Unfortunately, listing the body counts and bloodshed due to attempts at implementing socialism--and it's close cousin communism--during the 20th century won't have any affect at pursuading the elite left against advocating for it. Alexandra Ocassio-Cortez is young so we might excuse her ignorance, but Bernie Sanders should know better.
This essay tries to take a different tactic. Instead of explaining disasterous outcomes, which won't convince advocates of socialism, it might be a more effective means of pursuasion to deconstruct socialism as a philosophy and show why it won't work.
Why Socialism?
History is cyclical and repeats itself. One reason why socialism seems to be viewed more favorably now is because humanity tends to rationalize and make excuses for failed systems that have been attempted in the past, and proponents of socialism demonstrate this pretty starkly. We already know that socialism and communism have resulted in deaths in excess of 100 million people, widespread poverty, severe degredation of the environment and cessation of technological advancement in the 20th century. Many advocates of socialism don't deny these outcomes. They simply argue that the economic systems being discussed weren't really socialist despite leaders claims that they were, or that the leaders of these countries weren't practicing real socialism, or that these systems became corrupted and evolved into something else.
A second reason why there is renewed interest in socialism, particularly among our youth, is because our youth have already been born and grown up in a socialist environment and they believe that it works just fine.
Yes, it's true. Every child that is born into the world has it's needs and many of it's desires met by others that have more money and access to resources. The child's parents provide everything including food, clothing, shelter, recreation and entertainment. Doctors are paid for. So is elementary education. Public spaces and utilities are also provided. Until adulthood, most of this child's needs and desires are provided by other people.
And when this fully-grown child goes to college? There's scholarships! There's grants! Don't forget the student loans! And the parents are still expected to kick in some money for the tuition as well. It's only when the child graduates and the loan payments come due is when they start appearing on CNN demanding that college should be free.
The irony that is lost on such students is breathtaking. As I write this, some students at Sarah Lawrence College took offense to an editorial written by college Professor Samuel Abrams in the New York Times titled Think Professors Are Liberal? Try School Administrators. Citing hurt feelings, a student organization presents a list of demands to the school administrators asking for a whole bunch of free stuff from laundry soap to meals to housing.
The students at Sarah Lawrence aren't the first students to try this nonsense. Other disgruntled students on other college campuses have also grabbed headlines for similar stunts. So not only are students in college demanding more and more free stuff, it also never occurs to them to demand cheaper tuition! They would probably get broader public support if they did because virtually everybody agrees that tuition costs are rising out of control. But no, they just want the freebies.
So yes, children have a fundamentally socialist mindset.
Oh, they probably realize that they should get a job and make some money, but the job should be low stress and fulfilling while the money they earn should be spent on only what they want. It's their right after all. Why should I have to pay for stuff I need? It's my right! So unfair!
God's Grandchildren (or Why The Youth Rebel)
God's Grandchildren describes a social phenomenon and explains why the youth tend to rebel against established norms in a society. Imagine a scenario where a group of people decide to adopt certain religious traditions and principles. This group then organizes and builds a society that reflects and practices these principles as closely as possible. Let us also assume that every member of this society arrived at these religious principles of their own free will and they all agree that these religious principles meet all of their social and spiritual needs--which is hardly realistic, but let's assume this for this thought exercise. This group of people may regard themselves as God's children.
The next generation that emerges in this society would be God's grandchildren and they face a conundrum: how will they respond to being immersed in a society that they had nothing to do with setting up? Will they assimilate? Will they adapt? Will they rebel? Will they go along to get along? Will they exploit cherished beliefs in a bid to acquire power for themselves? Will they simply reject tradition and abandon their society? Will some of them with opposing viewpoints to the established culture organize and launch a countercultural revolution?
The success or failure of such a culture will depend on how well the leadership can manage such cultural forces that occur. In a relatively open and tolerant society people might decide to live and let live while minding their own business. But under systems where certain freedoms are curtailed such as under communism, fascism and socialism, counter cultural movements are an existential threat to the established norms and the cultural leadership.
God's Grandchildren now presents a dilemma to the cultural leadership and those who favor the established norms.
Do you ostracize them? Do that to enough people and they will discover each other and organize a counterculture that may grow to be much bigger than the established culture and the system collapses when they try to set new rules.
Do you imprison them or even kill them? This might be fine for socialists willing to ignore the moral quandaries or rationalize the atrocities as "for their own good". It won't be long before the people discover that killing you in return would be "for their own good" as well. Socialism is ostensibly for the good of the people and atrocities, no matter how justified, would delegitimize such a system. Such a system ends up collapsing because too much energy gets devoted to rooting out perceived enemies and destroying them and doesn't get invested into other pursuits that would result in an economic return.
There's the bread and circuses route in addressing the countercultural revolutions and many regimes have tried this. However, under socialism when countercultural movements get started is when you start running out of stuff and the bread lines start getting longer. Those countercultural movements tend to include people that no longer want to produce for a system they no longer endorse.
I gave our hypothetical scenario the best start one can possibly expect when establishing a new society, but even this won't work. In reality it would work out even worse. In our hypothetical scenario I imagine a society created that is in agreement with everyone and includes rules, customs and laws that are established with the best intentions. However, people rarely establish such a society voluntarily. It's often done through violence, coercion and mob rule and socialism is no exception. This won't sway people that advocate socialism now. They'll say that we want to establish it through a democratic process. Democratic Socialism, they'll call it. "Just give it a chance, you'll love it! Trust us!"
One simple question:
Democratic Socialism implies a "will of the people" type of government instead of the brutal "do what we say or we kill you" type. So it might be worth considering an exit strategy because based on what I will outline, socialism has a shelf-life. Despite the best of intentions, it's not possible to produce enough to sustain such a system like socialism. Also, socialism doesn't have an effective way to deal with countercultural movements, not without things getting messy.
