Mike Savage discusses the differences between Capitalism, Socialism, and Communism in the world today. Are we on the border of becoming a fascist society? Read the advice and opinions of financial consultant Mike Savage. Call him today in Pocono Summit with any questions about your financial future.
Weekly Article 10-22-2018
While looking at Facebook the other day (something I do less and less all the time) I saw some political posts-(which is why I stay off in the first place) that were so stupid I thought I had to write what I am going to write. I would have made a comment but the intellect involved in the conversation could not have comprehended a response anyway.
There was a war of words from one person who was lamenting the fate of Socialist Venezuela and another verbally abusing that person because there are so many better examples of socialism. I believe both are being grossly misled and I will try to lay out why right here.
First of all, let’s look at the major forms of economies in a very simple manner.
Capitalism– Economic system based upon private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system and competitive markets. (Wikipedia)
Socialism – A political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole. Synonyms leftism, welfarism. (In Marxist theory- a transitional social state between the overthrow of capitalism and the realization of communism. (dictionary)
Communism – A political theory derived from Karl Marx, advocating class war and leading to a society in which all property is publicly owned and each person is paid according to their abilities and needs. (dictionary)
With just a quick glance it is easy to see that capitalism is, in my opinion, the most free form of economic system where there are markets and people in business that determine prices, wages, etc. Some complain that too few prosper at the expense of many. I believe that could be said of any of the systems but at least those with the best ideas and those with the most guts get rewarded most- not those that have political or economic ties to others in control. To me, it is the best form of economic system and the only one that has a history of success.
Before anyone starts with “Look at what is happening here” let’s get a grip on our current situation.
While capitalism will likely be blamed in the media for the next financial crisis I don’t believe we have practiced true capitalism for a century. While we did practice capitalism in the 1800s we saw virtually no loss in purchasing power of our dollar and actually saw a DEFLATION in the cost of goods because of technological developments in both farming and transportation. A basket of goods that cost $200.00 in 1800 cost $100.00 in 1900 because of these advances. This without any changes to that basket of goods- unlike the comparisons used today. People’s lives improved with no wage increases because of lower costs!
What we have today is likely a form of socialism that appears to me to be- as the dictionary says- “a transitional state between the overthrow of capitalism and the realization of communism”. I don’t believe we have free markets. Every aspect of our lives are regulated. I have a friend who moved to Singapore to open a hedge fund. His comment was “it will take me 6 months and endless paperwork and attorney fees to open up here. In Singapore, I can pretty much put up a shingle and start work”.
Our interest rates are set not by the free market but by unelected members of central banks who believe they know better than market participants (those doing the buying and selling) what rates should be. Actually today many central banks are buying up stocks and other assets also- some like Japan and Switzerland make no bones about it while many others don’t admit it.
Bank after bank is being caught red-handed rigging all markets like LIBOR, gold, silver, etc.
This is NOT capitalism. It appears to me that we are closer to Facism where there is private ownership but government control. This would be closer akin to socialism than capitalism. The problem with this system is that those who hold power want to keep it and they regulate smaller competitors (many who have better ideas, products and more energy) out of the way of the establishment. This leads to stagnation, falling behind internationally as smaller leaner companies that have better ideas and technology, arise elsewhere and cost you your leadership position.
I believe socialism is a system that is well-intentioned but can never really work for an extended period. As Margaret Thatcher (Former Prime Minister of Great Britain) so eloquently said “Eventually you run out of other people’s money”. That is happening all over the world. This may be why the world had to “print” a hundred trillion in new debt (money) in the last 10 years to put off the collapse a little longer.
I also believe that this system breeds a sense of entitlement and takes away the animal spirits that are necessary to keep moving forward and leading the way. Many get complacent with their monthly stipends and see no reason to try and improve their lot in life. Worse yet, many feel like there is no hope anyway which, in my opinion, is the greatest tragedy of all. Hope is what leads all of us forward. Hope of a new job, a new invention, a new adventure.
Yes, to the person that doesn’t want to hear about the problems in Venezuela socialism was a PART of the cause. They ran out of other people’s money and now millions are suffering a devastating bout of inflation and a lack of the basic necessities of life. This is how it turns out- until you get a dictator who fully installs that communism and then it is likely that anyone who disagrees with that system dies.
Anyone who thinks I am exaggerating take a look at where communism has taken hold and look at the history. Actually, today in China people are being rounded up and sent to re-education camps. In Russia under Josef Stalin it is estimated that over 20 million were killed. From 1975-1979 Pol Pot killed an estimated 1.5 million to 3 million people in Cambodia. According to an article by David Satter in the Wall Street Journal on the 100th anniversary of the Bolshevik takeover of Russia “100 years of communism 100 million dead”
He says that these numbers include Eastern Europe, China, Cuba, Viet Nam, and Cambodia. There is surprisingly no mention of North Korea. Basically, in communism you do what you are told or you get to be “re-educated”. If that doesn’t work -well, see ya!
This is a pretty small sampling of these ideas but the thing I wanted to point out is that as economic systems get more restricted with regulations, crony dealings, or outright takeover less and less economic activity takes place because there is less and less reward for anyone taking the risk of opening a business or trying a new enterprise. This leads to less jobs, less economic activity and, in the recent past here in the USA and elsewhere a reliance on debt to maintain the lifestyles that most have become accustomed to. This is not only for people who are employed but also the government (the USA is the most indebted nation in the history of the world) to be able to keep up their promises of defense and social spending.
I often wonder what our economy might look like without government transfer payments. How much economic activity would be cut off if the 38 million receiving food stamps suddenly stopped that spending? What about the welfare payments to young families? Remember this payment goes to individuals who buy stuff and then that merchant buys stuff and the “money” moves throughout the economy multiplying many times over.
This is the same scenario that led Venezuela, Zimbabwe, Germany, Argentina, Brazil, and many others to the state they were in during their times of economic hardship. Again, to ANYONE who dares say that “it can’t happen here” economic laws reign everywhere- not just emerging economies. “Printing” money can give the illusion that all is ok- for a while. Not for long as the debts that get wrung up overwhelm the ability of the economy to sustain even interest payments let alone retire any of the debt.
In my opinion, the real tragedy of not having free markets are that those in charge know little, if anything, about running businesses or making payroll- they just know how to give commands. Many times these commands are to benefit a few well-placed cronies.
While no economic system is perfect it appears to me that the less interference with commerce where willing buyers and willing sellers, along with willing laborers, set the price of goods. If this were the case these booms and busts we have been seeing would not likely be taking place. The reason is that prices would be getting adjusted in real time by the markets- not central planners who can distort all prices- as they have shown.
While the central bankers can buy time it appears they are a one-trick pony. “Print” money out of nowhere and charge us interest on an “asset” that was conjured up out of nowhere. (Something for nothing if I ever saw it).
Personally, I believe it is not the economic system that determines how well the masses will live but the central banks. They allow all forms of government and economic systems to spend above their means leading to an eventual day of reckoning. The leaders you choose, if things get bad enough, may have a say about life and death.
Since there is not one instance that I can find in history where money “printing” has not ended in the bankruptcy of the nation issuing that currency I have to believe that it is prudent to prepare for such an eventual outcome by owning real assets like food, water, gold, silver and necessities of life while these assets are still affordable- in some cases historically cheap.
For anyone who cares to study history you may just find out that at the times of greatest struggle for many can become the greatest opportunity for those who prepare for that time of trial, tribulation and opportunity as the eventual recovery appears.
Mike Savage, ChFC, Financial Advisor
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LIBOR is a benchmark rate that some of the world’s leading banks charge each other for short-term loans.