Can Socialism Work?

I have been intrigued by the number of people who think socialism is the answer to all their problems. I suppose I should not be surprised, because something for nothing generally competes well with something with a high price.

Capitalism deals better with ways to provide the high-priced things.

A minor comparison.

Neither capitalism nor socialism is a political system. Each is a way to allocate scarce resources. Capitalism is the hunter version. You eat what you catch or kill, while socialism is share and share alike.

In a capitalistic system you trade your values for the values of others. In a socialist system, someone gives you stuff.

Capitalism permits great success and it permits total failure. Socialism contains no system for either.

No-failure is a flaw

Richard Feynman points out a key factor.

“Free societies work because best ideas compete and win. There needs to be a way for bad ideas to lose.”

Capitalism needs to be free while socialism does not have the need. Socialism doesn’t permit loss. At least not individual loss.

Losses are how you learn

How much do you learn when you are right? Not so much. Losses on the other hand are marvellous teachers. Experience is the best teacher and for the price it better be.

Why then do we want to move towards a world where there can be no losses and no big wins either? With no big wins available where will the money come from to support the non-participants?

Margaret Thatcher claims, “Socialism is a great idea until you run out of other people’s money.” Never mind a year or two, but decades. Forbes’ recent listing of the 400 wealthiest people in the United States show that the 400 have a combined net worth of $3.22 Trillion. The American federal government spent $6.5 trillion in their 2020 fiscal period.

It looks like the Bezos, Gates, Zuckerberg, Buffet, Musk and that crowd are good for 6 months or so. What happens next year? What incentive would there be for anyone to do what it takes to become super-wealthy. Who would risk the little they start with if they could not keep the wins?

As the earned wealth disappears, the standard of living falls.

The takeaway

If you think only about distribution, you will like socialism. If You think distributing more, but unequally is okay, then capitalism. Finding the right incentive/sharing method is challenging. I can’t see how socialism imrpoves and grows the economy forever so why not use the money from capitalism to seek a better way.

  1. Socialism lacks an ability to create wealth.
  2. Socialism doesn’t permit failure so people don’t learn a lot.
  3. Equal only happens at zero. Like Venezuela.
  4. Capitalism doesn’t work perfectly either, but at least it has the ability to pay its own way.
  5. Socialism is a zero sum game. I win what you lose. There is no new money. Only the pockets change. Capitalism is a non-zero-sum game. There is more at the end of the year.

It might be worth a socialism experiment just to prove that a mature socialist society tends to become more capitalistic.

An Aside

I have been thinking about the student loan crisis in the United States. It seems that it is quite easy to run up debts well in excess of $100,000. The total cost of a 4-year degree at a high end college is easily $250,000. It seems that the universities have expanded their costs and passed them along to their students, which is okay except most of the money spent is borrowed by naifs.

Courses that cannot pay for themselves after graduation abound. Markets could prevent the non-economic or too high-priced course problem.

Question: Would those courses abound if the universities had to guarantee the student loans? Rein in what doesn’t work. Markets are good at that.

________________________________________________________________________________________________________

I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages—the result: more security, more efficient income, larger and more liquid estates.

Please be in touch if I can help you. don@moneyfyi.com 705-927-4770

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