16 January 2018

The Biggest Problem With Capitalism Is That It Usually Works As Designed

A free market economy is designed to reward people for two things. Their productivity and the economic value of their wealth. While the realization of a free market economy that exists in the United States isn't a perfect replication of the platonic ideal of a free market economy, by and large, it does just what it is designed to do, and this is the problem.

In a human society, we care about more than a person's productivity and the economic value of their wealth. A person who has no significant wealth and is not economically productive enough to earn enough to meet their needs on that basis, still needs to be provided for, as a consequence of their human dignity and as a consequence of non-economic contributions that this person makes to our society.

It would be unreasonable to expect that children, mother's staying at home while caring for young children, people staying home to care for disabled and elderly family members, the disabled, the elderly, or people who aren't disabled but are simply at the bottom of the pile of ordinary adults when it comes to their economic productivity for whatever reason, should be able to support themselves through their own participation in the market economy.

Only about 49% of the population of the United States is in the workforce (either employed or unemployed and looking for work). On average, everyone who works needs to be productive enough to support economic needs of two people for the economy to work properly.

Sometimes, people who aren't in the work force are supported by family. But, this isn't always possible, because there are plenty of working age adults who struggle to earn enough in a capitalist economy to support themselves and those of their family members who would traditionally be economically dependent upon them.

Nothing we can do to make the free market economy more meritocratic and free of discrimination will every solve this problem. It is an issue that needs to be addressed by families, by civil society, and by government. Moreover, we already know from experience, as a society, what happens when addressing this problem is left to families and civil society alone in a modern economy, and it isn't good. Experience has shown that government intervention is necessary to meet the economic needs of a significant share of the people who are simply incapable of meeting their own economic needs in a free market economy.

Thinking of the adults who lack the education, skills, health and temperament to be self-sufficient economically by virtue of their own economically productive activity in a free market economy as "lazy freeloaders" misapprehends the nature of the problem. 

No modern economy in the world has stronger incentives to be economically productive enough to be self-sufficient than the United States. Other countries don't leave people who can't do this homeless, food insecure, malnourished, and without access to adequate health care to meet their reasonable health care needs to nearly the extent of the United States. The penalties for failing to earn your own keep in the United States are incredibly severe. And, yet, people persist in failing to earn enough to meet their needs and fall into poverty.


It isn't because the United States has insufficient incentives for them, it is because they simply lack the ability to earn that much. Nobody expects a four year old, or a person in a coma to work, because they can't. But, there are lots of seemingly non-disabled adults who nonetheless are incapable of earning enough to support themselves, or to justify paying them a minimum wage in terms of the productivity they contribute to their employers, even if they are arguably "able bodied" and are able and willing to do some economically valuable work.

There really are people whose are only capable of doing work with an economic value of $3 per hour in their highest and best form of employment, when maximally motivated by the strongest possible incentives. Fundamentally, this is no more surprising than that there are people who are only capable of doing work with an economic value of $30 per hour, or $300 per hour in their highest and best form of employment. Pretty much everyone has a peak earning capacity that a meritocratic society will support. Some people get paid more than the economic value they add to an enterprise for a variety of reasons and are "negative productivity workers" net of their compensation. But, those people are out there. They aren't rare. And, they aren't going away.

Until we come to terms with this fundamental truth, we can never come to an adequate solution.

1 comment:

Citizen AM said...

Absolutely correct, and will never be adequately addressed by either party because of ideological restraints.

Failure is tough in America, and understanding how workers fail to be hired and employers fail to have an incentive to hire workers would imply our system might need to reflect reality.

Further failure is the belief in the face of evidence that private charity is sufficient to take up the slack in the operation of society for those incapable of meeting minimum standards.