The ugly face of capitalism

[SirRumpole]

I don’t know anyone who is a solid worker that can’t afford electricity.

They have to pay the bill otherwise they get cut off. It's a matter of what they don't buy in order to pay their power bill.

 

[SirRumpole]

That why it is a business and not a public service
Of course, and nothing wrong with it

The whole justification for capitalism is that it benefits the consumer.

If it no longer benefits the consumer then there is no point in it.

 

[Value Collector]

No , it's not hard, I could spend more than I do as could many people.

But what happens to company profits and the share prices of investors when consumers don't spend ?

Don't you want people to buy the products that companies you invest in produce ?

That's why we could be heading for a recession. The current surge in share prices seems to be an anomaly that I don't think will last.

Investment spending stimulates the economy just as much if not more than consumption spending.

We have been through this before, as I explained last time,

1, people that spend less than they earn and invest over their lives end up with more disposable income and consume more over their lives.

2, populations with high savings and investment rates, have more funds to invest, and create more jobs and more production,

 

[Value Collector]

They have to pay the bill otherwise they get cut off. It's a matter of what they don't buy in order to pay their power bill.

Everyone could use 10% less power, and hence reduce spending by 10% or earn 10% more.

Also, some of those investment dollars saved by spending less than they earn could be invested in solar panels, and hence eliminating the power bill.

 

[Smurf1976]

It would be unfair to try and rebalance the two people to make them equal, when their contributions were not equal over time.

Agreed.

There should always be a safety net for those who for whatever reason find themselves in need of it and we should not look down upon those who do. Things go wrong, life doesn't always go to plan. Etc.

On the other hand for those who do make the effort there needs to be a reward for doing so. Working longer hours, gaining qualifications, investing, whatever - if there's no benefit to be had then I may as well go and sit on the beach instead.

One thing I'll note is that competition works well when it naturally exists but tends to fail dismally when someone needs to "create" a market where none naturally exists.

Retail shops, painting services and restaurants are all naturally competitive industries where suppliers will come and go over time. Competition doesn't seem to be a problem.

On the other hand something like supplying gas to households is not naturally a competitive market. One network of pipes, one meter per house and so on. Producing gas is somewhat of a competitive market given multiple sources but supplying it to homes or businesses is a natural monopoly and attempts to create the illusion of competition have thus far ended up costing more than they've saved. To have however many different companies all trying to sell the same gas which goes through the exact same pipes and meter is just silly and costing consumers a fortune in administrative overheads.

For things like banking and insurance it's somewhere in the middle. It's competitive but experience to date does suggest that regulation is required. Regulation to prevent "too big to fail" banks taking down the entire economy and regulation to avoid consumers with simple banking needs being bamboozled with unnecessarily complex products and associated terms and conditions.

 

[Smurf1976]

That pretty well sums it up VC, the other problem is people's lack of self discipline, they can't put off buying something they want it and they want it now.

An observation is that those I know personally who've done reasonably well financially all have something in common.

Humble beginnings.

Either they grew up in a household where money was scarce and/or they've done unpleasant jobs or worked very long hours. As such they comprehend the value of money.

 

[wayneL]

Agreed.

There should always be a safety net for those who for whatever reason find themselves in need of it and we should not look down upon those who do. Things go wrong, life doesn't always go to plan. Etc.

On the other hand for those who do make the effort there needs to be a reward for doing so. Working longer hours, gaining qualifications, investing, whatever - if there's no benefit to be had then I may as well go and sit on the beach instead.

One thing I'll note is that competition works well when it naturally exists but tends to fail dismally when someone needs to "create" a market where none naturally exists.

Retail shops, painting services and restaurants are all naturally competitive industries where suppliers will come and go over time. Competition doesn't seem to be a problem.

