Bernie Sanders' socialism would be a disaster for everyone

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.

Thoughts from F.A. Hayek: The Road to Serfdom

I recently read "The Road to Serfdom" by F.A. Hayek, first published in 1944.  I really liked the book.  Hayek has great insight into human nature and social organization. The main theme of his book is that an overly powerful state will eventually make its citizen's slaves to a set of values chosen by the bureaucratic elite.  Nazi Germany is exhibit A.  Hayek grew up in Austria and knew the history of Germany's socialism first hand.  He shows that  Germany's National Socialism was the natural conclusion to the expanding power of the state promoted by earlier socialists.

Hayek also provides a history lesson of the term "liberalism".  Because the United States began its existence based on liberal ideas of freedom and self government, the word  "conservative" has taken on a strange meaning for Americans.  To be conservative in the U.S. is to uphold that original liberalism.  Hayek, being from Europe, where the liberal ideas never reached their fullest expression, was striving for that liberalism.  Hayek took issue with the fact that in America, statism (the movement to increase the influence of the state) was mischaracterized as liberalism. (Hayek later wrote this 1960 essay: Why I am not a Conservative, an interesting look at political brand names.)

I'd like to share some of my favorite passages from the book. Hayek was inspired by Tocqueville.  He uses this quote early in the book:

"Democracy and socialism have nothing in common but one word: equality.  But notice the difference: while democracy seeks equality of liberty, socialism seeks equality in restraint and servitude." (Ch 2, Pg 77)

Hayek noticed that socialists took the liberal idea of freedom and corrupted it into the idea of "freedom from want".   He said:

"What the [socialist] promise [of freedom] really amounted to was that the great existing disparities in the range of choice of different people were to disappear.  The demand for the new freedom was thus only another name for the old demand for an equal distribution of wealth. But the new name gave the socialists something in common with the liberals and they exploited it to the full....what was promised to us as the Road to Freedom was in fact the High Road to Servitude".

Hayek saw that when bureaucrats plan the economy, they subvert the efficient transmission of price information.  This inevitably leads to less efficiency and to distortions such as we see with our health care system.

"The important point here is that the price system will fulfill this function only if competition prevails, that is, if the individual producer has to adapt himself to price changes and cannot control them.  The  more complicated the whole [economic system], the more dependent we become on that division of knowledge between individuals whose separate efforts are coordinated by the impersonal mechanism for transmitting the relevant information known by us as the price system." (Ch 4, Pg 95)

Hayek demonstrated that economic planners cannot foresee all the unintended consequences of their plans, no matter how gifted they may be intellectually.

"We all find it difficult to bear to see things left undone which everybody must admit are both desirable and possible.  That these things cannot all be done at the same time, that any one of them can be achieved only at the sacrifice of others, can be seen only by taking into account factors which fall outside any specialism...which lie outside our immediate interest and for which, for that reason, we care less." (Ch 4, Pg 98, italics added)

 He is adept at showing that simply because a nation is democratic, it is not necessarily free from arbitrary use of power.

"There is no justification for the belief that, so long as power is conferred by democratic procedure, it cannot be arbitrary; the contrast suggested by this statement is altogether false: it is not the source but the limitation of power which prevents it from being arbitrary." (Ch 5: Planning and Democracy, Pg 111)

I think Hayek's most important contribution is in the area of values and state morality.  He shows that governments that plan the economy also control morality.  That is, the rulers push their values and their quest for certain ends onto all people. We recently saw how certain views on contraception were pushed onto Americans by arbitrary rule makers empowered by the Patient Protection and Affordable Care Act (Obamacare).

[The government] must, of necessity, take sides, impose its valuations upon people and, instead of assisting them in the advancement of their own ends, choose the ends for them.  As soon as [an interest-promoting] law is made, it ceases to be a mere instrument to be used by the people and becomes instead an instrument used by the lawgiver upon the people and for his ends.  The state ceases to be a piece of utiltarian machinery intended to help individuals in the fullest development of their individual pesonality and becomes a "moral" institution which imposes on its members its views on all moral questions, whether these views be moral or highly immoral. In this sense the Nazi or any other collectivist state is "moral," while the liberal state is not. (Ch 6: Planning and the Rule of Law, Pg 117)

"And whoever has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lower--in short, what men should believe and strive for." (Ch 7: Economic Control and Totalitarianism, Pg 127)

"To undertake the direction of the economic life of people with widely divergent ideals and values is to assume responsibilities which commit one to the use of force; it is to assume a position where the best intentions cannot prevent one from being forced to act in a way which to some of those affected must appear highly immoral." (Ch 15: Prospects for International Order, Pg 116)

In my view, the moral nature of state planning makes statism a secular religion.  Only, it is a religion that is forced on others via the ballot box rather than by persuasion.

Hayek makes the distinction between arbitrary rule and the Rule of Law.  Arbitrary rule becomes necessary when the state attempts to plan the entire economy, because lawmakers cannot foresee all the minutia involved.  The movement toward arbitrary rule is exemplified in the U.S. by the tendency to turn over ever more power to unelected alphabet-soup agencies run by the executive branch.

