U.S. Capitalism Creates Much Wealth

WWII Created Unsustainable Expectations

After Tax Income Went Up for the Middle

Politicians Helped Some, Failed Others

Increase Worker Supply Kept Wages Low

Many Americans are Better Off

Many Unhappy With Capitalism, Politicians, Educators, Business

The Future    

What Makes Me Nervous

Return to Economic Issues 9/28/19        
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U.S. Capitalism Produce
a Lot of Accumulating Wealth

solid gains net worth

WWII Created Unsustainable Expectations.

America's industrial base enjoyed twenty-five years of monopoly power after WWII because Great Brittan, Germany, and Japan had to replace their industrial base. This resulted in U.S. workers enjoying extraordinarily high income and fringe benefit growth.

The next twenty-five years began with extremely high inflation caused by excess aggregate demand resulting from government debt needed to fight the Vietnam War. This inflation was reinforced when the OPEQ cartel substantially raised oil prices, first to end many years of Western exploitation and then in response to losing the Arab-Israeli War. This inflation lowered the living standards of nonunion middle-class worker and most retirees. The substantial increase of the inflation rate also made future real wage growth rate calculations less accurate. This allowed for the poor use of data by many professions setting in motion they exaggerated belief that Wages Will Continue to Stagnate

About this time, U.S. companies faced competition from developing  manufacturing companies exporting from Japan, German and Great Brittan. These countries undervalued their currency making them less expensive and able to compete with inferior products which would improve quickly.

America’s older industrial base would suffer The would not replace fully depreciated still profitable productive assets. Short-term profits came first. This allowed American executives to maintain company profits and their high salaried jobs. Increased foreign competition also allowed some public acceptance of lower wages. It also meant poorer product quality. Competing with high quality foreign competition would be more difficult.

Union’s leaders also wanted to keep their high paying jobs so they convinced union members, who also wanted to keep their high paying jobs, to accept buybacks. Unions also allowed newly hired workers to be paid  lower wages with fewer fringe benefits then existing workers doing the same job.

The financial industry also faced more foreign competition from foreign bankers and cheap Internet trading. This made Less Financial Regulation possible. Soon exotic products such as derivatives and Credit Default Swaps were increasing profits. Problems would follow.












 Middle After Tax Income Went Up


Politicians Helped Some, Failed Others

Worker adjusted to stagnant wages by using credit cards to increase living standards. Then banks changed the name of home improvement loans to home equity loans allowing homeowners to increase their standard of living by spending equity savings.

Politicians continued to buy votes for deficits. These deficits increased the well-being of both worker and retirees. Politicians also tried to help average earners buy homes by encouraging the financial community to make mortgages easier to obtain. The real estate industry and banks took many shortcuts to speed up mortgage processing and dramatically expanded mortgage lending. Bankers and Politicians did not realizing they had creating massive liquidity problems leading to a Great Recession.


Increase Worker Supply
Partially Caused by Increased Immigration
Kept Wages Low

As in the past, workers tries to lower immigration.


NAFTA and Globalization hurt many American workers. Poor employment opportunities in the Midwest, called the Rust Belt in the 1970's, had a shot lull but returned in the 1990's when NAFTA pushed manufacturing to Mexico. Some Mexican workers got low paying jobs with low paying U.S. manufactures. Others Mexicans headed North for work. This created the latest battle between immigrant and Americans for jobs and the added supply of labor pushed wages down. Why Capitalism Creates Racism

Many Americans are better off.  

Most Older Americans have been pulled out of poverty by SS, Medicare and the accumulation of wealth occurring after WWII.  Children are better off because childhood diseases, such as polio, have been cured. Seat belts and bike helmets are now required, school transportation safety has been increased and they have wealth parents and grandparents to spoil them. Many baby boomers received an larger inheritance than that received by their parents. They also have/had company retirement and health plans. Some enjoyed society's vastly improved safety net designed to help the poor. See Economic Wellbeing.

Many are  Dissatisfied with capitalism, politicians, educators, and business leaders because people compare present wellbeing economic growth with that o the  unsustainable twenty-five years following WWII. The last time similar events occurred was after WWI and the resulting balance sheet recession caused the Great Depression. It ended because of substantial WW 2 industrial activity and debt.  

WWII solved the problem of Fascism but left us with equally feared Communism and more debt than we have today. Today’s debt is to make life more enjoyable. WW 2 debt was wasted on war. Rapid economic growth after the war increased GDP, kept interest rates low, and the U.S. easily refinanced the her debt.

Will this happen again?

Lower Quintiles Market Income Up Slowly-But

Poorest Quintile 1 Helped Most
Quintiles 2 and 3 Reacting Poorly
Top Quintile Did OK

Very Top 1% and 1/10 of 1% Did Well
Need More Data to Judge Effect of top 1%.

Income Distribution is a Political Question.
Some Feel Envy Assistance to Top and Bottom Caused
Populist Movement
Why is Poverty Controversial?

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Source Transfers payments and taxes decreases inequality

The Future

Fear that slow economic growth will make current debt refinancing expensive and has may people apprehensive. So does the expense of future commitments for society’s safety net. Slow growth will eventually require restructuring which will hurt many. Is a post WWII productivity which lowered relative debt possible?  Can we continue cheap refinancing debt and generating the production necessary to continue funding an expensive social net? Has the World Changed and Good Jobs Disappeared?

A return to the Great Depression after WWII was predicted by many. It never happened because rapid growth caused by pent-up consumer demand resulting from WWII savings and rationing.   Economic production created by the needs of a large baby boomer generation added to aggregate demand as did increased demand from government spending on the Marshal Plan and the national highway system.  Where will increased AD and the resulting growth come from?

Fracking has begun to lower energy cost and make U.S. based production more competitive.  Millennial having grown up in the Digital Age may be able to create the U.S. monopoly power required to rapidly expand the economy and lower the relative cost of debt. The United States is better equipped to succeed in a Flat Robotic World than any competitor.

What happens if growth is delayed or doesn’t happen? Politicians will not act until the expense of carrying an ever increasing debt hurts them politically. Thankfully this will not happen quickly because the dollar faces little competition. The acceptance of the Euro and Renminbi will be very slow, but it may eventually happen. Almost all voters are receiving many benefits from the annual deficit. Still many want it discontinued. They only accept lower government expenditures which help others people.

What Makes Me Nervous

A disastrous rollout of Obama Care increased health cost much more than expected It also creates a doctors shortage. The Republican controlled Congress will cut back dramatically on the social safety net rather than working an cost effectiveness. Unemployed college graduates may join with dissatisfied middle class people and cause social unrest not seen since the 1960's; a time when people were not nearly as economically spoiled as they are today.