My latest essay at Public Discourse:
There is a curious strain of recent conservative thought that laments the workings of the American economic system. The iconic example of the problem is the closing of a factory: it removes the lifeblood of a community and inevitably causes the breakdown of the community and its families.
The villain is the factory owner, generally portrayed as a rapacious soul: he lives in comfort and heartlessly tosses hardworking people onto the street. Why? Merely in order to increase profits by moving his capital elsewhere, even, all too often, to another country. For a small, even miniscule, increase in the already large wealth of the greedy capitalist, an entire community is destroyed. Remember: these are conservatives making this argument.
To see a particularly poignant hypothetical example of this, consider Sam Long’s article, “What Are America’s Pensioners Getting from Private Equity?” A teacher making $60,000 a year has part of her retirement savings in a private equity fund. The managers of the fund then engage in all sorts of shenanigans with ominous sounding names, and the next thing you know, the factory in the teacher’s hometown shuts down. Then the teacher is suddenly living in a post-apocalyptic nightmare of falling home prices, rampant crime, and drug abuse. The moral is clear: because the managers of the teacher’s retirement portfolio wanted to get a measly few extra percentage points of return on her retirement account, the teacher’s life became miserable. Don’t let this be you.
Set aside disentangling the financial chicanery Long describes, none of which is necessary to raise the question he is fundamentally asking: is it in the interest of the common good for the owner of a factory to move production elsewhere in order to increase the return on capital? To answer that, let us first think about a question that never seems to have occurred to Long: Why is the teacher making $60,000 a year?
This is not a question about whether teachers are paid too much or too little. The question is more basic: Why is anyone making $60,000 a year? In 1921, the average teacher’s salary was $1,500. In current dollar terms, that is a salary of a little over $20,000. So, why isn’t the most stunning thing in Long’s hypothetical example that teachers’ salaries are three times higher in real terms now than they were one hundred years ago? The increase in pay would be even more dramatic if you go back farther in time.
Is the size of the teacher’s salary related to the story of the closing of the factory? Yes.
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