American Capitalism Just Doesn’t Cut it for Most Americans
Time to Build a More Equitable Economy
NOTE: This is the first of two, maybe three, installments to discuss a fairer and more equitable economy.
Bottom Line Upfront: BLUF
American capitalism no longer serves most Americans, having steadily tilted toward the wealthy elite since the 1980s, while leaving working families and low-income households behind.
This inequality is by design—engineered through decades of deregulation, tax cuts for the rich, union-busting, and policy shifts that prioritized shareholder profits over worker well-being.
The racial wealth gap remains vast and persistent, with Black Americans owning less than 2% of national wealth today—barely more than they did in 1965—despite being 13% of the population.
CEO pay has exploded nearly 1,000% since the late 1970s, while worker wages have stagnated and corporate America has spent trillions on stock buybacks at the expense, largely, of investing in jobs, innovation, or communities.
Deregulated capitalism has led to repeated economic disasters, from the bursting of the tech bubble to the housing crash to soaring inequality, debunking the myth that wealth ever "trickles down."
The U.S. tax code overwhelmingly favors the wealthy, with billionaires paying lower effective tax rates than working families, and $1 trillion in annual subsidies benefiting those who need them least.
Economic mobility has largely collapsed: only half of today’s children can expect to out-earn their parents—compared to 90% in the 1940s—marking the death of the American Dream for millions.
Public opinion is clear: across party lines, Americans want higher wages, better jobs, affordable housing, and investment in infrastructure, child care, and small businesses—not more breaks for the ultra-rich.
To build an equitable economy, we must tax extreme wealth, end billionaire influence over politics and regulation, invest in inclusive workforce development, and finally support Black entrepreneurs and communities with the same vigor given to white business owners.
QUOTE ONE:
“The disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition is the great and most universal cause of the corruption of our moral sentiments.”
–Adam Smith, Scottish political economist (1723-1790)
QUOTE TWO:
“We should measure the prosperity of a nation not by the number of millionaires but by the absence of poverty, the prevalence of health, the efficiency of public schools, and the number of people who can and do read worthwhile books.”
–W.E.B. Du Bois, American sociologist, On the Future of the American Negro, March 1953
QUOTE THREE:
“Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution.”
–Stephen Hawking, theoretical physicist, cosmologist, and author (1942-2018)
QUOTE FOUR:
“Everybody’s talkin’ about hard times
Like it just started yesterday
People eye know they’ve been strugglin’
At least it seems that way
Fat cats on Wall Street
They got a bailout
While somebody else got to wait
Seven hundred billion but my old neighborhood
Ain’t nothing changed but the date”
– Prince, “Ol’ Skool Company” album, 2009
Introduction
I never thought I’d write a sentence that included all four luminaries: Adam Smith, W.E.B. DuBois, Stephen Hawking, and the Artist-Always-Known-As-Prince.
They all deliver the same message to us: We humans have been creating and perpetuating unfair economies for centuries.
I’m not an economist. I don’t even play one on TV. While my transcript from Clark University will show that I minored in Economics, it will also show I majored in Geography and haven’t pursued further studies in either field in 40 years.
Yet, I’ve read my fair share of economic reports from the past 20 years, and I know that our economy (a) hasn’t worked well for most Americans since at least the 1980s, (b) has never really worked for households with lower incomes, and (c) is designed to create vast wealth gaps and increasingly favor the rich (although this favoring has been a constant throughout our nation’s history).
Corporate capitalism has always revolved around the dirty extraction of resources and the routine exploitation of workers, just in new and different ways (more kind and gentle?), primarily centered on the needs and desires of an almost exclusively White, wealthy elite.
Is it hard to believe that it remains so predominantly White? Consider that about 88% of households in the top 10% of wealth are White, as of 2019.[1]
Most likely, given the continued accumulation of wealth in the top 10% of Americans, that number has probably increased a little bit the past six years.
What Changed 45 Years Ago?
Our economy, as flawed as it has been, hasn’t always tilted so heavily toward the wealthy few.
The most recent major shift in that direction began in the 1970s when corporate and conservative political leaders launched a long campaign to alter what they viewed as the balance of power, shifting it from organized labor and heavy regulation to one that favored business.
