bernie sanders

Socialized Medicine: From Anecdote to Data

The CNN debate on Obamacare saw Senators Bernie Sanders and Ted Cruz jousting on the benefits of a UK-style healthcare system. As is often effective in debates, Ted Cruz reached for some heartbreaking UK anecdotes that indicate some of the key downsides of socialized medicine. But survival rates for major conditions tell an even more damning story.

Capitalism, Global Trade, and the Reduction in Poverty and Inequality

Drawing on a new World Bank study, Washington Post columnist Charles Lane today notesa vast reduction in poverty and income inequality worldwide over the past quarter-century” – despite what you might think if you listen to Pope Francis, Bernie Sanders, and other voices prominent in the media.

Specifically, the world’s Gini coefficient — the most commonly used measure of income distribution — has fallen from 0.69 in 1988 to 0.63 in 2011. (A higher Gini coefficient connotes greater inequality, up to a maximum of 1.0.)

That may seem modest until you consider that the estimate’s author, former World Bank economist Branko Milanovic, thinks we may be witnessing the first period of declining global inequality since the Industrial Revolution.

Note that this hopeful figure applies to the world’s population as though every individual lived in one big country. When Milanovic assessed the distribution of income between nations, adjusted for population, the improvement was even more striking: a decline in the Gini coefficient from 0.60 in 1988 to 0.48 in 2014.

The global middle class expanded, as real income went up between 70 percent and 80 percent for those around the world who were already earning at or near the global median, including some 200 million Chinese, 90 million Indians and 30 million people each in Indonesia, Egypt and Brazil.

Those in the bottom third of the global income distribution registered real income gains between 40 percent and 70 percent, Milanovic reports. The share of the world’s population living on $1.25 or less per day — what the World Bank defines as “absolute poverty” — fell from 44 percent to 23 percent.

So maybe this is a result of all the agitation on behalf of a more moral or planned economy? No, says Lane, citing Milanovic:

Did this historic progress, with its overwhelmingly beneficial consequences for millions of the world’s humblest inhabitants, occur because everyone finally adopted “democratic socialism”? Was it due to a conscious, organized effort to construct a “moral economy” as per Vatican standards?

To the contrary: The big story after 1988 is the collapse of communism and the spread of market institutions, albeit imperfect ones, to India, China and Latin America. This was a process mightily abetted by freer flows of international trade and private capital, which were, in turn, promoted by a bipartisan succession of U.S. presidents and Congresses.

The extension of capitalism fueled economic growth, which Milanovic correctly calls “the most powerful tool for reducing global poverty and inequality.”

This is the good news about the world today. Indeed, it’s the most important news about our world. We hear so much about poverty, inequality, gaps, resource depletion, and the like, it’s a wonder any NPR listeners can bear to get out of bed in the morning. But as the economic historian Deirdre McCloskey says, this is the “Great Fact,” the most important fact about our world today – the enormous and unprecedented growth in living standards that began in the western world around 1700. She calls it “a factor of sixteen”: we moderns consume at least 16 times the food, clothing, housing, and education that our ancestors did in London in the 18th century. And this vast increase in wealth that began in northwestern Europe, mostly Britain and the Netherlands, has now spread to most of Europe, the United States, Japan, and increasingly to the rest of the world.

Sweden Isn’t a Good Role Model for Bernie Sanders

Senator Bernie Sanders wants to dramatically increase the burden of government and he claims that his policies won’t lead to economic misery because nations such as Sweden show that you can be a prosperous country with a big welfare state.

Perhaps, but there are degrees of prosperity. And a large public sector imposes a non-trivial burden on Nordic nations, resulting in living standards that lag U.S. levels according to OECD data.

Moreover, according to research by a Swedish economist, people of Scandinavian descent in America produce and earn much more than their counterparts at home.

That’s not exactly a ringing endorsement of the Nordic Model.

But there actually are some things we can learn from places such as Sweden. And not just things to avoid.

As Johan Norberg explains in this short video, there are some very good policies in his home country. Indeed, in some ways, his nation is more free market than America.

