Capitalism & democracy are at risk and current solutions aren’t going to help. Recent financial crises are just initial symptoms of a deeper long-term disconnect.

Most of the overriding strains we continue to see on capitalism and democracy in recent years are all interconnected, symptoms of a broad trend of decoupling of PTB and PTC.  US politics shows the strains of intermediary lobbies in its grid-locked politics today. The left and the right each owe certain positions to their funding lobbies, so they have to stick to positions or lose funding. The general public is left to choose between vague high-level positions such as left and right, while lobbies use that distraction to focus on specific legislation that benefits them (which is remarkably about them, and not ‘left’ and ‘right’ principles).

Politicians become effectively powerless in a lobby-driven political funding model. The only lobby that has more power than the professional special interest lobbyists is the public at large – if they participate directly and focus on specific issues under a FreeAccountable direct participation model.

Society has moved to greater and greater focus on the individual, in many cases the ‘consumer’, with much less focus on what the individual needs to give back to society. Government budgets are out of line for one reason and one reason only – promised PTB (programs) – mostly to interest groups that bring in votes – exceeds the PTC that has been secured (taxes).

The only way to keep government budgets in order and still meet the needs of society broadly (not just the powerful lobbies) is for voters to get involved directly and take away enough power from the lobbies that are extracting funds to bring them back in line with taxes. Sending political representatives doesn’t work, as they become part of the elite that takes care of itself – which is absolutely natural. If important causes are at risk that people are willing to pay for, the funds should most often be found through reduction of other intermediary-driven spends, because repeatedly agreeing to pay more taxes to fund important causes will just encourage lobby and government intermediaries to ‘come back for more’ as long as they keep getting it.

It’s no more sophisticated than the parallel situation of a spouse that spends out of control; if the spouse forces trade-offs, they can be made, but if the spouse just supports every purchase, they will keep coming in. Intermediaries are spending other people’s money, so it is even easier to keep on spending whatever they can get their hands on. Borrowing against future tax ‘revenue’ is not a solution, except for the longest-term infrastructure projects/programs where benefits will be generated for many generations.

For all the books written on the financial crisis we’ll perhaps disappoint you here by addressing it in a single paragraph. Why? Because we want to avoid the noise and get to the heart of the problem. The financial crisis was 100% a decoupling issue, as companies and executives involved were able to take out profits without bearing the cost for risks taken. All the details of the particular types of securities, and who knew what when stories, are a massive distraction to the real issue of the decoupling. Without addressing the decoupling by enforcing accountability, a repeat crisis is guaranteed.

Global trade imbalances are similar in nature. The US is allowing countries like China to access its market on unfair terms through currency devaluation, effectively giving the Chinese the PTB of US market access without the PTC of doing business that US firms would face. The outsourcing of jobs to foreign markets is a very similar and related trend, as US companies are being allowed to gain profit (PTB) from the US market, but not having to bear the PTC of hiring workers locally at wages that reflect a developed economy.

Such activities represent a decoupling of PTC and PTB, where companies benefit in the short-term and the public (in the US) bears the PTC through job losses. The fix is simple: any companies that sell to the US, whether US or foreign-based, should have to hire enough US inputs to keep PTB and PTC coupled. Before this analysis sounds like raving support for the left, it is important to keep in mind that the whole trend of global job outsourcing started in many ways due to the unrealistic wage demands of unions – with high pay ensured for taking on no venture risk. Today, this remains rampant in public sector jobs.

The bottom line is that in a world where PTB and PTC are coupled, we can expect to see more domestic jobs, larger domestic industries and lower wages in some industries. None of this is to suggest that protectionism is the right approach – it is to say that the silly one-sided trade that the US engages in today needs to end and that actual balanced free trade needs to occur (which couples PTB and PTC).

The key to healthy and sustainable growth is that the benefits are broad-based. The wealthy, the middle-class and the lower-class all need to see increasing wealth, even if not at uniform rates. Even full freedom with accountability will not produce a uniform distribution of wealth. Full freedom with accountability brings out intense competition and thus produces a distribution of wealth in favour of the most successful competitors. It is a hard fact of life that not everyone is equally capable. An asymmetric distribution of wealth and political power will always naturally reproduce itself because the capabilities of individuals differ. Once in motion, this gap naturally increases for some time, because with wealth comes power – the very power to sustain one’s wealth and power.

The 20th century was the first century that gave the masses in the West a taste of increasing wealth and higher living standards. As the wealth gap increases rapidly and unemployment rates stay stubbornly high, with ever increasing portions of part-time work at lower wages, the middle-class is worried that the model has changed and social unrest is growing. It is growing. Capitalist and government power are still just power, and just as power corrupts, a concentration of power with anyone will certainly be used to impose controlling advantages. This is what has occurred.

What this means is that if the general public stays largely and broadly uninvolved in the political and economic processes, intermediaries will tip the system with their greed. The risk is very high today. It is vital that citizens act beyond intermediaries to ensure that the legal system, social structure and policies all drive coupled accountability. This direct participation government is the only way to preserve the opportunity for creative destruction and progress over intermediary perpetuation. If this still sounds far-fetched in any way, consider how far-fetched it sounds for citizens to fully trust their fate to intermediaries – guess who they are taking care of.


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