The critical error that many supporters of capitalism make is to assume that unfettered capitalism produces the “best” results. Capitalism is an amazing tool for allocating capital and creating wealth, but a wildly imperfect tool for distributing that wealth.

I’ll put it in terms that might resonate with ardent capitalists: Pure capitalism is like a 100% equity portfolio; technically, it has the highest expected return, but in practice it is volatile and dangerous. An 80/20 or 90/10 portfolio that mixes in fixed income and other asset classes offers nearly the same raw expected return but a decidedly superior risk-adjusted return. And in a capitalist society that overly concentrates its wealth, the risk is that the majority who don’t share as much in that wealth decide to correct the situation, either through legislation or revolution.

Use capitalism to create wealth and use policy to make sure that the majority feels like it is also benefiting from that wealth creation. Refusing the share the wealth created will likely result in people turning to socialism, which is like a 100% fixed income portfolio with a much lower expected return that leaves you bankrupt in your retirement.