Category Archives: Economics

trump att time warner merger

Vengeance from the Oval Office

The vast — too vast — powers of the executive branch provide unscrupulous actors with the ability to punish dissidents through a variety of contrived regulatory methods.  President Donald J. Trump, in whom opposition always recognized a decidedly authoritarian bent, has just the vindictive streak that makes an overbearing executive so dangerous: As Politico reported, Trump’s Department of Justice threatened to black the proposed AT&T and Time Warner merger unless they offload CNN.

Trump’s war on the free press knows few bounds.  He’s wrongly labelled critical reports as “fake news,” a concept he completely fails to grasp but in whose rhetorical repetition he’s found great success (foreign leaders now use the same technique to mask crimes against humanity), and constantly undermines a democratic institution needed to provide an informed electorate.  Now that fight bleeds over from words into economic livelihood.

“The only reason you would divest CNN would be to kowtow to the president because he doesn’t like the coverage,” Politico‘s source said. “It would send a chilling message to every news organization in the country.”



The New York Times reported in July that the White House had discussed using the pending merge as “a potential point of leverage over their adversary” — ie, CNN.  An American administration views CNN and the press as its adversary and wants to hold up a merge of its parent company to exact concessions from the outlet.  How would we respond to this in another country?

While there are economic reasons to oppose the merger — some fear concentration of power as a result — this thinking does not emerge in reported administration hesitation and dissatisfaction.  In fact, the new DoJ antitrust chief stated, prior to his nomination by Trump, that he didn’t see the merger as a “major antitrust problem.”  Now that he’s beholden to Trump, his views have changed.



Those connected to the Trump world, though outside of government, have suggested using the deal remake CNN.  As Politico noted, “Trump’s longtime associate Roger Stone suggested in a tweet last month that a ‘house cleaning’ of CNN personalities like Don Lemon, Jake Tapper and Ana Navarro will take place once AT&T completes its acquisition of Time Warner.”

This is a political incursion into the free market that shows Trump’s willingness to use coercive state powers to punish administration critics.  That, of course, is authoritarianism.  Regulatory powers should never be wielded as a weapon to bully into submission any individual or outlet that has a platform with which to criticize the president.  De facto censorship and plain bullying has no place in democratic America.



us national debt

Don’t Worry about the Debt, Worry about the Deficit

Don’t Be Scared by Large Numbers

The national debt is a large number – now more than $20 trillion – and that number rightfully has the ability to shock.  However, as with most shocks, looking at the national debt as a number devoid of context invites fear without much rational.  We need to contextualize the national debt to understand its economic meaning.

Yes, the US national debt is large, but so is the US economy.  Economists care about the ratio of publicly-held federal debt to the US GDP (henceforth, PD/GDP for brevity), not the size of the debt itself.[1]  While the PD/GDP has increased dramatically in the past decade, it’s largely – if not entirely – due to the Great Recession.  Recessions naturally decrease tax revenue as fewer people have jobs and incomes decline.  This means the government, at the same time it’s spending more to stimulate the economy, is taking in less and so must issue publicly-held debt.  We expect the PD/GDP to increase during and immediately after recessions and we similarly expect it to stagnate once the economy recovers.

And that’s exactly what’s happened.  Upon economic recovery, government spending slowed and tax revenues increased.  The PD/GDP has increased by only 2 percentage points since 2013, exactly what we would expect to see.

public debt to gdp ratio



The chart also makes clear that while our PD/GDP is high, it’s not at a historical high.  That happened during the Great Depression, an expected happening.  It makes sense that the second-highest PD/GDP ratio would occur after the Great Recession, the second-worst economic crisis in American history (we also entered the Recession with a relatively high PD/GDP due to large tax cuts along with fighting two wars).

