Why a Democrat?

Its interesting how one can learn something as a side effect of a completely different lesson. A few years ago, I decided to go back to school and complete my MBA. This decision was made based partly on the fact that as a veteran I had my GI Bill education benefits sitting out there unused. One fact of the GI Bill that many are unaware of is that if you do not use the benefits within 10 years of discharge, they evaporate into the ether. Gone.

So there I was 7 years removed from the Navy with this money for education out there. I was already very close to completing my bachelor degree, so I still had eligibility remaining. I decided to get an MBA. For those that have thought about this, it really is a lot of work. However, if you approach it as a learning opportunity rather than a piece of paper, you will get back 3 times what you put in. It was an amazing experience for me.

Along the way, I had to take Managerial Economics. A major thrust of the early portion of that course was an exploration of the base roots of our economic system- Adam Smith's "A Treatise on the Wealth of Nations". If you read my first post, you may be able to guess at what I was driven to do- I checked it out at the library and read it. Wow, a very dry read.

Its interesting the way that free capitalists abuse this book to justify the complete deregulation of everything and absolute market management. In my little humble opinion, Smith would be appalled by what we have become. The basis for this is in the first third of the book.

Now, this is not a research paper, so I am not going to quote chapter and page and create citations. Besides I don't have a copy handy.

Smith did not see unregulated, free markets as an absolute right. In fact, in the times in which he lived, that would have been pure heresy to the status quo. However, he wrote at length about the efficiencies of free markets. His basis for this was that in free markets, individuals act rationally in their own best interest. This, along with open markets, allows goods to be traded most efficiently and at the highest value to all.

However, there are limitations to this. He also wrote of a "societal responsibility" of a civilization to take care of itself. The reason that market economy is a good idea is not simply that it works. The reason is that it is the appropriate approach for government to take to ensure a "rising tide" and for a society to maintain and improve itself.

He even admits that government should allow the markets to self-manage, so long as corporations and individuals fulfill their social responsibilities. But not past that point.

In other words, corporations do not have a G-d given right to make money at the expense of the civilization. Corporations have a permit to operate in free markets so long as it is good for the populace as a whole. The moment it is not a benefit, it is time to cut back.

We live in an age of the highest disparity between rich and poor since the turn of the century. Education is in trouble. Health care is a disaster. And GOP wants a capital gains tax cut?

The second issue with Smith theories has really only come to light in the last weeks. The basis of our entire economic system finds its foundation in the phrase "rational decisions in their own best interest". Can anyone honestly tell me that the market is behaving rationally? People are panicing and the market reflects it. Companies are trading below their book value (the total of assets less liabilities on the balance sheet). Can anyone explain this?

Even Alan Greenspan (who I still have a deep respect for) admitted that there are newly discovered flaws in his models.

Anyway, I am tired of hearing the word "socialist" thrown around in this election like a black and white label. If you collect Social Security or intend to or went to public school, or send your kids to one, you are a socialist too. Free markets are based on marginal revenue and marginal cost. Where one can maximize the difference between these, one maximizes profit.

In economics we spend a large amount of time studying supply and demand curves. When I set the price to sell my widgets, I don't set it to sell the most widgets. I set the price to maximize profit. That is free market economics. I don't think anyone thinks that is generally bad.

However, pricing products to maximize profit has a side effect. By doing so I am inherently drawing a line above which people will buy my product, below which they will not. This works fine when I am selling cars. If I price my cars at $10,000, I will sell 500 cars and make $200,000 in profit. However, If I price my cars at $15,000 I will only sell 400 cars. But, I make $250,000 in profit. That's is the way it works.

The problem is in the part that we don't discuss in economics. What happens when the importance of the product is such that it is unacceptable to society for anyone to not be able to afford the product? Our economic models do not support this extreme. In our free market models, there are always those that will not buy at a given price.

Education is a prime example. We moved away from a fully privatized school system because we as a society determined that this product is so important that everyone must have access to it. Is it socialism- yes, it technically is. But, while the free market may be more efficient in allocating resource, there is no mechanism in the free market to ensure that everyone will have access to the product. And so, we, as a society, went down this road.

Other example abound- public roads, public libraries, public parks.

This brings me back around to health care. While I contest that the current health care system is more efficient on completely separate grounds, I will cede that point for the purpose of this discussion. We, as a society, should not tolerate any system in which a portion of the population does not have access to health care even if it mean that the system won't be as efficient as a free market.

That thought pattern is what changed my affiliation. Interesting however going to business school (the GOP breeding ground) pushed me to the other side, eh?