The Second Law of Economics and Why We Vote
Capitalism for the People
The Second Law of Economics
There is no such thing as a free and fair market; all markets are rigged.
The quality of the rigging determines the efficiency of the market.
The rigging includes the rules that run markets and distribute power.
We can change the rules with Representational Democracy. This is why we vote.[1]
Adam Smith wrote:
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
Supply and demand move prices in a search for equilibrium. Rules and customs decide who gets the best deals. Mr. Smith’s invisible hand helps imperfect markets work reasonably well, but it does not remove the thumb from the scale.
How Bad Is It
According to FRED (Federal Reserve Economic Data) we are doing great. Median Personal Income (ages 15 & above) adjusted for inflation to 2022 dollars, was $26,990 in 1974 and $40,480 in 2022.[2] A 50% increase.
If true, why can’t young people afford college, houses, and children?
Why do so many Americans struggle to pay rent and buy food?
Why does this lament ring true? “Our grandparents had careers, our parents had jobs, we complete tasks.”
Even billionaires suffer; on paper, they have more money and a much larger share of the pie. But they, like us, live in a nation filled with resentment and lacking harmony. People mistrust and blame the billionaires, not without reason.
Capitalism for the People
Wealthy Americans are industrious and creative. You may know them as good neighbors, friends, and relatives. They use wealth to create organizations that do great, ordinary, and terrible things, sometimes all at once.
Capital formation and entrepreneurship are important, but are we too generous to the rich? After all, entrepreneurship is found everywhere and the rich often hoard resources.
Once upon a time, only the lords of the manor and wealthy merchants had access to capital. In Europe, fractional reserve banking developed from the late 14th thru 17th centuries. It advanced western civilization by providing capital to farmers, craftsmen, and middle class merchants.
Other societies practiced banking centuries earlier, but the rise of corporations, led by 17th century colonial trading companies, and the establishment of national banks led by the Bank of England in 1694, created modern capitalism.
Capitalism Can Work
Fractional reserve banking, banks creating money by making loans,[3] can create plenty of financial capital from the savings of the middle class, unless we allow the rich to hoard most of the wealth. It is an insult to capitalism to say we must favor the wealthy. The pie gets larger when people have money to spend and invest.
Capitalism works best with competition, not monopolies and oligopolies.
Confident business owners know they can flourish in an economy with fair and efficient rules. If people have money, they will spend most of it, and business will prosper.
If you work hard and smart, you should make more money. Markets should reward investors who use capital efficiently, but we have no need, nor reason, to give the lion’s share of the wealth to the 1%.
Capital should be cheap and serve the interests of working people.
Abraham Lincoln said it best:
“Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights. Nor is it denied that there is, and probably always will be, a relation between labor and capital producing mutual benefits.”
Abraham Lincoln, Message to Congress, December 3, 1861
When Americas was Great
Back when America was great, we raised American living standards by combining capitalism with rules and customs favorable to working people and small business.
Students could work their way through college without accumulating large debts. Young couples could afford children, lots of them, and they could buy homes with yards where the children played.
Rates for the highest tax bracket ranged from 70% to 90%. Antitrust laws were enforced with vigor. Union membership reached all-time highs.
Capitalists Abuse Capitalism
When America was great, business sought long-term growth and profit. Now, the goals are short-term market valuations and piles of money for CEOs. Monopolies and oligopolies gouge us with “greedflation”.[4] The incentives are out of whack.
Globalization plus the market and political advantages enjoyed by huge corporations squeeze small and medium sized businesses.
Because most Americans have little disposable income, it is not profitable produce goods and services for working people. It is easier to buy houses and jack up rent.
Leveraged buyouts saddle viable firms with huge debts. The raiders sell off the assets to satisfy their lust of money. Thousands of Americans lose their jobs when the raided companies are forced to declare bankruptcy.
Jobs are shipped overseas in a “race to the bottom” global labor market. Americans must compete against workers who are paid subsistence wages.
The Results
We suffer the wealth and income inequality of a third world dictatorship. The inefficiency is worse, the economic pie is shrinking.
Capitalism is prone to recessions. Fractional reserve banking is inflationary and gives too much money and power to the banks. To ensure fairness, we need vigilant financial regulation and the enforcement of strong anti-trust laws. Bad things happen when we let the money changers do as they please.
To avoid vigilant financial regulation and strong anti-trust law, the donor class has deployed an army of lobbyists and a navy of Super PACs.
Technology, education, and the use of capital have increased the productivity of our labor. Yet, American living standards have been in decline for 50 years. Our two major parties just recently noticed. We have lost confidence in our political system.[5]
Class Warfare
We seldom cooperate on economic issues because we are too busy fighting a culture war. The donor class is also divided, but they hang together on economic issues. We should follow their example because…
There is a second war in America; the Donor Class vs Everyone Else. We are getting our asses kicked. The donor class will rule until we learn how to work together on economic issues.
We fear the other party’s sinful nature, so we nominate the candidates who raise the most money. Where does the money come from? Who controls the news media outlets and internet algorithms that pull us apart? Who do you think?
