Bernie Sanders and the Fraud of Democratic Socialism

With his recent strong showing in the Iowa caucus, Senator Bernie Sanders now deserves to have his policy ideas examined seriously by admirers and critics alike.

Sanders has policy positions on dozens of important issues but two stand out: One, Sanders is a self-described “democratic socialist” and two, he has argued repeatedly that the rich don’t pay their fair share of taxes. Presumably, in a Sanders Administration, there would be more “socialism” and higher taxes on the “rich”.

What is democratic socialism? From my training in economics, socialists believe that free-market capitalism is a failed system and that it should be replaced by government ownership of the means of production. This means that all important decisions concerning the production of output and the direction of investment should be made by the State. The “democracy” part of the definition implies that democratic institutions such as a constitution and elections would be preserved.

Does Bernie Sanders really believe that democratic socialism makes sense? Probably not, for a number of reasons. First, many economists accept that socialism fails in both theory and practice; it is not a coherent economic system. It fails in theory because if all of the “means of production” are nationalized, there would be no intelligent way for government planners to decide which factor combinations are the cheapest or which outputs and investments would tend to maximize consumer welfare. The economy would literally be at sea without a rudder.

To see why this is so, we must understand that under free-market capitalism, prices and profit incentives guide resources into uses that consumers prefer relative to alternatives. But in socialism, where the crucial factors of production (such as capital and land) are owned by the State, there are no meaningful price signals or profit and loss incentives to ensure that scarce resources are used efficiently and not wasted. And this so-called economic calculation problem is not made any easier by arguing that the government would be “democratic” or that it’s intentions are to help the poor.

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