A Reply to David Brooks: Don’t apologize for capitalism

New York Times columnist David Brooks recently admitted to having significant doubts about capitalism, owing to growing wealth inequality. But is greater government intervention the answer, or the problem?

By Samuel Gregg. Samuel Gregg is Distinguished Fellow in Political Economy and Senior Research Faculty at the American Institute for Economic Research and serves as affiliate scholar at the Acton Institute.

"In recent weeks, the New York Times has been running opinion pieces in which various columnists expound on a topic about which they have changed their views. On July 21 it was David Brooks’ turn to lay out his mea culpa. The subject turned out to be capitalism, or at least what Brooks believes to be some of the market economy’s undesirable side effects and what should be done about them.

As a young man, Brooks writes, he was a democratic socialist. Then, like some of his generation, he became convinced of the solidity of the case for free markets. In the early 2000s, however, Brooks started to have a change of heart in light of what he came to see as certain undesirable features of modern capitalist economies. He puts it this way:

It took me a while to see that the postindustrial capitalism machine—while innovative, dynamic and wonderful in many respects—had some fundamental flaws. The most educated Americans were amassing more and more wealth, dominating the best living areas, pouring advantages into their kids. A highly unequal caste system was forming. Bit by bit it dawned on me that the government would have to get much more active if every child was going to have an open field and a fair chance.

Inequality in terms of talent and starting points in life are part of the human condition. I’d be surprised if Brooks disagreed with that. Moreover, there’s very little that can be done to equalize such things without massive intrusion by the state into people’s lives, fundamental curtailments of their liberties, and the destruction of any institution whose existence creates differences. A side effect of that outlook, embraced by groups ranging from Jacobins to Marxists, is a greater concentration of power in the state, not to mention those charged with using that power to realize particular ends.

For Brooks, however, it seems that his core worry is that capitalism, for all its benefits, contributes to particular forms of inequality that are unjust. Greater wealth accumulation by particular groups, his argument seems to be, is central to their ability to exclude others from parts of society and to establish themselves as a caste.

But is this an accurate portrayal of what’s happened in America and the dynamics of late postindustrial capitalism in the United States?

First, we should note that Americans’ income continued to rise between 2011 and 2020. Indeed, the evidence suggests that people in America are getting ahead in the best traditions of the American Dream.

As Michael R. Strain observed in his book The American Dream Is Not Dead, wages and incomes haven’t been stagnant for the average American worker for 30 years. He goes on to point out that the typical American household has experienced broad quality-of-life improvements for decades. Overall, he maintains, Americans still generally experience upward economic mobility, thanks in part to the emergence of “a new middle of the labor market.” We find this in fields like healthcare support, education, and personal care. These are jobs that demand more education than, say, that of a 1950s assembly-line worker, but also the type of skills and social intelligence that technology can’t replicate or is very bad at doing.

But, some might say, this is besides Brooks’ point. For him it is those wealth differentials created by contemporary capitalism that are enabling undesirable forms of inequality (access to better education, networks, etc.) that the government needs to address directly.

Could it be, however, that Brooks has got at least part of the cause and effect the wrong way around? What if it is government—or, more precisely, people’s closeness to government and regulators—that at least partly drives large segments of the wealth inequality that Brooks is concerned about.

Let me give one concrete example. Of the 15 American counties with the highest incomes in 2022, five are to be found around Washington, D.C., specifically in Virginia and Maryland. These counties are not known for being home to major business sectors or industries on the scale of Wall Street or Silicon Valley. Instead, many (if not most) of their inhabitants’ economic lives revolve around the federal government, Congress, and major state agencies. It’s no coincidence that so many retired members of the House and Senate settle down in the D.C. environs after they leave office. They know that being a D.C. lobbyist can be extremely lucrative.

The acquisition of such wealth in these parts of the country isn’t the result of the workings of capitalism. Instead, it is largely driven by “cronyism” or “crony capitalism.” This emerges when the processes of free exchange within a framework of property rights and rule of law are gradually supplanted by what I will call “political markets.” Instead of people prospering through freely creating and offering good and services to consumers at competitive prices, economic success hinges on people’s ability to harness government power to rig the game in their favor and secure preferential treatment from regulators, legislators, and governments.

And here’s the problem: The more you allow the government to intervene in the economy—whether through regulation, subsidies, tariffs, or industrial policy—to try and, say, diminish wealth differentials, the greater the opportunities for what economists call rent-seeking. This is when an individual or business tries to attain wealth by extracting resources from others (e.g., the government) but without actually doing much by way of economic productivity—in short, without adding value. There’s no reason why government interventions to address some of the wealth differentials and their effects that Brooks laments would not become yet another source of rent-seeking.

Discussion of the effects of wealth inequality in a capitalist economy upon other social dynamics is entirely legitimate. I’d suggest, however, what really matters is (1) whether upward economic mobility is still possible (and in America it certainly is), and (2) whether significant parts of existing large wealth differentials are held in place and perpetrated by individuals and businesses who are masters at playing the rent-seeking game in places like Washington D.C.

The irony is that if you want to do something about cronyism and the significant wealth inequality it produces, part of the solution is less government—not more. Smaller government means fewer opportunities for wealth accumulation by rent-seekers, and less scope for legislators and regulators to offer favors and privileges for which they expect a quid pro quo.

And so, I would say to David Brooks, therein lies at least part of the road to a more just economy and society. It’s really about less government, rather than more."