7 Reasons Socialism Will Make You Poorer Than Capitalism

Given what we know in 2012, saying that capitalism will make a society richer than socialism should be about as controversial as saying the earth is round, not flat. Yet, a recent Gallup poll shows that more liberals have a positive view of socialism than capitalism. This is only possible because there are so many perverse incentives that drive the promotion of socialism. If you're a politician, socialism puts power in your hands while capitalism takes it away. If you want to use the government to control people's lives, socialism is a wonderful vehicle to do just that while capitalism robs you of that opportunity. If you would rather live off the dole than to work or alternately, prefer to make money off "who you know" instead of "how good a service you provide," again socialism works better for you. Now take into account the fact that there are no pure socialist or capitalist economies left and it becomes very easy to muddy the water and keep people from realizing the obvious economic superiority of capitalism.

1) Socialism benefits the few at the expense of the many: Socialism is superior to capitalism in one primary way: It offers more security. It's almost like an extremely expensive insurance policy that dramatically cuts into your quality of life, but insures that if worse comes to worse, you won't drop below a very minimal lifestyle. For the vast majority of people, this would be a terrible deal. On the other hand, if you're lazy, completely incompetent or alternately, just have a streak of very bad luck, the meager benefits provided by socialism may be very appealing. So a socialist society forces the many to suffer in order to make it easier for the few. It's just as Winston Churchill once noted, "The inherent virtue of socialism is the equal sharing of miseries."

2) Capitalism encourages entrepreneurship while socialism discourages it: A government in a capitalist economy can quite easily give everyone equality of opportunity with a few basic laws and regulations, but socialism strives to create equality of results. This should frighten people who value their freedom because ultimately, as F.A. Hayek has noted, "A claim for equality of material position can be met only by a government with totalitarian powers." You can see this happening in America as our efforts to reduce "inequality" have led to an ever expanding government and a vast regulatory tangle that is almost unexplainable despite the fact that it is certainly enforceable. Capitalism encourages people to start a business and build a better life for themselves while socialism lays in wait with IRS agents, nooses made of red tape and meddling bureaucrats looking for businesses to control and loot.

3) Capitalism leads to innovation: Coming up with new products is often time consuming, expensive and hit or miss. Nine ideas may fail before that tenth one takes off. The less the creative people behind these ideas are allowed to benefit, the less time, money and effort they'll put into developing new concepts and inventions. Put another way, the bigger the risk, the bigger the reward has to be to convince people to take it. Capitalism offers big rewards for productive people while socialism offers makers only a parade of bureaucratic leeches who want to take advantage of their "good fortune."

4) Capitalism produces more economic growth: Capitalism produces considerably more economic growth than socialism and as John Kennedy said, "A rising tide lifts all boats." A fast growing economy produces more jobs, more wealth and helps everyone. Many people assume that capitalism isn't working if there are still poor people, but that misses the point. In many parts of the world, poverty means living in a hut with a dirt floor while in America, most poor Americans have TVs, refrigerators and cell phones. The rich may take home a larger share of the pie in capitalism, but the poor also benefit tremendously from living in a growing, thriving economy.

5) Socialism is too slow to adapt: Capitalism is extremely good at allocating capital to where it's most valued. It has to be. Either you give people what they are willing to pay for or someone else will. On the other hand, socialism is slow and stupid for a variety of reasons. Because the government is spending someone else's money, it doesn’t get particularly concerned about losing money. Political concerns about appearances often trump the effectiveness of a program. Moreover, even if politicians and bureaucrats are intelligent and competent, which are big "ifs," they're simply not going to have the specific knowledge needed to make decisions that may impact thousands of different industries. This is why capitalism may have its share of troubles, but when there are really colossal economic screw-ups, you'll always find the government neck deep in the whole mess.

6) Socialism is inherently wasteful: Milton Friedman once said, "Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own." This is very true and it means that the more capital that is taken out of the economy and distributed, the more of it that will be wasted. The market does a considerably better job of allocating resources than the government because there are harsh penalties for failure. A company that makes products no one wants will go out of business. A poorly performing government program that wastes a hundred times more money will probably receive a bigger budget the next year.

