Donald Trump’s economic advisers warn that “socialism is making a comeback” in the United States.
“Detailed policy proposals from self-declared socialists are gaining support in Congress and among much of the electorate,” according to the Council of Economic Advisers, an agency within the president’s Executive Office.
Socialism, they say, may take the wealthiest 1 percent of Americans down a notch, but at the expense of poor and middle-class families, the advisers say in a 72-page report called, “The Opportunity Costs of Socialism.”
Excerpts from the report are below:
It is unclear, of course, exactly what a typical voter has in mind when he or she thinks of “socialism.” But economists generally agree about how to define socialism, and they have devoted enormous time and resources to studying its costs and benefits. With an eye on this broad body of literature, this report discusses socialism’s historic visions and intents, its economic features, its impact on economic performance, and its relationship with recent policy proposals in the United States.
We find that historical proponents of socialist policies and those in the contemporary United States share some of their visions and intents. They both characterize the distribution of income in market economies as the unjust result of “exploitation,” which should be rectified by extensive state control. The proposed solutions include single-payer systems, high tax rates (“from each according to his ability”), and public policies that hand out much of the Nation’s goods and services “free” of charge (“to each according to his needs”). Where they differ is that contemporary democratic socialists denounce state brutality and would allow individuals to privately own the means of production in many industries.
It may well be that American socialists are envisioning moving our policies to align with those of the Nordic countries in the 1970s, when their policies were more in line with economists’ traditional definition of socialism. 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 Nordic and European versions of socialized medicine have been viewed as so desirable by modern U.S. socialists that they have proposed nationalizing payments for the healthcare sector (which makes up more than a sixth of the U.S. economy) through the recent “Medicare for All” proposal. This policy would distribute healthcare for “free” (i.e., without cost sharing) through a monopoly government health insurer that would centrally set all prices paid to suppliers such as doctors and hospitals. We find that if this policy were financed out of current Federal spending without borrowing or tax increases, then more than half the entire existing Federal budget would need to be cut. Or if it were financed through higher taxes, GDP would fall by 9 percent, or about $7,000 per person in 2022, due to high tax rates that would reduce incentives to supply the factors of production. Evidence on the productivity and effectiveness of single-payer systems suggests that “Medicare for All” would reduce both short- and long-run longevity and health despite increasing somewhat the population with health insurance.
An open question for socialists is whether they recommend reducing living standards for poor and middle-income families if it serves the purpose of making the top 1 percent—or the bourgeoisie, or the kulaks, or the landlords, or the giant corporations—worse off too. Centralized state controls and high tax rates historically delivered such results. The Nordic countries abandoned this approach, backing down from high tax rates and finding ways to enhance consumer choice and market competition. Even Cuba, China, the USSR, and other highly socialist countries eventually permitted private enterprises both in and outside the agriculture sector to coexist with the state-owned enterprises. With the exceptions of Cuba, North Korea, and Venezuela, all the highly socialist countries eventually transitioned to primarily private economies.
Despite this evidence, current socialists argue that U.S. tax rates are not nearly high enough on capital income and on top personal incomes, even though these rates are already near or above what they are in the Nordic countries. With health insurance, to name one of the major industries in the U.S. economy, socialists promise great results if only the state is granted a monopoly and its goods and services are distributed free of charge. Such a state enterprise would be far larger and more centralized than any the Nordic countries have ever seen. This is where the experiences of Cuba, China, the USSR, and other highly socialist countries are relevant and worth remembering.