Stop Being Wrong About Socialism


Seeing articles about economics on Thought Catalog is a rarity.  Seeing good articles about economics on Thought Catalog is an anomaly.  Every once in awhile, a writer will add some “edge” to their post by mentioning Marx, or the benefits of a socialist economy.  Or casually blame capitalism for their failed relationships (or something).  Here are the things you need to know about socialism before extolling its virtues.

No, you’re not a socialist.

It seems like the new trend these days it to call oneself a “socialist,” without knowing the meaning of the word.  People will point to other countries (e.g. France, Canada, Germany, Denmark etc.) and claim that they have the economic systems the U.S. should strive to imitate.  There are a few problems with this reasoning, the most glaring problem being that none of these countries are actually socialist.  Most countries are considered “mixed-market,” meaning the economy is based on supply/demand with some level of government involvement.  A few of them, such as Germany, are called “social market” economies.  A social market economy still has a large private sector, but also has regulatory policies specifically regarding employer-employee relationships.

As long as you have some sort of “market” system in place, you are not a socialist economy.  They key differentiation factor is that socialism implies production for use, which is planned centrally (i.e. by the government).  When people start to understand what socialism actually means, they usually start distance themselves from the concept.  Here is an example:

Soviet Russia has “X” amount of people, Soviet Russia produces “X” amount of roofing nails.

Another thing people ignore about socialism is the answer the central planners have to globalization. Socialist economies also tend to be guarded by protectionism.  You’ve probably heard that Denmark is a lovely place because they have a “Welfare State” in place.  However, the success of their economy is actually dependent on the Denmark’s embrace of free trade.  Also, nearly 30% of their exports are sources of fuel, so that helps.  Combine this with the fact that Denmark has the freest labor market in Europe, and you can see the real drivers behind their economy.

Finally, socialism and communism are not mutually exclusive.    Some people seem to thing that socialism is a political group, but they are mistaken.  Socialism just means you want a centrally planned economy, which often means a strong central government.

No, socialism is not a good thing. 

Socialism sucks for a number of reasons.  Remember that roofing nail example from above?  Well, this is a commonly used case study as to why central planning is terrible.  Production for use eliminates a lot of things from the market equation: consumer choice, the law of supply/demand, price mechanisms etc.  (See: Goodharts Law) Producers had to hit a certain amount of nails, but the only way the could measure was by weight.  This resulted the producers making HUGE nails in order to make their goals.  When they changed the measurement to number of nails, producers responded by making tons of tiny nails.  These miscalculations happened everywhere, including food, and had devastating effects.

Socialism also ignores human incentives.  You can’t do what you want, because the government already planned what you want.  You can’t buy what you want because no one has the means to produce what they want.  But it’s all about need, right?  I need to eat, but I don’t need to eat scrapple.  Of course, I really like scrapple, but in know way would the production of it result in any type of wealth.  Besides, wealth is an evil that has no place in our economy, which brings me to my next point.

Yes, profit is a good thing.

Actually, profit is a great thing.  It lets us control how much we make, and what to make.  The U.S. generally doesn’t have many food shortages, despite many attempts in the past from Democrats who tried to make food more expensive.

Basically, profit is a signal.  Without this signal, we wouldn’t have much to base our production off of, unless we wanted to start measure human incentives by weight like the Soviets did.

Finally, people making a lot of money aren’t a bad thing, and it has no negative bearing on your own earnings.  I am not hurt because some athlete makes $100 million a year. There is no evidence linking to the idea that the existence of wealthy people makes other people poorer. 

Some people believe just by redistributing some of this wealth down, poor people would be better off, but this isn’t the case.  The falling levels of investment, consumption, and production would offset any possible positive effects of redistribution. You might be interested to know that even at the peak of income inequality, the living conditions of the poor are better than any other point in history.

No, not all the things you think are socialist actually are.

Usually in this argument, someone will get very angry, and would point to some road and declare “SOCIALISM!”  Only problem is, it isn’t  (real) socialism.   The planning of roads is done by the private sector, laid by equipment made in the private sector, using workers from the private sector.  None of those things were centrally planned. Despite this fact, however, many “progressives” use roads to try to justify socialism in other places, like healthcare.  The problem with this is that roads are done at a local level; so using them to justify universal health care is a false equivalency.

Moreover, it’s hard to justify socializing things that have one-time uses by referencing roads, which are usually used many, many times. The question is, if the private sector comes first in the process and also does 95% of the work, can you really call it socialism? No, you can’t.

So, when you are deciding whether or not to support socialism, make sure you think long and hard.  Then just don’t it.

image – BinaryApe