HANG 'EM HIGH: THE DEATH OF CAPITALISM AND THE BIRTH OF CAPITALISM 2.0

The Masters of the Universe wrecked laissez-faire Anglo-Saxon Capitalism. What is left is a shipwreck-version of free-market Capitalism...dashed and ditched.

 “Contrary to the vulgar belief that men are motivated primarily by materialistic considerations, we now see the capitalist system being discredited and destroyed all over the world, even though this system has given men the greatest material comforts.” Ayn Rand

The wreckage is still smoking. The walking-dead Zombie bodies emanate a stench. The masses are steaming with fury and shouting at the top of their lungs for revenge, retribution, and justice. The once-mighty Emperors walking naked down the plank – their flaccid buttocks exposed to derision – were once the Masters of the Universe. They managed to take the greatest wealth-creating vehicle ever devised by man – laissez-faire Anglo-Saxon Capitalism – and through sheer avarice and blind arrogance crashed it into a stone wall of debt and multifactorial fraudulent schemes. What is left is a shipwreck-version of free-market Capitalism...dashed and ditched. The Masters have the extravagant privilege of walking away bowed and bloodied, yet still clutching to the abundant – albeit diminished – rewards they could spirit away from the fiasco. The rest of us must remain and clutch tightly the tatters on our backs. Failure reeks putrid...and it attracts predatory scavengers ready to swoop down and pick the carcass clean.

Capitalism is dead.

It was killed by the very piggies that had the biggest snouts stuck into the abundant feeding trough. They shat where they ate, pushing the effluvium downward toward the nescient and gullible components of the financial food chain – to those who would gladly accept the excrement and hope it would magically transform itself into golden nuggets. An elegant – if questionable – iteration on trickle-down theory, as it were. Of course, this was mostly an illusion, but as long as the public (and most of the financial institutions holding their wealth) was buying the fantasy, the Wall Street Poobahs and their international cohorts were selling. The Barons of the financial industry never dreamed the raw sewage they were so cleverly bootlegging – unaffordable mortgages to deadbeat wannabe’s (packaged and sold to the general public with the dandified moniker “sub-prime”) and investment models that, through alchemy and advanced mathematics, would turn financial fecal matter into Triple AAA investment-grade assets – would back up into their own snoots and choke them dead. To those for whom omnipotence and entitlement once seemed a birthright, derision and contempt now make the spicy sauce covering their crow-filled humble-pie. Ultimately these sages, wizards, and wise men knew little to nothing...and if they did somehow know they were criminally negligent in executing their fiduciary responsibilities. Either way leads to perdition.

In better times these self-serving opportunists and miscreants might be drawn and quartered, or at the very least lashed to within inches of their lives and left to rot out in the night for the owls and ravens to pick their bones clean. In our more epicene times many merely slink away with reduced bonuses and/or golden parachute financial-packages in the tens of millions. Some even are asked to stay on to help clean and re-design the very system they brought to ruin, while the vast majority of their ancillary serfs and retainers and clients are merely asked to go away and disappear. The innocent bystanders – those patsies who “played by the rules” and were not snookered into joining the round-the-clock casino – are asked to pick up the tab for the folly of their now belly-up brethren revelers. Capitalism has eaten its young, broken the spirit of its faithful, infuriated its depositors, and bankrupted the old. The once-all-powerful financial institutions still left standing are either ‘too big to fail’, much-reduced entities, or dead-men-walking. These are indeed times that make one long for the justice of the guillotine.

Who is to blame for this debacle? Who betrayed the multitudes educated to believe that Capitalism-fueled Globalization was mankind’s economic manifest destiny...the preordained way to mass prosperity? The elites lay the blame on the usual suspects: The expedient and unwise lowering of U.S. interest rates during much of the last decade, fueling a manic shopping binge that spread throughout the international marketplace; The politically-motivated idiocy of the Clinton Administration’s imperative to make home ownership in the U.S. a right rather than a privilege, thus making Fannie Mae and Freddie Mac political bazaars and making the word “sub-prime” a by-name for insolvency; Lack of proper implementation of rules and regulations on the Dukes and Barons in the financial sector of the economy; Rampant intellectual and financial corruption in government; The incestuous relationship between Washington D.C. and Wall Street and thus the rest of the global financial community...and the list trickles on ad infinitum.

