How Does Socialism Actually Work?

It’s a bit spooky that the “next” generation of Americans are getting so chummy using the word “Socialism.” Many of their heroes are tossing that word around, too. The reason for the far-too-common use of the term is simple: today’s educators have wrapped their classroom agendas in a cloak of Socialism. They talk about it like it has brought Nirvana to the countries who have embraced it, and they use that to demonize Capitalism. Educators don’t discuss the horrors of Socialism in Germany, China, Venezuela, the Czech Republic, Turkey, and nations who long ago disappeared because Socialism there was unsustainable. All they share with our next generation is this: “Socialism is a political environment in which everyone is guaranteed by the government that all their fundamental needs are going to be met — no matter what!”

What’s so spooky about it is that this utopian promise is based on totally false information. These educators are filling the heads and hearts of the next generation of Americans with untruths. And our kids are swallowing that propaganda hook, line, and sinker.

So let’s today compare Socialism with Capitalism — the political and social structure embraced by the U.S. for 240 years — and contrast how these work in various countries in which they are used.

Capitalism

“An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.”

Capitalism has always been the home of true entrepreneurship, encouraging through free market trade the initiative for people to create and develop new technology, free market trade, and continual innovation for improvement and invention. Those who take advantage of the capitalistic environment receive rewards tied directly to their efforts. 

The greatest drawback of Capitalism is corruption that results in individuals and groups from both private and government sectors taking advantage of capitalistic opportunities to garner power and wealth: sometimes illegally and sometimes skirting the law but doing so unethically.

In every capitalistic society, there have always been politicians or other leaders who impose very non-capitalistic restrictions intended to siphon money to politicians or to protect favored friends with various capitalistic concepts — like monopolies — which can only exist if the government allows these to exist. What we do know though is the more economic freedom given to a people, they will not only do better, they will always default to the best and easiest economy: Capitalism.

Capitalism is NOT a form of government. Believing that a “free market” can solve all problems is not really a valid expectation. Since most “problems” are caused by government, it seems it would be wiser to “fix” government than to expect an economic system to get past government incompetence.

In reality, NO country has really allowed capitalism to fully run its course, (meaning “total economic freedom”) where a government is only there to handle dishonesty and disputes — not prevent these, just resolve them with a specific process and only as they occur.

Socialism

“1.  Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.

2.  The stage in Marxist-Leninist theory intermediate between capitalism and communism, in which collective ownership of the economy under the dictatorship of the proletariat has not yet been successfully achieved.”

Socialism is almost totally a political system, which does claim to magically solve all problems even though a socialist concept is what creates the problems that result in its inevitable failure. The Soviet Union is a good example. The claim for establishing the socialist Soviet Union was to solve the disparity between rich and poor and assure that everyone will have at least a minimum good life. The reality is, Socialism Soviet-style resulted in making everyone extremely poor and destitute, including people who were not poor before it was instituted.

There have been attempts at pure Socialist governments throughout history. Socialist founders of these governments really did believe these governments could solve all problems. None have worked.  And the “pure” Socialists countries have all either died or ARE dying.

Feudalism was a combination of legal and military customs in medieval Europe that flourished between the 9th and 15th centuries. Broadly defined, it was a way of structuring society around relationships derived from the holding of land in exchange for service or labor. Socialism is basically Feudalism by another name. Both develop, maintain, and are controlled by a ruling class who directs everything. The only real difference is that feudal lords claimed that their right to authoritarian rule was divine, whereas the socialists claim that their right to authoritarian rule originated with their commitment to helping the poor along with other altruistic claims or beliefs.

Whatever the justification, the results are the same: elite authoritarians in charge of everything. This type of rule has been around for centuries, and so far all of them have failed.

Bar Stool Economics

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

  1. The first four men (the poorest) would pay nothing.
  2. The fifth would pay $1.
  3. The sixth would pay $3.
  4. The seventh would pay $7.
  5. The eighth would pay $12.
  6. The ninth would pay $18.
  7. The tenth man (the richest) would pay $59.

So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. The first four men were unaffected: they would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his “fair share?”
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay:

  1. The fifth man, like the first four, now paid nothing (100% savings).
  2. The sixth now paid $2 instead of $3 (33%savings).
  3. The seventh now pay $5 instead of $7 (28%savings).
  4. The eighth now paid $9 instead of $12 (25% savings).
  5. The ninth now paid $14 instead of $18 (22% savings).
  6. The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free.

But once outside the restaurant, the men began to compare their savings:

  1. “I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man, “but he got $10!”
  2. “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!”
  3. “That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”
  4. “Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important: they didn’t have enough money between all of them for even half of the bill!

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia

Summary

And that, boys and girls, journalists and college professors, is how our tax system AND Socialism works. The people who pay the highest taxes today or do the most effort and provide the greatest amount of work in Socialism don’t get any extra benefit from what they bring “to the table.” Tax them too much, attack them for being wealthy, take from them the extra they put into the system, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier!

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