The Minimum Wage is History

At it’s heart the concept of the Minimum Wage accepts the subservience of the social order to the economic order, and attempts to extract a concession from the economic system to maintain the fabric of the social system.

What’s the point of having a Minimum Wage? If the idea is to ensure that an individual’s work effort is not exploited so much that they cannot afford to sustain a basic, minimum lifestyle at that pay level, has it worked? No. Why not? Because it is a basically flawed remedy for a social problem imposed on an economic construct. It doesn’t work, it won’t work, and, in fact, it is polluting our political process by encouraging economic interests to subvert our political systems in order to restrain the impact of Minimum Wage legislation on their operations. (James K. Galbraith, Attack on the Middle Class, Mother Jones, Nov/Dec 2010)

In order for the idea of a Minimum Wage to achieve it’s stated objectives, two preconditions have to exist: people must have employment, and the Minimum Wage must be sufficient to sustain life. But in a capitalist society the availability of employment rises and falls with the business cycle of capital-intensive enterprise, so a Minimum Wage does nothing to help the worst off: the UNemployed. And in today’s capital-democracies the political process is subservient to the capitalist process, meaning that the level at which the Minimum Wage is set is subject to the approval of the largest capital interests (who control the politics).

At it’s heart the concept of the Minimum Wage accepts the subservience of the social order to the economic order, and attempts to extract a concession from the economic system to maintain the fabric of the social system. This ‘world view’ is a legacy of the awe with which we witnessed the incredible rise of capitalist enterprise in the 20th C. The basic flaw in that model is the notion that the economic system is sufficient to sustain the social system, it isn’t and won’t ever be – the economy is a subset of society and to no amount of imagination can subvert that reality. This is part of the structural problem at the root of our perilous rush to oblivion, the economy is dependent on the society, not the other way around. It is only when our social support systems are assumptively included in a picture of our society that it appears to the casual observer that the economy is our master. Belief in the ascendency of markets and capitalist economics is akin to belief in creationism, it requires ignorance of the facts. The facts are that our economy is 100% and inextricably dependent on our the health of our society.

On the other hand, no economist locked in a room with only economic theory could construct an argument in support of the Minimum Wage, it is a basically distorting mechanism that meets no economic goals. And that’s the point, the Minimum Wage is a social construct designed to try and deliver a social end. It’s time we stopped trying, and starting actually delivering the end we mean to. If we believe that a citizen is entitled to a basic minimum lifestyle (and we had better believe that if we value a peaceful, sustainable society), then we need to start delivering that, instead of playing with market mechanisms in an attempt to deliver the same. To quote Morpheous, “Stop trying to hit me, and hit me!”

If we carry on with our current approach, we are just floundering around in a nebulous construct that we know, deep down, is completely flawed at its foundation. It’s time to stop playing cricket on a football pitch and move the game to its home turf. Face it, live up to it, call it out and be proud: “We believe that every single person in our society is entitled to the basic services that sustain life. We’re not asking for permission to deliver on that promise, we’re going to deliver on that promise first and sort the rest out on top of that.” That we is you and me, we aren’t asking business to sort it out for us, we are taking responsibility for sorting it out ourselves. We’ll pay for it exclusively out of our income taxes and we’ll get it done without a single dime in corporate taxes, without a mandated wage and without the involuntary participation of any commercial enterprise. It’s our society, we live in it and we take full responsibility for it.

The minimum wage is history, it’s time for the return of sanity, responsibility and honesty. The minimum wage is an excuse for inaction, an innocent but ignorant attempt to pass our buck to people who can’t and won’t do what we say we mean to do. There’s plenty of income tax to do the job, we just need to do it, and for the sake of preserving a thousand years of civilization, we need to start doing it now!

Next Left

“It is clear that centre-left thinking is in need of radical reappraisal”, to quote from an Institute for Public Policy Research (ippr) paper entitled “Where Next?“, and which I recommend you read. The paper, subtitled “The challenge for centre-left politics”, is the outcome of a series of events on the subject and includes a summary by Tony Wright, Professor of Government and Public Policy at University College London.

The reality is that centre-left politics has been in dire need of new thinking since the 1970s when the oil shock put paid to the illusion of the imperial-welfare-social-democracy that was born out of post War social ambitions in those nations that were still riding on the subsidies of colonial pasts. When the resource origin nations suddenly demanded their price for their resource the industrial-welfare states had to reconfigure their economies to survive; and thence was born the modern capitalist-democracy in which the welfare of all was dependent on the abilities of their capital-finance agents to revive the same imperial exploitation, but this time in the name of capital instead of their Capitals.

What about the nascent rise of neo-socialist governments in South America, is that the next left? Unfortunately, while heartening in their self-determination, these examples are based on the same flawed socio-economic thinking that has just crashed neo-socialist governments in the old industrial world: a faustian bargain with the “masters of the universe” to bring the riches of resource exploitation and financial alchemy home to support their political ambitions. Not only do the New World resource-socialists risk being taken for a ride by the master manipulators, they also face the certain arrival of curbs on the very resources they hope to exploit, as the realities of atmospheric balance (to which they are most susceptible) start to bite.

It is clear that center-left thinking is in urgent need of radical reshaping, not only in the old industrialized nations but also in the New World and in the two great land powers without whose cooperation any such reshaping will be meaningless: China and Russia. A task indeed! But let’s follow the points raised by the ippr paper to see if we can’t see a way through to what’s next. At the core of the questions raised in the ippr paper is a reboot of the relationship between citizen and state in which the power that people have over their own lives is enhanced so that they can access the means of civilization for themselves, while the statecraft of government is reformed to provide core public functions and underwrite the results with its guarantee. This recognition of the legitimacy of the individual, along with the role of active government to deliver what individuals cannot, is the ground on which the centre-left must stake it’s camp. It is a citizen/service orientation, distinct from the worker/capital or market/government orientations of yesteryear.

A fundamental point raised in the paper is that now is precisely the right time to promote politics, in the face of widespread civic disengagement, as the means by which citizens confront common problems without recourse to violence. To do this effectively and credibly we will have to be open to institutional reform and even some constitutional reform. Enhancing our democracies to enhance the citizen-government relationship requires us to develop and implement better systems of representation, greater localism and a more transparent connection between voter and voted. The difficulties of delivering effective democratic control over the necessarily different levels required for differing purposes is a challenge that has not yet been met. The Next Left must come to bat with proposals, and open minds, to resolve the local through supra-national influence expectations of citizens. A system of multi-layer democracy that incorporates the principle of subsidiarity is the goal, and it can be developed by extending and enhancing what we have today, but not without some reform of our constitutional structures. We have to be prepared to bring this reality with us, develop solutions based on values and be willing to explain ourselves. When we know that local decisions are not well made in national assemblies and that national decisions cannot be made locally, we must embrace those facts in the adoption of a multi-layer structure that seats political power at the level appropriate for decision making. Citizens are not afraid of voting and they would rather vote for multiple assemblies than be disconnected from their right to influence. And when we know that a single transferrable vote in a multi-member constituency is the fairest way to vote, we must have the courage to lead with that as our banner for representation.