I especially like Johan’s explanation about how Sweden became a rich country before the welfare state was adopted.

And he’s right that Sweden had a smaller government and a lower tax burden than the United States for a long period.

Contrary to Trump-Sanders Theory Imports Rise in Booms and Fall in Recessions

Real GDP Growth and ImportsNearly all surviving Democrat and Republican presidential candidates (except John Kasich) have essentially endorsed the shared campaign theme of Donald Trump and Bernie Sanders that the U.S. economy is weak because we import too many goods from foreign countries.  If only we could raise the cost of imports with tariffs, according to the Trump-Sanders theory, then the U.S. economy would supposedly have more jobs and higher real wages.   

Paying more for anything (such as Fords or iPhones) is no way to get rich.  Yet that concept somehow eludes many non-economists.  Theory aside, the idea that fewer imports are good for the economy is the exact opposite of what we have experienced.  The fact is that U.S. imports always fall when the economy slips into recession and imports rise briskly whenever the economy does.

A Libertarian Argument for Bernie Sanders?

Will Wilkinson notes that there is a libertarian argument for Bernie Sanders. I’m not sure I buy the precise point Wilkinson is making. Sanders says he wants to make the United States more like Finland, Sweden, and Denmark. And those countries do indeed rank higher than the United States in the Cato Institute’s Human Freedom Index, compiled by my colleagues Ian Vásquez and Tanja Porčnik. But Sanders wants to emulate those countries in the ways they are less free than the United States (i.e., expanding government transfers), not in the ways they are more free (taxes and regulation). I think this powerful Sanders ad featuring Eric Garner’s daughter Erica is a much better libertarian argument for Sanders.

The Fundamental Fallacy of Redistribution

The idea that government could redistribute income willy-nilly with impunity did not originate with Senator Bernie Sanders. On the contrary, it may have begun with two of the most famous 19th Century economists, David Ricardo and John Stuart Mill.   Karl Marx, on the other side, found the idea preposterous, calling it “vulgar socialism.”

Mill wrote, “The laws and conditions of the production of wealth partake of the character of physical truths.  There is nothing optional or arbitrary about them… . It is not so with the Distribution of Wealth.  That is a matter of human institution only.  The things once there, mankind, individually, can do with them as they like.”[1]

Mill’s distinction between production and distribution appears to encourage the view that any sort of government intervention in distribution is utterly harmless – a free lunch.  But redistribution aims to take money from people who earned it and give it to those who did not.  And that, of course, has adverse effects on the incentives of those who receive the government’s benefits and on taxpayers who finance those benefits.

David Ricardo had earlier made the identical mistake. In his 1936 book The Good Society (p. 196), Walter Lippmann criticized Ricardo as being “not concerned with the increase of wealth, for wealth was increasing and the economists did not need to worry about that.” But Ricardo saw income distribution as an interesting issue of political economy and “set out to ascertain ‘the laws which determine the division of the produce of industry among the classes who concur in its formation.’

Lippmann wisely argued that, “separating the production of wealth from the distribution of wealth” was “almost certainly an error. For the amount of wealth which is available for distribution cannot in fact be separated from the proportions in which it is distributed… . Moreover, the proportion in which wealth is distributed must have an effect on the amount produced.” 

The third classical economist to address this issue was Karl Marx.  There were many fatal flaws in Marxism, including the whole notion that a society is divided into two armies – workers and capitalists.[2]  Late in his career, however, Marx wrote a fascinating 1875 letter to his allies in the German Social Democratic movement criticizing a redistributionist scheme he found unworkable.  In this famous “Critique of the Gotha Program,” Marx was highly critical of “vulgar socialism” and considered the whole notion of “fair distribution” to be “obsolete verbal rubbish.”  In response to the Gotha’s program claim that society’s production should be equally distributed to all, Marx asked, “To those who do not work as well? … But one man is superior to another physically or mentally and so supplies more labor in the same time, or can labor for a longer time… . This equal right is an unequal right for unequal labor… It is, therefore, a right to inequality…”  

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