"It is the Rule of Law, in the sense of the rule of formal law, the absence of legal privileges of particular people designated by authority, which safeguards that equality before the law which is the opposite of arbitrary government...It may even be said the for the Rule of Law to be effective it is more important that there should be a rule applied always without exceptions than what this rule is.Often the content of the rule is indeed of minor importance, provided that the same rule is universally enforced." (Ch. 6 Pg. 117)

"By giving the government unlimited powers, the most arbitrary rule can be made legal; and in this way a democracy may setup the most complete despotism imaginable." (Pg. 119)

The book also touches on themes that are probably agreed upon by everyone.  Nobody tired of negative campaign advertising will take issue with this:

"It seems to be almost a law of nature that it is easier for people to agree on a negative program--on the hatred of an enemy, on the envy of those better off, than on any positive task.  The contrast between the "we" and the "they," the common fight against those outside the group, seems to be an essential ingredient in any creed which will solidly knit together a group for common action." (Ch. 10, Why the Worst Get On Top, Pg 160)

"If the members of one's group cannot all be personally known, they must at least be of the same kind as those around us, think and talk in the same way and about the same kinds of things, in order that we may identify ourselves with them. Collectivism on a world scale seems to be unthinkable--except in the service of a small ruling elite." (Pg 161)

And if you've ever uttered the phrase "Absolute power corrupts absolutely", this should ring true to you:

"To split or decentralize power is necessarily to reduce the absolute amount of power, and the competitive system is the only system designed to minimize by decentralizing the power exercised by man over man... 

Economic power, while it can be an instrument of coercion, is, in the hands of private individuals, never exclusive or complete power, never power over the whole life of a person. But centralized as an instrument of political power it creates a degree of dependence scarcely distinguishable from slavery."  (Pg 166)

Hayek's one line summary of what created Nazism:

"It was the union of the anti-capitalist forces of the Right and of the Left, the fusion of radical and conservative socialism, which drove out from Germany everything that was liberal." (Ch. 12 The Socialist Roots of Naziism, pg 182)

Hayek also covers the tendency of statists to believe that their planning is justified by scientific evidence or intellectual superiority.  He felt that scientists helped enable the rise of Nazism.

"The influence of these scientist-politicians was of late years not often on the side of liberty: the 'intolerance of reason' so frequently conspicuous in the scientific specialist, the impatience with the ways of the ordinary man so characteristic of the expert, and the contempt for anything which was not consciously organized by superior minds according to a scientific blueprint were phenomena familiar in German public life for generations before they became of significant in England...It is well known that particularly the scientists and engineers, who had so loudly claimed to be the leaders on the march to a new and better world, submitted more readily than almost any other class to the new tyranny [of National Socialism]."  (Ch 13:The Totalitarians In Our Midst)

He felt that scientists have a tendency toward statism because they believe people obey scientific laws the same way inanimate objects do:

"Those who argue that we have to an astounding degree learned to master the forces of nature...[are mistaken when they] argue that we must learn to master the forces of society in the same manner in which we have learned to master the forces of nature.  This is not only the path to totalitarianism but the path to the destruction of our civilization and a certain way to block future progress.   Those who demand it show by their very demands they they have not yet comprehended the extent to which the mere preservation of what we have so far achieved depends on the coordination of individual efforts by impersonal forces." (Ch 14 Material Conditions and Ideal Ends, Pg 212)

Hayek understood human society.  It is true that the rise of Eurosocialism has yet to create a repeat of Nazi Germany. But to a degree, every one of Hayek's observations has been born out again and again.  Canadians face penalties for bypassing state health care.  Green-lobby scientists push for greater government control of energy use around the world.  Americans are being told when and how much health insurance to buy.  Expanding governments have distorted housing markets, healthcare markets, and debt markets.  Regulatory barriers impede business creation and reduce competition.  Interest groups control the tax code for special treatment.  Hayek's work foresaw all of this.  Hayek has something to teach us about our contemporary political and economic challenges.

Right to Health Care: When Freedom is Slavery by Another Name

Health Care a Right?
"Health care should be a right", says Representative John Dingle. I've heard this same impassioned comment from dozens of others. The language of rights is powerful in American history, so the assertion has a compelling feel to it. Isn't the right to "life, liberty and the pursuit of happiness" our most sacred principle of freedom? Without good medicine your life and happiness are in great jeopardy. So obviously,the logic goes, health care should be guaranteed to all freedom loving citizens. In fact, we should also be free from want and...and from fear itself! But not so fast...

Let me show you the sleight of hand. It's quite simple. The triumvirate of rights (life, liberty, and the pursuit of happiness) refers to what in Natural Law is known as inalienable rights. These are rights that, in the rawest state of nature (say if you were alone on a tropical island) you would be guaranteed to have. These are God-given innate qualities of the human condition. They exist without a social contract. We are designed to assert these rights even as Nature challenges them with hunger, disease, and the elements.

