Economics was becoming an imperial domain. Today, the logic of buying and selling no longer applies to material goods alone. It increasingly governs the whole of life. Today, we take them largely for granted. It also prompted a widespread sense that markets have become detached from morals. Then comes the big question: So what? Economists often assume that markets But this is untrue. Markets leave their mark. To outsource them is to demean them, to value them in the wrong way. So to decide where the market belongs, and where it should be kept at a distance, we have to decide how to value the goods in question — health, education, family life, nature, art, civic duties, and so on.
These are moral and political questions, not merely economic ones. As a result, without quite realizing it — without ever deciding to do so — we drifted from having a market economy to being a market society. A market society is a way of life in which market values seep into every aspect of human endeavor.
Not only did the debate never happen. It may never. Can we change? If someone is willing to pay for sex, or a kidney This nonjudgmental stance toward values lies at the heart of market reasoning, and explains much of its appeal. Rather, they will blindly continue down their self-destructive path with an absolute conviction they are divinely guided by the Invisible Hand of Adam Smith, and perhaps even God.
Values & Capitalism » Home Economics - Values & Capitalism
There has been little or no real income growth for most people for decades. As shown below, the income gap is about as high as ever and the wealth gap is the highest since the late s. The following charts show real income growth by quintiles for the overall population since That probably has given you your perspective.
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My objective is to show you the broader perspective. And they are increasingly getting stuck being poor. The following chart shows the odds of someone in the bottom quintile moving up to the middle quintile or higher in a year period. While most Americans think of the US as being a country of great economic mobility and opportunity, its economic mobility rate is now one of the worst in the developed world.
In a country of equal opportunity, that would not exist. To me, the most intolerable situation is how our system fails to take good care of so many of our children. As I will show, a large number of them are poor, malnourished physically and mentally , and poorly educated. More specifically:. The domino effects of these conditions are costly. Low incomes, poorly funded schools, and weak family support for children lead to poor academic achievement, which leads to low productivity and low incomes of people who become economic burdens on the society.
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Though there are bright spots in the American education system such as our few great universities, the US population as a whole scores very poorly relative to the rest of the developed world in standardized tests for a given education level. Differences in these scores are tied to poverty levels—i. The stats that show that the US does a poor job of tending to the needs of its poor students relative to how most other countries do it are never-ending. Here are a few more:. These poor educational results lead to a high percentage of students being inadequately prepared for work and having emotional problems that become manifest in damaging behaviors.
Students who come from poor families and try to go to college are less well prepared. A related problem is that many teachers who have to deal with these stressful conditions are underpaid and under-respected. When I was growing up, doctors, lawyers, and teachers were the most respected professions. One of the main reasons for this funding gap is that the Constitution made education a state issue, and most states made local schools primarily locally funded so that rich towns have well-funded public schools and poor towns have poorly funded public schools.
Underfunded public schools are suffering in quality. Similarly, a shortage of lab equipment is associated with a By comparison, private schools on average both spend considerably more on students and produce better outcomes.
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Over the three PISA surveys since , private school students have scored on average 6. Not surprisingly, Americans have much less confidence in public schools today than they have had at any point over the last five decades. To me, leaving so many children in poverty and not educating them well is the equivalent of child abuse, and it is economically stupid. The weakening of the family and good parental guidance has also been an important adverse influence:.
The health consequences and economic costs of low education and poverty are terrible:. The impacts of childhood poverty alone in the US are estimated to increase health expenditures by 1. I believe that, as a principle, if there is a very big gap in the economic conditions of people who share a budget and there is an economic downturn, there is a high risk of bad conflict.
Disparity in wealth, especially when accompanied by disparity in values, leads to increasing conflict and, in the government, that manifests itself in the form of populism of the left and populism of the right and often in revolutions of one sort or another. For that reason, I am worried what the next economic downturn will be like, especially as central banks have limited ability to reverse it and we have so much political polarity and populism.
While one might hope that when such economic polarity and poor conditions exist, leaders would pull together to reform the system to both divide the economic pie and make it grow better which is certainly doable and the best path , they typically become progressively more extreme and fight more than cooperate. In order to understand the phenomenon of populism, two years ago I did a study of it in which I looked at 14 iconic cases and observed the patterns and the forces behind them.