The donor class rigged the economy and American living standards declined. This may have been intentional, to make us easier to control and our labor cheaper. Perhaps we are just collateral damage. For a clear and concise history please read Evil Geniuses, by Kurt Andersen.[6]
Our elected officeholder seldom defy the donor class. We need a system that will allow social conservatives and social liberals to cooperate on economic issues. For that, we need more viable parties to choose from.
A Nation Divided
When America was great, liberal Republicans and conservative Democrats were common. Our two-party system worked because we could compromise.
Civil rights issues and Vietnam realigned Democrats and Republicans in the 60s and 70s. An urban/rural split also developed. The stage was set for a deep divide.
Two-party systems fail when a deep divide develops. Single-winner elections become raging battles. Super PACs generate floods of attack ads. Compromise becomes a dirty word. Each election pulls us further apart. We are stuck in a doom loop.[7]
We are More United than We Think
We have shared values:
We care about our family, community, and country.
We want to preserve independence, and we oppose oppression.
We love America and oppose those who would betray us.
We want fair elections.
Despite our extreme partisan divide, we share a great deal of common ground on policy issues. A major survey, The “American Aspirations Index”,[8] shows that we are close to agreement on most issues, with immigration as the exception. They also found that we overestimate how much we disagree on the issues.
In the article “The Growing Evidence That Americans Are Less Divided Than You May Think” Karl Vick covers the Aspirations Index and other polls that reveal considerable agreement among Americans on major issues.[9]
We could work out our differences with a better political system, but that would threaten donor class dominance. The last thing they want is populists and progressives working together on economic issues.
Three Reasons for Failure
The donor class is protected by three flaws in our political system that lock in two-party rule.
1) No Proportional Representation
Democrats in republican states, republicans in democratic states, and third-party supporters everywhere, feel like their votes do not count. They feel that way because their votes do not count.
Only proportional representation can make every election competitive and every vote count. Voters decide how much power each party is allowed to hold.
Two parties cannot voice the will of American voters. Voters and politicians need and deserve more parties to choose from.
2) Choose 1 Voting
Already neutered by the lack of proportional representation; third parties and independents are crushed by vote spitting and the spoiler effect. Major party candidates can also lose; Ralph Nader spoiled Al Gore in 2000. [10] RFK jr. threatened Trump and Harris in 2024.
Also, Choose 1 voting has little resistance to the Center Squeeze Effect.[11] Worse, there are no incentives for civil campaigns, our elections breed hostility.
With advanced voting methods we can rate every candidate. Why should we be limited to a single “yes” vote? Candidates will behave themselves to avoid low scores. Parties will have incentives to nominate candidates with broad appeal.
3) Major Party Primaries
Primary elections are rigged for major parties. They receive a ton of publicity. Their nominees glide onto the November ballot as the only candidates with a decent chance of winning, often with a surge of campaign cash. All other candidates are locked out.[12]
Fight Back
We need candidates, conservatives and liberals, who will refuse donor class dollars so they can work together on economic issues. We need a better political system to elect these candidates.
Conservatives believe big government is bad, liberals believe big corporations are bad. Governments and corporations share the same problem: they are large human organizations, bureaucracies, if you will. We should be suspicious when they get cozy. We need a better political system so we can keep them in line.
We need a better political system because many Americans have lost faith in democracy.
No Reason to Quit
Why give up on democracy when we can make dramatic improvements with advanced voting methods, fair primaries, and proportional representation?
Voters and politicians will be free to join the parties of their choice. Third parties and independents will bring new ideas to our moribund system. Election campaigns will calm down.
Our voices will be heard.
American Democracy will be greater than ever.
Voters will be in charge.
BTW: The donor class and their media lackeys, may accuse us of inciting class warfare. Elites have been waging class warfare for eons. They really get their panties in a bunch when people fight back. They will be terrified when we improve representational democracy.
[2] FRED Real Median Personal Income in the United States 1974 – 2022
[3] Understanding Fractional Reserve Banking – Wade Hansen
[4] Fortune, 04/23, We may be looking at the end of capitalism: One of the world’s oldest and largest investment banks warns ‘Greedflation’ has gone too far. Will Daniel
Forbes, 08/23, “How Corporate ‘Greedflation’ Contributes to Higher Consumer Costs and Job Losses”, Jack Kelly
Inflation, Profits, and Market Power, Institute for Public Policy Research (IPPR), 12/23, Carsten Jung and Chris Hayes
[5] Gallup, 01/24, Record Low in U.S. Satisfied With the Way Democracy Is Working. Jeffrey M. Jones
[6] “Evil Geniuses, the Unmaking of America” by Kurt Anderson. A clear and concise history of the takeover of our political-economic system. 2020, Random House ebook & audiobook on Kobo
[7] To learn more about our political divide read “Breaking the Two-Party Doom Loop, the Case for Multiparty Democracy in America” by Lee Drutman ebook & audiobook on Kobo
[8] The American Aspirations Index Populace
[9] The Growing Evidence That Americans Are Less Divided Than You May Think Karl Vick, Time
[10] Please visit Is the Spoiler Effect a Threat in Presidential Elections?
[11] Please visit Choose One Plurality Voting Pros and Cons
[12] Our Primary Election Reform page has two proposals to improve primary election, Neutral Open Primaries and Extended Primaries.