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Subject: Does free market captialism inherently reduce some to poverty? rss

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On one hand it is often argued that if you work hard and so forth you can be financially successful. This implies that everyone can be successful and that people who aren't successful are simply doing it wrong.

But the very nature of competition demands that some win and some lose. It could be argued that no matter how hard you work and train, like the soldiers storming the beaches at Normandy, someone's going to get it.

Does free market capitalism inherently result in a subset of the population being reduced to poverty? I'd love to hear arguments as to why or why not. Any recommended books or articles on the subject?
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rayito2702 wrote:
On one hand it is often argued that if you work hard and so forth you can be financially successful. This implies that everyone can be successful and that people who aren't successful are simply doing it wrong.

But the very nature of competition demands that some win and some lose. It could be argued that no matter how hard you work and train, like the soldiers storming the beaches at Normandy, someone's going to get it.

Does free market capitalism inherently result in a subset of the population being reduced to poverty? I'd love to hear arguments as to why or why not. Any recommended books or articles on the subject?


A) How do you define success? Acquisition of great wealth? Financial security after a full career? Personal happiness while feeding and housing your family?

Some people do assign a certain moral valuation to wealth accrual. The rich are blessed while the poor must have done something to deserve their misfortune. That is a philosophy of choice rather than necessity.

B) Win-lose zero sum dichotomies are also a philosophical choice. Negotiations can often leave both parties better off than when they started. In fact, competition is more about the benefit to the larger population as it tends to generate better efficiencies and better pricing options for consumers. Absence of competition tends toward monopolistic structures which reduces the need for innovation and increases prices.

C) Capitalism itself is amoral. It is merely an ideological concept for how capital should flow. People and their choices determine the outcomes. Unfettered free market capitalism often leads to monopolies or other forms of artificial scarcity which tends to aggregate wealth in fewer hands because individuals make those choices.

D) The term "free market" though much ballyhooed is also often misused. At it's heart, economics first considers a utopian "perfect market" in which supply and demand curves meet at an ideal point of maximum efficiency. Economist try to evaluate the impact of real world behaviors and controls on that efficiency. The "free market" is not a "perfect market" as it may result in inefficient outcomes in particular since information is not equal, artificial scarcities are permitted, and externalities are not considered.

The real boogeyman in all of this is human nature. The ability first to store food and the development of currencies have allowed accrual of wealth. Wealth inequality has existed in feudal societies, theologies, Communist regimes and Western style democracies/republics all with varying economic models.

There are a huge number of books on economics. One very accessible choice is "Freakonomics".
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When a true free market (or even a partially captured free market) exists, it results in increased productivity (the more captured the lower the productivity gains)*. In theory, that means that things become cheaper over time. In theory, that means that what we call poverty isn't as harsh as poverty was in the past.

Imagine living in the south in bug infested rental property that lacked heating or cooling without electricity and living in constant food insecurity.

Then imagine the minimum standard today.

But in practice- the productivity gains are mostly taken by the wealthy these days and not shared with those in poverty. So the wealthy live much better while those in poverty only live a little better. If the productivity gains were distributed more equally, poverty could easily include food security, unlimited entertainment, unlimited education opportunities, a roof over your head, heating, air conditioning, and plumbing. And basic health care. (No multi-million dollar cancer treatments but less expensive cancer care, broken legs, preventative medicine, car accidents, etc.)

And the wealthy would simply have less money piled up in savings and bonds.

BUT, they might also make more money on their investments since those at the bottom would have some money to spend on products and services.

* Captured markets stifle new businesses and disruptive technology as well as engage in monopoly pricing which sucks income from other businesses.

** However, none of my opinion is based explicitly on any market theory. Merely what I've absorbed from discussing the issue for years on a base of what I got back in college (mostly from conservative professors). If you want an explicit market theory based opinion, you'd need bojam or phillip, etc.
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Definition of capitalism:
Quote:
an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.

Emphasis on "for profit". It means those owning capital are looking to accumulate it.

As such it isn't a surprise that "capitalism inherently reduces some to poverty."

That's the short version. For the long version with lots of empirical data, read Thomas Piketty's Capital in the Twenty-First Century.
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rayito2702 wrote:
But the very nature of competition demands that some win and some lose. It could be argued that no matter how hard you work and train, like the soldiers storming the beaches at Normandy, someone's going to get it.


It really doesn't. In many games someone wins and someone else loses, but in life it doesn't have to be that way. Competition can drive multiple people or organizations to be better. Moreover, even if two companies compete and only one can ultimately survive (e.g. a natural monopoly) that doesn't mean that the people in the losing company must be poor. They may find work with other companies.

