- - Wednesday, March 24, 2021

Is American capitalism broken?

At a time of yawning inequality and unfulfilling work, stagnant wages and onerous student debt, significant numbers of younger Americans are, according to polls, warming up to socialism, or socialist-sounding policies.

The 2020 presidential campaign, taking place during an economy-shattering pandemic, reignited the capitalism versus socialism debate. Self-described democratic socialist Bernie Sanders, senator of Vermont, memorably defended his economic philosophy on a debate stage. Gone was the stigma, at least among many Democrats, attached to socialism

Meanwhile, the current version of American capitalism came under attack as the pandemic exposed long-running problems, namely low wages and the lack of economic security felt by millions of American workers whose health insurance was tied to their tenuous employment. It took another economic earthquake, not unlike the fallout from the ‘08 crash, to question the dogma of low taxes, deregulation, supply-side economics, and the decline of labor unions that have come to define American capitalism since the 1980s.

In light of these problems, the “capitalism versus socialism” debate is a false choice, said Harvard economist Benjamin Friedman on the latest episode of History As It Happens podcast. Moreover, the way many Americans define capitalism or free enterprise is too narrow.

“I am very uncomfortable with the notion that capitalism necessarily means anything about the level of tax rates, or the presence or absence of redistributive programs, or the level of regulation,” said Friedman, the author of Religion and the Rise of Capitalism

“Let’s go back to Adam Smith, for instance. Adam Smith was in favor of progressive income taxes. Adam Smith was in favor of tighter regulation on banks than anything you or I have known within our lifetime in the United States. Adam Smith was in favor of luxury taxes,” Friedman said.

 Yes, Bernie Sanders and Adam Smith might agree, said Friedman, that tax revenue from levies on luxury items should go toward ameliorating poverty.

The point is, our current understanding of capitalism is not only ahistorical but excessively politicized. The U.S. economy has always worked best when it balances private enterprise with government initiatives and investment.

“Many people today attach a kind of religious value to low taxes and the absence of regulation. Part of the challenge of what I take up in my new book is, why is that so? There are distinct religious antecedents to modern economic thinking that have led many Americans in that direction,” Friedman said.

For more on Benjamin Friedman’s thoughts on American capitalism, income inequality, and the importance of religion in economic thought, listen to this episode of ‘History As It Happens.’  

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