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The Monstrosity of Socialism

I've talked to many socialists and understood their points of view.

Socialism has a vastly expanding influence over younger generations in the United States. With candidates such as Bernie Sanders are widely praised and admired, many Democrats have moved further to the left, from liberalism to socialism. As a young person myself, I object to socialism, as I observe many of its impractical aspects being disastrous to a country's economy.

the-monstrosity-of-socialism

Redistribution of Wealth

I constantly hear modern socialists rejecting state socialism; however, in principle, what they advocate will also give the state more power than it currently has. For example, increasing government control over education, healthcare, and the market are done through federal student loans or free tuition, single-payer healthcare, and price control regulations. The modern socialists typically claim that they are tired of workers being exploited and that they want workers to reap the full benefits of their labor. Ironically, this is exactly what Karl Marx said about "surplus value," which describes the exploitation of laborers by capitalists.

I'm all for workers being paid well, but what about the risk incurred by the businesses? No, I'm not talking about multi-national corporations, because most businesses are small and medium enterprises (SMEs), according to the SBA, which stated that small businesses make up 99.7% of US employer firms. In the cases of SMEs, the owner has to incur massive risk, and it is evident that higher risk equals higher reward. When socialists say that the owners must share the profits with the workers, they conveniently leave out how the risk should be properly shared too. Should the businesses fail, the owners would have to incur the debts and the workers wouldn't.

Not only that, but business owners have to do more than the workers. A well-managed business is defined by many things: compliance with tax codes, well-managed cash flow, smooth business operations, etc. However, let us take one step back. Before the company was even started, the owner has to incorporate and register the business, purchase or lease the machinery and the business premises.

Then, what about shareholders? They don't do a single thing! Well, I hear you, and there is also a very good explanation for that. The answer is still about risk. Let's be honest—small shareholders don't make a lot; dividend payouts are worth only a few cents per share. Major shareholders are the Moby Dicks, they get to participate or even control a business' operations. However, to be a major shareholder, one has to sink in tens of millions of dollars into the shares of a company or a variety of it. By doing so, if anything happens to the company, some or most of their money will be lost. The money which is acquired through years of labor will be gone. Now, I'm well aware that money can be inherited; however, the money has to be acquired at some point. Even if someone got the money from their parents, their parents didn't just receive the money from the skies. Labor has to be traded in for money at some point.

Compared to the workers, shareholders and employers incur exponentially more risk through the capital invested. If you are a worker and you happen to get fired, you'd only lose a few months of income, but that's just preventing you from getting money and not losing money. On top of that, employers also do more work. It may look easy, but they have a lot on their minds.

Minimum Wages

I'm aware a minimum wage is not something that is only embraced by socialists. Democrats are very much for the raising of minimum wages, so I will write about this as well. The majority of the public believes in the minimum wage system, but I don't. Below is a list of reasons why.

Unemployment

Based on my understandings, I believe that minimum wages cause unemployment. The supply and demand model proves it since the concept of minimum wages serve as a price floor. When a price floor is set, it has to be higher than the average wages employers are already paying, if it is set below the average wages, then, it will be meaningless. By having a minimum price for labor, more people are willing to work but fewer employers are willing to hire, according to Econ101. Not only that, people working on a part-time basis will have their hours reduced as employers will seek to lower labor cost. If they want to take it one step further, they can even automate certain jobs to eliminate labor costs; for instance, by replacing people who wash dishes with automated dishwashers. They can also switch the system of the workplace to eliminate certain jobs. For example, they can change the serving system to a self-service system where people order food from the counter and take it back to their table, which can eliminate the livelihood of servers.

Raised Cost of Living

According to Fee.org, when labor costs rise due to minimum wages, employers will seek to maintain their profit margin, other than reducing cost by laying people off, they will also employ price hikes. This totally defeats the purpose of increasing their standards of living because along with the increase in income, the expenses will increase as well. This is especially true in the service industry.

Free Market

In Singapore, they do not have a minimum wage system. Yet, according to CNBC, Singapore is ranked as the world's number 1 most competitive economy. The reason is simple, the wage offered has to be agreed by both the employer and the employee before establishing employment. According to Archibiz.com, Singapore’s Ministry of Manpower stated that Singapore does not enforce a minimum wage and wages are subject to mutual agreement and negotiation between an employer and an employee.

According to Nomad Capitalist, countries without minimum wages are also prospering, this includes Sweden, Norway, Denmark, Switzerland, and Iceland, the 4th happiest country in the world.

Training

According to the Bureau of Labor Statistics of the United States, minimum wage workers tend to be young and are unlikely to be supporting a family and tend to work part-time. It is also illogical to think that the minimum wage should be able to sustain a family with 2 kids. Suppose that the cost to sustain a family of that size is $2,500 a month. Does every individual really have to be paid more than that? What a minimum wage does is decrease the amount of work to go around, and therefore, people are unable to gain experience.

