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Our Biggest Problem is Not Capitalism, It’s Our Democracy

By Keith Kelley via The Medium - April 5, 2019 -


Capitalism in the U.S. has problems, but the priority must be political reform. Our democratic system is severely broken, dysfunctional, and encourages bad economic policy-making.


There are always going to be people who are upset with our economic system. Republicans complain we don’t have enough capitalism — hamstrung markets and feckless government bureaucrats cause or exacerbate problems. (Not a new refrain, it’s been going on since the New Deal.) The left complains there is too much capitalism — leading to abuses by corporations and machinations by the wealthy.

The solutions on the right have been ascendant in the last 30 years, with substantial tax relief for the wealthy and income concentration in the upper classes. Fewer new social programs have been enacted and significant deregulation has occurred in the economy.

The progressive left is responding to the trend with numerous proposals to increase taxes on the wealthy. We hear a lot about the attractiveness of Democratic Socialism with its healthcare programs for all, fewer work hours, substantial pensions, and generous unemployment benefits.

Let’s examine the reality of the state of our economy, put it in perspective, then move on to what is really troubling our country.


Some Aspects of Our Economy Need Improvement

The percentage of national wealth held by the top .1% of upper incomes is now 19% versus 7% only 40 years ago. There has been substantial fallout from globalization and from automation. Manufacturing now represents only 12% of the overall economy, down from 30% in the 1950’s. As a result, millions have been displaced from good paying jobs. At the same time, young people entering the workforce for the first-time are faced with employers offering only short-term contracts.

In addition, we have societal problems such as the lack of health care for large numbers and the need to address climate change. Those are likely to cost enormous sums of money to fix, and there will be resistance to putting up the money.


Capitalism Per Se is Not the Real Issue with What Troubles Our Country

Capitalism is a system where people pursue their own economic self-interests and markets offer the opportunity for exchange.

As a system, capitalism has had its most successful run ever in the last 30 years. Extreme poverty is defined by the World Bank as less than $1.90 per day to live on, while middle class is defined as between $11 to $110 per day to live on. Per the World Bank, the percentage of the world’s population in extreme poverty since 1990 has gone down from 36% to 10%. In 1970, roughly 10% of the world’s population was middle class. It is projected to be 50% in 2020 and by 2030, a majority — 60% — will be middle class. In most cases, those making the transition to middle class have been in countries that have implemented market reforms, with large portions of the increases coming in China and other parts of Asia. On the contrary, economies that have reversed market reforms, like Venezuela, have stagnated economically.

While there are economic problems in the U.S., the economy works pretty well. TheU.S. has the world’s largest economy, high per capita incomes, and a way of life that is desirable- it is still a beacon of prosperity and freedom for many around the world. Thousands of prospective immigrants are turned away every year. Some are political refugees, but most are economic refugees or aspirants. We do still have large numbers of people who are not doing well, but overall, the economy has delivered.


Social democracies also have economic problems. European societies are held up as paradigms of fair economies by progressives in our country. But many European citizens are restive; it is not hard to understand why. Many complain about the high personal tax burden, which reaches 65–70% in many countries in the EU. Starting a new business can be a nightmare of bureaucratic entanglement. Furthermore, unemployment in the EU hovers around 8% — Spain — 14%, 11% in Italy, and 9% in France (the U.S. is around 3.8% at present). In those countries, there is worry that entire generations of youth face ruin from lack of opportunity. The percentage of people living in poverty is lower in the EU than in the U.S., but not markedly so.

Other alternatives have done much worse. China used to be called a “Socialist Paradise” but struggled with a highly managed socialist economy. Economically, it was terribly backward and stagnant. Only when the profit incentive for the average person was reintroduced in the 70’s did its economy begin to move forward. It is perhaps best described as autocratic capitalism — politically rigid, industrially managed, but with economic freedom for its citizens. India and Vietnam mirror China in reducing socialism and adding market initiatives in their societies.

In sum, blaming the capitalist system in the U.S. seems either without merit or pointless — as demonstrated below, solving economic or societal problems is going to be exceedingly difficult in the absence of political reform.


The Core Issue is the Need to Reform Our Democracy — It is Corrupted by the Money of Interest Groups

Prior to a Supreme Court decision in 2010,there was some restraint on political giving, but that decision unleashed unlimited political donations. That compounded an already existing problem of Political Action Committees flooding the system with cash. While the most cash does not win every election, it wins in the majority of them. As a result, Congressional Representatives and Senators spend a lot of their time raising money and working on their own re-election — raising the most money and winning the next election appears to be the priorities, rather than good policy or the public’s welfare.


New Political Parties Should Be Forming — But Money is Preventing It

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The percentage of people calling themselves Republicans or Democrats has been shrinking for a long time — the largest percentage of eligible voters are self-identified Independents.

It’s not hard to see why more profess themselves Independents — in the last Presidential Election, we had a choice of Trump or Clinton, a distasteful choice for many voters. The percentage of voters who believe the U.S. Congress is doing a good job is at an all-time low. And parties seem hostage to extremes — the Republican base believes in unfettered business and often reactionary social policies. The Democratic base is a cacophony of voices — socially progressive, but fragmented in economic thinking. Democrat moderates feel like they’ve been abandoned, somewhat in the way Republican moderates have felt left behind by Trumpism.

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In such an environment, one would expect the advent of new political parties -but one would be wrong. The last major change in American party politics was the demise of the Whig Party in the 1850’s and the subsequent rise of the Republican party. The highest percentage polled by a Presidential candidate not from the two major parties was Ross Perot in 1992, who ran as an Independent. The U.S. is uniquely restricted in political parties with many democracies in Europe having more than two parties and with parties that rise and fall with some frequency.

Why don’t new political parties arise in the U.S.?

Given the enormous money at the disposal of existing parties, it seems impossible for other political entities to arise since they are at a severe disadvantage in money. It is extremely difficult and expensive to obtain space on a ballot in every voting jurisdiction in the country — it is next to impossible to get on the ballot and fund viable campaigns in sizable numbers of districts.


The political system retards solving problems. The current political system leads to stagnation in solving problems. With such well-funded political parties and political opportunists (read lobbyists and interest groups), ramping up opposition to significant changes is easy and common. This also encourages divided government since no party has a significant edge in money.


Link to full article here.

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