Crushing Capitalism: How Populist Policies Are Threatening The American Dream—a New Cato Book
In his newly released book, Crushing Capitalism: How Populist Policies Are Threatening The American Dream, Norbert Michel, Cato Vice President and Director of the Center for Monetary and Financial Alternatives, details how Americans have been growing richer over the last 150 years and why the claim that the US can’t compete in a free market world is false. To the contrary, more government intervention on US economic freedom will kill the American dream, not save it, Michel documents with fact after fact. An excerpt of Crushing Capitalism is printed below. To buy a copy, click here, here, or here.
FOREWORD
In this book, I present empirical evidence showing that, contrary to recent narratives of stagnation and decline, Americans have been doing better, materially and income-wise, for many decades and continue to do so. Not just rich Americans, but most Americans, have been sharing in the nation’s increased prosperity for the full post–World War II period. None of this evidence suggests, however, that things couldn’t be even better. And none of this evidence suggests that it’s easy for anybody to consistently earn more money or make it to the top of the income distribution. In fact, I wish that more folks my age would tell younger people the simple truth—it takes an enormous amount of work, and some luck, even if you go to college!
I grew up the son of a mechanic. And my dad taught me many things; yet he constantly steered me away from a career where I would have to “pull wrenches.” I owe him a great deal, not just the fact that I don’t come home every day smelling of diesel fuel, parts cleaner, and sweat. But although I make more money than he ever did, I work even longer hours than he did. And job security is no more reliable in the white-collar workforce than in the blue-collar one—everyone can be replaced, no matter what. As it turns out, even if you work in an office building, nobody is willing to pay you hundreds of thousands of dollars to sit around and do nothing. As you’re reading this book, please keep that in mind.
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INTRODUCTION
The popular reality television show Naked and Afraid demonstrates how people live when they can’t alter their environment with modern conveniences. The contestants typically build a crude shelter and then spend most of their time and energy trying to obtain food, water, and firewood. Many contestants give up within three weeks.
In the developed world, human beings do not live this way. They live so differently that it’s easy to take food, water, and shelter for granted. It’s all too easy to forget, but our modern lives are a historical anomaly. Most of the humans who have inhabited planet Earth lived in conditions like those on Naked and Afraid.
It’s also too easy to forget that human flourishing didn’t just happen. And it is especially easy for Americans to take for granted—or simply ignore—the hard work and cooperative processes that help create their modern lifestyle.
Americans have been growing richer since the end of the 19th century and now enjoy levels of abundance and opportunity far greater than 50 years ago, and utterly unimaginable 150 years ago. The typical American can buy any fruit or vegetable in the dead of winter for a relatively small share of his or her wages, can own a wireless communications device with access to virtually unlimited information, and can enjoy more transportation options, a cleaner environment, more years of education, more leisure choices, and better long-term health than at any point in history. But all these benefits did not simply materialize, and they will not remain in such abundance if we fail to nurture the combination of knowledge, effort, and cooperation that enables their production.
Nurturing these institutions that make modern life so attractive is especially important for those Americans who need more opportunities to prosper.
Unfortunately, during the past few years, countless politicians, commentators, and economists have fueled a bleak economic narrative, claiming that “the American economy is failing its citizens” and that “the status quo isn’t working, unless you’re already affluent.” To remedy the situation, these critics call for the United States to implement industrial policy, a broad-based federal program to develop select industries based on national economic goals, such as the Chinese government’s “Made in China 2025” initiative. They’re misreading both the current level of prosperity in America and how it was created.
At a 2019 US Senate hearing titled “Economic Mobility: Is the American Dream in Crisis?” most of the witnesses—including conservatives Ramesh Ponnuru and Yuval Levin—testified that the American dream is, in fact, in peril. Ponnuru referred to the “widespread sense” that the kind of economic progress that enables the “bulk of our population” to raise their living standards is “a thing of the past,” while Levin bemoaned the lack of opportunities for “Americans at the bottom of the income scale … to move up,” as well as the “many in the middle” who “feel stuck.”
Only one witness—Oren Cass, the domestic policy director for Mitt Romney’s 2012 presidential campaign—painted a less gloomy picture, though he still presented income statistics that he believes “should worry us deeply.” Yet Cass’s 2018 book, The Once and Future Worker, decisively answers yes to the question posed by the title of the Senate hearing:
“American public policy has lost its way. Since the middle of the last century, it has chased national economic growth, expecting that the benefits would be widely shared. Yet while gross domestic product (GDP) tripled from 1975 to 2015, the median worker’s wages have barely budged. Half of Americans born in 1980 were earning less at age thirty than their parents made at that age.”
According to Cass, “Most Americans expect that the next generation will be worse off than themselves.”
