Wednesday, August 24, 2011

Capitalism vrs. Socialism: Conclusion

The history of the United State has proven at least one thing to the world. That over time, capitalism is the most effective economic engine devised by man. Many people today dispute the morality of this system. However, it cannot be denied that capitalism was and is the source of America’s economic strength. The largest and most innovative economy ever built.

In order to thrive, capitalism needs resource investment. In general, the source of this capital is profit gained from economic activity. Over time, the re-investment of capital builds up an infrastructure that allows for extra resources to be diverted into longer-term research and development. The ‘miracle of compound interest’ then begins to be fully felt on a national level. The United States has been past this stage for well over a century. Many of the problems of today can be seen to be because we are tapping much of the lifeblood of our economy, capital.

Through taxation, capital that would be re-invested in the economy is diverted into other projects. Many argue that this is desirable. It also makes sense that a certain amount or percentage of capital could be ‘withdrawn’ without damaging the effectiveness of the system. (I believe that the United States passed this point a long time ago.) Once again, many argue that government can allocate the national resources better and more ‘fairly’. Despite this, it cannot be denied that the withdrawal of capital from the system makes it function less effectively. The argument goes that these resources will be allocated more effectively and ‘fairly’ than if the resources were left in the private sector. This argument has been and is becoming the dominant one today.

The reallocation of wealth by government means that people who did not earn the resources through productive economic activity get to enjoy the benefits as if they did. Who in this group would not vote for this? It is human nature. However, this does not reward someone for hard work and sacrifice. It penalizes them and rewards those who are the privileged that get to receive the benefits. It can be argued that those who receive these resources get them because of subjective measurements that override the objective measurement of individual effort. This is counter to the economic principals upon which the United States was founded. I believe that this is becoming a minority viewpoint. We are addicted to spending.

“Once a population realizes that it can vote itself entitlement, fiscal responsibility becomes impossible.” This is precisely where the United States is today. Those who recognize the financial trouble that the United States has today are many of those who believe in capitalism. Those who deny the severity of the fiscal problems we face today are generally those who believe that the government can allocate the resources of the nation better than if privately owned. The present impasse that we are seeing in our government today is a very good indication of how well this view is entrenched. The idea of a nation spending it’s way out of recession or depression has been accepted and implemented since the 1930’s. Not completely, but the debt of our nation demonstrates that it has been implemented fairly consistently for many decades. The amount of capital available for private investment (in relation to GDP) has fallen dramatically and this is really beginning to have a detrimental impact. The capitalist system must feed upon itself in order to survive. Like a starving person. Just wait until Health Care kicks in. Just under a 5th of the economy of the private sector will then begin to be managed by the government. It will take years, but the process can easily be irreversible. Government develops plans and ideas. Not ‘miracles’ of capital reinvestment. The instability of the markets today is a very real indicator of what we can expect in a worsening situation.

These ‘crises’ are real. It can only be a matter of time before one of these sets off a chain of events that cause major disruption. Economic downturns happen every so often and severe ones occur less often. It has been a long time since the last BIG one. A capitalist economy can react effectively and more quickly than a socialist economy. After all, when you have ‘skin in the game’ you will react to events more readily than if you do not. Unless the United States implements fundamental CHANGE, we can expect the situation to continue to get worse until a major event triggers events beyond anyone’s control.

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