The magic of compound interest

Compound interest will greatly  increase any amount of money if given enough time to compound. The inherent problem with capitalism is that the natural rate of compound interest over time for capital is 5% while labor is limited to increases in productivity of 3%, which may not be reflected in wage increases if unions are weak. The difference between 5% and 3% is 2% which seems small, but compounded over time, that difference causes the rewards of capitalism to be accumulated by the owners of capital, the 1%.

My proposed solution to this imbalance is to tax capital at higher rates or to make workers capitalists by selling them shares in the companies that employ them. Workers should be able to borrow directly from the Federal Reserve at the same low interest rate that the Federal Reserve lends to large banks, those that are too big to fail.

Advertisements