The Perverse Persistence of Socialism

Why people gravitate toward socialism is a question that has been asked and answered by economists for a while. The fact is that we all grow up in an ideal socialist setting, namely our family. That molds our moral intuitions which then guide our normative positions. That is, our beliefs about how the economy should function is grounded on our intuitive understanding of how the world works, which are formed in our (what else) formative years.

Thus we reach conclusions that are at odds with the reality of the world. For example we believe that order cannot emerge without orders from above. This has intuitive appeal — something is true and needs no analysis or investigation — because we see that to be true in families and firms, not to mention in armies. So it is an alien concept that order can emerge without orders in a free marketplace. (Free here means that there are no barriers to entry or exit.)

Alien concepts are hard to internalize. That’s why they are termed “alien” in the first place. James Buchanan (who was born 100 years ago today) wrote that “it takes varied reiteration to force alien concept upon reluctant minds.” Frank H. Knight, Buchanan’s teacher at the University of Chicago wrote:

The serious fact is that the bulk of the really important things that economics has to teach are things that people would see for themselves if they were willing to see. And it is hard to believe in the utility of trying to teach what men refuse to learn or even seriously listen to.

Why are people reluctant to entertain counter-intuitive ideas? Because those ideas could reveal to them that they were wrong. We don’t want to appear stupid to ourselves. The problem is our attitude. I am fortunate in that I like to know when I am wrong because then I can stop being wrong. I want to correct my wrong ideas, which can only happen if I seriously consider challenges to what I believe to be true but is actually false.

Learning the fundamental lessons of economics helps in being less wrong about how the world works. As Hayek famously noted that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Hayek was as smart a cookie as they come. He explained that how we think about what he called the Great Society is conditioned by our evolutionary past of living in hunter-gatherer groups. To quote Peter Boettke, professor of economics at George Mason University:

Hayek postulates … that we are hard-wired by our evolutionary past in small-group settings to have moral intuitions that are often at odds with the moral demands of the ‘Great Society’ – the social cooperation under the division of labor that characterizes modern commercial society. Thus, economics can be applied as common-sense, but its lessons are rejected as soon as they are heard, for at least two reasons: (1) moral intuition based on the intimate order that is used to judge behavior in the extended order; and (2) interest-group politics that cuts against economic logic to pursue the political logic of concentrating benefits on well-organized and well-informed interest groups in the short-run, while dispersing costs on the unorganized and ill-informed voters in the long-run.

Our extended past, the time our ancestors spent in small-group settings, provides us with our intuitions that are wrong in large-group settings. For thousands of years our kind has interacted with people whom they knew as family, friends and neighbors in their little group or village. It’s only in the modern world that we have to deal with strangers. That is the extended market order. Somehow we have to adjust to that new reality. Our intuitions are ancient but the world we actually live in is modern.

Boettke points out above the perversity of interest-group politics that deliberately neglects economic logic. The average citizen has neither the ability nor the time to understand the complexities of rational economic policies. But the policy makers can, if they so desired, learn the lessons of economics and do the right thing. They don’t. Why? Upton Sinclair explained it thus: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

It is in the self-interest of the politician and the bureaucrat to not understand the fundamental lessons of economics. Socialist policies are advocated because the citizens are understandably ignorant and have wrong intuitions, and policymakers have perverse incentives in formulating policies. They won’t be found out until long after they, have enjoyed the benefits of power and position, are gone.

{This post is in reply to a question that my friend Yoga asked recently. Photo credit at the top of the post: front yard of my friend Akshar’s family home in south Goa which I visited in July this year. Click on the image to embiggen.}

Author: Atanu Dey

Economist.

4 thoughts on “The Perverse Persistence of Socialism”

  1. A man who has not been a socialist before 25 has no heart. If he remains one after 25 he has no head.
    —ascribed to King Oscar II of Sweden

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  2. Another way to interpret Hayek would be to limit the size and complexity of societies to what average intuition can reasonably handle. The large economies and nation states, such as USA, China and certainly India are far beyond the size and complexity that the average population can mildly comprehend, leave alone manage. Over half the population that multipled 4x and send India down the path to ruin between, say, 1950 and 2000, cannot be taught compound interest or exponential growth satisfactorily. Half the population of Indian megacities cannot explain why the judiciary needs to be protected from the executive, and have never heard “tragedy of the commons”. An uninformed or intellectually unprepared population is unable to limit centralization of power and growth of large governments. At some point you are practically waiting for a Trump or Modi to drop from the sky and obliterate democracy. In contrast, small, homogenous, enlightened democracies have a chance to survive longer in good health than monarchy on Earth (if they do not allow themselves to be overrun with immigrants, that is).

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    1. Pessi Mystery:

      I largely agree with your comment. I am definitely in agreement that smaller governments (which necessarily mean smaller states) are better. I am a minimalist and recommend that the government has to be constitutionally constrained from interfering in the economy and in those domains that should be the responsibility of civil society and the commercial sector. Thanks.

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