The Problem with Socialism ~ More Viral Disinformation

“The problem with socialism is that you eventually run out of other people’s money.”

Margaret Thatcher

opaThis will sound un-American to some, but, unlike the former Prime Minister of the UK, I think the real problem with socialism is that it has a bad rap here in the U.S.  Americans confuse socialism with communism.

Socialism refers to a broad set of economic theories about social organization, theories advocating public ownership and administration of critical sectors of the economy such as education, energy, public utilities, health care, and finance — theories which, when put into practice would ostensibly result in a society characterized by fairness and equity. These theories, and there are many variations on the theme, seek to slow or minimize the concentration of wealth within a small, privileged class of citizens as is the propensity for capitalism to do.  According to one government source, the top one percent of Americans enjoy thirty-three percent of the nation’s wealth while the bottom eighty percent have less than sixteen percent.  It is this kind of inequity that has historically caused revolutions. However, most socialist theories do not advocate massive “redistribution” of wealth. Quite the opposite; reward and compensation in countries like Sweden, Norway, France and Germany, countries that many Americans consider to be socialistic, are based on the value and amount of effort individuals expend in production. Interestingly, Norway, perhaps the most socialistic of the western democracies, boasts the largest number of millionaires per capita of any country in the world.

Communism, on the other hand, depending on how it is wrapped around the political system that adopts it, is a political ideology that promotes the establishment of an egalitarian, classless, stateless society and an economy based on common ownership of everything with centralized control of the means of production. Communism is totalitarian, either oligarchic or dictatorial, incorporating a branch of socialistic theory in the extreme, where it still survives (in North Korea). All other communist states, to include China, Vietnam and Cuba, are going through a process of reform — adopting market concepts to achieve mixed economies.

The confusion between socialism and communism is perhaps a lasting legacy of the Red Scare that took hold of America following the Second World War and the Cold War that lasted for decades. The Cold War is over now; we should put it behind us, I think, and move on.

I have a good friend who can’t quite seem to decide whether, because of his intellect and his understanding of Christian doctrine (love your neighbor as yourself), he should subscribe to and support liberal political philosophy or, because of his more conservative friends’ influence, subscribe to and support conservative political philosophy. He recently forwarded to me a copy of the viral disinformation email that follows asking for my opinion about it.  I suspect that it was one of his other friends who sent it to him. Anyway, I had seen it before myself, several times. Perhaps you have too; it’s been making the rounds in various forms for years.


An economics professor at Texas Tech said he had never failed a single student before but had, once, failed an entire class. The class had insisted that socialism worked and that no one would be poor and no one would be rich… a great equalizer. The professor then said ok, we will have an experiment then on whether socialism makes for good economic policy.

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.  After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.  But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too; so they studied little.  The second test average was a D!  No one was happy. When the 3rd test rolled around the average was an F.

The scores never increased as bickering, blame, name calling all resulted in hard feelings and no one would study for the benefit of anyone else.  All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great; but when government takes all the reward away; no one will try or want to succeed.

Could it be any simpler than that?


As a teacher of economics, I can’t say that I have never failed a student. Hard as I try to get the basics of economics across to some of my students (that it is a body of both knowledge and opinion with conflicting ideas and theories — a soft rather than a hard science), they just can’t or won’t get it.  According to John Maynard Keynes, “Economics is an easy subject at which few excel.” But people who don’t understand the nature of this “dismal” science persist in trying to simplify it — or so it seems. The above tale of the economics professor who would fail an entire class for not agreeing with his particular beliefs is a perfect example. If there ever was such a professor and I were his dean, I would fire him for not getting it either.

The problem with trying to justify economic or political points of view with analogies like this story (comparing wage and salary competition with competition for grades) is that they are overly simplistic. They are flawed — rife with logical fallacies of composition and causation. Students do not compete for grades in the same way that people in the workplace compete for pay or promotion. Neither does socialism, except in the most extreme applications of theory (and I can think of none in actual existence), equalize reward among all participants as the economics professor’s experiment did.  Sure, the Soviet Union’s brand of socialism (communism) failed, and a large part of the reason for its failure was diminished incentive.  But Soviet-style communism, Chinese-style communism, and Cuban-style communism (each is/was unique) do not equal socialism as reconciled today with market economies in Western Europe. In fact, all communist states, save for North Korea and Cuba, have incorporated elements of market forces to become mixed economies, and Cuba’s new president, Raul Castro, has indicated that he intends to start doing the same.

