Ray Dalio: capitalism isn’t working

by Chris Becker

It’s always interesting to hear mega-capitalists complain about the very system that provides them opportunity to turn their talents into Scrooge McDuck size piles of cash. Furthermore, it’s usually the most successful that have the most liberal of views and Ray Dalio, head of hedge fund Bridgewater, has weighed in again.

From CNBC:

“Capitalism basically is not working for the majority of people. That’s just the reality,” Dalio said at the 2018 Summit conference in Los Angelesin November. Monday, Dalio tweeted a video of his Summit talk.

“Today, the top one-tenth of 1 percent of the population’s net worth is equal to the bottom 90 percent combined. In other words, a big giant wealth gap. That was the same — last time that happened was the late ’30s,” Dalio said. (Indeed, research from Emmanuel Saez and Gabriel Zucman of the National Bureau of Economic Research of wealth inequality throughout the 20th century, covered by The Guardian, bears this out.)

Further, Dalio points to a survey by the Federal Reserve showing that 40 percent of adults can’t come up with $400 in the case of an emergency. “It gives you an idea of what the polarity is,” Dalio said. “That’s a real world. That’s an issue.”

“We’re in a situation when the economy is at a peak, we still have this very big tension. That’s where we are today,” he said in November. “We’re in a situation where, if you have a downturn, and we will have a downturn, I believe that — I worry that that polarity will become greater.”

Here’s the full talk:

There is no actual problem with capitalism in and of itself. As a system, compared to other systems in the past, it has provided the greatest gains to the greatest number of people in the last two centuries of human development. To borrow a catchphrase, it’s settled science, and in fact maybe one of the only theories of economics that actually holds water, given that communism, socialism and other market structures have failed time and time again.

The problem with capitalism is when it is wedded to an ideology that has limited or perverted checks and balances. Inequality being the most dire and neglected outcome of perverting a system that does not punish the risk takers who fail. Witness the banking industry in the aftermath of the GFC. A properly tuned capitalistic system would have seen the majority of bankers incarcerated, there wealth confiscated by legal and just reparations and an overhaul of the financial sector.

Captured regulatory authorities and legislative assemblies overturned the fundamental cornerstone of capitalism – if you fail, you take a loss – and turned it into an even more perverse form of socialism where the losers become winners and society bears the entire burden of their mistakes.

Dalio, like Buffet and Gates before him are pointing out the problems of extreme wealth, but this is not a new phenomenon. History shows that when income and wealth inequality become widely disparate, the forces of populism rise to shake the foundations. And inequality in the US and in the Western world is again reaching those heady heights where “unbridled” (read:captured) capitalism resulted in the Great Depression:

The concentration of wealth by capturing the full yield of capitalism without distributing any seeds is worse than ever as The Economist explains:

The 16,000 families making up the richest 0.01%, with an average net worth of $371m, now control 11.2% of total wealth—back to the 1916 share, which is the highest on record. Those down the distribution have not done quite so well: the top 0.1% (consisting of 160,000 families worth $73m on average) hold 22% of America’s wealth, just shy of the 1929 peak—and exactly the same share as the bottom 90% of the population.

Dalio is right to point out that an unworkable capitalist system, where the majority of the gains are kept by the few, creating an oligarchy that is inflexible to change, or risk, has not benefited the majority. Lost in the amazing advances in the developing world which has embraced versions of capitalism over the last thirty years is that the average Westerner has gone nowhere in terms of wage growth and real wealth:

Similar forces have been in play in Australia:

Creating these instabilities, where it’s extremely hard for someone to rise above the average wage, let alone no wage, is going to cost the whole system eventually if it is not reformed and brought back to the center where it belongs.

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Comments

  1. Bring on Australia’s yellow vest movement, mass immigration into a housing crash is tantalising.
    I look forward to the day this country realises how weak they have become.

  2. Not sure we are actually in a capitalist system.
    There is so much meddling from governments to central banks in the form of QE, laws, tax bail out, bail ins, buybacks, rate manipulation, and just plain old fraud that makes the whole system a murky mess

    • +100
      Does Dalio really believe what he is saying or is he just ‘handing off’? Only elements of our economy are truly capitalist, so to suggest it has somehow ‘failed’ is ludicrous. The State has had an increasingly influential role in the direction that Western economies have gone in recent decades which makes Dalio’s claims even more absurd.

      Nope, what’s wrong is ‘fiat’ money, which has led to a slide into moral bankruptcy in western societies, sustained an increasingly corrupt plutocracy and made people like Dalio rich beyond imagination. Is it reasonable to believe that Dalio doesn’t realise this?

