Tag: Socialism

The Cost of Cortez: Nearly $2 Trillion Per Year

Authored by: Matt Palumbo

Whilst appearing on The Daily Show with Trevor Noah, something amazing happened to the Democratic-socialist darling Alexandria Ocasio-Cortez. She was actually asked how she’d pay for the wide array of social program’s she’s campaigning on.

“This is an excellent, excellent question,” Cortez told Noah. “…if we reverse the [Trump] tax bill, raised our corporate tax rate to 28 percent … if we do those two things and also close some of those loopholes, that’s $2 trillion right there.” She also cited cuts to defense, which she estimates would save an extra trillion or two. All estimates are over a ten year period.

So, she’d be able to fund $3-4 trillion dollars worth of programs, or $300-400 billion a year, but her answer doesn’t give the full context needed. While most hear “two trillion” and think “a lot,” the cost of the programs she needs to pay for cost an order of magnitude more. I’ll focus on just three; Medicare for all, free college, and a Federal jobs guarantee.

Medicare For All – AT LEAST $540 Billion A Year 

There’s been much confusion from a new Mercatus Center Study on the costs of Bernie Sanders’ latest “Medicare for all” proposal, with both sides claiming the study supports them. The study concluded that a Medicare for all program (by Bernie’s specifications) would add $32.6 trillion to the federal budget over the next ten years. In response, Bernie Sanders thanked the Koch Brothers for the study (as they fund Mercatus), and pointed out that $32.6 trillion is $2 trillion less than what total healthcare spending (public and private) in the US is expected to be over the next ten years.

The $32.6 trillion estimate however was a massive understatement, as the study conceded that all the components of Bernie’s plan would be implemented without any problems. Among those assumptions included:

  • Doctors, hospitals, drug companies and the like would face an immediate cut of 40 percent in their payments. A separate report by Health Affairs estimates that doctors would have to earn half their current salaries to make socialized medicine work, which is in line with Bernie’s proposal.
  • Bernie’s plan assumes that healthcare spending would decrease 11% if implemented. Given that over 30 million people would be insured under his plan, you’d have to assume that the newly insured use ZERO healthcare, while the previously insured use 11% less.

The study itself notes how unrealistic these expectations are – so it’s unclear what Bernie was “thanking” them for. Without any provider cuts, the Mercatus study puts the cost at $40 trillion over ten years, which turns Bernie’s supposed $2 trillion surplus into a $5.4 trillion deficit over ten years, or $540 billion a year. Bear in mind, this is the absolute minimum such a proposal would cost.

Debt Forgiveness and Free College – $1.5 trillion + $120 Billion Minimum Per Year  

The Tax Policy Center estimates that a “free public college” program (based off of Bernie Sanders proposals) would cost $807 billion over ten years, or roughly $80 billion a year. That’s based on a number of assumptions; that the number of students attending college wouldn’t increase (spoiler alert: it would), that colleges and universities wouldn’t raise tuition in the face of a truckload of Federal money, and most important of all, we’re to assume there’s no substitution with private students leaving for public schools. On that last point; who paying $50,000 at a mid-to-low tier private school would take on the debt when they can go to a public school for free?

Furthermore, the Bernie plan assumes that the Federal government would cover 2/3rds of the cost of “free” college, with the States covering the remaining 1/3rd. So in other words, the $807 billion figure is only 67% of the real cost (about $1.2 trillion).

Ocasio has another freebie to top this all off – a one time cancellation of student debt, costing $1.5 trillion.

Federal Jobs Guarentee – $900 Billion Per Year

Forbes Magazine’s Jeffrey Dorfman ran the numbers back in May on what a Federal jobs guarantee could cost, assuming that it would employ the then six million unemployed, and five million “discouraged, marginally attached [to the workforce], or working part time but looking for full time work.” And to transition those people to their federally “guaranteed jobs” (which would pay enough to prevent them from qualifying for government benefits) would cost an astounding $450 billion. Dorfman estimates that due to the relatively high pay of these government jobs to many low skilled workers, it could attract up to another 10 million employees, which would bring the cost to nearly $900 billion a year.

