For some bizarre reason, more and more Americans are embracing the failed economic and political ideology of democratic socialism. History teaches us that socialism, however it is dressed up, fails.
In the early decades of the modern state of Israel, many Israelis lived in kibbutzim, agrarian communities structured around shared property and radical egalitarianism. These communities operated under the utopian Marxist principle of “from each according to their ability, to each according to their needs.” Over time, however, the ideal of shared economic rewards was undermined by the reality that some members of the kibbutzim could free ride on the efforts of those who worked harder and produced more. This weakened social cohesion and eventually pushed many communities toward a basic principle of free markets: Those who produce more should earn more. When economic incentives were introduced, productivity increased.
In the United States, the basic economic principles of free market capitalism have produced extraordinary wealth.
Still, despite the overwhelming economic and social evidence, Americans who are unhappy with their circumstances want to experiment with socialism. Growing in influence over the Democratic Party, the Democratic Socialists of America advocate a national system of free healthcare, government-sponsored affordable housing, free childcare, and a universal basic income. That sounds wonderful in theory. But when the cost of these programs is measured against the resources of the nation, the numbers don’t add up.
The U.S. already carries roughly $40 trillion in federal debt. The U.S. now runs an annual budget deficit of about $2 trillion, or roughly 6% of GDP. “Medicare for all” has alone been estimated to cost more than $30 trillion over a decade. Housing subsidies, free childcare, and a universal basic income could cost trillions more. Who would pay for all this spending?
Democratic socialists want Americans to believe that billionaires such as Elon Musk and Amazon founder Jeff Bezos have enough money to finance their utopian dreams. But they are lying. Even confiscating the entire wealth of America’s billionaires would not provide a permanent source of funding for socialists’ spending ambitions. What democratic socialists rarely emphasize is that implementing a European-style welfare state would require much higher taxes on the middle class, not merely on billionaires. European governments finance expansive social programs through very high taxes that hit their middle classes hard. America’s middle class would have to pay dramatically more to finance a comparable system.
Embracing democratic socialism could also undermine the dynamism of the U.S. economy. Consider the economic gap between the U.S. and much of Western Europe. France, for example, combines a large welfare state with substantially higher taxation and government spending than the United States. Yet, Americans enjoy considerably higher levels of disposable income than the French.
The lesson is, or should be, clear. Economic growth suffers when governments attempt to substitute political decision-making for market signals. Central planners cannot efficiently balance the supply and demand of millions of goods and services. Resources are misallocated. No centralized authority can aggregate and process economic information as efficiently as millions of households and businesses making decisions in a competitive marketplace. Incentives matter. The very high tax rates required to finance democratic socialist ambitions would discourage investment, weaken innovation, and encourage both human and financial capital to flee.
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Finally, there is a political danger in concentrating ever greater economic power in the hands of government. When the state controls more of the economy, political leaders gain greater influence over the lives of the people. History provides numerous examples of socialist governments that accumulated economic power and then used that power to enrich loyal cronies and restrict liberty.
The American economic system is not perfect. But its core strength is that it disperses economic power, rewards innovation, and gives individuals the freedom to make their own economic choices. Democratic socialism promises greater equality and security. But its promises collide with the realities of incentives, arithmetic, and human nature. And, as former British Prime Minister Margaret Thatcher aptly noted, socialists always eventually run out of other people’s money.
James Rogan is a former diplomat who later worked in law and finance for over 30 years. Now he writes a daily note on markets, economics, politics, and social issues. He can be reached at [email protected].