by Dominic Iannuzzi

Recent political, economic and social trends foreshadow a new era of social democracy that will reshape our future. This new socio-economic order has evolved in reaction to rapid population growth, a discordant populus, governmental ineffectiveness, and the inequities of unaccountable capitalism. Our democracy has become too big to manage effectively, and certainly too big to enforce lawfulness.

GROUCHO MARXISM

The other morning I shot an elephant in my pajamas. How he got in my pajamas I'll never know. 
– Groucho Marx

Out of their inability to legislate long-term policy, politicians have learned to legislate the desired result itself, and worse yet, in the midnight hour behind closed doors. Reactive legislation is often too late and unfair, often having unintended consequences. Failing to address the corruptiveness of powerful lobbyists and political contributions has created a systemic degredation of public policy. Our reliance on foreign oil, for instance, should have been diminished over time as alternative energies and new growth industries were developed, were it not for politicians in the pockets of Big Oil.  Capitalism free from the intrusions and legislations of government bowing to the pressures of big business would have responded to global competition with innovations and efficiency. America would have maintained our competitiveness by taking the lead in power generation and in the automotive industry.

When government bailouts remove the factor of accountability, capitalism fails. Free markets require that those who fail to compete, those who make poor investments and those who commit crimes are held accountable.

If nothing else, government must enforce the law. Instead, we have allowed our nation to become a nation of lawlessness. The only ones to pay are the suckers who have made a habit out of abiding by the law without enforcement, and they end up subsidizing the ones who do not.

The Cash for Clunkers program was intrusive legislation in what should be a free market. Its success is temporary and inadequate. The real obstruction to selling American cars has been the inability to compete with foreign manufacturers. Legacy costs as pension promises made on assumptions of continuous growth are one primary obstacle to competitiveness. The guarantee of fixed pension incomes as part of a compensation package, to the detriment of future workers, in general, is irresponsible and self-serving.

THE STRATEGY OF FEAR

Our current financial crisis fueled beliefs that private industry cannot self-regulate, that government oversight is necessary, in spite of common snickerings that government can legislate but it cannot manage. Yet, through compulsory bailouts the government has gotten its hands into the banking and brokerage industries, now pressing for executive salary regulation. Regulation by government over private industry through the establishment of enforceable rules which preserve the integrity of the system and minimize risk and abuse is needed in a free market system, but micromanagement, for example, legislating salary caps when that should be governed by shareholder consent, is intrusive and socialist. The motiv operandi sold to the American people became "too big to fail," and was part of a propaganda of fear that insisted the crisis du jour was too complicated, catastrophic, or imminent for discourse. President George Bush utilized this strategy to parlay the swell of nationalism after the World Trade Center attack into an immediate need to remove the Saddam Hussein regime in Iraq, perceived by some in hindsight as a personal manifest. When the banking crisis surfaced, Treasury Secretary Hank Paulson led a campaign of fear in coercing Congress into allocating $750 billion to bailout cherry-picked banks and brokerages, his own alma mater notwithstanding.

TOO BIG WILL FAIL

There is a point at which, financial science contends, growth accelerates to a condition of critical mass, the point at which a company becomes self-sustaining because revenues have risen enough so that costs are absorbed through operations and are spread over a wide range of customers. Growth for a time may persist, but growth is not linear, and at some point will retrace. Using Walmart as a simple example, eventually productivity will be maximized and costs will begin to accelerate, eating into profitability. To inject growth stimulant into an industry that has outlived its condition of critical mass and growth is counterproductive and wasteful. In short, what goes up must come down. Without stimulative intervention, free markets can weather corrections, and both bear markets and bull markets present opportunities for profits. The stimulative effect is artificial and will eventually result in an even greater recoil, like that which follows most economic "bubbles." Most recently, the bankruptcy filing of CIT Group, after a "midnight" bailout by Timothy Geithner, will finally result in a taxpayer loss of $2.3 billion which could have been used to incentivise new industries that could provide real jobs.

I'd never join a club that would have me as a member.  – Groucho Marx

In a simple social program, the creation of a pool of funds contributed to with total participation, such as every worker making compulsory payments to the social security system, can fulfill at any given time the revolving needs of a smaller portion of the contributors. In theory, it works; in practice there are corruptions in the system, namely, increasing administrative costs as the program grows, inefficiencies that arise from mismanagement, errors, waste, and with insufficient checks and balances, the propensity of fraud.

    A recent television news program exposed the existence of thousands of fake medical supply companies, especially in south Florida, which for years have been filing fake Medicare claims, bilking the system of millions of dollars. Even with the $200 million granted to Medicare administration, it is doubtful that stepped-up enforcement can recoup lost monies and prosecutions will be minimal.

    Just as fraudulent activities of mortgage brokers, titlers, real estate agents and lenders went unpunished because the activities were too prevalent, so is Medicare too large  for efficiency. In effect, grand scale crime is unenforceable. Ninety-five percent of fraud in the form of falsified income documents and applications for financing will go uninvestigated.

BUBBLE, BUBBLE, TOIL AND TROUBLE

The engineering of market bubbles has become a modern fiscal strategy of the Federal Reserve Bank. Simply by driving overnight interest rates charged for borrowing between banks excessively higher or lower, the FRB can create attractive investment opportunities that lead to market bubbles. FRB Chairman Alan Greenspan did it with the equity markets in the '90s also by relaxing long-standing regulations such as lowered cash requirements for margin investing, allowing naked short selling ( selling a stock without making physical delivery of the shares to the buyer through a broker) and expanding index investing through the creation of Exchange Traded Funds, or ETFs, which allowed people to easily bet on directional moves of markets as a whole, or industry segments.

Indexing, futures and options trading, and short-selling vehicles are the components that transform investing into speculation, and contribute to volatility and bubbles in the markets. Invest in your neighbor's donut shop because you believe in his business. Sell when you lose faith. But betting on his success or failure is pure gambling.

LOOK, UP IN THE SKY

The inexplicable focus on nationalizing healthcare now, in the midst of our biggest financial crisis in a hundred years, seems utterly convenient. Razzle-dazzle 'em, right? Forget about your underwater home, your lost job, your anemic 401K, still precarious despite recent gains, and real inflation... Get your free flu shots here! The healthcare battle is a distraction from the real issues that we face, and an admission that our problems have become too big to manage. 

As America shares more of the economic pie with emerging economies and new powerhouses like China, India and Brazil, we will need to accept a lower standard of living. The move toward globalism will be painful as we develop new industries to replace jobs lost as manufacturing and agricultural industries have been exported. This trend was thought to be the fasttrack to third-world status. The elephant in our pajamas today seems to be the moral hazards of ineffectual governance, lawlessness and a lack of accountability in our capitalism.