A Little Now, or a Lot Later
"If you're not a liberal when you're 25, you have no heart. If you're not a conservative by the time you're 35, you have no brain."
— Winston Churchill
The quote above, often attributed to Churchill, is debated. What isn't debated is a much older phrase, one that predates him by centuries: don't shoot the messenger.
For six weeks we've walked through the major causes of our K-shaped economy, housing, healthcare, and education, and found that every one of them has outrun wages and inflation for decades. For many of us, that pressure is manageable. But a generation did what it was told and got a worse deal than the ones before it.
People can tolerate a bad deal for a long time. What history shows, again and again, is that they won't tolerate a bad deal they no longer believe they can escape. As Peter Turchin's research warns, that's when economics turns into politics, or worse.
The Siren Song of Socialism
David Remnick, editor of The New Yorker, recently interviewed Megan Romer, a national co-chair of the Democratic Socialists of America. He picked her apart. I'd recommend listening to the whole thing. As a capitalist, a lot of her comments struck me as borderline crazy. And yet, the movement is gaining support at an alarming rate, for reasons we’ll explore today. The reasons and the followers, it turns out, aren’t crazy at all.
Thankfully, Megan Romer isn't the most convincing messenger. Some of her ideas are radical, and her answers aren't particularly well developed. But buried in the interview are insights that cannot be ignored.
Look at the numbers. The DSA had roughly 51,000 members when Zohran Mamdani launched his New York City mayoral campaign in late October 2024. Today it's around 129,000.
And the reason it's grown isn't socialism. As Romer put it, her constituents don't care whether she's quoting Karl Marx or Thomas Jefferson. They care whether there are "rats in their kid's bedroom." They want affordable housing and cheaper healthcare. Access to education they can pay for. A utility bill that doesn't climb every year. They want to know why working harder stopped getting them further ahead.
For many, capitalism has stopped working. They want a better deal. A fair deal.
Politicians have a sixth sense that picks up on this kind of shift. They're organizing around it. With a better messenger, this movement will spread.
For example, Huey Long was initially dismissed nationally as a Louisiana demagogue with radical wealth-redistribution schemes. By 1935, his Share Our Wealth movement claimed millions of members. Roosevelt was worried enough about the pressure from his left that his administration moved left too.
Dismissing a movement because its early messengers fumble the delivery tells us little about its potential, or where the frustration driving it might eventually lead.
Put the politics aside for a second. Who doesn't want healthcare to cost less? Who doesn't want housing to be more affordable, wages to stretch further, or groceries to cost less? We can argue all day about how to accomplish those things. But the desire itself isn't radical.
I don’t believe young people actually want socialism. Most have likely not studied Marx or seen the utter failures of a socialist economy. I went to Cuba in 2021 with a group from the Global Interdependence Center, organized by my friend David Kotok. I saw and heard firsthand how damaging a system that “controls the means of production” can be. I spoke with a Cuban farmer who told me he called his cooperative representative to tell him his crop would be ready for harvest in a week. The delegate told him he had to wait three weeks to harvest. “But in three weeks, the crops will rot on the vine – they need to be picked now.” The reply was no, we will be ready for your crop in three weeks. Welcome to central planning.
I think what we are witnessing is an awakening. Many Americans feel the system is unfair at best, and rigged against them at worst. And the truth is, it is.
For example, in 2024, special interests spent a record $4.4 billion lobbying Congress. In 2025 it topped $5 billion, the largest jump on record. Pharma alone spent $387 million. Health care in total, $744 million. That works out to roughly $10 million per member of Congress, per year. And that's before you count the 176 former lawmakers who've walked out of Congress and straight into lobbying jobs since 2011.
This is a perfect set up for extreme ideologies of all kinds to take root. The fringe right figured that out first. The fringe left is catching on. Mamdani has shown how powerful a message delivered with charisma and charm can be. Others are borrowing the playbook.
