Basic Economics Part 7 – Why do so many people prefer socialism?

This is the final part in a series on basic economics inspired by the works of Thomas Sowell.

The prior segment in this series clearly shows that a capitalistic, free economy greatly outproduces a centralized, less free economy.  Why then do so many prefer socialism?

Many people actually believe that socialism produces better economic results than capitalism.  I believe I have shown that this is totally mistaken and that the evidence overwhelmingly shows that capitalism outproduces socialism.  I would welcome anybody who can refute my previous arguments here to respond.

Even those who agree that more capitalism leads to greater overall wealth still favor government control of economies to a varying degree, from heavy government regulation to socialism to communism.  These are reasons they give:

  • Capitalism can be corrupt.  People point to “crony capitalism” where government supports favored companies, frequently those who give the biggest campaign contributions.
  • Unfettered capitalism and out of control greed lead to major crises such as the great depression and the financial collapse of 2008.
  • Without regulation, capitalists will exploit the environment, their workers, and their customers to increase profits.
  • Capitalism is inherently immoral.  Everybody should work for the greater good instead of for themselves.
  • Profits represent waste.  Goods and services could be provided more cheaply if there weren’t profits.
  • Wealth isn’t everything.  People are happier under socialism.

I believe that some of these statement contain some truth while others I vehemently disagree with.  I will return to discuss each of these topics in future segments.

Except, I would like to discuss the last issue right now.  I think it is the most important argument, because I think it is the only argument where they are right.  Many people are happier under socialism.

According to the Heritage Foundation’s 2014 Index of Economic Freedom, Chile is ranked one of the most free countries in the world, and is the most free in Latin America with a per capita income of $18,419 .  Honduras in contrast is one of the least free with a per capita income of $4,610.  The bottom 20% in Chile has an average income roughly twice the average income in Honduras.  Despite this, in happiness surveys, Honduras rates as a much happier country than Chile.

If you are poor and everyone else around you is poor, you  tend to be happier than someone who is much better off but who is surrounded by even wealthier neighbors.

In remarks before the World Affairs Coucil of Greater Dallas in 2003 Alan Greenspan talked about “the creative destruction” of capitalism where the standard of living rises as new technologies and methods replace old.   This leads to both progress and stress.  He stated, “I do not doubt that the vast majority of us would prefer to work in a less stressful, less competitive environment”.

Basically, under capitalism there are winners and losers.  This is an essential element of capitalism.  Socialism tries to have no losers.  It is much more stressful to have to compete first to survive and then to better yourself.  There is an attraction to having everything handed to you, even if you don’t get as much.

Picture a classroom with no grades.  Nobody passes or fails.  If you show up, you get promoted.  There are no tests.  In this environment there are some who would likely be at the top of the class who would hate this.  The majority would probably prefer this stress-free environment.  Overall happiness would be higher than in a classroom where students compete for grades.  Does anybody think though that the students would learn more in a class without grades?

Economics is a field where we make choices.  Do we prefer an economy that grows and progresses but produces stress?  Do we prefer an economy that keeps most people mired in poverty but produces less stress?

If you found these segments interesting, I recommend that you read “Basic Economics” by Thomas Sowell.   You will find some of what I said embodied in his work while some are my own extensions based upon the Sowell’s concepts.

Sources:

http://www.heritage.org/index/ranking

http://books.google.com/books?id=s-YPDQIlJAYC&pg=PA181&lpg=PA181&dq=chile+vs+honduras+happiness&source=bl&ots=Yyw1i2TRBg&sig=Supf4_aN6mBj_bZ8PZ8lTf_0ma0&hl=en&sa=X&ei=NttvU87VItSmyASy34KwDA&ved=0CCYQ6AEwAA#v=onepage&q=chile%20vs%20honduras%20happiness&f=false

http://www.telegraph.co.uk/news/8198810/Money-really-doesnt-buy-happiness-in-the-long-term-at-least.html

http://www.federalreserve.gov/BoardDocs/Speeches/2003/20031211/default.htm

3 thoughts on “Basic Economics Part 7 – Why do so many people prefer socialism?

  1. Ralph, good post. I think Socialism is attractive to politicians for two reasons. First, they can buy votes by promising people “free stuff”. Second, they get more control over capital and labor than they would under a capitalist model. The only non-politicians who prefer socialism are those who don’t think it is fair to judge relative achievement (jerks).

    • Thank you Michael for your comments. I was addressing why the general population might prefer socialism but I did not address why politicians would prefer it. Certainly accumulating power and being able to buy votes with taxpayer money are likely motives for politicians. I do think people can be socialists without being jerks. While some socialists are definitely jerks, as are some capitalists, I think most are basically good people who are misinformed and misguided.

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