I suggest that we ask the democratic socialists one simple question:
If we find that socialism isn't working out for us can we vote the capitalists back in?
If a Democratic Socialist says, "no" then be very afraid. Actually, you should be afraid anyways. Even if the answer is "yes". Because by the time enough people figure out that socialism isn't working and want to return to a capitalist system all the wealth and means for investment will be gone. Here's why.
Other skeptics will pivot and shift the discussion to our growing budget deficits and national debt. I'm in agreement with them in this case. But if government revenues through lower taxes actually increase while deficits increase, then that means that spending has also increased. This should suggest to us that our current fiscal issues are spending problems and not problems with taxation or making richer people than us pay their "fair share". So the solution to this problem would be for the government to spend less not more! Socialism would mandate that the government spends more; it's the polar opposite of what's needed to solve the problem.
A word of warning: Feminists are starting to brand mathematics as tools of the patriarchy to suppress women. This would include the Laffer Curve so be ready. I recommend reminding the feminists about all the female privileges they are enjoying and how much tax revenue is being used to fund programs that benefit women disproportionately.
So how can the rich be so selfish as to go through such great lengths to avoid some additional taxes for the benefit of society?
I'm glad you asked!
The next generation that emerges in this society would be God's grandchildren and they face a conundrum: how will they respond to being immersed in a society that they had nothing to do with setting up? Will they assimilate? Will they adapt? Will they rebel? Will they go along to get along? Will they exploit cherished beliefs in a bid to acquire power for themselves? Will they simply reject tradition and abandon their society? Will some of them with opposing viewpoints to the established culture organize and launch a countercultural revolution?
The success or failure of such a culture will depend on how well the leadership can manage such cultural forces that occur. In a relatively open and tolerant society people might decide to live and let live while minding their own business. But under systems where certain freedoms are curtailed such as under communism, fascism and socialism, counter cultural movements are an existential threat to the established norms and the cultural leadership.
God's Grandchildren now presents a dilemma to the cultural leadership and those who favor the established norms.
Do you ostracize them? Do that to enough people and they will discover each other and organize a counterculture that may grow to be much bigger than the established culture and the system collapses when they try to set new rules.
Do you imprison them or even kill them? This might be fine for socialists willing to ignore the moral quandaries or rationalize the atrocities as "for their own good". It won't be long before the people discover that killing you in return would be "for their own good" as well. Socialism is ostensibly for the good of the people and atrocities, no matter how justified, would delegitimize such a system. Such a system ends up collapsing because too much energy gets devoted to rooting out perceived enemies and destroying them and doesn't get invested into other pursuits that would result in an economic return.
There's the bread and circuses route in addressing the countercultural revolutions and many regimes have tried this. However, under socialism when countercultural movements get started is when you start running out of stuff and the bread lines start getting longer. Those countercultural movements tend to include people that no longer want to produce for a system they no longer endorse.
I gave our hypothetical scenario the best start one can possibly expect when establishing a new society, but even this won't work. In reality it would work out even worse. In our hypothetical scenario I imagine a society created that is in agreement with everyone and includes rules, customs and laws that are established with the best intentions. However, people rarely establish such a society voluntarily. It's often done through violence, coercion and mob rule and socialism is no exception. This won't sway people that advocate socialism now. They'll say that we want to establish it through a democratic process. Democratic Socialism, they'll call it. "Just give it a chance, you'll love it! Trust us!"
One simple question:
Democratic Socialism implies a "will of the people" type of government instead of the brutal "do what we say or we kill you" type. So it might be worth considering an exit strategy because based on what I will outline, socialism has a shelf-life. Despite the best of intentions, it's not possible to produce enough to sustain such a system like socialism. Also, socialism doesn't have an effective way to deal with countercultural movements, not without things getting messy.
I suggest that we ask the democratic socialists one simple question:
If we find that socialism isn't working out for us can we vote the capitalists back in?
If a Democratic Socialist says, "no" then be very afraid. Actually, you should be afraid anyways. Even if the answer is "yes". Because by the time enough people figure out that socialism isn't working and want to return to a capitalist system all the wealth and means for investment will be gone. Here's why.
Capital Flight
For the average person, capital flight is a little difficult to imagine. For most people, their only source of income is their job and their largest asset would be their home which--barring some natural disaster--is pretty stationary, leading most people to believe that wealth tends to be static and immobile. It's not! The wealthy often have multiple sources of income coming from their businesses and any other returns on investments they have made. So it's very easy for a rich person to shift investments and business strategies to maximize and maintain a certain desired income based on what gets taxed. Tax dividends on stocks and they'll invest in bonds. Tax bonds and they'll buy real estate. Tax everything else and they start moving their wealth overseas to countries with lower tax rates. Wealth is quite fluid and dynamic and tends to flow to low tax environments. Even if forced to liquidate their summer home at fire sale prices, the rich will determine that the loss they take is minuscule compared to what a socialist will want to tax them for.
Whether we are talking about a huge progressive tax structure that taxes the mega rich a huge percentage while calling it their fair share, or direct seizure of their wealth, the outcome will be the same. The rich don't sit around waiting to be taxed. Some will liquidate assets and opt for an early retirement. Others will start moving their wealth and capital to greener pastures and invest abroad or use foreign banks as a tax shelter. There's already a growing tendency of retired people moving abroad where the cost of living and taxes are cheaper, and these are people living on social security and other fixed incomes. What do you think the rich will do? Emigration would be even easier for them. No matter the method of tax avoidance, the result will be the same: The treasury will only see a small fraction of the projected tax revenues.
