The first stage of socialism is well underway in America: high and progressive income taxes, huge wealth transfer programs, robust safety nets and massive government giveaways. Simply put, it is the transformation from a free market economy to a welfare state. The politically elite and the intelligentsia justify their calls for socialism based on wealth and income equality. But they have no intention of having their wealth and lifestyles brought down in line with the commoners. This is all about power to them - the power to control others and to make sure their lives continue to be filled with special treatment. As Orwell noted, socialism is where some are “more equal than others”.
The economies of welfare states stagnate because they disrupt the natural incentives of economic freedom. Note that socialism does not remove incentives – it alters them. High taxation reduces the incentives for wealth-creators to take risks, and increases the incentives to focus on tax avoidance. Wealth transfer programs and robust safety nets reduce the incentives of individuals to create value through consumer-driven economic production, and increase incentives to game government programs.
Americans are being increasingly incentivized to “consume more than they produce”. At best, the welfare state fosters self-employment. Ride-sharing workers and others chose to avoid income taxes and receive public assistance rather than fill the seven million full-time job openings. Note the growing number of self-employed incorporated workers since the passage of Obamacare (in millions):
Overall, the number of self-employed workers grew 5% more than the total number of employed workers. In free market economies, people strive to make their lives better through generating value as measured by market prices, thereby making the pie bigger. Under socialism people try to keep their lives from getting worse by cheating the system and currying favor with the authorities. Innovation and efficiency decline under socialism and the pie gets smaller.
The decline in efficiency and productivity experienced in welfare states leads to the second -- and more damaging -- stage of socialism: social control of the means of production. The initial steps of Federal control of American corporations are already underway. The healthcare, automotive, energy, and financial industries are already controlled through regulations. Now, the leaders of America’s largest political party are calling for the energy industry to be controlled by the Federal government to the point that they would be forced to cease the use of oil, natural gas, coal, and nuclear energy and to turn entirely to green energy sources. Democratic leaders are also calling for massive increases in government control of the nation’s healthcare system (e.g., a single-payer system with no private insurance allowed).
Healthcare is clearly the dominant industry of the future under any scenario and so a full government takeover of the operational decisions within the energy and healthcare industries would, effectively, complete the second stage of socialism. Despite the abysmal failure of the Federal government’s control of the VA healthcare system, somehow leftists are hoping that the solution will be to give the Federal government control over all of the healthcare system. The outcomes of supposedly-successful healthcare systems of other countries (e.g., Canada and Finland) are exaggerated in the left’s quest to gain control over every aspect of our lives.
How would America fair with full Federal control of the major means of production? Venezuela, North Korea, the Soviet Union, and East Germany indicate the outcome of government control of the means of production.
Advocates of socialism always claim that widespread economic failures within socialism occur because the wrong people are in charge. But would America’s government leaders excel at running our private sector? Consider their track record of operating our existing government programs. At the state and local levels governments have accrued massive unfunded pension and healthcare liabilities despite the crippling effects of these burdens on their communities. In fact, despite increasing life expectancies, most state and local governments are continuing to promise these massive pensions and benefits that no corporation in the U.S. can afford to offer. At the Federal level government officials have amassed a Federal debt of $20 trillion despite substantial long-term increases in the total amount of taxes collected.
Could the same government officials that have wreaked havoc on the finances of America’s public sector somehow do a good job of running our private sector? Historical evidence and common sense provide the clear answer.