How To Bring Back Capitalism

Tyler Durden's picture

"Capitalists seem almost uninterested in Capitalism" is how Clayton Christensen describes the paradox of our recovery-less recovery. In an excellent NYTimes Op-ed, the father of the Innovator's Dilemma comments that "America today is in a macroeconomic paradox that we might call the capitalist’s dilemma."

Whatever happens on Election Day, Americans will keep asking the same question: When will this economy get better?


In many ways, the answer won’t depend on who wins on Tuesday. Anyone who says otherwise is overstating the power of the American president. But if the president doesn’t have the power to fix things, who does?


It’s not the Federal Reserve. The Fed has been injecting more and more capital into the economy because — at least in theory — capital fuels capitalism. And yet cash hoards in the billions are sitting unused on the pristine balance sheets of Fortune 500 corporations. Billions in capital is also sitting inert and uninvested at private equity funds.


Capitalists seem almost uninterested in capitalism, even as entrepreneurs eager to start companies find that they can’t get financing. Businesses and investors sound like the Ancient Mariner, who complained of “Water, water everywhere — nor any drop to drink.”

So businesses and investors are drowning in Fed-sponsored liquidity but are endowed with what he calls the Doctrine of New Finance - where short-termist profitability guides entrepreneurs away from investments that can create real economic growth.

... the Doctrine of New Finance is taught with increasingly religious zeal by economists, and at times even by business professors like me who have failed to challenge it...

His three forms of 'innovation' (empowering, sustaining, and efficiency)...

  • "empowering" innovations. These transform complicated and costly products available to a few into simpler, cheaper products available to the many.
  • "sustaining" innovations. These replace old products with new models.
  • "efficiency" innovations. These reduce the cost of making and distributing existing products and services.

Empowering innovations create jobs, because they require more and more people who can build, distribute, sell and service these products. Empowering investments also use capital — to expand capacity and to finance receivables and inventory.
Efficiency innovations also emancipate capital.

...typically operate in a recurring circle but in their current state, the dials of these three processes are forced incorrectly as "efficiency innovations are liberating capital, and... this capital is being reinvested into still more efficiency innovations" creating fewer empowering innovations.

Empowering innovations are essential for growth because they create new consumption. As long as empowering innovations create more jobs than efficiency innovations eliminate, and as long as the capital that efficiency innovations liberate is invested back into empowering innovations, we keep recessions at bay. The dials on these three innovations are sensitive.

Christensen perfectly analogizes our perspective when he notes:"It’s as if our leaders in Washington, all highly credentialed, are standing on a beach holding their fire hoses full open, pouring more capital into an ocean of capital."

We are trying to solve the wrong problem.

Our approach to higher education is exacerbating our problems.

Efficiency innovations often add workers with yesterday's skills to the ranks of the unemployed. Empowering innovations, in turn, often change the nature of jobs — creating jobs that can't be filled... our leaders are wasting education by shoveling out billions in Pell Grants and subsidized loans to students who graduate with skills and majors that employers cannot use.

There is a solution; it's complicated, but Christensen offers three ideas to seed the discussion:

CHANGE THE METRICS We can use capital with abandon now, because it’s abundant and cheap. But we can no longer waste education, subsidizing it in fields that offer few jobs. Optimizing return on capital will generate less growth than optimizing return on education.


CHANGE CAPITAL-GAINS TAX RATES Today, tax rates on personal income are progressive — they climb as we make more money. In contrast, there are only two tax rates on investment income. Income from investments that we hold for less than a year is taxed like personal income. But if we hold an investment for one day longer than 365, it is generally taxed at no more than 15 percent.


We should instead make capital gains regressive over time, based upon how long the capital is invested in a company. Taxes on short-term investments should continue to be taxed at personal income rates. But the rate should be reduced the longer the investment is held — so that, for example, tax rates on investments held for five years might be zero — and rates on investments held for eight years might be negative.


Federal tax receipts from capital gains comprise only a tiny percentage of all United States tax revenue. So the near-term impact on the budget will be minimal. But over the longer term, this policy change should have a positive impact on the federal deficit, from taxes paid by companies and their employees that make empowering innovations.


CHANGE THE POLITICS The major political parties are both wrong when it comes to taxing and distributing to the middle class the capital of the wealthiest 1 percent. It’s true that some of the richest Americans have been making money with money — investing in efficiency innovations rather than investing to create jobs. They are doing what their professors taught them to do, but times have changed.


