Ed Dedelow for Congress Blog - Capitalism will Adapt and Recover

Ed Dedelow
A True Fiscal Conservative

Capitalism Will Adapt and Recover

Ed Dedelow

I have been asked by readers about an economic recovery. Of course, our economy will rebound. A capitalist economy is the only system that has the flexibility to adapt to the circumstances and is, in fact, in a constant state of recovery from ever-changing costs. Our complex assortment of professions, careers and businesses is especially capable of absorbing costs and adapting to changes in technology, taxes, regulation and economic variations. There are always millions struggling to survive, but the freedom to succeed nearly guarantees that someone will discover the means and will flourish. It may not happen immediately, but the private sector will find a way to assimilate costs into its structure.

Will businesses fail, will people lose their livelihoods, will workers' incomes decline? The answer to these questions is also yes. These are the consequences of adding government costs (i.e., taxes, regulation and litigation) faster than the private sector can grow. These results are opposite from those that result from technology changes, which end in higher wages and lower prices, but the process is the same.

There are three basic ways businesses survive:

1. Efficiency. Changes in efficiency that reduce costs.
2. Foreign production. Transferring responsibilities for manufacturing, managerial and support functions to low cost foreign countries.
3. Wage adjustments. Businesses reduce costs by transferring operations to lower cost areas, limiting or eliminating wage increases, eliminating bonuses, transferring benefit costs to the employees, releasing high wage employees, hiring cheaper workers, consolidating jobs, cutting wages, closing unprofitable operations and instituting other wage/labor related adjustments.

Technological advancements cause only slight impacts on our modern economy, affecting only isolated businesses or areas of the market, and are hardly noticeable in a healthy economy. Only government is massive enough to cause the kind of economic disruption that we are currently experiencing. It is government expansionism that results in the colossal numbers of jobs being exported to foreign countries. Eighty years ago, taxes were about 10% of the price of a purchase and there was very little regulation or litigiousness. Today, taxes are about 50% of a each purchase in addition to the cost of regulation and litigiousness. The bottom line is that government costs have been assimilated into the private sector through technology, imports and private sector wage decreases in a process that has gone on for decades.

It is difficult to determine how much of the impact has been absorbed by wage and benefit decreases because statistics on government versus private sector wages are not readily available. Even if these numbers were available, they would be inaccurate because there are many agencies listed as private sector entities that are in, reality controlled by government and they have the same wage and benefit characteristics as government jobs. It has been reported that wages and benefits in government are 50% higher than in the private sector. But that figure may not account for frequent job changes in the private sector due to layoffs.

As to imports, the total trade deficit since 1992 is over 6 trillion. Total imports for 2008 were over $2.5 trillion, up from $665 billion in 1992, and the trade deficit for 2008 was nearly $700 billion. Lower cost foreign imports help workers maintain living standards. There is, however, over 6 trillion dollars floating around in the world, much of which can only be invested back into US government bonds. England once had a vast import network that dissolved with the breakup of the Commonwealth. Eventually, England suffered a 50% devaluation of the Pound. Devaluation of our dollar or simple price increases would result in inflation and a decline in our standard of living.

If the goal of Socialists is to spread the wealth, they are actually accomplishing the opposite. They can destroy wealth. However, the truly rich, those billionaires who can buy when everyone else is selling, will benefit as wealth is consolidated by the few. Wealth has not been distributed; it is simply being controlled by fewer in an economy that has less to offer because government absorbed the benefits of capitalism. The Government has created perhaps a million millionaires with its laws, regulation and added costs. But when those millionaires are not in productive industries, they are just another burden on the economy.

- Ed Dedelow

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