Socialism Must Lower – It Cannot Raise – Living Standards for the Masses

(Don Boudreaux) Tweet My latest column for AIER is the first of a two-part series on the indispensability, for the productive use of resources, of market-determined prices . A slice:

The reason socialism inevitably wastes resources is rooted in the fact that, under such a regime, the state owns all means of production (or what Mises called “goods of higher order”). Without private ownership of the means of production, there is no genuine exchange of the means of production. There is no transfer of ownership of plots of land, of factories, of commercial lathes, or of stockpiles of iron ore and bauxite. With no exchange of the means of production, there are no prices of the means of production. (Each price, after all, is among the terms on which one thing is exchanged for another.) And with no prices of the means of production, the manager of a factory that produces, say, lawn mower blades can’t possibly know whether the lowest-cost method of producing these blades involves the use of steel or of aluminum or of carbon fiber.

Source: Socialism Must Lower – It Cannot Raise – Living Standards for the Masses

Socialism Doesn’t Work

Last week, I reported on two myths about socialism. My new video covers three more.

Myth No. 3: Socialism works if it’s “democratic.”

As the Democratic Socialists of America put it, “Society should be run democratically—to meet public needs, not to make profits for a few.”

Sounds nice. If socialists are elected, then we’ll have a more just society.

But Venezuela’s socialists were elected.

“They can start off democratically elected,” says economist Ben Powell, director of the Free Market Institute at Texas Tech, but “once they centralize control over the economy, it becomes impossible to ‘un-elect’ them.”

Hugo Chavez was elected but became an authoritarian who chose his successor, Nicolas Maduro. Maduro now gets “elected,” by having opponents arrested and “ordering state employees to vote for him or they lose their job,” says Powell.

“Socialism always becomes authoritarian?” I ask.

“Everywhere you try socialism, that’s what you get,” he replies. “It’s hard to exercise political freedom if you don’t have economic freedoms. If you’re dependent upon the state for your livelihood, you lose your ability to use your voice to oppose [the state] because you can be punished.

….

“They do in Scandinavian countries!” say socialism’s promoters.

That’s myth No. 4.

Scandinavia does have big welfare programs, but capitalism pays for them.

The socialists call Sweden socialist, but that’s just wrong. “Volvo is a private company,” says Powell. “Restaurants and hotels are privately owned. Markets organize the vast majority of Swedish economic activity.”

Sweden did once try socialism. The result was high taxes, inflation, and economic decline. It’s an example of how people in prosperous places often don’t know what made their lives better.

In 1950, Sweden was the world’s fourth-richest country. Then Sweden tried socialism. Suddenly, once industrious Swedes started taking sick days. Wealth creation stopped.

“Talent and capital stormed out of Sweden to escape taxes and red tape,” writes Swedish historian Johan Norberg. “Businesses moved headquarters and investments to more hospitable places. IKEA left for the Netherlands…Bjorn Borg and other sports stars fled to Monaco.”

Sweden recovered only when it ended its socialist experiment. They cut taxes, government spending, and sold state-owned businesses.

After economically ignorant politicians like Bernie Sanders called Scandinavia “socialist,” Denmark’s prime minister even came to America to say: “Denmark is far from a socialist planned economy. Denmark is a market economy.”

In fact, in rankings of economic freedom, Denmark ranks as more free market than the United States.

Myth No. 5: Socialism is completely different from fascism.

In Congress, Rep. Louie Gohmert (R–Texas) called Hitler a “socialist.” Rep. Steve Cohen (D–Tenn.) took offense, shouting, “It’s the Nazis that were terrible, not the socialists!”

But Nazis were “national socialists.” There are differences between fascism and socialism, but “both replace market decision-making with command and control,” says Powell. Fascism “leaves private ownership in nominal terms” but neither system allows individual freedom. “You lose…control over your own future. Only under capitalism do you have the freedom to say, ‘No.'”

Socialism appeals to people today because it promises “equality and social justice,” but look at its track record. In Russia, Cuba, North Korea, Nicaragua, Vietnam, and China, socialism has meant a loss of freedom.

Socialist experiments also failed in Israel, India, Great Britain, Afghanistan, Syria, Algeria, Cambodia, Somalia, etc. There are no socialist success stories.

Only capitalist countries create real wealth.

Source: Socialism Doesn’t Work

What I believe now, part 2: strong imperfection

What I mean by “strong imperfection” is that human beings and their societal arrangements are very far from perfect. We are nowhere close to utopia, and we cannot see how to get there.

A major reason for this is lack of knowledge. We know today much more than we knew one hundred years ago. It seems reasonable to expect that in another hundred years, today’s level of knowledge will seem low. If we look at all of the past beliefs that today seem wrong-headed, we should be hesitant to commit to what we believe now. On this topic of what we do not know, check out the econtalk podcast with Russ Roberts and Michael Blastland.

The implications of this are:

1. We should be humble about predicting the consequences of public policies. In an economics textbook, a single “market imperfection” is shown in isolation, with the implicit assumption that everything else is perfect. Under those assumptions, the right tax, subsidy, or regulation can reliably produce improvement.

Most economists are familiar with the “theory of the second best,” which points out that trying to fix one problem, when there are other problems or constraints, can make things worse. This is a useful concept, but it only scratches the surface of strong imperfection.

2. We should welcome trial-and-error learning. The economic and social progress we have made is largely due to trial and error, not central planning. Because of strong imperfection, we know that many flaws and problems still exist. It is likely that solutions will come from trial and error going forward, just as in the past.

3. We should try to limit the number of personal flaws that we see as inexcusable. Both as a society and as individuals we should try to extend tolerance and forgiveness. Given our current state, I do not think we can do away with prisons, but I think we should be aiming in the direction of limiting their use. I also think that we should be reducing the number of “firing offenses” in the work place, not adding to them. As individuals, we should aim to reduce the set of excuses for cutting people off as friends.

