Tag Archives: socialism

Demonize Sloppy Accounting

The Economist describes Bernie Sanders’ candidacy as the biggest-ever student prank. It was certainly amusing watching his interview with Bill Maher, wherein both tried heroically to “undemonize” socialism. Regular readers know that Jeremiah takes a nuanced view of socialism, allowing for redistribution but debunking the statist agenda.

Mr. Maher made the point that Social Security, Medicare, et alia are “socialist” programs – and we like them, so socialism is groovy, right? Well, no. These programs have epic problems, which could be fixed using free market methods. See How to Control Health Costs, for example.

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The important thing is to talk about specific policies, regardless of the demonic label, and this is where Sen. Sanders went badly wrong. He repeatedly used the charlatan’s formula, “we can pay for X by taxing Y,” where X is a free pony and Y is something we don’t understand. Like, we can pay for free college by taxing speculation on Wall Street. Yes, he actually said that. Cue cheers from the college kids (except the finance majors).

The right way to analyze this proposal is by splitting it, just as you would split a transaction in double entry accounting. If free college is a good idea, then the funding side can be considered separately. If taxing “speculation” is feasible, then we should do it anyway and reduce the deficit.

Free college might not be a good idea, if costs continue to rise and quality continues to fall, as they have been doing under the current subsidized (but not free) system. The likeliest outcome is that employers will respect a state college degree even less than they do today, if such a thing is possible. This is not to pick on free college, but merely to show that universal free stuff is not always a good idea.

Turning to the funding side, we should definitely tax those bad speculators on Wall Street. They’re the folks who make the price of heating oil go up in the winter. We should put a big fat Tobin Tax on them. What could go wrong?

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Eating the Golden Goose

SwedenThe Mises Institute has a rundown on Swedish socialism. It’s a good example of why policy should be informed by the whole picture, and not tabloid stereotypes. The article shows that the Swedish economy had historically been very successful, and was harmed by its socialist policies.

It is a mistake to draw conclusions from any nation’s experience at a point in time, without considering the trend. Sweden’s past success carried it for many years after the fatal policies were implemented. The comments to the article are good, too, from many people with firsthand experience.

Nordic Socialism has frozen a once entrepreneurial and prosperous people in time.

This line about freezing the economy at a point in time is reminiscent of Jeremiah’s Freeze-Frame Economics. Socialists implicitly believe that the nation’s productive capacity will run on unchanged, and unimpeded by their redistribution program.

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More Lethal than Plague

Karl-MarxRobert Conquest died last month. The Economist ran a proper tribute, and even the left-leaning New York Times gave him his due. It is fashionable to dismiss Conquest as merely an accountant, the first to calculate how many people Stalin had killed, and obsolete now the Soviet archives are open. This misses the point entirely.

The point is that Western observers were so enamored of communism, in theory, that they were willfully blind to what it was doing in practice. Six to eight million died in the famine. Something like ten million were sent to Siberia. Millions more died in the Gulag. Conquest’s estimate of total deaths is 20 million.

Even after flag-waving supporters of the Soviet Union had dwindled to irrelevance, the conviction that communism was a good idea poorly executed persisted

Lenin thought mass murder was justified because he was building a socialist utopia. Stalin, Mao, Che, and Pol Pot thought the same. This is no coincidence. When a leader believes he is obeying the law of history – Marx’s idea – he can justify unspeakable atrocities.

Here is an idea that killed millions. Millions! People were starved, shot, gassed, imprisoned, and tortured – all over the world. Pol Pot killed two million, and there is no telling how many tens of millions Mao put to death. You really have to believe in your workers’ paradise to sweep that under the rug.

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Socialism Lite

We have recently returned from a tour of Canada. The Canadians have wonderful infrastructure. They have modern schools, libraries, and hospitals. The roads are broad and smooth. Even the water treatment plants are tastefully done (you do not want to go on vacation with Jeremiah).

Canada is one of those countries, along with Scandinavian Northern Europe, where a mild form of socialism is said to be successful. Strolling in Toronto’s green and pleasant parks, it is easy to agree. As the Canadians say, they may pay high taxes but they can leave their doors unlocked.

The taxes are indeed high. Income tax goes up to 50%, plus a 13% sales tax, plus surcharges and user fees. On the other hand, the government actually provides services. Here in America, “give us the money and we’ll fix the roads” is just a ransom demand.

