Markets and Sentiment

In recent years, we have seen growing discontent with the distributional effects of free trade, widespread favor-seeking from businesses, and a recurring sentiment that the economy is rigged.

Distributional concerns. The 2016 election of Donald Trump likely stemmed from graphics like those below that demonstrate the geography of job losses and gains. According to this Bloomberg article, the goods-producing sector that includes manufacturing, construction, and mining lost 1.2 percent of their jobs during the Obama administration.

Favor-seeking. The Occupy Wall Street Movement was viewed as an expression of the frustration that government privileged banks above individuals despite their irresponsible business practices.

It’s all rigged. A recent survey from Pew finds that 70 percent of Americans believe the economy unfairly advantages the powerful. Dean Baker outlines three ways in which the financial sector benefits from rent-seeking activities. Nobel Laureate Angus Deaton discusses rent-seeking as a threat to capitalism.

The notion that the economy is harmful to some and the deck is stacked against most is damaging the reputation of capitalism. According to a 2019 Gallup Poll, positive views of capitalism among young adults (ages 18-39) have declined from 66 percent in 2010 to 51 percent in 2019 and positive views of socialism are now at the same level as positive views of capitalism.

While this same group does hold a favorable view toward free enterprise, even that is down to 83 percent in 2019 from 89 percent in 2010. Individuals also view small businesses favorably but many of those local businesses are having difficulty weathering the shock of COVID-19 and that could tilt the composition of the economy toward big business which is viewed less favorably.

This constellation of public opinion is the milieu from which calls for “common-good capitalism” (focuses policies on firm and government obligations to workers) have emerged. Personally, I do not have great confidence in proposals like higher minimum wages, increased tariffs, and more that aim to address the pain that underlies these attitudes about the market economy.

At the same time, I do not have a clear path forward. The favorable views toward free-enterprise suggest individuals want others to exercise their talent and freedom in markets. That is good! At present, we do not want to kill the goose that lays the golden eggs. On the other hand, it is difficult for me to fathom how we can have a government big enough to help workers and one that creates conditions of fairness. It is wishful thinking to assume that the rent-seeking that has undermined the credibility of the market will go away if we turn to “common-good capitalism” or something else.

There is an old Jewish aphorism that, “the clever man can extricate himself from a situation into which the wise man never would have got himself in the first place.” Leadership in the United States lacked the wisdom to adhere to the limited and enumerated powers in the Constitution and Congress has long abandoned being jealous guardians of their authority that undermines checks and balances. Hopefully we are not all out of clever.

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