Capitalism vs. Communism, Socialism, Occupy Wall Street and President Obama

Posted by PITHOCRATES - October 14th, 2011

The Corporation was Created to Raise Capital and Manage Risk so they can Build the Stuff we Want

No wonder the Occupy Wall Street people have their heads filled with nonsense.  Here’s an Ivy League publication that doesn’t even understand what a stakeholder in a corporation is.  They have a stake, i.e., a share.  They own stock.  They’ve risked their capital.  And if you don’t risk capital, then you’re just not a stakeholder (see Occupy Wall Street: What Businesses Need to Know by Hari Bapuji and Suhaib Riaz posted 10/14/2011 on the Harvard Business Review).

The demonstrators are asserting that they are stakeholders in American business, and they’re correct — they are stakeholders, as consumers, as employees, and as citizens affected by the financial system in general.

No they’re not.  Unless they bought stock in these corporations.  Which I doubt, because people typically don’t protest against companies they invest in.  Unless they’re idiots.

The corporation was created to raise large amounts of capital.  And manage risk.  By selling stocks to shareholders.  So they can raise the money to build the stuff we want.  Things that hopefully would make a profit one day.  A profit that the shareholders would share in.  As they are the ones taking the BIGGEST risk.  The corporate officers of these corporations have a fiduciary responsibility with the shareholders.  To make a profit.  It’s their company.  They paid for it.  And these shareholders owe nothing to that mob on Wall Street.  Unless any of them own stock.

You’d think those writing for a business school would understand basic business 101.

Businesses should look at whether existing models of compensation are contributing to this inequality. They need to find ways to reward performance without increasing pay disparities. Developing new models of compensation and governance is not easy and can only be possible through a long-term and sincere engagement with a wide set of stakeholders, such as regulators, academics, and representatives of workers.

They want to do away with merit.  And introduce something more akin to communism.  Where everyone is equal.  No matter the value of their work.  People have tried this.  In North KoreaCuba.  And the former Soviet Union.  Note the word ‘former’ in that last one.  There’s a reason why it’s former.  No one wanted to do the harder jobs if they didn’t get paid any more for the additional brain power or risk.  And those stuck carrying the weight of their comrades?  They just didn’t bust their ass in the process.  And that’s why the Soviet Union is a ‘former’ union.

But this is what the Occupy Wall Street people want.  Force people to do those harder jobs.  But pay these wealth creators no more than them.  Even if they only work at a Starbucks.  Or collect government assistance.

The Egalitarian Polices of the Great Society Destroyed the Economy in the Seventies

So an Ivy League publication doesn’t understand business.  But you know who does?  Al Jazeera.  Their conclusions are all wrong but at least they get a lot of stuff right along the way (see The instability of inequality by Nouriel Roubini posted 10/14/2011 on Al Jazeera).

While these protests have no unified theme, they express in different ways the serious concerns of the world’s working and middle classes about their prospects in the face of the growing concentration of power among economic, financial, and political elites. The causes of their concern are clear enough: high unemployment and underemployment in advanced and emerging economies; inadequate skills and education for young people and workers to compete in a globalised world; resentment against corruption, including legalised forms like lobbying; and a sharp rise in income and wealth inequality in advanced and fast-growing emerging-market economies.

Of course, the malaise that so many people feel cannot be reduced to one factor. For example, the rise in inequality has many causes: the addition of 2.3 billion Chinese and Indians to the global labour force, which is reducing the jobs and wages of unskilled blue-collar and off-shorable white-collar workers in advanced economies; skill-biased technological change; winner-take-all effects; early emergence of income and wealth disparities in rapidly growing, previously low-income economies; and less progressive taxation.

American industry is uncompetitive.  That appears to be the problem.  That’s why there are fewer jobs.  So people who earn income via their labor are being priced out of the market by their generous pay and benefit packages.  But people who earn their income via capital always have a place to invest capital.  Capital is capital.  It is always competitive.  That’s why more wealth is accumulating to the rich.  Because they haven’t killed their golden goose.  Like unions have killed unskilled American manufacturing.

This doesn’t explain those kids on Wall Street, though.  The ones with college degrees.  Their problem is their degrees.  Many of them are worthless.  Probably a lot of English majors out there.  Or have degrees in sociology.  Anthropology.  Philosophy.  Women studies.  Etc.  But there just aren’t a lot of stores out there selling this stuff.

The increase in private- and public-sector leverage and the related asset and credit bubbles are partly the result of inequality. Mediocre income growth for everyone but the rich in the last few decades opened a gap between incomes and spending aspirations. In Anglo-Saxon countries, the response was to democratise credit – via financial liberalisation – thereby fuelling a rise in private debt as households borrowed to make up the difference. In Europe, the gap was filled by public services – free education, health care, etc. – that were not fully financed by taxes, fuelling public deficits and debt. In both cases, debt levels eventually became unsustainable.

