Democrat, Republican, Independent, Libertarian - or Capitalist
In my study of political structures, and which function best, I’ve concluded that capitalism is my preference. I prefer that to Democrat, Republican, Independent, or Libertarian. In societies where capitalism flourishes, there is likely
- Greater opportunity
- Tolerance of diversity
- Social mobility
- Commitment to fairness
- Dedication to democracy.
But, we must take care in how we define capitalism. Unbridled free markets recently rocked global finance to its core, and financial reform is stalled in a gridlocked Congress over a year from barely skirting a depression. Without requiring that capitalism be characterized as pursuit of a rising standard of living for the clear majority of citizens, it is reduced to a system that benefits the few.
Pursuit of a Rising Standard for All
With that definition in mind, it is interesting that the ratio of compensation of CEOs to workers was 30:1 in 1970 and 120:1 in 2000. These data were provided by the Economic Policy Institute, a think tank dedicated to including the interests of low to middle income workers in economic policy.
The growth in CEO earnings virtually mirrors in the growth in the S and P 500 Index over that same period. While workers are generally paid in the form of cash compensation, CEOs in non-financial firms earn over 70% of their compensation in the form of equity pay. Therefore, the inequity appears to be based more in the performance of the price of their company stock options than any other factor. If the CEO is ultimately responsible to her stockholders for the performance of the company, then this inequity is readily explained.
Further, during this period retirement savings changed from company-provided defined benefit pensions to retirement programs where employees make contributions that are deducted from their income. For example, a worker who contributes 15% of her $50,000 salary to a 401 (k) plan will show a taxable income of $42,500 after deducting the contribution. Because the IRS limits the dollar amount of contributions, a $250,000 executive at that same firm would be limited to a $16,500 contribution.
The worker’s salary in this example would be decreased by 15%, and the executive’s by less than half that (6.6%), even though the executive contributed $9,000 more. As you can see, workers contributing to these plans make their income appear proportionately less than CEOs.
Finally, because transfer (unemployment, welfare, disability and social security) payments are taxed, if at all, at a lesser percentage for lower income taxpayers, those amounts are not fully represented as income, based on tax return data.
A 2007 article by the Cato Institute demonstrates that many studies, including recent work from Paul Krugman, grossly overstate the disparity between CEO and worker income, and estimate, based on Congressional Budget Office figures, that the top 1% of earners in 2003 earn between 14:1 to 15:1 more than workers, up from about 9:1 in 1981. Â
So, while the current climate is not one that shows capitalism in its finest light, we do appear to be in a rising tide that lifts most boats. And, with that, I will add a codicil to my “Capitalist” title.
Barron’s Byline Admission
One of my favorite economists is Gene Epstein, who is the Economics Editor of Barron’s magazine. I have often referenced his work when teaching Security Analysis at UCLA because of its data-orientation and lack of agenda.
Mr. Epstein recently gave a speech to young people that he was kind enough to share with me, wherein he described himself as a “bleeding heart capitalist.”  It was at that moment that I adopted a party affiliation.
I am in favor of a system that is most likely to result in greater opportunity, tolerance of diversity, social mobility, commitment to fairness, and dedication to democracy. I am, indeed, a capitalist.
But, I also demand that that system results in a rising standard of living for the clear majority of their citizens.  Rather than a “laissez faire” approach to free markets, I favor a properly regulated financial system that compels those who take extraordinary risk be subject to extraordinary loss – and be outside the realm of Federal insurance, either by mandate or by being “too big to fail.”
I favor protection of the finest educational system in the world by protecting the free exchange of ideas in a meritocracy, encouraging participation with the world’s greatest minds regardless of their country of birth, and funding their priceless contributions to our competitiveness in the global economy.
I, too, am a bleeding heart capitalist, and will support whichever political party that furthers these ideals.
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me too, so lets invent a new party… what do you suggest? I think after a while any party forgets what they were elected to do. It is so unfair to the people of this country. If it were up to me i would be kicking most of them out of office.
Bleeding heart capitalist is the best name I can come up with, Lynnette. What do you think?
An extremely well written piece Kitty. You obviously are very knowledgeable lady and I will start to read your blog. Thank you for contributing.
