal policies, and if the Government would just get out of the way an economic nirvana awaits, at least for the privileged few.

On issue after issue there seems to be little common ground, and on many there is none at all. It is between these two polarized worldviews that society hangs in the balance, left feeling powerless to do anything about it.

But regardless of who’s right or wrong, from the perspective of average people, Government remains dysfunctional for all but a minuscule number of powerful elites. The result is that life has become more difficult for the vast majority of people, regardless of their political leaning. Real incomes have stagnated, dual-earner households are the norm and many people face bleak, uncertain futures. In short, the American Dream is slipping away because hard work is no longer enough.

Yet on the most critical issues facing the nation Democrats and Republicans are unable to put the needs of the people before their pursuit of ideological purity, special interest demands and money. It’s no wonder that average citizens are distrustful of Government, and are chomping at the bit for a new political reality. It is a feeling that was validated by the 2016 campaign of Bernie Sanders and the election of Donald Trump. Although the two are about as opposite as they can be, each in his own way tapped into society’s frustration with partisan, special-interest politics.

Additional evidence of voter disillusionment is seen in the growth of so-called political Independents. According to a Gallup Poll, 42% of Americans identified themselves as Independents, compared to 29% for Democrats and 26% for Republicans[iii]. This is up from 36% in 2008, suggesting that the relevancy gap between voters and parties is widening. Although many people who call themselves “independent” will reliably vote for one party or another, the mere fact they don’t want to acknowledge party affiliation indicates voter unease with the state of politics.

Yet the political establishment, along with its conspirators in the mainstream media, continues to tell us that if we just had the right policies, the right members of Congress, the right Justices, and the right President then our country will once again exist for everyone. But as the evidence never seems to support this then maybe it’s time to consider that the problem, and ultimately the solution, is none of the above.

That’s right. Maybe our political reality has become so dominated by intense partisan belief and special-interest money that our traditional ideologies are no longer able to benefit the lives of average people in a consistent, meaningful way. To the extent this is true it would explain why adjusting the “mix” within our political paradigm never seems to get us anywhere, and why blaming the Government has become so popular.

Although it’s admittedly tempting to blame our uncompromising political ideologies and the influence of big money in politics as the cause of political dysfunction, and there’s certainly no shortage of evidence to support this argument, maybe all this stuff is simply the result of a defective political decision making process that is teetering on the edge of chaos. Because while the very practice of politics inflames the emotions, and has done so throughout history, it is also true that its impact is not equally distributed.

Why, for example, have so many other countries that adopted some form of universal health care[iv], or adjusted their relationships between public and private entities to benefit average citizens, been able to achieve this without anywhere near the level of ideological blood-letting we see in US politics? Maybe the answer lies in the way they make political decisions, and possibly if we rethink the way we approach political choices we too might once again make Government more relevant to average people.

Consider how we usually make non-political decisions. In most life decisions we employ the process of objective reasoning. For example, imagine you’re planning to go for a walk and the outside temperature is minus two degrees. Would you be inclined to throw on your swimsuit and sandals and go for a stroll? Probably not. It’s an objective decision you would make based on a simple assessment of the evidence; it’s cold outside so dress warm.

We make these rational, non-controversial decisions all the time. We’re just naturally wired this way, which is a fortunate thing because if we weren’t we might have died out ages ago. Furthermore, we apply this objective reasoning in our lives every day, and many of our most important life decisions are arrived at objectively.

Who we marry. When we start families. Career choices, investment choices, health choices. We typically approach these and many more important decisions with some form of objective reasoning. And although decision making skills vary considerably, most of us at least make an attempt to maximize the value of our decisions by employing some form of objective, evidence-based logic. We do this for the simple reason that we want to get the most out of our lives, and objective reasoning happens to be the most consistent and reliable way to accomplish this.

So it’s rare that people look back on past decisions and wish that they had been less careful and less objective in making choices. It’s just not how we operate. Nor is it how the world works.

Take business and commerce for example. In business the pursuit of the profit motive is a universal objective among economically-motivated entities. For aside from the ethical and moral aspects one way or the other, businesses usually try to make as much money as possible.

In fact, the profit motive is central to capitalism. It’s why most economic activity does not follow any subjective belief system. Rather, businesses objectively adapt their behavior to a constantly changing economic environment with the singular mission of maximizing profits. To do otherwise may be bad for business, which would be contrary to the central business objective. Not that this doesn’t happen.

Consider the case of Chick-Fil-A where an executive’s disagreement over same-sex marriage resulted in a maelstrom of controversy. This was followed by a public reversal of the company’s position when it recognized the potential impact to the bottom line[v]. So although individual executives felt otherwise, they chose the strategy that, based on market evidence, was the most objectively productive option.

Science and technology is another important objective-driven area of human endeavor. To approach either of these disciplines subjectively instead of objectively would be a disaster, and when we did it resulted in some bizarre outcomes.

For example, it was once widely believed that that illness was spread through “bad air”. Yet through the process of objective, scientific inquiry this belief was eventually disproved and replaced by Germ Theory, an event that saved the lives of millions[vi].

Or imagine if when the Wright Brothers and others were building the first airplanes they rejected Bernoulli’s Principle[viii], which describes the phenomenon of lift, and instead proceeded on the belief that planes could only fly if they had balloons tied to them. How many of us would be traveling on planes today?

