Is socialism bad for the economy?

[nygreenguy]

Norway is also full of entrepreneurs like Wiggo Dalmo. Rates of start-up creation here are among the highest in the developed world, and Norway has more entrepreneurs per capita than the United States, according to the latest report by the Global Entrepreneurship Monitor, a Boston-based research consortium. A 2010 study released by the U.S. Small Business Administration reported a similar result: Although America remains near the top of the world in terms of entrepreneurial aspirations -- that is, the percentage of people who want to start new things—in terms of actual start-up activity, our country has fallen behind not just Norway but also Canada, Denmark, and Switzerland.

But there is precious little evidence to suggest that our low taxes have done much for entrepreneurs—or even for the economy as a whole. "It's actually quite hard to say how tax policy affects the economy," says Joel Slemrod, a University of Michigan professor who served on the Council of Economic Advisers under Ronald Reagan. Slemrod says there is no statistical evidence to prove that low taxes result in economic prosperity. Some of the most prosperous countries—for instance, Denmark, Sweden, Belgium, and, yes, Norway—also have some of the highest taxes. Norway, which in 2009 had the world's highest per-capita income, avoided the brunt of the financial crisis: From 2006 to 2009, its economy grew nearly 3 percent. The American economy grew less than one-tenth of a percent during the same period. Meanwhile, countries with some of the lowest taxes in Europe, like Ireland, Iceland, and Estonia, have suffered profoundly. The first two nearly went bankrupt; Estonia, the darling of antitax groups like the Cato Institute, currently has an unemployment rate of 16 percent. Its economy shrank 14 percent in 2009.

Moreover, the typical arguments peddled by business groups and in the editorial pages of The Wall Street Journal— the idea, for instance, that George W. Bush's tax cuts in 2001 and 2003 created economic growth—are problematic. The unemployment rate rose following the passage of both tax-cut packages, and economic growth during Bush's eight years in office badly lagged growth during the Clinton presidency, before the tax cuts were passed.

And so the case of Norway—one of the most entrepreneurial, most heavily taxed countries in the world—should give us pause. What if we have been wrong about taxes? What if tax cuts are nothing like weapons or textbooks? What if they don't matter as much as we think they do?

But it takes more than perks to keep a worker motivated in Norway. In a country with low unemployment and generous unemployment benefits, a worker's threat to quit is more credible than it is in the United States, giving workers more leverage over employers. And though Norway makes it easy to lay off workers in cases of economic hardship, firing an employee for cause typically takes months, and employers generally end up paying at least three months' severance. "You have to be a much more democratic manager," says Bjørn Holte, founder and CEO of bMenu, an Oslo-based start-up that makes mobile versions of websites. Holte pays himself $125,000 a year. His lowest-paid employee makes more than $60,000. "You can't just treat them like machines," he says. "If you do, they'll be gone."
http://www.inc.com/magazine/20110201/in ... alism.html

A good article and I am curious as to what others think about this any the many nuggets within it.

[Guest]

Norway is also full of entrepreneurs like Wiggo Dalmo. Rates of start-up creation here are among the highest in the developed world, and Norway has more entrepreneurs per capita than the United States, according to the latest report by the Global Entrepreneurship Monitor, a Boston-based research consortium. A 2010 study released by the U.S. Small Business Administration reported a similar result: Although America remains near the top of the world in terms of entrepreneurial aspirations -- that is, the percentage of people who want to start new things—in terms of actual start-up activity, our country has fallen behind not just Norway but also Canada, Denmark, and Switzerland.

But there is precious little evidence to suggest that our low taxes have done much for entrepreneurs—or even for the economy as a whole. "It's actually quite hard to say how tax policy affects the economy," says Joel Slemrod, a University of Michigan professor who served on the Council of Economic Advisers under Ronald Reagan. Slemrod says there is no statistical evidence to prove that low taxes result in economic prosperity. Some of the most prosperous countries—for instance, Denmark, Sweden, Belgium, and, yes, Norway—also have some of the highest taxes. Norway, which in 2009 had the world's highest per-capita income, avoided the brunt of the financial crisis: From 2006 to 2009, its economy grew nearly 3 percent. The American economy grew less than one-tenth of a percent during the same period. Meanwhile, countries with some of the lowest taxes in Europe, like Ireland, Iceland, and Estonia, have suffered profoundly. The first two nearly went bankrupt; Estonia, the darling of antitax groups like the Cato Institute, currently has an unemployment rate of 16 percent. Its economy shrank 14 percent in 2009.

Moreover, the typical arguments peddled by business groups and in the editorial pages of The Wall Street Journal— the idea, for instance, that George W. Bush's tax cuts in 2001 and 2003 created economic growth—are problematic. The unemployment rate rose following the passage of both tax-cut packages, and economic growth during Bush's eight years in office badly lagged growth during the Clinton presidency, before the tax cuts were passed.

And so the case of Norway—one of the most entrepreneurial, most heavily taxed countries in the world—should give us pause. What if we have been wrong about taxes? What if tax cuts are nothing like weapons or textbooks? What if they don't matter as much as we think they do?

