Is Capitalism Broken?

If everyone had an equal ownership interest in capital, it is by definition that there would be no wealth discrepancy in this regard. If we want to understand how a discrepancy came about we need to understand this. If we want to understand why, if true, there is an increasing wealth discrepancy we need to understand this. This principle is at the foundation of my views on this subject, to understand my views one has to understand this, This principle is at the foundation of addressing the problem, to the degree it is a problem. Hence, in a capitalist system those who fail to participate in ownership of capital are at risk of being left behind, they are are risk of being at the mercy of those who actually control capital. Like I said previously, the problem is not with capitalism, the problem is in terms of those unwilling or unable to participate in capitalism when they are in a capitalist system.

Yes, this is simple. It is so obvious I don't understand all the noise surrounding the discussion on the subject. Perhaps, there is simply an industry in making issues like this more complex than they need to be, in order for some to exploit the issue - screw the search for truth!
--- merged: Mar 13, 2013 at 2:59 PM ---

I was taught from the earliest age of my memory, to save at least 10%. I have memory of getting change from a dime in order to put a penny in a piggy bank. I have no understanding of not being able to save.

 

I think it is highly improbable to expect that ALL citizens will be able to participate in this system to the same degree (if at all in some cases). This is tied to income. I too am not so young that I haven't spent time on a farm. The scenario you describe, like all of your hypotheticals, are outliers. Outliers are neat and all, but hardly useful in describing how to manage the system as a whole. The likelihood of being able to start a thriving farm with only a loan from the bank, is based on so many assumptions that it is very similar to the unicorn Baraka_Guru describes elsewhere in the thread. Not impossible, just very unlikely.

With regards to the lack of improbability that ALL citizens can participate in the system to the same degree, thankfully, we live in democratic nations that can seek to create balance. In my opinion, the only real discussion about modern capitalism is about how to achieve that balance without tipping the scale to far in either direction between the extremes of Freedom and Equality.

 

If a serious economist is really looking at the issue of what appears to be wage stagnation and wealth disparity changes - this economist would have to take into consideration changing economic conditions over the time period in question - based on the video you presented 30 years. I have been touching on some of these changes - my views are not speculative.

One change is for example businesses relocation from high cost states to lower cost states. In the auto industry (and I have not personally done the calculations), if employment has shifted from Michigan for example to Tennessee, and if an employee lives comfortably in Michigan at a $60,000 wage and lives comfortably in Tennessee at a $45,000 and the company relocates jobs to Tennessee paying $50,000 - how do you measure the impact? wages clearly dropped $10,000, but the economic impact on the lives of workers may have increased. I personally moved my business from California to North Carolina at a time when there was a mass exodus of small/medium size businesses from the state of California - this really happened. It happened for a reason. it had an impact on wages.

One change is the increasing trend in wage deferral strategies. In a high tax environment many begin to take advantage of compensation strategies to lower taxable wages - while either deferring income or obtaining compensation through other means.

One change is the increased use of independent contractors - where valued employees are no longer on payroll but are more used on a consultative or temporary basis. These arrangements often result in increased direct payment to the individual but is not factored into wages.

One change is that it is reported that over 50% of American have some stake in the stock market, if true how is this reconciled with widening wealth disparity. Home-ownership reached peak levels, how does this reconcile - are they saying that if the million dollar property increases 10% and the $100,000 property increased 10% that the wealth disparity increased?

You can be dismissive of my logic, you can vaguely say I am wrong, you can say my real world experience has no value, you can say I don't know shit, it doesn't matter. Say what you want about me, the questions don't go away. One way I would asses an honest search for truth on these issues is when we see reasoned responses to serious questions. I can understand the average person not giving these issues much thought, but when a trained economist starts with a series of statistics and in short order leads people to conclusions without addressing these issues in his analysis - that is less than professional and indicates either an ideology or an agenda outside of the search for truth. An honest economist will go where the numbers lead.

Don't waste your time directing a response to me, regarding what I know or what I don't know, trivial matters regarding why I picked this number or that number, or other diversionnary b.s. - respond to the points if you are serious. show me how your favorite economist addresses these points.
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No doubt. Also, I repeat this, some people highly value financial reward and are good at achieving financial results. These people will always separate themselves from others if they have an opportunity. However, to the degree there is this separation I argue is not a system problem. I do not believe the separation is primarily due to the expected bell curve distribution of ability. I think some either do not participate or can not participate in a competent manner. I argue two points. One, what is the real disparity. Two, what is the root of the disparity.

