Power & Market
Socialism never stopped enticing young American minds. But the more Democratic Socialists such as Alexandria Ocasio-Cortez open their mouths, we learn the movement’s most vocal proponents simply ignore socialism’s incompatibility with democracy, as demonstrated by Austrian economist Ludwig von Mises in A Critique of Interventionism . Sen. Bernie Sanders is one of them.
With the Vermont senator announcing he’s running for president, his past comments defending socialism and socialist countries notorious for their failures become the type of material critics are eager to dissect. Especially because he still calls himself a Democratic Socialist while using Nordic countries as examples of what he defends.
Thankfully, political figures from the very countries the good senator from Vermont calls “socialist” are here to remind him that the ideology is nothing but a trap.
Prime Minister of Sweden from 1991 to 1994, Carl Bildt, took to Twitter to warn Sanders that socialism is not the key to creating a great society as he and Ocasio-Cortez seem to think.
After old footage showing Sanders and his wife, Jane, praising the Soviet Union for its programs targeting the youth went viral online, Bildt responded by saying “Sanders was lucky to be able to get to the Soviet Union in 1988 and praise all its stunning socialist achievements before the entire system and empire collapsed under the weight of its own spectacular failures.”
To the former prime minister, the damage socialism can cause is still fresh in his memory. After all, he was the first prime minister in 60 years to not subscribe to the ideology. And thanks to him, Sweden’s capital gains taxes were cut to 30 percent and corporate taxes to 28 percent.
Bildt also privatized several state-owned industries, deregulated multiple sectors of the economy, allowed people to invest portions of their pension, and introduced school choice policies, improving the country’s education system.
After Bildt, Sweden, which had completely lost its host of entrepreneurs thanks to business taxes that sometimes exceeded the 100 percent mark, once again flourished. Even as Social Democrat successor Ingvar Carlsson took over.
Seeing the wonderful changes just a few years worth of reform had done, Carlsson kept Bildt’s policies in place. And business start-ups rose nearly 25 percent as a result.
Unfortunately, politicians like Sanders like to use countries like Sweden as examples of how socialism can work.
The same politician who, in the late 1980s, praised breadlines and celebrated the Soviet Union for forcing its youth to dedicate their whole lives to communism, now tells Americans that the so-called “Nordic model” of socialism can and will work in America. And yet, he seems clueless to the fact that the policies he pushes don’t mirror those adopted by the countries he celebrates.
As explained by Danish Prime Minister Lars Løkke Rasmussen in 2015, countries like his Denmark “[are] far from [socialist planned economies].”
“Denmark is a market economy,” he added. And as demonstrated by Mises in Economic Policy: Thoughts for Today and Tomorrow , there’s “no western, capitalistic country in which the conditions of the masses have not improved in an unprecedented way.”
In other words, to claim the successes of Nordic countries are due to socialism is nothing but a lie.
As the Acton Institute pointed out, Sanders’ ideology, the same ideology upheld by Ocasio-Cortez and countless others who are now legislating in Washington, D.C., is about putting statism before freedom.
In order to apply the policies they push, we would have to relinquish complete control over our lives, allowing the state to squelch artistic expression, private initiative, and destroy any incentive left compelling people to serve each other better and more efficiently.
Is that the world we want to live in?
If you think that the “tax the rich” rhetoric from the left-wing of the Democratic Party is primarily about economics you would be sadly mistaken. After all, there isn’t enough tax revenue in the highest income bracket, even with a 90% marginal rate, to fund anyone’s pet social program for more than 48 hours. Do progressives know this? Of course they do.
The same observation holds true for the so-called ”Green New Deal” legislation recently proposed by Alexandria Ocasio-Cortez, the outrageous media darling from Queens. It’s true that this grab bag of environmental regulation, if enacted, would likely cost trillions and produce a systemic change in the American life-style. But you miss the deeper message if you think that the actual purpose of this legislative monstrosity is to save the planet before it expires in 12 years.