Why Politicians Reach for the Enemy
This is a time-tested political strategy. Tell people there's a problem. Tell them who's to blame. Tell them you'll fix it.
David Friedberg, entrepreneur, investor, and co-host of the All In Podcast, made exactly this point when he said the people moving toward socialism aren't wrong about how they feel — in fact, they're "absolutely right." His problem is with the politicians like Ro Khanna who take that legitimate frustration, point at an enemy, and use it to win votes instead of fixing what caused it.
Friedberg points to the capital gains tax. Someone who makes money from long term capital gains pays a federal long-term rate of 15% or 20%, while someone earning income (i.e. from a job or owning a business) can face a top marginal rate of 39.6%. The person who works for a living pays a higher marginal tax rate than the person whose money works for them, and the wealthiest can often defer or completely avoid the tax by borrowing against appreciated assets instead of selling them.
The obvious rebuttal is that lower capital-gains rates encourage investment. I agree. But why is the gap so wide? And why are there legal ways for some to not pay, ways that someone who has a job cannot use? Is that fair, or is that a rigged system?
Here’s where political speechwriters earn their keep. Talking about closing loopholes, the nuances of tax policy, the tax revenue that comes as a result of capital creating jobs… none of that makes for a good political stump speech. What works a lot better is “tax the rich!” or “we need a wealth tax.”
Show me the incentive
Which brings me back to the Charlie Munger quote from last week: “show me the incentive, and I'll show you the outcome.” The hospital follows the incentive. The college follows it. The homeowner with a 2.8% mortgage follows it. Private equity follows it. Investors follow it.
Voters follow incentives too, though often with a lag. So maybe the conversation we should be having isn't how to defend what we've got, or which side is right, but how to give up a little now to bring the system back into balance, because the alternative is giving up a lot more later, on terms we don't get to choose.
The renter writing a $4,000 a month rent check isn't irrational for wanting rent control. The graduate buried in debt and underemployed isn't stupid for wanting it forgiven. The family paying $27,000 a year for health insurance is right to want the healthcare industry overhauled.
People will accept a losing hand for a long time, but not forever. When a big swath of voters feel invisible or oppressed, sooner or later they stop cooperating with the system. What that looks like can range from a political upheaval to something much more chaotic and violent. That’s what I’m writing about today. I want to avoid this.
Where This Leaves Us
But if Turchin is right, if elite overproduction and falling relative wages really are pushing the country toward the kind of rupture it last saw in 1860, then this isn't a story about one mayoral race or one 129,000-member organization. It could be the early tremor of something much larger.
What I like about Friedberg’s clip, is he says the uncomfortable part out loud. He is acknowledging that many people know the system isn’t fair, and they are looking for alternatives. Those of us with gray hair know that politicians are all too eager to make false promises and capture the angst of a moment.
We need to continue this kind of conversation between people like Joe Lonsdale and David Friedberg. You and I need to join them. I tend to agree with Friedberg’s criticisms of the capital gains tax and loopholes, but the fact that Lonsdale disagreed, and then offered up an alternative – that could be the start of a break in the logjam.
I think our system took a serious wrong turn in 2010, when it was decided that corporations are people and can spend unlimited funds on “independent political advertising.”
Just like I don’t want a corporation to preach values to me, I also don’t want them putting their balance sheet to work in the political arena. That’s not a market function – that’s stacking the deck in their favor. Special interests have bought their way into DC and what we ended up with is a government no longer for the people, by the people, but a government for big business. There’s a word for this: corporatocracy.
My fear is if something is not done by those of us in the vanishing political middle, something to make the system fairer for all, then the political pendulum is going to swing in a new direction – one that might seem unimaginable today. And the outcome will be far worse for everyone. Socialists are like the dog chasing the car. They have no idea what to do when they catch it.
So what do we do?
Elected officials might be mostly bought, but they still listen to what’s coming from their districts. I implore you, call them. Email them. Give them your ideas on how to avoid what could be the start of a crisis.
