Socialism big lie of 20th century

Mark J Perry explains why socialism failed:

Socialism is the Big Lie of the twentieth century. While it promised prosperity, equality, and security, it delivered poverty, misery, and tyranny. Equality was achieved only in the sense that everyone was equal in his or her misery.

In the same way that a Ponzi scheme or chain letter initially succeeds but eventually collapses, socialism may show early signs of success. But any accomplishments quickly fade as the fundamental deficiencies of central planning emerge. It is the initial illusion of success that gives government intervention its pernicious, seductive appeal. In the long run, socialism has always proven to be a formula for tyranny and misery.

A pyramid scheme is ultimately unsustainable because it is based on faulty principles. Likewise, collectivism is unsustainable in the long run because it is a flawed theory. Socialism does not work because it is not consistent with fundamental principles of human behaviour. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives. .

In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting, and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. Capitalism is based on the theory that incentives matter!

Under socialism, incentives either play a minimal role or are ignored totally. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail. Socialism is based on the theory that incentives don’t matter!

The failure of the car industry in Venezuela provides a very good example of why socialism and the central planning which goes with it fails.

Leonardo Hernandez had hoped to buy a new car this year, ending nearly two years of waiting on various lists at different dealerships throughout the country.

Those hopes were dashed last week when Toyota Motor Co. said it would shut down its assembly operations in Venezuela due to the government’s foreign exchange controls that have crippled imports and made it impossible to bring in parts needed to build its vehicles.

The country’s other car manufacturers, including General Motors and Ford, haven’t even started operations this year, while waiting for needed parts to arrive. . .

 

Yes, Prime Minister

28 Responses to Socialism big lie of 20th century

  1. Willdwan says:

    It’s more than just incentives. Without markets there is no way to discover price. If the planner sets the price of something too high, you get an oversupply (wine lakes and butter mountains etc.). Too low and you get a shortage ( The Soviet Union with everything).

    My main concern with the Greens is their belief in planned economic systems. They use words like “Smart Economy” but it amounts to the same old thing, managed failure.

  2. Dave Kennedy says:

    Wildwan, it is smart to invest in solar energy and home insulation, they are win wins no matter how you look at it. The home insulation scheme has been a spectacular success in returning many times over the original investment. Green businesses are the fastest growing in the world, not to be part of this wave of innovation and growing markets is just plain dumb:
    http://en.wikipedia.org/wiki/Green_growth

  3. Mr E says:

    Lets go Dave.
    Hit me with the economics of your system…. Let me have it!

  4. Mr E says:

    Willdwan,
    In OZ solar panels were subsidised, promises were made of big payments to those that pump power back into the grid. Once people got going the price for this power crashed.
    I wonder if the greens plan to control this value? The greens plan to ‘take on the power companies’. With no regulation of price the power companies will take on the Greens.

    Of coarse once price regulation starts happening we roll down the path of a nanny state. Talk about a slippery slope.

  5. willdwan says:

    The private sector needs no subsidy or special treatment to invest in fast growing markets. As for your ‘spectacular success’, as the article says, it all goes swimmingly at first…it’s amazing we still have to have this conversation.

  6. Paranormal says:

    Green businesses are the fastest growing in the world because they are best at farming subsidies. They are also the least sustainable. You only need to look to the solar industry bankruptcies following the removal of government subsidies. You would do well to heed maggies words above.

  7. Dave Kennedy says:

    Mr E, it costs the government around $5 billion a year to subsidise wages with Working for Families and the housing supplement. The housing supplement is also subsidising landlords incomes as it is not a true market. The government subsidized Warner Bros for the Hobbit, gave the highly profitable Rio Tinto $50 million, provided a subsidy to Media Works for its frequency licenses ($45 million). Even the deal with Sky City involves changing the law that applies to all others so that one company has a financial advantage.

    The attack on the Greens’ loans to install solar panels and calling it a subsidy (4.5% loans as opposed to 6.5%) seems a little hypocritical.

    As for price regulation, we all know that the Max Bradford model was a total failure and we are now paying far more than the cost of production and transmission for our power and it has become a form of taxation. We should have an economic advantage through our cheap to produce electricity and we do not. If you oppose a form of price regulation on something as essential as electricity perhaps you think we should remove Pharmac so that drug companies can then dictate the prices, it is no different.

