An unpopular opinion on capitalism

It surprises me that people still believe capitalism has caused people to become poorer than ever in history. The opposite is true. Pre-capitalism we had a system of feudal lords and serfs. Serfs performed self-sustenance labor, which would look like farming to provide just enough food for themselves. There was little technological innovation because there was no competition to incentivize it. Serfs were paid by getting to live on their land and having a house. They still had to pay rent and when they did get money from their lords, it was salt or small pieces of gold OR none at all. (Source)

Everybody was poor and poorer than the world since capitalism.

Do people who are anti-capitalism want to return to that pre-capitalist society? Certainly serfs were poorer than our poorest of today.

Other benefits of capitalism

Life expectancy has risen to the highest point in history.

LifeExpectancy

Child mortality has decreased.

InfantMortalityRate

(Source)

Prevalence of diseases have gone down.

DiseaseVaccine

(Source)

Literacy rates have gone up.

LiteracyRate

Fertility rates have gone down.

FertilityRate

Child labor has gone down because parents didn’t need to rely on their kids working in order to live, they could send them to school instead.

Global poverty has gone down historically

GlobalPovertyRateHistorical

Nobel Prize–winning economist Michael Spence writes, “The massive changes in the global economy since World War II have had overwhelmingly positive effects. Hundreds of millions of people in the developing world have escaped poverty, and more will in the future.” (Source)

 

Comparative Advantage

Say, the US is good at exporting cell phones, and Argentina is good at producing bananas year round. We COULD just keep cell phone sales and manufacturing in the US and Argentina could keep bananas only in Argentina. But if we trade with each other, both countries can have cell phones AND bananas for cheaper than if Argentina produced cell phones and the US tried to produce bananas. (Source)


