Capitalism or Socialism

It seems we have been hearing lately that the US is turning into a "socialist" nation. Could that be? Well, before you decide, it would be worthwhile to examine what these terms mean!

It was none other than Karl Marx who popularized the word, capitalism, as a term of derision.


About 100 years ago, capitalism took on a more neutral term to describe an economic system that had these important features:

• Property owned by people, ie, private property.
• Exchange between legally free individuals.
• Production and distribution of goods & services operate primarily through the market mechanism.

Let's take a look at these three elements in context of the current interventions coming from Washington.

Private property: There is now US government ownership of some banking, insurance and auto companies. While President Obama says it is not his goal to be a long-term owner of such companies, this is one factor that gives rise to thoughts of "socialism."


Exchange between legally free individuals. In a capitalistic economy, people choose to work for a company, in exchange for wages paid to them for their labor.

In the Middle Ages, even in recent times, this is contrasted with serfdom and slavery, in which labor is extracted by political superiority or ownership of people.

In today's world, we find Washington exerting influence over this process--again, a reason some may say we are slipping into "socialism."

For example, a great stir erupted by the populist rhetoric from Congress in February regarding the control of executive bonuses for those working for companies who received a bailout. This was so serious that several companies, notably banks, rushed to pay back TARP bailout money that was forced into their organizations last year by then Treasury Secretary Hank Paulson. Now days, most companies wish to steer far clear of any federal intervention, or "support," seeing this a a two-edged sword.

Furthermore, we witnessed President Obama personally interceding to ask for the resignation of GM chairman and CEO, Rick Wagoner. Wagoner probably had it coming, but the White House usurped the rights of GM's Board of Directors.

We now even have a compensation czar in the White House in Kenneth Feinberg.


Production and distribution of goods & services. Adam Smith in his Wealth of Nations talked about an invisible hand moving to determine the prices of goods based on the collective demand of consumers.

Lately, we have the US government telling us what we are going to buy--and how we are going to consume. This is another factor that causes some to cry out, "socialism."

Specifically, production by GM will be "green cars." I like green cars. I like the new Volt. But really, will many Americans buy the Volt, an electric car, when it is priced at $40,000?

The administration is also putting the squeeze on automakers to be more fuel efficient, by raising CAFE standards. These are the rules governing gas mileage for fleets of cars produced by auto makers. This will mean two things:

• Much higher sticker prices, as these new cars will require sophisticated technology and materials to increase gas mileage, and
• Smaller vehicles.
  

I can report that when I drive down the Wisconsin highways, I see LOTS of SUVs, trucks and larger vehicles, driven by people heading to work in the morning.

I anticipate they will hesitate to buy their next vehicle, at a much higher price, when they realize it is going to be considerably smaller--all in order to achieve a "greener" environment.


Speaking of "green," our government is also directing how we will obtain energy in the future. It will mean higher costs for all of us, and those earning less, or on a fixed income, will be affected the most.

When I drive through the Midwest, I see windmills being erected for power in Iowa, Kansas and many other states. Here is a photo of a farm in California.


I like windmills. But realistically, it will be a few decades before they take over as a major source of electricity. Even T Boone Pickens realizes this--as he recently announced that he is canceling his massive windmill project in West Texas.

Our current leadership seems to disdain nuclear power. Countries like France use nuclear as their primary source of energy to light homes and run factories.

Surprisingly, a few nuclear construction permits are underway in the US...after over 30 years without any new construction in our country.

Also, we have lots of oil and natural gas in the US and off our shores. The federal government is generally against drilling in the most profitable spots--and continues with a weak argument that oil exploration companies should continue to look for this natural resource in authorized areas of the US, unfortunately where the prospects for failure are greater.

These are all examples of our government dictating the type of production best suited for the US economy--and in essence, attempting to predict which scientific means will be most suitable for the US, its economy, its companies, its workers & their employment prospects and ultimately, its consumers.

Socialism refers to a theory of economic organization advocating:

• State ownership and administration of the means of production and distribution of goods, and
  
• A society characterized by equal opportunitiesmeans for all individuals with a more egalitarian method of compensation.
  

We are a long ways from a pure socialist economy, but you can see why some Americans are voicing concerns about how they feel our government may be over-reaching, in the name of financial rescue or a green society, in order to achieve broad domestic and political goals.