      • Yep spot on Dominic, there’s nothing wrong with the core ideals and methods that underlay capitalism, but capitalism without the highly asymmetric pain of leveraged loss…well that just ain’t capitalism
        If the system steps in to rescue itself whenever the wheels look like they’re likely to fall off than this drives us to double down on our leverage instead of easing up. the outcome is just self fulfilling as real wealth gets shifted away from those that create towards those that simply hoard.
        Capitalism as a social organizational tool isn’t dead (Marx’s capitalism) but that which we call capitalism today might very well tumble in short order.

      • Piketty’s famous thesis has been analysed by several economists to point out that almost all the increases in inequality are due to the inflation in urban land prices that has bedevilled the modern world. Rognlie, Stiglitz, Wasmer, and others.

        This trend correlates with the frenzy to “save the planet” via prescriptive urban planning. Advocates for this are mostly useful idiots for the global 0.1% who fund their activism liberally. The useful idiots think their donors are genuine humanitarians but actually they are the world’s smartest people who understand well the connection between urban planning and their own opportunities for profit. In property investment portfolios, and financing.

    • If it wasn’t for governments finance would be easy. A local example – Houses would of crashed a decade ago had it not been for government intervention. It’s why i cant blame individual actors for bad finance decisions anymore. With the way current governments are sometimes black is actually white and moral hazard runs rampant. I remember people we knew getting 105% loams in the gfc who thought it was the best decision they made even years later.

    • While I risk quoting the wikipedia analysis of Adam Smiths work. “The result, An Inquiry to the Wealth of Nations, was a treatise which sought to offer a practical application for reformed economic theory to replace the mercantilist and physiocratic economic theories that were becoming less relevant in the time of industrial progress and innovation”

      I would also argue that we are not. If you look at What Adam Smith was outlining with the “Wealth of Nations”. The basic premise is that the wealth of nations is derived from the “working capital” of its people and not through the rent seeking of the mercantilists or agriculture focused structures of the physiocratic economic model. His idea of working capital was not the same as the modern view. He saw working capital as the overall set of resources that can be applied to a fundamental task. It was mainly human capital, both physical and intellectual that provided the most value in relation to the production and not the financial capital available to organise this product.

      Our current economic model seems to see working capital as the financially liquid assets you can lend to the task and the rewards go to those with the most financial investment and not those with the most physical investment. This mindset is more akin to the mercantilist economic theory in that all value is applied to those who own the means of production and not those that actually produce.

      Our economy is currently full of rent seekers trying to extract wealth from asset ownership which in turn was generated from the agricultural and mining endeavors of our early stage economic development. Houses and Holes is all they know and are extracting every ounce of profit from this asset ownership as they can.

  3. The real problem is the politicians and central bankers belief in the “wealth effect”, and the constant efforts to inflate asset prices favour those who already have the assets.

    But there are many more people in need of financial assets, including useful ones like housing, but also pure investment assets – stocks, bonds etc., But the higher the prices of these go, the lower their yields, the less income they can provide, so the more people need to accumulate to retire. This impoverishes everyone, we need to devote more of our income to chasing these assets higher, while the 1% sit back and watch their fortunes inflate.

    Central banks need to go back to valuing income as an economic driver, rather than “wealth”, which only exists as a function of volatile markets.

    • The don’t believe in the wealth effect. They just use it to justify policies that increase inequality to the ignorant masses.

      • I think there might be a negative wealth effect during periods of market turmoil but its not helped by central banks targeting it. Lower asset prices are in fact good for people who work for a living and need to accumulate income generating assets. That is most people other than those already in retirement or the extremely wealthy.Higher interest rates are also positive for people who are saving for retirement or a home deposit. Central banks should be spreading this message rather than attempting to resist every attempt by the market to correct.

    • In the early 980’s cash rates peaked at 20% (!) and stocks were on their knees. Warren Buffet and other ‘legendary’ investors went long everything (bonds, stocks, you name it) and made fortunes for themselves. Compound returns over the ensuing years have been phenomenal. But now cash rates have hit rock bottom and are beginning the journey north again, meaning …. future returns in both bonds and stocks (and most other risk assets) are likely to be diabolical in the coming years.

      A ‘reckoning’ of monumental proportions is baked in the cake, because the debt-berg is so vast that the world’s assets couldn’t possibly service it, much less pay any of it off. In addition, those saving now for the future (for retirement) will have to increase their savings levels by orders of magnitude just to match the ‘pension pots’ of the Boomers. With stagnant wages, high house prices and a deteriorating standard of living the future is looking pretty bleak.

      The global debt mountain will have to be slashed by half (or more) in order to breath life back into an increasingly moribund economy. Global total debt = roughly $247 trillion. One man’s debt is another man’s asset. That’s a heap of wealth that stands to be torched when the reckoning arrives. There will be some defaults but the central banks will end up buying most of that with freshly printed noughts and zeros. Invest accordingly 😉

      • Buffet, Dalio etc would always see a market crash as an opportunity to pick up cheap assets. If you consider what you are buying is a future cash flow for retirement, or to re-invest and compound, wouldn’t you rather buy that income stream at half price (or twice the cash flow for your money if you like)?

