The Pew Research Center found in 2022 that adults under the age of 30 are about as likely to only have a positive view of socialism (28%) as they are to have a positive view of only capitalism(24%). There are fundamental economic differences worth remembering.
The MarketHow does capitalism, or a market economy, work? It is driven by the choices of consumers.An important aspect to remember about a market economy is that exchanges are voluntary. Both the sellers and the buyers are better off, or they would not have entered the exchange.Suppose you don’t want to buy a car this year. Can the car companies make you buy one? No. Even big firms are only big because we choose to buy their products. In a market economy, consumer choices and movements in prices and profits guide the production and use of scarce resources to their most valuable uses. Firms’ profit motive induces them to respond to consumer desires. If demand goes up for a product, for a time prices and profits may rise because it takes some time for supply to respond. These increases induce existing suppliers to increase their output and other companies to enter that market and supply the desired product, and when they do prices and profits decrease. (In inflationary periods, this decrease in price may appear as a price rising more slowly than others.) Competition enhances consumer choices. Competition also keeps prices from being “too high” in relation to costs. For example, I cannot successfully charge $500 for repairing a fence if someone else will do the same job for $200. No company, big or small, is immune to competition. Only when firms use the government to limit competition can firms charge prices that more persistently generate abnormally high profits.Property rights are important in a market economy. The freedom to innovate and reap its benefits have allowed ordinary people to make extraordinary economic contributions. This is a key reason why “Rising Above the Gathering Storm”, a report commissioned by all three of the U.S. national academies, says maintenance of our market economy is essential to maintaining America’s competitiveness in the world.SocialismUnder socialism, government planners control the key parts of the economy, for example, health care. Individuals with government power determine much of what is produced and who gets it. They have the power to limit goods for consumers and, instead, produce goods desired by the government leaders, such as in North Korea. They can use funds to support their friends, often under the guise of subsidizing “key” industries. Even if government officials are trying to provide for consumers, these individuals cannot possibly know enough to match the efficiency and productivity of a market economy. Market prices and profit rates fluctuate daily in response to millions of decisions by consumers and producers, and these fluctuations guide resource use. Producers and consumers respond to price incentives. Many prices under socialism are government-imposed. If price is set above a market price, production exceeds consumption of the good. If price is below what a market would indicate, then consumers want more of the product than producers are willing and able to provide. Shortages of important goods are common in socialist countries. In the U.S. today, government controls how much doctors can charge Medicare patients. Since these prices are below market, it is difficult to find a doctor who will accept a new Medicare patient. Sometimes government planners will impose not only prices, but what to produce and how much.Socialism requires big government. Government acquires resources very differently from people in the marketplace. It uses coercion.Suppose you don’t feel like paying taxes this year. Does anyone make you? You bet. Suppose you don’t want to support what government spends money on. Does anyone make you? You bet. The federal government makes you. And they have guns, and prisons, and agents that can confiscate your income and everything you have if you don’t go along with the agenda. Just ask Willie Nelson. Thirty years ago, the IRS decided the tax shelters his accountants had set for him over many years were illegal. They were not judged illegal right away, but after years, and with the associated levied penalties, what the IRS said he owed was huge, and the IRS confiscated basically everything he had.Your freedom is reduced when the size of government increases. Government takes more of your income and determines who gets it. The government limits your freedom by imposing costly regulations, sometimes to achieve agendas that could not get passed by Congress. Government has the power to punish those who do not abide by their decrees. FreedomFreedom requires freedom of choice in economic matters. To the extent your economic freedom is impaired, so is personal freedom. The U.S. still has a viable marketplace where mutually beneficial exchanges occur, but it is under threat from a growing government. In the welfare state that our federal government has primarily become since the 1970’s, the government transfers funds it takes from one group (taxpayers) to another. One group is hurt. One group benefits. Those in power in the government determine who is in which group. People sometimes talk about the federal government as if it was some kind of care-taking nanny. This is not true. The government is run by people with self-interest, and those in charge of big programs and budgets are the most powerful and the most compensated. Greater numbers of our populace respond to government provided incentives to be more financially dependent upon government. Hence, there is a tendency for government to perpetually grow, even in our country, which was founded by people opposed to big government and its inherent power.Since people don’t like additional taxes, those in power in government fund their increased spending through borrowing. The government’s debt securities are bought by others, including foreigners, because they know government has the power to confiscate resources from its populace. The government can do this either through new taxation or by robbing the purchasing power of the public’s income and retirement funds through inflation caused by printing new money to honor its debt obligations. The growth of our government has been accompanied by unprecedented increases in government debt, which is now $31.5 trillion and, due to interest charges, rising every second. The reported debt includes federal government securities held by the public and intragovernmental holdings. When unfunded promises by the federal government are added, such as for Social Security, the debt rises to $151 trillion, or the equivalent of $986,000 for each taxpayer. Even in the face of that debt, there is tremendous resistance to cutting spending by those in government.You might have 1000 comments, but they will typically start with “yes, but.” It is the “yes” part that we need to remember. The “but” portion refers to the good things you perceive only government can provide. But market-based solutions can solve most of the problems. I invite you to read Dr. Thomas Saving’s book, Live Free and Prosper, in which he describes how many of today’s problems can be solved without giving up our freedoms. Dr. Saving is one of the world’s great economists, and the book is a gem.Live Free and Prosper: Restoring America by Increasing Freedom: Saving, Thomas R.: 9781519230904: Amazon.com: Books You might not be concerned about socialism’s threat to freedom because our rights are delineated in the U.S. Constitution. However, these rights are only realized when people in government use the power of government to ensure them. Otherwise, socialism is the road to serfdom. History shows that power corrupts, and that socialism is typically just a path to tyranny.
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