About 40 years ago, economist Bruce Yandle went to Washington to work for the Council on Wage and Price Stability, ready to apply his knowledge of economics and educate his fellow workers. After all, he reminisces, one eye-rolling, head-scratching decision after another was coming from government regulators that surely someone versed in economics could expose as stupid, wasteful, and downright ridiculous.
Government Serves the Interests of Government
At some point, Yandle realized that the lay of the regulatory land looked quite different in Washington than it did in Clemson, South Carolina, where he was on the faculty at Clemson University. Regulators — and the representatives of the enterprises they regulated — were not looking to create an atmosphere in which the government tried to find the “optimal” set of regulatory policies that both minimized regulatory costs and allowed for the maximum removal of whatever “externalities” were created.
No, as Yandle writes:
… instead of assuming that regulators really intended to minimize costs but somehow proceeded to make crazy mistakes, I began to assume that they were not trying to minimize costs at all — at least not the costs I had been concerned with. They were trying to minimize their costs, just as most sensible people do.
The more he examined the situation, the more he realized that all of the various actors in the system were acting in their own perceived self-interests — regulators, politicians, and those being regulated — and the combination of their interests created perverse outcomes. The “big picture” view that those on the outside of the situation might have is irrelevant to what actually happens, and understandably so.
Far from the stated goals of the regulators and those involved in the process - that regulation was pursued in order to promote a lofty “public interest” - the real purpose of the regulatory apparatus is the promotion of the regulatory apparatus. The system exists to preserve and protect itself.
Socialists Are Interested in Control, not Economic Prosperity
As I observe (and participate in) a few discussions on Facebook and elsewhere about socialism, I have come to a few conclusions about the nature of the arguments and the reasons why socialists remain socialists even as we see the utter failure of socialist economies throughout history. Maybe the meme that appears once in a while — “If socialists understood economics, they wouldn’t be socialists” — might be true, but I doubt it. As I see it, the purpose of establishing socialism is to further promote socialism, not improve the lot of a society and certainly not to promote prosperity.
First, and most important, the minds of socialists work differently than do the minds of economists that see an economy as a mix of factors of production, prices, final goods, markets, and entrepreneurs that drive the whole route. Those of us who are economists are fascinated by this process because we see human ingenuity, the coordination of the goals of numerous people, and, when the system works, a higher standard of living for most people.
Socialists, however, don’t see what we see. Instead, they see chaos and unequal outcomes. Not everyone benefits, right? In some situations, someone may lose a job or a way of doing things becomes obsolete. In the end, some people won’t be helped at all, at least not directly, and in the mind of someone that has an organic view of society, the fact that certain entrepreneurial actions taken by some individuals have created goods that meet the needs of others is irrelevant. Society should be providing those goods for free! People should not have to pay for what they need!
Are you a surgeon who had done well financially because you have performed medical miracles for people who desperately needed your services? You have exploited sick people! Are you like Martha Stewart, who became wealthy in part by showing people how to make holiday celebrations better? What about the poor? They don’t have nice houses!
When I first started writing about economics nearly 40 years ago, I was like Bruce Yandle, believing that all that was needed to convince socialists to stop being socialists was a well-reasoned economic argument. You know, explain that entrepreneurs don’t earn profits by exploiting workers, but rather entrepreneurs make workers better off by directing resources to their highest-valued uses. You know, explain how a price system really does result in morally-just outcomes because, in the end, it directs resources toward fulfilling the needs of consumers. And so on.
I still believe the arguments, and over the years have come to understand them even better than I did when I wrote my first article for The Freeman in 1981. (It’s funny how Economics in One Lesson continues to become increasingly relevant to my thinking each time I read it.) However, I believe that the end of all of this activity is — or should be — the improvement of life for people in a way that is not predatory and brings about voluntary cooperation among economic actors. In other words, economic activity is a means to an end, and the end is free people gaining in wealth and standards of living.
A socialist does not and will not see things this way. The end of socialism is not a higher living standard or even making life better for the poor, as much as a socialist will talk about the well-being of poor people. No, the end of socialism is socialism, or to better put it, the ideal of socialism. Once socialism is established, as it was in Venezuela or in the former USSR or Cuba, the social ideal had been met no matter what the actual outcome might be.
