How Does Capitalism End?
By Todd G. Buchholz
Socialism is looking less ugly these days.
It used to conjure up images of bushy Karl Marx with spittle in his beard, or a hairless Nikita Khrushchev locking a monkey in a satellite, promising “we will bury you,” and then yelling at a U.N. podium while banging his size 6 Soviet shoe.
Today the word “socialist” recalls not a ghoul… but a codger like Bernie Sanders or his funnier incarnation, Larry David. Bernie looks like he drives around the country in a beat-up Dodge Rambler and leaves his left-turn signal blinking the whole way across Route 66. We now live in an era where an avowed socialist came close to grabbing a major party’s nomination.
In contrast, it’s been a tough century for capitalism.
Investors have absorbed successive hammer and sickle blows to the head, the gut, and the portfolio: First, the Tech Wreck of 2000… second, the 9/11 attacks… third, the Great Recession… and now the coronavirus crisis. That brings today’s slump, which I call the “Great Cessation.”
With borders slammed shut, tariffs marring trade, and a budget deficit rivaling World War II’s, is it time to throw in the towel on capitalism? Many millennials and their younger siblings think so. A YouGov poll showed that 70% of American millennials are “somewhat or extremely likely” to vote for a socialist. Though Sanders, at 78 years old, may soon head off to a retirement village or to one of his homes to settle down, his followers will not.
Rather than apologizing for KGB spies in the Soviet Union or Stasi thugs in East Berlin, American socialists blithely cite gentle Sweden. They disregard that Sweden now embraces free enterprise. It swerved back from the welfare state to avoid national bankruptcy in the 1990s. The Cato Institute’s Human Freedom Index now gives Sweden a slightly higher score than the U.S. Though Sweden’s personal income tax rates exceed U.S. rates, how many American socialists know that in 2004 the Swedish parliament voted unanimously to drop the estate tax to zero? The billionaire founder of Ikea, who had decamped to Switzerland in the 1970s, moved back home. Do American socialists know that Sweden’s corporate tax rate was lower than the U.S. rate for 25 years until Donald Trump came to Washington and slashed U.S. levels all the way down to the same low 21% rate as Sweden?
Some might argue that we should dump capitalism because all has gone wrong. It’s not difficult to wave around depressing statistics…
Even before the coronavirus hit the U.S., the Federal Reserve reported that 40% of American families did not have $400 in the bank to use in case of emergency. Their “break the glass” moment has arrived, and some cupboards are bare. Every politician has memorized a talking point about $1.6 trillion in student debt, not to mention Medicare liabilities of $37 trillion, even before “Medicare for All” comes before Congress. Meanwhile, mega-rich media mogul David Geffen takes a selfie of his own gleaming yacht at sunset and posts it online, along with a note assuring us that we can stop worrying whether he has a safe place to sleep during the virus outbreak. Now we know why he named his first company Asylum Records. Such impolite and impolitic missives make it tough to defend capitalism for those of us who don’t have Barbra Streisand on speed dial.
Some of the dire statistics are rebuttable, and there is plenty of good news, too. Until the Great Cessation, the jobless rate was the lowest in 50 years and a record-low for Black and Hispanic workers. Average hourly wages were climbing at a 3% pace, and lower income wages were growing faster than wages near the top. In historical terms, average family homes are nearly twice as large as they were back when the Brady Bunch shared a shag-carpeted split-level in the 1970s. Since the late 1950s, when Leave it to Beaver aired, life expectancy has jumped 10 years (despite a recent opioid-induced setback). Back in the Beaver days, it took a median laborer two weeks to afford a new refrigerator. Today, a median worker can walk into Walmart or Home Depot and buy a refrigerator after about two and half days of labor.
We are confronting a backlash against capitalism because of its success, not because of its failure.