Here’s a link where you can find your representatives and senators, from any state. For those of you reading from outside the US, thank you for bearing with me and sending me notes about your own experiences on the topics we’ve covered these past few weeks. I am grateful you are here.
Let me know what you think — reply to this note or drop a comment. I read them all. And forward this to someone you know. We need all the help we can get!
Thanks for reading.
Ed D’Agostino
Partner & COO
Ed D’Agostino
Publisher & COO
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Why is it that when anyone wants to discredit DSA they go straight for Cuba, North Korea, Soviet Union or China? Why are we not studying the effectiveness of Norway, Sweden, and Denmark? I've run the math through "Claude" and it turns out that the cost of ALL the taxes paid in the US, plus the cost of education, and ALL the costs of healthcare roughly equal the cost paid by those Scandinavian countries for all the same services provided. AND they are the happiest countries on earth. So maybe let's stop with the DSA = Cuba fear mongering, and look for something more realistic.
You should read the book Mark Carney wrote in 2021. The title is VALUE(S), Building a Better World for All. The main theme is that the word "value(s)" does not only refers to the "US dollars" value of something, but refers to the balancing between the "US dollars" value of things best represented by the idea of "capitalism" which we, canadians, adhere to, and all other noble values that bring happiness in life well described in his book and that you have written about in the last weeks, such as access to education, housing, health care, and a better balance between remuneration of capital and labour. I now hear people from everywhere not talking about the "American dream" anymore but about the "Canadian dream". One solution to bringing interest rates lower, I think, would be to balance the federal budget by introducing a federal sales tax like the one we have in Canada, the Goods and Service tax, which is presently at 5% in Canada. The signal to the markets would be that the debt problem is resolved, inflation will be temporary, bond vigilantes would love that and long term interest rates would go down, mortgage rates would go down. I know that John Mauldin suggested that a few times in his letters. We did that in Canada in the '90s and it worked! I respect the strenght of your economy, am a capitalist in my brain, but a socialist in my heart. Last thing: I always tell everybody: "Never short Americans" !
From a friendly Canadian!
Taxing the rich – is it really insane?
The argument, if I am right, is that if they cannot make a return on their money THEY THINK IS FAIR, then they will take their money and leave.
But what if the tax increase is meaningfully higher but not punishing? And it is explained to these ultra rich that it is a patriotic act to do what is best for the state / economy that enabled them to become wealthy. [ And, furthermore, having wealthier customers is not a negative!!]
Perhaps, as an incentive, publicly praise them for being patriots. In the way they are best able, they are doing their part. Human beings have a gene for greed, but maybe a bigger one for reason / compassion?
As for cutting gov’t waste, the problem is what is waste? Answer – anything over what is necessary. So what is the necessary amount? What would it be for military spending when you are threatened by other, aggressive nations. [ But picking a war is counter-intelligent.] Or for education when it may be funded too low now and it is a critical national investment. Or for healthcare when people get sick and will not get treatment because it is too expensive, and so they miss even more work.
As you can see – one confused reader !!
Corporatocracy — I can't say I've ever seen that word before, but it certainly does seem to describe our current political reality. I completely agree that the Citizens United decision has taken us down an increasingly troubling path, where money has become the principal avenue to political power.
But I think we also need to recognize something more fundamental: the crony capitalism, "financial engineering," and kleptocracy that produced "too big to fail," the regulatory-capture "revolving door," and our burgeoning private equity and private debt problems aren't aberrations in our economic system—they are features of the system as it is currently structured, not bugs.
The resulting inequities are becoming increasingly apparent to the voting public, particularly through the growing disparity in wealth. If we fail to address these systemic distortions and the corruption they encourage, we risk creating the conditions for increasingly extreme political movements—left or right; ultimately, it doesn't matter which—to tear the system apart.