Just a minor disclaimer; Dorfman is a conservative who supports a federal job guarantee – but only under the condition that one is implemented alongside the abolition of all other federal welfare programs. Not only would that be politically impossible to implement (and doesn’t answer the question of what happens to the disabled who receive welfare and can’t work) Cortez does not advocate for abolishing other welfare programs, but increasing them instead, so a cost of nearly $900 billion annually is appropriate.

Conclusion

Cortez was able to come up with $300-400 billion in revenue from taxing “the rich” – but has proposed $1.56 trillion in new recurring spending annually (or $1.7 trillion if you amortize the cost of student loan forgiveness over ten years). Remember: every single one of my estimates is a minimum estimate on what her programs would cost. Given that our current budget deficit is a trillion dollars as is, Cortez would have to raise taxes on much more than just the wealthy to pay for her socialist pipe dream.

But don’t expect her to admit that anytime soon.

 

 

Does Socialism Work in Scandinavia? (Part 3)

Authored by: Matt Palumbo

In parts one and two, I answered the question of whether or not the Scandinavian countries are examples of successful socialism. Part 1 disputed that those countries (Sweden, Denmark, Norway) truly are socialist, and instead argued that they’re capitalist countries with high taxes and large governments. Part 2 analyzed the follies in various government freebies those nations have become known for, including “free” college and socialized medicine.

The question of whether or not Scandinavian countries are examples of socialism done right is a resounding “no,” and despite their large governments, there are some capitalist lessons to be learned from them. Sweden in particular is ideal for this analysis. In the case of some Swedish economic reforms, conservatives will find evidence that smaller government yields benefits, that school vouchers work, and even that Social Security can be partially privatized.

Smaller Government is Better – And Balanced Budget Amendments Work 

In part one I alluded to the fact that Sweden’s economic growth spurt came during a time they had low taxes and small government, and that the brakes began to halt once they created the welfare state they’re known for in the mid 1970s. While their government is still massive, Sweden did also implement reforms relatively recently in the mid 1990s, that have scaled back the size and scope of their government. And as it turns out, when it comes to government, smaller is better.

Consider the following.

From 1975-95, Sweden’s GDP growth was half that of all other OECD countries, and a full percentage point lower than the EU-15 countries. After 1996, Sweden has outperformed both groups of nations. Note: all charts are from the Swedish think tank “Reform Institute.”

A similar pattern can be seen when it comes to Sweden’s productivity growth relative to other nations (with the only exceptions being during the 2008-09 financial crisis, when Sweden’s manufacturing sector saw a severe downturn):

The culprit for the rise in GDP growth and productivity? Simple – a shrinking public sector. In the 1990s, more than one out of every five government employees lost their job. It’s no secret that government workers are (on average) less efficient than private sector workers due to different incentive structures in the public and private sector, and the reallocation of workers from public to private sector gave the economy a much needed jolt.

Swedish workers personally saw the benefits that a reduced government had on the economy. From 1976-95, Swedish incomes rose only 0.7%-0.8% per year. From 1996-2011, the rate of growth nearly quadrupled.

And speaking of the government’s finances, in 1994, Sweden’s national debt totaled 80% of GDP, which has since been cut in half. The catalyst? A 1997 fiscal rule requiring a budget surplus of 2 percent (which was since lowered to one percent).

The national debt in America currently stands at 105%. There is significant evidence that debt exceeding 90% of GDP begins to have noticeable negative effects on the economy. While that may not be noticeable to us currently in the Trump economy, it still remains a lingering problem that will not resolve itself.

School Vouchers Work 

In the 1950s, the late Milton Friedman created the concept of school vouchers. Explained briefly, rather than maintain the status quo in which a student attends a school based on his zip code, Friedman wanted every student to be given a “voucher” with a certain dollar value, which could be used to attend another school (or towards a private school). In theory, this would ensure that only the best schools survive (as students would leave under-performing schools, thus depriving them of funding).