4. We should avoid the “nirvana fallacy,” which involves comparing the current state to a perfect state. The most realistic change is likely to be from an imperfect current state to another imperfect state.

5. We should resist becoming Manichean. The motives of opponents are usually not as bad as we are inclined to make them out to be.

Source: What I believe now, part 2: strong imperfection

Totalitarianism Is Upon Us

The paramount question we should be focused on is not the fact that Raphael Warnock and Jon Ossoff won the Georgia elections — or even the possibility that their wins might have been a result of the usual Democrat cheating — but how two Marxists were even in a position to run for the United States Senate in a traditionally conservative state.  It seems reasonable to conclude that somewhere between 30-40 percent of voters in this one-time red state apparently prefer socialism to free-market capitalism.

Clear thinking on this matter also forces one to face up to the reality that America is now closer to becoming a Marxist nation than at any time in its history.  And, if so, I believe it’s important for people to understand what Marxism is all about.

As a prelude, let me start by pointing out that socialism and communism are, for all practical purposes, one and the same.  Karl Marx made it clear that socialism was but a phase along the way to communism, which is why I use those two terms, along with terms like Marxism, progressivism, liberalism, leftism, and collectivism, interchangeably.

Second, communism as Marx described it has never existed on this planet.  Leftists like to romanticize about his heaven-on-earth version of communism, a fantasy wherein the state “withers away” because everyone has equally satisfying lives — food, housing, medical care, and more — thus no one covets his neighbor’s possessions.  In the real world, however, from Lenin to Stalin to Brezhnev, from Mao to Deng to Xi, the term communism (and all of its synonyms) has proven to be nothing more than a euphemism for totalitarian rule.

Source: Totalitarianism Is Upon Us

Quotation of the day on socialism as a machine for empowering insiders…

…. is from Edward Glaeser’s article “ How to Fix American Capitalism “:

What many young people today don’t realize is that socialism is a machine for empowering insiders. Few insiders have ever been rewarded more assiduously than the nomenklatura of the Soviet Union. Few governments have been as gray—in every sense of the word—as the Brezhnev regime. A vast expansion of the American government, as imagined by today’s Democratic Socialists, would create its own privileged elite.

From its inception, by contrast, capitalism was designed for outsiders. Its original apostles, such as Adam Smith, argued that entrepreneurs needed freedom from the royal regulations that limited trade and the formation of new enterprises. When the government controls decisions to work or to start a business, political pull becomes a prerequisite for success. The whole point of economic freedom is that all people—not just the connected—can use their talents to help themselves and, potentially, to change the world.

Source: Quotation of the day on socialism as a machine for empowering insiders…

Why Hayek was Right About Nazis Being Socialists

Words are powerful things in that they enable us to share a common world of understanding with our contemporaries and, in the written form, with generations long past. But too often words can just as easily cause confusion, misunderstanding, and conflict among people in any society.

This has come up, again, in a recent article by Ronald J. Granieri, who is research director of the Lauder Institute at the University of Pennsylvania, on why, “The Right Needs to Stop Falsely Claiming that the Nazis were Socialists” (Washington Post, December 5, 2020).

Denying that National Socialism was “Socialist”

He seethes with frustration that those he calls on the political “right” attempt to classify the German Nazi regime of the 1930s and 1940s as “socialist.” Yes, the formal name of the Nazi Party was the National Socialist German Workers Party. But in his view, while the Nazis did impose an extensive degree of government intervention and control over the private sector, “their ‘socialism’ was at best a secondary element in their appeal.”

….

No doubt this summary of the content of Goetz Aly’s analysis of the National Socialist welfare system and its version of central planning would convince Ronald Granieri even more that the Nazi regime should not be classified as “socialist.”

Hayek was Right: Nazis were Socialist Central Planners, Too

But in my view, it demonstrates that all of its characteristics find their family resemblance in socialist regimes. Institutionally, the starting premise is that the individual is little or nothing, and must view himself as dependent upon and working for a wider “common good,” other than his own personal self-interest.

In the name of “the people” those in political authority, whether in that position through votes or violence, establish in the name of “the people” the hierarchy of social goals, purposes, and collective ends for which a set of government planning policies, interventions and welfare redistributions will be set in motion.

Individual choice and decision-making as consumers and producers are significantly reduced or even totally eliminated with government central planning and decision-making replacing voluntary association and exchange through the competitive processes of supply and demand.

Prices and production no longer fully reflect the valuations and appraisements of the multitudes of interacting buyers and sellers in the society – which means all of us in our consumption and production roles in the social system of division of labor. Instead, government plans and interventions determine or heavily influence wages and prices, along with what gets produced and how much; which means everything concerning our personal lives, livelihoods and standards of living.

Source: Why Hayek was Right About Nazis Being Socialists

Fisking “You Might be a Socialist” — The Writer in Black

If you believe this “meme” is meaningful, you might be an idiot.Not everything government does is socialism. Socialism has a meaning and it’s not just “anything funded with tax dollars”. It’s when the means of production are centrally controlled and managed. Second, just because something has been imposed by law and one, not wanting to […]

Fisking “You Might be a Socialist” — The Writer in Black

Samizdata quote of the day

“The Soviet Union (also Mao’s China, North Korea, Cuba, and Venezuela) have proved that central planning is impossible. Even something as simple as corn. To grow corn, you just plant seeds in fertile soil, and wait. Yet every country that attempted to centrally plan it, has starved.” Keith Weiner, who runs a precious metals investments business, based in Scottsdale, Arizona.

Source: Samizdata quote of the day