The Case for Optimism About America

The good news is that America is still the engine of global wealth creation: nothing fosters political pragmatism like prosperity. But there is also tremendous wealth inequality in America. To a degree, wealth creation and inequality are inseparable, so, rather than bemoan wealth inequality, we must do more to ensure that everyone has a fairer shot at wealth accumulation.

It is difficult these days to escape the narrative of America as an unwieldly empire about to collapse on itself in a violent clash of values. American political discourse has been deteriorating for about three decades now, but the last month has been near-apocalyptic. There are, however, also glimmers of good reason to be optimistic about America.

A week into 2021, the Dow Jones index reached an all-time high of over 31,000 points. Even holding aside some irrational exuberance in the markets, that America is still producing so much of the private wealth in the world today is a very good thing: it suggests that those who are creating productive technologies for the future are choosing to do so from within the country.

We should want this to continue. Wealth is the moderating influence to our extremist tendencies. Nothing fosters pragmatism like prosperity.

Nevertheless, many today are troubled by the accumulation of wealth in the hands of a few. To a degree, American-style free-market capitalism has failed us because of this uneven accumulation. Last year, Goldman Sachs estimated that America’s top wealth-percentile owned half of US equity valuation. And according to a recent Gallup poll, only 55 percent of Americans owned any stock in 2020, down from 67 percent in 2002.

Through recent elections, America’s working classes have expressed their reservations over the extent of inequality yielded by free-market policies. Their message is that the rollout of globalization and technological progress—seen as drivers of inequality in the West—has to be moderated to preserve the economic dignity of American workers. By way of policy solutions, some have veered towards left-wing politicians such as Bernie Sanders, calling for more redistributive taxation; others have turned right, embracing Donald Trump’s economic nationalism.

We must hear and respond to the voters’ reservations, but not to the detriment of wealth creation itself. In some measure, wealth creation begets inequality. And such wealth accumulation is both inevitable in and necessary to a peaceful and legitimate society.

Legitimacy derives from governing society so that each successive generation can flourish more than its preceding one. We cannot have an economic system that is both legitimate and that obviates private wealth accumulation, even if in the hands of a few. To see how, consider that the technologies that bring us better human flourishing—whether yesterday’s steam engine that catalyzed industrialization or tomorrow’s artificial intelligence—often require long-term investments to account for their progressive and generational development. Such investment can only be made by previously accumulated wealth. Some of this wealth is indeed in public hands, but a good bit of it is in private hands, recognizing that amongst those currently with private wealth are individuals who have helped create human-flourishing technologies of the past. It is self-defeating as a society to rob them of that reward.

If we want future investments in human flourishing to continue, we have to allow the currently and prospectively wealthy ongoing skin in the game.

For example, Microsoft, in the 1990s, changed the nature of office work through its products, and in the process created many millionaires and billionaires. An undiscriminating rich-tax that targets such individuals can have a chilling effect on future innovation. Most people, including those with skills to generate technologies for human flourishing, generally produce better results the greater the gains from their efforts they expect to be allowed to retain.

Doing so will, however, keep the distribution of wealth unequal. We have to accept that reality, within reason, if we seek to continue toward greater human flourishing. 

Likewise, in a world with fewer international barriers to flows of ideas, capital, goods, services, and eventually people, working-class Americans cannot protect themselves by building higher walls. Such walls might (temporarily) divide the pie of global wealth; but they will not grow it. The end result is that even if walls preserve middle-class wages, they can only be sustained at the cost of freedom to question the moral and economic logic of those walls. Writing at the time of the end of Roman Republic, the historian Livy recognized this paradox. His republic had expanded through conquest beyond the capacity of its core citizenry to sustain its extent: it then faced the choice of broadening its definition of who can be a Roman citizen or of abandoning the very idea of representative government in favor of a dictatorship. Rome chose the latter. Americans, thankfully, made a different choice last November.

These arguments, of course, do not address real concerns about ill-gotten wealth, including through corruption and the undermining of public rules and rule-making. A good bit of public frustration with wealth accumulation in America is not about inequality per se but rather about theft of opportunity: some wealthy insiders have at times manipulated the “rules of the game” to keep winning. Never mind the moral wrong inherent to such theft, for entirely pragmatic reasons capitalists should want to clean up the structural corruption of capitalism if they seek to address public disenchantment with free-market ideals.

Perhaps nowhere is this subversion of the rules more blatant and odious than in tax policy. The desecration of our tax system is often obscured by the debate on how much to tax, and some of this muddling is the malicious doing of those who have manipulated the tax code to their advantage. Every society needs to have a vibrant and ongoing conversation over the level of inequality it will tolerate to promote future growth. At times when that growth is accelerating, less current inequality is needed—and taxes and redistribution can be higher—than at times when growth is slowing and lower tax rates might be necessary to stimulate technological investments. This is what good politics should deliberate and decide.

But bad politics is when the debate obfuscates and facilitates tax evasion. Amazon got to be the trillion-dollar near-monopolistic behemoth that it is partly through decades of sales-tax avoidance: by playing jurisdictions against each other and violating the intent of tax laws. How is that fair to every small business it obliterated along the way? Apple has been as devilishly creative with its tax compliance as it has with its product designs: by incorporating shell companies in tax havens to channel away its rightful obligations to the American public from whose talents it built its wealth. It then should be no surprise that many amongst the public are calling foul on Big Tech today.

The good news is that there is now growing public scrutiny from across the American political spectrum on the morass that is America’s tax system. There is now an opportunity to channel that scrutiny into intelligent debate and eventually sound, dynamic policy to close loopholes. Certainly, taxes are not all that ails American capitalism, and economic concerns are not all that divides America —but the consensus and salience on tax wrongs is a useful starting point for a way forward on free markets that are also fair.

As an urgent national priority, middle- and lower-income citizens need to once again believe that they have a fair shot at the American dream. The more widely spread the opportunity for wealth creation, the better. By redoubling on America’s greatest strength—as engine of entrepreneurial hustle and global wealth creation—we can move forward as a country. America’s cultural divisions are deep, but economic prosperity is the rising tide to lift all boats, including those tethered by the seaweeds of cultural disaffection. No side can win a culture war, but the more prosperous the average American, the more likely they will embrace the rational consensus of “live and let live” at the core of America’s free society.