I believe that all good things taken to an extreme can be self-destructive and that everything must evolve or die. In this report I show why I believe that capitalism is now not working for the majority of Americans, I diagnose why it is producing these inadequate results, and I offer some suggestions for what can be done to reform it.
Because this report is rather long, I will present it in two parts: part one outlining the problem and part two offering my diagnosis of it and some suggestions for reform.
The best results come when there is more rather than less of: a) equal opportunity in education and in work, b) good family or family-like upbringing through the high school years, c) civilized behavior within a system that most people believe is fair, and d) free and well-regulated markets for goods, services, labor, and capital that provide incentives, savings, and financing opportunities to most people.
Naturally, I have watched these things closely over the years in all countries, especially in the US.
Then I will give my diagnosis of why capitalism is producing these inadequate outcomes and conclude by offering some thoughts about how it can be reformed to produce better outcomes.
Where I’m Coming From I was lucky enough to grow up in a middle-class family raised by parents who cared for me, to be educated in a good public school, and to be able to go into a job market that offered me equal opportunity. At the time, I and most everyone around me believed that we as a society had to strive to provide these basic things (especially equal education and equal job opportunity) to everyone.Being productive leads people to make money, which leads them to acquire capital (which is their savings in investment vehicles), which both protects the saver by providing money when it is later needed and provides capital resources to those who can combine them with their ideas and convert them into the profits and productivities that raise our living standards. Over those many years, I have seen communism come and go and have seen that all countries that made their economies work well, including “communist China,” have made capitalism an integral part of their systems for these reasons.Communism’s philosophy of “from each according to his ability, to each according to his needs” turned out to be naïve because people were not motivated to work hard if they didn’t get commensurately rewarded, so prosperity suffered.There has been little or no real income growth for most people for decades.As shown in the chart below on the left, prime-age workers in the bottom 60% have had no real (i.e., inflation-adjusted) income growth since 1980.That required me to gain a practical understanding of how economies and markets work.Over those years, I’ve had exposure to all sorts of economic systems in most countries and have come to understand why the ability to make money, save it, and put it into capital (i.e., capitalism) is an effective motivator of people and allocator of resources that raises people’s living standards.I will now show the results that our system is producing that have led me to believe capitalism isn’t working well for most Americans.In this section, I will show you a large batch of stats and charts that paint the picture. If you feel that you’re getting past the point of diminishing returns, I suggest that you either quickly scan the rest by just reading the sentences in bold or skip ahead to the next section which explains why I think that not reforming capitalism would be an existential threat to the US.Then I entered a job market that provided me equal opportunity, and I was on my way.Because I loved playing the markets I chose to be a global macro investor, which is what I’ve been for about 50 years.