This essay first appeared on the digital edition of the Claremont Review of Books.
March 6, 2016 by Dan Mitchell
Of the 4,000-plus columns I’ve produced since starting International Liberty in 2009, two of the most popular posts involve semi-amusing stories that highlight the failure of socialism, redistributionism, and collectivism.
“The Tax System Explained in Beer” is the third-most-viewed post of all time, and “Does Socialism Work? A Classroom Experiment” is the fourth-most-viewed post. At the risk of oversimplifying, I think these columns are popular because they succinctly capture why it’s very shortsighted and misguided to have an economic system that punishes success and rewards sloth.
For those who want details, I have dozens of columns about real-world socialist failure, looking at both the totalitarian version in places like Cuba, China, Venezuela, and North Korea, as well as the majoritarian version in nations such as France, Italy, and Greece.
And for those that want to get technical, I even have several columns explaining that the pure version of socialism involves government ownership of the means of production (government factories, state farms, etc), whereas the “democratic socialism” in Europe is actually best viewed as extreme versions of redistributionism (while the pervasive interventionism favored by the left actually is a form of fascism).
Yet notwithstanding the horrible track record of every version of socialism, we actually have a presidential candidate in America who actually calls himself a socialist. Though, as pointed out by my colleague Marian Tupy in The Atlantic, he’s more of a redistributionist than a socialist.
Socialism was an economic system where the means of production (e.g., factories), capital (i.e., banks), and agricultural land (i.e., farms) were owned by the state. …Sanders is not a typical socialist. Sure, he believes in a highly regulated and heavily taxed private enterprise, but he does not seem to want the state to own banks and make cars. …Senator Sanders is not a proponent of socialism, and that is a good thing, for true socialism, whenever and wherever it has been tried, ended in disaster.
Here’s an article about real socialism by Mark Perry that’s more than 20 years old, but its analysis is just as accurate today as it was in 1995.
Socialism is the Big Lie of the twentieth century. While it promised prosperity, equality, and security, it delivered poverty, misery, and tyranny. Equality was achieved only in the sense that everyone was equal in his or her misery. …Socialism does not work because it is not consistent with fundamental principles of human behavior. …it is a system that ignores incentives. …A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail.
Ben Domenech, writing for Commentary, analyzes the current version of socialism, which – particularly in the (feeble) minds of young people – is simply more middle-class entitlements financed by high tax rates on evil rich people.
Sanders holds massive events populated by kids who think what he is preaching is very cool. …When did it become acceptable for Americans to back an avowed socialist? …For Americans today, the visible and unmistakable connection between socialism and totalitarianism has faded dramatically. …For America’s young, socialism’s definition isn’t to be found in the desperate, sad reality of peoples held captive by regimes that proudly declare themselves socialist. It’s more of a vague ideal… This makes it easier for someone like Sanders to say that socialism just means middle-class entitlements… It is…Barack Obama…that we have to thank for socialism’s rise in 2016. Republicans…have been describing President Obama’s domestic program as socialist… The takeaway for today’s younger voters seems to be: If everything Obama is trying to do is socialism, …then perhaps we need to go full socialist to actually get things done.
The final part of the excerpt is very insightful.
Heck, they don’t even understand the modern-day failure of socialism in Venezuela or North Korea.
To them, socialism is simply bigger government.
Which is very offensive to people who actually have suffered under socialism. Garry Kasparov, the chess champion turned Russian dissident, doesn’t mince words in his response to the Sanders crowd.
Let’s close with something amusing. Or at least ironic.
It’s the socialism version of this communism image.
And it’s something young people should think about because socialism fails every place it is tried. As Mark Perry explained, it’s grossly inconsistent with human nature.
That’s true whether we’re looking at the totalitarian version of the majoritarian version.
The latter version is preferable, of course, though the end result is still economic misery.
P.S. Here’s a very clever video that asks college kids whether they would like a socialist grading system. Unsurprisingly, they say no. Though the video was put together before Bernie Sanders attracted a cult-like following, so perhaps today’s students would answer differently.
P.P.S. Speaking of videos, I’m guessing this bit of satire won’t be very popular with Bernie’s supporters.