        The problem arises when people look at the paper value of their assets (e.g. their super balance) and believe they have lost something, and in aggregate across the economy this suppresses spending. But barring feedback effects, their cash flows should be the same, and they have an opportunity to acquire more for less.

    • Their levers only reach asset prices. They are happy to goose asset prices in the interests of stability. Their models tell them in the long run the economy will eventually reach a new higher priced, steady state with no long run impacts on inequality or the distribution of wealth. In the long run, cantillon effects are meant to iron themselves out. However, in a globalised system the long run can be VERY long as more low wage workers join. ‘Older’ asset owners enjoy the benefits but many would-be asset owners (traditionally wage earners in developed countries) who would normally cross the asset owner threshold in later life don’t make it as wages are effectively surpressed by new competing worker entrants. In this environment, cantillon effects, are material to developed country wage earners over the longer term and fail to resolve themselves for most individuals. At the macro level, The ripples of increased money supply never reach the ‘edge of the container’ to raise all boats as the pool of wage earners increases dramatically. CBS exacerbate inequality as assets continue to rise.

      • Everyone working is an asset owner and buyer through superannuation. The problem is that as central banks have conspired to keep asset prices high, people’s super contributions have bought less shares, bonds etc for the same money. Lower yields and interest rates mean people need to save even more out of their income, hence the drive to bump up the compulsory super rate. Of course this means less money to spend in the real economy, lower economic growth, feedback loop into lower interest rates.

  4. NY Times: The Climate Crisis? It’s Capitalism, Stupid

    The real culprit of the climate crisis is not any particular form of consumption, production or regulation but rather the very way in which we globally produce, which is for profit rather than for sustainability. So long as this order is in place, the crisis will continue and, given its progressive nature, worsen. This is a hard fact to confront. But averting our eyes from a seemingly intractable problem does not make it any less a problem. It should be stated plainly: It’s capitalism that is at fault.

    • dont know where to start with that article – the suggestive outcomes and postmodern thinking within are destructively wrong on so many levels.
      capitalism is not to blame, its how the pricing of risk, particularly long term risk, has been perverted by oligarchs that needs to be reformed.
      re-pricing and making people accountable has been done in the past at almost every level of society (e.g child labor laws, banking regulation, clean air/water regulations) the next step has to be a proper cost for carbon emissions and pollution taxes for non-sustainable consumption goods
      to suggest that socialism or communism is the answer is painfully ignorant of history, or worse, malevolent thinking…

      • Stewie GriffinMEMBER

        If you want to get an idea where the culture of economic perversion arises, simply take a look at the cultural background of those 16,000 families. Identify the major cultural values behind those families. Bailing out the Banks during the GFC gave the clearest indication as to whose cultural values were in play.

        These ideas and notions, from Neoliberalism with the Free movement of people and the Free movement of Capital, originate somewhere. They don’t just spontaneously arise in a society as the people say: “Hey, lets open our borders so strangers can compete with us for our wages and our culture, and the productive efforts of our society are allowed to flow offshore, or worse, uncontrolled flows are allowed within turning our people into renters in the nation their forefathers built.”

        Once they’ve been identified start examining their think tanks and ‘schools’ and then question every single facet of the propaganda they produce and the values they hold, and in most instances, do the complete opposite.

        Simple, unless of course you are afraid of being called a racist – or worse.

      • There’s a role for markets, and a role for governments which are meant to look after the common good.. Markets don’t solve “Tragedy of the Commons” problems. And they aren’t always inherently competitive (e.g. today’s monopolistic tech “platforms”).

        The problem is just that the balance has swung way to heavily towards markets. We don’t need to swing to the opposite extreme, just rebalance a bit.

      • +1 Agreed.

        Not that hard to start building in the full life cycle costs of products into their purchase price. Include disposal costs and all externalities. Then sit back and let markets do their thing.

      • Capitalism places no value on the value of human life and lived experience; it is the role of government to ensure this side of the equation. Thus, you need a socialist government intertwined with a capitalist economy to ensure the system is balanced.

        The biggest challenge to capitalism is growth limits enforced by a closed system containing finite resources. That hurdle is yet to be considered in any meaningful way.

