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Monday, July 16, 2012

A Well-Written Article About the Fallacies of Socialist Policies

I saw this article on while browsing the web on my phone this weekend, and I couldn't let it go. It explains, in simple terms, why socialist economic policies ultimately fail the population and leave the country saddled in debt with little hope of pulling itself out of a powerful downward economic spiral. See this great piece by representative John Campbell here:

Campbell starts by highlighting a fact about debt:

     - "Using debt that you have no plan to repay in order to pay other debts that you can't repay doesn't work with mortgages and will not work with governments."

This falls in line with the "household budget" argument: Sure, it's exaggerated, but it makes a good point. We can't continue to borrow our way out of a deep economic recession. Campbell continues to explain why socialism doesn't work. I wish I could take credit for this next paragraph as I feel it is spot on and preaches to my choir:

     - "Socialism in Europe and in this country always starts the same way – promise people free health care and free retirement and free housing and whatever free stuff wins political favor. Some claim that the "rich" will pay for it all. But, the rich do not have enough money."

YES! I've said this since the beginning of this blog. The promise of free/beneficial stuff from the government is nothing but a political move to gain votes. From free health care to social security benefits to lower tax burdens, politicians and policymakers, mainly on the left, tend to grab votes by promising the largest voting bloc (poorer voters) that if these policymakers are elected, that very voting bloc would benefit and receive all these wonderful government social gifts paid for by the rich. See my posts here: 

But sadly, this redistributive situation described above is completely unsustainable. The population pyramid is large on the bottom with respect to wealth/income. Poorer voters (net takers) far exceed wealthier ones (net producers). This presents downward a spiraling problem Campbell does not mention: disincentivism (yes, I know that's not a real, Webster-defined word). Quite simply: why would anyone cross over from being a taker to a producer when there is no incentive to do so? Why would anyone work hard, invest in themselves, put in the time and the effort to achieve a level of income/wealth where they can easily earn their own sustenance when that very sustenance is simply given to them? People naturally take the path of least resistance; why would you want to work hard and devote time and energy into earning things when those things are provided by a government that gives them to you without putting in any time and effort? For the net takers, their population increases slowly as more people realize this minimal-effort lifestyle comes with no shame but captures what they need: sustenance. 

Campbell continues to describe the mechanics of how this works:

     - "They (the rich) may have enough to pay for the very poor, but not for everyone. So, the socialists borrow the money. That way, they are still giving the populace free health care. But, at some point you can't borrow the money anymore because the people you are borrowing it from realize that they can never be paid back. This is the tipping point at which socialism fails. Past this point, you have to tax the people to whom you promised the "free" stuff in order to pay for their "free" stuff (those people are the middle class). The people understandably don't want to give up their free stuff or have to pay for it. But, they will have to do one or the other. And, an entire generation will suffer."

Well said. This absolutely falls in line with my theory of disincentivism. When given free stuff, there is no reason to go out and get it yourself. Why would you go through the struggle of finishing college to get a job that pays very well and empowers you with the ability to buy health insurance for yourself (or a job that pays it for you) if you can just get it for free? Disincentivism is a two-pronged problem. In addition to having to tax people more to cover the free stuff supplied to an ever-increasing population base (population expands exponentially), the net takers don't cross over to be net producers (which usually requires employment) to start paying more in taxes themselves. As Campbell points out, inevitably the lower/middle class must be taxed more. But a politician can't possibly be elected by the largest voting bloc if he pledges to raise that voting bloc's taxes. So, of course, that politician demonizes the rich even further as seen in the "Tax the Rich" article above. This is a dangerous negative spiral that leads to less and less people producing for a growing population. In no way can an economy survive as the number of mouths to feed grows and the number of people working to feed those mouths shrinks.

Some "malinformed" people, however, will point to many European socialist countries as a model for success. They will say, "well, look at Germany." Campbell explains this fallacy in simple terms, too:

     -"Some believe that socialism in Germany has worked, but they are missing something. The euro has been enormously helpful to Germany because it allowed the citizens of Greece and Spain and other less-productive countries to buy German goods using an overvalued common currency. If Greece (or any other country) leaves the eurozone, their new, lower-valued currency would greatly reduce the wealth of their population and will buy a lot fewer German goods. Germany has been enjoying a bubble supported by the euro, which undervalued German goods and overvalued the ability of others in Europe to buy them. Were this bubble to burst, Germany's output and, therefore, its social programs, would also come under strain. Germans will be the last people in continental Europe to feel the pain, but they will feel it."

