The Case For Free Immigration – Part I

This is the first of a three part series. Parts II and III.

Immigration is a hot topic. In virtually every newspaper everyday there is at least one article relating in some way to immigration. People’s emotions on this topic run very high. It’s strange that even though people argue about immigration, they all seem to be on the same side. It seems to me that free immigration is one of the few topics in which both left and right can unite to denounce. Why the backlash against immigration? I feel a lot of people react emotionally to the issue and never bother to really analyze its consequences.

This is a big topic and there is much to say on it. I will break the argument down into three parts. The first part, this one, examines the economic case for free immigration. I will identify some examples of why economic analysis tells us that immigration should be free. This is not meant to be a comprehensive answer. If I were to thoroughly explain all the economic ramifications of free immigration vs. restricted immigration, it would literally take a book. This is meant to give a general idea of the economic case for free immigration and I hope the discussion can be continued through questions, comments and challenges. But I assure you, the economic case for free immigration is formidable.

The second and third part of the argument for free immigration will deal with liberty and what I call “soul”.

There are many definitions of efficiency, and all of them lead to the conclusion that the best economic policy is free immigration. The first aspect of efficiency we’ll look at is the intersection of marginal social benefit and marginal social cost. Efficiency is measured by comparing marginal social benefit (MSB) with marginal social cost (MSC). When the two are equal, we have achieved efficiency. As long as MSB exceeds MSC, the action in question should continue, whether it’s buying pizza or letting immigrants into a country.

In other words, as long as the benefit we get from an action is greater than the cost we suffer, we should go ahead and do it. Think of eating pizza. If you’re really hungry, you will really value a piece of pizza. The benefit to you of eating that piece will greatly exceed the cost of, say, $3. Once you’ve eaten your first piece, you’re not quite has hungry as before. You’re still hungry, and hungry enough to pay $3 for a piece of pizza, but if that second piece of pizza cost $5, you might not eat it. Once you have enough pizza that you’re full enough that you no longer want pizza and would rather save your $3 for something else, the benefit of eating pizza is less than the cost of $3. The last piece of pizza you will eat is the one that gives you only $3 worth of benefit. At this point, the marginal benefit of eating pizza equals the marginal cost of eating pizza. If you ate any more pizza, its value wouldn’t equal the value of the money you’d have to spend to get it.

This example works for immigration too, as we’ll see.

So, when MSB equals MSC, the action in question should be stopped, or rather, it will stop - all on its own. The question then becomes how do we measure MSB and MSC? And whom do we ask? Well, we measure by asking people. In economics, there is positive economics and normative economics.

Positive economics is simply fact, something that shows a definite cause/effect and can be proven. For example, to say that when the price goes up quantity demanded goes down would be positive economics. Normative economics is what we think should happen, but is ultimately only opinion. An example would be someone saying something like, “The government should provide healthcare because it’s wrong that some people can’t afford it.”

So in order to measure if the marginal social benefit of immigration exceeds the marginal social cost of immigration, we need to ask people how they feel about it. Some claim a normative judgment is required because at some point we have to decide to not include some people. In other words, we have to make a conscious decision to exclude some people.

But as any statistician will tell you, the larger your sample size, the more accurate your result. Also, when collecting data, it is imperative that the sample be as random as possible. For example, if you ask 100 baseball fans whether baseball should be eliminated, it is pretty easy to guess what their answer would be and their response would not accurately reflect the opinion of the population at large.

Immigration is no different. If we want people’s views on immigration, to decide if immigration would make them better or worse off, in order to create immigration policy, it would make no sense to ask only those people in a high-wage area; we would know what the answer would be and it would not accurately reflect the view of the population at large. If we do not accurately reflect the larger population, our conclusions about where MSB equals MSC would be incorrect. If it’s efficiency we are striving for, it is essential that we can accurately measure MSB and MSC.

Also, immigration, by definition, affects at least two countries. Therefore, we need to collect data from at least two countries; but which two? If we are interested in the United States, we would collect data from the United States (even though we probably already know that outcome) and which other country? Mexico? But what about all the other countries that have people who wish to immigrate here? If we collect data from Mexico, it is probably a safe bet that the results will be the opposite of what we found in the United States (a high wage country vs. a low wage country).

