MAYBE WE SHOULD TAKE SO­CIAL­ISM SE­RI­OUSLY

The Gulf Today - - OPINION - BY NOAH SMITH

When Pres­i­dent Don­ald Trump’scoun­cilofe­co­nomic Ad­vis­ers re­leased a 55-page re­port called “The Op­por­tu­nity Costs of­so­cial­ism,”manye­conomistss­coffed. But the re­port is im­por­tant, be­cause it shows that big, sys­temic eco­nomic is­sue­sarea­gain­be­ing­con­sid­ered.and it pro­vides an in­ter­est­ing jump­ing-off point for those im­por­tant dis­cus­sions.

Two decades ago, it seemed as if cap­i­tal­ism had de­ci­sively won the bat­tle of ideas. The col­lapse of the Soviet Union and the grind­ing poverty of Mao’s China and com­mu­nist Viet­nam and North Korea clearly demon­strated that the most ex­treme ver­sions of so­cial­ism were dis­as­trous. But even in non-com­mu­nist coun­tries, at­tempts at reg­u­la­tion, na­tion­al­iza­tion and re­dis­tri­bu­tion suf­fered big set­backs.

The Li­cence Raj, a sys­tem of heavy­handed busi­ness reg­u­la­tions in In­dia, was re­pealed, and the coun­try’s growth leapt ahead. Pri­vati­sa­tions and other mar­ke­to­ri­ented re­forms in the UK helped the Bri­tish econ­omy make up ground it had lost. Swe­den made its is­cal sys­tem much less pro­gres­sive, and North Euro­pean coun­tries deeply re­formed their labour mar­ket reg­u­la­tions.

But as in­equal­ity of in­come and wealth steadily rise in coun­tries like the US, and as pop­ulism and po­lit­i­cal dis­con­tent roil na­tions across the globe, some are be­gin­ning to ques­tion the con­sen­sus that emerged at the end of the Cold War. Polls show an in­creas­ing num­ber of young Amer­i­cans re­spond­ing fa­vor­ably to the word “so­cial­ism”:

Openlyso­cial­ist­can­di­date­sarestart­ing to win a few elec­tions in the US, and calls to end cap­i­tal­ism are start­ing to ap­pear in the main­stream news me­dia with in­creas­ing fre­quency.

The CEA’S new re­port should be seen in this light. It’s an in­di­ca­tion that both so­cial­ism’s pro­po­nents and its op­po­nents have be­gun to take the idea se­ri­ously again. With the world trou­bled not just by in­equal­ity but also by pro­duc­tiv­ity stag­na­tion and the threat of cli­mate change, it’s time to ask whether there are big sys­temic im­prove­ments that could be made.

The CEA re­port shows just how long it has been since such a dis­cus­sion was held. A key ex­pla­na­tion of so­cial­ism is taken from “Free to Choose,” a 1980 book by Mil­ton and Rose Fried­man. The eco­nomics pro­fes­sion has shifted de­cid­edly to the left since those days, but most econ­o­mists now con­cern them­selves with highly speciic top­ics rather than the grand sweep of po­lit­i­cal-eco­nomic systems.

The peo­ple spend­ing their time think­ing about so­cial­ism, cap­i­tal­ism and other re­ally big ideas are now more likely to be the writ­ers of Teen Vogue or ac­tivists on Twit­ter. Let’s hope the CEA re­port will prod more econ­o­mists, who tend to have more em­pir­i­cal knowl­edge and the­o­ret­i­cal depth, to think big­ger.

But al­though it’s an im­por­tant con­ver­sa­tion starter, the re­port doesn’t do a good job of com­pre­hen­sively de­bunk­ing so­cial­ism in all its forms. Some of the ex­am­ples it in­vokes are par­tic­u­larly in­ap­pli­ca­ble to the modern day, and it over­looks much of the ev­i­dence in fa­vor of an ex­panded role for government.

For in­stance, the re­port high­lights col­lec­tivised agri­cul­ture as a promi­nent ex­am­ple of a so­cial­ist fail­ure. Col­lec­tivized farm­ing is in­deed a dis­as­trous pol­icy, fail­ing es­sen­tially every­where it has been tried, and lead­ing to wide­spread famine and death. But modern-day so­cial­ists in Western coun­tries are — wisely — not call­ing for this. In­stead, the in­dus­tries they want to na­tion­al­ize are health care and (pos­si­bly) inance.

So­cial­ized health in­sur­ance ex­ists in many coun­tries — for ex­am­ple, France, Canada,and­japan.the­cost­sand­beneits of government health in­sur­ance systems don’t have to be as­sumed — they can be ob­served. The U.S., with its unique hy­brid of pub­lic and pri­vate in­sur­ance, pays much more than other rich coun­tries for the ex­act same med­i­cal ser­vices — and achieves sim­i­lar health out­comes. Mean­while, the US big­gest government health in­sur­ance sys­tem, Medi­care, holds down prices much more ef­fec­tively than its pri­vate coun­ter­parts:

So when it comes to health in­sur­ance, so­cial­ism doesn’t look too bad. Econ­o­mists have re­al­ized for many decades that this might be the case, thanks to the unique in­for­ma­tion­prob­lems,in­com­pletemar­kets and moral con­sid­er­a­tions in­volved in the health-care in­dus­try.

The CEA re­port dis­cusses the idea of government health care, and dis­misses it as too costly. Its ar­gu­ment rests on what’s known as a neo­clas­si­cal growth model, which con­cludes that high in­come taxes — which would be re­quired to pay for na­tional health in­sur­ance — do a great deal to dis­cour­age work. But us­ing this type of model to es­ti­mate the ef­fect of taxes has proven mis­lead­ing in the past — it tends to over­state the neg­a­tive im­pact of taxes much more than econ­o­mists ac­tu­ally ob­serve.

The re­port is also note­wor­thy for what it leaves out. De­spite lib­er­al­iza­tion of many economies around the world since the 1970s, pub­lic so­cial spend­ing has in­creased in rich coun­tries:

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