Socialism is often viewed as a form of governing that is beneficial socially, but harmful economically. As an economist, I have learned plenty of things that would cause this to be true, but there are a number of factors that many people fail to acknowledge.
Let’s start with increasing the minimum wage. This is a pretty basic plan with some pretty basic consequences. Increasing the minimum wage will cause an increase in prices as the cost of production increases. This logic makes one assumption that simply is not true: firms operate at an economic profit. This means that the firm makes exactly enough revenue to cover the costs, thus having a net profit of zero.
No large corporation operates at an economic profit anymore, they all push prices and costs so low to maximize the profits they make. Take Walmart, whose gross profits were $124.62 billion, according to Amigobulls, a stock market analysis group (1). This margin of profits would allow Walmart to increase wages for its 1.4 million workers (2) by $89,014 annually to allow them to operate without losses. Seeing how the average Walmart worker makes approximately $47,000 annually (3), an increase of $89,000 would triple their current income. All the proposed increases of minimum wage generally revolve around $15 per hour as the minimum living wage, which is a little over double the current $7.25 per hour. A major corporation like Walmart could easily take this wage increase twice over.
The main concern that opponents of the minimum wage bring up is the effect of increasing wages for small businesses who don’t make astronomical profits. This could be easily avoided by having a different minimum wage depending on the number of employees. The majority of the country’s 140 million workers work at large companies, so increasing the minimum wage for companies that employ more than 50,000 employees would be a good way to make sure that companies that can afford to pay their workers more, do.
Moving on to universal healthcare and higher education, which are also viewed quite unfavorably among the more conservative members of the United States. Most fiscally minded people claim that giving out health care and university education is just more government handouts to people who weren’t willing to pull themselves up by their bootstraps and that such handouts are poor business practices. Ignoring the fact that the country shouldn’t be run like a business (see a Forbes article on the matter here), there is also evidence that running such government assistance programs has an economic as well as social benefit. Having health care for everyone, regardless of employment or income, allows the free market to become freer. Once people don’t have to worry about what to do if they get sick, they become more likely to take risks and start new businesses, improving competition. Without universal health care, people don’t want to go out and start new businesses and would prefer to stay working at the major corporation that gives them health insurance. This removes many possible competitions, and could even lead to an oligarchal marketplace.
Universal higher education has a similar benefit. By guaranteeing that children will go to college, parents feel better about taking risks, but it also has several societal and economic benefits as well. Enabling anyone to go to university or trade school will create a workforce that is highly qualified and competitive, improving the quality of work all around and creating a smarter society. This will lead to more rapid improvements in the sciences, allowing the US to regain its former place as the leader in technological improvements (recently taken by China and Japan). Placing a higher emphasis on education creates a more engaged society that takes an active part in helping the country become a better place, and who doesn’t want that?
