Economics 101: Defining key terms and saving capitalism from itself

One of the most unfortunate by-products of today’s cheapened political dialogue is the way in which terms such as “socialism,” “communism,” and “capitalism” are misunderstood and/or misused.

Some on the far right toss allegations of socialism and communism at virtually any effort to provide a safety net to those in need, while trashing any call for labor and environmental safeguards. Some on the far left label profit-making enterprises as the root of all evil and call for the end of capitalism, without working through the alternatives.

Right now, we’re hearing a lot of this stuff surrounding the Occupy Wall Street movement and its progeny. However, some may not know what these terms actually mean. Others may understand, but deliberately misuse them because they work as scare tactics with the uninformed. So…at least let’s get the definitions right:

Capitalism (from the Merriam Webster Dictionary)

an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market

Socialism (from the Merriam Webster Dictionary)

any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods

Communism (from the Merriam Webster Dictionary)

a theory advocating elimination of private property

Mixed economy

The vast majority of nations, including the United States, are not purely capitalist, socialist, or communist. Rather, they sport what is known as a mixed economy, and I’ll rely on Wikipedia for a more expansive definition and explanation:

an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety of government-sponsored aspects.

…Governments in mixed economies often provide environmental protection, maintenance of employment standards, a standardized welfare system, and maintenance of competition.

In the U.S., most policy debates involving business, social programs, and regulation take place within the parameters of a mixed economy.

To save capitalism, create a strong safety net

The mixed economy we’ve had — which some now want to dismantle — has its roots in the New Deal legislation promulgated by President Franklin D. Roosevelt during the heart of the Great Depression in the 1930s. FDR was a member of the patrician class, and he feared a communist-style takeover of the nation if the economy did not improve.

To save capitalism, he proposed a stronger social safety net and a series of ambitious publicly-funded jobs programs, labeled the New Deal. That’s how we got banking regulations, Social Security, the minimum wage, and the right to join unions. It’s also how we built many of the roads and bridges still in use today. Even some of the warships that helped to win World War II were public works projects funded by the New Deal.

Occupy Wall Street, then regulate it

I salute the Occupy movement for calling out major corporations and the government for joining together to favor the wealthy and powerful. Capitalism without brakes leads us to a growing gulf between the rich and everyone else, brutally hard times for those in need, and a polluted environment stripped of its resources.

On the other hand, I don’t want the government to be running the whole show, either. The thought of unchecked public bureaucracies scares me as much as unregulated private enterprises.

In sum, as important as these protests are to illuminating our current predicament, I don’t regard the solution as necessarily being a radical one. As I see it, a healthy and balanced mixed economy, featuring robust private, public, and non-profit sectors, will work better than any of the pure “isms.”

2 responses

  1. Very nicely boiled down to the “truths” behind the scary myths. Theories of economics are mysterious to most. As a budding journalist, one of my professors encouraged all students to take an economics course because most young reporters often are handed assignments dealing with economic issues. As he advised us, “You cannot write about topics you don’t understand.”

    It is critical that voters understand these basic facts before being caught up by the rhetoric of those with decidely biased political agendas. Thanks for the public service. I LOVE your blog…

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