The problem with capitalism isn't that it requires losers and poor people. It's that capitalism is indifferent to whether people are poor. For much of our economic history the natural output of economic growth was job growth and wage growth, so capitalism was a huge boon to most people. Now, however, we may be in a situation where automation is removing more jobs than economic growth is creating.
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I think you're conflating two different things. Capitalism as a system of organizing an economy doesn't inherently do very much but define how you structure markets, competition, and motivations to produce goods or provide services. It really doesn't particularly care whether there is or is not poverty, it cares about moving money around by seeking profits and determining which ventures succeed or fail based on their ability to attract business.

Whether or not there's poverty strikes me more as a question about the role government plays. Certainly, a capitalist economy might encourage a role that's more hands-off (they can succeed or fail on their own merits). But just because competition is a natural part of capitalism, that doesn't mean there can't be strong safety nets to alleviate poverty or set a minimum living wage.

There are certainly trade-offs that impact the economy when that happens. Hiring people in countries with strong safety nets often involves far more complicated issues if you want to fire them or reduce staff. There's an increased tax burden to bear and government intrusion to worry about.

But I don't believe capitalism will inherently result in poverty. There's too many factors. It's simply an inadequate way of addressing poverty when it exists. The way the economy is structured cannot, in and of itself, "solve" many problems.
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Yes.

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rayito2702 wrote:
On one hand it is often argued that if you work hard and so forth you can be financially successful. This implies that everyone can be successful and that people who aren't successful are simply doing it wrong.

They may also be disabled in some way or have no opportunities for success. And you can't be successful anywhere. Some places have very limited opportunities. If a small town has 500 jobs and you're the 501st person, you're SOL.

rayito2702 wrote:
But the very nature of competition demands that some win and some lose. It could be argued that no matter how hard you work and train, like the soldiers storming the beaches at Normandy, someone's going to get it.

No. It's not a zero sum game, by the very nature of productivity. Goods are being created, and they create opportunities to transport, trade, and resell those goods, as well as to use those goods to create more goods. If you grow wheat, you sell it, a baker buys it and makes bread, you buy the bread. A diner opens and uses the bread to make sandwiches. Etc, etc, etc.

rayito2702 wrote:
Does free market capitalism inherently result in a subset of the population being reduced to poverty? I'd love to hear arguments as to why or why not. Any recommended books or articles on the subject?

If you mean laissez-faire capitalism, it's pretty inevitable someone will get greedy and screw over as many people as possible. (As many as 330M. whistle) However, with sensible regulation, no inherent problem exists. Examples include Canada and pretty much all the countries of Europe:

https://en.wikipedia.org/wiki/List_of_countries_by_income_eq...

Some people actively choose a poor lifestyle. One relative got out of the 9-5 world and chose to live in a trailer in Appalachia, shooting game for a lot of his food. More money means more complexity, and he wanted a simple life. It takes a huge amount of money before you can buy simplicity as things are currently structured in the US.

Some people are culturally "locked" into a poor lifestyle. One example is groups who disadvantage themselves by refusing to abandon a distinct, non-mainstream culture when looking for work; "Look at me! I won't fit into your workplace culture! No, siree!" Another is the "blue collar" vs. "suits" mythology: someone who demands to be blue collar is going to get blue collar pay; someone who moves from blue collar to become a "suit" is going to get suit pay. Another is people who demand to do the same work as their parents, grandparents, etc.; whether it's coal mining or buggy whip manufacturing, it's extremely limiting. People are often their own worse enemies, at least from some perspectives.

(Nothing is wrong with staying in touch with your roots as a hobby, but demanding an employer subsidize your hobby--not their priority.)
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Rulesjd wrote:
A) How do you define success? Acquisition of great wealth? Financial security after a full career? Personal happiness while feeding and housing your family?

My question is less about success and more about poverty. So success in this sense would be not suffering from poverty.
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rayito2702 wrote:
On one hand it is often argued that if you work hard and so forth you can be financially successful. This implies that everyone can be successful and that people who aren't successful are simply doing it wrong.

But the very nature of competition demands that some win and some lose. It could be argued that no matter how hard you work and train, like the soldiers storming the beaches at Normandy, someone's going to get it.

Does free market capitalism inherently result in a subset of the population being reduced to poverty? I'd love to hear arguments as to why or why not. Any recommended books or articles on the subject?

