The new four-letter word – Socialism.

Okay, so Socialism isn’t a four-letter word – but maybe I got your attention. I hate to be the first one to pass along this information to some of you – but we live in a socialist country here in the good old USA. Now I really have your attention.

As in my other postings – the bottom line of this one is to ask why name-calling and concept-hurling replace real discussion and analysis. I discuss four issues that could be dealt with in a straightforward way and should comprise the elements of a real discussion.

Most people on this planet, including those of us in the USA, live in a mixed economic system. The mix involves varying degrees of capitalism and socialism – generally meaning that economic decisions involving production, distribution of income, and allocation are partly based on interactions among private actors in markets (capitalism) and partly by government (socialism). China might have a Communist political system with one party, but for 20 or more years it has been slowly privatizing and liberalizing in many ways so as to move decisions from the government to private persons and companies. Much of industry remains in China’s government control and its economic system is more socialized than the USA, but it is a mixed system. The USA is mostly a capitalist system but it has very evident and significant government control.

So what is going on with the four-letter word thing? – you are socialist – nah nah nah nah. No I am not – nah nah nah nah.

The issue is that recent political events suggest a movement towards a more socialized economic system in the USA. Thus the balance of market/government is changing in the USA. So it is much easier to call each other names than it is to use logic and facts to support/defend a movement in the mix in one direction or the other.

Clearly it is more interesting than it sounds on the surface. There always has been and always will be a desire to make sure that the less fortunate are not left behind in the wake of free market outcomes. The extension is that there is no theoretical formula which spells out what less fortunate means. Even poverty has no empirical and universally agreed upon numerical threshold. Thus, there will always be those who believe that economic outcomes of the marketplace could be improved by reallocating some of the benefits to those who did less well. Since this does not happen automatically under capitalism, there is a role for the political process and government. And notice that what passes as politically acceptable changes over time. Three hundred years ago, government did very little for people. Upshot – the demand for redistribution should be expected to change over time.

That sounds good. Most moral philosophies would support helping one’s neighbor. So the question is mostly – when is enough enough? And that is where the fun starts. I like the phrase – don’t throw the baby out with the dirty bath water. This colorfully gives rise to the idea of intentionally doing a good thing (getting rid of the dirty bath water) without negative unintended consequences (also throwing out the baby). So how do we minimize the unintended consequences? The first issue has to do with making sure the government interventions are effective – that is, they not only redistribute the income but they try to remediate problems that might prevent people from doing better on their own. In this regard we often hear the dictum, “Don’t give a man a fish – teach him how to fish.” The second issue concerns disincentive effects of the policies on those who earn and produce the most. Clearly if the policies induce the most productive elements of society to produce less, income might be more equal but the average income of society will be lower. Finally, the third issue revolves around the use of debt to attain income distribution goals. Clearly someone has to pay. How much of today’s income redistribution should be paid for by our children?

I fear I may have angered one particular group and I want to say one more thing to them. There are people alive today who witnessed personally or heard/read about their family members and/or friends being harmed by socialist political regimes – past or present. My mother was a refuge from Hungary. There is a point at which my economic discussion and the three issues above lose relevance – when economic socialism turns into dictatorial political socialism. So I should add a fourth issue to the above paragraph that asks whether or not increasing economic socialism could lead to ruthless dictatorial regimes. If the answer to that is YES, then that would trump the first three.

I am sure I left something critical out – and that’s why we have room for comments.