With the rise of Bernie
Sanders as a serious contender for president, it is evident that
many Americans are turning to socialism as the solution to our problems. It is amazing how
quickly the lessons of history are forgotten. These Americans should know that
socialism has already been tried, and hundreds of millions of people suffered
because of it. The Soviet Union, China, India, and even the United States
have already tried socialism in different forms. Each and every time
scarce resources were removed from free market based allocation, the standard
of living significantly lagged or regressed compared to free economies.
In some cases, mass starvation resulted.
Bernie
Sanders has self-identified as a democratic socialist. According to the constitution of the Democratic
Socialists of America, the goal of socialism is to remove profit and loss as a
mechanism for allocating resources. Instead, they would place bureaucrats in
charge of most resources and production. This is supposed to be okay
because the bureaucrats are controlled by democratically elected officials.
This, they believe, means that the people control the economy.
The
problem with socialism is simple. It removes true pricing as a means of
transmitting information about how to allocate scarce resources.
Socialists want to shoot the messenger that tells them that something is
scarce. Socialists would eliminate profit. Profit (and loss) is the
price signal that indicates that capital has been put to good use.
Socialists want to provide “free” health care, extra time off, and college
tuition. Making things free hides the fact that these resources are
scarce. Lastly, socialists would eliminate wage disparity. Wages are
the signal of how productive labor is. In all three cases I mentioned,
the socialist economy will destroy, hide, or distort information about the
reality that underlies the economy. When society’s behavior doesn’t match
reality, people suffer.
China, under Mao Zedong, adopted a completely socialized
economy. All production was governed by “the people” through government
officials. In 1958 he instituted the “Great Leap Forward.” This was an ambitious plan to overtake western economies
in industrial output. Having eliminated the evils of capitalism (market
driven pricing and allocation) Mao could realize the dream of socialist
superiority. Farmers were forced to give up private property and organize
into communes. Inefficient production methods were implemented by
uninformed officials. Planners mandated initiatives such as “backyard
furnaces” for steel production, controversial agricultural techniques, and
ill-planned irrigation projects. The goal was utopian plenty for all, the
result was economic devastation and the deadliest famine in history with a
death toll of around 30 million.
Democratic
socialists are quick to distance themselves from communist failures such as
these because they reject totalitarianism. Yes, there are differences
between communists and socialists in how power is maintained, but they have the
same economic strategy: replacing market pricing with central planners.
The story of China’s economic successes over the last several decades has
been the story of liberalization and the adoption of free market
principles.
India, too, has tried socialism. The Indian Constitution says India is a "Sovereign Socialist Secular Democratic Republic". From the time of independence in 1947 until 1991 Indians lived under a system that has been called the License Raj. This was a system of heavy handed control of the economy by government bureaucrats. What resulted was half a century of stagnation. When India abandoned central planning in 1991 it became one of the world's fastest growing economies. The average growth rate jumped from 2% to 6%. As Thomas Sowell put it, "The cumulative effect of growing three times as fast as before was that millions of Indians rose out of poverty".
Prior to liberalization, the Indian consumer would wait months, sometimes years to buy a car such as the Hindustan Ambassador...a copy of the British Morris Oxford which remained virtually unchanged for 40 years. In state-owned banks, costumers would wait in lines that stretched out the door. Indian business owners were saddled with so much red tape that it was easier to open new factories in foreign countries despite greater labor costs. A poignant example of Indian socialism is this story about price controls: Poor in India Starve as Surplus Wheat Rots.
Probably the most famous example of socialism is that of the Soviet Union. In order to compare the USSR with Bernie Sander's ideal government, we must overlook the worst of communist oppression which is clearly not the goal of democratic socialists. So, I will overlook the millions of deaths caused under Stalin and focus on the years afterwards. The soviet economy was completely planned. Everyone had a job. Zero unemployment. It sounds great until you realize that prices were not reflecting the reality of scarcity. Everything was rationed by waiting in queues. Quality and choice suffered. Black and grey markets supplied people with services that the official economy could not provide.
Waste and inefficiency was rampant. In Basic Economics, Thomas Sowell describes how Soviet planners mistakenly set too high a price on moleskins with the result that surplus pelts rotted in warehouses before they could be processed. The planners ignored requests to lower the price for moleskins because they were too busy regulating another 24 million prices. Socialism replaces distributed decision making (also known as liberty) with top-down control. This control led to inefficiency across the board. State operated farms were very inefficient. Though only 3% of arable land was operated privately in 1980, that land was over 1000% more productive than state run farms. As another example, Soviet Industry used more electricity than American industries while producing less. Eventually the inefficiencies grew unbearable and the Soviet Union collapsed in 1991.
Many
people do not realize that the United States is also greatly influenced by socialism. We have
numerous examples of state planning interfering with a free allocation of
resources. A wave of government activism in the economy began with
Woodrow Wilson when he signed the Federal Reserve Act. The Federal
Reserve System was one of the causes of the Great Depression. The
depression then led to an alphabet soup of programs, most of which
ended up increasing the severity and lengthening the duration of
the depression (See Burton Folsom's book New Deal Or Raw Deal).
Nixon used price controls. Lyndon Johnson waged an
unsuccessful war on poverty. Laws intended to promote home ownership
caused the housing boom, and later bust. Government red tape of the last
decade has led to a slow recovery. We have too-big-to-fail businesses
protected by government. All the elements we have seen in India, China,
and the Soviet Union exist in the United States to some degree. The
problems of a shrinking middle class, rising health care costs, and high
college tuition are the result of socialistic intervention. It is
appalling that Bernie Sander's would prescribe more socialism as the antidote
to the problems caused by socialism.
Bernie Sander's has said "I think we should look to countries like Denmark, like Sweden and Norway". These are his ideal examples of democratic socialism. He fails to understand that we are already like those countries. Scandinavian countries rate closely with the United States in the Index of Economic Freedom. The scores of the U.S. Denmark, Sweden, and Norway for 2016 are 75.4, 75.3, 72.0, and 70.8 respectively. Where they may have high taxation, they make up for it with more business freedom and less corruption. The United States federal government spends about 40% of GDP per year, much of it on social programs. When you take into account our debt, corporate taxes, and the hidden tax of inflation, our tax rates aren't that different than Scandinavia. That is socialism. Couldn't some of our problems be the result of the socialism we already have? And couldn't some of Scandinavia's success be due to the free market capitalism they have? The answer is yes and yes. Just like India, recent economic success there is also the result of market liberalization.
Free
market based allocation of resources has been proven to be the
most efficient and equitable method over the long term. It is also more democratic than “democratic”
socialism. People voting for public
officials are voting for a package deal taking the bad with the good. Voters are also engaging in speculation since
they are voting for unrealized promises.
And they cannot change their votes during long intervals between
elections. Thomas Sowell explains that in
a free market, consumers make their choices every day. “A person and can buy
one company’s milk and another company’s cheese…then they can change their
minds a day or a week later and make wholly different choices.” Nothing forces entrenched powers to kneel to
the will of the people better than the great voting machine known as the Free
Market.
In short,
socialists such as Bernie Sanders would destroy both of the things they claim
to care about: democracy and prosperity.