No, the current wave of extreme progressivism has a far more nefarious goal than simply higher taxes on the super-rich or carbon taxes to scrub down the environment. Indeed, the long-run objective of the new socialists and the gang of social justice warriors (SJW) is to gradually delegitimize the very foundations of modern capitalism by obliterating conventional notions of property rights, fairness and justice. If this sounds far-fetched you have not really been paying attention.
It is often assumed that capitalism is founded rock solid on economics. Not necessarily. Strictly speaking, economic considerations, though important, are secondary. Instead, it’s the relatively unique system of individual property rights that primarily legitimizes all capitalist institutions.
Take, for example, the most obvious and essential capitalist institution: the private stock corporation. It is solidly rooted in the notion that individuals have rights; that these rights include the right to incorporate; the right to instruct managers of corporations to maximize profits; and the right of owners to sell their shares. These individual rights (entitlements) are the “moral” foundation for the existence and operation of all modern business organizations.
This particular theory of property rights was made explicit in the 18th and 19th centuries by philosophers such as Adam Smith, John Locke and John Stuart Mill. It holds generally that it is morally appropriate for individuals to own property including, of course, their own labor; to exclusively determine its use; and to enjoy the benefits (income or otherwise) earned from production or exchange. Adam Smith, who taught “moral philosophy” (not economics) at Glasgow University in Scotland termed these rights “natural” and once famously observed that free markets and voluntary exchange were morally appropriate because they were “consistent with liberty and justice. ”
Modern progressives and socialists reject this classical approach to rights theory. They hold, instead, that rights to property (and capitalist institutions such as the corporation) are arbitrary constructs of an elite and conservative legal system; that there is nothing “natural” or legitimate about them; and that, therefore, they have no special moral status. But if they have no special moral status, then neither does the income and privileges that these “rights” currently generate for owners. Indeed, government may now alter these arbitrary property arrangements and redistribute income and privileges to, say, anyone in the name of fairness and social justice.
It is now apparent that this radically different approach to property rights can be employed by critics to rationalize higher taxes on the rich, a drastic reduction in CO2 emissions, an increase in the legal minimum wage to $15/hour, and even the federally chartering of corporations (an Elizabeth Warren pet proposal) in order to make them “socially responsible.” Indeed, there is almost no tax or regulation that cannot be justified from this perspective. And that’s precisely the point.
In conclusion, the social justice warriors and the new socialists are not primarily concerned with economics as such. The tragic lessons of, say, Venezuela are not their concern. Instead, their objective is to continue to delegitimize the classical foundations of property rights and then implement, through legislation and the courts, a radically different theory of justice in social affairs. Whether such a program will be successful has yet to be determined.
But it’s not just a fiscal crisis. Social Security is also an increasingly bad deal for workers. Especially minorities with lower average lifespans. When compared to what they would get from a private retirement system, people are paying in too much and getting out too little.
There’s also another major problem with the program.
Academic experts have quantified how older workers are lured out of the labor force when they get money from the government. And since economic output is a function of the quality and quantity of labor and capital, this means we’re sacrificing wealth and reducing prosperity.
Here are some excerpts from a study by Professors Daniel Fetter and Lee Lockwood.
Many of the most important government programs, including Social Security and Medicare, transfer resources to older people… Standard economic theory predicts that such programs reduce late-life labor supply and that the implicit taxation reduces the ex-post value of the programs to recipients. Understanding the size and nature of such effects on labor supply and welfare is an increasingly important issue, as demographic trends have increased both the potential labor supply of the elderly and its aggregate importance, while simultaneously increasing the need for reforms to government old-age support programs. …We address these questions by investigating Old Age Assistance (OAA), a means-tested program introduced in the 1930s alongside Social Security that later became the Supplemental Security Income (SSI) program.
Here are charts illustrating how people are retiring earlier in part because of government payments.
And here are some calculations from the study.
