Haters Gonna Hate
Socialism is bureaucracy on steroids, serving the interests of a separate class of elites.
There are billions of commercial transactions a day in which two or more parties volunteer to exchange goods or services or money. Both sides expect to benefit from these (otherwise they wouldn’t engage in them).
The underlying rationale is simple: everyone, at any moment in time, is different. People have different preferences. People have different resources. People have different needs. People have different skills. No two snowflakes are identical.
Person A pays $100 for a pair of pants. Company B takes the $100 in exchange for selling the pants. Both people know what they are, they know what they’re made of, they have a decent idea of the quality of the pants (the company has been around for a long time), etc. A values the pants more than the $100. B values the $100 more than the pants because it cost them less than $100 to make and distribute them.
A values the pants from B more than she might from some unknown Chinese vendor who solicits her via email. Those pants might be poorly tailored or made out of some noxious material. Even if they’re cheaper, A probably says, thank you, next. She doesn’t have enough information to convince her to exchange her money for the Chinese pants.
In a commercial transaction, price and quantity in the marketplace are determined where the marginal cost of production and the consumer’s marginal benefit are equal. This isn’t an adversarial carving up of the pie where every crumb I get is one you don’t. Commercial exchange enlarges the size of the pie.
Everybody wins.
This logic applies to labor, too. A worker sells her time and energy to his employer. The employer is willing to pay the worker a wage connected to the worker’s productivity. A worker with high productivity will earn a higher wage to reflect her greater output. If her current employer doesn’t want to pay her a wage that is commensurate with her contribution to the final product, she can market her services to another employer who will.
Everybody wins.
All of these win-win transactions increase the welfare of the general population. In fact, they maximize the welfare of the general population. When these conditions are true, we are talking about private goods.
Of course, there are market failures in which we end up with too little or too much of a good or service and the overall welfare is less than it could be. A big driver of market failure is the externality.
An externality is a situation in which third parties incur either costs or benefits that are not contemplated by the commercial transaction.
One key externality is the public good. A public good is a good or service that has two key conditions. One, it is non-rivalrous. My consumption of the public good doesn’t reduce the amount of it that others can consume. Two, a public good is non-excludable. My consumption of the public good doesn’t reduce its availability to others. Consider national defense. It’s non-rivalrous because my enjoyment of the peace created by a strong Armed Forces doesn’t reduce the amount of peace for anyone else. Also, the government can’t prevent anyone from enjoying the peace created by the Defense Department. If the government were to ask people how much they’d be willing to contribute (pay) for national defense, everyone would respond with a number lower than the value they receive, knowing they’d be able to free-ride on everyone else. We’d end up spending too little on defense compared to the amount that would maximize national welfare.
For the socially optimal amount of national defense, the optimum amount is determined at the point at which the aggregate marginal benefit across all consumers equals the marginal cost to provide it. Of course, the government would have to be able to figure out what the consumer’s true preferences were. Assuming that the government can square this circle, they will produce the optimal amount of national defense.
Marxists and socialists and blue-haired anti-capitalists cannot seem to understand the concept of the win-win commercial transaction involving private goods.
Instead of seeing these as positive-sum games based on differing preferences or capabilities, they see all people as identical automatons with differing sets of information and constrained freedom. For a socialist of whatever stripe, all commercial transactions exploit the persistent and incurable economic ignorance and irrationality of some naïve rubes in which one side (the dreaded billionaires) always and consistently gets the better of the other side (the ignorant, irrational poor who are incapable of raising themselves up, don’t you see). The weak side is compelled to exchange things for the benefit of the strong side. The only way to describe this Manichean economic hell is to blow up the system that enslaves the lower classes who are deemed to be noble for their childlike cluelessness.
One way to do this is to argue that things that are private goods are, in fact, public goods.
With the recent renaissance of communism in the United States, we’re beginning to see green black shoots appear.
