Those who hate the project known as ObamaCare speak fondly
of the death spiral to communicate that they believe this will happen to the
project, but really say it is what they wish will happen. In any case, the
saying was not invented in relation to ObamaCare for, it has been around for
some time now, and is often used in relation with financial matters. It refers
to a situation going badly and, if not repaired, keeps getting worse. And the
more it gets worse, the more its deterioration feeds on itself and accelerates
till the project dies.
Well, that death spiral has a flip side which may be called
the bubble spiral, and can be just as deadly if allowed to get out of hand. In
financial matters, it would describe a situation where one lucky transaction
can earn its proprietor so much money that he may stop working on the creation
of wealth yet get wealthier still. This can happen because the economic system
under which we now live allows for money to make money without the need to
create wealth to back it. This is how a financial bubble is created; a
phenomenon whose characteristic is that it can feed on itself, thus keeps on
inflating horizontally and spiraling upward.
What this says is that the economic system by which we live
is not working as well as its should, and needs to be more than tweaked here or
there; it needs to be overhauled from top to bottom. And when a system gets to
a point where it needs to be overhauled, we are required to go back to
fundamentals and ask what it is that we're facing to begin with, and what it is
that we're trying to do with it.
That we must live in a society bound together by a social
contract is an issue that has been settled long ago. Yes, there are
individuals, even small groups of people that prefer to live apart from
everyone else, and they find ways to do so by going to the mountains or living
communally, isolated from the rest of humanity. But these are rare exceptions,
and can be ignored for the purpose of this discussion.
It is no surprise, therefore, that questions will come up in
relation to living in a society that is governed by the rules of a social
contract; and that the questions will center on the content of that contract.
What is to be in it, and what is to be left out of it? Taking on the economic
aspect of the contract, we may ask: How can we overhaul the economic system
which, by all accounts, is not working as well as it should? The fundamental
principle being that each individual ought to get as much from the system as
they put into it, how can we make sure that something like the bubble spiral
does not distort that principle?
To start answering that question, we first agree that absent
a feudal system where the wealth used to be looted by force from those who
produced it, no one person could claim to produce on a sustained basis more
than two or three times what another person produced. That is, no one could be
that much wealthier than another person. And the fact that under our current
system – which is not feudal – someone can be wealthier than the next by
hundreds, even thousands of times, says that the system allowing this condition
to exist is out of whack. How does it happen, anyway?
It happens because contrary to the old days when the
producers of wealth kept it to themselves or bartered it for something else,
today's system does not allow the producers to keep what they produce. Instead,
the workers (as they are called) leave their products – be they hard goods or
services – where they produce them, and receive what amounts to “I owe you”
notes called money, printed and distributed by one institution called the Central Bank. So the question is this: If only the Central Bank is allowed to
print money, how does it happen that some people receive so much of it (called
income) while others receive so little? Is it no longer true that a person
cannot produce more than two or three times as much as the next? Or is it that
the principle has vanished?
There are a number of reasons why large discrepancies in
income appear under the current system. The most egregious being the bubble
forming financial manipulation by the people who are entrusted to channel the
printed money from the Central Bank to the producers of wealth throughout
society. Instead of doing this, they keep most of the money for themselves, and
channel the rest to where it is supposed to go. They even trick the Central
Bank to print more and more money by inventing more and more derivatives that
feed the bubble spiral. They keep all that money – which is not backed by an
increase in the production of goods or services – and cause the system to crash
at some point.
There are supposed to be safeguards in place to protect the
system from this sort of manipulation, but the way that the legislation is
written leaves much room for the unscrupulous to take advantage of the flaws,
and to continue gaming the system. Only the clear-cut cases of insider trading
are punished under the law when the reality is that the act of crafting a
derivative that will allow a financial institution to game the system ought to
be viewed as a premeditated act of grand larceny, and punished before any
damage is done to the system.
Taking care of this legalized form of embezzlement, and
stamping it out will solve the bulk of the problems we meet under the current
system. Besides that, a few other financial distortions occur that are not in
themselves detrimental to the system because the money that is printed is
backed by the production of goods and services. What they entail, however, is
that the financial distortions they cause tend to destroy the fairness that is
implied by the social contract.
It is that some people have a unique talent for doing
something that few others can, and they ought to be rewarded. The question is:
How much reward do they deserve to get? Some of these people are in the
production of hard goods, and are called inventors, tinkerers, industrialists
and what have you. Some other people are in the production of services, and are
called writers, entertainers, performers, athletes and what have you. They sell
their products to many people at the same time, and make a small profit on each
transaction which, in the aggregate amounts to a great deal of money.
How do you deal fairly with these people? To answer the question,
we recognize that these people are able to make the amount of money they do
because of two reasons. The first is that society is structured the way that it
is under a social contract that binds us together. The second is that the
producers of goods and the producers of services do not themselves make all the
items that are sold to the public. They only produce one prototype which is
then duplicated by machines or amplified by electronic systems that allow
millions of people to receive a copy and pay for it.
We now stop for a moment and think. The first man to mass
produce a book was Johannes Gutenberg who invented the printing press. He was
rewarded for his invention, and died centuries ago. Who now owns the marvelous
invention he left behind? Society does. And from this flows the notion that
society ought to be paid a royalty for every book that a writer sells. This
royalty comes in the form of taxation. The same applies to every product that
is mass produced and mass distributed because this kind of distribution can
only happen because of all the marvelous inventions that have become the
heritage of the human race, and because society is structured the way that it
is under the social contract.