Economists have identified no level at which the ratio of publicly held debt to GDP causes the economic growth to slow.  In other words, at no threshold does the level of public debt hurt the economy.  But, of course, investors may worry about fiscal solvency as the PD/GDP rises.  Buying government debt is an inherent bet on whether the government will be able to repay the (full) amount owed at the bond’s maturity.  As investors perceive more risk, they demand more reward – ie, a higher interest rate.  Therefore, the best way to study whether a government has encountered fiscal responsibility is the interest rate investors demand to loan the government money.



The Market Decides

Interest rates on US debt have reached and stayed near historical lows.[2]  Investors trust the United States to repay obligations and therefore are willing to lend to the government at a premium not commanded by riskier states.  Importantly, these interests fell and remained low even as the PD/GDP rose.

historical us interest rates

Interest rates are also incredibly low for the debt of other countries with relatively high PD/GDP ratios – even ones higher than ours.  Germany’s PD/GDP is 68, only slightly lower than ours, and has a 10-year bond yield of 0.45%.  The UK’s PD/GDP is 92 and investors only demand a 1.3% yield on a 10-year bond.  France has seen its 10-year bond yield fall below 1% despite having a PD/GDP of 97.  Starkly, Japan has a PD/GDP of 235 and can still borrow money almost for free.[3]



Investors demand higher interest rates from the likes of Greece, Spain, Portugal, and Italy because those countries have a high PD/GDP as well as fundamental economic concerns including high levels of unemployment (especially among youth), declining public services, and high pension obligations coupled with political uncertainty.[4]

Bond vigilantes have not fixed their gaze upon the United States and other G-5 countries because they see no reason to do so.  The United States remains the safest investment one can make – there’s a reason many investors use the 10-year treasury yield as a stand-in for the risk-free interest rate.  No one fears the US’s ability to repay its debt obligations.



The Debt Never Needs to be Paid Off

Furthermore, when pundits or politicians often talk about the immense difficulty of paying off the national debt, they ignore a simple fact.  We never need to pay it off in entirety.  Debt can continue to grow so long as its rate of growth is less than that of the economy.  The quickest way to lower the PD/GDP, and thus the relative burden of the debt, would be to keep the real value of the debt constant (accomplished if the United States were to pay “the value of debt multiplied by the real rate of interest”).  Then economic growth would lower the PD/GDP.

Put another way, “when interest rates are close to the rate of economic growth, you can run a budget deficit forever as long as the primary deficit is balanced.[5] The debt load as a share of the economy won’t increase over time. And if interest rates are lower than the pace of growth — as they are now — the load will actually shrink while you run those smaller deficits.”

Fear the Deficit

We need to worry about the deficit, not the debt.  The Congressional Budget Office estimates that the budget deficit will continue growing over the next decade as the population ages and so benefits paid to retirees increase.[6]  These spending increases are not yet projected to be matched by revenue increases.  A Brookings Institute report found that “to return the debt-GDP ratio in 2047 to 36 percent, its average in the 50 years preceding the Great Recession in 2007-9, would require spending cuts or tax increases of 4.2 percent of GDP.”[7]  So, obviously, hard choices will need to be made.  Similarly, new programs or tax cuts cannot be enacted without methods of payment that are deficit neutral in the long-term.[8]  We need a long-term focus to address future deficits, not fiscal policy designed to eliminate the debt.




[1] The publicly-owned debt excludes money the government owes to itself.  This can be excluded because debt the government owes to itself does not affect credit markets (in fact, for many developed countries, the theoretical relationship between national debt and the “crowding out” effect has proven tenuous, though developing nations have experienced such a phenomenon).  Gross debt does not provide any insight into a government’s fiscal health.

And only public debt, not the gross amount, because debt the government owes to itself “does not affect credit markets.”

[2] At various points, the inflation-adjusted 10-year bond reached negative rates of interest meaning that investors paid the US government to spend their money.

[3] Obviously, there are reasons for these discrepancies, but the point stands: In a developed and well-functioning economy, PD/GDP does not necessarily determine interest rate.

[4] When Standard and Poor’s downgraded our credit rating, it did so because of political polarization and potentially dangerous partisan politics, not because of unsustainable debt.

