Broker Check

June 2018 - Socialism? Really?

A study in October 2017 by the Victims of Communism Memorial Foundation found more Millennials in the U.S. would prefer to live in a socialist country (44%) than in a capitalist country (42%). The significance of this finding cannot be overstated as Millennials have surpassed Baby Boomers as the largest generational cohort within the United States!

The study suggested the attraction of socialism for Millennials has less to do with their familiarity with the ideology and more to do with their discontent with the current economic system, the flaws of which they blame on free-market capitalism.

Socialism is a proven failure as an economic model. The experiments date back to Russia during the Bolshevik Revolution in 1917. Of course, the Soviet collapse thirty years ago should have been a strong indicator. People have forgotten that Communist China could not feed its population prior to the re-introduction of capitalism under Deng Xiaoping in the 1980s. Today, economic stagnation still defines countries such as Cuba and North Korea, but Venezuela represents perhaps the most dramatic collapse in recent memory.

The discovery of oil in 1914 brought Venezuela vast revenues and fostered a relatively free economy. By 1950, Venezuela enjoyed the fourth highest per capita income in the world, behind only the U.S., Switzerland, and New Zealand. Even as late as 2001, Venezuela ranked as Latin America’s wealthiest country.

With the election of Hugo Chavez in 1999, the country began its experiment with socialism. Despite $1 trillion in oil sales during his tenure, the country’s slide into crisis was predictable. With Chavez’ death in 2013, his hand-picked successor Nicolas Maduro obliterated the pretense of democratic elections while steering Venezuela into utter chaos. Today, the country with the world’s largest oil reserves suffers from a severely contracting economy, runaway inflation, despotism, mass emigration, criminality, disease, hunger and starvation. Venezuela’s economy contracted by 16% in 2016, 14% last year, and a predicted 15% in 2018. Inflation was 112% in 2015, 2,800% in 2016, and 65,000% in 2018. Food shortages led to an average weight loss among Venezuelans of 18 pounds in 2016 and 24 pounds in 2017!

The crisis in Venezuela was not the result of foreign invasion, civil war, natural disaster, or plague. It was socialism! In 1936, John Maynard Keynes wrote, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” Can you say Karl Marx?

Remind your children and grandchildren about the woeful track record of socialism over the past 100 years. America’s future may depend upon your testimony.

The views expressed are those of Lindsey Randolph and should not be construed as investment advice. All economic information is historical and not indicative of future results. All information is believed to be from reliable sources; however, we make no representations as to its completeness or accuracy. Discuss all information with your advisor prior to implementation.

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