The Cost and Benefits of Capitalism

Judy Loy, Registered Investment Advisor, ChFC®, RICP® and CEO of Nestlerode & Loy, Inc.

At the beginning of 2022, a Pew Research survey found that 78% of the US population is dissatisfied with the way things are going in our country. In a March 2022 Gallup Poll, only 24% of Americans said they were satisfied with the way things are currently going in the US The positive high for the poll was 71% in 1999, at the heights of the stock market due to the dot- com bubble and hit a low of 7% during the 2008 financial crisis, which makes sense since this was the most serious economic downturn since the Great Depression. When looking at this data, it reflects that the better the economy, the better Americans feel about the overall country.

by Judy Loy, Registered Investment Advisor, ChFC®, RICP® and CEO of Nestlerode & Loy, Inc.

At the beginning of 2022, a Pew Research survey found that 78% of the US population is dissatisfied with the way things are going in our country. In a March 2022 Gallup Poll, only 24% of Americans said they were satisfied with the way things are currently going in the US The positive high for the poll was 71% in 1999, at the heights of the stock market due to the dot- com bubble and hit a low of 7% during the 2008 financial crisis, which makes sense since this was the most serious economic downturn since the Great Depression. When looking at this data, it reflects that the better the economy, the better Americans feel about the overall country.

The US is a capitalist country, which is an economy where the means of production are controlled by private business. It’s a so called free market. It is not the only capitalist country, as in 2021, the top three most capitalistic economies, according to World Population Review, were Singapore, New Zealand and Australia. The US was not in the top 10. As the US has regulations, taxation and subsidization (education, roads and healthcare as examples), America is considered a mixed market economy.

The capitalist part of America created the “American Dream,” which is the “belief that anyone, regardless of where they were born or what class they were born into, can attain their own version of success in a society in which mobility is possible for everyone.” For decades, American have been able to climb the economic ladder by earning higher incomes than their parents. In a 2022 social mobility ranking by the World Population Review, the US ranks 27th with a score of 70.4. Upward mobility in the US has been declining since the 1940s. The country with the highest ranking in upward mobility is Denmark (any correlation with the fact that it is ranked number two in the top 10 happiest countries Annual World Happiness Report?)

The benefits of capitalism are many; with political freedom, efficiency, innovation (Pfizer [PFE]- BioNTech created the first approved COVID vaccine) and economic growth tend to be the positive byproducts of a capitalistic economy. In a capitalistic society there are incentives to be efficient and produce goods which are in demand. Being efficient creates pressure to control costs and avoid waste. Innovation comes from the promise of wealth and the US is third in the world for entrepreneurship

The cons of capitalism are monopoly power. Back in 1982, Bell Telephone Company, founded by Alexander Graham Bell, was broken up into 22 smaller, “Baby Bell” companies. The current AT&T (T) consists of 10 of the original “Baby Bell” companies. Monopsony power is a con of capitalism where there is great inequality between owners of capital and workers at a firm. a

2021 study of the 300 top US companies released by the Institute for Policy Studies (IPS) found the average pay gap between CEO and median worker jumped to 670-to-1 ($670 for every dollar their workers make). Another con to capitalism is inherited wealth and wealth inequality. There has been much made of America’s extreme inequality, with 20% of our nation’s income flowing to the top 1%. The top 0.1% of US wealth holders hold the same share of wealth as the bottom 90%. Capitalistic societies tend to have boom and bust cycles. The largest bubble or boom in my living history was the housing bubble of the 2000s. Foreclosures in 2006 and 2007 lead to a crisis (or bust) in 2008.

While outranked in certain areas, the United States remains the world’s most dominant economic and military power. The US ranks first in gross domestic product, creating 24% of the world’s growth in 2021.


Judy Loy is Registered Investment Advisor, ChFC®, RICP® and CEO of Nestlerode & Loy, Inc.

All investing is subject to risk, including possible loss of the money you invest. Nothing in this article should be constructed as investment or retirement advice. Always consult with a professional advisor and consider your risk tolerance and time to invest when making investment decisions. Review your personal situation with a professional before planning any gifting or estate planning.

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