socialism

Be Like Sweden

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This is a common rallying cry among Americans (e.g., Bernie Sanders) who are disturbed by income inequality in the U.S. and the supposed excesses of capitalism. So what can the United States learn from Sweden? Swedish author Johan Norberg writes,

As a native of Sweden, I must admit this makes me Feel the Bern a bit. Sanders is right: America would benefit hugely from modeling her economic and social policies after her Scandinavian sisters. But Sanders should be careful what he wishes for. When he asks for “trade policies that work for the working families of our nation and not just the CEOs of large, multi-national corporations,” Social Democrats in Sweden would take this to mean trade liberalization—which would have the benefit of exposing monopolist fat cats to competition—not the protectionism that Sanders favors.

In fact, when President Barack Obama visited Sweden in 2013, the three big Swedish trade unions sent him a letter requesting a meeting. Their agenda: a discussion of “how to promote free trade.” The chairman of the largest Social Democratic trade union scolded the American president for his insufficient commitment to the free flow of goods.

Norberg acknowledges that Sweden is “still-high public spending and high taxes, at least compared to the U.S….The governments provide the citizens with health care, child care, free colleges, and subsidized parental and medical leave. We Scandinavians have our quarrels with these systems and how they function, but at least they have not ruined our societies; indicators of living standards and health are impressive.” So how come this amount of government services doesn’t cripple the economy? Norberg explains,

One reason is that we compensate for them with a more open economy than others. In the summary Fraser Institute rankings, Sweden and Denmark are more economically free than the United States when it comes to legal structure and property rights, sound money, free trade, business regulation, and credit market regulations. We don’t have the multitude of occupational licensing laws that block competition in the United States.

We also pay for the welfare state in a fairly brutal way, but one that doesn’t hurt production as much: by squeezing the poor and the middle class. Unlike the rich, poor and middle-class people don’t flee or dodge when they’re taxed aggressively.

The Social Democrats knew all along that they couldn’t fund such a generous government by taking from the rich and the businesses—there are too few of them, and the economy depends on them too much. So Sweden and Denmark take in lots of revenue via highly regressive value-added taxes at a normal rate of 25 percent of sales—the only tax where the rich and poor pay exactly the same amount in kronor. On the other hand, the corporate tax is just 22 and 23.5 percent respectively, compared to the U.S. rate of 35 percent.

In fact, rich people in Sweden enjoy several economic advantages not offered to their lower-class counterparts. Sweden always admitted very generous tax deductions for capital costs. Labor regulations are tailored to benefit big companies. To attract highly educated specialists from abroad, Sweden now has a beneficial “expert tax” for them, which shields 25 percent of their wages from taxation for a three-year period. “Sure, it is unfair, but we have no better solution,” the Social Democratic minister of finance said in 2000, when he implemented special tax exemptions for individuals and families who owned a large share of a listed company.

Unlike Sanders, Scandinavian socialists have concluded that you can have a big government or you can make the rich pay for it all, but you can’t do both.

The shape of welfare state also has roots in Swedish culture:

Two Scandinavian economists, Andreas Bergh and Christian Bjørnskov, have documented that a high degree of trust is an old legacy, and that descendants of those who emigrated from Scandinavia 100 years before the welfare state are also more trusting. Their conclusion is that trust in others and social cohesion creates the welfare state rather than the other way around, since it is more tempting to give power to politicians and money to strangers if you believe that they are decent people who would never cheat the system.

Scandinavians have always frowned on those who take money they are not entitled to. Sweden is, after all, the country where the leading candidate for prime minister in 1995 had to resign because it was revealed that she had used her official credit card to pay for some small private expenses, even though she always, every month, paid the credit card debt herself.

When asked, “Under what circumstances is one justified in accepting government benefits to which one is not entitled?” in 1991 and 1998, the Nordics led the world in saying “never.” (Only Malta says it is more upstanding, and a brief canvass of Maltese of my acquaintance suggests that they are rather likely to have lied on the survey.) Oh, and the United States is 16th, lower on the list than even the Italians.

