An Open Letter to American Capitalists
Capitalism has made America the most affluent society in history, but for it to work, both capitalists and workers must prosper — and right now, the former is prospering while the latter are treading water, or drowning. For those capitalists focused solely on maximizing their ROI, let this be a wake-up call. Your investments and your legacy will be worth less in a world where the majority of your countrymen have little hope for an economic future beyond wage slavery.
As someone who has occupied the top one percent during my career and now enjoys a comfortable retirement, I get it. You want to keep as much of the money you make as possible. You believe that you and your heirs deserve to retain the fortune you’ve made through your hard work and intelligence and to keep it out of reach of the government. But your wealth does not exist in a vacuum; the economic inequality resulting from an excessive concentration of wealth has become untenable to the average American worker, and increasingly to many in the bottom 95 percent.
Like it or not, capital and labor are like love and marriage: you can’t have one without the other. And, like a good marriage, capitalists and workers must be able to respect each other’s interests for the whole to flourish. As a whole, America has greatly prospered in the past decade. As an example of America’s current prosperity, the BEA reports that the real per capita personal income (in 2012 constant dollars) of Americans has grown from $44,000 in 2008 to $55,000 in 2021, an increase of 25% (see BEA chart below).
However, the gains enjoyed by us capitalists for the past 40 years haven’t been spread equitably. The maldistribution of prosperity that is so evident in the working and middle classes now affects virtually every socioeconomic stratum, seriously impairing Generation Y from seeing a viable financial future.
Maximizing the production and distribution of goods and services is key to a thriving economy. For both to prosper, capitalists must have enough capital to produce the optimal amount of goods and services, and workers must have the income necessary to purchase such goods and services. But due to the inexorable spread of globalization and automation, fewer than two or three percent of American workers today earn anywhere near enough market income for them to achieve the American Dream on their own without taxpayer help. Creating a conversation about how best to remedy this painful reality is the purpose of my book, Payback: Why the Top 1% Can Invest in the Rest and How It Can Renew America.
Why Investing in the Middle-Class Matters
No society can be healthy, prosperous, and politically stable without a vital and growing middle class committed to its values and goals. Central to a society’s middle class is its workforce, which to be successful must be highly motivated, well-educated in marketable skills, and competitive in the global marketplace. The quality of a workforce depends on its workers believing that they have a meaningful stake in society so that they’ll develop their skills and apply themselves to the fullest. Workers are more likely to believe that they have a stake in a society if it enacts policies that ensure all able-bodied, full-time workers have a shot at a decent life.
For the past half-century in America, most adult workers now have come to expect their full-time work to afford them access to some version of the American Dream — that is, to have adequate health care, affordable post-secondary education for their children to realize their potential, and a decent retirement. Given America’s wealth, a decent standard of living commensurate with one’s effort and ability should begin with an income no less than 125% of poverty-level income (PLI), as measured by DHHS. For a family of four, the DHHS has set the current PLI at about $28,000. As it is, income at or below PLI is consumed in paying for the bare necessities of life, leaving no room for spending on health care, retirement, or the post-secondary education of the next generation.
While income above PLI is discretionary, in that it may be either spent on luxuries or saved, many of the luxuries of a generation ago are now regarded by most Americans as necessities. For the vast majority of Americans, the most compelling “ism” isn’t capitalism or socialism; it’s consumerism. When faced with a decision about what to do with discretionary income, luxuries almost always win out against savings. Regardless of the rationality or morality of spending instead of saving, America’s culture has resolved the issue in favor of spending. Only as discretionary income rises several multiples above PLI do many Americans consider saving, and with the costs of college and healthcare soaring, whatever meager savings many can muster still only covers a fraction of the expense of these mainstays of the American Dream.
