flaws of capitalism: sometimes eccentric things happen smoothly

We are living in a capitalist world, where, except a few communist countries, we see ownership of property, entrepreneurship, and interest on money as positive aspects of economy that allows all people benefit by providing goods and services for others in pursuit of their own desires.

Ownership of property and interest on money are what facilitate entrepreneurship, and entrepreneurship is what facilitates creativity.

Basically, we think of a state of perfect competition, where if all the factors remain equal, the higher the demand for a good, the higher the price. In other words, the more people buy of a good, there is going to be less quantity available in the market so we expect a rise in prices. Looking at it in this way, we can say that consumers themselves are those who, by their choices, determine the prices.
But another factor which is less mentioned and is effective in determining the choices of consumers, is businesses pursuing their needs, not by meeting the general demands of people, instead, by creating needs in people and then running their business on that.

Winston Churchill

Here you might be thinking, aren't those the foundations of microeconomics ? or aren't the advertising good for businesses by encouraging consumers ?

Yes, perusing your own interests is a foundation of microeconomics but there are some rules and limits. If harming others is your interest, then what is happening is a criminal activity, not an economic one.

While I don't deny all the good qualities of this system of capitalism, I would like you to know that in such a situation it's quite natural to find that :

• There is a high amount of caffeine in your soft drinks to get you addicted to it
• All the benefits of drinking a lot of water for your health were lies
• You come across many stories on the web that may touch your heart, but are totally made up. They have interesting topics and can attract many visitors just by their title, so no wonder why they do this
• and so forth ...

In the above examples, you can see that the producers choose to use unfair ways to get consumers buy their products again and again, rather than being valued for their actual taste and quality.

The second example is about all the myths being told over and over again about how good could water be for your health. Not just in websites and social media, I have seen many people who believe in this. I even had teacher who used to say drinking water during exam can improve your performance. If you do a quick search about benefits of water in the web, you encounter titles like "12 Unexpected Reasons to Drink More Water", "34 Proven Ways Water Makes You Awesome" and "10 Life-Changing Reasons to Drink More Water". Do we really need to drink 8 glasses of water in a day ?

Water is good for preventing dehydration, but there is not magical and unexpected changes. Researches show that there is no scientific reason behind all the promised benefits of drinking a lot of water. On the other hand, they were published for the first time by magazines sponsored by bottled water companies.

Can we say "walking 30 minutes a day is good for health" is also a wrong statement and was published to promote walking shoes companies? No. Not everything works in that way.Instead, You can just take a look at how ridiculous advertisements are. For example promising that by using a particular hair gel or deodorant you will be extraordinarily attractive to the opposite sex. When these promises are not at all possible, the advertisers can use this strategy only by considering consumers as brainless ignorants.

And finally, in the third example we see that they don't feel responsible whatsoever for the negative impact of their job. The same thing is happening in social networking sites like Facebook, where pages encourage you to like, comment and share their post only to be seen by more people and increase their page likes.

The discussed imperfections of capitalism will open the door to monopoly for the giant companies to ensure their unjust position. They are against rights of consumers that prevent a win-win outcome. However, let me elucidate it here, that the only solution that comes to my mind right now is to emphasize on consumer awareness. Maybe I write about it later.

poverty trap: result of inefficient government programs

Poverty is a multifaceted concept. You can't blame any one policy or find a particular reason for that. There are a variety of reasons and lack of many inefficient policies that cause or intensify poverty, even now, to exist largely, that make us believe more and more we are living in a cruel world.

Almost half the world — over 3 billion people — live on less than $2.50 a day.

The level of poverty differs in different countries. Some are deeply drown in it (developing or under-developed countries) while others can handle it much easier. And that is why having an income which seems to be very negligible in a developed country, may be even considered as a high income less developed one. For example, you are considered to be poor if you can't afford to buy a car in USA while middle class families own two to three cars easily. On the other hand, there is not the same perception about you in India, while there are many people in backward regions who are suffering from chronic hunger.

The World Bank and international community usually regards $1/day as the standard for those living in poverty, per year this would be $365 USD.

So the poverty line can vary largely in countries because they set different priority to alleviate or manage poverty. Nevertheless, we can't deny the importance of principles of social justice and equal opportunity (the most important concept we learned from socialist ideas) on any circumstances. To apply these ideas, countries have to take action face poverty (where-ever it is) and improve the living condition of the poor.

The first thing we do to reduce poverty, is to provide minimum material means for surviving (such as food, shelter, clothes and healthcare) and then provide them jobs and education to give them more economic freedom.

"Poverty trap is a spiraling mechanism which forces people to remain poor." The economic times

Poverty trap continuous when we fail to provide equal opportunity to people to lift themselves out of poverty when they utterly deserve it.

So how to break poverty trap? I remember once Milton Friedman in support of reduction in government spendings including spendings in welfare programs said that if we distributed all the budget allocated for poverty reduction equally among the poor people, they simply would have been rich.

Regardless of the fact that he wasn't serious there, any additional concentration of spendings in materialistic helps not only doesn't give poor more opportunity but also closes all the doors to them when they make efforts to have a better economic life.

An example of the poverty trap at the individual level is the situation where an unemployed person refrains from taking a job because their earnings will disqualify them from claiming unemployment benefits or raise their tax liability, and, as a result, their net income will fall.

Using compounding to grow more wealth

It's rather simple to make your money work for you. Here is a question. Do you spend the income you earn on your investments or do you re-invest it ?

What is compounding technique ?
Well to begin with it goes hand in hand with the concept of re-investment. Every time you re-invest your income from interest/dividends, you capital or principal that is re-invested goes up. The next time you earn interest/dividends, it is on this enhanced capital, and is therefore higher than what you would have received if you chose not to re-invest.
Albert Einstein once called compounding the greatest mathematical discovery ever!

Use 2 magic wands to grow you wealth :

1. Compounding and

2. High frequency of compounding

Apart from time, another factor that influences compounding is frequency of compounding. You have probably heard of investments that offer monthly, quarterly and annual compounding. what this simply means is that interest is calculated at different frequencies (every month for monthly, every quarter for quarterly, etc.) and re-invest. The shorter the compounding frequency, the earlier your interest is.

You can see that re-investment (compounding) makes a huge difference in long term!