Unfortunately, Sweden has recently seen “increased unemployment among immigrants. Now the employment gap between natives and foreign-born in Sweden is twice the European Union average, even though we express less racist and discriminatory attitudes than others. In response, Swedish politicians have recently decided to abandon liberal immigration policies and do whatever they can to scare people away. It was easier to have a one-size-fits-all approach when we were all alike, from the same background, with the same faith and attitude and a similar education. We need a more flexible model now that we are becoming a little bit more like…well, the United States.”

Economist Andreas Bergh mentioned above has documented the economic history of Sweden in hopes of answering the following questions:

  • How did Sweden become rich?
  • What explains Sweden’s high level of income equality?
  • What were the causes of Sweden’s problems from 1970 to 1995?
  • How is it possible that Sweden, since the crisis of the early 1990s, is growing faster than most EU countries despite its high taxes and generous welfare state?

His conclusions?

In many aspects, Sweden is not very different from other countries. The accelerating economic growth in Sweden around 1870 was most likely largely a result of liberalizations and well-functioning capitalist institutions. In this respect, there is no Swedish exceptionalism.

When it comes to equality, the most important conclusion is that most of the decrease in income inequality in Sweden occurred before the expansion of the welfare state. A number of seemingly unrelated reforms, such as land reforms, school reforms and the occurrence of unions and centralized wage bargaining, are likely explanations. Interestingly, at least parts of gender equality in Sweden seem to be an unintended consequence of the need to increase labor supply by using women in the workforce.

Thus, when it comes to the roots of prosperity and equality, the lessons from Sweden are not very different compared to the lessons from mainstream institutional economics: Well-functioning capitalist institutions, especially property rights and a non-corrupt state sector, promotes prosperity. Primary schooling, risk sharing social insurance schemes and labor unions contribute to a more equal distribution of income (pg. 21).

He notes that Sweden’s lagging economy between 1970 and 1995 was due to a

combination of unsuccessful macro-economic policies and a very generous welfare state…During the period of lagging behind, excessive state interventionism hampered structural adjustment and economic development in general. The economy was much less capitalist, rules were unstable, policy unpredictable, and work incentives were weakened by the design of taxes and benefits. This leads to the conclusion that to successfully combine a large welfare state with economic growth, macroeconomic factors are crucial and a high degree of economic openness may actually foster policies that promote competitiveness. Analyzing the fact that Sweden was ranked the second most competitive country in the world according to the Global Competitiveness Index 2010–2011 (just slightly behind Switzerland). Eklund et al. (2011) emphasize the role of market deregulations, inflation control and stricter budget rules – but also some lowering of taxes and benefit levels. The upshot is that the policy implications from the case of Sweden are hard to classify along a simple right-left scale: the welfare state seems to survive because it coexists with high levels of economic freedom and well-functioning capitalist institutions (pg. 22).

So, be like Sweden. But be like it in the right ways.

The Economic Illiteracy of Journalists

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“Venezuela,” reported The Washington Post, “has become a failed state.” Evidence places the blame at the feet of Hugo Chavez and his socialist policies. Yet, what have journalists over the last few years been saying about the country and its president? One post sums it up nicely:

Venezuela is collapsing, with the New York Times describing it as “uncharted territory” for a semi-developed country to be so deep in economic disaster that its hospitals, schools, power plants, and basic services are simply shutting down. So it’s a good time to reflect on the media’s previous glowing Venezuela stories. In 2013, Salon praised “Hugo Chavez’ Economic Miracle, saying that “[Chavez’s] full-throated advocacy of socialism and redistributionism at once represented a fundamental critique of neoliberal economics, and also delivered some indisputably positive results” (h/t Ciphergoth). And the Guardian wrote that “Sorry, Venezuela Haters: This Economy Is Not The Greece Of Latin America. Prediction is hard, and I was willing to forgive eg the pundits who were wrong about the Trump nomination. But I am less willing to forgive here, because the thesis of these articles wasn’t just that they were right, but that the only reason everyone else didn’t admit they were right was neoliberalism and bad intentions. Psychologizing other people instead of arguing with them should take a really high burden of proof, and Salon and Guardian didn’t meet it. Muggeridge, thou should be living at this hour…