If the I.R.S. taxes their wealth away and distributes it to everyone else, it still won’t help the economy. Without empowering products and services in our economy, most of this redistribution will be spent buying sustaining innovations — replacing consumption with consumption. We must give the wealthiest an incentive to invest for the long term. This can create growth. 


Must-Read The Full NY Times Story Here..

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NotApplicable's picture

Capitalism entails risk. Rent seeking, however, is a fairly reliable income stream, once you're "in the club."

LawsofPhysics's picture

Correct, in addition if you take the risk then you should suffer the consequences be them good or bad.  Leave the taxpayer and everyone else's wallet alone.

hedgeless_horseman's picture



It’s not the Federal Reserve. The Fed has been injecting more and more capital into the economy because — at least in theory — capital fuels capitalism.

Wrong.  The Fed has been injecting more Federal Reserve Notes [DEBT] and NOT more capital into the economy.

We need sound money, not monetization, for Capitalism to flourish.


Flakmeister's picture

Cheap energy would make people forget that it is all bullshit anyway, gold standard or not....

Comay Mierda's picture

<---- in a swing state, voted for Gary Johnson.  Because he will bring capitalism back. screw the repubs and their lip service to free markets.

JPM Hater001's picture

You mean like Thorium Reactors?  And it's plentiful stuff too.  I mined it all the time in Un'Goro Crater.  Just fly around the ridges the shits everywhere.

Flakmeister's picture

Yep, gotta get my "Mr. Fission" adapter for the car...

You do realize that you are implying that EVs are the future?  

AldousHuxley's picture

capitalism is dead.


didnt' work. elites became corrupt. never implemented the pure ideals, but got hijacked by greedy middleman bankers who abused then blew up the system. Just like communism and how communist elites got rid of original academic ideas and just became thugs.


Today, we have thugs running the country. true capitalists  such as RON PAUL are silenced, eliminated, exploited just as a symbol.

silverserfer's picture

walmart as an example of corporate parasites will ensure that rural areas are alway economicly depressed. You can't have a healthy ecomony when money funnels out of an area.

you can argue that they are efficent capatalist entities but there is not balance or a healthy circulation of money within small communities once they are in. 

Half_A_Billion_Hollow_Points's picture

right.  because rural people enjoy paying twice the price you get--or not even having the choices you have.  


Wall-mart is merely a symptom of the cancer; not the cancer.

Revert_Back_to_1792_Act's picture

We are now the 'Native Americans.'

Trading Post w/ cheap goods makes natives stop hunting, trading, and providing for themselves and makes them dependent.

They even sell beads and booze.


LawsofPhysics's picture

Remind me, how many cities are these reactors providing power for again?  Can't wait to drive my tractors on this power, in the meantime, 7+ billion people still want to eat and we still use diesel.

JPM Hater001's picture

In full disclosure the longest running holding I have is in a company called Hydrogenics when I bought it.  I've thought hydrogen was the next fuel for a very long time.

JPM Hater001's picture

Oh, and apparently one share in some on-line gambling company or something called Rounders.

My share isnt even worth a penny but it's up 10% today!

Revert_Back_to_1792_Act's picture

Penny stocks are just awesome.  Should do corporate takeover on this one.


Market Cap (M USD) 0.06

 "You can't beeeleiiive what fell,..all your dream...dashed. Hopes down the F@king drain. eeeye betit awll.." -Teddy KGB

dis sonofbitch....chek chek chek..all night..he trap me.

nyet...nyet..nyet.. did not archive Rounder Girls from their website.



LawsofPhysics's picture

It takes energy in order to produce hydrogen gas.   Where does that energy come from?  Hydrogen will never be an energy source, however, on-site hydrogen production from the sun is coming and hydrogen gas (like coal or oil) certainly could be an energy currency some day.


AldousHuxley's picture

Plenty of energy sources available.

Not enough political will to overcome the status quo of Big OIL.


Flakmeister's picture


Not nearly as simple as that....

LawsofPhysics's picture

That's not the point.  Pay attention, if we have so many other energy sources then why the fuck would you use them to produce hydrogen?  Seems kind of stupid don't you think, just use the damn energy source as is.  The conversion to hydrogen will not be 100% efficient.

redd_green's picture

It takes energy in order to produce oil.    Where does that energy come from...   


Heh, you blew your argument on the first sentence.

lineskis's picture

This can create growth.

"Growth" is actually a percentage growth rate, which is an exponential function, which unfortunately is unsustainable in our finite world:

Stop believing we need growth while it's the source of most of our problems... Think sustainability first and everyone will be better of... Please...