  8. Mr E says:

    Government subsidised Rio Tinto 50 million? If you are referring to recent payments. No they did not. It was $30 million. You’re only $20 million out. pfft.

    Government subsided Media works $45M? Not they did not. It was a $43.3M loan. You’re only $1.7M out this time.

    I have been excited at the concept of seeing the economics of your own solar system, hence my repetitive requests. Thinking you’ll have some impressive stuff, financially revelling and hopefully, inspirational. Given your above blunders, I now feel deflated. I withdraw my request.

  9. Dave Kennedy says:

    You’re right, Mr E, it was $30 million to Rio Tinto (a typo) and the Government are calling the Greens’ solar loans a subsidy and it is great that you confirm loans aren’t subsidies. Here is the detail behind our solar scheme, as usual well researched: https://www.greens.org.nz/sites/default/files/green_party_solar_homes_policy_paper_160214.pdf

  10. Mr E says:

    How much interest is paid on the Solar loans Dave? Apparently Mediaworks are paying 11%.That’t right 11%. Smart that government, to loan money for 11%.

    Do you know if the $30 million went to Rio Tinto or Pacific Aluminium?

  11. Dave Kennedy says:

    I think the main issue with Media Works was that they have captured a lot of frequencies that they don’t actually use and other non profit organisations and companies were not able to access them, by providing a loan the Government supported their monopoly. http://localbodies-bsprout.blogspot.co.nz/2012/11/feeding-fat-corporates-just-produces.html

    According to this article the subsidy went to Rio Tinto: http://www.stuff.co.nz/business/industries/9723448/30m-subsidy-not-a-major-outlay

  12. Paranormal says:

    Yes we should remove subsidies that distort the economy such as Welfare for Families, that subsidises employers. Corporate welfare is not a good idea either, although some of the examples you give – Warner Brothers and Mediaworks aren’t subsidies. (Mediaworks for example paid commercial rates on a payment plan so there was no subsidy). There’s not much difference between Liarbour and National on that front.

    The Greens however are showing their complete failure to understand economics and for that matter basic accounting in their solar power subsidy.

    For example a key issue to be addressed is that to gain the low interest rate the loans are government guaranteed. That creates a liability on the governments books that needs to be accounted for. At a time when debt is toxic the Greens want us to rack up more?

  13. Dave Kennedy says:

    Also the idea of Government loans is that they have access to lower rates (4.5%) this policy is not intended to make money but be fiscally neutral and be a big enough incentive to encourage buy in. If we charged 11% no one would bother.

  14. Dave Kennedy says:

    The liability for this is fairly minor, Paranormal, compared to the tens of millions that this Government appears to give away at a whim. But I agree that this Government’s borrowing is a real concern, this is a quote from English’s own budget speech:

    “But, in dollar terms, net government debt is still rising by around $130 million a week and is expected to reach $70 billion in 2016/17, which is the equivalent of around $15,000 for each and every New Zealander.”
    http://www.treasury.govt.nz/budget/2013/speech/03.htm

    Green Economics is all about reducing borrowing and our dependence on overseas lending institutions. Our current account deficit is one of the worst in the world. The cost of imported oil is one factor in this and we won’t get any cheaper oil from those drilling here. We need to be more self sufficient in energy and solar is one solution.

  15. Mr E says:

    From your link
    “A typical $10,000, 3 kilowatts (kW) solar array, generating approximately 3,500 kilowatt hours (kWh) of electricity per year, produces $1,000 of electricity a year at current prices, and will cost $900 a year over 15 years to pay off under Solar Homes.”

    Income
    $1000

    Expenses (let us look into)
    Interest + prin 10,000 @ 4.1% 15yr =$893

    Maintenance – seemingly ignored
    Insurance – seemingly ignored

    Total =$893

    Net return = $ 107

    Ignoring insurance, and maintenance?Why Dave, Why?

    This year the insurance cost I attribute to my system is approx $50
    This year my maintenance cost is well over $600 – Each year it is about $100.

    Next sentence
    “over 25 years, a 3kW unit would produce $28,000 worth of power. As technology improves and Solar Homes grows the market, prices will continue to improve.”

    What a minute – 28,000 / 25years = $1120 – not $1000 as you said in the top sentence.

    Why Dave, Why?

    So far this looks very very shoddy.