7) Capitalism works in concert with human nature while socialism works against it: Ayn Rand said it well, "America’s abundance was created not by public sacrifices to ‘the common good,’ but by the productive genius of free men who pursued their own personal interests and the making of their own private fortunes. They did not starve the people to pay for America’s industrialization. They gave the people better jobs, higher wages and cheaper goods with every new machine they invented, with every scientific discovery or technological advance—and thus the whole country was moving forward and profiting, not suffering, every step of the way," but Adam Smith said it better, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” A man will work much harder to take care of himself, his family and his friends than he will to make money for the state, which will then waste most of it before redistributing it to people who aren't working as hard as the man who earned it in the first place.

I despise Socialism, but there is a huge mistake in our thinking in this country that permeates the Libertarian Consevative segment.

Look at the stats. Too much power and money and perqs in the hands of oligarchs and in the beneficiaries of the welfare state and too many taxes and expenses for the middle class.

That has been and is caused by outsourcing, insourcing cheap labor and more welfare clients, ignoring or deregulation of fair rules for Wall Street, banks and corporations, overpaid ruling class and their bureaucrat minions.

Ceo salaries and shareholder profits are out of control as are the politicians salaries.

Solution? Find people who care for the common good to elect if you can.

I have always thought that crony capitialsim is socialism.

Not really, though they do go together, and "crony capitalism" isn't really capitalism. Economic growth is largely a function of how much wealth is in the hands of people who can and will use it to generate more wealth. Even autocratic socialist governments often recognize that if they don't use put some wealth in the hands of people who will make it grow, nobody will have anything. Conversely, the fact that wealth gets directed toward those who are more politically powerful, and vice versa, is often used as a basis for demanding socialist wealth redistribution, not withstanding the fact that efforts to "soak the rich" only soak those who aren't yet rich enough to be politically powerful, thus protecting from competition those who are already politically powerful and wish to remain so.

For economic infornation comes in the form of prices, and without some level of freedom to raise and lower price according to supply and demand there is no information.

That is exactly right. A related notion is that while there is no 100% perfect metric for determining how much someone "needs" something, a very good metric is how much they would be willing to pay to receive it, or how much they would demand in exchange for doing without it. If someone would rather have something than $500 cash, and someone else would rather have $250 cash than have the thing in question, that's a good sign that the first person "needs" the thing more. Even if the first person was sufficiently wealthy that $500 would not really affect him, and the second person was so poor that giving up $250 would pose a major hardship, giving the thing to the second person would leave both people worse off than e.g. having the first person receive the thing but give the second person $300.

Markets have a very strong affinity for Pareto-optimal allocations of resources (meaning allocations such that any small change which would leave anyone better off would have to leave someone else worse off). If economic efficiency would be enhanced by having market participants do something, odds are good that the market will do it if allowed to do so. Further, if market participants aren't doing something that would supposedly improve economic efficiency, that's a pretty good sign that they've judged that it won't.

There are some cases where pushing market participants to do something they wouldn't otherwise do may leave everyone better off. This sort of situation can arise in situations with positive network externalities, such that as the number of people doing something increases, the benefit to each person from doing so likewise increases. If few people were to do the thing in question, their benefit for doing so wouldn't be worth the cost. If, however, many people were to do it, the benefit could far exceed the cost. Temporarily artificially encouraging that action until the benefits exceed the cost may leave everyone better off than if there was no push to get the market "over the hump".

Unfortunately, politicians who want the government to intervene in the marketplace are almost never called upon to explain why their particular proposed intervention would direct the market toward an optimal resource allocation which it would not otherwise find. Instead, nearly all market interventions serve to--on an ongoing basis--prevent markets from acting to improve their efficiency. For example, programs which subsidize certain people's purchases of a certain commodity will reduce the quantity of that commodity available to non-favored people. To ensure that the now-scarcer resources are allocated efficiently, the price will increase, thus making the commodity less affordable to many people (contrary to the stated purpose of the subsidy, which was supposed to make it more affordable). If eligibility for the subsidy is expanded to accommodate those people, that will push the price higher, making it even less affordable for some people.

Unfortunately, many people seem to think the markets' reactions to such programs can't be predicted. That is, of course, nonsense. If a total of 5,000 units of some commodity are going to be produced per year, and that number is fixed, then people are going to be able to afford a total of about 5,000 units of that commodity in the absence of any program to subsidize select people's purchase thereof; that same 5,000 units will be "affordable" if the government subsidizes purchases by 10% of the population, or 50%, or 100%. The only things the subsidies will do are (1) mean that some people who would have been able to afford the goods won't be able to, because they've been bought by other people who didn't value them as much but were subsidized; (2) waste the public treasury's money. Supply-side subsidies might make more goods affordable, but would still represent an inexpenditure of public funds.

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