5.5 Doesn't Capitalism Make the Poor Poorer and the Rich Richer?

My daughters school teaches her that capitalism is only good for the rich and that socialism is better for everyone else.  Her school teaches that ordinary people can't pay their costs without going into debt but that in a socialist country even though the taxes are higher those taxes pay for the things people need so that people don't need to go into debt.  In America, the cost of housing, medical care and college are very expensive.  Is that due to capitalism?  Capitalism is when you have a free market where prices are set by supply and demand.  In America the government interferes with the free market.  The government gives students loans to people going to college.  The result is that people are willing and able to pay a lot more to go to college.  The colleges raise the price of tuition since people are willing to pay.  Then when people get out of college they spend many years paying back their college loans.  Before the U.S. government got involved college was much much cheaper. 

The U.S. government pressured banks to give loans to people who couldn't afford to pay them back so low income people would own homes.  They made it very easy for people to get loans so they were willing to spend a lot on houses and the sellers of houses raised their prices. 

One reason medical care in the United States is very expensive is there are so many government rules so the medical institutions have to pay lots of administrators to make sure the rules are followed and the forms are filled out.  Doctors and nurses are paid more and drug companies are not forced to keep their prices as low as they are in many other countries.  In the United States doctors need to charge more because they have to pay for malpractice insurance since there are many lawsuits by people who believed they did not get the right medical treatment.  In addition medical school and nursing schools are very expensive for the same reasons as colleges are expensive, student loans.  Doctors and nurses have to pay those costs back and they do that by charging more.  The problem with forcing drug companies to sell their drugs very cheaply is that then they don't make enough money to develop new drugs.  Another reason health care is expensive in the U.S. is that people don't know in advance how much their health care will cost them so they can't shop around for the hospital that gives them the best deal.  Hospitals emergency rooms  have to care for whoever comes in whether they have health insurance or not and that raises the price for everyone else.  That is a form of socialism.  To the extent that there is a free market in American health care that benefits U.S. citizens.  If you need an MRI for example you can get one quickly in the U.S. whereas in socialist countries there are few MRI machines available and very long waiting times till you can get your MRI.  The high costs that Americans have are mostlly not due to capitalism but to government interference with capitalism.

Capitalism means people own their own stores and control what they sell and produce.  This is different than socialism or communism in which the government owns and controls everything.  In a free capitalist society some people will do better than others at making money.  People who criticize capitalism don't think that's fair and believe that the money should be distributed equally among everyone.  The obvious problem with that is that money would then be taken from the people who work hard and given to the people who don't and those hard working people might decide all that hard work isn't worth it.  Some people believe that capitalism actually makes poorer people poorer.  They believe that the way the rich get rich is by taking money away from the poor.  Is that true?  Lets say a country has 100 billion dollars and a wealthy man gets 5 billion of that.  Didn't that money get taken out of that 100 billion dollars.  Doesn't that mean that everyone else must have less money?  The man who got the 5 billion got it by selling something people wanted more than the money they spent for it.  Wealth is not just money it's goods too.  If they all got new cars that they didn't have before they are wealthier too.  Also the value of money can change.  People who create wealth make the purchasing power of money go up.  If you can buy twice as many things that you want with the same dollar bill, you are wealthier.

John Stossel talks about this in the video below.  One word you should know before watching the video is the word monopoly.  Monopoly is when only one company controls what is being sold.  If one company had a monopoly on ice cream they could charge a very high price and probably would until someone else comes along and sells ice cream cheaper.  When that happens there is no longer a monopoly.

People who become billionaires are usually very good at creating wealth that benefits everyone.  The more money they have the more they can use it to develop things that will make more money.  Money in their hands instead of making everyone poorer can make everyone better off.

Some of the poor homeless people on our streets are there because they spend the money they get from the government on drugs. Who would do the most good with that government money the wealthy or the poor?

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