Here’s the leading candidate for Mayor of NYC, Zohran Mamdani, himself the offspring of millionaires and the product of private schools, in all his beneficence, offering to set up grocery stores run by the city government, freeze rents for tenants, and provide free childcare.
“When Zohran Mamdani sailed to a surprising but decisive victory in New York City’s Democratic mayoral primary last month, he did so propelled by a platform laser-focused on making the country’s largest city more affordable for working people. Among his proposed policies for achieving that vision – which include free childcare and a rent freeze for tenants – is the proposal to create a network of city-owned grocery stores focused on keeping food prices low rather than on making a profit.”
Ironically, the decline in affordability over the past several years has everything to do with a bloated government spending like an obese sailor in an opium parlor. Suggesting that the cure is more government intervention is like going on a diet in which one only eats sugar-coated butter at odd hours of the day.
The grocery business is notoriously difficult. It is characterized by single digit margins. Contemporary grocery stores spend tremendous amounts of money on technology to optimize sourcing, distribution, and delivery of perishable items. Where is the information asymmetry here? Where is the exploitation? It’s not showing up in the grocery chain profit and loss numbers. The notion that a government-run, sub-scale, technology-poor grocery store run by civil servants can offer lower prices simply because of their ability to avoid rent and taxes is blistering in its ignorance of the business and overwhelmed by its own infantile assumptions.
Why not just offer cash payments to the poor to reflect their pro rata share of the rent and taxes these stores pay on the groceries the poor purchase? Leave the management of the business side to the professionals and claim the virtue?
The bureaucrat loves the notion of the public good because in every case it means a new program and bureaucratic programs have infinite lives.
The bureaucrat will argue that private markets are really market failures in order to justify appropriating their economic impact. The grocery store “reverse privatization” is just the thin edge of the wedge.
The socialist model is to convince people that they are being exploited in order to give a new class of bureaucrats power, wealth, and status.
The initial socialist model was to discuss the exploitation of the worker and the consumer by the forces of capitalism, but people saw through this, eventually. They could compare the outcomes for the lower classes in the two systems. Despite the socialist pleas that “true socialism has never been tried”, the popular appeal of socialism has never amounted to much in a country characterized by material abundance and actual opportunity.
In a Popperian sense, socialism was falsifiable when it relied upon the thesis that only socialism could deliver material wealth for the lower classes. It failed demonstrably everywhere it has been tried.
One reason socialists may succeed now is that they have grafted on a second dimension of exploitation that has a better chance of evading Popper’s falsification principle. At least it will take longer to falsify.
Now, socialists attach identity politics to their fundamental misunderstanding of the win-win principle of commercial exchange. The language that they use is deliberately without logic, defying rational response.
All they need to do is to obtain power and start taking over private markets.
This is a way to satisfy what Peter Turchin has referred to as the “over-production of elites”: the hordes of people who graduate with advanced degrees in nothing from name-brand institutions only to find that the wealth and status they assumed was their natural right to be elusive and impossible. That 4.0 in Intersectional Marxism from Yale isn’t going to get you where you think, Melissa.
Imagine their frustration when they see their B-student friends and people from, gasp, state schools start buying homes and cars. The competition is between would-be elites. It has nothing to do with elevation of the lower classes. It never does.
One driver of evil is people who feel entitled to status or wealth that they do not have and have no way of obtaining under the current regime of rules and culture.
The new bureaucracies involving public provision of pure private goods exist to give these pseudo-intellectual carpetbaggers something to do and someone to boss around, even as the public provision of pure public goods such as law enforcement are sacrificed to enable this dogmatic takeover.
Bureaucrats and socialists will recharacterize private goods as public in the same way that bankers recharacterized mortgage risk in securitized products. It’s self-interested bullshit that appears to be some sort of miraculous intellectual arbitrage. It works until it doesn’t.
Only when this unnatural, perverted imbalance reaches a point as it did in Argentina of complete hopelessness will people take their medicine and accept a revolutionary reset back to the ineluctable principles of economics.
Bureaucracy is forever, until it isn’t.