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Philosophy, Economics, Politics & Psychology Tested with a Hammer

23 Things they Don't Tell You About Capitalism
By: Chang Ha-Joon
Major Topic: Economics
Minor Topic: Politics

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         Thing 13: Making the Rich People Richer Doesn't Make the Rest of Us Richer

         We are told that making rich people richer will make us all richer. An example is the cliché: a rising tide raises all boats. We are told that it is the rich people who invest in job and wealth creating ventures. Therefore their investments, while making them money, are making everyone better off and they are the only ones who can do this public service. Therefore we should help them in any way that society can because they are the most precious of people.

         These claims are not supported by the evidence. In the last thirty years there have been many pro-rich policies designed to help the rich but in that time the economic growth has not sped up; in fact the west has been growing at a much slower rate than before the pro-rich policies were implemented. At the same time the proportion of the wealthiest group has grown. Therefore the richest people have been getting richer at a far greater rate than the increase in the wealth of the countries with the pro-rich policies.

         The fact is that money does not just invest itself. If the rich horde the wealth then it does not get invested and without investment there is no growth. The truth is that pro-rich policies lead to growth only if the rich invest the funds. Since it is the investment of funds that generates growth the best strategy for growth would be to put the funds into an institution that will invest them. The rich may be one such class but they are notoriously fickle (especially recently) in their commitment to investment in jobs and growth. The fact is that in all developed countries the amount going to investment has been growing smaller and smaller since the 1980s.

         The author emphasizes that the rich may be one way to increase the wealth of and the growth of the country but he stresses it is not a guaranteed method. He hints that a better method may involve a state investment agency that would be mandated to invest and could not horde.

         Another problem with trusting the rich to invest is that the distribution of new wealth will very likely not be distributed among the many if the market forces are allowed to prevail. There for in order to create a more just and equatable society redistribution must be overseen by the government in the form of a generous welfare system.

         One reason to justify a downward wealth redistribution (especially in an economic recession) is the fact that the middle class spends proportionally more of their income than the rich. An amount of money in the hands of many people will stimulate demand much more than the same amount of money in the hands of a few.

Added on: 2012-10-05 12:20:06
Text Crawl by: James Jeff McLaren
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