Key Problems of Socialism

I have thought about Socialism and had discussions about it many times.  I’ve had many discussions with people that consider themselves socialists and I often find that my ideas on free market capitalism or freedom are usually grossly misrepresented.  People often times want to make a straw man to frame as my argument and then try to take it to task rather than actually addressing some of the tenets of what I believe.  So I will now address some of the reasons why I am not a proponent of socialism or any other authoritarian style of government.

The first thing I want to get into is the inefficiency that exists in an economy within a socialist country.  Now first I need to say that there is not so far as we know any way to achieve maximum efficiency in an economy as that would imply a perfect use of all goods, services, time, etc.  But there is a maximum efficiency for resources and it can be seen in what is called the Production Possibilities Frontier curve.


At maximum efficiency we can see that there is a line curve that represents our theoretical maximum output at a given time.  No economic system, even a free market economy will push its productive capacities to that line unless there are advances in technologies, techniques or discoveries of new resources then the curve can expand.

But it is my belief currently that free market capitalism is the method that gets us closer to that possibility frontier curve.  But it’s not enough just to say that It’s my opinion because opinions are normative statements that can neither be proven or disproved so let me explain why I prefer capitalism over socialism to get us closer to this output level.

Responsibility and the Milgram Obedience Study

In socialism you find that the government takes over certain means of production.  The more socialist the country the more means of production the government takes over.  So what is the difference between a private citizen and a government citizen when managing the means of production.  I have used the term “government citizen” because nobody classifies politicians and bureaucrats in the right light.  We act as though politicians are not people like us.  We need to recognize that they are people like us and before they moved into positions of authority they were just like us.

First let us examine the private citizen and their management of the means of production for their business.  When a man or woman running a business begins making decisions on how money or resources will be allocated they are under a tremendous amount of pressure.  The reason they are under so much pressure is because often times in business your access to money and resources are limited to your performance with what you’ve already been given.  Meaning, that if you have been given a million dollars but you have operated at a loss for multiple years or virtually no profit and then you go to a bank or lending group for money they are going to look at your past and performance and ask themselves “Am I going to make a profit from loaning them what they are asking, or is my investment at risk altogether”?

This creates an incentive for the person responsible for allocating resources in that business to make the most wise and shrewd decisions they can make to attempt to ensure that they meet their productive capabilities and generate higher margins of profit for the owners.  Access to capital is so incredibly important to businesses.  It is for all intents and purposes the lifeblood of a business.  It is the bricks by which the house is constructed.  Subsequently, taking those bricks and accidentally or even purposely building one wall too high always requires a higher input value than the original cost.  This is because you not only have the costs of whatever it is you are constructing, but the additional cost of time and labor by deconstructing it.  A mistake always costs additional resources to fix.  So the price of a mistake is always makes the good or service being produced higher than its initial, superficial costs.

So in short when a private citizen runs a business and they do not properly allocate resources then they go out of business.  Not only does that business fail and that person now has to worry about how they are going to pay their bills or put food on their table, but they now will have a harder time in the future managing a business.  It’s not that they can’t manage a business in the future but it does restrict their potential to do so and any further failures will limit them even more.

Now if you take a look at the government citizen.  What makes them different in the way that they conduct the allocation of resources?  This is one area that very seldom gets any look especially from socialists who, without saying so, act as though these are fair haired angels who are not as desperately wicked and corrupt like as a private citizen who’s job it is to allocate resources.  This is a huge error in judgment.  Because as the famous British Parliamentary member Lord Acton once said “Power corrupts and absolute power corrupts absolutely.”  So the idea that because the politician says seemingly heart felt things that doesn’t make them honest and that doesn’t make their idea one that is practical.

The Milgram Obedience Study

Another problem I have with government citizens allocating resources is a concept that is very common to human beings.  It is the problem of responsibility.

In social psychology there is a well known study to anyone that has taken a level 100 psychology course in college.  This is the Stanley Milgram obedience study.  In this study psychologists told test subjects that on the other side of a wall was a person hooked to electrodes and it was the job of the test subject to read a list of words to the person on the other side who could communicate to them via an intercom.  If the person got the word wrong then the test subject was to flip a switch and give them an electric shock.  It started at 15 volts and went all the way up to 450.  In almost every case the test subject would shock the imaginary gentleman on the other side, who confessed he had a heart condition, despite screaming and begging to stop.  This would often happen until the gentleman on the other side of the wall stopped screaming, supposedly to give off the impression that the test subject had killed the man on the other side of the wall.

An interesting aspect to this study was that when the test subjects were told that they were not responsible for what happened to the man on the other side they would then continue flipping the switches.

There were two things that allowed this people to behave in this manner.  The wall between the two limited the feelings of personal responsibility.  When you don’t see something directly, you don’t directly feel responsible for your actions.  The second thing is that when an individual is able to put a buffer between themselves and others they feel even less responsible for their actions.  In that instance it was the psychologists who told the test subjects that the psychologists were the ones responsible for what happened to the man on the other side of the wall and not the test subjects themselves.

It is these two things that are inherent problems with socialist governments.  Socialism works better in small, homogeneous societies where there is close contact with the ones that you are responsible for.  You see them everyday and if you make mistakes they are right there to punish you.  This is not to mention that in these small societies that everyone has basically the same hopes and goals so this, coupled with a direct sense of responsibility forces serious considerations when determining how resources are going to be allocated.  The second thing are the layers or buffers that exists between government citizens (bureaucrats) and the people they are responsible for.  The bigger the bureaucracy the more levels and buffers that can be used to rid themselves of responsibility.

How many times even recently do we watch members of government get caught doing something wrong and then throw some lower level person under the bus.  This has happened so much recently that I’m not sure I need to provide examples.  Just look at the V.A. scandal that happened within the last year or so.  When it was found out just how atrociously the Veterans Administration was being run and how it was actually costing veterans their lives they went ahead and started throwing some lower level bureaucrats under the bus.  They never felt any personal responsibility for their actions because there were too many buffer levels between them and the people they were responsible for taking care of.

Also, it would be a good time to point out that since this is a universal principle, that private businesses are not immune to this type of behavior.  Ceo’s that are distanced from their shareholders or the customers they serve often times make decisions that result in the poor allocation of resources.  A lot of times fraud and waste that occurs in companies is a result of a lack of responsibility to others as well as greed.  But ironically, often times those crony capitalists that commit these acts often have special protections from the government or have their behaviors guaranteed by the government in the form of insurance, or “bail out” programs.

The Final Things

I just wanted to mention two things as I wrap this up.  These are pretty important and could take thousands of more words to discuss but this blog is already long enough so without any further ado those two things are the inherent badness of people and the pretense of knowledge.

People are inherently bad.  People are inherently self centered.  They often make decisions that disregard the life, liberty and happiness of others around them.  You have to be able to put pressure to make people do the right things because just relying on people to make decisions out of inherent goodness doesn’t happen as much as you’d think.  You need to give someone a real incentive to make good decisions.

The second thing is that we can’t possibly have enough information to make accurate decisions on how a nation’s economic resources should be directed.  People are chaotic and ever changing.  We are black holes of desire.  A government that tries to make economic decisions for us will always find itself shoving resources into a program that we don’t want anymore or that we have outgrown.  They find that we’re constantly changing but they don’t know what we’re changing into next.  So they’re constantly playing a game of catch up, and almost never actually catching up with us.  And guess what?  It only costs us money.


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