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Video transcript

after the fall of the Soviet Union and even China's migration to a market-based economy even though they saw call themselves communist their economy is now essentially capitalist there's been a kind of a general consensus around the world that capitalism is the way to go and I you know just to put my bias out there right from the get-go I am in that camp I would consider myself I would consider myself a capitalist but what I want to do in this video is do a little bit more of a nuanced discussion of capitalism versus say socialism because I feel like there has been especially here in the United States and in the West there's sometimes a knee-jerk reaction against anything that even has a whiff of the government getting involved or even a whiff of of socialism so I want to think more about what are we trying to achieve with a capitalist system and where we could fall into kind of the things we don't want to achieve if some of the aspects of capitalism are allowed to go on without any type of without any type of controls or maybe some type of regulation I don't want to advocate anything I just want to give a maybe a framework for thinking about it so you ask any capitalist including myself you say well what's good about capitalism and you and I would say well you know it's it aligns everyone's incentives so it's good good incentives if you work harder you can earn more you can generate a capital for yourself you can use that to improve your standard of living you can reinvest that capital so it's good it's a good incentive structure I'm not saying that everyone is motivated purely by the desire to earn I think you know there's plenty of people in the world who are motivated for the desire for social good for elevating mankind but the general sense is in a lot of parts of and is that those type of things are specific to certain domains but in other domains if someone's running a trucking company it's not clear that someone would run a trucking company optimally just for the good of mankind maybe they would run some type of nonprofit that way but a trucking company or a a farm or something like that who knows so in general you have a good incentive structure there's also this notion in a capitalist me that it's a meritocracy it is meritocracy and I'm going to I'm going to actually put a box around this because the meritocracy in my mind is super duper important because even if you talk to us almost everyone is a fan of a meritocracy even the Communists were fan of a meritocracy they would give exams to people and have the the people who are successful have more authority within within the communist regime so meritocracy is something that other that everyone lays claim to and actually a lot of socialists or communists would claim that extreme forms of capitalism when the wealth disparity becomes too extreme or where you have inherited wealth is actually goes against the idea of meritocracy so let me actually put let me put meritocracy here meritocracy here is well and we'll talk about that in a second and then the other idea is is that you know you have you have innovation you have innovation in capitalism and these are all related these are all related ideas that if the incentives are good if if capital gets in the hands of people who are most deserving of it because they've somehow earned it they somehow innovated that can also lead to innovation because the right people are are handling the capital now if we go to the social the socialist side of things they'll say well look there's there's a social cohesiveness to this so let me write this down and I won't speak to the soul you know I I don't claim what I'm going to do in this video is comprehensive of all of the pros and cons of either I just want to give a little bit of nuance to the discussion to the discussion so social cohesiveness you don't you won't have this situation where you have you know gazillionaire sitting behind a walled compound with armed guards and there are people right on the other side of that wall compound starving to death who and you know these people don't even necessarily view themselves as part of the same society as part of the you know that they it's somehow a responsibility to reach each other and that is happening in some parts of the world where you have severe disparities and wealth though the rich people don't even kind of view themselves as you know the same species as the poor people or even vice versa you have the other idea of kind of you know and I'll put this in in in quotes of fairness fairness and I'll put it in quotes because one could say well it's fair to if you if you make more if you work harder you should get more if you innovate more you should get more and then their notion of fairness as well yeah but look you know sometimes this wealth gets so extreme sometimes you have this notion of inherited wealth generation after generation old money what's fair about that that people are just randomly born into a situation where they can just extract the interest off of their wealth and never have to work and other people have to work super hard and they really get nothing for it so you know this notion of fairness I'll put it over here as well fairness because there's arguments for either and so like I said I am definitely biased to the capitalist side of things I think there is an important to these things that we have on the right-hand side but the reality at least you know what we've seen in the economic experiments of the 20th century is that even though communists and socialists might speak might speak to these type of things to a large degree it becomes even it it becomes there's less so he shal social cohesiveness the the senior communists in the soviet union's would drive fancier cars and they did have a very different lifestyle than the workers and they would hide that lifestyle and then you would you know it would lead to a lot of hypocrisy in general the extreme forms of socialism not clear that it was a meritocracy we might have been just the best people climbing up the the party ladder that get to the top as opposed to the people who would innovate and actually produce in a better way but with that said I want to give fair warning I want to give fair warning that capitalism if it's kind of goes unchecked in certain ways it can also lead to those same problems of socialism in the main the main problems there when you think about good incentives I think the incentives and once again I'm giving my opinion here the incentives work out of what well when you have a bunch of competitors who can compete and innovate and it makes complete sense that let's say that this person comes up with an innovation and because they have that innovation they're able to provide a better good that's cheaper to society and so they make more profits and it seems reasonable that that person should get more profits and more wealth and grow and it could even be good for society because this person is an innovator maybe there was an element of luck there but it seems like they're competent at managing these resources so it's good for society to give them more resources to manage the problem we're capitalism where the areas were get where it becomes less clear that capitalism is