Since I have not blogged much on the economic side of life or the world, the title of this post may seem quite quaint for most readers of this blog. I also do not expect that such a wide-ranging subject as the problems and discontents of Capitalism can be really explained and critiqued upon in any adequate manner in one or two blog posts. So this is just one of the initial attempts.
Though many may not probably agree with this, but surely all is not well in the 'paradise' of Capitalism. The terrible recession that the world is still going thru is a cruel reminder of how the fancy theories of Capitalism do not really hold out to the test of economic realities.
Even those who concede that all is not well with capitalism or a largely market-driven system, are still unwilling to admit to many of its serious flaws like:
- Inefficiency of the market and private initiative
- Disastrous effects of deregulation of private and financial sector.
- Recurring recessions and financial crises.
- Increasing inequality of wealth and income.
- Nexus between big corporate sector and politics
- Weakening of the welfare state and support system for the poor, workers and middle classes.
Very little of the above is explored in the mainstream press in the USA and it is not surprising that the average middle class or upper middle class people have very little idea of these structural weaknesses of the economic system of which they are a part.
As I had referred to in my earlier post on the need for economic literacy, I was a part of a recent water-cooler or rather curb-side talk on some current economic issues in the US and the West.
This 'interesting' curb-side talk between me and some friends/neighbors on the ‘discontents of Capitalism’ that we had
after a tennis game (I thought that they did not think that anything was wrong or
bad about American capitalism), related to these topics :
- CEO pay or Executive compensation problem
- Desirability and need for higher minimum wage ( better still, decent wages) for 'low-skilled' workers
- 50% of the US population that does not pay taxes, yet is alleged to be living off entitlements, doles and tax-payer funded subsidies
- Debt reliefs or Debt waivers for genuinely distressed homeowners
I was under the impression or notion that these are subjects
or topics that are not just political or economic, but also raise social and
ethical issues and that to discuss these meaningfully one must possess facts,
detailed information and perhaps even numbers and statistics. Besides from their comments and remarks like:
- CEO’s get paid for high level and strategic work for which there can be no limits.
- CEO pay is almost all merit-based and is based on performance and profitability.
- It is unfair to accuse the CEO pay system of the influence of nepotism and corruption.
- Anyone receiving billion $ of pay must surely be doing something worth that much or even more. (This is an example of a logical fallacy called argument/assumption from ignorance or ‘god of the gaps’ argument or even concluding (unlike inferring or deducing) the cause from the effect).
- Huge and glaring disparity between CEO pay and other compensation is a given but fine since it promotes wealth and creates jobs.
- Hamburger flipping is a low skill and low level activity and so it is fine to pay very low wages for those people.
- One will get a job if one really wants to and tries really hard for the right job (Thus implying that chronic unemployment and underemployment is a fake crisis created by the lazy, unwilling, clueless and the poor)
- Burger-flipping and other low skill jobs are just stepping stones at best and not decent/worthwhile jobs at the worst and thus are not really entitled to decent/fair wages.
- Debt waiver or Debt relief is not even worth considering and is out of the question since it would involve violating sanctity of contracts/agreements (they did not say this specifically but was implied), but it is OK to bailout banks without strings because not bailing them out would have destroyed our 401(K)’s. (This is also an example of logical and rhetorical fallacies one of which is non-sequitur)
They seemed to be treating this as
simplistic and black-and-white issues which can be decided by basic
arguments, urban legends, quoting from press propaganda, capitalist maxims and
‘gospel truths’ (‘That is how capitalism works’,’entrepreneurs are job and
wealth creators’ etc) and that anything which sounds correct and intuitive must
surely be true.
I did not think that it would be so obvious. So I decided to do some more digging around on these issues and would like to share what I have complied as a result of my research. There are 3 types of links or citations that I am referring to here:
Some links on Executive compensation issue with 2 articles. The first article discusses the impact of Taxpayer subsidy for CEO pay and how it is unfair and skews the distribution of income. The second article is a study/analysis by a compensation evaluation firm on the impact of exorbitant CEO pay and disparities on overall employee morale.
A PDF that takes on what it calls as CEO pay myths, like the ones above that I have bulleted and compares them with some facts, numbers and opposing ideas.
An article that looks thru the lens of stats, numbers and charts, what taxes the Mitt Romney’s 47% or 50% pay and don’t pay and why they don’t or are unable to pay.
Also there is a news analysis of the recent Fast Food workers strike which quotes/cites studies to show that reasonable increases to minimum wage can be made without causing unemployment or significantly impacting business profitability.
I don’t expect them to agree on any of these right away or completely. I am only making these points because I would like to correct the impression that information, facts and knowledge are not necessary for a proper and reasonable opinion on a matter.
Unfortunately that information or facts may be boring, but decisions and positions cannot be taken on the basis of glamorous sounding half-truths, assumptions and maxims.
"One will get a job if one really wants to and tries really hard for the right job (Thus implying that chronic unemployment and underemployment is a fake crisis created by the lazy, unwilling, clueless and the poor)"
ReplyDeleteThis is not an entirely ridiculous claim. Pre-Keynesian economists would tell you that there can be no such thing as unemployment because supply and demand would settle on a wage. The fact that we have set a price floor (minimum wage) creates unemployment because you now have a surplus of demand that cannot match supply. Of course, this has nothing to do with "laziness" of poor people.
"Debt reliefs or Debt waivers for genuinely distressed homeowners"
ReplyDeleteThis is what caused the crisis in the first place. A better idea would be more regulation on banks so that subprime loans aren't given at all.
I agree that regulation and reining in the speculative behavior of banks is the better solution.
DeleteThe point of relief to troubled homeowners is that many of them (not the ones who lied about their income) got into distress because of job losses and an economy that had a bubble burst, for which some support can be considered. The rescue of the banks was made 'conditional' (the Obama & Bernanke bluff) on help to homeowners and businesses. But big banks reneged on that promise and shoveled all the TARP money into shoring up their Balance Sheets and stock/bond market speculation.
What caused the crisis is a long story, but for which many US Homeowners were surely not responsible.