Economic Systems: A Millennial Approach
Many of us hold deeply held beliefs over what type of economic system works best. We believe in these systems so much that we even consider them an identity. Labeling ourselves “socialist” or “capitalist.”
However, these labels can cause problems.
First, like most things, economic systems aren’t binary. There is no country on earth that is purely capitalist or purely socialist. They are all somewhere in between. The United States for example, known for it’s rugged capitalism, has socialist programs such as Social security and Medicare. On the other end, even communist China uses private ownership to boost growth.
As you can see, in the real-world, economic systems are complex and better defined on a large spectrum. You can imagine a scale where a completely free market economy, with no redistribution, is scored a 1. A totally government controlled economy, with 100% redistribution, is scored a 10. On this spectrum the United States might be a 3, Canada a 5, Sweden a 6, and so on.
But even a spectrum doesn’t fix the all the problems with economic labels. Your place on the scale shouldn’t be concrete. Nobody should be walking around calling themself a 5, picking arguments with a 3. There is no magic number. No one-size-fits-all approach. Different levels of production, require different economic systems.
Historically, capitalist leaning economies have been correlated with high levels of growth and inequality. Conversely, socialist-leaning economies have been more correlated with lower levels of growth and lower levels of inequality. Economist call this phenomena the equity-efficiency trade off. To an extent, when we increase equity, we decrease efficiency (growth) and vis versa.
Depending on a countries current economy, it might choose to prioritize one over the other. Country A, might prioritize equity. Country B, efficiency. Country C, somewhere in the middle. This may vary from country to country or within a country from time period to time period.
In the 1917 for example, the average American citizen lived on about $5,000 annually. Now, after 100 years of American capitalism, the average citizen lives on over $50,000 per year. Our laissez faire economic approach created massive amounts of growth, making us 10x wealthier than our ancestors.
But whether we should continue to prioritize growth over equity is less clear. We now have enough money to satisfy the needs of all our citizens. Some would argue that this justifies a greater shift toward a more socialist economy. Others would contend that we ought to continue a capitalist approach, siting years of growth and people’s infinite wants.
A more clear example might be that of the extremes. Imagine another 100 years has past and it is the year 2117. Automation and Artificial Intelligence have taken over most means of production. Our robot successors are 1000’s of times more efficient than their human predecessors, creating a society of nearly endless resources. In this economy, it would be foolish not to have high levels of redistribution. Many would recommend a universal basic income of sorts, where all people are able to reap the benefits of the new world.
On the flip side, there are countries with much, much lower levels of productions. Take Somalia for example, where the average citizen lives on under $500 a year. An equal distribution would leave every single person under the poverty line and undermine incentives for growth. A socialist Somalia could remain hungry and poor for decades. Instead the Somali government might see the wealth of the west and embrace capitalism. Deploying free markets to incentivize innovation, promote growth, and lift Somalians out of poverty.
Even still, there are no “right” answers. Given a countries exact economic data their is no perfect science to say where exactly on the scale a country should be. But assuming your economic beliefs will fit all countries is ignorant and irresponsible. Yelling at Venezuelans about the benefits of socialism will fall on deaf ears. (And a hungry mouth will be ready for rebuttal.) On the other hand, many poor Americans might ask what capitalism ever did for them? If every government used the same economic system, there would be clear winners and losers.
Only looking at the flaws of socialism makes it easy to be a capitalist. Only looking at the flaws of capitalism makes it easy to be a socialist. And growing up in observing the cons of American capitalism, many millennials do just that; slap on a Bernie bumper sticker, quit shopping at Walmart, and wear their socialist badge with honor. But I prefer different millennial tricks……having more than one partner (moving along the scale) and avoiding labels all together.
