The Growing Crisis of Capitalism

[Winterhaze13]

The Growing Crisis of Capitalism

The existing economic status quo is in need of reform. Capitalism possesses a number of systemic flaws which inflict harm on society. Capitalism fails to generate profit to those that are in greatest need. Instead it creates a new type of inequality that is not based on appearance, but rather one that reinforces class distinction. How bad is the current situation? In the period 1979-2000 in the United States, the real income of the poorest of American households rose by a meagre 6.4%, while that of the top fifth rose by 70%.[1] And most disheartening of all the top 1% rose by an amazing 184%.[2] This suggests that the overwhelming amount of economic growth in society is being achieved in the upper classes of society. Can this by considered progress? This can hardly be seen as a dynamic society. This has created a two-tier society consisting of the capitalist kings who roam in their palaces and honest-hard working people who often live in slums and working class neighbourhoods that don’t have the best schools and have higher crime rates as compared to wealthy neighbourhood. This is known as economic segregation. Therefore, if capitalism is socialism for the rich, then what we need is socialism for the poor.

The complete reliance on private capital possessed by a minority in society to stimulate the economy is unstable and irresponsible. This reality has become steadily worse with the advent of the neo-liberal market, which undermines it’s notions of liberty by creating large firms that stunt competition rather then promote it. Also, the concentration of wealth in private institutions creates a disparity in wealth which stunts economic growth and creates an employment floor. This usually creates rigidity in the economy. It is far more rational and responsible if the bulk of the wealth in society is allocated to those who need it the most and would create the greatest benefit in society. This section will outline various ways in which capitalism creates inequality in our society and fails to promote the common good.

On the democratic front, capitalism is incompatible with democracy because it does not allow democracy to reach its full potential. This is due to the fact that capitalism is competitive while democracy is meant to be cooperative. The two main principles of democracy are freedom and equality. Capitalism upholds the freedom aspect of democracy, albeit only economic freedom, but completely rejects the equality aspect. Unlike democracy, Capitalism thrives under inequality. It is democracy that keeps capitalism from truly becoming “creative destruction”. Democracy is what keeps capitalism on its heals. This combined with the fact that capitalism has never been effective without state interference. Democracy is meant to generate good in the economy by giving everyone rights as well as freedom, while capitalism largely undermines many democratic principles, most notable equality. Instead, capitalism creates conflict in society by pinning citizens against one another in the pursuit for capital. Inequality in our society today is based on capital accumulation as capitalism has created a money-driven society. Also, capitalism is elitist in the sense that it creates a new aristocracy or ruling class that is based on capital accumulation in a modern democracy. Although some modern democracies have tried and partly succeeded in curving this reality but it does exist in large part, particularly in the United States. In American universities only one out of 30 students comes from the poorest quarter of society.[3] This reflects the myth of social mobility. Therefore, capitalism fails to produce enough social climbers as well as a legitimate ruling legion that would represent all walks of life in a given democratic society. This can be described as democracy at its height which has never existed.

Capitalism exploits the disadvantaged in society by paying the neediest less, in order to boost profits. In a capitalist free market the wages are not regulated and as a result discrimination is common, particularly discrimination based on sex, race and age. As a result of this, many of the disadvantaged are left behind in society, creating apathy for their needs. Its notion is one in which the wealthy become wealthy through the labour of the poor, whom they employ. In order to prevent this exploitation the state should regulate wages by measuring the value of a specific job. In addition, assure that the labour laws are strict and very pro-worker. Under Neo-liberalism the number of unions has declined and as a result we have a less worker-oriented economy. We need to increase the number of unions and strengthen labour laws to suit the worker. In addition, in a free market the worker’s are often at the mercy of employers and often settle for a lower wage because of the scarcity in employment that capitalism often creates.

The powerful multi-national corporations that capitalism creates often act out of self-interest and never out of the common good. They fail to support social justice and are so powerful in the era of globalization that they can greatly influence the policy of governments while preventing equality and social justice that conflicts with their economic interests. As a result, the rights of citizens are often harmed by these practices. Not to mention, these corporations are often not law-abiding and they successfully find loopholes in laws that exonerates their wrong-doings. Furthermore, many politicians are wealthy and have business links when going into politics. As a result, this prevents them from acting out of the best interests of their constituents; instead they protect business interests in hopes that major corporations will fund their campaign.

[1] Anonymous. The Economist, America’s Great Sorting Out: The Missing Rungs in the Ladder. July 16, 2005. Pg. 17.

[2] Ibid.

[3] Ibid.

[B. Max]

So which of the laws of plunder do you suggest as the remedy.