[5] The primary budget deficit is the discrepancy between new spending and new revenue.  It is balanced if new spending equal new revenue; it does not take into account the interest on existing debt.

[6] Right now, the economy’s growing at about a 4% nominal rate the deficit 3% nominally.

[7] Failing to do so would result in the PD/GDP rising to around 90.  Some consider that unsustainable.  It might not be, though it provides less fiscal flexibility in the case of another recession.  Commentators also fear that interest rates will rise, and thus so will deficits.

[8] And these need to be based on realistic analysis.  Saying a tax cut will be deficit neutral if the economy grows at 4 percent is not realistic.





alaska permanent fund

The Alaska Permanent Fund is a Progressive Policy in a Red State

The Alaska Permanent Fund is a Universal Basic Income

Alaska may be reliably conservative at the federal level, voting for Republican presidential candidates since 1964 and electing one Democratic senator since 1980, but at the state level, Alaskans embrace incredibly progressive policies, namely the Alaska Permanent Fund.

In 1976, Alaska voted overwhelmingly in favor of a constitutional amendment that created the Alaska Permanent Fund, funded by revenue from natural resource extraction, that will provide a future stream of income for the state upon oil depletion while also supplying the state with a universal basic income.

The Alaskan Constitution

The amendment mandates that “at least twenty-five percent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the state shall be placed in a permanent fund, the principal of which shall be used only for those income-producing investments specifically designated by law as eligible for permanent fund investments. All income from [the Alaska Permanent Fund] shall be deposited in the general fund unless otherwise provided by law.”



A few years before establishing the Alaska Permanent Fund, the state received a $900 million oil windfall but, rather than saving it, spent the money on public infrastructure.  Though the state – the second youngest in the union – undoubtedly needed public investment, residents soon viewed the $900 million expenditure as a waste.

The Alaska Permanent Fund prevents future wasteful spending by removing a large portion of the oil revenue from the legislative spending stream.  Its investments will help fund the government in the future – prudent lawmakers recognized that oil revenues would not last forever (no money from a finite natural resource could) – through investment dividend.  As the state touts, the Alaska Permanent Fund takes a non-renewable natural resource and turns it into a renewable source of wealth.



How the Alaska Permanent Fund Works

Each year, the fund receives oil and gas royalties, income from the funds investments, and any other appropriations made by the state.  It then pays qualifying residents a dividend from realized investment gains.  State law fixes the dividend at an amount equal to the Alaska Permanent Fund’s net income over the last five years multiplied by 21 percent, divided by 2, and then divided by the number of eligible applicants.  This (somewhat) stabilizes the dividend across years.

alaska permanent fund

While this universal basic income is obviously not large enough to (significantly) change employment calculus, it has resulted in Alaska having the fifth-lowest rate of poverty in the country.  The Fund also frees Alaskans from the burden of an income tax, though that might change as oil depletion continues and prices stagnate at low levels.



Alaska for America?

 

Many progressive have begun to dream about a nationwide universal basic income to offset the likely employment drop-off from the continued automation of our economy.  Ideas floated would be on a much larger scale than the Alaska Permanent Fund – progressives want annual dividends to be at least $10,000.  But, unlike Alaska, the United States as a whole does not have an easy to pay for a universal basic income.

Hillary Clinton considered an “Alaska for America” program that would use revenues from “shared national resources includ[ing] oil and gas extracted from public lands and the public airwaves used by broadcasters and mobile phone companies,” a carbon tax, and perhaps “a financial transaction tax” to pay a universal basic income.



However, Clinton “couldn’t make the numbers work. To provide a meaningful dividend each year to every citizen, you’d have to raise enormous sums of money, and that would either mean a lot of new taxes or cannibalizing other important programs. We decided it was exciting but not realistic, and left it on the shelf.”

While the Alaska Permanent Fund may work for the state, it likely couldn’t be implemented on a national scale – at least not at a level that would provide all citizens with a meaningful basic income.  Regardless, studying the Alaska Permanent Fund may raise new insights into how a progressive goal could come to fruition.

