The Triumph of Engineering and the Failure of Capitalism

In the struggle to understand the forces that shape our lives, few functions challenge our imaginations more severely than economics and government. They form a reciprocal and inseparable relationship. What government does not control economics will control, if not usurp the power of government. Players in the economy may find ways to impose taxes greater than those of government. When private entities are able to impose unfair costs on society through their sheer economic and political power, this acts as both a form of extortion and as a privately enforced tax on the citizenry. Such extortion has become a primary characteristic of our capitalist society.
Classically, “extortion” meant the acquisition of money or value by duress, physical or psychological. Supply and demand paradigms ignore the extent to which extortion corrupts an objective basis for determining value. Ignoring the impact of extortion avoids the burden of making certain value judgments. When are profits excessive? When does advertising prey on our emotions? When does one have enough? What is productive? How are we impacting the future? We do our best to avoid making those kinds of decisions. The ‘free’ market paradigm provides cover for our escape from ethical judgments. The competition for profit relieves most decisions of such concerns.
While the struggle for money may appear democratic, in that it knows no race, gender, or nationality, the reality proves quite discriminatory. Money supports class systems that exclude certain people from the competition. In a society that likes to think it does not entertain class strictures, one dare not speak of the struggle between the haves and the have-nots. I will break that taboo.
For multiple reasons, class is returning with a vengeance. The rich are getting richer and the poor are getting poorer and the middle class is disappearing. I characterize the consequences of modernity as the triumph of engineering and the failure of capitalism. As technology and greed destroy resources, the affluent and powerful have determined that a return to lords, ladies, and serfs provides the logical and proper adaptation to diminished resources, not efficiency and sharing. Competition for capital will eventually put everyone where they belong.
There are no satisfactory definitions of capitalism. I use turning real wealth into social (virtual) wealth as the most comprehensive description of how capitalism works. Trees become lumber. Lumber becomes houses. The people selling the houses receive money (virtual wealth) they can use to obtain more trees or houses. Their purpose is not to provide efficient housing but to receive more money than it costs to build the houses or cars or whatever. In the search for profit, producers seek ways to reduce labor and material costs and the cost of extracting resources.
Producers employ and therefore pay for the technology that reduces costs measured by virtual wealth. Resource efficiency does not necessarily parallel cost efficiency. If energy is cheaper than materials, producers will use energy to save materials—like particle board instead of lumber. Once 90 percent of labor produced food. Now less than 10 percent produce food. Technologies have driven most people out of manufacturing goods. The ‘increased’ productivity means that fewer workers produce more goods, thanks to machines. As if that were not difficult enough for labor, corporate America exported production for cheaper labor, particularly where machines were not available (like sweat shops), to further decrease production costs. The result downgraded labor, reducing wages in the process of rendering labor less valuable to the production process.
Service employment replaced production employment. The number of bankers, lawyers, sales people, administrators, health care providers, beauty salons, and other services multiplied. Those jobs are not supported by the conversion of hard resources and goods into cash—capitalism. Too many service jobs cause inflation. Most of those jobs also pay less than manufacturing and the costs of middlemen increase dramatically as HMOs, for example, hire clerks and administrators to find ways to maximize profits, not health care. Too many people get a piece of the action, but they have no place else to go. The skimmers find ways to insert themselves into a victim economy like health care where people have little choice whether or not to use the services.
Capitalism has always functioned as an engine of inflation that periodically crashes. Much profit comes from leveraging: borrowing money now and paying it back with deflated dollars. The process did little harm when inflation operated across the board. The bubble economy, created to compensate for labor’s decline, employs hyper-inflation. Inflation in health care, education, and finance have outstripped other areas of inflation dramatically. At the same time deflationary forces made possible by the internet, technology, and mega-stores further damage labor, even creative labor. Some benefit from the deflation of mega-stores and internet sales and the higher inflation. Some are hurt by both. The mega-stores and internet cut their wages or profits while the costs of improving oneself and health care spiral.
How does a broader definition of extortion help the understanding of our economic malaise? One needs some way to compare values in order to judge when pricing has exceeded the bounds of ethics. For this, we need a concept of intrinsic value, the most difficult judgment and hence the one most studiously avoided. The value of water, for instance, is priceless. Life does not exist without it. Yet, we waste it and pay very little for it. Credit cards only provide short-term borrowing to even out cash flow. The service is not invaluable and it is fraught with pot holes for the unwary. Yet, interest rates on credit card debt exceed long-term debt rates and short-term interest rates paid on savings accounts.
