Summary

Capitalism operates through five markets and has 14 serious shortcomings from poverty to environmental exploitation to financial instability. Income inequality is structural: return on capital outpaces growth, and US tax rates dropped from 91% to 39%. The economy shifted from manufacturing-led to finance-led (manufacturing 26%→9%, financial 15%→22% since 1970), concentrating profits and individualizing risk. Solutions—global wealth taxes, regulation, carbon taxes, UBI—require political will within the spectrum between unregulated capitalism and strict socialism.

Key Takeaways

Notes

Introduction

• 5 markets of market economies: businesses, non profits, financiers, governments, households
• Unregulated capitalism ↔︎ capitalism with a heart ↔︎ strict socialism
• Private property, contracts, rule of law
• Economies of 1) scale and 2) scope
• 14 serious shortcomings of capitalism*

1: Persisting poverty

• Likely no singular cause for poverty
• 4 elements of trapped countries:
  • Civil war
  • Natural resource curse
  • Landlocked countries
  • Bad governance: corruption
• Possible solution: UBI

2: Income, wealth inequality

• RoR to capital vs growth of economy
• Capitalism created the working class
• Gini index + redistribution:
  • Germany: 55 → 30, US: 47 → 37
• Arguments against minimum wage:
  • Small businesses close shop
  • Pressure to replace labor with capital
• US progressive tax, max rate: 91% → 39%
• Close offshore tax havens
• Tax loopholes: capital gains, carry
• Transfer payments: eg. tax credits
• Solution:
  • Global tax on wealth
  • Tax on largest incomes

3: Worker exploitation

• Unions
• Minimum wage: shifts redistribution burden from tax payers → businesses
  • Economists: basically 50/50 split
• Importance of job satisfaction

4: Job creation facing automation

• Decline in agriculture, manufacturing
• Solutions:
  • Job retraining programs
  • STEM classes
  • Wiser career choices
  • Business human capital development
  • Attract foreign workers
• Encourage entrepreneurship
• Reduce workweek to spread jobs

5: Companies not covering “social costs”

• Need perfect availability of business info
• Gov’t is in charge of ^
• Market failures under capitalism:
  • Negative externalities
  • Tragedy of the commons
  • The monopoly problem
• Carbon tax
• Barriers to entry*
• Market vs gov’t failure

6: Environment exploitation

• ESG

7: Business cycles, economic instability

• Two great injectors of risk, uncertainty ↑
• 4 phases of business cycle: contraction, trough, expansion, peak
• Quantitative easing
• Resolution: austerity vs stimulus spending
• 7 critical factors for business risks:
  • Technological advances, info:
  • Disruptive tech, innovation:
  • Rise of the rest:
  • Hyper competition: no regulation
  • Sovereign wealth funds:
  • Environment:
  • Customer empowerment:

8: Individualism, self-interest

• Capitalism is rooted in individualism
• Communitarians
• Corporate social responsibility
• Countries’ contributions to common good:
  • 7 indices: science + tech, culture, int’l peace + security, world order, planet + climate, prosperity + equality, health + wellbeing
  • Ireland: 1, USA: 21, RUS: 95, CN: 107

9: Debt burden, financial regulation

• US interest payments: 7-14% of GDP
• Inflation not accurate, eg. healthcare
• Consumer spending: 70% of GDP
• US: manufacturing → financial led
• US 1970 → 2010:
  • Manufacturing: 26% → 9%
  • Trade, transport: 21% → 16%
  • Financial: 15% → 22%
  • Business services: 5% → 13%
  • Health services: 4% → 8%
  • ^ Professional: 24% → 43%
• ^ Un-unionized, individualistic
• ^ 3 results: ↓ median income, ↓ GDP growth, ↓ labor force participation rate
• Savings rate: US 5%, China 50%, EU 8-15%
• 5 biggest banks own of financial system:
  • 1990: 9.7%, 2013: 44%
• Financial system: 41% all profits in 2010s
• Solutions: regulation
  • Too big to fail
    • Lower reserve ratio (20 → 3 to 1)
  • Regulate new financial instruments
  • Restore original purpose of banks
    • Sales tax for stock purchases
    • Harder on financial failures

10: Politics subverting economics

• Lobbying: interest group capitalism
• Campaign financing: revolving door
• Lobbying has high ROI: 22,000%
• Solutions:
  • Cooling off period to enter lobbying
  • Reporting
  • Ban on personal gifts
  • Cap on individual contributions
• Bribery is extensive
• Corruption perceptions index (CPI):
  • China: 80th, India: 100th

11: Short-term orientation

• Public companies bias toward short-term
• Infrastructure is systematically undervalued

12: Questionable marketing outputs

• Producer freedom → negative externalities
• Ads → materialism → social comparison
• Solution: consumer choice education

13: Narrow focus on GDP growth

• Growth required for survival in competition
• Headwinds to GDP growth:
  • Aging population
  • Stagnation in educational achievement
  • Fiscal tightening to fix debt
  • Cost of healthcare, energy
  • Pressures of globalization
  • Growing income inequality
• Limits to growth study*
  • Carrying capacity
• Solution:
  • Cultural change to ↓ consumerism

14: Social values, happiness

• Competition vs cooperation
• Problems with GDP → wellbeing:
  • Distribution
  • Quality of output (eg. cigarettes)
  • Ignores costs of growth
• 7 measures of wellness:
  • Economic, environmental, physical, mental, workplace, social, political
• Paths to higher purpose satisfaction:
  • Connecting with art, culture, religion
  • Helping others, improving world
  • Simpler life with fewer needs