The Missing Element

In a column published last week, Wall Street Journal editor Greg Ip noted that two billionaires had recently posted about the failures of capitalism and the need to reform. Ray Dalio, founder and CEO of Bridgewater Associates, the largest hedge fund in the world with around $133 billion of assets under management, and Jamie Dimon, CEO of JPMorgan Chase, the largest bank in America with total assets of $2.5 trillion, have both outlined the failures of American capitalism and listed some suggestions for reform; Dalio in a post on LinkedIn and Dimon in a letter to shareholders.

While there are many problems that need to be addressed, the principle domestic issues are education, health and income inequality. These issues are all interrelated. Without education you are more likely to be poor and poor people suffer health problems because they are poor. The Democrats say we need to spend more money to cure these problems. But we have been throwing money at these problems for decades and they have not been solved. In fact, they are getting worse.

Both Dalio and Dimon want to get the private sector and philanthropy more involved in solving these problems. These are good ideas. Early America thrived on civic participation and civil societies that created libraries, hospitals, orphanages and other institutions to serve the needs of the population. Many of these institutions have withered away as government has stepped in to provide these functions (as noted by Niall Ferguson in his book, The Great Degeneration (2013)).

Many people applaud government taking a more direct role in serving the people citing greater efficiency in the delivery of services and the use of tax monies to provide these services as an obligation of all the people. Of course, the words “efficiency” and “government” shouldn’t be used in the same sentence unless accompanied by a negative qualifier. And the shared obligation of citizenship has been redirected to only the wealthy.

Because greater government involvement and oodles of money have not worked to solve the problems we face, Messrs. Dalio and Dimon propose various forms of cooperation between government, the business sector and philanthropy to work on solving these problems.

But can this work? The left seems to think that government and business are antagonists in a constant struggle. They believe that business is driven by greed for more and more profit and is only interested in increasing returns to shareholders (while corporate leaders get fat by siphoning off much of the wealth that is supposed to be going to shareholders). They believe that it is government’s job to take this profit from greedy corporations and fat cat one-percenters and share it with the masses.

But this is not the way that America was envisioned by the Founders. Government and economic actors (there weren’t many big corporations in the early stage of our development) were intended to work together to provide for the general welfare by generating economic growth. Businesses and entrepreneurs are intended to provide people with the goods and services they need while government is intended to provide the rule of law so that the people can trust that the goods and services to be provided are safe and reliable.

The reason that poverty, poor education and poor health have appeared to be insoluble problems is that the solutions applied to these problems have been politically motivated and designed to meet political, not societal, ends. Uneducated, unhealthy poor people can be reliably counted upon to continue to supply votes to the providers of such benefits. But the question is, if these people were better educated and could get good jobs and live healthier, middle-class lives would they continue to be such reliable voters? Or would they graduate to different desires and needs and change their voting habits to address these new circumstances?

Education is a good example of how political ends trump societal ends. Democrats constantly push for higher teacher salaries and smaller class sizes as the solution to America’s lackluster education results. But America ranks 4th out 32 OECD countries in the salaries it pays to teachers and in the middle for class size. But the push by Democrats and their teacher union allies has little to do with providing a better education for our children. Higher salaries mean more union dues and smaller class size means more teachers in the union. But they don’t mean higher PISA rankings in math or science.

So more money and more government have not improved education in America. And without a good education, it will be nearly impossible to resolve the other problems facing America. And while capitalism is not perfect, it is, at most, only partially responsible for the dilemma we are facing.

And while government, philanthropy and business working together will certainly be better than the current bitter, antagonistic and partisan bickering that has, increasingly, been our response to our common problems. Something is missing from this formula.

It is the people that are missing. It is not sufficient for the people to have things done for them and to them. They must do things for themselves. Eminent economist Thomas Sowell has pointed out that blacks advanced more economically and socially during the post-war years while enduring Jim Crow Laws than they have since the start of the War on Poverty. They were able to do it because they took responsibility for improving their own lives. Government under the sway of Southern Democrats wasn’t going to give them anything.

