Profligate democracies in Western Europe continue to descend into economic turmoil over their sovereign debt loads. The United States, with its own stunning debt, may stumble into the same gulch. The root problem is plutocracy. Capital flows against society at large.
Governments cater to capital, and those who hold it, while impugning workers. The effective tax rate of the middle class in the U.S. is over 40%. Capital gains are taxed at less than half that rate.
The rationale is that taxing capital would decrease investment. The logic is perverse, considering that 70% of the economy in the U.S. is driven by consumption. Reverse the tax burdens and investment would boom, as consumers would have money to spend, and businesses would prosper. In other words, tax laws are exactly opposite of what they should be to optimize equitable capital flows, and have the prospect of maintaining a healthy economy.
But it is always the moneyed who have the ear of those in government power. Their largess funds campaigns. It is to those with money that government officials feel beholden, including the courts, who, even if not elected, are within the club. Ordinary citizens are cattle to be milked.
Government payouts do go to the middle class. There is some recycling. But it is a small fraction of the capital flow compared to that supporting the military-industrial-financial complex.
This dynamic is a natural outcome of democracy. Business-as-usual creates the fiscal mess as described. Only during times of crises does the populace awaken to what is going on.
Even then, the dynamic cannot be broken without radical measures, such as nationalizing capital. That is a step too far for those in the U.S., and even Europe, with several countries in dire crisis.
No politician has even suggested a productive solution in any of the Western democracies under siege. Even if such were to occur, it would not change the root dynamic of how government misallocates capital.
Capitalism under democracy inevitably results in plutocratic feudalism. It is a natural human perversion of an ideal. The levers of power are always seized by those of means.
Those of means look only to their own profit. The bailed-out banks retrench from lending to the very public that saved their skins. Taxpayer dollars flowed to protect the capital of those who squandered it on greedy bets that went bad.
Private sector capital flows most clearly flow against social interests: overlending out of optimism in heady days, further blowing a bubble that inevitably bursts, then skin-flinting when money most needs to circulate. The one truism of banking is that you can’t get a loan when you need it, only when you could get by without it. Scale the private banking dynamic to the size of the economy and the cause of the periodic financial crises that have plagued capitalist countries for centuries, notably America, becomes crystal clear.
As to the financial turmoil: the plutocrats will eventually come to terms, and the crises will abate, though not before much more suffering by those who deserve it least: those willing to work hard for a living. The milking will continue.