The chicken and the egg

Geoffrey Lawrence

In contemporary American culture, socialist ideals are frequently met with popular praise. The “Progressive” movement promises abundance for all by penalizing “greedy capitalists” and “fat-cat bankers” who earn “obscene” or “wind-fall” profits which are supposedly earned at the expense of the little man.

My object here is not to address the “abundance for all” fallacy. However, we do live in a world constrained by limited resources where it is impossible to provide everyone with every conceivable pleasure and where the distorted incentives created by a redistributionary regime inevitably distort the production process and lead to lower standards of living for all.

Nor is my objective to address the capitalist “exploitation” fallacy. Yet, it is clear that, under a system of voluntary exchange, no transaction occurs unless both parties perceive a net benefit because their subjective value judgments lean in opposite directions. As such, it is but a small logical step to realize that those individuals who earn high profits under a system of free exchange do so only because their work provides great benefit to their fellow humans. Indeed, this recognition was the foundation of Ayn Rand’s Objectivist School, which assigns a moral imperative to profit-seeking because of the benefit that such activity bestows upon society.

The object here is to explore the link between socialist idealism and state control. While many pundits today praise the ideals of a socialist utopia, they simultaneously deplore the police state tactics used by the socialist republics of the Twentieth Century. This viewpoint naively overlooks the fact that, in a world constrained by limited resources, civil liberties MUST retreat in proportion with the growth of government’s role in economic planning.

A perfect example to illustrate this point is the health care industry. Even prior to passage of the health care “reform” bills this year, the American health care industry was already dominated by government – with public funds paying 50 percent of all health care costs directly, and extensive government regulation effectively controlling the remainder of the industry. This effective socialization of the industry has imposed low direct costs on individuals for treatment – health care for most individuals is predominantly financed by either tax dollars or through insurance payments. Individuals rarely bear the costs of health care directly. In nearly all cases, there is some socialized risk pool.

Socialized risk gives rise to moral hazard. When one can offload the potential costs of a risky activity onto others, he or she becomes more likely to engage in that activity. Individuals with government-financed health insurance might be more likely to take up smoking, for instance (private insurance companies can at least impose higher premiums on smokers; government-financed plans are compelled to offer care to all on equal terms).

In a world of unlimited resources, this would not pose a problem. However, in a world constrained by limited resources, a government-financed health plan must devise methods of controlling costs, and this means controlling behavior. Hence, we have seen rising health care costs used as justification for punitive cigarette taxes. Proposals have likewise emerged for a “soda tax.” Other proposals are now being propagated for some type of “fat tax.” After socializing the costs of health care, government is seeking to minimize the impact of socialization and this has a negative impact on civil liberty.

Certainly, this is not the most extreme example. During the 1930s – the Progressive movement’s heyday when the federal government controlled virtually all economic activity – the National Recovery Administration established fixed prices and wages for nearly all industries. Entrepreneurs who attempted to sell at prices lower than the official NRA prices were jailed. In a famous case, Jack Magid was thrown in jail for charging 35 cents to press a pair of pants instead of 40 cents.

In another case, the Supreme Court convicted Roscoe Filburn of violating the Interstate Commerce Clause under a regime of agricultural price-fixing because he was growing wheat for his own family to eat. Filburn’s non-commerce, according to the Court, affected supply and demand and therefore undermined the government’s price-fixing scheme. Filburn was required to pay punitive fines for trying to feed his own family.

The lesson of history is clear: civil liberty declines in direct proportion to the degree of socialization. Constrained by limited resources, the provider-government must control costs and this means controlling behavior. It is inconsistent to offer praise for socialist idealism while simultaneously deploring police-state tactics. The two must go hand-in-hand.

Arguing that one can exist in isolation is tantamount to arguing that the chicken can exist without the egg.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.