One writer over at HumanProgress described the journalist praise for Venezuela as nothing more than “mind-bending stupidity.” Inspired by these examples, economist Scott Sumner sought out how journalists had similarly “explained away the abysmal failure of statism in Greece”:

Back in 2008, when I did research on neoliberalism in developing countries, I found that Greece was the least neoliberal economy in the developed world, according to a variety of metrics. Note that at this time Greece was booming, so this was not a question of people who liked neoliberalism calling Greece statist just because they wanted to peg that tag on a failed system. Indeed I was surprised that Greece did so well until 2008, despite being so amazingly un-neoliberal.

Of course we all know what happened next. The world discovered that the Greek boom was funded by unsustainable foreign borrowing, and that the Greek government lied about how much they had borrowed. When the huge debts were exposed, Greece had to sharply curtail its borrowing. Even worse, the eurozone crisis pushed Greek into recession. Greece is now widely seen as the worst economy in the developed world, with major structural problems.

So I wondered how the left would explain the failure of statism in Greece, and decided to google “Greece crisis neoliberalism” expecting to find lots of articles about how Greece needed to move in a more neoliberal direction, like the northern European economies, in order to recover from its statist nightmare. What I found was the exact opposite:

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Notice any familiar sources? (Hint: the first hit and the second to last hit.) And despite the evidence mentioned above that found Greece to be very illiberal, all of these sources are blaming Greece’s non-existent neoliberalism for its demise. Sumner concludes,

To be clear, there are many countries that are a mix of free markets and statism, and hence there can be honest differences as to which characteristics are the most salient. But at the extremes, reasonable people should not disagree. There is no plausible argument that Hong Kong’s success is in any way a success story for statism, and there is no plausible argument that Greece’s failure has anything to do with neoliberalism. To suggest otherwise is to engage in The Big Lie.

I Dissent

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Asch Experiment Cover 800x400

I just finished listening to a bunch of science fiction stories in rapid succession so that I could cast informed votes for the annual Hugo awards and post the reviews to my new blog. That done, I returned to some of the non-fiction audiobooks I’ve been waiting to get into, especially Redefining Reality: The Intellectual Implications of Modern Science. It’s been a fantastic spring day, and there was an exquisite, gentle evening breeze as I walked the dog. Meanwhile, Professor Steven Gimbel explained the impact of World War II on the field of social psychology:

In the first half of the 20th century, psychology had the luxury of debating whether a subconscious mind existed and whether scientific methodology required limiting the field of study to stimulus and response, but after the horrors of World War II, psychology changed… The specter of the Holocaust raised deep and troubling question about the human mind and its relation to authority… The reaction to Nazi atrocities in the scientific world is shaped by what are perhaps the three most famous psychological experiments: Stanley Milgram’s obedience study, Solomon Asch’s group think study, and Philip Zimbardo’s Stanford prison study.

I think Millgram’s and Zimbardo’s experiments are the most famous. At least, those are the ones that I’ve read about and seen the most. I was familiar with Asch’s study as well, but I haven’t seen it come up as often, and I was unprepared for how deeply a simple remark made by Gimbel would strike me. It hit so forcefully that I hit pause on the audiobook (to keep that thought forefront on my mind), came home, opened my laptop, and began this blog post.

