Socialism, Capitalism, and Talking Past One Another

I've been seeing a lot social media posts recently about socialism. Often, they take the following form: "How can anyone today seriously think socialism is a good idea? Are they too young to remember the Soviet Union and its collapse? And too out-of-touch to have followed the news about Venezuela?" 

The problem, more often than not, is that the advocates of socialism and the critics of socialism are talking about different things--using the  term "socialism" in different ways. They are talking past each other. And it seems to me quite possible that if they understood what the other was saying, they might actually agree with each other. Or at least be able to have a productive dialogue about their real points of disagreement.

I also think that there are forces at work in our society that are committed to stopping such mutual understanding and dialogue from happening, because they benefit from polarization--whether it comes from miscommunication or from substantive dissent.

So this is a short post aimed at, hopefully, countering some of those forces of polarization by clarifying concepts. 

Strictly speaking, "capitalism" refers to a system in which the means of production are privately owned and the goods produced are made available in free markets to those who can afford to buy them. "Socialism" refers to a system in which the means of production are publicly owned and the goods produced are distributed to the public in accord with existing laws (created in whatever way the political system creates laws).

Most actual economies are a mix of these things. In the US most goods and services are privately produced and sold at market. But K-12 education, fire and police departments, the military, infrastructure such as roads, etc., follow a socialist model.

In such countries, it is perhaps better to speak of certain areas of the economy being capitalist or socialist than to speak of the country as socialist or capitalist. So we can say that in the US, the beer industry is capitalist and the military is socialist. But we usually don't. We usually talk about countries being socialist or capitalist.

So when is a country "socialist"? Here we see a diversity of uses.

Countries like the former USSR, which attempted to follow Marx's communist philosophy but got stuck in dictatorship, have been called "socialist".

Democratic countries like Norway with mixed economies are sometimes called "socialist" when their mix has more areas of public ownership than in the US.

The Nazis, during their rise to power, were competing with Marxist-communist groups for the support of disaffected working class Germans and so put "socialist" in the name of their party and adopted a few token socialist proposals as a rhetorical ploy to win support. Because of this self-labeling, some people want to call Nazi Germany socialist.

But the USSR, Norway, and Nazi Germany are all very different from each other. If someone says they'd like to see the US become like Norway (at least in certain ways), it would be a mistake to take this to mean they want the US to become like the USSR or Nazi Germany.

And if someone is talking about socialism in the sense of a country like Norway (as many younger generation Americans do), it would be a mistake to interpret them as talking about socialism in the sense of a country like the USSR (which is the sense that may older generation Americans appear to have).

Many of the criticisms that are right on target when one is talking about the USSR will miss the mark if one is talking about Norway. And so we can easily get a situation where one person is advocating socialism in the sense of "a country like Norway, with more socialized elements than the US but also with privately-owned businesses, free markets, representative democracy, etc." And someone else, hearing the term "socialism," imagines the USSR, with a command system and five-year plans and a dictatorial regime. The ensuing argument goes nowhere because the parties to the dispute are talking about different things.

Put simply, the term "socialism" has come to be used in different ways. Make sure, therefore, that when this term comes up in conversations about public policy, everyone is clear about how the term is being used. There are those who will try to prevent such clarity and mutual understanding because it serves their interests for people to be (metaphorically or literally) shouting uselessly at each other rather than having productive conversations.

For what it's worth, my own view is that the real disagreement in our society--and as such the real conversation we should be having--is about what mix of capitalist and socialist elements is the optimal one at this particular time and place (and I do believe that the optimal mix changes from time to time and place to place based on social and environmental conditions). The US is a mixed economy, like Norway. The Norwegian mix is probably not the best mix for the US today--but is there a mix that is better than the mix we have now? That is the conversation we need to be having, and it is a conversation that is derailed by those who encourage us not to understand what other people mean.

Resist them by asking clarifying questions. Here's one to try: "When you use the term 'socialism,' what do you mean?"

