Why Socialism Fails

Opinion Piece - Lessons from History and Parallels in Progressive U.S. States

Socialism, in its various forms, has long appealed to those seeking economic equality, universal access to essential services, and protection from the excesses of capitalism. At its core, it promises a system where the state or collective ownership controls the means of production, aiming to distribute resources based on need rather than profit. However, time and again, socialist experiments have faltered at best or failed entirely, leading to economic stagnation, shortages, and widespread hardship.

A compelling investigative analysis in the YouTube video "Why Venezuela's Fall Makes Cuba Next — The $1.2 Trillion Domino Effect Across Americas" by Financial Truth, provides historical context and evidence on the inherent weaknesses of socialism and why Cuba will be the next to fail.

This video vividly illustrates the patterns through a "scarcity spiral"—a four-stage collapse model observed in socialist economies like Venezuela, Chile, and Cuba. This video, published on January 12, 2026, uses real data and historical precedents to argue that such collapses are "mathematical" rather than ideological, predicting a $1.2 trillion regional fallout from Cuba's impending failure. While the video's dramatic tone and specific projections (e.g., 90-day preparation windows) invite scrutiny—some commenters dismiss it as biased or overly alarmist—its core framework aligns with empirical economic evidence, providing a stark warning about command economies running out of "other people's money."

This article takes the theories raised in the video and applies them to what we see happening today in U.S. states like California, New York, Illinois, Massachusetts, and Oregon that legislatively implement progressive policies. These states, while not fully socialist, exhibit elements of heavy government intervention that mirror the spiral, leading to budget deficits, outmigration, and economic strain.

The Core Flaws of Socialism: Economic Theory Meets Reality

Socialism's failures stem from inherent structural issues that undermine efficiency, innovation, and human motivation. Economic theorists like Ludwig von Mises and Friedrich Hayek identified these problems early in the 20th century, arguing that without market-driven prices and private incentives, resource allocation becomes impossible. The Financial Truth video frames this as a predictable "scarcity spiral": Stage 1 (Illusion) promises abundance through controls; Stage 2 (Shortages) sees basics disappear; Stage 3 (Exodus) drives out skilled workers; and Stage 4 (Implosion) results in currency collapse and regional contagion. This model, based on 12 case studies across continents, underscores how initial egalitarian promises devolve into systemic breakdown.

1. The Economic Calculation Problem: In a socialist system, central planners lack the price signals generated by free markets to determine what to produce, how much, and at what cost. This leads to misallocation of resources, overproduction in some areas, and shortages in others. For instance, in the Soviet Union from 1917 to 1991, five-year plans prioritized heavy industry over consumer goods, resulting in chronic shortages of basics like food and clothing. Despite vast resources, the economy collapsed under its own inefficiencies, with GDP per capita lagging far behind capitalist nations. The video parallels this to Venezuela's currency controls, which created fictional exchange rates and massive corruption, echoing how distorted planning ignores real-world scarcity.

2. Lack of Incentives and Private Property Rights: Without personal profit motives, individuals and enterprises have little reason to innovate or work efficiently. Price controls and nationalizations disincentivize production, as seen in Chile under Salvador Allende (1970–1973). The government nationalized key industries like copper mining and imposed price caps on thousands of products, causing productivity to drop by 20% in a single year. Black markets emerged, inflation soared to 600%, and skilled workers fled, exacerbating the crisis. Supporting this, the video's analysis of Chile highlights how nationalizations handed control to bureaucrats, stifling output—much like how over-regulation in progressive states today burdens businesses, leading to closures and job losses.

3. Corruption and Rent-Seeking Behavior: Concentrated state power invites corruption, where officials exploit systems for personal gain. In Venezuela, starting in the late 1990s under Hugo Chávez, nationalizations of over 1,000 companies and strict currency controls created massive arbitrage opportunities. Politically connected individuals bought dollars at official rates and resold them on the black market for profits up to 400%, looting billions while the economy crumbled. Hyperinflation reached 1 million% in 2018, rendering savings worthless and driving 7 million people—20% of the population—to flee. The video emphasizes this as "rent-seeking cartels," where corruption becomes the system's core, paralleling concerns in U.S. states where progressive tax hikes and subsidies favor insiders, fostering inefficiency and public distrust.

4. Dependency on External Subsidies and Remittances: Socialist economies often rely on outside support, which proves unsustainable. When subsidies dry up, collapse follows. China's Great Leap Forward (1958–1962) under Mao Zedong's collectivization policies led to famines killing tens of millions, as centralized farming ignored local needs. Even after reforms in 1978 introduced market elements, pure socialism was abandoned to achieve growth. The video draws a direct line to Cuba's reliance on Venezuelan oil and U.S. remittances, warning that freezes could trigger mass exodus—a theme that resonates with states dependent on federal aid, where cuts expose underlying vulnerabilities.

5. Brain Drain and Social Contagion: As conditions worsen, the most productive citizens emigrate, collapsing tax bases and accelerating decline. This creates ripple effects through refugee flows and debt defaults, straining neighboring economies. The video quantifies this with Venezuela's $350 billion wealth evaporation and Cuba's potential $1.2 trillion regional impact, including banking contagion and narco-trafficking risks—claims that, while speculative, are grounded in historical precedents like Chile's spillover to Argentina.

