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Letter to the Editor: In Reply to McManus—Markets Are the Better Way

(REUTERS/Charles Platiau)

“Each day, I read an almost endless array of pro-socialist and anti-capitalist articles in a variety of newspapers, magazines, and web sites. Then I ask myself: ‘How could so many bright, well-informed authors be so apparently unaware of the actual realities concerning the history of socialism?'”

Editor:

According to Prof. Matt McManus, “For  most of [his] life a certain form of neoliberalism seemed the only political alternative available to us, characterized by a great deal of inequality and limited opportunities for democratic participation.” Professor McManus also opined that, “In [his] mind [the lone thing that can replace post-modern conservatism] can only be a robust social democracy, where wealth is distributed more fairly and citizens are granted opportunities to frame the laws that govern them.” Thereby, he proves yet again that hope among collectivists springs eternal.

Each day, I read an almost endless array of pro-socialist and anti-capitalist articles in a variety of newspapers, magazines, and web sites. Then I ask myself: “How could so many bright, well-informed authors be so apparently unaware of the actual realities concerning the history of socialism—and the imagined phenomenon of increasing income inequality (and wealth concentration) in the United States and around the world?”

Inexplicably, each of these collectivist writers apparently chooses to ignore the actual history of social democracy, which can be easily summarized.

Collectivism, as a Western political ideal, traces its roots to 1789 and the French Revolution. Of course, this led solely to tyranny and ultimately the guillotine. Beginning in the 1820’s, there was a wave of cooperatives (socialist experiments) formed in the United States and Europe led by men like Robert Owen, but most had failed by 1840. The average lifespan of these “co-ops” was only two years.

The American Socialist Party was formed in 1901 by Eugene Debs, and Mr. Debs (from 1904 until 1920) never got more than 6% of the vote in any presidential election. From 1928 through 1948 Debs was replaced by Norman Thomas whose election results were always in the low single digits. [Note: Interestingly, Mr. Thomas was always (like George Orwell) rabidly anti-communist.] Since 1948, the Socialist party in the United States has only steadily faded away. In fact, the Democratic Socialists of America today boasts around 60,000 members, which is a paltry few. However, its membership has grown from only 6,000 to approximately 60,000 in just two years.

Economic historians cite three face-to-face “experiments” in which market based economies and collectivism that can be directly compared, and these are West Germany vs. East Germany after 1945; China vs. Taiwan after 1949; and North Korea vs. South Korea after 1952. Suffice it to say that socialism has never compared very well. Indeed, some experts in economic history are today examining Venezuela vs. Chile, and they are reaching the very same conclusion. On the other hand, capitalism has lifted nearly one billion people out of abject poverty in just the twenty years.

All of this might lead one to ask: What took market-based economies so long to work their magic on much of the developing world? And economic history is also quite clear on this point. In 1947, India—after gaining its independence from Great Britain—opted for socialism. (Indeed, socialism is mandated by the Indian Constitution, and, for more than 40 years, India was the world’s largest social democracy.) In 1949, China followed suit but of course selected only collectivism and not democracy.

In 1978, after Mao’s death China adopted market-based reforms, and I need not recount the upward explosion in human economic well-being that followed. India saw the skyrocketing living standards in China, which resulted, and, in turn, instituted market reforms of its own starting in 1991. Since then these two nations have lifted a combined one billion of their citizens out of abject poverty.

Israel is another instructive example. This new country’s founding principles (Zionism) took a socialist form of communal organizations (kibbutzim). In the early 1980’s, Israel suffered from hyperinflation (445% In 1984). In 1985, Israel adopted an Economic Stabilization Plan (wage and price controls), which failed. Then Bibi Netanyahu, during his first term (1996-1999) began instituting market-based reforms. In 1999, he lost. But, upon his later return as Prime Minister, he slashed public sector spending, while also privatizing and deregulating industry. He also drastically cut taxes and reformed Israel’s labor laws. Today, Israel has risen from a relatively poor country to a growing, wealthy nation. The Israelis tried social democracy and did not like the results.

