The socialists next door…

There was an article on Bloomberg this morning ran under the sub-title “Polls show young Americans souring on capitalism.”

According to the article, “51 percent of 18-to-29 year-olds in the U.S. said they opposed capitalism” and when asked what type of economic system they preferred to live under, “44 percent picked a socialist country.” I get that youth is the time when you’re supposed to be wildly hippy dippy liberal – before you wake up one morning and the government is slicing away taxes in $10,000 increments – but I see this largely as a failure to teach either history or current events.

The last half of the 20th century was a great global cold war between capitalism and communo-socialism, where the latter collapsed in Eastern Europe when those living under it discovered that their “worker’s paradise” wasn’t able to provide them the goods and services that they wanted. Those being the things produced in the decadent and immoral west. It’s vestigial tail lives on across Europe in the form of Democratic Socialism

Looking at contemporary examples like Venezuela, they seem not to care that the the vast promises made by the government were window dressing without any kind of sustainable mechanism to fund them when the price of oil fell back from record levels. Venezuela now is a shell of a country that seems incapable of providing even the most basic services.

But, you’ll say, capitalism picks winners and losers and leaves some people behind. It does. So does every economic system. The biggest difference being that under our capitalist model bread lines are the exception rather than the rule. Given my druthers I’ll put my money on an economy where I have a fighting chance to better my lot in life than one where I spend my days working to pay taxes in the hope that the central government lives up to its promises. I’ve always found it better to make your own fate than to simply hope for the best… but maybe that’s just me.

Capitalism doesn’t work…

I’m never quite sure how to respond when someone tells me “capitalism doesn’t work” or that it only works for the uber-wealthy. I generally deflect the issue, because even in a well-reasoned discussion there’s virtually no chance of them changing their position – and there’s absolutely no chance of me changing mine. I’m not a philosopher and I’m not an economist. I’m just a guy from coal country who got a decent public school education and has had some life experience. I accept that my experiences are different than others, but I don’t consider them particularly unique to me in any way.

Growing up I was never in danger of being described as ultra-wealthy. I’m not in that position now, either. Thirty-seven years hence, that still doesn’t seem likely to be the case – though I do still buy a weekly Powerball ticket in case the fates have declared otherwise. At best I’m part of that vast swath of people who consider themselves middle class. I’m somewhere in the middle part of the curve of income distribution.

I made about $30,000 as a first year teacher. That first year I put $25 every two weeks into my IRA. That’s $50 a month towards what was then a very distant idea of retirement. Some months that $50 was painful – and in that first year as a “professional” I still ate a hell of a lot of ramen and lived in an efficiency apartment way off the beaten path because that’s what I could afford. Still, over that year I was able to scrape together a very modest downpayment. I found a mortgage company who was willing to take a risk on someone with little real credit history and bought a condo for $72,000. It was a 742 square foot, ground floor bunker of a place, but it was mine. Instead of paying rent I was building equity and paying 5.25% (which at the time was a real sweetheart deal) interest for the privilege.

A few years later I took another job (another risk), and rented out my little condo for $200 more a month than I was paying on the mortgage. Some months got awfully lean while I was waiting for a new tenant or the refrigerator needed repair, but you see, that’s capitalism. I used my own money to build value over time. I still have that little place and today it’s renting out for more than twice the mortgage payment. That’s capitalism… and I hardly feel like I’m taking advantage of the person who’s paying the rent. I’m still the one taking the risk that the air conditioner won’t conk out or the building won’t burn down.

I’m still making twice a month deposits into my retirement accounts. Planning for that part of my future is my responsibility. Despite the “correction” of the last few weeks, all told those accounts are still doing well over time. The growth of those early deposits, driven by overall increase in stock prices and the beauty of compounding interest is simply staggering. Some months are obviously better than others. Risk is a real mother like that. Sometimes she gives and sometimes she takes away. Even so, I don’t blame JP Morgan, or Citibank, or GM for doing what they do. There’s a reason we have the phrase “it’s just business.” They all seek to maximize profits at the macro level the same way I do on the micro level with my small rental property.

Populism and distrust of big business and big banks has a long history in this country stretching back to well before William Jennings Bryan’s cross of gold. Socialism hasn’t had it’s roots here quite as long, but it’s no spring chicken in America either. I’ve done the reading. I’m not sold on either model.

I choose to believe in my own experiences – of every time Amazon sends me a check for selling a short story and every time the rent is deposited into my account and every time a stock pays out a dividend. So I have no idea how to respond to someone who says capitalism doesn’t work. I’m seeing it work every single day.

What Annoys Jeff this Week?