A new economic model is also vital. Governments need markets and markets need governments, that debate is done – what still remains is to establish is the basis for our future economy. We now understand that capital exists in relation to environment, regulation, people, society and unprofitable but vital needs: the new capitalism is a component of the total picture, not its foundation. In the Next Left the foundation of society, embodied in the vital service requirements of the people, is the responsibility of the people themselves and forms a foundation on which capitalism operates as a client system. Tackling the “poverty trap” and “incentive” problems inherent in the old welfare models remains critical because there must still be an infrastructure of support services in place that protect against insecurity and expand opportunity. The model that works here is that of Universal Services, whereby the cash-based welfare state is replaced by the delivery of the services themselves at the most local level, financed by taxes collected at the highest level.

Everyone has a stake in Universal Services and they fulfill the promise that links every citizen with the reason for having a state. But equally important is the effect that Universal Services have on the economy, on the ability of every person to participate and contribute to the society as a valid and valuable economic entity. It is at the local level that this effect is most pronounced as microeconomic activity is unleashed, complementing our capital-intensive industries. The economy becomes a client of the society and in so doing it develops a broader, more sustainable and less growth dependent nature. The guaranteed service levels implicit in Universal Services provide real accountability for local government, while directly linking citizens with the obligation to define priorities and accept that doing more of one thing will often mean doing less of something else.

So a framework emerges which combines the enhancement of democracy with a multi-level structure, the replacement of welfare with universal services and the placement of economic activity within the context of the society, not the other way around. This Next Left is grounded in principles and based on standards that provide a coherent narrative, placing the standard of life above the standard of living.

The Next Left must lose its predecessor’s reticence to tell its story, and paint a clear picture of a society that has intentionally moved beyond the democratic-capitalist model, that unashamedly takes responsibility for delivering the core public functions it is best placed to do, and which embraces the natural enterprise of the human spirit.

It’s time to stop asking what’s next, and to start answering that question. The Next Left is what’s next, and we’re all the ones who’ll do it.

The Clarity Deficit

Why deficit spending is more populist than practical.

Deficit spending. It’s all the rage in the US, from progressive politicians to populist economists the call goes out for “greater spending to offset the recession”. Money’s cheap, the need is great and history shows it can work, or so they say. But is it that true, and is that really going to help?

The basic theory of maintaining demand in our economies is sound, but the proposal to spend borrowed money to maintain it has limited applicability (Jeffrey Sachs, Financial Times, June 2010). To misquote the master of fiscal interdiction, the economy can stay rational longer than policy can remain illiquid. We cannot at the same time profess belief in monetary economics and propose to subvert it. In other words, we cannot propose to inject more liquidity, more demand, into the economy without also proposing how to pay for it and what kind of demand we expect to stimulate. The debate must be about what to do in our specific context now, not about competing theories of economic policy. Our reality is that we are carrying structural budget and trade deficits into it a period that requires very significant investment.

The rationales for deficit spending today rely on appeals to empathy and historical precedent, rarely is there rational analysis of how the imbalance that they propose to create would be corrected. While the desire to do something to alleviate the plight and suffering of those victimized by the recession is both honorable and understandable, the proposed solutions must have a stronger foundation in the reality of our predicament and the practical possibilities available to us.

Let’s look at the arguments proffered to support the case for further deficit spending at this time. They boil down to two assertions: one, that the spending will stimulate future growth and that that growth (along with a little inflation) will make today’s borrowing affordable in the future; and, second, that the historical lesson of the Great Depression is that fiscal rectitude robbed us of an early exit, only rectified by the splurge of deficit spending that accompanied the Second World War.

First, the idea that growth and inflation will make our debts affordable in the future assumes that we grow our wealth and that inflation is controlled. The anticipation is that growth will exceed 3% and inflation will be constrained to single digits.

Just how much growth can our current economies sustainably achieve? Our modern economies are basically tooled for 20th-century style industrial growth, fed by an unsustainable power infrastructure. Any increases in demand today necessarily feed fuel into an unsustainable, waste generating economic system dependent on limited supplies of fossil fuels. The real need in our economies is for investment in re-infrastructuring to support sustainable growth, but that is not where anything but a vanity veneer of the proposed deficit spending would be directed. The principle supporting argument advanced by the proponents of deficit spending is that it will stimulate demand today, and we have to ask ourselves if that is not simply sacrificing our grandchildren to feed our comfort now, while wasting the opportunity to actually invest in our futures.

Even if we put aside concerns about sustainability, the cost of primary inputs into our economies today, from foods to oil and just about everything in between, are rising and forecast to increase by 50% to 100% within a decade (Sir David King, The Guardian, June 2010). Increases in demand today automatically trigger rises in the price of raw materials that are primary determinants of the costs basis of our economy; for instance, the price of oil is directly related to the prospects for growth in the US, and as soon as there is a predicted rise in US demand the price of oil goes up. These cost increases suck wealth out of the US economy in most cases.

Inflation is dramatically more likely than growth, to a point of near assuredness, if there is no real growth in wealth. Monetary economic systems are completely dependent and finely balanced on the concurrence of money supply and real wealth, the former without the latter necessarily results in inflation. None of the proponents are arguing that deficit spending today will directly result in real increases in wealth, the proposal is simply to maintain demand on the grounds that real wealth growth will be stimulated by the demand. This has some limited validity, but it is important to note that the vast majority of the proposed spending would be consumed immediately by the social needs of the society, leaving increases in wealth substantially lagging behind the increase in money supply. This is a recipe for inflation and would be spotted by the would-be lenders way before it becomes a fact, resulting in increased borrowing costs that would sap any increase in wealth achieved.

So if the assertion is that we will be able to grow and inflate our way out of the debts we create, we are wrong on both counts. We are unlikely to generate net growth and we are very likely to create inflation. And the inflation will not mitigate our debts because the markets will spot the risk and inflate the cost of our debts to compensate.

