The new mayor of New York City, Zohran Mamdani, is the perfect choice to annoy the old people and inspire the young people. Mamdani’s background as an immigrant from Uganda with parents of Indian descent (mother Hindu, father Muslim) makes him even more interesting to rebellious youth and “dangerous” to traditionalists who want to return to “the good old days.”
Those who see this as just a short-term, New York City affordability crisis requiring rent freezes, universal childcare, free bus transport and government grocery stores are missing the big picture. The transition from high birth rates and one-earner families to very low birth rates and two-earner families did not happen overnight. The so-called K-shaped economy with an upward leg of 20 percent doing very well and a lower leg of 80 percent doing relatively poorly has come about as a result of a systematic diversion of the money flow since 1976.
Our current version of capitalism is failing for the same reason that communism failed. It undermines incentives and rewards the wrong people. Why work hard if most of the value you create is going to the top 10 percent wealthiest people who own 93 percent of the money in the stock market. Owners of mutual funds and exchange traded funds (ETFs) often don’t even know what companies they are invested in.
Under supply-side economics, the financial economy provides money to invest in the real economy. Demand is assumed to always be sufficient to buy up whatever useful and desirable products and services can be created ( Say’s Law “supply creates its own demand”). The financial markets were created to make money available to reward creative entrepreneurs. But a combination of stock options, share buybacks and many cleaver trading tools and strategies have brought about a money flow reversal, where even nonfinancial firms find that just investing in a broad-based index fund (e.g., SCHB, VTI, ITOT, etc.) can provide a higher and much more reliable return than investing in their own business. No wonder that the United States economy is currently only growing at 3 percent while the S&P 500 grows in recent decades at an average rate of between 10 and 20 percent a year.
As we learned after the “Great Recession” of 2007 to 2009, when a crash comes, average people may have their homes repossessed, but wealthy investors are bailed out. Many young people who were angry about all this and voted for Donald Trump are now starting to think seriously about supporting Zohran Mamdani (for president?) and are open to considering “Socialism,” especially if it upsets the old people.
After World War II, peace came with a sense of solidarity. The G.I. Bill provided low-cost mortgages, low-interest loans, and educational benefits. In the 1950s and 1960s our economy was reasonably well-balanced. Unions were strong. Workers were sufficiently well compensated enough to allow moms to stay home to take care of their young children, who formed the “baby boom” generation. Husbands took jobs in careers that lasted for decades and retired with pensions paid for by their long-time employer.
Countering communism meant maintaining a free market system that benefited everyone. President Eisenhower’s Federal-Aid Highway Act of 1956 was an expensive investment by taxpayers that greatly improved the efficiency of free enterprise by allowing companies to gain economies of scale by expanding their markets way beyond their production location using what is now known as the Eisenhower Interstate Highway System. The Elementary and Secondary Education Act of 1965 followed the “no child left behind” philosophy to improve the education of all children. The Civil Rights Act of 1964 and the Voting Rights Act of 1965 made government the key player in this focus on helping the dear neighbor regardless of race, religion or national origin. The fundamental philosophy was: “We all do better when we all do better.”
This solidarity and sense of community began to fall apart in the mid-1970s. Unions were suppressed with so-called “Right-to-Work” laws that used the “free rider problem” to undercut unions. Automation moved many workers off of assembly lines. Giant earth-moving equipment removed mountain tops in coal mining instead of sending thousands of coal miners underground. By 1980 employers were replacing pension plans with 401k contributions that transferred future financial risk from the employer to the employee. The sense of commitment of employers to their workers started to fall apart and workers began to frequently change employers. Instead of working for the same employer for thirty or forty years, many people now change jobs every three or four years. Maximizing immediate profits has replaced investments in the long-term profitability and viability of the enterprise.
Capitalism works extremely well when local restaurants compete to provide better quality meals at lower prices. But what works really well at the local level has become very distorted at the national level. The Greedy Pig Theory of Economics was developed in the 1980s to justify the shift to focus on the maximization of shareholder value. Conservative economists pointed to Adam Smith’s invisible hand that described a simple, imaginary world where in an attempt to maximize their profits companies competed to provide better quality products at lower prices. The underlying philosophy was: “We all do better when everyone is out for themselves.”
Instead of trying to improve the efficiency of government and find the right combination of free enterprise and government oversight, President Ronald Reagan just wanted to get government out of the way. He claimed that government was not the solution to our problems. According to him, government was the problem. Supply-side economics diverted the money saved by automation and globalization to profits with less money going to the two-thirds of Americans with no college degree.
Every generation of Americans finds a way to rebel. Young wealthy Wall Street bankers now use the F-word with abandon. Their less-well-off counterparts adorn their bodies with tattoos. Old curmudgeons have come to accept interracial marriage, gay rights and trans rights. But now a new generation is rising and has found the perfect word to annoy the old folks: “Socialism.”
“Socialism” means different things to different people. To conservatives it is just about the worst possible word (other than that unspeakable word “communism”). To them it means the suppression of private enterprise with government ownership of the means of production. But to others it is about finding right balance between the needs of the community and the needs and desires of individuals.
To conservatives Mamdani’s proposal for creating some government-owned grocery stores is totally unacceptable. To older folks the idea of government competing with private enterprise is unthinkable, even though it appears to work reasonably well in many other countries such as China and Brazil. You can wait for the city workers to stop by to pick up the leaves you raked up once or twice in the fall or pay a company to do so once a week. You can wait for several days for the city snowplows to clear the snow from your neighborhood or have your home owners association (HOA) pay private plow trucks to plow your street overnight so you can drive to work in the morning. Some conservatives want to replace public schools with voucher-funded private schools and replace Social Security with private retirement investments. They want government to do less while Mamdani wants government to do more. Finding the right combination of free market private enterprise and collective community action is not easy, but going to one extreme or the other is clearly not optimal in every situation.
Prior to the industrial revolution which started around 1760, the nobility owned the land and the peasants worked the land. The nobility lived upstairs, and the servants lived downstairs. Throughout the last half of the 20th century, many incoming immigrants and low-income workers lived in New York City, while the elite Wall Street bankers typically commuted from New Jersey, Long Island or Connecticut. Now in New York City and other expensive east coast and west coast (San Francisco) cities, the elite have established expensive townhouses in the city or its immediate, close-in suburbs, while the workers struggle to afford the ever-more expensive essentials of life in the big cities.
Living in an expensive, densely populated city is entirely different from living in a rural town or village. In rural communities people are more likely to know their neighbors. Private enterprise and free market economics work really well. The best restaurants survive and the hardest working, insightful owners and entrepreneurs succeed. Houses are usually well-separated so burning your leaves instead of paying to have them hauled away is no problem. The economics of rural areas and big, dense, expensive cities could not be more different. Employing the same economic philosophy and the same rules for the rural areas and the big cities makes no sense.
Mayor-elect Mamdani clearly has a lot to learn and think about. He seems open to experimentation and problem solving. Whether he is up to the job is yet to be seen, but immediately rejecting him as just another wacko, nutcase “socialist” may be big mistake. Now that he has been elected by a clear majority of NYC voters, lets give him a chance to find out what works, even if it is something that should not necessarily be extended outside of a densely populated and expensive city.