The Fundamental Flaw in Socialist Economics

originally posted by: ChaoticOrder on Jun, 9 2022

I'm not exactly sure how they managed it, maybe it was just all the relentless propaganda, or maybe our vote really doesn't matter anymore, but in any case, far-left politicians are gaining power all around the world. Look at the recent elections in Canada, France, Australia, New Zealand, and the USA.
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That's the state of the world we live in right now, and Biden along with all these other leftist leaders, will be in power for about another 3 years. We're only barely into this globalist nightmare and the world is already crumbling, so what will the world look like in 3 years? These people constantly promise us that if they get elected they will make the world a better and fairer place, with more equality and less poverty.

So now they have all the power, we should expect the world to be in a better state 3 years from now. If 3 years from now, we're living with more poverty, more scarcity, more inflation, then people might finally understand the reasons why their standard of living is constantly decreasing. Or maybe they'll just re-elect the same people because they have nice hair and virtue signal constantly.

This is going to be my final rant and my final warning on this topic until 3 years from now, I'm tired of pointing out obvious facts about reality while the world ignores it.

Leading us to utopia

Well it hasn't been quite 3 years yet but a lot of interesting things are happening in the world and we are getting close to the US presidential election so the timing feels right. I've noticed a lot of political propaganda flaring up in the last few days and I don't want this thread to feel like it's part of that, so I'm going to focus mostly on economics. I want to explain exactly why we've had so much more poverty, more scarcity, and more inflation over the last few years.

So lets start with some very fundamental concepts about supply and demand that even a child can understand. Let's imagine that a mining company discovers a gold ore deposit so large it would increase the supply of gold by a factor of 5, meaning for each existing ounce of gold, 4 new ounces would be put into circulation. The basic rules of supply and demand tell us that the value of gold will become worth 5 times less if the demand for gold stays the same.

In reality economics doesn't always work so neatly, for example some very wealthy people are likely to hoard some of that new gold and it wont be in active circulation so it wont have such a large impact on the market. However, it will still have a very large impact on the market and the value of gold will drop by a factor of 3 or 4. Even though fiat money has no intrinsic value like gold, each dollar is still a container for monetary value, so printing more dollars makes the others worth less.



This chart shows how the M1 money supply has changed over time, and note how dramatically it changed during the global lockdowns, when some nations shut down their economy for almost 2 years and gave out obscene amounts of money to support people throughout the crisis. The M1 money supply basically refers to all liquid currency in the money supply, things like cash and money held in bank accounts. It went from 4 trillion to 20 trillion, meaning it increased by 5 times.

Such a massive spike has never been seen before in history, and honestly we are lucky that the inflation seen all over the world hasn't been a lot worse. I find it funny how the Biden administration constantly talks about the US having one of the strongest economies in the world post-Covid. Well yeah, the US has always had one of the strongest economies in the world, I don't particularly see any reason that would change due to the pandemic, people need to realize the entire world is suffering.

Government fiat money is a very complex and tricky beast, and there are many intentional mechanisms which have been put in place to reduce the impacts of inflation or delay it. The main way they do this is via debt-monetization methods, meaning the government doesn't just create new money, the central bank issues them the new money in return for government bonds which represent debt the government has promised to repay with interest, so government debt will increase as a result.

This "promise" to repay the debt offsets some of the impact the new money will have on the market, but certainly not all of it. It mostly helps delay the impact so it happens more slowly over a longer period of time instead of all at once. That's one of the main reasons we keep seeing high levels of inflation well after the lockdowns have ended. The effects of all that money they created is still seeping into the market because the money supply hasn't decreased.

I've posted that chart many times over the years, but I think it's crucial to understand. It's important to realize that government debt only ever increases and virtually never falls, which is why they constantly have to increase the debt ceiling every few years. Due to debt-monetization the money supply will increase as government debt increases, and the resulting inflation will cause prices to increase along with them, hence why those 3 lines in the chart look so similar.

Another reason why we haven't seen as much inflation as expected is because similar to gold, there are people who hoard currency, keeping it out of active circulation and reducing its impact on the market. During the lockdowns many countries shut down all small businesses and forced people to shop at the same large monopolies even though it forced people into the same spaces. These corporations made record profits and sucked up a lot of that money the government handed out.

I can bet most people reading this have about the same or less money in their bank account compared to what they did before the pandemic. Somehow the money supply increased by a factor of 5, but for most people that money is no where to be seen. However it must be out there somewhere in the bank accounts of the ultra rich. That means the government response to Covid-19 resulted in the largest transfer of wealth in human history and massively increased wealth inequality.

