Friday, 29 December 2017

The Rapid Immiseration Of A Nation State Blighted By Socialism

A video has been doing the rounds, with the following tagline:

In just one generation, Venezuela has gone from being one of the richest countries in the world to 2nd to last, just above to North Korea. Today, people are starving and Nicolas Maduro's military and police forces are set against the civilians protesting in the streets.

How could this happen? In a word: Socialism.

Overly-simplistic? Yes! But the kernel of the point is a valid condemnation of a system of thought that has brought about mass misery every time it has been tried. This point wouldn't be so compelling were it not for the fact that currently in the UK the leader of the opposition, Jeremy Corbyn, is a vocal advocate of Venezuelan-style socialism, and wishes to impose something similar on our country. To that end, the only thing more shocking than the lack of disgust at Jeremy Corbyn and John McDonnell is the shock that so many people will give his facile and dangerous policies the time of day. Let me explain why.

One pretty normal thing about human beings is that we positively promote things that are good for us and no one bats an eyelid. Protein is good for us, as are carbohydrates, as is exercise, fresh air, happiness and security. A writer who advocates the virtues of any of those things is not likely to be heavily criticised.

Alas, humans do not always follow this consistency through; for there are some things that are really good for humans that many don't take full advantage of. Perhaps the most obvious example of this is how so many fail to value the quality of revealed preferences and the value in having freedom to make personal decisions. In fact, quite often they advocate having a state that makes those decisions on their behalf with far less knowledge than the agents in question. It is, in my submission, one of the most absurdly self-impeding things we do: it's part of the human propensity for lazy thinking and uncritical delegation - what William Blake called the 'mind-forged manacles'. 

Why socialism never works
Society is made up of billons of life choices each day, and the prices we see in the marketplace are a reflection of those choices and the value we place on things. Cars are popular among 50 year olds, whereas roller skates are not, because 50 year olds tend to prefer cars to roller skates. Beer is more popular than mint tea in a nightclub because people value beer more than mint tea when they are clubbing. These are society's revealed preferences, and prices reflect those wants and needs.

In most cases, therefore, when choice is involved, society would be better off if resources (labour, goods and services) were allocated based on individual preferences, not on top down nationalisation. Our country's defence, for example, is fine as a nationalised service, because everyone wants to feel protected from foreign attacks, and few people want to spend much time and energy choosing between different defence alternatives.

You can make a similarly good case for road maintenance and the police force. But most things we consume are not of this kind - we value the choice to spend our money on what personally benefits us, and society thrives on the basis that our choices are all different.

The Venezuelan problems, though numerous and complex, belong to what's known in economics as the economic calculation problem - which is that centrally planned economies are dangerous and inefficient because they lack reliable price signals, and therefore fail to distribute resources rationally. As has been seen in every country that has tried a state control of an economy, what it leads to is shortages, brutality, oppression, mass suffering, and ultimately total immiseration of the country. 

The main problem with command economies is that there is no rational employment of capital goods, which stifles vital information signals about how much to produce of what, who desires what, and how much they desire it. Socialism, by centralising the ownership of capital goods, necessarily skews the markets in which these goods are traded, which tramples all over evidence-based economic calculation.

With skewed markets for production, you get skewed prices, which impairs the ability to decipher which lines of production should be pursued, and for how much. That is the base reason why socialism produces material hardship and free markets produce material abundance - there is no magic overseer of markets, it is just that free exchanges in markets allow for much more information-clarity, which is what enables the right amount of stuff to be produced, for the right price, and with as few distortions as possible.

Corbyn's Labour Party, with shades of Venezuela, represents everything that is crass, foolish and dangerous about political influence in the free exchange economy. I wonder if it's too much to ask that Venezuela's calamitous retrogression will be enough to awaken the young Corbynites from the sleep of their foolishness. It is the season for miracles, after all.