Wednesday, April 9, 2014

Developing a sustainable, democratic economy

The purpose of economics is to find a system that allocates resources in the most effective way for the greatest benefit of society.

Even right-wing, free-market ideologues like Ronald Reagan said they had a better way of creating prosperity for all. But considering 30 years of free-market reforms have created a lopsided economy where only the wealthy benefit — at the expense of everyone else — his vision was an obvious failure.

Let’s explore the main economic systems and the results they produced. We’ll discover that we don’t have to reinvent the wheel to create a responsible, sustainable system that benefits all segments of society.

Three economic systems

No matter which way you slice it, there are only three kinds of economic systems. They are defined along the left/right political spectrum.

On the furthest left is communism. This means full government control over the economy.

On the furthest right is free-market capitalism. This means minimal government involvement in the economy.

In the center is the mixed-market system. It’s a compromise between the other two: half-way government control over a market-based economy.

Failure of communism

Since communism means government takes control over the entire economy, individual freedom is threatened. Historically, communist governments produced what George Orwell called a “full-circle revolution.” Egalitarian goals fell by the wayside as the new ruling class exerted totalitarian control over the populace.

Communism is also very inefficient. A centralized bureaucracy is not capable of meeting or anticipating the needs and wants of society. Inherit political corruption stands in the way of talent and creativity.

Failure of free-market capitalism

Free-market ideology tends to produce a pyramidal society where most of the wealth accumulates at the top. Although, theoretically, this boundless freedom should allow people be the most they can be, the real-world outcome is that poverty and oppression deprive most people of real opportunity.

To get a picture of how a free-market system allocates resources, think of an untended garden. Big weeds emerge hogging up most of the resources that could be put to better use with a little upkeep.

Historically, the chaotic nature of “boom-to-bust” free-market capitalism caused the system to collapse twice in two global economic meltdowns. The first was in 1929 — a stock-market collapse which produced the Great Depression. The second happened in 2008 — a financial-market collapse which caused the Great Recession we have yet to recover from 6 years later.

Success of centrist economics

In the midst of the Great Depression, John Maynard Keynes created the centrist, mixed-market system. This was founded on “demand-side” economics.

When people don’t have enough money to spend, this kills jobs and wealth in a deflationary spiral (“paradox of thrift”.) But with “big government” spending on infrastructure projects and social programs — funded by progressive taxation — wealth is created in a virtuous circle through a multiplier effect.

The centrist system has been the most successful in history — hands down. It created modern living standards in the post-WW2 era. During this time, economic and productivity growth were at their highest; inequality at its lowest; living standards were constantly on the rise for all; and governments paid down most of their debts.

Too much of a good thing

The centrist system actually worked too well. By the 1970s, labor became too powerful and inflated wages caused high inflation and stagflation. That set the stage for Reagan’s free-market counter-revolution that caused all the economic problems we face today.

Conclusion

The only way to develop a responsible, sustainable, green economy — that relies 100% on renewable energy and recyclable materials — is with strong government control (centrist regulations.) The only way to put everyone’s talents to use — while maximizing wealth creation, innovation and individual freedom — is with a centrist market economy.

Therefore we don’t have to reinvent the wheel to provide a solution to the economic crisis we’re in. We just need to improve upon the centrist system which worked wonders in the post-war era.

A centrist economy is a democratic economy that serves the people. It allows a society to stop destructive behaviors, forge its own destiny and evolve without limit.

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