P.P.P.P.S. You can also use two cows to teach about socialism, as well as other theories.
February 15, 2016 by Dan Mitchell
This is a very strange political season. Some of the Senators running for the Republican presidential nomination are among the most principled advocates of smaller government in Washington.
Yet all of them have proposed tax plans that, while theoretically far better than the current system, have features that I find troublesome. Marco Rubio, for instance, leaves the top tax rate at 35 percent, seven-percentage points higher than when Ronald Reagan left town.
This has caused a kerfuffle in Washington, particularly among folks who normally are allies. To find common ground, the Heritage Foundation set up a panel to discuss this VAT controversy.
You can watch the entire hour-long program here, or you can just watch my portion below and learn why I want Senator Cruz to fix that part of his plan.
Allow me to elaborate on a couple of the points from my speech.
First, a good tax system is impossible in a nation with a big welfare state. If the public sector consumes 50 percent of economic output, that necessarily means very high marginal tax rates.
Second, all pro-growth tax reform plans tax income only one time, either when earned or when spent, which means those plans all are consumption-base taxes in the jargon of public finance economists. Which is also just another way of saying that these tax plans get rid of double taxation.
On this basis, a VAT is fine in theory. Moreover, it could even be good in reality (or, to be technical, far less destructive than the current system in reality) if all income taxes were totally abolished.
Third, since Cruz’s plan leave other taxes in place, I’m worried that future politicians would do exactly what happened in Europe – use the new revenue source to finance an expansion of the welfare state.
Proponents of the Cruz VAT correctly point out that the plan simultaneously will abolish both the corporate income and the payroll tax, which sort of addresses my concern.
But keep in mind this is only an acceptable swap if you think, 1) the plan will survive intact as it move through the legislative process, and 2) the VAT won’t raise more money than the taxes that are abolished.
I’m not sure either assumption is valid.
Last but not least, proponents of the Cruz VAT plan keep denying that the plan includes a VAT. If you recall from my remarks, I think this is silly. It is a VAT.
To bolster my argument, here’s what Alan Viard wrote for the American Enterprise Institute.
Cruz’s proposed VAT would have a 16 percent tax-inclusive rate, and Paul’s proposed VAT would have a 14.5 percent tax-inclusive rate. Both VATs would be administered through the subtraction method rather than the credit invoice method used by most countries with VATs. The use of the subtraction method would not alter the fundamental economic properties of the VAT. A VAT is equivalent to an employer payroll tax plus a business cash flow tax.
Let’s close by citing some very wise words from Professor Jeffrey Dorfman of the University of Georgia (Go Dawgs!). Here are the key parts of his column for Forbes.
Conservatives are worried about national consumption taxes for several reasons, principally: these taxes’ ability to raise large sums of revenue and the ease with which politicians can raise the rates. Because national consumption taxes are efficient and can be applied to a larger base than is typical of state and local sales taxes they can raise large sums of money. While liberals think this is a plus, conservatives are rightly wary of taxes that could supply government with more money. More importantly, conservatives are suspicious of the semi-hidden nature of consumption taxes and the ability to raise them incrementally.
The bottom line is that even if we decide to call the VAT by another name, it won’t alter the fact that some of us think it’s too risky to give politicians an additional revenue source.
November 17, 2015 by Dan Mitchell
So how are our benevolent and kind overseers in Washington responding?
Are they cutting back on red tape? No, they’re moving in the other direction.
Are they lowering taxes? With Obama in the White House, that’s not even a serious question.
But that doesn’t mean all the people in Washington is sitting on their collective hands. The folks at the Federal Reserve have been trying to goose the economy with an easy-money policy.
Unfortunately, as I argue in this recent interview, that’s not a recipe for success.
At best, an easy-money policy is ineffective, akin to “pushing on a string.” At worst, it creates bubbles and does serious damage.
Yet if you don’t like the Fed trying to manipulate the economy, you’re often perceived as a crank. And if you’re an elected official who questions the Fed’s actions, you’re often portrayed as some sort of uninformed demagogue.
