CAPITALISM WITH A HUMAN FACE: ECONOMICS FOR VOTERS
Unemployment, poverty, affordable housing, medical care, social security, minimum wages, illegal immigration, destruction of environment, global warming and climate change... Democrats blame republicans... Republicans blame democrats... Who is right? Who is wrong? This book explains the root causes of our economic problems in simple language, without economic jargon.
Most political issues - unemployment, poverty, lack of affordable housing, etc. - are essentially economic problems. In order to understand politics a voter must understand economics. This book explains the most important concepts of economics in a very simple language. A short history of the banking system will give you a good understanding of the most important part of our economy. Economic history is a history of economic instability caused by instability of bank credit. New money is created with new debt when commercial banks make loans. This expansion of credit and accumulation of debt causes the economy to boom. At some point there is too much debt in the economy, and the banking system starts to collect debt without making many new loans. Money is destroyed as debt is paid off. Tight bank credit causes an economic downturn, and millions of Americans suffer. Is there a way to eliminate the instability of our economy and to solve many other economic problems? You bet. We can do it without confiscating wealth from the rich. Yes, we can have a capitalist system with a human face.
THE CONCEPT OF OWNERSHIP IN THE MARXIAN THEORY
The concept of ownership is so simple and basic that we rarely if ever think about its meaning, even though the concept of ownership is the most important, most fundamental of all concepts in the Marxian theory. The whole foundation of the Marxian theory -- the notion of exploitation, economic oppression, surplus value, emancipation and liberation, etc. -- rests on the concept of ownership of the means of production, the capital. According to the Marxist theory, owners of capital (capitalists) exploit workers by extracting "surplus value". Surplus value is the difference between cost of production and the selling price. In accounting, the difference between total cost of production and the revenue received for the product is called profit. In the Marxian theory Marx refers to profit as "surplus value". And what is the reason for that?
Let's consider a simplified example. Suppose, an owner of a bakery buys flour for $1, pays his baker $1 for baking the bread, and sells the bread for $3, making $1 in profit. This $1 is a surplus value. Suppose now, the owner sells the bread for $2. In this case, both profit and surplus value equal to zero, there is no "exploitation", but why would anyone have a business if there is no reward for it?
Suppose, the owner is working in his business as a manager, and he is entitled to earn $1. Now the total costs of the business are: $1 to buy flour, $1 to pay the baker, and $1 to pay the manager, or $3 in total costs. If the bread is sold at cost, then both profit and surplus value equal to zero, and there is no exploitation. But -- and this is a big "butt" - if profit equals to zero, then investment will ALSO equal to zero. In other worlds, the economy cannot grow, cannot expand, simply because investment always comes out of profits.
Imagine for a minute that you own a chicken farm, and you want to expand your business by adding another building. Where will you get the money to pay for construction of another building? You will get a business loan from a bank, but to make payments on your loan you have to earn profit. In other words, you have to extract "surplus value". There is absolutely no way to dance around this problem.
Marx was a genius of communication. He was too smart to advocate doing business without making any profit. Every fool would understand that without profit the whole economy of any country would stagnate. That is why Marx simply reframed the issue. He replaced "profit" with "surplus value", which has a very negative connotation: Look, the owners are getting rich on surplus value! It worked like magic. In dark corners of Sociology Departments of American universities, where communists are hiding, they still are teaching students to hate capitalism, as if Cuba and North Korea were examples for people with brains to follow.
Without profit there is no investment, and no accumulation of capital. It is true for any economic system. In the Soviet Union there was a socialist profit and socialist accumulation of capital. The only difference was the owner of the accumulated capital was the government rather than private persons.
The favorite activity of communists is to lament about the widening gap between the rich and the poor. Let's shine some light into this dark corner. To understand a difficult topic, it is often helpful to imagine situations where things under discussion are taken to extreme levels. Suppose now, in America Donald Trump owns absolutely all means of production -- apartment buildings, factories, chicken farms, etc.,-- and productivity of work is very high. WTO has been destroyed, and globalization is over. We no longer send our food to China. We eat it ourselves. With high levels of production, especially in construction and agricultural sectors, every family will be able to rent a decent apartment, and there will be a real chicken in every pot. Why? Because productivity is high!
