The Necessary Demise of the Free Market

One of the views I tend to hold regarding economic models is often cited (when such things are cited) as why some folks believe I'm a screaming liberal. This conservatively offensive view is that a free-market economy is doomed to fail.


In essence, a free market economy is where businesses compete openly for customers without much (if any) regulatory control. Supposedly with its own built-in checks and balances it is thought (erroneously, as it happens) that the market is self-stabilizing and that any necessary corrections for imbalances will happen automatically by enlightened captains of industry and finance because it's for the good of the market. Yes, people actually believe this nonsense. But the flaws in this thinking were highlighted all too glaringly when the flaws in the free market model destroyed the world economy two years ago, the effects of which are still being felt today.


On paper, it DOES work. Then again, so do all pie-in-the-sky economic models. Paper isn't human and the human factor is why they all fail. In fact, there's only ONE human factor involved in all economic models which causes them to fail: Greed.


Dress it up howsoever you want, but greed is the nexus that breaks all economic models tried so far. Greed drives people to better themselves economically (keeping up with the neighbors' acquisition of "things", getting a better job to buy the things that mark one's status in society). No economic model so far created has ever adequately taken human greed into account.


Communism fails because people aren't interested in the greatest good for the greatest number. They are looking out for number one - themselves. Socialism fails because if you satisfy the needs of the people without requiring the people to work, the people won't work. After all, why bother? And with capitalism, if you are a have, you only want more, to the expense of the have-nots. And you will do everything you can to keep the have nots from becoming haves.

These economic theories all fail to take into account human greed.


Now, one could say we need to change as human beings, and I couldn't agree more, but realistically, that ain't gonna happen anytime in the next thousand years. Mankind is still too close to his animal roots to know when he has "enough" and that more than that is too much, not a good thing and can lead to disaster. Unfortunately, we live on a planet where the resources are limited and when one person has more than enough, it's inevitable that others don't have "enough".


So the trick here is to acknowledge greed as a driving force, but to place breaks on it so that when one has enough, they strive to be satisfied with that. All the while you have to provide incentive to continue to excel, so a reward system has to be in place for the go-getters and the doers which doesn't necessarily result in tangible rewards, but in rewards which are satisfying enough to seek none the less.


This is probably an impossible task on paper, and let's face it, there are people out there who will defy all attempts to plug them into any economic model.


So instead of inventing a new one, let's look at modifying one that is somewhat more successful in acknowledging greed: Capitalism.


The problem with capitalism is that people don't acknowledge when enough is enough. I'm not saying that everyone should have a yacht in their back yards. After all some people just aren't that motivated. Nor am I talking entitlements. Those who can't work at a conventional job should have some kind of task they can perform for an income. Regardless of one's ability, employment of some kind - even if it's just to do the work of living - by everyone is vital to the revised capitalist economic model. Everyone should have an income based on their own efforts at earning one even if it isn't derived from a standard "job".


The next thing you do is cap income and profits. There are people out there making obscene amounts of money just because their companies make obscene amounts of money. Profits should be capped at a percentage plus inflation (Say what a US savings bond would earn in total back when US Savings bonds were worth buying). Since inflation varies, call it inflation plus 15% just as an example. The idea is to target the most egregious profit mongering, not to retard the average business's incentive to earn income. It's important to note that profits are what's left over after all research and development has been done, everything's been paid and all is good and right with the company.


The excess should be funneled into building roads, schools, new infrastructure and other civil projects which require vast amounts of money no one seems willing to spend on these days.


Now, greed would ask once a company has made X amount of money above their expenses and maxed out their profits, why would they bother working any harder? After all, they can't earn any more. What's the point of continuing to push?


That's where the trick comes in. They HAVE to work harder to MAINTAIN those profits, because if they do two years in a row, the next year their profit cap is allowed to increase by enough to make the effort worth it. If they fail to meet that cap, it's maintained at the higher level, but not raised. If they fail two years in a row to reach that cap, their cap is lowered again.


This way, there is more incentive to improve profits than there are penalties for not profiting, but they're always capped.


