Tag Archives: socialism

More About Economic Systems

A comment posted to yesterday’s blog noted that I had not defined capitalism. Fair point.

The following description is from my last book, Talking Politics? What You Need To Know Before Opening Your Mouth, in which I included the following descriptions/comparison of capitalism and socialism.

Capitalism is defined as an economic and political system in which a country’s trade and industry are controlled by private owners for profit. It is characterized by free markets, where the prices of goods and services are determined by supply and demand, rather than set by government. Economists often define the ideal of free trade as a transaction between a willing buyer and a willing seller, both of whom are in possession of all information relevant to that transaction.

Understanding the importance of free trade to capitalism is important, because it defines the proper role of government in a capitalist system—as an “umpire” or referee, ensuring that everyone plays by the rules. For example, Teddy Roosevelt reminded us that monopolies distort markets; if one company can dominate a market, that company can dictate prices and other terms with the result that those transactions will no longer be truly voluntary. If Manufacturer A can avoid the cost of disposing of the waste produced by his factory, by dumping it into the nearest river, he will be able to compete unfairly with Manufacturer B, who is following the rules governing proper waste disposal. If Chicken Farmer A is able to control his costs and gain market share by failing to keep his coops clean and his chickens free of disease, unwary consumers will become ill. Most economists agree that in order for markets to operate properly, government must act as an “umpire,” assuring a level playing field.

This need for government is a response to what economists call “market failure.” There are three situations in which Adam Smith’s “invisible hand” doesn’t work: when monopolies or corrupt practices replace competition; when so-called “externalities” like pollution harm people who aren’t party to the transaction (who are neither buyer nor seller); and when there are “information asymmetries,” that is, when buyers don’t have access to information they need to bargain in their own interest. Since markets don’t have built-in mechanisms for dealing with these situations, most economists argue that regulation is needed.

Economists and others often disagree about the need for particular regulations, but most do agree that an absence of all regulatory activity undermines capitalism. Unregulated markets can lead to a different system, sometimes called corporatism. In corporatist systems, government regulations favoring powerful corporate interests are the result of lobbying by corporate and monied special interests that stand to benefit from them. You might think of it as a football game where one side has paid the umpire to make calls favorable to that team.

Socialism is the collective provision of goods and services. The decision whether to pay for certain services collectively rather than leaving their production and consumption to the free market can be based upon a number of factors. First, there are some goods that free markets cannot or will not produce. Economists call them public goods, and define them as both “non-excludable” –meaning that individuals who haven’t paid for them cannot be effectively kept from using them—and “non-rivalrous,” meaning that use by one person does not reduce the availability of that good to others. Examples of public goods include fresh air, knowledge, lighthouses, national defense, flood control systems and street lighting. If we are to have these goods, they must be supplied by the whole society, usually through government, and paid for with tax dollars.

Not all goods and services that we provide collectively are public goods. Policymakers have often based decisions to socialize services on other considerations: we socialize police and fire protection because doing so is generally more efficient and cost-effective, and because most of us believe that limiting such services only to people who can afford to pay for them would be immoral. We socialize garbage collection in more densely populated urban areas in order to enhance the livability of our cities and to prevent disease transmission.

Getting the “mix” right between goods that we provide collectively and those we leave to the free market is important, because too much socialism hampers economic health. Just as unrestrained capitalism can become corporatism, socializing the provision of goods that the market can supply reduces innovation and incentives to produce. During the 20th Century, many countries experimented with efforts to socialize major areas of their economies, and even implement  socialism’s extreme, communism, with uniformly poor results. Not only did economic productivity suffer, so did political freedom. (When governments have too much control over the means of production and distribution, they can easily become authoritarian.)

Virtually all countries today have mixed economies. The challenge is getting the right balance between socialized and free market provision of goods and services.

 

 

Labels Versus Definitions

Yesterday morning, I was on the treadmill listening to “Morning Joe.” Scarborough was interviewing the Governor of Colorado, John Hickenlooper, who is one of the thousands of Democrats running for President. (Okay, maybe thousands is an exaggeration…) Hickenlooper was a successful entrepreneur before becoming Mayor of Denver and then Governor, and Scarborough asked him if he considered himself a capitalist.

