On May 27, during a speech in Ohio, President Joe Biden told listeners, “I’m a capitalist,” but “the basic bargain in this country has been broken.” “Since 1979,” he said, “productivity has grown four times faster than pay has grown.” It used to be that
if you work hard and contribute to the success of enterprise, you get to share in the success—that’s not the case anymore. That’s how it works in healthy capitalist economies. But along the way, we started seeing the stock market and corporate profits and executive pay as the sole measure of our economic success.
Further, “CEOs used to get paid 35, 36 times to [sic] the average employee, and they should get paid. Now it’s over 370 times more than the average employee. As my mother would say, ‘Who died and left them boss?’”
Government can and should fix salary disparities, Biden said, by strategically investing our tax dollars and instituting policies in ways that will create “good jobs—American jobs that deliver good wages and dignity.” So, he aims to provide preschool and community college, rebuild America’s highway system, increase access to high-speed internet, fund NIH research on Alzheimer’s, cancer, and diabetes, and more. “My plan is the right way to invest,” he said, “spreading key investments over time so we limit the price pressure.” All told, Biden’s proposals would cost taxpayers some $6 trillion, which he plans to raise by increasing taxes for corporations and wealthy individuals.
Does anyone really think that Joe Biden, who is not a capitalist but a lifelong politician, knows “the right way to invest” $6 trillion?
This raises several questions. Among them, does anyone really think that Joe Biden, who is not a capitalist but a lifelong politician, knows “the right way to invest” $6 trillion? Notably, in 2009, CBS estimated Biden’s net worth to be less than $30,000—making him the poorest administration figure—despite the fact that, since 1991, taxpayers had been giving him an annual salary of more than $100,000.
Except where government privilege is involved, wealthy entrepreneurs and executives become wealthy in large part because they know how to use money and resources to create more money and resources. By contrast, as history has shown repeatedly, bureaucrats can spend our money, but they have no expertise in profitably investing it.
Another question: Should we want bureaucrats who are skilled in—and eager to—“invest” our tax dollars? The purpose of government is not to manage our wealth but to protect our rights. Just as we evaluate cardiac surgeons based on how well they perform triple bypasses, not root canals, so we ought to evaluate politicians on how well (and efficiently) they protect our rights, not on whether they know “the right way to invest.” For investment expertise, we turn to CEOs, for whom we vote by buying stock in companies and participating in shareholder meetings.
CEO pay reflects the high demand for people with rare and valuable skills. Today, there are more enterprises competing for such talent than ever before, which explains, at least in part, the continued upward trajectory of CEO pay that displeases the likes of Biden. Although the quantity (and perhaps quality) of skilled executives has grown over the past fifty years, so has demand, job complexity, the potential earnings of companies, and the recognition of the CEO’s role in actualizing that potential. And, with respect to this last, if we compare living conditions today to those fifty years ago, it’s clear that CEOs generally have been doing their jobs superbly, supplying us with life-enhancing products and services at ever-falling prices.
But how well have politicians been doing their job of protecting rights? Among many striking and suggestive graphs that might help us explain worker wage stagnation are those tracking the growth of the Federal Register, the record of all federal laws, along with those tracking the growth of the welfare state.
Inflation-adjusted wages for average workers began to flatten at about the same time politicians began inflating both the number of regulations and the size of the welfare state. pic.twitter.com/G0PPOzow6Z— Jon Hersey (@revivingreason) June 4, 2021
Curiously, at around the same time that inflation-adjusted wage growth for workers began to flatten, our politicians began expanding both the number of regulations and the size of the welfare state. Beginning in the 1960s, Lyndon B. Johnson’s “Great Society” vastly increased the size and scope of America’s schemes for wealth redistribution. Then, in 1969, Richard Nixon raised taxes on businesses and established a host of agencies charged with regulating what they may and may not do, including the Occupational Safety and Health Administration, the Environmental Protection Agency, and the Consumer Product Safety Commission. If we dig into the nature of this massive growth of government, we see that it violates rights while pitting some groups against others, incentivizing those groups to plead for this or that special interest. As Michael Dahlen aptly observes:
The vast growth of the regulatory-entitlement state led to the vast growth of lobbying and campaign spending. Why? The more government intervenes in the economy—restricting the freedom of corporations, mandating what they must and must not do, imposing onerous compliance costs—the more incentive corporations have to influence how it intervenes. A government that heavily redistributes wealth, moreover, favoring some at the expense of others, foments an interest-group society: Privileged groups will lobby to protect their loot, some victims will lobby to become a privileged group, and other victims will lobby to protect their rights. As the great French political economist Frédéric Bastiat wrote in 1850, when law is “diverted from its true purpose—that it may violate property instead of protecting it—then everyone will want to participate in making the law, either to protect himself against plunder or to use it for plunder.”
If, as Biden says, so-called middle-class workers once shared in their companies’ successes, is it all surprising that they would share in their companies’ increasing regulatory and tax burdens as well? Should we be shocked that wages would stagnate as companies spend more time and resources navigating the ever-thickening forest of red tape? And what do we suppose will happen when Biden realizes, as one reporter put it, his “ambition to restore the federal government to the role it played during the New Deal and Great Society”?
If we want higher wages—and who doesn’t—then instead of further “divert[ing] law from its true purpose” and cultivating a war zone of competing interest groups, we might begin by reversing course toward a government limited to its proper function of protecting our rights.
If we want higher wages—and who doesn’t—then instead of further “divert[ing] law from its true purpose” and cultivating a war zone of competing interest groups, we might begin by reversing course toward a government limited to its proper function of protecting our rights. This—the wellspring of American success—is the essence of capitalism. And Biden, the self-styled “capitalist,” has been “invested” in destroying it for the last fifty years.