Turning our attention to the historical narrative offered to support the importance of spending our way out of depression, we need to look at the circumstances of that history and ask ourselves if we are in the same context today. The example is that the Western economies only truly emerged from the Great Depression when deficit spending dramatically accelerated with the advent of a concerted war effort in the 1940s. That history is true, but is deeply flawed as an example of what we could follow to emerge from this recession. The number and variety of reasons why the history does not apply to us are great but let’s have a go at a few of the obvious ones.

Firstly, World War II left only one industrialized economy effectively untouched: the USA. As a result of this preeminent advantage the US was able to grow its wealth very dramatically in the years following the war and thus easily afford to repay the debts. The years following WWII were effectively a free-for-all for the Americans, and to a lesser extent the British, because they had little or no economic competition. That is most assuredly and evidently not the case today. The world has many strong economies today and growth in US demand today will result in the accumulation of wealth over a much more distributed geography than was the case in the 1950s. In fact, deficit spending in the US today is most likely to result in greater increases in wealth abroad than it is at home, while the debt will be entirely American.

Second, the spending in the 40s was focused on production capacity, not demand enhancement. The equivalent today would be to spend all the money on greening our infrastructure, something we should do, but not the intention of the proponents of deficit spending. It is possible to invest without borrowing, as I explain later.

Third, the deficit in the 40s was funded from a basically domestic debt market when global fluidity was almost nonexistent. Today’s deficit must be funded in a highly fluid global money market, using international sources for at least half of the debts. This means that borrowers today are subject to the inspection and opinion of economic observers across the globe, who have a myriad of options for what to do with their money. Thirty, and even ten, year debt today is substantially more expensive than it was in the offered historical example.

Fourth, material input costs today are substantially more volatile than they were in the 40s. In the 40s and 50s the cost of many raw material inputs was still falling in real terms, as the effects of advances in the sciences of discovery and extraction increased available supplies, at the same time that speed to market and cost of production were reduced. This is most certainly not the case today; the cost of primary inputs into our economies today are only going to rise, especially energy costs.

Fifth, the demographics of the modern societies that host the economies of which we speak have almost exactly the reverse characteristics of the historical example. Today we have aging populations with high demands for social support within reproductively stable demographic profiles. Our futures promise greater social infrastructure burdens, not the larger contributing workforces of the 40s and 50s.

So, compared to the historical example: we have more competition for the benefits, greater constraints on activity and higher costs of borrowing, within a more globally fluid economy, with a completely different demographic profile.

The 21st century is not the 20th century, and we are not in the same position as our grandparents. The idea that we can spend our way out of this recession, like our grandparents spent their way out of their Great Depression, is both false and a disservice to the great pain inflicted on them by the worldwide war that created their circumstances. We must face our challenges with a clear understanding of the world we live in, and we must develop solutions in the context of our situation and with the objective of developing a sustainable future for ourselves, our grandchildren and the planet we inhabit.

Given the constraints on both the source and use of funds that we face today, it becomes apparent that rather than running up debts to fuel demand, we must invest in re-infrastructuring our economy while reducing our dependence on borrowing – a mighty challenge indeed! Which brings us back around to one of the motives for proposing the deficit spending: empathy for our fellow citizens and an understanding that our peace and freedom are dependent on a more balanced distribution of material security across our society. How can we reduce borrowing, increase investment and maintain our social cohesion simultaneously? That is what we need to do, and I doubt there’s a single proponent of deficit spending that would disagree, it’s just that they assume it’s not possible to do all three at the same time, and so they propose a remedy for one or two out of the three. In reality our social cohesion is doomed if we don’t do all three: debts, inflation and failure to adjust to climate changes are the three most common causes of social collapse.

In order to do all three there is one key factor that must be achieved: a reduction in real (aka monetary) costs. As we have just examined, this will not be a reduction in the cost of material inputs, nor a reduction in the cost of capital, so it must be a reduction in the remaining element in the cost of production: labor. The key to understanding how the cost of labor can be reduced is to remember that the “cost” we are talking about is monetary cost, measured in Dollars or Pounds or Yen. Monetary costs are significant of wealth, and costs paid in money are necessarily significant of the transfer of wealth. If costs can be met without money, then wealth does not get used to satisfy them, and wealth does not need to be borrowed to fund them.

There is a significant portion of labor costs that do not need to be satisfied with wealth transfer, these are the cost of satisfying what Maslow termed as “hygiene factors” in his Hierarchy Of Needs. That portion of labor costs that are made up of hygiene factors and can be satisfied with the transfer of labor instead of money, can be removed from the monetary cost equation. Those costs do not need to be funded with money, instead they can be “funded” by the transfer of labor within a social system. For instance, if transport is free to me, that reduces my need for monetary compensation commensurate to my need for that transport. Of course transport is not free, because there are material inputs to its provisioning and operation, but if that portion of the cost of transport that is represented by the hygiene needs of the workers within the transport system was satisfied in-kind, the monetary cost of the transport service presented to me would be similarly reduced. There is a cyclical and repetitive reduction in the cost of labor the more the hygiene needs of the workforce are met without monetary transfer. Because hygiene factors are nearly universal across the population, the exchange of labor as a replacement for currency has universal value and similarly reductionist effects on the cost of labor across the economy and society.

Even just the availability of hygiene services at reduced cost has the effect of reducing labor costs, even if many do not avail themselves of the actual services. Establishing the universal availability of basic services that satisfy the hygiene needs of the workforce at little or no monetary cost reduces the cost of labor in the economy significantly. The size of the cost reduction can be measured in that portion of income it is necessary to pay the labor component of satisfying hygiene needs; in most economies an easy indicator of this cost is some portion of the mandated minimum wage.

Analyzing the hygiene services in the modern economy (housing, food, health and elder care, education, transport and information access) suggests that 80% of the cost is attributable to labor, and of that about one third is the equivalent of minimum wage. If 50% of that is provided by in-kind services, the reduction in the cost of providing the hygiene services themselves is around 13%, a factor that is at least repeated throughout the private sector as well. If the cost of labor across the economy was reduced by half the minimum wage, sufficient monetary value would be liberated to invest in infrastructure without borrowing, and the cohesion of society would be enhanced. The impact on taxation revenues would be minimal because the hygiene portion of incomes is not usually tax burdened, and the hygiene services themselves are not typically subject to consumption taxes.

The move to universal hygiene services has the potential to negate the annual budget deficit of most industrialized countries at the same time as it enables development of a sustainable microeconomic fabric that generates real wealth across a broader spectrum of society, and enhances resilience against the turbulence of climate instability. Instead of increasing debts to increase demand which results in accelerated climate change, we can reduce debts to increase sustainable development that begins to mitigate our impact on the climate. If we were to implement universal services within existing budget constraints, reduce costs and invest in infrastructure, that would be a more relevant narrative for our current predicament than deficit spending to maintain unsustainable demand!

