Capitalism—Heal Thyself

I’ve always thought that if I could go back and experience any part of America’s storied history, I’d land in the post-war 1940s and ’50s—the moment Uncle Sam truly ruled the world and when America’s vaunted middle class really began emerging.

My parents were both born in the mid-’40s, and my grandfather used to tell me stories of his post-war life; the new house out in a whole new suburb that he and my granny bought, and what consumerism looked like back then.

That time also marked the beginning of the last great economic reset in America… and that’s really today’s topic. But, as usual, we’ll revisit this in a moment.

America today is wildly off-kilter. Unbalanced. Misaligned. Wrongly incentivized.

Much of the world is, really.

Let’s consider this headline on an CNBC.com story: Billionaire wealth surges to ‘unimaginable’ levels in 2024 as Oxfam predicts emergence of five trillionaires within a decade

There’s not a person alive who deserves that kind of wealth. And I say that as a died-in-the-wool capitalist. Sure, Jeff Bezos created a better mousetrap—without question. And he absolutely deserves to benefit from what Amazon.com has become, the opportunities it has created for others, and the wealth that business has generated.

But is his work worth the nearly quarter-trillion dollars he now owns?

Not a chance in hell.

A vast majority of that wealth should have returned to workers in the form of bigger salaries and better benefits that would have continued to allow the American middle class to thrive, not just survive.

It should have returned in part to the government in the form of much higher taxes that would have saved the US from having to borrow so monstrously. (Stupid wars and government malfeasance with how it spends money is an altogether different matter.)

But here we are.

And where we are is, sadly, end-stage capitalism.

I don’t mean late-stage. I mean end-stage. The terminal stage. The stage where you’d be calling around for hospice care if this was a loved-one we were talking about.

End-stage capitalism is ugly.

But first… poof—back to the 1940s.

Prior to World War II, America experienced its last bout of what might be called end-stage capitalism during the Roaring ’20s—an era dripping with wealth. Credit expanded and consumers were gobbling up the bling of the times: Model T cars, RCA radio cabinets, and Kelvinator and Frigidaire refrigerators… and vacuum cleaners, and makeup from Maybelline and Elizabeth Arden, and haut couture from fashion houses such as Chanel, Lanvin, and Elsa Schiaparelli.

Underneath that roar of wealth, however, was a sigh of despair.

A yawning wealth gap had emerged between the haves and everybody else.

A third of all income earned landed in the pockets of the top 5% of Americans. Only 10% of the population owned stock of any kind. The wealth pyramid (the distribution of wealth) was upside down and excessively top heavy. The top 0.1% controlled 34% of all savings in 1929, while 80% had no savings at all.

The disparity grew out of a manufacturing boom. A new technology—the assembly line—made production so much faster and more efficient. Worker output increased by 32% over the decade; worker pay increased by just 8%.

Founders and investors pocketed the difference, and the average working Joe and Jane fell farther and farther behind.

A 2019 article I read took apart the various causes of the Great Depression, noting that because of the inequality, “the U.S. came to rely upon two things in order for the economy to remain on an even keel: credit sales [for the poor and middle class], and luxury spending and investment from the rich.” (Ring any bells?)

So, capitalism stepped in and said, “Not on my watch, Richie Rich!” and basically healed itself by way of the Great Depression and a global war that destroyed vast sums of capital. I look at that period as the Great Reset.

Wealth inequality, though always and forever a capitalist fact, narrowed dramatically.

By the 1940s, American capitalism has entered an “unparalleled era of relative equality that lasted for the subsequent thirty years,” or so says academic research from the MIT Sloan School of Management. One of the foremost characteristics of the ’40s: “a decade of sharp contraction in wage inequality, particularly at the top of the distribution,” led primarily by “an increase in the power of labor unions [which] contributed greatly to the compression in executive pay relative to other workers’ earnings.”

Pay workers to build your business instead of paying CEOs to build yachts and personal rocket ships to Mars, and you build an equitable society in which end-stage capitalism is kept at bay.

Of course, America didn’t do that, in large part because the wealthy control all three branches of government and use that power to shape the laws that protect them from taxation and the hoi polloi.

So, we look around for the hospice Uncle Sam will soon need.

Today, the top 10% of Americans hold 60% of all wealth. The top 1% own nearly half of that. The bottom 50% own 6% of all wealth, a number that hasn’t changed in 35 years.

The majority of Americans rely on credit to pay for their lives and, if the Federal Reserve is right, most can’t come up with a few hundred bucks in an emergency (i.e., no savings).

A 2020 report from the World Economic Forum found that productivity growth in America rose by about 70% between 1979 and 2019… yet wage growth rose by just 12%.

By the way, Elon Musk is bitching because a judge has ruled that the process of approving his $56 billion pay package in 2018 was “deeply flawed.” Ya think??

Once again, America’s wealth distribution pyramid is upside down and too top heavy to survive.

And once again, capitalism is going to heal itself.

It will be ugly.

How ugly? Don’t know.

Economic crisis? Almost assuredly.

Social crisis? Probably.

War? Maybe, but this time around it might be more economic destruction than bang-bang-boom!

Still, it will be devastating.

When? I still say 2027-28 is your “save the date” timeframe.

The system will reset.

Capitalism will re-emerge in the 2030s with a renewed purpose and renewed vigor.

America will be a much grander place than it is today. People will be happier. Society will be far more balanced. Workers will be paid what they’re worth. Same for the C-suite (which means hasta la taco to egregiously unjustified pay packages).

But, hey: Thoughts and prayers for Elon and Bezos.