The Dangers of Socialism-The Libertarian View

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Some questions remain about comments I made in an earlier
column on social security. The dangers of allowing government
investment in private industry need to be explained.

The words ”’socialism”’ and ”’socialist”’ are thrown around so much that people lose focus on what they actually mean and how they
actually operate. The area that seems to cause confusion has to do
with governments that operate social welfare systems. These programs
do not make a government socialist in the strictest sense of that
word. As with the word “inflation” long misuse has lead to cloudy
thinking and poor understanding.


In a socialist state, the government owns or controls the factors of production. Socialism in Germany before the end of the Second World War reflected government micro-management and control of industry and business.

Firms might be privately owned, but there was always an official who had to be answered to.

Eastern European socialism had the government owning the
factors of production. Socialism in Britain took hold after the war.
The British Government took over certain key industries such as coal
mining. They added to this partial socialism a social welfare
program. The two do not need to co-exist. The United States has made
a significant commitment to social welfare programs to the irritation
of libertarians and conservatives. Yet aside from the post office
direct ownership and control has been more limited. The prevailing
view in the US has been to allow private ownership and control of
profitable industries. Most government services are seen as those
that would be unprofitable without tax subsidies.

Why spend so much time on this question? Socialism is worse
than social welfare. Social welfare programs can be funded and still
allow markets to operate with a good degree of freedom. They harm it
by taxing money from productive endeavors and diverting it to
consumption and to the high levels of administrative overhead
government programs entail.

Yet a healthy market economy can provide
a high standard of living for its people even with the burden of such
programs. This is largely the case in the United States. Here, our
standard of living is reduced by the drag on the economy these well
intentioned government spending programs create, but the drag is not
heavy enough to impoverish the country.

America’s regulatory environment also retards economic
prosperity. It is not as bad as it is in many other countries. This
would not be the case if the government decided it should run
America’s businesses. Can you imagine how poorly the economy would

A few weeks ago I mentioned that it would be a bad idea for
the Federal Government to invest social security receipts in the
private sector. (That is not the plan that is being now discussed
which would allow individual citizens to make the investments).

The government might then become a major stockholder in big US companies. This is the royal road to disaster. The discipline to keep politics out of corporate decision making could not last long. As corporations started to act in ways that were more politically correct than profitable, the economy would become less efficient.

Every private sector union could expect the kind of power we see now in Hawaii’s public sector unions. Featherbedding and other bad business practices would cripple American industry. To make up for this Americans would
increase their purchases of foreign manufactured goods. US firms and
their union allies and government stockholders would counter this by
asking Congress to erect trade barriers. The ultimate result would be
a reduction in the standard of living from what it would have been
had the government never gone down this road. The fall in
productivity would reduce real tax revenues and undermine the very
social welfare programs “liberals” love to fund. At the same time
the number of people in need of assistance would swell as the economy

The free market system is strong enough to produce a high
standard of living even with government taxing and spending. As long
as the market remains free of direct government management its
essential profit and price mechanisms can do their job.

Only during the brief period of the National Recovery Act in the 1930’s has
America truly experimented with the type of planned economy that has
failed everywhere it’s been tried. Yet threats to the essential
nature of free markets still pop up. Ralph Nader advocated breaking
up the 500 largest US corporations and nationalizing the banks during
his run for the White House. Media people took this loon as a serious
candidate, while ignoring the good sense put out by Libertarians
Brown and Badnarik.

Compound that with the example I have discussed
wherein social security monies are invested in the private sector and
one must realize that these threats are more than imaginary.

”’Tracy Ryan, chair of the Libertarian Party of Hawaii, can be reached by email at:”’

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