Socialism is Dead

According to a recent survey, more millennials want to turn the United States into a socialist country than support freedom.  Millennials don’t just want more of a welfare state either – more than half want to replace free market capitalism with central-planning socialism.

Before I rip socialism to shreds, let me burst the millennial’s bubble.  Millennials fall into two camps.  Most are socialist.  That is true.  But there is a large libertarian streak in the millennial camp as well.  Furthermore, their younger siblings (Generation Z) are turning into the most conservative generation in our country’s history, as you can see here.  They lean libertarian, want laissez faire capitalism, and badly outnumber the millennials.  The early vanguard of Generation Z is graduating High School and will be voting in the midterm elections, and they will not be voting for socialists.  As such, the millennial love affair with  socialism is but a blip on the screen, whose time has already passed.  Socialism is dead.

And that’s a good thing.

Understand that socialism is a distribution system only.  Under democratic socialism, the people always vote to receive more of everything, while simultaneously voting to destroy the incentive to produce. Since you cannot distribute what is not produced, the system eventually implodes.  Socialism assumes that production will occur anytime there is demand, but It does not follow logically that production will occur when there is no incentive to produce.  This is why socialists eventually turn to compulsion; in the absence of profit, the only incentives left are the whip and the gun.

Today’s socialists try very hard to separate themselves from the communist regimes of the 20th century that killed at least 100 million people.  Nicolas Maduro was not a communist when Hugo Chavez died and Maduro was put in charge of Venezuela.  When faced with a starving populace, however, he opted to use force.  Venezeula is compelling it’s citizens to work, against their will, to produce the goods and services Venezuela needs for its people to survive.  You can read about this here.  Venezuela is going communist.

American socialists love to point to the Scandinavian countries as models.  I’m not sure what parts of the Scandinavian models socialists want to follow though.  Do they want us to remove most of our business regulations, to use laissez faire free market capitalism (albeit with high taxes) to fund a welfare state?  Do they want us to model the lack of ethnic and cultural diversity in Scandinavia?  Do they want us to grow our wealth through laissez faire capitalism, as Scandinavia did, and then to watch that growth grind to a screeching halt while we ramp up our welfare benefits?  Do they want us to model the flood of Scandinavians who moved to the United States to escape the flood of new taxes the Scandinavian welfare states entailed?  Do they want us to model the thousands of years of work ethic the harsh climate of Scandinavia drove into the culture of the people who live there?  Do they want us to model the slow deterioration of that work ethic, as their cultures slowly shift to reflect the incentives high taxes and generous welfare benefits create?

The Scandinavian countries are slowly trying to unwind their generous welfare programs.  They are also becoming less and less wealthy.  Sweden, the richest of the Scandinavian countries, has slipped from the 4th richest nation on Earth to the 14th over the last forty years.  That’s a big drop in half a lifetime.

Name me some large Scandinavian companies.  What’s the newest you can come up with?  Lego?  They were founded in 1932.  Don’t say Ikea – they left Sweden to get away from the high tax rates.  The truth is that you don’t see many new companies being formed in the Scandinavian countries; there is no incentive to create them.

Here is a very thorough write-up on Scandinavia.  The Scandinavian countries are not the socialist utopias they are held out as.

I can name many nations that emerged as wealthy nations under laissez faire free market capitalism, and that then created large welfare systems.  Who can name a nation that became wealthy under welfare?  England did not do so.  Germany and France did not do so.  Canada did not do so.  Australia did not do so.  The Scandinavian countries did not do so.  No such animal exists.  Some will say Israel, but Israel never became wealthy – it started that way, thanks to the wealth of the people who founded it, and to the wealth endowed upon it by the UN – from nations that got rich through free market capitalism.

Free markets are often blamed for things like child labor, but child labor existed long before Adam Smith wrote his book on the Wealth of Nations.  Child labor existed for all recorded history until it was banned, in the United States, in 1938.  What those who blame free markets fail to mention is that from 1789-1938, the proportion of children who were working plummeted.  By the time government banned child labor, the practice was already dead.  Did the few children removed from the workforce benefit?  Some perhaps did, but most were in families that sent them to work because they could not otherwise afford to feed them.  Child labor originally replaced child starvation.  Government removed child labor (after it was virtually gone anyway) and allowed children to starve.