In Asch’s study, participants were given a simple task. They had a reference image that showed a vertical line, and then another image that showed three vertical lines. One of the three matched the vertical line in the reference image, and all they had to do was pick out the correct match. They were asked to do this 18 times. The trick is that the participants were seated at a table with seven other people who were secretly in on the experiment. On the first two rounds, these seven individuals all gave the same answer, and it was the correct one. But on the third trial, these individuals all gave the same incorrect answer. Over the course of the next 15 trials, the seven plants gave the wrong answer 11 times, and in each case all seven of them gave the same incorrect answer.

Asch Experiment

So you’ve got eight people seated around a table answering a perfectly obvious question. Seven of them have just given the identical, incorrect answer. The point of the experiment was to find out what the eighth person–the only real subject of the study–would do. Given that this is considered one of the “three most famous psychological experiments” you can guess how it turned out even if you don’t already know: 75% of subjects went with the group consensus (even though it was obviously wrong) at least one out of the 12 times when the seven fake participants picked the wrong answer.

There are all kinds of interesting details to the study, especially when it comes to the rationales that the participants gave afterwards to explain why they had refused to go along with the group or why they had, at least some of the time, opted to go along with the group despite what was clearly true. But here’s what Gimbel said about the study that so arrested me:

Asch expanded the study to see what would happen. He showed that the bigger the majority, the stronger the pull to conform, but that if even one person dissented before the test subject, that the test subject was then more likely to voice his different view. Asch showed empirically that having someone else agree with you is a powerful tool in making people willing to take a contrary position. But, if that person [the test subject] were deserted by his fellow dissenter, conformity followed rapidly.

Now, before I continue, I want to take a moment to explain that–contrary to popular opinion–I’m not interested in attacking conformity. Conformity gets a bad rap in movies like Dead Poet Society.

The sentiment in that clip is hogswash. Unfortunately, so is most anti-non-conformity sentiment. There’s an entire guide to being a non-conformist, but–like all such ironic anti-non-conformity statements–the actual point is that non-conformity is bad because it’s a kind of conformity.

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So, even the anti-non-conformists are trapped in an non-conformity mindset. Conformity can’t catch a break. Which is a shame, because conformity is actually pretty important in helping to form human society and–because we are social animals–to form who we are as well.

In The Righteous Mind, Jonathan Haidt introduces this concept in a chapter called “The Hive Switch.” He starts with an example of exactly the kind of military drill (e.g. marching) that Dead Poet Society maligns, citing Wiliam McNeill (a World War II veteran) describing drill this way:

Words are inadequate to describe the emotion aroused by the prolonged movement in unison that drilling involved. A sense of pervasive well-being is what I recall; more specifically, a strange sense of personal enlargement; a sort of swelling out, becoming bigger than life, thanks to participation in collective ritual.

After his service, McNeill studied this kind of conformity (which he called “muscular bonding”) and found that it “enabled people to forget themselves, trust each other, function as a unit.” What works like Dead Poet Society miss is that conformity is a path to collective consciousness. In the same chapter that begins with marches and drills, Jonathan Haidt goes on to discuss ecstatic mass dancing, awe in the presence of nature, hallucinogens, and raves. One of the roles of conformity, in other words, is to enable humans to access a “hive switch” that flips our identity from individualist to collective. The term “collective” often has negative connotations (like conformity itself), until one realizes that it also implies (as McNeill points out) selflessness and trust.

Writing in The Origins of Virtue, Matt Ridley emphasizes a similar point. One of the grand puzzles of human nature is that–alone of all animals in existence–we have the capability to come together in large groups to work for collective goals without close genetic ties. In his book, he surveys a lot of literature on evolutionary psychology and game theory trying to explain why it is that human beings, in practice, are able to escape the prisoner’s dilemma. The prisoner’s dilemma is the most famous game theory scenario, and it proves that–if humans were strictly self-interested and rational–we would effectively never cooperate in large groups. And yet, we do cooperate in large groups. Is there any theoretically explanation for this? Yes, it turns out, there is. The only kind of society in which cooperative strategies can survive without being overwhelmed by cheating free-loaders is a conformist society.

