# Problems with Capitalism?

1. Apr 8, 2015

### AlephNumbers

PursuingAmericanDreampdf.pdf

I think that in a country where a CEO is going to make 250 times the wages of the lowest paid worker in their company, I think that, ideally, the lowest paid worker should have a better chance at being able to "pick themselves up by the bootstraps" and get to the top. I am sorry that I cannot specify exactly how much better I think mobility should be. None the less, I find it alarming that the US has one of the largest income gaps and one of the lower job mobilities.

200705 (1).pdf

I found those papers on the internet. I am assuming since they were uploaded to public domain I can post them here. Obviously, I didn't write them. They seem to support my assertions.

Forget that I ever mentioned socio-economic mobility. I just meant that if the US is going to allow the CEO's of corporations to donate as much of their money as they want to whichever political candidate will allow them to make more money, then it should at least not be so difficult for people in lower income brackets to get to higher income brackets so that they can actually have some political sway.

I think a good way to combat this would be to have publicly funded elections. Or, at the very least, a significantly lower limit on how much an individual or corporation/organization can donate to a political candidate.

If you think that I just want everyone to be equally rich, you either did not read all of my comment, or you did not think about anything I wrote. I will now elaborate upon what I meant by "equality". I think that every individual that is governed by a government should have about the same amount of political influence. I do not think that everyone should have an equal amount of money. I hope that is clear.

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2. Apr 8, 2015

### AlephNumbers

When I say publicly funded elections, I mean that I think that the government should give each candidate a certain amount of money for the candidate to use to run for office.

3. Apr 8, 2015

Staff Emeritus
Every measure of mobility I have seen has involved percentiles (possibly aggregated into larger units like deciles or quintiles). Such a measure, by construction, has as much downward motion as upward motion - it's not that motion can go in both directions, it's that by definition it must.

4. Apr 8, 2015

### AlephNumbers

I was fully aware of that. Russ, I do not appreciate it when people unwarrantedly assume that I have no knowledge of what I write about. In fact, I find it quite insulting.

5. Apr 8, 2015

### AlephNumbers

Actually, I'm really not insulted at all. I just felt like I had to defend myself against that blanket statement. I want this discussion to continue, with or without me.

6. Apr 8, 2015

### Staff: Mentor

Check who you were responding to. Also recognize that this is not just a 2 or 3 person conversation: for example, my reply to V50's post was not really meant for him, it was meant for everyone. So to, with his.

And, when in doubt, I think it is better to say the obvious than to assume people know it, particularly in a thread like this, where so many have wrong assumptions. And while not saying the obvious assumes people know, saying the obvious is a matter of protection: don't assume the person is suggesting you don't know.

 And to be frank, I find your and many others' thought processes here to be underdeveloped/disorganized. People have a lot of gut feelings and perceptions on these issues, many of which are actually wrong or off point. That's part of the reason I state the obvious: because it apparently isn't.

7. Apr 8, 2015

### Siv

I thought I was being pretty clear ... but maybe not.
Its what they call research. But its not "genuine" research. Its what will support the most expensive concoction and will give them more profit. If there is a cheaper but more effective alternative, they just ignore it. They are not bothered about genuine solutions to the problem but what will give them the most short-term profit !

There are numerous cases of drugs being falsely approved based on made up evidence or ignoring and suppressing evidence that contradicts what the pharma industry want.

And the food industry propaganda is of course, well known and horrendous ...
Using HFCS and all sorts of crap in the processed food, and only bothering about making it more tasty and addictive and totally ignoring any medium or long term effects on the human body. I could go on and on .... people blame science for this, but this is not science, this is capitalism !

8. Apr 8, 2015

### Staff: Mentor

Anyway, some good information and points were posted in the past hour that require some effort to respond to, so I'll get back to this later.

9. Apr 8, 2015

### lavinia

While technically any desire for money could be called a profit motive, common usage often applies to corporations whose mantra is to maximize the wealth of their shareholders. This is hardly the same as going to your job to put food on the table.

