The Economics of Wishful Thinking

Every generation seems convinced it has discovered a revolutionary new economic system that will succeed where all previous attempts failed.

It never does.

A thought-provoking column by Greg Sheridan in The Australian highlights what he sees as the growing influence of the Democratic Socialists of America (DSA) within the Democratic Party, arguing that the movement is no longer a fringe curiosity but an increasingly powerful force shaping Democratic primaries and pushing the party further to the left. Readers who have access to The Australian will find Sheridan's full article well worth reading.

Whether one agrees with all of Sheridan's conclusions or not, it raises an important question:

Why are ideas with such a long record of economic failure once again becoming politically fashionable?

Socialism's Familiar Promises

Throughout history socialism has arrived wrapped in attractive promises:

• Affordable housing.

• Free education.

• Government-controlled essential services.

• Equality.

• Protection from "greedy corporations."

These promises sound compassionate. The problem is not the objectives.

The problem is that economics has a habit of ignoring political slogans.

Markets cannot be legislated into producing goods at below-market prices indefinitely.

New York's Latest Experiment

One proposal attracting attention is New York mayoral candidate Zohran Mamdani's plan for government-owned grocery stores intended to provide food at controlled prices.

Supporters present the idea as something bold and innovative.

In reality, governments have been trying versions of price controls for centuries.

The results have been remarkably consistent.

Step One: Sell Below Market Prices

If government stores sell products cheaper than private supermarkets, one of two things happens.

Either:

• the stores sell goods at a loss; or

• suppliers refuse to sell unless government pays market prices.

In either case, taxpayers ultimately fund the difference.

Step Two: Private Competition Shrinks

Private retailers cannot compete indefinitely against government businesses subsidised by taxpayers.

Some close.

Others stop investing.

New entrants stay away.

Ironically, competition declines precisely because government has tried to "increase competition."

Step Three: Subsidies Explode

As losses mount, governments face a choice:

• continually increase taxpayer subsidies; or

• reduce the discounts.

Either outcome disappoints voters.

Subsidies become politically difficult during budget pressures, especially when schools, policing and transport are competing for the same public money.

Step Four: Empty Shelves

Eventually products that cannot be sold profitably disappear.

This has happened repeatedly wherever governments have attempted extensive price controls.

Retailers simply stop stocking products that lose money.

Consumers end up paying less—for goods that are no longer available.

Cheap prices mean very little if the shelves are empty.

The Lesson History Keeps Teaching

History is full of examples.

Price controls may provide temporary political headlines, but they rarely solve the underlying problem.

Instead they tend to produce shortages, distort supply, discourage investment and require ever-increasing taxpayer support.

Markets are not perfect.

But they do communicate information about scarcity, demand and production costs that governments often struggle to replace through bureaucracy.

Why Does Every Generation Believe It Will Be Different?

Perhaps the most puzzling aspect is not that these ideas continue to be proposed.

It is that they continue to attract enthusiastic support despite so much historical evidence.

Every failed experiment is explained away as having been poorly implemented.

Every new proposal is described as "different."

Every generation assumes it has finally discovered the version that will work.

Yet economics is remarkably stubborn.

Governments can temporarily override prices.

They cannot repeal the laws of supply and demand.

A Warning Worth Considering

Sheridan argues that the growing influence of the Democratic Socialists of America represents a significant ideological shift within American politics, one that deserves far more attention than it currently receives. He points to the DSA's success in Democratic primaries and its increasingly mainstream influence as evidence that ideas once regarded as politically marginal are gaining traction.

Whether these policies ultimately remain campaign rhetoric or become governing reality remains to be seen.

But before embracing another round of government price controls and state-run enterprises, it would be wise to ask a simple question:

If the same ideas have repeatedly produced shortages, subsidies and declining choice around the world, why should this time be any different?

History suggests the burden of proof lies not with the sceptics, but with those claiming that economic laws have suddenly stopped applying.