On the other hand something like supplying gas to households is not naturally a competitive market. One network of pipes, one meter per house and so on. Producing gas is somewhat of a competitive market given multiple sources but supplying it to homes or businesses is a natural monopoly and attempts to create the illusion of competition have thus far ended up costing more than they've saved. To have however many different companies all trying to sell the same gas which goes through the exact same pipes and meter is just silly and costing consumers a fortune in administrative overheads.

For things like banking and insurance it's somewhere in the middle. It's competitive but experience to date does suggest that regulation is required. Regulation to prevent "too big to fail" banks taking down the entire economy and regulation to avoid consumers with simple banking needs being bamboozled with unnecessarily complex products and associated terms and conditions.

Although I am perceived as someone of the right, this is where I actually do verge quite strongly to the left. That is on how you have so succinctly described Monopoly Enterprises such as gas and power delivery.

I don't think it's a simple matter but I do believe that it would be far more efficient to deliver the services as a government service. The caveat being, obviously that there must be some mechanism to ensure efficiency and not typical public sector bloatedness.

I have no idea what the right formula is, but somewhere in between the old school type of government Monopoly and the current model of (ineffective) competitiveness, there must be some sort of optimum.

 

[SirRumpole]

Investment spending stimulates the economy just as much if not more than consumption spending.

I doubt that. People won't invest unless they are sure that there is a market.

 

[Value Collector]

I doubt that. People won't invest unless they are sure that there is a market.

There is a market, a global market for all the goods and services people want to consume.

But remember for every person in their 20’s and 30’s saving 10% of their wage, under my system there would be a person in their 50’s and 60’s+ with an enlarged net egg to begin unpacking.

Total spending will be higher, because the earnings of the capital will be distributed among a larger base rather than a few dynasties.

 

[Value Collector]

An observation is that those I know personally who've done reasonably well financially all have something in common.

Humble beginnings.

Either they grew up in a household where money was scarce and/or they've done unpleasant jobs or worked very long hours. As such they comprehend the value of money.

And they are harder to spot than people would think, the millionaires next door aren’t flashy in general.

 

[qldfrog]

The whole justification for capitalism is that it benefits the consumer.

If it no longer benefits the consumer then there is no point in it.

We are ions away on that point
I see your point but shake my head in disbelief
I think ultimately the difference is on the value of individualism vs collectivism
Don't take me wrong, power water, sewerage should be PS paid by taxes per usage of the above in an extreme view, and i hate fake capitalism that we have here with duopoly and regulatory brake to market: worst of both worlds
In any case,let's agree to disagree

 

[SirRumpole]

But remember for every person in their 20’s and 30’s saving 10% of their wage, under my system there would be a person in their 50’s and 60’s+ with an enlarged net egg to begin unpacking.

I'm certainly not going to denigrate your "system" because it encourages self sufficiency and more people should do it if they can.

I think that the current superannuation system probably does a lot of the work for people already, so people are really forced to save for their retirement, like it or not.

 

[SirRumpole]

We are ions away on that point
I see your point but shake my head in disbelief
I think ultimately the difference is on the value of individualism vs collectivism
Don't take me wrong, power water, sewerage should be PS paid by taxes per usage of the above in an extreme view, and i hate fake capitalism that we have here with duopoly and regulatory brake to market: worst of both worlds
In any case,let's agree to disagree

We may not be all that far away.

Capitalism is great for discretionary spending, tv's , cars, fast food and such, as long as there is real competition not fake competition that you get when there are a few very big suppliers that get together to decide the prices. There are supposed to be rules against price fixing, but it's difficult to prove.

Essential services on the other hand should be provided by governments at a reasonable price with excess charges applied if people waste the resources.

 

[basilio]

The article I used to re boot this topic noted a number of points about current capitalism that the writer thought were unacceptable.

1) The effects of promoting ever increasing consumption on CC and other environmental issues
2) The rapidly widening gap between a small number of uber rich and a class of unemployed or barely employed workers.
3) The promotion of a political system that defended the right of the very wealthy to double their billions and keep poor people in their place.

