Ultra-capitalism is in the Way
This greatest opportunity in human history is provided by democratic capitalism, a moral system built on developing each to full potential in an environment of trust and cooperation and uniting the people of the world in economic common purpose. Adam Smith’s advised that economic freedom can run itself “in the natural course of things” if the government provided peace, neutral money, limited borrowed money for speculation, and prevented privileged capitalists from contradicting the public good. Smith’s conditions are violated as never before.
Ultra-capitalism can destroy this opportunity with concentrated wealth and unnecessary violence among nations. It is a combination of mercantilism that treats the worker as a disposable cost commodity, and finance capitalism that dominates the job growth economy with these negative effects:
- Trillions of dollars of mandated wage earner pension savings, the greatest savings-investment opportunity in history, was not invested in the job growth economy, education, and infrastructure, but went instead into the pockets of ultra-capitalists driving financial services profits from 5% to 40% of total corporate profits.
- Government refuses to limit speculation with borrowed money that causes asset inflation in stocks and real estate. The resulting business cycle makes the rich richer in the up direction and the poor poorer in the down.
- The wage earner now owns more than 50% of corporate America but does not yet enjoy annual rewards from capitalism. Corporate surplus should be reinvested in growth and paid in dividends to the wage earner, not diverted to the ultra-capitalist priority of stock buy backs and deals.
- Dividends that traditionally returned 5-6% now return 1-2%.
- Interest was taken to almost zero for political reasons by the Fed cutting the risk premium on loans and bond income for the pensioner’s retirement in half.
- Mandated pension savings had the unintended consequence of measuring both the money managers and corporations on quarterly performance forcing companies to abandon development, cut maintenance, fire people, and buy back stock.
- The stock market is dysfunctional as it no longer has the mission of moving savings into investment, incredibly, in 2007 $585 billion more stock was taken out of the market in deals and buy backs than was added in new stock for growth.
- Ultra-capitalists shout “free markets” at the same time they lobby subsidies, tariffs, and bailouts such as Continental Illinois. Long Term Capital Management and Bear Sterns.
- The ideologues of the liberalization of capital markets lobby deregulation assuming incorrectly that financial markets seek equilibrium. Smith said commerce could run itself, not financial services, and treated financial services as a subtraction from the wealth of nations.
- Ultra-capitalists of both parties are grid locking the consensus political process bankrupting the country. Medicare’s liabilities are expected to exceed revenue by $36 trillion over the next 75 years, and the trust fund for hospital services is projected to go bankrupt by 2019; personal credit card debt escalated from $236 billion in 1989 to $937 billion in 2007, while government debt grew 50% faster than the economy rising from $2.7 trillion in 1989 to over $8.3 in ‘06.
- Warren Buffett called derivatives “ financial instruments of mass destruction.” Despite damage from derivatives in the credit crisis, C D Ss (credit default swaps) doubled to $62 trillion in 2007.
- Financial incentives in ultra-capitalism are not congruent with the long-term benefit of the wage earner. In every step in securitization bonuses are based on volume.
- Stocks held on average six years are now traded every year benefiting the commission brokers.
- Ultra-capitalists encourage the feeding frenzy in CEO compensation as huge stock options seduce them for deals, instead of long-range building.
- Ultra-capitalists lobbied the repeal of Glass Steagall and banks like Citi gave excessive loans to Enron in order that their investment bankers could get the lucrative deals, just what the law was designed to prevent.
- Ultra-capitalists, led by Enron, successfully lobbied theCommoditiesFutures Act in 2000 adding new opportunities for leveraged bets.
- Unregulated hedge funds leveraged bets up to 50 times their own capital.
This financialization of the American economy in the past quarter century follows the pattern of Spain in the 16th century, Netherlands in the 18th, and Great Britain in the 20th. In all cases it was a terminal condition.
Ultra-capitalism can be purged by limiting speculation with borrowed money, by a capital wage in large dividends for the wage earner, and by changing money manager measurement of corporate performance from quarterly earnings to a three year average of sales growth, profits, and cash flow against management prediction.