Socialism: Great in Theory, Terrible in Practice

Socialism is gaining popularity in the United States. But with history as a guide, it’s a dangerous path. There are some benefits, but socialism taken too far stifles progress. So let’s review some powerful ideas both in favor and against socialism. You’ll soon see that there’s a better path forward. And first, it’s important to define socialism…

Definition: Socialism is the control of resources by the government. The State controls the means of production. And there are varying degrees of socialism. Communism is an extreme form of socialism.

Socialism Holocaust Berlin Memorial

Brief History of Socialism

The socialist party of Germany helped Hitler gain control. That’s a truth not often told and it doesn’t appear to be a one-off. Some of the world’s most infamous leaders gained control and ruled with the iron fist of socialism.

For example, Stalin starved and killed 20 million people with his policies. His death count tops Hitler’s total. But thankfully, the Soviet Union broke up in the late 1980s…

Mr. Gorbachev, tear down this wall. – Ronald Reagan

I was in Germany last week exploring what remains of the Berlin Wall. A family friend shared his first-hand experiences from living on the West side of the wall back in the day. The horrors of extreme socialism remain vivid.

North Korea is an ongoing example of the effects of extreme socialism. The people have virtually become slaves of the all-powerful state. On the other side of the world, Venezuela also fits the bill. It’s gotten so bad that people are trying to escape the country.

Back in 2008, my family hosted a Venezuelan foreign exchange student. His family had to carry around bribe money to get things done on time. Corruption and nepotism tend to grow in tandem with socialism.

Now, proponents of socialism will point to some Scandinavian countries. They’re examples of successful socialism. Although, they’re a far cry from extreme socialism. They still have large free market economies that pay the bills through high taxes. Some also have oil and other natural resources that help pay for their big social programs.

Flaws of Socialism

The path to socialism is usually gradual and it often grows with unsustainable promises. Over time, the ideology leads to bigger government. This is great if the government is managing things well… but inevitably, bad actors down the road take more power and abuse it.

This reminds me of the saying… the first generation builds it, the second maintains it, and the third squanders it. This isn’t a perfect analogy but it does lend a hand. As governments grow, so do their inefficiencies. There’s an old saying that goes like this, the closest thing to eternal life is a government program.

Quick Note: There are many great government programs. As you’ll see below, I think some centralized control is vital.

Here’s a thoughtful contradiction… many socialists hate corporate monopolies but big government is just a more powerful monopoly. Shifting too much control to any one government is risky.

Why is Socialism Gaining Popularity?

Each election cycle, politicians make big promises of free handouts. It’s an age-old technique to get more votes. Although, there’s a big shift underway in the economy. Those free handouts are starting to look more enticing to millions of people.

The job market isn’t as good as some politicians want you to believe. The 4% unemployment number they toss around is misleading. It leaves out a large portion of the population. When job seekers stop looking for work for four weeks or more, the unemployment number completely omits them from the equation.

True unemployment is higher due to three powerful trends. I’ve covered them in unique detail and you can find my research here: Universal Basic Income (7 Charts). A current Democratic candidate’s Chief of Staff passed it around to his entire team.

We’re entering a new economic paradigm. Welfare is necessary to provide for a good chunk of the population. There are not enough worthwhile jobs to go around. Don’t get me wrong, there’s plenty of new job demand… but people need much higher levels of education to fill them. I encourage you to check out my Universal Basic Income research for more insight.

Is Capitalism Better?

Capitalism has advanced human progress at a faster clip than socialism. We can see this trend repeated throughout history. That’s thanks to the power of free markets. Although, capitalism does have some flaws. Let’s first review a definition…

Definition: Capitalism is synonymous with free markets. Anyone can get what they want if they provide enough of what other people want in return. People start businesses to provide goods and services. They then adapt or fail as market demand changes.

Imagine a world where Steve Jobs was born under Soviet control. The socialist party would have assigned him a job. We wouldn’t have benefited from his innovation with Apple. Also Elon Musk, Jeff Bezos, and others wouldn’t be pushing us into a new space age. Etc.

Capitalism has helped the U.S. outpace other countries. Although, it’s now bogged down with more regulations. On the other hand, China has started to reverse course. It’s still a communist country but it’s allowing more free market activity. As a result, its output and innovation are picking up steam. More of China’s population is moving up to the middle class.

Flaws of Capitalism and a Balancing Act

As mentioned above, socialism leads to big government monopolies. Too much control stifles innovation and output. And if markets were completely free, corporations would monopolize and squash healthy competition… so we need anti-monopoly rules.

Another downside to capitalism is the tragedy of the commons. Left unchecked, businesses would continue to dump hazardous waste into our rivers and environment. Prisoner’s dilemma also comes into play here. For example, fishing companies might overfish, thinking their competitors will do the same. This is detrimental to us all… so some government regulation can level the playing field and protect consumers and our environment.

Final Notes

I’m not anti-government. I believe some government with a system of checks and balances is vital for pushing the human race forward. The founding fathers of America had similar beliefs.

I try to take an objective view and use history as a guide. There are benefits to socialism – especially with our changing economy – and there are benefits to capitalism. And history has shown that capitalism has been more beneficial to humanity. Although, providing for the masses requires some degree of socialism. It’s an interesting balancing act and I’d like to leave you with a thought on government…

With my family and friends I’m socialist, with local government I’m democrat, with state I’m Republican, and with the Fed I’m libertarian.

I’d love to hear your thoughts! Please leave a comment below. I read all of your notes. I would love to hear about what you think of Capitalism and Socialism.

Invest mindfully,

Brian Kehm

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3 Comments

  1. William Hinkamp August 23, 2019
    • Brian Kehm August 24, 2019
  2. William Hinkamp August 23, 2019

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