And Dr. Wendy Wang, Director of Research at the Institute for Family Studies points out the Success Sequence that can provide better futures for poor young people: 1) graduate from high school, 2) get a job, and 3) marry before having children. Her research showed that “53% of millennials who had failed to complete all three steps were poor. The poverty rate dropped to 31% among millennials who completed high school, 16% among those who had a diploma and a full-time job, and 3% for millennials who also put marriage before the baby carriage. Among childless and unmarried millennials 28 to 34 who followed the education and work steps, the poverty rate was 8%.”

The recent college application scandal provides a good teaching point, even though the crimes were committed by wealthy one-percenters. If these one-percenters really wanted their children to be successful in life they would have demanded that they do better at learning. Today’s schools are better at building up children's self-esteem than in preparing them for adulthood. We must demand that teachers and students apply themselves more diligently (as was done by Ben Chavis as principal of the American Indian Charter School which he took from being one of the worst schools in the Oakland California school district to fifth in the state for academic performance). And children must treat their teachers and institutions with the respect they deserve, in their studies, in their manners and in their dress. Historically, many immigrants have treated education, and the people and institutions that deliver it, with great respect. And they used that education to achieve the American Dream. Our schools must work hard to earn this respect and not be satisfied with preparing our youth to be the next generation of welfare recipients.

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And while we’re at it:

Famed Stanford neurobiologist, Robert Sapolsky, wrote in Scientific American that income inequality inflicts real biological harm on the poor. In the article he cites numerous studies that support this view. And while absolute poverty causes great harm, it is the inequality that creates stress and anxiety of many of the poor. Stress and anxiety, of which PTSD is a toxic extreme, causes the production of chemicals in the brain (glucocorticoids) that affect brain development; enlarging the amygdala, shrinking the hippocampus and thinning the pre-frontal cortex. Further, this stress causes chronic inflammation (a physical response to stress) and even causes premature aging of the person’s DNA.

The medical consequences to these chemical and biological responses to stress range from obesity and diabetes to premature ageing and early death. The changes in the brain structures also impact how it functions leading to self-destructive behaviors such as smoking and alcoholism, further deteriorating the health of the poor.

The facile response favored by politicians of all stripes (but especially on the left) is some form of universal healthcare such as Medicare for All as is being promoted by many Democratic candidates for president. But facile responses (as I have pointed out previously) often do not address the underlying causes of a particular problem. A study in the United Kingdom (the Whitehall Study) pointed out that health problems persists despite universal healthcare. The study reviewed the health of English civil servants all of whom had access to universal healthcare but found that low status employees (janitors, messengers, etc.) had poorer health and earlier death than higher status employees. And Professor Sapolsky’s own study of baboons (who have no income inequality) showed that low status baboons also had elevated levels of glucocorticoids resulting in “unhealthy changes in the gonadal, cardiovascular and immune systems.”

Professor Sapolsky also notes in his book Behave, the Biology of Humans at our Best and Worst (2017) that prehistoric hunter-gatherers had a very egalitarian life style and were in pretty good health given their lack of medical knowledge and treatments. He states, ”inequality emerged when ‘stuff’ – things to possess and accumulate -was invented following animal domestication and the development of agriculture. The more stuff, reflecting surplus, job specialization, and technological sophistication, the greater the potential for inequality.”

These, of course, are the attributes of civilization. And as noted in my series of essays, the Building Blocks Essays, surplus (or less elegantly stuff”) is an essential building block of civilization. If our hunter-gatherer ancestors had maintained their egalitarian society, we would all still be wandering the savannahs looking for berries and killing the odd antelope (although plausibly with less stress).

So if universal healthcare, and presumably welfare benefits and even universal basic income, does not elevate the low socio-economic status of poor people then it is unlikely to improve their health or solve their other problems related to low status.

What is needed is hope. Hope that a person’s efforts can raise their socio-economic status or, at least, that of their children. Many immigrants to the United States, the Irish, the Italians, the Jews, the Poles, came with extremely low socio-economic status. But they firmly believed that with hard work, savings and education for their children that their offspring could achieve a better life, the American Dream. And they did.

Which gets us back to the dilemma outlined by Dalio and Dimon. The reforms to American capitalism must focus of restoring the American social contract so that all Americans believe that they can also truly achieve the American Dream.