E Capitalism: Problem, Solution, Or Both

Capitalism has resulted in prosperity that, up til the present millennium, has been unmatched and broad based. But there are problems with this economy. At the end of this article is a brief discussion about the Effective Demand Limit having been met. This limits demand going forward.

There are problems with government and capitalist responses to the challenges faced by the economy. It isn't a problem of fairness, as Fox News would lead you to believe. It is about real demand and the health of the economy.

Will Rogers was the most popular man in America for pointing out the limitations of government and of the rich in their responses to both the 1921 Depression and ultimately the Great Depression.

Rogers said:

Mr. Hoover was an engineer. He knew that water trickles down. Put it uphill and let it go and it will reach the driest little spot. But he didn’t know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellows hands. They saved the big banks, but the little ones went up the flue. Nov 27, 1932 

So, now in this millennium we have seen the middle class falling behind. Even Pew Research, hardly a liberal organization, has said that the middle class is falling behind, even since 2011. Economic progress has increased the middle class wealth, but median income has stagnated since 2000.

Worse yet, wealth disparity has increased to the highest ever. Again from Pew:

A recent Pew Research Center analysis also found that the wealth gaps between upper-income families and lower- and middle-income families in 2016 were at the highest levels recorded. Although the wealth of upper-income families has more than recovered from the losses experienced during the Great Recession, the wealth of lower- and middle-income families in 2016 was comparable to 1989 levels. Thus, even as the American middle class appears not to be shrinking (for now), it continues to fall further behind upper-income households financially, mirroring the long-running rise in income inequality in the U.S. overall.

So, needless to say, I am concerned about the capitalist response to the wealth tax proposals recently put forward by the Democrats, which apparently have broad public support, upwards of 60 percent of the people. The response has been to label the idea of wealth tax or even higher income taxes as being "socialism".

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Disclosure: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment ...

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Gary Anderson 1 month ago Author's comment

Update 2: Beto O'Rourke is running for president. He is pro capitalist. That could be a good thing for the Democrats if he can facilitate the compromises put forth in this article. The wealth divide is a serious problem that requires the cooperation of the Fed and capitalism to fix. The alternative is far more radical and unforgiving politics.

Gary Anderson 1 month ago Author's comment

Update: Capitalism should fix the discontent. Ocasio-Cortez speaks of capitalism as being irredeemable. While there is no better economic system in history, the wealth inequality could become a ticking you know what. Make no mistake, as the following shows, the far left is serious, almost fanatical, with it's own set of economists: talkmarkets.com/.../is-the-fusion-of-mmt-and-the-green-new-deal-creating-a-cult.

Norman Mogil 2 months ago Contributor's comment

You are correct that the US suffers from a weak effective demand, not dissimilar to what Keynes argued in the 1930s ( is that why you kept quoting Will Rogers?). Sadly, the recent corporate tax cut does nothing to boost effective demand. Ironically, stagnant nominal and falling real wages lead to Trump's win, but he and his party have done nothing to reverse that situation. Now, it may be too late given the $1.6 trill. debt that has to be financed by foreign trade partners--- another irony for the nation to accept.

Gary Anderson 2 months ago Author's comment

Yes, prof. Will Roger's certainly understood demand limitations during the Great Depression. Unlike the Fed, which paints a rosy scenario, Roger's told the people of Great Depression times the real problems with the economy and exposed the failures of percolation (trickle down) during that time. My father said Will Roger's was a great man.

Norman Mogil 2 months ago Contributor's comment

I recall Henry Ford's statement that he wanted to raise the wages of his assembly line workers so they can afford to buy the cars they make. I think that concept is lost in the US judging by the fall in real wages. In reference to the trickle down concept, I recall Galbraith saying that give a horse oats and you know what trickles down. He hated the conservative economics theory of growth.