Chief economist and founder of American Compass Oren Cass closed out Chautauqua Lecture Series’ Week Five theme “Innovation in Capitalism: How to Meet 21st-Century Challenges?” However, he was unsure if he was the best fit for the “innovation” aspect of the theme.
“I should give a bit of a warning,” he said. “I’m not sure how innovative this will be. That’s what you get for inviting a conservative.”
In June of this year, Cass published The New Conservatives: Restoring America’s Commitment to Family, Community, and Industry. He is a contributing opinion writer for The New York Times and the Financial Times. When then-Gov. Mitt Romney ran for president in 2012, Cass served as his domestic policy director, and in 2015, he was a senior fellow at the Manhattan Institute.
In his lecture at 10:45 a.m. Friday in the Amphitheater, Cass covered three — because, he said, that’s what you have to do in a speech — aspects of capitalism: what is broken, why it’s broken, and how to adjust moving forward.
Cass clarified his opening comment in emphasizing that he doesn’t see anything wrong with capitalism, but he does see where America needs reform.
Part of where capitalism veered off track is through the overemphasis on the idea of the “Invisible Hand,” which Cass said Adam Smith only used once in The Wealth of Nations. The quote people are most familiar with in which “Invisible Hand” is mentioned is an abbreviated quote from Smith’s original text, which Jonathan Schlefer wrote about in The Atlantic in 1998.
What Smith instead intends, Cass said, is “if the capitalist prefers investing domestically to investing overseas … then, under those circumstances, the pursuit of private profit will align with public interest.”
Cass finds it helpful to connect that view of capitalism with a view of democracy.
“Democracy, we understand, is a complex set of institutions,” Cass said. “It is in the Constitution, in fact characterized by checks and balances, by counter majoritarian institutions, by rights that we can’t easily undermine, by conflicts between state and federal powers, and that it is the goal in all of those interactions. What emerges from them, we will get — certainly not a perfect system, certainly still a very flawed system — but a better system than any other.”
Two things distorted Americans’ view of capitalism in terms of the invisible hand, Cass said. The first was the Cold War, pushing back against central planning, and the second is the rise of economics.
Some view economists as scientists who then must create theories that work in every situation.
“Economics is at best a social science,” Cass said. “Economics is an effort to understand and describe the world around us.”
Adam Smith and Karl Marx — though Cass disagrees with Marx’s prescriptions — both did that well, but as economists start to characterize their ideas as theories, “the further we got away from good policy,” Cass said.
In the United States, Cass said some things look great: the GDP, stock prices and living standards are higher than ever. These aspects reflect what many wanted. Cass pointed to the metaphor politicians and commentators use of the economy as a pie.
“We will grow the pie, and then we can fight a little bit about exactly how we want to divide it, but everybody is going to get a big piece of pie, and everybody likes pie, and thus, we have succeeded,” Cass said.
This metaphor propels the idea that consumption is what matters. While Cass likes consumption, he likens that goal to a romantic comedy — “somebody has a big apartment in New York, and they have everything they want, or so they thought.” Americans have lots to consume but are still not satisfied.
“It is only so big a chunk of what we actually care about,” Cass said. “If we actually think about an economic pie in terms of the set of things, we need markets to deliver the set of things we want from the economy — consumption is only one piece of it. And I would say probably it is not the most important piece.”
Cass does not find happiness studies to be particularly rigorous, but he appreciates those that follow the same set of people over a longer period of time. People tend to be either naturally happier or not, regardless of their life circumstances. People may experience a loss or a positive experience, which will impact happiness in the short-term but which often stabilizes. However, one area of loss that people struggle to overcome is unemployment.
“People who go from employed to unemployed — or generally, it doesn’t even have to be work in the formal labor market — people go from having a clear purpose, something they are getting up to do every day, to not having that anymore, report permanent declines in their sense of well-being,” Cass said.
People want to build decent lives, Cass said, and to be able to live in their communities, form a family and raise children, people depend on stable, well-paying jobs. Cass focused on the job impact on men, not because they’re “morally of greater value,” but because he identifies them as a keystone species.
“If you want to have healthy communities, if you want to have families forming, you better hope that 25- to 29-year-old men can find good work. And today 25- to 29-year-old men are earning less than they earned 50 years ago,” Cass said.
For Cass, an indicator of the brokenness of the current system is the number of deaths from drug overdoses in the United States. That number makes Cass recall the stereotype of alcohol abuse around the collapse of the Soviet Union. Some might say in a country of 330 million, there will inevitably be people who struggle, but when considering how many people those deaths impact, the number increases exponentially.
How did we get here?, asked Cass. We can’t blame automation for getting us here, Cass said, because of falling productivity. He gave the example of the two options factory owners could have if they’re able to make double the product they used to: They can hire more people, make more products and pay people more; or they can fire half the people that work in the factory.
“Which of those two things you choose is ultimately what is going to determine whether capitalism is working or not,” Cass said.
People believed that if the market is self-regulating, the economy will thrive and that will be good for individuals, but what companies do is not always magically good for the workers, Cass said. Globalization results from this idea in that if manufacturing is overseas, Americans will benefit because they can get consumer items more cheaply.
“Japan pursued a set of policies that hollowed out the steel industry in the United States,” Cass said. “We had huge exports of steel coming in, our steel industry got hurt, and then what did Japan want from us instead? They did not want steel from U.S. Steel — they just wanted U.S. Steel. That is the trade we have been making over and over again in industry after industry.”
Immigration policy is a subset of globalization, according to Cass. Companies have immigrants do jobs for less and then say Americans don’t want to do these jobs, instead of figuring out how to use American workers.
Cass likes to joke that he also has a labor shortage.
“I just started a company, and I have 300,000 job openings for biotech Ph.D.s willing to work for $9 an hour,” Cass said. “The government tracks job openings, and they’ve refused to put my 300,000 on the top there.”
At some point, Cass said, we need to stop accepting phrases like “jobs Americans won’t do” and “labor shortage,” and use the tools of capitalism to fix those issues.
Cass admitted he is not an economist — he doesn’t have a graduate degree in economics nor does he publish economic papers, but from the outside looking in, he sees that economists have done a lot of damage to capitalism.
“The economic discipline has an enormous amount of useful information for us, but the degree to which we have defaulted to it, to think that economics is the core of capitalism, is where we have gone wrong,” he said. “And if there is one thing we can do to innovate it, it wouldn’t be to welcome economists to contribute to discussions about capitalism and about our markets, but to return control to the common man and to return the goal to the common good.”
