Sunday, July 15, 2012

The Rich You Will Always Have With You

The Democratic People's Republic of Korea (also known as North Korea) recently selected Kim Jong-un as Supreme Leader, replacing his father who had replaced his grandfather. The Democratic Republic was established by the egalitarian communist Soviet Union, which had ended its own long misrule by Imperial dynasts to establish its Union of Socialist Republics. Ironically, it now looks like a new dynasty is being born in North Korea.

For that matter, the patron-client relationships under the nomenklatura in the old Soviet Union contradicted that nation's egalitarian beginnings.

The recent historical examples of North Korea and the Soviet Union should make us suspect that no overtly egalitarian system can adhere to its principles for long. Real people do not fit well in such systems.

However, even in the face of experience, the theory behind egalitarian systems is still attractive and simple. It looks good compared to capitalism. Capitalism divides society into layers based on wealth and has a built-in intolerance of the rich for the poor and the poor for the rich. Overt unfairness, insecurity, anger, and accusation make capitalism look ugly. Egalitarian theorists seem to offer a fair, calm, safe, and rational alternative.

Egalitarianism presents a pretty picture, but it is just a picture. It relies on people to control themselves, but many do not. Egalitarianism needs for people to think of the common good, but many will not. Most of all, it relies on people to think of themselves as equal to others when so many are convinced that they are better than everyone else. These characteristics are built into the human race. All the gulags and re-education camps created in the communist world failed to expunge these characteristics from the people.

Worse than that, perhaps, is that egalitarianism holds that society is best without the the rich. That might be true of the idle rich, but it is not true of the active rich. The idea that the worst decision-makers should dispose of the same amount of resources as the best decision-makers is absurd on the face of it. We may not like the rich, but if we got rid of them, the waste and stupidity of our own society would force us to bring them back, as we have seen happen in China and Russia.

Finally, egalitarianism fails because it has a false concept of wealth. It is a common misconception, and it is the idea that wealth consists of quantities of things, like money. Instead wealth is a combination of psychological inspiration, social interaction, and things. Things only mean wealth in the context of a society with active markets, and active markets require the energetic participation of individuals who have a vision of what it means to be rich. The vision and energy of the rich and those who want to be rich keep the markets active.

It is counter-intuitive, but this means that we can not take the wealth of the rich to secure the lives of the people. If we try it, we take the rich out of the markets, and the markets lose their steam. Wealth disappears like magic gold losing its spell and turning to trash in the sunlight.

The above shows that the core of capitalism is not money and trade. The core is vision and energy combined with resources, and it expresses itself first through communal activity, inspiration and service. Then comes satisfying workers and satisfying customers. Only after all these come trade and income and wealth. No one would know what wealth is without the rich to show them. Another word for the work of the active rich is leadership. Helping capitalism succeed means providing an infrastructure to support these activities.

However, this does not mean that the active rich can be safely mixed with the poor under a single currency. The reasons for this are explained elsewhere in more detail, but it boils down to a few points. The active rich are so good at gathering money into their own hands and they become so economically powerful that they unbalance and distort their own markets. The effort and single-mindedness required to build businesses and become rich can make them social outliers and a bit sociopathic. They cannot be about fairness. They have to enforce the rules of the marketplace, contrary to their own consciences if necessary. They can exploit the poor without even recognizing what they are doing, and they are so good at diverting blame that they make plausible explanations about how the poor did it to themselves. In the end, they are able to make the poor pay for the mistakes of the rich.

Solutions to this must be of a kind to "firewall" the poor away from the rich using new currencies. The rich will not be allowed to own any of the primary currency (or currencies) used by the poor majority. The government will establish exchange rates and manage the flow of capital from the primary currencies into the secondary currencies used by the rich. This will allow the government tremendous flexibility to regulate the treatment of the poor and isolate the problems of the rich.

For example, suppose the Greeks had had an internal drachma economy for poor Greeks while the Greek government and rich Greeks worked in the euro market. However bad we might think that Greek social policies have been, those problems could have been isolated in the internal drachma market, and the government could have printed more drachmas as needed to deal with them.

At the same time, the Greek government could have isolated external problems to the external markets, and it would not have had nearly so much debt denominated in euros. Maybe Greece could not have avoided all the external economic problems, but it could have done better than it actually did.

In the real event, the Greek government had no flexibility when the euros started to leave Greece, and the problem has both impoverished the Greeks and harmed the worldwide economy. The rich northern European states are trying to impose poverty policies on Greece, and the only reason they can even try is that all Greek debt is denominated in euros. The single currency is the connection that must be broken as the first step in our solution to these problems.

We know that egalitarian principles fail, based on recent history if nothing else. We know that we need the rich and we know that policies to get rid of them are doomed in the long run. Yet we also know that, without controls, the rich can cause enormous economic problems, including increased poverty for the innocent poor. If we can correct that, it will go a long way toward making capitalism more just and fair. It can be done by the use of multiple currencies under government control, economically separating the rich and the poor.

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