Capitalism a Way Out Of Debt
Posted by: Howard Dvorkin, CPA
Date of post: October 23, 2017

As social issues roil the country, some have attacked our basic economics. They're wrong.

For more than two decades, I’ve created and operated businesses that help Americans climb out of crushing personal debt. if I’ve learned anything in that time, it’s this:

  • Capitalism is the best way to get both in and out of financial trouble.
  • No one has yet created a better system of economic fairness.

I mention this because the country’s recent protests over issues unrelated to the economy — from white supremacy to NFL gladiators kneeling — have led some protesters to question the very concept of capitalism. It’s not uncommon to see signs like this on college campuses: “Capitalism Isn’t Working” and “Work Harder, Support the Rich.”

I have zero interest debating political policy, but I deeply care about any legislation that makes it harder for average Americans to control their financial destiny. So let me make three points that I hope both Democrats and Republicans will consider…

1. Capitalism can conquer discrimination

Somehow, protesters have conflated capitalism with racism, perhaps because of reports like this: Black Wealth in America Hardly Exists. However, that’s like blaming Greyhound for manufacturing the bus that Rosa Parks rode, and which launched the civil rights movement.

Capitalism is a system that can be tarnished by evil people. It can also help good people flourish. In fact, if we had more capitalism, we’d have less racism. It’s an old concept: “I don’t care about color, except for the color green.”

2. Capitalism has an Achilles heel

What harms capitalism is over-regulation. Please note, I’m not saying all regulation. However, I’ve seen well-intentioned legislators pass laws that hurt the very people they’re trying to help. Here’s the latest example…

A university researcher in Florida looked into the intricacies of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Even if you don’t care about this act’s impact on community banks, you should read this conclusion from Florida Atlantic University professor Suman Ghosh…

We observe that banks exhibit a “bunching” pattern whereby they tend to curtail their growth beyond the limit until which the regulatory burden hits them.

In other words, these community banks, which predominantly serve small businesses, are so worried about the cost of regulation that they don’t want to expand. The cost of growing their business is more than the profit they’ll receive. That’s the exact opposite of what capitalism is about, and it undercuts the most alluring part of the foundation of capitalism: If you work hard, you can reap the rewards of your sweat.

3. Capitalism can cause and solve debt

With the nation reeling from more than $1 trillion in credit card debt and almost $1.5 trillion in student loan debt, it’s easy to blame capitalism for our personal finance problems. I don’t. I blame personal choice and our educational system.

There are several reasons for personal debt that are just tragic and unavoidable: natural disaster, divorce, accidents, and illnesses. Yet I consider debt for these reasons to be a draw of capitalism.

Under socialist or communist systems, you don’t have the ability to temporarily run up debt to recover from a terrible situation. You’re stuck with whatever the government says you can do, and governments of any stripe aren’t known for being attentive and sympathetic.

For those of us who run up our debts because we like shiny new things, that’s on us. Sadly, our schools teach many things well, but not financial literacy. Still, our system provides the solutions…

Best of all, none of these are mandatory. You can choose none, one, and sometimes a combination of these options and even more. You have the freedom to get into and out of debt. While I wish there were a way to avoid debt altogether, until someone invents it, I believe we have the best system yet devised.

I hope to see Version II in my lifetime, but for now, hard work, determination, and focus will have to do.