Creative Destruction is a catchy phrase to describe the brutally evolutionary impetus of free-market Capitalism, but no one seemed ready to assume this degree of decimation as part of the deal. The creative part of the equation was always glorified, while the destructive aspect downplayed. The bottom line is the delusional system of ever-increasing returns on ever-more-apocryphal core “assets” has crashed violently into the lamp post of economic reality.
                                                   

“Advocates of Capitalism are very apt to appeal to the sacred principles of liberty, which are embodied in one maxim: The fortunate must not be restrained in the exercise of Tyranny over the unfortunate.” Bertrand Russell

Old line Socialists like Jawaharlal Nehru opined that “The forces in a capitalist society, if left unchecked, tend to make the rich richer and the poor poorer”. Perhaps this old sub-continental class warrior was on to something. The key component in his pronouncement is “if left unchecked”. From the look of things “unchecked” just about describes the situation. Those supposedly clasping the levers of checks and balances that were implemented to lubricate a more efficient and socially-pliant version of Capitalism than the Robber-Baron version of the early 20th Century were feverishly fondling under the sheets with the very moguls they were supposed to be scrutinizing for malfeasance...an excessively intimate relationship that brought misfortune for the rest of us. And, naturally, these same public-sector mandarins (i.e. politicians) now demand the proletariat's (and their succeeding generation's) largess in bailing out the toilet bowl they made of the golden punch bowl. The tyranny of incompetence is insidious.

Not to be outdone by their public-sector partners in crime, Barons of private industry – like potentates since time immemorial – have made a golden tradition of privately capitalizing their winnings and publicly socializing their losses. But the global peasantry isn’t going down that road this time...not without raising hell in the process. The mordacious smell of Revolt hangs in the air.

The left-wing, anti-globalization Socialist Umma has exploited the buckling of Capitalism’s knees shamelessly and has looked upon the crumbling colossus with a profound schadenfreude. Into the class warfare sand pit jump tin-pot neo-Marxist despots like Hugo Chavez and ex-KGB Mafia-Don-style tyrants like Vladimir Putin, touting the benefits of a New World Social Order and moralizing on the evils and failings of unfettered free trade, representative democracy, and open markets. In their wake follow European Green and Leftists political parties, organizing anti-globalization (i.e. anti-Capitalism) rallies populated by laid-off factory workers, disenfranchised students, and pungent environmentalists sporting raging indignation, purple scarves and bad facial hair. An odd ‘downsized’-banker or two has been spotted with this anti-globalization rabble on several occasions, but these sorts have a keen sense of self-preservation and usually keep a very low profile.

Presidente Chavez – Fidel Castro sycophant, leader of a “People’s Movement” that is bankrupting his resource-rich country, and proponent of the “President-for-Life”-style of populism (a dictator in his idol’s spitting image) – pushes himself to the forefront of this movement in Latin America, hosting anti-Davos-style assemblies like the World Social Forum. In a kind of Revenge Of The Cholos (mestizo peasants) scenario he exhorts his unwashed minions in drawn-out speeches to rail against the capitalist oppressors from the north, and pronounces dramatically that, “Another world is possible...another world is NECESSARY!”. The unwashed masses roar in excitement and pump their fists in the air in revolutionary rapture, then warble canonizing odes to el Commandante Fidel before they trudge back to their under-lit tenements and barrios. Very little ever changes for them, but Chavez fills the fetid air with the buzz of hope...at least until he disappears into his presidential helicopter and beats a retreat back to his Imperial Palace residence.

Leftist-Marxist superstar Noam Chomsky and Liberal Professor, Economist, and Nobel Laureate Joseph Stiglitz provide plenty of intellectual biomass for this dung-fueled fire, yet their only solutions are the same threadbare dogmas the International Left has been peddling for the last half-century; proletariat-owned means of production and more government intervention in free markets...only this time they are getting an audience outside of their core constituency.  

Chomsky is ever critical of Big Business, Capitalism, and globalization. His claim that there isn't much difference between slavery and renting one's self to an owner, (i.e. working for someone or an organization) is Gospel to his followers. Chomsky feels that working in a private enterprise that is not owned by the worker(s) is an attack on personal integrity that destroys and undermines our freedoms. He insists that workers should own and control their own workplace – control of the means of production being one of the fundamental tenets of Communism. That a vast number of workers in an advanced capitalist system actually do have part ownership of their employers’ organization (through stock-options and similar vehicles) and, furthermore, own parts of many commercial enterprises through the financial markets (equities, bonds, commercial paper, index-funds, etc.) seems to escape his philosophical field of vision.

Stiglitz makes clear that the "optimal" range of government-recommendable interventions is definitely much larger than the traditional "free-market" school recognizes. For Professor Stiglitz there is no such thing as an “invisible hand” in the market, merely pockets of “information asymmetry” causing the potential arbitraging of vast swathes of the international trade, thus perverting the market mechanism and resulting in inefficient and unfair results. The answer to this is, you guessed it, more government regulation.