Suppose also, there is another country, like Cuba. No capitalists, no exploitation, just a communist paradise. But the country is very poor, as is always the case under communist rule. Forget about chickens. They are thinking about eating insects and worms.
Now, here is a question. In America, only one person is rich (Donald Trump), and the rest of the population do not own any capital. The gap between the rich and the poor has reached the maximum. But people live comfortably. In Cuba, there is no gap between rich capitalists and poor workers, but why are they starving? Why can't they grow tropical fruits for export, earn foreign currency, and import chickens? Or why can't they buy chicken feed on the world market and raise chickens for themselves and for export? In America, one person owns 100% of the capital of the whole country. In Cuba, the workers own everything. Why are the Cubans starving? Let's try to formulate the answer.
In the Marxian theory, extraction of surplus value and accumulation of capital benefit ONLY the owners of capital. But in the hypothetical example where Donald Trump owns 100% of America's capital the whole country benefits from the accumulation of capital by a single person.
Imagine for a minute that there was a catastrophic earthquake after a huge flood. As a result, 100% of Trump's capital was destroyed. Not a single apartment or chicken can be found. They no longer exist. Should Americans care about the destruction of Trump's capital? It was ONLY Trump's capital, right? Was it, really?
It turns out that workers benefit from accumulation, and suffer from destruction, of capital they do not own. Capitalists own their capital explicitly, but workers own the same capital implicitly, indirectly, simply because they benefit from accumulation of capital which they Do Not Own.
Coming Collapse of the United States and the Future of Democracy
It was a long time ago, and I no longer remember where I was reading about this. Since antiquity, " great civilizations have been rising, illuminating the horizon." They conquered distant countries and people, and for sometime it seemed the sun would never set in their empires. And every time, without an exception, there was a collapse, inevitable and spectacular. What was it that caused the collapse of those empires, and is there any lesson for the United States?
Every empire was different, but two factors seem to be present in every case: internal weakness and external pressure. The Soviet Union was a seemingly unbreakable superpower, but it was practicing a defective version of Marxian socialism, and its history is instructive. The Soviet Union strained to dominate the world by spreading the Communist ideology, overloaded its economy, and collapsed. The U.S. now is in a very similar position trying to spread democracy all over the world. In addition, both factors - internal weakness and external pressure - are present.
Growing up in the Soviet Union, I have always been fascinated by economics. I was reading Marx and Lenin trying to understand the capitalist system. Why is there unemployment? Why do capitalists not hire the unemployed in order to exploit them? Why do exploited Americans live better than unexploited Cubans and North Koreans?
After Ronald Reagan was elected on the platform to start the arm race in space, people in the Soviet Union were discussing the different aspects of confrontation. Very soon it became clear that the Soviet economy was not capable of continuing the arms race and to win the Cold War against the capitalist world. By the end of the decade the Cold War was over, but the arms race has never stopped.
Now there are three gangs - America, China, and Russia - and each of them wants to control the world. The good thing is that China and Russia cannot easily form a military alliance against America. China needs raw materials and space for its population. A few centuries ago Russia annexed a huge territory from the Ural Mountains to the Pacific Ocean, which was populated by Asian ethnicities. It might take a few decades, but China will buy that territory from the weakened Russia. Unless Russia decides to merge with China in the hope the Russian language will replace barbaric Chinese letters of which there are many thousands, they are ill suited for contemporary electronic communication.
If such a country is created -- by the end of the century there will be two billion Russian-speaking enemies of America. Out of those two billion people at least a quarter will be scientists and engineers. In this scenario, America has no chance to compete. Even without the creation of such a country, America is in a long-term decline which is most likely irreversible. The signs are many, and they give a very clear reading.
