Chapter Nine, Part I: The Communist Economic Trap (UPDATED)

Looking at the countries that abandoned communism or the socialist economic model after the fall of the Soviet bloc, one would think that the communist specter had failed in its goals. But the reality isn’t so simple. The specter’s methods do not follow a rigid pattern. For the sake of a greater objective, it may abandon certain forms while adopting others to suit the historical or social situation. Nowhere is this truer than in the economic sphere.

The ultimate factor in economic growth is people. State ownership chokes people’s vitality and motivation to be productive. It undermines morale, promotes inefficiency, and creates oversupply or gross shortages. From Soviet collective farms to the people’s communes in China to failed collectivization in Cambodia and North Korea, the system of state ownership brings starvation wherever it goes. For example, the man-made famine in China killed tens of millions of people between 1959 and 1961.

Both evil and kindness exist in mankind. Private property ownership allows man to develop integrity and encourages labor and thrift. Collective property ownership, however, encourages the evil in human nature, promoting jealousy and laziness.

Austrian economist and philosopher Friedrich Hayek wrote that the growth of civilization relies on social traditions that put private property at the center. Such traditions spawned the modern commercial system and its attendant economic growth. This is an organic, self-generating order that does not require a government to function. Yet communist and socialist movements seek to shape the world according to their wishes — what Hayek called their “fatal conceit.” [4]

If private ownership and freedom are inseparable, then the same principle applies to state ownership, wed as it is to dictatorship and suppression. The system of state ownership nationalizes resources, degrades economic productivity, and turns people into the country’s servants and slaves. All people must obey the commands of the central party, and any ideas and voices inconsistent with the regime can be shut down. People are then powerless against state intervention.

Thus, the elimination of private ownership and the establishment of state ownership inevitably leads to totalitarian outcomes. Collectivism is a yoke affixed on the necks of humans by a totalitarian state. Freedom is stolen — including the freedom to be upright — and everyone is forced to follow the moral commands of the communist regime.

The planned economy has natural and obvious defects. First, it requires the collection of a huge amount of data in order to make reasonable arrangements for production. For any country, especially a modern state with a large population, the amount of required information is unimaginably large and impossible to process. For instance, the former Soviet Union’s commodity pricing bureau had to set prices for twenty-four million different kinds of goods. [5]

The complexity and variability of society and people cannot be solved through a unified planned economy. Even with the use of modern big data and artificial intelligence, human thoughts cannot possibly be inputted as variables, and so the system will always be incomplete.

Economist Ludwig von Mises discussed the relationship between socialism and the market in his article “Economic Calculation in the Socialist Commonwealth.” [6] He notes that without a real market, a socialist society isn’t able to make reasonable economic calculations. Thus, the distribution of resources cannot be rationalized, and the planned economy fails.

Additionally, economic planning requires coercive state control of resources. This ultimately requires absolute power, quotas, and commands. When the requirements of the real world fail to conform to state planning, state power tramples on natural economic trends, thus causing the mass misallocation of capital and all its attendant problems. The planned economy uses the limited power and “wisdom” of government in a doomed attempt to play God.

Moreover, an economics of power is first of all beholden to politics, rather than to the actual needs of the people. Economic planning and authoritarian politics are inseparable. Because national plans are inevitably flawed, when problems arise, the plans will be challenged both inside and outside government. Those in power then feel that their authority is being challenged and will fight back with political pressure and purges. Mao Zedong, for instance, ignored the laws of economics and forced through the Great Leap Forward, resulting in a three-year famine that caused tens of millions of deaths. This led to serious challenges to his leadership position in the Communist Party, which is a key reason he later launched the Cultural Revolution.

The disastrous effects of the planned economy and collective ownership have been fully exhibited in the current conditions of Chinese state-owned enterprises (SOEs). In recent years, a large number of Chinese SOEs have stopped or slowed production, have suffered losses every year, or have become insolvent. They rely on government subsidies and rolling bank credit to maintain operations. They’ve essentially become parasites on the national economy, and many are widely known as “zombie enterprises.” [7] Among the 150,000 state-owned enterprises in China, with the exception of state monopolies in the lucrative sectors of petroleum and telecommunications, other SOEs report minimal profits and suffer serious losses. By the end of 2015, their total assets accounted for 176 percent of GDP, debt accounted for 127 percent, and earnings accounted for only 3.4 percent. [8] Some economists believe that these zombie enterprises have essentially hijacked China’s economy, which for many years has remained dependent on cheap manufacturing made possible by extreme exploitation of low-wage workers and a complete disregard for the environment.

