social philosophy

Are You a Dirty Capitalist Too?

© Can Stock Photo Inc. / robwilson39

Since the 2007 financial crisis broke, we’ve been hearing a lot about the carelessness and greed of our financial system. The pursuit of corporate profits, we are told, led our economy to ruin and apparently will do so again in a heartbeat. Big corporations and financial institutions are crushing the middle class underfoot and choking the life out of the American dream. These are the sound bites we hear daily
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Corporate malfeasance certainly played a role in the crisis and we are gratified and relieved when we see it punished. But these excoriations of our financial system overlook one important fact: capitalism is a fundamentally democratic institution. All of us reading this blog can—and in most cases, do—participate fully in the capitalism system.

When you purchase shares of stock, those shares represent a unit ownership in a corporation. What’s more, the shares you buy are fundamentally identical to the shares that those “greedy” Wall Street banks and hedge funds are buying, with all the same rights and privileges. They might have more shares but the rewards of ownership are divvied out proportionately. When a corporation pays out dividends every share of the company gets its fair piece; they can’t pay out some owners and not others.

Some of our readers may be thinking, “This is all well and good for the rich people who own stocks, but what about us little folks?” The beauty of this system is that many of us little folks also own stocks. Many of us contribute money out of our paycheck towards a retirement or pension plan, through which we are beneficial owners of stock market investments. That makes us capitalists.

And it’s a good thing, too. Through our collective investments, millions of modest savers are pooling their money to create capital. Our investments and retirement savings turn into factories, datacenters, and hospitals—all of the machinery of modern life. Whether you realize it or not, if you have any investments you may very well own a tiny slice of many of those things. So when you feel you’re being gouged by an overly greedy corporation, just remember that their “unfair profits” are also funding the retirements of millions of regular workers just like you—and possibly you, yourself.

We know the system isn’t perfect. We can’t guarantee that corporations will always act wisely or ethically, and it’s important to remain vigilant. We believe the best and surest way to make sure that our interests are represented by the system is to participate in it. If you want to get involved, call or email us.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Stock investing involves risk including loss of principal.

Broken Windows, the Government, and the Economy

© Can Stock Photo Inc. / Elenarts

Frederic Bastiat, a 19th century French thinker, gave us a number of enduring ideas including the “broken window fallacy.” His idea went like this:

When the shopkeeper’s son accidently breaks a window, bystanders assure the shopkeeper that it is a good thing, since the glazier will profit, money will circulate, and everyone will be better off. Bastiat names these things as “what is seen.” What is unseen is that the shopkeeper would actually have spent that same money on a pair of shoes or a book or some other good. The glazier’s gain is the cobbler’s loss, and society is poorer by one pair of shoes—after you consider what is unseen.

So imagine a society in which 98 people are gainfully employed in producing goods and services, and 2 people work in necessary, worthwhile and cost-effective ways to regulate the efforts of the 98. If we concede that some level of regulation is necessary, one might conclude that this society shares the output of 100 people.

Now imagine a combination of circumstances that leads to a program to provide better paychecks to five of the workers. The society elects to hire the five to dig holes and fill them in again for generous wages, thus providing “good jobs” for all. What is seen is that everyone has a paycheck, money keeps moving, and thereby everyone benefits. But what is unseen is that society has permanently lost the output of five workers, so the standard of living on average must decline by 5%. No wealth or advantage is created by the digging of holes, when everything is tallied up.

Worse yet, the five might instead be employed in unnecessary regulation of the other workers. If those five spend their days interacting with other workers, the output of five more workers is lost to their oversight. The standard of living on average then must decline by a total of 10%.

Our purpose in writing is not to argue about regulation in general, or the impact of new rules on community banks and financial advisors, or the proper level of government employment. Rather, we are hoping that people will think about what is unseen, as well as what is seen, in matters of public debate. Those of us looking to elevate our economic understanding would do well to start with the Wikipedia article on Bastiat.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Poverty, Prosperity, Optimism, Pessimism

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“What causes poverty? Nothing. It’s the original state, the default and starting point. The real question is, What causes prosperity?” – Per Bylund, Ph.D.

Some believe that my persistent native sense of optimism must be evidence of a traumatic brain injury in my youth. A more pessimistic person once asked me if I wasn’t reading the papers or watching the news. But one of my aims every day is to see and understand the world as it is around us. So let us dispense with talk of being dropped on one’s head, and ponder the megatrends that shape our part of history.

The World Bank calculates that in 1990, 37% of the population of Earth lived in extreme poverty, with incomes of less than $1.90 per day (2011 dollars). One can imagine the privations that accompany such massive and grinding poverty, from poor sanitation and dirty water to disease and lack of basic health infrastructure.

In twenty-five short years, the population count in extreme poverty declined to less than 10% of the people—down from 37%. These 700 million have all the same challenges and problems of the nearly 2 billion poor back in 1990, and we cannot minimize the gravity of the situation for these people. Yet never in history has so much progress been made in such a short amount of time for so many people—hundreds of millions of people were lifted out of extreme poverty.

Measuring progress another way over a longer time frame, global life expectancies have been calculated to be less than 30 years in 1870, and around 71 years in 2013. Life spans more than doubling in 150 years! In either of these cases, poverty and longevity, it seems unlikely that anyone around at the beginning could have believed the progress that was about to unfold.

One naturally wonders about the factors behind the wonders of modern times. I’d like to think our progress depends on the degree of freedom that each of us has to make the most of our own potential, in societies with the rule of law and respect for the rights of the people. My idealized concept of our economic system is that the surest path to prosperity is being of value and service to others, a sustainable and ever-improving system.

We have challenges, problems, issues, aggravations, and troubles—as always. But my optimism remains based on reality.

Investing: A Moral Good?

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It is unquestionably good that we have farmers to raise our food, shopkeepers to bring the things we need within reach, nurses to nurture us back to health, and so forth. We know instinctively that any pursuit that benefits others, or helps to meet the needs of society at large, is a worthy pursuit.

Is investing in the same category as worthy labor? Some people tend to think it is not. We offer the following perspective for your consideration.

Many of us have known route drivers for overnight and package delivery companies; long-tenured ones become part of the fabric of a community, well known to all. They clearly perform a worthy service. Yet how valuable would their efforts be without the trucks, planes, terminals, software systems, and the rest of the capital investment that supports their jobs? How much delivery could get done if the only equipment was handcarts?

The two largest such companies have billions of dollars of assets invested so that hundreds of thousands of employees have the tools and resources they need to do their jobs. This capital at work, about $100,000 per employee, is what makes the efforts of the workers so valuable. Where did the money come from?

Companies issue stock and bonds to finance their capital investments. The buyers of those investments, the investors, are ultimately the ones who provide the tools used by the workers to increase the value of their efforts.

And who are these “investors?” We know hundreds of them personally. They are workers saving for retirement, the retired, widows, families saving for college expenses, and everyone else trying to put money away for a rainy day or leave a legacy.

So do these friends and relatives and neighbors deserve a return on their investment? Presumably we all agree that a return on investment is only fair.

People at work and investments at work are to the world as teachers and classrooms are to education. Both are needed, both are useful. In the sense that necessary and useful things are good, both are worthy.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investments involve risk and may lose value.