The 21st century is the birth of the global age and we must put away our 20th-century toys if we are to successfully navigate the waters of our modern world. Borrowing is a 20th-century tool that requires segregations and imbalances that are no longer sustainable, in the 21st century we must learn to live sustainably without borrowing from each other or from the planet. By definition a self-sustaining system prospers from its inputs such that its balance sheet is in equilibrium at the end of each cycle – that is the nature of the planet that hosts us, and it is a process we are obliged to align ourselves with.

Our Story

A proposal for a new, progressive, common narrative.

In response to Amitai Etzioni’s call in action in The Nation magazine for progressives to find a common narrative that tells the story behind our intentions, we offer the following as a starting point.

~ ~ ~ ~ ~ ~~ ~ ~~ ~ ~~ ~ ~~ ~ ~~ ~ ~~ ~ ~~ ~

The combination of science and enterprise over the last century has created a potent force for good, but which has lost its context within human society.

This has resulted in an unbalanced relationship, a disintegrated society, in which the engine of growth has become disconnected from the passenger cabin that it is supposed to transport.

Reintegrating our economy with our society will allow us to improve our standard of life and balance our relationships with each other and the planet we live on.

An Analogy
The engine belongs in the body of the car, controlled by the pedals at the drivers’ feet and steered by the wheel in their hands. The car cannot move forward without the engine, so the driver and the passengers must take care of the engine, ensure it has fuel and vital lubricants, as well undertaking any necessary maintenance to keep it running smoothly, cleanly and efficiently. The passengers decide who amongst them will drive and steer, and the drivers have responsibility for keeping the passengers free of unnecessary dangers.

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Through the fusion of science and enterprise, we have created the most powerful force in the history of the planet: the force of business and commercial enterprise. This force has the power to destroy the planet and human society, to obliterate species and make vast swathes of the planet uninhabitable for humans and others. The same force has the power to deliver a higher standard of life for every human, an achievement not even conceived of as possible a century ago.
At this time the pros and cons are pretty much equal. The damage done thus far has been in proportion to the benefits delivered; but to reap greater benefits using the current construct, we would have to damage our societies and our planet even further, and that ways lies self-destruction.
To bring the force of enterprise into service we have to reorientate our relationship with it, so that we care for it and nurture it in harmony and in balance with ourselves, and the pursuit of a decent standard of life for all on this planet. Unifying our individual liberty, our collective societies, our knowledge of science and our entrepreneurial drive will allow us to reap the rewards of life on this beautiful planet.

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Integrating the force of enterprise into our societies means respecting it for what it delivers by taking responsibility for our social needs independently. To do this we must deliver basic universal services, paid for exclusively out of income taxes – this removes the constraints of minimum wages and makes taxation of enterprise a discretionary activity. In so doing we liberate the tremendous force of micro economics and instantly “green” our economy.
In order to achieve this reorientation and integration we need to devolve power down through a fabric of communities, regions and states so that decisions can be taken at the most appropriate level, because delivering basic universal services requires local delivery systems, managed and staffed by local providers, and controlled by local democracy.

Reimagining our options

Why borrowing, taxing, printing and cutting are not our only options.

Why we don’t have to tax, borrow, print or cut.

Has it occurred to anyone that these are not our only options?

The prevailing logic (we won’t call it wisdom) goes something like this, and I’m sure you’ll find this very familiar.

We understand the need for a social safety net, especially important in urbanized societies where the poor cannot “return to the farm” in bad times, and the value of certain investments in our social infrastructure that sustain our economy and our social fabric, but we cannot afford to pay for them – meaning that our government does not raise enough in taxes to be able to pay for the services.

Here, below, are the reasons and rationales offered for why this problem is only resolvable through austerity measures, meaning reductions in social services and investments.

1) We cannot raise taxes to create more revenue because those taxes will destimulate our economy, resulting eventually in lower tax revenues. In other words, raising taxes is a self defeating strategy that will only require yet higher taxes in the future, until the economy is so deteriorated that it cannot create sufficient wealth to support the burden of the social infrastructure at any taxation rate.

2) We cannot borrow any more because we have already tried that and now carry so much debt that simply servicing the debt we have is the best we can do.

3) We cannot print money, or at least we cannot be seen to be printing money for very long, because that will devalue our currency and create inflationary pressures in our economy. We all know what happened in Germany before the Second World War.

4) We have no choice but to cut our expenditures, and that means reducing our social services and investment in our social infrastructure.

Now, before we go any further, let’s deal with the objections that have already arisen in your mind.

1) “Taxes can be raised.”
It is true, we could be more effective in our tax collection practices and we could probably tax certain activities more than we are. In most countries, that have income tax rates at or above one third and sales taxes of between ten and twenty percent, there is actually relatively little room to raise taxes without deflating economic activity. However, the most important point here is that it would take really high rates of taxation, high enough that almost everyone would agree they were too high, to raise sufficient revenues to cover an even moderately ambitious social investment program. When you do the math you realize that you cannot tax your way out of this problem. If anyone tells you that you can tax your way out and that there are examples of countries that are, you can safely tell them that those examples, and that math, is dependent on borrowing demand from another society, i.e. unbalanced trade. There is no sustainable taxation solution to the problem of affordable social infrastructure.

2) “We can still borrow more.”
As I write, in the Spring of 2010, this only true for an increasingly small number of countries, rapidly dwindling to only one, and soon to be none. There are counties with vast (unsustainably) exploitable natural resources who can borrow, but they don’t need to.

3) “We can print more money, it’s not the bogey man many say it is. We’ve done it before, we can do it again now. We now have sophisticated financial control mechanisms that allow us to control inflationary pressures. A little inflation is not such a bad thing – it will help to reduce our debt in real terms.”
You can take your pick from those arguments but ask any central banker charged with controlling inflation and you’ll hear a real expert tell you otherwise. Liquidity in a modern economy is a difficult beast to control and playing fast and loose with it will get you in trouble, nine times out of ten. You might be able to increase liquidity inside the banking system for a while, but if that gets out into the general economy (which is where social spending has to occur) you’re going to get inflation.

4) “We can cut other expenses, such as defense, instead.”
A favorite of the passionately well intentioned, but unfortunately deeply flawed. The horrible truth is that the necessary social costs greatly exceed any savings that could be wrangled from waste and militarism. This is not to say that waste and militarism should not be targets for reductions in expenditures, just that even if you’re wildly successful in reducing these expenses you simply won’t be saving enough to pay for the social infrastructure required to make your intentions a reality.