It's not so much free market capitalism per se, but many of the cultural and social beliefs that accompany it. If you would like a relatively short but deep exploration of these issues I would recommend the document, "The Prosperity of Humankind". It can be downloaded from this site: http://www.bahai.org/library/other-literature/official-state....



 
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Chad_Ellis wrote:
rayito2702 wrote:
But the very nature of competition demands that some win and some lose. It could be argued that no matter how hard you work and train, like the soldiers storming the beaches at Normandy, someone's going to get it.

It really doesn't. In many games someone wins and someone else loses, but in life it doesn't have to be that way. Competition can drive multiple people or organizations to be better. Moreover, even if two companies compete and only one can ultimately survive (e.g. a natural monopoly) that doesn't mean that the people in the losing company must be poor. They may find work with other companies.

The problem with capitalism isn't that it requires losers and poor people. It's that capitalism is indifferent to whether people are poor. For much of our economic history the natural output of economic growth was job growth and wage growth, so capitalism was a huge boon to most people. Now, however, we may be in a situation where automation is removing more jobs than economic growth is creating.

I would add that another intrinsic problem with capitalism is that the unit of exchange is a currency that can be accumulated into wealth and disproportionate influence rather than a unit of 'utility' that has equal inherent worth to everyone. This means that the inconsequential whims of zillionaires drive the economy orders of magnitude more than the fundamental needs of the poorest. Hence resources and labour are directed towards luxury yachts etc. while basic issues are neglected.

And if your health, education and safety aren't a priority from birth you need a healthy dose of luck to create skills that can differentiate you from the unemployed. Meanwhile the lack of a safety net is a great boon to employers, and facilitates them to pay wages far below the value of the employee's labour.

There are then clear positive feedback pressures that tend towards inequality. If you start disadvantaged you will likely stay there. If you are rich, you will be able to have your interests well represented.

While inequality doesn't necessarily imply poverty, the lack of economic and political power of the poorest makes it hard to see how they can effectively protect their interests when there are genuinely competing interests at stake: whether that is lead in the water, voting rights, health care reform, climate change, etc.
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Steve Cates
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In theory, one super benevolent efficient capitalist could produce enough goods at an inexpensive price as to make all goods essentially free to everyone. When all goods are free, poverty is meaningless.
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ironcates wrote:
In theory, one super benevolent efficient capitalist could produce enough goods at an inexpensive price as to make all goods essentially free to everyone. When all goods are free, poverty is meaningless.


Aye...

(except that particular locations in 3d space have value, rare people have value, rare objects have value, and so on. In these cases capitalism efficiently allocates the locations, people, and objects to various people).
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ironcates wrote:
In theory, one super benevolent efficient capitalist could produce enough goods at an inexpensive price as to make all goods essentially free to everyone. When all goods are free, poverty is meaningless.


The logic of these 2 sentences is not sound. The 1st sentence assumes that all goods can be sold at a low price and does not assume that the poor have any way to earn ANY money. The 2nd sentence assumes that the goods are free [not the same as low price] and does not assume that the poor have any way to earn or receive any money to buy the low cost goods.

So, by changing from "low cost" to "free" the rules of logic are violated.

The logical structure here is IF A & B are true, D is true if C is true. Instead of C being true [goods are free] it was assumed that goods are cheap which is not at all the same as free if you have zero money.

 
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re 500 job town and being #501
oh goody. I get to argue that in a free market, jobs don't come in quanta. And that human ingenuity is increased by desperation. Sex work, organ sale, petty crime and fortune telling are always options.
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ironcates wrote:
In theory, one super benevolent efficient capitalist could produce enough goods at an inexpensive price as to make all goods essentially free to everyone. When all goods are free, poverty is meaningless.


This doesn't make sense on so many levels.

Under what conditions do you think it possible that one capitalist could produce essentially free goods for everyone? Isn't "essentially free" meaningless if you still can't afford the goods or the right basket of goods to survive? If everything is "essentially free," then how are we discussing any form of capitalism at all? There's no capital to allocate because it's all, well, free?

I mean, if we're just going to fling out absurd theoretical constructs, we could also just start with "Assume a perfect socialist economy has emerged..."
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perfalbion wrote:
ironcates wrote:
In theory, one super benevolent efficient capitalist could produce enough goods at an inexpensive price as to make all goods essentially free to everyone. When all goods are free, poverty is meaningless.


This doesn't make sense on so many levels.

Under what conditions do you think it possible that one capitalist could produce essentially free goods for everyone? Isn't "essentially free" meaningless if you still can't afford the goods or the right basket of goods to survive? If everything is "essentially free," then how are we discussing any form of capitalism at all? There's no capital to allocate because it's all, well, free?