In the West, production is controlled privately, but the revenue is converted into state assets via taxes and redistribution schemes. This wealth-taking is achieved legally through democracy and legislation rather than through killing and violence.

An important feature of the communist or socialist economics seen in Western countries is robust social welfare, which is used to gradually erode moral wisdom and freedom. While some government aid is reasonable — such as social security for victims of disasters or accidents — it is easy for welfare to become a convenient instrument of deception. Its positive aspects become the excuse for increasing taxes and government control. In this regard, generous welfare has already achieved the same destructive consequences to people, society, and moral values as do overtly communist economics, without the need for violent revolution.

Social welfare in developed Western countries consumes a large portion of revenue, which comes from taxes transferred from private wealth. All socialized benefits must ultimately be paid for by the people, via taxes or national debt. There is no other method to maintain this level of government largesse. In the United States, more than half of the tax revenue is spent on Social Security and medical care. More than 80 percent of this money comes from personal income taxes and Social Security taxes; 11 percent is from corporate tax. [10] This kind of massive government spending only began in the past century.

In 1895, the US Supreme Court declared income taxes unconstitutional. The decision stood until the 1913 ratification of the 16th Amendment. Data from fifteen countries in the year 1900 show that only seven imposed an income tax, with Italy leading at a rate of 10 percent. Australia, Japan, and New Zealand had income tax rates of about 5 percent.

By 2016, according to data on thirty-five market economies published by the Organization for Economic Cooperation and Development (OECD), twenty-seven countries had an income tax rate higher than 30 percent. The countries with the two highest income taxes, at 54 and 49.4 percent, are both in Europe. [11] On top of this, eating or shopping in Europe usually adds more than 20 percent in sales tax. Corporate and other taxes further add to the overall tax burden.

High taxation burdens not only the wealthy, but also those at the bottom of the tax scale. While the rich often have various legal means of shielding themselves from taxes, the poor’s welfare benefits disappear as their income increases beyond a certain threshold. After taxes, this income is often less than what they received on welfare. People are effectively penalized for working harder and thus incentivized to stay on welfare.

In modern society, vast welfare systems have been expanded to cover unemployment, medical care, pensions, occupational injury, housing, education, child care, and more, far beyond traditional concepts of aid for those in immediate need.

A report from The Heritage Foundation shows that in 2013, more than one hundred million people in the United States, or about a third of the population, received welfare benefits (excluding Social Security and Medicare) worth an average of $9,000 per recipient. [12] According to Census Bureau data from that year, 14.8 percent of the population were classified as living below the poverty line — basically the same rate as in 1967, a few years after President Lyndon B. Johnson declared "unconditional war on poverty in America." This suggests that greatly expanding welfare benefits — as was done under Johnson’s administration — hasn’t achieved the goal of reducing the percentage of people living below the poverty line.

As of 2014, in the fifty years since Johnson launched his War on Poverty, American taxpayers spent $2.2 trillion on welfare. Yet, as statistics from the US Census Bureau show, the poverty rate has remained steady for the past forty years. [13]

Moreover, poverty is calculated by income and doesn’t factor in the various benefits afforded to welfare recipients, such as food stamps, housing subsidies, and education benefits. Over a century ago, French thinker Alexis de Tocqueville said that by only using poverty thresholds to allocate aid, it is impossible to know whether eligible individuals are actually suffering from circumstances beyond their control or if their misfortune is of their own making. [14]

The deliberate categorization of large numbers of people into the “impoverished” demographic provides ample excuse for the expansion of welfare. Living standards in poverty today are far superior to those in the 1960s. According to a government survey conducted in 1999, 96 percent of parents in impoverished households said that their children had never gone hungry due to inability to buy food. Almost 50 percent of impoverished households lived in detached houses, and 40 percent lived in townhouses. Just 9 percent lived in mobile homes. Eighty percent had air conditioning and two-fifths owned widescreen LCD TVs. Three-quarters of impoverished households owned cars. [15]

Even still, the benefits provided by the US government are below average compared with those of other members of the OECD. Most people living in Nordic countries and other Western European nations enjoy far greater welfare than Americans. In Denmark, for example, even the wealthiest citizens enjoy a cradle-to-grave social safety net that includes free medical care, university education, and other generous benefits. Swedes are entitled to 480 days of paid parental leave when a child is born or adopted. Greeks, prior to their country’s economic collapse, enjoyed an annual fourteen-month-worth salary and retirement at the age of fifty-seven. The country spent 17.5 percent of its GDP on pension payments.

The expansion of welfare from its traditional role of emergency aid to long-term benefits for entire populations is, in fact, part of the goal of imposing a communist economy.