Now consider the fact the core foundation of the lefts political platform is based on welfare spending, it's based on increasing the size of government and spending money they don't really have, then raising taxes to absurd percentages to pay for it, and even then they still can't even begin to balance a budget. I've written many threads explaining why overzealous socialist policies directly lead to higher prices and erode our standard of living but this is the primary economic reason.

The crazy levels of inflation we are seeing have made people look back on the previous levels of inflation with envy. Yes, life was certainly much better when we only had to deal with our currency being devalued by 2 or 3 percent each year, but I want to remind you that inflation is compounding. That is why the US dollar had lost over 99% of it's initial value even before the pandemic hit. In just a decade a currency can lose a substantial amount of value even at 2% inflation.

It happens slowly enough we don't really care unless we want to have long term savings, that's when we look for an asset with real intrinsic value like precious metals. As many people have said before me, inflation is a hidden form of taxation, and the modern left seems to believe that every single problem can be solved by throwing endless amounts of money at it. I recently came across a great breakdown of why such careless spending creates the wrong incentives and damages the economy.

Let me just say one last thing before I wrap this up. There is a short time remaining before we learn who the next president of the USA will be, and should any major event happen between now and then, similar to the pandemic before the 2020 elections, there is no chance in hell anyone is going to fall for it. Even if they do allow Trump into power, I suspect they'll do everything they can to undermine or undo the positive effects his policies will have on the economy.

The last thing they want is for a capitalist with real world business experience to show that free market principles are superior to socialist principles. And as I've said many times before, I believe there are many social services which immensely benefit society and help balance out the flaws in capitalism, but when we ignore the foundational principles of free market capitalism and replace them with overzealous socialist systems, it will always do more harm than good.

a reply to: ChaoticOrder

" The Fundamental Flaw in Socialist Economics "

There's No Money in it .

a reply to: ChaoticOrder

I think your post was very well thought out and hit on a lot of principles of the folly on fiat currency.

I suppose I just disagree on the thesis of the content.

The overall math seems sound, but you tied it up to focus on a specific agenda and ideology.

But it was in reality a tag team effort.

There was money thrown around to every group, at scale. Checks to individuals, bailouts to businesses, the fed buying corporate bonds and individual stocks for the first time… ect.

Black rock was put in charge of the “rebound”.

I think the difference for me is, I see a lot of it as incompetence as oppose to malfeasance. I think a lot of the top politicians and actors truly believe the people who have repeatedly tanked the economy are professionals. They think that all the policies before them just weren’t implemented good enough.

The deployment of cash was record breaking and bipartisan. Any attempt to blame it solely on the right or left is either disingenuous or misinformed.

I can’t be mad at such a conclusion considering it likely possesses hope.

We can look at the debt timeline and come to one reality. It goes up no matter who’s in charge.

a reply to: CriticalStinker

The deployment of cash was record breaking and bipartisan. Any attempt to blame it solely on the right or left is either disingenuous or misinformed.

I have to completely disagree with this statement. I heard plenty of politicians on the right calling for the lockdowns to be ended because they were causing immense economic damage, yet I don't really recall anyone on the left saying that? They were perfectly happy walking around in their masks for as long as they possibly could. Maybe Tulsi said something, I can't remember now, but last I heard she had ditched the Democrat party.

I was also warning people in early 2020 that if the harsh lockdowns continued it would do far more harm than it prevented and I had a bunch of leftists telling me things like Covid-19 was even worse than the black plague, and who knows what would happen if we dared to go back to normalcy. Looking back now, it's clear the severity of Covid-19 was way overblown.

Not to mention, the politicians who implemented the longest and most harsh lockdowns were leftists, the politicians making the most outrageous threats towards unvaccinated people were leftists. It really isn't hard to see that Covid was extremely politicized and divisive. It's also clear a lot of unnecessary damage was caused by control freak politicians on the left.

a reply to: ChaoticOrder

If I remember correctly the ability to enforce lockdowns were left to the states.

That’s something I appreciated from the Trump admin.

That said, the lockdowns were mostly enforced in a few states.

I never experienced a lockdown, and I live in what is considered a dark purple state.

The spending and inflation though came from the federal government.

They printed money for the checks, bailouts, and buying of corporate bonds and stocks. That had nothing to do with the lockdowns and the biggest source of the inflation.

There were multi trillion dollar federal bills passed.

I won’t try and argue that state actions didn’t lead to economic despair. But if we’re trying to pinpoint what lead to national inflation, I’d be hard pressed to say that had more of an impact than those who control federal fiscal policy.

