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Capitalism Doesn’t Build Wealth

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There are some huge misconceptions when it comes to capitalism.  We are seeing it play out in the responses to the protests in Cuba.  The far-left says government failure in Cuba it’s because the US didn’t trade with Cuba.  They ignore that at least 151 other countries did trade with Cuba.  By the way, the US sends $3 billion in remittances to Cuba each year.  That “Cuba failed because of the US” excuse doesn’t hunt.

Cuba is a shitty place to live.  No one “emigrates” there.   I notice no one from the US has taken up Senator Rubio’s offer.

I have seen leftists post photos of slums in American cities that echo the slums that exist all over Cuba trying to say that just because you have capitalism doesn’t mean you avoid having slums.  Some people think that capitalism changes the incentives of people getting them to focus on the short term over the long term.  Somehow, central planners only look at the long term because the long term isn’t profitable and the short term is right?

All the statements, focus, framing, and ideas expressed in the failure of capitalism are a failure to understand what capitalism really is.  Our current administration rejects capitalism.   No surprise given the state of our public education system.

Capitalism is a capital allocation mechanism.  Period.  The less constraint you put on capitalism, the better the capital is allocated.  A single person, entity, or central planning committee cannot do it as well.  Capital flows to the people and assets where it deems it’s going to get the most for its money/investment/time.  That “most for the money” is a return on the allocation of money/investment/time.

Capitalism allows for an efficient fragmentation of labor allowing someone to specialize in a skill and earn a living.  That earned income allows them to get gains from trade with other people and companies that specialize.  Adam Smith outlined this in the “Wealth of Nations” over 250 years ago and the concept has been proven out to work again and again.

The main cause of prosperity, argued Smith, was increasing division of labor. Smith gave the famous example of pins. He asserted that ten workers could produce 48,000 pins per day if each of eighteen specialized tasks was assigned to particular workers. Average productivity: 4,800 pins per worker per day. But absent the division of labor, a worker would be lucky to produce even one pin per day….

Capitalism requires freedom of choice, freedom of speech, and most of all private property rights.  All of those concepts are under relentless attack by the left and the center in the US today. “We can just regulate a little.”, the centrists say.  As if some committee can decide what a company or person should do better than the company or person themselves.

You should realize that in the Covid environment of today, the state has suspended some private property rights with their bans on evictions.  It might seem cruel to evict someone during Covid, but if they received a government check and spent it on things other than basic needs a landlord has every right to evict that person. Private property isn’t government-run housing.

Capitalism doesn’t build wealth.  It provides the opportunity for people to assume risk and potentially build wealth if they are successful.  If they fail, they don’t build wealth.  The more society tries to stamp out failure, or in other words “make everything equal” or about “equity”, the less success the society will have because people will not be free to take risks.

Businesses exist and sustain themselves by making a profit.  Without profits, they are just hobbies.

Up in my summer place, there are a lot of non-profits.  There are a lot of people who mean well, or are what might be called “do-gooders”.  Profits are considered evil.  Cook County is the poorest county in Minnesota.  Doesn’t surprise me and it won’t change.  In addition, over 80% of the land is government-owned.  A large part of that is the fact that the Boundary Waters are here so it is not a surprise.  But, there are heavy restrictions on the use of privately owned land.

They have a huge problem up there with housing.  But, if a developer showed up to develop tracts of land and put in housing the community would step in and kill it with all kinds of constraints.  So, developers ignore even trying up here because they can allocate their effort and capital elsewhere.  The problem never gets solved.   It’s gotten so bad up here you can’t get the labor to do anything.  It’s hard to find a carpenter, a plumber, an electrician.  It’s two to three years to get a septic field dug and there is only one well driller.  Lately, people have wanted to flee the riots in the Twin Cities but have had a very hard time finding housing to flee to.

Seeing the Chinese “embrace capitalism” is a total head fake.  They never embraced capitalism.  They implemented crony capitalism.  Crony capitalism isn’t capitalism because it picks winners and losers.  It eliminates competition, and if you aren’t in the “in crowd”, you cannot get the resources necessary to take the opportunity to assume risk to try anything.

Even when the Chinese go to places like Africa, they don’t implement capitalism.  They bribe the top people and keep them in power.  They take the resources they need.  Meanwhile, the people at the bottom stay at the bottom and their lives don’t improve and they don’t have a chance for their lives to improve.  China wants to take that ethic worldwide.

Instead of setting up guard rails, our US regulatory establishment seeks to direct capital to the places it wants to see it go.

We do have some problems in the US.  All of them can be solved better, and faster, with unbridled capitalism.  When you compare private entities with public agencies, private entities are more efficient.  They turn out better results.   In Europe, for years the private academies and research groups have turned out much better products than state-sponsored or run agencies.

Much of what we have today is non-competitive capitalism or crony capitalism.  Much of the inflation that we see in the market today is because we don’t have competition in many industries.  There are only so many sawmills, oil drillers, meat processors, or grain processors. Covid shutdowns created bullwhip effects in industry after industry so we have shortages of everything all over.  Central planners can’t keep up and decide who can do what fast enough.  They can’t create debt and spend enough money to keep up either.  Personally, I am sick of our 19-month experiment with socialism.

The regulatory climate in the US makes it super hard to have competition.  Proposed quotas, critical race theory, “fairness”, and other concepts being implemented today will make the US less competitive, less equal, and a far worse place to live with a lower standard of living.  The only way to change is to deregulate, get rid of subsidies, get rid of special carve-out tax breaks, get rid of thick safety nets, and let markets allocate capital.

People that consider themselves “apolitical” have been harmed by the current environment in the US.

Do not look to the current leadership in the Republican Party to embrace real unbridled capitalism.  They talk the talk but rarely walk the walk.  We need a new crop of capitalists to take over.

The post Capitalism Doesn’t Build Wealth first appeared on Points and Figures.


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