By 1980, the number of corporate lobbyists in Washington, D.C., grew from a few hundred to tens of thousands. Even before Ronald Reagan took office, deregulation in the airline and rail industries had already begun in earnest, and limits on interest rates had been lifted. The latter decision came back to haunt us about twenty years later, laying the groundwork for subprime loans during the housing boom and bust of the 2000s.
The Reagan era brought us massive tax cuts – never paid for – that drastically lowered the top rate for personal income taxes from 70% to 28%, “the capital gains rate from 28 percent to 20 percent, and the corporate rate from 46 percent to 35 percent.”[2]
These cuts caused the net worth of America’s wealthiest families to triple in just over ten years.
However, in the last forty years, we have seen corporate America shift from a (quasi) stakeholder-based capitalism to one that is almost entirely shareholder-based. This shift to shareholder-focused capitalism has meant that the decisions of publicly held companies are now primarily driven by what maximizes profits, share value, and dividends for upper management, boards, and wealthy shareholders.
Just in the past decade, “Fortune 500 companies have repurchased more than $3 trillion worth of their own shares.”[3]
Since the late 1970s, compensation has increased by almost 1,000 percent, and the CEO-to-worker pay ratio has skyrocketed from 30:1 to nearly 300:1.[4]
This means the remaining shareholders either increase their ownership stake in the company or have the potential to sell their shares at higher prices. The enrichment of senior executives, corporate boards, and wealthy shareholders has all come at the expense of – or with little regard for – workers, communities, the natural environment, or investment in research, development, and innovation.
The False Promises Never Meant to be Realized
Political and economic elites have promoted our neoliberal system for decades, arguing that: (1) deregulation and efficient markets would trickle down benefits to everyone; (2) a deregulated financial sector would lead to increased access to capital and better financial services; (3) relaxing antitrust laws would promote greater innovation and competition; (4) racial and economic inequalities are not structural problems but the result of individuals not taking enough personal responsibility.[5]
However, we know trickle-down economics has not worked. Deregulation in finance has benefited the few and led to major economic crashes. Innovation in many sectors has mostly stalled, and inequalities are deeply ingrained in the system.
How Bad Has It Become?
As a result, our economic system has become a dysfunctional mess for far too many Americans, one that the private sector will never fix.
As of early October 2020, the “50 richest Americans are worth as much as the poorest 165 million.”[6]
The top 1% of earners saw their earnings shoot up 160% over the past 40 years while the earnings of the bottom 90% fell.[7]
“The 400 richest American households paid a lower average tax rate (23%) in 2018 than any other income group; the bottom 10% of households paid an average of 26%.”[8]
The U.S. tax code enables nearly 300 subsidies that add up to $1 trillion that could be used to support better health care, employment opportunities, and housing for millions of Americans.[9]
Thirty-four million Americans live in poverty, and 85.5 million live at twice the poverty level.[10]
As we can already surmise, the economy is even more dysfunctional for African Americans:
“In 1865, Blacks were 14% of the U.S. population, owning less than a half-percent of the country’s wealth; in 2020, at between 12 and 13% of the population, Blacks own less than 2% of the nation’s wealth.”[11]
“The 400 richest American billionaires have more total wealth than all 10 million Black American households combined.”[12]
Collectively, African Americans lost more than 50% of Black wealth due to the Great Recession and its accompanying foreclosure pandemic[13]
Black workers have endured an unemployment rate at twice the rate of whites for decades – no matter what the education level you examine. In fact, in 40 out of 48 years since 1972, the Black unemployment rate has been above 9% (and as high as 21%). That is, the rate has remained at or near recessionary levels for most of a half-century.[14] [15]
Black families in America earn just $57.30 for every $100 in income earned by white families; for every $100 in white family wealth, black families hold just $5.04 [16] Black families in America earn just $59.74 for every $100 (in 2019) in income earned by White families; for every $100 in White family wealth, Black families hold just $12.74,960, while the poverty rate for White families at 8.2 percent pales in comparison to Blacks at 19.5 percent (in 2020).[17]
The poverty rate for Blacks is 18.8% (8.1 million people), and for whites, 7.3% (14.25 million people)[18]
Whites own more than 90% of the stock and mutual fund equity, while Blacks own 1.5%[19]
A single, older Black, college-educated woman has an average wealth of $11,000 compared to a White woman’s $394,000 with the same characteristics.[20]
I’ll state it in another way: ours is not an economy that works for all, and it’s not even close.
