Firewall Economics Position Paper.

WHAT IS FIREWALL ECONOMICS

JD Phillips LCSW

 

The short answer is that Firewall Economics is an economic model that separates markets for desperate human necessities from markets for everything else. Markets for desperate human necessities are protected from capitalistic exploitation. These goods and services are provided on a non-profit basis and with public sector government subsidy if needed.

A desperate necessity is something that you can not refuse to buy, even if you have very little or no money. Water, food, clothing, shelter, medical care, utilities, etc. Capitalism should be out of bounds to these markets. When someone can not afford to heat their home by purchasing heating oil on the private sector market they can either freeze to death or go deeper into debt. Classical economics did not anticipate predatory lending.

Classical economics predicted that the price of desperate necessities would only go as high as consumers could afford to pay, but the law of supply and demand breaks down when the consumer is forced to borrow money to pay artificially high prices. The result is what we have now, massive debt and an artificially maintained bubble in basic human necessities. We can tighten our belts and buy fewer cars, but some things have us over a barrel.

Firewall economics contains one very new idea. Capitalism and socialism do not mix. They cancel each other out. Any mixed economy that allows a mixture of capitalism and socialism, in every market, for every good or service, will be extremely inefficient to both the provision of necessities and everything else. Socialist, bottom up, government planned, non-profit, public sector administered, needs based, delivery of goods and services is more efficient in markets for desperate necessities.

This is still debated, but it should not be. The Social Security Administration has an efficiency rate of 98%. In addition to that, the first goal of public sector delivery is to cover every person. The private sector never does that. But even after we all agree that the public sector does some things better, it is still not necessary to use this delivery model for anything other than desperate necessities. Capitalists should love Firewall Economics and the extreme left should hate it because it might postpone the end of capitalism. I choose reform over revolution. I will not ask people to continue to suffer as we build up support for pure utopian socialism. I am a social worker interested in feeding people who are hungry today.

I call things what they are. Public sector planned markets are socialism. I am not afraid to use the word. Even taxes are socialism. Socialism and capitalism are the two economic models we have. One is based on competition and the other is based on cooperation. It is impossible to compete and cooperate at the same time. All modern economies are mixed economies, mixtures of competition and cooperation, and therefore inefficient. It is not necessary to apply the same economic model, or mixture of economic models, to all markets for different goods and services. It is possible to use a small amount of pure undiluted socialism to cover the delivery of desperate necessities, and allow profit driven competition for everything else. A small amount of undiluted socialism would be less expensive and cover every person in need. Markets for luxuries need no protection. If the vulture capitalists run up a bubble in the price of backyard pools, then we can swim at the YMCA.

Remember that the definition of a desperate necessity is something that you can not refuse to buy. You can refuse to buy a big home, but you must buy or rent some kind of shelter that comes up to code. There would still be some relative poverty with FE, but no absolute poverty. There would be no homelessness, hunger, utility shutoffs for the poor, lack of medical coverage, etc. Capitalism is like casino gambling. It should be illegal to go to the casino before the kids get shoes. The compromise of FE is that once the kids have shoes, it’s OK to hit the slots.

It is important to understand my premise that capitalism and socialism do not mix well, and to mix them is inefficient. Let me try a visual mental image. First of all, the Pope, (I am not Catholic) recently debunked trickle down economics, which is code for capitalism, with a water glass example. He said advocates of trickle down economics insist that if we let capitalism go unregulated, the glass will fill up until it runs over and trickles down to the poor. He then points out that this never happens because the rich keep making the glass bigger. If being a Christian was a crime, I think there would be enough evidence to convict him. The trickle down theory is false, but even if it were true, it would be very very inefficient.

Why should the poor have to wait until the rich have gorged themselves, and can not eat another bite, to fight for the crumbs that fall of the table? And why should the rich complain if we feed the poor first? There is enough surplus to do that without depriving the rich of anything. A tiny group at the very top of the income scale own half of everything. If we tax them a little more, to provide a truly basic safety net, the rich will not miss a single meal, even if they eat caviar with disposable platinum spoons.

Now for my water glass image. Imagine that socialism is oil colored red and capitalism is water colored blue. We will be pouring a mixture of both into a glass. Mark a 10 inch glass one inch from the bottom. That mark represents the level in the glass that the red oil socialism must reach before ALL needy people are served. If we fill the glass with blue water capitalism first, and then add a little red oil socialism, the red oil will float to the top and fail to reach the last person in need.

In order to reach even the FIRST needy person, we would have to pour in more and more red oil until we have 90% socialism and 10% capitalism. And, in order to reach ALL of those we are trying to help, we would need 100% socialism. But, if we add the oil first, we would only need 10% socialism to cover everyone. As soon as the LAST needy person is served we could pour in all the blue water capitalism that the rich think they want, and it would relieve them of the guilt of exploiting the poor to buy luxury goods.

When you allow profits to be taken on markets for desperate necessities then the cost of delivering them is 1. Cost of good or service + 2. Profit. Under FE it’s just 1, and there is no cost to the general economy from predatory lending. Private for-profit companies will charge as much as they can for home heating oil. Once the buyer can no longer pay the rising price, then he or she must borrow the money. Needy people are forced to use payday loan sharks at astronomical interest rates. Under the old system the lender would not lend to a person who can not repay the loan, and the price of heating oil would stop climbing once it exceeded the ability to pay, but banks will now loan to anyone.