Whether we are talking about a huge progressive tax structure that taxes the mega rich a huge percentage while calling it their fair share, or direct seizure of their wealth, the outcome will be the same. The rich don't sit around waiting to be taxed. Some will liquidate assets and opt for an early retirement. Others will start moving their wealth and capital to greener pastures and invest abroad or use foreign banks as a tax shelter. There's already a growing tendency of retired people moving abroad where the cost of living and taxes are cheaper, and these are people living on social security and other fixed incomes. What do you think the rich will do? Emigration would be even easier for them. No matter the method of tax avoidance, the result will be the same: The treasury will only see a small fraction of the projected tax revenues.
This is why countries lower their tax rates to encourage foreign investments to grow their economies. (See Ireland for details). Local politicians often dangle all sorts of reduced tax incentives to companies to move their factories and headquarters into their cities. Our politicians are well aware that lowering taxes encourage growth and investment while raising taxes stifles it. Prior to the passing of Trump's tax plan into law, the US already had the highest corporate income taxes in the world. At the time, trillions of dollars were invested and kept overseas without any benefit to the US economy. Socialists want to raise them even higher! Can you hear the sucking sound? That's even more cash heading overseas. That's capital flight!
The Laffer Curve
The idea that raising taxes can actually reduce government revenue while lowering taxes can raise revenue is counterintuitive to a lot of people. For the skeptics that aren't sold on the idea that raising taxes rates reduces government revenues, I introduce you to the Laffer Curve.
The Laffer curve is an economic model for taxation that was developed by an economist Arthur Laffer. The model might have limited ability to predict government revenue at a given tax rate but it is useful for determining if we expect government revenue to increase or decrease when we change the tax rate. Imagine that you were able to plot government revenue as a function of tax rates. To socialists and a great many people they would expect the resulting graph to look linear like this:
That's because their brains are broken. Ask yourself one question? If the government taxed you at a rate of 100%, how much would tax revenue would they receive? Don't bother looking for your tax receipts because I already know the answer. The government would make $0 at the 100% rate because you wouldn't bother working if the government took everything you earned. You would sit back and let some other chump knock himself out. But nobody wants to be that chump so the government gets nothing while everybody sits around doing nothing but complaining about not having enough stuff.
Neither is the government getting any revenue at the 0% tax rate because you are keeping everything you earned. Which sounds nice, but there are bridges, roads, armies and schools to be maintained so the government needs some revenue at least. So it taxes the people at some rate (t) and receives some revenue (R). We now know 3 points on this graph and determine that the curve isn't linear and most likely parabolic (or U-shaped):
The Laffer curve is an economic model for taxation that was developed by an economist Arthur Laffer. The model might have limited ability to predict government revenue at a given tax rate but it is useful for determining if we expect government revenue to increase or decrease when we change the tax rate. Imagine that you were able to plot government revenue as a function of tax rates. To socialists and a great many people they would expect the resulting graph to look linear like this:
 |
| An illustration of the idea that higher tax rates will increase government revenue. |
That's because their brains are broken. Ask yourself one question? If the government taxed you at a rate of 100%, how much would tax revenue would they receive? Don't bother looking for your tax receipts because I already know the answer. The government would make $0 at the 100% rate because you wouldn't bother working if the government took everything you earned. You would sit back and let some other chump knock himself out. But nobody wants to be that chump so the government gets nothing while everybody sits around doing nothing but complaining about not having enough stuff.
Neither is the government getting any revenue at the 0% tax rate because you are keeping everything you earned. Which sounds nice, but there are bridges, roads, armies and schools to be maintained so the government needs some revenue at least. So it taxes the people at some rate (t) and receives some revenue (R). We now know 3 points on this graph and determine that the curve isn't linear and most likely parabolic (or U-shaped):
 |
| The Laffer Curve Illustrating that government revenue is optimized at a particular tax rate between 0 and 100% |
The Laffer Curve clearly illustrates that there is a tax rate between 0 and 100% where government revenue will be at its maximum. It also illustrates that if our current tax rate is on the right side, or downward sloping part of the curve, raising taxes would just make things worse. The reader might want to pause and examine the curve and determine if what I said makes sense.
The reason this works out the way it does is because, in reality, we're not taxing income, but productivity! Whether we are talking about your weekly paycheck or the income statements of our largest megacorporations, it's not the income that's being taxed, it's what is produced! This is the economic model utilized by President Reagan for his Supply side economics theory and the same model that President Trump utilized for his recent tax reforms.
What is our tax rate?
There can be plenty of legitimate debate about where on the Laffer Curve our current tax rate lies. I suggest that when we answer this question we consider all taxes that have been imposed or mandated by the government. Let's say that Joe the Plumber makes the median income of about $60,000/yr. Joe is going to pay roughly $6,500 in federal income tax, or almost 11%. But FICA also adds another 7-8% or $4,500 bringing the total tax liability to $11,000, and we aren't even close to being finished with our friend, Joe. Which state is Joe living in? A lot of states have their own income taxes and most are around the 5% range which means another $3,000 worth of Joe the Plumber's productivity. His tax liability is now at $14,000. Then there's all the sales taxes and property taxes being levied on Joe at the local level.
Joe can adopt a lifestyle that minimizes some of these but he can only do so much. If he doesn't have any vices like alcohol and tobacco, Joe can avoid those sin taxes. If Joe rents, he can save on some property taxes but he's still paying the property taxes of his landlord. It's just hidden and amortized in his rent payments.
