Revolution or Reform: The Future of Market Capitalism

Capitalism, at least as we have known it, R.I.P. Burial to take place on election day, November 3, 2020. Cause of death: the refusal of dominant elites to consider the consequences of so-called free trade, special tax treatments, and some of their other favorite programs. Grave-diggers to include Donald Trump and a person to be designated by the Democratic Party, either of whom will then lead a celebration. In lieu of flowers all donations to charities for CEOs reduced from eight- to six-digit incomes and those once known as “wealthy”.

Statement on the Purpose of a Corporation
In a bit more than a year we will probably be asked to choose between what we might call Caudillo Capitalism and some version of an economy in which the role of the state has been so expanded that it can no longer claim to be anything like the system in place since the end of the Second World War. Donald Trump, should he win, would no longer be restrained by the need to be re-elected or, having been acquitted by the senate of impeachment charges, the risk of being defenestrated by his enemies, who nevertheless will continue to refer to him as the occupant of the White House rather than the President. He will continue to take onto himself tasks previously reserved for market forces, deciding which products will enter the US with and which without tariffs, whether and how much money to transfer to farmers who vote for him from urban taxpayers who generally do not. Given his way, he would force interest rates even lower, to the benefit of owners of assets that would rise in value and the pain of small savers whose incomes Fed monetary policy has decimated. Most of all, out goes globalization, along with its benefits for investment bankers and consumers, and its misery for unskilled workers, and in comes, well, America First.

Bernie Sanders’ heart attack makes it less likely that he will win the Democratic nomination, which is good news for “billionaires”, whom he has promised to eliminate, although in the fiscal rather than physical sense favored by Stalin, who once presided over the city in which he chose to spend his honeymoon. Senator Elizabeth Warren, an emerging leader in the race for the nomination, “the most important person to America’s business” according to CNBC commentator Jim Cramer, says billionaires will eventually be eliminated, but that it will take 15 years for her tax plan to consign them to the ash heap of history. These billionaires have been calling for higher taxes on themselves, but undoubtedly will use Warren’s phase-in period to hone the perfectly legal tax avoidance schemes their accountants thrust upon them.

Warren, whose specific plans put meat, well, not meat but its new substitutes, on the bones of “progressive” policies, proposes to transfer a large portion of US GDP from the private sector to government planners. She would raise taxes on high earners, including on their social security payments, billionaires, corporations, lobbyists, and others of whom she disapproves. The lucre would go to erase student debt, shred medical bills, top up pensions, and increase cash pay-outs to political supporters, current or to-be-wooed.

  • Out goes private-sector insurance that now caters to the needs of 158 million Americans who receive coverage from their employers, in comes government-operated health care, its appeal based on its soothing title, “Medicare for All”, its funding undoubtedly to include higher taxes on the middle class, a confession Sanders freely makes but Warren has yet to have extracted from her.
  • Out go many market incentives to work and build wealth, in come income transfers that take from the rich, including those who earned it and those who inherited it, and give to those the government deems more worthy.
  • Out goes the internal combustion engine, in come autos dependent on wind or solar electricity, coal, nuclear and natural gas no longer being acceptable fuels.
  • Out go existing homes and offices, in come rebuilt or new greener versions.
  • Out goes consumer choice, in come government directives, especially on how citizens will be allowed to use energy.
  • Out goes equity as a policy goal, in comes equality, defined now more as equality of result than equality of opportunity.
  • Out goes capitalism, warts and all, the generator of huge increases in living standards, in comes the notion that the losers in the economic arena are also voiceless in the corridors of power, dominated by the Gucci-clad — or is it Prada trainers these days — brigade of lobbyists who add political power to the economic power of the rich and confers on what The Economist calls “a small number of unrepresentative business leaders … immense power to set goals for society…”.

There’s more, but you get the idea: capitalism has its discontents. And the capitalists who presided over the system are in good part to blame. The country’s bankers ignored risks to the safety of the financial system and sold products, with the blessing of the rating agencies, giving us the Great Recession and them a taxpayer bailout. The founders of the great companies of the 20th and 21st centuries have paid scant attention to their impact on small businesses (Amazon), the privacy wishes of their customers (Google, Facebook), their responsibility to defer to national security interests (Apple, Google), and avoided sharing in the tax burdens borne by middle-class Americans (all of the above).

Nor have corporate executives or the directors who supposedly restrain CEOs’ desires to out-earn their peers considered the social and political impacts of salaries thousands of times those of the average worker, a flawed but catchy metric — salaries that economists’ studies find to be substantially higher than are necessary to attract people into the financial services industries.

Failing to cope with these problems is a political system absorbed with Trump-hatred on the one side, and providing good reason for some of that hatred on the other. And social and legal systems that have caused irreconcilable differences between the cultures of the elites on the coasts of the country and the citizens of middle America, Hillary Clinton’s “deplorable” denizens of fly-over country.

The result is that in this rich country, with unemployment at a 50-year low of 3.5%, with wages of the lowest earners rising faster than those higher up the income ladder, only one-in-three American voters tell Gallup pollsters that they are satisfied with “the way things are going in the US”, while twice as many say they are not.

Which is why they seem ready to give a hearing to “progressive” politicians espousing “structural change” that varies from Bernie’s “revolution” to Joe Biden’s fix-it, with Warren a bit to the right of the former and considerably to the left of the latter. After all, the last politician to deliver just that — and its flip side, more costly, more intrusive government — was Franklin Roosevelt, as reviled by Wall Street bankers as Warren is feared by their successors, some of whom claim that if she is elected they will move to New Zealand, and the financial markets will not open.

In the end, Roosevelt’s New Deal proved to preserve, rather than destroy capitalism. That’s what Warren claims for her reforms, “I am a capitalist, but markets need to work for more than just the rich”. In the great musical, “The King and I,” Yul Brenner, playing the King of Siam, worries that his strong allies might protect him out of all he owns. So, too, Warren: she might protect capitalists, and not only billionaires, out of all they own, including incentives to innovate and grow the economy. That, FDR was careful not to do.