The answer isn't to abandon capitalism. Rather, we need to insist that capitalism, as we practice it in America, operate without these distortions: without cronyism, regulatory capture, political influence purchased with money, and financial manipulation that rewards those who are already in positions of power.
I hope you continue to stay focused on this issue. It may well become the defining sociopolitical issue of our time. Your readers are a diverse and opinionated group, so it will be interesting to see what kinds of responses you get.
Thanks for all your hard work, Ed. It is much appreciated.
I agree that corporations have an outsized interest in politics. Why shouldn't their voices be heard? They employ millions, over-regulated and want to grow. Do you want people to make decisions for the corporations that have no idea what they are doing and follow the herd? Who knows more about an industry - the local voter or the lobbyist? As much as I do not like lobbyists, they know an awful lot about their industry and where to move forward.
When Clinton lowered the cap gains tax, tax collections went up. When the cap gains were higher, no one sold to unleash new capital. You want more of something, subsidize it. If you want less, tax it. Remember that in invested capital (inital purchase) proceeds were already taxed once. Are there things we may be able to do to this? Probably. Yet we keep the foxes (congress) in charge of the henhouse (govt) at a 90% rate. What would Congress do with the proceeds? Spend it, reduce the deficit? I would much rather have the cash in people's / corporations hands who know how to save and spend their own earnings.
DSA has radical viewpoints, yes. Yes, people want less expensive stuff. Everything has a cost / benefit. DSA costs are more than the benefits. The one thing I know is if you want more tax money from the wealthy, you better get rid of charities. People I know would rather give money to charity than the govt.
Where does this leave the US? In a pickle since no one wants to make the tough decisions because they want to get elected. Term limits would be a start. Primaries done before June 1st (late primaries are a boon for the incumbant for fundraising and name recognition).
I know this is a little more political than it should be. However, many of the issues you raise can be traced back to an ineffective govt system.
There's a lot in here Ed, that would probably best be debated back and forth over a long dinner. But I'll chime in for now with just two: one where I agree and one that I don't.
AGREE- Citizens United was a dark day for this country. When the SCOTUS equated money to free speech, they skewed the interests of the country from those with the best ideas to those with the biggest piles of cash. Would it be fair to then assume that you would be supporting representatives that want to reverse that decision?
DISAGREE- Something that really bothers me about the socialism vs. capitalism discussion is that it always seems to be represented as "All or None". That anyone that has any support for any socialistic views means they want the US to become Cuba. You do the same in your article here. That's what politicians do.
The reality is, there are degrees of each that can coexist- and in fact, already have in the US for a long, long time. The highway system was built and maintained on socialism. The energy grid. The railroad system. The military, and their system of benefits. There are other countries that have employed it to a greater extent than we have with additional successes, the Scandinavian countries in particular.
The Mamdani backed cohort you cited, by and large, doesn't want full scale socialism across the board. They want more controls where capitalism has failed them. For my part, I have always believed there are factions of a functioning society that should not be subjected to the profit motive, which often raises costs and reduces services where a few large companies control the market. Health care would be a primary example. And if that means a tax increase and a longer wait at the doctor to increase access to health care for the entire country to be healthier, so be it.
I think something that will be interesting to study would be the extent to which technology and in particular communication enables central planning, or at least some version of it. The biggest challenge, as highlighted in the article, is that effective central planning is incredibly challenging, to make sure that there is enough of each good and no significant surpluses. Capitalism has historically been far better and addressing this tension, but in today's day and age, the wealth of data and analytics available significantly changes the landscape.
Retail sales is a good example - in most first world countries, the range of brands in most categories is shrinking, as retailers figure out how to guide people to specific products, pack sizes, etc. that are 'good enough', controlling the supply side to an extent that starts to mirror central planning. Costco is possibly the best example of this - they are largely able to dictate to customers what they sell.
And yes, people always have other options, but people are also creatures of habit, and this is leveraged heavily by retailers to maximise their sales and profits.