You do this for people, too, albeit in a slightly different fashion. Income is capped at a high, but not obscenely high level. Whatever pays for government, infrastructure, education, defense and the things that taxes help pay for would be the cut off the top and the rest would be used as the way to figure the cap. An example of this would be to take the average of the actual income (before taxes) of working Americans, multiply that by 10 (or whatever number is appropriate to allow for a lot of worker bees and not so many queens based on the boss-to-worker ratio averaged over the last 10 years or something like that) and call that the income cap. More knowledgeable people than I can work it out.


Income is all actual funds gained in a year from all sources - Profits on property and personal belonging sales, inheritance, expenses that are reimbursed above actual costs, sales of stocks, etc.


Now before I go on, a word on inheritance. Inheritance is a time-honored tradition whereby someone gets someone else's stuff when that someone else dies. You can't take it with you, after all. Unfortunately, there are people out there who leech off their rich parents (or husbands/wives) who are pretty much wastes of sperm in the first place and have never really worked a day in their lives.


So here's how it would work: For those who stand to inherit anything in excess of the annual income cap, there are consequences. All monetary assets would be placed in a trust. All property assets would be allowed to transfer to the beneficiary. If the beneficiary liquidates any of that property at any time during the beneficiary's life, those assets would also go into the same trust. The idea here is to limit income to the personal cap per year using the funds in this trust. If a person continues to keep the property, it isn't considered income. A cherished family home can be passed from generation to generation without tax or penalty.

The trust into which liquid assets and the proceeds of inherited property sales are placed would be passed on to the next of kin upon the death of the beneficiary who inherited the trust in the first place.


After all, property is NOT income. It may have a great deal of value, but unless you sell it - and at a profit - that value is virtual rather than actual and it's only valued at the profit for which it was sold. Yes, it can be used as collateral, but then a business receiving the property in the event of a default wouldn't be allowed to keep the income from it if that income made the lender's profits exceed the cap.


A little on this property as income thing. The government considers property sales as "income". It does not consider the purchase of property a "loss". So you end up paying taxes on property you sell regardless of whether you make a profit on it or not. The income cap says you can only make X amount per year in actual cash. Property purchases are NOT deducted from your income, but if you sell it at a loss, you don't exceed the cap in income provided the sale is in the same year as the purchase. If it is, and you have the receipt from the purchase you're covered. If it isn't, then it's income for that year. If you get more than you paid for it, it's income for that year. A simple-enough concept to follow. People could "save" by purchasing property with their income while they are working and augment their income by selling it when they're not, or are working for less. As long as they don't exceed the cap for that year, they can keep all proceeds from property sales. Income would be based on money actually received between January 1st and December 31st for one calendar year.


The funds in the trust may be donated to non-profit organizations which provide for the public good, to venture capitalists who have not exceeded their profit cap, to non-profit medical research for incurable diseases and to other causes which promote good things for everyone rather than just a few.


Of course, this issue will have their detractors. After all, men of industry who are "worth" billions of dollars might take exception to cutting their kids/spouse down to "only" the maximum income per year, but if they still have homes whose maintenance alone exceeds the personal income cap, finding a supermarket from which to buy food would be problematic for someone whose income is capped.


I say, "Tough." If you have so much that ten million dollars a year isn't enough to cover your expenses, you have too much. Part of that "more than enough" stuff. I say liquidate the excess, keep the heirlooms and sentimental stuff and live off the trust fund if you're not making the max per year.


What this will do is get those outrageously over-the-top mansions for one person and a staff of fifty off the market entirely in a generation. They'll be torn down and turned into housing which someone making ten million a year can afford, instead. It's not exactly spreading the wealth to everyone, but it is putting a halt to egregiously "more than enough" living.


Now, back to incomes...


The personal income cap is problematic for the simple reason that once a person hits it, they tend to slack off. This means you have to keep them at it and motivated or the slackers of the world will unite. The first thing you do is monitor their performance. If they don't perform like they did in getting to the top, you don't pay them as much and they don't earn the cap. This makes salaries tied to performance.


What is "performance"? In essence, performance is doing what is expected of them for the company. It is "average". They are meeting all job requirements and fulfilling all necessary expectations. Someone may bust their ass to get to the top, then just coast. That's their right. But if their performance drops, they get less income for it.