And so we are returned to the matter of cutting expenses. It would seem, and indeed it is true, that we have no choice but to cut our expenses. We can only spend what we can raise from reasonable taxes, and the options to borrow or print our way out of our problems are but short term tactics for delay.

Stumped? Did I take you all the way here just to show you that we have no other options? No, I didn’t. We have to cut expenses but we don’t have to cut our social services. In fact we can increase our services and our rate of investment with the same or less money that we use now. How? Let me show you.

Social services aren’t, can’t, won’t and must not be measured in monetary terms. You aren’t paid in money to help an old lady get off a bus, to change your children’s diapers, pick up a piece of litter or care for an elderly parent. So long as you are secure in your own personal welfare you do these things for free. Well, not actually for free, just free of monetary compensation. You do these things because they are part of your social fabric, and you are rewarded in kind by a cohesive and supporting social fabric around you. Inside the appreciation of this simple mechanism lies the key to unlocking the door that leads to the solution to our problem.

As long as our basic social welfare is secure we make spontaneous and voluntary contributions without monetary compensation. Even those who think of themselves as selfish animals are unavoidably and instinctually engaged by this natural mechanism. We do not have to pay ourselves to deliver our social services, we just have to create the basic security that unlocks our potential for social contribution, by guaranteeing that basic services will be available for anyone who needs them.

The solution that we have not considered yet as an option is revealed to us through simple observation of ourselves in action.

There are still costs that must be paid for with money, but the remaining costs are within reach of a reasonable tax on the economic activity of a sustainable economy. To paraphrase a wiser man than I: pay in money what must be paid in money, and pay in kind what can be paid in kind.

The math adds up, I’ve done it, try it for yourself. Take a reasonable tax on people’s incomes and spend it exclusively on social infrastructure that will guarantee every citizen the bare necessities of life. We can afford to guarantee everyone basic shelter, sustenance, education, healthcare, public transport, access to information and legal services. Not everyone will want them all, most will only use some, and a few will use none at all. But a reasonable tax on economic incomes will generate sufficient monetary revenues to pay for the monetary components of a guaranteed basic social infrastructure for all. The enablement of this basic infrastructure removes the monetary cost of its own delivery through the liberation of natural human tendencies.

The mechanisms to enable this solution are already in place: democracy, tax collection and service delivery. All we have to do is subtly reorient our priorities and activities to dedicate income tax revenues to guarantee a basic standard of life. It would take less than three years to be fully implemented in most nations today, and would not require any dramatic upheavals to any of the basic economic systems already in operation. It will require us to reimagine the possible, but that is well within our grasp.

Here’s how it works. I, and you, are guaranteed by our compatriots at least the bare essentials for a reasonable life: a roof over my head, some healthy food, access to a doctor, education, local public transport and the Internet. Understanding that these basic services are available, I am free to seek whatever work I can find to supplement these services with cash, that I can use for discretionary activities like entertainment and comfort. There is no minimum wage because my basic life sustaining needs are guaranteed, and also I am not forced to accept any job just to keep body and soul together. In fact, I only have to work for as many hours as I need to meet my needs for discretionary income; I am free to spend the rest of my time at leisure or helping out in my community, should I choose to do so. “But what about those who choose to neither work nor contribute?” They would have no discretionary income, and everyone has discretionary desires – in time desire will lead to work and contribution. In this situation the monetary cost of our time is reduced and this same reduction makes the provision of the social services affordable from a reasonable tax. In fact, the more I help out voluntarily in my local community the lower the cost of those services and therefore the lower the rate of tax on my income.

Within three years just about any community could build a community center with a canteen and build or acquire sufficient public housing to fulfill the fundamental elements of the required basic social services. This effort is easily within the grasp of most communities in the industrialized countries. While those are being built nothing else needs to change, and when they are completed and in operation the minimum wage can be abolished. Everyone is freed to work in whatever way they can and want to to earn monetary income. For many life will not have changed at all, they still have their job, go to work every day and earn similar incomes and pay similar taxes. For our governments the cost of delivering social services will have been transformed with plenty of workers delivering the services either completely voluntarily or at substantially lower montary cost, enabling them to balance their budgets while still supporting a vibrant and cohesive social structure.

The square can be circled. This is the option right in front of us that we have not seen. This is the solution, an alternative to socially destructive and ultimately self defeating cuts, that does not require unreasonable taxation, unsustainable borrowing or inflationary printing.

Rinse and repeat, until it sinks in.

After that, to find out more go to Standards of LIFE.

Whatever happened to the European social model?

“Can the debt and deficit laden European welfare states . . . rescue their public finances and reform their social market economies?” asks Timothy Garton-Ash in a column in the Guardian this week. Can any of the Western democracies work their way out of their sovereign debt while maintaining their social fabric? Including the U.S.!?

Even before the bank debt crisis was transferred to the public purse in 2008, gaping holes had started to open in the public accounts of every developed society that was unable to exploit fortuitously local natural resources. The full development of the “social market economy” had not actually been possible until the latter half of the 20th century, and then only the most industrialized societies were able to give it a try. And give it a try they did, without employing the same cold, hard analytical skills that they used to develop their burgeoning, ravenous and muscular economies.

The reality in those countries that did look like social market economies was that they had split into two internal realities. Cold, clear market economies on the one side and warm, fuzzy political fantasies on the other. So long as the political reality didn’t infringe on the operations of the market reality, each could live in their own space, peering occasionally with bemusement into the other reality. The deal centered around the political reality being able to sustain itself without imposing too great a burden on the market reality.
You could ask anyone on the market side and they’d tell you that the politicians weren’t living in reality, that their math skills stunk, and that that “it” would never work – but heck, so long as vast swathes of society were happy to be deluded, and those delusions didn’t interfere too much with the “natural” market forces that really made the world tick… who were they to try and correct the fallacies, right the wrongs or destroy the fantasy?
On the other side, in the political reality, everyone was agreed, with great frustration, that the inhabitants of the market reality were just one enlightenment short of recognizing the inevitable self-destruction inherent in a market economy model that failed to recognize that it was supposed to serve the needs of the political reality.

The disconnect was pretty universal and early in life most people picked or found themselves in one reality or the other, which then shaped and framed their worldview thence forward. The actual reality, the real shared universe, got little attention and virtually no recognition.
What allowed these two realities to persist for a century, and what has now virtually collapsed in 2010, was the subtly corrupted accounting on which the market economies were based, and which sustained the illusion of self-funding welfare societies.

