Markets and Inequality

Those of us who believe in the efficacy of markets (a fundamental tenet of capitalism) must be prepared to accept a certain degree of inequality. Your invention of a better mousetrap will cause my older model to lose market share; your admirable work ethic will earn you a higher wage than my preference for taking long weekends.

Theoretically, in a genuinely capitalist system, the market will reward merit more liberally than it will reward mediocrity.

Of course, a genuinely capitalist system will not be rigged to benefit the powerful and/or well-connected at the expense of others. America has long since morphed from capitalism to corporatism, a system in which lobbyists for powerful interests are able to ensure that government regulations favor their well-heeled clients.

In capitalist systems, the theory is that the promise of greater rewards is an incentive for innovation and diligence; advocates justify the resulting inequalities by pointing out that everyone benefits from the resulting entrepreneurship. A rising tide, we are told, lifts all boats.

When capitalism devolves into corporatism, only the boats of the powerful and well-connected get lifted, and it becomes much more difficult to sustain the pretense of meritocracy.

In capitalist/corporatist systems, rampant inequality poses challenges that ideology cannot satisfactorily address. Social scientists and historians tell us that when the gap between rich and poor widens too much, there are very negative consequences for social and political stability. In order to manage the size of the disparities, most first-world countries today have “mixed” economies; governments socialize the services that markets cannot provide (public safety, environmental protection, healthcare, etc.) and—importantly—recognize the existence of an obligation to citizens who for one reason or another, cannot earn a living wage.

In the United States, we have a number of elected officials—in Congress, certainly, but also in statehouses around the country—who reject the logic of mixed economies, and refuse to recognize the threat that extreme inequality poses to social stability and national cohesion. Paul Ryan’s attacks on the Affordable Care Act, Trump’s brutal (kick ‘em when they’re down) budget proposals, the persistent efforts to defund organizations like Planned Parenthood that provide critical medical care to the needy, are assaults that strike many of us as indefensible—especially since they are almost always accompanied by tax giveaways to the rich.

Those arguing on behalf of these measures insist that their purpose is to defend market economics. Most of them know better; the rhetoric is an effort to divert attention from the fact that government is doing the bidding of powerful, rich and very greedy special interests.

Perhaps the most pernicious aspect of this assault on the poor is the not-so-subtle characterizing of needy Americans as “Other.” “They” are immigrants, living off the sweat of “real” Americans; “they” are lazy people of color. If “they” are female, they’re immoral sluts popping out babies in order to qualify for the public dole. It doesn’t matter that none of these characterizations are remotely factual; the dog-whistle references and dishonest descriptions find a willing audience among people who see themselves as part of an America that is rapidly losing cultural hegemony.

The “Other” is the shiny object that distracts attention from corporatist wheeling and dealing.

If current levels of material inequality are bad for America—and they are—this cynical effort to distract our attention by widening our social divisions is even worse.


  1. The only way you ever have a middle class in any economy is if there is some mechanization built into the society for some level of the redistribution of wealth.

    Economics departments should be in social sciences departments of universities NOT the business schools.

  2. Efficient Markets, like the Central Limit Theorem, give you the best-for- all results only if the underlying assumptions are satisfied. Otherwise you get skewed results. And, when have the underlying assumptions for markets ever been satisfied?

  3. Sadly we haven’t seen the bottom of the trend; w Todd Young in the senate and Luke Messer (Todd Rokita too and others) in the house of representatives, we apparently have much further to fall. I have never thought that Young was much more than a Tea Party pawn and he has never disappointed in that regard. However, I used to think Messer was a thoughtful and potentially impartial candidate. It is clear that he has been infected by the Republican mind-meld and can no longer be expected to lead us anywhere but down the tunnel to nowhere.

  4. One thing that Trump did is expose the underlying bigotry and hate in our country. People now spew their hate with badge of honor. Just look at the comments on an article about Bryan Stevenson and the new museum in Montgomery, Alabama. Wow – I did not know that the Civil War was not about slavery and this whole rise in racial divide is all Obama’s fault…. The comments are frightening.

  5. Philip Gift, the labor unions used to be a part of the redistribution of wealth when then bargained for wages and benefits that created the middle class. The GOP set out to destroy the unions so there could be an uneven distribution of wealth, particularly favoring the 1%.

  6. Daleb- you are correct, “Luke Messer USED to be a thoughtful and potentially thoughtful candidate.”

  7. The best economy is that in which logic dictates action. So regulated capitalism In which the government has oversite and the ability to provide in those areas where capitalism is lacking, like health care or schools or the military, is by design the most efficient, productive and humane form of government. The kind of government that purists with rigid ideologies reject to our detriment.

