Capitalism, Inequality, and the Problem of Human Flourishing

Capitalism has a problem.

Now, I know that these days a statement like this is likely to illicit all sorts of mostly negative reactions, everything from “Oh jeez, where is this going?” to “Yeah, no sh$t Nick!” to “Just one?” to “Yeah, but…”

But don’t worry this isn’t going to be some anti-capitalist rant. I think that what’s true about capitalism is a lot like what Churchill said was true about democracy—i.e. that it’s the worst economic system except for everything else that’s been tried.

Capitalism is the best we’ve got but it does have one big problem and it appears to be an inherent one. Left on its own, a capitalist system will trend in the direction of ever more inequality. This is the baseline material reality of capitalism. Some people end-up having more money than others, often a lot more. And as time goes on, things tend to get worse, not better. There’s a kind of Hunger Games dynamic to the whole thing where, no matter what age you are in, if you make it, life is pretty damn good, but if you don’t, well, good luck…

I’ve been thinking about this issue for my entire adult life. There’s an obvious unfairness to it all that really bothers me. And I’ve never able to get comfortable with the “who cares as long as I get mine” attitude, which basically dominates the culture of the elites and upwardly mobile in our society. While it’s pretty obvious to identify some of the causes of inequality in our age—e.g. our legacy of racism and sexism, the lack of equal access to quality education, the geographic concentration of opportunity and poverty—it’s not that easy see that there’s actually a problem with capitalism itself. I’m convinced, though, that even if you were to effectively address these rather massive issues, you’d still see inequality.

My working theory is that inequality is actually an unfortunate feature of capitalism, like some massive bug in the code that you just cannot find let alone resolve. Ultimately, I think it comes down to something rather straightforward: the power of compound interest. It is just so much harder to create new capital than it is to earn returns on accumulated capital. So, those with capital tend to better and better than those without. In other words, it’s easier to make returns investing wealth that you already have than it is to create new wealth. Add in the magical power of compounding to the mix and you get a kind of mathematical inevitability to inequality.

By the way, this difficultly is why we make such big heroes of those who start with nothing and go on to amass great fortunes. That is a story for another day though.

Whether you believe this or not, there’s no denying that capitalist inequality remains one of the great unsolved issues of modern civilization. Thus far, we’ve attempted to deal with this problem via two competing strategies. In one camp, we have those who believe that the best way to solve inequality is to try to engineer as much economic growth as possible. The theory here is that a “rising tide lifts all boats.” In the other camp, we have those who believe that there’s only one thing to do and that is to redistribute wealth.

This has basically become the key fault line in the American political system. And because of the nature of democracy, where power keeps switching back and forth, we find ourselves in the position of actually simultaneously pursuing both strategies (but only half-heartedly so). The result is a sort of Frankenstein economic system that appears ever more unfair and unequal.

Is there anything we can do about this? Just what is the appropriate way to respond to capitalism’s inherent inequality problem?

What makes things really difficult from a political perspective is that there’s some truth behind both of the opposing policy strategies. That is, they both kind of work. It’s true that robust economic growth makes things better across the entire socioeconomic spectrum and may even ameliorate inequality to an extent. It’s also true that things like social security, unemployment insurance, progressive tax policy, aid programs and other forms of redistribution actually help as well. But putting them together like we have and pursuing each with varying degrees of intensity as the political winds shift back and forth, clearly, doesn’t really work.

Here's the sobering truth: as of yet we haven’t really figured out how to effectively address the problem of inequality of capitalism. Politicians on both sides of the aisle are convinced that if they could just pursue their version of the solution without interference from the other side then we would make progress on inequality. I don’t believe that. Not for a second. Laissez-faire capitalism, even its extreme forms does not produce magically produce equally. Neither do extreme forms of socialistic and communistic redistribution.

In our era, optimistic technologists believe that it’s innovation that may somehow save us. The idea here is that exponential productivity improvements—e.g. think free, inexhaustible clean energy, AI-powered robots…etc.—can create the conditions for a kind of universal prosperity. As much as I’d like to believe in this future, I think this dream goes the way of all Utopian fantasies.

Despite the intractable nature of the problem, we cannot just ignore inequality. Much of what we call history is really just the story of the problem of inequality and our various attempts to deal with it. And what history has shown time and time again is that extreme inequality is the ultimate existential threat to civilization.

To make things even more complicated, there’s another, much bigger issue here too that doesn’t get a lot of play in the modern dialogue on inequality. It’s something we’ve been dealing with since, well, the dawn of the industrial revolution. Routinization. Hyper-specialization. Mechanization. These things have fundamentally changed our relationship with nature, government and even time itself. And there’s just something about these circumstances of industrial life that isn’t good for us. They seem antithetical to the human condition.

This is especially true for anyone who doesn’t find some way to make it to the other side. Think for a second about the raw differences in the daily lives of employees and owners. It doesn’t matter whether you are talking about the past or the modern era. The truth is that the life of a successful capitalist is so qualitatively different, so much better, that it’s hard for the two sides of the capitalist equation to even relate.

When you take a step back and zoom out from the narrow confines of the finance and economics perspective, you can see what a real problem this is.

Look, it doesn’t take a genius to understand that subsistence level employment just does not provide a reliable base for human flourishing. While it’s certainly possible for someone to find a way to flourish under even the most extreme conditions of modern capitalism, it’s not that likely. It comes down to a matter of time. Human flourishing requires a kind of balance. If you’re spending 10-12 hours a day, 6 days per week working and going to and from work, what time do you have left to establish that?

I’ve been thinking about this a lot as I go through my little daily routine. As you all know, I frequent a lot of local coffee shops and because of my open, friendly disposition, I always end up making friends everywhere. As I ask my questions and learn more and more about my friends, I discover daily routines filled with dreams deferred, long commutes, low pay, no benefits and life on the edge, financially at least. When I compare that to my life—supported by all the advantages and benefits of being a successful capitalist for almost two decades—it’s clear what kind of advantage I have. From a subjective, qualitative perspective it’s just not even close. I just have so much more time.

Thankfully, I’ve gotten over the absurd ego-impulse to think of myself as someone capable of “solving” this problem. No, I’ve left the destructive savior-complex behind, along with some other parts of my delusional ego. But I do still feel compelled to try to make a difference with my life. That’s what this newsletter is all about and my forthcoming podcast. If I can help people find ways to better navigate the process of capitalist competition or rearchitect their lives in ways that promote fulfillment and flourishing, well, that would be amazing.

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Thank you!