From an economic point of view, the essence of welfare is to take money from some people and transfer its value to others. However, it is the government that is responsible for distributing the wealth, usually without requiring anything in return—thus de-emphasizing the wisdom that one must work in order to gain. The loss of this moral principle is particularly evident in Northern Europe.

Swedish scholar Nima Sanandaji demonstrated this point using data from the World Value Survey. In the early 1980s, 82 percent of Swedes agreed with the statement that “it is wrong to receive government benefits that you do not deserve.” In the 2010–2014 survey, only 55 percent of Swedes agreed with this statement. [16]

Under a generous welfare system, those who work hard receive fewer returns, and those who are less industrious are rewarded with benefits. Over time, this subtly distorts moral traditions, as those who grew up with high government welfare lose the industriousness, independence, responsibility, and diligence of their forefathers. They take the system for granted and consider welfare to be a human right. They have formed a habit of relying on the government and even holding it hostage for continuous aid. Thus, social values are changed almost irreversibly.

Expansive government welfare also squeezes out the role of traditional charities, depriving the donors of the opportunity to do good works and the beneficiaries of the chance to feel gratitude. In traditional society, charity was given by one’s own choice, either by giving aid directly to the less fortunate or by donating to charitable organizations such as churches. There were clear donors and recipients, and being able to receive assistance was a privilege, not a right. Recipients felt gratitude for the donors’ kindness and would be motivated to use the charity to supplement their own efforts to improve their lot. Those who received charity and turned their lives around would be likely to return the favor when others confronted the same challenges they once faced.

Tocqueville noted that charity combined the virtues of generosity and gratitude, which interact mutually to improve society and exert a positive moral influence. Meanwhile, the relationship between givers and receivers functioned to ease conflicts and antagonism between rich and poor, as charitable behavior on the part of individuals connected members of different economic classes. [17]

The bloated system of modern welfare interrupts the relationship between donors and recipients by bureaucratizing the process of charity. The “donors” of today are taxpayers who are forced to give up their wealth, rather than sharing it voluntarily. Meanwhile, recipients of welfare have no connection to their benefactors and feel no gratitude for their sacrifice. Tocqueville believed that social welfare exacerbated conflicts between the rich and the poor. Having part of their wealth forcibly confiscated, the wealthy would come to resent welfare recipients. Tocqueville said that the poor, too, would feel discontent if they took their economic relief for granted: “One class still views the world with fear and loathing while the other regards its misfortune with despair and envy.” [18]

In 2009, an empirical study by Martin Halla, Mario Lackner, and Friedrich G. Schneider showed that social welfare disincentivizes hard work in the long term. The three economists concluded that the dynamics of the welfare state are inimical to the health of a nation’s economic base. [20]

Welfare should be an emergency measure to assist those in genuine need, effective in circumstances such as those involving occupational accidents, epidemics, natural disasters, and so on. It shouldn’t become the default form of subsistence, as it is incapable of resolving the dilemma of poverty.

Expanding the criteria that determines who is entitled to welfare creates an atmosphere of negative reinforcement that encourages the misuse of these benefits. For example, the term “disability” is being continually redefined to extend eligibility to more individuals. The result is economic malaise, which causes a regression in social morality.

The program began about forty years ago with the goal of helping families whose severely physically or mentally challenged children made it difficult for parents to work—about one percent of poor children. By 2012, more than 55 percent of qualifying children were categorized as mentally challenged, but did not have a defined diagnosis. Across the United States, there are now a total of around 1.2 million “mentally challenged” children for whom taxpayers provide $9 billion annually. [22]

Here, welfare and the flaws of human nature feed each other in a downward spiral. While those who advocate and devise welfare policy may do so with good intentions, the effects of these policies are often detrimental, both to individuals and society as a whole.

Welfare abuse doesn’t just tie down public finances; it also affects the futures of children who grow up inside its system. Research conducted in 2009 found that two-thirds of people who received welfare as children continued to receive it into adulthood. [23]

According to American economist William A. Niskanen, the welfare system has spawned a culture of poverty, which in turn has fed a vicious cycle of dependence on government aid, children born out of wedlock, violent crime, unemployment, and abortion.

Niskanen analyzes state data for 1992 and estimates the potential effects of increasing Aid to Families with Dependent Children benefits by 1 percent of the average personal income. He determined that the number of recipients would increase by about 3 percent; the number in poverty would increase by about 0.8 percent; births to single mothers would increase by about 2.1 percent; and unemployment would increase by about 0.5 percent. Abortions and violent crime would both increase by just more than 1 percent each. [24] Niskanen’s findings suggest that a robust welfare system fosters dependence on the system and discourages personal responsibility.