Since there has been talk about the profit motive abuses of drug companies in this thread, I asked a physician friend his opinion. He forwarded this abstract of a paper on drug company abuses. Note the use of the term "profit-motive." The authors are not using it to to mean the desire of corporate executives to support their families.

http://www.ncbi.nlm.nih.gov/pubmed/17970244

Profit to me is what is left over after the inputs of production are paid for.

I think that to say that in some cases short term gain trumps long term vision, while again technically true, disregards the collapse of our economy after the crash of the real estate bubble. This involved much of the financial industry, much of the real estate industry from construction to house sales, many personal portfolios, and much more. It had a global effect that is still being felt. A decade of super easy monetary policy is testimony. Many people knew that the bubble would pop. But the short term profits were too great to resist. So how is this national disaster fairly described as ""in some cases"?

Last edited: Apr 8, 2015
10. Apr 8, 2015

### mheslep

The history of human nature and violence being what it is long before wide spread free markets, I think it unwise to much restrict them and thus encourage more bad aspects of human nature.

For me, any experience with or observation of, say, small business operation indicates this is trivially the case. Human flaws are present there too (exploitation, theft), but overwhelmingly the minimum requirement of those interacting with the public is a polite and fair treatment of the customer, *any* customer, regardless of the tribe of their ancestors. To see the opposite approach visit any division of motor vehicles, loaded with would be Napoleons.

11. Apr 8, 2015

### mheslep

Indeed. From EPA emissions trends (http://www.epa.gov/ttn/chief/trends/trends98/trends98.pdf [Broken], 1900 through 1998:

Particulate matter, down to 23% of its peak in ~1950 (well before the Clean Air Act).
Sulfur dioxide, down to 63% of 1973 peak
Volatile Organic Matter, down to 56% of 1970 peak.
Lead emissions, down to ~4% of 1975 peak.
Nitrogen oxide was harder to bring down in that period, but increases stopped and emissions stabilized by 1980. ​

All of these sources have continued to decline since 2000.

Last edited by a moderator: May 7, 2017
12. Apr 8, 2015

### lavinia

Even hard line free marketers now agree that the last two decades of deregulated markets have been a disaster. Speculation and lax regulation combined with high levels of leverage have proven to be a recipe for collapse. So why do you think the free market is so good when it has wreaked havoc upon all of us?

13. Apr 8, 2015

### mheslep

Then it should be easy to name one, please. While some regulation is prudent, what we have is a nearly monolithic increase in regulation of all kinds and it is this that is hardcore, is the disaster, is wreaking havoc on the those with the least resources.

Pages in the federal registry.
Number of US small banks
Number of Americans 2015 with no full time job, all ages: 200 million.
Number of Americans 2015 with no full time job, age 15-64: 83 million.

Last edited: Apr 8, 2015
14. Apr 8, 2015

### Staff: Mentor

Because capitalism created essentially all of the economic success the world has ever seen. It is the only system proven to work. Don't make the mistake that all capitalists support a "pure" form of capitalism, just like most modern socialists done actually support zero private ownership. Also, over the long-term, regulation has been increasing not decreasing. This isn't the 1880s or even the 1920s.

Also, you drew your timeframe much too wide: 20 years ago was 1995, and from 1995 to 2000, the economy grew rapidly. Yes, there were the starts of two bubbles happening then, but much of the gains were real. IE, there was a tech bubble, but there also was real growth in the tech sector.

15. Apr 8, 2015

### Siv

Human nature certainly existed from when humans existed ...
But my point was slightly different.

There are several horrible aspects of human nature which should be discouraged and, if possible, eliminated. Especially our tendency to value selfish short term gain over long term benefits/gain to all of humanity or the world. Capitalism does just the opposite. It glorifies this selfish aspect of human nature.

Civilisation is all about curbing the bad aspects of human nature and encouraging its good aspects with rational benchmarks (as opposed to religious ones).

