No.10｜Flaws in the wish-fulfillment machine called capitalism(Part2)

This article is a translation of this article.

As we saw in No.9 article, capitalism has developed on the basis of human desires. And at the root of it is the mundane desire for more money.

I'm sure many of us have at one time or another wondered how happy we would be if we could live on interest alone. Once you are a rich man, you will be free from tedious work and free to live. Most economists will tell you that if you want a lot of money, save it up and invest it.

In this part, we will show the asset disparity caused by this investment.

Let's take as a prerequisite that "the strong have an overwhelming advantage". To take just one example, the No. 1 companies in the industry are able to easily attract talented people, have a strong customer appeal, take advantage of economies of scale, and have the stamina to boldly invest large amounts of money. With capital, one has more options and can always keep a competitive advantage. I want you to understand first of all that the rich gets richer and richer.

This is a rather simplistic view, but consider a society that has stopped growing and entered a period of stability. Money circulates among people as they sell and buy things. If the average return on investment is positive, then the interest will be concentrated in the capitalist's hands. If the total amount of money is constant, we can see that the money distributed to the workers is gradually decreasing. (The capitalist is always in a better position.)

From the worker's point of view, it would be awful to have his salary reduced year after year just because there is less money to distribute. So the government considers borrowing money to supply the market with newly issued notes. This allows the government to replenish the shortfall by siphoning off money from the capitalists, thus apparently keeping the wages paid to workers constant. However, if workers' wages do not change and only the wealth of capitalists increases, then the relative asset gap is growing. As a matter of fact, the increase in the amount of banknotes in circulation has led to a diminishing value of banknotes, in effect reducing the real wages of workers.

To stop asset disparities, taxes must be set and redistributed. If we could redistribute the same amount of money earned by capital. The gap does not widen. This is a form of socialist state.

In contrast, today's capitalist society (defined as "modified capitalism") is a form of partial redistribution. In this case, there is still a shortage of money to distribute to the workers, so money may be replenished in an attempt to preserve the face value of wages. Although the society has become somewhat more equal, asset gaps continue to grow because redistribution is not perfect.

In this way, socialist countries may seem rational, with no widening of the gap. However, since all of the profits of the capitalists and workers would be equally distributed among the workers, this would deprive all classes of the will to work, no one would work diligently, and the whole society would be in danger of declining.

Modified capitalism, on the other hand, works well in the short period, with some restraint on workers' dissatisfaction. However, the problem of ever-widening asset gaps over time remains unresolved. The distribution of assets is so skewed that the top 26 people in the world now hold the wealth of the bottom 3.8 billion people. Personal wealth has grown beyond the national budget, and society has become so unstable that it is subject to the whims of a single individual.

Note that the ratio of redistribution varies widely among countries in the modified capitalism, depending on their attitudes. Some countries have high welfare and high burden with an emphasis on mutual aid, while others have low welfare and low burden with a strong emphasis on self-responsibility. Unfortunately, Japan is a medium-welfare, low-burden country that continues to spend more than it has to bear. We are in a dire situation, relying on government bonds to cover the shortfall and pass the bill on to future generations.

In this way, to slow down the pace of growth of asset inequality, it is desirable to increase the share of redistribution from capitalists. But this is not an easy thing to do. The reason is that if the tax on capitalists is increased, they will rebel and move abroad.

In the age of globalization, goods, people, and money can now be transferred freely. Relatively easy to transfer from high tax countries to low tax countries, and easy tax hikes would quickly result in the transfer of industry abroad. The competition between nations to attract global companies has accelerated the race to lower tax rates, which has led to a great deal of damage to the finances of many nations.

Likewise, municipalities are competing to attract companies and services to their residents. Although they would normally want to raise taxes to pay for the necessary expenditures, the competition to attract them has led to a permanent deterioration in the balance of payments, and they are forced to fight a war of attrition with no telling when it will end.

Especially in Japan, the situation is very serious. As the population is expected to decline rapidly due to the declining birthrate and aging population, it is impossible to maintain all of the infrastructure that has grown throughout the country, so we must begin to make a compact city through selection. Nevertheless, local governments and legislators believe that maximizing local benefits is the most important thing and try to revive the local economy by providing preferential treatment (to get elected, of course). Every region's struggle to attract residents does not increase the total number of residents, but only wears them out as a whole.

In retrospect, long term, accumulation and diversified have been the basis of investing. With a few exceptions, stock prices have been steadily rising and are believed to remain so in the future. However, the history of the rise of stock prices is also the history of the widening of asset disparities, and, to add to that, the history of the ever-expanding desires of mankind (see No.9 article). The negative aspects of a profitable system for long-term, accumulation and diversified investing are too often neglected: it creates inequality, wastes resources, and destroys the environment.

Children born in Japan are forced into massive debt from the moment they are born. The economic disparity between the haves and have-nots is even more insurmountable, and most of the people have become servants to the capitalists. Whether the individual wants it or not, the social system is designed in such a way, and no one is allowed to get out of the game.

Just imagine again how much talent we're wasting, simply because we tell our kids they'll have to "earn a living." Or think of what a math whiz working at Facebook lamented a few years ago: "The best minds of my generation are thinking about how to make people click ads."

Cited from ted talk

Not that there is anything wrong with trying to make money from your investments. It is a fact that the desire to make money is a driving force behind the movement of people, the injection of capital into new technologies, and the promotion of the metabolism of society. We have to think seriously about a seemingly contradictory system that secures profits for investors, but does not widen the gap.