One of the questions we always face from those who are familiar neither with economic data nor with Austrian Economics keeps repeating itself:

If the free market is soooooooooo good, why sooooooooo many people prefer socialism?

It is an excellent question worth exploring. Actually, it is so worthy that we chose it as the "Big" question.

The problem is that the answer is not that simple and explaining it will take some time. Please stay with us.

THE BASICS

The most basic principle upon which all human beings operate is greed. This is nothing more than a biological expression of survival or, if you would like to see it in a different light, it is "the way of the selfish gene". It is quite simple, really.

The more resources you have, the higher your chances of spreading your genes throughout the human species because you will be healthier, you will live longer and your enemies will be unable to compete or harm you.

This is as basic an instinct as it gets. It is so basic that the entire concept of evolution depends on it. We cannot ignore it or turn it off. It is hardwired in our brain and in the brain or nervous systems of lesser creatures and it even operates at a genetic level when necessary (think bacteria, for example).

FREE MARKETS

Nature

Now that we know that people are greedy (or its equivalent, selfish), we need to ask ourselves how will this selfishness operate in real life. This was explained in several posts, for example We Don’t Need No Stinking Competition. 

The short version is that the best way to survive is to be greedy, but not too greedy. This concept is quite simple; if you banish all your competitors, there will be nobody left to spread your genes throughout. They will all be dead and you will soon follow into extinction.

What this rule creates through a natural process is free markets and competition. This relentlessly leads to increases in standards of living. Therefore, we absolutely must conclude that greed is not bad, on the contrary, greed is good.

Or, to be precise, allow us to qualify the remark:

Greed in a natural environment is good.

Side effect

Just because greed in a natural environment is good, this does not mean that we will enjoy all its effects. Not at all. Widespread greed in a free market means that we are in permanent competition with everybody else and this is hard to do.

It also means that some people will become enormously rich while other will remain forever in the middle class. This fact is difficult to accept thus creating jealousy. Jealousy is also difficult to handle.

Sometimes we may lack the wealth to acquire goods and services we desire, this will also spark feelings of frustration.

We may perceive this disparity of wealth as unjust or even anti-social thus sparking rage, righteousness and a collection of other negative sentiments.

The point is that greed in a free market is not easy and it produces a certain level of discomfort.

This is a small price to pay for a generalized and meaningful increase of wealth across the world.

The point is that in free markets, there is no other choice if people are to achieve maximum wealth.

MANAGED MARKETS

Unfortunately and for the time being, free markets are just a theoretical scenario until we go back to the past thus reverting to reality.

People operate and live in managed markets and this changes things remarkably.

Discomfort

Even in managed markets (socialist ones), people still feel the discomfort of markets as explained above. However, they cannot see a free market providing them wealth to a desirable level (if such subjective level even exists) because of the slow economic growth produced by the "management" of markets.

For regular folks, the scenario is as follows. They live in a market ruled by powerful people (politicians and the power elite) following unknown rules, while at the same time the government is telling that "equality" and "distribution of wealth" is "just and fair".

What they have is wealth discomfort and a quick and easy solution: wealth distribution.

Of course! they will choose socialist governments, rules and regulations. It is inevitable because people are greedy. They cannot stop being greedy and their greed is telling them that it can be satisfied very easily through socialist principles. Let's be honest, if you need something and a politician tells you that he can get it for you, wouldn't you jump at the opportunity to vote this politician into power? Of course! you would.

Time horizon

The problem is that in free markets, there is no other solution than free markets. In a sense, people are trapped in a system that maximizes wealth for everybody. In managed markets, on the other hand, politicians provide "other" solutions that seem to work because you cannot see the sum total of the negative effects. Again, there is no free lunch, but in one system politicians dangle a cheap fast food meal under your nose while in the other, theoreticians are giving away free vouchers for a giant dinner party no expense spared, to take place 20 years from now. What would you do?

You can clearly see a government program providing free medication within a year, but you cannot see a massive world-wide wealth creation over the next 20 or so years that will make this gift unnecessary. There is a time horizon at work here which most people cannot afford to extend to, because life happens now, not in 20 years.

This is the classic economic explanation as to how time preference works.

Justice

Then, we have the never-ending story about the unjust economic system we live under. As we evolve politically, our ideas of "social justice" will also evolve. At some point in time (as in today) it will seem OK to rob people from their property and give it to somebody else. We will be inclined to diminish our discomfort by doing this.

We do so because we are "justified" legally, morally and politically. Our leaders say so. Many of our religions say so. Our thinkers say so.

They are of course in error, but common people do not know this.

Education

Current governments have also overtaken education. Almost anywhere in the world public education manages the learning of our children. And who defines what our children will be learning? Governments. And which tendency do these governments have? Socialist. And what do you think will the curriculum reflect? Socialism.

That's right. Our children are being thought that socialism is the "right" thing to do and the "just" way to proceed. How do you de-program more than a decade of elementary and secondary education? Well, you can't.

This is yet another reason why people choose socialist policies over capitalist ones, because they have been taught to do so.

Politicians

Lastly, politicians are vote maximizers. As such, they will choose any policy that maximizes votes. They understand full well all the above arguments and have realized long time ago that free today beats far better tomorrow, regardless of the final cost every day of the week and twice on Sunday.

Guess what kind of policies will they be pushing?

CONCLUSION

The answer to the big question, as to why people choose socialism is a complex one, but it can be summarized as follows.

Greed in free markets (its natural environment) has only one outlet: the market. Through this market everybody's standard of living rises, but there is a price to pay. There is no escape from the free markets and discomfort levels must be accepted.

Greed in managed markets (its artificial environment) has an optional outlet: governments. Through the intervention of governments in free markets, everybody's standard of living drops, but there is a benefit. You get some "free" stuff.

These are the economic calculations we all make, but there is something else. We prefer stuff now, not later. If you combine these two principles, you can fully understand why people choose socialist policies almost every time.

They are not making irrational decisions. On the contrary, they are making very rational ones. It just so happens that they are the erroneous ones.

It is precisely for these reasons that we are locked in a vicious circle from which there is no escape, at least not a rational or reasoned one. There won't be any magical change in economic beliefs for the foreseeable future. People will continue to vote socialism until…well… until everything collapses. And then, and only then, they will evolve politically. Until such time comes, there will be no changes.

It is for this very reason that we are here, because the only thing that we can do is to help accelerate political evolution through spreading the fact that there is indeed a better way than to choose socialism almost every time.

And this is, in the end, your choice. Yours, and yours alone.

Note: please see the Glossary if you are unfamiliar with certain words.