In fact, throughout human history this evidence-based, objective approach has, and continues to represent, the mechanism by which civilization emerged and humanity prospered. Our science and technology, our economic prosperity, our concepts of freedom, liberty and the betterment of the human condition, everything that allowed us to advance beyond mere survival has been due to our ability to objectively reason.

Yet when it comes to politics we somehow can’t get beyond the notion that objective politics makes no sense because it’s not based on emotion and special interest. This is not a problem for us in other endeavors. So why are our politicians seemingly immune to logic and reason, impervious to common sense?

Maybe it’s because they’re unable to consider ideas and policies that do not conform to rigid, partisan beliefs or the goals of special-interests that influence both politicians and the political process.

Yet this state of subjective, ideologically-fueled and financially-influenced political dysfunction is our reality only because we choose it to be. It’s not set in stone.

So maybe it’s time to set aside the conservative-liberal dichotomy and approach political decisions in a more objective, non-partisan manner. One that produces a greater range of policy options.

Consider that in the current conservative/liberal paradigm policies are formed either along partisan lines or through bi-partisan compromises. If a policy is based on partisan ideology then by definition it adheres mostly, if not completely, to the prevailing ideology (party) that holds power.

However, if a policy resulted from a bi-partisan compromise then we’re assured that it was significantly watered down in order to survive the expected attacks from both sides. It’s why bi-partisan legislation generally has no “rough edges” as they were removed in order to win the necessary support from across the political aisle.

So from a policy perspective, what opportunities or alternatives are missed by the partisan/bi-partisan approach? As it turns out a lot of political possibilities never get considered.

For if a policy is partisan then the country proceeds in a direction determined by ideological bias, which is invariably controlled by powerful special interests. This approach is engineered to ensure that conflicting ideas are eliminated from consideration. And if the policy does not reflect the needs of average voters, a virtual certainty as partisan politics are largely shaped by special interest forces, then society suffers as resources are inefficiently allocated to narrow priorities.

Alternatively, if the policy is bi-partisan then the rough edges are carefully removed prior to any serious policy discussion in order to preserve ideological detente. These rough edges consist of policy alternatives that are either too ideologically impure to become partisan legislation or ideologically biased to receive bi-partisan support.

For example, imagine proposed legislation that combines core liberal and conservative ideas. The outcome might produce public policy that effectively addresses some major economic or social issue. But of course it won’t see the light of day.

The saddest part is that its inevitable death will occur not because it’s a bad solution to whatever objective it was meant to address. In fact, it might provide the single most effective policy option available. Yet it will still fail because of the way ideologies elevate beliefs above objectives. It’s how belief-based political systems become dysfunctional.

The alternative is objective-based political policy, which is arguably nothing more than common sense politics. This should not be a radical idea as objective reasoning is fundamental to the lives of almost all people. But it is. And the reason for this is because financially-beholden politicians have elevated special-interest demands and party politics above the interests of average people.

Yet as average people are relatively powerless in the political process, the political decisions with the greatest impact on our lives are shaped by the forces of subjective belief and selfish greed. So it is no surprise that average people are regularly hung out to dry.

The result is that the majority of voters have become so disillusioned with dysfunctional party politics that they identify themselves as independents. And as there is no objective “voice” to represent their concerns, then at election time they’re forced to choose between the two traditional alternatives, neither of which they judge useful enough to claim party identity.

This means that the largest block of voters in the country has no organized platform to embrace. They are simply pawns in the political process. Whichever mainstream party captures a majority of these voters in a given election earns the right to speak on their behalf.

But when the party in power doesn’t represent the interests of this voting majority, which in our highly-charged partisan atmosphere is nearly certain, they may change their votes next time hoping the result is different. Of course it never is. This leads to further disillusionment that drives more voters from their parties to this unrepresented political majority.

With all these discouraged voters something has to give. The inevitable inflection point will occur when Independent and disaffected voters obtain an objective, non-partisan voice in politics.

Maybe that time is now. Maybe it is time to introduce a different ideological perspective that replaces the power of political ideologues and special interests with that of average voters and taxpayers; a political ideology that rejects emotional, partisan politics and embraces objective, non-partisan solutions. Or in other words, a common sense approach that values populist objectives over partisan ideology.

Maybe it is time to give a voice to the voiceless. Maybe it is time for Realism.

This post was partially excerpted from the author’s essay The Realism Manifesto: A Vision to Reclaim the American Dream. The Realism Manifesto proposes a vision for how average people might reshape the way political and economic decisions are made, and in doing so reclaim the American Dream. It proposes new ideas which may provide a starting point to take back Government from special interests and the financially-compromised politicians they influence. A synopsis of the essay may be found here.

[i] Henry Gass, “Economic inequality in US reaches levels not seen since US Depression“,The Christian Science Monitor, 11/10/2014

[ii] President Ronald Reagan, Inaugural Address, 1/20/1981

[iii] Jeffrey M. Jones, “Record High 42% of Americans Identify as Independents” Gallup, 1/8/2014

[iv] Max Fisher,Here’s a Map of the Countries That Provide Universal Health Care (America’s Still Not on It),The Atlantic, 1/28/2012

[v] Maya Rhodan, “Chick-fil-A CEO Regrets Same-Sex-Marriage Debacle,” Time, 3/17/ 2014

[vi] Germ Theory Turning Points for Humanity (blog)

[viii] BERNOULLI’S PRINCIPLE, Science Clarified.com

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