Debating with my libertarian colleagues is so frustrating

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What you have there is crystallized labor time in the form of manufactured garden gnomes. The fact that you were unable to recoup the costs is your business. That's how it works under Capitalism.

However, if you take a big picture view of what happened, you saw this: you bought the man's labor time and tried to sell the product of that labor time at a higher price on the market, extracting a profit, which is your rent. The exploitation you didn't see comes from you buying a man's labor time and then selling it back to the aggregate bearers of market demand, the people, which necessarily alienates your working man from that group of bearers, because you are not giving the man equitable compensation for his work. The lack of equity stems from a great disparity between a unit of pay for a gnome versus the gnome's MSRP.

Story time:

I used to work for a company that made plastic sheet rolls for single-use blister packs, which sold for a dollar a pound, mostly. Every hour, depending on the size and speed of the machine, a roll would be produced, graded and put into storage for later sale or immediate shipment. Each roll weighed about a ton and a half and each machine was run by one operator to reduce costs. I would never be able to buy the product at my rate of pay since it would take me a week to be able to buy one roll. But that isn't the point.

Our general manager got sacked and was demoted to plant manager due to head office deciding they wanted a faster throughput and more product; our department was barely breaking even. They hired a new guy to run the operation who ran a shitton of experiments for new product for other companies. Everything was scrambled in order to get this guy his results. We did it. Except for one thing.

One of the VPs brother was a mechanic who decided to quit and become a contractor. He would generally pull $150/contract hour at the company vs us employees for just under $20/work hour. This sort of shit was allowed to continue and even minor repairs were expensive. This meant that much of our equipment was really unsafe/not fit for purpose. The consequences of this, plus the mandated work tempo meant that $100,000 worth of material was lost and the department had to close.

For my part I tried to organize the place after a couple months of working there because the guys knew that due to the fucked up company policies they were there on borrowed time. If we could have organized the department to strike for decent work rules where we could have challenged the pace of the work and the hiring of the mechanic, we could have kept our jobs and the asshole GM would have been gone, not us.

Workers are better off on average when they don't have to give a percentage to the owners. If a company is bleeding red ink, the workers will be out of a job soon enough anyways under capitalism.

China had massive GDP growth (maybe not anymore lately because they had problems since last year). But that GDP growth was mainly driven by investment and exports. Not consumption. China's consumption to GDP ratio is anemic. It's the wealthy in China who are making the dough. The workers are making a basic sustenance living. And they beat the shit out of them if they don't continue to be productive human machines.

Social democrats used to be Marxists at one point in history. Social Democratic and Labour parties used to include Marxist philosophy and language in their party platforms.

I would rather we fight for manageable short-term reforms like a $15/hour minimum wage, 30 hour work week and abolishment of "free trade" agreements rather than allow things to get so bad that the working class have to fucking starve to death and freeze their ass out on the street before they decide that enough is enough.

History has shown that things have to get really bad for the working class before they pick up a gun. Like in the USSR, Cuba and the Sandinistas.

Is that suffering worth it? If everyone who is able is guaranteed employment at $450/week at 30 hours/week + medical coverage and tuition, this would go a long way to alleviate suffering. We wouldn't get the full value of our labour. But we'd get a much better deal than we are getting now. And people would have more leisure while covering the basics (shelter, food, clothing, health care, education, transportation)

Are we in fantasy land?
You're not describing a stable equilibrium. All the same pressures and contradictions of capitalism still tug at such a state. It's not hard to see what unravels, even now as the historic gains of the working class are ever more forcefully rolled back.
What you're asking for is lovely. That's not in doubt. But it simply isn't realistic.

But it's not solely about averages, people who do own their means of production, work longer hours and have less income than wage workers.

*less income security

Nobody believes that people should be made or left uncomfortable for the sake of their egotistical vision of "revolution." It's purely a question of science here, how the world works and what can be achieved.

I swear, it's like you socdems bury your heads in the sand and ignore every real issue people take with your views, hearing from them precisely the same tired strawmen you always want to.