We could have a country without politicians twisting things and parroting things taken out of context whether liberal or conservative.

I see so much misinterpreted things being plastered everywhere to trick people into believing things that are not true just to gain power and prestige in politics. Originally when I was a liberal, we were striving to fix things to make society better, patiently and honestly, but those times are gone now. More hate and deceit is being spread by liberals these days than by conservatives trying to keep progression slow and properly assessed.

This will eventually lead to the middle who get badgered for their semi-conservative ways revolting and causing a strong swing to the right, destroying even the good changes in society that occurred years ago. I am frustrated that the left has gotten so ignorant of the good people's concerns of family rights in this country, they are stimulating racism and sexism now because they have gained numbers. Liberals used to be honest and good people who respected others opinions, that is now gone. And this is forcing some in the middle more right. It sucks.

That is my opinion, now I consider myself more to the right of center of being a conservative and am ashamed to say I was once a liberal leaning person. We should all get along and get those chaotic politicians out of office by not re-electing them. Biden in my opinion was forcing division of our citizens, same with Trump, but at least Trump was trying to work more to help America be on the right track. Our people need to work, all people need to feel like they are contributing to society. I have way more respect for farmers and garbage men and people working in factories that make things our people NEED to live. I feel we are screwing up with technology, everyone needs a job, not just the smarter ones that can work with technology. A janitor is important, a roofer is important, a fisherman that supplies fish is important...but we pay people who work with technology way more than these people and they don't have to risk their lives when working.

That is my opinion, and I will never believe that a person who is a politician is more important than a guy who works picking up garbage on the street or a farmer who works sixty hours plus a week to put food on others tables.

a reply to: CriticalStinker

Regardless of who did what, my fundamental point is that the left is the party of reckless spending and nanny state policies. And what happened during the pandemic is a real world example of why it doesn't work, and history shows us why it always ends with the fall of once great nations. Our media has made it so easy for people to label other people on the right as heartless fat cat capitalists who don't care about human welfare. Well my perspective is, the socialist/marxist approach to the problem can and has caused unimaginable human suffering. My perspective is, the path to hell is often paved with good intentions, because we are very far from any sort of utopia right now.

a reply to: ChaoticOrder
The only real fundamental flaw in socialist economics is to think you can give a small group of people the wealth of a nation and believe that they will give each citizen their fair share.

Capitalism has a similar problem, that is why countries have anti-monopoly laws.

The only difference is that in one it is the politicians and in the other it is the robber barons.

Pick your poison.

ETA On second thought the politicians and the robber barons probably party together.

Your critique of "socialism" seems more a critique of neoliberal crony corporate-capitalism.

There is no form of socialism where the state takes the wealth of the workers and gives it to what they would term bourgeois. Which is what the post-COVID spending did (and most pre-COVID spending for that matter).

Makes sense really. The West exists in a phenomenon of peak capitalism where banks & shareholders demand ever increasing profits despite the inability of the market to provide this through natural methods. One of the few avenues left to satisfy greedy & avaricious shareholders is to increase the money supply and funnel it directly into the corporations. That way the shareholders get a higher number this quarter which is all that matters. Of course everyone else suffers greatly but that doesn't factor into the growth reports so it doesn't count.

Of course that's only good for this quarter and you have to do the same thing for next quarter, and the one after that, and the next, and so on. It's a vicious cycle that just compounds the increasingly dire problem.

Really weird version of socialism where the corporations rule everything, own everything and workers are actively suppressed economically, socially and politically.

Kinda the opposite of socialism really.

a reply to: daskakik

Pick your poison

originally posted by: ChaoticOrder on Aug, 14 2021

I've written quite a few threads about the benefits of capitalism and the flaws of excessive socialism, but it recently occurred to me that I've never really explained the flaws in capitalism, and why I believe those flaws are preferable to the ones found in socialist systems. One of the primary reasons I have a deep disdain for the fearmongering around Covid-19 is because of the economic damage it is doing to small and mid size businesses, the types of businesses that have always been the heart of western economies. As the smaller businesses fail they are being replaced by massive monopolies which are making record profits.

This shows us the first glaring flaw in capitalism, the formation of monopolies...

The intrinsic necessity of capitalism

a reply to: ChaoticOrder

Who implemented fiat currency?

I suppose we could talk about who has more reckless spending. I won’t die on the hill that the left is somehow going to find some sense of fiscal responsibility. That premise is silly to me. They’re a bunch of fake altruists who think that giving money to people who “need” it will somehow fix the world. Everyone needs money, but that doesn’t work in reality.

But I also don’t buy the premise that the right are somehow economic gurus.