Canadian socialism, like the Scandinavian variety, depends on a unique combination of factors. You can decide for yourself whether this magic formula is sustainable. We will try to qualify the umbrella term socialism as we go along.

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The Canadian welfare state holds up because there is not much strain on it. The culture is proud and cohesive, and includes a strong work ethic. To Canada’s credit, this does not depend on an ethnic monoculture, as it does in Scandinavia. White English Canadians were outnumbered, in the places we visited, by an amazing diversity of immigrants.

This is really the bottom line for a welfare state. They hold up only as long as there is cultural pressure to go find a job. If the culture changes – through immigration, potentially, or an outbreak of Cloward-Piven syndrome – then the welfare state collapses.

Government spending is tolerable in Canada because officials are mostly well intentioned and not corrupt. This is another cultural thing, plus – their whole economy is one-tenth the size of ours, so the temptation is smaller. Someone in Ottawa might pad his expense account, but the scale of fraud we have in America would never occur to them.

Denmark and Norway allow private firms to run public hospitals. Sweden has a universal system of school vouchers, with private for-profit schools competing with public schools.

Scandinavian countries have lately discovered that, although they are willing to spend generously on social benefits, it is better to outsource the programs to private contractors.

The thing that destroys a socialist economy is central planning, and it is possible to survive a mild case. The Soviet economy was rigidly planned, and fell hard. The Chinese are trying to adopt some free market practices. Protectionism is a popular, and mostly benign, form of central planning. It imposes a hidden sales tax, in the form of higher prices for imported goods and services.

We flew Air Canada, a wretched excuse for an airline that would never survive in a free market. Most of the population lives within easy reach of much stronger American carriers. High tariffs ran Target out of the country, and Best Buy survives by selling last year’s gadgets. For American retailers, Canada is one big outlet mall.

Finally, we have commodity exports. Depending on the strength of the private economy and the cost of the welfare state, socialist countries lean more or less heavily on pumping oil. Scandinavia has North Sea oil, Canada has Alberta tar oil, and now Russia is an oil power.

Alberta oil is a lousy investment. It’s not so much the oil revenue that matters, but the relative strength of oil in a weakened economy. This is known as the curse of oil, and it’s why Jeremiah is not a fan of America becoming an oil exporter.

Canada’s lite brand of socialism has been stable for a long time. The crash in oil prices will be salutary, in a way, and we’ll see if their welfare state holds up to tighter conditions and cultural change. Europe, from Sweden to Greece, displays the range of possible outcomes.

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#FreePonyBernie

The Bernie Sanders pledge is going around the internet in various forms. Judging by the reaction, promising free stuff has not lost its appeal. To our unending astonishment, Americans still cannot ask even the most basic questions:

  • Which trade policies sent American jobs to China, and how do you propose to fix them?
  • Is there really pay inequity and, if so, what in hell is the EEOC doing?
  • Do “the rich” have enough money to pay for all our roads, schools, and hospitals?

We have no doubt that Mr. Sanders is, quite sincerely, just as ignorant of basic economics as his young supporters. Go ahead and elect him, kids. You will live to see the results.

FreePonyBernie

See also: The People’s Ice Cream

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Blood on his Hands

KrugmanLast week, there was a violent protest at ECB headquarters in Frankfurt. Since the Greek debt crisis, we have seen simmering violence all over Europe. These young people have a right to be angry. Their prospects have indeed been wrecked by failed fiscal policies. Unfortunately, they are protesting in the wrong city. They should be in Rome and Athens, demanding the return of capitalism.

The kids think they are protesting against “austerity,” which simply means that the government is no longer able to support them. They also can’t get jobs, because socialism has destroyed their economy. Their governments – Portugal, Italy, Greece and Spain – are bankrupt. Historically, when your government runs out of money, the social transfers have to stop.

That’s what happened in every other sovereign debt crisis. We had the Asian debt crisis, the Mexican crisis, and sundry other peso crises. In each case, the IMF lent a little money, and then demanded they get their accounts in order. They didn’t call it austerity. The natives called it “imperialism,” but – they needed the money. An IMF loan with strings attached is still better than being flat broke.

Emerging market policymakers were faced with economic advice that suggested many years of austerity and unemployment … [but] when the crisis hit at home, Western economists were much less willing to accept the pain – Rajan

Now, however, there is a new narrative. Other countries are lending to the PIGS, and the ECB is creating fresh money. Thus, Europe’s young people have been told, there is no need for austerity. If the EU and the IMF (and the hated Germans) insist upon getting paid back, and the ECB fails to print enough Euros, then they are the villains – not the corrupt politicians back home.