And people come to the US to work and they send money back home to their families. These families spend their money in their home country which creates demand for more jobs because they’re buying more “stuff” and the labor is needed to keep up with the demand for “stuff”.
Here’s an example of comparative advantage visualized.
ComparativeAdvantage
PPF stands for, “production possibilities frontier” or, how much of one good or service could possibly be produced in country, person, business, etc.
When Mary and Tom produce what they’re both best at and trade, they can have more of those goods than if they had produced both of those goods by themselves.
Here’s the counter-intuitive part, how you calculate that is by what is given up, or opportunity cost. That is the key phrase. What is given up. So Mary might be great at producing grapes AND nuts (absolute advantage), but if she farms out the work to Tom, who is not as good at producing either, but Mary is slightly better at producing more grapes, Tom should produce nuts. That way, Mary can devote more time to producing what she is most efficient at, and they both get the most efficient production of grapes and nuts.
This ends up giving them both more leisure time because they’re not stuck producing the products they are least efficient at producing as well.
A hard question to consider is, “is it more ‘moral’ for me to protect my own country’s jobs and wages than a country that needs the the job and higher wages more than me?”
For me, I feel that if someone in my country loses their job and it goes to someone less well off overseas, I think the person who lost their job will probably have a much easier time finding another good job in America than someone who previously worked in a sweatshop for pennies abroad.
Important questions to ask ourselves is, “should employers be required to give me a job? Am I entitled to a job?”
I’d argue no for the same reason that YOU should not be required to give someone a job, so why should it be different for someone else? Because they’re not you? I think people feel a disconnect from businesses and are jaded. I think people don’t know that 99.7% of American businesses are small businesses with under 500 employees. 80% of businesses don’t have employees at all. 50% of business are home-based. And that the median income of a small business is middle class: $59,244.
Median means this: imagine a scatterplot where each dot is a data point of income. For this example, imagine there’s a lot of dots in the middle of the graph, but a few dots at the very bottom, and a few dots at the very top. An average would count these very high and very low incomes and skew the results so it looks like the majority of people are making more or less than they actually are. Median takes into account where the majority of the data points are, regardless of the very high and very low, rarer data points.
Here’s a visualization.
Scatterplot
Just because you own a business, doesn’t mean you’re wealthy
I think people imagine every business is making a huge amount of profit (which they’re not), and they’re all fat cat wall street CEOs looking to take advantage of poor people by paying them slave wages. A cartoon character.
It’s no surprise people think that though. It’s everywhere in the media. Leading me to think people pick up information subconsciously and just become brainwashed by seeing the same type of images over and over, until it feels like it must be true. Just doing a simple google images search for “CEO cartoon,” almost all the images that came up where exactly the same as this:
PoliticalCartoon
I am sure that there unethical people running businesses. But I also believe there are unethical people in general, in the world, and probably not any more or less in the business world, which some people seem to believe there is. This study suggests that people in social positions of power tend to act less ethically when offered an incentive.
Max Weber, a famous economist and sociologist, defines social power as, “the ability to achieve goals even if other people oppose those goals. All societies are built on some form of power, and this power typically resides within the government; however, some governments in the world exercise their power through force, which is not legitimate.” (Source)
I’d argue all governments exercise their power through force because they have the power to police the people with violence legally. For example, it’s legal for the government to arrest the people, use guns on them, and put the people in jail. But it’s illegal for me to arrest people, use guns on them, and put them in jail.
There is citizens arrest in the U.S., but they are not offered the same legal protections as police, and I doubt anyone even knows about it anymore. Apparently, people have tried to do citizen’s arrest on Donald Rumsfield for war crimes, but to no avail.
We have competition for labor.
Employers compete for employees. Imagine a business said they would pay $1 per hour for someone to work for them. They probably wouldn’t get very many applications. If they did, those workers probably wouldn’t have much incentive to do a good job either.
But imagine now that the same employer decided to pay $100 per hour. They’d probably get more applications than the person offering to pay $1 per hour because there’s competition for workers. The higher they pay, the more likely they are to get workers who want to do a good job than the $1/hr employer. Wages and labor are not a zero sum game. There isn’t a fix amount of currency in the world. There’s not a fixed amount of labor in the world either. Real life doesn’t work like the game monopoly.
Wages have gone down over time… due to inflation
WageInflation
Globalization only accounts for 5-15% of rising income inequality. Blame technology.
“Lawrence Katz estimates that trade has only accounted for 5-15% of rising income inequality. Robert Lawrence argues that technological innovation and automation has meant that low-skilled jobs have been replaced by machine labor in wealthier nations, and that wealthier countries no longer have significant numbers of low-skilled manufacturing workers that could be affected by competition from poor countries.” (Source)
I have a hypothesis that developed countries are becoming highly specialized, highly educated, and technologically advanced economies. I also hypothesize that we will see more and more manufacturing jobs shipped overseas, where less skilled workers preside. I think the wages in these developing countries will continue to rise but the only information I could find only goes back to 1990.
ManufacturingJobs
WagesManufacturing
Am I entitled to your wages?
I think a lot of people feel they deserve someone’s wages who earns more than they do, but that nobody deserves THEIR hard earned wages. I find that hypocritical. I don’t believe the “I don’t care as long as someone else is getting punished and not me.” I think people vote for laws this way. They think well, this law won’t effect me, so I’ll vote for it. Once a politician says he’s going to raise taxes, people think that means raise taxes ON THEM, and suddenly there’s a backlash.
Again, I think it’s because people have a villainous view of people who make more money than them. They’re richer, so they must be greedy. They must have a mustache they rub as they devise ways to steal from the poor and give to the rich.
Greed
Again, that’s a cartoon character.
I don’t feel entitled to another person’s income just as much as I don’t feel others are entitled to mine. I do give my income to people less well off than me, but I want to do it voluntarily, just like you. I want to contribute to causes I believe are most important and I want you to give to causes you find most important, even if they’re different from mine.
Is the government entitled to 51.6% of of YOUR income?
The wealthiest people in the U.S. pay an estimated 51.6% of their income in taxes alone. Would YOU want 51.6% of your income taxed? If the median income in the U.S. is $52,000, that means your real income would be about $25,168. Would consider moving to a country where you get to keep the fruits of your labor, moving money out of the country that could go into the U.S. economy, creating more demand for goods and services, and in return, creating more demand for employees to meet the new demand, creating more jobs?
The rich pay 51.6% of the total taxes collected already. Rich meaning making over $250,000 annually.
IncomeTaxesRich
Again, I think people have a caricature of the wealthy as greedy for not giving more than 51.6% of their income. Would YOU think you were greedy for not giving away over 51.6% of your income? Again, such hypocrisy is hard to justify.
But the good news is when wealthy people move to other countries with lower tax rates, typically those countries are looking to attract the capital they have. This puts more money into their GDP, which increases the incomes of their citizens. Citizens possibly less well off than we are here in the U.S. I disagree with the feeling people have that we need to protect our own rather than those who need it more than us. I find it protectionist and xenophobic.
Current statistical inequality measures
That would be the Gini coefficient index. It is an index that rates the inequality of income in the world.
Basically, in countries that tax their wealthier citizens more, they give that money to those who make less, reducing income inequality.
Well duh.
Of course that’s what happens. But the real question to ask is…
Should everyone make the same exact amount? And what would happen if they did?
Imagine we taxed the wealthy their income so that everybody in the country made $100,000 a year (currently we make a median of $50,000 a year, or, middle class salary).
What would happen?

There wouldn’t be an incentive, after a certain amount of income, to work hard. Technological innovation would slow down, which would result in slower economic growth. Educational attainment would go down because you would get paid the same whether you had the education or not. If you were a highly skilled worker that had a significant amount of education, but you were making the same as if you were working a low skilled, no education job, you wouldn’t have an incentive to work as hard as someone working the low skilled job. And why would you? For the greater good? That’s unlikely.

Also, if everyone was making the same amount, tax revenue would go down and as a result, incomes would go down. Prices would go up to match the income people were making, just as it does now.

Does globalization cause income inequality?

In developed countries, yes. In developing countries, possibly not.

“There was a steady increase in global income inequality Gini score from 1820 to 2002, with a significant increase between 1980 and 2002. This trend appears to have peaked and begun a reversal with rapid economic growth in emerging economies, particularly in the large populations of BRIC countries.” (Source)

So again, we come back to incomes rising overall in the poorer countries, and going down in the wealthier countries, which sounds like redistribution of wealth to me. The wealth IS going down to the poor but not in the U.S., it’s happening all over the global, on a wider scope than just 1 country.

Should everybody earn an award for participation?

Is it ok morally if there are some winners and some losers in life? Is it ok if there are some winners and some losers in an economy then?

As far as participation trophies go, there’s a term for that in psychology: the overjustification effect. People are less happy when they are given something like a trophy or money for something they enjoy doing.

Does everybody deserve an equal amount of money? Even if it makes everyone poorer in the end when prices reach equilibrium?

I argue that a perfectly egalitarian society is less desirable than an unequal one. Of course, I would love to live in a world where everybody wins. But there isn’t a perfect solution where everybody wins and everybody’s rich.

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