My wife, Joan, was marveling at a roll of parchment paper. She was using it to line a pan to make some yummy squash with cinnamon and pecans. She showed me the roll in its cardboard box and explained that the problem with parchment paper is that it curls. But someone had redesigned the box so that the act of pulling it from the box uncurls it as it comes off the roll.
“Some clever person figured this out!” she said. And, of course, she was delighted.
But here’s what I thought. Some clever person figured it out, brought it to the company that makes parchment paper, and got paid for their efforts. And the company gladly paid them because they believed this clever fix to an old problem would give them an advantage over other companies. They might sell more rolls and make more money.
This is one of my favorite things about capitalism. Love it or hate it, capitalism is a system that continually improves our lives in big and small ways.
There is a denigrating image of capitalists as greedy people caring for no one but themselves and getting more money. For the most part, this caricature is overdone. I think it’s fair to say that no one is all good or all bad. Even greedy capitalists. In fact, a couple hundred years ago, Scottish philosopher and economist Adam Smith wrote about something he referred to as “the invisible hand” of greed, the self-interested actions of individuals that unintentionally benefit society as a whole by guiding economic activity.
In our example, the greedy owner of the parchment paper company paid someone for a clever box design that improved my wife’s life. But here’s the thing—that capitalist wasn’t being altruistic. No, they were trying to make more money. And that’s the engine that makes it all work.
Steve Jobs and Steve Wosniak weren’t trying to invent the personal computer because they wanted to make your life easier. They were doing it because they wanted to get rich, and they got rich because they made your life easier.
Wonderful machine, this capitalism. Until it goes to its natural extremes.
The conundrum of capitalism is pretty easy to understand. In order to incentivize people to make even incremental improvements, capitalism encourages people with the thought that they will make some money by making something better, solving some problem. And in some cases, they might even get rich doing it.
When someone gets rich, their good fortune is a visual example of what happens if you find something that people will want to pay for. But it also means that wealth distribution becomes concentrated. A few get rich, most don’t.
Today in the U.S., the wealthiest 10 people have an astounding amount of wealth. It’s quite unimaginable. According to a published paper from Princeton University, the wealthiest 1 percent of Americans now have as much wealth as the lowest 90 percent.
And the top 1 percent share of the total wealth of the U.S. is growing. By some estimates it’s up to 20 percent of the total wealth of the country, up from 13 percent in 2001.
And those wealthiest 10 are estimated to have as much combined wealth as the lowest 19 million households—10 people worth as much as roughly 60 million Americans. Whoa!
Why does this matter? Consider that there are now more people working in personal security—an estimated 1 million—than there are high school teachers in America.
The wealthiest aren’t interested in improving public schools. Their children all go to private schools. They aren’t interested in your safety. They have their own protection. They aren’t interested in your health. They can afford the best healthcare in the world. And on and on.
Their own personal interests are best served by a government that spends less on things like healthcare and schools in order to keep taxes down.
One of the greatest things about America has always been its upward mobility. You can come up with a great idea, work hard, and maybe succeed in realizing all your dreams.
One of the factors in that upward mobility has been free universal education for grades K through 12. When we first established that as a new country, it was revolutionary.
I personally grew up in a lower-middle-income family. I attended public schools and went to a state-supported university, Penn State. Tuition was $575 a year. Because my family was low income, I received a Pell Grant in the amount of $500. So my annual tuition to go to one of America’s great universities was only $75.
Those days are gone. After 45 years of gradually lowering taxes and increasing government borrowing, governments don’t have the money they did when I went to college. So today, a young Hal Masover might not get a college education. It’s certainly a lot tougher than it was 50 years ago.
My father was a WWII veteran. When they passed the GI Bill, he could have gone to college for free and received a government stipend for living expenses. When I was in high school, he told me that he didn’t go to college because at age 24 he thought he was too old for college. He also told me that decision was the worst mistake of his life. He noticed that the college-educated people he worked with had different ways of thinking than he did. To his mind, the main benefit of a college education was that it trained you how to think. I would definitely agree with that, and add one more very important thing: Going to college opened up the world to me. I became friends with people I never would have had exposure to unless I’d gone to college.
But the wealthiest in this country do not have a vested interest in affording you that opportunity. By defunding education, they have been slowly kicking out the rungs from the ladder of upward mobility.
And this is not just a problem for you and your family members. It’s a problem for the whole country. Avenues to upward mobility are avenues for innovation. Brilliant ideas, great companies, and new technologies have come from people of humble backgrounds. I would suggest that is mostly the case because if you grow up in a family that already has everything, you have little incentive to work hard and innovate. It’s those at the bottom of the ladder who have the greatest incentive.
Some billionaires, such as Peter Thiel, have even gone so far as to tell you that a college education isn’t a good idea.
Fascinating. Peter Thiel has a law degree from Stanford University. He went on to build a $25 billion fortune. But he thinks a college education might be a bad idea for you.
Capitalism is, has been, and likely will be for quite some time the greatest invention of humanity, improving the lives of millions upon millions at a far greater rate than at any time prior to its invention.
But at times, it becomes a victim of its own success. At those times, it can either be reformed or overthrown. Extreme concentrations of wealth on the scale we are currently witnessing have resulted in some spectacular uprisings. The French and Russian revolutions come to mind. It is one of my deepest hopes that we find a way to reform and modify the extreme imbalances that are occurring without the kind of violence we have sometimes seen in the past. Personally, not only do I not want to live through that, but I also don’t want to live in a communist state where everyone is equally poor and life almost never gets better.
I hope we fix this while we still can.