Oddly enough, Cass’s Senate testimony suggests that most Americans do not think things are so bad. “The American people,” he says, “appear to have a much richer and more nuanced view of the determinants of their quality of life than do many of their leaders.” Cass then cites a Pew Research Center survey that reports that 36 percent of adults say their family has achieved the American dream, and another 46 percent say they are “on their way” to achieving it. Combined, 82 percent believe they have or will be able to achieve the American dream. Both blacks and Hispanics are more likely than whites to say that they are on their way to achieving the American dream. Among the 17 percent who considered the dream out of reach, whites, blacks, and Hispanics were essentially equally represented.
Still, in 2016, politicians campaigned on themes entirely inconsistent with these survey results. Donald Trump’s campaign, for example, promoted the idea that many Americans had grown poorer because of both low-priced imports and low-cost labor. His supporters argued that the Trump presidency was a unique opportunity to bolster the middle class, and that the core of Trump’s new populism was that free trade and unchecked immigration were the main drivers behind increasing income inequality.
Yet Trump’s brand of populism was far from new. The 20th century was rife with politicians who relied on many of these same themes, most recently in the early 1990s. Bill Clinton, for instance, announced that he was running for the presidency because he refused “to stand by and let our children become part of the first generation to do worse than their parents.” Pat Buchanan, who unsuccessfully sought the Republican nomination for president in 1992 and in 1996, argued that US manufacturing jobs were disappearing because domestic companies could not compete with low-cost foreign labor. Although his message resonated with some Americans, his anti-immigration/ anti-free- trade message was controversial, particularly among conservatives.
Still, income statistics suggest that the Pew survey respondents were more in tune with reality than many politicians. The truth is that Americans of all backgrounds have done well over the past few decades. Their wages have not been stagnant, and income disparities have not widened. The middle class has shrunk only in the sense that former middle-income earners have moved up the income ladder.
Though it rarely makes headlines, the difference between economic reality and political rhetoric has not gone entirely unnoticed. In 2018, for instance, Washington Post economics columnist Robert Samuelson observed:
“We in the media have a problem. Actually, it’s a big problem for all Americans. We have become addicted to the notion that, except for the top 1 percent or the top 10 percent, the incomes of most Americans have stagnated for decades. The problem is that, at best, this is an exaggeration and, at worst, an untruth.”
Indeed, virtually all the evidence points toward broad prosperity in the United States over the past few decades, with strong gains in income growth, and upward mobility at least as strong as in previous decades, even for lower-income groups.
Over the past 40 years, 70 percent of working-age Americans spent at least one year among the top 20 percent of income earners. Over the same period, 80 percent never spent more than two consecutive years in the bottom 10 percent. The share of US households earning more than $100,000 (adjusted for inflation) essentially tripled over the past five decades, and the share earning less than $35,000 fell by 25 percent. During much of this period, workers in the lowest 10 percent of the income distribution realized stronger income growth than workers with higher incomes, typically earning enough to move out of the bottom 10 percent. Essentially, the conventional narrative could not be more wrong.
Despite these growth figures, critics of the American economy attribute supposed income stagnation to policymakers’ misguided reliance on free markets and economic growth. They call for industrial policy—whereby government officials would “direct” economic activity—to remedy the situation. Brookings scholar Isabel Sawhill, for instance, rejects “the primacy of markets” in favor of a system that relies on public–private partnerships “to rebuild infrastructure, train workers,” and “redirect rather than supplant the market.” Both Sen. Elizabeth Warren (D‑MA) and Oren Cass call for, among other policies, subsidizing research and development and job training, as well as restricting trade and boosting manufacturing.
These ideas are misguided because it is impossible to redirect the market without supplanting it. Industrial policy advocates view the market as a policy device that government officials can manipulate, but in fact, the market is a group of people cooperating to get what they need while offering each other something in exchange. And in the United States, the market is a very large group of people. Even to “redirect” this market would require persuading—or forcing—hundreds of millions of people to do something they would otherwise not do. It’s a core reason that so many experiments with government-directed economies have failed.
Misguided as they may be, such central planning ideas are also far from new. In the 1980s, countless academics and government officials blamed US economic problems on an overly zealous faith in markets. These critics saw Japan, with its supposedly successful industrial policy, as a major economic threat to America. They proposed, just as these more recent critics recommend, an industrial policy that restricts trade, subsidizes favored industries, and expands partnerships between select businesses and the federal government.
History was not on the critics’ side in the 1980s, and it is even less so today. These kinds of industrial policies have been promoted and tried repeatedly, in multiple countries, and rejected in favor of more open, less intrusive policies that bolster markets by expanding economic freedom.
Is there any truth at all, then, to the more recent critics’ claims of income stagnation? Is it true that increased international trade, immigration, and automation have imperiled the American dream? And, true or not, what would be the consequences of policies being recommended to address these alleged problems? This book addresses these and related questions. It argues that rejecting increased government direction in favor of policies that expand economic freedom is the best way to help all Americans create more economic opportunity and improve their living standards.