The purpose of this post is to describe what is happening to our economic system. Where is it going and what is our economic fate. I call this process we are in now capitalism 2.0.
What is happening with capitalism
Are you wondering what is happening in the US and developed countries in the world today economically? We are in a macroeconomic change called Capitalism 2.0. Before you let your mind revert back to your preconceived notions about the way money and capital work, consider this post. If you still disagree, please comment as I am open to hearing the other side.
The first phase of capitalism
New markets are being developed; innovation and creative ideas are rewarded with positive economic profits. For example, I live in Eastern Europe. In the 1990s, capitalism was new. All you had to do was open a shop, and customers would come in, and you would be rich.
I remember it was a little like this in the 1980s in the USA. You open a shop, and you had customers. The middle-class today is like the rich back then. Although I sometimes waffle on the idea, are we better off, I think back to the 1970s and 1980s, we have bigger cars and houses even if we have less stability in or jobs. It is a difficult question.
The second phase of capitalism
The Second phase of capitalism is this. The market becomes competitive. In perfectly competitive market firms earn something called zero economic profits. That means they earn normal returns on capital. The only way the firm can grow is if the economy grows. That is when people’s disposable income grows, and they have more to spend in your shop.
Business owners and entrepreneurs are never satisfied with zero economic profits. Would you be? Therefore, they channel a lot of their intellectual energy into cost reduction. If they reduce costs 50%, then profits go up 50%. It is better than waiting for the economy to grow 50%.
The way businesses cut cost are:
- Deploy technology
- Outsource to achieve better economies of scale for non-core business functions.
- Outsource to foreign countries where wages are lower than the US.
- Cut the fat.
The objective is to cut costs without cutting quality. This is what capitalism 2.0 is about. The advantage is that consumers get things at a lower price and in theory, for the same quality.
Alternative economic theories
The following is a few of the fuzzy logic economic thinking that holds governments and people back monetarily.
- Many people want to stop free trade with capitalism vs. mercantilism arguments. But what does it protect the established businesses at the expense of people who want to better themselves? The trade-off is workers in the intermediate-term preserve their wages.
- Some people are anti-capitalists based on the view that there is a better way. Believe me; there is not. Capitalists are not bad people. Further, the free market is not over.
- Keynes was won messed up thinker. He leads people to think a mixed economy with government helping is good. It gives people the warm fuzzies, but his ideas will lead us on the road to serfdom.
If any of these alternatives even appeal to you remotely, just remember:
When the federal government spends more each year than it collects in tax revenues, it has three choices: It can raise taxes, print money, or borrow money. While these actions may benefit politicians, all three options are bad for average Americans. – Ron Paul
You will be out of the frying pan and into the fire. You will give up your liberties to someone else less intelligent and good-hearted as yourself.
The problems with Free market economics 2.0
- Workers are disposable inputs.
- Unemployment becomes structural.
Advantages of Free market economics 2.0
- If you are an owner, you become rich easier. Fewer barriers to entry, like in the old days that required big start-up capital and legal barriers.
- The world is global and more egalitarian, more opportunities for people who think dynamically.
The net effect is the world will be a better place. I know this is hard to believe as we are in the middle of an economic crisis. But I am not a believer in Malthusian economics. I travel around the world, and generally, things are better than they were.
If you are unemployed or structurally displaced, I recommend you explore my blog. I have ideas on how to improve your economic situation. I am not saying this as an elitist, but someone who has been there. Look, I moved to a relatively poor post-communist country where I did not speak the language or know anyone, and unemployment was over 20%. It made me use my mind to think dynamically and out of the box, and I am doing fine. You do not have to move to the other side of the world but can achieve even more living in where you do.
In the end, the question, what is free economics 2.0 begs another question, that is, is capitalism good or bad? This question can be better understood if you understand what is happening in global economics on a large-scale.
Free resources on money and capital -If you think the world is getting worse or you can not make it in today’s economy, read this post and download a free copy of Adam Smith’s Wealth of Nations in pdf or read my post on what to do it you are poor.
I think capitalism 2.0 is good as long as you have the right attitude. It challenges us to be the best we can be. Is there anything wrong with that?
It is not from the benevolence of the butcher, the brewer, or the baker that we can expect our dinner, but from their regard to their own interest. – Adam Smith
So with enlightened self-interest, try to improve your economic situation, and society as a whole will be enhanced. Maybe the reason some people are opposed to capitalism is they have not tried it yet.