The Democratic Socialists of America (DSA) seek enormous growth of government. The Cato Institute recently estimated a price tag of possibly $200 trillion for this agenda. Yet socialists proposing government spending still rely on the market economy for their efforts.
Cato’s Adam Michel attempted pricing a DSA agenda including Medicare for All, free college, free childcare, free housing, reparations for slavery, and green energy. A lack of detailed proposals left Mr. Michel with estimates ranging from $70 to $212 trillion over ten years. In 2025 Federal spending was $7 trillion and GDP $31 trillion. Adding $21 trillion annually to current Federal spending would lead to Washington spending almost all GDP.
Viewing socialism as enormous government spending, however, presumes the continuation of the market economy. Before explaining this, I really dislike the labels capitalism and socialism. Economics analyzes decisions about consumption, production, and employment.
Different economic systems consequently constitute different patterns of decision-making. Central planning involves government making most decisions. Decentralized, voluntary, and permissionless decisions, namely free enterprise or the market economy, is another system.
Money is a market economy’s medium of exchange. Although taken over by governments long ago, money emerged because it allowed much easier buying and selling than barter. People accept green pieces of paper, gold coins or bitcoin for what they sell and then trade the money for the goods and services they want.
Money works because honest people normally only acquire it by selling something of value (often their labor). Genuine money is unconsumed production, held in a form with little intrinsic value; no one eats dollar bills or gold coins. Money embodies a market economy’s moral system of cooperation in whch people exchange valuable things that they produce.
A government directed economy would not need money. Money allows purchases without permission, but this freedom is unnecessary if government makes all economic decisions. Lenin initially abolished money to implement Marx’s vision in the Soviet Union. Economic disaster ensued with the ruble soon reintroduced.
Government can participate in the market economy using money, paying for instance to build a post office and hire mail carriers. People sell to or work for the government because the money can buy goods and services produced by the market. Government controls resources with considerable voluntary cooperation.
Spending only works for government if the private sector still produces enough goods and services. Government hiring even one million workers out of the private sector does not reduce market productive capacity much in an economy of America’s size. But resources, including labor, are finite. If the government employs everyone to provide everything on the DSA’s wish list, no one is left to work for Walmart, Nike, or Ford.
People will not voluntarily work for government if their pay does not buy anything. When the carrot of money becomes ineffective because of no remaining private production, the government must turn to other inducements.
Patriotism and selflessness provide one possibility. During World War II, the war effort curtailed production of consumer goods. G.I.’s fought and people toiled in factories with little to buy. Marx’s formulation of “from each according to ability, to each according to need” tries to utilize selflessness.
Human self-interest renders Marx’s dream impractical. Coercion, force and starvation then get employed. Lenin’s reformulation of Marx was, “He who does not work, neither shall he eat”!
Government currently secures significant control over resources with little visible coercion. Uncle Sam even hides coercion when taking our money to spend. Taxes are paid through payroll deductions, mortgage or rent payments, and higher prices for goods. Investors willingly purchase the $2 trillion in new Treasury bonds issued every year. Government money creation silently takes purchasing power through inflation.
A limit exists to government using resources through spending in the market economy. The DSA’s ambitious agenda is even more radical than its $200 trillion price tag, as it would likely force the replacement of voluntary inducement through money with orders and punishment.
Daniel Sutter is the Charles G. Koch Professor of Economics at Troy University. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.