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.