So far, I've only talked about taxes. What about all that other stuff? What about expenses that the government mandates for us. We don't have an option of refusal so they are effectively taxes under a different name. Obamacare? A silver plan for a married couple is about $700/ mo or another $8,400 a year that Joe must pay. He'll probably get a subsidy which means that a richer person is paying a part of the tax for him. Or he can just take the penalty which might be a little cheaper when he files his taxes.
Or maybe we can give Joe a break and tax the corporations instead. They have deep pockets. Well, it turns out that corporations don't sit around waiting to be taxed either. They just pass the added expense onto the consumer. Economist Walter E. Williams describes this in more detail:
Remember when I said that taxes are taxes on productivity instead of income? Check this out: Most states charge a tax that we colloquially call car insurance. Joe likely drives but if he tries to take the bus to avoid that tax then he effectively doubles his commute time. Which makes Joe less efficient with his time (meaning lower productivity)!
Do I need to go on? We might look at all the marginal tax rates and think that they aren't too bad--one of the lowest in the world! But in reality, we are paying a lot more than the official tax rate suggests. Even if we acknowledge this and pass a law to give Joe a break by raising his wages, that is still an effective tax on the corporations that employ him and that added expense simply gets passed on to us in the form of more expensive goods and services.
So answering the question about where on the Laffer Curve we are is a more difficult question to answer than we expect. But the easier question to answer is whether or not we are on the downward sloping side of the curve. If the answer is yes, then lowering that tax rate will increase government revenue. And we have seen these effects repeatedly throughout history.
For a modern day example consider that American firms repatriated $300 BILLION dollars of cold hard cash from overseas when Trumps tax reforms went into effect.
The Laffer Curve is a pretty effective tool for shutting down any wannabe socialist. I'm speaking from experience. I've participated in many debates online. Whenever I bring up the Laffer Curve, the discussion dies. You either hear crickets or the socialists want to change the subject. It's a mathematical argument that is pretty easy to understand which means that they can't throw mud at you and call you a racist. It's wonderful!
The reason this works out the way it does is because, in reality, we're not taxing income, but productivity! Whether we are talking about your weekly paycheck or the income statements of our largest megacorporations, it's not the income that's being taxed, it's what is produced! This is the economic model utilized by President Reagan for his Supply side economics theory and the same model that President Trump utilized for his recent tax reforms.
What is our tax rate?
There can be plenty of legitimate debate about where on the Laffer Curve our current tax rate lies. I suggest that when we answer this question we consider all taxes that have been imposed or mandated by the government. Let's say that Joe the Plumber makes the median income of about $60,000/yr. Joe is going to pay roughly $6,500 in federal income tax, or almost 11%. But FICA also adds another 7-8% or $4,500 bringing the total tax liability to $11,000, and we aren't even close to being finished with our friend, Joe. Which state is Joe living in? A lot of states have their own income taxes and most are around the 5% range which means another $3,000 worth of Joe the Plumber's productivity. His tax liability is now at $14,000. Then there's all the sales taxes and property taxes being levied on Joe at the local level.
 |
| Chart showing Effective Tax Rate as a percentage of income by state (from Wikipedia) |
So far, I've only talked about taxes. What about all that other stuff? What about expenses that the government mandates for us. We don't have an option of refusal so they are effectively taxes under a different name. Obamacare? A silver plan for a married couple is about $700/ mo or another $8,400 a year that Joe must pay. He'll probably get a subsidy which means that a richer person is paying a part of the tax for him. Or he can just take the penalty which might be a little cheaper when he files his taxes.
Or maybe we can give Joe a break and tax the corporations instead. They have deep pockets. Well, it turns out that corporations don't sit around waiting to be taxed either. They just pass the added expense onto the consumer. Economist Walter E. Williams describes this in more detail:
If a tax is levied on a corporation, and if the corporation hopes to survive, it will have one of three responses to that tax or some combination thereof. It will raise the price of its product, lower dividends or lay off workers. In each case a flesh-and-blood person is made worse off. The important point is that a corporation is a legal fiction and as such does not pay taxes. As it turns out, corporations are merely tax collectors for the government.You can replace the word "tax" in this passage with other government mandated expenses for corporations such as "fees", "insurance" or "minimum wage" and the same thing will happen: The middle class gets hosed.
Remember when I said that taxes are taxes on productivity instead of income? Check this out: Most states charge a tax that we colloquially call car insurance. Joe likely drives but if he tries to take the bus to avoid that tax then he effectively doubles his commute time. Which makes Joe less efficient with his time (meaning lower productivity)!
Do I need to go on? We might look at all the marginal tax rates and think that they aren't too bad--one of the lowest in the world! But in reality, we are paying a lot more than the official tax rate suggests. Even if we acknowledge this and pass a law to give Joe a break by raising his wages, that is still an effective tax on the corporations that employ him and that added expense simply gets passed on to us in the form of more expensive goods and services.
So answering the question about where on the Laffer Curve we are is a more difficult question to answer than we expect. But the easier question to answer is whether or not we are on the downward sloping side of the curve. If the answer is yes, then lowering that tax rate will increase government revenue. And we have seen these effects repeatedly throughout history.
For a modern day example consider that American firms repatriated $300 BILLION dollars of cold hard cash from overseas when Trumps tax reforms went into effect.
To put this in perspective, consider that $38 billion repatriated to the U.S. in Q1 of 2017. While that's certainly not chump change, it is miniscule by comparison to the $300 billion that was repatraited in Q1 of 2018, after the Republican tax cuts.That's $300 billion dollars that can be reinvested into the US economy. That's additional tax revenue that the federal government wouldn't have seen at the previously higher tax rates. Remember when I said capital flows to lower tax rate environments?