  16. Mr E says:

    Umm 4.1% in your link….

  17. Dave Kennedy says:

    I have installed solar water heating on my house a couple of years ago and I didn’t increase my household insurance and it has required no maintenance and is unlikely to need it for at least ten years, solar panels are supposed to be good for 25 years with little to no maintenance.

    Are you saying that the system works better than we have stated?

    I like your scrutiny of our policy Mr E, I wish people like yourself would apply the same scrutiny to the Government’s projects which have far less analysis than our humble solar scheme. The Roads of National Significance will cost us over $12 billion and yet the cost benefit analysis applied is so flawed that many have voiced concern:
    “It is ironic that a government that places economic growth and efficiency at centre stage is, through its approach to the evaluation of state highway projects, undermining the very process needed to advance those goals. The inconvenient truth is that the current approach to the ranking and selection of state highway projects, including the roads of national significance, under which the role of economic efficiency has been greatly diluted, has resulted in many hundreds of millions of dollars of benefits annually being squandered in pursuit of the empty goals of ‘strategic fit’ and ‘effectiveness’.”

    This the view of Dr Michael Pickford, the past senior lecturer of economics at Massey. Here is the text to the article it comes from: http://igps.victoria.ac.nz/publications/files/30aaf9a4518.pdf

    The Greens’ Julie Anne Genter has been hounding Brownlee on his flawed economics and her own economic credibility is widely recognized according to ex ACT MP Stephen Franks:

    “Julie Ann Genter MP last night won over the LEANZ audience, Most turned up cautiously sceptical, expecting perhaps at best some nuggets amongst a lot of green faith.
    Instead we got one of the best presentations I’ve seen. Genter won over the audience with a lively, fact filled, economically sophisticated argument for abolishing the power of local authorities to impose minimum or maximum parking space requirements on specific site uses. Her case could be summarised as proving why the best plan for private land parking may be no plan.
    The conditions – among them that management of publicly owned parking be sophisticated and directed to maximising the value of the land concerned did not raise hackles.
    If you get a chance, go along to hear the Green MP who is not there to tell people how they should get to work or use their land.”

    http://www.stephenfranks.co.nz/genter-plan-is-the-best-kind-of-plan/

  18. Mr E says:

    Sorry to tell you this but most circulation pumps are only designed to be maintenance free for 3 years. And I am informed that the seals should be replaced annually.
    The includes the more expensive German wilo pumps. If it goes you are facing pump cost plumbers and electrician.

  19. Dave Kennedy says:

    I have obviously not got the technical background that you have, Mr E, and have only the experience of getting our crib’s ancient Renown pump restored, which did cost a pretty penny. As far as I know our solar water heating system has no such maintenance requirements, we just send away our card for analysis of efficiency, and this is free. Over Summer our solar system provides over 90% of our water heating needs and over Winter it is around 75%. The biggest hassle was local government compliance, which I am still trying to sort out. The 4 by 2 providing support for the tubes needed an engineer’s OK.

  20. Mr E says:

    Heat rises and if your panel is on the roof you will need a circulation pump to get the water to your cylinder. Have a look in your hot water cupboard. It will be green blue or red and about the size of your fist. Your computer controls it.

  21. Dave Kennedy says:

    Our cylinder is in the ceiling but I will check this out.

  22. Paranormal says:

    “The liability for this is fairly minor”.

    No wonder our students can’t do maths if that’s what you think. Lets try tens of thousands of installations at $10,000 apiece plus interest for 15 years. Even on a discounted cashflow basis (if you even know what that is) that is not ‘fairly minor’.

    So how did the ‘farily minor’ solar plan the Greens went for in Germany go then? was that fairly minor? The consequences will be felt for generations.

    Yes our nations books are not in as good a state as they should be, but more of what has buggered them up to date is only going to make them worse. Particularly when you can’t do maths and don’t (or is that won’t) understand economics. Green Economics really is just bullshit and jellybeans.

  23. Paranormal says:

    ‘fiscally neutral’ – Greens clearly have no idea what that means.

  24. Paranormal says:

    And you haven’t checked the insurance implications either DK. Best you call your insurer to make sure your solar water heater is actually covered. Do let us know what the additional premium to get them covered is.

  25. Mr E says:

    I concur. New insurance rules mean accurate assessments of value are given.

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