There is one kind of cultural learning that makes cooperation more likely: conformism. If children learn not from their parents or by trial and error, but by copping whatever is the commonest tradition or fashion among adult role models, and if adults follow whatever happens to be the commonest pattern of behavior in the society—if in short we are cultural sheep–then cooperation can persist in very large groups.

So, instead of just making fun of non-conformists for also being conformists, it’s worth keeping in mind that conformity is a route to selflessness and, perhaps, the key to humanity’s unique ability to successfully cooperate in large, unrelated groups. But, if that’s not enough, keep in mind that things like language itself only work because of conformity. If we all tried to be non-conformists in our language, then communication would be literally impossible.

This was a long digression, but it’s something I’ve been meaning to get around to for a while anyway. To get things back on track: I don’t think non-conformity is a laudable goal in itself, but I do think that diversity matters a lot. I worry about echo chambers and I worry about group think and I worry about bubbles. And I worry about that eighth person, sitting at the table, staring at the line, wondering what on Earth could be happening that everyone else is reporting a reality that is the opposite to what he feels. I’m not really worried about whether or not this person gives the correct answer (more on that at the end), but I am very worried that this person feel empowered to give their honest answer.

This is what I had in mind when I recently read an older Slate Star Codex piece: All Debates Are Bravery Debates. In the piece, Scott Alexander argues for being charitable about extreme positions as follows:

Suppose there are two sides to an issue. Be more or less selfish…

There are some people who need to hear both sides of the issue. Some people really need to hear the advice “It’s okay to be selfish sometimes!” Other people really need to hear the advice “You are being way too selfish and it’s not okay.”

It’s really hard to target advice at exactly the people who need it. You can’t go around giving everyone surveys to see how selfish they are, and give half of them Atlas Shrugged and half of them the collected works of Peter Singer. You can’t even write really complicated books on how to tell whether you need more or less selfishness in your life – they’re not going to be as buyable, as readable, or as memorable as Atlas Shrugged. To a first approximation, all you can do is saturate society with pro-selfishness or anti-selfishness messages, and realize you’ll be hurting a select few people while helping the majority.

In terms of explanation, Scott Alexander is right on the money. He says, for example:

This happens a lot among, once again, atheists. One guy is like “WE NEED TO DESTROY RELIGION IT CORRUPTS EVERYTHING IT TOUCHES ANYONE WHO MAKES ANY COMPROMISES WITH IT IS A TRAITOR KILL KILL KILL.” And the other guy is like “Hello? Religion may not be literally true, but it usually just makes people feel more comfortable and inspires them to do nice things and we don’t want to look like huge jerks here.” Usually the first guy was raised Jehovah’s Witness and the second guy was raised Moralistic Therapeutic Deist.

That sounds familiar, and I think we all have friends who used to be really extreme in one direction, and now they’ve gone overboard in the other extreme. Where I disagree with Scott Alexander, however, is in accepting that this kind of overreaction is basically acceptable. In my experience, both Ayn Rand (who says greed is good) and Peter Singer (who argued against any special concern for family members) are just plain bad. I don’t care how selfish you are, Peter Singer is still overkill. I don’t care how selfless you are, Ayn Rand is still crazy.

So this is the world I find myself in. When I look around, I feel like the eighth guy at the table on several issues. To pick just one that we talk about a lot here at Difficult Run, go with minimum wage. I’m looking at the discussions around me, and I just can’t really believe what I’m hearing.

