I’m a pretty serious car fan, yet sometimes even I am surprised to the extent some people go to in the automotive world. The latest case in point is a story I read recently on Forbes.com about a used Ferrari La Ferrari (dumb name, I know) for sale in Florida. Asking price? $4.35 million. The Forbes piece quoted a salesperson at the dealership saying, quite honestly: “We know we don’t carry anything anybody needs.” Now, it’s true that rich people have always been able to buy very expensive things, so maybe in that regard this car is no different than, say, the expensive cars of the early twentieth century. Yet, as I read the story, my mind connected it with two other recent reads: a book review in The Economist of Adam Tooze’s new history of the financial crisis of 2008 and an opinion piece in the New York Times by Michael Tomasky entitled, “What Are Capitalists Thinking?”
In his article, Tomasky asks the reader to consider capitalism through the eyes of a 28-year old who knows only the version that has existed in her lifetime:
She was born in 1990. She will probably remember, in the late ’90s, her parents feeling pretty good about things — median household income did go up under Bill Clinton more than they had under any president in a long time, even more than under Ronald Reagan. But ever since, the median income picture has been much spottier, hardly increasing at all in inflation-adjusted dollars over 18 long years. And those incomes at the top have shot to the heavens.
So if you were a person of modest or even middle-class means, how would you feel about capitalism? The kind of capitalism this country has been practicing for all these years has failed most people.
You would feel, says Tomasky, pretty ticked off, as your prospects dimmed as the country into which you were born plunged into political chaos and incomprehensible levels of national debt. For this 28-year old, argues Tomasky, the phrase socialism does not mean what it meant to Americans back in the 50’s and 60’s. Rather, it may just mean an alternative to the kind of capitalism that the young woman has experienced all her life. Should this woman turn to socialist ideas, Tomasky notes, capitalism can pin the blame squarely on its own shoulders. For him, today’s young socialists are the creation of today’s old capitalists.
This might seem like merely a provocation, until you read The Economist’s take on Tooze’s book. For a publication that is a bastion of globalized capitalism, The Economist gives plenty of air time to Tooze’s conclusions:
Mr Tooze sides with most economists in taking the view that the immediate post-crisis response was necessary, but unfortunate in that executives in the banking industry paid too low a price for their folly; that Europe was slow and narrow-minded in dealing with the peripheral countries; and that the switch to austerity was a mistake. Taken together, the backlash against bankers, frustration with EU governments and the impact of austerity led to the rise of populism, the election of Donald Trump and the Brexit vote.
Moreover, The Economist agrees with Tooze that, when all is said and done, the capitalist system the allowed the crisis a decade ago is pretty much the same one we have in place today:
Perhaps the most dangerous failure, though, lies in the unwillingness to deal with problems which lie at the heart of the system and persist today. The finance sector, which caused the crisis, looks remarkably unaltered. Banks may now hold more capital and their bonuses are now tied to longer-term performance. But bonuses are still very high; the average payout on Wall Street last year was $184,220, just shy of the 2006 record. Scandals over banks’ bad behaviour, in areas such as price-fixing, money laundering and mis-selling continue to come to light.
Anyone who fell asleep in 2006 and woke up to look at the financial markets today would have no idea there had ever been a crisis.
As if all of that were not enough, last year the millenials’ (baby boomer-run) government passed a massive tax bill that only made matters worse for the young people of this country, especially in two specific ways. First, it cut spending into discretionary spending programs that would have increased the productivity and health of future generations. Second, it added even more debt that millennials will have to support. As a piece in The Atlantic put it:
Young people will also pay the tax plans’ most direct cost: the interest on that $1.5 trillion in additional federal debt. More debt could benefit younger generations if it’s spent on investments in their futures. But this tax cut will bury younger generations in debt to fund the current consumption of their elders.
All of which brings me back to the red La Ferrari. It exists, like watches that cost a half-million dollars and twenty million dollar Manhattan condos, because there are so many people able and willing to pay comical prices not for what they need but for what they want. When you make $100 million a year managing money, what’s a few million for a car or even a watch? There is plenty more where that came from, anyway. This phenomenon, however, does not in itself bother me in the slightest. I am glad cars like the La Ferrari exist, because they are symbols of excellence — objects made with a passion for perfection. However, I can’t help but look at the picture of the La Ferrari and ask myself how that fictional 28-year old Tomasky mentions sees the car. Does she see what I see? Or does she see it as a slap in the face and as a symbol of all that is wrong with capitalism today?
My guess is the the latter answer is the right one.
“You want fewer socialists? Easy. Stop creating them,” writes Tomasky. I think he has a point, which I alluded to in a 2017 post about the concentration of stock ownership in institutions versus individual investors:
Capitalism in America and Europe is approaching a crisis. Like most other economic crises, it is growing from the inside out—and it has not been forced upon us by others. It is always tempting for market economists like us to blame governments and regulators. It is also easy because it is obvious that regulations increasingly have hamstrung firms and made markets less competitive. But the crisis of capitalism now is far more about the transformation of ownership and the effects that this silent takeover of firms by institutions is having on corporate behavior and the economy at large. To work better, modern capitalism has to correct its ownership problem.
Modern capitalism has to fix many issues, starting with its core purpose. What was once a mechanism for moving capital from savers to productive entrepreneurs has become a casino where millionaires bet on what billionaires are going to do. Win and you get your La Ferrari. Lose and the government bails you out. All this before we add in the current mess in Washington’s corridors of power. Tomasky is right: captalists, and I count myself among them, need to get our house in order, or we might wake up to find a lot more 28-year olds asking some unfordable questions about red Ferraris.