  8. I have continually written to our elected officials on a host of issues. The responses I have received from all has been patronizing and explicitly biased. They basically have responded that they don’t represent all Hoosiers and will continue to play to their base no matter how the majority feels. I have compared these with responses I received in years gone by from both sides of the aisle and to the letter those responses said they would study the issues and vote for what was best for all Hoosiers. This is what we get when we have a single party in control of all the cards.

  9. Theresa; I am from a union family and, strangely, from a staunch Republican family…from back in the “good old days”. Or at least back in the “better old days” when families were able to much easier provide “needs” and sometimes a few “wants”. Middle to low-income families have supported this nation and the wealthy since the beginning; too many middle-income families now live at low-income levels and low-income families are sinking to near poverty levels due to escalating prices and stagnant wages. What will the wealthy do when we can no longer support them? When we must buy food and medication rather than new clothing, bigger houses and new cars? What will those wealthy who own popular vacation spots do when they see tourism dwindle to lower and lower levels and they find themselves sinking financially?

    I am frugal with power usage, have always been and ranted at my children to turn off lights and TV when leaving the room for other activities. I turn my furnace down at night, wear jeans and sweatshirts all winter, only do full loads of laundry and hand-wash dishes to conserve. Yet IPL raised my power bill by more than 35% between December and February during the 5th warmest winter here since 1930. IPL is this state’s highest pollution producer so they don’t need my money to provide safer emission levels; their profits will increase once they can ignore the EPA regulations Trump is removing. We must include our monopoly utilities in big business today; they are corporations which we have no choice but to subscribe to.

    The ability to maintain our homes is becoming cost-prohibitive, lowering real estate values in many middle-class neighborhoods, widening the gap between social divisions even further. Survival is the name of the life style of more and more Americans; we are now facing escalating chances of nuclear war thanks to Trump…maybe we won’t need to worry about this current social division much longer. And nuclear weapons do not discriminate between social classes; not even those that are currently trained on this country by who knows how many of our enemies.

  10. REDISTRIBUTION OF WEALTH…is an ineffectual term that acts as propaganda for the other side. I prefer REDISTRIBUTION OF OPPORTUNITY. An example of redistribution of opportunity is grants to poor youth for college study. Another is investments in public transportation. One more is investment in infrastructure with an emphasis on jobs for more workers. Redistribution of opportunity does require higher taxes on the wealthy, but it does not give that money to poor individuals; it invests that money in projects that enable poor individuals to help themselves. Every time we use the term redistribution of wealth, we help defeat our own efforts to make things better for the lower and middle class.

  11. “Your invention of a better mousetrap will cause my older model to lose market share:”
    Sorry, Dr. Kennedy, but this will result in only one thing — the best builder (and marketer) will come down to just one producer, and THAT is a monopoly.
    Markets have to be regulated just like everything else in life — and the regulation of markets is best served not by ideology and laws, but by — common sense.

  12. Daleb: Luke Messer may have seemed sensible as a candidate, but once they (of either party) are sworn in, they have to do what the leadership tells them to do. Otherwise they don’t get their pick of which committees to be on, and any bills they introduce never see the light of day.

    Unfortunately, that “model” has infected the Senate too. Senators are a bit more independent, but as Sam Rayburn once said, “To get along, you have to go along.”

  13. The paradox of all this is that tax and regulatory relief to corporations increase inefficiency in their core activities since they are not incentivized to work harder, innovate etc., and why should they? Being truly competitive involves investment and risk, neither of which is necessary to a greater bottom line in today’s political environment. The way to make more profit is not to work for the rising tide of economic growth but rather to run off to bought legislators and get another tax break and relief from costs of regulation, hence the old oft-repeated adage that a rising tide lifts all boats becomes subject to how the tide is raised, quite aside from a consideration of those who have no boats to be lifted in any event.
    When we thus become inherently less competitive-minded in a globalized economy with foreign producers (and their as well as our increasingly automated production), we are likely to need more and more corporate welfare to maintain the current fiction of capitalism while reducing human welfare to pay for such political choices. We already see evidence of that with decades-old wage inequality, exploded executive salaries, bonuses and compensation paid by stock options to avoid taxation as ordinary income (though corporate workers, have no such choice) etc.
    I hereby coin a new description of the old and discredited adage that “A rising tide lifts all boats,” and (considering the coming cratering of demand due to wage inequality and congressional largesse to the superrich) it is this, that unless we change course to save our mixed brand of capitalism and socialism soon that “A sinking ship sinks all boats, including those of our present day capitalists.” Someone tell me how that accords with the public interest of anyone, rich or poor.

  14. Stephen,

    Common sense is a most uncommon commodity, so I would never expect it to be applied to legislative decision making, much less to “the market”.

  15. Typo city > I wrote ship for tide in the next to last sentence of my offering today. Mea culpa.

  16. JoAnn and Larry – excellent thoughts that I completely agree with.

    STEPHEN F SMITH – I took the sentence from Sheila’s post that you referred to as having a different meaning. I see the similarity of her comment to how the Koch’s and their fellow fossil fuel magnates have been using their wealth and power to stop or drastically slow down the progress in developing wind and solar energy. They will not lose their power without a fight and with this administration they have been handed a gift that will reward them and further damage our environment.

