It just doesn't seem to work for very long.
The rules that drive economics are not nearly so inviolable as the second law of thermodynamics (which itself has far more limitations than most people realize). In economics, you don't need Maxwell's Demon to provide "hot spots" of wealth. Such accumulations occur naturally, and arise spontaneously from the rules of the game. For example, resource monopolies pop up with regularity and once built are often easy to maintain. In an ideal world, these monopolies are situated so that they in turn are dependent on resources that limit their sway. We don't live in that world.
Unless an outside force (let's call it... government) steps in with regularity, market economies don't just become ugly. They become failures.
In capitalism, the wealthy tend to get wealthier. Like gravity wells in space, they distort the system, allowing them to suck in more and more capital, building accumulations from which less and less escapes. Only by implementing hard rules on the system can you reverse that trend. Most governments and pretty well all economists (including Adam Smith) have understood that perfectly well.
But thirty years ago, we started playing a different game. Whether you call it Chicago School, supply side, voodoo, or simply awful, we began instituting rules that didn't just fail to thwart these distortions in the market, we encouraged them. We swallowed a philosophy that said staggering piles of wealth were necessary to the health of the system. That rewarding the few would benefit the many.
There was never any evidence to support this contention. Not every theory in supply side economics was written on the back of a napkin, but even those that were not were scribbled on great mounds of conjecture. Altogether the ideas behind this school of economics carry less weight than a gravy stain.
Unfortunately, that's not true in Washington, where the wealthy have been able to use their accumulated power to see that the system encourages rather than corrects, the increasingly out of balance system. Because of this, thirty years of supply side economics has done more damage to our nation than every socialist, communist, or anarchist who ever lived. It's done what none of them could ever do. It's brought capitalism to the brink of failure.
That's where we are, on the brink. The wealthy have made a meal of the nation's economy. They've raided the larder. They've devoured the seed crop. Now they are searching for crumbs.
Take housing. The collapse brought on by speculative trading of mortgage derivatives left many Americans unable to afford their homes and flooded the market with foreclosures. However, in many of those areas where the foreclosures were most common, would-be home buyers have observed a strange phenomenon. Despite what should be a glut of houses on the market, prices on the homes actually put up for sale remain high. Real estate agents in many of the same markets complain that they are actually seeing a shortage of homes greater than when home sales were at their highest. Also, banks are forcing homebuyers to jump so many hurdles in the name of security, that they are often unable to make an offer in time to win a home. As a result, many Americans who are employed and have good credit, are still not able to find a house after months or years of searching. That might not be what you would expect from a perusal of classic economics texts, but it is what you would expect in our current system.
How can this be possible? It's possible because the same banks that homeowners must depend on to secure a loan are in direct competition with them. Hedge fund managers in the investment arms of banks are snatching up homes indiscriminately, buying them in bulk lots that swallow up potential homes by the hundreds and simply take them off the market. Why do this? Because, as institutions empowered to make money through almost any form of speculation, investment banks can optimize the availability of homes to maximize what they can bring in from rentals, sales, and long term holding. Not selling you a home is often a better bet. Bulk buys of homes allow banks to manipulate the housing market to their benefit across whole cities for a span of years. Why should they do anything else? It's not as if there's a barrier in place to separate banks that provide loans from banks that create speculative instruments. We took care of that.
What's happening with banks is just a part of the wealth shift that's taken place over the last thirty years. A shift that's allowed a fraction of a fraction of a percent of the population to control so much capital, that this financial black hole stands a very good chance of simply ripping the system apart.
It's a monopoly on everything.
In this monopoly, you have nothing that they want. You own nothing that they value. You make nothing they desire. Your knowledge, your experience, your willingness to work... mean nothing. There are cheaper hands available. They see no issue with holding out until you give up on a decent wage, on decent working conditions, on a decent life. You want financial institutions to think long term? They are. They're thinking that, long term, you'll give them anything they want in exchange for almost nothing at all.
Supply-side economics doesn't grow the economy, it concentrates it. We knew that from the start. Actually, so did Republicans. They just figured they could distract everyone long enough to vacuum the crumbs.
Sadly, they may be right. One thing is sure, we won't stay on the brink. The system as it is now is not sustainable, not even in the short term.