Dudley Weeks ©

I believe we have two primary choices in the way we analyze the failing U.S. economy.  One, we can continue to use the same old faulty economic theories and standards as our tools of analysis.  That's sort of like using a bucket with gaping holes in the bottom to carry water to put out a fire.  By the time we reach the fire, the bucket is empty.  Or, two, we can accept the reality staring us in the face; namely, the traditional theories are inherently inadequate and we need new and creative economic wisdom and tools to figure out what has gone wrong and how to make essential improvements.  I strongly advocate the second of these approaches. 

In large part, the American and global capitalist economy is based on four major concepts:  "freedom", "competition", "profit", and "trickle-down".   Much of our economic woes are the direct result of how these concepts are perceived and implemented, and how they interact with each other.  No amount of tinkering and applying temporary Band-Aids (such as the 2008 bail out of Wall Street) will do much to heal the economy.  The infection is deeply imbedded in the basic theories, assumptions and structures that are the roots of the economic system.  Let's explore each of the four intertwined concepts forming those roots

"FREEDOM":  "Freedom" has become a near sacred concept to the American society.  When utilized responsibly, freedom produces enormously positive results.  When used irresponsibly and without ethics or protection against abuse, freedom can do great harm.  It can be a license to self-serving greed, exploitation, and the manipulation of the already disadvantaged members of human society.  We may like to think that individuals and economic entities, if given freedom, will naturally be responsible and ethical, or that Adam Smith's famous (and mythical) "invisible hand" will somehow make sure the worst potential of capitalism does not rear its head.  Reality exposes such assumptions as false, and the "invisible hand" is actually just one more way the economic elites deceive the overwhelming majority of The People into believing the illusion that the economic system works for THEM.  

I suggest that if the American economic system is to serve human society well, there must be built-in incentives and regulations that (a) promote fairness and the ethical treatment of others, and (b) limits the misuse of "freedom", mostly in terms of excessive accumulation of wealth and economic power.  Otherwise, capitalism and the economic freedom on which it is based will allow an even wider gap between the rich and the middle class and poor, create more conflict, and deprive human society of the full contribution those who are disadvantaged by the system can make to the society as a whole.

Thus, it is crucial that we infuse economic "freedom" with responsibility, ethics, and regulation.  Leaving it up to the market or self-regulation has not worked and will not work.  One of the reasons lies in the other three concepts at the foundation of the American economic system---competition, profit, and trickle-down.  They, too, need serious rethinking and bold steps toward improvement.

"COMPETITION":  At its theoretical best, competition can promote progress, diversity, lower prices, and inventiveness.  At its worst, competition can result in the few getting a lot and the many getting very little.  The theory claims that competition rewards the more "fit", sort of a convoluted economic version of Darwin's Survival of the Fittest concept.  Yet, with an abuse of freedom, and with the unlimited accumulation of wealth and the political and social power that comes with wealth, a small number of economic elites monopolize the tools essential to compete successfully.  In each new situation, they use that advantage to increase their controlling power over the competitive process, competitors, access to resources, research & development, and markets.  The vast majority of individuals, families, and businesses have fewer and fewer opportunities and less and less power to become "fit" enough to compete effectively.  In other words, competition as currently practiced actually limits the potential advantages competition could bring to a society as a whole.  The overwhelming majority of citizens and economic enterprises become spectators to the competition among the big boys and are often used as pawns.  The needs of the society become less important than the self-serving desires of the few competition "winners". 

Interwoven among economic "freedom" and "competition" is one of the goals of these two concepts:  "profit".

"PROFIT":  In essence, profit means getting more out of something than we put in.  I would not be foolish enough to say the concept of profit should be discarded.  It, like freedom and competition, can be positive.  However, if profit is made the supreme goal of economic interaction, and if there are no limits put on profit excesses, then other critical aspects of an economy suffer.  Accumulating unlimited profits, when combined with unlimited economic freedom and competition, does NOT drive an economy toward inevitable success.  Excessive profits for some mean less profit for others, and those with excessive profits often use them to win even more profits in the competitive wars.  Once again, the vastly inequitable distribution of resources, power and benefits inherent in the current economic system creates a disadvantaged majority in a society, and the society suffers. 

Furthermore, profit is not the only "engine" of progress.  In every moment of life, every situation, many people are motivated by more noble and constructive motives than just economic profit.   Profit has been made into a god, justifying and condoning getting as much profit as is humanly possible.  Enough is never enough, and even taxes and their loopholes are often structured to allow those with the most profits and wealth to keep getting more.  Proposing limits on profits is seen by some as unpatriotic, never considering that serving the needs of ALL the society is one of the most patriotic acts that can be done.