The Laffer Curve is a pretty effective tool for shutting down any wannabe socialist. I'm speaking from experience. I've participated in many debates online. Whenever I bring up the Laffer Curve, the discussion dies. You either hear crickets or the socialists want to change the subject. It's a mathematical argument that is pretty easy to understand which means that they can't throw mud at you and call you a racist. It's wonderful!
Other skeptics will pivot and shift the discussion to our growing budget deficits and national debt. I'm in agreement with them in this case. But if government revenues through lower taxes actually increase while deficits increase, then that means that spending has also increased. This should suggest to us that our current fiscal issues are spending problems and not problems with taxation or making richer people than us pay their "fair share". So the solution to this problem would be for the government to spend less not more! Socialism would mandate that the government spends more; it's the polar opposite of what's needed to solve the problem.
A word of warning: Feminists are starting to brand mathematics as tools of the patriarchy to suppress women. This would include the Laffer Curve so be ready. I recommend reminding the feminists about all the female privileges they are enjoying and how much tax revenue is being used to fund programs that benefit women disproportionately.
I'm glad you asked!
The Endowment Effect
The endowment effect describes a psychological tendency of people to place higher value on things that they own than they normally would if they did not have possession of them.
To explain this another way, a person has an expectation to sell an object he has for more than what he would expect to pay for it if he didn't own it. This might not seem rational to our modern sensibilities but it does explain why the rich seem determined to hold on to what they own while the poorer people don't see a big deal about their demand that the rich should part with a little more of their wealth. The poor people actually see $1,000,000 that they don't have as not being worth as much as it is to the rich person in possession of the same $1,000,000. This behavior may have roots in our evolutionary past.
Evolutionary psychology is a recent field of study that postulates that a lot of behavioral characteristics were evolved adaptations that improved our chances at survival and are passed on genetically. Liberals that advocate for socialism don't like the idea that unflattering parts of a person's nature might be as embedded in our DNA as eye color or height. Their position is that our greed has been socialized and that if we simply change the system to penalize greed than we will be socialized to be less greedy and share our wealth more. But this won't be the case.
There's no doubt that socializing plays some role in cognitive and emotional development in human beings. It's one reason why it's even possible to raise children to function in society. But is the endowment effect socialized or is it an instinct rooted in our evolutionary past? There are a couple of ways that evolutionary psychologists try to answer this question.
The whole point of this discussion about the endowment effect is to illustrate why increased taxation on the rich isn't going to yield any significant results. The fact that the rich have assets means the endowment effect is very much a factor on why they aren't willing to give it up willingly. And if one of these assets are producing income or offering status then it's even more of a threat to the endowment effect. Of course, threats, coercion and violence can be used to separate the rich from their money, but then it is no longer democratic socialism. It becomes the jackbooted, goosestepping Venezualan type of socialism.
For a modern day example, look at what happened in France when they tried taxing the rich people. According to an editorial in the Washington Examiner:
The world should be very concerned if the US tries to duplicate socialism, democratic or otherwise. For one thing, it would make the US more of a global magnet for every hard luck case in Latin America than we already are. Those immigrants will need to be housed, clothed, fed and educated, causing public spending to rise dramatically.
To explain this another way, a person has an expectation to sell an object he has for more than what he would expect to pay for it if he didn't own it. This might not seem rational to our modern sensibilities but it does explain why the rich seem determined to hold on to what they own while the poorer people don't see a big deal about their demand that the rich should part with a little more of their wealth. The poor people actually see $1,000,000 that they don't have as not being worth as much as it is to the rich person in possession of the same $1,000,000. This behavior may have roots in our evolutionary past.
Evolutionary psychology is a recent field of study that postulates that a lot of behavioral characteristics were evolved adaptations that improved our chances at survival and are passed on genetically. Liberals that advocate for socialism don't like the idea that unflattering parts of a person's nature might be as embedded in our DNA as eye color or height. Their position is that our greed has been socialized and that if we simply change the system to penalize greed than we will be socialized to be less greedy and share our wealth more. But this won't be the case.
There's no doubt that socializing plays some role in cognitive and emotional development in human beings. It's one reason why it's even possible to raise children to function in society. But is the endowment effect socialized or is it an instinct rooted in our evolutionary past? There are a couple of ways that evolutionary psychologists try to answer this question.
- Cross cultural surveys can be performed. If the same behavioral characteristic is manifested in different cultures, especially cultures that are radically different from us, then it's strong evidence that the behavioral trait is evolved and passed on genetically instead of being socialized.
- Studies in other species besides humans can be performed. Primates are preferable because they are more genetically similar to us, but other species are still fair game. If the same behavioral characteristics manifest themselves in other species then it's strong evidence that such behaviors are rooted in our evolutionary past. Other animal species don't have the highly developed economic and political systems that we have, but behaviors such as defending of territory and mate guarding can be seen as the endowment effect in action in other species.
The whole point of this discussion about the endowment effect is to illustrate why increased taxation on the rich isn't going to yield any significant results. The fact that the rich have assets means the endowment effect is very much a factor on why they aren't willing to give it up willingly. And if one of these assets are producing income or offering status then it's even more of a threat to the endowment effect. Of course, threats, coercion and violence can be used to separate the rich from their money, but then it is no longer democratic socialism. It becomes the jackbooted, goosestepping Venezualan type of socialism.
For a modern day example, look at what happened in France when they tried taxing the rich people. According to an editorial in the Washington Examiner:
Three years on, President Hollande is shame-facedly scrapping the 75 percent rate, having forcibly re-learned an ancient truth: Wealth taxes don’t redistribute wealth; they redistribute people. Thousands of well-off Frenchmen made the easy journey north, including the country’s richest man, Bernard Arnault.The lesson can't be any more clearer. Wealth flows to the lowest tax rates. Especially when you factor in the unprecedented mobility that the rich have. When a rich person's lowest tax haven is a short train ride away, the decision becomes obvious and the endowment effect becomes easy to fulfill.
