The difference between economic systems and political systems, and why so many people just don't get it

Posted Wednesday, October 12, 2011 in Analysis

The difference between economic systems and political systems, and why so many people just don't get it

Herman Cain, who recently called protesters at Wall Street "unAmerican."

by Gina Hamilton

Republican presidential candidate Herman Cain appeared on the CBS Sunday morning talk show "Face the Nation," and accused those occupying Wall Street and other financial centers around the country of being "unAmerican" because they "don't believe in capitalism."

This was after telling unemployed Americans that they should blame themselves, not the rich, for their joblessness. 

Just when you think that politics can't get any more ridiculous, the Goddess Politica gives us Herman Cain. Cain ran a pizza chain for a while, and so he thinks he has a handle on the economy. But frighteningly, for someone who is running for president, he seems to have failed Constitution 101.

Cain isn't alone in failing to understand some basic facts about politics and economics, and he's not the first to mistake democracy and capitalism. That doesn't mean he shouldn't try to discern the difference, but he's certainly not unique among Republicans in failing to note that there is a difference.

Democracy (or republicanism, if we want to get technical) is a political system. Capitalism is an economic system. The two things are as alike as blue and banana. 

There is not a single mumbling word in the Constitition — or in any founding documents — about the type of economic system the young country was going to have. If anything, there is a strong suggestion, in Article I, Section 8, that the Congress has the responsibility not only to pay our debts and protect the country from outside invaders, but to "provide for the general welfare," which could be read as an exhortation to make sure that individuals are cared for in time of difficulty.

Indeed, several variations of economic systems have been tried throughout American history. Economic theory — and its manifestations — has been a mutable thing over the years. We tried a strong central bank; we got rid of it; we tried a less central system of banking; we got rid of that; we established an independent treasury; we got rid of that; now we have a quasi-public-private banking system again. 

We had pure capitalism; we got rid of it in favor of a balanced labor/capital approach; we flirted with socialism; we have spent the last 30 years or so abandoning socialism. 

We started with no centrally collected income tax; we started one — and amended the Constitution to enact it. 

But throughout, the core government has remained the same. Bicameral Congress, executive branch, judicial branch, in eternal checks and balances. In theory, anyway.

So the fact is, being an American is not synonymous with being a capitalist, and it shouldn't be a test of citizenship to show loyalty to the economic theory du jour. Herman Cain is just wrong about that, and he has no business sitting in the Oval Office until he understands the basic tenets of the Constitution.

Considering a left-right split, such as we visualize for Democrats/Republicans, the political line looks like this:



Now this is simplified. Political systems are stage-based, and can change, as we have seen in the U.S., moving from republicanism (a representative form of democracy) to oligarchy (a system of plutocratic corporate rule in the U.S., but there are other forms, including monarchies, military juntas, etc.) almost without anyone noticing — until now. 

In Europe, the majority of the states are social democracies. That is, there is a strong social commons — everything from state-run transportation systems to schools to old-age pensions to health-care systems to housing — but the people tend to vote for their rulers directly in most cases. In some cases, there is a nominal monarch, who is not actually a ruler any more, but plays a role in the social commons in some way. 

Some European states are socialist, or as close to socialism as you can get and still having private ownership of businesses; others are unashamedly capitalist. Until recently, there were several rather notable fascist political states in Europe, and the majority of those were also socialist or capitalist. Franco's Spain was an example of a fascist capitalist state; East Germany was an example of a fascist socialist state. 

While pure communism is dead almost anywhere but Cuba, manifestations of communism still exist in at least five countries: China, Vietnam, Laos, North Korea and Cuba. Strong socialist states exist in many more, including India, Portugal, much of Northern Europe, and a good number of states in the third-world nations of Africa, Asia and South America. 

There is also no pure capitalism any more. Most countries that are predominantly capitalist have a lot of socialist tendencies, including the United States, which has socialized transportation, old-age pensions, parks, welfare, schools, libraries, and now health care, as well as regulated environmental and financial laws. The U.S. isn't as socialist as, say, Canada or our European trading partners, and we suffer for it, because those nations socialize both benefits and risks, while the U.S. tries very hard not to socialize benefits, but only risks. 

The bank bailout is a case in point. While the banks received massive subsidies, they prospered under a modified "free market" approach, but they did not do what the government expected them to do: jump-start a moribund economy by lending more. Instead, they accepted "socialized risks" — paid for by taxpayers — but refused to accept "socialized benefits" by lending. And there was nothing the government could do to require them to lend, because we tend not to socialize benefits. The only people who benefited from the loans from the U.S. were shareholders and officers of these banks. Yes, they paid back the loans — after they were in far better shape than they were at the beginning of the recession. The loans kept them afloat for an extended period of time while they reorganized. The average homeowner or small business owner did not get the same consideration from the government, or from the banks.

A mere 80 years ago, however, the reverse was true. Individuals were being protected and large banks were closed by the government, taken over in some cases when it was clear they were not meeting their obligations to their customers.

So while an extremely modified capitalism — favoring large corporations at the expense of smaller businesses and individuals — is currently the model we are attempting to follow in the U.S., that is not what makes us "American." Indeed, the only thing that makes us American is that we should all be agreeing to follow the Constitution. The Constitution is loud and clear about the rights of citizens to speak, and assemble, and request a redress of grievances. And the Constitution is curiously silent on the issue of economic theory.

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