      • the next step has to be a proper cost for carbon emissions and pollution taxes for non-sustainable consumption goods

        I don’t entirely disagree with the point you raise, but we should note that after 40 years of awareness of the climate problem, and with carbon taxes first suggested decades ago, we still do not have them working effectively anywhere (although some countries do have token carbon taxation). Bottom line: our emissions are still rising. 2018 was the worst year ever.
        https://www.washingtonpost.com/energy-environment/2018/12/05/we-are-trouble-global-carbon-emissions-reached-new-record-high/

        So capitalism seems to be singularly ineffective in fixing this problem

      • “Is it Jewish people that you mean, Stewie????”

        I just googled the top 5 wealthiest:

        Waltons: not Jewish
        Kochs: not Jewish
        Mars: not Jewish
        Cargill-MacMillans: not Jewish
        Cox: not Jewish

      • Simple, unless of course you are afraid of being called a racist – or worse.

        Which apparently you are because you won’t actually say who you’re talking about ?

      • capitalism is not to blame, its how the pricing of risk, particularly long term risk, has been perverted by oligarchs that needs to be reformed.

        This is only true if you believe there is some construct to which capitalism is (/must be) subordinate, where “perversion” (or “oligarch”) can be defined.

        Not saying that’s not something you disagree with, but there are plenty of posters here who don’t (hilariously, some making the same argument you are).

        to suggest that socialism or communism is the answer is painfully ignorant of history, or worse, malevolent thinking…

        Mmmm. I have to say you’ve definitely got some “socialist” ideas. 😉

      • Stewie Griffin

        These guys at MB should be paying you for your contribution.

        Keep up the great work.

  5. Sounds like it isn’t capitalism that’s the problem, but the elective representative democracy that’s controlling it, with it’s corresponding ease of capture by the wealthy for their own gains.

    • And what better example of that than Brexit.
      It was supposed to be easy! Democracy at its best – “We want to Leave”. “Righto, Off you go. You’re out of The Club. No more fees to pay and no more benefits of the Corporate Box”
      But no.
      It doesn’t suit ‘them’. So now we get a ‘Negotiated” solution, soon to be followed by “Sorry. It’s all too hard, and you didn’t really understand what you were voting for, so it’s all off!”
      If you want to make a quid or two over the next few months, go long yellow hi-viz vests in the UK!

      • It’s all good, the UK will hold a Royal commission into the whole thing, and then it’ll all be better 🙂

      • Democracy is fantastic! (Until it doesn’t deliver the result you want — Trump, Brexit etc.)

        Then democracy is ‘broken’.

    • Perhaps the answer is for the ‘elective representative democracy’ not to control the economy? (Or, at least, attempt to control or guide it).

      Sorry, but the Govt should have nothing whatsoever to do with the economy. There is simply no way that the Govt has either the intellectual wherewithal to make a +ve contribution to the economy (ask the Communists how that worked out) and nor do they possess superior information to the key ‘actors’ in the economy. Period.

      • The only way “the government” has nothing to do with “the economy” is to have no laws involving anything to do with the economy, so effectively no laws. There are plenty of 3rd world places that provide this for you if that’s what you truly want. The moment you decide it is not OK for factories to kill entire towns by dumping cyanide into the water supply the government has become involved in the economy.

    • “The only way “the government” has nothing to do with “the economy” is to have no laws involving anything to do with the economy, so effectively no laws.”

      Seriously? What does “thou shall not murder … or steal … or assault …. or trespass” have to do with the economy? Absolutely f* all. The Govt’s job is to protect property rights and to defend the state’s borders (at the border), nothing more. When the Govt starts to direct resources (capital) to their pet projects and their cronies, that is when the trouble starts.

      Glenn Stevens (paraphrased): Now that the mining boom has bust it is our intention to promote a property bubble to ‘bridge the gap’ to the next boom in something or other …

      And how’s that all worked out? Straya on the verge of a substantial depression with all the attendant baggage of hordes of unwanted and unemployed 3rd world immigrants. That’s what you get when Govt gets involved in the economy — it is never good.

      • The Govt’s job is to protect property rights and to defend the state’s borders (at the border), nothing more.

        Do you think property rights are relevant to the functioning of the economy ? That maybe since the Government is involved in defining and enforcing property rights they might get involved ?

        Do you think maybe contracts have something to do with the economy ? Who do you think might be responsible for defining and enforcing contract law ?

        Shared and indivisible resources ? Do you think maybe everyone should have some say about how they’re used ? Again, who’s going to take care of that ?

        How about assault, et al ? Do you think maybe there needs to be some laws there ?

        The fundamental problem with Libertarian fantasy is that it can’t survive even the briefest brushes with reality.

      • All the best performing economies have strong property rights — they are fundamental to a healthy economy. It should be obvious that businessmen would have no incentive to invest (labor and capital) unless their property were adequately protected by the state. What moron would set out to build a business and 20yrs down the track have it confiscated by some pathetic bureaucrat who’d never done an honest days’ work in his life?