16. Apr 8, 2015

### Staff: Mentor

If you are going to make-up your own words/definitions, you can't expect me to understand what you mean unless you explain the definition. The concept of R&D is common, well defined and quantified in economic analysis:
http://www.census.gov/compendia/statab/cats/science_technology/expenditures_research_development.html [Broken]

What you are calling "genuine research" is apparently some social agenda that doesn't directly have anything to do with R&D.

And we're getting off track here. Let's go back to that previous statement:
The computer, internet and forum you are posting on right now directly contradict your claim/understanding. The companies that made that happen invested enormous amounts of money in R&D, reaped enormous profits and created enormous benefit for humanity, which you are now enjoying by posting on PF.
There are frauds and thiefs in all levels of society. They are not unique to the rich or to corporations and they are not inherrent to the existence of any level of society. They have no bearing on this conversation.

Last edited by a moderator: May 7, 2017
17. Apr 8, 2015

### Staff: Mentor

No. The reason capitalism works and no other system has is that it recognizes that human nature is - by definition - inherrent to humans and can't be changed. So rather than trying and failing to change human nature (see: communism/socialism), capitalism harnesses certain aspects of human nature to create personal and societal good.

18. Apr 8, 2015

### Staff: Mentor

I'm going to respond to this in two parts:
So this is a very interesting article; both the facts and the social commentary/opinion injected into it. While I would tend to agree with V50 that most mobility discussions focus on only half of the mobility, using a measure of relative mobility, this study measures both absolute and relative mobility, which is surprising/great.

Absolute mobility gives the simplest/clearest picture: the vast majority of people do better than their parents. And, in fact, the poor are more likely to exceed the success of their parents than the rich. That shouldn't be surprising, since the lower you are, the more room there is for growth. To me, these are very positive outcomes. Doing better than your parents is my understanding of what "the American Dream" means to most people, and the vast majority of people -- and virtually all of the poor do.

Relative mobility is where it becomes murky and the wording of the analysis is telling about the social commentary motivating it (nevertheless, the facts are what they are):
Pessimistic outlook on a by-definition neutral situation (half is half).
Of course: that's what Hollywood is for. Also note, the word "only". It's a very long way from the bottom to the top.
Wait, that's not the mirror-image stat: the mirror would be the fraction that fall all the way to the bottom. And if we follow a single person in isolation, if that person rises from the bottom to the top, that means everyone else drops a spot in the overall distribution, or 1 person drops one level from each quintile. It's an exact balance.
Well, getting stuck at the bottom is a bad thing while getting stuck at the top is a good thing, right? If one person rising 4 levels causes 4 people to fall 1 level, is that a net positive or negative? (Trick question: it is exactly neutral)
So....wait, is that good or bad? As V50 said and I expanded above, by definition, the relative distribution is static: it can't change at all, much less change for the better or worse. If some people move up the ladder, an equal number must drop, by an equal amount (net). This is the flaw in trying to assess mobility in relative terms, to show economic progress/development. If you have fallen down a rung, but are still better off than your parents, that's still an improvement in standard of living. Indeed, the use of the cliche' "falling despite the rising tide" is a wrong twisting of the actual cliche' "a rising tide lifts all ships". The data shows that a rising tide does lift at least the vast majority of ships. A tide is a measure of height against a fixed baseline, so applied here, what matters to the analogy is the absolute, not the relative. It should say something like "rising despite dropping back a rung". That's the negative social commentary spin on the data, but in this case you really can't say the glass is "half-empty" because the statistics say it is more than half full.

Indeed, the other article uses the exact same analogy, but uses it correctly.

If you look at the chart, they list "falling despite the rising tide" as higher income but dropping a quintile in the distribution. As I said before, that's wrong. But what the chart does tell is is that only 16% of all families and only 7% of the bottom quintile experience downward absolute mobility. The vast majority (as said before) experience upwards absolute mobility. And again: the average relative upward mobility must exactly equal zero.