At the beginning, the social welfare provided was very meagre and was available to only a few. For instance, pensions were only subsistence and only a few lived long enough to collect them. In the middle, the economies that supported (funded) the slightly better welfare programs of their age were unconsciously over-muscular, leveraging unbalanced trade, resource exploitation, uncosted environmental pollution and unfair competition to generate unnatural wealth (profits) that made the welfare states that relied on them look affordable. In fact, they weren’t.
The collapse of the Soviet communist system mid-way through this period just “proved” to everyone that asserting the political reality over the market reality was a road to doom. In actual fact it proved the necessity of allowing natural markets to operate and the fundamental role of freedom in human society, but it did not help to frame the proper and useful placement of market economies – it just proved that we need them.
The the later stages, as social welfare developed more fully and costs rose significantly, the market economies of the West started to run out of resources and face greater competition from the rest of the world. In response to those pressures a complex system of debt was used to replace real wealth. The political reality encouraged the markets to manufacture a debt delusion that was bound to crash when it ran out of bubbles to inflate. This happened in 2008 and the real reality, that the political reality is dependent on the market reality, came home to roost. The first response, the understandable reaction to the shock, was denial; and the remedy was to repair the debt damage in the market reality by transferring it to the political reality, by bailing out the banks.

Now we must face the fusion of our political and market realities, if we are to forge a path forward for cohesive human societies. We must face the reality that we cannot account for our social needs with the same mechanisms that are appropriate for our market economies. If we are to build sustainable market societies we must recognize the social rewards of social work alongside monetary rewards for market success. The reality is that the market economy is a smaller realm of activity than the social services realm, and the market economy simply cannot produce sufficient monetary wealth to pay for the the necessary social activity with money.
Transitioning to this fused reality is not hard, or far away. The future of the “social market economy” is the “market economy society“. A subtle but profound transition of emphasis accomplished by an equally subtle and profound change of our priorities. The market economy remains but the political reality is profoundly altered by accepting responsibility for itself and transitioning from dependent to independent.
The market economy society establishes a framework within which the market can operate without responsibility for society, because society has assumed responsibility for itself and the market operates within a space created and nurtured for it by the society. The mechanisms that create this reality are simple and universal as well as being accessible and immediately effective.
In a market economy society the monetary cost of labor is only its commercial value adding quotient. This is true because the society provides the basic services necessary to sustain a reasonable life (shelter, sustenance, transport, education, healthcare, information and the protection of the law) for free – the majority of the cost of these services is absorbed by the citizens of the society in return for the reward of living in a peaceful, free, market economy society.

This is the only desirable and feasible human society. The debt bubble has burst, the industrial growth train has run out track and steam and the elevation of social awareness is irreversible.
The looming “age of austerity” being offered up by the old disconnected realities is neither necessary nor acceptable, as we shall see. The measure of our skill as a product of Nature will be our ability to reimagein our actual reality, with clarity of practice and intention.

The Unified Theory of People in Action

How do you pay for a peaceful, socially secure and democratic society with a sustainable economy?

There is a blind spot at the center of modern social-economic thinking to which we are almost universally susceptible, and yet it can be quite easily observed to be false. This is an introduction to that conundrum.

We all want to live in peace, with a certain degree of prosperity. Most of us would like this to be at least inter-generationally sustainable. Our general principles of organization are also fairly commonly established, including the rule of law and the freedom to choose our governments by popular election. That’s a pretty good start, and we all pretty much share these principles.

Within this general context, we have two primary schools of thought, the Left and the Right. The Left tends to believe that the quality of any individual’s life is dependent on the quality of the life of their fellow citizens, and that that quality is achieved through a communal effort to support the basic infrastructures of society, such as public services and social security. The Right tends to believe that everyone is primarily responsible for themselves and the consequences of their actions, and that the prosperity of a society is substantially dependent on the freedom to pursue opportunity and engage in enterprise.

On these basic points each school is right. Left and Right are not in conflict as much as they think they are, they just emphasize different priorities. However at the nexus of their disagreements is a mutually held fallacy: that the “economy” can produce sufficient wealth to “pay” for the society they wish to live in. The reality, the elephant in the room holding a giant sledgehammer and standing next to the mirror that they use to sustain their mutual illusion, is that the economy does not, and cannot, produce enough wealth to pay for the society they want.

The Right believe that a comprehensive social benefit system will result in withering tax rates that will deflate the economy, and that borrowing to pay those benefits is not a viable alternative. They’re right. The Left understand that our modern social civilization depends for its peace and prosperity on a functioning social infrastructure and that poverty undermines the foundations on which we all stand. They’re right, too.

What they are both wrong about is the math. The economy, after all, is just a system of accounting that lubricates the actions of people. The wealth that can be counted in money is the value added output of commercial enterprise, it is not a measure of the total output required to enable and service the whole society.

In developed, democratic, peaceful and prosperous societies children take a long time and a lot of effort to raise and educate into functioning citizens and economic participants. During our lifetimes we need a range of services such as healthcare, transport and access to information in order to participate fully in our society, and we live for a long time passed our age of peak performance and output. In fact, in a modern society, only about one third of the population is gainfully employed in wealth creating (i.e. tax paying) activities — the rest are either young, old or disabled. Yet every citizen at every age is a consumer of, and dependent on, the services and infrastructure of the society, without correlation to their wealth creating capacity or activity at any particular stage.

The elephant in the room is this basic economic math: that we are all greater consumers of social resources than we are contributors of monetary taxes. We do not pay our parents to raise us, nor does anyone else, and nor could any society afford to pay every parent for their services, any more than any society can afford to pay everyone who cares for an elderly person. We understand this intuitively; we know that our families, our communities and our society are dependent on the unpaid contributions of many. We know that to attempt to pay everyone who helps out is a totally impractical idea.

There’s enough expense in simply building and maintaining the infrastructure of a modern society to consume most of any reasonable tax on wealth creation. The naked truth is that every society is completely dependent on the voluntary contributions of its members, in return for rewards that are not measured in monetary terms. What we call “the economy” is not the same as our society, and it only represents and accounts for a minority of all the people’s actions. The economy can never generate enough money to compensate everyone for all of their activities. No society can function without this volunteer action, and yet it is outside the system of accounting that we call our “economy”. Our society is a larger body of action than our economy, and you cannot pay for the larger out of the smaller.

