According to Bernie Sanders, unfettered capitalism, “propelled by uncontrollable greed and contempt for human decency, is not merely unjust. It is grossly immoral.” He’s angry about this, and he wants you to know it’s fit and proper for you to be angry about it, too. And it’s not just capitalism in general that Sanders loathes. He is furious about Amazon, which he calls “the face of uber-capitalism.” He rebukes the company, founded by Jeff Bezos, for exhibiting unlimited greed and “abusing its wealth and power” to “tear our society apart.” In 2018, Sanders introduced the Stop BEZOS Act, which would have imposed a special tax on Amazon and certain other large em-ployers. The senator believes that Amazon is so malevolent that he asked President Biden to issue an executive order prohibiting the federal government from doing business with the company.
Sanders lays all this out in his latest book, It’s OK to Be Angry About Capitalism, which I happened to buy on… Amazon. Despite his belief that the company epitomizes the existential capitalist threat, Sanders offers all five of his books on its website. Yes, I know, Sanders doesn’t sell the books, his publisher does. But if doing business with Amazon is wrong, he could prohibit his publisher from doing so. Of course, that would hurt sales, but that’s exactly the sacrifice Sanders demands of others: Subvert your self-interest for the greater good.
I picked up Sanders’s book in a sincere attempt to confront the other side’s best arguments. I had hoped it might provide a well-reasoned critique, offering strong counter-arguments to, and exposing weaknesses in, the pro-capitalist position. Alas, my hopes were dashed. This is a meandering, angry tirade, filled with name-calling, conspiracy theories, questionable assertions and assumptions, errors in logic, fallacies, inconsistencies, innuendos, and half-truths. The text often confuses correlation for causation and reflects an understanding of economics that borders on illiteracy.
After spending the first third of this short work chronicling his recent political journey, railing against his political foes, and proudly recounting how he dragged the Democratic Party toward progressivism, Sanders begins his jeremiad against capitalism in the fourth chapter, subtly entitled “Billionaires Should Not Exist.” You know you are in for a wild ride when, early in his argument, Sanders rejects this fundamental economic truth: Scarcity exists. Sanders thinks scarcity is a fiction that allows the rich to exploit the working class. We should instead “move away from the economic mentality of scarcity,” focusing our economic debates on intent and will, rather than resources. To use a technical term, this is ludicrous. Human wants are unlimited; resources are not. This imbalance results in scarcity. And scarcity demands some means to allocate available resources. That could be a central planner, a market, or something in between, but the simple fact is, everyone can’t have everything. And contra Sanders, regardless of one’s intent, that fact cannot be willed away.
One beauty of capitalism is that the market-based system quickly reflects all information available about supply and demand, thereby allocating resources efficiently and encouraging innovation. This is unambiguously good for society. Bureaucratic interference in these decisions inevitably leads to shortages, surpluses, wasted resources, and decreased innovation. This is unambiguously bad.
Sanders disagrees. To him, the existence of billionaires distorts the market because they act as an oligarchy, motivated by “greed, corruption, and rampant self-interest.” As a result, “unfettered capitalism is not just creating economic misery for the majority of Americans, it is destroying our health, our well-being, our democracy, and our planet.”
But Sanders is unclear on how this oligarchy works its will. For example, he says that Wall Street investors and corporate CEOs (most of whom are assuredly not billionaires) unilaterally set things like wages and food and gas prices. He provides no evidence to support this claim, because there is none. In fact, the evidence is to the contrary. Rather than creating economic misery, capitalism has created prosperity, and that prosperity has benefited almost everyone in this country. Take the market for food. The average profit margins of supermarket companies are notoriously low, around 1 to 3 percent. If CEOs of these companies could unilaterally raise prices and increase their profits, why wouldn’t they? They don’t because they can’t—the market, not CEOs, sets food prices. Fortunately, this reality has led to momentous improvement in food supplies, enabling the country (and the world) to meet rapidly growing demand while significantly reducing real costs—according to one estimate, by more than 80 percent in the U.S. over a 100-year period.
Sanders also takes aim at the three largest money managers in the world—BlackRock, Vanguard, and State Street—which together manage more than $20 trillion of assets (only a small portion of which comes from billionaires). Sanders ominously notes that these entities are major shareholders in virtually all the companies in the S&P 500, including our largest banks (JP Morgan Chase, Wells Fargo, and Citibank), all four major airlines (American, Southwest, Delta, and United), and our biggest media companies (Comcast, Disney, and Warner Brothers). So what? BlackRock, Vanguard, and State Street are passive investors with no real influence on the day-to-day operations or decisions of these companies. Does anyone really think American Airlines is not competing aggressively with Southwest, Delta, or United because of this common ownership? Ironically, to the extent the three money managers have attempted to intrude in the affairs of corporate America, it has been to impose progressive mandates that Senator Sanders would likely applaud.