So now if we want to accurately capture MSB and MSC, we are back to square one. We have two sets of conflicting data. Which one is true? Which one do we follow? Well, probably neither set of results is true and it would be unwise to create policy based on either one. Therefore, we must include a third country. Indeed, we would not be finished; we would not have an accurate feel for MSB and MSC until all countries are included. Including everybody is the only scientific approach. It is the only approach where a normative judgment is not required and it is the only approach where we can trust our results will be accurate.

There is another way to measure MSB and MSC: remove immigration restrictions. Immigration will flow until naturally MSB and MSC intersect. We will know that MSB exceeds MSC as long as we have immigration. Once we achieve efficiency, immigration will naturally stop, without any type of governmental coercion or intervention. The simple fact that there are many people in this world that wish to immigrate tells us that, for them, the marginal benefit of doing so exceeds the marginal cost. The second aspect of efficiency comes in here: immigration restrictions prevent resources (labor) from flowing to their most highly valued use.

In our example of marginal social cost and marginal social benefit above, we used pizza to illustrate the idea. You would eat pizza until the benefit of doing so equaled the cost. What if you ate that next piece? Well, for one, you would be spending your $3 on something that you don’t truly value. In other words, you would rather spend your $3 on something else, so to spend it on pizza would be silly. If there is something that you value more highly than pizza that you could get for your $3, you should spend your money on that which gives you the most benefit. You’re in effect wasting your money by buying pizza you don’t truly value. Not only do you get something you don’t truly value, you don’t get something you actually do value. This is clearly a waste of resources.

Also, by buying that next piece of pizza, that means that pizza is no longer there for somebody else to eat. Perhaps they value that pizza a lot more than you do and would be willing to pay $10 for it. But they can’t because you already ate it. That pizza would have been put to better use if it had been consumed by someone who truly valued it, just as your money would have been put to better use if you had used it to buy something you truly valued.

It’s this idea that is behind immigration. If there is pressure for immigration, it means that resources (labor) are trying to move to their most highly valued use. To restrict immigration means we are wasting resources by paying for labor that we don’t value as highly as other labor. Our social welfare (well-being) and the value we get for our money would be better served if that money was spent on something we truly value – more effective and cheaper labor.

Similarly, those laborers who are prevented from moving where they desire are having their labor wasted. It could be more valuable somewhere else. They could get more bang for their labor buck if they were allowed to emigrate to where their labor is more highly valued. Immigration restrictions are a blatant, artificial means of preventing resources to naturally flow to their most valued use.

To the classical liberal, government should have no role beyond protecting its citizens from harm. Traditionally, this has often been an argument for immigration restrictions. Immigration is harmful; therefore government has a duty to regulate it. Really? Who, may I ask, is being harmed? The typical answer is that the American worker is being harmed because he can’t find a job because his job has been taken by an immigrant; or similarly, that his wage would be depressed because immigrants work cheaper.

Economically speaking, neither argument is valid. Labor is a commodity just like any other. As long as that commodity is in demand, there will be ample work opportunity for everybody, and wages will spiral upwards. When demand for labor decreases, there will be fewer jobs and wages will fall. Immigration doesn’t affect the domestic worker in either of these areas. Immigrants come to this country only as long as there is a demand for their labor; in other words, only as long as there are more jobs than workers.

If this is the case the domestic worker already has his job and there is still yet more work to be done. When the demand for labor decreases, as in times of recession, the immigrants do not come, and in fact go home, leaving the jobs that are left for the domestic worker. When immigration is free, supply of labor will always meet demand, just as for any other commodity. Insert government intervention into the mix and we fail to achieve efficiency.

The argument that immigrants work for cheaper is also not consistent with efficiency. Since when are we guaranteed a certain wage? Classical liberals for decades have been crying out against labor unions and minimum wage because these are impediments to the free market. They are artificially propping up a wage above the market equilibrium price. Government intervention in the form of immigration restrictions does the same thing. By restricting immigration in the name of high wages is just as offensive as labor unions and minimum wages. The market - and only the market - should set the price for commodities, including labor.