So while a universal basic income remains a national fantasy, states – the laboratories of democracy – have experimented and Alaska, a deep-red state known for its conservatism, has developed perhaps the most progressive policy in the country.





what is democratic socialism

What is Democratic Socialism?

What is Democratic Socialism? Lipstick on a Pig

A new mania has gripped the American left: Democratic socialism.  The ideology embraced and popularized by Bernie Sanders has seen rapid growth, predominately among young political actors who hope to fundamentally overhaul the American economic system, but recognize that the traditional “socialist” label only polarizes.  So, to dress the dead ideology, they’ve conveniently stuck a loved word — “democratic” — in front of it and have taken their anger to the internet to commence a “political revolution” (whatever that means) one meme at a time.  With that said, what is democratic socialism, really?

Even democratic socialists struggle to answer that question.  The Democratic Socialists of America (DSA) lauds “our socialism” as a means to “a humane social order based on popular control of resources and production, economic planning, equitable distribution” of goods, presumably, and “non-oppressive relationships.”

That sounds wonderful until you realize it’s the meaningless collection of buzzwords that drive masters of the English language insane.



 

What is democratic socialism’s goal and how is it implemented?

What does this mean?  How does a government implement the popular control of resources and production?

Herein lies the rub.  Democratic socialism organizes around a core belief that the people should control resources and production through democracy.  But, at best, this is impossible, and, at worst, it’s a sure road to oppression and tyranny.

Democratic ownership and allocation of resources and production immediately cannot naturally happen because, in a nation of any size, considerable disagreement about the control of resources will arise, making any sort of popular, or democratic, agreement impossible.  But that assumes democratic socialists want all individuals to equally participate in incredibly complex decisions, naturally a terrible idea and an impossible feat of coordination.

So perhaps democratic socialists don’t mean an active democratic control but rather democratic control through free and fair elections in which various candidates submit proposals for how state-owned/centralized resources and capital should be distributed among the population.  Except this would also fall to pieces immediately.



Minimal-winning coalitions explain why.  The theory, introduced by William Riker, contends that any political party or faction would expand to a size just big enough to win an election or ensure passage of a desired bill.  Doing so enables the coalitions members to compromise as little as possible.

democratic socialism what is it

Take a simplistic example in which a five-member legislature debates a stimulus bill that needs majority support.  The legislators have ideal points (the amount of spending they believe to be most effective for the economy) as follows: A) $100 billion, B) $75 billion, C) $60 billion, D) $40 billion, E) $25 billion.  Lawmaker A introducers her $100 billion spending bill, but no one signs on.  So she proposes an admit to lower spending to $75 billion and lawmaker B then supports the measure.  They still need one more to guarantee passage and so offer another amendment bringing the number down to to $60 billion and achieve the minimal winning coalition.  If the coalition tried to attract more support, they could only do so by lowing the stimulus and moving the successful package further away from their ideal points.  In short, a minimal winning coalition (versus an expansive supermajority) ensures legislation that maximizes ideal points for its members.

Of course, that problem can be alleviated by mandating supermajority support for bill passage, but that moves away from the proclaimed goal of popular control.

This logic extends to any number of issues a polity faces.  Coalitions seek maximum benefit even though it my displease others.  Consider, too, that across a broad range of issues, some coalition members might care little and simply support the proposals offered by concerned members.  Such logrolling (to be a bit unfair) helps establish “long coalitions,” or parties (see “The Party Decides” for an in-depth explanation) that exist to win elections and deliver ideological goals to its constituency without necessarily turning outside of itself for the support needed to pass legislation (action that would necessarily require compromise and thus a deviation from ideal points).



A democratic socialist society in which each election became a referendum on the distribution of society’s resources and goods would naturally incite many arguments about optimization and result in displeasure for some, perhaps many.  Any given coalition could become malicious, recognizing that by establishing a minimal winning distributional coalition it could monopolize government resources and simply ignore the needs of its opposition.  Democracy and democratic control could actually exacerbate the very inequality against which democratic socialists rail.

