15 May 2019

The Real Economic Debate (is not about socialism or capitalism)

The big debate isn’t about whether we should have a socialist or capitalist economy. 

Depending on how you define those terms, socialism and capitalism are either essential or absurd. 

Do you define capitalism as no different than a market economy? By socialism do you simply mean some mix of social security, public funding for healthcare, public education, and unemployment insurance? By those definitions, capitalism and socialism are essential. 

Or by capitalism do you mean that we should be rid of social security, healthcare, public education and unemployment insurance? And when you say socialism do you mean that we should do away with markets? By those definitions, socialism and capitalism are absurd and harmful. 

It’s a valid thing to argue where on the spectrum between cruel market or controlling government we should be, but that can easily distract us from a more vital, more concrete debate about how normal people are going to create new jobs and wealth. 

The debate about whether we're in an industrial or information economy is the more relevant and productive one. Put more simply, do we think that jobs and wealth are going to be created in factory work or knowledge work?


College education has become one of the better predictors of how people vote. In the 50 counties with the highest levels of education, Hillary Clinton won by 26 percentage points. In the 50 least educated counties, she lost by 31 percentage points.[1] Those knowledge workers are also more affluent than factory workers. Clinton won only one-third of the counties in the US but those counties represent about two-thirds of the country’s GDP.

By contrast, Trump won by nearly 16 percentage points in the ten states with the highest percentage of manufacturing workers and lost by 9 points in the ten states with the lowest percentage.

In 1972, the Democratic Party shifted its focus from factory workers to knowledge workers. In 1972, the Democratic National Committee had set quotas for women, minorities and youth but none for blue-collar workers. In terms of policy, that was visionary. Since that time an information economy has clearly driven economic growth. In terms of politics, it was disastrous. Knowledge workers still made up only 11% of the population in 1970. Democratic nominee George McGovern lost by 520 to 17 electoral votes in 1972 and in 1984, Mondale won only 13 electoral votes. 

Since 1992, college grads have outnumbered factory workers and since 1992, Democratic presidential candidates have won the popular vote by an average of 4.1 million votes (and only lost the popular vote once in the last seven elections). In the Democrats’ last three presidential victories (Obama 2012 and 2008, Clinton 1996), they won the popular vote by a total of 22.7 million. In the Republicans’ last three presidential victories (Trump 2016, Bush 2004 and 2000), they lost the popular vote by a total of 400,331. Because of the quirk of the electoral college and knowledge workers’ tendency to cluster in cities, Republicans and Democrats have split the last six elections in spite of Democrats dominating the popular vote.


Trying to bring back manufacturing jobs makes about as much sense as trying to bring back farming jobs. And for a host of reasons it simply isn't smart policy. Ours would not be a better economy if we still had 90% of the workforce engaged in raising crops for us nor would it be a better world if we still had 36% of the workforce making stuff. We can now be fat and our houses be cluttered with less than 2% of the workforce raising our food and 8% making our stuff.

The question is not "How do we get more people back into factories?" The question is, What work will add value, what work will actually improve our quality of life, what work would voters value enough to fund with government spending or consumers value enough to fund with cash or credit? That is the question entrepreneurs ask.

The answer to the question of whether we think that jobs and wealth are going to be created in factory work or knowledge work has two parts. Short-term, none will be created in factories but many will be created in knowledge work. (And by none I mean net. New jobs will emerge in factories but not as quickly as they are destroyed.) Long-term, all will be created by entrepreneurs.

We don't exactly have all our problems solved as yet. In every direction we turn there are problems to solve and possibilities to explore. How do we create affordable housing in big cities without creating more congestion? How do we increase the quality of life of people over 80? (The fastest growing group in the world.) How do we create institutions that encourage the intrinsic motivation that makes us happy, creative, and productive? How do we automate more of the tasks that have become boring and simply reduce our quality of life and create the tasks in their place that both create value for customers and flow for workers?

Wasting effort on returning to the past is like a 60 year old dressing like a 16 year old. What was once exciting has become disconcerting, what was great becomes caricature. 

[1] http://fivethirtyeight.com/features/education-not-income-predicted-who-would-vote-for-trump/

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