Sweden put such a system in effect in 1992, and it’s yielded the expected positive effects. Prior to vouchers, fewer than 1% of Swedish students attended private schools. Since then, that figure has increased to 10-15% (depending on which study you look at), Just like in America, Swedish students at private schools outperform their public school counterparts.

A study commissioned and published by Sweden’s government controlled Institute for Evaluation of Labour Market and Education Policy concluded that the implementation of vouchers had a positive effect on test scores, grades, probability of attending college, among other factors. Most important was the mechanism by which student performance increased: that competition among schools for vouchers has increased the quality of schools across the board.

I’ll only note that it did take 10 years before those positive effects started becoming realized, so vouchers aren’t an “overnight” fix, but they do work.

(Partially) Privatizing Social Security Works 

Sweden was the first country to implement a universal government-funded retirement system, and among the first to partially privatize the system. Workers in Sweden pay 18.5 percent of their income towards the nation’s retirement program, with their employer footing roughly two-thirds of the bill. After reforming and partially privatizing their retirement system in 1998, workers can now invest 2.5 percentage points of the 18.5 percent into hundreds of private pension funds of their choosing.

The other 16 percentage points fund a restructured pay-as-you-go government program called an “income pension,” similar to our Social Security system. According to Sweden’s Pensions Agency in 2017, income pensions have earned an average investment rate of 3%, compared to 6.7% for private pensions. Obviously there are different risk profiles in the types of assets being invested in, but one can certainly tolerate plenty of volatility when the private system yields twice as much.

Someone investing $4,000 annually over a 45 year career at 3% will have $386,000, while the same person earning 6.7% would have $1.1 million.

Conclusion

While there’s no question that Sweden’s government is far larger than our own, and taxes their citizens to a confiscatory extent, things used to be worse. As they moved towards the direction of freedom, their economic fortunes finally began to sweeten. There’s no reason to think that such trends wouldn’t only continue further if Sweden were to continue to cut their government down to a more reasonable size.

Does Socialism Work in Scandinavia? (Part 2)

Authored by: Matt Palumbo

In part 1, I examined parts of the popular claim that the Scandinavian nations (Sweden, Norway, Denmark) are successful examples of socialism. I pointed out, among other things, that:

  • By definition, the Scandinavian nations aren’t socialist. They’re capitalist countries with high taxes and big welfare states.
  • Scandinavian Americans, who are mainly the descendants of immigrants from 200+ years ago, are wealthier and have lower poverty rates than Native Scandinavians.
  • Scandinavian countries got rich while their taxes were low, and government small. Growth has slowed since changing course.

But there’s still no denying that the Scandinavian nations have generous welfare states, so rather than argue over the definition of socialism, let’s examine some of the alleged benefits of the Scandinavian welfare states.

Inequality

One of the main advertised benefits of the large welfare states of Scandinavia are levels of income inequality among the lowest rates in the world. But, just like their general prosperity, the relative income equality of Scandinavia predates the welfare state.

According to one study of income inequality in Sweden in particular, during the period between 1903 and 2004: “We find that, starting from levels of inequality approximately equal to those in other Western countries at the time, the income share of the Swedish top decile drops sharply over the first eighty years of the twentieth century. Most of the decrease takes place before the expansion of the welfare state and by 1950 Swedish top income shares were already lower than in other countries” (Source: Page 56).

And income inequality isn’t the only kind of inequality. The Scandinavian nations have plenty of wealth inequality. In the United States, the top 1% owns roughly 35% of all the wealth. In Sweden, the top 1% controls roughly 25-40% of total wealth. High taxes have proven unsuccessful at alleviating that “problem.” According to one study, the share of the richest Swedes who inherited their wealth is around, 2/3, with only a third being entrepreneurs. In America, the majority of wealth is self-made, while in Sweden, it’s generational.

Ironic, isn’t it, that the high-tax country is the one with more unearned wealth?