I often hear that free market capitalism does not work in the United States.  That’s very true.  Free market capitalism stopped working here because we stopped using it.  When we had laissez faire free market capitalism, we saw the fastest rise in the living and working conditions of the common worker that has ever been seen, at any time or place, in human history.  Were the 1800s as nice as the 2000s have been so far?  No.  Of course not.  But the 1800s were a fair shot better than the 1700s, and in fact 1899 was a whole lot better than 1801.  Today is better than yesterday only because today comes after yesterday.  Today quite literally stands on the shoulders of yesterday.  Think for a moment about how wealthy we might be today had the incredible rates of growth from our true free market past (1789-1913) continued.

What we have is a mixed economy, with a democratic-republic government.  In this environment, government takes more and more control of the economy, creating a market for government power.  The economic elite purchase government power, and over time we end up with an economy that is centrally planned to support the interests of the economic elite.  We are already a long way down that road, and it does not resemble laissez faire free market capitalism.

Under socialism, the political elite overthrow the economic elite, and centrally plan the economy in their own self interest.  Government officials will spend as much as they feel like on government programs, as well as on their own pay and benefits, before letting whatever they cannot spend trickle back down to the people who earned it.  Unless you believe that political self interest is somehow nobler than economic self interest, there is no reason to think socialism will work any better than does crony capitalism.  Socialism and crony capitalism are the same thing – the only difference being whose interests the economy is centrally planned for.

What sounds more like ‘trickle-down economics’ – an economy where some elite (either economic or political) centrally plans the economy for its own self interest (with whatever they cannot spend trickling down to those who earned it), or an economy where each person earns what they can, in the private sector, and keeps what they earn?  Socialism and cronyism both depend on ‘trickle-down’ mechanics – only laissez faire free market capitalism does not.

Understand too that there are always laissez faire markets.  Black markets are largely laissez faire, and without them communism would have killed many more people in the 1900s than it did.  Our current market for political power is laissez faire, with those who are willing to spend the most on campaign contributions controlling all the political power.  This is why studies such as this one show that Congress does not care what-so-ever what the public wants.  The economic elite own our government, and government is their friend – not yours.  If you push for socialism rather than laissez faire capitalism, the best you can hope for is that government becomes its own friend, and government officials will keep all the wealth for themselves.

Getting back to child labor and sweat shops…  What people have to understand is that a dollar a day is worth a lot more than twenty-five cents a day, and that in very poor societies, where child labor and sweat shops are common, parents send their children to work because it is the only way they can make enough money for everyone to eat.  Sweat shop jobs don’t look very good to us, but they look a lot better to the people who have them than do the other jobs that are available, which is why they choose to work in sweat shops.  As nations grow their wealth, conditions do improve – as they did here.  By denying other nations the right to move through the earlier portions of growth, we hold them back in abject poverty.  As Bono from U2 has told us, “Aid is a band aid.  Free markets are the cure.”

Labor is a commodity,  as is steel.  Nobody pretends that companies who use steel get to pay whatever they want for it; if they did, steel would be free.  Supply and demand drives the price of steel.  It is absurd to believe that with labor, suddenly the natural processes of supply and demand fail, and employers dictate costs.

Supply and demand determine the costs of labor.  There are also a large number of separate markets for labor.  When companies are looking to hire CEOs, they pay what they need to pay to get the CEO they want.  What they pay a janitor has absolutely nothing to do with what they pay their CEO, and what they pay their CEO has nothing to do with what they pay their janitors.  The pay given to different types of workers, in different parts of the labor market, are completely unrelated to each other, making discussions about CEO pay vs. janitor pay completely worthless.  Companies do not want to pay more for any kind of worker than they have to pay, and companies are always looking for ways to reduce labor costs.

Ironically, it is the desire to reduce the cost of labor the drives the price of labor upward.  There is a direct correlation between the number of work-hours it takes to build something, and the number of work-hours it takes to buy that thing.  As companies automate, reducing the number of work-hours it takes to produce things, so too the cost of those things, measured in work-hours, drops.  Dr. Mark Perry, an economics professor at the University of Michigan, has written about this a great deal.  Some of his research can be seen here.

