and even China's migration to a market-based economy--

even though they call themselves Communists,

their economy is now, essentially, capitalist--

there's been a general consensus around the world

that capitalism is the way to go.

And just to put my bias out there, right from the get go,

I am in that camp.

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--

a knee jerk reaction against anything

that even has a whiff of the government getting involved

or even a whiff of socialism.

So I want to think more about what are we

trying to achieve with the capitalist system.

And where we could fall into the things

we don't want to achieve if some of the aspects of capitalism

are allowed to go on without any type of controls

or, maybe, some type of regulation.

I don't want to advocate anything.

I just want to give, maybe, a framework for thinking

about it.

So you ask any capitalist, including myself, you

say, well, what's good about capitalism?

And I would say, well, you know it

aligns everyone's incentives.

So it's 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 a good incentive structure.

I'm not saying that everyone is motivated purely

by the desire to earn.

I think there's plenty of people in the world who are motivated

for the desire for social good, for elevating mankind.

But the general census in a lot of parts of--

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 farm,

or something like that, who knows.

So in general, you have a good incentive structure.

There's also this notion in a capitalist economy

that it's a meritocracy.

It is meritocracy.

And I'm going to, actually, put a box

around this because a 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 a fan of a meritocracy.

They would give exams to people and have

the people who were successful have

more authority within the communist regime.

So a meritocracy is something 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 two extreme or where you have inherited

wealth, actually goes against the idea of meritocracy.

So let me actually put meritocracy here as well.

And we'll talk about that in a second.

And then the other ideas is that you

have innovation in capitalism.

And these are all related ideas.

That if the incentives are good, if capital

gets in the hands of people who are most deserving of it

because they've somehow earned it, they've somehow innovated,

that can also lead to innovation because the right people

are handling the capital.

Now, if we go to the socialist side of things,

they'll say, well, look, there's a social cohesiveness to this.

So let me write this down.

And I won't speak to the-- 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.

So social cohesiveness.

You won't have this situation where

you have a gazillionaire sitting behind a walled compound

with armed guards and their people

right on the other side of that walled compound starving

to death.

And these people don't even, necessarily,

view themselves as part of the same society,

that they somehow have a responsibility to each other.

And that is happening in some parts of the world

where you have severe disparities in wealth.

The rich people don't even view themselves

as the same species as the poor people or even vice versa.

You have the other idea of-- and I'll

put this in quotes-- fairness.

And I'll put it in quotes because one could say,

well, it's fair 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

says, well, yeah, but look 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 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'm definitely

biased to the capitalist side of things.

I think there is an importance to these things

that we have on the right hand side.

But the reality, at least what we've

seen in the economic experiments of the 20th century,

is that even though communists and socialists might speak

to these types of things, to a large degree

there's less social cohesiveness.

The senior communists in the Soviet Union

would drive fancier cars.

And they did have a very different lifestyle then

the workers.

And they would hide that lifestyle.

And then it would lead to a lot of hypocrisy.

In general, the extreme forms of socialism-- not

clear that it was a meritocracy.

It might have been just the best people climbing up

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,

that capitalism, if it goes unchecked in certain ways,

it could also lead to those same problems of socialism.

And 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 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 person

should get more profits, and more wealth, and grow.

And it could even be good for society

because this person's 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 areas where it becomes less clear that capitalism

is unambiguously good, is a situation

where this person becomes out right dominate.

So let's say that this person becomes so big that none

of these other players can even compete with them.

So they all disappear.

This person can just undercut everybody.

And all the other players disappear.

And this is the situation of a monopoly.

And the problem here 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 the economy, then all of a sudden,

he has no incentive to innovate.

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

or 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, the economic system that you try to break up monopolies.

That you don't like monopolistic practices.

The other risks that you have when

you start having a lot of wealth and a lot of influence

in one entity, or one person, or one corporation--

and this 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.

And in the United States, this has

been 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-- to,

essentially, do things for you.

So it works to your advantage.

And may be allowing you, eventually,

to become a monopoly.

So you can view this as crony capitalism,

where lobbying can be 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 tax benefits from the government

so that he can be even more competitive.

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 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.

And 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-- that they're really

good managers.

They're kind of these 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 onto your children.

So you pass this onto 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 there was another kid over here

who was born at the exact same time, who is way smarter