These flaws create the scarcity spiral described in the video: Initial illusions of abundance give way to shortages, exodus, and implosion. No purely socialist state has sustained long-term prosperity without integrating capitalist reforms.

Cuba and Venezuela's Ongoing Crises

In the 21st century, Cuba and Venezuela illustrate socialism's persistent pitfalls. Cuba's economy, reliant on state control since the 1959 revolution, suffered a 35% GDP drop in the early 1990s after Soviet subsidies ended—worse than the U.S. Great Depression. Rations fell to starvation levels, blackouts became routine, and hospitals lacked basic medicines. Limited market reforms in the 1990s, like legalizing the U.S. dollar and small private businesses, provided temporary relief, but recent reversions to central planning have reignited crises. By 2024, oil imports from Venezuela dropped 54%, leading to 8–12 hour daily blackouts and medicine shortages. Over 530,000 Cubans—5% of the population—emigrated between 2021 and 2024, including 80% of new medical graduates, hollowing out essential services. Remittances, now exceeding tourism revenue at $3.7 billion annually, sustain the system but risk freezing under government controls, potentially triggering a mass exodus of 2–3 million. The video positions Cuba in Stage 3 (Exodus), warning of imminent implosion and hemispheric fallout, a narrative bolstered by its data-driven approach but critiqued for downplaying external factors like U.S. sanctions.

Venezuela's oil-rich economy, once South America's wealthiest, imploded under similar policies. Nationalizations and price controls caused shelves to empty, while corruption in currency exchanges evaporated reserves. The result: A 75% GDP contraction since 2013, with refugees straining neighbors like Colombia, which spent $4.7 billion on integration from 2015–2020. The video links Venezuela's fall directly to Cuba's vulnerability, emphasizing mathematical inevitability over ideology—themes that extend to progressive U.S. policies creating parallel dependencies and strains.

Parallels in U.S. States

While the U.S. remains fundamentally capitalist, progressive states have adopted socialist-inspired policies: high taxes for redistribution, stringent regulations, minimum wage hikes, and expansive social programs. These create mini-versions of socialism's flaws, aligning closely with the video's scarcity spiral. For instance, the illusion of abundance through generous welfare mirrors Stage 1, but leads to shortages (e.g., housing) in Stage 2, exodus in Stage 3, and fiscal implosion in Stage 4. Supporting commentary from recent analyses shows how these policies, while well intentioned, foster economic issues reminiscent of full socialism.

California, the epicenter of progressive governance exemplifies this spiral. In Stage 1 (Illusion), policies promise abundance—like expanded healthcare and education—but mask underlying strains through high taxes and subsidies. The state faces a projected budget deficit of up to $24 billion based on various estimates. This mirrors the video's depiction of socialist overspending without revenue, leading to contagion. High taxes, including wealth tax proposals, have spurred a "billionaire exodus" and record out-migration, with California leading the nation in net population loss for the sixth straight year in 2025—a net outflow of 215,500 residents, aligning with Stage 3 (Exodus). As in the video's brain drain from Cuba, skilled professionals flee high costs and regulations, hollowing out the tax base.

Minimum wage increases to as high as $20/hr in 2026 illustrate the incentive problem, leading to Stage 2 (Shortages) through job losses in low-margin sectors like fast food, where prior hikes caused layoffs and closures. Housing regulations and environmental mandates exacerbate shortages, with California short 840,000 to 2.5 million units, driving median home prices to a forecasted $905,000 in 2026—creating scarcity akin to empty shelves in socialist regimes. Energy policies contribute to blackouts, with a tightening 2026 outlook due to refinery closures and electrification demands, echoing Stage 2 shortages and risking Stage 4 implosion through grid failures. Businesses like Oracle and Tesla have relocated, similar to the video's producer shutdowns.

Other progressive states face analogous issues. New York, with a poor business climate ranking in 2026 tax indices, grapples with high taxes and outmigration to the South, is criticized for "reckless sanctuary policies" that strain resources like the video's refugee contagion. Illinois contends with pension crises and shortfalls, dependent on federal bailouts like socialist subsidy reliance. Massachusetts and Oregon, raising minimum wages in 2026, report regulatory burdens slowing job growth, with Oregon's policies contributing to housing crises and homelessness—paralleling the spiral's progression toward implosion. These echo the video's contagion theme, where local failures strain national resources. Progressive agendas, while advancing social goals, risk economic insecurity, as noted in analyses of voter preferences for growth-oriented policies amid inflation.

These states' challenges—deficits from expansive welfare, exodus due to taxes, and inefficiencies from over-regulation—parallel socialism's calculation and incentive problems. Unlike full socialism, market forces provide buffers, but unchecked progression risks deeper spirals, as the video warns for Cuba's regional impact.

Conclusion: The Enduring Lesson

Socialism fails because it defies human nature and economic reality: Central control cannot replicate market efficiency, and without incentives, productivity wanes. From the Soviet Union's collapse to Cuba's current polycrisis, history is replete with evidence. In progressive U.S. states, these echoes serve as warnings—California's looming $ +billion deficit projection and outmigration highlight how socialist policies, even hybridized, erode prosperity. To thrive, economies need balanced intervention: Protect the vulnerable without stifling innovation or causing out-migration. As global examples show, ignoring this invites scarcity, not abundance.