Biology always wins!
At this point one might wonder if we can structure society where the endowment effect no longer grants a person a survival advantage? Or that the endowment effect is penalized? Perhaps this way humans would evolve to be more socialist and less likely to resist the seizure of their own property?
Behavioral characteristics rooted in evolution don't change overnight. It took millions of years of evolution and selection pressure for something like the endowment effect to take root genetically. It will likely take just as long to reverse it. Can socialism last that long? It's debatable whether or not any political or economic system can survive millions of years. Recorded human history has only lasted 10,000 years, and that's if we are being charitable in our estimates. It wasn't until 5,000 years ago when human civilization really took off. Prior to 5,000 years ago, there isn't much preserved in the archeological record. A million years isn't just a long time, it's a freakishly impossibly long time! The endowment effect is here to stay for as long as life exists on this planet.
Not to mention that the endowment effect is why people are motivated to produce and innovate in the first place. What's the point of producing something that you have no psychological attachment to? Then what output can a socialist tax? What assets can they seize?
No. I wiser group of people might except the reality of human nature for what it is and try and design an economic and political system that takes the endowment effect into consideration, and perhaps, channel it into something that benefits all of civilization. Capitalism fits that criteria pretty nicely. The ownership of what one produces would satisfy his endowment effect on a psychological level, motivate him to produce a surplus that he can trade and barter with others to meet his other needs and desires, all while keeping the machines of society running for the benefit of all. WIN-WIN all around.
No. I wiser group of people might except the reality of human nature for what it is and try and design an economic and political system that takes the endowment effect into consideration, and perhaps, channel it into something that benefits all of civilization. Capitalism fits that criteria pretty nicely. The ownership of what one produces would satisfy his endowment effect on a psychological level, motivate him to produce a surplus that he can trade and barter with others to meet his other needs and desires, all while keeping the machines of society running for the benefit of all. WIN-WIN all around.
50 Shades of Pink
When we think of the color red in a political or economic sense we think of communism. In a strictly communist society there is no individual ownership of anything, not anything of significance. A person that was living in the Soviet Union might say that he owns his comb or his cookware, but the state owned the home he lived in along with all the businesses and means of production (aka Enterprises). In effect, anything that an individual can use to parley, invest or use to improve his station in life was state owned. Starting a business yourself was forbidden, although I'm sure people did this on the sly and a black market emerged--a black market the adopted capitalism as its model! The endowment effect was unfulfilled while productivity stagnated and declined resulting in collapse.
Advocates of socialism may not advocate for strict communism. They may try and present the pinker shade of communism called democratic socialism. For a while, such advocates pointed to Venezuela as an example of how well it could work. Venezuela was a country that had political stability, free elections, access to the sea, a year-round growing season and abundant oil reserves. If there was any country on earth that could make socialism work it would be Venezuela and even that country couldn't make it work.
I already mentioned France trying for a deeper shade of pink.
I already mentioned France trying for a deeper shade of pink.
Advocates of democratic socialism are now pointing to other European countries as models of what they are trying to implement. But not Greece! Or Spain! Or Portugal!
Then they look to Scandinavia as a democratic socialist model but there's a problem. Scandinavia is trying to be less pink!
This passage from the linked article in Fortune is a pretty damning testimonial:
Then they look to Scandinavia as a democratic socialist model but there's a problem. Scandinavia is trying to be less pink!
This passage from the linked article in Fortune is a pretty damning testimonial:
If you look at the years in which these countries built the wealth their citizens now enjoy, it was long before leftist ideas took hold. For instance, from 1870 through 1936, Sweden was the fastest growing economy in the world. But after 1975—when the Swedish state began to expand in earnest—Sweden’s economy noticeably slowed, falling from the 4th richest in the world to the 13th by the mid 1990s.Soooo, a capitalist economy resulted in Sweden being among the richest countries in the world, then the socialists took over and growth stopped. Fortunately, Sweden started reversing course and growth might be returning:
Since the 1990s, the total taxation of the Swedish economy as a percentage of GDP has fallen more than 5%, while labor market reforms, such as Denmark’s cutting of unemployment benefits have helped Scandanavian economies rocket up measures of economic freedom.Oh, what about Norway?
Well, Norway finances it's socialist system with oil primarily. In fact that's how a lot of socialist regimes start out and it doesn't save them from disaster anymore than a resource poor country. How does a socialist reconcile this model of oil financed socialism with their idea that we should be living off of renewable energy? Hello Green New Deal? Hello? Bueller? A question for another time.
Norway is smart enough to leave the oil production to the experts instead of appointing a political crony to run the oil business as a government enterprise, but this only delays the inevitable. Plus, Norway's total population is less then a large US city. That's a lot fewer mouths to feed and hospital beds needed to take care of the sick and injured.
Norway is smart enough to leave the oil production to the experts instead of appointing a political crony to run the oil business as a government enterprise, but this only delays the inevitable. Plus, Norway's total population is less then a large US city. That's a lot fewer mouths to feed and hospital beds needed to take care of the sick and injured.
Uncle Sam's Guarantee
Even if Norway and other countries in Europe make good models for socialism, it's because the US government and the American consumer covers many expenses that these countries would have had to cover themselves if Uncle Sam had other priorities.The world should be very concerned if the US tries to duplicate socialism, democratic or otherwise. For one thing, it would make the US more of a global magnet for every hard luck case in Latin America than we already are. Those immigrants will need to be housed, clothed, fed and educated, causing public spending to rise dramatically.