It is worth noting that minimum wage jobs are often entry-level, and workers will begin to develop experience and get out of being paid the bare minimum.

There is no difference between communism and socialism, except in the means of achieving the same ultimate end: communism proposes to enslave men by force, socialism—by vote.

— Ayn Rand

Wealth Hoarding

Socialists often talk about how the rich are hoarding their money and are only spending a tiny portion of it. Spending money means recirculating the money back into the economy.

But the rich don't just hoard their money and let it hold still. They actually invest their money to generate returns so they will buy stocks and bonds. By doing this, they are financing companies to expand their operations and that stimulates the economy. The companies will spend the money to take on more projects, expand their businesses, and purchase more properties and machinery

Even if the rich do not invest their money, they will keep it in the bank. Obviously, most of the money in the banks are deposited by the rich. Thus, the money will still be loaned out by the bank to earn interest income; that is the business model of the banking industry.

Keynesian Model

Keynesian economics is very popular among people who lean left. According to Khan Academy, Keynes believed in large government spending to stimulate the aggregate demand and improve the economy. The left agrees with him on this.

Furthermore, Keynes also believed in lowering taxes to also stimulate aggregate demand. Yes, Keynes believed that lowering taxes will stimulate the economy and pull it out of a recession. At this point, the people on the left have to pick their narrative and decide whether they believe in all of what he said or none of what he said.

the-monstrosity-of-socialism

Socialism is impractical and can be refuted by basic theories of economics and finance. In summary:

  • The sharing of profit is not coupled with the sharing of risk, which violates the risk-return trade-off principle. The main thing socialists conveniently leave out is the risk taken.
  • The minimum wage model is ineffective because it causes unemployment among youths and this can be explained by the supply and demand model.
  • The rich do not hoard their money, as the monies are stored in banks which serve as financial intermediaries to link the lenders (people with money) and the borrowers (people who need money).
  • Keynes specifically said that cutting taxes and increasing government spending is necessary to stimulate the economy. The question still remains, is the left going to believe all of Keynes' theory or none of it?

Works cited

1. SBE Council, retrieved from https://sbecouncil.org/about-us/facts-and-data/

2. Econ101, retrieved from https://econ101help.com/show-in-a-supply-and-demand-diagram-how-minimum-wage-can-increase-unemployment/

3. Fee.org, retrieved from https://fee.org/articles/what-the-minimum-wage-does-to-food-prices-and-job-hiring

4. CNBC, retrieved from https://www.cnbc.com/2019/05/30/singapore-topples-us-to-become-worlds-most-competitive-economy-imd.html

5. Archibiz, retrieved from https://achibiz.com/ufaqs/is-there-a-minimum-wage-in-singapore/

6. Nomad Capitalist, retrieved from https://nomadcapitalist.com/2019/03/24/countries-no-minimum-wage/

7. Bureau Labor of Statistics, retrieved from https://www.americanexperiment.org/2018/03/earns-minimum-wage/

8. Khan Academy, retrieved from https://www.khanacademy.org/economics-finance-domain/macroeconomics/income-and-expenditure-topic/macroeconomics-keynesian-economics-and-its-critiques/a/aggregate-demand-in-keynesian-analysis-cnx

© 2019 Godwin Light

Comments

Godwin Light (author) from Malaysia on July 12, 2019:

To

WBA: I'm glad that we see eye to eye on this!

T: Thank you for introducing me to his works!

The Logician from now on on July 10, 2019:

Godwin, WBA is a wise man you want to follow, i have followed him a long time!

wba108@yahoo.com from upstate, NY on July 10, 2019:

U speak the absolute truth, the free market beats any government contrived scheme! The thing about free markets is that they're free and individuals need to be free for an economy to work.

You have to reward risks for people to take them, thats human nature!

Godwin Light (author) from Malaysia on July 04, 2019:

Thank you, James! I love your work as well!

James A Watkins from Chicago on July 02, 2019:

Brilliant article! I agree wholeheartedly with every word you wrote. Well done. Thank you for a good read, full of wisdom. Consider me a fan.

Godwin Light (author) from Malaysia on July 01, 2019:

Thank you, Mike. There's nothing more reassuring to me than someone like yourself coming out to present the truth. Please continue to do so, you're doing the people a big favor!

Readmikenow on July 01, 2019:

Goodwin, an excellent article. I had relatives that lived under the USSR. I have heard many stories. What socialism promises, and what it delivers, is far different. In a capitalistic society, such as ours, legal immigrants like my family can come and do great things for themselves. Most people in the United States don't seem to understand or appreciate the opportunities available to them It stuns me. Enjoyed reading this article.

Godwin Light (author) from Malaysia on July 01, 2019:

Yup, that's right Brad. I don't agree with raising tax rates; However, what I do agree with is closing tax loopholes. Another thing is investment is definitely close to gambling. In Malaysia, where I'm from, capital gains from shares are not taxed. This is because our inland revenue stated that it is speculative, when you buy a stock, you are under the mercy of the market. Finally, I also agree that there should be more deductibles for the middle class.