I mean, if we're just going to fling out absurd theoretical constructs, we could also just start with "Assume a perfect socialist economy has emerged..."


That is a perfect socialist economy.
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rayito2702 wrote:
On one hand it is often argued that if you work hard and so forth you can be financially successful. This implies that everyone can be successful and that people who aren't successful are simply doing it wrong.

But the very nature of competition demands that some win and some lose. It could be argued that no matter how hard you work and train, like the soldiers storming the beaches at Normandy, someone's going to get it.

Does free market capitalism inherently result in a subset of the population being reduced to poverty? I'd love to hear arguments as to why or why not. Any recommended books or articles on the subject?

The Devil is [as they say] in the details.

The main one being what is a "free market"?

Often it is assumed that all players have the same info when they make every transaction. This is never true. I doubt that even half of stock market sales are between 2 people who have exactly the same info about the stock in question, maybe not even 10%. And yet this is what is assumed to be true.

As others have said a lot depends on what the Gov. is doing that impacts the economy. Does it tax the rich mostly or does it tax the poor mostly? Does it regulate or does it keep its hands off the economy? Etc.

The US started off with the uncommon and certainly temporary situation that there was free or cheap land for the taking out in the "west". This allowed people to get used to a hands off attitude and think it is normal.
. . Around 1900 the frontier closed. 30 years later in 1929 capitalism imploded with the stock market crash. FDR created a New Deal with new rules that saved capitalism form itself. The rich remembered the good old days before 1900 as the normal condition and fought to roll back the New Deal rules because they violated their freedom [the freedom they had had before 1900]. By 1978 or 1980 they had mostly succeeded [for example labor laws to favor Unions were gutted] and in 1998 [or so] with the repeal of Glass - Siegal [bank reg.] they got more rules rolled back. This set the stage for the 2008 crash [The Great Recession].

So, yes under the current system in the US Gov. [not the economic system per say but rather the Gov. system that is used to create the economic system] capitalism will always create people in poverty.

Also, remember to expand your focus to include the whole world. For example, the Luddites were wrong only because English cotton mills could sell cloth all around the world. This under cut the cloth makers in India, for example, and pushed them into poverty [made worse by the caste system them made them stay cloth makers even though they could not sell their cloth at a profit in competition with the machine made cloth from England].

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hsquid wrote:
perfalbion wrote:
ironcates wrote:
In theory, one super benevolent efficient capitalist could produce enough goods at an inexpensive price as to make all goods essentially free to everyone. When all goods are free, poverty is meaningless.


This doesn't make sense on so many levels.

Under what conditions do you think it possible that one capitalist could produce essentially free goods for everyone? Isn't "essentially free" meaningless if you still can't afford the goods or the right basket of goods to survive? If everything is "essentially free," then how are we discussing any form of capitalism at all? There's no capital to allocate because it's all, well, free?

I mean, if we're just going to fling out absurd theoretical constructs, we could also just start with "Assume a perfect socialist economy has emerged..."


That is a perfect socialist economy.


Doesn't fit the definition of socialism. In socialism the government owns the means of production. The man, the perfect capitalist, is not the government. So all the means of production (presumably robots) are owned by this one man. The man does not need the labor of any other person in the world to produce all the goods that anyone in the world needs.

This model could be said to work for a subset of basic goods as long as you ignore luxury goods that lack hard value unlike food, clothing, etc.

And I include particular locations. You might be able to have a location any where and "live" but a location close to the center of a population may be better or worse depending on government services there.
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Pinook wrote:
Walt
re 500 job town and being #501
oh goody. I get to argue that in a free market, jobs don't come in quanta. And that human ingenuity is increased by desperation. Sex work, organ sale, petty crime and fortune telling are always options.

They do and they don't. I can't go to a company and say, "You have 39 employees working 40 hours a week; hire me and we'll all work 39 hours a week." For one thing employment usually has a fixed cost for each employee, plus their hourly wage. But the real line is that at some point no employer will have the need to hire an additional employee, even at half time. At some point the 501st employee will spend more looking for that extra job than the job is worth. Quanta isn't the issue; the size of the local economy is.

Job ≠ Crime.

I was more making a rhetorical point rather than a strictly logical or mathematical point. But, thanks for the riposte.
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perfalbion wrote:
ironcates wrote:
In theory, one super benevolent efficient capitalist could produce enough goods at an inexpensive price as to make all goods essentially free to everyone. When all goods are free, poverty is meaningless.


This doesn't make sense on so many levels.

