The U.S. economy is outdated. It has begun to function improperly and it’s on the verge of ceasing to function at all. Don’t allow yourself to be tricked by historically “good” GDP and unemployment figures. The reality is that our current economic system is failing its inhabitants. What’s most concerning is the fact that classic macroeconomic signals of a healthy economy are becoming less correlated with the actual well-being of those within the economy. For example, US GDP rose by 4.3% in 2018. This is supposedly a “great” number—well over what economists think the ideal GDP growth rate should be. However, in that same year, depression rates, student loan debt, and financial insecurity also increased at a record rate. There is a disconnect.
An economy is designed to benefit those within it, but, despite these historically strong macroeconomic statistics, ours doesn’t. Many Americans, especially younger citizens, have pointed to our capitalist economic system as the problem. Consequently, a call for its inverse – socialism – has grown louder and louder. However, I’m not convinced it’s the answer. Although, I do agree that our current economic system is broken.
America’s form of capitalism has devolved in something called corporatism. We no longer emphasize the importance of an economy’s consumers, but instead emphasize the success of its corporations. Look at the metrics we use to determine if the economy is good: corporate profits; stock market returns; U.S. GDP. These statistics tell analysts nothing about the people within the economy. Instead of highly competitive, free-market forces driving prices down and churning out innovative products and services, what we have today is a collection of fewer and fewer corporations capturing broad chunks of the economy. This stifles competition, limits consumer choice, and increases prices.
How did this happen?
Corporatism may not have been a problem in the past. For hundreds of years, there was a strong correlation between the incentives of capitalists and the well-being and standard of living of their workers. In other words, if a company was doing well, its average worker was too. Therefore, it made more sense to live in a corporatist society.
Over time, this alignment of incentives tricked people into believing that capitalism automatically optimizes for the well-being of its citizens. In reality, capitalism optimizes for capital efficiency – how efficiently a company generates profits using its capital – rather than human well-being. For a long time, optimizing for capital efficiency was correlated with the standard of living of workers, but now it doesn’t. This is due to many reasons, but in short it boils down to globalization and artificial intelligence.
These explanations are the catalyst behind increasing job competition. It’s becoming more and more efficient for companies to outsource production to machines or foreign countries. Therefore, when U.S. companies are doing well, it’s not a guarantee that U.S. citizens are benefiting from this success.
These developments have boosted corporate profits and bolstered classic macroeconomic metrics. And this has shielded the fact that our economy has stopped working for us and we have begun to work for it.
Introducing Human-Centered Capitalism: An Update to our Economy
One way to resolve this is to look at some of the premier economies in the world. And in case it’s not obvious by now, I don’t mean premier in terms of GDP growth or unemployment numbers; I mean it in terms of median consumer well-being.
As a proxy for well-being, we can look at the 2019 World Happiness Report in which the U.S. ranks 19th, despite all of its GDP growth and low unemployment numbers. Five of the top seven spots, including the first four, are the countries who belong to an economic system called the Nordic Model. Simply put, the Nordic Model is an economic system with very little product market regulation and a collective risk-sharing system that protects against the risks of inequity that come with economic openness.
It is, essentially, a capitalist society with a government-run social safety net that consists of programs like free education and universal healthcare. And it’s no coincidence that its five members have ranked among the top ten in the World Happiness Report over the last five years it was conducted.
These countries’ (more successful) version of capitalism is not guided by an “invisible hand,” but rather by clear and strict government policy. This model is very similar to the idea of Human-Centered Capitalism, an idea popularized in the United States by recent presidential candidate, Andrew Yang. Its components are simple: the primary, and arguably only goal, of an economic system should be to better the lives of those within it. Ergo, the focus of a Human-Centered Economy is to maximize human welfare. This focus may fall in line with pure capitalist views, but oftentimes it won’t. The central tenets of Human Capitalism are:
- Humans are more important than money
- The unit of a Human Capitalism Economy is each person, not each dollar
- Markets exist to serve our common goals and values, not the other way around
The most important difference between a Human-Centered Economy and a Corporatist Economy is what’s measured, because what’s measured is what’s managed. In other words, if we emphasize corporate profits and GDP growth, our government and economic system will optimize for these metrics. However, if we emphasize the country’s median standard of living and environmental quality, for example, then our economic system will optimize for those metrics instead. So, we need to accurately measure whether or not the average human is thriving, and then center government policies around optimizing for these measurements. Examples of a Human-Centered Economy’s metrics might include:
- Median Income
- Standard of Living
- Mental Health
- Social and Economic Mobility
- Childhood Success Rates
- Average physical Health
- Quality of Infrastructure
- Environmental Quality
- Public Safety
- Economic Competitiveness
- Information Integrity
Of course, it’s much easier to implement this type of system in Sweden or Finland where each has populations smaller than Florida. In the U.S., economic principles discussed above would need to be defined and implemented using local governmental policies—on a state-by-state or even county-by-county basis. Once implemented, it would be relatively easy to establish metrics that accurately portray the health of each economies’ consumers.
We need to rethink our economic system. A country’s inhabitants’ best interests should be realigned with the metrics we use to track its success. Built with the Nordic blueprint, a Human-Centered Economy fit to function throughout the U.S. does just that. Unlike our current corporatist model, this solution would serve to better the lives of the people within it. It’s time to reconstruct America’s economy to work for the American people, not the other way around.