In other writings I have focused on the idea that an overemphasis on economic profit (getting more value out of the economic process than we put in) has led to what I term "social profit":  people conducting relationships in a way that gives them the advantage, that gives them more benefits from the relationship than the other party receives.  In a society that puts so much emphasis on economic values such as profit, and often defines people in economic terms, it is not surprising that our social relationship values are greatly influenced by our economic values.   

Enter the fourth concept on which American economic theory has been based:  "trickle-down",

"TRICKLE-DOWN":  As most people know, the "trickle-down" theory claims that if the "leading sectors" of an economy are given the freedom to compete for profits without many restrictions, then the resultant wealth and benefits will trickle down to everybody else.  The brilliant Isaac Newton was obviously not considering economics when he formulated his theory of gravity.  Far too often, wealth trickles up.  That fact should not surprise us.  If an economic system is based on maximizing profits and rewarding the winners in competition for accumulating as much profit as possible, then making sure wealth and benefits trickle down to the rest of society is not seen as a priority. 

To be sure, there are noble members of the economic elite who are great philanthropists.  However, a society's economic system should not depend on philanthropy to meet the needs of its citizens.  There must be built-in opportunities and mechanisms for the majority of individuals and smaller enterprises to gain a fair share of benefits if they are participating in the system.  They usually work harder but get less benefits than do the economic elites.

SUGGESTIONS:  I believe the following changes need to be seriously considered.

1.  A Ceiling on Profits:  There is nothing in the current system to limit the amount of profits that can be accumulated.  The economic pie is finite, there are limits to growth and amount of resources.  When a few monopolize economic benefits, there is less for the many.  If profits are considered the primary incentive for expending effort, we are in a tragic values crisis.  Set a ceiling on profits that is reasonable and still allows for research and development to improve the society, then put what would be excess profits beyond the ceiling into need-meeting programs such as health care, education, environmental programs, and others.

2.  Remove Corporate Tax Loopholes:  The amount of tax income lost because of corporate loopholes is staggering.  The theory of trickle down is a lie, so the money not taxed because of loopholes is used by the wealthy to make them even more wealthy.  The argument that closing loopholes and/or raising high income bracket taxes will cause jobs to flow to countries where corporate taxes are lower than in the U.S. is faulty.  One of the reasons American laborers demand higher wages than workers in many other countries is because the American work force sees the excessive wealth of management and wants its fair share.  Furthermore, American jobs are already flowing overseas under the current loophole system.

3.  Creatively Develop a Mixed Economic System:  I believe it is unrealistic and foolish to think there are only two economic systems available to human society: capitalism and socialism.  Such narrow thinking prohibits creativity and innovation, two of the economic values most cherished in the American system.  In the U.S., we need to mature beyond the notion that capitalism is sacred, and realize that the purpose of any economic system worth its salt is to provide for the needs of its people in a way that promotes mutual benefit cooperation rather than division among the economic sectors.  Thus, it is quite possible to have critical functions such as health care and education guaranteed to all citizens.  The argument that doctors and teachers would lose incentive has no more proven validity than the argument that high income people work harder than lower income people.  Just the opposite is often true. 

4.  Promote an Economic System Based on Democracy:  If we believe in "democracy", then we need to understand that economic democracy is as important to the health and strength of a society as is political democracy.  Political democracy is based on the principle of one-person-one-vote with every citizen having an equal right and opportunity to influence the political system.  Economic democracy is based on the same principles of fairness, equal rights and equal opportunity without the few monopolizing economic power, resources and benefits.

5.  Promote a Values-Based Economic System:  We need to develop cultural values that do not spread the false notion that accumulating wealth is the primary measure of success, well-being, and individual worth,  Teaching these values in families, schools, organizations, institutions, and, yes, businesses, is a joint responsibility we all share.

SUMMATION:  I contend that the severe economic situation coming to a head in the U.S. in 2008 is the direct result of basing an economic system on the four concepts discussed above, and promoting those concepts without concern for their responsible and ethical implementation.  Economic freedom, competition, and securing profits have not and will not result in wealth, power and benefits "tricking down" to the rest of a hard working and deserving citizenry.  Meeting basic needs and realizing opportunities for the society as a whole are obstructed by the very economic system that claims to serve ‘The People.’ 

It is ironic that the leaders and theorists who are the major proponents of keeping government out of the free market are now using government to bail the American society out of a mess created by a failed free market.  That free market has failed, in part, because it has allowed the irresponsible use of freedom, competition, and profit maximization, and has relied on the illusion of the trickle-down theory.  

A government of the people, by the people and FOR the people means that the government exists for the citizenry as a whole, not just the economic elites, and certainly not for the stubborn perpetuation of discredited economic theories. 

Dudley Weeks