The American economy incentivizes risk, ingenuity, and innovation. The rules of capitalism under which the American entrepreneur operates have allowed those entrepreneurs to develop outstanding and utile new technologies and innovations from which we have all benefited. Those entrepreneurs were justly rewarded as they should have been. The sense of competition and risk-taking that has been created in America has been a benefit to us all. I am happy to live in a country in which those who create value are rewarded for their efforts to improve my life and the lives of others through their hard work. When the system works, it is for the most part a virtuous cycle from which most people benefit.
But lately this system has become perverted. Perhaps the inherent flaw of capitalism is that value has been defined quantitatively, whereas the value that matters, a product or service that improves life is largely immeasurable. To the producer or provider of that good or service, value is the money I spend purchasing it. Too often it seems, we have focused more and more on the monetary value created by entrepreneurs at the expense of the value provided to the consumer.
As an example, we need look no further than the subprime mortgage crisis brought on by the horribly unethical practices of banks and other financial institutions whose lending practices created - ephemerally - financial value for those institutions and the individuals working for them at the expense of homeowners and the American public. Now, nearly five years removed from that crisis, we have found that those banks and bankers have recovered nicely, funded by the very tax payers they defrauded, while those taxpayers who were duped and then subjected to watching their tax money spent on saving those who duped them, are still not much better off than they were in 2008. So the bankers have gotten financial value both in the form of profits, and then in the form of bailouts, but what value did they provide? Do we really consider it value to make home loans to individuals who cannot pay them back, bundle those loans together, cut them into tranches, and selling these horrible investments to unsuspecting investors? Is this what value has come to mean? Some of those banks deluded themselves into destruction believing there was financial value in these practices, but others were saved from their own shortsightedness by the taxpayers. In a real capitalist system, a company that provides a service with a short lifespan and without future plans would fail. Furthermore, there were banks which knowingly defrauded investors, by short-selling their own financial instruments. Is there some value to creating a flawed product, defrauding consumers about its utility, and then betting on that product to fail?
All of this has contributed to the myth that the American system rewards those who create value, when in fact many of the Americans in the best financial shape are those whose endeavors are aimed solely at making money for themselves and their superrich clients, those who least need more. It is not obvious that banks create value for Americans and the American economy. What they should be doing is providing a smooth network for the exchange of financial assets in order to facilitate the working of market capitalism.
The problem then, is twofold. One, our economy is driven by financial instruments rather than consumer goods, and two, because of this emphasis, we continue to reward the manipulators of paper value with an ever-growing slice of the economic pie. This leaves less for the creators of real value, from the factory workers and teachers to the inventors and software engineers. For a twofold problem, the solution should be twofold. We must, as a society, reevaluate the meaning of value - what is more valuable to most Americans, a bundle of home mortgage tranches or more efficient home appliances whose use would save money by virtue of a lower electric bill? - AND we must take steps to rectify the growing income disparity so that those who do provide real value will find consumers for their products.
Income disparity is a byproduct of the American system, and while we should not ignore those who have less, neither should we strive to be a country in which everyone’s economic outcomes are the same. We should, however, strive to be a country of equal opportunity, and while some income disparity may be acceptable and even fuel the American dream, the gulf between the rich and the poor has now become so large that it is detrimental to our future economic prospects. It is past time that we acknowledge that our system can incent and reward ingenuity and risk without abandoning the majority of Americans, and that most of those being left behind play important roles in the creation of wealth for those looking back at them, roles without which the whole system will collapse. No society will endure unless the overwhelming majority of citizens feel they have a stake in its economic life. If we are to prove Karl Marx wrong, we must begin by acknowledging that Elizabeth Warren is right: “There is nobody in the country who got rich on their own. Let us all be in this together.