A Primer on the Folly (and Evil) of Socialism

I’ve written many times about socialism, which is sometimes a frustrating task because the definition is slippery.

I suspect the average supporter of Bernie Sanders or Alexandria Ocasio-Cortez thinks that socialism is big government, with lots of handouts financed by class warfare taxation. Since that’s the common perception, is that the definition we should use?

The technical definition of socialism, though, is government ownership of the means of production, which entails central planning, price controls, and other forms of intervention. So, at the risk of being pedantic, is that how the term should be defined?

As an economist, I prefer the latter approach. Which is why I’ve pushed back (though not necessarily in a favorable way) against those who called Obama a socialist.

A few years ago, I tried to reconcile this definitional conflict by creating a diagram to show that there are several strains of socialism (or statism, leftism, progressivism, or whatever you want to call it).

I also created a 2×2 matrix to show how various nations should be characterized when measuring redistribution and intervention.

If you think I’m somehow being unfair, check out this recent column in the New York Times. Even an advocate for socialism has a hard time saying what it is.

Public support for socialism is growing. Self-identified socialists like Bernie Sanders, Alexandria Ocasio-Cortez and Rashida Tlaib are making inroads into the Democratic Party… Membership in the Democratic Socialists of America, the largest socialist organization in the country, is skyrocketing, especially among young people. …what do we mean, in 2018, when we talk about “socialism”? …Socialism means different things to different people. For some, it conjures the Soviet Union and the gulag; for others, Scandinavia and guaranteed income. But neither is the true vision of socialism. What the socialist seeks is freedom. …when the basic needs of life compel submission to the market and subjugation at work, we live not in freedom but in domination. Socialists want to end that domination: to establish freedom from rule by the boss, …from the obligation to sell for the sake of survival.

His claim that socialism is freedom sounds bizarre.

And it is bizarre. But it’s not new. It’s the crazy idea of “positive liberty” that was the basis of FDR’s so-called economic bill of rights.

Basically, we should all be “free” to live off of other people (though this cartoon sums up why that approach doesn’t work).

Though that’s just the start. Socialism eventually will mean…well, the proletariat will decide at some point.

There’s not much discussion, yet, of classic socialist tenets like worker control or collective ownership of the means of production. …today’s socialism is just getting started. …In magazines and on websites, in reading groups and party chapters, socialists are debating the next steps: state ownership of certain industries, worker councils and economic cooperatives… Mass action — sometimes illegal, always confrontational — will determine socialism’s final form. …As Marx and Engels understood…it is workers who get us there, who decide what and where “there” is. That, too, is a kind of freedom. Socialist freedom.

Is that the “freedom” to set up gulags and exterminate enemies?

I guess we’ll have to wait and see.

Writing for Bloomberg, Professor Noah Smith is both sympathetic and worriedabout the putative resurgence of socialism.

Observing the disaster that is Venezuela, many free-market proponents are inclined to say that socialism always fails. To bolster their claim, they can also point to the Soviet Union, to North Korea, or to Vietnam and China before those countries implemented free-market reforms. Those self-described communist systems generated vast poverty and famine… defenders of socialism have their own historical examples to cite. …Though one can quibble over the definition of the word “socialism,” there’s little question that the so-called social democracies of Denmark and Sweden offer some of the world’s highest living standards.

That being said, Smith is concerned that advocates of socialism don’t understand the risks of too much government. He cites a couple of examples, including the failure of price controls and also how India suffered from statism before starting reforms in 1991.

But his comments about the United Kingdom and the Thatcher reforms may be the most important, because the Brits actually tried real socialism (i.e., government ownership of the means of production).

…the U.K. provides a cautionary tale. After World War II, the U.K. nationalized industries like steel, coal, aviation, electricity, rail transport and some manufacturing. But the British economy lagged behind its continental European peers during the midcentury. Manufacturing and transportation especially stagnated. By the time Margaret Thatcher became prime minister in 1979, both France and Italy were richer in per capita terms… Thatcher unleashed a wave of privatizations, along with other free-market policies. Britain…growth accelerated, and by 1997 it had caught up and passed France and Italy.

Here’s a chart from his column showing how the U.K. fell behind when it was socialist but then regained the lead following pro-market reforms.

Professor Smith’s cautionary words are noteworthy since he (based on having read dozens of his columns) leans to the left.

And here’s another criticism of socialism, this time from an unabashed liberal (in the modern sense of the word, not classical liberalism). Bill Scher has a withering review of a new book by a group of socialists.

Felix Biederman, Matt Christman, Brendan James, Will Menaker and Virgil Texas—of the socialist, satirical podcast Chapo Trap House…make bank by selling you a candy-coated version of socialism, one that may offend real socialists even more than liberal gruel-peddlers like myself. …The indoctrination begins with a condemnation of America’s containment of Soviet communism. …“Who cares?” if the Soviets won the Cold War, they write. …After blaming American-led capitalism for the world’s ills, the authors take aim at their favorite target: liberals. …In their evisceration of liberals and establishment Democrats, we get the usual left-wing criticisms of the Barack Obama and Bill Clinton presidencies… The Chapo crew’s romp through the history of feckless liberalism doesn’t stop with Obama and Clinton. Jimmy Carter is slammed… Lyndon Johnson is excoriated… Not even Franklin Delano Roosevelt escapes.

By the way, I can’t resist interjecting to point out that socialists had good reasons to condemn Bill Clinton’s presidency. After all, economic freedom increased during his tenure.