Unbridled capitalism concentrates wealth and power. There have already been a number of comments that recognise that essential services, protection of human rights, (real) legislation to ensure minimum pay, protection of the "commons" in particular the environment are essential to ensure a balanced society and not just a world that exists to make as much money as possible for a few people regardless of consequences.

 

[basilio]

Interesting to see Explods latest contribution in the Social security thread. Main point was recognising how aggressive our governments have become in undermining unemployment support. That is certainly another plank of unbridled capitalism. Less welfare, hungrier people less taxes.

 

[wayneL]

Interesting to see Explods latest contribution in the Social security thread. Main point was recognising how aggressive our governments have become in undermining unemployment support. That is certainly another plank of unbridled capitalism. Less welfare, hungrier people less taxes.

I think what you describe here could more accurately described as Corporatism, or perhaps Globalism, than true Capitalism.

 

[basilio]

If you want to see the effects of unbridled capitalism check out what some of the wealthiest billionaires in the US have to say.

Business
The kings of capitalism are finally worried about the growing gap between rich and poor

Now that the political debate has shifted, Bridgewater founder Ray Dalio is the latest in a bank of billionaires to talk about the gap between rich and poor

• 
  Dominic Rushe
  
  @dominicru
  Wed 24 Apr 2019 02.00 EDT Last modified on Wed 24 Apr 2019 02.01 EDT
  

Two years ago on a chilly Saturday in March, some of the least well-off people in Connecticut went on a tour of the homes of the wealthiest. The outing was a protest organized by community groups worried by growing income inequality in a state that is home to some of the world’s richest people. While they never got further than the gates, it seems like someone was listening.

Chanting “El pueblo unido jamás será vencido” (“The people united will never be defeated”), the protesters, sympathetically shepherded by local police, left giant “tax bills” totaling close to $3bn for their billionaire neighbours, including Ray Dalio, Connecticut’s richest man.

This month Dalio, founder of Bridgewater, the world’s biggest hedge fund, an investor in low-wage employers including Walmart and KFC, and a man worth about $18bn according to Forbes, became the latest in a bank of billionaires to go public about his fears of widening income inequality.

The yawning gap between rich and poor is a “national emergency”, Dalio wrote in an 8,000-plus-word blogpost on LinkedIn (where else?) that poses an “existential risk for the US”.

“I believe that all good things taken to an extreme can be self-destructive and that everything must evolve or die. This is now true for capitalism,” he wrote.

Dalio joins the JP Morgan boss, Jamie Dimon, investment guru Warren Buffett and even the Blackstone chairman, Stephen Schwarzman, “private equity’s designated villain” ( copyright the New Yorker) and usually an unapologetic 0.01%er, in publicly worrying that income inequality has stretched the US body politic to breaking point.

So dire has the situation become that Schwarzman called for a Marshall plan – referencing the US initiative that aided the rebuilding of western Europe after the second world war – to help rebuild the middle class. Admittedly he couldn’t quite use the word “inequality” (that might suggest something was unfair), preferring to argue the real problem was that those not in his wealth bracket were suffering from “income insufficiency”.

Never before have so many of the kings of capitalism showed so much concern about the system that created them, said Charles Geisst, author of Wall Street: A History and professor of economics and finance at Manhattan College.

The last time the 1% felt so under pressure was probably back in the 1930s as the US came to terms with the Great Depression, said Geisst. But back then the super rich did not criticize capitalism. “If you called someone a communist or a socialist at that time, that was fighting words because of the atmosphere with the Soviets,” he said.
https://www.theguardian.com/comment...lio-jamie-dimon-kings-of-capitalism-concerned

 

[SirRumpole]

This month Dalio, founder of Bridgewater, the world’s biggest hedge fund, an investor in low-wage employers including Walmart and KFC, and a man worth about $18bn according to Forbes, became the latest in a bank of billionaires to go public about his fears of widening income inequality.