And so the mirror is broken, the elephant having deployed its sledgehammer, shatters the illusions of both Left and Right. We cannot tax our way to equality any more than we can survive as a society without education, transport and healthcare. Yes: corruption, military spending and inefficiencies are terrible wastes of money, but the reality is that even if they all stopped tomorrow we still couldn’t afford to pay for all of the facilities of a functioning, prosperous, democratic society out of taxes on the demand economy. Even if our military spending would pay for universal healthcare, or quality education, or high-speed public transport — it won’t pay for all three. Modern social civilizations require a vast public infrastructure for transport, energy, information and public services, further amplified by climate mitigation needs. And if you don’t provide these facilities you can’t have peace, freedom and security to enjoy whatever prosperity you do have.

The mirages of self-funding, social democracies are often referenced, but do not withstand scrutiny. Those nationstates today that look or claim to be pulling off the trick of tax-funded, socially secure prosperity are taxing so highly that their economies are running below the necessary long-term capacity, unsustainably exploiting finite natural resources or effectively borrowing wealth from another society – all good while they last, but not sustainable. In a sustainable global economy trade must eventually be balanced and local economies substantially self-reliant.

Once the hammer has smashed the mirror, both Left and Right find themselves looking at the same dilemma: how do you fund, account for and maintain a social civilization with a sustainable economy? There are very substantial costs involved and taxes cannot generate sufficient revenues to pay for it all.

One answer is surprisingly simple, cheap and effective. It can be implemented immediately without requiring redistribution of assets and without overly disruptive changes to the basic mechanisms of administration, monetary control or enterprise. Once we accept our volunteer social membership status, the next steps fall easily onto the path in front of us.

The first step is to dedicate all income taxes exclusively to the provision of basic life-sustaining services for all citizens: basic shelters for the homeless, public canteens for the hungry, basic education, healthcare and public transport for all. You make all of these services available to any citizen, on demand at no charge.

Next, you remove any controls on the minimum compensation that anyone can pay or earn for work. Minimum wages are unnecessary because minimum life services are provided instead.

Third, you make income taxes universal and fixed to the cost of providing the services in the first step, and not to exceed a rate of 50%. This creates a cap on the maximum costs of providing the services, and defends the incentives that support a robust enterprise economy.

When implemented in today’s advanced societies and economies, these steps create positive feedback loops that result in full social development, an expansive and resilient economy with average taxation rates on income of around one third. The other activities of government can be funded using local, sales or corporate taxes.

No one gets any cash benefits, everyone is free to take responsibility for themselves and a flourishing economy supports the social fabric of democratic civilization. Not Left, not Right, just unified people in action.

(To see how this all works in more detail go to www.StandardsofLIFE.com)

You Get What You Ask For

You cannot create jobs. You can make work, but not create jobs. Jobs exist. You either do them or you don’t.

A job is the satisfaction of a need. There are plenty of real needs in the world that remain unsatisfied, and there is plenty to be done satisfying them. These are real jobs and do not need to be created, the conversion of intention into action simply needs to be allowed.

Unless you see yourself as being in the business of creating needs, you cannot create jobs. Maybe that’s why governments everywhere, and the principleless politicians who staff them, have been so easily bedded by corporate capitalism for the last century. The corporate capitalists offered to “create the jobs” that the politicians had promised, by manufacturing needs. Those manufactured jobs take effort away from the task of satisfying real needs and so they need political cover and support in order to keep on diverting resources on the inexorable march to satisfying needs manufactured to create profits, as more and more real needs are left unsatisfied.

Demand the creation of jobs if you want, but understand what you’re really asking for.

Universal Social Services Make Economic Sense

How cash benefits distort the monetary system, increase our deficits and discourage investment.

 

When we pay cash benefits we distort calculations of cost, wealth and money supply. If we provide basic social services universally, free at the point of need, we would reduce costs across the private and public sectors, improve the flexibility of businesses and enable more accurate money supply management.

The premise of this argument is that the activities that satisfy the basic human necessities of life are not wealth generating; and that paying cash benefits leads to the inclusion of their purchase price, instead of their output cost, in economic calculations, which distorts the results.

Services delivered between citizens in support of the basic welfare of society are not wealth generating transactions in a monetary sense. To understand this, we must evaluate the content of services such subsistence shelter, sustenance and healthcare. There are three distinct contents for each service: generic labor, value adding labor and capital. Generic labor is that portion of the service that requires no special skills to deliver, and can generally be categorized as ‘manual labor’. Value adding labor is the portion of the labor necessary to deliver the service that commands a premium in the market place, on account of special skills or experience. Finally, the capital portion refers to the content of the service which has to be manufactured or purchased from a external agency. In reality, nearly all labor has some value adding element; but it is important to recognize that in the lowest skilled activities command a very small premium over subsistence wages, and therefore the value added is often less than 20% of the total labor cost. The value added labor and capital portions of the service are truly wealth creating, but the generic labor portion is not. The generic labor used to deliver subsistence services does not generate a return; its value is consumed at the point of expenditure.

This is already recognized in current economic models by separating out the charity and nonprofit sectors. In these cases, it is recognized that the services delivered are not generating wealth; and therefore they are only counted on the basis of the contributions made to the sectors, not the output generated by them. This implicitly recognizes that housing the homeless, clothing the freezing and feeding the starving are not wealth generating transactions that should be included in measures used to measure economic wealth. They are services that undoubtedly contribute to the value of our societies, and they have very similar characteristics to infrastructure investments, in that they establish the basis and groundwork for the development of future wealth, but they are not themselves wealth generating transactions. This is represented in the discussion about the value to the economy of homemakers; the consensus of economists is that including the value of the output of homemakers in economic calculations would fundamentally corrupt calculations of GDP and economic wealth.

If we were to provide universal access to basic social services, free at the point of need, it would have a transforming impact on public finances and the enterprise economy. In an economy where the fundamental social services that make up the bare necessities of life are delivered free of monetary value to everyone, the immediate impact is that the “cost” of labor is dramatically reduced. When everyone in the society has shelter, sustenance and the other basics of life guaranteed to them, they are freed to work in whatever manner they can, for whatever wage that someone else is willing to pay. It is in the nature of humans that they will have desires beyond those satisfied by the subsistence services, and so will be keen to earn some discretionary income that they can use to satisfy their other needs. Because all of the resources in the labor market are guaranteed comprehensive social services, the labor market is freed to price labor using accurate demand and supply criteria, negating the need for a minimum wage.

The minimum wage becomes unnecessary because the basic survival of individuals is not dependant on the market for labor. The primary purpose of minimum wage regulation is to ensure that workers are not exploited in their desire for basic subsistence by ensuring that they are at least paid a living wage. In effect minimum wage regulations are an abstention of social responsibility, and they distort labor markets with clumsy attempts to compensate for that lack of responsibility. Society is infinitely better off simply providing the services that ensure all workers are guaranteed subsistence, and then freeing the market to define labor rates. Workers are freed to take the jobs they want, to work as hard or as little as they want, and employers are similarly liberated – all without damaging the fabric of society. If employers do not offer sufficient reward to attract the labor they need, or if they provide unacceptable working conditions, they will not be able to hire the labor they need.

