Real-life Communists protest budget cuts in Greece. In the U.S., the meanings of "socialism" and "capitalism" have blurred.
It's encouraging that Americans spent 2012 looking up the
meaning of "socialism" and "capitalism," since both concepts are largely
misunderstood. This newfound knowledge is going to come in handy over
the next several years, because the battle the two economic extremes may
only be getting started.
Merriam-Webster announced recently that "socialism" was the
word with the most online lookups in 2012, with "capitalism" coming in
right behind. Searches for "socialism" spiked around the time of the
Supreme Court ruling on President Barack Obama's healthcare reform law,
no doubt because critics derided it as the government takeover of
healthcare. "Capitalism" was often the next word people looked up after
investigating socialism.
This year's presidential election included many bastardized
references to both economic systems, which have been broadly
mischaracterized for a long time. Many defenders of capitalism argue
that the nation's economic system was more pure a decade ago (or two, or
three), but America hasn't had pure capitalism in well over a century.
And when it did have a raw form of capitalism, the consequences were
often disastrous for significant chunks of the population, which is why
public support grew for the kind of regulated capitalism we have now.
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In the 1800s, the federal government largely stayed out of the
economy, with nothing like the regulatory apparatus we have now. That's
one reason people like Andrew Carnegie, John Jacob Astor, John D.
Rockefeller, Cornelius Vanderbilt, and J.P. Morgan built vast fortunes —
often from monopolies or cartels--that still exist in various forms
today. But unregulated capitalism also generated speculative bubbles,
financial panics and destitution much more frequently than those things
have occurred over the last 70 years.
Public pressure led to a long series of reforms that morphed into the
regulated free-market economy we have today. In the early 1900s, Teddy
Roosevelt started to break up some of the all-powerful monopolies that
enriched a few while overcharging the masses. Congress created the
Federal Reserve and the income tax in 1913. A slew of regulatory
agencies grew out of the Great Depression. During the 20th century,
presidents of both parties signed legislation creating new agencies to
oversee food, medicine, the environment and Wall Street (ahem). We still
have a capitalist system centered on private ownership and prices set
by the free market, but it's layered with rules meant to prevent abuses.
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Some Americans obviously feel there are too many rules, with a vocal
set of critics claiming that Obama in particular has ushered in a system
that's more like socialism than capitalism. That's hyperbole. Obama's
new healthcare plan obviously will involve a lot more government
involvement in the delivery of health care. But that happened because
the prior system (which was itself governed by a dense thicket of
insurance-company rules) failed to keep medical costs at affordable
levels or make healthcare available to everybody. As in the past, public
pressure for something better led to government intervention.
Anybody familiar with real socialism ought to know that it's not what
we have in America today. If it were, the government would control most
industries and own most of the property, and most Americans would be
paid similar wages determined by government bureaucrats. In reality, 84
percent of American workers are employed in the private sector, with
just 16 percent employed in government. Most people's pay is determined
by what they're able to convince a company or a group of customers to
pay them, with no upper limit. Anybody who has the money to buy private
property can. More than 60 percent of American families own the home
they live in.
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Still, the ideological battle between the forces of socialism and
capitalism is far from over, and probably likely to intensify in coming
years. For much of the time following World War II, the United States
was characterized by "an economy of abundance and a psychology of
scarcity," as the historian Barbara Dafoe Whitehead has noted. In
general, a booming economy provided more than relatively humble
Americans expected. But now, thanks to globalization, declining U.S.
competitiveness and a swollen social-safety net, we may have an economy
of scarcity and a psychology of abundance. Many Americans expect a
better standard of living than they're likely to get.
During the next decade or two, the U.S. government is going to have
to stop living on borrowed money. The mushrooming cost of entitlement
programs like Medicare, Medicaid and Social Security is going to force
some tough choices: Either working Americans will have to pay way more
than prior generations to support seniors and the underprivileged, or
those dependent upon government will get much thinner benefits. One
approach is socialistic, transferring an increasing amount of wealth
from one group to another. The other is capitalistic, in that it
requires far greater self-reliance and provides less of a safety net for
those who can't fend for themselves.
The ultimate outcome will be somewhere between pure capitalism and
true socialism, which is where the U.S. economy always has always ended
up. But it could be much closer to either extreme than it is now. Keep
your dictionary handy.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success.
Follow him on Twitter: @rickjnewman.
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