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Capitalism is Misunderstood

Author: Vale

There is a real misunderstanding in this country of capitalism. Our great wealth is the result of free markets, but since it doesn't have a voice, it is an easy target for socialists and others trying to incite class warfare. Capitalism is best described as an interconnected ecosystem. People transact with one another for mutual benefit without anyone commanding the process. The government's sole job in this system is to enforce contracts and protect property rights. That's all that is needed for wealth to be created for everyone who is motivated to succeed.

Lately, the popular theme in the media has been "anti-rich" articles. I came across one from earlier this year titled, 10 Doomsday trends America can’t survive, where the entire opening discussion centers on how capitalism is a saboteur, is destroying America and is corrupting our souls. It really does say this. Then it goes on to discuss mostly problems in American that are not even related to or dependent on capitalism, but on our failed political system. There is no mention of the problems related to the socialist parts of our economy (social security, medicare, medicaid, welfare, etc.)

"the war waged by the wealthiest people in America on the disappearing and shrinking middle class of our country."

It is shrinking because more people are joining the wealthy, and have been since this 'problem' was first noticed. In fact, the living standards of this country are constantly increasing, not decreasing. This is a good thing. What these biased authors are trying to do is make you angry about the fact that there are people out there who have several multiples of your wealth, even though this has zero impact on your life and means absolutely nothing to you. Most importantly, I will also point out that there is no set definition of what constitutes a middle class, which allows the author to define it however it suits his argument. Is it a household (the dynamics of which have been changing for decades) or is it per capita? On average, a person's income is based on his or her stage in life, so with the current baby boomer generation at the peak of their careers, the distribution will be skewed and the dynamics will be changing as they begin to enter retirement. If a retired person only makes $25k a year on social security income but has $1 million in a 401(k) or real estate, is he considered poor, middle class, or wealthy? The only data that will end up in IRS statistics is the income component (putting him or her in the poor category), and not the corresponding net worth. As the years march on, I would expect the IRS statistics to continue to report average income levels dropping as more boomers begin to retire, but not reflecting the continuing increase in wealth of retiree portfolios (this will likely spawn another legion of anti-wealthy articles). The definition of the middle class is so unclear that using it to advance arguments is not honest discussion.

1. Doomsday Capitalism: Death of the American dream, spirit, soul

"The nation’s billionaires are on the warpath. They want more, more, more. Their greed has no end and they are apparently unconcerned for the future of this country if it gets in the way of their accumulation of power and wealth.”

Many billionaires continue to gain wealth naturally because they still have an interest in or still head companies they founded (Steve Jobs (RIP), Fred Smith, Larry Ellison, Warren Buffett, Bill Gates, for instance). It is probably less about wanting more, and more about the enjoyment of running a business or having something to do with their passion. Many billionaires continue to work because they enjoy it and would probably be bored sitting under a palm tree 12 hours a day. And when Steve Jobs's company created the iPod, iPhone, and iPad which lead to an increase in the quality of people's lives, was it a warpath with him was sitting in a dark room rubbing his hands together trying to think of ways to accumulate more wealth and destroy the country? No. The great 'robber barons' of the past left their names on a lot of parks, foundations, buildings and universities that they donated from their vast fortunes. More recently, the latest Gates/Buffett pledge has hundreds of wealthy people including dozens of billionaires pledging their wealth to charity.  Innovating new products and creating wealth doesn't destroy a country. If it did, vast wealth in countries wouldn't exist.

2. Doomsday Democracy: ‘Mutant Capitalism’ killing ‘We the People’
"the insatiable Super Rich 1% rule America."

This is not a problem with Capitalism, but a problem with politics. This claim is a straw man. This same problem exists in every economic system. Feudalism, communism, socialism - except in these systems, anyone who isn't in good favor with the political leaders is poor and doesn't have any say in the outcomes. And what does that really mean to say that the 1% rule America? Does that mean that only those in the 1% have a say in our politics? Hardly. And if they really are running the show, they must have multiple personality disorder, because for every election cycle different political parties are gaining and waning, and laws are constantly changing. I would expect consistency if this statement were true.

3. Doomsday Conspiracy: Wall Street takeover, the new ‘Invisible Hand’
Every anti-wealth article wouldn't be complete without a notable Wall Street mention. Wall Street is apparently the master of the universe to these anti-capitalist people even though finance careers only represent about 5% of the country. Why are they a target? Because of the high profile mentions of large compensation and 'bonuses' that end up in some newspaper article reporting on excesses, bailouts, or compensation averages and these authors assume that everyone who works in finance gets a large pack package and works on a street named Wall. Large pay packages are the enemy to anti-capitalists (CEOs, Doctors, Lawyers, are also common targets). 

"Wealth can easily buy favorable laws, making even the most unethical, selfish, corrupt behavior legal by fiat. "

Not always. Billionaires spend millions of dollars during every election cycle, but don't always get their way (for example, Prop 32). But even still, wealth having influence would be a problem with our political system, not capitalism. If you read between the lines here, the author is saying that it would be better for nobody to be wealthy so that favorable laws cannot be bought. Welcome to China, 1960.

4. Doomsday Politics: Monopoly of Super-Rich Anarchists rules America
Straight out of the rhetoric handbook, add as many extreme adjectives as possible: The super rich are now anarchists. With number 4, you can see Farrell is repeating the same things in different ways. It is clear that he could not actually come up with ten doomsday talking points.

5. Doomsday Economics: Growth is a numbers game for politicians
I fail to see the direct connection to capitalism. Whether an economist is wrong on a forecast of not, it doesn't change the outcome.

6. Doomsday Psychology: The broken promises of behavioral science
So what is his beef with capitalism in this one? It is so vague, but it appears that he wants to remove choice for the consumer so that everyone has to live with a one-size-fits-all constraint. It's hardly a recipe for success. The house always wins only when you are gambling. Investing is not gambling, but there are risks as there is no free lunch.

7. Doomsday Technology: Innovation, derivative casinos, the singularity
Without looking it up, I bet he could not even define what a derivative is. And with HFT, only day trading gamblers will be affected by their presence.

8. Doomsday Warfare: Pentagon math: population + commodities = wars
Once again, this is hardly in the exclusivity of capitalism. Population boom and lack of resources will eventually be a problem for this entire planet regardless of what economic system is used if population growth is not slowed. However, this same story has been touted for centuries, from Malthus, Osborn, to Ehrlich and among others. But amazingly, with billions of additional people later, these predictions have all failed and I would bet that capitalism is the reason why. Capitalism is about specialization, and comparative advantage. As more of the world converts from the system where each family grows their own food, makes their own clothes, and builds their own houses, the world becomes more productive, which benefits everyone through trade.

9. Doomsday History: This time really is different — the final meltdown
So it would appear that pretty much all his 'evidence' against capitalism isn't related to capitalism at all. Once again this is a problem with our political system where America thinks that we have to control the world and have military bases in every country. Capitalism would be just fine even if we closed them all down.

10. Doomsday Investing: Survival strategies in the post-capitalism era
So this would seem to be an argument for capitalism, because property rights are respected in it. In his dreamworld, bandits and gangs run the world. This is what he wants: a Somalia system?

So in conclusion, Farrell attempted to attack capitalism but ended up attacking our political system, but blaming it on capitalism. This is not the most apt line of reasoning. In the words of Gorden Gekko, "Greed is good." The desire for wealth aligns people's incentives to get educated, work hard, take risks and innovate. By doing this, they not only make their lives better, but make everybody's lives better. Take a look around, there is no better economic system.


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