Why Socialism ALWAYS Fails: Political Iatrogenics & Causal Opacity

by Spencer P Morrison, NEE

From Political Iatrogenics:

Socialism is a political philosophy predicated upon interventionism.  It’s all about taking action.  Doing.  Unemployment?  Create jobs.  Poverty?  Provide welfare.  High rents?  Impose rent controls.  Socialism is popular because it appeals to one of mankind’s most powerful psychological biases.  Sadly, socialism is also often little more than an exercise in political iatrogenics: it just makes things worse.

There are two primary reasons for this.  First, socialism is redistributive: the government taxes productive industries and individuals and gives the proceeds to unproductive or non-productive industries and individuals.  A socialist government is like Robin Hood—it steals from the rich and gives to the poor.  Sometimes this “theft” (taxation) is morally justified.  Often it’s not.  Regardless, redistribution virtually guarantees that our economic resources will be used inefficiently, and this makes everyone a little bit poorer.

The second, and main reason why socialism fails is because it confuses simple for complex systems.  Simple systems are governed by something called first order causality: cause and effect are related in a linear, Newtonian way.  Imagine a billiard’s table.  Every time a ball is struck it responds perfectly predictably.  There are no surprises in pool.  Socialists naively believe that the economy works like a giant pool table in that we can understand the consequences of our actions.  If only we had perfect knowledge then we could “solve” the economy.

But that’s not how the economy works.  The economy is a complex system governed by second order causality: cause and effect are related in an opaque, non-linear way.  Imagine a butterfly.  It flaps around your garden, disturbing the air ever so slightly. Although this disturbance alters our immediate atmospheric conditions imperceptibly, its effect may magnify because of exponential interactions and positive feedback loops.  Perhaps this disturbance gives a breeze just enough impetus to blow.  This catalyzes another breeze, and another.  Now a gust of wind.  A month later a storm rumbles overhead—it was born of the butterfly’s wings.  It is not always obvious how cause and effect are related in complex systems, and this is why tampering with them is so dangerous.  Will we get a butterfly or a tornado?  A breeze or a blizzard?

Socialists believe that every problem has a corresponding solution.  What they fail to understand is that the “solution” itself will have a myriad of unknown—and often unknowable—effects.  Not all of them savory.  For example, socialists say that rents are too high.  The solution?  Rent control: cap the maximum amount that greedy landlords can charge their tenants.  Surely lowering rents will lower rents?  How could it be otherwise?

Of course, it is otherwise.  A 2017 study from Stanford University looked at the effect of rent control laws in San Francisco.  They found that because rent control regulations made renting less profitable, many landlords sold their properties or converted them into condominiums.  This led to a 25 percent decline in the number of renters living in “rent-controlled” units, relative to 1994.  Not only did rent control chase poor tenants from their apartments, but the decrease in housing supply actually led to city-wide rent increases of 7 percent.  This cost renters the sum of $5 billion.  Rent control hurt the very people it was supposed to help.

This observation is not limited to rent control: many socialist policies are iatrogenic in nature.  For example, studies from Harvard University and the National Bureau of Economic Research conclusively show that minimum wage increases hurt minimum wage earners the most.  Meanwhile, a plethora of studies demonstrate that affirmative action programs actually harm minority students and workers.  The list goes on and on.

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