Power & Market

Self-Interest Isn’t What It Seems: An Austrian Response to Socialism’s Broken Promises

A standard trope in socialist circles is that the poor and downtrodden refuse to vote their economic interests. See, e.g., Thomas’s Frank’s “What’s the Matter with Kansas? How Conservatives Won the Heart of America. This theory is used to justify various anti-democratic schemes to “protect” the vulnerable from themselves. If, after all, the poor aren’t voting their interests, then why can’t we achieve Pareto-optimal interventions on their behalf? 

Indeed, doesn’t this fact generally disprove all economic theory? You can’t very well argue that people are rational when it’s so “obvious” that they aren’t, right?

The problem, of course, with such theories is that they ignore risk. Even if socialism works exactly as advertised, even if all of its “failures” were solely the result of the fact that it hasn’t been “tried,” so what? The mere fact that socialism has failed in the past proves that socialism is risky, and risky investments must be assessed differently. 

It’s all well and good to say that a particular stock doubled just as predicted, but that doesn’t prove the would-be investor made a mistake; we’d have to consider the risk before we could assess the wisdom – or foolishness – of the decision not to invest.

Why then should the poor and downtrodden refuse to vote for socialism – even assuming for the sake of argument that socialism would work to improve their lives? It’s perfectly rational for a person living on the edge to be more risk adverse than the wealth; after all, who’s more likely to starve under socialism (if it fails)? 

Likewise, it’s perfectly rational for a person living on the edge to feel the burdens of failure will fall on them disproportionately; after all, who is more likely to form the firing squads and its victims? Who’s more likely to be in front as well as behind those rifles? Since the vulnerable are more vulnerable, it’s perfectly rational for them to fear socialism more than those who have the resources to protect themselves or flee.

Another more subtle, but important point: who is more likely to have actual personal negative experience with government than the vulnerable? The rich are less likely to have negative experiences with government and, when they do, they interact through superior counsel. The person who lost their car to parking tickets is far, far more likely to mistrust government than the person who can afford to park in a garage or pay their tickets when they don’t; therefore, it’s perfectly rational for the former to mistrust socialism more than the latter.

Note that I haven’t made any fancy assumptions about risk preferences or cognitive biases; rather, I’ve made some simple straightforward assumptions: people who are less able to bear risk are more risk adverse, and people who have suffered losses in a particular investment are less likely to repeat that same investment. Nothing fancy, and – yet – it accounts for all the observed behavior.

Now to be clear, I don’t think that socialists can deliver what they promise, but there’s nothing irrational about the skepticism of the vulnerable. To the contrary, it suggests that they prioritize their own personal experience above academic proclamations, which is the most rational preference imaginable.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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