Is Capitalism Broken?

I personally know a young man that graduated from the Air-force Academy. Some put a half million value on that education - he did not pay a penny. I know a young man currently on a football scholarship at Duke. I know that Harvard is offering free tuition for low income families. Can you make your point and move on rather than trying to prove what I may or may not know! If you are hung up on the number 100,000, make it 10,000, make it 100 make it whatever your mind is comfortable with - realize some people think big, some don't.

This is turning into a B.S. interaction - if you think it is my fault I can not help you, perhaps someone else can. Good luck.

 

If you don't understand the point, that is one thing. To say I am full of shit is another.

I will explain it to you one more time. Family A may have a high income and will be expected to contribute to the the $37,000 tuition (that is just the tuition) per year. Family B is not expected to pay the $37,000 tuition. When a person is calculating the wage gap between the two families and draws conclusions based on that gap, the conclusion can be misleading because family B is getting a $37,000 benefit that is not considered income.

Not complicated for most people to understand.

This is not a commentary on family A or B, it is a commentary on the data being used to promote wage disparity arguments. This is one type of an example, there are many others. Over four years, of tuition and other expenses the difference can be as much as $200,000 for a Harvard Degree.

You getting lost and confused with a misdirected focus on trivial matters is your problem.

For those who care is some Q's and A's from Harvard's website:

Questions & Answers

Knowing this how would you plan for your child?

 

I think I got it now!

The real problem of growing income inequality and stagnant middle class wages (while profits soar and top salaries rise significantly) can be made trivial by misdirecting the discussion to two imaginary families.

 

I know the context has been long forgotten, but my point was in response to a video posted where it was stated that wages have been stagnate while economic growth has doubled. I simply stated that wages as a measure is inadequate. There are other factors to be taken into consideration. An honest discussion requires an acknowledgement and understanding of these factors.

 

Or an acknowledgement and understanding that the context and the facts are that both income and wealth are concentrated at the top at levels unseen since the robber barons.

 

I don't know if this is true. Because I believe we are looking at incomplete data. However, I do acknowledge that many people who do not participate in owning assets get left behind. that is why I support giving people a real ownership interest in their social security contributions - real private accounts. Allow people to leave what is left to their heirs. Allow them to participate in our economic growth.

Also understand what is happening with a person's incentive to accumulate wealth. A person a the margins with a child planning on attending Harvard for example would be harmed if they actually planned, sacrificed and saved to pay the costs. Even high middle income people over $100K/per year could see a big difference in living standards relative to spending up to $200,000 over four years compared to a similar family that does not. Today, the key is to plan for the aid - in order to do that you have to manage income and assets.

Here is Yale's description:

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57% get need based aid and 43% do not.​

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I want to move to America where the streets are paved grants, scholarships and free money! There is no inequity there at all, only unreported benefits!

And where that fails, I can find a cow (not buy because who needs income) and have it multiply into wealth untold (apparently being able to feed and house itself as well), or grow breasts that will make me a millionaire (of course I will have to lose them in order to take advantage of the, somehow free, insurance upon them).

I have been doing it all wrong. America is the BEST!

 

Strictly speaking, aceventure is correct. Capitalism isn't broken. It works just fine for those who have the means and ability to make capital work for them. This has always been the case.

What people mean when they ask if Capitalism broken is: Is the economy broken? Or better still: Is the engine that drives our economy broken?

This means very different thing to different nations. While Capitalism is one of the main features of the economic engine that runs many nations around the World, each of these nations has a slightly (sometimes vastly) different take on how to manage Capitalism more negative aspects. This is typically realized through regulations (e.g. preventing monopolies, dictating a minimum wage, child labour laws, etc.).

Completely unfettered, Capitalism can be monstrous. Over the years, democracies have recognized this and introduced legislation to tame the nastier elements and harness its power to betterment of all.

Doing this is not an easy task. Too much interference and the economy can fail (e.g. Soviet Russia). Too little and the economy can fail (e.g. Great Depression). Could things in the US be simplified? Sure. Should they be completely deregulated? No. One need only look at the US economy from WW2 until the mid1990s. It was, arguably, one of the most regulated times in American economic history and yet was one of the periods where the middle class was strongest and the difference between the poorest and the wealthiest was much closer.

Since that time, there has been a massive push to deregulate the financial sector. What was the result?

I don't think I need to spell it out.

 

I do not hold the position that there is no disparity. What I suggest is that we give it some thought. For example, and I clearly do not expect a reasoned response, we can have this comparison in terms of wealth -

Person A - 26, lives in a 1500 sq/ft. home in Waxhaw, NC valued at $100,000 fully paid for, he earns $60,000 in a trade. He spends his weekends doing what he loves (perhaps hunting, fishing, four wheeling, watching NASCAR), he vacations regularlly, spends holiday's with a family he enjoys, is healthy and is loving life.