Selling People Their Own Need: Hurricane Irma, Price Gouging, and Martin Luther

There were numerous complaints of  "price gouging" in connection with Hurricane Irma putting Florida in its sights. Although some of these complaints were unfair, the basic pattern of dramatically raising prices for essential goods in a crisis situation is basic economics in a free market system, absent government regulations to prevent it: As demand increases for a fairly fixed supply of some staple, people with the means to do so are willing to pay more for it if it means access. It becomes a kind of bidding situation. The seller of the staple can therefore ask more for it--and, barring other considerations (such as concern about maintaining long-term goodwill among consumers), they will ask more.

If we're talking about a long-term increase in demand and a situation where it is possible to increase supply by re-directing production resources, this feature of the free market works magic: others see how much the seller of the product is making and wants a share in the profits, so they begin making it, too. Supply rises to meet demand, and prices begin to go down again until they hit their "natural price"--the price that represents their real value to society.

But in a case like Irma, there is no such magic. Skyrocketing demand for airline tickets, for example, was a short-term reality, existing in that short time between the emergence of Irma as a significant threat and its landfall. It does not appear that airlines were engaged in predatory price-gouging, by the way. Rather, airlines build supply-and-demand considerations into their price-scheme from the start: they have a set of cheap seats and more expensive seats, and as the cheap seats sell out only the expensive seats are left, meaning only those with more urgent need, or for whom the higher price isn't a big deal, will buy them. As demand for flights out of Florida rose in the face of Irma's impending landfall, all the cheaper fares were quickly sold and only the high-price seats remained.

But even if this isn't opportunistic price-gouging, it has something in common with such price-gouging. The reformer, Martin Luther, captured this common theme in a distinctively powerful turn of phrase, when he bemoaned the tendency of markets to "sell people their own need." (Thanks to John Kronen for pointing out to me this remarkable rhetorical flourish from Luther.)

Here's the idea. When an emergency situation arises and the need for some product increases, the price shoots up. But in many such cases (if not all) the cost of production hasn't gone up. The labor costs haven't gone up. The distribution costs haven't gone up. The quality of the product hasn't gone up. Nothing has changed from the standpoint of the seller, who was happily selling the product at a lower cost yesterday. So why are people suddenly required to pay more? Because their need has gone up.

And so, as Luther puts it, they are paying for their own need. And this makes sense when you think about it: If price goes up when the only changing variable is the consumer's increasing need, that increase in price is paid simply because of greater need--as if the business owner were selling them their own need. The practice, a staple of modern capitalism, horrified Luther. And when it shows up in moments of predatory price gouging, it horrifies most people today.

But the relationship between free market capitalism and human need is more complex than just the risk of price gouging, even if we simply focus on crisis situations. Because let's be clear about something. The very wealthy have more resources for weathering a natural disaster than do the poor. If they're stuck in the path of a hurricane and are injured, they're more likely to be able to afford medical care. They're more likely to own a home that is sturdy and able to weather the storm. If they live right where the worst effects are likely to strike, they are more likely to be able to afford a hotel room in a secure building where they can ride out the storm in comfort.

And when it comes to evacuation by plane, for the wealthy this might be just a luxury, since they have a reliable, fuel-efficient car that's got a full tank of gas, while the poor might have no car or an unreliable clunker that is always riding on nothing but fumes, since they never have enough to fill the tank.

The rich can't buy resurrection if killed, of course; and they might have bought a home right on the beach that the poor couldn't afford, but you get my point: the poor may need a seat on a plane more urgently than the rich; but it's the rich who can afford the seat, and so they're the ones who get it. Especially when prices go up, the market tends to distribute essential goods to those who need it less, rather than to those who need it more.

Put another way, as general need increases, the rich are willing to spend more because of their increased need, and sellers are happy to "sell them their own need." But the poor are left with more need and less ability than ever to satisfy it. The tendency for businesses to sell people their own need means that those with limited ability to buy will be priced out of the market altogether as soon as the rich start needing the same things with enough urgency.

What this shows is one final truth about free markets that we all must wrestle with seriously. Markets are not actually responsive to need as such. What they are responsive to is marketplace demand. And while need affects marketplace demand, it only affects it if those in need can afford to buy what they need in the market. The poor can't, and so their needs get ignored. At the same time, the mere whims of the rich get satisfied, because they have the resources to satisfy those whims in the marketplace.