        The Soviet Union failed for this very reason. People were not willing to do more than the bare minimum unless they were likely to reap the rewards so the economy stagnated instead and Communism failed (again). The idea that collectivisation can work is the sole realm of fantasists and the retarded.

  6. Jumping jack flash

    Capitalism is a great system but its probably not designed to be distilled to its essence and then exploited. Doing that is outside the bounds and its going to result in undefined behaviour after a while.

    Once the masters of capitalism – the banks – discovered how to shortcut the entire economic process using debt, they did.

    Its like debt is capitalism’s drug. All things in moderation, and, like drugs, debt needs to be strictly controlled and there needs to be a working feedback system – which is usually properly identified risks, and risk-tied interest rates.
    Its the only thing that works when taking debt. You can’t expect your debted-up friends and the debt-pedlars and their mates to be able to let you know when you’ve had enough.

    By suppressing the feedback system we were able to consume a lethal dose of debt.

    • Capitalism worked just fine before debt came to dominate the economy — capitalism and debt are mutually exclusive. Most members of this blog are just way too young to have been around before the debt-monster became an integral part of everyone’s lives. Certainly, economic growth pre the suspension of the gold window was much stronger than it has been since. Go figure.

      • @bjw and smithy
        Debt has been around since the beginning of time — so what? That doesn’t refute my claim that capitalism and debt are mutully exclusive. The difference that leaving the gold standard has made is that it has allowed Govts to live way beyond their means and the private sector to borrow way more than they can afford. It is quite clear that either of you have any clue how this works or how this matters to our current predicament.

      • Debt has been around since the beginning of time — so what? That doesn’t refute my claim that capitalism and debt are mutully exclusive.

        Let’s put it another way. Any vaguely complex economic activity involves debt. Even a kids playground will inevitably have some kids who “owe stuff” to others.

      • “Let’s put it another way. Any vaguely complex economic activity involves debt.”

        Nope. It really doesn’t. There was a time, not so long ago, when debt was the exception not the norm. Going off the gold standard made debt freely available (to anyone who could fog a mirror) but in the process turned developed world economies into gigantic ponzi schemes from which it is now impossible to escape. I’ll hand over to the erudite Ludwig von Mises for clarity:

        “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

        In a nutshell …

  7. Capitalism is suppose to cycle boom and busts. But there has been no busts for 30+ years, and nobody has the stomach for busts anymore. Except those on redtube

    • thats the failure of modern economics, who have not yet learned the lessons of the last 30+ years and have baked fragility into the system into trying to make it bust-free, while ignoring the Minsky and other thinkers who rightly observe that you need failures and clearance of bad capital allocation within the system that wont bring the whole system down (not quite the “Creative destruction” Schumpeter stuff, but close)
      Its kind of funny, the same class of people who rail against third graders getting “participation trophies” or the trend in not assigning “FAIL” or ZERO points on school exams, dont want their multi-billion companies to ever experience any downside volatility, let alone a chance at failing.

    • Central banks under the tutelage of the theories of JM Keynes see it as their duty to ‘short-circuit’ the business cycle i.e. build a bridge over the recession so that no hardship befalls us. Never mind the fact that the dead wood and malinvestments need to be purged in order to maintain a healthy economy and a good recession achieves this end.

      Central bankers, geniuses all, have roundly failed to acknowledge that there are costs involved in short-circuiting the business cycle — and these accumulate every time they enact policies to achieve this. History will not be kind to these people but they (sadly) will mostly be dead before they can face the fury of those most affected.

    • Very much on point Jason.

      Bank bailouts and QE were IOUs still yet to be cashed in. Just a matter of time.

  8. Capitalism like its sister, socialism is good in theory until you get greedy, egotistical, psychotic humans involved.

    Not sure what the solution is, but war appears to be the cleansing tool that has worked for millenia

  9. Capitalism isn’t working because it treats land & resources (given by Creation) as personal property like tools, machinery & cash (made by humans), and so is based on theft. Also, it taxes effort & transactions and so warps behaviour. The best thing to do is to ditch all forms of taxation and instead collect the annual rental-value of sites privately occupied, as sole source of public revenue. This would bring land prices down to nil (plus value of improvements on each lot), allowing access to land by all who would work with hand or brain, hence giving workers proper bargaining power. Banks that fail due to evaporation of their mortgage security would soon be replaced by local credit unions.

      • pingupenguinMEMBER

        No he is Brett’s brother. Look them up on YouTube, both are fascinating and intelligent and insightful. Nothing like Harvey.

    • Marxism, socialism exists by forcing people to be losers by taking and spending their wealth.

      • bolstroodMEMBER

        Sounds remarkably like what is going on in our economy today.
        As we have never had a truly Socialist system , I suspect we have never had a truly capitalist system.
        The system is continually mugged by the corrupt, greedy and criminal elements of our society.
        (What Gral said , below)

        Time for the Good Guys and Girls to assert themselves.