When Hickenlooper responded that he didn’t like labels–that he focused on solving problems–both Joe and one of his panelists repeatedly pressed Hickenlooper on the issue, since they both said– falling neatly into a semantic trap being set by Republicans–the Democratic Party is split between good old American capitalism and a “socialist” flank.

I wish Hickenlooper had been more artful in his response. He might have pointed out that all western democracies are what we call “mixed” economies. (He did note that Social Security was originally opposed for being “socialist,” which of course it is.) We need capitalism in those areas of the economy where it clearly works well, and state-sponsored systems in areas where markets fail.

He also might have made the point that Elizabeth Warren has repeatedly made: as a capitalist, she wants to rescue capitalism by reinstating the regulatory rules that mandate the level playing field that is essential if markets are to work. (As I have noted in previous posts, America no longer has a genuine market system–capitalism has devolved into corporatism.)

In our highly polarized politics today, words like Socialism, Fascism and Communism are used more as insults than descriptions. So let me offer a few definitions.

Socialism may be the least precise of these terms. It is generally applied to mixed economies where the social safety net is much broader and the tax burden is correspondingly higher than in the U.S.—Scandinavian countries are an example.

Communism begins with the belief that equality is defined by equal results; this is summed up in the well-known adage “From each according to his ability; to each according to his needs.” All property is owned communally, by everyone (hence the term “communism”). In practice, this meant that all property was owned by the government, ostensibly on behalf of the people. In theory, communism erases all class distinctions, and wealth is redistributed so that everyone gets the same share.  In practice, the government controls the means of production and most individual decisions are made by the state. Since the quality and quantity of work is divorced from reward, there is less incentive to innovate or produce, and ultimately, countries that have tried to create a communist system have collapsed (the USSR) or moved toward a more mixed economy (China).

When pundits take to the fainting couch over leftists who call themselves Democratic Socialists, they are (intentionally?) confusing socialism with communism. That doesn’t necessarily mean that we shouldn’t analyze and debate proposals to “socialize” added areas of the economy–but that analysis ought to rest on accurate definitions of the terms being used.

What about the other end of the political spectrum?

Fascism is sometimes called “national Socialism,” but it differs significantly from socialism. The most striking aspect of fascist systems is the elevation of the nation—a fervent nationalism is central to fascist philosophy. There is a union between business and the state; although there is nominally private property, government controls business decisions. Fascist regimes tend to be focused upon a (glorious) past, and to uphold traditional class structures and gender roles as necessary to maintain the social order.

Three elements commonly identified with Fascism are 1) a national identity fused with racial/ethnic identity and concepts of racial superiority; 2) rejection of civil liberties and democracy in favor of authoritarian government; and 3) aggressive militarism. (Sound familiar?)

If Hickenlooper’s appearance on Morning Joe is any indication, Americans are in for two years of empty posturing over economic terminology bullshit.

Maybe I can just hide under my bed until 2020 is over…..

 

 

What’s In A Name?

Paul Krugman’s recent column in the New York Times was titled “Trump versus the Socialist Menace,” and the tag line beneath the title warned that commies were coming for your pick-up truck.

The title alluded to Trump’s most recent effort to generate fear in his base. Krugman reminded us that we’ve seen this movie before, when the horrible threat of Medicare was looming, and the AMA hatched a plan to defeat it.

Here’s how it worked: Doctors’ wives (hey, it was 1961) were asked to invite their friends over and play them a recording in which Ronald Reagan explained that socialized medicine would destroy American freedom. The housewives, in turn, were supposed to write letters to Congress denouncing the menace of Medicare.

Obviously the strategy didn’t work; Medicare not only came into existence, but it became so popular that these days Republicans routinely (and falsely) accuse Democrats of planning to cut the program’s funding. But the strategy — claiming that any attempt to strengthen the social safety net or limit inequality will put us on a slippery slope to totalitarianism — endures.