unambiguously good is a situation where this person becomes outright dominant so let's say that this person becomes so big that all of that none of these other players can even compete with them so they all disappear this person can just undercut everybody and all of the other players disappear and this is a situation of a monopoly and the problem here monopoly and it problem is when this guy had competition he had every incentive to work harder he had every incentive to innovate it was a meritocracy because the person who innovates well grows the fastest but once you get to a monopoly stage and everyone else has died down this is the only player in in the economy then all of a sudden he has no incentive to innovate this this corporation or this person can just keep raising prices there's no competition there's no one else to say hey I can have a better product I can sell it to you cheaper and so it actually goes against the ideas of innovation that's why it's really important and that's why it's part of especially in the United States it's part of the the economic system that you that you try to break up monopolies that you don't like monopolistic practices the other risk that you have when you start having a lot of wealth and a lot of influence in a kind of one entity or one person or one corporation and this can sometimes happen well it can happen in a democratic or even a non-democratic regime is that the control of resources aren't just control of those resources aren't just control of land and buildings and railroads they can also use it to influence government influence influence government and in the United States this has kind of been instantly institutionalized in the form of lobbying and when you have excess resources and you can influence government in this way you can get the government so let's say this is the government over here you can get the government to essentially do things for you so it works to your advantage and maybe allowing you eventually to become a monopoly so you kind of view this is crony capitalism where you're you know lobbying can be of a form of legalized bribery and in that way you kind of own the elected officials I'm not saying that this is happening everywhere but it could happen and in that situation you have the government acting on behalf of these and once again it goes against the idea of a meritocracy because when you have this cycle developing maybe this person right over here has the innovation but this person doesn't have the clout doesn't have the influence with the government and so this guy gets the government contract for the planes or this guy gets the the the tax benefits from the government so that he can be even more competitive he can he can undercut this guy even though this guy has the innovation the other element and I could talk about this for hours and these are just things to think about are the idea of inherited wealth and I'm not saying that inherited wealth is a is a bad thing but there's this idea that let's say someone through their competence maybe competence with a little bit of luck is able to accrue a huge amount of wealth then maybe they're not even a monopolist but they're able to get a huge amount of wealth but they were able to do it they were able to do it that they're really good managers they're kind of these you know really smart dude he can he can really manage a lot of resources well the question arises is what happens when this person passes away in a very purely capitalist situation you pass this on you pass this on to your children so you pass this on to your children and the issue here is one what did this person do to earn it and also from a society's point of view maybe this person here is a dummy maybe you know maybe there was another kid maybe there's another kid over here who was born at the exact same time who is way you know way smarter and who you know but this this kid is now in control of a hundred gazillion dollars and he can completely miss manage the resources so that they're they're completely wasted and so you have this idea of over time inherited wealth in a capitalist society can go against the ideas of meritocracy it can go against the idea of good incentives because if this guy inherits enough money has no incentive to work why should he you know have to study hard and go in you know the tackle math and all of that he's inherited enough money that he can he gets millions of dollars just off of the interest and you know why should he educate himself you got he got daddy's or granddad's money and so it also goes against the idea and why should he try to innovate why should he ever do anything I'll just he could maybe just hire some of these people and give them you know kind of a minimum salary whatever it takes and so it kind of goes against these ideas of fairness and all of that and I'm not saying that I'm against inheritance I'm just saying it's something to think about and there's some probably threshold of inheritance that it starts to undermine some of these these ideas of a meritocracy and good incentives and fairness and all of that and that's why I think it's funny when people who call themselves old money old money are kind of proud of it that they view themselves as somehow being part of a better caste because old money means that you did not earn the money yourself that you're a granddad or your great granddad earned the money and you've just happened to be born in this family and you know are essentially just living off of the interest and it's funny because they'll talk about new money new money is that some type of you know they're not as good as old money but at least the new money people maybe it was through luck but maybe it was through competence or innovation this is something that at least in my mind I'd respect more than old old money you've done nothing you're I mean what's the difference between old money or a king and a queen or the aristocracy of Europe that kind of goes against a lot of the philosophy philosophical underpinnings of what the United States is even based on so I'll leave you there I just wanted to add a little bit of nuance to the conversation I will say I'll say it again you know I come to this conversation with a capitalist bias but I I'm hoping that this gives you a little bit of more nuance so that instead of saying capitalism is an unambiguous good and socialism isn't unambiguous bad these are the things that are unappreciated so that we can have a meritocracy if everyone is educated then you have a kind of a level playing field you have this notion of equal opportunity and that does involve some type of re you know on some scale redistribution of at least in the form of education maybe you do need some form of you know way for people to get health care you don't want people dying in this I'm not going to take a stance here but I'm just showing you this you can't just even though I do consider myself a capitalism you can't just say that everything has to be purely capitalist and you can't have any any notion of government intervention you maybe want the government to enter to invest in things like long term research where they don't have an immediate profit motive but 50 20 100 years down the future it might allow the society to thrive or whatever else so I'll leave you leave you there