During the 1960’s, much of sub-Saharan Africa chose socialism, and each of these nations then entered a period of rising poverty. A single set of statistics tells much of the story regarding collectivism in sub-Saharan Africa. When the British and the other colonizers left Africa the poverty rate stood at 11%. By 1998 under the new indigenous socialist governments, this figure had skyrocketed to 66%, and now as many of these nations have begun to re-introduce market based reforms, this percentage has fallen to 20%. Still way to high but currently moving in the right direction.

Next take Sweden the most socialist of the Nordic countries, as another case study. Some years ago the Swedes opted for social democracy, and since 1981 Sweden’s GDP annual growth rate has been dismal. The Swede’s became very disenchanted with the results of their social experiment and began converting their economy back to a market-based system. In 1975, fifty percent of Swedish companies were government-owned, and today this figure has been cut in half. The Swedes lived under social democracy and found the outcomes to be most unpleasant.

Turning to Denmark, while Lars Lokke Rasmussen was prime minister he stated in 2015 that, “I know that some people in the U.S. associate the Nordic model with some sort of socialism. Therefore, I would like to make one thing clear. Denmark is far from a planned economy. Denmark is a market economy.” Indeed, according to the Economic Freedom Index, all of the countries in Scandinavia are far more capitalist than socialist. All Nordic countries have no minimum wage, and each offers full school choice. In addition, Denmark and Sweden have greatly reduced unemployment benefits, and all (except Norway) have abolished their wealth tax.

From 1998 to 2015, fifteen Latin American countries elected socialist presidents in a trend called the “Pink Tide.” Now, Oxfam reports that Latin America has remained the most unequal region in the world. Also, according to the Igarape Institute, parts of Latin America have persisted in being the most violent places on the planet. The United Nations asserts that Latin America has had no reduction in poverty—and that extreme poverty has increased to its highest level since 2008. Corruption has continued unabated, and all of this has led to a counter wave that includes ultra-conservative leaders in Brazil and Argentina.

Arab socialism (Ba’athism) began in Syria in the 1940’s and later spread to Iraq, but neither emphasized pure Marxism nor class struggle. In the 1970’s, neo-Ba’athism evolved and morphed into Assadism and Saddamism, with their accompanying fascism and racism. Saddam has been removed, while Assad’s son has been fighting a prolonged civil war. The people in these two countries tried Ba’athism and did not enjoy the outcome.

Joshua Muravchik’s 2019 book Heaven on Earth summarizes all of this with: “Socialism was man’s most ambitious attempt to supplant religion with a doctrine claiming to ground itself in ‘science’. Each failure to create societies of abundance or give birth to ‘The New Man’ inspired more searching for a path to the promised land: revolution, communes, social democracy, communism, fascism, Arab socialism, African socialism. None worked and some exacted a staggering human toll. Then, after two centuries of wishful thinking and bitter disappointment socialism imploded in a fin de siècle drama of falling walls and collapsing regimes. It was an astonishing denouement but what followed was no less astonishing. After a hiatus of several decades new voices were raised, as if innocent of all that had come before, proposing to try it all over again.”

Now, let’s turn to the allegation of a great deal of inequality and the claim of exaggerated wealth disparities in the United States and around the world.

Some commentators have contended that Thomas Piketty, using a slew of data, confirmed what those on the Left had long known: that extreme inequality and concentration of wealth are the natural outcomes of capitalism. But, income inequality in the United States has not risen in the last sixty years, and the U.S. Census Bureau data proves it. Since 1960, the Bureau’s Gini coefficient (one important measure that all economists use to track inequality) of income for “All U.S. Persons” (individuals) has remained almost totally flat. Thus there has been virtually no increase in U.S. income inequality for individuals. Also, most op-ed scribes do not know that Prof. Piketty later recanted much of what he wrote in Capital in the 21st Century.

What has been skewing sharply upwards are the U.S. Census Bureau’s Gini coefficients for “U.S. Households” and “U.S. Families,” but nearly 100% of these increases have been caused by sociological (and not economic) factors. The rising trends in these two data sets began about 1970.