I look forward to your opinions, JB.
Simply “MORAL CAPITALIST” or “CAPITALIST WITH CONSCIENCE”
Great article, Kitty. I like your idea of supporting whatever party promotes those principles. That way we can keep freedom of ideas flowing and keep any party from getting too complacent.
I totally agree with you re the greater standard of living. Even if we think back to when we boomers were small (a short time ago (lol) by time standards), we find that the average person has a higher standard of living nowadays. Back in the day, houses had fewer rooms, fewer bathrooms. Most homes were not air conditioned, even in Miami! A lot of families only had one car, if that. Think of all the technological advances that the average person has now. And cars. My husband and I were just talking about that the other day. There was a time when you bought your car pretty much stripped down (no a/c, no radio, etc.) and you paid for options. Nowadays cars come standard with all sorts of bells and whistles. We may complain that things cost more, but those things are nicer than they used to be.
While I agree that there need to be financial regulations, those regulations need to focus on criminal activities. We also need to look at what regulations are stupid, outdated, cumbersome and actually impede the smooth workings of the market (mark to market comes to mind).
The following quote is from ‘Socialism vs. Capitalism: Which is the moral system?’ by C. Bradley Thompson:
‘Capitalism is the only moral system because it requires human beings to deal with one another as traders–that is, as free moral agents trading and selling goods and services on the basis of mutual consent.’
Here is the link to the full article: http://www.ashbrook.org/publicat/onprin/v1n3/thompson.html You may have run across it since it’s been out a while.
Thanks for the article. Look forward to a lively discussion from folks.
Stunning comments, Olga. Do I remember that you are from a Communist country?
yes, I’m originally from Cuba. You’d be amazed at the stories our family and others could tell you about how a new government can easily take over. People that think it can’t happen here, have no idea. Like the fog, it can creep in on ‘little cat’s feet’. (sorry, can’t remember the source)
Now, here is a “Capitalist with Conscience”
John Mackey, CEO of Whole Foods, believes that business, profits and capitalism are not forces of evil and is trying to persuade college students by traveling across college campuses.
His concept “conscious capitalism.”
“It means that business has the potential to have a deeper purpose. I mean, Whole Foods has a deeper purpose,” he says, now sounding very much like a philosopher. “Most of the companies I most admire in the world I think have a deeper purpose.” He continues, “I’ve met a lot of successful entrepreneurs. They all started their businesses not to maximize shareholder value or money but because they were pursuing a dream.”
“Before I started my business, my political philosophy was that business is evil and government is good. I think I just breathed it in with the culture. Businesses, they’re selfish because they’re trying to make money.”
At age 25, John Mackey was mugged by reality. “Once you start meeting a payroll you have a little different attitude about those things.” This insight explains why he thinks it’s a shame that so few elected officials have ever run a business. “Most are lawyers,” he says, which is why Washington treats companies like cash dispensers.
Mr. Mackey is trying to save capitalism: “I think that business has a noble purpose. It’s not that there’s anything wrong with making money. It’s one of the important things that business contributes to society. But it’s not the sole reason that businesses exist.”
What does he mean by a “noble purpose”? “It means that just like every other profession, business serves society. They produce goods and services that make people’s lives better. Doctors heal the sick. Teachers educate people. Architects design buildings. Lawyers promote justice. Whole Foods puts food on people’s tables and we improve people’s health.”
Then he adds: “And we provide jobs. And we provide capital through profits that spur improvements in the world. And we’re good citizens in our communities, and we take our citizenship very seriously at Whole Foods.”
Mr. Mackey doesn’t collect a paycheck. “I’m an owner. I have the exact same motivation any shareholder would have in the Whole Foods Market because I’m not drawing a salary from the company. How much money does anybody need?” More to the point, he says, “If the business prospers, I prosper. If the business struggles, I struggle. It’s good for morale.” He hastens to add that “I’m not saying anybody else should do what I do.”
Well, that’s not exactly true. Mr. Mackey has been vocal in his opposition to recent CEO salaries. “I do think that it’s the responsibility of the leadership of an organization to constrain itself for the good of the organization. If you look at the history of business in America, CEOs used to have much more constraint in compensation and it’s gone up tremendously in the last 30 years.”
