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Why Do We Excuse the Extremes of Capitalism?

Every day as I get off the bus in downtown Seattle, I am confronted with the extremes of capitalism. In a city that has produced many technological innovations and wealthy individuals, I pass men, women, and children sitting on the sidewalk or sleeping on cardboard mattresses. They plead for help. I walk past them, every day, go up 28 stories, and work on the political economy in a building which houses JP Morgan.

I am regularly infuriated by the unjust nature of the world, and my daily commute only adds a further sense of guilt—especially when you consider this: Capitalism—left to its own devices — bends towards inequality. The terrible polarity of wealth I witness in Seattle is merely a microcosm of an economic order that is not optimized. The Emerald City is hardly alone in its display of astonishing inequality. Nationally, the top one percent controls nearly 40% of the United States’ wealth and globally, eight men now own the same amount of wealth as 3.6 billion people.

Concentrated capital is not a new feature of a profit-driven economy. At the beginning of capitalism’s ascent in the mid-19th-century, the American economist Henry George saw similar patterns developing. He noticed that, paradoxically, “the deepest poverty, the hardest struggle for existence” can be found not in pre-capitalist states, but “wherever material progress is most advanced…where population is densest, wealth greatest, and production and exchange most highly developed.”

These grossly uneven outcomes are not preordained. They have come about from deliberate choices based upon a human-made economic system. Jacob Goldstein at NPR wrote a terrific piece on how recently the modern economy was invented, remarking: “If you’d asked somebody 100 years ago, “How’s the economy doing?” they wouldn’t have known what you were talking about.

In a very brief period of time, Americans agreed upon a set of opinions that explained “how an economy works,” without necessarily understanding the consequences of their choices. Unconscious imitation of belief systems is not a particular trait of Americans. In fact, Joseph Henrich, a professor of human evolutionary biology at Harvard, argues that humans are uniquely talented at mimicking the actions and ideas of others. Our brains naturally compel us to adopt the commonly held ideas of our communities. This impulse means that we unknowingly can develop “norms, institutions, and languages” which “emerge gradually without anyone fully apprehending how or why they work.”

Nevertheless, that doesn’t stop humans from feeling really confident about our knowledge of the world, as the Dunning–Kruger effect demonstrates. And when we have people around us who hold similar views to us, well, we feel even more assured. These psychological characteristics illustrate why it is so difficult to accurately judge one’s own society and the norms which govern it. Confined by context, people will act upon and believe rather absurd and self-defeating ideologies.

The good news is that today people are thinking more critically about capitalism and are challenging its assumptions. For example, the success of higher minimum wages across the US has tested a core free-market principle that when the price of labor goes up, jobs must go down. Yet Seattle is raising its minimum wage to $15 and the unemployment rate is near record lows. Whether or not you attribute the minimum wage’s success to the booming regional economy is a moot point — such a caveat is not included in the supply of labor principle. Could it be that this principle did not take into account the complex nature of labor itself and was instead kept alive because it served as a useful intimidation tactic to suppress wages?

Another example comes from the work of Richard Thaler. Last year, he won a Nobel Prize in Economic Sciences for showing that people are not all that rational when it comes to economics. Turns out, humans are rather clumsy decision-makers. This may seem self-evident to anyone that has interacted with others, but Thaler’s work will have a seismic effect on the discipline. It is not an exaggeration to say that “most mainstream academic assumptions and theories” in capitalism “are based on rational choice theory.” These findings call the economic order into question just as much as Martin Luther’s teachings subverted the Catholic Church.

It is exciting to witness a time when sacred belief systems of the day are called out. It is all too easy for humans to look back and condemn the foolishness of certain ideas once they themselves are removed from that time. Yet it is far more important, even imperative, to instead seek out and fight against the insidious ideas of the present.

“Progress,” it has been said, “is born of doubt and inquiry.” If that is the case, then if we want an economy that is both prosperous, but fair, innovative, yet secure — it will take all of us to question and discover whether or not the arguments perpetuating the status quo are truly convincing. Even though our psychology compels us to do so, we cannot surrender to the lure of conformity and take “security in the false refuge of consensus.”