Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Socialists, Check Your Incentives
Socialism is the Democratic Party’s hot “new” direction, though there seems to be some disagreement about just what “socialism” means. Whether it’s “only” a vastly expanded welfare state tacked onto a capitalist economic engine or whether the government takes ownership of the economy’s “commanding heights” is yet to be determined. Either way, the vision entails government redistribution of wealth to ensure that it is more equitably allotted.
But will redistribution really result in more equality? It might, in the sense that the richer will likely be made poorer, but more redistribution will certainly result in more corruption. The issue is one of incentives. What incentives do the following economic actors have?
- Producers of goods being confiscated for redistribution
- Government personnel doing the confiscation
- Government personnel doing the redistribution
- People receiving redistributed goods
The owners want to minimize their losses, so their incentives are to:
- Hide some or all of what they’ve produced
- Produce less
- Bribe the people trying to confiscate the fruits of their labor
The people doing the confiscation are just as “human” as anyone else and just as subject to temptation. They want to increase their own material well-being and that of their families and loved ones. So, their incentives are to:
- Confiscate more than is required so they can “skim off the top”
- Accept bribes from people trying to keep their goods
The people redistributing the goods also want to improve their well-being, so their incentives are to:
- Skim off the top
- Accept bribes from people who wish to receive confiscated goods
- Always have goods available for important people (i.e., people who can affect their well-being), so they tend to…
- Skimp on the goods given to “non-important” people
The people receiving goods have incentives to:
- Exaggerate their needs
- Bribe the people who are redistributing the goods
- Obtain whatever goods they can; even things that they don’t need can be sold or exchanged on the black market
This sort of corruption was common in the Soviet Union and in each of its satellite countries. As a result, strange things happened in the USSR. For example:
- Whenever it started raining, traffic came to a complete stop while people jumped out of their cars and installed their windshield wipers. Wipers were all but impossible to find in stores, so they were commonly stolen. As a result, drivers kept them inside their cars until needed.
- Burnt-out light bulbs could be purchased on the black market. Buyers would smuggle them into work and switch them out for working light bulbs, which they would then take home.
- Most people carried string-bags in their pockets and purses. Whenever they saw a line forming at a shop, they got in it. Lines meant that the shop had received a shipment of something. Even if they didn’t need whatever it was being sold, they bought it, as they could later trade it for something they did need. The string bags were used to carry their purchases home.
To sum up: the rich become poor, the poor remain poor, and the apparatchiks become rich. The system only really appeals to those who think they’ll get to be an apparatchik.
I agree that laws to accomplish more distribution of wealth will create new incentives to avoid or evade those laws. If you call that corruption, then I agree that such a legislative program will create incentives for corruption. I agree that where there are more temptations, there will be more of giving into temptations, and thus not just incentives, but corruption itself to the extent that law enforcement fails.
But I think it’s a slender reed to hang a defense of the American way of life on. Here is why.
Many Democrats believe that
If the main moral objection to redistributionism were really that it creates new temptations to sin, then I am not sure I would be very morally opposed to it myself, to be candid.
If the main economic objection to redistributionism were that the net losses due to corruption would outweigh the economic effects of normal lawabiding behavior, I would again not be convinced that it was a bad policy.
In fact,
Most of the people calling for ‘equality’ really want no such thing: they just want restructuring in favor of themselves and their tribes, at the expense of unfavored tribes. See my post Jousting with a Phantom.
In a society where all are made equal in terms of money, then money is not important and people will be unequal in terms of something else that becomes important. This is usually a hierarchy of political privilege. Some are more equal than others. It is all documented in Animal Farm.
Seems as though you’re using dynamic accounting instead of the static accounting favored by a lot of Congress. It’s crazy that people think that they can change the x in x% of $y and that $y will stay the same. It can’t happen in their personal life. If the price of avocados greatly increased overnight, would they still purchase the same amount each week? No, they would adapt. Apply that to thinking to your policies.
I think that
I agree. I’m just zeroing in on one facet of redistribution. There are other, better ways to attack it (e.g., theft is immoral, much of the money is taken from relatively poor people and given to relatively wealthy people). I’m just throwing another twig onto the fire.
Socialism would be perfect if only people stopped trying to implement it.
I’m going to take back my agreement. The problem isn’t corruption, per se. After all, “corruption” by the old Soviet definition also included the free trade of goods and services between consenting adults – something that we in the West don’t consider immoral.
Corruption of the kind I mention in my post led to enormous disillusionment and disgust with the system, which helped push the Soviet system into history’s ash heap. In addition, it led to all sorts of economic inefficiencies. Just take the fact that so much otherwise productive time was wasted by people standing in queues.
Or, look at the impact of the supply problem on factories and collective farms. Say my factory needs to order a widget from the local distribution center. If the part is in stock, and the bureaucrat is well-disposed, I’m in luck. If the part is not in stock, what incentive does the bureaucrat have to contact another center and request a transfer? What incentive does the agent at that center have to agree to the transfer? If the part must be ordered from the factory, what incentive does the factory have to send it? If the part must be manufactured and sheet metal is needed as an input, what incentive does the steel mill have to supply it?
Given all that, my incentive is to have as many widgets in stock as possible – even if I won’t need them all for years or even if I never need them. Forget about enjoying the efficiencies of just-in-time supply.
