Socialism and Crony Capitalism

Socialism-FailsIn my political science classes in college, I learned that a socialist system is characterized by a strong central government that commands and controls the economy.  For an economy to be considered socialist, the means of production only needs to be controlled (but not necessarily owned) by a government.  In a socialist economy, bureaucrats set wages, control prices, create quotas, and regulate distribution.  Buying and selling behavior is manipulated by central planners using tax preferences and disincentives.

Socialism is different from “free market” capitalism.  In a truly free market economy, citizens—not government bureaucrats—make the majority of economic decisions.  Individuals rather than the government determine prices, wages, levels of production, and distribution methods.  Free market economies rely on prices to be analog signals to indicate the accurate supply and demand for specific goods and services.  When supplies are low, demand pushes prices up and producers are motivated to produce more, which pushes down demand, which lowers prices, etc. What differentiates a socialist economy from a free market economy is centralized command and control or the absence of it.

When politics get involved, the proper definitions of economic terms can get confusing.  While Democrats appear to prefer a centrally planned socialist system, and Republicans appear to prefer a free market capitalist system, history has shown both parties prefer the economic system known as “crony capitalism.”

Crony capitalism is an economic system where individuals, acting through corporate entities, partner with a strong centralized government in order to enjoy the safety and profitability of a monopoly.  Crony capitalism is NOT free market capitalism, but instead is more closely aligned with socialism.  Unlike free market capitalism, crony capitalism doesn’t mind bureaucracy, government regulation, or high taxes because the crony corporations are usually exempt by government decree.  By picking and choosing winners and losers, strong central governments ensure their crony corporate partners have no real competition.  Whereas the theoretical purpose of government involvement in a socialist economy is to ensure the fair and equal distribution of goods and services, crony capitalism uses government power to keep out competition and increase profits for the crony corporations.

All name-calling aside, it is difficult for me to align with either the Democrat or Republican Party.  I prefer a free market economy with minimal government involvement in the marketplace; however, both parties continue to press for more government intervention.  While not perfect, free markets are responsible for the incredible prosperity we have enjoyed. Any political movement towards greater centralized government control will diminish our chances for future economic flourishing.

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