  10. Gotta disagree with Dalio, the problems are mostly not the fault of capitalism, they are due to cronyism and corruption.

    That said, any pure ideological system won’t work, it needs to be managed.

    The problem is the government intervenes where it should not, and fails to intervene when it should. The government does very little to protect the environment, or public amenity, where externalities are rife. But it gets heavily involved in basic but important goods and services such as housing, health.

    Often, sectors of the economy that are privately run such as electronic goods and cars are low cost and work well. But when the government gets too involved in housing, health, it can result in it being more scarce and lower quality.

    • “… due to cronyism and corruption …”

      Correct.

      So what is the solution? Some (naive souls) would say “attract more honest people to politics” and so on. But the answer is obvious: reduce the size of Govt drastically. The level of corruption is commensurate with the size of Govt — the bigger Govt is (i.e. the more influence or control the Govt has over elements of the economy) the more scope there is for people to earn a living from it, both legitimately and illegitimately.

      It should be obvious to all (but clearly isn’t): without Govt there would be no corruption

      • or laws, or protection of rights, or protection for the environment from the crap dumped from factories and on and on. The 3rd world is full of small government countries, I suggest you go to one if that is want you actually want.

      • or laws, or protection of rights, or protection for the environment from the crap dumped from factories and on and on. The 3rd world is full of small government countries, I suggest you go to one if that is want you actually want.

      • It should be obvious to all (but clearly isn’t): without Govt there would be no corruption

        Nor fraud, theft, assault, rape, murder…

      • Oh dear, bjw and smithy, you two really do struggle with ‘nuance’. Perhaps I should be writing in BIG LETTERS and explaining in terms a 5yr old could grasp.

      • Oh dear, bjw and smithy, you two really do struggle with ‘nuance’.

        LOL.

        Always hilarious when extremists accuse others of missing nuance.

        The only way “corruption” disappears with Government is because the laws that define what is called corruption disappear as well. Corrupt behaviour continues.

      • It is very simple, numb-nuts: what is there to corrupt if Govt doesn’t exist?

        If all property in the world were privately owned, no corruption could exist — how can this not be screamingly obvious?

        But let’s accept for a second that limited Govt did exist — and it was ostensibly in charge of a judiciary, a police force and a small defence force. The only corruption that could really take place was at a judicial level (albeit highly unlikely as a court appeal would simply be referred to a different court and judge) or among policemen — false statements etc. But in reality the scope is pretty limited i.e. no one has power to make millionaires of property developers, no one can sell influence in exchange for cash or jobs as there’d be no influence worth buying etc etc.

      • If all property in the world were privately owned, no corruption could exist — how can this not be screamingly obvious?

        Because corruption is an activity that occurs regardless of whether or not there’s a law about it.

        Like murder. Murder is only illegal because the Government has a law that makes it illegal. No Government to make murder illegal, murder ain’t illegal. Still going to happen, of course, but no laws against it. Same with theft, assault, fraud, blah, blah, blah.

        The real argument you’re trying to make is that when corruption – collusion, nepotism, bribery, jobs-for-mates, saying you’ve built something to a particular standard but not actually doing it, etc – happens in private industry, that’s OK because there’s not any rules against it anymore. Just tough bikkies and maybe a “sue me” for whoever is on the losing side of whatever it might be.

        The only corruption that could really take place was at a judicial level (albeit highly unlikely as a court appeal would simply be referred to a different court and judge) or among policemen — false statements etc. But in reality the scope is pretty limited i.e. no one has power to make millionaires of property developers, no one can sell influence in exchange for cash or jobs as there’d be no influence worth buying etc etc.

        Again, reality steps in to destroy libertarian fantasy. The scope in your system for corruption is vast, because it will be run by and for the wealthy with most man having zero chance of anything remotely resembling fair representation. It’s bad enough _today_ when Joe Average ends up in court, and we we still have things like public defenders that you’d undoubtedly eliminate.

        In situations where winning a case simply wasn’t a matter of outspending the other party on legal shennanigans, bribery to ensure the “correct” decisions are reached by the court would be rife. After all, there sure as sh!t isn’t going to be any independent watchdogs or anti-corruption bodies in your minimalist Government.

        We’ve seen systems like yours in the past. They’re called Feudalism.