If it takes 150 people 100 hours each to build a car, the cost of the car will reflect the 15,000 hours of work it took to build it.  When you reduce the number of people to 15, and the number of hours each works to 10 (per car), the cost will reflect the fact that it now only takes 150 hours of work to build a car.

When the shovel was invented, you can bet that a lot of people were concerned about what all of the manual laborers, who had previously been digging with their hands, would do.  Suddenly, the same amount of dirt could be moved with far fewer people.  Did masses of workers become unemployed?  No.  More dirt was moved, and many of the people who previously had been moving dirt started doing other things.  More total work was accomplished.

Socialists tend to look at the world as being static, and when it takes fewer people to perform the same amount of work, they believe the people no longer needed will be out of work.  That is not what happens at all.  What happens is that more work is accomplished than was before, and society becomes more wealthy.

There are two ‘problems’ with laissez faire free market capitalism.  One is that different people become more wealthy at different rates, with some people becoming fabulously wealthy.  On an absolute scale, everyone benefits from laissez faire capitalism, but on a relative scale, some benefit far more than others.  Socialists will often say that poverty is relative, and as such income inequality is more important than income on an absolute scale.  I would love to see a socialist tell that to a society where everyone is equally starving.  Starving people are not better off, no matter how economically equal they are, than are people who are fed.  It is absolute wealth that matters.

Andrew Carnegie continuously reduced the price of steel.  This made everything that utilized steel cheaper.  Andrew Carnegie became one of the richest people in recorded history, but his wealth was just a tiny fraction of the wealth everyday Americans saw, as everything from cars and refrigerators, to buildings and bridges, became less expensive.  It was the quest for wealth that drove Andrew Carnegie to improve steel production, but the true vastness of wealth was enjoyed by everyday Americans, who could suddenly afford things they could only dream of buying before.  As such, the income inequality inherent with laissez faire capitalism is not a problem.  What is a problem is human envy, and the ability of socialists to exploit it.  What should matter to each person is how wealthy, in real terms, they are.  How wealthy someone else is has nothing to do with that.

The other ‘problem’ with free market capitalism is that it takes time, and faith, to work.  Living conditions grow gradually under free markets, requiring time.  At the end of the Korean War, South Korea and North Korea were equally poor.  Today, South Korea has living and working conditions comparable to Western societies, but it took seventy years for South Korea to catch the West’s level of wealth.  Socialists can promise to improve life overnight.  Socialism is unsustainable, so it cannot improve lives for very long, but it does improve the lives of the poor at least until all residual wealth has been consumed.  People are not always very patient, and will sometimes look for the quick fix of socialism – unsustainable as it may be – rather than taking the gradual but lasting path of free market capitalism.  There is an old saying that if you give a man a fish, he eats for a day, but if you teach a man to fish, he eats for a lifetime.  What the saying should include is that if you offer a hungry man a choice between a fishing pole and a fish, they will generally pick the fish.

In addition to time, it takes faith for free market capitalism to work.  Socialists will sometimes present a problem, such as expensive healthcare, and demand of the libertarian a free market solution.  Socialists will not accept the fact that the free market is the solution – they will instead demand to know what, specifically, the free market will change, and how those changes will reduce the cost of healthcare.  When you tell the socialist that free markets drive efficiency gains, they will demand to know what specific efficiency gains free markets will drive, and how.  Socialists have no faith in the creative capacities of the 330 million people in the United States – if you cannot personally tell them every one of the advancements every one of our millions of healthcare professionals can come up with, socialists will pretend that no improvements are possible.

Ironically, socialists assume that if government can just take over something, like healthcare, suddenly the laws of supply and demand will evaporate, and we will have all the healthcare we could ever want, free of charge.  Socialists have no faith at all in the creative powers of every day people working their every day jobs, but they view government as an omnipotent force – almost as if government were some kind of god.

Perhaps it is the absence of a belief in God that drives millennials to socialism.  Generation Z is far more religious than the millennials, and is also far more in favor of free markets.  Is it possible that those who believe in the omnipotence of God find it easier to believe in the limited capacities of our fellow mankind, whereas those who do not believe in God look elsewhere for omnipotence, turning their attention away from their fellow human beings, and toward government?  I suppose that is a separate discussion for a separate day.  For today I’m just glad that Generation Z is out there, and that because of Generation Z, the millennials are not going to get what they want.  Socialism is dead.