To start, I should clarify. When I say socialism, I do not mean socialism exactly. Actually, what I mean, if I am radically honest, is capitalism. I’ll explain.
One of America’s most remarkable accomplishments since around the end of the civil rights era is what we did to the economy and the middle class. We turned the miracle of economic prosperity that we unlocked post WW2 into a system that perpetually disinvests from society and reallocates resources to an ever-consolidating group of entrenched interests, that is to say, the rich. Even more astonishing, we managed to convince a large portion of society that the resulting inequality, the crumbling infrastructure, poor health outcomes, and the general public’s inability to build wealth were signs of the system working as intended. Anyone who made it big did so merely on their own brilliance, and if the average person were not so underserving, they would have made it big as well. Somehow, we managed to equate tremendous inequality and an astonishing child poverty rate of 1 in 7 (1 in 5 for Hispanic and 1 in 4 for Black kids) with capitalism. It was not always so.
We seem to have collectively forgotten the reason we went with this system in the first place. Why capitalism? The promise of “a chicken for every pot and a car in every backyard to boot,” or the good life, as John Maynard Keynes put it, is why. I could argue with the above referenced Herbert Hoover campaign ad touting restrictive tariffs and immigration policies all day. I could suggest that the isolationism of that period and mismanagement of capital markets played a major role in the economic distress of the 1930s. Still, whatever gripe I have with the policy of the period, it is clear what the desired outcomes were. The results the Republicans of the 1920s touted sound a bit like the American Scorecard of Andrew Yang fame. Quality of life, childhood success, education, infrastructure, and personal financial success are all highlighted in the Hoover ad, along with the stock market’s success, of course. The system that drove the success of the 1920s and later decades, the system singularly capable of serving as an engine for unfathomable economic production and wealth, is called capitalism.
The message of near-universal prosperity from the 1920s GOP seems to have worked; Hoover won his election. But the individualistic, laissez-faire form of capitalism espoused by his party led, at least in part, to a steep economic decline complete with shanty towns aptly called Hoovervilles. The Great Depression taught America that there are downsides to a system that has at its core the selfish pursuit of profits. We were told that prioritizing the individual, individual gains, and personal wealth would have the second-order effect of creating prosperity for the masses: rising tide and all that. We found out that without a cop on the beat, setting and enforcing the rules of the road, that rising tide could be the storm that sinks the fleet (pardon the mixed metaphors).
Hoover’s 1932 ouster and the first presidential election victory by a Democrat in 20 years ushered in a complete transformation for the American way of life. F.D.R’s New Deal brought relief to people who needed immediate assistance. It introduced massive recovery programs powered by unprecedented levels of government spending. It brought about reform at mass scales to prevent such a collapse from happening again. These interventions that would likely be branded “socialist” programs today did something that may surprise many. It spurred markets to do what they do best, generating growth while compensating for markets’ erratic ability to spread the wealth. It created the American middle class, a beacon of egalitarian prosperity (unless you were black, but that’s a whole different post).
The secret sauce? Government. The sauce’s specific ingredients may vary slightly, depending on the issues of the day and the tools available to the government. Sometimes, as was the case during the New Deal, cheap capital is necessary to incentivize investment. Other times high interest rates are needed to curb inflation. Direct stimulus, public works, and regulation are like dials that the government can tweak as needed. Ultimately though, a steady government at the helm doing what needs to be done to maximize the markets' benefits while limiting the pain they can induce is the only recipe for success.
NYU Professor Scott Galloway explains in his book Post Corona:
“As a society, we recognize that the long-term effects of [bad] behaviors will impoverish all of us. Dead rivers eliminate fisheries, ruin farms, and poison our bodies. Class barriers prevent the best and the brightest from each generation rising to its fullest potential, thus denying all of us of the fruits of their labor. So we cooperate (we use our superpower) and create counterweights to an unchecked market: government. Government’s charge is to stop GM from pouring toxic waste into the river. Indeed, by outlawing the wanton disposal of toxic waste, we allow GM to process waste in a more enlightened fashion, because we remove the threat that its competitor will take the cheaper route. We encourage GM to think critically about how it could redesign its processes to produce less waste. And we encourage entrepreneurs to start waste-processing companies, to develop new waste reduction and processing businesses. And we get cleaner, safer water, the benefits of which enrich everyone, including GM’s customers.”
Unfortunately, as the saying goes, all good things must come to an end. For a whole slew of reasons, many of which I am sure I have yet to study, we stopped. We stopped investing in ourselves. Through the 1940s, 50s, and 60s, many towns and cities across the country had public pools. Places where everyone (excepts Blacks) could come and be in fellowship with their neighbors and share in Keyne’s good life. Through the 1980s, a college kid could work a summer job to cover tuition at a state school. For much of the post-war era, a high school graduate could find a good union job, raise a family and afford to take vacations, and save for retirement. We really did crack the code for mass prosperity. And then we stopped. In 2021, it is increasingly unlikely that a 30-year-old person earns more than their parents. In the year of COVID, where tens of millions of people lost their jobs and entire sectors dove into uncertainty and disarray, the capital markets hit record after record. The two images below, courtesy of Scott Galloway, Adam Grant, and the Economic Policy Institute, tell the story well. In the same span that we have seen the share of Americans earning more than their parents dwindle, we have also seen CEO compensation skyrocket from 21x to 320x employee compensation.
This economic upheaval is almost certainly at the center of the political and social cracks in the foundation of American society. History offers plenty of examples of what happens to societies with this level of inequality. During the same boom period discussed above, the 1920s, the economic turmoil unfolding in Europe eventually led to the rise of fascism, World War 2, and the Holocaust. After January 6, 2021, it is no longer unfathomable to imagine such an outcome right here at home. To underscore this point, WaPo has reported that most people arrested in connection with the Capitol attack had a history of financial trouble.
We have the power to keep the train on the rails. We need a good government with serious people focused on the good of the commonwealth. We need strong progressive action and investment back into our society and our fellow citizens. We need regulation so that businesses don’t pollute our water and air, so they don’t rig the game in their favor and to the detriment of the whole. We need better healthcare outcomes. We need to get out of this pandemic and to start preparing for the next. We need an answer to our crumbling infrastructure and a warming planet. Call it a green new deal, call it socialism, call it capitalism for the masses or call it simply learning from what has worked in the past; big government together with markets are the answer to the contemporary crises we are facing. That is how we saved America once before. That is how we can save America today.