I explored this issue today in The Federalist. In my column, I defended Senators Rand Paul and Ted Cruz.
Rand Paul and Ted Cruz…deserve credit for criticizing the Federal Reserve. …This irks some folks, who seem to think Fed critics are knuckle-dragging rubes and yahoos with a superstitious fealty to the gold standard.
This isn’t a debate over the gold standard, per se, but instead of fight over monetary Keynesianism vs. monetary rules.
The dispute isn’t really about a gold standard, but whether the Federal Reserve should have lots of discretionary power. …On one side are the advocates of…the monetary component of Keynesian economics. Proponents explicitly want the Fed to fine-tune and micromanage the economy. …On the other side are folks who believe in rules to limit the Fed’s powers…because they believe discretionary power is more likely to give us bad results such as higher price inflation, volatility in output and employment, and financial instability.
And the Joint Economic Committee is on the side of rules. Here’s an excerpt from a JEC report that I cited in my article.
Well-reasoned, stable and predictable monetary policy reduces economic volatility and promotes long-term economic growth and job creation. Generally, ‘rules-based’ policies reduce uncertainties and facilitate long-term planning and investment. …Conversely, activist, interventionist, and discretionary monetary policies have been historically associated with increased economic volatility and subpar economic performance.
I then mention various rules-based methods of limiting the Fed’s discretion and conclude by commenting on the legitimacy of those who want to curtail the Federal Reserve.
Paul and Cruz may not be experts on monetary policy, just as left-wing senators doubtlessly have no understanding of the intricacies of discretionary monetary policy. But the two senators are on very solid ground, with an illustrious intellectual lineage, when they assert that it would be a good idea to constrain the Fed.
Now let’s expand on two issues. First, I mention in my article the gold standard as a potential rule to constrain the Fed. I’ve previously shared some analysis by George Selgin on this topic. He’s concluded that governments won’t ever allow its return and probably couldn’t be trusted with such a system anyway, but that doesn’t mean it doesn’t work.
Here are some excerpts from a recent article by George. Read the entire thing, but here’s the part that matters most for this discussion.
…the gold standard was hardly perfect, and gold bugs themselves sometimes make silly claims about their favorite former monetary standard. …the classical gold standard worked remarkably well (while it lasted). …it certainly did contribute both to the general abundance of goods of all sorts, to the ease with which goods and capital flowed from nation to nation, and, especially, to the sense of a state of affairs that was “normal, certain, and permanent.” The gold standard achieved these things mainly by securing a degree of price-level and exchange rate stability and predictability that has never been matched since.
And Norbert Michel of the Heritage Foundation touches on some of the same issues in a new column for Forbes.
Several candidates suggested the gold standard was a good system, and they’re all getting flak for talking about gold.
But here’s the most fascinating revelation from Norbert’s column. It turns out that even Ben Bernanke agrees with George Selgin that the classical gold standard worked very well. Norbert quotes this passage from Bernanke.
The gold standard appeared to be highly successful from about 1870 to the beginning of World War I in 1914. During the so-called “classical” gold standard period, international trade and capital flows expanded markedly, and central banks experienced relatively few problems ensuring that their currencies retained their legal value.
Both Norbert’s article and George’s article have lots of good (but depressing) analysis of how governments went off the gold standard because of World War I and then put in place a hopelessly weak and impractical version of a gold standard after the war (the politicians didn’t want to be constrained by an effective system).
So here’s Norbert’s bottom line, which is very similar to the conclusion in my column for The Federalist.
Many who favor the gold standard recognize that it provided a nominal anchor as opposed to the discretionary fiat system we have now. Maybe the gold standard isn’t the best way to achieve that nominal anchor, but we shouldn’t just dismiss the whole notion.
The second issue worth mentioning is that the best way to deal with bad monetary policy may be to have no monetary policy.
At least not a monetary policy from government. This video explains the merits of this approach.
Gee, maybe Friedrich Hayek was right and private markets produce better results than government monopolies.
I’ll admit that when I was a kid, I used to spend hours watching wrestling on television.
Hulk Hogan, the Macho Man Randy Savage… I loved all the old-school guys from the WWF, as they used to call it back in the 1980s.