The kids are protesting against “austerity,” as if there is an alternative. In the real world, there is no alternative. When you’re broke, you’re broke.

The euro area is not a political union of the sort where some countries permanently pay for others – Draghi

So, who told them that austerity was a punishment imposed by the troika? Who gave them the intellectual support for throwing acid on the police? Paul Krugman. Because of Krugman’s dogmatic and increasingly unhinged musings, real people got hurt. The blood is on his hands.

Krugman is still calling for free money, while respectable economists have moved on. Even Christine Lagarde, in her latest address, said the time had come for structural reform. The national bank of Sweden has told Krugman to mind his own business. Ironically, this is the same outfit that awarded him the Nobel Prize in 2008.

You would wish when [Krugman] says this – that Sweden looks like Japan – that he write fewer articles and have more of a look at the data … it doesn’t make him come across as a guy who is very well informed – Jansson

This is the problem with being a pundit. Sometimes you’re too busy writing polemics to mind the actual data. Just last month, we caught the professor in a freshman blunder over chart scaling.

Keynesians like to think they’re “evidence based,” but the evidence is that six years of accommodation have harmed savers, enriched the banks, distorted price discovery, and not solved the Euro crisis. Structural reform would have meant a short, sharp recession, followed by a strong recovery. We can’t prove the counterfactual, but we can state the current situation with certainty.

More than six years after the start of the Great Recession … unemployment remains high and inequality has increased. This is why we need a decisive push for structural reforms – Lagarde

We are now six years into a weak recovery (in America) and a triple dip recession in Europe. The central bankers have no dry powder for the next downturn, interest rates have gone negative, and – did we mention the violence? The only Keynesian prediction coming true right now is the one about easy money and the end of capitalism.

Professor Krugman accused the Riksbank of “sadomonetarism.” He has coined “austerian” as a play on the Austrian school of economics – which school, by the way, is what separates the prosperous North of Europe from the bankrupt South. It must be fun to sit in an ivory tower and make jokes, while his followers throw petrol bombs in Europe.

See also: You Say You Want a Revolution

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Freeze-Frame Economics

Socialist policies have a way of freezing their object at a point in time, like taking a snapshot. Take, for example, laws intended to give workers a better income. European governments have been doing this for years, making their companies uncompetitive and raising barriers to new workers. That’s why youth unemployment is so high. Chart by Reuters.

unemployment-1024x1024They start with good intentions, of course. Everybody wants workers to have a better wage, time off, health care, and early retirement. There’s a moral hazard, though. Politicians can pass these laws all day long, because they don’t have to bear the costs. They will compete to befriend the working class and, whatever level of largesse might be appropriate, they will overshoot.

Wherever there is a good intention, there must be a tradeoff. Policy is all about balance. If you can’t see the tradeoff, then you haven’t understood the problem (or you have succumbed to a moral hazard).

We think France has the most absurd labor laws – see here, here, and here – though Italy may be worse. When companies can no longer support their “social charges,” they’re not allowed to reduce staff. Like a snapshot, socialist policies froze Europe’s workforce at a point in time. Those who are in, are locked into the good life ‘til retirement. Young workers are locked out.

If you’re a hardcore socialist, you may feel that companies should bear unlimited social costs. Any profit above zero means that workers are being exploited. If “the people” owned the means of production, then every penny could go to the workers. Wherever this has been tried, unfortunately, the result has been a freeze-frame economy.

At the time of the revolution, the Russian economy was all primary production and a little heavy industry. The new Soviet government took ownership of mines, farms, dams, steel mills and crude factories – all labor intensive, the best possible industries for socialism.

Fifty years later, it was the same grainy photograph. Outside the Soviet Union, steel production moved to electric mini mills, farmers enjoyed the “green revolution,” Shockley invented the transistor, and Sony gave us the Walkman. In the free world, competition drove innovation and human progress.

The causes and effects of the Soviet tragedy are well known, and we needn’t go into details. Our purpose is to show a general rule, which is that socialists invariably look at history synchronically. They seek to protect today’s workers in today’s economy – preserving them in aspic, as it were – and they end up condemning the workers of tomorrow.

See also: Second Class Workers

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