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As much as I teach about finance and money management, I have often said that the system needs to change. We have to find a better way for production, distribution and income/wealth allocation that is more just and equitable.  As it stands today, we have the majority of the world’s wealth in the hands of a very few at the top. Before we can even consider finding a better alternative, we must first understand what we currently have. The question we must ask is, “Is capitalism working for us, or are we simply working for it”?

This is a multifaceted problem. Politics, ideological beliefs and social norms are well entrenched all over the world. We cannot divorce these factors from the problem of inequality. It really goes beyond the numbers.  It is my hope that these posts motivate you to question and not accept the system as given. Change that comes from below will be stronger and more powerful than when it is dictated from the top.

I am surprised to see how my own views have changed over the years. I was once a staunch capitalist. I sang the virtues of capitalism and was confident that it can solve all problems. As with most things, the more you study and observe, the more you learn and sometimes it’s a hard lesson. Today, I question it all. The theory of capitalism and the practice of capitalism is not always the same. In practice, there a many stumbling blocks to the naturally efficient allocation of resources through the capitalist system.

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True capitalism is a mode of production in which there is NO government intervention and the means of production and distribution is entirely in the hands of private owners. This means no government provision of public infrastructure, no regulations, no taxation and no government support programs.  In reality what we have are mixed economies, where both government and the free market exist side by side.  The portion of government versus free markets is the point of political differentiation.

Government and free markets act as a check on each other. In the case of government it can reduce some of the negative aspects of the free market. One of the main one is preventing the formation of monopolies. A monopoly exists when one company controls the supply of a goods or services and can charge whatever price they want.  Government regulation allows for more competition and thus gives consumers more choices and thus better prices.

Government intervention is necessary also to protect private property.  The free market is all about self-interest.  Capitalism is not concerned with equity. Self-interest is the name of the game. It is often argued that self-interest and the desire for wealth maximization is the driving force for efficiency, innovation and economic development. Often in pursuing the goal of wealth maximisation private owners don’t take into account external costs. External costs are the result of doing business that affects others who didn’t ask for it. A classic example is pollution and in this case government intervention is welcomed.

How much should the government intervene? Well, this is the age old question. Not enough government intervention and we have out of control laissez-faire. Too much government intervention and we end up with large bureaucracies and bottlenecks in a self-regulating market system.

Regulations

One of the biggest arguments against capitalism is that of inherited wealth and wealth inequality. In a capitalist society one has to legal right to pass on private property to future generations.  This means there is a segment of society who is rich because they inherited their wealth.  In this case there is no avenue for or even the opportunity for wealth equality. This creates an oligarchy, where a small group of individuals have controlling interest in the country.

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First of all we can’t begrudge those who have inherited wealth. It was their good fortunate to be born into that family. Also, we can’t deny people who work hard so that their children do not have to. What can be done however is stop putting policies in place to make those who are already wealthy even wealthier. No one is trying to deny anyone their right to their wealth. At the same time, there must be fairness. It is not fair that policies are put in place to ensure that already wealthy segments of society, maintains and grow their wealth at the expense of the other segments in society.

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In Canada the introduction of the Family Tax cut does not benefit everyone. It only benefits those in the higher income brackets.  It has no effect on the average income earner. This means that those who make more money can save on taxes, and have more after tax income. While those who need the most, don’t get it. Also the increase in child care benefits is not tax free, so while the Harper government is giving you more, they are also taking back most of it. We really have to ask the question, who or which segments of societies are really benefitting the most for these government policies.

It’s time we use self-interest to benefit all. We need to get a government that would look after the interest of the masses and not of the few at the top. Let common sense be our guide this election season. Several think tanks and studies have shown that only 15% of Canadian benefit from the Tories’ plan and that although the middle class benefits, lower income families are disadvantaged. We are sure to be bombarded by numerous ads the campaign period. Pay attention and see which party is talking about you, if the ads are only to decimate their opponents and doesn’t show you how they will benefit you, move on to the next.

Getting involved and deciding who you will elect to run the country you live and work in, is the first step on the path to change.  We all need to become aware of what is happening right in front of us and realize that together we have enough power to make a change. If we continue to be distracted by media sensationalism then we will continue to have more of the same.

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The best I have heard so far is the Liberal government’s “fairness” plan. They plan to:

“…Scrap the Conservatives’ income splitting plan and replace it with a cut to the middle-class tax rate, to 20.5 per cent from 22 per cent. Every Canadian with taxable income above $44,701 would get a tax break worth up to $670 per year

…Cancel the Tories’ recently announced boosts to the taxable Universal Child Care Benefit (UCCB) and replace it with a “Canada Child Benefit” that would provide larger, tax-free, cheques to middle and low-income families, worth up to $533 a month.”

The question should not be if Justin Trudeau is ready, it should be are YOU ready and willing to do something that is in your best interest.  Sometimes a little common sense can go a long way.

Dr. M

www.thekidonomicsseries.com

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