All-in-all, I don't see a lot of problems here. The absolute mobility is positive (is it positive enough?). The highlighting and spin try to play-up negatives in data that is essentially in mandatory equilibrium by mis-matching statistics on opposite ends of the spectrum. All you need to come away with a positive outlook is to see through that: to recognize that by definition the quintiles are static (there is a net of zero change in their size), and the only data showing actual change for positive or negative* is the absolute picture.

Then, the conclusion:
Duh. By definition/design there is never any change in the net relative distribution and the absolute change is not in any way related. On average, there can't ever be "enough to move them to a different rung" because the rungs move at exactly the same rate as the average income gain!

To me, the most important and problematic piece of information in this report is the wealth mobility statistics. Half of Americans exceed their parents' wealth, which means half do worse. Given that both incomes are higher and pensions are going away and 401k's rising, you'd expect that to naturally be better. The fact that it is flat despite increases in the related inputs is a net negative. And with Social Security in jeapordy, it points to a growing problem with people not having enough saved for retirement.

There is a confusing set of stats though. In one graphic, it shows the average is 50% exceeded their parents' wealth, with more on the bottom - 72% - exceeding their parents' wealth. But then later, it says the median wealth in the bottom quintile has dropped to only a third of what it was a generation ago. These two facts seem to contradict each other. Can anyone explain that to me?

*I originally wrote that as "better or worse" instead of "positive or negative". One is a statement of mathematical fact, the other a value judgement. That is exactly what the issue of this thread is: mistaking one for the other and/or drawing a false conclusion about one based on an opinion about the other. To whit: if inequality in and of itself is "bad", then a narrowing distribution is "better" or "good", regardless of whether it results in an increase or decrease in absolute income/wealth. Most people's expectation is that rising inequality results in lower incomes at the bottom end ("the rich get richer while the poor get poorer"), but that isn't true, which is why this subject is such a problem. And the study illustrates that: the vast majority are going up in absolute terms. So if we want to be able to say things are "bad", we'll need to find another way to define "bad" and "good" that isn't tied to the math of "positive/negative" or "rising/falling". Something like "not rising fast enough is bad" or "someone rising faster than someone else is bad". Inequality is good for that because it is a derived statistic that can vary up or down. (RelativE) Mobility is not good for that because mathematically it has to be zero-sum: while the number of people going up or down can change, the sum of the up and down is always zero.

19. Apr 8, 2015

### lavinia

I don't understand what you are saying here. First of all the first crash after freeing the market was in 1987 and then in the last part of the 80's and beginning of the 90's the S&l's were completely wiped out and the economy went into recession until about 1994 and the Fed funds rate was brought down from over 9% to 3 % by 1993. in 1995 there was another mini-crash after the year of FED tightening in 1994. This sent the economy into another recession. And don't forget the tech bubble after that.

To preach free markets at this point ,in my mind is to be ideological. Much of the real advance in capitalism has occurred in highly regulated times and deregulated times have been disastrous. Or do we now forget the 1920's which also involved real estate market crashes. Or how about the collapse of the Japanese economy during the 1990's after its markets were deregulated? This lasted for over a decade despite an overnight lending rate which was nearly zero. I am not saying that capitalism is bad. I am saying that free markets as they have been increasingly implemented don't work. The data is clear.

Last edited: Apr 8, 2015
20. Apr 8, 2015

### Staff: Mentor

Agree.
Strongly agree (and this is the profit motive discussed in my earlier posts to Siv), but want to clarify that equality of opportunity refers only to government provided opportunity. Government has limited ability to control for social factors such as what parents you were born to and what region of the country you were born in and no ability (yet) to control for genetics. Because of this, it isn't possible, even in principle, for there to be full mobility between quintiles and these inhereted factors have a huge impact on the "stickyness" of the top and bottom. Everyone, of course, understands that besides their genes and upbringing, a rich parent can buy a lot of opportunities for their child that a poor parent can't.