So if direct and indirect democratic control won’t work, perhaps DSA members would prefer the traditional socialist central planning in which the state controls the means of production and unelected technocrats distribute goods based either on contribution or need, both of which are purportedly democratic.

Except that’s not democratic and it invites corruption and kleptocracy.

Those are the best case scenarios: It simply doesn’t work and the system collapses or enacts market-based reforms to salvage itself (some argue that democratic socialism embraces the market so long as all needs among the citizenry are met.  If we classify those needs as solvable by welfare benefits, we’ve described social democracy, not democratic socialism.  Scandinavian countries, heralded as democratic socialist utopias are actually market-based social democracies).

democratic socialism

At its worst, the democratic ownership of the resources and production simply invites tyranny.  Democracies already invite corrupt actors who seek, largely through democratic means, to assume and consolidate power for their own vanity or profit.  Add to that natural incentive borne from the inherent corruption of humankind the spoils of state-owned resources, and demagogues have every incentive to gain power no matter the cost because its payoffs are so high.

Controlling the means of production means controlling society.  The leader and her political party can reward loyalty while punishing opponents into poverty.  They can skim from the state and, by starving opposition of economic life, nip their ability to meaningfully compete in elections.

Democratic socialism’s implementation by any of the means outlined above simply enables and invites tyranny through centralized economic control.



So, what is democratic socialism?

In short, a disaster waiting to happen.  The ideology relies on lofty dreams that ignore human reality, as evidenced by the entirety of our history.  It assumes a level of beneficence amongst all people that simply does not exist and dreams of utopia without outlining the steps needed to get there.  Like any fairytale, it arouses the imagination, but could never be implemented.

What is democratic socialism?  A resuscitation of a failed ideology that either could never exist or, if brought into existence, would quickly devolve into tyranny.



a better deal minimum wage

A $15 Minimum Wage is a Terribly Misguided Policy

A $15 Minimum Wage Will Create Dramatic Regional Inequality

Liberals and progressives hope to eliminate society’s inherent inequalities in hopes that all who call this country home have the equal opportunity to compete and thrive in the free market.  As such, the government should not interfere in the market when doing so would necessarily create inequality.  Far too many on the left fail to realize that endorsing a $15 minimum wage increases regional inequality by favoring those who live in low cost of living areas over expensive cities.

Different towns, counties, and states have dramatically different costs of living.  $1000 in Boise goes much further than $1000 in San Francisco because Boise is cheap – its rent is a fraction of San Francisco’s.  Why, then would the federal government, when crafting a national minimum wage, treat the two as equals?  Let’s break this down to see how a $15 minimum wage increases regional inequality by favoring Boise residents.

LocationLiving WageLiving Annual Salary$15/hr SalaryBirthplace Bonus
Boise$10.34$21,505 $31,200 $9,695
San Francisco$16.13$33,553 $31,200 $(2,353)

By virtue of birth and location of employment, a Boise resident would be $12,000 better off than a San Francisco resident if the federal government implemented a national $15/hr minimum.

That means two identical minimum wage workers, one in Boise and one in San Francisco, have dramatically different standards of living.  The Boise worker is relatively affluent whereas the San Francisco struggles to pay living expenses; this means, implicitly, that the government values the Boise resident $12,000 more than the San Francisco resident.  And Boise isn’t even the nation’s cheapest locale.

Liberals should not stand for such inequality made possible solely based on where one lives.  The two workers act no differently; they demonstrate no different abilities or work ethic and yet they are paid, in real terms, substantially different sums simply because the government ignores the cost of living when dictating economic outcomes.



A Better Solution

Ideally, the minimum wage should be left to cities, counties, and states.  That, however, is not entirely feasible: Republican-controlled states often refuse to raise the minimum wage.  It takes initiatives for citizens to force the government into acting.