October 5th,2021. Fortune.com. " Tesla Inc. lost a case against a black former elevator operator and must pay an unprecedented $137 million in damages for having turned a blind eye to racial taunts and offensive graffiti the man endured at the electric carmaker's auto plant in Fremont, California." This case shows that California does not have a functioning criminal justice system. Racial taunts should be punishable by sometime in jail, and the victim should be compensated for psychological distress. Who should pay the damages? The offender. But in this case no one was arrested or jailed. No one was convicted even for misdemeanor. How is it possible to award $137 million for something that is not even punishable by criminal law? Now we can expect thousands of fraudsters, both black and white, to stage fake theatrics of racial discrimination and abuse, incidents carefully recorded with smartphones, and "evidence" used in civil trials against all kind of American companies. If there is no criminal punishment, then there is nothing to lose. Even if there is a light punishment like a few months in jail, but the reward is in millions of dollars, we can reasonably expect America to explode with thousands of fraudulent lawsuits.
Will Tesla build another factory in America? Not likely. More likely, a decade from now, around 2030, when machinery and equipment have significantly depreciated, this Fremont factory will be closed, if not earlier. And what is the message to the world about American values? The message is that you can build a successful business, but some loony federal judge will make you pay a hundred million dollars for a crime that is not punishable even by a few months in jail, and the whole drama can be easily staged. This is a sign of a deeply rotten decadent empire. The result will be that American companies will continue to close manufacturing plants in America. By 2050 America will be importing most of the manufacturing goods, and exporting only soybeans, corn, and pork bellies. With manufacturing Industries mostly gone, America will officially become an agricultural colony of China.
Military power? America is losing it everyday. With development of long-range drones armed with high-power missiles, swarms of Chinese drones can already destroy American Naval assets. Submarines? China is churning them like sausages. The notion that America will be able to protect Taiwan is a fantasy. Worse, with America visibly rotting, Taiwan is very likely to vote democratically to merge with China.
America still has more advantages. Now is the time to make an agreement with China that, say, 20 years from now Taiwan will be under full control of the central government of China. During these 20 years America and other Western countries should accept millions of highly educated scientists and engineers from Taiwan. It is time to start evacuating those people who don't want to live in communist Taiwan. America can build modern new cities for refugees from Taiwan. High-tech factories that manufacture semiconductors should be dismantled and relocated to America. The technological desert can be left to China's communists. The simple fact is that China is becoming stronger economically and militarily every year, while America is in irreversible decline, and we should abandon the delusions about our ability to defend Taiwan. It is much better to surrender Taiwan to China in 2040 than to lose a war against China in 2030.
The interesting question is, what caused such a rapid decline of the United States? The short answer is that throughout world history, when empires achieve dominant position they become complacent, they don't pay attention, and the rot sets in. America is no exception. Now, what exactly is wrong with America, and what should be done about it?There are at least a dozen of things, but one cancer is in epitome.
1. At a time when the whole world is using electronic payments, America is still using copper pennies. Millions of people waste their time in lines while other people are digging in their purses, or fishing those pennies out of their pockets. In addition, it is an extra cost for business owners, because time is money. Pennies can be easily eliminated. Instead of, say, $9.99 customers should have a right to pay an amount rounded down to the nearest 5 cents, which is $9.95. Businesses will have an incentive to post prices in more rounded amounts - either $9.95 or $10. America is wasting many millions of dollars to mint nickels and dimes. With pennies eliminated, 1- gram copper coin could be denominated as 5 cents; 2- grams copper coin as 10 cents; 5-grams copper coin as 25 cents. Vending machines can easily handle copper coins. If the Congress does not do it in the near future, then in a few years it will become profitable to melt copper pennies ( they are one gram each) and sell the copper as scrap metal. If a 1-gram copper coin becomes $0.05, then for a long time - at least a few decades - it will not be profitable to melt copper coins. Some years ago Congress did consider eliminating pennies. But some experts testified that businesses would increase prices, and it would hurt the poor. How many lunatics live in America... Inability to remove pennies from circulation is laughable, but it will not cause collapse of the empire. Other issues are much more important.
2. China has very good universities, especially in science and engineering. Every year hundreds of thousands of students graduate to become scientists and engineers. In America, the brightest kids want to become lawyers because that is where the money can be made. Why study engineering when you can sue American corporations for racial discrimination, gender discrimination, etc. and make millions of dollars of easy money? Corporations will be terrorized into promoting people based on race and gender, and not necessarily on merit.
