US Politics Mega-thread - Page 3584

On April 11 2016 14:25 FiWiFaKi wrote:


And any form of socialism is bad because communism failed in the USSR /sarcasm.

It's about execution, and I think it could be done in a way to benefit the welfare of society. My perspective is a bit of a utopian one, and thus it'd have be carefully planned and done in a fair and unbiased way. Of course if we just changed to it overnight and delegated the power to some random people there would likely be issues. That isn't to say something like this can't work.

Assume that an individual, Clem, is a member of a socialist commune. Assume that there are 1,000 members of the commune and that the output is divided equally among the members. (For the sake of simplicity we will ignore matters such as capital investment.) Let’s say that the production of the commune totals 100,000 bushels of wheat a year, or an average of 100 bushels per member. At a price of, say, $5.00 per bushel total receipts for the commune are $500,000, or $500 per member. The question is: How is Clem likely to behave? Will he work hard? Will he shirk?

Let’s assume that Clem is both naturally industrious and socially conscientious. He is concerned about the overall good of the commune. As a result, Clem works very hard and increases his production from 100 to 150 bushels of wheat a year. This increases the annual output of the commune from 100,000 to 100,050 bushels. At $5.00 per bushel the income of the commune increases from $500,000 to $500,250. Since total income is divided equally among the members, the income of each member rises from $500 to $500.25 a year. Thus, because of his extra work Clem’s production increased 50 per cent. But his income increased by a mere 25C or by 0.05 per cent. Moreover, the income of the other 999 members also increased by 25c even though they did not work any harder and their productivity did not increase.

Clearly, Clem’s activities benefited everyone in the commune except himself Everyone else had his income increase without increasing his work. But Clem’s income increased only 25c despite increasing his work load by 50 per cent. While the benefits of the extra production were diffused throughout the commune, the costs were concentrated on Clem. Given the distributional policies of the socialist commune it is clear that Clem’s decision to increase his work was “irrational,” and it is highly unlikely that he would continue his Stakhanovite exertions, thereby subjecting himself to continued exploitation by the other members of the commune. In short, the distributional policies of socialism penalize industrious behavior.

Deeper insight into socialist incentives can be obtained by looking at the situation from a different angle. Assume that the conditions of the commune are the same as described above. But now assume that instead of increasing his production Clem begins to slough off, to shirk. Assume that he cuts his production from the aver age of 100 bushels a year to only 50. What are the effects? The total output of the commune drops from 100,000 bushels to 99,950 bushels. Its total receipts therefore fall from $500,000 to $499,750. As a result each member’s income declines by 25c, from $500 to $499.75. Yet, they have not, we are assuming, reduced their work loads. Clem’s income is also reduced 25C. But he has cut his work load in half. This is a great deal for Clem! He has obtained a 50 per cent increase in leisure at a cost to himself of only 25c, or a 0.05 per cent reduction in income. In short, since the cost of Clem’s shirking is diffused among all the members of the commune while the benefits are channeled to Clem, socialism crates a strong incentive to shirk. The problem, of course, is that there is no mason why this is limited to Clem. It applies with equal force to all members of the commune. But if all members shirk, little or nothing will be produced and the commune will quickly find itself in dire straits.

The basic problem of socialism is the imbalance or asymmetry it creates between costs and benefits. At times the costs are diffused throughout the entire community while the benefits are concentrated on one or a few members. At other times it is the costs that are concentrated while the benefits are diffused. The result is that socialism, by its very nature, rewards sloth and indolence and penalizes diligence and hard work. It therefoR establishes incentives that are incompatible with its self-proclaimed goal of material prosperity. The inherent di lemma of socialism is that individuals who respond “rationally” to the incentives confronting them will produce results that are “irrational” for the community as a whole.

The Solution

The solution to the dilemma of socialist incentives lies in what economists call “internalizing the externalities,” i.e., making sure that both the costs and benefits of individual actions are borne by the individual and do not spill onto “society” as a whole. There are two distinct methods by which this can be accomplished: private property or coercion.

Assume that instead of living in a commune Clem lives in a market society and owns his own farm. If Clem would increase his production, just as he did in the commune, from 100 to 150 bushels, he would receive the full benefit of the additional output. The result, again assuming $5 per bushel, is that Clem’s income would increase not by a mere 25C but by $250, going from $500 to $750 per year. Conversely, by reducing his production from 100 to only 50 bushels, Clem’s income would fall not by 25C but by $250, dropping from $500 per year to only $250. Thus, private property automatically “internalizes the externalities,” i.e., it channels both the costs and the benefits of each individual’s actions onto that particular individual. In doing so it creates incentives that automatically penalize indolence and reward hard work and productivity. These are the exact opposite of the incentives generated by socialism.

To permit private property would be to acknowledge the failure of socialism. As a result, socialist systems have allowed private property only grudgingly and on a very restricted basis. Rather than admit failure socialists have usually opted for the other means to internalize externalities: coercion. To counteract the incentive to shirk, the socialist rulers can establish production quotas for Clem and the other members of the commune and then threaten them with penalties for failure to meet the quotas. Since coercion will stimulate production only if the penalties are severe enough to counteract the incentive to shirk, socialism must reduce the population to virtual slavery. But even if coercion does stimulate production the increase will be far less than under private property. Since it insures that each producer will receive the total value of his production, private property pro vides the incentive to maximize production. Coercion, on the other hand, is only able to establish the incentive to produce the minimum required to avoid punishment. It is no accident that socialism ends up enslaving its workers. Nor is it an accident that free men have always been more productive than slaves.
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