“Nowadays to be intelligible is to be found out.” — Oscar WildeIn the wacky world of American politics, if you as an employer have a religious objection to paying for your employees’ contraceptives, it is you who is contemptuous of religious freedom.As the New York Times editorial board lectured a judge who thinks otherwise, “the […]
Socialism is the big lie of the 20th century. While it promised prosperity, equality, and security, it delivered poverty, misery, and tyranny. Equality was achieved only in the sense that everyone was equal in his or her misery.In the same way that a Ponzi scheme or chain letter initially succeeds but eventually collapses, socialism may […]
Six months ago, I stepped out from the shadows of the United States Government’s National Security Agency to stand in front of a journalist’s camera. I shared with the world evidence proving some governments are building a worldwide surveillance system to secretly track how we live, who we talk to, and what we say. I […]
I opened a new bottle of probiotics this morning, and it had one of those circular seals on the top. You know, the one that reads, “Sealed for your protection.”And that seal got me thinking… how much protection do we need? How much security is enough?How much homogenization, pasteurization, disinfection, national security, etc…. do we […]
Last spring, Barack Obama told the graduating class of Ohio State University:“Unfortunately, you’ve grown up hearing voices that incessantly warn of government as nothing more than some separate, sinister entity that’s at the root of all our problems… They’ll warn that tyranny is always lurking just around the corner. You should reject these voices. Because […]
In the Huffington Post last week, Glenn Greenwald, Slate contributor Ryan Gallagher, and Ryan Grim had an investigative piece reporting that the NSA had been tracking the online porn-viewing habits of several Muslim leaders whom it viewed as radicals. A top-secret document shows that the agency was considering exposing these firebrands’ Internet dalliances as a […]
Americans are still trying to get a handle on the full extent of the government’s domestic spying activities, including the recent revelation that the National Security Agency (NSA) has been collecting and storing the email address books of ordinary Americans using online messaging services. Many users of such services are looking to tech executives for […]
A few months ago at a demonstration against the president of Montreal, Maine and Atlantic Railway, a Canadian citizen made the following claim: “We don’t have guns, we are not Americans, we are civilized.” A few days before, in early July, a train of the company had run away and exploded in Lac-Megantic, Quebec, killing […]
From the Tongue-In-Cheek Department of Laissez Faire Books…Washington, D.C. — Sen. Dianne Feinstein (D-CA), chairman of the Senate Intelligence Committee, announced that her committee will hold a “major review into all intelligence-collection programs.” This surprising declaration followed the revelation, through documents leaked by government whistle-blower Edward Snowden, that the NSA has been listening to the […]
From the Tongue-in-Cheek Department of Laissez Faire Books…Washington, D.C. – The complex negotiations aimed at bringing a long-term solution to the federal government’s expenditure and debt problem have produced an unconventional proposal. “Although the solution only focuses on a tiny fraction of government expenditures,” declared President Barack Obama, “it is a step in the right […]
I’ve just spent a harrowing weekend reflecting on Thomas Paine’s Common Sense, the pamphlet that came out in January 1776 and turned the public toward seeking independence from Britain. I say harrowing because the distance between the ideals found in this pamphlet and those of today’s America is so vast as to be nearly unrecognizable.The […]
It was a wild ride last week in the world of the Deep Web, that section of the Internet that requires special tools to access. The feds took down the site called Silk Road and claim to have arrested its founder and administrator. The news streams were filled with lurid tales of derring-do in this […]
Want to know just how invasive the state is going to get in the United States?Well, take a look across the pond.In terms of the large, invasive state, we English are way ahead of you guys. We’re a good 50 or more years further down the road to serfdom.Nineteenth-century Britain was about as glorious a […]
A tense drama unfolded this week with the virtual shutdown of vital government agencies: the Commodity Futures Trading Commission, the Consumer Financial Protection Bureau, the National Labor Relations Board, the Equal Employment Opportunity Commission, as well as many other such federal agencies. Without them, the Founding Fathers could not have imagined the republic.Even if fewer […]
Three months after Edward Snowden’s leaks began to reveal the extent of the U.S.’ mass surveillance program, “serious people” are beginning to make the case that it’s time for the outrage and indignation to subside and give way to a “national conversation” about the future of surveillance. So has the moment come for us to […]
