F*** Joe the Plumber: Economic Equality and The Myth of Free Markets

http://decker.typepad.com/photos/uncategorized/2007/04/10/plumber.jpgby Tre B.


Now I'm no expert economist, so like Levar Burton used to say on Reading Rainbow, "You don't have to take my word for it..."  However, there are some commentators in the media, who claim to be experts, telling outright lies.  Maybe it's intentional or maybe they're just ignorant, but let me tell you what I think about so-called "free" markets.

The point of this article is to make you aware of the tactics that are being used to distract people from the fight for economic, political, and social equality for all human beings.  As soon as the government steps in to do something, you get these self-proclaimed capitalists bitching and raising hell.  Now this is not in defense of the bailout, which is an example of when the government goes too far, but it's more in reference to "Joe the Plumber."  He's upset because after he buys his business and starts making over a quarter-million dollars a year, he's going to have to pay more taxes.  Poor f'ing Joe.  Even when the government taxes half his money, he'll still be making over 3 times more than the average working American.  So while the media is distracting you by worrying about Joe the Rich Plumber, you need to be worrying about the countless other people (plumbers included) barely making it paycheck to paycheck. F*#& Joe the Plumber and McCain's tricky ass for distracting people from the real issues.

I believe the natural result of free markets and uninhibited, individualistic capitalism  in the current context is perfect inequality, in other words, one ring to rule them all.  Like the saying goes, "It takes money to make money."  Therefore, the more money you have, the more you can invest, and the more money you can make. Think about the inventor that has a great idea but no start-up capital and no friends and family to finance her until she can attract more capital.  Think about the recent graduate that can't get a mortgage because they have too many student loans to pay off.  Meanwhile we're in the worst financial crisis in many of our lifetimes and people like Warren Buffet are just getting richer by buying distressed assets at historically low prices.  McCain might as well say, "My friends, the rich get richer and to hell with all you poor bastards."

The more money you have, the more money you have to invest in buying or creating businesses/assets that generate even more money for you and create more wealth. When your pockets are deep, like Microsoft, you can afford to overpay for some of these assets (e.g. Facebook) just to keep other people out of the game (e.g. Yahoo).  You can buy up the best companies, the best real estate, and the highest performing assets.  In a purely free market there are no regulations against monopolies, so the only way to stop this cycle is to kill the people doing it.

Innovation, ingenuity, and entrepreneurship will only take you so far because the fat cats with the big wallets will always attempt to claim most of the value generated by your creativity.  In corporate strategy theory there's something called Porter's Five Forces.  Three of them are Buyer Power, Supplier Power, and Barriers to Entry.  Basically, the bigger the buyer or supplier, the more power they have usually due to economies of scale or being one of the only providers of a product or service.  (There are cases of dis-economies of scale, when being bigger actually hurts a company, but those are usually temporary anomalies in supply-constrained markets).  For example, Wal-mart can offer you low prices because they're so huge and they buy such large quantities that they get large bulk discounts...that's Buyer Power.  So if you're a start up company trying to sell your products, eventually you're going to run into one of these behemoths that will squeeze your margins and claim most of the value from your product or service unless you're content staying small and limiting growth. Barriers to entry are just what they sound like. It's a measure of how hard it is to start a business.  A graphic design company has low barriers to entry.  Any kid with a computer and Photoshop can start one.  A car company however, has high barriers because it takes a lot of upfront investment to start one.  If you ain't got it, you ain't gettin' in, but if you're rich, the world is your oyster.

Let's not even get started on venture capitalist or private equity firms that are masters at claiming value.  I'm not saying any of this is necessarily bad because the big companies and the private equity players do create significant value as well, not just claim it.  Without them many companies wouldn't even have a chance to get started.  I'm just saying that eventually more and more money will end up in fewer and fewer hands because the best venture capitlists raise the most money, charge the highest fees, and do the most deals, and the biggest companies have insatiable appetites for continued growth for growth's sake, asset grabbing, and centralizing power (and compensation) towards the top of the org. chart.  I'm over-simlifying things here, but you get the main point.

In a completely free market, there is also freedom from government.  This means there is no government interference and there are no corporate taxes because taxes stifle growth and negatively affect investment returns, while the goal of a soulless company is to maximize returns or so-called economic "value."  Obviously this is an extreme case, but it illustrates that there is a role for government in the economy, and you should be skeptical any time some finance guy or economists starts raising hell when the government interferes in business and the economy talking about letting the market work itself out.  The market has no compassion for the economically disadvantaged.

While they have you worrying about Joe the $250,000/year Plumber, you should be worrying about how it is possible for one man to have 50 billion dollars while Joe the college graduate is still paying off his loans 15 years later, or Joe the teacher can barely make ends meet even though he's instrumental to improving the future of our society by educating the next generation.  Our current priorities ensure the eventual displacement of our country as a so-called Super Power.

