Subprime, Housing, Energy, Credit Card Crises are Symptons
by David Model, Tue Aug 12, 2008 at 06:03:00 AM EDT
As rising gas prices, sub-prime mortgages, and nascent credit card disaster impose severe hardships on over 90% of Americans, public discourse focuses on the energy crisis, global warming, alternative fuels, bailouts, interest rates and the attendant economic woes. As the economic, political, and cultural elites hypothesize over the causes and solutions to the nations problems, they deliberately ignore the real problem which has been the shift over the last 40 years from a Keynesian to a free market economic model. Whereas Keynesian economic theory embraces the principle of some redistribution of wealth and a major role for government to provide basic programs and services, free market economics embraces the principle that the market should make all economic decisions and government should not interfere and distort the natural priorities attained otherwise.
An important corollary to free market theory is the axiom that the private sector is more suited to provide all programs and services including education, healthcare and social security. The private sector is an integral part of the market while government is outside its ambit and therefore tugs at the so-called "invisible hand" that guides the market to achieve a natural balance among competing forces and interests.
The problem with an economic and social system based on free market principles is that it is neither free nor just. In theory it may sound plausible but in practice it is very deceptive in that the government does play a major role in the economy but not to serve the public interest but to serve the interests of the wealthy and powerful elites promoting a growing gap between the rich and poor. America now consists of two classes of people, the recently deprived and the recently enriched.
Between 1973 and 2007, average workers wages dropped 10% while corporate profits increased 219%. In 2006, the richest 1% of Americans paid 22.8% tax rate based on adjusted gross income. The same group paid 28.9% in 1996. The new minimum wage is $6.55 but in 1968, the inflation-adjusted minimum wage was $9.86. People working at the minimum wage can no longer afford the bare necessities of life.
The ascendancy of free market ideology was not an accident but the result of neoconservative economists and think tanks. For example, Friedrich Hayek believes that collectivism is not democratic and that economic planning is inevitable susceptible to interest groups. Collectivism is a code work for government run programs such as healthcare. Economic planning is susceptible to interest groups but the groups that exercise all the power and influence are business groups.
Another example is Milton Friedman, considered to be one of the greatest economists of the twentieth century, advocated a minimum role for government in a free market system. The irony of the adoption of his ideology by our political leaders is that government does play a major role but it is to benefit the wealthy and big business.
The fallacy that the private sector can perform these services more effectively and efficiently is that corporations have only one objective, and that is to maximize profits. Would you expect a management team reporting to its shareholders that it is curtailing profits to save the environment or pay workers a living wage?
There are a number of strategies for maximizing profits such as reducing the quality of the product or service, lowering wages, minimizing benefits, minimizing health and safety practices, avoiding implementing environmentally-friendly strategies and raising prices. Sound familiar?
For example, Wal-Mart is notorious for paying low wages and minimum benefits while earning huge profits for its shareholders. Oil companies are responsible for massive environmental damage when extracting oil. HMO's and the insurance companies have devoted significant resources for developing strategies to minimize payouts to people with health plans. Then there are the 50 million people who can afford medical coverage. In the process of producing bottled water, Coca Cola has depleted and polluted aquifers while selling bottled water which is not better than tap water to its customers.
Each problem in itself has a very adverse impact on Americans but unless the underlying problem is addressed, profits will prevail over people.