If the federal government decides to enforce a living minimum wage, as well it should, then the legislation must account for economic variances across the nation.  Rather than proclaiming one wage for the country, a hypothetical bill should read “the minimum wage for any given town or city shall not be lower than that town or city’s previous year’s living wage, as determined by the Bureau of Labor statistics, multiplied by one plus the expected inflation rate.”

Such legislation would ensure that all areas have a living wage without erroneously assuming nationwide cost of living unanimity.  This creates no regional inequality while ensuring that all workers can subsist on their wages.

Liberals must stand against the government creating inequality; thus, liberals should be against a $15/hr national minimum wage.

democratic socialism

Democratic Socialism: A Disastrous Ideology

Democratic Socialism must be avoided

What is Democratic Socialism?

Bernie Sanders’ surprisingly resonant campaign introduced a new phrase into our political lexicon: Democratic Socialism.  The phrase seeks to rhetorically touch up “socialism,” an ideology rightly associated with death, despair, and disaster.  Democratic socialism, however, is a catastrophe wrapped in a seemingly innocent movement.  Tt should be avoided and shunned at all costs.

Democratic socialism strives to combine the forces of democracy with social ownership of enterprise — in other words, it hopes to establish a socialist system.  Preceding “socialism” with “democratic” doesn’t modify socialism.  Socialism’s goal is itself democratic in theory: Centralized ownership benefits the masses rather than those with capital (capitalists).  The phrase “democratic socialism” solely seeks to distinguish this vision from the Soviet Union’s Marxist-Leninism, not modify socialist goals.

Similarly, “social ownership of enterprise” amounts to no less than the nationalization of industry and the centralization of production.  Only by the government owning the means of production could enterprise ever achieve social — ie, democratic; ie, lay — ownership.

So democratic socialism offer socialism, but by a better name.

And socialism, of course, does not work, for it quickly descends into despotism while destroying economies.



bernie sanders democratic socialism

Descent to Tyranny

History proves that statement: All socialist experiments led to autocratic, repressive states that deprived their citizens of natural rights. Democracy itself tends towards self-destruction through demagogues who subvert constitutions and strive for self-serving authoritarianism.  Democratic socialism would remove the republican safeguards that prevent demagogic takeover while increasing the riches of office — subvert the constitution, establish unilateral government control, and enjoy the spoils of all nationalized industries.

In other words, the leader, or leading party, has every reason to bend the economy to their desires.  Tyranny of the minority ensues, with the beneficiaries of the centralized system fighting the majority of the population, necessarily involving coercive forces and a seizure of rights (and wholly destroying the democratic socialist vision).

Destruction of the Economy

Even in the idealized world in which the government remains true to democratic virtue and does not succumb to natural human desires to enrich oneself, socialism — and so democratic socialism — falls short of all stated goals.  It destroys the economy by ignoring human nature.

All socialist societies dream of eventual classlessness (which, combined with the abolition of private property, amounts to communism) with the centralized means of production that supposedly serves the (democratic) masses.  It ignores market forces in place of government-decided prices and output (it is impossible for the government to determine optimal quality and price; in attempting to do so, it will be surely be swayed by some minority — a further imposition of minority tyranny as a select few decide the availability of goods for general purchase).



Without incentives and with central planning, the economy quickly stagnates.  Human nature requires incentives to spur productivity and innovation.  Without the ability to reap rewards for hard work — with the government guaranteeing an outcome — worker productivity and the standard the living decline precipitously.  Output then declines, which either forces prices to rise (as they would in a market) or the government subsidizes consumers and producers to maintain a certain price level, straining government coffers and causing debt to spiral, or a government-enforced price (without supplying subsidies) quickly leads to scarcity when production halts as its cost quickly outstep income.  Either way, the economy tumbles and the standard of living plummets.

democratic socialism
The revolution thrust Cuba into abject poverty.

Conclusion

Democratic socialism is a wolf in sheep’s clothing.  The phrase itself does not modify its fundamental belief in a socialized economy.  Socialism always seeks to be democratic, but because of human nature — because of demagogues and the ease with which a corrupted socialist state can be used to enrich oneself — always descends to tyranny.