Finally, Sanders claims that “the United States cannot afford to support a billionaire class that takes far more from this country than it gives back.” He believes we should tax this group “down to size.” Otherwise, these billionaires will not share their wealth, but instead “pass it on to their heirs.” Sanders provides no data to support his claim that billionaires take more than they give back, because, again, the data go the other way. In 2004, William Nordhaus (who received a Nobel Prize in Economic Sciences in 2018) published an important paper reporting his estimate that, on average, entrepreneurs capture only 2.2 percent of the total benefits from their successful introduction of technological advances. The bulk of the remaining 97.8 percent is enjoyed by the rest of society.
Take Sanders’s bête noire, Jeff Bezos, who has a net worth of around $140 billion. That’s a lot of money, for sure. But what has he contributed? Bezos founded Amazon, which now has a market capitalization north of $1 trillion, around nine times his entire net worth. Amazon has created or revolutionized several industries, including retailing and e-commerce, cloud computing, digital content, and logistics and delivery. The positive effects on the economy from these developments are incalculable. In addition, according to the company, in the past 10 years alone, Amazon has invested more than $530 billion in the national economy and created more jobs than any other U.S. company. During the pandemic, while most businesses were laying off employees, Amazon increased its workforce, hiring more than 400,000 employees in 2020 alone. And it is hard to imagine how the country could have endured the severe restrictions imposed by the government throughout the pandemic without the incredibly efficient distribution system pioneered by Amazon.
Amazon also empowers numerous small and medium-sized businesses (SMBs), with more than 500,000 American SMBs selling on Amazon marketplaces. These businesses generate over $100 billion in annual revenue and created 1.5 million U.S.-based jobs in 2022. And Bezos founded Blue Origin, a company with the stated goal of enabling “the movement of damaging industries into space to preserve Earth.” His other investments include several biotech companies seeking cures for our worst diseases. Finally, Bezos says he plans to give most of his fortune to charity during his lifetime, belying Sanders’s assertion that all billionaires pass their wealth on to their heirs.
Does this seem like Bezos has taken more than he is giving back? Compare this to the public sector—let’s use as an example California’s bullet train to nowhere. In the unlikely event it is ever finished, this conveyance between Los Angeles and San Francisco will end up having taken more than three decades to complete and will have cost more than Bezos’s entire net worth. You will then be able to ride a really fast train. If you had to pick, which would you choose?
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Sanders believes that redistributing wealth “from a handful of billionaires to the great mass of Americans [is] one of the best ways to tackle wealth inequality, address the long-term damage done by systemic racism, and free up working Americans.” He is wrong on factual, moral, and economic grounds.
Factually, Sanders grossly overstates the increase in income and wealth inequality in the country while vastly understating the economic progress made by the poor. Among other things, he relies on gross income data that ignore the effects of existing taxation and redistribution policies. In their 2022 book, The Myth of American Inequality, Phil Gramm, Robert Ekelund, and John Early demonstrate that, during the 70-year period ending in 2017, U.S. income inequality actually decreased after accounting for transfer payments and taxes paid. The prosperity created over that time greatly benefited those in the bottom quintile, as the percentage of Americans living in poverty fell by around 97 percent. Over the 50-year period ending in 2017, the real income of the bottom quintile of Americans increased almost seven times. And 94 percent of households at the end of that period were at least as well off as the top quintile had been a half century earlier.
Morally, individuals have a natural right to keep and control the fruits of their labor. Governments must impose taxes to fund their customary functions, but they have no moral authority to redistribute wealth for its own sake. Sanders sees no issue. He argues that billionaires have no right to their fortunes because they come by them dishonestly. Billionaires, he says, “lie, cheat, bribe, and steal in order to make profits that are funded by the destruction of our lives, our environment, and our democracy.” Really? Always? Even if some billionaires obtained their fortunes illegally (a fact I wouldn’t concede), that provides no moral authority to confiscate the property of those who did not.
Economically, Sanders’s plan to tax the wealthy is horribly inefficient and would hurt those he wants to help the most. Rather than investing in businesses, technologies, and other forms of capital that drive economic growth, those subject to the wealth tax would have an incentive to consume in order to minimize their taxes and a disincentive to engage in productive activity that would create more wealth. These incentives would have negative effects on economic growth, innovation, and job opportunities. The pain from those effects would fall disproportionately on the
economically disadvantaged.
Throughout his book, Sanders asserts that the problem with capitalism is greed. He seems to believe we can eliminate greed simply by moving away from a capitalist system. But he has things backwards. People are people. They will act in their self-interest regardless of the economic system they are under. Adopting every one of Sanders’s proposals would not change that fact. Capitalism doesn’t cause people to act in their own interest. It just takes advantage of the fact that they do. As Adam Smith noted 250 years ago, in a free market, individuals pursuing their own interests will naturally seek to produce goods and services that are in demand by others. As a result, this pursuit will lead to increased economic efficiency and lower prices. The system encourages innovation, entrepreneurship, and competition, leads to economic growth and the creation of wealth, and improves people’s lives through increased access to goods and services, job creation, and higher standards of living. At the same time, capitalism promotes liberty by recognizing and protecting individual rights (including property rights) and the freedom to make choices and engage in voluntary transactions. Rather than being angry about it, gratitude would seem more in order.
Photo: AP /Seth Wenig
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