Though I suppose they also should be free to criticize other Democratic administrations for the supposed sin of not moving to the left at a faster rate.

The conclusion of Scher’s review is brutal.

After slogging through 276 of the book’s 282 pages of bad history…, the authors finally get around to their grand plan. Spoiler alert! This is literally it, in its entirety:

“After setting everyone on equal footing (by seizing the billionaires’ money, socializing their wealth, and handing the keys of production over to workers), you’re looking at an economy that requires something like a three-hour workday, with machines taking care of most of the drudgery; and—as our public fund pays for things like health care, education, scientific research, and infrastructure—all this technology actually makes work quicker, easier, and more enjoyable.”

The notion that socialism is going to slough off all that annoying labor to our forthcoming legion of robot slaves may come as a surprise to many socialists. …The Chapo hosts’ aversion to hard work extends to this book. Why suffer the details of how this nonworkers’ paradise, free of paper pushing and ditch digging, is going to be realized, when you can take in more than $1 million a year by dressing up stale arguments and thin policy ideas with inside jokes? The infomercial socialists of Chapo have exploited the free market expertly, and at least saved themselves from the 9-to-5 prison.

Until reading this review, I confess that these clowns were unknown to me.

But I’m going to take a wild guess that (like Michael Moore) they don’t share their wealth with the masses.

Let’s close by now perusing a serious economic analysis of socialism. Mark Perry of the American Enterprise Institute looks at Why Socialism Failed.

Socialism is the ultimate Big Lie. While it falsely promises prosperity, equality, and security, it delivers the exact opposite: poverty, misery, inequality, and tyranny. Equality is achieved under socialism only in the sense that everyone is equal in his or her misery. …Socialism does not work because it is not consistent with fundamental principles of human behavior. …it is a system that ignores incentives. …A centrally planned economy without market prices or profits, where most of the property is owned or controlled by the state, is a system without an effective incentive mechanism to direct economic activity. …The strength of market-based capitalism can be attributed to an incentive structure based upon the three Ps: (1) Prices determined by market forces, (2) a Profit-and-Loss system of accounting, and (3) Private Property Rights. The failure of socialism in countries like Venezuela can be traced directly to its neglect of these three incentive-enhancing features.

Here’s some of what Mark wrote about socialism and prices.

The only alternative to a market price is a government-imposed price that always transmits misleading information about relative scarcity. Inappropriate behavior results from a controlled price because false information is transmitted by an artificial, non-market price. …The situation in socialist Venezuela provides a current example of the chaos and inefficiencies that are guaranteed to result from government price controls. As could be easily predicted, the widespread price controls imposed by the socialist regime in Venezuela in recent years led to chronic shortages of basic goods like milk, flour, rice and toilet paper, and long lines of customers waiting for hours to buy groceries at stores that frequently have mostly empty shelves.

Here are excerpts from his analysis of socialism and profits.

A profit system is an effective monitoring mechanism that continually evaluates the economic performance of every business enterprise. The firms that are the most efficient and most successful at serving consumers are rewarded with profits. … the profit system provides a strong disciplinary mechanism that continually redirects resources away from weak, failing, and inefficient firms toward those firms that are the most efficient and successful at serving consumers. …Under central planning, there is no profit-and-loss system of accounting to accurately measure the success or failure of various firms and producers. Without profits, there is no way to discipline firms that fail to serve the public interest and no way to reward firms that do. … Instead of continually reallocating resources towards greater efficiency, socialism falls into a vortex of inefficiency and failure.

And here are portions of what he wrote about socialism and property rights.

The failure of socialism around the world is a “tragedy of commons” on a global scale. …When assets are publicly owned, there are no incentives in place to encourage wise stewardship. While private property creates incentives for conservation and the responsible use of property, public property encourages irresponsibility and waste. …Public ownership encourages neglect and mismanagement. …Venezuela today is moving in the opposite direction. Under Hugo Chavez, the private property and assets of foreign-owned oil companies from the US, France, and Italy were nationalized and converted to state-owned, state-managed assets. The results were completely predictable: corruption, lack of investment, deteriorating capital assets, mismanagement and a sharp and ongoing decline.

His conclusion is especially powerful.

By their failure to foster, promote, and nurture the potential of their people through incentive-enhancing institutions, centrally planned, socialist economies deprive the human spirit of its full development. Socialism fails because it kills and destroys the human spirit… Programs like socialized medicine, free college, guaranteed jobs, free housing, and living wage laws will continue to entice us… But those programs, like all socialist programs, will fail in the long run…because they ignore the important role of incentives. …Socialism is being repackaged and recycled by today’s left-leaning politicians including Sanders and Ocasio-Cortez and is being taken seriously by a new young and gullible generation, many who weren’t even alive when the historic events of the 1980s and 1990s occurred including the fall of the Berlin Wall and the collapse of the Soviet Union. But the lessons from history about the defects, deficiencies, and failures of socialism are very clear. As we’ve learned from countless examples throughout history, including now Venezuela, the main difference between capitalism and socialism is this: Capitalism works.

Amen.

The observation that capitalism works and socialism fails is the point of my two-question challenge for my left-leaning friends.

To be sure, my challenge applies to conventional leftists as well as all varieties of socialists.

The advocates of bigger government surely should be required to show at least one example of how their policies work in the real world. But they can’t.

I’ll close by sharing this wonderful video of Dan Hannan explaining why liberty is better than socialism.

If you enjoyed that video, you can also watch Hannan in action here and here.