He bemoans the trend that once a Fortune 500 CEO made about 25 times the average worker pay, and now that’s climbed to 300 times average employee pay. He says this violates the principle of “internal equity—what your leadership is getting paid relative to everyone else in the organization.”
But there’s one other institution John Mackey thinks needs a makeover—and that’s government. He describes what the Federal Reserve has done with massive money creation as “debauchery of the currency.” He thinks the bailouts were a travesty.
“I don’t think anybody’s too big to fail,” he says. “If a business fails, what happens is, there are still assets, and those assets get reorganized. Either new management comes in or it’s sold off to another business or it’s bid on and the good assets are retained and the bad assets are eliminated. I believe in the dynamic creativity of capitalism, and it’s self-correcting, if you just allow it to self-correct.”
Hi Elisa, and thank you for this thought-provoking comment. As in the links provided in the article, I think Mackey’s statistics as regards CEO salaries are flawed. The Congressional Budget Office’s numbers show a much lower discrepancy, but regardless of that, the point is taken. I’m interested in your opinion of his position on health care reform http://online.wsj.com/article/SB10001424052970204251404574342170072865070.html
I agree Mackey on these points:
I would add that some government regulations are needed for insurance companies to be accountable (e.g. pre-existing, etc.)
Having said that, I also believe that Americans have a right to “basic healthcare”. I can’t point to the fine monetary line that separates a rich person from a not-rich person; likewise I cannot give you a specific definition of what constitutes basic and not-basic healthcare. What I can say is that most reasonable people agree that certain types of care are (vaccinations, a yearly physical, insulin, twice-yearly dental cleanings, testing and treatment for highly contagious diseases, eyeglasses, etc.).
John Mackey says that government is not the solution to out of control health care expenditures. He says we are. The American people are responsible for out of control health care expenditures. He preaches a life of personal responsibility, of personal choice and actions that lead to health. Not all the people with cancer smoke, and all of the people with diabetes eat too much McDonalds and all of the people with genetic conditions should have been aborted and all of the people who were injured through no fault of their own really are to blame for their injuries.
I don’t believe that we should structure our society in such a manner that everyone has access to healthy food. I don’t believe that we should structure our society in such a manner that everyone has an opportunity to exercise.
What do you think about MACKEY’S opinion on healthcare reform?
I agree with his opinion with reservations. Tort reform will be difficult to pass because of the power of the litigation lobby. Further, even if each provision were enacted, the country would have a significant number of uninsured, leaving the problem of significant costs incurred by emergency rooms to treat them. We’ll pay, either through subsidies to hospitals or to cover such persons, and I would prefer to cover them, as I believe that would ultimately be less costly and more effective.
Thanks for your opinion, as always, Elisa.
About raising the tax rate to 39.5 ? to pay for a “base coverage”?
It’s my understanding that the so-called “Bush tax cut” will be allowed to expire this year http://www.newsmax.com/Newsfront/summers-bush-tax-cuts/2009/01/25/id/327854 and that additional revenue is included in the Congressional Budget Office’s projected deficit.
Love the story, Elisa. I believe there are many more people like this than there are overpaid CEOs. It’s just that the current administration has chosen to villify certain sectors in order to garner support for their agenda. They would not be able to villify this man and others like him because they demonstrate that you can do for others while working within a capitalist system. Thanks for sharing the story.
My pleasure!
You know, Kitty, this post is really good. I hope more ladies join the conversation. To me it’s about making our greatly successful system better, without infringing on people’s freedoms and without expanding government. So TQM (I know, old term) of you. lol
I know I speak for others when I tell you how invaluable your opinion is, Olga, after having lived through an oppressive regime. Your point of view is invaluable, and I, too, hope that more women share their thoughts. Thank you again for taking the time to share your story and your opinions.
Thanks. I appreciate your financial knowledge and experience. People sharing their experience and knowledge in a respectful (for the most part) manner, is one of the resons I like VN. You’re never too old to learn…..plus it’s good for the ole brain. lol