Capitalism and Socialism

October 1, 2010

capitalism-1 Why is socialism a swear word in the States? It’s silly! Socialism-Capitalism is a scale of politic views on the degree of government involvement to close society gaps. An extreme capitalism is Somalia – no government at all. An extreme Socialism is not practically possible, but basically something more extreme than communism where everyone earn exactly the same without depending on how much they’ve worked. When the worker can earn good money by doing nothing, he will work less, and where the investor will be heavily taxed he will invest less. Thus socialism is bad for economic growth. Basically, the more equally you try to cut the cake, the smaller the cake becomes. However, no, or very little, socialism creates a society where the rich oppress the poor. Basically what we had in the 19th century before democracy kicked in.

Some degree of Socialism is always needed to:

A) Provide the public goods that can’t be provided by anyone else because it has to be for free by definition (police, army, roads, courts of law, public parks),
B) Get involved where the “invisible hand” fails. Where the market forces can’t achieve full parretto efficiency (natural monopolies, external negative effects, etc) and prevent tendencies to abuse of power by corporations that are achieved due to economies of scale.
C) Prevent inflation and unemployment by fiscal and monetary policies (After the depression of 1929, J.M. Keynes proved that only a government has the power to prevent unemployment through correct fiscal and monetary means – the invisible hand doesn’t work at those macroeconomic levels).
D) Provide services that morally should be given to all citizens (education and health care – yes Americans you heard me).
E) Make sure that people who can’t provide for themselves will be taken care of.

In order to do all this, the government has to charge taxes – which will bring a negative impact on the market. When the seller and the buyer see different prices – even if theoretically the buyer gets all of the taxes as a cash present from the government – welfare is lost. Government involvement – any government involvement – will have a negative impact on the economic growth of a country. On the other hand, no government involvement will bring a society where the rich oppress the poor, as we had in the 19th century with 12-hour working days in slavery conditions in the factories.

The question, around which those who call themselves capitalists and those who call themselves socialists are divided is:

A) How much public goods should the citizens get for free?
B) How much should the government legislate over the corporations and when does it need to prevent and forbid unethical behavior, cartel formations and abuse of power?
C) Should the government be involved in setting a foreign currency rate or not? Should it employ fiscal policy that ensures employment but cause inflation, or should it prevent inflation by increasing unemployment? To what price should the government fight unemployment? Should the fiscal policy allow large ongoing public deficits or not?
D) What services must morally be given to everyone? Is it ok that people that refuse to work starve in the streets? Are everyone who starve in the street just “lazy”? Should prisoners get better health care from tax payers money than working citizens that can’t afford health care? Should high education be free, or should only rich people be allowed to study, thus increasing the gaps of the society? How much education and how much health care should the state provide? School books? Expensive transplants? Ok, I know, my personal views are starting to shine through here…
E) Who can’t work and who can? Is there a way to determine who is incapable of work and who is just lazy? How much should be given to the people that can’t work? Minimum existence needs? More? Less?

These are not easy questions. And any country can be more socialist in one issue, but more capitalistic in another.

By basic point here is this – except some fundamental extremists, everyone agree that some level of socialism is needed, and some level of capitalism is needed. The discussions are around how much.

And yes, if I was American, and economy and welfare would be the only issue at hand, I would probably vote Obama. I’d probably vote against him because of a big variety of other reasons, but if those were the only issues at stake – I think the democrats are better than the republicans.

And then the bigger question – is economic growth desirable? Of course it is – it has to grow faster than the population growth in order to sustain us. But this buy-a-lot-of-crap capitalism? Sure, I know it creates a lot of workplaces – but it also destroys our nature. To what degree is Economic growth desirable and when is it enough? Do we really need the average person to become wealthier and wealthier and buy more and more crap that he doesn’t really need?

And the last point – more free market means more free choices. More government involvement means more state deciding things for you. This is why extreme Socialism – communism – leads to dictatorship.

From tomorrow my blogs will be shorter. I promise.



  1. The problem Americans have with the word “socialism” is the fact that most of them refuse to realize the actual definition. I know for a fact it’s taught in school (a lot), but it seems to go in one ear and out the other.

    This is a hard topic. It’s a vast grey area where every individual has a different comfort zone. My own personal zone is very confused as I can see the benefits and detriments of either side. I lean to neither socialism nor capitalism because surely there is a better way, but what is it? Yes, medical care and education are basic human rights in this era of time. As is eating and shelter. But there needs to be something to make sure that people aren’t taking these humanitarian efforts in an entitled way. I have seen best case scenario of government intervention helping, and worst case of it hindering. All within my own family (aunts & uncles, even my dad).

    A huge problem is that the USA became a country separate from Britain because of excessive taxes. It’s in our hearts and minds that taxes are inherently evil and our hard-earned money is mostly wasted on excesses we never see. We see corruption in most officials and trust few to know what we should do with our money.

    Honestly, it’s all about greed and money. It starts at the top of societal levels and ends with those who have nothing. And most in the states use the extra money they get to buy crap. Useless, meaningless crap. Toys for kids and adults. Things that are completely unnecessary. The worst food on Earth, things that are completely devoid of nutrition. I could go on. But consumer debt is just as bad as the government debt and it’s just pathetic what both parties are spending money on (war anybody?).

    I have a lot more to say about this, but I’ll leave your comment section alone for now.

    • I would prefer a country that is essentially capitalistic to encourage economic growth, but that still has a “feeling of responsibility” to its citizens. That is, if a person starves to death in the street, the government has failed somehow. There should be some sort of minimum citizen wage that anyone – including people who refuse to work – should get, and it should be enough to provide people with the same basic needs that prisoners get – so that no one will be able to get a better life by going to prison. A solution could also be to make this salary depending on arriving every day to the unemployment office where a bus comes to bring them to pick vegetables, or something for a while. Until they find a real work, have them working anyway. Just an idea I heard somewhere.

      Parent leave should be state funded and it should be at least one year. And the parents should be able to decide for themselves how to divide it between maternity and paternity leave (they have that in Sweden). And the minute the parent leave is over, they should start to get a monthly “education pay” that they can either use to put the kid in a statefunded kindergarten, that always cost exactly as much as the education pay, or use the education pay to afford staying home longer with the child.

      But those are just utopian dreams I have.

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