The Case of Pure Socialism
In Part I of this essay, I tried to make the case that I do not deserve the standard of living I currently enjoy, particularly compared to the woman, Bianca, who shined my shoes the other day. Yes, I have more marketable skills than she has, but as I wrote before, that does not mean I deserve a higher standard of living in any fundamental sense. So a legitimate argument can be made that even though I pay a substantial amount of tax on my income and Bianca almost surely receives some benefits from government programs, a substantially higher tax can be justified on grounds of justice.
In this part of this socialist thought-experiment, I ask whether Bianca would prefer to live in that world of pure socialism, a world where government equalizes all incomes. Such a world persisted for decades on particular kibbutzim in Israel, for example. It is certainly feasible. How might it work out on a larger scale?
And yes, I realize that the case of pure socialism is something of a straw man. In the next part of this series I’ll look at the case for simply more redistribution than we have now. But a look at pure socialism on both practical and what I would call spiritual grounds is still illuminating.
GDP in the US is currently about $21 trillion. There are about 250 million Americans over the age of 18. So that’s about $84,000 per adult. How about a system that gives $84,000 to every adult over the age of 18? Earn above $84,000 and you pay a tax of 100%. Earn less than $84,000 and you get a check to make up the difference. Bianca and I would be on the same footing. Bianca currently makes something on the order of $30–40,000. Pure socialism would roughly double her standard of living. One might suppose Bianca might prefer that world to the one we live in and I would prefer not to go there. But maybe it is a little more complicated.
Full equality simply wouldn’t work very well. If you earn $80,000 you’d get a check for $4,000. If you earn $14,000 (roughly the Federal minimum wage for full-time work) you’d get a check for $70,000. And if you don’t work at all, you’d get a check for $84,000. Some people love what they do or feel some kind of calling to their work and those people might keep doing what they’re doing. But some people will stop working and enjoy the same consumption as someone working two or three jobs to make $50,000.
A policy that equalizes income at $84,000 isn’t a safety net. It’s a safety hammock. Some people would choose to relax in it.
So GDP isn’t going to stay at $21 trillion. Even if everyone currently earning less than $84,000 stopped working entirely, GDP wouldn’t fall by half because the top half of the income distribution produces more than half of the output. But GDP would almost certainly fall.
Another problem is that the people currently earning more than $84,000 would work a lot less as well, knowing that any income over $84,000 would go to someone else. So the standard of living wouldn’t be sustainable at $84,000. It would be something less and whatever that lower number is, it probably wouldn’t grow much over time — the incentive to invest and innovate would be smaller. Not a zero rate of growth — as before, money isn’t the only motivator. A lot of people would still try to create new things. But presumably the growth rate would fall fairly dramatically.
There’s a subtler impact that isn’t so easy to see that would make this system of equalizing incomes especially challenging. This kind of extreme redistribution destroys the role wages play in signaling what skills are valuable to acquire and invest in. If everyone earns the same amount after tax, you don’t care what your market wage is. So wages won’t motivate you to do something unpleasant or something that takes skills that can only be acquired over a long period of time. Why would anyone want to wash dishes or cut lawns on hot days or work at a garbage dump? Or do anything that is dangerous? Better to stay home and collect your check, whatever it is. For argument’s sake, let’s assume that number isn’t $84,000 but $50,000.
That’s what everyone earns, even people with skills that require a relatively long-time to acquire. If you want to be a doctor, the good news is that you’ll make $50,000 while you’re in medical school. The bad news is that you’ll make $50,000 when you’re out of medical school. So the incentive to work hard and master the material is only the satisfaction that comes from the pleasure of learning and the pleasure of healing other people. That’s not a zero-incentive, but I suspect people would be a lot less driven.
We’d certainly have a much lower standard of living. We wouldn’t have as much production simply because people wouldn’t be working as hard. But there is a bigger problem and that is the assignment of people to tasks. I think Lebron James would have made a fabulous ballet dancer. He chose basketball instead. Part of it is that he may have decided that basketball would end up paying him more money. But that can’t be the whole reason. Part of it is that he loved basketball. He may even have liked ballet. But he loved basketball. So it’s easily possible that even if ballet paid more than basketball, he’d have chosen basketball.