  11. Good thought on Democracy ( and so Capitalism) from the AFR:
    “The basic issue with Brexit is this. Parliament voted almost unanimously to ask the British people whether they wanted to stay in the European Union. The people said they’d like to leave. But three-quarters of MPs wanted to stay. So did the establishment; the working journalists, the BBC, the public servants, most judges and the arts community. It’s been trench warfare ever since.”
    https://www.afr.com/opinion/brexit-the-worst-imaginable-outcome-now-the-most-likely-20190117-h1a5q8

    • I’m 60 now and I just don’t think I will see this resolved in my lifetime. It’s taken 30 (60 flawse) years to ruin and a quick fix is too scary to contemplate

    • And politicians around the world will learn the lesson, and never ask the people again if they already know what answer they want.

  12. People make things not work, because people are broken…

    That being said, Capitalism is infected by Rent-Seeking of various forms, which seriously hampers it’s potential to create wealth for all; as well as the dislocation of “wealth” from utility.

    Add to those the idea that all wealth can be, or is, effectively expressed in currency/money – it cannot. This results in the mispricing (and even omission) of various factors, costs, and benefits and consequences, both short and long term, which Chris also spoke of. Mispriced capitalism also doesn’t work well.

    My 2c

    • The egregious rent-seeking is a direct function of the debt-based money system, not capitalism. If we lived with ‘sound money’ the facility for any monkey to simply buy a unit (or any asset) and profit from it would not exist.

  13. Capitalism has morphed. Corporations have become powerful economic and political entities. They compete in size and wealth with the world’s largest national economies and have taken on a distinct nature.

    With the help of false economics, threats, bribes, extortion, (cheap) debt, deception, the flooding of cheap labour, coups, assassinations, and unbridled military power we have created a truly worldwide mess.

    Australia is a pawn in the global corporatocracy which has systemically infected every nation, government, and reserve bank in the western world.

    Capitalism is long gone.

    • I’m with you Ubietz but you’re not gonna get much love here on a site called MacroBusiness. To claim that communism, socialism et al have failed time and time again and that capitalism is settled science makes me wonder if I’m living in a parallel dimension. 0.1% of people hold equal to 90%of the world’s wealth. Yeah, that’s really a success.

      • The USSR is no longer communist, but capitalist and clearly living standards improved drastically with this change. China has undergone a similar transition with the same result.
        Funnily enough, even in communism the small % of people with political power were controllers of the vast majority of the wealth, with the populace living in poverty
        Maybe you would like to give the example of successful communism you would like to emulate?

      • Yeah, not after love Kolchak just making a statement on how far things have slid. I’m a trilingual dual national Australian and believe in a capitalistic system however we haven’t seen that in quite a long time IMO.

        Visiting my parents’ countries growing up, I can categorically state that socialism is pure evil. I wonder why people assume that capitalism is a “settled science”?

      • It’s all crap really. Was capitalism initially intended to have bankruptcy and a corporate structure were no individual accepts personal responsibility from the law beside tiny fines of less than 1% of total wealth of the person charged.

      • @Ubietz,
        if public ownership of everything is pure evil, what alternative other than private ownership would you propose?
        ie if socialism is evil, capitalism is the only other alternative I know of.

    • @bjw678
      Predators using political influence to obtain special favours or bailouts from government at the expense of their competitors and the taxpayers is crony capitalism. Period.

      Only a separation of economy and state will eliminate today’s political corruption which is wrongly blamed on true capitalism.

  14. They confiscated gold in the 30″s in the USA. Then made money from it as it rose in value on the world market. the people who handed it in lost any wealth they had. the marxist like action of roosevelt making it illegal to own gold seemed marxist not capitalist.

    There is no Capitalism!
    There is plenty of marxism in schools and the average person subsidises it’s teaching with taxes and fees.

  15. I reckon there’s as many definitions of capitalism in this discussion as there are posts.

    Some are definitely more lulzworthy than others though.

  16. Further, Dalio points to a survey by the Federal Reserve showing that 40 percent of adults can’t come up with $400 in the case of an emergency.

    These are the kinds of people who will be seriously suffering from Trump’s shutdown.

    • Schmidt DR
      Interesting article on ABC online titled; “Donald Trump clipping Nancy Pelosi’s wings a stunning insult to the US’s third most-powerful person.”
      Ms Pelosi blamed security concerns amid the government shutdown and said that if Mr Trump did not wish to delay the speech, he could present it to Congress in writing.
      Mr Trump did not immediately respond to the suggestion. But when he did answer Ms Pelosi on Thursday, his response was both petty and potentially dangerous.
      On Thursday, Mr Trump sent Ms Pelosi a letter that revealed a heavily secret trip that he said Ms Pelosi and other Democrats were supposed to take to Brussels, Egypt and Kabul.
      Mr Trump’s letter, posted in a tweet by his press secretary, Sarah Sanders, told Ms Pelosi that her trip was cancelled in light of the shutdown.
      “We will reschedule this seven-day excursion when the shutdown is over,” he wrote. If she wanted to proceed, she could fly commercial, he suggested, although there are no commercial flights directly from the US to Afghanistan.