You saw how the conservatives jumped on Obama for talking about "spreading the wealth."  Because of our bad history with Socialist and Communist countries we incorrectly assume that most forms of socialism or wealth redistribution are bad.  Meanwhile, most of us are the recipients of wealth redistribution in some form or another (e.g. public schools, libraries, roads, parks, public and private scholarships, grants, subsidized loans, progressive taxes, etc).  Let me tell you a secret..."socialist" is not a bad word.  If you think redistribution of wealth is bad, you haven't thought about the alternatives and the American Dream will remain just that....a dream for the masses of people.  If inequality is a by-product of individualistic, uninhibited capitalism, then without any redistributive or socialistic policies the end state is all the money/resources in the hands of one person or a small group of people.  There's another word for this...slavery.

I actually am a big supporter of capitalism and free markets because they motivate people to create, invent, and potentially advance technologically to a point where we can eliminate poverty and satisfy the basic needs of everyone, but our society is too primitive to achieve  a truly free market right now.   The main flaw with the current state of capitalism is that we do not know how to accurately place a value on public goods and certain other externalities.

An externality is something that indirectly affects any party not involved in an economic decision.   For example, pollution is a negative externality that benefits a few people, but hurts everyone.  On the other hand there are positive externalities associated with public education that benefit society as a whole, but would not be possible if it was left up to private individuals or institutions.  These positive and negative externalities are hard for our primitive brains to value.  Hell, we can't even value real assets correctly, which is why housing prices were allowed to run up and cause this disaster we're in right now.  If we could value these tangible and less tangible things correctly, we would understand that there is an actual value to wealth re-distribution because the probability of revolution and political, social, and economic meltdown increases as a function of several variables, the most important of which are inequality and the faith people have in society to protect citizens and property rights.  Once people lose faith in government/society or lose hope for a better future or a reason for living, explosive situations arise.  Think about the major revolutions in modern history, and try to find one that wasn't caused by inequality or perceived inequality.  Even if the chance of revolution is small, if you multiply it by the value of the destruction it could cause, the current value of a future revolution is still significant.  Joe the Plumber won't care about taxes when his business is burned to the ground because of riots.  Money is only valuable in people's minds based on the society and the government that supports its value.

A good example currently being played out is the value of climate change and the debate on the price of carbon.  Governments are attempting to "tax" carbon based on the belief that it causes global warming, which could cause a disaster in the future.  If the polar ice-caps melt, or we cause another Ice Age, then we will wish we had spent a little more money protecting the environment.  It is not fair to our children for us to borrow against their future by recklessly destroying the environment now.

This same reasoning should be used to combat inequality and oppression.  White people in America borrowed against future generations for 400 years by taking advantage of free labor.  THERE IS NO SUCH THING AS A FREE LUNCH.  You cannot force people to work for 400 years and expect the debt to go away.  It is not fair to white people today because they did not make the decision, but they're going to have to pay for it one way or another.   And it's not going to happen by making white folks feel guilty or forcing them to be PC and inhibiting honest discussion.  It will even happen if Black people remain ignorant and clueless regarding the debt they're owed.  They will pay whether the Reparations Movement succeeds or not.  Either the masses of Black people cause so much destruction to themselves that they bring down the rest of society, or they wake up and start attacking their oppressors directly via civil disobedience or outright violent aggression.  You can't continue to allow oppressed people to suffer and think it's not going to spill over into your streets.  Just like you can't keep emitting carbon dioxide into the atmosphere and think it won't come back to haunt us all.  I suggest you fork over that pay check before either of these things happens to all of us, our children, or our grandchildren.  Like Dr. King Said:

"We must all learn to live together as brothers or we will all perish together as fools. We are tied together in the single garment of destiny, caught in an inescapable network of mutuality. And whatever affects one directly affects all indirectly."

Unfortunately, our government is inefficient, so we need to come up with another way to combat inequality and protect the politically, socially, and economically vulnerable in our society.  Maybe instead of leaving it to government and higher taxes to take care of those that can't take care of themselves or give people a little boost in hard times, we should leave it up to social enterprises and have mandatory philathropy "taxes" that go directy to companies/organizations that provide direct benefit to the people.  Consider the taxes an investment in revolution prevention.  Social enterprises can be for-profit or non-profit companies that are self-sustaining and provide social (and sometimes financial) benefits.  These organizations would have to compete on standardized platforms for business just like regular companies.  The government would just be responsible for oversight and prosecuting fraudulent behavior by these organizations.  I haven't really researched this concept much yet, so feel free to make comments telling my why this won't work.