  17. Corporatism runs by the single rule of make more money regardless of the impact on others. In other words each corporation operates in ways that pursue their success even at the expense of others.

    There are circumstances where that could lead to a successful whole but I think that they are different than what exists today.

    Today everything tends to be networked together such that the success of the whole can’t be reached by only separately optimizing each piece.

    That’s why what works best is a strong balance between corporations and government. The integration of the pieces is from regulatory actions while the optimization of pieces is from corporatism.

  18. I have been mailing our Federal Representatives here in Indiana asking them to support HR 676 Enhanced Medicare for All, sponsored by John Conyers of Michigan. HR 676 now has 98 Co-Sponsors including Andre Carson (thank you). I did receive responses from Luke Messer and Susan Brooks.

    The point of my letter which had facts from the OECD, WHO and even the CIA was that Americans pay more per capita, and as percentage of GDP than people in Canada, France, Germany and Japan. Longevity from birth is better in Canada, France, Germany and Japan than in the USA. So why not study these other countries systems and determine how best to provide health care to ALL Americans.

    The responses from Brooks and Messer totally ignored the statistical facts I mentioned in my letter. They both went off on how bad the ACA is. The “Free Market” they both favor actually had already failed, which is why the ACA was necessary to begin with. Both Messer and Brooks ignore the prior “Free Market” failure in the not so distant past. The responses from Brooks and Messer are what I would expect from from ideologues, that is ignore facts.

  19. Pete: “Corporatism runs by the single rule of make more money regardless of the impact on others. In other words each corporation operates in ways that pursue their success even at the expense of others”.

    Ohh, case in point.

    Ivanka Trump’s products are made almost entirely in China, and US policy on trade or China’s currency could benefit her financially. >>> Now after months of hammering China on currency manipulation Trump now says: “They’re not currency manipulators,” Trump told the Journal about China. The statement is an about-face from Trump’s election campaign promises to slap that label on Beijing on the first day of his administration as part of his plan to reduce Chinese imports into the United States.

    I guess all the Trumpet voters will have to ignore that Made in China Label when they go off and buy Ivanka’s products.

  20. Very well stated and probably very true. The question is…you are most likely speaking to the choir here, so how do we get these concepts of the existential dangers of the shift toward corporatism that actually excludes many of those believers that Trump and the Tea Party motivate to resonate in the minds of so many that still believe the fruits of capitalism are still available to all?

  21. Louie today – “Ivanka Trump’s products are made almost entirely in China, and US policy on trade or China’s currency could benefit her financially.”
    Not to worry, here comes Daddy-O with executive order trashing those evil labeling regulations to enable Ivanka to import legally from 3rd world countries copyrighted Ivanka goods labeled “Made in USA”. He’ll say the labels ARE made in the USA.
    Has he even paid his ESTIMATED tax pending completion of his mysterious audit? Only straightening out THAT disgrace will transform him from a bum into a mensch.

  22. Interesting choice of the word “efficacy” instead of “efficiency”. Most introductory Econ texts will describe a market-based economy as the one which most “efficiently” allocates resources to the production of those goods and services that will produce profits for producers to a point where their marginal cost = marginal revenue at a price determined by buyers and sellers in an open market.

    I would argue that the current rigged version of mixed capitalism in the USA is RUTHLESSLY efficient but not efficacious which, by definition, requires a determination of the desired end-result. If the end result is the allocation of resources described above then efficacy more or less equals efficiency (monopolies and other dislocations notwithstanding).

    However, if the desired result is a stable society and an economic system that provides all who pursue gain with amble opportunity to succeed, then our current system is garbage. On the other hand, if the desired result is that of hybrid plutocracy-kleptocracy, then no other path short of suspending our US Constitution will get you there sooner than the current one.

    The “Eddie Econs” of the world (as Dr. Marcus refers to one of his many friends and who are all scholars in neoliberal economic theory because they read quotes from Atlas Shrugged on firmly believe that ANY and ALL tinkering with free markets is bad and should be avoided like the avian bird flu. But the fact is that the capitalist system was not conceived and created on any one of the 6 days by you know Who. It is rather an invention of humankind and because of that it is inherently flawed… will not always work the way it is supposed to.

    This has been proven time and time again in the area of health care and health insurance and virtually every other country in the G20 , even those whose economies are considered FAR more unfettered by regulations than ours, have concluded long ago that this segment simply doesn’t work well in an unregulated open market.

    So IF and WHEN your congressperson shows up for a town hall meeting be sure to bring along your old dog-eared copy of Paul Samuelson’s Principles of Economics.

    And then throw it at them.

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