That’s OK. It would be foolish to always take the job that pays the most money — that ignores the non-monetary costs and benefits that come with any job. So if Lebron James could have made more money in ballet, but loved basketball enough to choose it anyway, then he is actually richer as a basketball player, properly defined where “rich” includes not just monetary payments but non-monetary rewards and costs.
The fact that basketball actually pays more than ballet is not irrelevant. The dramatically higher salary of an NBA star relative to ballet is telling Lebron that he is much more valuable as a basketball player than a ballet dancer. That dramatically higher salary is telling Lebron that a lot more people are willing to pay a lot more money to see him dance with a basketball than to dance with a ballerina.
The money is telling him something. It’s not telling him he has to be a basketball player. But it tells him something about what it costs him to be a ballet dancer. It’s pushing him toward basketball.
That’s what salaries do in a market economy. They send us signals. The signals are sometimes distorted — they can ignore costs and push us to do something tawdry but financially pleasant. They can understate what the full impact of something is. Hard as it is to believe, many people are able to enjoy Lebron James without buying tickets to Lakers games or buying his jersey or watching him on television. You can actually make the case he’s underpaid. But ignore that. The point is that salaries and prices more generally are imperfect. But they’re not irrelevant.
When you go to a world of complete equality, salaries play no role in assigning people to tasks. That task has to be performed by some other mechanism, usually the State, which means that a bunch of people with little or no skin in the game have the job of figuring out who should do what. That isn’t going to turn out very well. It certainly didn’t work well in the Soviet Union where the workers in the workers’ paradise had an informal motto: we pretend to work and they pretend to pay us.
So pure socialism doesn’t work very well in the sense that I don’t think Bianca would be better off in that world in the sense of material well-being. This is essentially Rawls’s criterion for redistribution — we should maximize the well-being of the poorest member of society. Bianca’s not the poorest but the point is similar. I think Bianca would have a lower standard of living and her children would have less of a chance to flourish — the world would be a more static place. And by a lower standard of living, I don’t mean just a little lower. Without incentives and the informational content of wages, we couldn’t achieve anything like a modern standard of living for 330 million people. We’d be much much poorer in material ways with consequences for non-material aspects of our life like health.
So while my standard of living may be unjust and undeserved, fixing that is so costly that even Bianca would prefer the current world we live in. Is that too easy an answer? A little. I’ll take up a harder case in the next part of this series.
And maybe Bianca cares a lot about her relative standing and not just how she is doing in an absolute sense. She might prefer a world with more equality even though it has a lower standard of living and less innovation. The shoes she’d be shining would belong to people who are a lot more like her in lifestyle.
It’s possible. But I would suggest that there are a lot of people who feel otherwise. The guards in Cuba face south. They fight to keep Cubans from fleeing a somewhat egalitarian society heading to one with a lot more inequality. They don’t have to ward off Americans trying to come to the socialist more egalitarian paradise of Cuba. Many people prefer the chance to rise for themselves and their children to a more static more egalitarian world.
There is an exception to the unattractiveness of pure socialism— the family. In a loving functional family it really is from each according to his ability, to each according his need. Wages and prices aren’t used to allocate goods and services among the children. Goods and services are instead allocated by fiat, by command and control from the top down by the parents. I think that works a lot better than the price system in that setting. Why? Because love and information work together in a way they can’t in a larger modern setting.
Hayek saw the egalitarianism of our family or tribe as the underlying cause of the attraction of socialism:
Part of our present difficulty is that we must constantly adjust our lives, our thoughts and our emotions, in order to live simultaneously within the different kinds of orders according to different rules. If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e. of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilisation), as our instincts and sentimental yearnings often make us wish to do, we would destroy it. Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of world at once.
I think Hayek is right about why we find socialism appealing and why that appeal should be opposed. On the latter point, a world of pure socialism requires the concentration of power in the hands of the State and that system doesn’t have a good track record.
But I do want to give pure socialism one last chance. Isn’t it at least an ideal we should strive for? Shouldn’t we try to move toward a world where people wouldn’t need monetary incentives to work hard, to take on difficult tasks, to serve each other? Does the unattractiveness of pure socialism end the conversation?