Then comes society. With society comes the ability to exchange rights with others. These are "vested" rights. Vested rights occur as the result of exercising inalienable rights. You can use your free will to voluntarily trade your right to property for a right to someone else's property. The key word is voluntary. Successful societies have learned how to create law which promotes the inalienable rights of everyone. Because everyone has different talents, true protections of inalienable rights will always lead to unequal outcomes.

The concept of a right to health care descends directly from the notion of "freedom from want". Franklin Roosevelt first articulated this progressive ideal in his "Four Freedom's Speech". This "freedom" refers to the guarantee of receiving goods and services. In the rawest state of nature, goods and services don't exist. They are created through the application of labor. Nature bestows no absolute right to the fruit of of someone else's labor except through brute force. It is one thing for you to say "I have a right to pick that apple" and quite another to say "I have the right to force you to pick that apple for me". Having the "freedom" to take the produce of another used to be called plunder and slavery.

Photo of Benkos Bioho by who is that with rachel

The guy who says that health care should be a right is saying "I have a right to force people to serve me". 16% of U.S. GDP is devoted to creating the good s and services of medical care. It represents millions of people working hard each day. Should we have a right to their labor (or the labor of the tax payers funding them) for little or no cost? The real kicker is this: that mentality is equivalent to the thinking of southern slave owners two hundred years ago. The slave had no rights to the fruit of his own labor. They belonged to somebody else. He was compelled to provide goods and services to somebody else at no cost. In addition, the slave could not live his life freely. His owners told him how to live his life (being healthy was definitely a requirement). Current health care proposals in Washington contain both these aspects of slavery.

Elements of coercion, to some extent are necessary evils of any society. We have had a military draft. We have had eminent domain seizures. We have had quarantines. But aren't these the exceptions to the rule? The principles of freedom require that we always try to minimize such coercion.

A note about taxes. Taxation is an example of a necessary evil. You can never get unanimous consent from all citizens about whether to be taxed and by how much and for what purpose. Since this subject deserved a full exploration, I wrote about it at length here: Freedom Based Taxation. In short, we can balance the freedom of collective action with that of individual action. The evils of taxation can be minimized by observing the locality principle and by ensuring that the benefits are shared equally by all.

Partial Slavery
I probably won't have many people argue with my view that outright human bondage is a bad idea. I think most would agree that we'd rather suffer a reduced quality of life than live directly on slave labor. Examine the condition of a slave. Would it make it better if we gave the slave Saturday off? On Saturday he can keep all his earnings and do as he pleases. Does that make it better? Okay, let's give him 3 days off. Now he's 42% free. Probably not good enough, so how about he only has to work for his master one day of the week and we'll let him pick which day. Now he's a fractional slave only 14% of the time. Lastly, let's let the slave be free to leave the plantation entirely but he must remit 14% off his earnings back to his master. Are we good now? I think it is obvious that nothing short of 100% free will do, don't you agree? But today, some taxpayers are fractional slaves to others. 4 in 10 tax filers pay no federal income tax at all and the top 50% pay 97% of the taxes. Clearly, an unduly large class of Americans receive benefits paid for by others without their consent.

"Freedom from want" entails large scale widespread coercion. No people in history has ever enjoyed freedom from want. It is part of Nature's Law. "Want" is what drives people to action. The current drive to nationalize health care is just one more attempt so solve social problems at the expense of individual freedom. It cannot but increase the level of fractional slavery we already have.

Take a look at some of the popular arguments for slavery and compare them to arguments for nationalized health care. In each case the speaker illustrates a supposed tangible benefit. Does material comfort trump principle?

Argument Type	Slavery	Nationalized Health Care
Because others do it	John Calhoun: "There has never yet existed a wealthy and civilized society in which one portion of the community did not live on the labor of the other"	Paul Krugman: "...every other advanced country offers universal coverage, while spending much less on health care than we do. "
Paternalism	Calhoun: "look at the sick, and the old and infirm slave, on one hand, in the midst of his family and friends, under the kind superintending care of his master and mistress, and compare it with the forlorn and wretched condition of the pauper in the poor house."	Barrack Obama: "I will make sure that no government bureaucrat or insurance company bureaucrat gets between you and the care that you need"
Stability	Calhoun: "I venture nothing in predicting that the experience of the next generation will fully test how vastly more favorable our condition of society is to that of other sections for free and stable institutions"	Obama: "Now, that's what Americans who have health insurance can expect from this plan -- more security and more stability."
Economic	Chancellor Harper: "And what would be the effect of putting an end to the cultivation of these staples [cotton and rice], and thus annihilating, at a blow, two-thirds or three-fourths of our foreign commerce? Can any sane mind contemplate such a result without terror?"	Max Baucus: "We need to pass very strong, comprehensive healthcare reform this year...Otherwise American families are gonna pay half of their family income on health care premiums"

It is ironic that the practice of partial slavery is more advanced today in what are known as "the blue states". These states were once the liberators who sacrificed life and limb to enforce the Emancipation Proclamation. Progressives in these states still see themselves as liberators. These political cartoons were published during the 2004 election in an attempt to link southern conservatives with slavery. Oh the irony:

(Click on image)

Also see this one