Too much debt is never a good thing.  But those bubbles weren’t the result of inequality.  They were the result of trying to make everyone equal.  Extending credit to the credit unworthyPutting people into houses who had no business owning a house.  That was the fault of irresponsible government policy.  Not inequality.  Just like the free education, health care, etc.  We didn’t have these problems when those things weren’t free.  And when only people who could qualify for a mortgage were getting mortgages.

The problem is not new. Karl Marx oversold socialism, but he was right in claiming that globalisation, unfettered financial capitalism, and redistribution of income and wealth from labour to capital could lead capitalism to self-destruct. As he argued, unregulated capitalism can lead to regular bouts of over-capacity, under-consumption, and the recurrence of destructive financial crises, fuelled by credit bubbles and asset-price booms and busts.

Karl Marx was wrong.  At least, he hasn’t been proven right yet.  And many have tried.  The Soviets.  The Chinese.  The North Koreans.  The Cubans.  Marxism has been an abject failure.  And those busts were made worse by monetary policy trying to eliminate them.  If credit wasn’t so cheap and mortgage standards weren’t so low there would have been no housing bubble.  It was government policy that encouraged people to accumulate debt.  Not inequality.  Government is just bad at running things.  Which is why Marxism has been an abject failure.

Thus, the rise of the social-welfare state was a response (often of market-oriented liberal democracies) to the threat of popular revolutions, socialism, and communism as the frequency and severity of economic and financial crises increased. Three decades of relative social and economic stability then ensued, from the late 1940’s until the mid-1970’s, a period when inequality fell sharply and median incomes grew rapidly.

Some of the lessons about the need for prudential regulation of the financial system were lost in the Reagan-Thatcher era, when the appetite for massive deregulation was created in part by the flaws in Europe’s social-welfare model. Those flaws were reflected in yawning fiscal deficits, regulatory overkill, and a lack of economic dynamism that led to sclerotic growth then and the eurozone’s sovereign-debt crisis now.

Government spending exploded during the Sixties.  They printed so much money in the Seventies to pay for the obligations of the Sixties that Nixon decoupled the dollar from gold.  So he could print more money.  Giving us record high interest rates.  And record high inflation.  Weak GDP.  And high unemployment.  This was all because of the egalitarian polices of the Great Society.  They destroyed the economy in the Seventies.  Reagan and Thatcher brought back prosperity.  By stopping the insanity.  They cut taxes.  Cut regulation.  And the economy took off.  It’s the reversal of the Reagan-Thatcher policies that are returning the economy to the malaise of the Seventies.  Both in the UK.  And the USA.

In the Soviet Union all of the Good Stuff came from the Decadent, Capitalist West via the Black Market

But this socialist/communist claptrap is what they’re teaching in American universities.  These protestors don’t understand the role of capital in the modern economy.  The entrepreneurial spirit.  Risk management.  They don’t understand anything other than that they weren’t born into privilege.  And this just pisses them off (see OWS’ Program? Distract From Dems’ Failures by Charles Krauthammer posted 10/14/2011 on Investors.com).

To the villainy-of-the-rich theme emanating from Washington, a child is born: Occupy Wall Street. Starbucks-sipping, Levi’s-clad, iPhone-clutching protesters denounce corporate America even as they weep for Steve Jobs, corporate titan, billionaire eight times over.

These indignant indolents saddled with their $50,000 student loans and English degrees have decided that their lack of gainful employment is rooted in the malice of the millionaires on whose homes they are now marching — to the applause of Democrats suffering acute Tea Party envy and now salivating at the energy these big-government anarchists will presumably give their cause.

Except that the real Tea Party actually had a program — less government, less regulation, less taxation, less debt.

What’s the Occupy Wall Street program? Eat the rich. Then? Haven’t gotten that far. No postprandial plans.

It’s ironic that that they hate corporate America but love to indulge in their products.

During the Cold War.  When there was full employment behind the Iron Curtain.  In the tractor factories.  People stood in line all day to buy soap and toilet paper at reasonable prices.  But they bought Levi’s on the black market.  And anything else they wanted that wasn’t dreary and drab.  Or scratchy and caustic.  Whatever the price.  Why?  Because all of the good stuff came from the decadent, capitalist West.

These protestors need to read a little history of what it was like when there was true egalitarianism.  It sucked.  That’s why Soviets defected to the U.S.  And Americans didn’t defect to the U.S.S.R.  Because capitalism was better.  People lived better under capitalism than they did under communism.

The President of the United States should not use the Risk of Civil War as a Reelection Strategy

As Krauthammer says in his column, this Occupy Wall Street movement has political motives.  Obama is following in the shoes of Jimmy Carter.  The economy is in the toilet.  His policies have all failed.  And he has no chance of reelection based on his record.  So he is using the class warfare card.  Which is irresponsible.  And dangerous.

Obama is opening a Pandora’s box. Popular resentment, easily stoked, is less easily controlled, especially when the basest of instincts are granted legitimacy by the nation’s leader.

Mobs are easy to create.  But they take on a life of their own.  Are dangerous.  And unpredictable.  The president of the United States should not use the risk of civil war as a reelection strategy.  Because it’s not exactly constitutional.  Or in keeping with the oath of office he swore.

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