As capitalism has gone global, so has the fierceness of the opposition to the associated upheaval. This last global financial crisis has been a spark to ignite violent dissent. Yet Socialism, any way you slice it, dice it, and re-package it, always comes up smelling stale.
                                                   

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” Winston Churchill

Intellects as inverse as Ayn Rand and Noam Chomsky might be forced to agree that the real debate today centers on calibrating the right balance between the free market and government, rather than finding refuge in either polar-end of the debate – pure laissez-faire at one end, Marxist-Communism at the other. Rand's "pure Capitalism" just ain't in the cards, Chomsky's collectivist paradise is as relevant as Mao suits, and Stiglitz's neo-Socialist "Third Way" is not the answer. Where does this leave us? With a duty to bring about a renaissance, and begin the process of creating what Nassim Taleb has coined (and I have borrowed) Capitalism 2.0 – no insipid “Third Way”, rather a robust and philosophically animated reinterpretation on Adam Smith’s original "system of natural liberty".

Truth is laissez-faire / "pure" Capitalism has never really existed. All “developed” economies today are so-called “mixed-economies”, with a varying mix of private and public ownership and governmental control. In fact, the “free market” has of late increasingly resembled a tightly modulated gambling den that was rigged to fleece most customers in favor of the house (the government, the business elites, or both). The system became so impenetrable and convoluted that eventually even the house was losing its shirt. Before the elites knew what hit them the house had almost burned to the ground. A new, more lucid yet flexible economic equilibrium must be established.  

True free market Capitalism, and minimal, transparent, yet demandingly rigorous and retributive regulatory oversight are the two pillars on which Capitalism 2.0 will stand. Both pillars are needed. They can complement each other when government is kept to a minimal yet – in case of malfeasance – punitive role. This equilibrium will differ according to culture, from time to time and place to place, but the fundamental rule will be that whatever governmental superintendence is set in place, it will be unobtrusive and nondestructive to fair free trade, yet swiftly retaliatory when sensible and transparent laws and regulations are broken. This is a system far superior to the present scheme of labyrinthine gaggles of rules, regulations, tariffs and incomprehensible volumes of taxes that stifle trade and mostly go unenforced or are corrupted through graft and lack of personnel. Expecting government – and massive regulatory regimes – to bring us out of the present quagmire and put us onto a more productive path is akin to towing a car out of a ditch and pushing it into a tar pit.

The fundamental features of Capitalism 2.0 would be:                                               

                                                       
  • a flat personal income tax (circa 18-20%) with minimal deductions for charity, children, home ownership, and education, thus eliminating entire armies of tax advisers, tax accountants and Orwellian government agencies, as well as liberating millions from the tortuous drudgery of tax calculation and/or avoidance
  •                                                    
  • a flat corporate tax (circa 15-20%) with minimal deductions for capital depreciation
  •                                                    
  • real fair and open trade and movement of goods – dumping and government subsidies would exclude countries from multilateral trade agreements and make the costs of trade irremissible
  •                                                    
  • wholly transparent financial markets - minimizing "information asymmetry"
  •                                      
  • well-funded financial institutions holding a sufficient level of capital reserves - reserve requirements as percentage of deposits between 10-20% should be the required norm (this would effectively crumble the debt-laden U.S.economy, but the debt cancer must be dealt with radically)
  •                                                    
  • minimal, yet clear-cut and stringently-enforced regulatory regimes
  •                                      
  • a thorough review of the necessity of the private Federal Reserve Bank - and of Central Banks in general - and the authority to set interest rates and "print" new money from purchases of government paper
  •                                      
  • small, efficient, and streamlined government
  •                                                    
  • *the U.S.A. might also be wise to reign in financially-crippling imperial overreach that foolishly saps blood and treasure

This is no Pollyannaish Wendell Berry-style agrarian fantasy scenario, advocating for communal interconnectedness and a return to a simpler and more linear existence. It is a necessary recalibration of the role of government, ethics, and the free market for the 21st century.
                                                   

“History suggests that capitalism is a necessary condition for political freedom.” Milton Friedman

If we do not heed the stench of the decomposing corpse of the present model of Capitalism we will suffer the consequences of our obtuseness for generations. The Luddites, Leftists, and collectivists trying to encase our “system of natural liberty” in a straitjacket of regulations and restrictive laws will cripple our recovery from this shattered state, thus marginalizing whatever object lessons we could accrue from this experience.

Aligning ourselves with this more aerodynamic model of Capitalism, we will create a rich and diverse economic biosphere. This environment will unleash the energy and industry of millions of individuals and set in motion a momentum of creative destruction that will germinate into the next phase of our economic evolution. Everything falls apart...that can’t be stopped by rules and regulations. It is the order of things. Those that seek to confine this natural process will bring us to stagnation and rigidity and ultimate ossification. Worse, they might lead us to a neo-Orwellian state of repression and conformity and, ultimately, permanent decline. We must find the courage to stand up and rail against the gathering darkness. Faith in the concept of enlightened/rational self-interest and man’s aspiration to productive achievement will spark the light that will lead us out of the shadows into a brave new world. Anything else is surrendering to cowardice and capitulating to an ahistorical, willful ignorance.
                                                              

Alexander Ackley © 2012 for The International Chronicles

 

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published this page in The Attic 2012-03-27 05:57:52 -0400