The economy similarly suffers.  Central planning ignores incentives, and thus human nature.  Historically and theoretically, socialism leads to dramatic declines in the standard of living.  Only pain and suffering increases.

And so democratic socialism must be avoided.  Democratic socialists must be spurned.  Those seeking to overhaul the economic system into one that has never once worked must never gain power.

Socialism Doesn’t Work

Learn from History

How soon we forget.  How quickly collective memory fades.  How poorly schooling covers recent history.

How shameful that the country’s youngest voters gravitate towards an economic theory that has never once worked.

Voters between 18 and 29 years of age view socialism – which has resulted in countless failed experiments that doomed countries and resulted in millions of death – more favorably than capitalism.

socialism doesn't work

This aligns well with the recent Democratic primary: Self-proclaimed “democratic socialist” Bernie Sanders dominated among young leftists whereas Hillary Clinton thrived with middle-aged and older liberal Democrats better versed in the fatal conceit of socialism.

What is socialism?

Socialism, which involves the government centralizing, nationalizing, and controlling the means of production, never works in practice.  The Soviet Union should be the most glaring example of socialism’s discontents.  While the USSR never implemented true communism – they settled for a derivation of Marxism, further perverted by despotic repression – it fully implemented collectivism.  And its economy utterly failed.

An initial postwar boom driven by massive fiscal investments in heavy industry – economic growth can be attained even in collectivist environments when enormous resources are thrust upon a given sector; however, that growth is neither efficient nor sustainable – led to epic economic stagnation that the Soviet Union tried to alleviate through market-based reforms.  In other words, the world’s greatest socialist experiment turned to capitalism to salvage its state (and, in the end, it still could not).  This also says nothing of the unfathomable human cost, both in terms of death, poverty, and suffering, that accompanied the failed endeavor.



Real-World Socialism

Incentives matter and under true socialism, with government owning property and the means of production, there are no productive incentives.  Individuals have no reason to innovate or search for profit – a quest that does create jobs and drives down costs while boosting the standard of living for a nation and all its inhabitants.  China, though ostensibly socialist, has realized the need for incentives and thus has implemented many market reforms.

Communist Cuba has entirely failed, resulting in unspeakable poverty and a continuing flood of refugees escaping the villainous regime.

Venezuelan socialism has destroyed the once-vibrant Latin American country.

Scandinavian countries, often touted as socialist successes, are not, in fact, socialist.  Sweden and Finland are among the world’s most competitive countries.  Socialism spurs no competition (and competition drives employment and high standards of living).  Denmark, which Bernie Sanders esteems as the dream socialist state, takes offense at such a label and prides its market economy.  Another tidbit: the public services provided by Denmark are not exemplary, Denmark has privatized many infrastructural elements, and there’s much doubt about the welfare state’s sustainability.  Denmark’s welfare state doesn’t replace the (labor) market – it furthers it.



Socialism vs. Social Welfare

Perhaps favorable views of socialism stem from ignorance

Socialism is not a robust welfare program, but rather the centralization and state-ownership of the means of production.  Government controls capital and industry; the economy is planned centrally with no regard to individual desires, profit incentives, or human capital.

Welfare is not socialism.  A social safety net through services such as Social Security, Medicare and Medicaid, and the Earned Income Tax Credit provide for seniors and the poor, helping the latter compete – and hopefully thrive – in a robust labor market.  Welfare is not about stripping from individuals the means of production but rather by helping labor market entrants and ensuring an equal starting (but not finishing) ground for all.

The younger generations who favorably view socialism may well confound the two concepts.  Couple this with fading collective memories of the Soviet Union’s economic failure, massive human toll, and ultimate dissolution, and today’s youth may yearn for a theoretically appealing – but in reality appalling – economic program.  The Great Recession and general income stagnation makes many lust for change of any sort.  Unfortunately, critical thought rarely accompanies such lust.