Perhaps a single specific example will help to dismiss the Left’s baseless trope regarding rising income inequality. If a young women in the 1950’s became pregnant out of wedlock, she almost always married the father thereby forming one household (and one family) with one caregiver and one breadwinner. Twenty years later mounting numbers of young women began bearing children without any intention of marriage (today, the figure in the U.S. stands at 39.8%), and this results in the formation of two families (and two households) one with a caregiver but no breadwinner and another with only a breadwinner. Both households (or families) are each poorer than the combined single household (or family). Obviously, this new trend began shifting the income inequality for both households and families upward.

There are many other sociological (but not economic) shifts that have resulted in similar skewing of the household and family data. These include (but are not limited to) elevated levels of divorce which split one household (and family) into two needier units; increasing numbers of elderly women who outlive their spouses; rising instances of assortative mating (i.e. In the 1950’s a doctor often married his nurse, but today a doctor marries another doctor or lawyer, which results in a very high two income household and family); and numerous other sociological kinetics, which raise the Gini coefficients for both families and households but not for individuals.

Furthermore, the concentration of wealth is nothing new, as most of the wealthiest people in history lived long before today. Estimates vary, but arguably none of the wealthiest people of all time are alive today.

Many left-leaning economists are at heart closet “levelers,” who favor more equal economic outcomes, and these same people therefore support any move towards socialism and/or neo-Marxism. They, thus, espouse every misleading data set that they can find in an effort to attain their goal.

Social Democrats’ imagined emphasis on rising inequality—as well as exaggerated claims regarding the concentration of wealth—represent the world’s biggest economic hoax. In support of this assertion, I cite one of our nation’s leading experts on this question. Prof. Raghuram Rajan, economist at the University of Chicago and former chief economist for the IMF, in his latest book, The Third Pillar: How Markets and the State Leave the Community Behind, reports that: “We are surrounded by plenty. Humanity has never been richer as technologies of production have improved steadily over the last two hundred fifty years. It is not just developed countries that have grown wealthier; billions across the developing world have moved from stressful poverty to a comfortable middle-class existence in the span of a generation. Income is more evenly spread across the world than at any other time in our lives. For the first time in history, we have it in our power to eradicate hunger and starvation everywhere.” This is the real economic record of individualism coupled with market based systems.

Moreover, the editors of The Economist magazine recently opined that, “Capitalism is improving workers’ lot farther than it has in years…[and]…the zeitgeist has lost touch with the data.” They added that the bleak picture painted by collectivists “… is at odds with reality.” In other words, many outlets are not reporting the economic truth about capitalism.

Thus, the economic record is clear. Over the last 200 years socialism has caused only poverty, misery, and human suffering, while capitalism has been creating far less inequality or excess wealth concentration than many social democrats mistakenly assert.

Richard W. Burcik is a retired economist and attorney.op-

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Darren Iversen
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Darren Iversen

Socialism’s revival is based on a fact – there really is systemic inequality. The problem is that socialism incorrectly blames capital for this. Henry George showed that the huge state backed subsidy to landowners is the actual reason. The early socialists knew this, for the simple reason that most of them started off as Georgists. And also because ending this subsidy via tax reform is in the communist manifesto. But in the end the socialists helped the state bury Georgism and classical liberalism with it, proving imo that at the core of socialism is nothing more than a will to… Read more »

richard W. burcik
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richard W. burcik

Prof. Matt McManus sent tweets yesterday stating that “On the point of the existence of inequality globally, even the IMF largely agrees it is a serious problem”. And that “Most people who study that matter … agree inequality has increased globally and in the US.” This is all incorrect. According to Richard Baldwin’s 2016 book, “The Great Convergence” the facts are that “From 1820 to 1990 the share of world income going to today’s wealthy nations soared from 20% to 70% and that share has recently been plummeting. Today, their share is now back to where it was in 1914.”… Read more »

John Ashman
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John Ashman

The left believes they can take something, like health care, make it socialist, and it will not get worse, but will actually provide the same quality care more equally and for less money. And while there’s some *hope* for this to an optimist, it really doesn’t bear out in the end, as free markets innovate much faster, they solve high demand effortlessly, and they push prices down much more quickly. And welfare? Sure, one could argue that a small amount of welfare keeps people from starving. But what else does this? Ending licensing, zoning and ending do-gooder mandates that rich… Read more »