Let’s look at an example that came up in an EconTalk episode with James Otteson, and that is the camping trip story of G.A. Cohen. Cohen describes it in an article and in his book, Why Not Socialism. Cohen imagines a small society in size somewhere between the family and the kibbutz:
You and I and a whole bunch of other people go on a camping trip. There is no hierarchy among us; our common aim is that each of us should have a good time, doing, so far as possible, the things that he or she likes best (some of those things we do together, others we do separately).We have facilities with which to carry out our enterprise: we have, for example, pots and pans, oil, coffee, fishing rods, canoes, a soccer ball, decks of cards, and so forth. And, as is usual on camping trips, we avail ourselves of those facilities collectively: even if they are privately owned things, they are under collective control for the duration of the trip, and we have shared understandings about who is going to use them when, and under what circumstances, and why. Somebody fishes, somebody else prepares the food, and another person cooks it. People who hate cooking but enjoy washing up may do all the washing up, and so on. There are plenty of differences, but our mutual understandings, and the spirit of the enterprise, ensure that there are no inequalities to which anyone could mount a principled objection.
He then contrasts the trip with organizing a camping trip on capitalist principles. The good fisherman demands a bigger share of the catch, someone who knows of a good supply of water near the campground because his father had been there before, tries to profit from that knowledge, and so on. Cohen argues persuasively that there is no justice in these capitalism outcomes and that the price system has costs relative to the caring cooperation that is achieved on a camping trip.
Cohen concedes that modern society isn’t quite like a camping trip. But he argues that the cooperation and community that exist on a good camping trip are things we should strive for in the wider society, Hayek’s macro-cosmos:
Any attempt to realise the socialist ideal runs up against entrenched capitalist power and individual human selfishness. Politically serious people must take those obstacles seriously. But they are not reasons to disparage the ideal itself. I agree with Albert Einstein that socialism is humanity’s attempt “to overcome and advance beyond the predatory phase of human development”. Our attempt to get beyond predation has thus far failed. I do not think the right conclusion is to give up.
I think you have to take Cohen’s vision seriously. But I don’t think it’s much of an ideal. I think Einstein’s wrong. I don’t think we live in the “predatory phase of human development.” Some of you reading this will have had enough and will be happy to go on to Part III once it is written. But for those with the stomach to continue, I think it’s important to articulate why the camping trip is not the ideal, especially in the world we live in today, where an increasing number of people seem interested in socialism and are vilifying capitalism and markets.
- A camping trip is a one-time thing — it misses the dynamism of a market system, a dynamism that has relentlessly lifted people out of poverty over the last two centuries in a way that would be hard to achieve through a socialist system. People see the world as a zero-sum game. Charging for access to water on the camping trip means one persons gets a bigger slice of the pie and another’s is smaller. But under capitalism, the pie keeps getting bigger. Growth is powerful.
- A camping trip is self-selected — people who already care about each other — a camping trip among strangers would be very challenging. That’s the ideal Cohen is urging us toward — camping with strangers. A camping trip doesn’t work with 10,000 people let alone 100 million. It’s not just that we’re strangers — the information problem becomes overwhelming. How can we possibly begin to figure out how each person’s skills can work together with the skills of others to create a productive society where people enjoy or tolerate what they do with their working time? On top of that, the caring problem is insurmountable as well: human being can’t care about even a thousand people as individual human beings. Human nature was designed for camping trips, not modern economies.
- Einstein is wrong. The current system isn’t predatory unless government grants monopoly power to a favored player or takes my money and gives it to a crony of the politicians. Most of the people who make large sums of money under markets do that by creating something that pleases people more than the alternative. As John Papola and I write in Fight of the Century: Give us a chance so we can discover/the most valuable ways to serve one another. Steve Jobs wasn’t a predator. Lebron James isn’t a predator. There are some predators on Wall Street, sure. They’re not capitalists. They’re socialists bailed out from the consequences of their choices using my money against my will.
- Under capitalism, most people have enough leisure to take a camping trip using the camping tools and outdoor wear produced by the innovations stimulated by the profit motive. You are free to cooperate in a socialist way voluntarily rather than being forced to cooperate at the point of a gun.
Having said all that, I think there are ideals in Cohen’s piece worth striving toward. I’ll talk about those in the next part of this series along with the case for more distribution short of pure socialism.