While income and wealth statistics are only approximations, they reveal unpleasant truths about how dependent on taxpayers almost all families are for their economic survival. Based on 2021 Census data for America’s 82,464,986 families, family pre-tax incomes and comparative ratios of family income to PLI breakdown as follows:
For families with incomes at or below PLI, their version of the American Dream is more like a nightmare. Families with incomes at PLI ratios ranging from 1.25 to 2.7 have decent access to essentials such as food, shelter, clothing, transportation, and even a little recreation, but in case of short-term job loss or medical emergency, they face an immediate crash into poverty. Median-income families with PLI ratios of 3.1 have a comfortable standard of living in terms of the essentials, but in case of job loss of a couple of months or medical emergency, they face an immediate loss of most of their standard of living. And families with incomes at PLI ratios ranging from 3.1 to 5 may have a plentiful standard of living with an ample amount of recreation, but in case of job loss for several months or medical emergency, they face an immediate significant loss of much of their standard of living.
Even families with income at PLI ratios ranging from 5 to 7 who have an abundant standard of living in terms of the essentials and a generous amount of recreation often face a painful drop in their standard of living in the event of a job loss of that lasts over six months or a medical emergency. By contrast, families with income in PLI ratios above 7 live in the lap of luxury compared to everyone else in America and throughout the world. A job loss or medical emergency, whether unpleasant or even devastating, is usually recoverable. And yet, those in the upper echelons who are least likely to need more tax breaks tend to be the very ones advocating for them.
Takeaway: capitalists are doing just fine; it’s workers who need help, and desperately.
Tax Reform is Essential to Supporting Labor
If capitalists are to continuing growing their wealth, they can make no better investment than to ensure that America’s workforce is the world’s most highly motivated and productive. Without a superior workforce that generates growing income and constitutes a prosperous consumer base, capitalists won’t have the workers to produce and purchase their goods and services. For any capitalist who doubts the importance of having a well-paid, happy, and productive workforce, they should imagine how they would grow their wealth if the workforce were populated with ignorant, demoralized, non-productive workers who have only subsistence wages to spend on consumption.
When it comes to how much capitalists should pay their workers, they are caught in a quandary: while it may seem to be in your interest to pay the lowest wages possible in order to increase profits, it’s also in your interest to maximize consumption and economic growth, which means workers need to earn enough money to be good consumers. Unfortunately, with globalization and automation enabling many capitalists to displace expensive American workers with cheap foreign workers and/or technology, many in the labor force are dependent on social insurance programs for their basic survival.
For anyone who doubts the dependency of Americans on taxpayers to support social insurance programs like social security and Medicare, see this discussion in Payback. Almost all beneficiaries of social security and Medicare, rich as well as poor, get taxpayer help, to a greater or lesser extent, and only a minute number of these beneficiaries contribute to these programs as much as they get.
Given America’s consumerist culture and its overall wealth, I believe that it’s not politically possible or economically necessary to impose policies that would reduce the standard of living of families with incomes of $100,000 or less in order to save all aspects of the American Dream for them. All of this means that for families whose income is less than a PLI multiple of 7, their ability to cover health care expenses, fund the post-secondary education of their children, and avoid of financial catastrophe in the event of job loss or medical emergency depends to some extent on taxpayer subsidies.
Capitalism creates wealth as no other economic system can, but it hasn’t distributed it in a way that ensures that middle-class families can live some reasonable version of the American Dream, certainly not one that includes the ability to retire in a modicum of comfort. Only after there’s a consensus understanding that capitalism hasn’t, can’t, and won’t distribute its bounty in ways that preserve and grow the middle class can ways be found to increase middle-class income. Once this soaks in with middle-class voters, the politicians who crave their votes will need to prepare to answer questions like:
· Does America have enough wealth to support the ability of a growing middle-class to live the American Dream?
· How should the market income of middle-class families be supplemented?
· Who should pay for supplementing the income of middle-class families and why?
· What can be done to ensure that the ability of capitalism to create the maximum amount of wealth possible won’t be impaired?
Explaining why capitalism hasn’t, can’t, and won’t distribute wealth in ways that will save America’s middle class and proposing ways that the middle-class can be saved without depriving capitalism of its power to create wealth is why I wrote my book. In my next article, I’ll explain why it’s futile to believe that the middle class can earn enough market income to live any reasonable version of the American Dream. In the meantime, learn more by visiting the Payback website.