Again, this is well stated. It explains that Germany's success is falsely propped up while other countries have failed. If Germany didn't exist, another country would benefit in the same way. Campbell points out that the "Germany works" mantra is a hollow one at best. One must take a deeper macroeconomic look at why German appears to be doing so well. France appeared to be doing well about a decade and a half ago, too. But, as Campbell describes is the case will be with Germany, France started to feel the negative effects of socialism. High unemployment due to the lack of real economic self-reliance incentive because of the nanny-state social programs of the French government have turned the country upside down with debt and other financial perils. Germany's time will soon run out, too. 

So, what do you think? Is this article by Congressman Campbell correct? Should we curb our nanny-state-in-development before we suck the incentive out of everyone? Or is more government and more social programs the answer to closing this social "wealth gap?" Please share your thoughts below.


  1. Your assessments and connections to the original article are correct. It's a good job of taking Campbell's point and running to the next level. Thank you for posting your other analysis in the links you gave.

  2. What is the fair share of someone else's earnings?

  3. Hey there LME!

    I feel that the debt argument is a different subject all-together (from the topic of socialism). I don’t think anyone from either side would argue that continuing to accrue debt, particularly as a way to pay for programs, is any definition of sustainable or ideal.

    Of course they are often discussed in tandem, in that socialism encourages higher levels of government spending, but it doesn’t encourage irresponsible spending and/or accrual of debt to fund the programs anymore than any other economic/societal theory. As you correctly related LME, that is far more a result of political campaigns attempting to win votes by promising ‘freebies.’ Which, I’d like to add further upon in that it very much goes both ways. Promising tax cuts without paying for them is no more or less financially responsible than promising social programs without paying for them.

    Also, no part of socialism is built up on the idea of ‘the rich pay for the poor.’ A true socialistic society requires contribution from everyone in the community; not just a particular group of it.

    That said, John Campbell’s article is an assessment of how he believes socialism can fail when propped up on debt and what amounts to a form of mob rule (minority pay for majority), as exemplified through his analysis of the current Europe situation. But you can’t fairly draw anything major other than that from Europe. This is more of a statement in how governments can fail to implement responsible social policies, than how the social policies themselves fail. Which sure, is a valid argument in itself, but in all fairness he appears to try to make it mean more than it really does.

  4. Hi RKen

    'Also, no part of socialism is built up on the idea of ‘the rich pay for the poor.’ A true socialistic society requires contribution from everyone in the community; not just a particular group of it.'

    Sorry, I gotta disagree with your analogy. Do the words 'redistribution of wealth'('spread the wealth around' in Obamaspeak)ring any bells? Or how about 'from each according to his ability, to each according to their needs.'?

    Socialism ALWAYS fails, soon or later. And history shows us that once it does, the government for that rises in its ruins (bottom up, top down, inside out) -- is (and always has been)despotism/totalitarianism or communism.

    1. Hi Dara, hope all is well.

      When I said that, I was speaking strictly from a definitive point of view in how the theory of socialism is detailed. There are of course many different variations/levels of socialism, but the ultimate principles don't revolve around any kind of exclusive focus on the rich.

      I mean, if you go far enough, the highest level of socialism eliminates currency. How can the idea of "rich feed the poor" exist when there are no monetary value differences between people?

      Not that I agree with that kind of extreme or societal structure, but my point is only in the whole ‘tax the rich for the poor’ mantra is at the very least a misleading representation of the theory of socialism.

      In all fairness though, history has shown us that all modern theories have failed to produce the kind of utopian society they claim/strive to be. Everything is with advantages, disadvantages, trade-offs and risk of corruption/collapse/failure. Socialism appears to be no exception, as does Capitalism.

      Of course, arguments could be made in that we never have had a “true” capitalist society, but the same applies for the “true” socialist society. So in the end, who knows! Not much more we can do than sort of guess/estimate. :)