Our estimates indicate that OAA significantly reduced labor force participation among older individuals. The basic patterns that we explore in the data are evident in Figure 2, which plots male labor force participation by age, separately for states with above- and belowmedian OAA payments per person 65 and older. Up to age 65, the age pattern of labor force participation was extremely similar in states with larger and smaller OAA programs. At age 65, however, there was a sharp divergence in labor force participation between states with larger OAA programs relative to those with smaller programs, and this divergence continued at older ages. Our regression results, which isolate variation in OAA program size due to state policy differences, imply that OAA can explain more than half of the large 1930–40 drop in labor force participation of men aged 65–74. …Our results suggest that Social Security had the potential to drive at least half—and likely more—of the mid-century decline in late-life labor supply for men. …Taken as a whole, our results suggest that government old-age support programs can have large effects on labor supply, through both their transfer and taxation components.
This chart captures how old-age payments in various states were associated with varying degrees of labor force participation.
By the way, I’m not sharing this information because it’s bad for people to retire at some point.
I’m merely establishing that there’s academic support for the common-sense observation that people are more likely to leave the labor force when there’s an alternative source of income (though it’s worth noting that there should be a sensible and sustainable system for providing that retirement income).
Moreover, people are likely to stop working when government systems give them money before age 65.
Three academics, Andres Erosa, Luisa Fuster, and Gueorgui Kambourov, have a study quantifying this problem in European nations.
There are substantial differences in labor supply and in the design of tax and transfer programs across countries. The cross-country differences in labor supply increase dramatically late in the life cycle…while differences in employment rates among eight European countries are in the order of 15 percentage points for the 50-54 age group, they increase to 35 percentage points for the 55-59 age group and to more than 50 percentage points for the 60-64 age group. In this paper we quantitatively assess the role of social security, disability insurance, and taxation for understanding differences in labor supply late in the life cycle (age 50+) across European countries and the United States. … The social security, disability insurance, and taxation systems in the United States and European countries in the study are modelled in great detail.
Here’s a sampling of their results.
The main findings are that the model accounts fairly well for how labor supply decreases late in the life cycle for most countries. The model matches remarkably well the large decline in the aggregate labor supply after age 50 in Spain, Italy, and the Netherlands. The results support the view that government policies can go a long way towards accounting for the low labor supply late in the life cycle for these European countries relative to the United States, with social security rules accounting for the bulk of these effects… relative to the United States, the hours worked by men aged 60-64 is…49% in the Netherlands, 66% in Spain, 44% in Italy, and 29% in France. …government policies can go a long way towards accounting for labor supply differences across countries. Social security rules account for the bulk of cross country differences in labor supply late in the life cycle (with its contribution varying from 50% to 100%), but other policies also matter. In accounting for the low labor supply relative to the US at ages 60 to 64, taxes matter importantly in the Netherlands (6%), Italy (6%), and France (5%); disability insurance policies are important for the Netherlands (7%) and Spain (10%).
And here’s one of their charts comparing hours worked at various ages in Switzerland, Spain, France, and the United States.The good news is that we don’t push people out of the labor force as much as the French and the Spanish.
The bad news is that we’re not as good as Switzerland (probably in part because the Swiss have a retirement system based on private saving, so they have the ideal combination of good work incentives and comfortable retirement).
But it shouldn’t matter whether other countries have good systems or bad systems. What does matter is that America’s demographic profile is changing. We’re living longer and having fewer children and our system of entitlements is a mess.
We should be reforming these programs, both for fiscal reasons and economic reasons.
Originally published at International Liberty
For decades, Americans have been burdened with historic expansions in government control, including in areas earlier generations could not even imagine as possible. Such dictates violate Americans’ inalienable self-ownership.