In addition, like the individual consumer, I have an incentive to keep lots of “trade goods” on hand so that I can barter for what I want with other factories.
I also have an incentive for my factory to be as self-sufficient (i.e., as “vertically integrated”) as possible. Because I can’t depend on suppliers, I need to be able to produce my own supplies. So, my factory needs to be able to make every nut, bolt, screw, washer, spring, and gasket, that goes into my final product – much like 19th Century American factories did. So, we lose all the efficiencies of division of labor and comparative advantage.
Not sure why you think “abandoning the fight” follows from my analysis. Countering a political position works best if you attempt to understand the actual motivations of the people pushing & adhering to that position.
Which will always be mixed. No doubt, there are some progs (‘saint-like progs, at least in their own minds) who eagerly want to share world poverty in their own lives, but these are not the main influencers.
Do you really think that typical Harvard graduate or student (or professor) who is all for socialism *really wants* to see his status and income level equalized with the South Dakota State graduate, or even the Duke graduate?
Yes, that’s how I took it and yet I wanted to mention the other perspectives even so. Just to be on the safe side.
When young people talk about socialism favorably, I am thinking their idea is what a large, extended, close knit family used to provide.
Now assume that most of the young adults today have absolutely no idea what that is like.
It gives you an idea of why socialism is so attractive to them.
So how do you alter our political environment to not impede such family formation?
Because government policy has absolutely affected it.
I think that corruption consisting in voluntary cooperation (like smuggling, cheating on wage and price controls, price gouging, and black markets) can help to mitigate the economic inefficiencies caused by planning, whether in an interventionist economy (which is a market economy) or socialist economy (which is a marketless economy).
I believe that the failures of the socialist experiments, in
failed much more because they tried to replace markets with planning, than because of the corruption fostered by planning.
This is profound.
[Edited for clarity.]
I think the bribery angle is the most likely to get people to think. Bribery is inevitable. If a person of the left expresses doubt, ask them about campaign contributions, which they no doubt today consider to be bribery. Then ask them to expand their thinking to every aspect of life – not just for big legislation, but also for whether or not you get gasoline or toilet paper or desirable foodstuffs.
Candace Owens just got de-Facebooked for expressing that exact idea.
According to this article, she stated that she was temporarily suspended for saying that fatherless families and the liberal policies that led to their creation are bigger threats to blacks than is white supremacy.
The article notes that Facebook restored her access after “they determined the post wasn’t in violation of community standards.”
Hmm, I think the post is definitely in violation of progressive community standards. There’s no way they want black women posting such heretical stuff.
This is a great article that says similar things.
https://www.nationalreview.com/magazine/2019/06/03/why-socialism-causes-shortages/
This is very cynical. In REALITY, True Socialism – which has never been tried, you know – creates abundance and decreases competition, so there is no petty, selfish striving for an advantage. This has the salutary effect of repealing human nature.
Mind you, that’s under True Socialism, with has never been tried. In the absence of the immediate imposition of True Socialism, though, an innumerable number of half-measures will be sufficient in the hopes they will urge on the adoption of True Socalism via their shining successes.
The lack of successes reflects neither on True Socialism or the employment of half-measures, but only proves the need for more half-measure.
I can’t wait for the midnight knock on the door.
Forward Comrades! LOL
Unstated is that True Socialism requires the New Human that doesn’t have all that pesky “human nature” stuff that’s been afflicting the Existing Human species for, oh, at least 6,000 years.
Therefore the innumerable number of half-measures will be sufficient only if the Correct Members of the Existing Human species (who are in all ways superior to all other Members of the Existing Human species) are in charge of all decisions concerning those half-measures.
The Correct Members of the Existing Human species can readily be identified because they are the persons who will be proposing with the greatest self-assuredness such half-measures.
Wow, I hadn’t thought of deliberately creating shortages to squeeze bribes out of “customers.”
What is likely to happen gradually is what has already happened here and in the rest of history, so far, always. The Soviet Union, was unique and is unlikely to be the model. Indeed there is no model. Those with exaggerated political power tip the system in their own favor. Not by first choice necessarily, but because the ideologues go after them so they have to pull up a seat at the table to protect themselves. By now they all have seats. Their existence created by the left angers the left and they go after them again with the same result. This is the pattern and it ends with so few collecting so much that it can’t fix itself. Such places become poor, stagnant and mostly irrelevant has beens. The question is can we take it back before it’s too late, or is it already too late?
Economist Harald Malmgren knew the Soviet system well and he has said the same thing over and over on all of his interviews on Real Vision. We’re getting too centralized and it’s killing us. The USSR’s head of Gosplan predicted in the 70’s that it would happen to us.
…if we take the definitions below. These definitions are unambiguous and logically consistent, unlike the popular ones used in the linked article.
Definitions
Economists generally use the term market economy to refer to an economy where production plans are made, executed, continued, updated, and terminated by capitalists seeking money profits, given prices determined on markets.
Beginning in the early 1800s, proponents of a centrally planned, rather than a market, economy have used the term “socialism” to refer to their proposal. In socialism there are no true market prices and no functioning consumer-driven markets.
Economists have often used the term “shortage” to describe economic conditions where
To describe a market economy where some interest rates, or prices or quantities of some kinds of goods on the market are restricted by the state, economists often use the term “interventionist economy“.