When I was a kid I liked playing Monopoly. My strategy for winning was to be the banker. As a banker, I felt entitled to make my own rules. I would embezzle money from the bank so I could buy more properties when the other players were distracted. It worked just like in the real world. People who manage money tend to make the most money. A job counting beans in the nice air-conditioned office pays a lot better than a job pounding nails out in the hot sun.
Wealth may be the fruit of labor, but to be truly wealthy, you must piggy back on other people's labor. That's the nature of capitalism. It may not be fair, but it seems to work well as long as it's contained within a regulatory framework that prevents democracy from evolving into aristocracy.
This election is about our regulatory framework. Both parties bemoan the fact that our middle class is shrinking and we are becoming a nation of rich and mostly poor. But that shouldn't be surprising when you look at the incremental changes to our regulatory system that have taken place the past 30 years.
Americas' business is business. Generally speaking, what's good for business is good for all of us. But when it comes to restoring an economic climate favorable to business growth, thinking like a businessman can be a trap. Typically, business owners want to cut costs to increase profits. They are against such things as unions, the minimum wage, child-labor laws, food stamps, welfare and unemployment insurance because they drive up labor costs.
Besides cutting costs, business owners typically strive to increase their customer base by providing a better product or service. But when that doesn't work because they are located in a depressed economic area, they might move their business to a boomtown because that's where the demand for their product or service is. Demand is the real job creator. That's the reason we're losing the war on drugs. Despite government's best efforts to destroy the illegal drug business, it flourishes because there are always unscrupulous people who will do anything to make a buck by meeting the demand.
Money is the lifeblood of an economy. It must circulate to keep the economy alive. In a boomtown, as the saying goes, the money flows. Everybody prospers. But in our national economy, money isn't flowing. It's concentrated in relatively few hands like a big clot. Cutting labor costs may be an effective strategy for businesses when they compete with each other, but as a strategy for creating a climate where all businesses can prosper, it is counterproductive. Lowering the overall labor-cost baseline shrinks the middle class and reduces demand for goods and services. Why build more cars if you can't sell the cars you already built? Building better cars won't help. You need a boom. You need demand, and that only comes with an expanding middle class.
For capitalism to work well we must maintain a balance between capital and labor. Investors and business owners depend on a desperate workforce to keep labor rates reasonable, but too much desperation reduces pay to the point that education for the next generation of workers becomes unattainable, crime increases, demand falls off, and the economy spirals downward.
So, what could be a better metric to determine the correct balance between capital and labor than the size of our middle class?
And what better metric is there to determine if we can create and maintain a competitive edge in this global economy than upward-mobility statistics?
But as entrenched money and power digs in to protect its interests, upward mobility tends to be stifled. America has long been considered the land of opportunity. Success is determined to a large extent on talent and work ethic. Upward mobility in the United States, however, is declining.
Just as tightening the odds on a slot machine produces fewer jackpot winners, the more recent changes in our tax and regulatory rules tightens the odds that you will be successful based on merit. We are no longer the No. 1 country when it comes to opportunity. Several countries now have better upward-mobility statistics than we do. And they all have two things in common. They have a smaller gap between rich and poor and, as a percentage of population, a larger middle class.
Understanding these concepts marks the difference between a smart businessman and a wise statesman. The wise statesman is capable of grasping a few more chess moves.
Bob Chapman, of Atlantic City, retired from the Federal Aviation Administration in 2006. A former flight instructor and air traffic controller, he currently works for a contracting firm at the FAA's William J. Hughes Technical Center.
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