It was mesmerizing, a bit like I’d imagined gladiator combat would be.
But I’ll never forget when the dream completely collapsed.
My father took me to a live match when they came to our town and we had great seats near the front row.
For the first time it was obvious to me, even from a young age, that it was all fake.
I was devastated. I had actually believed that there were good guys versus bad guys beating each other up in the ring.
It turned out to be a complete hoax, something that’s known today as “sports entertainment”.
In fact, it’s essentially the same with elections today, which I see as “political entertainment”.
Watching Hilary Clinton debate Bernie Sanders—or like yesterday evening, Jeb Bush against Donald Trump—doesn’t strike me as too different from when Hulk Hogan faced off against Andre the Giant in Wrestlemania.
It’s all fake. It’s sound bites, jabs and jibes, and pointless banter completely devoid of any real substance.
Having lunch yesterday with a good friend from the UK, he asked if I thought that any political candidate was worth it.
I told him that I’m sure they’re all very nice people. Many of them might even mean very well and have very good intentions.
I’ll also admit that occasionally they have decent ideas and that there are small steps in a positive direction.
But the truth is, none of it really matters.
As I explained to my friend, the United States objectively speaking is far past the point of no return.
The government’s own financial statements prove beyond all doubt that they are flat broke to the tune of more than $60 trillion, and that they lose hundreds of billions of dollars more every year.
In 2013, for example, the government lost $805 billion according to the Government Accountability Office.
Every major pension program is either already insolvent or desperately unfunded.
This isn’t Simon Black’s analysis; the Treasury Secretary of the United States of America himself tells us that the Social Security’s Trust Funds are nearly out of money.
The Federal Reserve is nearly insolvent, and on a mark to market basis is likely already insolvent.
The FDIC, which is supposed to support the entire US banking system, admits that it fails to meet the minimum capital requirements as required by law.
US banks are precariously illiquid and exposed to trillions of dollars worth of very high-risk assets. Something that even the Fed and the FDIC do not consider to be “sound”.
So to presume that a single individual is going to ride in on a white horse, wave a magic wand and fix all this is just a childish fantasy.
The hope is that “the right person” can at least start to steer the ship in the right direction.
This is the delusion every election cycle; people end up believing the entertainment is real, and that the right person can start to fix everything.
Then a few years later, they realize that the ‘right person’ is almost exactly like the last person.
Not to mention, ‘righting the ship’, mathematically speaking, is an impossibility.
The government now spends almost all of its tax revenue just to pay interest on the debt, and the mandatory programs, like Social Security and Medicare.
Both of which, by the way, are expenses that grow every year.
There is no way out. It’s like trying to change directions for a ship that’s already half-sunk.
At that point, it really doesn’t matter who’s the captain of the ship. All that matters is if you have a seat on a lifeboat.
This is not intended to be a downer.
It’s a little dose of reality, but in it there’s actually good news. Because all the tools and resources exist for you to build your own lifeboat.
You don’t need to rely on a government to fix the problems that they themselves created.
And with a little bit of planning, backed up by small, common sense action, you can ensure that you’re an amused spectator to this bizarre entertainment, rather than a victim of it.
November 4, 2015 by Dan Mitchell
Is this evidence that Washington is broken?
In a column for Real Clear Politics., Mike Needham of Heritage Action suggests that the conventional wisdom is wrong. Washington actually works very well, but not for the American people.
Washington isn’t broken. It is a well-oiled machine that works for the well-connected and responds to the well-heeled. This corrupt nexus of favoritism and cronyism tends to leave hardworking Americans behind. …as we’ve seen with Obamacare, the bigger the government, the bigger the Bigs become.
Is he right? Well, let’s look at some evidence. We already know Obamacare has been a boon for hacks from the Democratic Party.
But did you know that lots of GOP insiders also are cashing in because of Obamacare?
Let’s not limit our analysis to Obamacare.
There are many other examples of how the folks in Washington live on Easy Street at our expense. For instance, they enjoy lavish junkets. Here’s what the Washington Post reported back in September.
