The breakdown in American capitalism over the past half-century is most apparent in its failure to deliver widespread prosperity for the American people. Success requires more than just rising material living standards: For citizens to flourish, they must have access to good jobs that pay family-supporting wages. For the nation to flourish, its growth and opportunities must be broadly shared. Capitalism is unique in that it can achieve these results, but no principle of economics guarantees that it will. To preserve what is good and necessary in our free enterprise system, we must be willing to recognize what has broken down and commit to rebuilding.

In the past 50 years, American capitalism has achieved substantial growth in aggregate labor productivity, real gross domestic product per capita, and real corporate profit per capita. This is where economists, policymakers, and commentators have focused their attention. But while those levels were doubling or tripling, wages went nowhere—up only 1% in total, not annually, after adjusting for inflation.

Economists have tended to show little concern over stagnating wages, arguing that people continuing to earn the same wage will continue to be as well-off and more income can always be redistributed to them. Americans across the board disagree. A majority of every party and class sees the issue as a big problem, helping to explain why men are leaving the workforce and marriage rates are declining.

Another important consequence of growth, profits, and productivity rising while wages stagnate is that the divergence produces rising inequality. 

With incomes rising much faster for the top quintile of American households, their share of America’s total income has risen dramatically while everyone else’s share has fallen; income inequality has reached its highest level in nearly 75 years. Those in the middle have seen the largest decline in their share of the nation’s output. If middle-class households had maintained a constant share of national income since 1970, their average income would have been $86,000 in 2019, in comparison to their actual income of $69,000.

As with stagnating wages, economists often downplay the implications of inequality, arguing that it should be irrelevant as long as everyone is still materially better off than they were in the past. Again, the American people disagree. A majority see a big problem with only some Americans achieving major gains while others are left behind and pluralities across all political parties and classes agree.

With wages stagnating and inequality rising, the costs of supporting a family have quickly outstripped a worker’s ability to do so. In 1985, a typical male worker could provide middle-class security for a family of four (food, housing, health care, transportation, education) on 40 weeks of earnings, leaving a comfortable cushion for other expenses and savings. In 2022, providing that same middle-class security would require 62 weeks—a problem, there being only 52 weeks in a year.

Yet again, economists often fail to see why this matters. Families have responded by sending a second earner into the workforce or relying on government support, ensuring that their consumption can continue to rise. But this represents a major loss for families, who no longer have the freedom to order their lives as they wish or the flexibility to cushion inevitable financial challenges. For instance, American families often prefer to have one parent at home with young children and the majority of Americans across parties and classes see it as a big problem that many have lost this option they want and once had.

A reliance on redistribution to make up the gap created by wage stagnation has led to a situation where a working-class family supported by someone earning a median wage feels the same financial pressure as a family with little or no earnings of their own. This dynamic erodes both the economic incentives and cultural norms in favor of supporting a family through productive contributions to the community, which a well-functioning capitalist system must foster.

Much as inequality has grown between households, geographic inequality has widened substantially in recent decades as growth and opportunity have become concentrated in narrower regions. In the first two decades of the 21st century, the top quintile of “prosperous” zip codes saw job growth four times higher than in the other 80% of zip codes and accounted for nearly 62% of the net new jobs nationwide. Economists tend to celebrate the concentration of capital and talent as economically efficient “agglomeration,” but it represents a disaster for those left behind and for the integrity of the nation’s social fabric.

The cumulative consequences of American capitalism’s breakdown have been made especially vivid by the explosive rise in “deaths of despair,” concentrated in regions and among populations left behind by a malformed economy. The rise has been so dramatic that American life expectancy peaked in 2014 and has been falling ever since. As the Financial Times observed in March 2023, “the average American has the same chance of a long and healthy life as someone born in the most deprived town in England.”