So why is capitalism backpedaling like a skinny-legged fighter scared of Mike Tyson before he got the Maori tattoo on his face and made a cameo appearance with a doped-up tiger in The Hangover? I would argue that it’s not about debt statistics or the actual financial impact of popped bubbles in tech and real estate. If it were, the rage against capitalism would have subsided as the job market roared ahead. Instead, we don’t see much correlation between jobs and the ardor to dump hardcore capitalism in favor of something that promises to be cuddlier and less competitive. We are confronting a backlash against capitalism because of its success, not because of its failure.
Though I wish I could say I am the only one to have thought of this, I will call on three disparate deponents, the first of them a surprise witness…
Karl Marx himself wrote that socialism could not legitimately arrive until after capitalism triggered unimagined wealth. That’s why Marx did not think Russia was a good candidate for socialism (at least he got something right). Instead, he saw socialism springing up in industrialized England and France. Marx was repulsed by unscientific romantics who depicted capitalism as a wicked accident contrived by evil men. Marx composed some of the most eloquent paeans to the capitalist, since he thought that capitalism liberated man from even worse conditions. Marx’s Communist Manifesto had no time for fuzzy-headed nostalgia mongers: “The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all nations, even the most barbarian, into civilization.” Marx would have hated the Green Party and dreamed of its members choking on their Tofurky. “Capitalism,” he wrote, “rescued a considerable part of the population from the idiocy of rural life.” He would have sent “back to nature” advocates to their history books to learn how terrible preindustrial life was.
In the mid-20th century, arch-rival economists Joseph Schumpeter and John Maynard Keynes pondered the future of capitalism and came to a similar conclusion: It would perish down because it would first flourish. Keynes wrote a graceful essay called “Economic Possibilities for our Grandchildren,” in which he posited that capitalism might conquer the problem of scarcity, bringing endless supplies of energy and boundless bounties of food. If everyone got a Chevy, a Barcalounger, three meals a day, and an ice cream sundae topped with Reddi-wip and a corn-syrup-infused maraschino cherry, why would we bother to press on with the rat race? Clearly, Keynes wrote this in an era when suburban American families felt they “made it” if they could walk on wall-to-wall carpeting and beat the scourge of “ring around the collar.” He did not seem to realize, as Adam Smith did in 1776, that humans have a natural tendency to continue improving their lives. Wall-to-wall carpeting begets Formica, which begets granite counters, and then a 57,000-BTU Viking stove perfectly suited for professional chefs and for amateurs who like brûlée-ing their own crème and the alluring look of singed eyebrows.
Keynes did worry that with cupboards full and new cars shined we would get bored. And it’s true that today’s retirees often complain of tedium.
Keynes did worry that with cupboards full and new cars shined we would get bored. And it’s true that today’s retirees often complain of tedium. What if the whole world retired? How many Paul McCartney and Mick Jagger “final tours” would it take to entertain an entirely pensioned population? Existential angst might pervade a sated world. Often joy comes in striving for goals… not achieving them. In a book called Rush: Why We Thrive in the Rat Race, I showed that people who retire early often get stupid and sad.
To Joseph Schumpeter, the greatest threat came not from financial factors such as falling profits… but from young college graduates equipped with BA degrees in Human Rights (with a minor in Disappointed Peoples) who end up driving taxi cabs, even though they never learned to parallel park. Schumpeter foresaw today’s social justice warriors protesting income inequality and pollution and then turning to socialism, which promises material welfare and moral support for those yearning for justice on this earth. In his famous query, Schumpeter asked, “Can capitalism survive? No. I do not think it can.” During the late 1960s, as long hair, bongo drums, Leonard Bernstein’s Black Panther soiree, and drug use spread, Schumpeter’s predictions seemed to be coming true. Third world nations, newly liberated from Europe, turned to socialism. But with the fall of the Berlin Wall in 1989, it seemed that socialism was a hoary, old tale for ‘60s nostalgics, who adorned themselves in Mao jackets made from hemp and regret.
Among many intellectuals, capitalism’s the new original sin. Just as the Bible tells us that original sin expels human beings from Eden, capitalism becomes the new sin that prevents us from returning to Eden.