Person B - 26, lives in Manhattan, NY in a 600 sq./ft apt. with a $1,000,000 mortgage, he an investment banker earns $225,000 in a good year with bonuses, has $100,000 in student loans, works 60 hours per week, works weekends, rarely takes vacation, hates his family, is already developing ulcers and thinks a guy who lives in Waxhaw, NC is a hick.

How would you begin to compare the wealth between these two guys?

Just looking at the real-estate aspect of the question - how do you measure the wealth of a person that owns a property in a place like NY compared to a person who ones property in NC? Just because you may value a NY property at a certain level does not mean I do.

Factoring in taxes, fees and other costs to live in one area compared to another, do you make adjustment for that in the measure of wealth - for example if a person's wealth is measured at $1 million and it costs $100,000 per year to maintain that wealth, with no income the wealth goes away in 10 years. So, then one can calculate the net present value of that wealth. Compared to a person whose wealth is measured at $10,000 but it costs nothing to maintain the wealth, again one can calculate the NPV. Then what do you get.

If you folks won't run the numbers, if you refuse to apply basic math to these questions, I can see why my posts seem like I don't know shit. all I can say is I would rather be me, doing what I do.

I understand that young people today have no idea about rural lifestyles. And to some degree things have changed. but I am not that far removed, and I spent summers in rural Arkansas with my grandparents, people who had almost no income. Here is an example of how things worked. They may get some seed, perhaps on credit. Plant some crops, pay off the loan in trade - get more seed and other needed items. Plant more crops - perhaps trade for a new born calf. They feed the calf, it grows into a cow - they use the cow for milk/butter. They find another farmer with a bull. They agree to allow them to make baby cows, splitting the output. Then they might trade a calf for other goods, perhaps sell, perhaps fatten it up and eat it - all depends. And the cycle continues.

But outside of farming - there is this concept called intellectual property. It is where someone does something with their mind, they get an idea (perhaps planted in their mind while the dreamed of unicorns). then that intellectual property develops value, but rather than selling it - they develop it themselves (they may live in their parents basement or sleep on their best friends couch earning no income) -then one day the magical venture capitalist come along and infuse capital into the idea - and before any sales occur before and income the guy with the intellectual property is sitting on a company worth multiple billions of dollars. Sounds like pure fantasy doesn't it? But it has happened a time or two, perhaps the details are different - perhaps it was his girl friend's couch, etc.

I agree.
--- merged: Mar 13, 2013 at 12:07 PM ---

You folks truly confuse me. Do you really think getting seeds is an obstacle? Even as a metaphor? What definition do you use for income? When I started my business I personally did not earn income fro about 2 years - but my business grew during that time period. What is it about hard work or sweat equity that is foreign - it is not magic, no magic beans - it is getting off your ass and doing what needs to be done!

 

I really dont know what is so hard to understand about after tax corporate profits being at record highs and wages at record lows.

Red is corporate profits, blue is private sector wages​

Capitalism is working just fine for corporate America, just not for the growing number of middle class workers living from paycheck to paycheck.

 

Of course I have more.

To the degree that there is wealth disparity, it is the result of some people having ownership interest in the economy and some not having an ownership interest in the economy.

People who own appreciating assets or productive assets in our economy (capital - making them capitalist in my view) will have their wealth grow in relationship to economic growth - making them less dependent on income or wages. People who do not participate in "ownership", people who do not engage in capitalism in our capitalist society, run the risk of getting left behind.

Read this and understand that this is the type of analysis that is need for many topics applicable to the question of wealth distribution:

The Effects of 401(k) Plans on Household Wealth: Differences Across Earnings Groups

People like you discourage others from getting "in the game", you promote fear, you say the market is broken the system is rigged. You should say, start small, save, invest, run the numbers, trust the numbers. Regardless of income everyone should get involved with ownership in our economy.
--- merged: Mar 13, 2013 at 12:30 PM ---

It is not difficult to understand the chart, my focus is explaining why. Do you think it is because business owners are corrupt or simply bad people who don't care about others? Wages stagnate for a number of reasons, one is that although wages are flat - employee costs are not. When an employee cost exceeds an alternative - the alternative is employed.

 

And how do you do that if your wages have been stagnant for 10+ years while your cost of living has risen...leaving you as one of the 35-40% of workers living from paycheck to paycheck?

 

Develop a habit of savings - you know "pay yourself first". Have you ever done Future Value calculations? Do you have issue with the concept of the effect of compounding interest? When a person works for a company with a ESOP, would you encourage them to participate? What a about 401(k)?

Would you take a lower wage to work for a company with a differed qualified profit sharing plan? I would. Why would anyone want higher taxable income at the expense of deferred non-taxed income? Do you know what the impact of this trend has had on the numbers you cite? I don't think so!

Do you know the impact of the increase in independent contractors (1099's) have on the numbers you cite? I don't think so!

 

Save more? When you can barely pay the mortgage and feed/cloth your family or provide basic amenities?

Sure. The current job market is so great and workers have so many choices that they can leave their current job for a job with better benefits.

In both of the above, I dont know what world you are living in, ace.