insight from tough times
Many folks don’t know about or understand the range of economic and political systems that exist around the world. That’s unfortunate because if everyone better understood this, more folks would appreciate how great the capitalistic system is in the United States.
No economic system is perfect, of course, and no economic system can sustain growth forever without downturns and some problems. In this chapter, I help you to better understand our economic system and the inevitable cycles of growth and downturns, which can sometimes include more severe recessions and financial crises.
In fact, I’m going to take you on a tour of some of the worst economic periods and crises during our nation’s history. Rest assured that I’m not trying to scare you or inhibit your desire to invest in stocks, real estate, or other growth assets. I’m actually taking this approach to maximize your ability and determination to stay the course during tough times and possibly even deploy available resources to buy/invest when prices are down.
Understanding Our Economic System
The United States has altered the course of human history, in a positive way, far more than would be expected considering the relatively short period of human history during which it has existed. No, it hasn’t had a perfect record, but at least it has literally torn itself apart (the Civil War) and put itself back together again trying to right its own wrongs.
The post-Civil War United States has used its power to secure more freedom and prosperity for more people than ever in the history of the world, making it possible for them to pursue and achieve the fullness of their human potential. That’s why people from all over the world want to come to and live in America.
In this section, I discuss the achievements and strengths of the U.S.’s capitalistic system as well as some concerns that have been raised about it.
Capitalism strengths and criticism
The original 13 American colonies are a good illustration of the origins of governments and economies. The leaders of the individual colonies elected to federate — to enter into a contract to coexist as one nation — in substantial part to provide for their common defense, but defense wasn’t the only reason they federated. They federated also because they knew that each individual colony would be far more likely to survive and succeed if they cooperated, not only in their mutual defense, but also with regards to infrastructure, such as making it possible for their citizens, goods, and mail to travel easily between them and making it easy to transact trade using a common currency.
Since its inception, the United States of America has afforded its citizens the best environment in the history of humankind in which to achieve the fullness of their human potential. This requires high degrees of both personal and economic freedom, and the United States provides these through a democratic government, with strong protections for individuals, and through capitalism, which promotes competition between individuals and rewards the development of unique potential.
Empowering the vast majority of its members to be at least productive enough to meet their (and their dependents’) subsistence needs
Empowering many members to be productive enough not only to meet subsistence needs but also to compassionately contribute to meeting the subsistence needs of the relatively few truly incapable members.
Consider that the United States, in just a couple of centuries, surpassed the standards of living of every other nation on Earth, including nations that had existed for hundreds, even thousands, of years prior. Capitalism did that.
Any other nation in human history that has achieved power comparable to that of the United States in today’s world — a lone “superpower” — has used that power to take freedom away from people, to conquer, and thereby to stifle the development of unique human potential. For most of human history in fact, most human beings have lived in conditions wherein whoever was physically stronger (individually or collectively) largely determined how much of their potential the collectively weaker groups/societies could develop.
Comparing socialism to capitalism
Just about anyone who was raised in America doesn’t know how bad it can get economically in other systems because they simply haven’t experienced them. When it comes to quality of life for folks near the top, the middle, and near the bottom, capitalism is the best economic system.
That’s not anywhere near the case in countries like Greece that embrace socialism. Greece has the level of government involvement, federal programs, and widespread labor unions that progressives/socialists constantly argue for, and that is precisely what drove the country into default and wrecked their economy.
As recently as 2013, Greece’s unemployment rate hit a whopping 27.9 percent and was still more than 15 percent in mid-2021. Think about what a train wreck of an economy that is. And their stock market has been even uglier. From its peak in 1999, the Athens Stock Exchange General Index is still down more than 86 percent as of mid-2021.
Younger Americans, however, have come to believe that socialism is as good as or better than capitalism. According to Gallup,
“Since 2010, young adults’ positive ratings of socialism have hovered near 50 percent, while the rate has been consistently near 34 percent for Gen Xers and near 30 percent for baby boomers/traditionalists. At the same time, since 2010, young adults’ overall opinion of capitalism has deteriorated to the point that capitalism and socialism are tied in popularity among this age group. This pattern was first observed in 2018 and remains the case today.”
The more a person understands how the economy and financial markets work, the more likely they are to identify with and support free-market capitalism with a minimal role for government. I firmly believe, based upon many years now of observation and business world experience, that the increasing numbers of socialist-loving (and capitalist-hating) young adults in America are economically illiterate.
Understanding wealth and income inequality
Over recent years, there has been more and more discussion about the unequal distribution of income and wealth in America. Self-declared Socialist Senator Bernie Sanders (Vermont) has made income and wealth inequality a focal point of his efforts.
In a speech that Sanders delivered at Liberty University, he said:
“In the United States of America today, there is massive injustice in terms of income and wealth inequality. Injustice is rampant. We live, and I hope all of you know this, in the wealthiest country in the history of the world. But most Americans don’t know that. Because almost all of that wealth and income is going to the top 1 percent …
“… we are living in a time where a handful of people have wealth beyond comprehension. And I'm talking about tens of billions of dollars, enough to support their families for thousands of years. With huge yachts, and jet planes, and tens of billions. More money than they would ever know what to do with. But at that very same moment, there are millions of people in our country, let alone the rest of the world, who are struggling to feed their families. They are struggling to put a roof over their heads, and some of them are sleeping out on the streets. They are struggling to find money in order to go to a doctor when they are sick …
“And while the very, very rich become much richer, millions of families have no savings at all. Nothing in the bank. And they worry every single day that if their car breaks down, they cannot get to work, and if they