I think their attitude is hardly altruistic, they just realise that unless people spend they themselves have no income.

 

[basilio]

Why and How Capitalism needs to be reformed. Thoughts ?

From the $18 Billion man Ray Dalio.

Why and How Capitalism Needs to Be Reformed (Parts 1 & 2)

Summary
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. To have these things and use them to build a great life is what was meant by living the American Dream.

At age 12 one might say that I became a capitalist because that’s when I took the money I earned doing various jobs, like delivering newspapers, mowing lawns, and caddying and put it in the stock market when the stock market was hot. 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. 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. This is creating widening income/wealth/opportunity gaps that pose existential threats to the United States because these gaps are bringing about damaging domestic and international conflicts and weakening America’s condition.

I think that most capitalists don’t know how to divide the economic pie well and most socialists don’t know how to grow it well, yet we are now at a juncture in which either a) people of different ideological inclinations will work together to skillfully re-engineer the system so that the pie is both divided and grown well or b) we will have great conflict and some form of revolution that will hurt most everyone and will shrink the pie.

I believe that all good things taken to an extreme can be self-destructive and that everything must evolve or die. This is now true for capitalism. In this report I show why I believe that capitalism is now not working for the majority of Americans, I diagnose why it is producing these inadequate results, and I offer some suggestions for what can be done to reform it. Because this report is rather long, I will present it in two parts: part one outlining the problem and part two offering my diagnosis of it and some suggestions for reform.
https://www.linkedin.com/pulse/why-how-capitalism-needs-reformed-parts-1-2-ray-dalio/

 

[basilio]

I appreciate that most posters on ASF don't read links before making a comment about them
So I'll pick out a key point Ray Dalio makes about our current capitalistic system.

Contrary to what populists of the left and populists of the right are saying, these unacceptable outcomes aren’t due to either a) evil rich people doing bad things to poor people or b) lazy poor people and bureaucratic inefficiencies, as much as they are due to how the capitalist system is now working.

I believe that all good things taken to an extreme become self-destructive and everything must evolve or die, and that these principles now apply to capitalism. While the pursuit of profit is usually an effective motivator and resource allocator for creating productivity and for providing those who are productive with buying power, it is now producing a self-reinforcing feedback loop that widens the income/wealth/opportunity gap to the point that capitalism and the American Dream are in jeopardy. That is because capitalism is now working in a way in which people and companies find it profitable to have policies and make technologies that lessen their people costs, which lessens a large percentage of the population’s share of society’s resources. Those companies and people who are richer have greater buying power, which motivates those who seek profit to shift their resources to produce what the haves want relative to what the have-nots want, which includes fundamentally required things like good care and education for the have-not children. We just saw this exemplified in the college admissions cheating scandal.

As a result of this dynamic, the system is producing self-reinforcing spirals up for the haves and down for the have-nots, which are leading to harmful excesses at the top and harmful deprivations at the bottom. More specifically, I believe that:

1. The pursuit of profit and greater efficiencies has led to the invention of new technologies that replace people, which has made companies run more efficiently, rewarded those who invented these technologies, and hurt those who were replaced by them. This force will accelerate over the next several years, and there is no plan to deal with it well.
2. The pursuit of greater profits and greater company efficiencies has also led companies to produce in other countries and to replace American workers with cost-effective foreign workers, which was good for these companies’ profits and efficiencies but bad for the American workers’ incomes. Of course, this globalization also allowed less expensive and perhaps better quality foreign goods to come into the US, which has been good for both the foreign sellers and the American buyers of them and bad for the American companies and workers who compete with them.

Because of these two forces, the share of revenue that has gone to profits has increased relative to the share that has gone to the worker. The charts below show the percentage of corporate revenue that has gone to profits and the percentage that has gone to employee compensation since 1929.
https://www.linkedin.com/pulse/why-how-capitalism-needs-reformed-parts-1-2-ray-dalio/