But when I look around for people who will stand up with me and dissent, what I see is a lot of what Scott Alexander is describing. Take “socialism.” The term, in almost all debates you will see today, has no solid meaning. It’s just a flag. And on one side you’ll see these “taxation is theft” ultra-libertarians charging against the flag of socialism and on the other side you’ll see all these people who seem to have forgotten the second half of the twentieth century rallying around the flag of socialism. Maybe some of the “taxation is theft” folks escaped Soviet oppression (as Ayn Rand did, not by coincidence) and a lot of the “Mao? Stalin? Who were they?” socialists do come from elite backgrounds in the world’s leading capitalist economy, so “to a first approximation” their points are valid. That doesn’t mean they are actually helping matters when they add their extreme, absolutist viewpoints to the discussion. Technically, the “taxation is theft” guys are going to side with me to oppose minimum wage hikes, but I really wish they wouldn’t.

Too often it seems like your choices are either (1) conform to the political fad of the day or (2) engage in extreme, overreactions. Pick your poison.

But I don’t want to pick my poison.

I don’t, for example, want to have to pick and choose between conformity and diversity. I value both. Conformity is essential for language, is vital for social cohesion, and is–in short–the glue that holds the fabric of our society together. Anyone who says they are a nonconformist is lying or a sociopath, just like anyone who says that they don’t care what other people think about them is lying or a sociopath. Everyone is a social animal, everyone cares what (some) other people think, and everyone conforms (to some group). But if you overemphasize conformity, then you get group-think. You stifle creativity, restrict free inquiry, stifle scientific curiosity, and hamstring debate and compromise. We need diversity, too. We need both.

Here’s the reason I wrote this post. Here’s the thing that Gimbel said, about the Asch experiments, that really stood out. What did it take to empower that eighth person to answer honestly? They didn’t need anything extreme. They didn’t need any theatrics. They didn’t need Ayn Rand and they didn’t need Peter Singer. All it took was one person just calmly, quietly validating what they saw.

In Asch’s experiment, the truth was obvious. In the real world, on most issues where there is a lot of debate, the truth isn’t obvious. What’s more, I’m going to be publishing a post (hopefully soon) called “Nobody Gets It All Right” that will say just that: based on my understanding of history and various biographies, everybody is wrong about most of what they believe. And I take that to heart. I have a lot of opinions. Most of them are probably wrong, at least in the sens that–two decades or two centuries from now–the things I think are true will be either discredited or (more likely) irrelevant.

So I do want to dissent. I do want to raise my voice–calmly, politely, modestly–and say that the emperor’s got no clothes on when it appears to me that the emperor, in fact, does not have clothes on. But the basis of my dissent is not “I am confident that I am right.” At this point in my life, that conviction alone is not enough to stir me to publish a post. Instead, my motivation is something like, “I am dedicated to living in the kind of world where people speak their minds honestly.” Because, if I have to pick just a few areas where I want to place a very high degree of confidence–like only two or three–that’s going to be one of them.

There’s a bit of conventional wisdom about Internet debating. The point of the debate is never to persuade the other guy. The debate is always for the sake of the audience. There’s truth to that, but it can be taken too far, and made into a philosophy where arguing online is a gladiatorial spectator sport with both sides essentially playing to their respective fan bases with no interest in sincere, honest interaction with each other’s points. That’s not what I want to do.

Instead, I just want to be the one guy at the table who says, “I see things differently” that thereby enables the eighth guy to have an easier time in saying the same thing.

That, in a nutshell, is one of the fundamental reasons Difficult Run exists.

Other People’s Money: Millennials and Socialism

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Friedman

There’s been one underlying basic fallacy in this whole set of social security and welfare measures, and that is the fallacy – this is at the bottom of it – the fallacy that it is feasible and possible to do good with other people’s money. That view has two flaws. If I want to do good with other people’s money, I first have to take it away from them. That means that the welfare state philosophy of doing good with other people’s money, at it’s very bottom, is a philosophy of violence and coercion. It’s against freedom, because I have to use force to get the money. In the second place, very few people spend other people’s money as carefully as they spend their own. – Milton Friedman

 

A recent article in The Washington Post looks at the love affair between Millennials, Bernie Sanders, and the polarizing term “socialism.” The Cato Institute’s Emily Ekins explains,