I will also bother to note the one thing Norway or any other European country doesn't have is a military capable of defending itself. They can indulge in the socialist experiment because their defense is virtually guaranteed by the US, even for countries not officially in NATO. Only 4 countries in the NATO alliance are meeting their military spending obligations stipulated under the alliance--at least 2% of the country's GDP. Even that 2% wouldn't be enough for a country like Estonia to ward off an aggressive action by Russia, for example. Norway's model works because there is a larger more prosperous country willing to spend more on it's defense. Same thing with every other European country.
So we can say that the US is effectively subsidizing the defense of Europe courtesy of the American tax payer. What else is the American tax payer in the US subsidizing in Europe? Healthcare, perhaps? If an American pays $100 for a prescription so that a Norwegian only needs to pay $10, I would call that another subsidy courtesy of the American tax payer. Not to mention all the R&D investments we make so that a European country can buy it off the shelf and provide healthcare to its citizens at cost.
Let's talk about trade surpluses! The US generally imports more than it's exporting which means we don't get to sell as many goods to a European country as we are buying from Europe. This means Europe makes more money from Americans than Americans make from Europeans resulting in more tax revenues for European governments than for American governments. Even if the effective tax rates between the two trading partners were equal the trade imbalance means that the country with the trade surplus is being subsidized by the country running a trade deficit.
Let's talk about jobs! How many jobs does the US lose to emerging economies? Millions and millions of jobs. An American loses out on an opportunity and income so that a foreigner becomes employed and makes more money to raise his living standards. More income for foreigners means more tax revenue for that foreign government and less tax revenue for the US government.
I could go on but you get the point. A socialist country gets to try out some socialist principles because a richer more prosperous country that is willing to defend it and trade with it has already guaranteed that lifestyle. Once the US starts getting pinker--or God forbid, red--that free lunch is over. The US would eventually need to cut military spending which would make other countries more vulnerable to aggressive neighbors like Russia or China. Trade routes will be under threat as the US scales back its navy. Since US citizens get to keep less of their own money, they will buy fewer imports, effecting the companies in other socialist countries. Since there will be less incentive to research and innovate, quality of life stagnates and declines (some would say this is already happening in the current tax environments).
At this point things get truly bad. Companies lose revenue and profit and need to shut down. People lose their jobs. If the democratic socialists determine that an industry is vital, the government might decide to step in and run it, but it will be run inefficiently and it would result in shortages. People will riot and the government might not have any choice but put down the unrest the only way it knows how, brutally! At this point, we are looking at some very dark days, not just for the US but globally.
Learning from the Present
"Learning from history" has turned into one of the more pretentious phrases that has arisen with the proliferation of the internet. Too many respondents throw this term around in debates after reading an article on Wikipedia. Scott Adams, creator of Dilbert, once said that history always repeats because there has been a lot of it. So how about we just try and learn from the present? Let's look for other models of socialism right now and see if they have delivered on its promise.
How about Venezuela? Nah! Too easy.
Cuba? Too red.
Let's look closer to home:
Socialism in the Service Industry:
If you're stuck in a minimum wage job, or a job that relies on tips, and not seem to be moving up the economic ladder, it might be because you suck at managing money and socialism isn't going to save you.
We can look into the service industry to see how democratic ownership of a company might work out under democratic socialism. Waiters and others in the service industry that rely on tips to supplement their income practice a certain form of socialism among themselves. It is pretty well known that people that work in the service industry tend to be pretty generous tippers themselves. We're not talking the 15-20% that the service industry tends to advocate, but often, 30, 40 or even 50% tips are common from customers that often happen to work in the service industry themselves. The reasoning is often based in empathy; service members have first hand knowledge about how difficult it is in their industry and tend to tip generously.
Socialism in the Workplace:
Or consider this true story:
I used to work for a company that allowed different departments to order their own office supplies. This meant that there were several different account numbers that our vendor needed to keep track of, but they didn't seem to mind. And they would consider total orders company wide for any volume discounts that we might qualify for. So everything was great.
However, the financial crisis of 2008 caused a lot of companies to tighten their belts and reduce expenses. My company felt that there were too many duplicate orders on common office supply items when ordered by department so they thought to consolidate ordering of the office supplies under one of the executive assistants to save money by eliminating duplicate orders.
The result was a disaster! There were shortages on many common supplies resulting in emergency runs to local stores where we had to pay the premium retail prices (more expensive). When an order of new supplies did come, certain items tended to get hoarded by people that didn't want to get stuck without those supplies. If you were in the only department that needed a particular item like glue sticks you were also left running to the local stores because the company didn't want to buy in volume what only a few people used. They considered it wasteful.
After a few months, management still couldn't get a handle on the situation and projects would get delayed because it took longer to do things when you have to hunt for the items needed to do your job. Management wisely decided to return purchasing authority to the department heads with a spending cap and things worked out a lot better.
At least in this scenario, we were able to run to the stores when shortages happened. Under socialism this wouldn't have been an option and some operations would have ground to a halt.
There's many more examples I think people can come up with in their own lives.
Needless to say, a critical evaluation of the philosophy and an understanding of human nature demonstrates pretty succinctly why socialism as a political and economic philosophy won't work. So don't let yourself be convinced by those people that say it will be different this time. It won't be.
Once the fallacies underpinning the socialist systems are addressed, a socialist will start resorting to pleas to empathy. Never forget that a human is a social animal and desires approval from their group and empathy allows people to signal to their group that they are a good person. But you aren't a good person by depriving others of their agency or enjoying the fruits of their prosperity. This is an act of cruelty disguised as benevolence.
