Wednesday, March 30, 2016

Sanders’ democratic socialism is still socialism

Here is an article by Svetozar Pejovich, retired economics professor at Texas A&M University.


Democratic socialism is Senator Bernie Sanders’ presidential election platform. The problem is that no one seems to know what exactly that term means. Democratic socialism is certainly not defined by the policies Sanders has been proposing in his speeches. Instead, the institutional changes required to support Sanders’ policies and the philosophical premises that underpin them define democratic socialism.

Sanders’ policies rest on three philosophical premises: A just society based on the equality of outcome exists and is desirable. Human reason can discover the rules required to bring about such a society. And the political elite should enforce those formal rules from the top down. Those premises are traceable to the early French socialists. They are also incompatible with the American tradition of self-responsibility, self-determination and limited government under a rule of law.

Given the prevailing tradition in the United States, putting those premises into practice requires the acceptance of two institutions: the redistribution of income initiated and monitored by federal government, and the attenuation of private property rights. Although these institutions have some resemblance to social democracies in Europe, the process to form these two institutions is specific to the American culture of individual liberty and private property rights.

1. Democratic socialism requires income redistribution. The undeniable economic success of capitalism in raising the standard of living in the United States created a problem for the political and intellectual elite. They cannot use the efficiency argument to justify replacing market competition with governmental control of the economy. The political and intellectual elite needed a cause, and they found it in income inequalities. Yes, opinion-makers told us, free-market competition is efficient in maximizing the pie BUT its allocation among cooperating inputs is immoral. President Obama said that much in his recent speech in Argentina. The immorality of capitalism argument is then used to justify redistributive policies. Of course, redistributive policies call for ever larger role of government in the economy. Bernie Sanders took the concept of immorality a step further. For him and his supporters, income inequalities have the emotional impact of the national anthem.

Initially, the support for redistributive policies comes from a segment of the population that feels market competition has been unfair to them. However, the benefits of redistributive policies enjoyed by some are appreciated by others. The political elite in a democratic society responds to the growing support for redistributional policies. The process generates ever growing political support from one election to another, slowly replacing competitive markets with governmental controls.

Of course, the lunch is not free. The short-run consequence of redistributive policies is erosion of the link between performance and reward, which, in turn, reduces economic efficiency and the pie available for redistribution. The long-run cost is the transformation of the American culture of self-responsibility and self-determination into the culture of dependence on the state.

2. Democratic socialism requires attenuated private property rights. In the American tradition, the primary function of private property is to serve the subjective preferences of property owners. This function creates a strong link between the decision how to use assets and the consequences of that decision. That is, private ownership provides incentives for owners to seek the most valuable uses for their assets. Unlike socialism of the last century, which used brute force to replace private property rights with state ownership, Sanders’ democratic socialism bribes people to voluntarily accept the erosion of private property rights.

The acceptance of private property rights by Sanders’ democratic socialism creates a conflict between the attainment of a predetermined outcome desired by the ruling elite and the efficiency outcome of the incentive effects of private property rights. A way to resolve this conflict is to attenuate private property rights via laws and regulations. Those law and regulations (such as reducing the right of employers to fire workers at will, giving tenants rights at the expense of apartment owners, granting special privileges to some rent seeking groups, etc.) transfer some decision-making rights from owners to public decision makers, or non-owners. Transfering rights interferes with the subjective preferences of property owners and changes the voluntary contracts among people. In the end, the attenuation of private property rights impedes the flow of resources to higher-valued uses and reduces economic efficiency of the economy.

To paraphrase four Western intellectual leaders:
The triumph of socialism depends on free men doing nothing (Edmund Burke); The problem with socialism is that you eventually run out of other people’s money (Margaret Thatcher); I have never understood why it is ‘greed’ to want to keep the money you have earned but not greed to want to take somebody else’s money (Thomas Sowell); and Capitalism without failure is like religion without sin (Allan Meltzer).

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