Capitalism for the Masses – Part II
My previous post argues that capitalism should be celebrated for much more than satisfying the urge for profit-maximization. But whatever story we tell about capitalism I think it is one that has to resonate with the positive experiences of the masses, not the elites. That story is getting easier to tell on a global scale, where many hundreds of millions are being lifted out of abject poverty. But it is harder to tell that tale in the United States, where inequality has been growing rapidly while real wages are stagnanting.
After 1973 a great divergence appeared, in which average worker productivity grew by 80 percent but average compensation grew by half that amount. The figures are more striking when considering the median male worker, whose compensation remains essentially unchanged at its 1973 level.
Workers (on average) are much more productive but markets are not rewarding that productivity. That has produced record profits. According to Adam Smith, profits are “always highest in the countries which are going fastest to ruin” (Chapter: [I.xi.p], 162). The sign of a healthy economy to Smith—and to us—should be rising real wages, not rising profits.
What to do? We should be vigilant against the profit-maximizing types who would carve up the market into nice monopolies or near monopolies (think Comcast-Time-Warner?).
Brook’s article goes on to say that Arthur Brooks would also like conservatives to declare a truce on the social safety net. I agree. Having a net (including the ability to buy health insurance on an exchange), may free up many people to start their own businesses. In addition, basic fairness (and long run political sustainability) would suggest that a rich country cannot flourish if the gains to the market do not adhere to the masses:
No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged (Smith, WN, I.viii.36 ).