Hey GenY, You Really Aren’t a Socialist

IMG_0123About a third of those in the GenY/Millennial demographic back Socialism according to an April Harvard Institute of Politics Survey, while just under half support Capitalism.  This trend has been seen in the support for Bernie Sanders in the Democratic primary among young voters.  Yet I wonder if all of those young voters are rejecting Capitalism, or just what passes as Capitalism in the US lately.

Capitalism is when the free markets decide on wages, prices, and success or failure of a business.  At the core of Capitalism is the need to provide for the needs of people in the most efficient way.  Companies that are able to serve the needs of the most people the most efficiently are rewarded and grow.  Those that don’t serve needs effectively fail.  Think about two restaurants across the street from each other.  Both serve your need to eat.  If one had slow, surly service and charged $20 for a baloney sandwich, while the other had fast, friendly service and charged $6 for a hamburger and fries, you and virtually everyone else would go to the second restaurant.  They served your needs better and more efficiently.

Socialism, on-the-other-hand, is when the government either owns the businesses/provides the services directly or has so much control of businesses through regulations that they effectively own the businesses.  Under Socialism, businesses that have the best connections politically are the ones that succeed because government officials adjust regulations to benefit those with pull.  Also, groups with political pull get special advantages over others.  The needs of the customer rarely gets much thought because the government generally doesn’t answer to the customer.

In our restaurant example, under Socialism, the baloney place  might stay in business if the owner had connections in the government because the burger place might be taxed and proceeds given to the baloney place.  Maybe the baloney place charges $20 for a sandwich because they pay their workers $15 per hour, and they are therefore seen as more benevolent than the burger place that pays workers $7 per hour.  Under Socialism, the burger place might also be forced to raise their wages to the point where the burgers cost $25 each and the quality was lower to keep the price from going even higher.  The workers would then be getting $15 per hour, but they wouldn’t be able to get a meal below $20, so they really wouldn’t be doing any better.  There would also likely be fewer workers since the restaurant might need to automate to cut costs, or maybe just the owner and his family might run the place without workers so that they wouldn’t need to pay the high wages at all, so there would be no jobs.

Really, the things that millennials find so distasteful about the US economy are due to government interference with the economy.  In other words, Socialistic actions.  For example:

  • Under Capitalism, the investment banks that made the bad loans in 2008 would have failed.  The CEOs and bankers who made the bad loans would have been out of a job and had to leave without their golden parachutes.  In a few days, new banks would have sprung up, hiring most of the people who had worked at the old banks, because banking services are needed.  They would have bought the loans worth buying from the failed banks.   Instead, the bank CEOs who made gobs of money when times were good were bailed out with our money by the government, leaving the same people in leadership positions.  If you want people to be rewarded only when they grow jobs and provide good services, and you want people whose greed and mismanagement results in the ruin of companies and lost jobs to be removed from leadership, you are not a Socialist.
  • Under Capitalism, if you wanted to start a hot dog stand (or another business), you would just go buy the cart, hot dogs, cooker, condiments, and a sign and open for business.  Existing businesses, however, have used their connections in the government to create all sorts of regulations, making it difficult for you to open your business.  Public safety is often used as a reason for the regulations, but many regulations just place a burden that keeps new companies from starting.  If you want the ability to start a business easily, you are not a Socialist.
  • Under Capitalism, there would be many businesses for most services,  This would lower prices to the minimum reasonable price since charging more would result in a loss of business.  Socialism would limit choices since you wouldn’t be able to start a business without the OK of the government, or there would just be one business – the government.  This would mean that you would pay more for things because there were limited choices.  If you don’t like to get overcharged because you have no choice, you are not a Socialist.
  • Just as Capitalism creates competition for consumers which lowers prices, it creates competition for workers which increases wages.  With Socialism, you are paid on a preset scale, usually based on the amount of time you have worked at a location.  You might also be paid based on perceived need.  If there is corruption (as there always will be), people who have political pull will be paid more.  If you want to be paid based upon the value you bring to your company, you are not a Socialist.

So, if you dislike business bailouts, big monopolies, lack of opportunity, high prices, and wages based on political pull and tenure, you are not a Socialst.  Maybe it’s time to reconsider that Bernie support.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

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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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