Now, there are people who are highly motivated and want to be rewarded for a better than just an "average" performance. This is not an unreasonable demand. Performing above and beyond the call of duty must be rewarded and there are many ways of doing this that don't necessarily involve raising the cap, primarily through peer recognition and acclaim.


I fall back to the military in this aspect by creating levels of rewards for consistently high performance. You CAN reach the cap by being average in a vital field. But to go beyond that, you must maintain a higher than average level of performance for a long duration. One starts with special recognition for a couple of years. And then one starts increasing the cap, along with the special recognition. Once the cap starts being raised, the performance must INCREASE to get it to go higher again, all the way up to doubling their personal cap in $500,000.00 increments per year. Their annual evaluations will be filed with the IRS and they'll be allowed to earn based on their performance rating and years of service with a particular company.


Now, of course, not everyone is going to make it to that cap. That's fine. The cap is in place to decapitate the wealthiest and spread the wealth.


Oh, I believe I failed to mention that income, corporate and sales taxes would be abolished. In fact, all funding fees (those which are in place strictly to fund projects and programs) would be abolished as well. The government would be financed by the money that would have been paid to people who earn more than ten million a year, plus the excess profits companies make. To highlight how effective this would be, the wealthiest 10% of the country makes something like 60%-70% of the income. That leaves about 30%-40% of total income in the US to be spread among the remaining 90% of the population. There is MORE than enough money coming in to run the government, and all programs currently funded, with plenty left over for a rainy day.


The income and profit cap would also be tied to the amount of money coming into the coffers of the state, so that if more is coming in, the cap would be raised and if less was coming in, the cap would be lowered.


Keep in mind, also, that $10,000,000.00 is a hell of a lot of money for one person for one year. I used it as an example. It could be set at 5 million dollars or 1 million. How much money does one person need, after all? If they're married, the combined income would be maxed at 10 million, and 2 live cheaper than one, so it's not like anyone would be enduring any hardship. The point is there needs to be a cap that reduces the gap between the haves and the have nots. - whatever that gap turns out to be. At least 25% of the total income earned should be used to pay for government, infrastructure, social programs like education, school construction, assistance and such. Whatever is left over should be averaged for the total working population, multiplied by ten and set as the cap. The concept of "per capita" income is a fail since it relies on income reported in tax forms, including things like property values and such. They are often reported after deductions, and are not necessarily all actual income.


I don't think the average income earner would complain about this concept of mine since you get to keep all of what you earn. I also don't think too many people would be affected by the "I'm not getting enough so I'm not doing anything more" syndrome. It also provides for checks and balances for slackers.


In the end, it would be a relatively simple system to understand, if not necessarily implement.


Now, this is a "detailed plan". The concept here is to reduce the amount of earnings or profit one person or company can make on average, but still allow for the greed, "I want more" incentive. Additionally, it creates an environment where government is less intrusive (and better funded), simplifies the tax structure, helps reduce the gap between the haves and the have nots, allows someone to rise to their level of "enough" and still allows for incentive and growth. What I've detailed may have fundamental flaws, but they're merely a suggestion in trying to implement the concept. Someone with more knowledge of human nature and economic theory may have better luck.


The on-going increase in the gap between the haves and have nots is the widest it's been in history, and it's getting substantially wider. In times of relative prosperity for all, the masses aren't terribly motivated to correct this gap. Their levels of greed have been mostly accommodated. However, in times of economic crisis and recession (such as now - thanks to a government run mostly by men and women who are in that top 10% of income earners), the masses are much more critical of the fact they are getting less, while the wealthy aren't getting any less, and are, in fact, getting even more. This has a much greater potential for the outbreak of social unrest. It's happened before - many times - in human history. There's no reason to believe it won't happen again.


The sad part is that social unrest, revolution, whatever you want to call it, may be the only way to initiate this new economic model. I don't see billionaires divesting themselves of their wealth to help reduce the rising social tensions over the wealth gap anytime soon. Nor do I see investors and captains of industry willingly giving up their profits above and beyond "enough". But when the masses rise up, crying "Enough!" and tear it all down, then, maybe, some bright boy or girl will see the flaws in the capitalist economic model and finally do something to prevent such an egregiously huge gap from ever forming again.


And that cry of "Enough!" may come sooner than later.