But what about the problems that inevitably occur in a socialist economy? Are not socialists shaken by the economic meltdown in Venezuela? The answer is a clear NO. For example, The Nation, which has supported various communist movements for generations, takes the position that Venezuela suffers from not enough socialism:
If socialism is understood as a system in which workers and communities (rather than bureaucrats, politicians, and well-connected entrepreneurs) exercise effective democratic control over economic and political decision-making, it would appear that Venezuela is suffering not from too much socialism, but from too little. Who can deny that Venezuela would be much better off if the hundreds of billions of dollars reportedly diverted through corruption were instead in the hands of organized communities?
The author assumes, of course, that socialism can be separated from the state, which shows either dishonesty or naivety, or perhaps both. After all, the author continues by claiming that the vast system of price controls the government has laid down over Venezuela’s economy has had little economic effect and certainly has not been harmful, just as the author assumes that because most businesses in Venezuela officially are privately-owned, the government has little economic control over their operations. (As we know, the government there has seized businesses, arrested store owners for raising prices in the face of blizzards of paper money, and made ridiculous claims about conspiracies to overthrow the government.)
The one thing the author does not suggest is the government backing off its policies and its socialist ideology. To do so, obviously, would mean that socialism had failed and no socialist is going to ever embrace the idea that socialism could fail.
Perhaps the best example of this is Robert Heilbroner’s famous 1989 New Yorker article, “The Triumph of Capitalism,” written even before the Berlin Wall went down, along with the communist governments of Eastern Europe and the USSR. He followed this a year later with “After Communism,” also in the New Yorker. In his first article, the Marxist Heilbroner wrote:
The Soviet Union, China & Eastern Europe have given us the clearest possible proof that capitalism organizes the material affairs of humankind more satisfactorily than socialism: that however inequitably or irresponsibly the marketplace may distribute goods, it does so better than the queues of a planned economy ... the great question now seems how rapid will be the transformation of socialism into capitalism, & not the other way around, as things looked only half a century ago.
Yet, it is clear, especially after the second article, that Heilbroner was not advocating the establishment of free markets, but rather saw the collapse of the communist system as little more than a strategic pause of the Long March to Socialism. To reach that Utopia, wrote Heilbroner, socialists needed to turn to environmentalism to deliver the goods. (That most of the socialist countries also were ecological disasters did not penetrate Heilbroner’s mind, and that should not surprise anyone. To Heilbroner, the end of socialism was not a better way to produce and equally distribute goods; no, the end of socialism was socialism.)
In other words, even after seeing the socialist system that economists like he, John Kenneth Galbraith, and Paul Samuelson praised for a generation melt down right in front of him, Heilbroner could not bring himself to admit that maybe socialists needed to turn in their membership cards and promote capitalism. No, Heilbroner decided that socialists simply needed new strategies to find ways to have state (read that, social) control of resources and economic outcomes. Interestingly, he wrote these words even after acknowledging that Ludwig von Mises and F.A. Hayek were correct in their assessment of socialism’s “economic calculation problem,” but even that admission did not bring Heilbroner to the logical end of his analysis: total rejection of the socialist system.
Like the Fonzie character from Happy Days that never could admit being “wrong” on an issue, Heilbroner — and others like him — could not concede that socialism in any form still would run aground, be it in providing medical care, establishing strict environmental policies, or the establishment of a vast welfare state. The central problem facing socialism — economic calculation — does not disappear just because a government does not directly own factors of production and engage in five-year economic plans.
This hardly means that economists like me should stop writing about the failures of socialism or stop explaining how a private property order and a free price system work. First, one never can be too educated in economic analysis and neither can anyone in public life. Socialists may not be able to abandon their faith, but others who might like to hear well-reasoned arguments might not be willing to join the Church of Socialism in the first place.
Second, there is nothing wrong in speaking the truth and just because socialists and their followers are averse to truth does not mean we give up saying what we know to be true. Just because socialists refuse to believe that socialism fails - even when the evidence points otherwise - does not mean they have the moral and intellectual high ground.