A Primer on the Capitalist System

Today Rush Limbaugh tried to explain the purpose and consequences of the minimum wage during his radio show.  Why would he do this?  Because the Senate had hearings in which Massachusetts Senator Warren explained that the minimum wage should be about $22 per hour if it were adjusted for inflation and the increase in productivity since 1960:  In a hearing of the Senate Committee on Health, Education, Labor and Pensions last week on “indexing the minimum wage,” Massachusetts senator Elizabeth Warren inquired of University of Massachusetts professor economics Arindrajit Dube, “If we started in 1960, and we said that, as productivity goes up — that is, as workers are producing more — then the minimum wage is going to go up the same. And, if that were the case, the minimum wage today would be about $22 an hour. So, my question, Mr. Dube, is what happened to the other $14.75?”


So how did we get to a point where a former professor at Harvard Law School is so uniformed about the process of wage development?  Can we ever hope to solve our financial problems if this is the caliber of leadership within the Capitol? Limbaugh went on to explain that the minimum wage costs jobs, which is correct, and is designed for the lowest skilled workers.  He also explained that the labor unions support the minimum wage and want it to increase regularly to encourage higher salaries for their members.  All of this is true, but even this explanation misses several crucial points.


Perhaps more critical is the response that Professor Dube gave to Senator Warren’s question and her retort as reported:  Dube backed up Warren’s math, and even stated that if minimum wage had kept pace with the rise in income of the top 1% of taxpayers that it would have been around $33, before the recent recession.

Warren then went on to question David Rutigliano, owner of the Southport Brewing Company. Rutigliano took the side of small business owners, stating that his business doesn’t run the same way or with the same volume as a McDonalds, which Warren pointed out could weather a minimum wage hike with relative ease. 


After 100 years of progressivism and its influence within the public school system, high school graduates do not understand the fundamental differences between socialism and capitalism.  They have been taught that under socialism the government owns the means of production, but while under capitalism individuals own the productive businesses and valuable resources.  This dated and limited definition plays to the progressives’ and socialists’ ability to accumulate power and increase the growth of government.  It also stifles all efforts toward economic growth and stability.


The growth of governmental influence over productive private entities which is a threat to individual liberty is the aim of statists.  In Europe, this power was consolidated into the monarchy during the Middle Ages.  With the growth of feudalism, the aristocracy grew into a wealthy, privileged class.  Mercantilism reached a height in England in which the king granted individuals commercial and territorial rights.  These entrepreneurial efforts did not respect the value of a meritocracy.  It took our founders to provide this form of capitalism in America.


The socialists and progressives cannot accept their limitation to compel economic behavior.  Progressives, following Marx and Engels, believe that fairness requires redistribution of wealth within our society.  This comes from the socialist principle that “from those that have to those that need” must operate.  Yet, people will endeavor to thwart this aim for their own benefit.  Large corporations have staff that work to move profits to other nations as the tax rate is lower elsewhere.  This defeats the governmental aim to collect greater tax revenue.  Smaller businesses have less flexibility to accomplish this aim, but still endeavor to maintain the greatest profit for themselves.


Smaller businesses have owners that manage their affairs for direct benefit; in contrast, larger public corporations hire managers (CEO’s) that are concerned with their survival as the leader and that results in quarterly stock increases or higher profits for stockholders which are the owners.  Smaller businesses show an independent streak, while the government can solicit larger companies to comply with regulations more easily.  Larger businesses have the means to adjust to onerous rules, which might wreck havoc on smaller businesses.  Statist find the larger businesses more willing to accept their regulations as the CEO’s see these regulations as an inconvenience


A private business pays staff based on the lowest salary that can be expected to elicit the necessary work.  Some may obtain higher salaries as a convenience to the manager, who might want to limit negotiations.  Yet, the job will only be available at a wage that the owner or manager will commit, since they control the money.  If the salary does not solicit enough positive response, then a ne and higher offer will result until the ceiling is met.  The minimum wage is not a living wage because the business does not hire staff to generate income in the community, but rather to generate wealth and profit for the owners.  There must be value in this transaction.


Milton Friedman, in his august work Capitalism and Freedom, argued that “liberalism” in the Enlightenment spirit requires economic freedom.  This threatens the progressives and limits their ability to dominate others.  The European enterprise model evolved from the feudalist past.  The American model rewards individual success.  It cannot protect against failure or deficiencies, but the government can offer a safety net for those unable to manage their affairs.


The hubris that progressives demonstrate can result in accumulations of power beyond the corrupting influence.  Clearly few people can resist the temptation to collect material and wealth along with the power to control others.  Lord Acton warned of this corrupting influence, but still citizens surrender their liberty for a “few pieces of gold”.  Joseph Schumpeter, the Harvard economist, warned of the opportunistic (during crises) grab for power by politicians that would threaten democracy in this country.