Taking all of this into account, it seems clear that restricting immigration is an unwise policy from an economic standpoint. If we are striving for efficiency – whether we define efficiency as the intersection of marginal benefit and marginal cost, the maximization of resources or the intersection of supply and demand – by restricting immigration we can virtually guarantee that none of these things happens. Any way you slice it, if sound economic policy is our goal, restricting immigration should be the last thing we do.

Why Cap-and-Trade is Economically Sound

Cap-and-Trade has gotten a lot of attention lately as it’s at the forefront in the fight against climate change. It’s unfortunate that this sound policy has been hijacked and used for political gains by liberal politicians. As a result of this, the inspiration for, and the consequences of, cap-and-trade have been greatly distorted.

In reading on the blogosphere and newspapers, it is clear that hardly anybody actually knows what cap-and-trade is all about. The conservatives bash it because it’s been put forward by the democrats, therefore it must be a damaging tax, or at the very least, some clever smoke-and-mirrors trick designed to secretly advance an extreme leftist agenda. Neither of these claims is true. The liberals shout that it is the solution to climate change and if we want to stop global warming we must implement cap-and-trade. This, also, is not true. The conservatives respond back that anything that tries to reduce human-caused global warming will do nothing but retard economic growth and needless handcuff the energy and industry sectors. This, too, is not true.

For cap-and-trade to cause all this fuss, it must be something that people have strong opinions about, one way or another. But if you actually ask most of these people point blank, “So what is cap-and-trade?”, they look at you, look at each other, blink a few times, scratch their heads and then continue screaming about why it’s good or bad. I think it’s time to bring a little clarity to issue.

It’s unfortunate that cap-and-trade has been yanked into the global warming debate. The topic of human-caused global warming instantly causes blood pressure to spike, people’s faces to turn red and steam to come out of their ears. According to some, this issue is SETTLED and has been for a long time. If you don’t believe in global warming you either have your head in the sand or are just simply stupid. For the others, the issue is very clearly NOT settled and global warming advocates simply pick and choose their data and shout down any opposition in an effort to advance their extreme leftist agenda.

In the middle of all this, somehow cap-and-trade got put front and center. That’s really quite unfortunate because how can anybody become detached enough from the global warming fiasco to objectively look at cap-and-trade? They can’t. Right out of the chute cap-and-trade isn’t getting a fair shake.

I will attempt to give it the fair shake that it deserves. In order to do that, we must divorce cap-and-trade from global warming. Cap-and-trade has absolutely nothing to do with global warming, and as such, I will drop off the global warming debate right here and continue on without it.

In analyzing cap-and-trade, we must go back and look at its inspiration. In economics, it’s generally believed that the market is pretty much on auto-pilot. It will self-correct, automatically adjusting prices to equilibrate supply and demand; it will ensure that exactly the optimal amount of any product gets produced. This is great! The market does everything for us so we can just sit back and enjoy the show right? Well, no, not exactly. The market can fail, and does fail quite often. The three main areas of market failure are monopolies, public goods and externalities.

For our purposes, this article will focus only on the last two, public goods and externalities.

What is a public good? Using economic terms now, a public good is something that is non-rival and non-excludable. A good is non-rival if one’s use of the product doesn’t diminish another’s use of the product. For example, think of a fireworks show. Just because I am viewing the show, doesn’t mean there is less of it for you to view. A good is non-excludable if it’s impossible to keep somebody from using it. Think of sunlight. Once sunlight is provided, it’s impossible to limit who gets to enjoy it. Put these together and a public good is something everybody can equally use and something that, once it’s provided for one person, it’s provided for all.

National defense is the classic example of a public good. So why would this be a market failure? The market won’t adequately furnish national defense because there is no money to be made in it. If a private company provided national defense, once it’s provided, there is no way to charge people to use it. You can not just provide national defense for only those that pay for it. Once it’s provided, it’s provided. As such, people know they will be able to enjoy its benefits without paying for it. Why pay for something when you can get it for free? In economics we call this free-rider behavior.

Because of free-rider behavior, some essential services must be provided by the government.

What is an externality? Externalities can either be positive or negative. A classic definition of an externality is an unintended, non-market interdependency. All that means is that it’s something good or bad that is not reflected in prices. For example, let’s say you love going to the symphony. You pay money every weekend to hear the symphony play. A new neighbor moves in next door who just happens to be a classical pianist and she practices every Sunday. When she plays, you can hear her music through an open window and it brings you great joy. She is in effect enhancing your life without you having to pay for it. This is a positive externality.

