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It is an effective motivator of people because it rewards people for their productive activities with money that can be used to get all that money can buy.And it is an effective allocator of resources because the creation of profit requires that the output created is more valuable than the resources that go into creating it.
Then I will give my diagnosis of why capitalism is producing these inadequate outcomes and conclude by offering some thoughts about how it can be reformed to produce better outcomes.
Where I’m Coming From I was lucky enough to grow up in a middle-class family raised by parents who cared for me, to be educated in a good public school, and to be able to go into a job market that offered me equal opportunity. At the time, I and most everyone around me believed that we as a society had to strive to provide these basic things (especially equal education and equal job opportunity) to everyone.
I will now show the results that our system is producing that have led me to believe capitalism isn’t working well for most Americans.
In this section, I will show you a large batch of stats and charts that paint the picture. If you feel that you’re getting past the point of diminishing returns, I suggest that you either quickly scan the rest by just reading the sentences in bold or skip ahead to the next section which explains why I think that not reforming capitalism would be an existential threat to the US.
Before I explain why I believe that capitalism needs to be reformed, I will explain where I’m coming from, which has shaped my perspective.
I will then show the indicators that make it clear to me that the outcomes capitalism is producing are inconsistent with what I believe our goals are.I was fortunate enough to be raised in a middle-class family by parents who took good care of me, to go to good public schools, and to come into a job market that offered me equal opportunity.I was raised with the belief that having equal opportunity to have basic care, good education, and employment is what is fair and best for our collective well-being.Being productive leads people to make money, which leads them to acquire capital (which is their savings in investment vehicles), which both protects the saver by providing money when it is later needed and provides capital resources to those who can combine them with their ideas and convert them into the profits and productivities that raise our living standards. Over those many years, I have seen communism come and go and have seen that all countries that made their economies work well, including “communist China,” have made capitalism an integral part of their systems for these reasons.Communism’s philosophy of “from each according to his ability, to each according to his needs” turned out to be naïve because people were not motivated to work hard if they didn’t get commensurately rewarded, so prosperity suffered.To begin, I’d like to show you the differences that exist between the haves and the have-nots.Because these differences are hidden in the averages, I broke the economy into the top 40% and the bottom 60% of income earners. That way we could see what the lives of the bottom 60% (i.e., the majority) look like and could compare them with those of the top 40%. While I suggest that you read it, I will quickly give you a bunch of stats that paint the picture here.My exposure to most economic systems in most countries over many years taught me that the ability to make money, save it, and put it into capital (i.e., capitalism) is the most effective motivator of people and allocator of resources to raise people’s living standards.Over these many years I have also seen capitalism evolve in a way that it is not working well for the majority of Americans because it’s producing self-reinforcing spirals up for the haves and down for the have-nots.That got me hooked on the economic investing game which I’ve played for most of the last 50 years.To succeed at this game I needed to gain a practical understanding of how economies and markets work.