 The economies of the world’s other industrialized nations are flourishing. All are still small compared to ours, but they are coming on strong. In 2008, our real gross domestic product (GDP) (GDP adjusted for inflation) grew at just 1.4 percent. Sixty-six other countries outpaced us and they have been doing so for years.  The world average was 3.8 percent. So, in the years ahead, if we do not become more socially responsible by investing more in education, health care, energy and infrastructure, we may well be left behind. Call me a socialist if you wish, but that is how this economics teacher sees it.

I invite your comments whether you agree with me or not.

Published in: on April 4, 2009 at 9:09 pm  Comments (16)  

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16 CommentsLeave a comment

  1. Ok, so I understand some of this but found it hard to follow. I need to retake government.
    I do think you are right about people thinking socialism and communism are one and the same. Few people have your depth of knowledge and expertise about governments and economics (shish — this is why it was hard for me to follow). Yet I believe that I agree with most of what you said. It might be interesting to do RESEARCH now on the differences between why/how students excel vs. why/how businesses excel.

    your spouse

  2. Opa,

    Great article! Thanks for being so explicit on the subject of socialism & communism. Now you have given me another topic that I would like to discuss with you over dinner. Gosh, I guess with so much on my mind, it will have to be two dinners now. Maybe after Easter, eh?

  3. “The rising levels of affluence in Norway also reflect the small country’s economic growth since the discovery of offshore oil in 1969. High oil prices the past few years sparked an unprecedented boom in Norway’s offshore industry, and in the economy in general.”

    Well, that leaves America out, since our version of socialism doesn’t include offshore oil drilling. The socialists on this side of the Atlantic want to shackle the producers on every side — both on the regulatory side and on the taxation side and on the labor side. How can that NOT lead to diminished incentive to produce?

  4. Thanks, Molly. Your point on the scale differences between our economy and Norway’s is well taken. But, the president said during the campaign last year that he was open to rethinking the federal ban on offshore drilling, and the House has backed down on this too. The federal ban will expire at the end of the year. But even if states like California go along, the additional amount of oil that would be produced domestically would do little to improve our huge economy and nothing to address climate change. No, to make a real difference we will need new alternative, renewable and environmentally friendly energy sources.

  5. Well, I have several comments re your last few blogs.
    Yes, I tend to be more to the right but am really moderate. I want every human being to have equality but I do not support socialism or communism. I have visited Europe and Russia to study their health care systems. Our system has problems but is still better than socialized medicine.
    I truly believe our social programs have made lower income citizens even more dependent on the government. We now have 3rd and 4th generations living on the government with no incentive to do anything else.
    I do not believe most Americans really care what race Obama is. Most that did not vote for him voted against his politics. However, many Blacks voted for him just because he is Black. It would not have mattered what his politics are!!!! Obviously there are extreme groups on both sides–always have been and always will be!!
    I believe a flat tax rate would be the most fair. Everyone pays equal and there is still incentive to succeed. It would eliminate all the games every April 15th.
    I do not propose to be an expert in any of these areas but as a public health nurse working in the trenches for 40 years, I have seen, helped and supported many fellow human beings. I know what I have observed. Our country going more in debt with more government programs is not the answer. Some of you are in for a very rude awakening when it comes. You are following Obama like he is a god. I hope he does well for America’s sake but am very, very concerned and do not like what I see.

  6. Thank you for sharing your views, Charla.

    As a nurse with all your years of experience, I wouldn’t even try to debate your view on the health care issue with what I think I know. But I will say that my wife, also a health care professional for many years, has been to other countries too. She has not only observed the quality, accessibility and affordability of health care in Europe, but she has also worked there. She and I have discussed our nation’s problems with respect to health care and I know that her persuasion differs quite a bit from yours. And so, even well-informed individuals will disagree. All this uninformed person (me) knows is that the premium on the medical insurance I have through my employer is going up 4.2 percent next year. Really — and this after a whole year of disinflation! So, from an economic perspective, I’d say the managed care system we have is definitely broken. If we don’t scrap it and scrap it soon, rising medicare costs will bankrupt us.

