Spencer Platt/Getty Images
By Dan Perry
0
Share
Newsweek is a Trust Project member
See more of our trusted coverage when you search.Prefer Newsweek on Googleto see more of our trusted coverage when you search.
Something has gone badly wrong with American capitalism.
A system that produced extraordinary prosperity and innovation is also yielding concentrations of wealth so extreme that they’re almost impossible to defend, fueling a political backlash against capitalism itself.
It is capitalism's defenders who should understand that action is needed.
Read More on Opinion
The rise of Zohran Mamdani in New York, and momentum behind the Democratic Socialists of America, happened for a reason: ordinary people have watched the fortunes of billionaires explode while housing, education and health care have become prohibitively expensive.
So anger at the uber-rich and the tech oligarchy is becoming mainstream, and younger Americans are growing dangerously skeptical of capitalism.
That’s terrible, because capitalism remains by far the greatest engine of prosperity, innovation and economic progress humanity has devised.
But capitalism can undermine itself when it produces levels of inequality that large numbers of people come to regard as grotesque—which brings us neatly to Elon Musk.
He’s hovered above and below the trillion-dollar threshold in recent weeks, an extraordinary milestone that prompted discussion about whether trillionaires should exist. And I say that at the current price point—a trillion is greater than the annual GDP of scores of countries—no, they should not.
Whenever the subject of inequality comes up, purists will claim that markets should be allowed to work, success should be rewarded and governments should not arbitrarily decide that somebody has enough money.
I agree with much of that. But taken to a sufficient extreme, a society dominated by a minuscule plutocracy becomes morally grotesque, economically dysfunctional and politically unstable.
The system can collapse, potentially violently. Considering that a recent Gallup poll found almost four in 10 Americans hold a positive view of socialism, it should be clear that we are flirting with that threshold.
This is not to say that everyone should receive the same income and wealth—according to need, as a Marxist would argue; that would destroy the incentive that creates progress.
Inequality is not merely an unfortunate byproduct of capitalism; it is essential to a rational universe. But up to a limit.
The real question is how much inequality provides sufficient reward for extraordinary achievement without producing untenable and immoral concentrations of wealth—and with it power—such that millions of people conclude the system is rigged against them.
The United States has the highest levels of inequality in the developed world.
When discussing how to fix this, the populist politicians make a mistake in misdefining the rich. A surgeon earning $500,000 a year, a successful lawyer making $1 million or an entrepreneur who has built a business worth $10 million are not the problem.
These are the people a capitalist economy should encourage, and they tend to live in spectacularly expensive places like New York or San Francisco.
But there is an enormous difference between being successful and possessing wealth on the scale of countries. Huge wealth always comes with power and unaccountability, but the technology age has added something genuinely new: today's largest fortunes are often attached to control over the infrastructure of life itself—social-media platforms, search engines, artificial intelligence, satellites, communications networks and enormous stores of data.
Tech billionaires—Elon Musk, Larry Page, Jeff Bezos, Sergey Brin, Michael Dell, Mark Zuckerberg, Larry Ellison—may therefore possess not only vastly more wealth than almost anyone in history, but forms of private power that were once the preserve of governments.
They are becoming caricatures of evil—witness the recent film Mountainhead, in which the fictional equivalents gleefully leverage global mayhem caused by their own viral deepfakes amplified on their own social media channels.
How to avoid this outcome? The answer should not be to wait until someone accumulates a trillion dollars and then confiscate it.
The better objective is to realign the rules of capitalism so that fortunes are less likely to compound to such extraordinary levels in the first place, while leaving the overwhelming majority of successful people alone.
So yes, taxation. Income measured in hundreds of millions of dollars can face much higher marginal rates without destroying anyone's incentive to succeed. At truly exceptional levels, such that normal people with a 401(k) are not affected, capital gains should be taxed more like income from work.
The tax system also has to grapple with enormous unrealized gains, because the richest people generally accumulate their fortunes through appreciating assets rather than salaries.
And inheritance taxation should make it difficult for a spectacular entrepreneurial fortune to become a dynasty.
Antitrust policy belongs in this discussion as well. A company should not be broken up simply because its founder became fabulously rich.
But neither should dominant companies be permitted to use the power generated by yesterday's success to make tomorrow's competition impossible by gobbling up all competitors.
Related Story
Is the WNBA a Sports League or a Soap Opera, and Does That Even Matter?
In the end, the capitalist system—including the protection of private property by the state—is meant to achieve the greatest good for the greatest number of people. That is preserved when a society produces rich people and occasionally extraordinarily rich ones. What is difficult to explain is what additional social purpose is served when $10 billion becomes $100 billion, or a trillion.
It’s hard to believe that an entrepreneur worth $50 billion would decline to innovate because of higher marginal taxes.
This is not an argument for simply taking money from billionaires and handing it out in welfare payments.
The better use of additional revenue is to expand the things that give people a genuine chance to prosper in a capitalist economy: decent education, affordable health care, infrastructure, housing and other investments that increase opportunity and economic mobility. These are services that the purist capitalists will tell us society cannot afford.
The marginal value of the hundred-billionth dollar to its owner is essentially non-existent; the value of even a minute fraction of that money to people without adequate nutrition, medicine or education can be enormous.
There is a point at which inequality becomes not merely economically questionable or politically destabilizing but morally wrong. That is why the spectacle surrounding Musk is useful even if the precise value of his fortune changes by hundreds of billions of dollars with the markets.
It forces us to confront a question that capitalism's defenders too often avoid: somewhere between one person owning everything and everyone owning exactly the same amount lies a level of inequality that best combines prosperity, incentive, opportunity and social stability.
We can argue about precisely where that point lies. But we should stop pretending that no such point exists.
Dan Perry is the former London-based Europe-Africa Editor and Cairo-based Middle East Editor of The Associated Press, chairman of the Foreign Press Association in Jerusalem and the author of two books.
The views expressed in this article are the writer’s own.
View 0 Comments
Submit Correction
View Editorial & AI Guidelines