3. In American universities millions of students are being indoctrinated and brainwashed about economic inequality. While China and Russia have greatly improved their economies under capitalist systems, with very big gaps in incomes of the rich and the poor, America is inching backwards, to Marxist Socialism. The main topic of sociology and economics is inequality, with a socialist system advocated as a magic cure.
4. Those who really want to help the poor -- they are searching for ways to improve the living standards of the poor. This website advocates creation of the Central Bank of America; it should be owned by the federal government. Such an action is a step toward socialism, but it would greatly improve the American economy. But communists who advocate socialism in American universities are not looking for ways to help the poor. They are looking for ways to destabilize our economy, to create conditions for a revolution, and to grab power. Just visit revcom.us.
5. Marxist socialist systems have never managed to improve living standards of the population in any country. Just look at Cuba or North Korea. Communist lie through their teeth that in a socialist system workers own means of production - land, factories, machinery, etc. In reality, workers own absolutely nothing. Government owns everything. EVERYTHING!
6. Communist lie that in America the rich are getting richer, and the poor poorer. A poor American who owns zero amount of capital working for minimum wages is probably 10 times richer than an average Cuban who supposedly owns the whole economy of Cuba. Why? Because America has accumulated lots of productive capital. The poor do not own chicken farms, but because chicken farms produce millions of chickens everyday the poor Americans can buy a chicken everyday. In other words, the poor Americans greatly benefit from capital they do not own. When the rich accumulate productive capital ( chicken farm, factories, machinery, etc.), the poor also get richer because accumulation of capital by the rich allows the poor to buy and consume more goods. Communists who have occupied American universities never talked about it. They talk only about inequality and redistribution of wealth. This is of course just shameless communist propaganda. The purpose of communist brainwashing is to cause pain and anger. Envy is a very powerful emotion, and communists know how to use it.
7. The authors of this website, both of us, came to America in 1987, when Ronald Reagan was the president. At that time the whole world knew about the "evil empire". Soviet propaganda was talking endlessly about inhumane capitalism: homelessness, poverty, oppression, exploitation, and inequality. The only hope for the proletariat was a Communist Revolution which would immediately bring equality and prosperity, even though there was no prosperity in the Soviet Union, and neither there was equality. Higher-level officials of the Communist Party enjoyed goods and services that were not available to the general population. There were special little stores for only members-- a Soviet version of country clubs. There were hospitals and medical clinics for members only - the high-level officials. Just ask any immigrant from the Soviet Union the meaning of " The Kremlin Hospital". It was The Kremlin Hospital, and it was not for the unwashed public.
8. Now, in the United States, we hear and read the same communist propaganda in exactly the same language -- oppression, exploitation, inequality, etc. There is no doubt that the American version of capitalism has quite a few shortcomings, and we should work to improve this great country. But communists don't want to improve anything. The only thing they want to do is to poison the society with communist brainwashing, and to seize power. After that there will be a civil war, destruction of our economy, and a communist dictatorship, just like in Cuba and North Korea. Slowly but surely America is sliding into a civil war and destruction. And what will happen to socialists and those "useful idiots", political liberals? Communists in the Soviet Union rounded up millions of people and put them in concentration camps, most of them socialists who were not sufficiently enthusiastic about building the Communist Society. In America, communists will exterminate socialists and political liberals. Stalin killed tens of millions of people, even more than Hitler, in his own country. Stalin killed at least five times more citizens of the Soviet Union than Hitler killed Germans. Communists will destroy America.
