I have noticed a consistent pattern by those socialism advocates with little to no understanding of economics attempting to explain what’s wrong with capitalism without understanding why capitalism works and other systems inevitably fail.

Why do people laud over European democratic socialist economies when they produce economies on par with those of the “poorest states” in the US. Should young people be aspiring to live like our poorest citizens? Or have young people been lied to by authors that paint socialism as Nirvana? While we may have more income and wealth inequality, our median citizen has a standard of living higher than his or her counterpart in Europe.

Some people are misled because they look at income per citizen, but income is irrelevant as the basis of comparison unless it is adjusted for the purchasing power of that income. Remember Europe adds about a 17% or VAT taxes to everything you buy, so your purchasing power right off the top takes a big hit. Once you fully adjust for the purchasing power within Europe, European democratic socialist countries like Germany have lower standards of living that US citizens in states like Mississippi (no insult to Mississippi intended).

https://mises.org/wire/if-sweden-and-germany-became-us-states-they-would-be-among-poorest-states?

Everyone is different but for me a higher standard of living is more important than one where people are equally poorer. But to each his own…

Capitalism virtually always turn out better for the majority of people compared to socialism even if it produces significant income and wealth disparities?

I wish every American understood the difference between wealth redistribution and capital liquidation… not understanding it could hurt their children and grandchildren someday in a very significant way.

Wealth redistribution vs Capital liquidation

If a country adopts a wealth redistribution plan using taxes and entitlements to accomplish that goal, it will not automatically create a problem. As long as the recipients of the entitlements invest everything they receive instead of spending it. But do they? Obviously no… so what politicians euphemistically call wealth redistribution is in fact capital liquidation. And under capital liquidation everyone… rich and poor… suffer.

When you take money from the wealthy do they generally spend a lot less, probably not. Instead they save less. If they save less and the people getting their redistributed income and wealth do not save at all, then a “nation’s aggregate capital” suffers and its this capital that works to raise everyone standard of living, not just that of the wealthy.

Example:

Imagine a business owned by a wealthy individual (call him Moneybags). Imagine this business has lots of equipment, inventory, accounts receivable, etc. All of these assets are owned by one individual. The business employs 100 people, who receive an income, but the owner pays himself or herself more than 100 times what the workers earn and owns 100% of the business, so the 1% (owner) own 100% of the wealth and gets 50% of the income of the business. Sounds like America.

So you institute a law requiring Moneybags to give up part of his wealth every year and pay more taxes on his or her income all of which will go to his workers (sounds good so far). So the owner slowly but surely loses ownership of his business which gets distributed to his workers. They take their “ownership” and they sell it to an outsider (say Mr. China). With the extra money they get selling their ownership in the business, they live at a higher standard of living. They love this new law.

Slowly but surely Mr. China owns the company, but being from another country, Mr. China does not get taxed on his ownership, so slowly but surely payments to the workers slowly decline.

Mr. China uses what he learns owning the company to set up a business in his own country and produce the same goods as his US company produces and begins to layoff workers at his US company (workers are cheaper in Mr. China’s country).

Soon the workers who for years did better under the new laws suddenly have no jobs and still have no wealth. So how were they better off long term by the law designed to make eliminate the wealth and income disparity of the original owner, Mr. Moneybags. Yes, the did take away the wealth of Mr. Moneybags and shot themselves at the same time.

This is how socialism liquidates a nations wealth rather than redistributes it. Eventually when poverty hits the nation and it will eventually. Once the wealth is drained social unrest breaks out, people cry out that the leaders they elected were greedy and corrupt (perhaps they were… seeing the end coming they took the little that was left and fled… but their greed and corruption only accelerated the demise… it did not cause it). What caused the demise was the erosion of the capital base.

Don’t let this happen in America

Socialist politicians don’t come to power promising people they will own the companies they work for someday, but won’t earn any more money… they come to power through promising better lifestyles through entitlements designed to raise their standard of living by liquidating the wealth of a nation…

So which far left progressive liberal is promising Americans that they will redistribute the wealth and income of the top 1% but requiring that wealth be kept in personal savings accounts that can’t be accessed to buy anything. I mean what’s the point of that right? But that wealth is what’s behind the nation’s jobs, spend it, and the economy collapses.

The second problem with socialism, at the same time that taxes and entitlements are liquidating the capital of a society, those same taxes are discouraging investment by outsiders. So you not only liquidate a nation’s wealth, but your tax structure generally discourages foreign investment… look at Venezuela… what foreign company is going to invest in Venezuela… they fear not only won’t they earn a profit… they won’t even get their investment back…

I will not repeat the other issues with socialism, which most people already know including the reduced incentives to work by those who keep less and less of what they earn. But if you are a socialist, then it becomes important that you insure that somehow the system you are supporting drives the necessary capital reinvestment into your economy rather than liquidate it to attract the votes needed by politicians to come to power. So far socialism is batting zero in this category when compared to capitalism and the only countries where some socialism has thrived (see my article on “sustainable socialism” is where the government has tried to be careful not to “over socialize” the economy. In other words, where enough capitalism exists to keep socialism from killing itself.