A sixth-grader has been suspended for drawing an inappropriate picture. The drawing did not include any gun, but showed a checkpoint backed up by a SWAT team carrying flower pots while an unarmed drone hovered above.The suspended girl, whose name is kept secret at the request of her family, said she “just wanted to draw […]
The second part of this two-part article reveals an untold part of the story about how they were stopped last time. And shows how, if not again stopped, how it could lead to a fundamental loss of civil rights and freedom on the Internet.The offending legislation was barreling down the track, seemingly — even in […]
Two years ago, Hollywood, no kidding, masterminded a plot to, in effect, steal the Internet (by criminalizing certain conduct, booby trapping the Web in ways that few non-mega-corporations could cope with). There are signs, as perceptively flagged by the Electronic Frontier Foundation, that the perps are back at it. We should care.This two-part article reveals […]
It has now been nearly two centuries since French political scientist Alexis de Tocqueville visited America and compared American democracy to the French variety. The Martian asked his Earth correspondent to redo the comparison.The typical Frenchman thinks that Paris is the center of the universe, life without a baguette is not worth living, France is […]
I was at the Canadian border, headed toward the freedom that exists a few feet beyond the last security check. I was gently waved down a side corridor.Ninety minutes later, I was let go, but not before something truly alarming happened. I’m pretty sure that the Canadian government captured a mirrored version of my smartphone […]
Fort Meade, MD – The United States, the least unfree country on Earth, is fighting a major invasion of the Blueshirts.The most visible Blueshirts constitute a 50,000-plus army that occupies all the airports in America. Recognizable by their blue shirts and their inquisitive eyes and hands, they search and humiliate all Americans trying to leave […]
Sometimes, the news of the day causes me to say, “Huh?” The New York Times revelations last month about NSA programs and activities to enhance the agency’s ability to spy on ordinary citizens prompts today’s “Huh?” Who knew that our every phone call, Internet post and tweet is being recorded by the government?I have operated […]
U.S. and British intelligence agencies have successfully cracked much of the online encryption relied upon by hundreds of millions of people to protect the privacy of their personal data, online transactions and emails, according to top-secret documents revealed by former contractor Edward Snowden.The files show that the National Security Agency and its UK counterpart GCHQ […]
Oh, how the media love a good strike. Look at these fast-food workers and peasants standing up to the owners of capital! They aren’t going to take the oppression anymore. The suits in the boardrooms had better shape up and stop hoarding all that money. They need to give it up to the men and […]
Like all great historical ideas, the project of licensing journalists so that they may benefit from the First Amendment was born in a very modest place. In fact, it began in the most modest of all places: the brain of Dianne Feinstein, U.S. senator from California.The new law, which was just adopted by Congress and […]
The position that there need be a state is too often taken for granted.The main body of Sartwell’s book Against the State is dedicated to destroying the arguments for a state from the likes of Hobbes, Rousseau and Hegel. In fact, one thing that becomes crystal clear in reading Sartwell’s book is how bad the […]
Crispin Sartwell is someone you should know. He is doing important work in recovering forgotten greats in America’s anti-authoritarian tradition. Among other works, he’s put forward a lean and powerful book titled Against the State.In what follows, you’ll see why he’s my favorite living philosopher. Sartwell will take you on an intellectual tour de force […]
Socialism is the big lie of the 20th century. While it promised prosperity, equality, and security, it delivered poverty, misery, and tyranny. Equality was achieved only in the sense that everyone was equal in his or her misery.
In the same way that a Ponzi scheme or chain letter initially succeeds but eventually collapses, socialism may show early signs of success. But any accomplishments quickly fade as the fundamental deficiencies of central planning emerge. It is the initial illusion of success that gives government intervention its pernicious, seductive appeal. In the long run, socialism has always proven to be a formula for tyranny and misery.
A pyramid scheme is ultimately unsustainable because it is based on faulty principles. Likewise, collectivism is unsustainable in the long run because it is a flawed theory. Socialism does not work because it is not consistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives.
In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting, and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. Capitalism is based on the theory that incentives matter!
Under socialism, incentives either play a minimal role or are ignored totally. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail. Socialism is based on the theory that incentives don’t matter!