[Winterhaze13]

That's another essay I've written but now let's discuss capitalism on it's own merits.

[B. Max]

That's another essay I've written but now let's discuss capitalism on it's own merits.

<{POST_SNAPBACK}>

Capitalism has created more wealth and put it hands of more people than any other system ever invented, the only crisis in capitalism depends on the degree to which it is infected by socialism and the laws of plunder. Therefore the two can not be disconnected.

[Toro]

Good lord, there are so many things wrong with this essay, I don't know if I have the time to address them all.

I'll get to them in due time.

First, there is no "crisis" in capitalism.

Second, check out the growth rates of the last 35 years.

http://www.mapleleafweb.com/forums/index.php?showtopic=3710

Since 1980, the US has outgrown Europe. That is also true since 1990 and since 1995.

[Winterhaze13]

That's another essay I've written but now let's discuss capitalism on it's own merits.

<{POST_SNAPBACK}>

Capitalism has created more wealth and put it hands of more people than any other system ever invented, the only crisis in capitalism depends on the degree to which it is infected by socialism and the laws of plunder. Therefore the two can not be disconnected.

<{POST_SNAPBACK}>

Capitalism is socialism for the rich. Capitalism has created alot of wealth but what else has it done or would that wealth even be created under any other system. But what is clear, as you acknowledged is that capitalism has some serious systemic flaws and need to be addressed. Also, under the socialist-oriented system of keynesian the economy worked better because it was more pro-worker.

[Winterhaze13]

Good lord, there are so many things wrong with this essay, I don't know if I have the time to address them all. 

I'll get to them in due time.

First, there is no "crisis" in capitalism.

Second, check out the growth rates of the last 35 years.

http://www.mapleleafweb.com/forums/index.php?showtopic=3710

Since 1980, the US has outgrown Europe.  That is also true since 1990 and since 1995.

<{POST_SNAPBACK}>

Good lord, there are many things wrong with your response, I don't know if I have the time to adress them all.

Since the end of Keynesian (If you don't know what Keynesian is take a course like I did), the economy grew twice as much as the neo-libealism era (1973-present) Now we have a escalation of debt, income stagnation and a greater discrepency in wealth. You can find out of info on that in my essay. The U.S. might have a slighter better economic performance because it's more economically liberal but as you can see, most of the wealth belongs to a very small minority. That is not progress at all. Canada is closer to the European model and hence our society is better off.

In the period 1979-2000 in the United States, the real income of the poorest of American households rose by a meagre 6.4%, while that of the top fifth rose by 70%.[1] And most disheartening of all the top 1% rose by an amazing 184%.[2] This suggests that the overwhelming amount of economic growth in society is being achieved in the upper classes of society.

[Winterhaze13]

Av. ann. growth in real GDP 1992-2002:

United States: 3.3%

Canada: 3.5%

Source: The Economist. Pocket World in Figures: 2005 Edition.

[Toro]

I'd like to change the title to

The Growing Prominence of Capitalism

As countries around the world have been throwing off the shackles of state-domination to make themselves and their populations richer - in particular, in Asia - and grow their economies.

First, understand that the author of this thread is merely setting up a straw man. There is no pure capitalist society in the world. In the west, all economies are mixed economies. The only difference is degree.

Capitalism possesses a number of systemic flaws which inflict harm on society.

To paraphrase Churchill, its the worst, except for all the others. Socialism inflicts harm on society by squelching growth and removing freedom.

Capitalism fails to generate profit to those that are in greatest need.

Incorrect. The author himself says that

In the period 1979-2000 in the United States, the real income of the poorest of American households rose by a meagre 6.4%,

So clearly, it is generating real income growth. It has, however, not generated enough. But that's a much different argument than its not generating any at all.

Since 1980, German real growth, adjusted for purchasing power parity and applying a constant currency, was 2.2%. However, since 1990, it has been -0.6%, as it has been in France. Thus, over those 13 years from 1990-2003, GDP has fallen 7.5%. Now I don't know if low-income earners grew much faster than the rest of the economy, but assuming that wages grew at the same rate of the economy as a whole, and the "fairer" European model assured that low wage earners kept pace with high wage-earners, even if low wage-earners in the US so 0% real wage growth, they did better than Europe. In socialist paradise Sweden, growth fell 2.4% annualized. Thus, using the same assumptions, low wage-earners in America would have been 27% better than Swedish low wage-earners from 1990 to 2003.

The best thing about capitalism is that it generates the most wealth for the most people, most of the time. That does not mean it always generates the most wealth for all the people all of the time because, in fact, economic growth is dependent on many variables, some far more important than the structure of the economy, i.e. rule of law.