Capitalism is imperfect, no doubt.  But capitalism – and capitalism only – has led to remarkable economic growth and a breath-taking rise in our standard of living.  It’s produced wealth unimaginable just 200 years ago and product creation in so rapid a pace that the size of a computer dropped 99 percent in just four decades, while simultaneously becoming many orders of magnitude more powerful.

Embracing an economic ideology that has always failed over markets and competition is simply foolish.  Today’s left must not ever embrace socialism.

trump tariffs

Trump, Tariffs, and How to Actually Revitalize the Economy

Trump knows nothing about the economy.

Donald Trump’s deep-seated idiocy and shocking ignorance prevent the altogether foolish man from understanding economic reality.  His willing stupidity has led His Accidency to routinely promise a return to industrial greatness, all premised on turning America’s back on globalization – the force that has led to unprecedented worldwide standard of living increases and 70 years without a major conflict – and returning to an economic policy that failed in 17th Century.

The president hopes to improve American manufacturing by levying tariffs on our trading partners, those whose goods contribute to a global supply chain that leads to affordable purchases.  His solution will hurt workers, consumers, and the economy.  If he were intellectually curious – a big ask for a man who assumes he knows more about ISIS than do the generals – he would quickly realize that to revitalize the American economy, we need significant investments in education, not a return to pathological protectionist plight.

Our perfidious president fails to understand that automation guts manufacturing’s demand for labor.  The computer – not China, not Mexico, not immigrants – takes jobs.  And there’s no rolling back such progress.  Technology’s relentless forward march will inevitably displace former industrial workers (capitalism: creative destruction).  Tariffs do not vanquish computers; angry 3am tweets don’t kill robots; all the campaign promises and bluster will not make Luddism successful for history’s first time.



Tariffs Don’t Work

In fact, Trump’s desired tariffs and other reworkings of trade pacts will hurt the economy, including (especially) the very workers from whose cultish trust Trump thrives.  Tariffs disrupt the global supply chain.  Trump wants, for instance, to slap a tariff on Chinese steel imports.  That raises the price of steel for all manufacturers that create products with steel, such as cars.  Such companies, paying more for supplies, stay profitable by laying off or refusing to hire new workers (to save labor costs) and increasing costs for consumers.

Suddenly, factory workers aren’t working because companies can’t afford to pay salaries.  Consumers slow their buying habits because of price increases – this further hurts workers because demand for goods creates demand for labor.  Fewer workers = less income; less income and more expensive goods = less buying; less buying = less demand for labor; less demand for labor = fewer workers.  It’s a vicious cycle, kicked into gear by ill-advised tariffs.

So tariffs don’t work.  (And there is no economic evidence or accepted/logical/rational theory that believes tariffs magically bring production back to America’s shores, so there’s no skirting tariffs’ negative externalities.)  Manufacturing jobs will increasingly be lost to automation and disrupting trade can’t change that.  What, then, can help displaced workers?



Education

In an economy that increasingly relies on new technology, we need a workforce prepared for new and innovative industries.  We can create that fairly easily.  Displaced workers should have a robust safety net and easy access to job retraining and continuing education programs.  The former, ideally, would work with local employers to train directly for demanded needs; the latter would help workers continually improve their skillset so that they can fluidly transition to new industries.  Future generations of workers can be prepared for the new economy by expanding coding and other STEM classes in middle and high school.  No more pottery or cooking – instead, let’s teach Python and biotechnology and 3D manufacturing.  This requires fiscal policy dedicated cultivating America’s human capital.  What could be a better use of money?

Rather than idiotically come up with moronic solutions meant to preserve outdated industries, our leaders need to look to the future.  Unfortunately, Donald Trump seems utterly incapable of grasping our modern economy.  He looks back to bygone days on which the sun has forever set.  Trump makes impossible promises and condescends to voters; for their part, voters must realize that only a charlatan promises a return to the past.  Instead, they too must look ahead and realize that the economy’s dynamic nature is its greatest asset.