To hear many of those running for the 2020 Democratic presidential nomination, you would think we live in a dystopia ruled by a dark and sinister force: Capitalism. According to these doomsayers, capitalism makes a few people rich but produces misery and poverty for everyone else. “I will not tolerate for one second,” says Bernie Sanders when explaining his opposition to capitalism, “the kind of greed and corruption and income and wealth inequality and so much suffering that is going on in this country today, which is unnecessary.”
Capitalism is also blamed for environmental damage and climate change. A headline in The Guardian announced: “Ending climate changes requires the end of capitalism.”
But the anti-capitalist doom-mongers are wrong. There is more to be optimistic about than ever before, and free-market capitalism – the very thing often accused of causing hardship – is an essential part of the cheerful story.
Here are a few reasons for both optimism and capitalism:
Poverty. As recently as 1990, 37.1 percent of the global population, a total of 1.9 billion people, lived in “extreme poverty” (currently defined as less than $1.90 per day). By 2019, the extreme poverty rate had fallen about 78%, to less than 8 percent of the global population, just under 600 million people. And tens of millions have moved from poverty into middle class security. Without question, the world in the last few decades has experienced the greatest fastest happiest improvement — ever.
How did it happen? Capitalism. Around the globe, notably in India and China, governments introduced some free-market policies such as privatizing businesses, permitting the free exchange of goods and services, offering more security for property rights, opening markets to international trade. People were allowed, after years of socialist policies, to work in something approaching a free market, and they quickly began producing previously unheard-of prosperity.
The value of capitalism is all the more striking when compared with the experiences of places that adopted more socialist policies. Venezuela, for example, was once the richest nation in South America. But then Hugo Chavez began his “socialist revolution,” to the cheers of many on the left. “Hugo Chavez’s Economic Miracle” was the title of a 2013 article by David Sirota, now a speechwriter for Bernie Sander’s presidential campaign. Sirota described the “indisputable positive results” that socialism delivered to the people of Venezuela. “Indeed, as shown by some of the most significant indicators,” Sirota wrote, “Chavez racked up an economic record that a legacy-obsessed American president could only dream of achieving.”
But like a debilitating viral infection, wealth-sapping socialism soon rendered Venezuela the poorest nation in South America. An estimated 90% of Venezuelans are now unable to buy adequate food. In 2017, the average Venezuelan lost 24 pounds. Today Nicolas Maduro continues the socialist crusade, to the misery of the Venezuelan people.
Experience has proven it time after time: Capitalism is an essential ingredient in the recipe for improving human life.
Income inequality. That the rich have taken almost all the income gains in recent years has become a maxim. Capitalism may be great for the upper few percentiles, say the pessimists, but it leaves everyone else struggling. Elizabeth Warren’s 2020 presidential campaign website states: “Over the past few decades we have millions of working families hanging by their fingernails. Wages have stagnated.”
Turns out this is simply false, a statistical miscalculation caused largely by the use of an exaggerated inflation rate. According to the non-partisan Congressional Budget Office, US median incomes saw a (properly calculated) inflation-adjusted increase in incomes of 21% between 1990 and 2016; factor in taxes and governmental transfers, and middle class incomes grew 44% for this period. Incomes at the bottom 20% saw their post-tax-and-transfer incomes grown by 66%.
Things are even better when we look at purchasing power. Consider the following:
— In 1975 a ten-cup drip coffee maker cost the ordinary American worker almost 8 hours of work time; today it costs that worker only 45 minutes.
— In 1975 a pair of all-cotton jeans cost 1.5 hours of work time; today it costs 20 minutes.
— In 1975 a car battery cost 9 hours of work time; today it costs 3.6 hours.
— In 1975 a microwave oven cost 93 hours of work time; today a microwave oven of similar size and power costs 6 hours.
— In 1975 an automatic dishwasher cost nearly 50 hours of work time; today a dishwasher costs 12 hours.
— In 1975 an exercise bike cost 16 hours; today it costs 5 hours.
— In 1975 a low-priced standard-size electric washer-dryer combo cost 70 hours of work time; today this combo costs about half that, at 36 hours.
If we want wages and purchasing power to continue to rise, optimistic free market capitalism, not pessimistic socialism, is the way to make that happen.
Environment. But doesn’t all this economic improvement come at the expense of the environment? What’s the point of everyone getting rich enough to eat meat and drive cars if it means destroying the earth with greenhouse gases and apocalyptic climate change? This is a valid worry. Climate change is real. But the simple fact is that we do not yet have the green energy technology to power a modern economy. Without fossils fuels, we could not feed people — much less provide housing, transportation or all the other energy-dependent products we need. We cannot go fully green yet.
So why is this in a blog with “optimism” in its title? Because with capitalism we have reason to be optimistic that we will solve our environmental problems. Capitalism is a problem-solving engine. Government is part of the solution too, but government fighting climate change without capitalism would be like a general fighting a battle with unarmed soldiers. With capitalism, people have incentives to find ways to improve technologies and make lower-emission cars and factories, transition away from fossil fuels to clean alternatives, and make the adjustments needed to live with whatever climate change occurs.
And only capitalism can produce the wealth that will make being green possible. Remember when Eastern Europe was in the Soviet bloc? Its cars belched black smoke and its factories dumped toxic refuse into its waters. Western Europe was significantly cleaner. Why? Because capitalist countries produce wealth and so can afford to be clean; socialist nations are poor and so have to take cheap – and dirty – alternatives.
On all these things – poverty, income inequality and climate change – there is room to improve, of course. Being optimistic does not mean relaxing. But remember that free market capitalism is far from being the problem. Free markets are making more people more comfortable, better fed, better housed, and healthier than ever before. And the innovations and wealth generated by free markets are essential to making the world cleaner and greener. What could make things worse is following the doomsayers who think everything is awful and that free market capitalism is to blame. The opposite is true. Don’t let the pessimists mislead you.