The [American] Dream is not dead, and we shouldn’t let a populist scream convince us otherwise. Americans living today have every reason to be optimistic—and grateful.
– Michael Strain, American economist
Capitalism has become the preferred whipping boy of those calling for more government involvement in markets. The statists love to begrudge it and the wealthy wokes love to downplay it. Whether it’s income inequality or the growing power of big tech, “late capitalism” is a term employed by those who would like to eliminate or greatly reduce private ownership and usher in an era of redistribution.
But is capitalism really in its final gasps? And if so, where are we headed?
The notion of late capitalism has been around since Karl Marx began his assault on free enterprise in the 19th century, although the term was officially coined by German economist Werner Sombart in his 1902 book Der Moderne Kapitalismus. Marx believed that the proletariat would eventually revolt against the bourgeoisie due to the angst created by inequality and exploitation. For him, one of the most egregious injustices was wealth inequality. He believed private property was a major driver of inequality, effectively insulating the wealthy from giving workers their fair share.
Sound familiar? Senator Sanders has an entire policy trove of bad ideas built on the premise that wealthy Americans have exploited workers by weaponizing their possessions (property) for their own malignant greed.
Those suggesting capitalism is in its final throes assume two things:
- Economic inequality equals injustice
- The existence of economic inequality means that capitalism must be replaced
A Tale of Two Inequalities
Unemployment in the United States is currently at the lowest level it has been since the 1960s. Not only is the economy creating more jobs, but wages are growing. And consider this: “wages for the bottom third of workers have risen at a 4.1 percent annual pace over the past two years versus 3.3 percent for the middle third and 3.6 percent for those at the top.”
Workers are in such demand, especially in industries like healthcare and education, that an increasing number of companies are offering incentive packages to defray the cost of moving to a new job. When we consider the income mobility of Americans, with 95 percent of those at the bottom 20 percent not being there in 15 years, it becomes clear that wealth is transient in a market economy, providing a pathway for many to pursue the American Dream.
It’s important to note that regulatory and tax reform play a role in reducing wealth inequality. To be sure, nothing will create absolute wealth parity in a free market (nor should it), but the effects of deregulation and tax reform are instructive. Economist Michael Strain notes that from the start of the Great Recession until 2016, “inequality decreased by 7 percent” after accounting for taxes and transfers.
As the government’s demands on business and personal wealth are reduced, employers feel more comfortable investing in expansion, leading to more jobs that in turn create a demand for additional labor. This makes workers more attractive to prospective employers, bolstering job seekers with a competitive environment that enables them to be choosier employees.
Despite the free-market’s ability to create a more level playing field, however, some types of inequality will continue to exist. Economist Thomas Sowell notes that there are many contributors to inequality, saying, “there was never a reason to expect equality. [There are so] many different complicating factors, cultures matter, demographics matter, regions matter.”
For example, the average life expectancy of a man that lives in the mountains is a decade less than one that lives in the Virginia suburbs. Inequality is even evidenced in seemingly superficial matters, such as physical attractiveness, athletic aptitude, and musical ability. Not everyone can play like Patrick Mahomes or sing like Adele.
The Justice of Capitalism
There are few things more professionally distressing than seeing your hard work and earnest efforts thwarted by a system designed to quash competition. Unfortunately, this is the type of approach many protectionists on both the left and right take when it comes to economic policy. Through onerous regulation, occupational licensing restrictions, minimum wage laws, price controls, tariffs, and more, it can feel like the deck is stacked against you.
By contrast, free enterprise is liberating and creates opportunity. The spread of capitalism and the promotion of free markets has led to a substantial decline in extreme poverty. In the 1980s, approximately 40 percent of the world’s population lived in extreme poverty. Today, that figure is 8.6 percent.
Even authoritarian regimes, like China, recognize the importance of limiting government intrusion in markets if they hope to be competitive in an increasingly globalized economy.
Capitalism has proven to be the best vehicle for economic justice for the marginalized and impoverished. Why would anyone want to deprive the poor of the mobility free enterprise affords?
Capitalism Today, Capitalism Tomorrow, Capitalism Forever?
If we look to public trust as an indication of capitalism’s viability, look no further than business, which holds “a massive 54-point edge over government as an institution that is good at what it does,” according to the Edelman Trust Barometer. It’s also worth noting that US economic confidence is the highest it has been in nearly 20 years.
No, capitalism doesn’t appear to be going anywhere anytime soon. Instead of statists thumbing their noses at capitalism–oftentimes suggesting governments intervene–they’d be wise to exhibit a little intellectual humility and take a lesson from the efficiency and dynamism of the private sector.
The data is indisputable. Capitalism has been the primary driver of economic flourishing and innovation for nearly three hundred years, catapulting individuals, societies, and nations into levels of prosperity that were previously unfathomable. Capitalism respects the agency of people and communities, recognizing that they should be able to freely associate and trade as they see fit. Free market capitalism honors the natural right to private property.
But, even beyond these principles and big ideas, the practical matter is that so long as humans value prosperity, opportunity and innovation, capitalism won’t fade away. Free enterprise offers technological innovation that make products smarter, lighter, cheaper, and use less material.
Capitalism creates, socialism destroys.
Moving from free market capitalism toward a command economy is neither moral nor responsible. So long as free people choose action over apathy and liberty over serfdom, capitalism will continue to offer individuals the opportunity to pursue the American Dream.