Socialism and the White House

October 27, 2018

The Trump White House research team have issued a very strange report. It’s called
“The Opportunity Costs of Socialism,”. It purports to prove that ‘socialism’ and
‘socialist’ policies would be damaging to Americans because the ‘opportunity costs’
of socialism compared to capitalism are so much higher.

What is strange and rather amusing is that the White House advisers to Trump deem
it necessary to explain to Americans the failures of ‘socialism’ in 2018. But when
you delve into the report, it becomes clear that what is worrying the Trumpists is
not ‘socialism’, but the policies of left Democrat Bernie Sanders for higher taxes
on the rich 1% and the increased popularity of a ‘single-payer’ national health
service for all. The popularity of these policies threatens the Republican
majority in Congress and also the wealth and income of big pharma corporations and
Trump’s billionaire supporters.

What the White House means by socialism is apparently a national economy that is
dominated and controlled by the state rather than the market. “Whether a country or
industry is socialist is a question of the degree to which (a) the means of
production, distribution, and exchange are owned or regulated by the state; and (b)
the state uses its control to distribute the economic output without regard for
final consumers’ willingness to pay or exchange (i.e., giving resources away “for
free”).”

So the report has a wide and all-encompassing definition of ‘socialism’ that

includes Maoist China (but not modern China it seems), the Soviet Union, Cuba and
Venezuela and the Nordic ‘social democratic’ states. The latter are bunched
together with the former because Sanders lauds the latter and not the former.
Naturally this raises the question of whether any of these countries can be called
‘socialist’ ie a peasant-dominated Soviet Union in 1920 or China in 1950; or the
family-owned corporate dominated economies of Sweden, Denmark and Norway.

The White House definition is not socialism or communism as proclaimed by Marx and
Engels in the Communist Manifesto. For them, Communism is a super-abundant society
with no role for a state but only for the free association of individuals in common
action and ownership of the products of labour. Of course, such a world system
does not exist and so cannot be compared with capitalism. Instead, in effect, the
White House is really trying to compare a planned national economy with a
capitalist-dominated national market economy. But we should not be too harsh on the
White House researchers: they are not going to know what socialism is; and their
definition (that they got from the dictionary, apparently) is probably most
people’s view.

Leaving that aside, what is wrong with all these ‘socialist’ states? Well, “they
provide little material incentive for production and innovation and, by
distributing goods and services for free, prevent prices from revealing
economically important information about costs and consumer needs and wants.” In
Maoist China and Stalinist Russia “their non-democratic governments seized control
of farming, promising to make food more abundant. The result was substantially less
food production and tens of millions of deaths by starvation.” Thus socialism was
a disaster.

From their definition, the White House report concludes: “The historical evidence
suggests that the socialist program for the U.S. would make shortages, or otherwise
degrade quality, of whatever product or service is put under a public monopoly. The
pace of innovation would slow, and living standards generally would be lower. These
are the opportunity costs of socialism from a modern American perspective.”
The White House report also claims that “replacing U.S. policies with highly
socialist policies, such as Venezuela’s, would reduce real GDP at least 40 percent
in the long run, or about $24,000 per year for the average person.” And replacing
the current US tax regime with that of the Nordic countries would increase the tax
burden on Americans by $2,000 to $5,000 more per year net of transfers. “We
estimate that if the United States were to adopt these policies, its real GDP would
decline by at least 19 percent in the long run, or about $11,000 per year for the
average person.”

The first argument of the White House report is that living standards are higher in
the US compared to the ‘socialist’ Nordic states. A most hilarious case study is
presented for this claim: the cost of buying a pick-up truck in Texas compared to
the cost in Scandinavia!

Well, a pick-up truck may be much more useful in Texas than Stockholm and, given
that taxes on vehicles are lower in the US and fuel taxes are substantially lower,
the argument that a pick-up truck costs much less than in the Nordic countries is
irrefutable! But does the more expensive truck in Norway compared to Texas prove
that there is a higher ‘opportunity cost’ of living in ‘socialist’ Norway? What
about public transport, public services, health and education, unemployment and
welfare benefits – things that the richer part of any capitalist country does not
need or use as a ‘social wage’? These things are not compared by the White House
report.

The report points out that real GDP per capita is higher in the US than in the
Scandinavian economies and in the non-oil part of Norway. The data show this is
true. But all this shows is that Northern Europe started at a lower level when
Marx wrote the Communist Manifesto. Actually, if we look at real GDP growth per
capita since 1960 (when Americans are told that they live in the greatest place on
earth), US growth has fallen behind the most Nordic economies and for that matter,
most European economies. Indeed, since the early 1990s, real GDP per capita growth
has been faster in Sweden than in the US.