I respond to silliness with silliness. Income and wealth are independent. The response is that in order plant seed you have to have had some income to buy seed. This is a b.s. response, it is not serious. I look to extreme examples to illustrate the silliness of the response. The real point is that people grow wealth all the time, without income. Again, I use the IRS definition of income. If some other definition is being used I did not see where someone clarified that.

Of course small farms today have difficulty competing with highly commercialized operations. Depending on how a person obtains the land - (if they buy it, inherit it, use financing) - the next step is to use the available resources on the land, people with land do this all the time. My neighbor behind my house has a small herd of cows, the land has been in his family for several generations, he will board horses, he will grow hay, he even has a bee hive and will sell honey. He is an older gentleman and is not trying to get rich, nor does he have a high income - however he owns an extremely valuable peice of property and developers are chomping at the bit, to buy it. His land is worth millions of dollars. If he sells he will be a very rich man, but never had high income. His land did not have the value it has today 30 years ago when he was considered a poor small farmer.

Social Security has virtually 100% participation. If the economy doubled in the past 30 years, if through Social Security everyone had an interest in the economy, perhaps the value of their Social Security could have doubled as well. When wealthy people invest in their retirement, they set it up so that money passes to the next generation. A man contributing to Social Security his entire life, can have that value waste away to nothing after his spouse dies. There are ways to address this issue, if we understand how it needs to be addressed.

I know what freedom is, equality is a bit more difficult. What do you want to be equal - income, wealth, living standards, happiness, opportunity, application of rules? What?

 

We can play games if you want, but in this instance I am not going to participate. A seed is a metaphore for something that grows, something that starts small, something that with a bit of nurturing and care matures into something grand, something special. Some seeds need to be acquired through some means, other seeds can originate from a person's intellect, talent, skill, effort. A seed can also be a seed in a literal form - some seeds are easy to acquire at virtually no cost, perhaps simply an effort, and others are not - it depends on the type of seed.

In context of something small having a large impact over time, if you read the link to the study on 401(K) impact you would have a better understanding of the point. If a low income person with no net worth - no wealth as measure by typical economists - participated in a 401(k) the impact would be very large. If a high income person with high net worth participates in a 401(k) the impact will be small(er) on their net worth. A 401(k) is a tool, when available, everyone should participate especially if they are low net worth - the wealth gap would get smaller. People make choices to participate or not. D.C,'s views aside that low income people can not save (which is absurd), if they do not "get in the game" in this regard they can not blame the system.

I am not going to do all the math for you, I would love someone to use some initiative, but in this scenario a 401(k) would have a massive impact on a low income person's wealth over time.

The person has $0 net worth to start, but they have a $30,000 per year job, if in year one they contribute 5% with a 50% company match and a 3% return, after the first year their net worth goes from $0 to $3,090.00.

What if they did that for the next 20 years, assuming 3% annual raises.

How long would it take for the value in the 401(k) to exceed the person's annual income?
How long would it take before the annual contribution, match, and investment returns exceeds the person's annual income?

What if they did that for 20 years and then stopped, but rolled it over into a self controlled qualified plan and the put half into an s&P index fund and half in a bond fund - with a combined average annual return of 8%, what does the value of the account grow to in the next 10 years?

What if instead of 3% annual increases in salary they get 5%? What if they contribute 10% or max out available contribution? what if they get 6% rather than a 3% rate of return?

I have heard some say that "investing" is too risky. Well if rich people do it to get richer, and it is too risky for poor people what is the basis for complaining when the wealth gap widens? Questions people with an ideological point of view will not ask or answer.

Please, make some more jokes. Please, make some more diversionary comments. Please tell me something like poor people can't put money in 401(k)? Please tell me I don't know shit! I just hope a young person reading this thread focuses on what I write and not your responses.

