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.
7 comments:
I think comparing Sanders with Soviet Union and China is fear-mongering. His allegiences are clearly not there. Western European welfare states is really what Sanders is advocating.
I believe that European socialism is working reasonably well in Europe but it is not applicable in US for many cultural and economic reasons. That is the reason I do not support Sanders as president for US. At the same time I believe that Cruze's ( or even Rubio's) ideological & militaristic views might do more damage to the country then Sanders
I took great care not to compare Sanders with the totalitarianism of Mao or Stalin. You cannot say that China and the Soviet Union are off-limits when it comes to examples of resource allocation just because they were able to take socialism closer to the theoretical ideal. My focus has been entirely on socialism's explicitly declared view that bureaucrats (whether they answer to elected officials or not) can allocate resources better than a free market. Even incremental steps toward socialism such as Sanders high minimum wage would cause mis-allocation of resources and reduce prosperity for everyone. The damage of socialism has already occurred here. This isn't a hypothetical.
I agree that in general prices need to be set according to supply and demand... except when it comes to health care. It is probably more of an emotional reaction to the situation than a purely logical one because I grew up in a household that could not afford medical care nor insurance. I watched my parents live with debilitating health problems because we could not afford to go to the doctor. I support a fully nationalized single payer health care system. I think it is really easy to sit back as one who has medical care provided through employment or due to personal wealth and say that the price should be based on S and D. Realistically try to put yourself in the position of watching your wife, year after year, struggle with something that a surgery would easily fix, but that surgery is way beyond what you can afford. How would you feel? There are some things that a nation should provide to its citizens, and health care, IMHO, is one of them. You can point at Canada or England and claim that their systems are disasters, but when I talk to the common person in these countries, they normally are very thankful for their health care security and they give it good reviews.
BTW - I saw your GBH quote and can't help but comment:
"Permissiveness never produced greatness. Integrity, loyalty and strength are virtues whose sinews are developed through the struggles that go on within a man as he practices self-discipline under the demands of divinely spoken truth."
Love the idea, hate the last 3 words. Of course, you have to consider the source... but, come on... that same "fight" or "push" that drives secular humanists has created some pretty awesome people with some wonderful technological advancements. And please don't try to lessen their greatness by associating/subordinating their accomplishments with/to deity.
Health care is not an exception to the rules of basic economics. I would challenge you all to read Basic Economics by Thomas Sowell. It is hands down the most readable and enjoyable text on economics I have read. I guarantee you that nationalized healthcare allocates resources so as to cause inefficient scarcities and surpluses similar to the examples in this essay. Every time an industry was socialized, the people wholeheartedly supported it because it made them feel better. Every time, they suffered in some way.
As stated, the U.S. has socialized many aspects of the economy. Healthcare was partially socialized in a process that began with wage controls during WWII and continued with tax law. If you could see how health care could have been in an alternate universe where the U.S. had embraced free market health care, you would be astounded at how cheaply your family could have been obtained healthcare. In that universe you would have seen most people with high deductible plans, people going to the gym to workout more, people eating healthier, and people visiting the doctor about as often as you visit the eye doctor for about the same price, and doctors providing great service with money back guarantees. And yes, you'd see more physicians assistants and more power given to pharmacists and optometrists. That is how a free market would create efficiencies that benefit everyone without breaking the bank. And yes, we would still have socialized the health care provider "of last resort". I do believe in socializing extreme situations where either the costs are too great to attract any investors or where the externalities of the venture greatly outweigh the benefit of efficiency (military, disaster relief, prisons. etc). But resorting to socialization only because it feels fair will always result in a lower standard of living for everyone.
Your arguments strike me as those of someone for which the system has worked. You have probably always had your health care taken care of by your employer, and, even as a child, you probably had access to health care based on your parent's employment. I remember when Max worked at LDS Hospital, we would get into health care discussions and he would "assure" me that there was nothing wrong with American Health Care. At the time I had zero access to health care and was very annoyed by his smug assumptions based on his pampered experience.
In my REAL universe, my dad was working 12 to 15 hour days trying to build a small business. We had no money for gym memberships, and hardly any money for food, let alone healthy food. I remember my dad coming home from work one night and just sitting speechless in our kitchen chair because he did not have the money to register the truck he used for the business and on the way home he got a ticket for an unregistered vehicle. It did not matter if health care was "affordable." We couldn't afford it if it had been $10 to see the doctor.
Your arguments are presented as if they are objectively "proven." I am not an economist, however, I know enough to understand that there are very smart professionals on both side of the issue, and the answer is not as obvious as you paint it. Any time phrases like "every time" and "will always" are used, you can rest assured the writer is probably not painting a fair picture.
I have a good friend that lives in Australia and loves his socialized health care (from what I understand). I think he may be a little taken back by your assertion that he has a "lower standard of living" because of it. I am emailing him this thread and I will post his comments.
I have had decent enough health care and I'm sure people in Australia do too. The question is, what was the opportunity cost of the current systems? Opportunity cost is a hidden cost when a lesser of alternatives is chosen, and the outcome of the best alternative was never experienced. It is easy for people to see the good in their existing systems and never realize what they are missing.
The purpose of this blog was to show that market incentives do in fact bring about changes that benefit everyone. It is true the socialism is an equalizer. It does in fact put a higher floor under everyone, but at the same time it puts up a lower ceiling and the average result is lower. But at times, socialism's floor is actually worse than under a free market.
It seems to me that you are valuing the prevention of misfortune much more than you are valuing overall efficiency. Let me provide you a market based solution that will meet that goal without dampening the ability for the average American to get great care for a good price (and care that continues to innovate). What you should embrace is simply a flat health care tax. The one thing I have never said was a bad thing was taxation. Surely, I'd rather have lower taxes, but I could see myself getting behind some sort of tax that sets aside money for people who can't get health care through mainstream channels. People accessing this free care would experience rationing based on waiting lists. And yes, there HAS to be rationing. Free stuff that is of limited supply is always consumed more quickly than it can be produced. I hope my use of the word always is not putting you off. Do I have to show you study or something? We only have a few resources (such as oxygen) that are so plentiful that we don't need to ration them in some way. I would love for you to read Thomas Sowell's brilliant illustration of why it benefits society when local shops raise prices during a disaster. He has an example of a price controlled shop that quickly sells out of flash lights to people who had less need of them but happened to get to the store first. I digress. The point is that there has to be something about free health care that makes it the choice of last resort, not the choice of first resort. If all you care about it ensuring that nobody has to undergo a challenging time such as you when you were a kid, then there is nothing I say that will persuade you. Your values will not entertain high efficiency has a reasonable trade-off.
Anyway, in Colorado there is an initiative for single payer. I wonder if this sounds good to you.
http://dailysignal.com/2016/04/14/beyond-obamacare-colorado-considers-single-payer-model/
I think it would be a disaster.
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