The disintegration of families is a chief ingredient in the culture of poverty. In a study of historical and contemporary poverty among blacks, economist Walter E. Williams found that in 1925 New York City, 85 percent of black families were two-parent. By 2015, black single-parent households had reached nearly 75 percent. The welfare system incentivizes this phenomenon, as it provides considerably more benefits to single mothers than to those who marry. By purposely remaining single, a parent can access more government subsidies, including welfare payments, housing subsidies, food stamps, and medical care. Welfare has been instrumental in pushing single parenthood, which has proven to cause more poverty. Alternatively, Williams found that the poverty rate among black married couples had remained in the single digits since 1994. [25]

While welfare has been ever-expanding over the last few decades, the gap between rich and poor has also continuously increased. The average wage, adjusted for inflation, has increased at a snail’s pace, while wealth flows to the most wealthy, resulting in a larger class of working poor. The Left weaponizes these societal issues to push for a bigger government, higher taxation, and more welfare to combat poverty, exacerbating the problems even further.

In a healthy society, the government’s role is limited. Only in exceptional situations should the state interfere in the economy, such as during natural disasters or other crises. But today, Keynesian theory has taken root around the world. Governments of virtually all countries are racing to take greater control over their respective economies.

When governments play an active role in the economy, each action creates a massive ripple effect in the markets. New policies and laws can make or break entire industries, forcing many businesses and investors to become overly beholden to government decisions.

Active financial control combined with high-welfare policies has caused many governments to incur huge debt. According to data from the OECD, more than one-third of its member states have government debts higher than 100 percent of GDP. One country’s debt has exceeded 237 percent of its economic output. [26] This presents a major vulnerability for the social and economic futures of many countries.

Nobel Prize-winning economist Ronald Coase wrote multiple research papers on the impact of government intervention. In his work, Coase found that interventionist policy almost always produces negative results. The most probable explanation, he said, is that “the government now operates on such a massive scale that it [has] reached the stage of what economists call negative marginal returns. Anything additional it does, it messes up.” [27]

There are at least two major consequences of extensive government intervention. First, the power of the state expands in terms of its role and scale. Government officials develop increasing hubris about their ability to interfere with the economy and have the state play the role of savior. After handling a crisis, the government is wont to retain its expanded powers and functions.

Second, interventionism creates more reliance on the government. When the populace encounters challenges, or when the free market cannot provide the desired benefits, the people will lobby in favor of more government intervention to satisfy their demands.

As the power of the state increases, private enterprise weakens and the free market has less space in which to function. People who have benefited from and grown dependent on politicians will increasingly demand that the government take responsibility for allocating wealth, and enact laws to enforce this.

In the West, there is a strong political current pushing society toward the Left. This encompasses followers of the original left wing, including socialists and communists, as well as those not traditionally associated with the Left but who have been co-opted by it. This emboldens leftist politicians to take greater measures to intervene in the economy and interfere with the functioning of private enterprises. This erosion of normal economic activity appears to be caused by various social movements, but in fact, it is the specter of communism that pulls the strings.

Western governments wield their authority under the banner of equality and other political excuses to increase intervention, while enacting laws to give themselves more permanent power. There is no doubt that this behavior deprives market economies of their principal arbiters — the free will of the people.

Hayek, the economist and philosopher, cautioned against state-controlled planning and wealth redistribution, saying that it would inevitably tamper with the market and lead to the rise of totalitarianism, regardless of whether the system was democratic or not. Hayek believed that although the socialism practiced in Europe and North America was different from state ownership and planned economies, it would nevertheless arrive at the same outcome — people would still lose their freedom and livelihood, just in a slower and more indirect fashion. [28]

As has been discussed earlier in this book, Marx, Engels, and Lenin all saw communism as the final goal, with socialism a mandatory step on the journey. A train’s destination will not be affected by its stopping at a station along the way — in fact, it might pick up more passengers. Likewise, the specter of communism is the driving force behind a country’s move toward socialism. Once humanity forsakes tradition, whether in the economic sphere or in other areas, and accepts communist ideology, the pace of this development is irrelevant.

The destination at the end of this path is not heaven on earth, but the destruction of humanity. The specter is not concerned with whether “heaven” is realized or not — this promise is merely bait to lure people to their doom.

9. Marx and Engels, “Manifest.”

15. Sheffield and Rector, “The War on Poverty.”

18. Ibid, 31.

22. Ibid.

23. Kristof, “Profiting From.”