Capitalism Death Watch

The Republican Party Faithful are doing their best to stop the government of the United States of America from functioning. They believe the government deducts from their prosperity by taxing, spending, and borrowing. The problem is they have a simplistic view of capitalist economics that is out of touch with the real world.

Already in the 19th century a number of economists noted free-market capitalism's self-destructive tendencies. Their theories were based on observations of capitalist accumulation (of money and property in the hands of ever fewer people) and cycles of boom and bust. There are other factors in business cycles, but it was apparent to anyone looking objectively at the data that letting capitalism run wild created booms followed by depressions, of which there were a number of between 1850 and 1940.

Let me repeat: experimental evidence showed that unregulated capitalism tended to destroy national and global economies. The reason we have only had one Great Depression is one was enough for most people: government intervention is required.

Of course, you can also have too much government in specific cases, and counter-productive programs, but I've noted that Republicans are just as resistant to killing their pet government subsidies as Democrats are, maybe more so.

What happens if the Congress, a combination of Republicans and Democrats, fails to raise the debt limit? Capitalism dies. The U.S. will go down, and we will take the whole world with us, even China.

A little sense would go a long way here. Congress could wait to cut spending until, say, U.S. unemployment drops to 7%. That would reassure just about everyone, and save our regulated system of capitalism.

If the U.S. government stops paying its debts, in August, the economy will start falling. There will be nothing and no one capable of breaking the fall. We are in a slow upward cycle, but will be thrust into a rapid downward plunge. Tax revenues will decrease, making it even more difficult to achieve a balanced federal budget. More layoffs will mean less consumpition, meaning evern more layoffs. Bonds will become worthless unless taxes are greatly increased or the whole government (except of course, homeland security and the military) is shut down to make the escalating interest payments.

If the debt limit is raised (substantially) but with no tax increases, no cuts in military spending, and major cuts in future payments to seniors and other low-income persons, the outlook is grim, but the economy might muddle through.

Here's the deal: truly free-market capitalism concentrates all wealth in the hands of a few people (in a nation of over 300 million, that might be about 3 million). No one else has money to spend, so demand drops, the economy collapses, and people realize how dumb they have been and elect a government that resistributes wealth. Then we rebuild, and ideologs eventually forget the facts of life.

I hope the Congress is really just bluffing. I hope the debt limit is raised, but that federal spending is gradually reduced until we can repay some of the national debt. But I fear a lot of stupidity has been concentrated in Congress right now. The death of capitalism might offer the hope of a new social order, but it could be a very, very unpleasant transition.