This is why we live in a world where limited natural resources are directed towards making luxuries while masses of human beings don't have enough to eat. And if you think this is a tragic misallocation of resources (as I do), then we can't look to free market capitalism to correct for it. It is a great tool for correcting misallocations of resources when farms are growing more potatoes than people want and fewer lima beans.

But when it comes to responding to the reality of human need, free markets are often predatory (when those in need can scrape together the money to pay for their need) or indifferent (when those in need cannot). Of course, we can and should all work as we are able to meet out needs--our dignity calls for no less. But sometimes we our needs are so great they disable us. And even when that doesn't happen, desperate need is something the market exploits in another way: if there are enough needy people, the supply of people willing to work will exceed the demand, enabling businesses to exploit laborers for a pittance of what their labor is worth on the market. And so we have poor people working multiple jobs who are barely able to pay the bills--in part because their wages are depressed by the scope of human need, and in part because they are forced not only to pay for the goods of life but for their own need.

In a pure free market society, having needs is a liability--and the needier your are, the more you are prone to exploitation and marginalization. And Luther didn't just come up with a pithy phrase for capturing what is going on. He found it morally egregious.

The only viable fix for this problem that I can see is government intervention in the market in two ways: regulations that impose constraints and requirements on businesses to limit exploitation, and government programs that spend tax dollars on behalf of those in greatest need, thereby making the market responsive to those needs in a way that it wouldn't otherwise be.

This is why I think a mixed economy, that combines free markets with the right sorts of government regulations and programs, is the best solution for our human situation--and why I think that the more extreme libertarian deferrals to the free market to solve all problems is naive at best. The debate, for me, is about what sorts of government regulations and programs are the right ones. That is no easy question, but it seems to me the question we need to focus on.

Is Social Democracy About the Poor Being Greedy?

This morning, the following meme passed through my Facebook newsfeed:

It takes some unpacking to figure out exactly what Thomas Sowell is talking about here. Who in the world says that taking other people's money isn't greedy but keeping your own money, the money you've earned through your own efforts, is?

No one. No one says this.

This is the first thing to be absolutely clear about. What Sowell is offering here is  a version of what philosophers calls the straw man fallacy. The strategy is this. Some people are saying "Y." You disagree with Y. But instead of actually criticizing Y itself, what you do is this. You mischaracterize Y as X, where X is totally nutters. And then you say, "This view, X, is a crazy view. I don't understand why anyone could possibly believe it"--while looking pointedly at the people who say "Y." And since X is a crazy view, you are able to walk away having conveyed the impression that Y is nuts and the people who believe it are crazy--even though you've not done a single thing to show that.

So what is the view that Sowell is here mischaracterizing? Sowell is a conservative economist who self-identifies as libertarian. He appears to be an advocate of free market capitalism in the spirit of Milton Friedman--that is, someone who strongly believes in the idea of the laissez faire ecomony: if we just privatize the whole economy and let businesses pursue profit-maximization, not only will we do the most to respect individual liberty rights, but market forces will channel self-interested agents in ways that promote the general welfare.

Opposed to this philosophy is the view that government ought to be more involved in the economy than someone like Milton Friedman favors.While socialism represents one version of this view, one could favor more government involvement in the economy without being a socialist in a robust sense.

The key difference between socialism and capitalism has to do with who owns the means of production--private entities, or the state? And on this question, we're all at least partially socialist. After all, our military is not privately owned. Strictly speaking, the military is a service-provider--offering national security services--that is wholly owned and run by the government and paid for through tax dollars (or through federal deficit spending). And I have yet to hear a thoughtful and serious objection to this "socialized" military. Furthermore, most people think that some form of public education should continue, even if the form is a matter of dispute. Likewise with police and fire departments. And then, of course, there are the public libraries and public parks and public roads. These are not privately owned but publicly owned providers of human goods and services.

