Unfortunately it seems like every other day a liberal news source, makes the argument that capitalism is causing all of our problems today and we need to switch to a more socialist economy. I understand the frustrations with our current economic system and echo many of the same frustrations, but it needs to be said that capitalism is not at fault. This is because we have never had in any country, at any time, an economic system that was close to capitalism. Let me repeat that, we have never actually experienced capitalism.

Yes, we have had economies that lean more liberal than regulated, but never has one gotten even close to fully capitalistic. And it is simple to prove. In a pure capitalistic economy perfect information would be known, resources would transfer perfectly and costs would be distributed perfectly. The emphasis on perfectly is why capitalism has never existed because if I lose my job I can not instantaneously transport to a place where I am needed. Because we have no system in place to transfer the cost of externalities back to their origin. Because we continue to learn more about ourselves and world everyday. In essence we continue to approach perfection, but never can reach it. In this perfection, capitalism would work perfectly, where everyone would be treated fairly . Where costs are incurred where originated. Where I know the costs of an action before I act. But also our reality of imperfection is why socialism does not work.

In a perfect society social loafing would not exist and everyone would preform where they maximize production. But social loafing does exist and people are stuck in jobs where they are not reaching their potential. Also people act in their best interest, even when the social costs outweigh the personal gains. These reasons and more are why socialism can not work in our imperfect society. And the aforementioned reasons are why unregulated capitalism is impossible. So to growing complaints of capitalism I propose a solution, one that begins to fix our imperfection.

The solution starts with perfect information. For humans to make rational decisions, they must understand the consequences and benefits of their actions before they commit them. This is the reason for government programs like the EPA and FDA. These agencies can act independently of human influence through correct checks and balances to deliver facts to the public. Facts that can be taught through programs like public schools, mail pamphlets, public radio and other educational means. For us to have a fairly functioning economy, we need programs to derive information, validate it, and then share it, all of which need to be independently done.

Next, armed with this perfect information, we need to use it to correct market failures. The clearest examples I see today are cigarettes and energy production. Both of these actions can be done independently, but have social consequences, second hand smoke and pollution. It is one thing to participate in these actions and bear the consequences, but another to force others to bear them as well. This unfair distribution is not capitalistism because it removes the voluntary aspect of capitalism. So we need a set of Pigovian taxes that help us redistribute these costs. By taking emissions and cigarettes we can “reimburse” innocent bystanders for the costs committed by others through subsidized medical help. As we continue to learn more about our actions, we must continue to implement these taxes. It is in these Pigovian taxes that we can achieve a better economy.

And finally, we must begin to move resources more efficiently. In all pure economic models resources have no barriers to move between uses, but we know this is not true. Coal miners in West Virginia are a clear example of people stuck in bad situations, that are not accounted for in pure economic models. Therefore, are government must invest resources in relocation programs so those who have a more efficient allocation elsewhere can be relocated to efficiency. Public transportation must also be heavily invested in to allow for people to have more options for movement without the intervention of government. As time progresses this barrier itself will decrease, just as it has from the invention of the combustion engine. But for now it is government’s role to help create a better allocation of resources.

These three elements of a perfect economy and governance are the only roles for government. This restriction of government is, in the libertarian sense, the ideal mode because it gives the majority of freedom to individuals, but it also has one key economic advantage. By allowing the market to dictate what people do, it has no inefficiencies that government has because regulation requires resources. And this is why true capitalism is what we should be aiming for. Because it is the efficient way to perfect allocation of resources.

Come back next week again at 11 pm for the second installment in my new series; Capitalism is not the Problem.

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Austin Sachs, is a self proclaimed green libertarian who believes in most scenarios the solution to our social woes are market restrictions, hindering true market outcomes. He can be reached at austin.sachs@gmail.com for further comment on his ideas or work.