A negative externality is something that causes you discomfort but you are not compensated in any way for it. For example, let’s say you are hiking in the mountains to your favorite waterfall. When you get there you find that somebody has placed a billboard at the base of the waterfall advertising bottled water. That sign has caused you great heartache because it has ruined your view of the waterfall. This is a negative externality.

Since the piano player is enhancing people’s lives by her music, we would want to encourage her to play more, by perhaps paying her $20 every time she plays. This is called a subsidy. Since the person who put up the billboard caused people to become worse-off, we would want to encourage them to put up fewer billboards. Government might do this with what is called an excise tax.

The person who put the billboard up only did so because he didn’t realize the full cost of his actions. If he knew it would cause you discomfort, that it might make you so mad that you would boycott his bottled water, he wouldn’t have put it up. Are all billboards bad? Of course not! Billboards serve a vital purpose by advertising products and generating revenue for the company.

There is definitely a social benefit to having billboards. If there were no billboards, you might not know that you could drink bottled water, thinking you were forever doomed to drink out of the tap. The first few billboards that are put up provide benefits that are greater than the costs. But when so many billboards are up that they are even at the base of waterfalls, then the social cost becomes greater than the benefit. The last billboard put up made you worse off, not better off. You would have preferred if that last billboard was never put up.

Negative externalities have this effect. Because the person putting up the billboards didn’t take into account the social cost, or the non-monetary cost, of his actions, he provides too many of them. He continued to provide them when marginal social cost exceeded marginal social benefit. If there was a tax on every billboard put up, it would force him to take into consideration the extra cost (the social cost) of his actions. As such, since it costs him more money to provide each one, he will provide less.

Before the tax, the quantity supplied was more than what people would have paid for if it were up to them. After the tax, by bringing the perceived cost up to the true cost, the quantity supplied is much closer to the amount people would have paid for to be supplied. The marginal social benefit of the billboards equals the marginal social cost of them. As such, the optimal quantity is produced.

Okay, so what the heck does all this have to do with cap-and-trade?

Cap-and-trade is a way to prevent a negative externality - pollution. When companies produce, they necessarily produce pollution also. But since pollution is a negative externality, they are inflicting a cost on society that is not reflected in their costs of production. Polluting is free. It goes into the air. Since air is a public good, there is no way to stop companies from polluting into it (air is non-excludable). As such the incentive is for companies to produce as cheaply as they can, and if that requires polluting more than they otherwise would, so be it.

The reason public goods are tricky is because it’s very hard to assign property rights to them. Who owns the air? If we could solve the ownership problem, pollution would no longer be a negative externality.

Let me illustrate the importance of property rights with a classic economic example. In the old days, it used to be common for towns to have a public square. As was the custom, farmers would put their sheep in the square to graze. Since nobody owned the property, everybody who wanted to let their sheep graze there could. A problem should already be in the back of your mind. This common property provided the incentive for farmers to put as much sheep as possible into the area and to let them graze for as long as possible. As such the grass would quickly be eaten. No farmer would want to pay or take the time to plant new grass because why should he waste his energy when the grass is only going to get eaten by other people’s sheep? Property held in common encourages over-consumption. The farmers want get their sheep into the square as quickly as possible to graze before all the grass is gone. The farmer would think that if I don’t let my sheep graze there, somebody else will, so I might as well. Common property encourages over-utilization and over-consumption. Such a system is clearly not sustainable. This is known as the “Tragedy of the Commons.” (The same argument can be made for commercial fishing in the ocean. It’s in each fisherman’s interest to catch as many fish as possible as quickly as possible before they are all caught by somebody else. Is it any wonder the oceans are being over fished? All because there are no property rights).

If the town square belonged to a single property owner, he could charge to let people graze their sheep on his grass. This would provide the incentive for him to re-seed as necessary and he could charge a high enough fee to ensure only those who truly value grazing would pay enough to do so. Just by implementing property rights has an unsustainable negative turned into a wealth-creating, sustainable positive.

So, if we could come up with a way to create property rights in the air, we could solve the problem of a negative externality and a public good (we could avoid the tragedy of the commons)!

