Pros & Cons of Our U.S. Economic System

  Reviewed by: Michelle Seidel, B.Sc., LL.B., MBA
  Written by: Stephanie Faris      Updated November 08, 2018
New York Stock Exchange

If you’ve ever engaged in a healthy debate about capitalism versus socialism, you know the U.S.’s chosen economic system has its detractors. America’s entire economy is built on capitalism, which lets residents control how products are produced and sold. In the U.S., an entrepreneur can take a business from nothing to a multimillion-dollar corporation in a matter of a few years, especially if the timing is right. In socialist countries like China and Cuba, the government takes an active role in product creation and manufacturing, and residents rely on the government to take care of them. The end result is a more equitable distribution of income that prevents some citizens from being left behind. But although many economists argue about the benefits of capitalism, they can name a few pitfalls, as well.

The Pros

In a capitalist system, the theory is that everyone has the ability to build a successful business if they work hard enough. Additionally, consumers are free to purchase whichever goods they want, limited only by their economic means. The competition will drive businesses to produce only the goods that are in demand, reducing waste and keeping prices low. This drive toward making the most of what they have will also drive consumers to spend their money on the items they most need and want.

The drive to achieve “the American dream” encourages innovation. Steve Jobs was driven by a passion to start Apple with the Macintosh computer, but like most entrepreneurs, he wanted to oversee a successful business. Once he had a certain measure of success, his ambition to be the best drove him to up his game, inventing products like the iPhone. Overall, this economic setup means that America remains competitive with other countries in creating new products.

The Cons

Unfortunately, capitalism doesn’t work quite the way idealists think it should. Often the income someone earns is based more on the ability to negotiate during a job interview than some “work hard, earn more” formula. Businesses have realized the benefits of importing products from socialist countries, where cheap labor costs drive manufacturing prices down, which means American manufacturers are being bypassed due, in part, to capitalism.

Another issue with the U.S. economic system is the corporate practice of making money from financial activity rather than the product sales themselves. Profits go to shareholders rather than being put back into the business and offering raises or bonuses to workers. This harms the overall economy rather than helping it, making it a definite item for the “con” column.

About the Author

Stephanie Faris is a novelist and business writer whose work has appeared on numerous small business blogs, including Zappos, GoDaddy, 99Designs, and the Intuit Small Business Blog. She worked for the State of Tennessee for 19 years, the latter six of which were spent as a supervisor. She has written about business for entrepreneurs and marketing firms since 2011.

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