Among many intellectuals, capitalism’s the new original sin. Just as the Bible tells us that original sin expels human beings from Eden, capitalism becomes the new sin that prevents us from returning to Eden. If we could just expunge the drive to compete and the desire to acquire, we could finally claw our way back to that noble, leafy, and peaceful place we left behind in Genesis, where we never wanted anything, let alone tried to get it. I call such believers Edenists. (Even atheists can adopt an Edenist mindset).
When socialists, like progressives, get honest, they admit they do not really want to generate more prosperity. They are done with that. Instead, they prefer that the economy be given a time-out – the economic equivalent of Xanax. Shut down capitalism and perhaps replace it with an old-styled kibbutz for 330 million people. Why? To prevent envy and to drain us of our competitive juices. They believe that competition is cancerous, eating away at our souls and our chances for happiness. If we could just stomp out competition, we could achieve self-realization and bliss. Rather than allowing the New York Stock Exchange to operate, they would rather we dress up like druids and prance around the rocks of Stonehenge in hopes that it would help us pay our mortgage bills. (Yes, such tours are available.)
I admit that now is not a popular time to speak up for free markets and competition. I understand the rage in western countries against the failings of modern life, especially following the financial catastrophes of 2008 to 2009 and the wild market rides spurred by the Great Cessation. Didn’t hypercompetitive bankers lead to the ruin of Lehman Brothers and Bear Stearns? Didn’t super competitive brokers baying for bucks in trading rooms nearly bankrupt the world? Didn’t reckless oil drillers lead to a devastating spill in 2010? So why not join the globalization protestors and hurl rocks into plate glass windows at Starbucks?
No doubt, amid the periodic financial wreckage, we all feel cheated by the crooked CEO, the mortgage broker moron, or the short seller who sneaks falsities into the market. And we feel a natural yearning to go back to simpler times, to some Eden that exists in our Jungian memory. Maybe throwing rocks will remind us of how happy we were during the Stone Age.
But singing “Kum Ba Yah” does not work. Sitting around a metaphoric campfire, holding hands, and singing communal songs does not make human beings happy. Sweaty, yes. Sooty, perhaps… but not happy.
More tourists have trampled on Thoreau’s Walden Pond snapping photos than have seriously considered giving up their cell phones to pick berries. We are delighted to try pomegranate juice – in the hope of finding the secret to clear skin and lower blood pressure – but virtually no American will plant his own bush and give up streaming video or even accept a slower download speed on WiFi. We may embrace symbols of a more homemade life, but these are tokens of wishful thinking… not titanic changes of substance.
So why don’t we just call a truce, an end to consumerism, materialism, and struggling for more? The problem is you cannot chop off our drive to compete without expelling the good things in life that will come from it.
At what point in time in the past should people have declared, “Stop! Enough progress. Let’s keep things simple?” Would 1 B.C. have been a good time to hit “pause?” Or July 3, 1776? Or on the eve of the 1964 Civil Rights vote? It’s a good thing Teddy Roosevelt did not lock us into the standard of living of 1904, or we would never fly on airplanes, get a polio vaccine, or expect to live past age 50. Nor would we have seen the grace of Fred and Ginger’s waltz, the magic of Michael Jordan’s last shot at the buzzer, or that moment when Luciano Pavarotti unsheathes a titanium-tipped high B and sings “Vincerò!” (“I will win”) in Nessun Dorma.
With all due respect to medicine men, who sometimes come across herbal tonics, it was daring science in modern laboratories and not the jungle that produced Jonas Salk. Grants from the Andrew W. Mellon Foundation helped, too. The coronavirus will be licked in a similar way.
Without the free markets of the 20th century, we’d still be, as Milton Berle said, “watching television by candlelight.” We cannot know what we will miss if we halt our climb toward greater affluence. Now is not the time to stop.
Todd G. Buchholz has served as White House director of economic policy and managing director of the legendary Tiger hedge fund. He was awarded the annual teaching prize in economics at Harvard, was named one of the “21 Top Speakers for the 21st Century” by Successful Meetings magazine, and is the author of numerous books, most recently, The Price of Prosperity (HarperCollins). Follow him on Twitter at @econTodd.