LawsofPhysics's picture

Correct.  Have faith, history is very clear in one regard; that which cannot be sustained, won't be.

DaveyJones's picture

how do we bring back the dead?

more dead?

LawsofPhysics's picture

WTF?  You really believe those atoms aren't being recycled as we speak?  Try again.

DaveyJones's picture

think you miss my point, we are on the same page

LawsofPhysics's picture

perhaps, and yes, I guess more dead would indeed recycle more of these atoms faster.

DaveyJones's picture

we should have had this chain on halloween

Spastica Rex's picture

Moving away from an exponential growth paradigm would entail a complete dismantling of the global stus quo. They will not go gentle into that good night.

nofluer's picture

Have you applied for a license from the UN to use the word "sustainability"? It belongs to them now, you know, and it doesn't mean what you might think it means.

sitenine's picture

<-- Growth

<-- Sustainability

Which holds more promise for profit?  

See the problem?

Spastica Rex's picture

Is the devil really in the details? Really?

Please tell me it isn't so. I'm an American and nuance is lost on me.

Radical Marijuana's picture

Before commenting on the meaning of that buzz word, sustainability, some basics:

Capitalism was always an idealized "ism" that was another form of the biggest bullies' bullshit, to conceal what was happening. In the real world "capitalism" always had fraud and murder added to that idealistic "capitalism," to one degree or another. When fraud and murder are restrained, by more apparent rule of law, then those inside of that system, which are benefiting from being able to play their economic games, within that rule of law, tend to enjoy relatively more of the ideals of free market capitalism, which is then a relatively good system, for them.

However, there were always those who were more or less outside of that system, and therefore, were the victims of fraud and murder, and therefore, did not enjoy as much of the benefits of "free market capitalism."  E.g., the first immigrants to North America, who were here for more than 10,000 years before the European invasion of the last five Centuries, had almost everything taken from them by fraud and force. Similarly, those who were brought to North America as slaves started off inside of a context of fraudulent forces, and continued to largely still be in those social circumstances, even after the formalities of the changes in the laws were supposed to have freed them, or enabled them to become equal citizens, able to benefit from participating in the rule of law maintained "free market capitalism."

WHEN ONE ADDS MURDER AND FRAUD TO "CAPITALISM" THAT BECOMES FASCIST PLUTOCRACY. That is the real system, maintained by an overall Private Property Party, of which almost all other political parties are factions. There are deeper reasons for THAT, which were the history of militarism, since we live in a COMBINED money/murder system. Not addressing the REALITIES of murder and fraud within politics is always BULLSHIT, and that usually has an ulterior purpose. Almost all the discussions surrounding "freedom" and the "rule of law" deliberately ignore the paradoxes of enforcement in those contexts. They never answer Plato's question of "Who will guard the guardians?" ... because there are NO answers, other than the eventual back up systems of natural selection.

Anyway, with those basic social facts in mind, let me turn to the topic of "sustainability." I agree that endless exponential growth is absolutely impossible. The discovery of new sciences and technologies, and therefore, the ability to harness new inanimate energy sources, and utilize those, has enabled more exponential growth of the total human population, and all its activities. However, it continues to the theoretically IMPOSSIBLE for that to continue forever. Therefore, some human and industrial ecology MUST eventually evolve, even if that is mostly the hard way, through a dampening series of booms and busts, that finally develop mechanisms to maintain dynamic equilibria.

The central concepts of evolutionary ecology are that, after one has any life form, that can grow and reproduce, with a supply of natural resources from its environment, then the CENTRAL CONCEPT OF CONTROL IS THE DEATH CONTROL. ... Therefore, any discussion of "sustainability" is actually a discussion about the death controls. Those must be the central core of the evolving ecological system. The murder system is the keystone to any arch of alternatives, assembled into any integrated systems. The murder system is the lynch pin, that holds together everything else that operates in that system.

In the real world, that has ALREADY HAPPENED.  However, the history of militarism, or the Art of War, has been that success in war depended on deceits, and spies were the most important soldiers. Thus, the sublime paradox that the people who actually did the death controls were also the best at lying about that. Upon the historical foundation of the murder systems, as understood through militarism, evolved all the rest of civilization. Neolithic civilization emerged as the best at being dishonest, and backing that up with violence, and so, was able to spread out and conquer the whole world.  Upon the foundation of its murder system was made and maintained the money system. Thus, the debt controls depended upon the death controls. The history that made War King then made Fraud King. The current world is controlled by the Fraud Kings, who are the puppet masters, that control the puppet politicians, to operate the levers of state power, to use the abilities to rob and to kill to serve the interests of the fascist plutocracy. Any of the limited "free market capitalism" was always operating inside of that overall context.

