Capitalist Myth #3 : Dividing The Pie

According to the Heritage Foundation‘s (somewhat ironically titled) “Defending the Dream” report:

A free-market economy creates wealth. For one person to make a dollar does not mean that another needs to lose one. There is not just one dwindling pie to be divided up among the population, but rather a proven recipe to grow the pie to serve everyone. All the talk about the rich “grabbing” too large a share of the national income therefore rests on a flawed understanding of this basic truth of free-market economics.

While on the surface this may seem reasonable and even reassuring, reality says otherwise. So let’s look at the data:

Great-Prosperity-vs-Great-Recession

According to the Economic Policy Institute: the bottom tenth of the wage distribution earned less in 2011 than the lowest earners did in 1979, accounting for inflation. Meanwhile, the real wages of the median worker rose only 6 percent between 1979 and 2011.

On average, hourly pay has not grown at all since 2002 for workers with a college degree or with only a high school degree. Wages have not grown for college graduates in nearly every occupation, and college graduates in the 70th income percentile or lower have had stagnant or falling wages since 2000.

Worker productivity grew 11 times more quickly than worker pay between 1979 and 2011. While worker productivity rose 69 percent, median hourly compensation rose just 6.5 percent.

CEO pay today is more than 200 times that of a typical worker, up from 30 times that of a typical worker in the late 1970s.

The top one percent captured 60 percent of total income growth between 1979 and 2007, while the bottom 90 percent was left with just 9 percent of the total. Moreover, the top one percent’s incomes rose 241 percent, in contrast to 11 percent growth for the bottom fifth and 19 percent growth for the middle fifth.

What is evident from the data is that while the pie used to serve everyone in the 1970s, this isn’t the case anymore. The growing pie doesn’t necessarily serve everyone – let alone everyone equitably. It allows a few to enjoy fantastic prosperity, while many struggle to make ends meet (according to a survey by Wider Opportunities for Women around 45 percent of Americans say they don’t have enough money to cover basic expenses like housing, food, or healthcare). Unfortunately, if the situation looks grim now, it will get much worse over the next few decades as the workplace becomes increasingly automated.

But in the meanwhile, we can enjoy the wise words of the late George Carlin:

The End of Capitalism

Capitalist Myths

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Posted in End of Capitalism, Flow Economy, Myths, Politics and tagged , , , , , , , , .

9 Comments

  1. The problem with that Robert Reich graph is that we have a changing economy. Wages no longer follow productivity because our economy is no longer just about producing automobiles and other factory jobs. The tech industry changed the economy in a grand way. We have a skills based economy now, and a lot of low skilled people are getting left in the dust. Combined with illegal immigration, this depresses the average wage. Also, CEO pay is irrelevant.
    http://www.youargue.com/70ran13dc10

    • The fact that wages are stagnant has nothing to do with the shift from a manufacturing economy to a service economy. Nor is the stagnation limited to unskilled workers, it also affects skilled workers and those with college degrees:

      “On average, hourly pay has not grown at all since 2002 for workers with a college degree or with only a high school degree. Wages have not grown for college graduates in nearly every occupation, and college graduates in the 70th income percentile or lower have had stagnant or falling wages since 2000.”

  2. I found a small typo in the title…

    Capitalist Myth #3: Capitalism, an inherently fair system in which people are allowed to rise or fall in financial status commensurate to the utility they provide to society (which is the part that grows the pie), is not the same thing as Crony Capitalism, an inherently unfair system which has been rigged by the fabulously wealthy to allow them to remain fabulously wealthy in exchange for providing no utility to society.

    FTFY.

    • Capitalism, an inherently fair system in which people are allowed to rise or fall in financial status commensurate to the utility they provide to society

      That title was considered, but it’s just too long… and massively inaccurate.

      Are we really to believe that the financial status of the Walmart heirs – whose net worth is greater than that of 30% of Americans (about 90,000,000 people) – is a function of how much “utility” they provided to society? Or maybe it is just a function of being born to extremely wealthy parents. Do these few individuals really have some exceptional talents that the combined talents of 90,000,000 Americans cannot match? Or maybe the system is not as “fair” as you’d like us to believe.

      What “utility to society” does the tobacco industry provide (aside from being responsible for the deaths of hundreds of thousands of people each year)? How about the alcohol industry ($400 billion in annual revenue), which is responsible for tens of thousands of deaths each year? Or how about the gambling industry or the porn industry? Do these really provide “utility to society”? Sorry, but capitalism is not “fair” or “moral” – it is nihilistic. It is not about accumulating wealth by providing utility (intrinsic value) to society, it is about selling commodifiable products, whether these have intrinsic value or not.

      • The Wal Mart heirs aren’t wealthy because they provided utility to society, Sam Walton was. Now they’re rich because crony capitalism has done away with things like the estate tax which would decrease their absurd wealth via inheritance.

        As for the utility provided by tobacco or alcohol companies, they provide something people want and it’s up to the individuals to choose what goes into their bodies. Just because you don’t agree with their products doesn’t make them evil. What makes them evil is when crony capitalism relaxes the health and safety controls on their products so much that they can make them more addictive or more dangerous for a purely profit-based motive.

        Capitalism isn’t about selling commodifiable products regardless of the long-term effects, again that is crony capitalism since the long-term negative effects should be felt by the producer of said goods, but under the current system is not. Being allowed to knowingly injure society and suffer no ill effect is not a feature of proper capitalism, it’s another variant of “too big to fail” where corporations take risks, realize successes and externalize failures. That’s not capitalism, that’s a corrupt system wherein money buys lawmaking power.

        • Oh and by the way, I would actually argue that tobacco, alcohol and porn companies all provide value to society. Just because you don’t agree with their products doesn’t mean the rest of us grown adults shouldn’t get to consume them if we wish. Many folks are aware of the dangers and make an educated decision to do risky things anyway – the right to make those kind of choices doesn’t even come down to questions of capitalism, socialism, etc, it just comes down to plain old freedom.

          • ״Oh and by the way, I would actually argue that tobacco, alcohol and porn companies all provide value to society. Just because you don’t agree with their products doesn’t mean the rest of us grown adults shouldn’t get to consume them if we wish.״

            The argument is not about what you should or should not be able to consume. The argument is that the market value distorts intrinsic value, which means that your financial wealth is not commensurate with the value you provide to society. Or, as in the example given by Bill Gates:

            “The malaria vaccine in humanist terms is the biggest need, but it gets virtually no funding. If you are working on male baldness or other things you get an order of magnitude more research funding because of the voice in the marketplace than something like malaria.”

            The market predisposes us to seek senseless and superficial pleasures, over more meaningful experiences. To believe that the choices we make under such economic structure are independent of any influence of the market on our decisions is delusional.

        • It looks like you’re using “crony capitalism” as a catchall term for all the problems that are in fact inherent in laissez-faire capitalism! There is nothing about laissez-faire capitalism that says there should be an estate tax at all (or any tax!), and there is nothing about laissez-faire capitalism that says there should be any health or safety controls or regulations either. You’re confusing laissez-faire capitalism with socialism – because that is the system you seem to be advocating (where you have strong health and safety controls, high taxes on the rich and so on).

          Being allowed to knowingly injure society and suffer no ill effect is not a feature of proper capitalism

          Not true.. Laissez-faire capitalism is inherently nihilistic, which means that under true capitalism corporations should be able to sell to consumers whatever they wish, without any restrictions whatsoever (as long as there is no fraudulent behavior on their part). If they want to sell highly addictive substances, so be it! The producer has no responsibility toward the consumer other than providing the product or service as specified, and making sure it works as specified (in other words, no fraud).

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