Dinesh D'Souza - America: Imagine a World without Her (23 page)

Now I turn to the general subject of inequality, a topic which President Obama has proclaimed “the defining challenge of our time.” Here the reigning progressive mantra has been, “The rich are getting richer and the poor are getting poorer.” Inequality is the persistent theme for columnist Paul Krugman, and it is also the theme of economist Richard Wolff’s book
Occupy the Economy
. Wolff rages about “a widening in the disparity between rich and poor.” This disparity, and also the alleged disappearance of the American middle class, is the subject of Robert Reich’s book and accompanying documentary film,
Inequality for All
.
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This is a familiar chorus. Early in the twentieth century, Thorstein Veblen wrote that “the accumulation of wealth at the upper end of the pecuniary scale implies privation at the lower end of the scale.”
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It’s the same old chant. And maybe it was true in the past—I mean, the very distant past, when wealth was primarily in land. But if we look at data for America over the past five or ten or fifty years, we see a different picture. In reality, the rich have gotten richer and the poor have also gotten richer, although not at the same pace.

Inequality is admittedly greater. But is inequality the problem—or are we using inequality as a synonym for poverty? Is it a problem,
for example, if I drive a Jaguar and you drive a Hyundai? If you have a three-bedroom house, do you have cause to be outraged that your neighbor has a seven-bedroom house? Inequalities of this kind seem unobjectionable, and perhaps there is even a valid rationale for them. If we look at how America became more unequal, we see that on the balance it is a good thing. To see what I’m getting at, imagine a society in which everyone makes $20,000 a year—which we will call our poverty line. That’s a truly egalitarian society in which everyone is poor. Now imagine that, over time, half of those people improve their situations and now they make $30,000 a year—which we will call our middle-class line. The rest continue at the poverty line of $20,000 a year. Clearly we now have a more unequal society, since it is now divided into the $20,000 “poor” group and the $30,000 “middle-class” group. Even so, the result is a positive one, as the first group is no worse off than it was before, while the second group is better off. Moreover, the second group didn’t gain at the expense of the first. Rather, the overall wealth of the society is greater, and that’s a good thing, even if it is not equally shared. Unequal prosperity is better than shared poverty.

Something like this has happened to America in the past few decades. In the period following World War II, most Americans were middle-class. There was a small number—say 10 percent—of poor people and a small number—say 5 percent—of rich people. Today the fraction of the poor is about the same, although the poor live much better now than they used to. At one time America had the kind of poverty we see in developing nations. Economists call it “absolute poverty.” In America today, there is virtually no absolute poverty; there is only relative poverty. Indeed poor people in America have a standard of living that is higher than 75 percent of the world’s population.
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Not only are our poor better housed, better clothed, and better fed than average Americans were in the first half of the
twentieth century, but in some respects—including the size of their living space—they live better than the average European today. Our poor people have automobiles, TV sets, microwave ovens, central heat, and cell phones. I know a fellow who has been trying for years without success to emigrate to America. When I asked him finally why he was so eager to move, he replied, “I really want to live in a country where the poor people are fat.”

As for the rich, they are still around 5 percent of the population, although “rich” means something completely different than it used to. In 1945 you were rich if you had a net worth of a million dollars—that made you a millionaire—but today (and this has been true for a few decades now) you need an annual income of $1 million to be counted as rich. America even has a sub-category of the super-rich whose net worth is counted in the hundreds of millions or even billions. These people have resources that compare to the gross domestic product of small nations. Many years ago I visited a tycoon who lived in a mansion on the James River in Virginia. When I arrived he was in the process of moving his main house. I don’t mean he was moving to another house. I mean, he was having his mansion lifted and moved elsewhere on his property. I asked him what such an imaginative venture might cost and he responded, “If you have to ask, you cannot afford it.” These wealthy people have achieved a standard of affluence that, in the words of Tom Wolfe, would “make the Sun King blink.”
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The big change in America has come not from the poor or the rich but within the middle class. Yes, the middle class has fragmented, just as progressives allege. What progressives fail to acknowledge, however, is that the American middle class has fragmented upward. What this means is that many people who previously were middle-class have moved up. They have joined the ranks of the well-off. We can measure this simply by looking at the ballooning of the
affluent class. In 1980, according to Federal Reserve Board data, there were roughly six hundred thousand American families with a net worth exceeding $ 1 million. Today more than 10 million families are worth in excess of $1 million.
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Even recognizing the effects of inflation—$1 million today won’t buy what it bought in 1980—that is a stupendous increase in the ranks of the affluent.

Who are these people? I was on an airplane flight recently, and my Delta platinum status got me bumped up to first class. There I found myself seated next to a Hispanic plumber who was taking his second wife to St. Kitts. There she was, sitting across the aisle from him. Actually, the man wasn’t just a plumber, although he started out that way. He now owned a small plumbing business, and had several plumbers working with him. When we think of well-off people in America, we think of people who are born with privileges or of people who go into medicine or software. But the typical well-off person in America is much more likely to be a sixty-two-year-old from Flint, Michigan, or Tucson, Arizona, who owns a car dealership or a mobile home park, or runs a welding, contracting, or pest-control business. While most of these folks are white, a surprising number are first-generation or second-generation immigrants; they are, in fact, an ethnically diverse group. These are not people who lucked out—who “chose their parents carefully”—they are people who chose their professions and businesses carefully. They got their money the old-fashioned way, by earning it.