The Guarantee of Upward Mobility No More
Following the first Tr*mp tax cuts in 2017, the wealthiest 20 percent of Americans reaped 72 percent of the benefits. Slightly more than half went to the top 5 percent.[21] Hardly a tax cut for working families. We’ll see the same skewed results in the next 4-8 years with the latest Tr*mp tax bill. [See last week’s post here: Link.]
Why does all this matter? According to research led by Harvard economist Raj Chetty, upward mobility in America has plummeted over the last 40 years. While more than 90% of children born in the 1940s grew up to earn more than their parents, today only half of children can expect to do the same. Americans in the Gen Z and Millennial generations are the victims of this dramatic collapse of upward mobility.[22]
The Big Ugly Bill, unfortunately, will continue these perversions.
And ... All of the political decisions regarding our one-sided economy continue despite what Americans have clearly indicated they want from it.
What Americans Want
In September 2020, Public Agenda and USA Today conducted a national poll, revealing that—across the political spectrum—at least two-thirds (67 percent) support the following:
Creating good jobs by upgrading infrastructure (80 percent overall).
Retraining adults in skills that enable them to compete for quality jobs (80 percent).
Supporting incentives for businesses to bring overseas jobs back stateside (80 percent).
Implementing policies that help small businesses thrive (78 percent).
Making available high-quality childcare to all families (77 percent).
Funding research in technology, science, and green energy (75 percent).
Raising the minimum wage (72 percent).
Providing tax breaks for businesses that create quality jobs in communities that need them (71 percent).
Creating more affordable housing for low- and middle-income families (69 percent).[23]
So … What Can We Do?
To achieve a more equitable society, we surely can’t tilt such advantages to the wealthy any longer, especially at the expense of the middle and working classes.
It is time we:
Change our tax code to start removing such advantages for the wealthy and the uber-wealthy.
Create a fund or dividend for all Americans, similar to how the Alaska Permanent Fund Dividend (PFD) is provided annually to all Alaskan residents through earnings from mineral royalties.
Stop billionaires from corrupting the fair regulation of their companies and industries.
Halt the corrupting influence of corporate and billionaire money in political campaigns that sway economic decisions in favor of the wealthy.
Invest in workforce development at levels we’ve never considered before, especially with the rapid rise of disruptive AI.
Invest in Black entrepreneurs and small business owners in the same ways we have historically invested in White entrepreneurs and business owners.
My next installment will start exploring proposals from various think tanks, scholars, and advocacy groups about what we should consider changing and how to do it.
Footnotes
[1] Matt Bruenig, “Wealth Inequality Across Class and Race in 5 Graphs, People’s Policy Project, March 5, 2019, https://www.peoplespolicyproject.org/2019/03/05/wealth-inequality-across-class-and-race-in-5-graphs/.
[2] Hedrick Smith, “Timeline: Who Stole the American Dream,” HedrickSmith.com, 2012, http://hedricksmith.com/timeline-who-stole-the-american-dream/.
[3] Mariana Mazzucato, “Capitalism After the Pandemic: Getting the Recovery Right,” Foreign Affairs, October 2, 2020, https://www.foreignaffairs.com/print/node/1126480.
[4] Lawrence Mishel and Julia Wolfe, “CEO compensation has grown 940% since 1978: Typical worker compensation has risen only 12% during that time,” Economic Policy Institute, August 14, 2019, https://www.epi.org/publication/ceo-compensation-2018/.
[5] Mike Konczal, Katy Milani, and Ariel Evans, “The Empirical Failures of Neoliberalism,” The Roosevelt Institute, January 2020, pp. 2-12, www.rooseveltinstitute.org.
[6] Ben Steverman and Alexandre Tanzi, “50 richest Americans are worth as much as the poorest 165 million.” Bloomberg Wealth, October 8 2020, https://www.bloomberg.com/news/articles/2020-10-08/top-50-richest-people-in-the-us-are-worth-as-much-as-poorest-165-million.
