Who’s winning capitalism? (hint: it’s not you)
But we don’t have to stand by and take it.
Who’s winning capitalism right now? Not you. Not me, either, though I have plenty and can’t complain. It’s just statistically unlikely to be you or me, since 99.99% of people in the US are losing at capitalism.
That’s not to say I want to go back to mercantilism or anything — I will dive into how I think we could address the problems in another post. For now, I just want to make the problems really obvious.
To clarify up front, this article is not about trade or markets. People have been buying and selling stuff for millennia and should keep doing so. I’m talking specifically about shareholder capitalism, a system wherein businesses (are forced to) prioritize returns to shareholders over other considerations.
It wasn’t always like this
What’s important to grasp about the following graphs is that our economy, our rules, our lives don’t have to be this way. We’ve changed before. We transitioned into capitalism and we can change how we implement it now. Capitalism depends on state enforcement. We the people can decide how to tax and what to enforce. I worry about invoking bad metaphors, but… they can’t fight all of us.
It’s the economy, stupid*
Gross Domestic Product, or GDP, “is a monetary measure of the market value of all the final goods and services produced in a specific time period by a country.” In other words, what was the total worth of all the buying and selling? It measures the “size” of an economy.
Below, I’ve charted the US GDP since 1947. It has grown consistently, albeit not continuously, for as long as we’ve been measuring it. Even when you account for inflation (the green line in the graph), the trend has been upward.
GDP growth indicates that business is booming. Growth also gives governments more money without having to raise tax rates. When profit is growing, then tax revenue is growing, and when investors are doing well, they’re more amenable to creating social welfare and safety-net programs that provide for the poorer citizens. That partly growth-funded spending brought about a dramatic improvement in quality of life worldwide, and it’s been touted to developing nations as the way to follow suit.**
It’s sometimes called the “rising tide that lifts all boats.” However, GDP growth in the US has — unlike a tide — not been lifting all boats evenly. That’s what I’m focused on.
In the following graph, you can see that median household income growth and US GDP growth have diverged significantly. (Note: in all the following graphs, I use indexed values to compare growth rather than raw numbers.)
While we’ve probably all noticed inflation at the grocery store recently, the median family income has actually kept up with both rent and food overall (though this measure is nationwide and doesn’t account for cost-of-living differences between regions).
But inflation never hits everyone the same. Also, food and housing are just two small categories. Post-secondary education, for example, has become significantly more expensive since 1980.
And we all know about healthcare prices. I don’t know of anyone who hasn’t been hit with huge price increases for their health insurance. The growth is so dramatic it changes the scale from the last graph to the next — making tuition price increases seem modest.
Who has the money, then?
That’s not news. What you might not realize, though, is that if GDP is growing (and it is), then someone is making money. The revenue must, by definition, be going somewhere.
The measure of personal income is one of the statistics the US Federal Reserve calculates each year. It’s a backwards calculation from national revenue after taking out taxes, costs, and business income. To demonstrate, in the following graph, you’ll see that total personal income growth is indeed much more in line with GDP than the median income. But it’s almost a tautology, because the government isn’t seizing it, so it’s going to businesses and people.
Growth is happening, it’s just not going to the middle.
It turns out — and you might (not) be shocked — that most personal income has been going to the 1% (the wealthiest million or so households in the USA). In the following chart, you can see that their income, while it has a lot of variability, has grown overall more than twice as fast as everyone else’s.
Don’t be too mad at the 1%, though. Most of them are growing about the same as the rest of us.
Really it’s the top 0.01% who’ve been making the most, and it’s their income that’s skewing the combined 1% higher. On the following graph, you can see that even the gains of the top 0.1% —the greenish line below that represents the richest 110,000 or so families in America — are dwarfed by the amount of growth at the tippy-top. Needless to say, the bottom 99% aren’t even discernible on this scale.
Not surprisingly, the top 1% and 0.1% now also have the most wealth. In the following chart, you’ll notice their gains came much at the expense of the bottom 50%. The net worth of the bottom 50% has finally caught up to GDP again in total (not necessarily distributed evenly), but it clearly hasn’t made up for the gains the top 10% enjoyed while they were capturing most of the income.
And once again, the richest dominate the rich and the rest would barely be visible.
Graphs can’t do it (in)justice
Looking at a list of numbers can’t do justice to the absolutely staggering difference in wealth between the 400 richest Americans and the rest — or even all the rest of us put together. If you really want to experience how badly you are losing at capitalism, head to “Wealth, shown to scale.”
I’m not trying to make you feel bad for losing. We live in a democracy, which might not be serving us well enough at the moment, but if enough people agree on a change, we can make it happen. I’m pointing out who is losing (99.99% of us) and by how much (literally more than we can imagine) so that we can all decide whether we like how our system is working right now… or if we want to change it.
*https://en.wikipedia.org/wiki/It%27s_the_economy,_stupid
**That’s actually a terrible idea given our current planetary crisis, but it would work in theory. Read all about that in the book Less is More.