It's not complete central planning, but it's somewhere between that and capitalism.
Mr D’Agostino:
The most unacknowledged root of our problem – moral decay.
Jumping into a key inflection point along the ‘road to ruin’ -- when the Progressive movement gradually supplanted the voluntary charity of the Christian churches, most church-goers, shrugged and went about the business of pursuing the American dream, the two World Wars and Great Depression notwithstanding.
The core of the Gospel: “Love God and your neighbor as yourself,” are more than doctrine or ‘commands’ – they are both equally ‘salvific,” redemptive.
But, how about this “American Dream” that quietly (at least in some part) supplanted the practice of the Christian faith.
How might one characterize this dream? “Get All You Can and can all you get!”
Is that too crude and unfair? Well, not if you honestly appraise the ethic of many our most ‘successful’ countrymen, the oligarchs of your corporatocracy.
Not to even think of going into all the profound manifestations of this moral decay, but it most certainly cannot be ‘corrected’ by changes in public policy. The corruption of the once-great West can only be ‘solved’ one human heart at a time.
This is a generational process, as those now living ‘reap the whirlwind’ of the accumulated errors of the last one hundred-plus years. There will be a lot of suffering, even on the part of those who never thought it would come to them, and especially on the part of the ‘poor and downtrodden.’
To be most general - the obvious thought is to encourage each of us to pursue “Beauty, Goodness, and Truth,” according to our ‘best lights.’ (See above.)
In this beggar’s view the next thought lies in a very intentional re-localizing of our lives, our economies, and our politics. And we’re clearly a long way from that.
Good Luck and God Bless!
Will Reishman,
Regarding the capital gains tax, we are told that the lower tax rate is necessary to attract investment in productive assets. But the justification is getting hard to accept when so much is being invested in Bitcoin and other non-productive assets.
Itemized deductions also give a greater benefit to high earners than the average worker. If you itemize deductions the government rebates to a portion of what you paid for some expenses, principally mortgage interest, state and local taxes and charitable contributions. The size of the rebate is based on the taxpayer's marginal tax rate so the higher the income the higher the tax rate and the higher the rebate.
Then we have the ROTH IRA. I don't understand the logic in allowing some individuals, mostly wealthy individuals, to make investments in a retirement account and never pay taxes when they make future withdraws.
So, is our tax system unfair or rigid to favor the wealthy? To some extent the answer is yes. But the answer is not to raise tax rates or tax wealth. The best solution would be to institute a flat tax with no deductions. The government should be blind as to the source of income, every dollar of income should be taxed at the same rate. The tax rate could be set to produce tax revenue as a percentage of GDP that history shows produces the best economic growth say 18%.
Congratulations Ed on an incisive and timely article. I posted last week and live in the UK. My elder son has lived and worked in Dallas for the last 10+ years and is married to one of your lovely ladies originally from California.
It will not surprise you that the situation in the UK is very similar except that we have a new left wing prime minister who is considering a number of new taxes including possible wealth tax. I would like to make a point about taxing capital gains. Our new PM is considering bringing the tax rate on such tax identical to the tax rates on earned income. The latter is currently taxed at 20% basic rate and 45% highest rate for all income above £150k. The first £3k of realised gain is currently tax free annually. A significant proportion of capital gain is the result of inflation for which we have no tax relief. Our government aims to get inflation down to 2% annually but it is currently running at either 2.8% CPI or 3.2% RPI. Taking an average of 3% that means that assets double in value every 24 years. Why should anyone pay tax on assets that have risen in value because of government intention (the 2% rate) or incompetence (the 3% rate)? I hope that in the USA you are only taxed on real (after allowing for inflation) gains.
Last week I commented upon how glad I am that we have a National Health Service which is brilliant at dealing with major illness (it is much less good at dealing with routine illness) but I very much envy your tax rates in the USA and your productive, entrepreneurial, capitalist focused economy!