But it takes more than perks to keep a worker motivated in Norway. In a country with low unemployment and generous unemployment benefits, a worker's threat to quit is more credible than it is in the United States, giving workers more leverage over employers. And though Norway makes it easy to lay off workers in cases of economic hardship, firing an employee for cause typically takes months, and employers generally end up paying at least three months' severance. "You have to be a much more democratic manager," says Bjørn Holte, founder and CEO of bMenu, an Oslo-based start-up that makes mobile versions of websites. Holte pays himself $125,000 a year. His lowest-paid employee makes more than $60,000. "You can't just treat them like machines," he says. "If you do, they'll be gone."
http://www.inc.com/magazine/20110201/in ... alism.html

A good article and I am curious as to what others think about this any the many nuggets within it.

Socialism is bad for a capitalist economy. It is great for a socialist economy. Trying to merge the two will do far more harm then good economically.

[micatala]

I read an article yesterday where the author, Don Davis of Roum Communications, described how the new Republican majority in the Minnesota legislature was going to push for lower tax policies because they were worried they were losing businesses across the border to North and South Dakota. Minnesota was listed as #43 worst by the Tax Foundation for their tax policies vis-a-vis businesses. North Dakota is #20 and the best in the nation, South Dakota. Iowa was #45 and Wisconsin #40.

If South Dakota has the best policy and Minnesota has only 7 states worse than Minnesota, according to the common conservative conventional wisdom on taxes, should be losing a lot of businesses and be worse off.

However, the Republicans in Minnesota were not able to quantify how much drain there has been, and it was reported two whole businesses had fled to ND the previous year. Minnesota also has 21 of the country's 500 largest businesses. North Dakota?

One.

SOuth Dakota.

Zippo.

Per capita GDP in MN? $41,552 in 2009.
ND was $39,530 and SD was $36,935.

Median income per capita, 2004-2006

MN: $57,363
ND: $43,753
SD: $44,624

One can consider other measures, but the conventional wisdom in the midwest is MN is an economic powerhouse, ND does well partly through oil production, and SD trails the pack in many ways, although Sioux Falls and Rapid City do well, and there are some definite advantages. Wages are low in SD, but so are living expenses.

Still, evidence that SD's low taxes have produced an economic boom is not very plentiful.

[WinePusher]

Yes, but first let's define socialism. Generally, it's a system where the means of production are controlled and regulated by the government and sometimes it's interpreted as a form of wealth redistribution. And it's bad for several reasons.

Firstly, the economy is simply a description of human interaction and the market is the arena where humans interact. Capitalists and free market proponents stress something called praxeology, which is the study of human action. Essentially, it states that humans won't behave in manners detrimental to their success and improvement. One example of this would be Say's Law. Socialist ideology effectively shuts down human behavior by setting up road blocks and stop signs preventing humans from doing things that the government deems harmful So, socialism is bad for the economy because it shuts down human choice and free behavior.

Secondly, there's something called the economic calcuation problem, which is the problem of how to distribute resources in an economy. For example, a very common image of this problem is in communist and socialist countries where people got their food by standing in long lines with government bureacrats behind the table handing out bread baskets. In simpler terms, the ECP states: when the government owns a product, and is the sole provider of that product, it becomes inefficent in distributing that product. While in the free market, there are many providers of the same product and the way it is distributed is through a price mechanism which is akin to competition.

[nygreenguy]

Yes, but first let's define socialism. Generally, it's a system where the means of production are controlled and regulated by the government and sometimes it's interpreted as a form of wealth redistribution. And it's bad for several reasons.

Firstly, the economy is simply a description of human interaction and the market is the arena where humans interact. Capitalists and free market proponents stress something called praxeology, which is the study of human action. Essentially, it states that humans won't behave in manners detrimental to their success and improvement. One example of this would be Say's Law. Socialist ideology effectively shuts down human behavior by setting up road blocks and stop signs preventing humans from doing things that the government deems harmful So, socialism is bad for the economy because it shuts down human choice and free behavior.

Secondly, there's something called the economic calcuation problem, which is the problem of how to distribute resources in an economy. For example, a very common image of this problem is in communist and socialist countries where people got their food by standing in long lines with government bureacrats behind the table handing out bread baskets. In simpler terms, the ECP states: when the government owns a product, and is the sole provider of that product, it becomes inefficent in distributing that product. While in the free market, there are many providers of the same product and the way it is distributed is through a price mechanism which is akin to competition.

The problem with libertarian theory is its just that, theory. None of this free market stuff has ever actually been proven in the real world.

Essentially, it states that humans won't behave in manners detrimental to their success and improvement.

This is utterly false. Look at the housing boom. Everyone knew it couldnt go on forever, yet they did it. Same with enron. Look at Bernie Madoff. Greed will make people ignore the consequences for short term gains. People do stuff ALL the time which are detrimental. How this idea is given ANY credibility with all the evidence we have to disprove it is beyond me.

Now, with all this said, what about the points and examples in the article? The make more per-person, have a stronger social safety net and higher taxes. They have EVERYTHING that free-market people say destroys economies, yet they are ahead of america in practically every economic and social level.

