History proves that capitalism is a very fragile system; that often comes with a fatal weakness called income inequality. History is full of capitalist societies that succumbed to revolution, civil war and dictatorship; because of extremes of wealth and poverty created by the market, or its failure.
The American Revolution, the French Revolution, the Russian Revolution, the Chinese Revolution, the rise of Nazi Germany and the recent Arab Spring; were among many conflicts triggered by income inequality. It is the specter of these historical bloodbaths that motivates many modern critics of capitalism, such as American billionaire investor and activist Nick Hanauer.
Hanauer even wrote a disturbing essay called The Pitchforks are Coming… For Us Plutocrats in which he echoes the arguments of Marxist critics of modern capitalism like Thomas Piketty. Piketty; the French economist, is credited with triggering the current argument over income inequality with his controversial book Capital in the 21st Century.
“Capitalism, when well managed, is the greatest social technology ever invented to create prosperity in human societies,” Hanauer wrote in the American magazine Politco last year. “But capitalism left unchecked tends toward concentration and collapse.”
Income Inequality is for Real at Least in America
The debate over income inequality has been loudest in the United States, where data indicates that upward economic mobility has stalled.
The New York Times found that the percentage of Americans defined as middle income making between $35,000 and $100,000 a year fell from 53% in 1967 to 43% in 2013. At the same time the percentage of Americans defined as upper income rose from 7% in 1967 to 22% in 2013.
The results of last year’s Pew Income Study; which analyzed US Census Bureau Data, were even more disturbing. Upper income households controlled 49% of America’s aggregate income in 2014. In 1971, the same households controlled 29% of the nation’s aggregate income.
The amount of money in the hands of America’s middle class has also fallen, according to Pew. In 1971 the middle class controlled around 62% of the aggregate income in the United States. By 2014, the middle class only controlled 43% of the country’s aggregate income. To make matters worse the median wealth of the average middle class family in the US was 28% lower in 2013, than it was in 2000.
Is America Turning Against Capitalism?
These figures might explain the popularity of political candidates hostile to capitalism in the United States. Self-described “democratic socialist” and US Senator Bernie Sanders (I-Vermont) captured 43% of the popular vote in the 2016 Democratic presidential primary contest. Around 40% of the voters in the Republican presidential primary voted for Donald Trump; who is openly hostile to some aspects of capitalism including free trade.
Support for anti-capitalist candidates was higher among lower-income Americans. Trump captured the support of 45.4% of Republicans that had an income of under $50,000 year; and 48.9% of the voters without a college degree, Ronald Brownstein noted in The Atlantic. Trump easily defeated several free trade advocates; including US Senator Ted Cruz (R-Texas), in the Republican primary.
Nor is it just among primary voters that capitalism has an image problem in the United States. A YouGov survey from February 4, 2016, found that 43% of Americans under age 30 had a favorable view of socialism, while only 32% of that group held a favorable view of capitalism, The Washington Post reported.
More tellingly; 69% of Americans aged 18 to 29 said they were willing to vote for a socialist for president in a Gallup poll from June 2015. The same poll found that 50% of Americans between 30 and 49 were also willing to vote for a socialist.
Young people have among those hardest hit by income inequality in the United States. Tellingly Sanders did best among young voters, he received the votes of up to 71% of Millennials; those aged 18 to 34, The Washington Post reported. That bodes poorly for capitalism; because Millennials are now the largest living generation in the United States according the US Census Bureau.
It looks as if income inequality has done serious damage to capitalism’s reputation, even in the United States. The proposition that income inequality threatens capitalism and the free market holds some truth – on a political level.
Even Businessmen Turn Against Capitalism
Even some American business leaders are having serious doubts about capitalism. The most vocal opponent of free trade, Donald Trump; a real estate developer and entrepreneur, was widely viewed as a symbol of capitalist excess just a generation ago. Nick Hanauer was an online entrepreneur, and an early investor in Amazon.
Another American billionaire Bill Gross; the founder of Pimco Funds who is now at Janus Capital, has endorsed the radical idea of a Universal Basic Income. Gross wants the US government to give every citizen a basic income of at least $10,000 a year.
He estimates that it will cost between $1 and $2 trillion a year. The idea here is to make sure that every citizen has the money to finance a basic working class lifestyle even if he or she lacks a job. In his blog post Gross writes that central banks could finance such a plan by printing more money.
Interestingly enough, Gross seems to believe that the US central bank; the Federal Reserve, might implement some form of universal or guaranteed basic income on its own in the near future. He believes basic income is inevitable because of the number of jobs being lost to technological progress.
Like Hanauer, Gross believes income inequality will grow; and threaten the social fabric, and he favors drastic government action to correct it. Gross also sounds a great deal like Bernie Sanders in his post, recommending that the US government increase spending on infrastructure and healthcare.
It looks as if popular sentiment is turning against capitalism, even in the United States. Many people will be wondering if income inequality will bring an end to the Golden Age of capitalism that began in the 1980s. If it does, even developed nations will have a hard time avoiding class warfare or revolution.