I find the author's next statement perhaps the most interesting.

And most disheartening of all the top 1% rose by an amazing 184%. This suggests that the overwhelming amount of economic growth in society is being achieved in the upper classes of society.

So what? Good for them. Rather than resenting these people, we should try to emulate them

But there's a reason for it, of which Winter doesn't explain, and my guess may not know. The reason why income grew so much over that time period is because much of the wealthiests' income derives from capital gains from assets, i.e. stocks, bonds, real estate, etc. From 1966 to 1982, in nominal terms, the Dow Jones Industrial Average rose exactly 1 point. Thus, during that time, there were no capital gains at all. In fact, in real terms, holders of stocks saw negative capital gains until 1991. Bonds were even worse. Long-term government bonds in the mid-60s were yielding around 5%. In the early 1980s, interest rates were pushing 20%. Since the price of a bond is inversely correlated with the yield of a bond, bond holders were crushed. So, for the previous 15 years, these two asset classes saw negative real returns. But since 1981, both were in tremendous bull markets until 2000. This is not unusual. If you know anything about asset markets, returns tend to cycle over multi-decade cycles where they do nothing for the first 10-20 years, then explode for the next 10-20 years. My guess is that for the next 10+ years, returns on stocks and bonds will be very low relative to history.

To be continued...

[Winterhaze13]

The Mobility Myth

On the same day, in the business section, the paper reported that the chief executives at California's largest 100 companies took home a collective $1.1 billion in 2004, an increase of nearly 20 percent over the previous year. The paper contrasted that with the 2.9 percent raise that the average California worker saw last year.

Consider, for example, two separate eras in the lifetime of the baby-boom generation. For every additional dollar earned by the bottom 90 percent of the population between 1950 and 1970, those in the top 0.01 percent earned an additional $162. That gap has since skyrocketed. For every additional dollar earned by the bottom 90 percent between 1990 and 2002, Mr. Johnston wrote, each taxpayer in that top bracket brought in an extra $18,000.

"Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000. Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000."

[Toro]

(If you don't know what Keynesian is take a course like I did),

You took a course?

I know a little about various strains of economic thought as well as economic history.

[cybercoma]

This is going to be a brutal KO.

[Winterhaze13]

As countries around the world have been throwing off the shackles of state-domination to make themselves and their populations richer - in particular, in Asia - and grow their economies.

Asia is only better off because of international investment and not any liberal reforms of any kind. Many countries have tried liberal reforms but they don't work most of the time.

First, understand that the author of this thread is merely setting up a straw man.  There is no pure capitalist society in the world.  In the west, all economies are mixed economies.  The only difference is degree. 

If it was a pure capitalist economy that would set the stage for a communist revolution.

To paraphrase Churchill, its the worst, except for all the others.  Socialism inflicts harm on society by squelching growth and removing freedom.

And? Churchill was a conservative, obviously he'll think like that. Albert Einstein said that socialism was the way to go.

Incorrect.  The author himself says that

Where does he say that. Also, FYI the author is me.

So clearly, it is generating real income growth.  It has, however, not generated enough.  But that's a much different argument than its not generating any at all.

But my point is that most of the wealth is allocated to a small minority and taht isn't fair.

Since 1980, German real growth, adjusted for purchasing power parity and applying a constant currency, was 2.2%.  However, since 1990, it has been -0.6%, as it has been in France.  Thus, over those 13 years from 1990-2003, GDP has fallen 7.5%.  Now I don't know if low-income earners grew much faster than the rest of the economy, but assuming that wages grew at the same rate of the economy as a whole, and the "fairer" European model assured that low wage earners kept pace with high wage-earners, even if low wage-earners in the US so 0% real wage growth, they did better than Europe.  In socialist paradise Sweden, growth fell 2.4% annualized.  Thus, using the same assumptions, low wage-earners in America would have been 27% better than Swedish low wage-earners from 1990 to 2003.

What is your point? Those country's problems are capitalist related like outsourcing and also the fact that low population growth leads to economic stagnation because today most economic growth is achieved through immigration and hence the income levels are stagnate.

Now I have to go do some work.

[B. Max]

That's another essay I've written but now let's discuss capitalism on it's own merits.

<{POST_SNAPBACK}>

created more wealth and put it hands of more people than any other system ever invented, the only crisis in capitalism depends on the degree to which it is infected by socialism and the laws of plunder. Therefore the two can not be disconnected.

<{POST_SNAPBACK}>

Capitalism is socialism for the rich

.

No it is not.