    On the subject of individual taxes, you say that you like the idea of the flat tax. Many do as it offers the advantage of simplicity. It would eliminate all tax loop holes and reduce government expenses associated with the IRS. But it would also take away one of government’s most effective tools of fiscal policy to deal with over-heated economic conditions and recessions. Attractive as it might sound in terms of fairness, most advocates of this alternative to our progressive tax system fail to consider how much higher taxes for the majority of Americans would have to be so that the wealthy could pay less. Besides, economists know that the flat tax becomes a regressive tax for middle to low-income earners. This is because of the marginal value of each dollar earned (each additional dollar earned is more important for mid- to low-income earners than they are for the wealthy).

    Finally, on the subject of socialism — socialism, as it is practiced by most of the rest of the world today, is not an alternative to capitalism. No social-economic system is pure. True, the United States has historically been a right-of-center nation, and it still is. But has moved closer to the center since the Great Depression when the Federal Insurance Contributions Act of 1935 was passed. Ever since, with numerous additional amendments to the Act, we have embraced an even greater degree of socialism. With the baby boom generation nearing retirement, whether to keep and strengthen the programs included under FICA has been much debated in recent years. But President Bush’s proposal to privatize the system failed in 2005, I’m sure you recall. American’s rejected the idea. Further, since the stock market’s crash this year taking the value of our 401Ks and IRAs right along with it, the national debate over this has been settled once and for all. American’s want and need these safety nets, Charla, and they do not need uncertainty. Like it or not, along with health care reform, which is high on the president’s to do list this year for the sake of long-term economic recovery, we can all anticipate that Obama will push for Social Security and Medicare changes to strengthen these programs as well. The rich will have to help, and all the rest of us are going to have to do our parts too by staying healthy, working more years, and receiving less in terms of benefits when we do retire. So, socialism, at least a degree of it, is here to stay. You might as well learn to accept it.


  7. I confess to being somewhat ignorant when it comes to government. Sad, I know! Anyway, I have always thought myself to be very strong Republican. I was extremely opposed to even the thought of Socialism. The more I looked it up the more I thought it was just Communism. I am now changing some of my views. Although I do believe we need to be extremely careful at how much we allow our government to control us. My mother in law was born and raised as a German citizen. She met my father in law and moved to America after they got married. I do not know much about German government, but I do know she has told me time and time again, how nice it was living there and never having to worry over medical care. I am a diabetic and there have been many times in my life where I did not have medical coverage and had to borrow just to get my insulin. I rarely took my blood sugar because I could not afford blood strips. That is a scary thought that many Americans go without basic medical care simply because they cannot afford it. I have had people tell me that the medical doctors are not as good as American doctors because they are “forced” to accept what the government pays them. I wonder….who knows I guess it could be argued either way.

  8. I just received that email and it really frustrated me when I read it. Ignorant rubbish like that makes me want to vote left wing just out of spite.

  9. Medical care should be made affordable and available to everybody not just those that can afford it.

  10. Living in Chicago, I’ve heard from many politicians, community leaders and others that ‘we need to invest in education’ and ‘our schools need more money’, and various other forms of the same concept. I have seen small private schools outperform public schools in some areas and I’ve seen public schools outperform private schools in some areas, overall I don’t think that money is the problem, parental involvement is.

    In my High School Junior’s school we have seen the layers of administration grow and grow each year. They went from one vice principle to several and from one dean of students to several, while the population of the towns that feed the school remained relatively flat. The school population hasn’t grown to justify the growth of the layers of ‘middle management’.

    When more money is ‘invested’ in public schools it is a shame that the classrooms, students and teachers see only a small percentage of that ‘investment’. It’s like giving to a charity: you want at least 95% or more of your dollar to actually go to the problem you are wanting to contribute the money for, not eaten up by administrative costs and other goobledegook.

    It’s a downright shame that we are not getting the best ‘bang for our buck’ when it comes to the public school system. Why don’t we incent the administrators to actually save money or cut costs and then see what really happens, but that would be too much like a free market and not a government run situation. Which might mean that maybe there’s no understanding of that concept or no experience on how to run it with those who are in those positions.

    I think there is much waste in many of our government’s Social Programs. I believe that we do need some social programs for those who cannot take care of themselves, and yet we’ve all heard of the ‘welfare queens’ that work the system and take advantage of something that’s suppossed to help those who really need it. And how about the report that I saw on 60 minutes that told of phony companies that ‘bill’ medicare for fraudulent medical supplies. If our government would assign a ‘task force’ to find and prosecute this fraud, we could save $60 billion a year.