Free College

American readers will undoubtedly see a lack of crushing student debt as the main benefit of “free” college. And in Scandinavia, you can get a college education free of charge…. and still graduate tens of thousands of dollars in debt. Since I’ve written an entire article on this subject, I’ll simply hyperlink to the full version to save space, while summarizing the main problems with free college, that:

  • In 2013, average college debt among graduating students was $19,000 in Sweden, compared to $24,800 in America. It’s presumably room and board responsible for debt in Sweden. After all, why commute when tuition is covered?
  • When everyone has a college degree, nobody does. An American college graduate earns 65% more than a high school graduate, while in Sweden, college graduates earn only 25% more.
  • As a result of the lack of ROI described above, Swedish graduates have the highest debt-to-income ratios of any group of students in the developed world.

In Denmark, there’s a phenomenon known as “eternity students,” which are those who goof around and sometimes never graduate, simply enjoying free classes (and a monthly government stipend to keep themselves afloat). Students are also much more likely to pursue “fulfilling” (translation: liberal arts) degrees when the government is footing the bill. Denmark has only one-third the engineers as the OECD average.

Socialized Medicine

While the Scandinavian nations have a system of universal healthcare/socialized medicine, don’t call the U.S. cheap, as the U.S. government spends more on healthcare than the Scandinavian nations on a per-capita basis.

The difference is that healthcare is a simply a heck of a lot more expensive in America. For all our governments spends, that money is just funding Medicare and Medicaid (which have drastically worse healthcare outcomes than private insurance).

Of note though, while America is the only developed nation without universal coverage, we still boast the highest cancer survival rates in the world.

Just consider the implications of the table below; that for every million people that are diagnosed with the following four cancers in America, 738,000 will have survived after five years. In Denmark, only 510,000 will have survived.

For a more full case against socialized medicine, see the second chapter in my book The Conscience of a Young Conservative (free PDF).

The Welfare State

Few disagree that there should be a safety net for when hard times come unexpectedly – but there’s a difference between a safety net, and a hammock.

In Scandinavia, it’s clear which they are.

Despite being one of the healthiest nations in the world, in the early 2000s, 10% of Sweden’s entire workforce was on paid sick leave at any given time. And why wouldn’t they, when the government would pay 80% of their salary? The average number of sick leaves taken per Swede per year more than doubled when the government increased the percentage of salary they’d pay from 75% to 80%. The paid sick leave system has since been reformed and tightened.

In Denmark, roughly 9 percent of the workforce (in 2012) was on disability, 33,500 of them under the age of 40, and in Norway last year, while the unemployment was below 3%, 20% of the working age population was on either unemployment or sick leave benefits. All of these countries lack the sick populations to justify such figures.

As I pointed out in part 1, Scandinavians are wealthier in America than they are in Scandinavia, and is it any surprise, when there isn’t the temptation of excessive benefits? In America we saw massive reductions in poverty when Clinton-era welfare reform added a work requirement to receive benefits, and it looks like Scandinavia could use the same.

In some regards, Scandinavia is moving in the right direction.  Since the early 1990s, when a financial crisis put their budgets in crisis, Sweden deregulated a number of key industries (airlines, telecommunications, and electricity), lowered taxes, partially privatized their pension system, sold off a number of state-owned enterprises, and began cutting public spending. In 2015, Denmark announced caps to the amount one can receive in both welfare and unemployment benefits. Denmark also began working on welfare reform plans in 2013, and has already implemented caps on certain benefits.

There’s much to be learned from the benefits of privatization and a move towards freedom as seen in the Scandinavian nations.

Socialism doesn’t work there, but capitalism does.

And for more on that, stay tuned for part 3….

 

Does Socialism Work in Scandinavia? (Part 1)

Authored by: Matt Palumbo

Does anyone even know what socialism is anymore? It’s not uncommon to see liberals today defend socialism by pointing to roads, firefighters, police, and other government services nobody disagrees with, which truly illustrates how little they know about the economic system they’re defending. Can someone find me the conservative arguing that Venezuela is crumbling because of an abundance of firetrucks?

The same kind of misunderstanding is present when liberals showcase the Scandinavian nations (Denmark, Sweden, and Norway) as Exhibit A when it comes to examples of successful socialism. “I think we should look to countries like Denmark, like Sweden, and Norway and learn from what they have accomplished for their working people” said former socialist Presidential candidate Bernie Sanders. And those countries offer much of what Bernie wants for America – free college, socialized medicine, paid maternity leave, among other generous welfare state benefits.

