Confidence and Delusion III
by, January 12th, 2012 at 11:22 PM (1221 Views)
Freedom and Obligation:
In this section I plan to look into the issue of risk in our economic system. Risk in our economy has similar traits to that of debt. Persons in positions of influence and knowledge are able to push the dangers of the risks they create onto others who may or may not understand the dangers involved. To begin with, let us look at some basics. Every business venture carries a level of risk with it. A person opening a convenience store takes the risk that not enough customers will purchase the products they sell to cover the costs of building and stocking the store. A manufacturer runs the risks that they will not sell sufficient product to cover the cost of making it. Debt is also a form of risk; entities purchasing product with borrowed money run the risk of not repaying the lender and suffering penalties. Such risks make starting a new business less palatable, especially if the person starting the business is required to repay the costs even if it means selling their personal belongings. Thus, creating a business was not something entered into lightly.
To facilitate the growth of our economy, government and business owners looked for ways to reduce the personal risk for people starting a business. Some solutions dealt with making grant money available to help shoulder the burden of startup costs, while others strove to bring new entrepreneurs together with successful business owners. Eventually, government, through all three branches, created laws that shielded owners and investors from the risks involved with running businesses. Today, corporations regularly invest in political influence to further reduce these risks. The problem is that the risks do not go away. Someone has to bear the burden of the risk and we, the consumers and tax payers, carry the brunt of the load.
When the banks took on more and more debt risk through quasi-legal means (The Legislative Branch’s removal of the Glass/Steagle Act and Red Tape/Weakening of the SEC), the risks fell squarely on the middle class. This situation is only the most glaring case of risk avoidance. These same banks offered their leaders outrageous pay and bonuses independent of the outcomes of their leadership. If the company did well, the CEO’s got paid very well. If the company did bad, the CEO’s got paid pretty well. For a company in a bad situation because of one of these CEO’s this meant finding other ways of balancing the cost of the risks. They either had to charge their customers more or cut costs and cutting costs are easier than raising prices. One of the most popular means of reducing costs is to cut payroll. Thus, the burden of the risks not carried by the CEO or company is borne by the middle class workers.
Some may remember the passage of new laws during George Bush’s administration that affected how the average American dealt with the need to file bankruptcy. Basically, the new laws were pushed by the banks and credit card companies to make it harder for debtor citizens to walk away from their obligations. Yet, CEO’s and Owners of corporations routinely lead their companies into bankruptcy yet feel little or no impact to themselves. Again the workers bear the burden through lost jobs and homes. Right now we have so divorced the entrepreneur from the risk of running a business that many are actually taking advantage of the system to make even more money, while the country carries the responsibility.
Finally, I gave this section a subtitle to denote my opinion of government’s true roll in our lives. Government should strive to find a prosperous balance between the freedom to pursue our dreams of creating personal wealth and our obligation to repay those that help us reach our goals. In our current economy, business people enjoy far too much freedom and too little obligation, which is another reason for the state of our economy.