And as for China, the growth rate has outstripped that of the US many times over
since the 1990s, taking 800m people out of World Bank defined poverty. No doubt
the White House researchers would argue (although they don’t) that China turned
‘capitalist’ in the 1980s and this is why the economy has rocketed. But this would
be inconsistent with their view that a ‘socialist’ state is one where the state
dominates and controls the free market economy. For China must be the most state-
directed major economy in the world, way more that the so-called ‘mixed economies’
of the Nordic countries.

Overall income is one thing but the distribution of that income is another. Here
the White House has to admit that “though the Nordic economies exhibit lower output
and consumption per capita, they also exhibit lower levels of relative income
inequality as conventionally measured.” What is interesting here is that the US
still has much higher inequality of wealth and income, but Nordic inequality has
also risen much in the last 30 years as governments there adopted pro-business
polices of reducing corporation and personal taxes (ie pro-market policies).

Indeed, as the White House report says, on some measures, the Nordic tax system is
more accommodating to the top 10% than the US system – at least for personal tax:
“Lower personal income tax progressivity in the Nordic countries, combined with
lower taxation on capital and on average only modestly higher marginal personal
income tax rates on the right tail of the income distribution, means that a core
feature of the Nordic tax model is higher tax rates on average and near-average
income workers and their families. That is, contrary to the misperceptions of
American proponents of Nordic-style democratic socialism, the Nordic model of
taxation relies heavily not on imposing punitive rates on high-income households
but rather on imposing high rates on households in the middle of the income
distribution.”

This may be an attack on Sanders’ praise for the Nordic economies, but it seems to
me that it proves how far away the Nordic states are now from ‘social democracy’,
let alone ‘socialism’. On the one hand, the White House report claims that
‘socialist’ states want to tax the rich harder (a la Sanders) but in reality they
tax them less hard than in the US!

Of course, this is all smoke and mirrors. All the data on inequality of wealth and
income in the major advanced economies show that the US is the most unequal, both
before and after tax; and that real disposable incomes for the average American
family have hardly risen in 30 years while the top 1% have seen substantial rises.

The share of wealth held by the top 1% of earners in the US doubled from 10% to 20%
between 1980 and 2016, while the bottom 50% fell from 20% to 13% in the same
period.

But the main part of the White House report is to argue that privately-funded
education and healthcare is more cost-effective than publicly-funded state schools
or a national health service. The report argues that paying for a US college
education will bring a much bigger return in future earnings than it will in
Norway, where there are no college fees. What this implies, however, is that
people in the US without higher education qualifications have no chance of earning
decent incomes, while those without degrees in Norway do not earn much less than
those that do! So actually the opportunity cost of not having a college education
in Norway is much lower.

Then there is healthcare. According to the White House, ‘single payer’ health
systems, as applied in nearly all advanced economies, are not as efficient and
beneficial to health as America’s free market insurance company schemes, especially
if Obama-care is excluded. The proof? Well, old people in the US have to wait less
time to be seen by a specialist than in single-payer systems, says the report.

Actually, American ‘seniors’ mostly receive Medicare, so they are on a single payer
scheme when they get to see a specialist!

All healthcare systems are under pressure as people live longer and develop more
illnesses in later life. And they are under pressure because healthcare is not
funded sufficiently compared to defence, business subsidies and tax cuts. This
applies to the US system too.

And if we look at an overall comparison of the efficacy of healthcare systems, the

US scores badly. The US health-care system is one of the least-efficient in the
world. America was 34th out of 50 countries in 2017, according to a Bloomberg
index that assesses life expectancy, health-care spending per capita and relative
spending as a share of gross domestic product. “Socialist” Sweden is 8th and
“Socialist” Norway is 11th.

Life-expectancy is a way of measuring how well, overall, a country’s medical system

is working, which is why it is used in the index. In the US, health expenditure
averaged $9,403 per person, or a whopping 17.1% of GDP and yet life expectancy was
only 78.9. Cuba and the Czech Republic — with life expectancy closest to the US at
79.4 and 78.3 years — spent much less on health care: $817 and $1,379 per capita
respectively. Switzerland and Norway, the only countries with higher per capita
spending than the US — $9,674 and $9,522 — had longer life expectancy, averaging
82.3 years. Why? Well, the US system “tends to be more fragmented, less organized
and coordinated, and that’s likely to lead to inefficiency,” said Paul Ginsburg, a
professor at the University of Southern California and director of the Center for
Health Policy at the Brookings Institution in Washington.

So the opportunity costs for the average American seem to be higher at least for
basic public services like health and education than for the average Nordic
‘socialist’.