As Congress returned Tuesday…, some 14 House members were resting up from a week-long trip to Hawaii. …It sounded like a fine journey via military jet (business class) to stay at the oceanfront Sheraton Waikiki in Honolulu. Dinners were planned at the famous Hy’s Steak House — the superb porterhouse is always worth the $88.95 — and the upscale Roy’s Hawaii with its great fusion menu. (We hope they tried the lobster pot stickers.) …The schedule thoughtfully included substantial “executive time” in the afternoons. This, as Loop Fans know, is often a thinly veiled euphemism for some fine lounging at the pool, or exploring beautiful Hawaii.
This boondoggle was especially irksome to me since I was in Hawaii at the same time. But I had to pay my own way! And my hotel was right next to Hy’s Steak House, which had a very appealing menu, but I didn’t go because taxpayers weren’t financing my meals.
Speaking of integrity in D.C., here’s a story from the Washington Post that belongs in the is-anyone-actually-surprised category.
The Honest Tea firm, which makes organic iced tea, set up a stand offering bottles of its tea at 27 cities throughout the country, including D.C., and used the honor system by asking people to leave $1 in a box when they took a tea. But in the District’s Dupont Circle neighborhood, someone stole money from the box. Executives at Honest Tea wouldn’t say exactly how much was in the box but said it ranged between $5 to $20. The theft happened in the early morning, officials believe, and they did not report it to police. It was the first time in the six years that the company has been doing its experiment that someone has actually stolen money from the collection box, officials with Honest Tea said.
By the way, Dupont Circle is a ritzy part of town, not a low-income ghetto.
I’m guessing the thief is a lobbyist or bureaucrat, someone who already has a track record of taking other people’s money.
But if you really want to see Washington at its most unseemly, the Clinton machine symbolizes the corrupt nexus of big government and cronyism. Here are some passages from a report by Politico.
A spring 2012 email to Hillary Clinton’s top State Department aide, Huma Abedin, asked for help winning a presidential appointment for a supporter of the Clinton Foundation, according to a chain obtained by POLITICO. The messages illustrate the relationship between Clinton’s most trusted confidante and the private consulting company that asked for the favor, Teneo — a global firm that later hired Abedin. Abedin signed on with the company while she still held a State Department position, a dual employment that is now being examined by congressional investigators. …Abedin also worked as an adviser to the Clinton Foundation, the nonprofit founded by former President Bill Clinton.
This is amazing. Working for an influence-peddling company while on the government payroll as well?!?
And speaking of influence peddling, check out these excerpts from another Politico story.
Campaigns are required to file reports detailing registered lobbyists who round up donations, but that number is only a small slice of the fundraisers who work in some capacity in Washington’s vast influence industry… A quarter of the “Hillblazers” who bundled $100,000 or more for Clinton work at lobbying firms or public affairs agencies lobby at the state level or otherwise make their living from influencing the government on behalf of special interests… Clinton received at least $5.4 million from professional influencers, compared with $3.2 million from registered lobbyists disclosed to the FEC. For Bush, the equivalent figures are $1.02 million and just under $408,000.
The Hill also has a story about D.C. insiders flocking to Hillary Clinton.
K Street is banking on Hillary Clinton, with more than twice as many Washington lobbyists donating to the former secretary of State’s presidential campaign than any other candidate. Clinton — the frontrunner for the Democratic nomination — received at least $625,703 from 316 registered lobbyists and corporate PACs during the first half of the year, according to disclosure forms. …Former Florida Gov. Jeb Bush ranks as a distant second in the influence industry, collecting $444,500 from 140 lobbyists.
And why are lobbyists coughing up cash?
For the simple reason that they want access. And with access to politicians, that means they get access to other people’s money.
…support from K Street can not only help boost a candidate, but also put lobbyists in good standing with the candidate in the event he or she takes the White House. …lobbyists have hedged their bets by supporting several candidates, sometimes at the request of clients, they told The Hill, asking for anonymity.
Though keep in mind that Ms. Clinton and her cronies are just the tip of the iceberg.
Let’s also be fair in acknowledging that this problem exists in other countries. Indeed, it’s probably worse elsewhere.