In response to Sanders, Denmark’s Prime Minister asked him to stop using the slur of calling his country “socialist.” And he is right. The definition of socialism is government ownership of the means of production – which isn’t the case in his country.

But while not explicitly socialist, the Scandinavian countries certainly lean in that direction, combining free market capitalism with high taxes and big government.

So, does it work?

Scandinavia’s Economic Success Predates The Era of High Taxes and Big Government 

Scandinavia is rich today – but in spite of their generous government policies, not because of them. As economist Nima Sanandaji, who wrote a book on the myth of Scandinavian socialism, noted in the case of Sweden:

From 1870 through 1936, Sweden was the fastest growing economy in the world. But after 1975—when the Swedish state began to expand in earnest—Sweden’s economy noticeably slowed, falling from the 4th richest in the world to the 13th by the mid 1990s.

Charted below is GDP growth in Sweden (and Denmark), and per-capita income in Sweden relative to other advanced countries.

It’s not hard to imagine why big government and high taxes have slowed growth. The top tax rate in Denmark is 60.4%, while Sweden’s is 56.4 percent. But unlike America where it’s only top earners subjected to the top marginal tax rate, the top rate applies to a sizable chunk of workers in Scandinavia.

If America had Denmark’s tax brackets, someone earning $60,000 a year would be subject to the top 60% tax rate. And there’s a national sales tax of 25% in Denmark, Sweden, and Norway on most goods. I bring this up as a reminder that if we were to adopt Scandinavia’s welfare policies, it wouldn’t be just “millionaires and billionaires” footing the bill.

Scandinavians Are Wealthier in Low Tax America

There is something to be said about the Scandinavian work ethic, and it brings to mind an anecdote. A Scandinavian economist once said to the late Milton Friedman, “In Scandinavia, we have no poverty.” Milton Friedman replied, “That’s interesting, because in America, among Scandinavians, we have no poverty, either.”

Sanandaji, noted elsewhere that:

It is equally interesting to look at Nordic Americans, a group that combines the Nordic success culture with U.S.-style capitalism. It was mainly the impoverished people in the Nordic countries who sailed across the Atlantic to found new lives. Danish Americans today have fully 55 percent higher living standard than Danes. Similarly, Swedish Americans have a 53 percent higher living standard than Swedes. Even though Norwegian Americans lack the oil wealth of Norway, they have a 3 percent higher living standard than their cousins overseas.

When it comes to those on the bottom of the income distribution, the poverty rate among Swedish Americans is lower than Native Swedes.

Not only are Danish and Swedish Americans earning 50% more than their counterparts back at home, the gap is actually much larger, as they aren’t taxed to death on that income either.

Despite High Personal Taxes, Scandinavia is Incredibly Business Friendly

According to the Fraser Institute’s Economic Freedom of the World Index, there are plenty of areas where Scandinavia is more business friendly than the U.S.. Despite the noted extreme taxes on the citizens of Scandinavia, for most of their history, they’ve had a lower corporate tax rate than the U.S.. Denmark taxes corporations at 24.5%, Norway 27%, and Sweden at 22%. Prior to the Trump tax cuts, America taxed corporations at 39.1%.

According to The World Bank’s rankings, Denmark is the third easiest country to do business in globally, beaten only by capitalist haven Singapore, and New Zealand. This at least allows the Scandinavian nations to offset some of the distortionary effects of big government on the economy elsewhere.

And it certainly is interesting that the Left’s “go-to” countries for socialist success are among the most business friendly on the planet.

Recap

  • Scandinavia is not socialist, but it does combine capitalism with high taxes and big government.
  • As evidenced by Scandinavians who live in America, their standard of living is higher in absence of the Scandinavian welfare model.
  • Scandinavia is extremely capitalist when it comes to business freedom.