While many progressives condemn American capitalism for fostering inequality, in reality American capitalism has helped to create the first mass affluent class in world history. Previously the great achievement of the West was to create a middle class. Middle class means that you don’t lack for necessities—you have food and clothing and can take a modest annual vacation—but you don’t have surplus income, and you don’t have substantial accumulated wealth.
While most of the world struggled with basic food and shelter, the West was able to provide most of its citizens with middle-class comfort. But now America has topped that by creating mass affluence, extending to many what was previously possible only for few. Mass affluence means that you can afford a big house with a big kitchen and nice cars and expensive cruises and shopping expeditions and private school tuition, and you still have money left over at the end. Millions of Americans who used to be middle class now enjoy the luxuries of affluence, and how can that be considered a bad thing?

Now the reason why some in the middle class have moved up, while others have stayed put, is that economic change and opportunity always benefit those who have the required skills and resourcefulness to benefit from them. While the old middle class was comfortably situated in manufacturing, this was precisely the sector that declined over the past few decades. Suddenly old skills were obsolete. The decline of manufacturing did not, however, spell the decline of opportunity. Rather, opportunities blossomed with the emergence of new industries—primarily in technology, communications, and various service sectors. Americans who had the educational skills and the adaptability to move into the new sectors benefited handsomely. Others remained stagnant and some even fell behind. It should be emphasized that this result is not an anomaly of technological capitalism; rather, it is how the system operates, unleashing a “gale of creative destruction” that boosts those most in tune with its “animal spirits.”

All of this, however, is in the short term. While technological capitalism can be faulted with permitting, or even creating, short-term inequality, in the long term technological capitalism creates deep and abiding equality among citizens. This is not obvious or intuitive, so let’s consider some examples. In the late nineteenth century—just over a century ago—a rich man traveled by horse and
carriage, while the poor man traveled by foot. Today the rich man might drive a Mercedes or BMW, and his poorer counterpart a Honda Civic or a Hyundai. A Mercedes is faster and more luxurious than a Hyundai, but still, there has been an enormous leveling of the difference between the rich man and the poor man in getting from here to there. Another example: in the early twentieth century, the rich could escape the bitter cold of winter by going to homes in warmer climates and avoid the sweltering heat of summer by going to cooler retreats. Meanwhile, the common man had to endure the elements. Today most homes, offices, and cars are temperature controlled, and the benefits are enjoyed by rich and poor alike.

These examples could be multiplied, but here is the most telling one. A hundred years ago, the life expectancy of the average American was around forty-nine years. The gap between rich and poor Americans was considerable: about ten years. It was not uncommon for a wealthy person to live into his late sixties or seventies but quite rare for a poor person to do so. A similar gap, of course, separated the United States from poorer countries like China and India. Today the average life expectancy in the United States is around seventy-eight years. There is a gap between the rich and the poor but it’s negligible: two to three years. Poorer countries like China and India have also seen a sharp rise in life expectancy. India’s life expectancy has almost doubled, from around thirty-five years to nearly seventy years.
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That’s still below the American average, but who can deny that there has been a remarkable closing of the gap and that this is an egalitarian achievement?

Now who is responsible for this achievement? The answer, remarkably, is technological capitalism itself. It is technological capitalism that produced the advances in medicine and food production that have reduced infant mortality, disease, and starvation. I am not denying that government policies and private philanthropy have
also helped, but their impact is minimal compared to that of technological capitalism. Technological capitalism has not only equalized life expectancy, it has also equalized the availability of countless amenities that are now available to the rich and poor alike. Economist Joseph Schumpeter made this point in a general way when he wrote, “Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.”
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How does this process occur? In America, we can see it by considering examples such as automobiles and computers. When the automobile was first invented, it was dismissed as a “rich man’s toy.” But not for long. Eventually Henry Ford introduced the Model T, and brought the price down so his workers could afford them. Similarly, computers were first thought to be just for big corporations, and then just for rich people, and pretty soon for everyone. Cars and computers took a while to go from rich people’s contrivances to mass items, but the cell phone seems to have morphed within just a few years from an expensive curiosity to a universal necessity. Even Indians in remote villages and in urban slums now have cell phones. International phone calls that were once prohibitively expensive are now within the reach of ordinary folk.

None of this happened “automatically” or “by accident.” Consider the example of phone calls. In 1920 it cost $20 to make a long-distance phone call from New York to San Francisco. No ordinary citizen could afford that, yet someone had to make phone calls at that price, or else there would have been no market for phone service. In footing the big initial bill, the rich paid the fixed cost of bringing long-distance service to the masses. Today a coast-to-coast phone call costs almost nothing. The same trend of improved technology at lower cost is equally true of cars and computers and
advanced medicine. In each case, the rich pay the high initial price, which funds additional research and development, which in turn enables technological improvement, economic efficiency, and lower prices. Former luxury items are now within the reach of the common man. The broad spread of technology and medicine, far from representing a theft by the rich, represents a subsidy on their part that has greatly benefited the larger society. In the words of Friedrich Hayek, “Many of the improvements would never have become a possibility for all if they had not long before been available to some… . Even the poorest today owe their relative well-being to the results of past inequality.”
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My conclusion is that technological capitalism is by far the best system for giving entrepreneurs and workers their “fair share.” This fair share, whether measured in terms of profits or wages, is precisely what people are entitled to as a result of the value they create for their fellow citizens. While short-term inequality frequently results from the dynamic energy of a capitalist economy, that energy also produces mass affluence that ultimately raises life expectancy and living standards for everyone.