Economics Monday! Why Socialism Never Works

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Happy New Year! Big things are coming… We’re going to be bringing you more content than ever before, including a weekly podcast set to launch soon. So be on the lookout for that!

Today we’re going to talk some economics… because one can never talk too much economics.

Specifically, we’re going to talk about why socialism simply doesn’t work. A while ago, when I was listening to the Tom Woods Show (which I highly recommend, especially if you’re a conservative who wants to learn more about your libertarian brethren), I heard the best, most succinct explanation for why socialism doesn’t work. I wish I could remember the name of the guy who gave the explanation… when I find out I’ll get back to you.

Here’s the reasoning:

1) The Price Problem: In a capitalist system, laws of supply and demand determine what the price is. Market forces react to the supply and demand of a product to ensure there is neither a shortage or abundance of it. Contrast this with socialism, which has no market forces. In a socialist system, the government has to guess the worth of a product without knowing what the supply and demand for it truly is. This inevitably leads to either shortages or abundances, and more often the former.

2) The Incentive Problem: In a capitalist system, people have to work for what they earn, which incentivizes them to be productive. Contrast this with socialism, which has no such incentive. In a socialist system, people can choose to not work at all and live just as good a life (not saying much) as people who work very hard. This of course leads to people not being nearly as productive, which limits the overall potential of the economy. The only way to work yourself up the economic ladder in a socialist system is to be a friend of the government, and those government guys aren’t all too productive either.

3) The Knowledge Problem: In a capitalist system, many independent bodies compete to find the best solutions to problems. Between each of the groups, there is a lot of knowledge being cultivated, and each of them knows something the other does not. Contrast this with socialism, which only has one such body – the government. The government could never know nearly as much about a product as many competing companies do. This leads to a serious lag in innovation in socialist systems.

Well there you have it: three short, seemingly obvious reasons why socialism is inherently flawed and why there has never been a successful socialist country in the history of the world, as often as it has been tried. Now we just have to let the rest of our generation know, too…

-Trevor Louis

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