Once, charging interest was considered immoral. For decades, interest higher then 10 percent, including fees, was deemed usurious and one paid a penalty for charging it. The free market provides no such constraints. Extortion here takes the form of got-to-have-it-now advertising and easy access to credit cards that allow one to pay very little on the debt so that over time the interest may even exceed 100 percent of the original debt. This is a drag on the economy—a tax because it far exceeds any intrinsic value and is not really voluntary. It reduces money available for the discretionary spending necessary for money to circulate in a world of digital production. The lords and ladies get rich from the extravagant interest, not workers.
Capitalism requires constant redistribution of virtual wealth. Sound economies are based on trickle up, not trickle down. Money must find a way to the bottom of the food chain in a big way. Taxes are the most effective way of doing that where they do not deprive the tax payer of enough to live on by some decent standard. People complain about government taxes while paying the taxes imposed on them by corporations. There are plenty of corporate imposed taxes. As with interest rates, the government has done more to permit extortion in health care than to stop it. The huge amount of administrative costs, much of which goes into denying eligibility or coverage, creates another corporate tax. Denying health care has no intrinsic value for anyone. A single payer, nonprofit system with controlled drug costs and salaried doctors would again free up much money for discretionary spending.
I will not provide further examples of corporate taxation. The reader probably has several others in mind by now. A government not controlled by special interests and their lobbyists would soon end them. However, let us not fool ourselves into believing that greed is the only problem. Marx got one thing right. The means of production determines the character of society. One does not have to be a Ludite to appreciate how our choices in the use of machines may create systemic problems for the economy.
Labor has intrinsic value. People must work for both physical and psychological reasons. When machines displace labor, the machines impose a form of taxation on labor if they do more than just change the form of work available. They may even eliminate any place for labor to go. The machine can function as a means of extortion by reducing the value of labor outside a small number of operators. Owners of machines consider their contribution more valuable than labor. Downgrading labor reduces wages. If the machines do not pay a tax (government taxation) to compensate workers for their loss, the extortion is complete and the idea of “higher productivity” becomes a fraud.
The price of the upward mobility necessary to maintain a middle class, a certain level of security, education, and health care, has risen sharply. My insurance bill for all the risks that need insuring now runs over $18,000 a year. I went to law school for $250 a year. It would cost my son over $20,000 to go to the same school. At the same time, the cost of goods produced by ordinary labor have risen very little in comparison to energy, health, education, and housing. One does not have the option to forego these items without destabilizing results. They make good venues for extortion.
An economy based on selective inflation now discriminates against more and more people, as does selective deflation. We may all have the right to shop at mega-stores but they control more than retail prices. They also set wages and suppliers profits through their huge share of the market. If you can only shop at the cut-rate stores you do more to depress than stimulate the economy. Being the biggest by far is a founding principle of extortion.
Capitalism produced dramatic results when resources were cheap and plentiful. No more. Turning coal or oil into dollars now costs more and, due to volume, causes greater damage to the environment. This environmental damage will hurt the economy as much as it hurts the ecology. The Money Tribe, those who accumulate dollars from the transfer of wealth to capital (money), have no interest in efficiency. The faster they pump oil the more they make from it. The professed fixes are mostly illusionary. I bought a Honda vx in 1995. It got 50 miles to the gallon and my son drove it 400,000 miles. Neither Hondo nor anyone else in America, including hybrids, gets that kind of mileage today. It is common in Europe by the simple expedient of using lightweight diesel engines that are not exported to America. Why not? More corporate taxation of Americans? The economy will never recover if we do not end the excess profits of extortion, inefficient use of resources, and downgrading labor.
Private taxes use up the revenue necessary to finance the commons that preserve life and the economy. Going back to feudalism will certainly finish off capitalism. The lords and ladies intend to enthrone the primacy of money in the place of civil government, except for a police function to protect their property and government guaranties of their profits. A growth industry provides guard employment for those willing to keep the rabble bare foot and pregnant—the Rush Limbaugh brigade. An anti-government crusade is being waged with big bucks for propaganda and candidates for office who promise to destroy the government they blame for everything, a government they make impotent with that self-fulfilling prophecy. Without civil government the government of money takes over. There is no such thing as no government. Bodies have brains and societies have leaders. Which kind do you want?