Cap-and-trade entails the government auctioning off pollution permits. Each permit could be good for 1 ton of pollution. Those companies that see polluting as a critical part of their production process would buy as many permits as they needed. Those companies that were only polluting because they could, because the air was a public good, would instantly reduce their pollution and revise their production methods to something less wasteful. It would no longer be in their interest to intentionally pollute as much as they can in order to minimize the production process.

Since pollution is a negative externality, it means that the companies are producing too much of their product. They are not taking into account the full cost of their actions. They neglect the social cost they are inflicting by polluting. Just the act of seeing or smelling smoke makes us worse off. People want to look at beautiful mountains, not ugly smoke. If the firms took into account the full cost of their actions, they would realize that they are producing more of their product than people actually want (with more production comes more pollution, and people want less pollution, not more).

Does this mean that there should be zero pollution? Not likely, for can you imagine the costs of a world without pollution?! We wouldn’t have anywhere close to the amount of products and services we have today and those that were provided would be so expensive that nobody would be able to afford them.

Clearly there is a benefit to pollution. Companies and society just must find a way to make sure that companies pollute so long as the social benefits of doing so exceed the social costs. As it is right now, because pollution is free, companies produce too much pollution, so much so that the social cost of pollution exceeds the social benefit of it. Cap-and-trade remedies this.

Cap-and-trade forces companies to internalize the full cost of their actions by making them buy a pollution permit (thus eliminating the market failure of negative externalities). It solves the tragedy of the commons problem by creating property rights in the form of permits (thus eliminating the market failure of public goods).
Companies are then free to sell permits (or the right to pollute) to other companies. This creates the incentive for firms to produce at lowest cost.

For example, suppose all firms must reduce pollution by one ton per day. Company A finds that, for it to reduce emissions by 1 ton per day, it will cost an extra $1,000. Company B, however, finds that it can meet the requirement for only $100 per day. If companies are allowed to trade the right to pollute, Company B can make a profit by offering to reduce its pollution by 2 tons per day. Since the cost of reducing one ton of pollution for B is only $100, it can reduce its pollution by 2 tons, thus meeting A’s requirement and its own, for only $200. Company A will pay company B anywhere from $201 to $999 to reduce pollution by the extra ton. This way, Company A achieves the least-cost solution, because it’s cheaper to pay company B than it is to pay to reduce emissions. Company B achieves the least-cost option and actually makes a profit by reducing its pollution by two tons. And the requirement is achieved. Pollution has been reduced at the least cost possible and the marginal social cost of pollution equals the marginal social benefit, thus ensuring that the optimal amount of pollution is produced.

Cap-and-trade is the best option for reducing pollution. Pollution exacts a cost on society but there is no way to capture that cost. With tradable pollution rights, the government is involved to the minimal amount possible (only to auction the permits and provide a basic measuring and monitoring system, for most of the measuring and monitoring will be achieved by the market itself –there is money to be made by reducing costs!).

With tradable pollution rights, economic liberty is maintained because companies can decide for themselves what is in their interest and the best way to go about it, rather than being a slave to some regulation. With tradable pollution rights we are assuring that the optimal amount of pollution is being produced, and not an ounce more, all at the least possible cost.

Cap-and-trade is indeed an economists’ solution to a tricky problem. It maintains the integrity of the free-market while avoiding the excess burden and impreciseness of a tax. Cap-and-trade is truly a winning recipe, if only people could see it for what it is.

The Dangers of Socialism

As far as I was ever concerned, an article of this type was no longer necessary. “The Dangers of Socialism?” Really? Is there anybody out there who doesn’t think socialism is dangerous? Perhaps in the 1970s or 1980s you would see an article like this, when the great ideological battle was still being waged. In the 1990s you probably definitely wouldn’t see an article like this because the dangers of socialism were still very real in many people’s minds, with the collapse being so recent.

So why an article now? I have become very disheartened by what I am reading in the newspapers and the blogosphere. It seems people have forgotten just what socialism actually is and, therefore, the dangers that come along with it. Does this view prevail because socialism has been so thoroughly defeated and it’s been 20 years since we’ve seen true socialism that people no longer see it as a real threat? Have people become so lax in our freedom that socialism actually looks like a viable alternative?