Millennials are the only age group in America in which a majority views socialism favorably. A national Reason-Rupe survey found that 53 percent of Americans under 30 have a favorable view of socialism compared with less than a third of those over 30. Moreover, Gallup has found that an astounding 69 percent of millennials say they’d be willing to vote for a “socialist” candidate for president — among their parents’ generation, only a third would do so. Indeed, national polls and exit polls reveal about 70 to 80 percent of young Democrats are casting their ballots for presidential candidate Bernie Sanders, who calls himself a “democratic socialist.”

Ekins makes a couple of important observations:

  • “[M]illennials tend to reject the actual definition of socialism…”
  • Countries like “Denmark aren’t socialist states (as the Danish prime minster has taken great pains to emphasize)…” In fact, Denmark “outranks the United States on a number of economic freedom measures such as less business regulation and lower corporate tax rates…”

But the real question is whether or not this youthful infatuation with socialistic policies will last. Ekins provides reasons to think not:

There is some evidence that this generation’s views on activist government will stick. However, there is more reason to expect that support for their Scandinavian version of socialism may wither as they age, make more money and pay more in taxes. The expanded social welfare state Sanders thinks the United States should adopt requires everyday people to pay considerably more in taxes. Yet millennials become averse to social welfare spending if they foot the bill. As they reach the threshold of earning $40,000 to $60,000 a year, the majority of millennials come to oppose income redistribution, including raising taxes to increase financial assistance to the poor. Similarly, a Reason-Rupe poll found that while millennials still on their parents’ health-insurance policies supported the idea of paying higher premiums to help cover the uninsured (57 percent), support flipped among millennials paying for their own health insurance with 59 percent opposed to higher premiums. When tax rates are not explicit, millennials say they’d prefer larger government offering more services (54 percent) to smaller government offering fewer services (43 percent). However when larger government offering more services is described as requiring high taxes, support flips and 57 percent of millennials opt for smaller government with fewer services and low taxes, while 41 percent prefer large government.

If previous generations are any indication (“both baby boomers and Gen Xers grew more skeptical of government over time”), the Millennial approval of big government may dwindle when they start having to pay for the programs they advocate. But an even greater takeaway–in connection with the notion that the world is getting better–is that “college students today are not debating whether we should adopt the Soviet or Maoist command-and-control regimes that devastated economies and killed millions. Instead, the debate today is about whether the social welfare model in Scandinavia (which is essentially a “beta-test,” because it hasn’t been around long) is sustainable and transferable.” In other words, “in the 20th-century battle between free enterprise and socialism, free enterprise already won.”

The Populist Trade Problem

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A recent article in Vox outlines the problem of anti-trade populism:

Bernie Sanders sells himself as a champion of the little guy. But talk to economists and development experts, and you hear something different: Sanders’s policies on trade would hurt the very poorest people on Earth. A lot.

Here is the basic issue. Sanders has, correctly, recognized that freer trade with countries like China has hurt a subset of American workers (while benefiting others). As a result, he opposes most efforts to open American markets to more international competition, and promises to roll back a number of previous trade agreements the US had made.

There’s one big problem, according to development economists I spoke to: Free trade is one of the best tools we have for fighting extreme poverty. If Sanders wins, and is serious about implementing his agenda, he will impoverish millions of already-poor people in China and Central America.

What’s worse is that the actual ways Sanders might roll back these agreements could lead to serious reprisals from the affected countries. The nightmare scenario, experts say, is a global slide toward protectionism, wherein China and other countries take cues from the US and impose their own retaliatory tariffs. That would devastate economies in the developing world, dooming many more millions to a lifetime of crushing poverty.