How about Venezuela? Nah! Too easy.
Cuba? Too red.
Let's look closer to home:
Socialism in the Service Industry:
If you're stuck in a minimum wage job, or a job that relies on tips, and not seem to be moving up the economic ladder, it might be because you suck at managing money and socialism isn't going to save you.
We can look into the service industry to see how democratic ownership of a company might work out under democratic socialism. Waiters and others in the service industry that rely on tips to supplement their income practice a certain form of socialism among themselves. It is pretty well known that people that work in the service industry tend to be pretty generous tippers themselves. We're not talking the 15-20% that the service industry tends to advocate, but often, 30, 40 or even 50% tips are common from customers that often happen to work in the service industry themselves. The reasoning is often based in empathy; service members have first hand knowledge about how difficult it is in their industry and tend to tip generously.
I don't criticize their spirit of generosity and willingness to help their fellow man. However, I wish to point out that, on the macroscale, servers that rely on tipping to supplement their income are redistributing their wealth by doing this--they are already practicing their own particular form of socialism. And they are doing it badly, even by socialism standards. If you are a server that is typically receiving 15-20% in tips but tipping other service workers 30-50%, how does this math add up? How does this not make you more poor than you already are? What's your plan to get you out of whatever financial pit that you find yourself in? Relying on a few overly generous customers that might tip a higher percentage or lobbying the public to increase the standard tipping policy to a higher percentage won't work because you'll just give it away. Neither will increasing the minimum wage work out well for you if you just give it away. And if such a minimum wage increase might be too much for your employer to maintain his margins then you might find yourself out of a job!
No. What would be most effective would be is to tip the standard 15-20% if you must and take the additional cash that you would have tipped to satiate your sense of empathy and invest it in a mutual fund or index fund instead. This is how rich people became rich. This is how you can move up the economic ladder. This is how capitalism works. Because you are using capital (in this case your tips) and growing it into something larger.
Granted that people higher up the economic ladder have more capital to play with and get even richer a lot quicker. But consider that a mere $100/month investment over 40 years can yield $150,000 because of compound interest (meaning that your yields from the original investment keeps getting reinvested for additional yields). That's not considered rich, but a nice nest egg in retirement--perhaps enough to buy a house with cash. If you want more in retirement then you can invest more. IRA's are capped at $5,500/yr. That's about $450/mo so go nuts!
Socialism destroys capital by redistributing it because if wealth is being redistributed than it can't be invested. This is the primary problem: under socialism, investing rarely happens, either by the government or private industry. So there is no growth. At least wealth redistribution in the service industry is done on a voluntary basis. If you find that you need to make your rent payment this month and can't tip as much as you would like, then nothing bad will happen beyond a little public criticism. Do this under a socialist government and you're breaking the law, and the government will enforce the law brutally because they are already pulling out couch cushions for spare change as the economy spirals into the ground.
Granted that people higher up the economic ladder have more capital to play with and get even richer a lot quicker. But consider that a mere $100/month investment over 40 years can yield $150,000 because of compound interest (meaning that your yields from the original investment keeps getting reinvested for additional yields). That's not considered rich, but a nice nest egg in retirement--perhaps enough to buy a house with cash. If you want more in retirement then you can invest more. IRA's are capped at $5,500/yr. That's about $450/mo so go nuts!
Socialism destroys capital by redistributing it because if wealth is being redistributed than it can't be invested. This is the primary problem: under socialism, investing rarely happens, either by the government or private industry. So there is no growth. At least wealth redistribution in the service industry is done on a voluntary basis. If you find that you need to make your rent payment this month and can't tip as much as you would like, then nothing bad will happen beyond a little public criticism. Do this under a socialist government and you're breaking the law, and the government will enforce the law brutally because they are already pulling out couch cushions for spare change as the economy spirals into the ground.
Socialism in the Workplace:
Or consider this true story:
I used to work for a company that allowed different departments to order their own office supplies. This meant that there were several different account numbers that our vendor needed to keep track of, but they didn't seem to mind. And they would consider total orders company wide for any volume discounts that we might qualify for. So everything was great.
However, the financial crisis of 2008 caused a lot of companies to tighten their belts and reduce expenses. My company felt that there were too many duplicate orders on common office supply items when ordered by department so they thought to consolidate ordering of the office supplies under one of the executive assistants to save money by eliminating duplicate orders.
The result was a disaster! There were shortages on many common supplies resulting in emergency runs to local stores where we had to pay the premium retail prices (more expensive). When an order of new supplies did come, certain items tended to get hoarded by people that didn't want to get stuck without those supplies. If you were in the only department that needed a particular item like glue sticks you were also left running to the local stores because the company didn't want to buy in volume what only a few people used. They considered it wasteful.
After a few months, management still couldn't get a handle on the situation and projects would get delayed because it took longer to do things when you have to hunt for the items needed to do your job. Management wisely decided to return purchasing authority to the department heads with a spending cap and things worked out a lot better.
At least in this scenario, we were able to run to the stores when shortages happened. Under socialism this wouldn't have been an option and some operations would have ground to a halt.
There's many more examples I think people can come up with in their own lives.
Needless to say, a critical evaluation of the philosophy and an understanding of human nature demonstrates pretty succinctly why socialism as a political and economic philosophy won't work. So don't let yourself be convinced by those people that say it will be different this time. It won't be.
Once the fallacies underpinning the socialist systems are addressed, a socialist will start resorting to pleas to empathy. Never forget that a human is a social animal and desires approval from their group and empathy allows people to signal to their group that they are a good person. But you aren't a good person by depriving others of their agency or enjoying the fruits of their prosperity. This is an act of cruelty disguised as benevolence.
