What Would Life Be Like in America Under Socialism


SmallIvy

Bernie Sanders, a self-described socialist, is currently polling at about 26% of Democratic voters.  This is a sharp shift from the 1950’s when socialism and communism were considered grave evils that needed to be eradicated from all levels of government.  However, the Democratic platform has shifted so much in the ensuing years that there is little or no difference between the goals of socialists and the goals of Democrats, so ideas that were once considered extreme no longer seem outlandish.  Both call for high taxes to pay for generous social services.  Both call for extensive regulation of businesses and control of wages and benefits that must be offered.  Both believe that corporations are fundamentally bad and government is fundamentally good.

Given the polling numbers, many in the US also feel the same way.  There is a fairly strong amount of support for a high minimum wage of $15 per hour.  There is support for the requirement that companies provide extensive paid leave for births and family health issues, as well as personal time and vacations.  There is also support for extensive government services, including public transportation, government healthcare, government housing, and free higher education.  There is also a sentiment that the basic necessities should just be provided such that individuals should not be forced to work unless they desire more than the minimum.  While this support does not exceed the 50% threshold at this time, it has been growing.

The issues with socialism are:

  1. Given the choice to not work, many individuals will do so, reducing the amount of wealth generated by society.
  2. The cost of wages and benefits are often set above what can be produced by businesses, creating an unsustainable mismatch between what employees produce and what they receive.
  3. The incentive to produce extra is all but eliminated because there is little to gain by doing so.  Instead, productive people turn their attention to other pursuits, reducing the number of jobs and opportunities.
  4. Concentration of the control of the flow of wealth leads to corruption as government officials use their power to gain bribes and favors.
  5. The imbalance between production and costs leads to the need for waivers to prevent business failures, which creates another source of power that generates corruption.
  6. The ability of individuals to take care of themselves is removed as they are required to pay for government services regardless of whether they wish to use them or not.

So what would be the result of socialism in America?  It is easy to predict, simply looking at the basic economics of the situation and the experience of other countries who have become socialist.  Some effects would be:

  1.  Jobs would be lost immediately as minimum wages were increased above the productivity level of many employees.  Workers would be replaced with automation (think of a smart phone app to order fast food) and self-service as businesses are forced to cut all but the most productive workers.  The availability of entry-level jobs would decline to nothing.  The loss of jobs would decrease the number of people who were producing and could patronize businesses, exacerbating the issue.  Furthermore, the increased need for public assistance would increase prices and taxes.
  2. Investment capital would disappear as corporate profits decreased to the point where the investment was not worth the risk.  Creation of new businesses and new products would stop.
  3. Corruption would spike as government officials discovered that they had substantial power over the ability of individuals to grow wealth.  Bribes would become common and considered the only way to get things done.
  4. The ability to criticize the government would disappear as the government became more powerful and individuals became scared to speak up, for fear of retribution.  Say something and you might lose your job or your assistance.
  5. Crime would increase as poverty increased and people became more desperate.  Corruption by government officials would also create at atmosphere where low morality was the norm.
  6. Use of drugs and alcohol would increase as people sought to escape from their lives.  This would further decrease productivity, making society poorer.
  7. Freedom of choice in the selection of goods and services would disappear.  In cases where the government provided a service, few would have any choice but to use the government service because only the wealthy could afford to pay twice (think of public schools).  The monopoly would result in a decrease in quality of both goods and services even though costs would be substantially higher than they are currently.

Perhaps voters who like the ideas being proposed by Bernie Sanders should examine the examples of the USSR, Cuba, North Korea, Vietnam, and Venezuela.  Spending some time thinking about where exactly the money would come from to pay for those programs would also be a worthwhile pursuit.  The only way to increase the standard of living of a society is to increase the amount being produced per person.  Socialism does exactly the opposite.

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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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