1. Trust. I’ve always been very open about the fact that I’m a cynical bastard. Even so, I’m always amazed at the level of trust people have in others that they really don’t know all that well outside a very narrowly defined context. Anyone can open their mouth at any time and tell you any manner of thing you want to hear… which is why I get immediately suspicious when they’re pitch is something akin to “Oh no, don’t worry about a thing.” There are a few exceptions to this rule, but it only applies to a select few who I’ve known for a decade or two.

2. Capitalism. I’m developing a rather intense hatred of capitalism, in which I’m throughly annoyed at the whole idea of getting up five days a week, slogging through traffic to arrive at work, spending 8.5 hours there, slogging through traffic to get home, going to bed, and then doing it all over again. Unfortunately, I have this insatiable appetite for “stuff,” which requires cash, which requires work. This is the 21st century. Why don’t we have robots doing all the grunt work leaving us free to not be bothered by such petty details as needing to trade time for money?

3. Seeing the bright side. Some people are hopelessly optimistic. They’d see the bright lining in a mushroom cloud. Sometimes, I don’t want to see the bright side. I want to sulk. I want to be annoyed. I want to be angry. and I want that feeling to spur me to action in a way that no amount of good feeling ever could. I’ve made plenty of bad decisions in haste and anger, but most of my best have also come from the same place. Even if it’s a mixed bag of results, it’s the spark that keeps things moving.

Viva la Capitalism!

I’ve really been sitting here metaphorically bashing my head against the desk trying to figure out what was worth writing about tonight. The solution, as usual, was right in front of me. Usually, I don’t pay that much attention to the internet. It’s basically transparent to the user… I mean I don’t sit down at the keyboard and say I’m going to use the internet to access WordPress or my bank. I just point in the direction of what I want to do, and it gets me there. The wonder if the internet really isn’t what got me thinking tonight, though. It’s the sites like eBay and Amazon, Etsy and Cafepress that let any schmo create an account, log in, and start selling products to a whole world of consumers that they wouldn’t have access to from the kind of businesses that people started from home five or ten years ago. Maybe I’m coming late to this party, but damnit, that’s a big deal. It’s huge! Someone with an idea that’s good enough can sit in the comfort of their on home and make money from nothing more than their ideas and a willingness to put in the time to identify and reach an audience.

Your chances of becoming an internet millionaire are probably about the same as hitting tonight’s MegaMillions jackpot, but still, in this case it seems to be a function of the harder you work, they luckier you get. The beauty of this new wave of micro-capitalism is that it takes so much of the hugh startup costs out of the equation and lets people focus on delivering a quality product while someone with the technical expertise deals with the “back office” stuff. With a few good ideas and a high speed internet connection, we can all be in business. Talk about a radical departure from all of human history.

Viva la Capitalism!

Feel the power…

ABC News ran a feature tonight about the “greedy” power companies who were turning off the utilities of people who were not paying their bills. Of course they trotted out the usual suspects… The family of 6, the old woman raising her grandchild, etc. All they said of the companies was that they were stopping service because delinquencies drive up the price for paying customers. Yes, Mr and Mrs Dontpaymybills and all the ships at sea, that’s how it works in this country. We trade goods and services for money or the promise of money at some predetermined point in the future. That’s what allows us to not all raise corn and cows to feed ourselves.

I know I rant on this a lot, but I just have a hard time getting past the idea that our countrymen are surprised that they’re expected to pay for the goods and services they consume. I was raised believing that this country was about the right to pursue happiness… Not necessarily the right to have it. In economics, there’s a principle that everyone learns in their 101 class that says “there’s no such thing as a free lunch.” The consequences of basing an economic system on the premise that everyone should have a free lunch if they want one died off with the Soviet Union. Cuba stays afloat because of the tourist dollars generated from capitalist Europe. China’s Communist party stays in power because they have adopted measured amounts of capitalism and that trend is increasing over time.

But, you say the top 1% of earners are running away with the pie. It’s true that their part of the pie has grown, but the entire pie has gotten larger too. There are more millionaires per capita today than at any time in the history of the Republic. That doesn’t mean that these individuals have jobs making $700,000 a year, just that they were smart with what they did with their money. Get out of school making $35k a year, max out your contribution to your IRA and 401k, live under your means, and in 35 years when you’re eligible to retire, guess what… You’re a millionaire too. Work another 5 or 6 years past eligibility, guess what… That’s right, another million. Compound interest and long-term market growth are beautiful things, friends.

So next time you’re watching the nightly news and tempted to sign onto the bandwagon that all our problems are caused by the big, bad corporations, take a look around at the decisions individuals have made that contribute to where they find themselves. The Invisible hand doesn’t just guide the market up, it guides it down too. Get in tune with that and you’ll really feel the power.