Back in the USSA

The fall of the USSR is usually attributed to President Ronald Reagan’s military build up; the Soviets tried to compete with the military production of the USA and spent themselves out of existence.  In reality, the demise of the USSR began long before Reagan came to office.  Its destiny was set the minute that Lenin, with his policy of central planning, came to power in 1917.  Perhaps the most worrying aspect of the path that the federal government is currently following, especially the recent bailout of Fannie Mae and Freddie Mac, along with the purposed Troubled Asset Relief Program (TARP) and the “loans” to the auto industry, is that the USA is relentlessly implementing the political/economic system that it spent the last half of the twentieth century fighting against.  The USA is quickly becoming the USSA, the United Socialist States of America.

Socialism is a failed economic system.  It has never worked anywhere it has been attempted.  Along the way it has destroyed the morality and culture of those which it has been forced upon, impoverished billions, and lead to the death of millions.  Despite all this historic evidence, our government, either through conscience effort or ignorance, seems intent on perpetuating socialism here.

The inherent flaw in socialism is that it is impossible to allocate resources effectively through central planning.  In the free market, prices indicate where resources can be best put to use.  If a product is scare, its price rises.  When entrepreneurs see that the price is rising, or when particularly shrewd businessmen correctly anticipate an increase in price, they focus their efforts to take advantage of the situation in order to make a profit.  They will begin making this product or, if they are already doing so, produce more of it.  They will figure out ways to effectively distribute the product to the places where the prices are the highest–where it is most needed.  Once the market is satisfied, the price will quite rising and entrepreneurs will cut back on their production of the product.  Sometimes a glut will develop and the price of the product will fall.  In either case, entrepreneurs will reevaluate their resource allocation to once again determine how best to satisfy consumer demand, be it through different products or by distributing their products in a different location.

The only way to make a profit in the free market is to satisfy consumer demand, in other words, to produce goods and services in which other human beings find value.  By enriching his own life, by earning a profit, the entrepreneur enriches society.  In fact, voluntary trade–individuals exchanging things which they consider valuable with one another–makes civilization possible.

All of this is made possible by the feedback provided by prices.  Socialism short-circuits this system.  Instead of the profit incentive, socialism is driven by political incentive.  Instead of satisfying consumer demand, politicians are more interested in satisfying the demands of the politically connected–those who have the ability to keep the politician in power.  Successful politicians are those who are best able to work the system to the benefit of their patrons.  Ability is no longer rewarded; ruthlessness and ambition are.

Even if politicians were angels, it would still be impossible for the government to efficiently allocate resources.  The price system is continuous and ongoing.  It is always at work.  And it is impossible to replicate.  Even in an age of supercomputers, there is no way to monitor a complex economy with millions of individuals making dozens of choices every single day, other than through the price mechanism.

While the inability to efficiently allocate resources may seem theoretical and unimportant, just look at the USSR, China under Mao, Cuba under Castro, and the various African nations who have taken the advice of Western socialist elites, to see the tragic results in the real world.  The reason that these economies are so unproductive is that there is no way to tell who needs what, when, and how much.  Should steel be used for tractors, trucks, railroad tracks, passenger cars, washing machines, cargo ships, ovens, freezers, forks, spoons, or one of its hundred other uses?  How can we tell what its most valuable use is?  Prices give us the answer.  Without prices as a guide, the best central planners can do is guess–like playing darts blindfolded with a board the size of a skyscraper and as complex as quantum physics.  In fact, central planners in Russia imported Western mail order catalogs just so they would have a clue as to the prices of various items.

In addition to its difficulties dealing with resource allocation, socialism destroys human productivity through its perverse incentives.  Instead of rewarding ability, hard work, and self-reliance, it rewards need, sloth, and dependence.  Why work when the fruits of your labor are confiscated?  Why work when you can sit at home and receive a government handout?  Humans respond to conditioning.  Thus, you get more of what you reward, and less of what you punish.  A system based on Karl Marx’s slogan of “from each according to his ability; to each according to his need,” is guaranteed to get a lot of need, but not much ability–a statement to which the real world experience with socialism can attest.

Of course, dogmatic socialists will claim that Stalin, Mao, and Castro didn’t do it right.  The system would work and bring a terrestrial utopia, if only the right people were in power.  This leads to interesting question for the enthusiastic socialist: how do you plan on implementing and enforcing your system?  What are you going to do with dissenters?  If your system is voluntary and individuals are not forced to participate, then there is no problem.  But what if your system is mandatory?  How will you make people submit?  In the end, there is only one option available: coercion and force.  This means that socialism is a system based on violence.  It is not only economically inefficient; it is immoral, inhumane, and cruel.

The most disturbing aspect to the TARP proposal and the various other recent government bailouts is not the incomprehensible sums of money involved; it is the fact that our “leaders” in Washington cannot, or choose not, to see the endgame.  The free market has brought tremendous benefits to mankind.  Yet, politicians blame the market for the current crisis, spouting empty sophisms about market failure and the efficiency of central planning.  The fact is that the American economy is a lot closer to corporate fascism than it is to free market capitalism.  The real cause of this crisis is not market failures, but decades of government intervention in the market (read here and here).  It is only the resilience of the free market that has delayed the inevitable for as long as it has.

What we are witnessing is the ultimate and unavoidable outcome of the ”middle way” economic policy—the compromise between socialism and free markets—that America has pursued since the New Deal.  As both noble prize winning economist F.A. Hayek and the great Austrian economist, historian, and political philosopher Ludwig von Mises observed, the third way always ends in socialism.  Their contemporaries ridiculed these giants, stating that this was an exaggeration.  Well, Mises was also derided when he predicted the Great Depression, and then when he stated that the USSR would eventually fall because it lacked the ability to calculate prices as described above.  Unfortunately, it is beginning to look like he was right again.

Incidentally, Hayek and Mises witnessed the rise of the Nazis in their native Austria.  While we can bicker about the differences between socialism and fascism, ultimately they are simply shades of one another.  After all, the Nazis were the National Socialist Germany Workers Party.  Today's socialists reject the Nazi's methods, claiming that they simply want a more equitable distribution of wealth.  But as Hayek pointed out, “a claim for equality of material position can be met only by a government with totalitarian powers.”

Hayek recognized socialism for what it is: an authoritarian political/economic system that relies on violence, promotes oppression, retards productivity, and results in poverty, misery, and death.  This is the endgame.  If President Bush, the criminal looters on Wall Street who call themselves “capitalists,” and the spineless Congress have their way, this is what the future holds for us–immolation on the altar of central planning.  Welcome to the USSA. 

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  • 10/7/2008 9:12 AM Jim wrote:
    X, it amazes me that our Country has no concern for the collision course we are headed for. I hate the hopelessness I feel as this election draws closer... I think the Bail-Out is one of the biggest mistakes I have seen in my lifetime...
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