Our society may be at risk, but the solution is to educate the populace on the value of the private entrepreneurial system.  Rebuilding the social studies curricula is a must, but this is just the beginning.  One thing to consider regarding the orientation of higher education is the extent to which the left has controlled the agenda.  Austin Goolsbie, the former Chair of President Obama’s Council of Economic Advisors firmly accepts the need for more government intrusion into private business.  He teaches at University of Chicago, the same institution that once housed Milton Friedman.  Could this be any more worrisome?


Sequestration and the Future of the GOP

Less than two days to go before the sequestration of $85 billion for fiscal year 2012-2013 kicks in and the weak-kneed Republicans are struggling to find a compromise that gives the President another victory. They fear another loss in public perception of their management of the American economy. This demonstrates on many levels why last November’s election gave split results.

Arguments from moderate Democrats and Republicans now emanate suggesting the need for flexibility in making these cuts. They want to give the President the authority to adjust these cuts. The President has continuously used Executive Orders to accomplish political aims beyond the intent of the Constitutional framers. Yet, curiously, he refuses to use that power in this case. This can only mean that he does not want to improve the situation. Maximal pain gives him the edge in growing the government and increasing spending despite the lack of revenue. Previously, he had to present the cuts that would result under this legislation; these could have been massaged for the benefit of the public, yet he chose to make them draconian.

In the end, he hopes to eliminate the GOP majority in the House in 2014, which would free him from lame-duck status for the last two years of his term. This is another issue given to him to demagogue. Why are we spending $2 billion in the Transportation Department to send employees to training conventions? Could this be more important than adequate numbers of traffic controllers? Does anyone expect legal challenges in this regard? So much for the argument he made on Monday.

Homeland Security Secretary Napolitano claimed that we will have less safe borders due to these cuts. They have threatened to release 10,000 illegal aliens held by ICE in Arizona due to lack of beds and manpower. This is unfortunate since these aliens have committed crimes necessitating the incarceration. Yet, the Department has started releasing some criminals ahead of the Sequester. Again, maximal pain and political punishment are meted out for a state that has opposed the President.

The Sequester has been delayed for two months which was to give both parties time to find a more reasonable and intelligent way to make the cuts to the growth in spending. Therefore, the real cuts will be about $68 billion. The Sequester was intended to be too onerous to ever occur. Yet, we are again at the last minute scarring the public. Never fail to use a crisis to get what you want. The President managed to take a rather expensive golfing trip only a week ago. No urgency then to sit down with the Congress.

The idea for this Sequester originated in the White House according to Bob Woodward. The President denied this during the election, but finally the White House Press Secretary admitted this fact. Why have the Republicans not constantly mentioned it and used it against the President as a flip-flop? The public relations disaster for the GOP is of their making. The general press will certainly support the President, but the GOP must adjust to this by creating new outlets for information

The total being saved for the entire year is less than the amount the Federal government borrows in one month to maintain the budgetary debt. This is the most important argument that the Republicans can make on the national level to gain back the White House. It robs our future generation’s wealth and threatens to bankrupt our nation. This is enough reason to make some cuts to spending. Weakened politicians see the polls holding them at fault for the Sequester, but the President ultimately will pay a price for lost jobs and weak economy.

Some Republicans are now calling for more taxes and loophole reductions. Can the Republican base ever trust these leaders if they falter on this issue. Some worry that giving the President more flexibility increases his power. Yet, the lack of an annual budget hides his already increased power through continuing resolutions. The President will never have enough taxes in place to satisfy his spending desires. Therefore, the budgetary gap will never be closed.

The national debt now approaches $17 trillion. Together with unfunded governmental liabilities at the state and federal levels, there is in excess of $70 trillion in future liabilities. There is insufficient money in the entire world to guarantee this debt. This Sequester does not reduce spending, but reduce the rate of growth. This fight will determine whether sanity ever returns to our national priorities.

On the political level, a loss for the President will embolden the opposition. This will strengthen them when they battle over the debt ceiling authorization in May. Recently, it was recognized by the CBO that over $100 billion in payments was made to people in error last year alone. This exceeds the amount of the Sequester. The federal spending has doubled since 2000. At this rate, we cannot hope to achieve a balanced budget.

The President has gotten Democrats to call for a “balanced approach” to the effort to reduce our federal budget deficit. Poll testing show this resonates with the public. It is time for the GOP to provide a definition for this term that truly is balanced. The future of the GOP as a dominant party requires this realignment. The President uses “fairness” as the mantra, but what is fair about robbing from your children and grandchildren?

Our capitalistic system will fall if private banking capital is crowded out by federal borrowing. This is the aim of our President: To weaken the system that fuels the private sector, thereby strengthening the government sector in our economy. He is already redefining the conception of “socialism” by growing the government influence over businesses rather than by direct ownership of those businesses. The regulatory control over health insurance and the banking system demonstrates this effort. Because the GOP and Mitt Romney did not make this the focus of the campaign, many stayed home and did not vote. Social issues are important, but this is the essential divide between the two national parties.