Nixon enacted fiat, and you can see the debt rise exponentially since then.

If they were so omnipotent, they should have foreseen the ramifications of allowing the country to inflate the supply of money based off of the direction governmental winds were blowing.

Not to mention, some of the most ambitious spending policies in modern history were under right leaning admins.

If we’re being honest, are the Bush and Trump admins close to comparable in spending to the Obama and Biden admins? Three terms each. If we adjust for inflation, is there a huge disparity in spending between those tenures? I’d confidently bet no.

originally posted by: ChaoticOrder
This shows us the first glaring flaw in capitalism, the formation of monopolies...

Yes, but it shows that whatever the "system" is called the money never tickles down. Instead it flows up. That is why you chose one poison or the other.

That is the balance that the elite have been analyzing for decades or even centuries. How much can we take from the working class without making them starting a revolution?

At the end of the day, capitalism and socialism are the same system with different branding and packaging.

a reply to: Ohanka

There is no form of socialism where the state takes the wealth of the workers and gives it to what they would term bourgeois.

Ah and therein lies the real paradox... first the government gives large amounts of welfare money to people, and lets ignore the pandemic, let's take for example something like a UBI (Universal Basic Income), which will generate huge amounts of debt, they can't even afford to fund the systems they already have in place. Then people go and spend that money, and where does it end up? People never really end up richer, but the corporations certainly do. Ironically, the mere act of trying to make people wealthier simply by creating more currency and giving it to them, actually results in more wealth inequality and causes inflation.

Inequality will constantly grow along with the cost of living, and who knows how high it can go before things start to crumble. And they will crumble because there is always a breaking point with debt based money systems. Not to mention, overzealous welfare spending also entrenches future generations with a debt they didn't create. While it might seem righteous and makes us feel all fuzzy, this obsession with enforcing more and more socialist policies is the prime reason society is heading in the wrong direction. It's an economic and mathematical fact. The left believes in fantasy economics, and that's the most dangerous thing about them.

a reply to: ChaoticOrder

What socialist policies are you referring to? The economy is buckling under the weight of trying to keep the "infinite growth" shareholder scam going. That's not socialism.

a reply to: daskakik

Well to be honest I don't think the system we have now resembles free market capitalism, for a few reasons. First of all, if the core principles of capitalism are being constantly undermined by socialist policies it's obviously going to cause issues. More importantly, I think true free market capitalism requires hard money, not money which can be easily created out of thin air. I'm not totally against fiat currencies, but there needs to be hard limits put in place if we use them.

Otherwise there is no chance for real economic fairness, wealth will always be distributed in an unequal way simply due to the nature of debt based money. When money is scarce and has hard value then it becomes much more important how we spend each dollar because we can't just create endless amounts of new money out of thin air. The government needs incentive to spend money efficiently because they are terrible at it. History has shown capitalism can generate immense wealth given the right economic framework.

originally posted by: ChaoticOrder
Well to be honest I don't think the system we have now resembles free market capitalism, for a few reasons. First of all, if the core principles of capitalism are being constantly undermined by socialist policies...

Free market capitalism means someone is going to take control by hook or crook. The theory looks good on paper but it doesn't work in the real world.

Socialism also doesn't work in the real world because greed is in play in both systems.

Socialism forces you to hand over your money, capitalism, after monopolies are in place do the same.

It all boils down to infinite growth with finite resources... There is only one way this economy can go. we didn't want to learn from history so here we are again...

It's the leading countries economies that will bleed to get a tabula rasa.

Good thing all payments will be settled trough the BIS, once the dust has settled...

a reply to: daskakik

In the untouched, un embargoed, and un sanctioned socialist nations like yugoslavia the issue wasn't the state taking the people's money, it was that they became unproductive, over paid, and no outside capitalist driven nation or business wanted to do outside business with them because there were no profit incentives to buy products made in yugoslavia or have something manufactured in yugoslavia because their workers were making like 300% more than you can pay some poor workers in China.

Socialism aims to meet the basic needs of the "working class" whereas capitalism aims to achieve equality of opportunities to join the rat race to the infinite growing pie in the sky.
There's obvious flaws in both systems, but as the staunch supporters on both sides of the argument will tell neither of those economic systems have reeeeeaaallly ever been tried, right?

a reply to: ChaoticOrder

The biggest flaw, is their ignorance of how business works and greed.

They don't agree with individual wealth, unless it's one of them, and individuality in and of itself. Cookie cutter society.

Let them micromanage your life, in return for a meager ration.

Free men & women don't ask for permission.

Remember that, next time you try making own decisions in a socialist/communist Gov.