[Grumpy]

nygreenguy

Very interesting, facts are such inconvenient things to the "Tax cuts create jobs" crowd

One should look at the differences between us and the Scandinavian countries(Democratic Socialists with a heavy dose of free capitalism, tolerant and largely secular populations).

1. They pay more as a percentage of income in taxes, up to about 45% for the highest brackets. They have somewhat simpler laws with few deductions.

2. They have universal, top rate healthcare for every citizen, no questions asked. In most, even foreigners are eligible. Yet the private sector insurance companies participate and make profits

3. They have governments which are not in financial difficulty.

4. China does not own them.

5. They have higher standards of living

Let's face it, they are doing some things right. Things that are going very wrong in our country.

As to socialism, our country has been socialist since 1776. "Provide for the Common Good" sums it up nicely. In all modern governments there is socialism, but it it a constant struggle to determine how socialist we are to be. Successful capitalist need and want less(so they can have more), those less fortunate need it more because they have so much less. But they should all be equal as persons if not in outcomes. There should be a base floor below which we will not let any citizen fall, there should be no ditch for those less fortunate or successful to fall into.

A socialist is a capitalist who has been unemployed and broke. There are a lot of new socialists in the US right now, thus the reactionary responses of some.

Grumpy

[WinePusher]

The problem with libertarian theory is its just that, theory. None of this free market stuff has ever actually been proven in the real world.

It's not libertarian theory, it's sociology. Economics is largely based on human behavior and action and what types of decisions and choices a person will make in a given situation. And you're right, a true free market society hasn't really existed but communist and socialist states have. Those states were destroyed because their economic system was unsustainable, everytime the socialists and communists come along trying to implement their policies they are ignoring that historical demonstrations that it doesn't work.

Essentially, it states that humans won't behave in manners detrimental to their success and improvement.

This is utterly false. Look at the housing boom. Everyone knew it couldnt go on forever, yet they did it. Same with enron. Look at Bernie Madoff. Greed will make people ignore the consequences for short term gains. People do stuff ALL the time which are detrimental. How this idea is given ANY credibility with all the evidence we have to disprove it is beyond me.

The housing bubble was caused by two factors: corporations like Fannie Mae and Freddie Mac handing out loans they knew were bad and consumers taking those loans knowing that they wouldn't be able to pay it off in the future. These were bad choices, so we had something called a recession that corrects the corruptions. You see, corruption is something that will always exit whether you have socialism or capitalism, but capitalism is able to correct itself when in error. Recessions are sometimes good because they go through and clean out the market, sweeping away the inefficent and bad companies. You can't always expect the economy to be in a state of prosperity and growth, it is not something that is in continual stasis.

Now, with all this said, what about the points and examples in the article? The make more per-person, have a stronger social safety net and higher taxes. They have EVERYTHING that free-market people say destroys economies, yet they are ahead of america in practically every economic and social level.

I don't have much to comment on about the article. Citing Norway as a support for socialism is similar to me citing Iceland or the Czech Republic as support for Free Market Capitalism. Situations vary, and using the logic of the columnist you cite is nearing a hasty generalization.

Very interesting, facts are such inconvenient things to the "Tax cuts create jobs" crowd.

I'd say the most inconvient fact that we have sitting on the table is a 10% unemployment rate in light of a trillion dollar recovery package that was said to keep unemployment at 8%. Goes to show what wonders deficit spending will do.

[McCulloch]

The problem with libertarian theory is its just that, theory. None of this free market stuff has ever actually been proven in the real world.

Yet it has been tried. The so-called Miracle of Chile brought about by Milton Freeman's Chicago Boys. Evaluation is mixed, depending on the ideological viewpoint of the reviewer. Perhaps most scathing is Naomi Klein's The Shock Doctrine: The Rise of Disaster Capitalism.

[Lux]

Yet it has been tried. The so-called Miracle of Chile brought about by Milton Freeman's Chicago Boys. Evaluation is mixed, depending on the ideological viewpoint of the reviewer. Perhaps most scathing is Naomi Klein's The Shock Doctrine: The Rise of Disaster Capitalism.

In that article, Friedman attributes to a free market the stepping-down of Pinochet as dictator of Chile. Is it just me, or is that a complete non-sequitur?

It seems to me that Chile has in fact seen much more economic growth in the past 4 years under the presidency of Michelle Bachelet (now ex-president), a moderate socialist, than in the previous 30 years. The lack of growth of Chile during those decades is understandable and probably not so much due to their economic system, since they were ruled by a bloodthirsty, corrupt tyrant who promoted huge economic inequality, so I do not see how Chile can be used as an example for the success of the free market at all.

[McCulloch]

Lux, thank you for presenting a viewpoint from someone who is actually from this region. Argentina shares a 5,308 km mountainous border with Chile. Yes, Freeman and his ideological followers, attribute Chile's economic success to the stepping down of Pinochet and the ensuing economic reforms, including the privatization of several state-controlled industries and the rollback of many state welfare institutions. As Klein and others point out, this view is a classic case of what Charles Seife calls proofiness.