[7] Lawrence Mishel and Jori Kandra, “Wages for the top 1% skyrocketed 160% since 1979 while the share of wages for the bottom 90% shrunk,” Working Economics Blog, Economic Policy Institute, December 1, 2020, https://www.epi.org/blog/wages-for-the-top-1-skyrocketed-160-since-1979-while-the-share-of-wages-for-the-bottom-90-shrunk-time-to-remake-wage-pattern-with-economic-policies-that-generate-robust-wage-growth-for-vast-majority.
[8] David Peter Stroh, “Overcoming the Systemic Challenges of Wealth Inequality in the U.S.,” Bridgeway Partners, 2020, https://www.academyforchange.org/wp-content/uploads/2020/04/System-Dynamics-of-Wealth-Inequality-BP-Site-fin3.pdf.
[9] Christopher Faricy, “The American Dream is Tax Reform’s Biggest Obstacle,” The New York Times, October 4, 2020, https://www.nytimes.com/2020/10/04/opinion/the-american-dream-is-tax-reforms-biggest-obstacle.html.
[10] “Basic Statistics,” talk poverty, 2019, https://talkpoverty.org/basics/.
[11] Bruce Mitchell, “Book Review: The Color of Money,” National Community Reinvestment Coalition, March 7, 2019, https://ncrc.org/book-review-the-color-of-money-black-banks-and-the-racial-wealth-gap/.
[12] Vanessa Williamson, “Closing the racial wealth gap requires, heavy, progressive taxation of wealth,” Brookings Institution, December 9, 2020, https://www.brookings.edu/research/closing-the-racial-wealth-gap-requires-heavy-progressive-taxation-of-wealth/.
[13] Juvaria Jafri, “Book Review: The Color of Money: Black Banks and the Racial Wealth Gap by Mehrsa Baradaran, London School of Economics Book Review, January 29, 2019, https://blogs.lse.ac.uk/lsereviewofbooks/2019/01/29/book-review-the-color-of-money-black-banks-and-the-racial-wealth-gap-by-mehrsa-baradaran/#.
[14] Danyelle Solomon, Connor Maxwell, and Abril Castro, “Systematic Inequality and Economic Opportunity,” Center for American Progress, July 8 2019, https://www.americanprogress.org/issues/race/reports/2019/08/07/472910/systematic-inequality-economic-opportunity/.
[15] “Unemployment Rate – Black or African American,” U.S. Bureau of Labor Statistics, cited by the Federal Reserve Bank of St. Louis, 2020, https://fred.stlouisfed.org/data/LNS14000006.txt.
[16] “How wealth inequality compounds racism,” Bridgeway Partners Blog, August 20, 2020, https://bridgewaypartners.com/structural-racism-wealth-inequality-and-the-dark-side-of-misdirection/.
[17] “Basic Statistics,” talk poverty, 2019, https://talkpoverty.org/basics/.
[18] Ibid.
[19] “Is the Federal Reserve Neglecting Black Workers in the Economic Rescue? A Fed Up Campaign Fact Sheet,” The National Campaign for A Strong Economy, July 2020, p. 4.
[20] Zaw, et al, “Women, Race & Wealth,” Research Brief Series, Volume 1, Samuel Du Bois Cook Center on Social Equity and Insight Center for Community Economic Development, January 2017, p. 3, https://www.insightcced.org/wp-content/uploads/2017/01/January2017_ResearchBriefSeries_WomenRaceWealth-Volume1-Pages-1.pdf.
[21] Steve Wamhoff, “Updated Estimates from ITEP: Trump Tax Law Still Benefits the Rich No Matter How You Look at It,” Institute on Taxation and Economic Policy, August 28, 2019, https://itep.org/updated-estimates-from-itep-trump-tax-law-still-benefits-the-rich-no-matter-how-you-look-at-it/.
[22] Richard V. Reeves and Coura Fall, “Seven key takeaways from Chetty’s new research on friendship and economic mobility,” The Brookings Institution, August 2, 2022, https://www.brookings.edu/articles/7-key-takeaways-from-chettys-new-research-on-friendship-and-economic-mobility/ and “Changing Opportunity: Class and Racial Gaps in Economic Mobility,” Opportunity Insights, July 2024, https://opportunityinsights.org/.
[23] “Economic Opportunity and Inequality,” Public Agenda/USA Today/Ipsos Hidden Common Ground Survey, September 24, 2020, https://www.publicagenda.org/reports/americas-hidden-common-ground-on-economic-opportunity-and-inequality/.