But articles like the previous pretend that the "stickiness" at the extremes are different things, even reporting different statistics to try to describe them differently. The reality, uncomfortable as it may be, is that rich parents cause their kids to be rich - and everyone agrees that that's a good thing - but poor parents also cause their kids to be poor - and that's a bad thing. Our political climate today attempts to separate and twist those things: the rich passing on their wealth is portrayed as bad, even criminal, while the poor passing on their poverty is also the rich's fault. In my opinion, that attitude is part of the reason the "stickyness" exists.

My parents are in the top quintile and I'm in the top quintile. But they didn't just give that to me, they demanded it of me. I got punished for getting bad grades, and the thought of not going to college and getting a useful degree never even occurred to me. An ex of mine, who's parents are poor, actively discouraged her from getting an education ("you'll never make it through college -- and get someone else to drive you there....and when you fail-out, you can move back home and pay us rent."). That's anecdotal, not statistical, but that's the attitude I wish were studied more. I think it's much of the root-cause of the "stickyness" on both ends.

Why? The first article mentioned that mobility between the middle three quintiles is nearly complete: your odds of ending-up in one if you started in one are the same for each quintile. But a lot of the challenges are the same for all four lower quintiles and in particular, few people below the top quintile can get their parents to pay for much of their college education. So while those at the top can buy additional opportunities, for everyone else, the opportunities are pretty much the same. So one would think mobility would be equal across the bottom four, not just the middle three. So there must be something else about the very bottom quintile that separates it from the next three. I think a lot of that something is attitude.

Now, we come to that key point we were discussing. That US citizens have a strong belief in meritocracy and their own relative economic mobility. My previous answer pointed to a split, but your second paper confirms that, overall, you are correct. So I'll concede the point, but with what I think is a relevant goalpost shift, based on the above: I suspect that the attitude differs between different income groups: in particular, those at the bottom may not believe they have the ability to get out of the bottom. I'll look to see if the studies go into that level of detail.

The uncomfortable conclusion - opinion - resulting from this is that the lack of mobility at the very top and very bottom happens in part because of a stratification of will and skill. That would mean that the US is the "land of opportunity", but that the sword's two halves are success and failure and the US does a good job of ensuring people get the one their merrits justify.

I'm sure I'll be attacked for that, but the good news is that much of peoples' "merrits" is attitude, which is in each person's power to fix.
Fair enough. These are opinions/feelings and they don't necessarily need justification, but by the same token it is tough to use such feelings as a basis for policy because it is hard to articulate why you think others should think the same way. As we'll get to below, it is hard to even know what you want.
I agree with campaign finance reform in general. As much as any reason, because I think most marketing money is wasted because it is just money fighting money.
No, I write that as much as a poke to encourage disagreement by increasing specificity as anything else. As above, the problem I see with your position - indeed, with the current public discussion - is that it is open-ended. If you can't specify exactly what you want, then "total" equality is within the set of possible desires. Even after eliminating "total", you are still left with "almost total". If you can't say where you draw the line, there is no way for me to know either.
In terms of political influence, that is "total equality", but if we're no longer talking about income inequality at all, I guess I still have no information on what you desire for that. Anyway, while I think total equality in political influence is a lofty-sounding goal, I don't think it is reasonable/possible beyond the basic equality of everyone having one vote. Why? Because it is anti-freedom of speech. If you stand on a corner and yell your opinions, I have (and should keep) a right to use my money to buy a megaphone to drown you out with my voice. That's the reason the Citizens United decision went the way it did. It may require a Constitutional Amendment restricting freedom of speech to even go back to the laws we had a few years ago.

Now I'll make a similar vauge statement I just criticized you for: I agree that restriction is needed and don't know for sure how far I'd go. But I can say that it is nowhere near total equality. Perhaps the answer would include:
1. Limit corporate contributions by making them proportional to the number of individuals in an organization. Ie, if the individual limit is $10,000 then the corporate limit for a 100 person company would be$1 million.
2. Eliminate the concept of "soft money" contributions (and therefore the unlimited nature of them) and recognize instead that all political contribution money is spent with a specific purpose.