That is why Lysander Spooner, born January 19, deserves renewed attention. Spooner laid out why our natural right of self-ownership, combined with its implied right to enter voluntary arrangements, made government coercion of peaceful people illegitimate. Since we have moved far away from that moral standard, we need to rediscover Spooner’s vision. In particular, his 1870 No Treason illuminates our situation:
- That men may rightfully be compelled to submit to, and support, a government that they do not want…[is] self-evidently false…a man, thus subjected to a government that he does not want, is a slave. And there is no difference, in principle…between political and chattel slavery. [Each] denies a man’s ownership of himself and the products of his labor; and asserts that other men may own him, and dispose of him and his property, for their uses, and at their pleasure.
- A man’s natural rights are his own…any infringement of them is equally a crime…whether committed by one man, calling himself a robber or by millions, calling themselves a government.
- To say that majorities, as such, have a right to rule minorities, is equivalent to saying that minorities have, and ought to have, no rights, except such as majorities please to allow them.
- The principle that the majority have a right to rule the minority, practically resolves all government into a mere contest between two bodies of men, as to which of them shall be masters, and which of them slaves.
- How does [a man] become subjected to the control of men like himself, who, by nature, had no authority over him…as if their wills and their interests were the only standards of his duties and his rights…force, or fraud, or both.
- A man finds himself environed by a government that…forces him to pay money, render service, and forego the exercise of many of his natural rights, under peril of weighty punishments.
- Governments…[are] tyrannies to that portion of the people…compelled to support them against their will.
- Getting the actual consent of only so many as may be necessary to keep the rest in subjection by force…is a mere conspiracy of the strong against the weak...a presumption that the weaker party consent to be slaves.
- Government, like a highwayman, says to a man: “Your money, or your life.” [But] The highwayman...does not pretend that he has any rightful claim to your money, or that he intends to use it for your own benefit.
- No government…can reasonably be trusted for a moment, or reasonably be supposed to have honest purposes in view, any longer than it depends wholly upon voluntary support.
- If [governments] own us as property, they are our masters, and their will is our law. If they do not own us as property, they are not our masters, and their will, as such, is of no authority over us.
- On what ground can those who pretend to administer [The Constitution] claim the right to seize men’s property, to restrain them of their natural liberty of action, industry, and trade…at their pleasure or discretion?
- A tacit understanding between A, B, and C, that they will, by ballot, depute D as their agent, to deprive me of my property, liberty, or life, cannot at all authorize D to do so. He is…a robber.
In an era where what remains of our self-ownership is under continuous threat of further evisceration, Spooner’s clear-eyed understanding of it and its consequences provides an invaluable premise for our thinking. Being allowed to make our own choices and live our lives is no treason to any defensible idea of a government intended to advance the well-being of its citizens.
Why does support for socialism persist?
The short answer may be simple human nature, our natural tendency toward dissatisfaction with the present and unease about the future. Even in the midst of almost unimaginable material comforts made possible only by markets and entrepreneurs—both derided by socialists—we cannot manage to conclusively defeat the tired but deadly old arguments for collective ownership of capital. We're so rich that socialists imagine the material wealth all around us will continue to organize itself magically, regardless of incentives.
It's a vexing problem, and not an academic one. Millions of young people across America and the West consider socialism a viable and even noble approach to organizing society, literally unaware of the piles of bodies various socialist governments produced in the 20th century. The fast-growing Democratic Socialists of America, led by media darlings Rashida Tlaib and Alexandria Ocasio-Cortez, now enjoy cool kid status. Open socialist Bernie Sanders very nearly won the Democratic Party's 2016 nominee for president before being kneecapped by the Clinton machine. New York City mayor Bill de Blasio helpfully announces "there is plenty of money in this city, it's just in the wrong hands." He freely and enthusiastically champions confiscation and redistribution of wealth without injury to his political popularity.
Rand Paul and Thomas Massie are outliers on the Right. Ocasio-Cortez and de Blasio are not outliers on the Left.
