The explosive growth of economic inequality over the last fifty years and its impact on education, have led to festering, inchoate resentment and distrust of many Americans. They have been left behind, and they know it.
In Part One of this series, we discussed the how the growing inequality has impacted eighty percent of households in the U.S. and particularly those in the bottom half of median income. The concentration of wealth in the top 10% of households has disturbed our educational outcomes both because of the economic stress on lower income households, and because of the structural effects on our economy. The inequitable distribution of income and wealth has meant a tax system that provides inadequate funding for education, and has devastated the social safety nets for families. It has also created economic segregation in our schools. As a result, our public education outcomes are troubling, our civic literacy is abysmal, and our democratic institutions are faltering. (To read Part One of this series, click here.)
In Part Two, we look more closely at the ways in which unregulated capitalism has failed our society and threatens our democracy. While carefully regulated capitalism can provide healthy incentives for effort and innovation, the breakdown of a regulatory framework is simply a recipe for exploitation and greed by the few. A just economic system can only be revived by leaders who recognize the dangers of unbridled capitalism and who are unafraid to propose bold action to limit the power of wealth and reinstate the guardrails and safety nets of a social democracy.
PART TWO: CAN A CAPITALIST SOCIETY BE EQUITABLE?
From the time I was a teenager, I have had my suspicions about unbridled (“laissez-faire”) capitalism, but I was optimistic that U.S. laws controlled its inherent dangers. Our current situation belies that optimism and justifies those early concerns.
For several years, I lived in an authoritarian socialist country, and I know how a public ideology of socialism can be corrupted to be just another face of elite privilege. I readily admit that there is a place for the profit motive as an incentive for risk-taking and creative entrepreneurship. On a modest scale, capitalism can work well. But without the guardrails of reasonable regulation and sturdy democratic institutions, legitimate profit rapidly devolves into profiteering and exploitation.
An unquestioning confidence in the “free market” has fundamental flaws that have become all too obvious in the U.S. over the past forty years when many of the safeguards have been stripped away. This flawed capitalism has become a tool for the further enrichment of the top one percent, revealing the cruel and greedy face of plutocracy, and severely endangering democracy.
The Myth of Free Market Capitalism
An ideal free market operates when all buyers and sellers have full knowledge of all competing products, their true prices, and their external impacts (e.g. environmental costs), and when each agent makes completely rational choices. Economists have always understood that these conditions of a truly “free market” are very rarely present, particularly in the complicated and opaque atmosphere of today’s business. Free market failures occur when
- the market is monopolized, that is, if a small group of businesses hold significant market power resulting in a failure of competition;
- production of the good or service results in an externality (the product has costs not borne by the producer but by others – often by the community as a whole);
- the good or service is a public good such as clean air and water, health, or knowledge, that should be available to all, and not subject to the marketplace.
- there is a "failure of information" or information asymmetry (e.g. corporate heads, “insiders”, or investors know much more than typical consumers).
- there is unequal bargaining power;
- there is irrationality or limited rationality; and
- there are macro-economic failures such as unemployment or inflation.
Common examples of these failures include:
- when a huge company dominates online marketing and retailing to the extent that no retailers can offer a lower price without losing access to that company’s market base.
- when the provider of a good or service has major negative environmental or humanitarian impacts of which the buyer is unaware, and whose cost to the public good are not accounted for, such as a factory which pollutes a local water supply, or a business which engages in deforestation, or exploitation of workers.
- when individual farmers cannot receive a fair price for goods because they do not have the bargaining power against a large conglomerate or distributor who can set a low price and always find cheaper (i.e., more desperate) sellers.
- when it is impossible to know the comparative quality or reliability of products or services when one buys them because that information is withheld, misrepresented or simply unknowable.
- when a pharmaceutical company sets a high price for an essential medicine that they alone produce, such as for diabetes or a cancer treatment.
- when a politician, family member, employee, or “friend” has access to information about the direction of a stock or bond price that allows them to sell or buy before the general public has that information (i.e. “insider trading”)
- when “panic buying” drives up the price of an essential good (like toilet paper during the pandemic) despite no true scarcity or inherent increase in its value, or when a mania for an entertainer or sports event results in scalpers buying up tickets, creating a false scarcity, and then charging outrageous prices.