 

I said they are independent. So your point is that since I used an example that involved a person using savings from a job that income and wealth are correlated? In the example I ask at what point does contribution, match and return exceed income/what happens in after 20 years then stopping but rolling over into a conservative investment strategy for the next 10 years- suggesting that at some point additional wealth accumulation will be independent of income. You sir, are turning this into a joke. What purpose are you trying to serve?
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Like what? What post of yours, in your view, best serves as an example of what a young person would find of value?

 

Nearly half of US workers do not have access to a 401(k).....the percentage is even higher for low income workers.

 

There is context in the example, in this scenario outlined income is the catalyst for savings. The company match is not considered income. Earnings in a qualified retirement plan is not considered income. More of the wealth growth will come from the company match and earnings than will come from the employee's savings. Income in this scenario, is a secondary variable to long-term wealth growth.

My posts have been serious.

Assuming you take me to task, that has no value to anyone when you are vague. I say an item like college financial aid is not considered income but has real economic value - you spend several posts thinking you are taking me to task -and the point stands. College financial aid is not considered income but has real economic value. Your diversionary comments was more a reflection of a narrow manner of looking at the issue.
--- merged: Mar 14, 2013 at 12:57 PM ---

A couple of points. First, if we really wanted to fix the problem, would one method be to encourage more employers to offer a 401{k) plan? Even if there is no match?

Shouldn't 100% of the people with access actually use them? Wouldn't it be a good idea to promote the importance of using them - compared to complaining about how the system is broken?

If not 401(k), why not IRA's - are people maxing those plans out. Perhaps, the IRA contribution cap should match the 401(k) cap?

Is your point that since some people don't have access to 401(k)'s that they have no value?

According to the report I referenced in 1991 the participants to eligible ratio for the $20,000 to $30,000 income group was about 62% compared to the 75,000+ income category - at 84%. Their conclusion was that wealthy people tend to shift savings to these plans compared to the poor where it is often new savings, but even discounting that - the 62% ration compared to the 84% ratio - can explain some of the differences in wealth accumulation.

Again, my main point is that people need to get actively involved in capitalism in a capitalist system. If we want to address wealth disparity, the answers are within that point.

 

Maybe they can cut back on basic necessities like food....a likely scenario under proposed Republican "austerity" budgets.

 

Are you making excuses for people not to save? I say develop a habit of savings - once the habit is established, saving get easier. I never said it would not be a challenge for some people. They either do it or they don't - the consequences are known.

You can use whatever number you choose, I would simply challenge you to actually run the numbers, do the math and then tell us what you think.

Anecdote (read or ignore make a choice and live with it)

I know several low income people and as a favor I often do their taxes. Many use refunds as a windfall, I often suggest they either adjust their withholding and save the difference or take the refund and save all or a portion of it. They already live week to week without the money. The refunds are often spent within days of receipt and in some cases spent before the refund is issued. Yes, I know a few poor people - I know better.

 

You would certainly have to "wave your hand mystically" to stretch a $30,00 income for a working family (2 parents, 1 or 2 kids) paying $12,000/yr for housing. $6,000 for food, $6,000 for health care, $5,000 for transportation.... all conservative estimates.

Ooops, we're just about out of money and no clothes for the kids, no braces for the one with an overbite, no rainy day funds for emergencies......

 

I have done it. I remember days of peanut butter sandwiches for lunch to save money on food. My wife and I still clip coupons before going to the grocery store, I know some low income people who think that is a waste of time - but we routinely "save" about 30%. Have you ever been poor?
--- merged: Mar 14, 2013 at 1:28 PM ---

By whose definition? Is it considered income in the wage studies often referenced? Does the IRS consider it income? I have asked several times what definition is being used - I stated that I use the IRS's definition of income.

Tax Topics - Topic 421 Scholarship and Fellowship Grants

 

I am not sure we are reading the same information.

If employer A offers a job at $50,000 with no tuition reimbursement plan and all other things being equal employer B offers a job at $50,000 with a tuition reimbursement plan and the person is going to utilize it - which has more value? How would wage studies look at this?

Note-

Income is immaterial to people with real wealth - they focus on managing their wealth and deriving benefit from their wealth. Some have an income statement focus, wealthy people focus more on their balance sheet. Zuckerberg could have gone from a college student to what he is now worth without having a single dime of income that would be considered income under the IRS definition. He chooses what his income is, he manages his taxable income.[/quote]