Banks = Outsourced Socialism

I’m looking forward to reading Michael’s Lewis’ latest book. He’s a great writer and this is a critical topic. After hearing him on an NPR interview today, I realized something bad:

We are not a capitalist nation anymore. Haven’t been for some time.

Our economy is socialism by proxy, with the role of government outsourced to financial institutions.

Holy crap.

This is something both the Tea Party and the Coffee Party should be able to agree on. So here it is, briefly… the greatest economic fail in American history. Let’s start at the beginning:

The foundation of our society is a belief in the people’s ability to self-govern. This manifests politically as democracy, and economically as capitalism.

Let’s talk about the latter.

An economy is the system through which people use the resources available to meet their needs and wants. In any economy, resources are limited, needs and wants are not.

The way decisions are made about the use of resources depends on the type of economy.

Capitalist societies let the people decide for themselves. Suppliers, manufacturers, and individuals are all tossed into one giant marketplace where collectively they own all the resources. Everything is assigned a dollar amount, and the to the highest bidder goes the resource. It’s a true confederacy of dunces, yet it generally works.

In socialist societies, people don’t trust the confederacy and so give ownership of key resources to the government, who then makes major allocation decisions, such as whether to ship silicon to computer chip manufacturers or breast implant manufacturers.

Now let’s ask ourselves some tough questions about American resource allocation… actually, let’s not. We already know the answers, such as medical care is allocated based largely on what your insurance company tells you (a) is necessary and (b) they’ll pay for. The power of banks in business is out of whack with their relative importance in the trade of goods and services; though they act as trusts and intermediaries, they pay themselves as if they add real value as opposed to broker others’ deals.

I can’t imagine too many of my fellow Wharton grads will see things this way—too many of them drink from the gravy train that is our banking system—but when you look at the fundamentals, it’s impossible to come to any conclusion but one:

We are not a capitalist society.

The power of our banking system (think: a system that had to be propped up despite its own incompetence) is such that it is the de facto arbiter of how to allocate resources. And if anyone other than the people are allocating resources, then we are some form of socialism.

You can rest assured that I will be pulling my money out of Bank of America and putting it into a local bank as soon as I can.

Jason Seiden is Co-founder and CEO of Ajax Social Media, a training company that shows professionals how use social media to work more effectively.