Capitalism is Nearly Magical

“Capitalism takes more people out of poverty than aid.  Of course we know that.”   – Bono

If you lived in a town of 100 people, and the other 99 decided that because you make the most money, you should be the one to work to provide food for all 100, would you do it? We know from research that almost no one would. Of the small percentage who would be willing, it is unlikely that their higher earning ability would be enough to provide for all 100. If the same town decided that the top 2 earners should provide for all 100, would you be willing to be one of the two? Consider a mental exercise where you decide, for yourself, at what point you would be willing to be among the earners rather than just the eaters.

Let’s try another question. At what rate of tax would you, for example, decide that it isn’t worth working overtime? If your overtime rate is $15/hour and, after taxes you took home $5/hour, would you choose to work the extra time or would you decide the extra money wasn’t worth it? What if you took home $7/hour or $9/hour? Again, give some thought to what percentage of your take home paper would provide an incentive for you to work more.

As a nation, we are about to obtain information about these points of inflection, where dynamics change. We have evolved as a society where we have unprecedented economic conditions. For example, we have the highest percentage of able-bodied males out of the workforce than at any time in recorded history. We also know that the productivity rate, which averaged about 2% increase from 1947-1970 has only increased about 0.8% annually from 1970 to the present. Most of that latter gain was attributed to the proliferation of the internet. If you think the annual difference of 1.2% sounds small, please refer back to my column on compound interest! Consequently, we have made savings and investment unavailable or unattractive meaning that many people below age 50 today won’t experience the same standard of living as their parents.

We aren’t used to think about societies this way in the United States, but human societies are relatively unstable. Historians count the duration of civilizations differently, but most of the longest enduring societies have lasted about 450 years. World powers such as the Assyrian and Roman Empires are now part of the dust bin of history. Perhaps, unknowingly, we are taking risks with our economy and society that could lead to our destruction. Sadly, it is the poorest and most disadvantaged who will suffer first, and likely the most. The last time we tried nationally to limit the size of government, allow for savings to perform its role in the economy, and offer help but not dependency was 1981-1988. The results, according to a New York Times article, were that Black Americans, for example saw their median income rise 84% while White median income rose only 68%. With government playing a larger role recently, we are experiencing the opposite. The same article reported that since June 2009 when the recession officially ended, the median income for Black families declined 10.9% compared with 3.6% for non-Hispanic Whites.

Let’s summarize the research we’ve discovered over the columns of the past several months. Debt is a corrosive enemy that nationally has become a weapon of mass destruction. The dollars we pay in interest all could have been used to pay teachers more, clean the environment, or buy more sophisticated weapons (choose your favorite government expenditure). The level of debt many individuals maintain personally, and our municipal, state, and federal governments maintain collectively on our behalf, is simply unsustainable. If something doesn’t change, our economy will collapse just as every other debt-ridden economy has. The best economic system to raise our standard of living is capitalism. It has the added benefit of best channeling human greed. The price signaling element of capitalism on the surface sounds inefficient (high hotel prices during hurricanes), but actually accomplishes the goal (boarding more hurricane evacuees) more effectively. Capitalism also best fosters human dignity. It provides for human beings to help one another, but not to the extent that develop dependencies. If we can get able-bodied people to contribute to society, restore the dignity of being creators and experiencing the consequences of our actions, live within our means, foster savings, minimize the effects of human greed, and efficiently allocate resources through market dynamics, we have a chance of increasing the quality of life we all experience, and extending the life of American civilization. Capitalism, like compound interest, is nearly magical.

Eric B. Dent, a Lumberton resident, is a business professor at Fayetteville State University.   Published September 2013

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