Anyway, my point is that I agree that it is IMPOSSIBLE for there to continue to be endless exponential growth, and certainly NOT limitless exponential growth of indebtedness, which has been what the Fraud Kings have been doing for quite a while now ... which has driven the whole world deeper and deeper into debt, recently going beyond debt slavery, into debt insanity. Therefore, some new "sustainable" human and industrial ecologies must evolve, (although probably the hard ways.) The core to the concept of actual "sustainability" MUST be the murder system, doing the death controls, which then can sustain a money system, doing the debt controls, in ways that serve the dynamic equilibria of those new human and industrial ecologies (inside of their necessary context of some natural ecologies.) The PROBLEMS we face today are that the runaway triumphs of fraud and force, in the current money and murder systems, are based on the triumph of social deceits. Thus, all of the most important ideas are taboo topics.

I amuse myself thinking about the possible paradigm shifts in militarism, in the sense that warfare is the oldest and best developed social science, in order to try to understand how the paradigm shifting in other sciences could be reconciled into some "sustainable" system. However, for the foreseeable future, what I expect to actually happen is more overshooting, followed by more psychotic collapsing, which MIGHT eventually enable us to learn to develop better systems.

Herd Redirection Committee's picture

He forgot "Planned obsolescene innovations".  They reduce cost, reduce quality, and increase sales volume. 

Take socks and shoes for example.  How long does a pair of running shoes last these days?  About 3-6 months, tops!  So you're telling me in the 21st century we can't design and manufacture a longer lasting, higher quality shoe? Of course we can, but its not good for the bottom line!

pods's picture

I curse planned obsolescence every time I pull apart a broken tool/machine and say to myself "Why'd they use this cheap ass plastic/pot metal gear when they know it would only last 6 months?"


Spastica Rex's picture

Why? So you can do your part for the economy and buy a new one!

Planned obsolescence is just a systematic way of breaking windows.

Flakmeister's picture

And not nearly as much fun....

kaiserhoff's picture

I feel your pain.  My Dad didn't complain much, but he let loose a string of expletives when they started making sealed water pumps.  From years of repairing crap on the farms, he knew the thing would work just fine if you could open it up, and replace a five cent washer.

RockyRacoon's picture

It is amazing what stupid things they do with tools and equipment.  I had a Skil jigsaw for many years and one day it just up and quit -- in the middle of a project, of course.  Ran off and bought a new one.  The new one just didn't have the heft and quality of my old Skil.  Finished the project and had the time to take apart the old Skil.  Found that the lead from the switch was connected to the lead to the power cord with a wire nut!  A wire nut...   What genius figgered that all that vibration wouldn't cause the nut to just fall off?  It's a wonder I wasn't electrocuted since the case is all metal.  I soldered the leads and put some shrink tubing over the joint.  Perfect connection and the old Skil is back in service with new lube in the gears and other moving parts.   Idiots.  Now I have 2 jigsaws.  Betcha the old Skil will still outlast the new one.

DaveyJones's picture

that's why I only buy high quality pot (and vote to legalize it)

TruthInSunshine's picture

Planned obsolescence, bitchez, perfected by "Lightning Dock" Apple, Inc., and heartily approved by Paul "Make Them Replace Their Things More Often" Krugman, Ph.D, and all-around Douchebag.

Manthong's picture

As important as anything else, it has to be understood that liberty implies capitalism, capitalism entails risk and risk occasion’s failure. Institutions and states that do not succeed because they forsake capitalism for some form of deception, despotism or collectivism must be allowed to fail so that the only system that assures personal freedom is preserved.

The government education system is structured and has evolved totally in opposition to this and subsequently so have the last several generations of Americans.  

The security of the system and the teachers displaces the education and awareness of the youth and with it their understanding of liberty and their disposition towards true freedom.

Sadly, it likely will not be until they lose everything and are indentured or otherwise in bondage that they understand what the country once had.

AnAnonymous's picture

What has to be understood is that this is an 'american' world and a US world order.

Manthong's picture

Actually, it is a financialist elite world order using the American dollar until it every iota of implied value is wrung out of it and it is rejected in favor of the next proxy for the financial elite.

The significant issue is that liberty and free market capitalism are mere slogans now and that risk is virtually eliminated for the privileged few.