Vote buying in India, for instance, can be especially challenging. Check out these passages from a Reuters report.
Village bachelors in northern India are demanding brides for votes in state polls next month because of a shortage of women after decades of illegal abortions of female fetuses, the Mail Today reported on Thursday.
Though it appears that some Indian politicians actually are willing to say no to voters.
Politicians have dismissed the demand, the report said.
Of course, it’s quite possible that the politicians are saying no in public and then somehow trying arrange brides behind the scenes.
Time to conclude with some excerpts from a story about our ruling class in Washington.
Thousands of clients using the affair-oriented Ashley Madison website listed email addresses registered to the White House, top federal agencies and military branches, a data dump by hackers revealed. The detailed data, released Tuesday, will likely put Washington, D.C., on edge. The nation’s capital reportedly has the highest rate of membership for the site of any city. Indeed, more than 15,000 of the email addresses used to register accounts were hosted on government and military servers.
The key words above are “highest rate of membership.” Yup, these are the people who think they should tell us how to live our lives. These are the clowns who think they can spend our money better than we can. These are the buffoons who want to direct and control the private economy.
October 13, 2015 by Dan Mitchell
While his policy ideas are horrifying, Bernie Sanders’ campaign is the source of some amusement.
He claims to represent a different vision, but his voting record according to the National Taxpayers Union is virtually identical to the ratings received by Barack Obama and Hillary Clinton when they were in the Senate.
He’s not even a real socialist, at least if we use the technical definition of this poisonous ideology, which is based on government ownership of the means of production. That being said, Democratic operatives such as Congresswoman Debbie Wasserman Schultz sound like fools on TV because they don’t even know the difference between genuine socialism and big-government redistributionism.
But I will give Sanders credit for his recent challenge to Republicans. He was being badgered about his supposed socialist orientation on a political news show and he turned the question on its head and asked whether Republicans would be willing to identify as being pro-capitalist.
Here’s an excerpt from a report in The Hill.
Sen. Bernie Sanders (I-Vt.) says he’s tired of questions about whether he’s a socialist, asking why more people don’t want Republicans to defend themselves as capitalists. “Look, when one of your Republican colleagues gets on the show, do you say, ‘Are you a capitalist?’” the Democratic presidential candidate said on NBC’s “Meet the Press” on Sunday. “Have you ever referred to them as capitalists?”
I think this is a good idea.
I’d like every single GOP candidate to be asked some version of Sanders’ question.
And if any of them displayed the slightest hesitation before offering a loud and unapologetic “yes” in support of capitalism, that would be a very good indication that they shouldn’t be trusted anywhere close to the Oval Office.
Or how could anyone pick socialism (or any other form of coercive statism) after reviewing how market-based economies out-perform big-government economies?
Heck, I repeatedly ask my left-wing friends to identify just one big-government success story. I don’t ask for 10 nations that prospered with large governments. I don’t ask for five countries that might be considered successful examples of statist prosperity.
I just plead with them to give me one case study. And the only response is chirping crickets. Why? Because no nation has ever become rich during an era of big government.
So if any Republican candidate showed the slightest hesitation before extolling the glories of free markets, that person should be booed off the stage.
By the way, I can’t resist commenting on one other part of the story in The Hill about Sanders. The Vermont Senator apparently was asked to identify nations that are role models.
The senator said he admires the social programs in nations like Denmark and Sweden, and he thinks “we can look to those countries” for guidance.
Since both those countries still have large welfare states with high tax rates and lots of redistribution, his answer is somewhat understandable.
Hardly. Indeed, if you take the data from Economic Freedom of the World and remove the fiscal policy variable (and thus measure the degree to which markets are allowed to operate), then Denmark and Sweden are both among the world’s top-10 nations for free markets.
And both rank above the United States!
So we have two nations that are more free market than America while also having bigger government than America. I’m not sure how to characterize this so-called Nordic Model, but it’s definitely not socialism.
The bottom line, though, is that you get the most growth when you have both free markets and small government. In other words, genuine capitalism.
That’s obviously not the agenda of Bernie Sanders, though I hope Republicans will be forced to answer his question and tell us whether they favor capitalism.