Universal social services and liberated labor markets allow labor to be accurately priced according to the actually wealth-generating portion of their output, measured as the delta between the subsistence value and the market value. The net result is lower labor rates across the entire economy; proportionally more significant, the lower the skill level or less value added.

Reducing the cost of labor, in cash terms, has obvious effects in the enterprise business market by not only the reduction in cost basis, but also in the improvement of flexibility in the workforce. A workforce that is not dependent for its basic sustenance on specific employment, can react much more rapidly and flexibly to changes in the marketplace. Employers are able to react much more quickly to changes in their markets because they can easily change work patterns without being encumbered with mountains of regulation. This flexibility enables all participants in the economy to be less risk averse and more inventive.

The lower cost of labor also has a significant impact on public finances. Principally the impact is felt in the reduced tax burden of providing the social services themselves, but also in the reduced price assigned to infrastructure investments. Both of these reductions stem from the removal of the subsistence portion of labor cost from labor pricing. The subsistence portion of labor costs is removed from the economic calculations and absorbed by the social fabric, in the form of citizen-to-citizen support services delivered free of monetary value in exchange for the same. The labor is still provided, but the subsistence portion of its value is not monetized.

The monetary cost of providing social services is reduced; because the labor rates for the people who are delivering the services is lowered. This cyclical reinforcement reduces the overall tax burden, and increases the capital proportion of the cost that remains. Because the labor required to deliver the bulk of subsistence social services is low skilled work, the value added portion of the labor cost is a small fraction of today’s total labor charge. Only the value added portion of the labor needs to be paid for from tax receipts and that reduces the tax burden. The labor content of services such as education and healthcare includes a higher percentage of value added, and so the reduction in the costs for those social services is less. Nevertheless, removing the subsistence portion of labor from the overall cost of delivering basic social services will reduce both total cost and the percentage of cost assigned to labor. The result is that a higher percentage of taxes spent on providing social services will be spent on capital investments. Given a stable population, the increased capital allocation will result in a substantial long-term reduction in the cost of social service provision.

Taxes and wealth are expressed in monetary terms; and, in a progressive tax regime, more taxes are levied from the highest wealth generators. So transferring the subsistence portion of social services costs on to the social fabric of the society, reduces the tax burden most significantly for the wealth generating members of the society. In other words, providing free basic social services is in the best interests of the wealthiest members of the society.

If labor rates are substantially reduced, this will also impact the ability of the society to raise tax revenues from income taxes. Income taxes will only apply to the value adding portion of labor, because that is what is expressed in monetary terms. There are two modifying effects that mollify the apparently negative consequences for tax receipts. First, the majority of income taxes are raised from the highest earners, so removing the subsistence portion of income from tax calculations will have a relatively minor impact on overall receipts. In fact, so long as the reduction of total social service provisioning costs contributed by lower labor rates, is greater than the effective income tax rate on subsistence wages, the net result will be a reduction in the tax burden compared to current systems.  Secondly, tax revenues could be raised by a comprehensive income tax that is levied on all income, without personal allowances. This will be more politically acceptable because all subsistence needs have already been taken care of by the social services provided.

The impact on the public financing of infrastructure investment is to bring the “cost” of those investments down and, at the same time, more closely match the interest burden on any such investments funded from budget deficits. Because budget deficits are necessarily funded with borrowing, it is important that those funds are spent on performing assets that can deliver a return, to support the interest burden on the debt. By removing the subsistence portion of the labor costs from the price tag of the infrastructure, the amount of borrowing can be reduced. The rate of return on the investment is improved, so repayment schedules can be shorter, and the return rate of the infrastructure investment can be more easily supported without unnecessary expansions of the money supply.

Finally, a beneficial side effect of using input cost pricing for basic social services is that their recognition within GDP calculations at their cost, makes GDP a more accurate measure by which to gage wealth, and therefore manage the money supply. The trouble with a benefits system is that it prices the value of the services at their acquisition cost, because the recipient uses cash to buy services. We pay unemployment benefits as cash, we pay pensions as cash; but what we are really trying to do is deliver services such as housing, sustenance, shelter and healthcare. Instead of actually delivering the services, we find it easier to send cash. This substitution of services with cash is the basis for miscalculating wealth and GDP, because the purchase price of social services is used instead of the provisioning cost.

Changing from cash benefits to universal services reduces labor costs, lowers taxes, makes infrastructure investment more affordable, increases business flexibility and improves money supply management. What more reasons do we need to start owning up to our responsibilities and living up to the social contract we implicitly rely on for a peaceful life?

True capitalism requires social security

True capitalism actually requires a proper system of social support to avoid the unhelpful intervention of governments in the form of corporate welfare.

The trouble with capitalism as a political philosophy, is that it isn’t one. Capitalism is an economic principle and mechanism, but it is not politic. That is that it does not concern itself with the many, nor does it have any interest in the well being of people. In capitalism people are resources, in politics people are people.

One of the lessons of the recent financial turmoil is the recurring reminder that, in the end, governments, on behalf of the people, bear the final responsibility for the welfare of people, and thus must act as the ‘backer of last resort’ for the economy. Without social support this inevitably leads to corporate welfare. There is no other choice: if one believes that the welfare of the people is dependent on the merchants of capitalism, it follows that maintaining the welfare of the people requires the support of the merchants.

The trouble with this is that the merchants are not innately directed by the welfare of the people, and they make very ineffective distributors of social security. It is not in their DNA, and nor should it be. Give a bank a billion and they will use it to make money, what else would you expect from a bank?

If you really want to let capitalism have free reign then you have to make sure that social security is there first. That way corporations can rise and fall according to the laws of the market without having to be rescued by the tax payer, this is the ideal that market fundamentalists espouse. The mechanism of capitalism is dependant for its long term health on the death of unsuccessful ventures, and so society must isolate itself from such deaths, as much as it can.

By providing the social infrastructure detailed in the Standards of LIFE, one can let the market go. When the fates of corporations are not a threat to the basic fabric of the society they thrive in, then they are liberated to pursue their raison d’etre. Furthermore, the micro economic enablement at the core of the Standards of LIFE further isolates the welfare of the public from the failure of any particular enterprise and from the natural cycles of specific industries.

True capitalism, it turns out, actually requires that there is a proper system of social support in place, in order to avoid the unhelpful intervention of governments in the form of corporate welfare.

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