Monday, September 29, 2014

Sustainable Capitalism?

Capitalism will implode or evolve.  The present trend is clear...

To narrate - the above shows how the fruits of economic growth have been distributed to the bottom 90% of the populace and the upper 10% of the populace.  More and more benefits of economic growth are going to the upper 10%. Remember the idea that the rising economic tide floats all the boats? It simply isn't true. The boat of the lower 90% has a hole in it, and it was put there by the Capitalists [1].

What this graph tells us is that our Capitalism has a fatal flaw - when the government is captured the economic growth does not benefit all, but slowly directs all benefits to the privileged few.  If the extraction of profits stopped at 0%, you could make the argument that the wealthy "Makers" have a right to be the "Takers." But that isn't the case. Capitalism isn't satisfied simply with all the profits of growth to the privileged. Once all the growth goes to the privileged (2001-2007) there were two possibilities: (1) the growth rate of incomes of the upper 10% could be limited to the growth rate of the economy, or (2) the Capitalists could continue to get their expected rate of return by extracting income (not growth in income) from the middle class.  The evidence is in, and Capitalism doesn't seem to have a "stop" button.

An undeniable truth is that "something that is unsustainable will not be sustained."  There are three possibilities for our future:
  1. Capitalism evolves to allow some growth to be directed to the middle class.
  2. Capitalism continues strip income from the middle class until just before a "tipping point" that leads to revolt of the peasantry - and thereafter only extracts the rate of growth.
  3. Capitalism blithely crosses the tipping point and is dramatically modified or thrown out by the peasantry.
Personally, I believe in the power of free markets - I just don't equate free markets and our Capitalists.  I'd like to think that capitalism can evolve, but I'm worried that it depends on our plutocrats recognizing long-term costs associated with short term gains.  Our Capitalists disdain possibility 1 and think they can avoid possibility 2, which will lead inexorably to possibility 3.

You cannot get blood from a turnip.
You can get it by squeezing peasants - but it might be yours.

The chart above was produced by Pavlina Tcherneva and posted online by Christopher Ingraham

[1] Here let's distinguish between "Capitalists" of our present system and "capitalism" as a theory of organizing economic activity so that business owners and investors are rewarded/punished depending on how well they invest and encourage economic activity. Our system rewards Capitalists whether or not they invest soundly, and refuses to punish those who either invest stupidly (bankers) or break the law (oh yeah, bankers again).