Under what conditions do you think it possible that one capitalist could produce essentially free goods for everyone? Isn't "essentially free" meaningless if you still can't afford the goods or the right basket of goods to survive? If everything is "essentially free," then how are we discussing any form of capitalism at all? There's no capital to allocate because it's all, well, free?

I mean, if we're just going to fling out absurd theoretical constructs, we could also just start with "Assume a perfect socialist economy has emerged..."
For example, a capitalist develops solar powered robots to farm, build, mine, etc. and feels generous. Once he or she has made these automatons, he or she makes the benefits free to everyone. Sure it's theoretical.
 
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hsquid wrote:
perfalbion wrote:
ironcates wrote:
In theory, one super benevolent efficient capitalist could produce enough goods at an inexpensive price as to make all goods essentially free to everyone. When all goods are free, poverty is meaningless.


This doesn't make sense on so many levels.

Under what conditions do you think it possible that one capitalist could produce essentially free goods for everyone? Isn't "essentially free" meaningless if you still can't afford the goods or the right basket of goods to survive? If everything is "essentially free," then how are we discussing any form of capitalism at all? There's no capital to allocate because it's all, well, free?

I mean, if we're just going to fling out absurd theoretical constructs, we could also just start with "Assume a perfect socialist economy has emerged..."


That is a perfect socialist economy.
No, the private citizen still owns the means of production. Charity =/= socialism.
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Steve1501 wrote:
rayito2702 wrote:
On one hand it is often argued that if you work hard and so forth you can be financially successful. This implies that everyone can be successful and that people who aren't successful are simply doing it wrong.

But the very nature of competition demands that some win and some lose. It could be argued that no matter how hard you work and train, like the soldiers storming the beaches at Normandy, someone's going to get it.

Does free market capitalism inherently result in a subset of the population being reduced to poverty? I'd love to hear arguments as to why or why not. Any recommended books or articles on the subject?

The Devil is [as they say] in the details.

The main one being what is a "free market"?

Often it is assumed that all players have the same info when they make every transaction. This is never true. I doubt that even half of stock market sales are between 2 people who have exactly the same info about the stock in question, maybe not even 10%. And yet this is what is assumed to be true.

As others have said a lot depends on what the Gov. is doing that impacts the economy. Does it tax the rich mostly or does it tax the poor mostly? Does it regulate or does it keep its hands off the economy? Etc.

The US started off with the uncommon and certainly temporary situation that there was free or cheap land for the taking out in the "west". This allowed people to get used to a hands off attitude and think it is normal.
. . Around 1900 the frontier closed. 30 years later in 1929 capitalism imploded with the stock market crash. FDR created a New Deal with new rules that saved capitalism form itself. The rich remembered the good old days before 1900 as the normal condition and fought to roll back the New Deal rules because they violated their freedom [the freedom they had had before 1900]. By 1978 or 1980 they had mostly succeeded [for example labor laws to favor Unions were gutted] and in 1998 [or so] with the repeal of Glass - Siegal [bank reg.] they got more rules rolled back. This set the stage for the 2008 crash [The Great Recession].

So, yes under the current system in the US Gov. [not the economic system per say but rather the Gov. system that is used to create the economic system] capitalism will always create people in poverty.

Also, remember to expand your focus to include the whole world. For example, the Luddites were wrong only because English cotton mills could sell cloth all around the world. This under cut the cloth makers in India, for example, and pushed them into poverty [made worse by the caste system them made them stay cloth makers even though they could not sell their cloth at a profit in competition with the machine made cloth from England].



thumbsup

There are two beliefs underlying modern consumerism which in my view are wrong, and which must inevitably result in the creation of poverty alongside wealth. They are

(1) self-interest drives prosperity, and

(2) progress depends on relentless competition.

Free market capitalism does not depend for its efficacy on these underlying assumptions. Without them it could be a powerful instrument for creating wealth for all.
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rayito2702 wrote:


But the very nature of competition demands that some win and some lose.


Not necessarily. In Western capitalism, there are many successful companies providing the same/similar products vying for market share all the time. So even being 'second, third, fourth' place in a free market can still produce a very profitable company.

One of the biggest problems that communist countries face is incentive. If you are going to get paid the same no matter how well you produce, your incentive for innovation and excellence is removed.
 
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Purely as a thought excersize,

With a minimal government and social policies, a free labour market (rather than capitalism) would create* poverty. Historically, a labour surplus is much more common than a labour shortage. Hence, not everyone will be able to find employment. Given no social policies, many of those people would become destitute.


* or rather, not prevent
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