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normal distribution

I posted previously about What’s Wrong With Socialism. In that post I was arguing against the ultimate socialist outcome where an entire society uses socialism as its organizing principle. We’re obviously a long way from that place. So where are we know? I think we are traveling down a slippery slope that will lead us there, possibly in my lifetime. In fact, I would argue that right now we are in a very dangerous time that has all the ingredients that were present at the start of all the great socialist experiments. We have seriously wretched worldwide economic conditions. We have nationalistic parties rallying everywhere, and we have a plurality of western populations begging for a Utopian savior. I would argue that people’s inability to make rational judgments on today’s political class is akin to religious fervor.

In the U.S. presidential race the three (arguably) most popular candidates are a communist (Bernie), a fascist (Donald), and a socialist (Hillary). All of them are promising free stuff with completely unrealistic plans for financing their little corner of Utopia. So let’s look at where we are right now and how these clowns can seek to take us further down the socialist road.

First let’s get the myth that we are a capitalist country out of the way. We have lots of programs in place that are socialist. Most of them are built on the premise of free stuff for all. Free health care, free college, free minimum wage, free alternative power, free retirement, these are all ongoing or in the works. It’s a self evident opiate to start socialism with the free stuff. Even died in the wool capitalists find free stuff to be OK as long as they get a share of it. We are well down the road already.

The problem with free stuff is that it isn’t really free, is it? Somebody has to pay for it. The best free stuff is when you get it in your left pocket without anybody fiddling around in your right pocket to pay for it. All good socialists know that you can even make the people paying for the free stuff think they aren’t by disguising where it comes from. This is why corporate taxes are so popular. This is why sales taxes, gasoline taxes, VAT taxes, transaction fees, and payrolll withholding are preferred over having taxpayers write a check each year to pay for their ‘free’ stuff.

Socialism  will always fail. It doesn’t matter how benevolent your dictator is or how compassionate it is. It fails because of the math. It fails because it corrodes the very essence of the relationship between wealth and the value that creates it.

All of these programs are wealth transfers, from those who have stuff to those who don’t, and this is where math is hard. In nature, most things we can measure have normal distributions. The height of trees, the weight of people, the speed of runners, all these things obey a normal distribution. On the extremes are exceptionally big or small things and in the middle you find the bulk of whatever it is you are measuring. Wealth is like this. Some people have a lot of it. Some not so much. Most are in the middle.

Wealth is derivative of value. That is, the higher your personal value, the higher your wealth. And, guess what, value is also a normal distribution. Famous singers have high value. Tattooed dudes with nose rings, poor hygiene, and a one hundred word vocabulary, not so much. So in a truly free market the normal curve of value can be overlain  with a normal curve of wealth. Whatever skew exists in one would be reflected in the other.

The only way to increase the overall wealth of society if for the underlying value proposition to shift to the right. Bill Gates, moving from his garage to found Microsoft, increased his value and at the same time pulled an entire industry to the right. More value, more wealth.

So what happens with wealth transfer is that you disconnect value from wealth. You make the folks on the right of the distribution realize less wealth than their value would command. You give the folks on the left, wealth that exceeds their value. You stall the shift to the right in value that occurs in competitive markets because you incentivized the left side folks to underperform and you’ve demotivated the folks on the right from taking on the risks that pull the entire value proposition to the right. Wealth creation stagnates and over time it declines. This has happened in every society that has attempted a Utopian socialist ideal.

The seductiveness of socialism is most appealing when the march of value (to the right) is stalled by external events like war, recession, and political pansies who only fantasize over policies that get them their own free stuff. Under these conditions, it’s easy for a charismatic leader to sell the snake oil of free stuff paid for by evil corporations and rich dudes. By the time the ‘evil’ ones run out of money, thereby exposing the socialist ponzi scheme the voters opted for, the dictatorship is solidly entrenched.

Then the killing begins. Google: ‘the rise of fascism in Italy’, the rise of the Nazis in Germany, ‘the rise of communism in China’, ‘the rise of Bolshevism in Russia’. They all started with free stuff. They all became killing fields.

Be careful what you wish for. It only took Hitler 14 years to go from inmate to dictator with about 10% of the population behind him. The Nazis won their last election with 33% of the vote. All three of our clowns poll higher.