In part 2 I’ll be going more in depth when it comes to particular government programs in Scandinavia. For instance; how effective are their healthcare systems? Is “free college” really “free” there? What are the unintended consequences of their generous welfare state?

As you’ll soon learn, the laws of economics have hardly been suspended in Scandinavia, and they’re actively moving towards shrinking the welfare states that they’ve become known for.

Debunking Socialist Damage Control on Venezuela

Authored by: Matt Palumbo

In just a single year from 2016-2017, nearly 75% of Venezuelan’s lost weight, averaging 19 pounds in total.

They weren’t on a diet by choice.

Food shortages have become common in Venezuela as their economy continues to dwindle. Electricity and water are being rationed, unemployment tops levels higher than the peak during America’s Great Depression, and inflation is in the thousands of percent per year.

In response to the disaster, TeleSur, a Latin America socialist propaganda network funded by the governments of Cuba and Venezuela (among others), has played the denial game. Admittedly, the justifications for their denial would be hilarious, if it weren’t for the grim reality of what they’re denying. “The facts are clear — Venezuela does have a food crisis,” reported TeleSur, after acknowledging the “19 pounds lost” statistic. According to them, it’s “right-wing U.S.-backed opposition forces” that are intentionally sabotaging the economy, but encouraging supermarket owners to hoard food, all as an attempt to make Venezuela’s socialist government look bad.

Well, that’s certainly one (insane) theory.

The only remotely sensible argument I’ve seen from a socialist is that Venezuela’s problems have more to do with declines in the price of oil than socialism, given that about half of Venezuela’s economy is dependent on oil exports. One can only then wonder why the citizens of Saudi Arabia (of which 40% of their economy comes from oil) aren’t starving in the streets too.

And for that, blame the incompetency of Hugo Chavez.

Chavez decided to nationalize the nation’s oil industry, and the nation’s largest firm, PDVSA, comes as Exhibit A in the follies of socialism. In protest of Chavez during 2002-2003, workers went on strike with the goal of forcing a new election. In response, Chavez firing half of PDVSA’s workforce, 20,000 workers in total. Opposition was strongest among top management, 80% of which were fired (which also included engineers, and the firm’s research arm).

Replacing those employees with others equally knowledgeable about the oil industry proved impossible – and were replaced by political allies of Chavez. In fact, it was company policy during Chavez’ reign that only his supported would be hired – regardless of competency. While PDVSA produced 3 million barrels of oil a day before being taken over, they now average only 2 million a day.

But here’s where things get truly incredible. This is despite the fact that PDVSA has since seen their workforce explode from the pre-nationalization 40,000 employees to an incredible 150,000 employees today. Yet despite that massive increase in employment, the decline in barrel per day production has declined in percentage terms by what the nation saw during the 2002-2003 worker strikes. In other words, 20,000 striking (competent) workers caused as much damage to PDVSA’s production as the hiring of an additional 130,000 socialist workers. The workforce is up almost fourfold, yet production is down a third.

Perhaps Venezuela wouldn’t have to worry about low oil prices, if it wasn’t for their socialist government mismanaging the industry into oblivion.

November 16, 2017: Ep. 592 The Democrats are Playing With Fire

What is “regime uncertainty” and why should it matter to you? This excellent piece explains why.

Why are the Democrats and the mainstream media turning on the Clintons now? This piece offers a strong explanation.

The Obamacare tax penalty is becoming a political football and, as is often the case, the CBO is providing misleading data. This piece debunks some of their assertions.

Here’s a brief but powerful explanation of why socialism destroys economies.

If you support a Balanced Budget Amendment then you should read this.

November 15, 2017: Ep. 591 Socialism Sucks and People Who Believe in it Suck Too

This is insane. Nearly half of Millennials approve of Socialism? Have they lost their minds?

Socialism sucks. Here’s another example of the devastation it causes.

This very real threat that could wipe out 90% of Americans in the impact zone.

Read this piece about record tax revenues and you’ll realize how our debt problem is a spending issue, not a tax issue.

Lying Liberals are using the Kansas tax cuts as an example of why tax cuts won’t work. The problem is, they’re all wrong.