The piece demonstrates how trade has benefited the global poor, while recognizing it may negatively impact some American jobs (though the benefits of increased purchasing power through cheaper goods may outweigh the costs). However, Sanders is not the only candidate with backward policies when it comes to trade. Donald Trump, according to The New York Times, “is bringing mercantilism back. The New York billionaire is challenging the last 200 years of economic orthodoxy that trade among nations is good, and that more is better. He is well on his way to becoming the first Republican nominee in nearly a century who has called for higher tariffs, or import taxes, as a broad defense against low-cost imports.” These positions show why Trump and Sanders are far more conservative and far more alike than some would care to admit. This is perhaps why some political scientists are recognizing Trump supporters as populists: a label usually reserved for Sanders supporters. “Trump supporters share anti-elitism with only one other group: Sanders’s voters,” write one pair of political scientists in The Washington Post. “But where Trump is a populist, we would argue that Sanders is not. Despite the fact that Sanders often gets called a populist, his voters do not conform to the populist stereotype. They generally trust experts and do not identify strongly as Americans.” This may be true of Sanders supporters in some cases, but when it comes to economics, they reject the expertise and consensus of economists and embrace U.S.-centric protectionist policies.

From Gregory Mankiw’s Principles of Economics, 7th ed. (pg. 32).

A socialist Democrat and a Republican businessman drawing from the same economic playbook. I’m sure most didn’t see that one coming.

 

Manhattan Institute: New Volume on Income Inequality

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A brand new volume of essays on income inequality was recently published by the Manhattan Institute and is available for free online. Economist Diana Furchtgott-Roth introduces the volume with the following:

Claims of ever-increasing shares of wealth going to top earners are a perennial complaint. This year, partly due to the publication of Thomas Piketty’s Capital in the Twenty-First Century, discussions of inequality are preoccupying policymakers and political pundits.

Today Economics21.org is releasing Income Inequality in America: Fact and Fiction, a series of essays from leading experts on different aspects of measuring inequality. For Winston Churchill, inequality was an unavoidable part of economic life in capitalist societies. “The main vice of capitalism,” said the British Prime Minister, whose youngest daughter, Lady Mary Soames, died last weekend at the age of 91, “is the uneven distribution of prosperity. The main vice of socialism is the even distribution of misery.”

In conclusion, she states, “Empirical analysis shows that many commonly accepted ideas about income inequality are false or overstated. If policy recommendations are to be effective, they must be informed by an accurate picture of the current situation. Income Inequality in America: Fact and Fiction offers the empirical tools for such an analysis.”

Check it out.

Havana: The Last Communist City

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Journalist Michael Totten has a disturbing article in the Spring edition of City Journal on the effects of communism in Cuba’s Havana. Using the recent film Elysium to paint a picture of life in Havana, Totten documents how he lied to get into the country and what he witnesses. “Outside its small tourist sector,” he explains, “the rest of the city looks as though it suffered a catastrophe on the scale of Hurricane Katrina or the Indonesian tsunami.” While the goals of the Marxist leaders “were total equality and the abolition of money; the methods were total surveillance and political prisons. The state slogan, then and now, is “socialism or death.”” Furthermore, “Cuba has a maximum wage—$20 a month for almost every job in the country. (Professionals such as doctors and lawyers can make a whopping $10 extra a month.)” This maximum wage is defended by the government, which argues “that life’s necessities are either free or so deeply subsidized in Cuba that citizens don’t need very much money. (Che Guevara and his sophomoric hangers-on hoped to rid Cuba of money entirely, but couldn’t quite pull it off.) The free and subsidized goods and services, though, are as dismal as everything else on the island.” This includes their supposedly wonderful health care system that Michael Moore was raving about years back. This “free” health care requires patients “to bring their own medicine, their own bedsheets, and even their own iodine to the hospital. Most of these items are available only on the illegal black market, moreover, and must be paid for in hard currency—and sometimes they’re not available at all. Cuba has sent so many doctors abroad—especially to Venezuela, in exchange for oil—that the island is now facing a personnel shortage.”

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