The banks are purposely doing this to trap people in debt, show paper assets on the balance sheet that do not really exist, and rely on the taxpayers to bail them out when the bubbles burst. This would not be possible if people COULD refuse to buy what they are selling at the price the seller demands. The law of supply and demand does not work with any market where the buyer can not refuse to buy. You have to buy heating oil if the landlord uses an oil furnace.

Exposing markets for desperate necessities to predatory capitalism could be the final stage of capitalism before it collapses into total socialism or, God forbid, total fascism. The extreme left will be critical of FE because it saves capitalism at least temporarily. There are two reasons why I do not support allowing capitalism to collapse. 1. There would be a lot of transitional suffering. It is unethical to punish people today for the gains of tomorrow. 2. If capitalism collapses, we could just as easily fall into fascism as socialism. The Pope says he is not a socialist, but definitely not a capitalist. I am with him, but he is now open to the criticism that there is no third alternative. The third alternative is Firewall Economics.

 

Every new idea is subject to abuse by future spin doctors. I am trying to prevent this by anticipating how FE could be turned inside out. George thought he was giving the people a heads up on doublespeak, but it backfired. The oppressors used it as a playbook and the working poor didn’t read it. If I were going to turn FE against the people I would praise it as a fundamental human value, and then proceed to squeeze the definition of a desperate necessity down to a level just above starvation for everyone but the privileged elite.

That is NOT FE. FE without a limit on extreme income inequality is only intended as a step up from no FE at all. If income disparity rises drastically after the implementation of FE, then upper income earners should be taxed to reduce the gap. My strategy is that present day republicans will adopt FE anyway, as it will be irresistible for them to pass up short term profits for long term risk.

 

Other Criticisms from the Left that I Anticipate but Reject.

 

FE will create a two tired society. This is the classic social policy debate between means testing and universalism. FE is a compromise. There is currently little political support for universal coverage of anything the public sector can help with, especially if it involves public funding, so I minimize public sector intervention to a level low enough to attract republican support. I’m giving up a lot here, as the public sector has never been smaller than it is now. FE accepts means testing when universal coverage is not politically possible AND when the alternative is no coverage at all.

Another valid criticism from the left: Under FE there would be no absolute poverty, but relative poverty might even increase. It is true that relative poverty makes people miserable. We have new research that identifies the size of the wealth gap, between the rich and everyone else, as a major cause of misery in every human community. Large gap- depression- anxiety. Smaller gap- happy people. Economic anxiety is relative. If we are unemployed during a depression, when everybody we know is unemployed, we feel less depressed than we would in good economic times. If we lose a job when everyone we know is still working, it is much more psychologically devastating. This is human nature. FE won’t bring equality, but it could be the first step to a progressive future that will.

There will be some from the left who criticize FE as being incremental. It is. FE is about reform, not revolution. It is only intended to be a step up from our present level of unregulated capitalism.

 

Criticisms from the right will be of the traditional sort, with the invisible hand of perfectly self regulating private sector markets being more efficient than public sector planning in the provision of everything, including desperate necessities. The track record of the world economy over the past thirty years is all that is needed to debunk supply side economics. But still, FE is only a small rollback of ultraconservative economics, just enough to prevent the exploitation of vulnerable people in markets for desperate necessities. The republicans will argue that it is only a foot in the door to enable further rollbacks of unregulated capitalism.

They would be correct. That is exactly what it is, a way to present a reform proposal to republican legislators that is so clearly fair and humane that they can either accept, it or be exposed as being devoid of any trace of human compassion. Once we establish a precedent of shielding some market items from naked exploitation, a dialogue will develop about other things that should not be for sale. What is or is not exposed to competitive markets can be decided democratically, but once the dialogue begins there is no turning back.

 

HOW FE CAN BE MISUSED

 

FE could be misused by the wealthy, and I am showing them how to do it, but I wager that it would be more difficult if I post a warning in the body of the text. By compromising relative poverty for absolute poverty, the rich may use FE to justify even greater income inequality. The argument would be that once you have everything you need, it doesn’t matter how much more the rich have.

 

First of all, being comfortable with the absence of absolute poverty when relative poverty is high is against human nature. New primate studies show that even chimpanzees hate relative deprivation. Second, absolute equality is not required, but the absence of extreme inequality is.

I still fear a situation where the rich might use FE to justify squeezing the level of necessities tighter and tighter until the majority are living on a thin string, with little economic security, while the rich have more income than they can spend. If this happens it would be necessary to apply a brake to the ratio of high to low incomes. The tax code would have to be amended to set the upper rates at a point that stops the gap from widening beyond a set point.

 

SUMMARY

FE restricts open market exposure to markets that are not involved in the delivery of goods or services that can be demonstrated to be desperate necessities. A desperate necessity is something that is essential for a dignified, healthy, if not purely physical, survival, that a consumer can not refuse to purchase, even if the consumer does not have enough money to pay for the good or service without borrowing money.

Income inequality has never been greater. According to an Oxfam report that was released today, the 85 richest people on earth now have the same amount of wealth as the bottom half of the global population. The percentage of income held by the richest 1% in the US grew 150% from 1980, the beginning of Reaganomics, until 2012, while middle class wages adjusted for inflation remained flat. CEO pay at the same time went up by726%, twice the growth rate of the S&P stock market index.

Surely there is enough profit to be made on goods and services that are NOT desperate necessities to satisfy any investor. Even capitalism needs a few rules and boundaries to improve the game. FE creates no competitive disadvantage for any corporate enterprise because all competitors would have to play by the same rules. Capitalism is strong enough to function even when some things are not for sale. This is not new. You can not sell a kidney in the US. All I propose is that we apply a rational analysis to what should or should not be for sale, and I suggest desperate necessities as a start.