If you are interested in it, you can read it here at www. In the worst cases, this conflict causes economic problems e. We are now seeing conflicts between populists of the left and populists of the right increasing around the world in much the same way as the same way as they did in the s when the income and wealth gaps were comparably large.
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The chart on the left shows how conservative Republican senators and representatives have been and how liberal Democratic senators and representatives have been going back to As you can see, they are each more extreme and they are more divided than ever before. The chart on the right shows what percentage of them have voted along party lines going back to , which is now the greatest ever. In other words, they have more polar extreme positions and they are more solidified in those positions than ever.
[VIDEO] The economic consequences of changing family structure
And we are coming into a presidential election year. We can expect a hell of a battle. In the next part, I will explore why it is producing these substandard outcomes and what I think should be done to reform it. I also believe that most everything happens over and over again through history, and by observing and thinking through these patterns one can better understand how reality works and acquire timeless and universal principles for dealing with it better.
I believe that the previously shown outcomes are unacceptable, so that we first need to look at how the economic machine is producing these outcomes and then think about how to reform it. I believe that all good things taken to an extreme become self-destructive and everything must evolve or die, and that these principles now apply to capitalism. Those companies and people who are richer have greater buying power, which motivates those who seek profit to shift their resources to produce what the haves want relative to what the have-nots want, which includes fundamentally required things like good care and education for the have-not children.
We just saw this exemplified in the college admissions cheating scandal. As a result of this dynamic, the system is producing self-reinforcing spirals up for the haves and down for the have-nots, which are leading to harmful excesses at the top and harmful deprivations at the bottom. More specifically, I believe that:. The pursuit of profit and greater efficiencies has led to the invention of new technologies that replace people, which has made companies run more efficiently, rewarded those who invented these technologies, and hurt those who were replaced by them.
Capitalism is killing our morals, our future
This force will accelerate over the next several years, and there is no plan to deal with it well. Of course, this globalization also allowed less expensive and perhaps better quality foreign goods to come into the US, which has been good for both the foreign sellers and the American buyers of them and bad for the American companies and workers who compete with them. Because of these two forces, the share of revenue that has gone to profits has increased relative to the share that has gone to the worker. The charts below show the percentage of corporate revenue that has gone to profits and the percentage that has gone to employee compensation since From being in the investment business, I see that there is a glut of investment money chasing investments at the same time as there is an extreme shortage of money among most people.
Policy makers pay too much attention to budgets relative to returns on investments. While focusing on the budget is what fiscal conservatives typically do, fiscal liberals have typically shown themselves to borrow too much money and fail to spend it wisely to produce the economic returns that are required to service the debts they have taken on, so they often end up with debt crises.
For the previously explained reasons, I believe that capitalism is a fundamentally sound system that is now not working well for the majority of people, so it must be reformed to provide many more equal opportunities and to be more productive. To make the changes, I believe something like the following is needed. Leadership from the top.
I have a principle that you will not effect change unless you affect the people who have their hands on the levers of power so that they move them to change things the way you want them to change. Bipartisan and skilled shapers of policy working together to redesign the system so it works better. I believe that we will do this in a bipartisan and skilled way or we will hurt each other. So I believe the leadership should create a bipartisan commission to bring together skilled people from different communities to come up with a plan to reengineer the system to simultaneously divide and increase the economic pie better.
Clear metrics that can be used to judge success and hold the people in charge accountable for achieving it. In running the things I run, I like to have clear metrics that show how those who are responsible for things are doing and have rewards and punishments that are based on how these metrics change.
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Having these would produce the accountability and feedback loop that are required to achieve success. Redistribution of resources that will improve both the well-beings and the productivities of the vast majority of people. As an economic engineer, naturally I think about how money might be obtained from taxes, borrowing, businesses, and philanthropy, and how it would flow to affect prices and economies. For example, I think about how a change in personal tax rates might occur and how changes in them relative to corporate tax rates would affect how money would flow, and how changes in tax rates in one location relative to another location would drive flows and outcomes in them.