It appears the economy is ailing rapidly. Bad economic news seems to be popping up every 15 minutes on the cable news networks. Last week, amidst what appeared to be frantic efforts by the Fed to cut interest rates, DaimlerChrysler announced it would cut 26,000 jobs while consumer confidence hit its deepest slump in four years. Hopefully I”m just jumping to conclusions, because a bad recession could have terrible human costs.
- Paul Wong
- Back to the Woom
Consumer spending has played an important role in the current economy accounting for two-thirds of it even though real incomes for most people didn”t rise significantly over the recent “economic boom.” How can consumer-spending fuel a growing economy when most consumers aren”t making much more than they were during the last recession? They spent money they didn”t have. Americans have more debt now than they”ve ever had before, and when the economy slows and people lose their jobs, that debt will not disappear.
Still, I find some solace in the idea that when capitalism falters, people start to wonder about more humane alternatives. Given what appears to be the immanent failure of the U.S. economy to provide many people with a satisfactory standard of living, the economic status quo should soon be vulnerable to subversive proposals. Being the seditious parasite that I am, it is my duty to exploit my position on this page by promoting downright un-American ideas. I present to my readers three myths of capitalist ideology:
Risk
The idea here is that investors are entitled to profit from their investments because they take a risk by putting their money on the line, hoping that there will eventually be some sort of return on their investment. Meanwhile, they wait up at night worrying about whether this investment will pay off. Surely the poor capitalist should be compensated for all this grief …
No. The “theory of risk” is an insult to all working people because it assumes that a person who works in a factory (for example) just comes home from work, cracks open a Bud and flips on Wheel of Fortune without a care in the world. But in reality, working people usually risk a whole lot more everyday when they”re on the job than even the most reckless investor.
If a person who earns his or her living doing physical labor gets injured on the job and can”t work anymore then he or she risks being plunged into a financial abyss. Generally speaking, investors never put their entire livelihood on the line in the same way that most workers do every day when they”re at work. Workers do not have the luxury of having to decide whether to invest in a particular firm or not. Most Americans work because they have to pay their mortgage, not to turn $250,000 into $1 million.
Justifying ridiculous salaries
This argument says that high-paid professionals need to earn absurd salaries so that they have an incentive to share their valuable skills with society. People who make this claim make two wrong assumptions. The first assumption is that there are no relevant qualitative differences between jobs as if we”d all rather work at Subway instead of going to Law School if wages were equalized. The second assumption is that the more someone is paid, the more they”ll want to work. Empirical studies have shown that this is wrong after a certain wage threshold has been breached.
Since a higher wage allows someone to maintain his or her lifestyle without working as much, people tend to favor leisure time over earning more money. Why is it that so many highly paid American doctors spend more time on the golf course than they do practicing medicine while Cuban doctors who are paid the equivalent of $15 a month are developing dynamic new cancer treatments?
Time preference across classes
Apologists for capitalism like to espouse the virtues of “rugged individualism,” patience and thriftiness any individual who internalizes these values is bound to succeed in the free market system (and they say this while labeling socialism a “nave pipe dream”). This way, the rich (who often save a good portion of their money) can look on the poor (who often spend money when they have it) with disdain. After all, if the poor just saved their money for once they would soon escape poverty. This type of thinking goes to the roots of capitalist ideology: The reason the poor are poor is that they lack proper discipline.
This excuse for tolerating poverty fails to appreciate that the nature of being poor often makes it prudent to spend one”s money as fast as possible. Poor people are less likely to live as long as others and they often live in high crime areas where nice things get stolen. Given this situation, it isn”t dumb or negligent to spend your money quickly, this is wise because there is a good chance you might not be around in a few years to enjoy the benefits of your frugality.
Of course, with the spread of enough “dangerous” thinking and popular opposition to capitalism, we won”t have to deal with the above-mentioned myths any longer. We”ll all be working at Subway.
Nick Woomer”s column runs every other Tuesday. He can be reached via e-mail at nwoomer@umich.edu.