Rebuilding the Economy

To rebuild the economy requires we consider, once again, the classical and neo-classical models of capitalism.

In a previous article, "Shorting the Economy" at griffithlighton.blogspot.com, I stated that there is no shortage of savings (the accumulation of capital). The question is who owns it, or how it is distributed.

Classical capitalism is composed of two macro-cyclical trends: the accumulation phase, and the distribution phase. At the macro scale, capital accumulates into ownership of those who have invested existing capital for a return on the investment. The process conserves ownership of the capital and successful businesses share in its distribution based on the return on that capital (the measure of the profit margin).

The foundation of the classical model is the fundamental elitist ownership of the capital with the money supply expanded by derivative financial commerce such as credit and issuing stocks and bonds. The process is classically the trickle-down economics model with the structural power of commerce extending from the top down where the capital (the savings) largely resides. Even the savings of non-elites, even if independently micro-managed by its small owners from personal accounts, is ultimately macro-managed at the upper echelon of capital management where the mass movement (the money flow measures) of capital dictate the bid within markets over time from the macro to the micro level of this power structure.

While being able to dictate the direction, the trend, of prices and markets is the antithesis of a free market, the frequency, the length of the accumulation trend is long enough to give the outcome the illusion of a free-market legitimacy--that no one person or entity can dictate prices and the direction of markets. The outcome appears force majeur when it really is the deliberate active management of the capital at the fundamental level of power to yield a reliable and easily predictable outcome in the long term--conserving the ownership of the capital at the upper echelon of power, or what a free market fundamentally is not.

If a free market is what we are all expecting to achieve equitably legitimate outcomes, this is where the legacy of the classical model of capitalism, the neo-classical model, fails us.

This brings us to the distribution phase of the cycle.

When the capital becomes so accumulated that expansion of the economy cannot continue without sharing the capital, and power, crisis ensues. It is the classical crisis of overproduction. The capital is so accumulated (the power so consolidated) that society cannot afford to buy the goods and services it produces, being in a condition of oversupply that is caused by a lack of demand (purchasing power). The effect is deflation. To reduce the oversupply (to increase the demand), credit is extended, but because the value has not been properly retributed to its source (its proper ownership), credit becomes over-extended and crisis ensues.

The way capital is shared without relinquishing its ownership at the upper echelon of the power structure, the means by which the surplused value is retributed, is by the extension of credit--an expansion of the money supply. So we see, there is no dirth of savings. Americans create plenty of value, and that value is saved plenty. It is not properly retributed. The effect is our current mortgage crisis and the crisis of illiquid financial markets, or deflation.

Whether the practical model is classical or neo-classical, the effect is the same--deflation. The improvement the neo-classical model provides is for the minimal payment of the retributive value to stabilize the system of power; to conserve the power structure.

The neo-classical model, Keynesianism, operates on the hyperextension of credit to provide the needed liquidity with government spending. It can be in any form and is paid for through Treasury and the Federal Reserve which is a binary organized technology for the extension of credit and its payment (i.e., expansion and contraction of the money supply, or monetarism).

Whether the tax code is regressive or progressive is the determining variable for the value, the distribution, of the capital. The more progressive the tax code, the less non-elites pay to repay the extended credit (expansion of the money supply) to retribute the value, and the less the debt is worth to the elite of the power structure. It is a zero-sum game.

When we now here conservatives argue that the call for a more progressive tax code along with monetarist expansion of the economy is a burden of debt to our children, they literally mean "their" children, the children of the wealthy. The savings of the non-elite increases. The savings of the elite decreases. The capital is more equitably shared and the value added to the fundamental capital properly retributed to its source.

The recovery and the reinvestment MUST BE from the bottom up in order to not be just another neo-classical, Keynesian tax and spend program that ensures the stability of the status quo.

Conservatives are providing the classical response to the neo-classical policies and programs we are now engaging. A progressive tax code is not alone enough, but it is necessary, and conservatives and liberals know very well that without a strategic reinvestment for pluralizing our economy--deconsolidating the capital, industry and markets, the cyclical crisis of accumulation and distribution is assured to be the vehicle for abuse of power well into the future.

Instead of being properly marginalized, the conservative element is co-opted into a binary system of toggling realpolitique of falsely competing ideologies. Ideology "A" effects realignment with ideology "B," to "A" to "B" and so on.... It is not the model of pluralism though it intentionally appears to be.

The conservative rhetoric is already setting up for the predictable toggle switch when the Keynesian recovery program from the top down fails to properly retribute the value and The People are left with the debtor assignment on the public debt by operation of a centrally planned, top down, capitalist economy--what the rhetoric currently describes as the burden of debt going forward that will bankrupt the government (The People).

Quite the contrary. Bottom-up reinvestment financed through a more progressive tax code will lead to robust growth and a recovery that is largely out of the hands of the power elite. The recent negative sentiment of the stock market is political, not economic. That will become apparent when the stock market turns into a raging bull with the prospect of 3 percent growth, and a rising rate of profits, in the next twelve months.

Without rebuilding (reinvesting, recapitalizing) the economy from the bottom up, the crisis of overproduction will successfully recycle by "the will to power" considered to be "beyond good and evil."