    It just makes good horse sense to me to run our government more like a business when it comes to saving money, cutting costs or finding and prosecuting the fraud by these phony companys and ‘welfare queens’ that ruin it for everybody. My father-in-law worked for the government for 35 years and every December he had to spend his sick days and his department budget before the year’s end or he would lose those things for the next year, well maybe it’s better to shrink instead of grow when you have the fiduciary responsibility of handling other people’s money (the taxpayer’s).

  11. I agree… more money is not necessarily the solution. But perhaps less latitude at the state and district level on how the money is spent would make a difference. Teachers know what they need. Pay them enough to attract and retain talent. State and district level administrators should let them do their jobs and stop already with the ever-increasing administrative/CYA requirements!

  12. There are so many problems with your thesis that I can’t even begin to begin and although a student and staunch believer of capitalism, I don’t have the time necessary it would take to undo the mess your synapses have gotten themselves entangled in.

    The main problem with socialists is that they do not understand economics, PERIOD. If they did, they’d be embarrassed at what comes out of their mouths. For example, you cannot possibly use Norway or Luxembourg for that matter as a benchmark of the highest salaries in the world as something called PPP or Purchase Price Parity comes into play. Look it up, I don’t have the time to babysit infantile and incorrect and disastrous economic ideas. Look up PPP or purchasing price parity and you’ll understand why. Not only that but when taking in many other factors such as inflation, value of currencies compared to other currencies, whether or not a currency or its trading partners are fixed to other currencies etc, you cannot come to any conclusion as to the standard of living of any one country. What you can use to come to the conclusion of the standard of living is the amount of productivity, the amount of freedom, the rate of crime that country is exposed to and other things. Unfortunately, America is exposed to a lot of crime due to the very socialist ideas that are pushed by our government for years now. Today’s socialism in America is at par with communism and for those of you who truly believe socialism is good need to read the philosophers of Locke, Voltaire, Hobbes, and others to understand that America is truly the freest country on earth which is why we’re the most productive and best at what we do. PERIOD. Not to mention, we’re still a very young country relative to other countries on this planet!

  13. Anthony, your comment is rude at the least and inflammatory at the worst. But I refuse to take offense. I’m sure that you meant well.

    Interesting that you chose to refer to the 16th Century theory of Purchase Price Parity (PPP), which is sometimes used today to compare purchasing power between trading partners rather than the more commonly used exchange rate for currencies. But using this theory to bolster your argument about the superiority of our economic system over other western style market economies, economies wherein government plays a larger role in guaranteeing social goals like equity, consumer protection and security, is problematic at best. True enough, the more socialistic of European countries like Norway, Denmark and the BENELUX have lower GDPs per capita when using PPP theory rather than exchange rates in the calculation, but things that cost U.S. citizens the most today like health care and higher education are provided by their governments. This renders them, on-average, much better-off. Using the same PPP method to compare Americans’ standard of living to citizens of most of the rest of the world would suggest that almost everyone else in the world is better off than the average American citizen, everything for them being cheaper. But, of course, that makes no sense since there is scant equity in pay and in the quality and variety of products available in most other countries.

    Perhaps you have chosen not to explain this in your comment because you don’t understand it yourself.

  14. Actually, countries like Norway and Luxembourg are still in the GDP top when adjusting for PPP. Look it up in the CIA world factbook or something.

    It is an interesting thing to bring up, because quite a lot of the tax burden in such places are VAT, that the PPP measurement compensates for. So when looking at the PPP GDP listings, those countries also pay less taxes than the people in the USA.

  15. Opa, thanks clarifying these fundamental political and economic issues.

    Here in Australia we take socialized health care (and university education) for granted.

    Looking across the lake, I cannot understand why such a clever and wealthy country as yours does not provide health care for it’s disadvantaged citizens.

    Seems very much like a dream for some and nightmare for others – a United States Divided – sincerely hope that level heads prevail and things improve.

    Watching with interest,

    Aussie Bob

  16. You’re most welcome, Aussie Bob.
    The problem here, I think, is that the freedoms we hold so dear have given corporate and special interests too much influence over government and politicians too much influence over public opinion.

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