In a radio debate several months ago with a Marxist professor from the University of Minnesota, I pointed out the obvious failures of socialism around the world in Cuba, Eastern Europe, and China. At the time of our debate, Haitian refugees were risking their lives trying to get to Florida in homemade boats. Why was it, I asked him, that people were fleeing Haiti and traveling almost 500 miles by ocean to get to the “evil capitalist empire” when they were only 50 miles from the “workers’ paradise” of Cuba?
The Marxist admitted that many “socialist” countries around the world were failing. However, according to him, the reason for failure is not that socialism is deficient, but that the socialist economies are not practicing “pure” socialism. The perfect version of socialism would work; it is just the imperfect socialism that doesn’t work. Marxists like to compare a theoretically perfect version of socialism with practical, imperfect capitalism which allows them to claim that socialism is superior to capitalism.
If perfection really were an available option, the choice of economic and political systems would be irrelevant. In a world with perfect beings and infinite abundance, any economic or political system — socialism, capitalism, fascism, or communism — would work perfectly.
However, the choice of economic and political institutions is crucial in an imperfect universe with imperfect beings and limited resources. In a world of scarcity, it is essential for an economic system to be based on a clear incentive structure to promote economic efficiency. The real choice we face is between imperfect capitalism and imperfect socialism. Given that choice, the evidence of history overwhelmingly favors capitalism as the greatest wealth-producing economic system available.
The strength of capitalism can be attributed to an incentive structure based upon the three P’s:
1. Prices determined by market forces,
2. A profit-and-loss system of accounting, and
3. Private property rights.
The failure of socialism can be traced to its neglect of these three incentive-enhancing components.
The price system in a market economy guides economic activity so flawlessly that most people don’t appreciate its importance. Market prices transmit information about relative scarcity and then efficiently coordinate economic activity. The economic content of prices provides incentives that promote economic efficiency.
For example, when the OPEC cartel restricted the supply of oil in the 1970s, oil prices rose dramatically. The higher prices for oil and gasoline transmitted valuable information to both buyers and sellers. Consumers received a strong, clear message about the scarcity of oil by the higher prices at the pump and were forced to change their behavior dramatically. People reacted to the scarcity by driving less, carpooling more, taking public transportation, and buying smaller cars. Producers reacted to the higher price by increasing their efforts at exploration for more oil. In addition, higher oil prices gave producers an incentive to explore and develop alternative fuel and energy sources.
The information transmitted by higher oil prices provided the appropriate incentive structure to both buyers and sellers. Buyers increased their effort to conserve a now more precious resource and sellers increased their effort to find more of this now scarcer resource.
The only alternative to a market price is a controlled or fixed price which always transmits misleading information about relative scarcity. Inappropriate behavior results from a controlled price because false information has been transmitted by an artificial, nonmarket price.
Look at what happened during the 1970s when U.S. gas prices were controlled. Long lines developed at service stations all over the country because the price for gasoline was kept artificially low by government fiat. The full impact of scarcity was not accurately conveyed. As Milton Friedman pointed out at the time, we could have eliminated the lines at the pump in one day by allowing the price to rise to clear the market.
From our experience with price controls on gasoline and the long lines at the pump and general inconvenience, we get an insight into what happens under socialism where every price in the economy is controlled. The collapse of socialism is due in part to the chaos and inefficiency that result from artificial prices. The information content of a controlled price is always distorted. This in turn distorts the incentives mechanism of prices under socialism. Administered prices are always either too high or too low, which then creates constant shortages and surpluses. Market prices are the only way to transmit information that will create the incentives to ensure economic efficiency.
Profits and Losses
Socialism also collapsed because of its failure to operate under a competitive, profit-and-loss system of accounting. A profit system is an effective monitoring mechanism which continually evaluates the economic performance of every business enterprise. The firms that are the most efficient and most successful at serving the public interest are rewarded with profits. Firms that operate inefficiently and fail to serve the public interest are penalized with losses.
By rewarding success and penalizing failure, the profit system provides a strong disciplinary mechanism which continually redirects resources away from weak, failing, and inefficient firms toward those firms which are the most efficient and successful at serving the public. A competitive profit system ensures a constant reoptimization of resources and moves the economy toward greater levels of efficiency. Unsuccessful firms cannot escape the strong discipline of the marketplace under a profit/loss system. Competition forces companies to serve the public interest or suffer the consequences.