Brad on June 30, 2019:

Godwin

Another well done researched article.

I would like to comment on the following section.

" Major shareholders are the Moby Dicks, they get to participate or even control a business' operations. However, to be a major shareholder, one has to sink in tens of millions of dollars into the shares of a company or a variety of it. By doing so, if anything happens to the company, some or most of their money will be lost. The money which is acquired through years of labor will be gone."

In the US there are tax benefits in Stocks that allow the rich to pay 20% tax rate. This is beneficial compared to high income from none stock income because of the high marginal tax rate. This marginal tax rate went as high as 90% many years ago. It was an attempt to tax the rich more than the middle class.

But what is missing to the middle class is the eligibility to use many tax deductions, credits, deferment and other tax relief. The 1986 Tax Reform Act took away two of the few tax deductions available to the middle class.

The rich have hundreds in the Internal Revenue Code.

I have already gone too long in my comment, but my point is that investing is gambling and there is a risk, but it is also the best way to avoid heavy taxes. And even if the high income is not from investing, the rich can still avoid a lot of taxes.

Sorry it was too long.

Godwin Light (author) from Malaysia on June 30, 2019:

Thank you, Paula! Your comments never fail to exert positive vibes. I'm sure people around you are exhilarated by your presence and energy!

Suzie from Carson City on June 30, 2019:

Godman. You are a welcome breath of fresh air within our writing community. It's clear you are and have been quite the "Honor Student!" I'm sure your parents are quite proud of you and you can certainly be proud of yourself. You remind of my own amazing sons. :)

Please keep your positive, attitude and thirst for wisdom. Sharing what you have learned and what you believe is a generous gift to your fellow-man.

You are headed for an incredibly successful life and lucrative future, young man!

The Logician from now on on June 30, 2019:

Well Guzman, i suppose raising the minimum wage to levels that cause more unemployment will keep half or more of the United States workforce making a wage though a little more than $30,000 or less a year, more importantly, a wage that keeps them from bettering themselves and getting jobs that have no maximum limit!

Actually leaving the minimum wage to be determined by competition and supply and demand, not arbitrary government policy motivated to get votes is the best thing we can do to encourage workers to better their own lives, encouraging ambition, initiative and self worth.

Minimum wage jobs were never meant to provide a living wage, at some point raising it kills ambition, initiative and self betterment, it creates a poor underclass.

Godwin Light (author) from Malaysia on June 30, 2019:

Well Angel, first of all, I think it is self-explanatory that low wages is better than no wages (as evidenced by the unemployment). Second of all, minimum wages will largely work on teenagers like I have explained, according to the Bureau of Labor Statistics. Thirdly, according to Career Addict, Switzerland, Iceland, Denmark, and Norway are in the list of top 10 countries with highest average income despite having no minimum wage laws. Another one is a news from Malaysia which is where I am from, recently this year, Malaysia has increased the minimum wage from RM 920 to around 1100, however, the wages in Malaysia has reached a new low that people from Indonesia and Vietnam no longer wants to work here. I think this shows the ineffectiveness of minimum wages at lifting poverty.

Other than that, I'm not familiar with the statistic you're citing but does it also include part-time workers? If so, it would make sense.

Best regards, Godwin

Angel Guzman from Joliet, Illinois on June 29, 2019:

Well Godwin I appreciate your passion but sadly half or more of the United States workforce makes $30,000 or less a year. Thats the reason more and more people are strongly in favor of increased wages. If you study the parties you will see the special interests of both. While full fledged socialism isn't the answer checks and balances are needed to rein in the abuses of corporations.

Godwin Light (author) from Malaysia on June 29, 2019:

Thank you! This comment really drives me to do better

The Logician from now on on June 29, 2019:

Excellent article!

“countries without minimum wages are also prospering, this includes Sweden, Norway, Denmark, Switzerland, and Iceland, the 4th happiest country in the world.”

“How can that be?” says liberal logic. DUH

You have a passion for the truth, don’t lose it!

Godwin Light (author) from Malaysia on June 27, 2019:

Thank you so much, sir. I appreciate the feedback!

Jack Lee from Yorktown NY on June 27, 2019:

Very nice article. A couple of minor suggestions.

In the first paragraph, it should be “I object to socialism...”

The word “Funnily”, is not commonly used. Perhaps a different adjective will be better for most readers.

Finally, I think a summary paragraph is needed. Just a few sentences to wrap things up to give the readers a sense of finality.

Godwin Light (author) from Malaysia on June 27, 2019:

Thank you, sir. I appreciate the comment!

Wesman Todd Shaw from Kaufman, Texas on June 27, 2019:

Thanks very much for publishing on this very important matter. I hope that you will continue to do so. There's nothing here I could possibly disagree with at all.

No way I'll ever vote for a democrat. Not in this lifetime, or the next.

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