It sure does. It’s fed by America’s bipolar, “either-or” approach to policy and ignorance of economic systems.

In the real world, there are very few countries where either socialism or capitalism characterizes the entire economy. Virtually all democratic nations have a mixed economy, meaning that certain things are socialized (i.e., provided communally, through government and paid for by taxes) and others are left to the market.

The actual question facing policymakers is which approach is appropriate in a given situation.

America already “socializes” police and fire protection. Most cities “socialize” garbage collection. Our streets and sidewalks–and interstate highways–are “socialized.” (In a recent Facebook post, a friend warned that a “socialist snowplow” was coming down his street.)

One way to think about this (although “thinking” is apparently a difficult assignment for many folks) is that government is a mechanism through which societies provide infrastructure. Some of that infrastructure is physical–bridges, roads, etc.–and some of it is social. Police and firefighters, Social Security and Medicare and a variety of social welfare programs are part of the social infrastructure.

Market capitalism, properly regulated, is incredibly successful in providing goods and services when buyers and sellers are operating on relatively equal terms. Economists tell us that markets work well when there is 1) a willing buyer and a willing seller both of whom are in possession of all relevant information, and 2) government has ensured a level playing field.

Quite obviously, there are areas of the economy in which markets don’t work. (Utilities come to mind–when did you last take bids from companies wanting to supply your water or sewer?) In those areas, government gets involved, either through stringent regulation or –gasp!–by socializing the service.

It is perfectly reasonable to debate whether a given service or economic area should be left to the market or provided communally–and if the latter, how that should be done. It is both unreasonable and dishonest to pretend that every decision to socialize a service is a step toward totalitarian communism, but as Krugman says, that’s this administration’s rhetoric.

You say you want free college tuition? Think of all the people who died in the Ukraine famine! And no, this isn’t a caricature: Read the strange, smarmy report on socialism that Trump’s economists released last fall; that’s pretty much how its argument goes.

Ironically, these hysterical descriptions have actually made the word “socialism” less off-putting. Recent polls show a significant number of voters approving of socialism (including a majority of those under 30). They’ve evidently accepted conservative labeling that “describes anything that tempers the excesses of a market economy as socialism, and in effect said, “Well, in that case I’m a socialist.””

When words are used as invective, they no longer communicate anything of substance. I think that’s where we are with both capitalism and socialism, and that really impedes rational policymaking.

 

 

 

The Dreaded ‘Socialism’ Of Denmark

One of the aspects of our (debased) public discourse that absolutely drives me nuts is the misuse of language–words used not to convey meaning, not to communicate, but to demean and dismiss.

For quite a while, “liberal” was the epithet of choice, mostly courtesy of Rush Limbaugh and his clones. These days, mostly thanks to Bernie Sanders, it’s “socialist.” It would be annoying enough if the people who use the term as a sneer actually knew what it meant, but it is abundantly clear that they don’t.

Allow me.

In virtually every modern, democratic country, economies are mixed, meaning that markets supply many, if not most, of the goods and services needed/wanted by the people who live there, while many others are socialized–that is, provided communally through government. Experience has demonstrated that it makes sense to socialize the provision of services like police and fire protection, streets and highways, education and garbage collection, and to meet social needs through programs like Social Security and Medicare.

Some countries socialize larger elements of their economies than we do, but that doesn’t make them communist hellholes. Unless, of course, you are a Fox News”reporter.” 

As Paul Krugman responded,

Last weekend, Trish Regan, a Fox Business host, created a bit of an international incident by describing Denmark as an example of the horrors of socialism, right along with Venezuela. Denmark’s finance minister suggested that she visit his country and learn some facts.

Indeed, Regan couldn’t have picked a worse example — or, from the point of view of U.S. progressives, a better one.

Denmark has undeniably made different decisions than we have about the size of government and the proper economic “mix.”