Under central planning, there is no profit-and-loss system of accounting to accurately measure the success or failure of various programs. Without profits, there is no way to discipline firms that fail to serve the public interest and no way to reward firms that do. There is no efficient way to determine which programs should be expanded and which ones should be contracted or terminated.
Without competition, centrally planned economies do not have an effective incentive structure to coordinate economic activity. Without incentives the results are a spiraling cycle of poverty and misery. Instead of continually reallocating resources towards greater efficiency, socialism falls into a vortex of inefficiency and failure.
Private Property Rights
A third fatal defect of socialism is its blatant disregard for the role of private property rights in creating incentives that foster economic growth and development. The failure of socialism around the world is a “tragedy of commons” on a global scale.
The “tragedy of the commons” refers to the British experience of the sixteenth century when certain grazing lands were communally owned by villages and were made available for public use. The land was quickly overgrazed and eventually became worthless as villagers exploited the communally owned resource.
When assets are publicly owned, there are no incentives in place to encourage wise stewardship. While private property creates incentives for conservation and the responsible use of property, public property encourages irresponsibility and waste. If everyone owns an asset, people act as if no one owns it. And when no one owns it, no one really takes care of it. Public ownership encourages neglect and mismanagement.
Since socialism, by definition, is a system marked by the “common ownership of the means of production,” the failure of socialism is a “tragedy of the commons” on a national scale. Much of the economic stagnation of socialism can be traced to the failure to establish and promote private property rights.
As Peruvian economist Hernando de Soto remarked, you can travel in rural communities around the world and you will hear dogs barking, because even dogs understand property rights. It is only statist governments that have failed to understand property rights. Socialist countries are just now starting to recognize the importance of private property as they privatize assets and property in Eastern Europe.
Without the incentives of market prices, profit-and-loss accounting, and well-defined property rights, socialist economies stagnate and wither. The economic atrophy that occurs under socialism is a direct consequence of its neglect of economic incentives.
No bounty of natural resources can ever compensate a country for its lack of an efficient system of incentives. Russia, for example, is one of the world’s wealthiest countries in terms of natural resources; it has some of the world’s largest reserves of oil, natural gas, diamonds, and gold. Its valuable farm land, lakes, rivers, and streams stretch across a land area that encompasses 11 time zones. Yet Russia remains poor. Natural resources are helpful, but the ultimate resources of any country are the unlimited resources of its people–human resources.
By their failure to foster, promote, and nurture the potential of their people through incentive-enhancing institutions, centrally planned economies deprive the human spirit of full development. Socialism fails because it kills and destroys the human spirit–just ask the people leaving Cuba in homemade rafts and boats.
As the former centrally planned economies move toward free markets, capitalism, and democracy, they look to the United States for guidance and support during the transition. With an unparalleled 250-year tradition of open markets and limited government, the United States is uniquely qualified to be the guiding light in the worldwide transition to freedom and liberty.
We have an obligation to continue to provide a framework of free markets and democracy for the global transition to freedom. Our responsibility to the rest of the world is to continue to fight the seductiveness of statism around the world and here at home. The seductive nature of statism continues to tempt and lure us into the Barmecidal illusion that the government can create wealth.
The temptress of socialism is constantly luring us with the offer: “give up a little of your freedom and I will give you a little more security.” As the experience of this century has demonstrated, the bargain is tempting but never pays off. We end up losing both our freedom and our security.
Programs like socialized medicine, welfare, Social Security, and minimum wage laws will continue to entice us because on the surface they appear to be expedient and beneficial. Those programs, like all socialist programs, will fail in the long run regardless of initial appearances. These programs are part of the Big Lie of socialism because they ignore the important role of incentives.
Socialism will remain a constant temptation. We must be vigilant in our fight against socialism not only around the globe but also here in the United States.
The failure of socialism inspired a worldwide renaissance of freedom and liberty. For the first time in the history of the world, the day is coming very soon when a majority of the people in the world will live in free societies or societies rapidly moving toward freedom.
Capitalism will play a major role in the global revival of liberty and prosperity because it nurtures the human spirit, inspires human creativity, and promotes the spirit of enterprise. By providing a powerful system of incentives that promote thrift, hard work, and efficiency, capitalism creates wealth.
The main difference between capitalism and socialism is this: Capitalism works.
– Mark J. Perry
This article originally appeared here on the Foundation for Economic Education website.