Socialism and Capitalism: A Wonderful Relationship


Novoselic in NYC

As I write this from downtown Manhattan, Wall Street’s going through one of its most hellish periods in recent history. As the housing crisis takes lenders down, and the quasi-governmental Fannie Mae and Freddie Mac are thrown a lifeline, the pro-capitalist chants of not so long ago are still fresh in my memory.

What happened to that “government regulations are hindering trade” talk? Before this crisis, when oil was relatively cheap and housing prices were never gonna come back to earth, people argued for the natural law of economics—the incentive of potential profit and the dissuasion of potential loss. In other words, people tend to put their money where they think it’s treated best.

Nobody likes government until they need it, as illustrated by the recent turmoil in the financial world. But when markets fail, the first place people run to is the state’s safety net. In the United States, the marriage of socialism and capitalism is usually a successful, happy relationship. We enjoy public roads, schools, and law enforcement, among other services.

Regardless of this arrangement, conservatives still disparage socialism. It’s like some kind of dogma left over from the Cold War. Even the slightest utterance about some kind of public-health system will elicit the derogatory term “socialized medicine.” But public systems already steward health issues.

I’ve put together a short narrative to make my point: Let’s say there’s a community living on a river. One day, people downriver start to notice sewage floating on the water. Someone upriver is obviously dumping shit in the water! And they’re doing so because it’s easy—the river is transporting the waste away from their property.

Instead of installing a septic system, the dumper is passing the expense of that onto the people downriver. And it’s a tangible cost. Downriver dwellers are getting sick because of the polluted water, so they now need to pay medical bills. The fish are dying off, and the smaller catch means higher prices for food. Property values are declining as buyers are not interested in living next to pollution.

Eventually, the folks downriver have had it! Enough of them get together and, through our democratic process, government regulations are created that make the dumper stop passing the cost of their waste disposal onto everybody else. To enforce the regulations, fines are imposed on violators. On top of that, the community realizes that a public sewer system would benefit a clean river better than individual septic systems.

There’s not enough money in the community to pay up-front for a proper sewer system. Voters then approve the issuance of a municipal bond. The bond will raise the capital for the project based on a share of future revenues generated from utility user bills. Private investors assess the probability of repayment and choose to buy into the public project so they can receive interest on the money invested. Municipal bonds are a very safe investment and yield a modest interest rate. To encourage the private capital flow into public infrastructure, municipal bond investors pay no federal income tax on interest generated.

It took initiative and coordination to clean up the river. Out of a problem, the community actually created wealth, and the public system is a shared asset. Also, individual health issues were addressed through a public process. But instead of the people paying directly for medicine and treatment, there was a comprehensive solution: The river was healed.

There will always be a tension between socialism and private initiative. That’s a good thing. As we’ve seen with the current financial crisis, deregulation can cause big problems. At the same time, government can be overbearing. Let’s not tilt the balance with rigid ideology one way or another. There’s no need to flush either socialism or capitalism down the drain.

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