American politics has been dominated by a crusade against big government; Denmark has embraced an expansive government role, with public spending more than half of G.D.P. American politicians fear talk about redistribution of income from the rich to the less well-off; Denmark engages in such redistribution on a scale unimaginable here. American policy has been increasingly hostile to organized labor, and unions have virtually disappeared from the private sector; two-thirds of Danish workers are unionized.

So–how are these soul-less denizens of an all-powerful state surviving?

Danes are more likely to have jobs than Americans, and in many cases they earn substantially more. Overall G.D.P. per capita in Denmark is a bit lower than in America, but that’s basically because the Danes take more vacations. Income inequality is much lower, and life expectancy is higher.

The simple fact is that life is better for most Danes than it is for their U.S. counterparts. There’s a reason Denmark consistently ranks well ahead of America in measures of happiness and life satisfaction.

Denmark’s economy is best described as social-democratic. It’s basically a market economy, but one in which–as Krugman puts it– “the downsides of capitalism are mitigated by government action, including a very strong social safety net.”

Americans, as we know, don’t do nuance. (In the age of Trump, we don’t do much civility, either.) We prefer flinging insults to having discussions, and either/or formulations and bumper-sticker put-downs to thoughtful consideration of calibrated solutions to our problems.

Our choice isn’t between capitalism (which, in the U.S. has devolved into corporatism) and an all-encompassing socialism (as if that were even possible.) In a country populated by rational people, we would examine aspects of our current economy  and consider whether they are working properly, or whether it might be cost-effective to “socialize” them. (That is what the debate about single-payer health insurance is all about.)

Before we can make sound policy decisions, however, we need to employ the English language for its intended purpose: to describe reality and thus serve as the basis for actual communication.

It Isn’t That Simple

We Americans tend to be “either/or” people. A policy is right or wrong; a system is good or bad, “those people” are all sterling characters or (more frequently) worthless bums.

Things aren’t going well, and need to change? We throw the baby out with the bathwater.

Speaking of throwing, the election of Donald Trump has thrown a number of the problems with American governance into stark relief;  it’s hard to deny the influence of money, or the venality of certain lawmakers. But rather than resolutions to correct the laws and political processes that have led to the current mess, I am increasingly reading diatribes from people who have decided that it is all capitalism’s fault, and want to replace the country’s system of market economics with socialism.

As the kids might say, let’s get real.

First of all, the worst aspects of our current, deeply dysfunctional economy aren’t capitalism. A genuinely capitalist system is regulated by an impartial “umpire” (the government) to ensure that enterprises compete on that all-important level playing field. What we have today is corporatism: Corporatism has been described as what you have when you lose the laws and regulations that have kept businesses from being able to buy politicians– a system where government is effectively “owned” by special interests.

Market capitalism encourages transactions between willing buyers and sellers, both of whom are in possession of all information relevant to those transactions. Socialism is a system for the collective provision of goods and services that don’t meet that criterion–goods and services that the market cannot supply efficiently or fairly.  We “socialize” things like infrastructure, police and fire protection, and protection of clean air and water.

A healthy, growing economy requires both. Virtually all western industrialized countries have mixed economies, meaning that the government socializes certain areas of the economy and leaves other areas to the market. The challenge is to get the mix right.

Both capitalism and socialism can be manipulated by greedy or unethical offiicials–that’s why electing people who demonstrate respect for ethics and the rule of law is so critical. Unregulated capitalism becomes corporatism, allowing the “big guys” to prey on smaller businesses and consumers. Socializing too much of the economy depresses innovation,  invites stagnation and encourages petty bureaucrats to abuse their authority.

If we want to fix our broken economic system–and not so incidentally, our broken government–there is no substitute for doing the hard work of re-regulating markets in those sectors where markets work well, and carefully socializing areas (like health care) where the evidence overwhelmingly demonstrates that markets do not and cannot work.

We can and should argue about the level of regulation we impose on market enterprises–what is too much, what is not enough?–and we can and should require hard evidence before moving to socialize additional areas of the economy. What we shouldn’t do is apply  bumper-sticker solutions to problems requiring careful analysis and measured policymaking.

We don’t need to throw the baby out–just the dirty bathwater.