Capitalism has created alot of wealth but what else has it done or would that wealth even be created under any other system.

It is not suppose to do anything else, and no.

But what is clear, as you acknowledged is that capitalism has some serious systemic flaws and need to be addressed.

Yes, lower taxes and smaller government.

Also, under the socialist-oriented system

of keynesian the economy worked better because it was more pro-worker.

<{POST_SNAPBACK}>

That is system of low productivity and higher costs, and a lower standard of living.

[Winterhaze13]

That is system of low productivity and higher costs, and a lower standard of living.

No, what you are describing is capitalism everywhere but North America, Japan and western Europe.

[Winterhaze13]

10 Points on Capitalism

1. Capitalism is elitist in that it creates a new aristocracy based in capital accumulation that makes up the ruling class in a democracy.

2. Capitalism exploits the disadvantaged in society by paying the most needy less, in order to boost profits. As a result, many of the disadvantaged are left behind in society, creating apathy. Inc. Single mothers, immigrants, ext.

3. Capitalism is incompatible with democracy in the sense that capitalism is competitive while democracy should be cooperative.

4. Capitalism creates conflict in society by pinning citizens against one another in the pursuit for capital.

5. Capitalism creates powerful multi-national corporations that often act out of self interest and never out of the common good of society. Corporations don’t support social justice.

6. Corporations have come to influence and even dictate state policy while preventing equality and social justice that conflicts with their economic interests. Capitalism keeps democracy from reaching its full potential.

7. In capitalism the employer pays their workers the lowest possible wage in order to maximize profit. In doing so, they prevent the economic welfare of their workers. Also, they do not promote equal pay for equal work.

8. Capitalism creates a discrepancy in wealth. In the United States, the wealthiest 20% possess almost half the wealth, while the poorest 20% possess roughly 5%. Source: World Bank

9. Capitalism does not permit universal education and therefore prevents social equality. It has created a money-driven society where the best education is available only to the wealthy because of inflating tuition costs.

10. Most politicians are wealthy and have business links when going into politics. As a result, this prevents them from acting out of the best interests of their constituents. Instead, they protect business interests in hopes that major corporations will fund their campaign.

[Toro]

Now we have a escalation of debt, income stagnation and a greater discrepency in wealth. You can find out of info on that in my essay. The U.S. might have a slighter better economic performance because it's more economically liberal but as you can see, most of the wealth belongs to a very small minority. That is not progress at all. Canada is closer to the European model and hence our society is better off.

Income is not stagnating. Personal income in the United States was $10.228 trillion at the end of the second quarter, up from $9.614 billion at the end of the second quarter last year. That's 6.4%. Its risen 11.5% since the end of 2003. Europe can only dream of that type of "stagnation". And its not going to "a very small minority".

http://www.bea.doc.gov/bea/newsrel/pinewsrelease.htm

The French have a term for our economic structure. They call it the Anglo-American model. Its used in a derogatory manner by many in Europe. Canada, as well as Australia, can be classified in the Anglo-American model. Canada, does not have 35 hour work weeks. Canada does not give its employees 7 weeks off a year. Canada does not make it difficult to fire employees. Etc., etc. Canada does have a more generous social safety net, but Canada is closer to America and the UK than it is to France, Germany or Sweden. Canada likes to think its more like Europe since it helps differentiate Canadian identity from the US. But in reality, Canada is an (North) American nation. Thank heavens.

[Guest eureka]

Once again, Toro, you are misusing the German example. Your time frame covers the peiod of integration of East into West Germany, as I said in the other thread. erman growth in GDP is estimated to be 1.3% this year and better next year.

The lower income Americans have experienced a decline in their real incomes for years now. As have Canadians but not nearly so sharp. I have not looked up the figures, but it is so.

Higher income Americans of that top 1% are not those who are clipping coupons - though there also your reasoning is not entirely accurate since bondholders can hold to maturity, and barring very long term high inflatio will not lose so very much. The top 1% are the large shareholders and owners and the executives of large corporations whose incomes are obscene and greatly increased.

And China has shaken off "state domination?"

[Toro]

Asia is only better off because of international investment and not any liberal reforms of any kind. Many countries have tried liberal reforms but they don't work most of the time.

If you truly believe that, you might want to take more than a course on Keynesianism. Try studying England from 1700-1900, Holland in the 18th century, Japan from 1870-1910. Then study Argentina from 1900-1930, and what has happened since. The richest countries in the world got that way through the market price system where capital was allocated based on return, not because of any notion of "social justice."

But my point is that most of the wealth is allocated to a small minority and that isn't fair.

