Watch CBSN Live

Where Americans split on fixing the economy

As voters begin heading to the primaries to cast their ballots, questions about the direction of the U.S. economy are splitting both parties. Many voters are fed up with stagnant middle-class living conditions, rising economic insecurity -- and politicians who are unresponsive to their needs. The rise of Bernie Sanders and Donald Trump reflects the frustrations these voters feel with our economic and political systems.

But the two parties offer very different solutions to these problems.

Let's begin with something both sides, for the most part, agree about. An ideal, textbook-style, purely competitive economy has attractive features. It delivers goods and services to consumers efficiently, in accordance with their desires and at the lowest possible price.

Is America ready for a Democratic Socialist as president?

In addition, a principle of equity is built into the system. Each worker, capitalist, landlord, etc., receives an income equal to his or her contribution to total output. Some people would like to move beyond a capitalist system, but both parties for the most part agree that this is the best way to organize economic life.

The real world, of course, is hardly as perfect as the textbook model assumes, and this is where the disagreements between the political parties begin.

Markets can fail in many ways. They're not perfectly competitive, most firms have some degree of monopoly power and a few producers or a single company can dominate a market. "Externalities" -- costs that firms impose on society, such as polluted air that they don't have to pay for -- distort incentives and cause production to move away from the competitive ideal.

Markets fail when buyers and sellers have different information about a product or service (that's why homeowners are required to fully disclose all known problems when selling a house). Insurance markets are plagued by moral hazard problems (e.g., not purchasing health insurance because you know if you have a serious health problem, society will still care for you).

And these are just for starters; markets have many, many ways to deviate from their ideal structure.

Donald Trump: I will appeal to Bernie Sanders supporters

Democrats are much more likely than Republicans to see significant market failures, and more important, they're much more confident in the government's ability to step in and take corrective action that moves us closer to the outcomes the textbook model promises.

Republicans are much more likely to believe that, given enough time, markets will correct these problems on their own and that government involvement generally makes things worse, not better. They would agree that markets are imperfect, but not to the degree that Democrats assert, and they don't believe government is the solution.

The other issue is economic fairness, which has two aspects. The first, which I'd speculate is more of a concern to Sanders' supporters (though not exclusively), is whether the system has been fair in the way it rewards workers, fair in the opportunity for success it gives people and fair in the way it treats the less fortunate among us. Income inequality has grown, and the income of workers hasn't kept pace with the increases in their productivity; instead, those gains have gone to people at the top of the income distribution.

That's not how it's supposed to work, according to the textbook model. People see a system in which opportunity is unequal, in which you can work hard and still struggle to make ends meet, in which some people are mired in poverty. They believe government should correct these inequities in our economic system -- that economic fairness and justice should prevail.

But questions also arise about how to make these adjustments to ensure fairness, and this is what I think is more likely to motivate Trump's supporters and differentiates the policies they focus on from those of Sanders' supporters.

They ask: Why are we being asked to pay the cost of social programs dedicated to promoting opportunity for those even less fortunate than we are, or to ease their burdens? Life is hard for us, too.

We can hardly afford to pay for college for our kids, yet nobody helps us pay the costs. Why are we being asked to help with their costs? Why should we pay for social programs that allow others to stay at home while we go to work each day to jobs we don't particularly enjoy and still barely make enough to support our families?

To use Mitt Romney's distinction, some poor people are deserving and some are undeserving, and we think the deserving are worthy of help. But why are we being asked to help those who won't help themselves when our lives are hardly filled with luxury?

I believe this overstates to a considerable degree how much redistribution actually goes from the working class to those lower on the income distribution, and it understates how hard the great majority of those on the lowest income rungs work for the tiny paychecks they receive. Those beliefs have been stoked by politicians and others with different agendas -- foremost among them, tax cuts for the wealthy supported by cuts to social insurance programs.

But that doesn't make the sentiment any less real. In any case, the basic question is a good one. Why aren't those who have benefited so much from our economic system being asked to do more to help? Why do they get tax cuts while others' incomes stagnate? Why does the system seem so stacked against the working class and so much in favor of those at the top?

How to best address market failures is certainly an issue, and clear differences separate the two parties on the degree to which government can effectively use laws and regulations to address departures from the competitive ideal.

But the biggest issue in this election is the equity of America's economic system. People believe it's unfair -- that wealth, political power and connections mean more than hard work. And they believe what little they do have is threatened by a system that conspires against them. The basic promise of the country's economic system -- if you work hard and play by the rules, you'll be rewarded -- has been broken.

Whether unfairness is an inherent feature of a capitalist system is a difficult question to answer. It depends critically on how fairness is defined, and there's no universally accepted definition.

What I believe is fair may seem quite unfair to you, and economics offers no guidance on this issue. But according to the definitions that a great number of voters use, our economic and political systems have failed them. Politicians have catered to special interests rather than to their needs -- and voters apparently are ready for change.

View CBS News In