I believe in free markets. But I also think that some goods and services are provided more effectively and/or efficiently through collective or public cooperation. The idea with all of these public goods and services is that we all as a society contribute our share of the burden of paying for them, collectively oversee the operations via elected representatives who are beholden to us (and can be "fired" by us--that is, not re-elected--if we don't like how they manage the public goods), and all share in the benefits.

Beyond this, I take very seriously an idea expressed by one of the philosophical fathers of economies  like ours, that prioritize private ownership. John Locke believed that we acquire a right to private property through our personal labor: The resources of nature belong to all of us in common, but if I mix the resources of nature with my labor, I've added something that is mine alone. Hence, it becomes mine.

But Locke offered the following caveat: we should leave "as much and as good" for others. In other words, even if I work hard throughout the night to chop down every single tree in the woods and drag it to my plot of land, when the rest of the villagers wake up in the morning to find the entire forest gone and every log piled on my front lawn, they have a right to complain.

And if they call me greedy, that is legitimate even though I worked hard to take more than my fair share. "Lazy" might not be warranted, but "greedy" certainly is. And they are not being greedy when they take back a portion of the lumber. They are asserting their rights. I took more than I had a legitimate claim on.

Now, the society we live in is one in which pretty much all the resources of nature have been divided up. Private owners have claimed much of it. What remains falls largely under the control of the government, which at least in theory operates as the representative of the public in managing what is collectively owned.

But here's the thing. We live in a world where some people are filthy rich while many others do not have "as much and as good." Many people are so cut off from resources that they have nothing to mix their labor with--unless the sell their labor to the rich private owners. But in that case, the products of their labor belong to the owners and all the workers get in return is a paycheck. And many worry that the private owners are exploiting the workers: giving them far less than their labor is worth and pocketing the difference, getting richer and richer by riding on the backs of the less fortunate.

If this is right, then we might consider fixing the problem in something like the following way: take some of those exploited riches back from the exploiters and put those riches into public resources that the industrious poor can use to make something of themselves if they're willing to work hard--something like, say, free college education. Or maybe a federal jobs program offering competitive wages to anyone willing to work on building public infrastructure.

Aside from the issue of exploitation and correcting for it, some services and goods just make sense to provide by pooling our collective resources--through, say, taxation--and then making the goods and services available to all (the security that comes from the military, the roads that come from public infrastructure development, etc.).

When we pursue this collective strategy for meeting our needs, there is the question of what is fair in terms of paying for it. Should everyone contribute equally?

Suppose we wake up one morning and find that the woods are gone and those who are willing to work hard have no resources to work with, while some villagers are sitting pretty with huge piles of logs on their lawns, mostly inherited from their parents who were the ones who did the work of clear-cutting the forest. There is not "as much and as good" for everyone, but there ought to be. And suppose there are ways to use lumber to make public resources that benefit everyone, including industrious people without private resources. The majority thinks developing these resources is a great plan. Given the duty to leave as much and as good, don't the beneficiaries of those who paid no attention to this duty have more of an obligation to give back than those who aren't such beneficiaries?

So, consider the following activities:

A. Taking back what exploiters have unjustly snagged and putting it back into the public domain, so that the exploited can succeed through their hard work rather than have their labor greedily exploited.

B. Making sure that everyone contributes their fair share when we collectively pool our resources to produce public goods available to all.

In either of these cases, if some people resist paying up, we are justified in calling them greedy. But we aren't calling them greedy for keeping the money they've earned. We're calling them greedy for either taking more than they've earned or for being, essentially, freeloaders.

The disagreement between people on the right like Sowell and people on the left (like, say, Bernie Sanders) isn't about whether it is greedy for people to keep what is rightfully theirs. The disagreement lies elsewhere. It's about where and whether exploitation is going on, where and whether some people have come to enjoy an unfair share of the common resources of the planet, and where and whether people are benefiting from public goods without doing their fair share to maintain them.

So let's honestly debate those issues, rather than hide behind straw men. We all agree that it's not greedy to keep what you've earned. But when have people rightly earned the money in their bank accounts? And when they haven't done so, what is the best public policy response?