No, not "most" of the wealth. A great deal of the wealth is. But that's always the way it has been in America since the beginning of its existence. Yet, America is now the richest, most powerful nation in the world. See a connection?

I don't necessarily disagree that America should invest more in the poor. But that's a far, far cry from saying that "capitalism is in crisis". No one with an understanding of economic history could possibly believe this.

What is your point? Those country's problems are capitalist related like outsourcing and also the fact that low population growth leads to economic stagnation because today most economic growth is achieved through immigration and hence the income levels are stagnate.

Funny though that there has been more outsourcing in America than Europe - America has lost a greater percentage of manufacturing jobs than Europe has - yet economic growth has been higher in America. See a connection?

[Toro]

Once again, Toro, you are misusing the German example. Your time frame covers the peiod of integration of East into West Germany, as I said in the other thread. erman growth in GDP is estimated to be 1.3% this year and better next year.

But eureka, 1.3% isn't good. America is expected to grow 3.5% this year and 3% next.

Its funny though that during the time period of east German integration, Germany grew at the same rate as France and faster than Sweden. Surely you're not going to blame the integration of east Germany on slow growth rates in France and Sweden now, are you?

[Toro]

10 Misconceptions on Capitalism

Fixed it for you.

[Riverwind]

Funny though that there has been more outsourcing in America than Europe - America has lost a greater percentage of manufacturing jobs than Europe has - yet economic growth has been higher in America.  See a connection?

Toro, how much of US growth can be attributed to an extremely lax montetary policy (i.e. high gov't spending/low interest rates)? The US is a unique country because the US dollar's status as a reserve currency has allowed the US gov't to get away with policies that no other nation would be able to get away with. It seems to me that it is difficult to draw conclusions based simply on the different growth rates.

[Toro]

Okay, more rebuttals

This has created a two-tier society consisting of the capitalist kings who roam in their palaces and honest-hard working people who often live in slums and working class neighbourhoods that don’t have the best schools and have higher crime rates as compared to wealthy neighbourhood.

You are portraying society as "two-tier", as if the few "kings" are living off of "honest-hard working people who often live in slums". That's about as bad of a stereotype as assuming that all Canadians live in igloos and take dog-sleds to work. The vast majority of Americans, Canadians and everyone else in the West is middle-class.

Therefore, if capitalism is socialism for the rich, then what we need is socialism for the poor.

This makes absolutely no sense whatsoever.

To be continued...

[Toro]

Toro, how much of US growth can be attributed to an extremely lax montetary policy (i.e. high gov't spending/low interest rates)? The US is a unique country because the US dollar's status as a reserve currency has allowed the US gov't to get away with policies that no other nation would be able to get away with. It seems to me that it is difficult to draw conclusions based simply on the different growth rates.

<{POST_SNAPBACK}>

You make a very good point Sparhawk. The last couple of years has seen extraordinary accomodation, both in monetary and fiscal terms (of which, professionally, I am somewhat critical). This has goosed growth over the past few years, and has almost certainly borrowed from the future.

But its also important to point out that this extraordinary accomodation has boosted growth elsewhere as well. This accomodation was followed most other places in the world, especially in China, which directly benefits Canada as Chinese growth has pushed raw materials to all-time highs. It has benefited Europe as well. Currently, 10 year German bunds are yielding nearly a full percent lower than America. If it had not happened, then growth would have been lower everywhere, including Canada, Europe and Asia.

Also, what has happened in America under Bush demonstates how silly this thread is. Keynes argued that in times economic slowdown, government should use fiscal and monetary policy to lift the economy, and tighten policy when growth is strong to avoid inflation. This is exactly what the Bush administration did. The difference between Bush's policies and traditional Keynesianism is that America's policy relied more on consumer demand as opposed to government. Non-defense discretionary spending grew at rates under Bush you never saw under Slick Willie, but the strategy was depenedent on the consumer.

As for the US dollar, the US derives a benefit in that the dollar's status as the global reserve currency since it lowers interest rates. How low is really unknown, though some economists who've looked at this think it may add an incremental 0.25% or so to growth. But its very important to understand that one of the reasons why the dollar is the global reserve currency - an estimated 65% of global reserves are in dollars - is because of the structure of the US economy.

[Toro]

And China has shaken off "state domination?"

Incrementally, yes. China allows its citizens to get rich. It didn't under communism. The government still owns some huge, dinosaur state-owned companies that are unprofitable. But one of the reasons why they have gunned growth is to absorb the workers these state-owned corporations lay off workers and restructure for eventual privatization. Plus, foreign investment is flowing into the country, which it did not under communism.