I have heard and read that socialism and democracy can exist side-by-side because socialism is an economic system, while democracy is a political system. These people say that the necessary pairing doesn’t have to be capitalism and democracy, but that we could have democracy paired with socialism, because then everybody is free, yet society is more equitable and just. I don’t buy it.

It is statements like these that illustrate just how dangerous socialism is – the danger is that people don’t perceive it’s dangerous. I’m reminded of the old quote, “The greatest trick the devil ever pulled was convincing the world he doesn’t exist.” Socialism is backwards from both an economic standpoint and a liberty standpoint. It doesn’t work economically and it doesn’t work politically. Or rather, it works much too well politically – for those in power.

Let’s start at the beginning and deconstruct socialism and its consequences. John Locke wrote that we have ultimate property in ourselves. That is, we own our own body and we have the right to protect it. Nobody can take away our property right to our own body, not other men, not society, and certainly not government. For, according to Locke, the only reason man forms government is to protect his body, his property. In the state of nature, man owns his body, and consequently, whatever he produces with his labor. For example, if he finds four apples on the ground, and he bothers to pick them up, he has mixed his labor with nature and the apples become his property. Nobody has a right to take away his apples. But man is unprotected. How can he stop another who is stronger than he from taking his apples? How can he guard against being murdered for his apples? He can’t by himself.

So, man leaves the state of nature and forms government. The government’s power comes from the people and the people give government the power to protect individuals’ property. Notice the direction of causation here. It is the people who give power to the government, not the other way around. Government has no rights of its own and it certainly cannot “grant” rights to its citizens. The right to private property, and to defend that property, is inherent - it is unalienable. It is neither granted by nor can be taken away by government.

Locke continues by saying that if anybody tries to take your property, he has declared war on you and you have the right to defend yourself and your property. Similarly, if the government tries to take your property, it has ceased being a legitimate government and the people no longer vest their power in it. If the government tries to seize your property, the people not only have right, but a duty to protect themselves and defend their property. Revolutions have been justified in such ways.

This is where we get into socialism. A socialist government has failed in two key areas. First, it is not a legitimate form of government because it fails in its most important duty – protecting private property. Second, it is exercising power that it does not have. As such, the people have no reason or obligation to follow. It quite simply lacks the authority to nationalize private property.

Putting aside the political argument for a moment, let’s look at socialism from an economic standpoint. Economically, socialism fails because it provides the wrong incentives. When the state owns the means of production, and when it sets mandates on what and how much to produce, it creates the incentive to not produce, but if you must, it creates the incentive to provide poor quality.

For example, pretend that you own a shoe factory. In capitalism, people come along and pay you for your shoes. If the quality is poor, nobody will want to buy them. If the price is too high, they will buy their shoes from the competitor down the street. Profit is directly related to quality, and as such, producers have the incentive to produce the best quality product possible, at the cheapest price possible, otherwise they won’t get any business at all. The customer is an asset. The more customers you have, the more money you make.

Contrast this with socialism. Again, pretend you have the same shoe factory. Only now, the state owns the factory and every other shoe factory. The state tells you that you must produce 1000 pairs of shoes and sell them for $10. The money from your sales doesn’t go to you, but to the state. For your efforts, the state will pay you $1,000. Now the incentive is to produce the shoes in the cheapest way possible. Quality doesn’t matter because the money you receive for producing is not tied to quality. The only thing that stops you from collecting your $1,000 is if you don’t produce 1,000 shoes. Thus the incentive is to use the cheapest materials and methods possible in order to maximize your profit. If you produce 1,000 shoes for $600, then you take home $400. If you spend $1,000 producing shoes, you take home nothing. Why would any person spend the extra time and effort to produce a quality shoe when it will actually cause them to lose money?

And what if 1,001 people need shoes? You were told to produce 1,000 pairs. Would you produce the next pair? No, because you wouldn’t get any extra money from it. It would actually cost you money to produce that extra shoe. In the case of socialism, the customer becomes a liability instead of an asset. The incentive is to produce to the fewest number possible in the cheapest manner possible. The result is shortages of very poor-quality products. Clearly a lose-lose situation.

Combine this with the almost comical fact that some factories produce too many shoes (there are less than 1,000 people who need them in the area). This means that in some areas there is a shortage of shoes and in other areas there is a surplus of shoes, with no mechanism for bringing the surplus to the shortage.