The Biden Administration is trying to make corporations pay their fair share, but this is an uphill battle. The reasons are many. The main problem is that corporations pay taxes on profits, but profits can be easily manipulated. Corporate income, or revenues, minus expenses equals profit. If a corporation offers to its workers benefits like Health Care insurance, housing assistance, relocation expenses reimbursement, free food and beverages in the corporate cafeteria, on-site childcare and yoga studio, etc., then all these expenses can be counted as labor expenses, and the corporation will have lower profit and lower tax bill to pay. The best solution is simple: do not tax profits! Tax income, in five levels: 5%,10%, 15%, 20% and 25%. Venture Capital firms should pay zero taxes; they are our only hope to keep America technologically-advanced. Manufacturers of high-tech products should pay 5% of income. At the other end, law firms should pay 25% of their income. Why? Because in China the brightest people become scientists and engineers. In America, the brightest people become trial lawyers. In the contest between China and America to dominate the high-tech -- lawyers have no chance. The American judicial system allows lawyers to earn millions of dollars for the kind of work that is very often purely parasitic. At least a quarter of America's GDP should not be even counted: jails, prisons, lawsuits, psychiatric hospitals, drug addiction services, etc., -- these services do not make America richer or stronger. Of course, these services are needed, but we would be better off without so much crime and psychiatric illnesses. That is why only production of desirable goats and services should be counted as part of GDP, and they should pay only 5% of income, while less desirable businesses should pay a higher percentage of their income. For example, chicken farmers should pay only 10% of their income, while manufacturers of cookies, cakes, sugary drinks, etc. should pay 25% of their income. Why? Because there is an epidemic of obesity in America. Millions of children are obese because they are addicted to sugar. That soda is a dessert after dinner, not something to drink five times a day. Sugar is as addictive as any other drug, and its production and consumption should be discouraged with higher taxes. Of course, higher taxes means higher costs, and all costs are always passed on to the consumer. To avoid higher taxes, corporations will try to move their headquarters to countries with lower taxes. Very good! Who cares? Just pay 25% of income in the United States. Move your HQ to China. The policy of corporate taxation cannot be separated from tariffs. In America, factory workers are paid at least $15 per hour. In China, they pay $3 per hour for the same work, which is 20% of our wages. That is why our factories are moving to China. What is left behind? Economic desert. The problem is NOT jobs. We can very easily create tens of millions of jobs to build modern new cities with modern public transportation where most people will not even own any kind of cars, as explained on my website, global poverty solution.com. The real problem is that without high-tech manufacturing America will become an agricultural colony of China, to produce grains, pork bellies, and yes, it means to go back to cotton plantations. There is only one solution - high tariffs, 100% minimum, to protect our manufacturing sector. Simple math, on the level of junior high school, can explain that with labor costs 5 times higher, our manufacturing sector can be completely destroyed by 2030. Try to import Tesla cars from China without 100% tariffs. Our car manufacturing will cease to exist. In addition, whoever imports Tesla from China to the U.S. should pay 25% of income as federal tax. To illustrate, consider the following example. Suppose, an importer bought 1 Tesla car in China for $10,000. When the car arrives in the U.S. the importer will pay $10,000 is that tariff which is a federal tax. The total cost to the importer is $20,000 so far. The importer sells the car for $32,000 and pays a quarter of it, which is $8,000, as a corporate income tax. The total expenses in this simplified example equal ( $10,000 + $10,000 + $8,000) $28,000. Profit equals $4,000. But corporate taxation in this example is based on the sales price which is $32,000. The federal government will not care about profits and expenses, only about the price at which the car was sold. It will make corporate taxation a hundred times easier, and there will be practically no opportunities to play cat-and-mouse tax games. At first glance, the level of taxation in this example is too high, but in reality it is not, and here is why. When Americans work, they pay federal, state and local taxes. Those taxes pay for all kinds of government services - education, Healthcare, police, firefighters, jails, prisons, defense, infrastructure, etc. When a factory relocates to China, and workers lose their jobs, who will pay all those taxes for all those services? America used to be a rich country, but no longer is. In many countries of the world the standard of living is higher than in America. There are many reasons why America is in decline. One of the main reasons is that an average American does not understand even the most simple ideas and concepts of economics. That is why the voters allowed corrupt politicians to create the WTO, World Trade Organization, and to relocate the American manufacturing industry to China. Unless we leave the WTO, the next two or three decades will be the last decades of America as a superpower. Meanwhile, America needs to adopt corporate taxation based on income.