How is this possible, even as markets and semi-capitalism lift millions out of poverty? Why does socialism keep cropping up, and why do many well-intentioned (and ill-intentioned) people keep falling for something so patently evil and unworkable? Why do some battles have to be fought over and over?
The Soviet Union collapsed and the Berlin War fell decades ago. The Eastern Bloc discovered western consumerism, and liked it. Bill Clinton declared the era of Big Government over, and Francis Fukuyama absurdly pronounced that Western ideology had forever won the day. Even China and Cuba eventually succumbed to pressure for greater economic freedoms, not because of any ideological shift but because it became impossible to hide the reality of capitalist wealth abroad.
Yet economic freedom and property rights are under assault today in the very Western nations that became rich because of them.
Today's socialists insist their model society would look like Sweden or Denmark; not the USSR or Nazi Germany or Venezuela. They merely want fairness and equality, free healthcare and schooling, an end to "hoarded" wealth, and so forth. And they don't always advocate for or even know the textbook definition of socialism, as professors Benjamin Powell and Robert Lawson learned by attending socialist conferences (see their new book Socialism Sucks: Two Economists Drink Their Way Through the Unfree World). In many cases young people think socialism simply means a happy world where people are taken care of.
Never mind the Scandinavian countries in question insist they are not socialist, never mind the atrocities of Stalin or Mao or Pol Pot, and never mind the overwhelming case made by Ludwig von Mises and others against central economic planning. Without private owners, without capital at risk, without prices, and especially without profit and loss signals, economies quickly become corrupted and serve only the political class. Nicolás Maduro feasts while poor Venezuelans eat dogs, but of course this isn't "real" socialism.
History and theory don't matter to socialists because they imagine society can be engineered. The old arguments and historical examples simply don't apply: even human nature is malleable, and whenever our stubborn tendencies don't comport with socialism's grand plans a "social construct" is to blame.
These most recent spasms of support for the deadly ideology of socialism remind us that progressives aren't kidding. They may not fully understand what socialism means, but they fully intend to bring it about. Single-payer health care, "free" education, wealth redistribution schemes, highly progressive income taxes, wealth taxes, gun bans, and radical curbs on fossil fuels are all on the immediate agenda. They will do this quickly if possible, incrementally if they have to (see, again, the 20th century). They will do it with or without popular support, using legislatures, courts and judges, supranational agencies,university indoctrination, friendly media, or whatever political, economic, or social tools it takes (including de-platforming and hate speech laws). This is not paranoia; all of this is openly discussed. And say what you will about progressivism, it does have a central if false ethos: egalitarianism.
Conservatives, by contrast, are not serious. They have no animating spirit. They don't much talk about liberty or property or markets or opportunity. They don't mean what they say about the Constitution, they won't do a thing to limit government, they won't touch entitlements or defense spending, they won't abolish the Department of Education or a single federal agency, they won't touch abortion laws, and they sure won't give up their own socialist impulses. Trumpism, though not conservative and thoroughly non-intellectual, drove a final stake through the barely beating heart of Right intellectualism, from the Weekly Standard to National Review. Conservatism today is incoherent, both ideologically and tactically incapable of countering the rising tide of socialism.
Generals always fight the last war, and politics is no different. We all tend to see the current political climate in terms of old and familiar divisions, long-faded alliances, and obsolete rhetoric. We all cling to the comfortable ideology and influences that help us make sense of a chaotic world. As one commenter recently put it, liberal Baby Boomers still think it's 1968 and conservative Baby Boomers still think it's 1985. Generation X and Millennials will exhibit the same blinders. It may be disheartening to keep fighting what should be a long-settled battle against socialism, but today we have no other choice.
Recently Mark Spitznagel, Founder and Chief Investment Officer of Universa Investments, joined Bloomberg to discuss the lessons learned from the 2008 financial crisis.
"What [the 2008 financial crisis] taught us ultimately is that interventionism - monetary interventionism - is a Faustian bargain. It gives us short term gains, and longer term pains."