In capitalism, prices send signals. If there is a shortage, it means demand exceeds supply and price goes up. If the price goes up, it means money is to be made so people start producing more shoes. In an area of surplus, it means supply exceeds demand. To get rid of the excess, producers will drop the price in the hopes of selling them quickly. If demand still remains low, the producer will shut down business in that area and move to an area where he can sell his shoes for a higher price. Because of prices, the market is self correcting and those who need shoes get them.

In our example of socialism, one factory produces too many shoes and they just sit there on a shelf and collect dust. The price isn’t set by the market so there are no signals telling producers where shoes are needed most.

In capitalism, the incentives work with human nature. Capitalism uses humans’ natural self-interest to provide the best possible outcome. Socialism, on the other hand, tries to change human nature. It tries to ignore or change the fact that humans are self-interested. But remember, human nature always prevails. In both systems humans are simply following their nature and trying to earn the most money possible. In capitalism the incentives are to provide the best-quality, lowest-priced product. In socialism, the incentives are to provide the lowest-quality product without an ounce of extra energy. Socialism, from an economic standpoint, clearly fails.

Okay, so how does this tie in to socialism being dangerous? And what about that whole bit about socialism and democracy existing side-by-side?

To tie this all together, governments know that they cannot gain control if their power comes from the people. If the state owns the means of production, it owns the people. It creates the situation where people are completely dependent on government. The government can, at any time, shut down the factory, thus robbing you of your means of income - and survival. If the government controls the means of production, it controls what gets produced. Anything dangerous to the state – guns, knives, knowledge, hope – doesn’t get produced.

If your wage comes from the state, if your wage is not tied to your own performance, you have no incentive to do better. You have no incentive to seek an education or to become politically aware. Why would you waste your time and money in something that won’t provide any benefits? If the state tells you how many doctors there will be, how many trash men there will be, how many restaurant waiters there will be, how many bricklayers there will be, then what you are is your station in life. There is no reason to try to become something different. If the state sets the wage, why would anybody strive to become a doctor or a lawyer or a university professor? Why would anybody invest their time in something that is a lot of work if there is no extra reward? Again the incentive is created to do as little as possible, to find the easiest job and do the least work, because after all, the wage is the same regardless.

Socialism slowly saps people of their strength, of their hope, of their freewill. This is good for the government because a society that has no hope and no strength is easily manipulated. The society that is kept weak has no power of protest. The government ensures their continued power by keeping the population devoid of any political will. And, once socialism takes hold, successive generations are gradually indoctrinated to complete state control so that eventually the people are completely and totally dependent on the government. Even if they wanted to, even if they knew how, the people couldn’t possibly revolt and throw off their government because they would also be throwing off their very means of survival. Socialism is very good for the politicians, but very, very dangerous for the rest of us.

Are there governments out there in which it’s their explicit goal to oppress and control their population, for no other reason than to attain an ironclad grip on power? Unfortunately there are many situations like that, even in today’s world.

But perhaps more dangerous, and certainly more stealthy, is the gradual, almost unbeknownst, shift to socialism. For without doubt there are benevolent governments that are just trying to do the right thing. After all, these misguided but well-meaning politicians say, it’s the government’s responsibility to provide for the population. How can it be bad if the government ensures everybody has a job? How can it be bad if the government ensures everybody has healthcare? How can it be bad if the government ensures that everybody is able to buy a house? The government has a duty to provide these things! For we, as politicians (they may say to themselves) have a mandate! We were elected to provide people with increasing social welfare! It’s only just that everybody is equal. If only that pesky market stopped getting in the way. If only prices weren’t too high to keep essential services out of the hands of the population. If only greedy executives weren’t concerned with only their own well-being. If only…

Yes indeed the shift can be gradual, with everybody the whole time thinking they are doing the right thing. That is why socialism is dangerous. It is stealthy. It is aesthetically pleasing (if very shallow). It is in the interest of those in power. Once the interests of those in power become different from our interests, government has stopped being by the people and for the people. Democracy is the best political system in the world. It is consistent with liberty and economic principles. It most certainly is not consistent with socialism, however small the steps in that direction…