Furious Friday

Evil Capitalism!!! Efficiencies, incentives, equal opportunities and reducing poverty

Welcome to Furious Fridays

Imagine you are a child in Korea….

  1. North Korea – After school (which is mostly propaganda to solidify your ruler), 10 years mandatory military service
    • No option to accumulate anything
    • No way to start a business
    • No way to buy your home
    • Never own a car, telephone, or travel overseas
    • Constantly looking over your shoulder, similar to Soviet Russia, 1 in 10 were government informants
  2. South Korea – Whatever you want – get a degree, buy a home
    • South Korea out produces North Korea’s economic output by 37 times – $33,400 vs $1,800 GDP per capita (that is, per person)
    • Live 10 years longer in south, infant mortality is almost 7 times lower

So, what makes them so different? Capitalism!
Let’s look at the history:

  1. Korea WW2 – Japanese colony, then split North/South with Russia and America
  2. Korean War – June 25, 1950 North invaded south with Russian aid, America stepped in, demolished north with firebombs, they surrendered
  3. North – history – state run economy – founded by Kim Jung-il’s grandfather
  4. South – History – adopted capitalist ideas

Capitalism is characterized in the following ways:

  1. It is a market-based economy made up of buyers (eg. People) and sellers (eg. Companies).
  2. The goods and services that are produced are intended to make a profit, and this profit is reinvested into the economy.
  3. The market (people buying & selling) determines investments, production, distribution and decisions the forces of supply and demand
  4. There is a need for continual production and purchase for a capitalistic economy to operate efficiently.

 

Capitalism provides a system that create incentives and efficiencies

  • What are incentives? – Rewards for your effort
    1. Not a zero-sum game – earn more, keep it, and use it as you want
    2. If someone can take your stuff, why bother?

What capitalism provides: Inclusive system

  1. FREEDOM! – Why is it important? Allows improvement, and people to dream of betterment.
  2. Protection! – Why start a business, or take risk, if it can be taken or taxed away from you?

The easier it is, the safer, the more you trust the system, and others trust you in the system, then easy!

The political System – Inclusive Vs Extractive systems

  1. Needs to be Inclusive – Equality of opportunity – everyone has the same rights
    • Inclusive – Opportunity providing
      • Lack of interference – restrictions (regulations)
      • Reduced barriers to entry, freedoms/opportunity – laws
      • Non-exploitive (Extractive) – shouldn’t take from some to give to others

What inclusive systems have– what incentivises should be available

  • Property rights – keep what you own
    • Ownership of what you own and purchase,
    • Patents and intellectual property
  • Legal system – protect what you have, you know deals will be honoured
    • Contracts and Borrowing capabilities = TRUST in the system – Economy is built on confidence
  • Public services – Well functioning state
    • Infrastructure – Roads, transport, water, power, etc
    • Legal system enforced

All are needed simultaneously!

What doesn’t work – Extractive systems – Socialism  

  1. Extraction from the productive is a race to the bottom – history repeatedly shows this.
  2. Extractive – the more it is, more people will fight over it. Dictatorships and democracy are both fought over
    • Example – Proof – Christianity hasn’t had a major war since churches power was separated from the state. Other parts of the world where Government and Religion are one and the same aren’t as peaceful.
    • Dictatorships – violent overthrows, for power state has. At least they are public about it, as there is little the public can do to get them out beyond another violent overthrow – rinse and repeat
    • Democracy – trash talk about the opponents, depending on conspiracy level – shady behind the scenes like “House of Cards”.
  3. Incentives – They are the thing that makes you want to do things.
    • Example – state run systems – ‘they pretend to pay us, so we pretend to work’
    • Property rights – providing people of China with property rights

If profits are the purpose of capitalism, is this immoral?

  1. Capitalism is painted as heartless, but nobody wants to see the poor suffer.
  2. Those that want to provide for the poor through taking what the wealthy have, stand on a moral position of wishes….and theft
  3. Example – You bring bubble-gum to the class – you better have enough for everyone? But why?
    • What if you worked mowing lawns as a kid to buy gum, when others in the class didn’t?
    • Renee (shout out!) – her niece is 8, and makes shirts, and sells them to earn her money for roller skates, rather than asking her parents. Now makes and sells healthy muffins each afternoon after school.
    • That is what kids need to learn, as she will likely be successful!
  4. Ask yourself – What is greedier – Keeping what you have earned, or demanding someone else provide for you with what they earn?

Importantly, what has been proven to reduce poverty? Capitalism

  1. The more capitalism produces = more things, the more things we have, the lower prices are and easier they are to get!
  2. The more things being made, the more people need to be employed, so lower unemployment.
  3. These two together is what reduces poverty in the long term – but takes time
    • Not as easy as the Venezuela model of reducing poverty by 50% – by stealing
    • But no further redistributions – as all the wealth is gone

What is better? One that provides lower costs for things, more welfare (as more tax to redistribute), and greater employment opportunities through freedom of opportunity?

Society is a sum of all the individuals in it – If everyone is doing better, then so does society!

Need for Inclusive System – Thankfully we have one of those, some extractive elements, but not enough.

  1. System that allows for individual choice, and incentives to the individual to increase their wealth.
  2. Inclusive – Equality of opportunity – everyone has access, same rights, no preferences – Property rights – Legal system – Public services
  3. Next part we will run through how to prosper in this system – if you understand demand and how to create this for yourself, or something you produce, you will increase your wealth!

Thanks for listening! Head to https://financeandfury.com.au/contact/ to leave a question, or send in some feedback

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