By Samuel Gregg
Tuesday, August 02, 2022
In recent weeks, the New York Times has
been running opinion pieces in which various columnists expound on a topic
about which they have changed their views. On July 21 it was David Brooks’ turn
to lay out his mea
culpa. The subject turned out to be capitalism, or at least what Brooks
believes to be some of the market economy’s undesirable side effects and what
should be done about them.
As a young man, Brooks writes, he was a democratic
socialist. Then, like some of his generation, he became convinced of the
solidity of the case for free markets. In the early 2000s, however, Brooks
started to have a change of heart in light of what he came to see as certain
undesirable features of modern capitalist economies. He puts it this way:
It took me a while to see that the
postindustrial capitalism machine—while innovative, dynamic and wonderful in
many respects—had some fundamental flaws. The most educated Americans were
amassing more and more wealth, dominating the best living areas, pouring advantages
into their kids. A highly unequal caste system was forming. Bit by bit it
dawned on me that the government would have to get much more active if every
child was going to have an open field and a fair chance.
Inequality in terms of talent and starting points in life
are part of the human condition. I’d be surprised if Brooks disagreed with
that. Moreover, there’s very little that can be done to equalize such things
without massive intrusion by the state into people’s lives, fundamental
curtailments of their liberties, and the destruction of any institution whose
existence creates differences. A side effect of that outlook, embraced by
groups ranging from Jacobins to Marxists, is a greater concentration of power in
the state, not to mention those charged with using that power to realize
particular ends.
For Brooks, however, it seems that his core worry is that
capitalism, for all its benefits, contributes to particular forms of inequality
that are unjust. Greater wealth accumulation by particular groups, his argument
seems to be, is central to their ability to exclude others from parts of
society and to establish themselves as a caste.
But is this an accurate portrayal of what’s happened in
America and the dynamics of late postindustrial capitalism in the United
States?
First, we should note that Americans’ income continued
to rise between
2011 and 2020. Indeed, the evidence suggests that people in America are getting
ahead in the best traditions of the American Dream.
As Michael R. Strain observed in his book The
American Dream Is Not Dead, wages and incomes haven’t been stagnant for
the average American worker for 30 years. He goes on to point out that the
typical American household has experienced broad quality-of-life improvements
for decades. Overall, he maintains, Americans still generally experience upward
economic mobility, thanks in part to the emergence of “a new middle of the
labor market.” We find this in fields like healthcare support, education, and
personal care. These are jobs that demand more education than, say, that of a
1950s assembly-line worker, but also the type of skills and social intelligence
that technology can’t replicate or is very bad at doing.
But, some might say, this is besides Brooks’ point. For
him it is those wealth differentials created by contemporary capitalism that
are enabling undesirable forms of inequality (access to better education,
networks, etc.) that the government needs to address directly.
Could it be, however, that Brooks has got at least part
of the cause and effect the wrong way around? What if it is government—or, more
precisely, people’s closeness to government and regulators—that at least partly
drives large segments of the wealth inequality that Brooks is concerned about.
***
Let me give one concrete example. Of the 15 American
counties with the highest incomes in 2022, five are to
be found around Washington, D.C., specifically in Virginia and Maryland. These
counties are not known for being home to major business sectors or industries
on the scale of Wall Street or Silicon Valley. Instead, many (if not most) of
their inhabitants’ economic lives revolve around the federal government,
Congress, and major state agencies. It’s no coincidence that so many retired
members of the House and Senate settle down in the D.C. environs after they
leave office. They know that being a D.C. lobbyist can be extremely lucrative.
The acquisition of such wealth in these parts of the
country isn’t the result of the workings of capitalism. Instead, it is largely
driven by “cronyism” or “crony capitalism.” This emerges when the processes of
free exchange within a framework of property rights and rule of law are
gradually supplanted by what I will call “political markets.” Instead of people
prospering through freely creating and offering good and services to consumers
at competitive prices, economic success hinges on people’s ability to harness
government power to rig the game in their favor and secure preferential
treatment from regulators, legislators, and governments.
And here’s the problem: The more you allow the government
to intervene in the economy—whether through regulation, subsidies, tariffs, or
industrial policy—to try and, say, diminish wealth differentials, the greater
the opportunities for what economists call rent-seeking. This is when an
individual or business tries to attain wealth by extracting resources from
others (e.g., the government) but without actually doing much by way of
economic productivity—in short, without adding value. There’s no reason why
government interventions to address some of the wealth differentials and their
effects that Brooks laments would not become yet another source of
rent-seeking.
***
Discussion of the effects of wealth inequality in a
capitalist economy upon other social dynamics is entirely legitimate. I’d
suggest, however, what really matters is (1) whether upward economic mobility
is still possible (and in America it certainly is), and (2) whether significant
parts of existing large wealth differentials are held in place and perpetrated
by individuals and businesses who are masters at playing the rent-seeking game
in places like Washington D.C.
The irony is that if you want to do something about
cronyism and the significant wealth inequality it produces, part of the
solution is less government—not more. Smaller government means fewer
opportunities for wealth accumulation by rent-seekers, and less scope for
legislators and regulators to offer favors and privileges for which they expect
a quid pro quo.
And so, I would say to David Brooks, therein lies at
least part of the road to a more just economy and society. It’s really about
less government, rather than more.
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