Let’s understand just what socialism means to us (redux)

I first wrote a post with the above title in 2015 when Donald Trump was polling second to Jeb Bush and Bernie Sanders was in the same place in their respective primary races.  I felt then (as now) that the only thing worse than Trump in the White House would be the crackpot from Vermont.  I also thought, once the election was over, the idea that socialism might be a superior economic system would fade away.  But, it hasn’t. 

Frankly, I can’t believe we’re having this conversation in the most prosperous nation on earth. But, we are.  Last week, a local NPR talk show hosted representatives of the International Socialist Organization (ISO), with no opposing viewpoints on the panel, for a solid hour. 

I could write pages of rebuttal of their economic thinking (if it can be called that).  But, I would like to focus on just a few troubling aspects of their presentation. 

The Scandinavia myth.  The nations most cited as a model for those promoting socialism in the U.S. are Sweden, Norway and Denmark. There is only one problem with this analogy:  those countries are not socialist.  And, I am not the only one who thinks so.  The Foundation for Economic Education (FEE) points out that, “like all other developed countries, the means of production are primarily owned by private individuals, not the community or the government.”  (Italics mine)  FEE is a self-described “non-political, non-profit, educational foundation…”

The folks from ISO like to compare data points from the performance of those countries to the U.S.  That’s like comparing bicycles to oranges.  Scandinavian countries (and Germany) have benefited from the creation of the European Currency Union, which has made the Euro the single currency of those countries who have joined the union.  It has enabled them to benefit economically by boosting exports, especially to the countries of Southern Europe.  The profits from those international sales are then reinvested by privately owned, capitalist companies to innovate new or better products or to improve the efficiency of their production.

The U.S., by contrast, is a net importer of goods and services.  Why? Because, first, we are the most prosperous nation on Earth, enabling us to buy more stuff.  And, second, because we are a consuming rather than saving nation.  So, we must recapture capital differently than net exporters.  We attract Foreign Direct Investment (FDI).  The Bureau of Economic Analysis reports a positive flow of $269 Billion in 2017, slightly below the historical average. “As in previous years, acquisitions of existing businesses accounted for a large majority of it,” according to the BEA.  In other words, our economy attracts investors from other countries who are spoiled for choice.

The Poverty myth.  You can find a lot of conservative sources – from the Cato Institute to the American Enterprise Institute – that will describe the ways in which capitalism has reduced poverty.  I know because I’ve been reading them for years.  To create a more balanced perspective, I searched for and found a non-partisan group focused on the topic.  The Huffington Post describes the Borgen Institute as “an incredible non-profit organization… addressing poverty and hunger and working towards ending them.”  Borgen cites free market capitalism as a key driver in the effort to reduce poverty, citing data showing a reduction by half in industrialized countries between 1990 and 2010 (from 43% to 21%).  Meanwhile, they say, “China increased per capita income 13-fold since the beginning of its economic reforms in 1978.  The country pulled 680 Million people out of poverty between 1981 and 2010… In India, income rose three-fold after the country liberalized its markets.”

There can be no doubt that liberalization of trade and the spread of free-market principles have improved the prospects of hundreds of millions of people throughout the world. 

Innovation. All of the advances in technology, healthcare and efficiency have come from capitalist countries. The Scottish enlightenment began in the 1690’s when liberalization of the economy gave rise to a spurt of innovation from the steam engine to canal locks as entrepreneurs worked to improve economic conditions.  In colonial and early American, the shortage of labor drove innovation in the form of steel plows and the cotton gin.  Throughout history, such innovation has improved the economic prospects of nations that have allowed capitalism to flourish. 

Since WWII, innovative improvements in healthcare, information technology and lifestyle  – polio vaccine, computers, jet travel, air conditioning – have all come from capitalist countries.  Driven by motivation to earn a living free of the constraints of central planning, free-market capitalism always has and always will improve the lives of those who have the good fortune to live under its umbrella.

No discussion of capitalism can exclude the dark side in these politically correct times.  For many, income inequality (which is increasing in the U.S. by many measures) is the reason we should consider another approach to managing our economy.    We often frame these arguments in the context of the Top 1%, or even the Top 0.1%.  But, that doesn’t describe the challenge appropriately, in my view. 

Hedge fund billionaire Ray Dalio has produced a study that outlines the critical challenges of the United States economy by comparing the fortunes of the Top 40% to the rest.  While pointing out that it is dangerous to form opinions by relying upon averages, he nevertheless describes the conditions of the 40/60 in a few resonant data points.  “The average household in the Top 40% earns four times more than the average household in the bottom 60%,” he tells us.  The result is “[t]hose in the top 40% now have on average 10 times as much wealth as those in the bottom 60%.  That is up from six times as much in 1980.”

It’s popular in conservative circles to point to economic outcomes for those less fortunate as the result of people making poor choices.  Indeed, that trope resonates with me in a big way.  That said, we should all be concerned about trends that ultimately destroy the middle class families on which the stability of our economy relies.  As it continues, the interests of the middle class will become aligned with those of the working poor.  There are economic, political and social consequences that will result. 

In a future post, I will outline what I foresee as the shift that will ultimately save our nation from destruction.  Stay tuned!

WHO WILL LEAD?