      They were already on a bus bound for a military jet when the letter arrived, and they subsequently returned to the Capitol.

      The 800,000 affected workers due to the shut down need this sorted now, not put on hold for 7 days until Pelosi returns.

      • The 800,000 affected workers due to the shut down need this sorted now, not put on hold for 7 days until Pelosi returns.

        LOL. Yeah, or any time since it started when the man-child in chief threw his toys out of the pram.

        Let’s not try and pretend there’s any concern for the “800,000 affected workers” here.

      • Dearest Schmitty

        Quote… “Let’s not try and pretend there’s any concern for the “800,000 affected workers” here.” Agreed, Pelosi has no concern for the 800,000 affected workers.

        I realise that dealing with facts are not your strong point.

        The POTUS is in Washington DC and states he is ready to negotiate whilst Pelosi and team Democrat are off overseas at a crucial time for the 800,000 affected workers.

        Who knows what the outcome of these negotiations might be ? Both Trump and Pelosi are two very hard nuts to crack.

        The fact is that it takes two to Tango.

        Pelosi and the Democrats have shown just how much they care for the poor working class of the US, continuing Obama’s legacy.

        News flash Schmitty, Trump the Republican billionaire is pro business !! who would have known ??

      • The fact is that it takes two to Tango.

        It only takes one to jerk off, and that’s why there’s a shutdown in the first place.

        Trump is the only person responsible for the current negative impact on the aforementioned 800,000 people from the shutdown. The ONLY person.

      • Schmidty

        Short history lesson for you.

        In 2006 this;

        Two-thirds of the Republican-led House approved the bill, including 64 Democrats, and 80 of 100 senators approved the bill in the Senate. Then Sens. Barack Obama, Joe Biden and Hillary Clinton were among the 26 Democrats who approved the bill. Supporters also included Sen. Chuck Schumer, who is set to take over leadership of the Senate for Democrats in 2016.

        Other Democrats in the Senate who voted for the wall in 2006 are Sens. Barbara Boxer (CA), Sherrod Brown (OH — then in the House), Tom Carper (DE), Dianne Feinstein (CA), Barbara Mikulski (MD), Bill Nelson (FL), Debbie Stabenow (MI), and Ron Wyden (OR).

        These Democrats in 2006 voted for the wall, get it ??

        Now the very same Democrats are playing politics whilst 800,000 workers suffer.

        The American people voted for Trump and the wall at the Mexican border was an election promise. No surprises there.

        I realise that dealing with facts is not your strong point.

        Now maybe a time you change hands and continue your handywork…hahahah!

  17. What does Capitalism even mean?

    Regulation to encourage productive investment and discourage unproductive investment clearly works. We have seen economies rebuilt from the dust very quickly when they don’t have the luxury of wasting resources.

    Distinguishing between the two is for the most part not difficult. When the low hanging productive investment fruit is being fully picked we are likely to find we don’t need to lose too much sleep about the unproductive margins.

    Sadly in Australia our policies offer massive incentives to unproductive speculation.

    So what is the greatest driver of unproductive investment?

    A thoroughly broken and privatised (usurious) public money system which completely fails to perform what in theory it claims to do. Direct privatised new public money to the most productive purposes.

    Fixing it is not difficult but the biggest challenge is helping people to understand how it is broken.

    https://theglass-pyramid.com/2018/11/03/fixing-oz-banks-pt-7-what-should-be-the-role-of-the-rba/

    A responsibly managed and democratic not for profit public central bank balance sheet should be core of the public monetary system.

    Keeping a truly public monetary system honest is important and that function will be performed by all the other public monetary systems in other countries and private / commodity monetary systems like gold, silver and crypto etc.

    People should be free to vote with their feet when it comes to money.

    Naturally the above is not popular with the apologists for our broken and corrupt private banking model or with those who like a monopolistic corrupted partnership between the state and private banking corporations.

  18. And I repeat, the only way out will be war. Of the revolutionary kind where the have nots will want the heads of those powerful elites. No other way to even things out. I’m not suggesting this is a good solution, just my reading of the situation after reading many history books. This time is no different. Just that the peasants have food now but still no hope just like the old days

  19. You lost me at “there is no problem with capitalism….”

    What we’re seeing is capitalism doing what it’s meant to do.

    Extracting from the many and from the biosphere as a whole, and concentrating that in the hands of the few.

    It’s working perfectly well.

    And its days are numbered.

  20. Capitalism has provided the greatest gains to the greatest number of people in the last two centuries of human development.
    Yep. It may still provide for the end of civilisation and even life as we know it. But that’s the bad capitalism, not the good one existing in Chris’ imagination, but nowhere else and never in history.

    Chris, Dr. Jekyll and Mr. Hyde were the same person.