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One interesting problem in capitalist economics is that if capital gets concentrated into only a few players' hands, as it tends to do, then there is no one left with enough money to purchase items. The first obvious concern is that people won't be able to eat, but from an economic point of view, the system breaks at this point since there is no more flow in the economy. If you look at the economy as a network, then the strongest players are network sinks. When there is no capital at the network sources (the consumers), then there is no more potential or inductance in the network. The tax system also breaks down as well since income and transaction taxes exist as frictions or resistance on the flow in the economy.

Too low a tax regime, and the flow will be too quick towards concentrating capital in the hands of a few, and then everything will stop as the network will reach an equilibrium. Too high a tax regime, and the flow will be too slow. There exists an optimal balance.

The horror of supply-side economics is that there is no such thing as a "trickle-down economy." There is only a trickle-up economy, as the flow in the network is back up the ValueChain, from consumers to producers. Producers do not give money to consumers. Giving tax breaks to the rich eliminates the ability of the government to redistribute wealth back to the network sources in the economy in order to keep the whole thing running. In other words, the government is like the battery in the circuit.

Further, if you presume that the wealthy are the most capable of running the economy, as they have been naturally selected as good business people, you are totally missing the point of capitalism. Indeed, you are asking for another CentralPlan?, which was what capitalism has always sought to overturn. The wealthy just have money, not necessarily the right idea or the chutzpah for the day we live in, nor do they necessarily have the motivation to act in the interests of TheIndividual.

Finally, a flat tax is also perverse, since it will benefit the wealthy more than the poor. After all, for people not paying tax at the moment, it can hardly be an improvement. Rather, since a strong network sink has a stronger gravitational effect in the network than a weaker sink (the rich get richer), then a flat rate of taxation will lead inevitably to a concentration of wealth once again for the very few people lucky enough to acquire wealth a rate faster than it is taxed.

Therefore, a wise capitalist would create a SocialCapitalism (a liberalism) to redistribute capital back to AnIndividual. Or in other words, it is the responsibility of the wealthy to distribute wealth back to the consumers so that they might continue to be wealthy. It's no wonder that when unemployment is high, companies do worse, and that leads to more unemployment, and when employment is high, consumer spending is higher, and companies do better.

The ebb and flow of economics is simply that money becomes concentrated in either the consumers or the producers in a cyclical fashion. When times are good, money moves into corporations. When times are bad, investors must liquidate the money back into the economy they have acquired so that they may live or do other things. For small-to-medium sized investors, this keeps the economy lurching forward in this pendulum. However, very wealthy people can generate enough wealth during down times to never have to spend their own savings to live. They have in essence escaped. A healthy economy focuses on the small-to-medium sized investors, since it should limit how far the pendulum can swing, although it is important that it swings wide enough that entirely new businesses and approaches can be tried when investment capital changes hands in down times.

CategoryEconomics?


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