Why American capitalism is not sustainable: Part 1

Since I do a lot of numeric models on natural systems, I look at other systems in similar ways. I look at mass balance and forces. I'm not an economist--but then neither are any of our elected officials. I am going to lay out my observations and how I see our economic system in the long run.

Capitalism is defined as

an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, esp. as contrasted to cooperatively or state-owned means of wealth.

It should also be noted that the businesses and individuals in a capitalistic system that maximize profits will be the most successful. This is usually the corporation that has the lowest labor and material cost, and the largest share of the market for their product. Two of these components are made up of the American middle class: the market and the labor.

There's a major problem with the American work force maintaining their place in a capitalistic system. The United States, by virtue of ample resources and isolation from invasion or foreign attacks, developed a high standard of living in the 1950s, which fueled a strong market for goods. At this time the manufacturing base in the US was very strong, and most of the goods purchased by the middle class were also produced by the middle class. This system remained in equilibrium for some time, until the forces of capitalism shifted the equilibrium.

From the 1970s onward, the cost of American labor increased, predominantly because of the cost of employer-subsidized health care and an aging and highly educated workforce. This caused the profit margin for American-made goods to decrease. This, and cheap transportation costs, pushed the manufacturing to cheaper labor sources. This was initially Mexico, Central America, and Taiwan. It then shifted to China and southeast Asia. This wasn't necessary, as the profits could have remained adequate without runaway inflation, but capitalism is never satisfied, and will search out the cheapest materials and labor. After the 1970s, wages have remained virtually flat, but are still higher than most other countries, and they have to be in order to maintain the standard of living and health care.

But how do corporations get away with this, keeping a strong market while moving the source of revenue--wages--to other countries, and still be able to sell goods to this market? There is a mass-balance problem here. Less wealth is going in, but the same is coming out, as well as increasing housing, energy and health care cost to the population.

This disequilibrium has been maintained by keeping wages, food, and energy costs low, increasing worker productivity, pushing consumer debt to unprecedented levels, and relying on increasing home equity for much of the population. It is also supported by the large number of American consumers; if some lose their jobs, there are always more.

This, as we have seen, is not sustainable. When the housing bubble burst, most home equity disappeared, as well as many, many jobs. I have been amazed at President Obama telling us that we have to work harder and be better educated than other countries. None of this matters, because we will always have more expensive labor. Our leaders also push China to open up its market to American goods. So they want to open up a market for goods made in a country with higher labor costs, in a country with a weaker market made up of cheap laborers. But what makes anyone think that these goods will be made in America, or that any American corporation will try to exploit this? It is like swimming upstream. It will never happen.

As long as the forces of capitalism are active on the system, the American worker will be at a disadvantage, and jobs will continue to leave America. And, I would think that the only way to maintain the American standard of living and labor force is to reclaim the American market with American-made goods. This goes against the forces of capitalism, but is necessary unless the American labor force is to be reduced to the cost of that in China. There is no labor force in the world that has a higher cost of labor than the US, and therefore no market for American goods under the rules of free-market capitalism.