‘Y OUNG Americans do not understand economics at all,” lamented economist Dan Mortensen at a recent “Community Conversation: Socialism vs. Capitalism” sponsored by the Fredericksburg Regional Chamber of Commerce. He was trying to explain why 43 percent of millennials said they have a “favorable view” of socialism, but only 16 percent could actually define it, according to a January poll.
But Mortensen noted that when socialism was defined as the government managing the economy and deciding how and where to direct resources instead of individuals and markets, more than half of those same young people said they favored capitalism. Clearly there’s a major gap in young people’s knowledge and thus their ability to weigh the merits of these two opposing economic systems.
Mortensen is the executive director of the Virginia Council on Economic Education, whose mission is, in his words, to “teach the teachers” in K-12 so they will acquire a deeper knowledge of basic economics to impart to their students. VCEE offers free teacher workshops throughout the commonwealth, including at the University of Mary Washington’s Center for Economic Education.
One of the group’s most popular offerings is The Stock Market Game, which simulates global capital markets and allows students between fourth and 12th grade to manage and grow a virtual $100,000 investment portfolio. Researchers have found that youngsters who played the game in class “significantly outperformed students who did not play the game on both mathematics and investor knowledge tests.”
VCEE was also behind the push to have Virginia become the second state in the U.S. after Tennessee to require a full-year, full-credit high school course in Economics and Personal Finance. The Class of 2015 was the first graduating class to meet that requirement. According to the Virginia Department of Education, “instruction in economics and personal finance prepares students to function effectively as consumers, savers, investors, entrepreneurs, and active citizens” by learning “the function of markets and their role in the global economy.”
But that knowledge won’t help them much if Sen. Bernie Sanders, I–VT, and Rep. Alexandria Ocasio–Cortez, D–NY, both self-proclaimed Democratic Socialists, have their way. In the centrally-controlled socialist economy they envision, government officials would decide how and where to direct resources, not consumers, savers and investors.
In a capitalist system, buying a product or service is essentially a vote to either increase or decrease production. The market quickly responds to price signals: When demand increases, so do prices and vice versa. Companies that fail to respond to changing consumer demand go out of business as newer, more innovative and responsive companies take their place in a process known as creative destruction—which can also be destructive to workers, their families and their communities.
Countries with capitalist systems historically have the highest standards of living, but the benefits of free markets are not equally shared by all. However, countries that have adopted socialism, such as Venezuela, soon find that it is no panacea either.
Despite having the world’s largest oil reserves, the once prosperous South American country is now in the midst of a “deepening political and economic crisis,” according to the Associated Press, with inflation expected to hit “a staggering 200,000 percent this year.” The socialist system has caused so many shortages that patients in Venezuela are now required to bring their own food, soap, water and medical supplies such as syringes and scalpels to the hospital—and hope that the power stays on long enough for surgeons to operate.
The U.S. economy is a hybrid, neither unfettered capitalism nor full-fledged socialism. Private individuals here own the means of production and markets provide the capital they need, but the government heavily regulates many if not most aspects of economic activity. From time to time, due to changing political winds, the American public has clamored for either more economic freedom or more government intervention.
But citizens, especially young people who will have to live longer with the consequences than their elders, should at least know what they’re voting for.