Will the S&P's rally hurt capitalism?

It's great that the S&P 500 has rallied 29 percent so far this year. But if you believe in capitalism, beware of the potential backlash. A large part of this rally is driven by a generation of CEOs who are more focused on boosting their own stock price than executing properly on the pivotal role they occupy in society.

Remember this from school? Under the capitalist system, profits are the reward for taking risks. Capitalists (or shareholders), through their CEOs, bring labor, raw materials and cash together to produce goods and services that drive the economy toward full employment.

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In return for taking that risk (and making the economy zing), shareholders get to keep the extra value that's generated, as profits.

CEOs are currently extracting record profits from the economy; 11.1 percent of GDP in the third quarter, according to Commerce Department, compared to the long-term average of 6.1 percent since 1929.

But this current generation of CEOs is failing to take risk. They are failing to invest for more jobs and growth. And if they don't — who will?

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CEO inaction is a major reason why 10.9 million people remain unemployed. (That's in addition to the 7.7 million forced into part-time work and another 2.1 million who'd like a job but have given up looking, according to the Bureau of Labor Statistics).

It's disingenuous of CEOs to blame a lack of demand in the economy for their decision not to invest when its their collective inaction that helps create any lack of demand in the first place.

Non-financial CEOs are now sitting on a staggering $1.8 trillion of cash, according to the Federal Reserve. That's a major chunk of this nation's vital productive resources, accumulated over decades of capitalist endeavor, now lying completely idle.

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But what's really galling to see is when CEOs do take action, what they chose to spend those productive resources on.

CEOs spent $445 billion buying back their own companies' stock in the 12 months to October, according to S&P Dow Jones.

That means for every $2 the Fed prints to buy Treasurys and mortgage-backed securities, CEOs spend another $1 to boost the stock market. No wonder it's been a such a banner year!

True, that cash belongs to shareholders and they have the right to have it "returned" to them through higher stock prices. But CEOs also launch buybacks to protect their own careers; to fend off potential approaches from loud, short-term, activist shareholders. Buybacks also make it look like CEOs are growing their earnings per share more rapidly, in addition to doing wonders for the value of their personal stock options.

But share buybacks are of zero productive value.

It's also nonsense for CEOs to say that they are only responding to what the market wants when you see the performance of other stocks whose CEOs are promising growth through investment: Amazon, Google, Netflix, Facebook, Twitter or Tesla.

More importantly, by siphoning off the productive resources of the economy into boosting the stock market, CEOs are directly compounding the growing wealth inequality in this country.

Anger over that inequality is beginning to drive real change. On Wednesday, Bill de Blasio will be sworn in as the new mayor of New York City after a landslide victory won by his relentless critique of inequality in New York, which he calls a "Tale of Two Cities."

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Capitalism gives CEOs, acting for their shareholders, a pivotal role in leading economic recovery through risk-taking.

Five years in, it's now time for this generation of CEOs to step up to the plate, before the rest of society starts to demand a change in the rules.

— By Simon Hobbs

Simon Hobbs is an anchor on CNBC's "Squawk on the Street." Follow him on Twitter @HobbsieNY.