In the best of worlds, it is difficult to regulate markets so that the worst of these failures are avoided, but with adequate oversight markets may be able to prevent the most egregious failures. The public is protected when monopolies are identified and broken up, when products are tested and accurately labeled, when environmental impacts or other external costs are measured and widely published, when labor practices, internal costs, and compensation are regulated and publicized.
But in recent years the power of large multi-national corporations, of foreign producers, and of profit-hungry investors has grown so rapidly that governments are both unwilling and unable to regulate effectively. In face of this, the individual feels, and usually is, powerless. The fallback to “self-regulation” of industries has proved disastrous. The recent dismantling of the Consumer Financial Protection Board (CFPB) is an obvious example of the triumph of corporate irresponsibility over effective consumer protections.
The Effects of Unequal Wealth on Democracy
In 2013, recently deceased journalist Bill Moyers, broadcast an eerily prophetic editorial.
We are so close to losing our democracy to the mercenary class, it’s as if we are leaning way over the rim of the Grand Canyon and all that’s needed is a swift kick in the pants. Look out below.
The predators in Washington are only this far from monopoly control of our government. They have bought the political system, lock, stock and pork barrel, making change from within impossible. That’s the real joke….
They fix the system so multimillionaire hedge fund managers and private equity tycoons pay less of a tax rate on their income than schoolteachers, police and fire fighters, secretaries and janitors. They give subsidies to rich corporate farms and cut food stamps for working people facing hunger. They remove oversight of the wall street casinos, bail out the bankers who torpedo the economy, fight the modest reforms of Dodd-Frank, prolong tax havens for multinationals, and stick it to consumers while rewarding corporations.
We pay. We pay at the grocery store. We pay at the gas pump. We pay the taxes they write off. Our low-wage workers pay with sweat and deprivation… ( Moyers, “The End Game for Democracy”, August 23, 2013)
So, What Does Equality Mean?
In the Declaration of Independence, we find the words that have inspired generations:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.
Of course, it is not at all self-evident that “all men are created equal.” When this was written, it was obvious that many males, if not most, did not believe that women were truly equal, nor did most of them believe that slaves were truly equal. A recent scholar claims that the intention of the founding fathers was to proclaim the rights of “the people” as a collective, with the right of self-determination, and that only later was it interpreted to mean individual equality.
But apart from the original historical intent, the phrase has come to be popularly understood as the equal right of all humans to “Life, Liberty, and the pursuit of Happiness”. And yet, there is another strain in our history that has embraced a darker view of humanity as inherently unequal and unworthy.
Let us examine that view, because in some ways the notion of all persons being equal flies in the face of common sense. We are born in vastly different environments to vastly different families with immensely different circumstances, both financial and emotional. Biologically we are born with a wide variety of native handicaps and gifts. It isn’t even possible to say that the good genes and the bad genes balance each other out. Some of us are born 100 yards behind the starting line, and others are born near the finish line. There is no denying these differences in our make-up and personal histories, and all the hard work in the world will not wipe them out.
The dark view is that we are thus evolutionarily determined to be either the “fittest” to survive, or the least fit, whom human society can afford to leave behind, bully, or even destroy. Although it is often unspoken because it is not socially acceptable or “politically correct,” the current cultural environment suggests that a large segment of society believes this to be the case. And increasingly people say it out loud or by their actions – when, for instance, a prisoner of war is called “a loser” or white people are given refugee or legal immigrant status while dark-skinned refugees, often born into violent circumstances completely outside their control, are turned away or actively expelled. This belief system fits well with the ideas of a “master race” and of white supremacy, although it could be any group or individual that wants to justify its superiority over others. Of course, it is those who see themselves as the “winners” and the “fittest” who embrace this ideology, with no recognition of the various birth and circumstantial advantages which allowed them to start just a few steps from the winner’s circle.
We need to consider the philosophical foundations that allow us to decide between these two competing worldviews. And for that, we can do no better than to turn to John Rawls’ theory of justice which we will explore in Part Three.