How Governments Create the Demand for Socialism

Part I | Part II

The consolidation of employment into large firms, promoted by corresponding growth of regulations and government power has had a detrimental effect for new generations. Through most of history, small business have provided the great bulk of economic activity and support. Ranging from family farms to mom and pop stores to independent service providers such as carpenters and plumbers even up to doctors, lawyers and bankers, most business was provided and transacted locally.

Starting a business was relatively easy, and until 1913 with the introduction of income tax, transactions, including work for hire, could be done with non-monetary exchanges. Apprentices could be supported with room and board while they learned their trade, farmers could exchange food for goods and services, businesses could thrive all without a dollar ever changing hands.

Income tax, providing support for the Progressive idea that government needed more power, changed all that. Besides requiring all exchanges to be in the form of taxable monetary income, it gave government enormous power over commerce and the people who conducted it.

The free exchange of value which is the foundation of Capitalism, was now constrained to take place in monetary form only. Taxes have always given governments power. Rome was built on the tax tributes of its colonies. Later empires followed suit, but the imposition and collection of taxes was often haphazard and unreliable. An Income tax fixed those problems.

Our government was originally intended to be supported through tariffs and provision of certain essential services such as a postal service that would only charge for service rendered. Limitations on its income would limit its size so as to reduce its threat to individual liberty. It would be a government that was accountable to its constituents and not to itself.

An income tax, measured in money, that required every individual to report under penalty of severe punishment by government authorities was ideal. Al Capone, the famous gangster of the period shortly after the introduction of income taxes was convicted of failure to pay income taxes, not of murder, or drug dealing, or bootlegging, or gambling or any other criminal activity—income tax evasion! The Progressive idea of taxing income had a profound effect on the nature of work, on commerce, on how citizens interacted, made government larger and more intrusive, and even created an entirely new category of criminal activity.

Although the income tax made it much more difficult to start and operate small businesses, many still undertook the effort. In the early part of the last century, the great majority of employment was in small, local businesses. Many started and operated small businesses from their homes. At that time the regulatory burdens on small businesses were a small fraction of what exist today. Homes, often serving as a business base, were relatively inexpensive, typically costing only about two times the average annual income, or even less. Many were inherited.

The Gen Z and Millennials of today confront a far different situation than their parents and grandparents faced. Homes, when you can find them, are typically five to six times annual income. Part of the reason for the current shortage of available homes is government intervention, largely in the forms of zoning and building codes. There are millions of houses that were built eighty to one hundred years and more ago that have securely housed multiple generations. Those houses could not be built today.

Permits for new houses can take years to obtain, and code requirements greatly increase the expenses of construction while offering little obvious benefit over houses constructed decades earlier. The bureaucratic preference for multi-family dwellings, encouraged by large developers who would rather build apartment complexes rather than houses severely constrain new house supplies, and ensures what houses are available are expensive Gone is the post WWII construction of affordable housing that made low cost homes available to the Greatest Generation and Baby Boomer ancestors of Gen Z.

Even for those who can afford houses, it can be difficult to use a house for any purpose other than—as George Carlin put it -"a little place to keep your stuff".. Often what new housing is available is in a HOA (Home Owner's Association), and is subject to the additional restrictions of the HOA. Many prohibit using the home for a small business, sometimes even prohibiting a home office for business conducted elsewhere. Even without a HOA, municipal zoning regulations frequently restrict or even prohibit home based businesses. Apartment complexes are even worse.

As pointed out earlier, a small business is an alternative to a "job" where one trades the security of a paycheck for loss of the upside potential of a growing business. Zoning and HOA prohibitions against small businesses further limit the future options of Gen Z and Millennials. Is it starting to seem like current generations are being boxed into an untenable, even unsurvivable position?

They were told that a college degree was the union card needed to get a good job, that otherwise they would be limited to driving cabs and housekeeping work. It didn't matter what field, just a degree, any degree, was enough. As a result, many got useless degrees in fields nobody wants and now have tens of thousands of dollars of debt and no job. Another betrayal by the system, from their perspective. It is not obvious how government loan programs for education contributed to the situation, but they have been a major contributor to the problem while appearing to create opportunity.

Someone looking around today sees most personal wealth locked up by Baby Boomers and prior generations. They see large corporations acting to increase their already huge profits at the expense of small entities and small communities. They are told that Capitalism is to blame for ensuring that only meager scraps are left for the young. Crony Capitalism, which is not Capitalism at all, is held up as proof that Capitalism doesn't work and is exploitive, when in reality, it is the growth of government involvement through regulations coupled with concentration of power that can be manipulated by wealth and special interest that is the complex source of difficulty.

Most of these generations aren't lazy, they aren't entitled, they want to work, start families, and just want the same opportunities their parents and grandparents had. As we have shown, though, through complex interactions between tax laws, regulations, rent seeking collusion between government and corporations, self serving educational institutions, and globalization, combined with progressive policies and ideologies, those opportunities of previous generations are few and far between.

It is no great wonder that the young today are vulnerable to the seductive calls of Socialism People like Mamdani in New York, among many others, speak of using the coercive power of government to confiscate the wealth of those perceived to have too much and redistribute it to those who feel they have too little. This Robin Hood redistribution approach has always had a certain appeal, especially among those who see themselves as struggling to get ahead and who see their efforts blocked by those who have more and who do not want to share.

Proponents of Socialism point out what they see as the shortcomings of Capitalism while extolling the claimed virtues of Socialism. Instead of a system where people are rewarded for the value they contribute, people are provided with a minimum level of survival, independent of their contributions to that society. The unfortunate result of Socialism - a system that takes from the productive to give to those who need - is that people rapidly learn to have no productive ability at all while exhibiting great need.

No, most Gen Z and Millennials don't want the consequences of Socialism, but see little alternative to the current situation. Most want to be rewarded according to their abilities and contributions. 

Capitalism works great when you let it

While some want the illusory security of a job, many more prefer an opportunity commensurate with their abilities. Few see that the heavy hand of government acting at every level has been the source of current difficulties. Instead, more government is promoted as the solution, as government seems the only agency with sufficient power to right perceived wrongs. The great power of the invisible hand of free exchange of value seems too weak to be effective, despite the thousands of years of its successes

One cannot and should not blame Gen Z for being attracted to Socialism. They see the problems they face in the current system and have been told that only a bigger government has the power to fix them. They don't have the experience yet to really understand that power almost always serves its own interests. The United States has been fortunate in that every once in a while we have had a Washington or an Eisenhower or a Reagan or a Trump come along who is genuinely concerned about the welfare of the people and the country. They pay a steep price for their concern.

The real blame should fall on those who allowed the encrustations of governance to slow the engines of commerce to a near halt. Time to scrape off the barnacles and get the ship moving again while there is still time. Socialism is not the answer. More government is not the answer. You can't count on those who caused the problems in the first place to fix them later. If we want the opportunities enjoyed by previous generations, we need to restore the environment of previous generations that provided them. Capitalism works great when you let it.

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