Socialism

David Bernstein on Twitter: "Neoliberalism has come to mean "anything I, as a person of the left, don't like." Which in turn reflects magical thinking that if there were no economic markets, nothing they don't like would exist."

Magical thinking? --if the government employed everyone and produced everything (traditional socialism), most of it *wouldn't* exist.SSame if the government regulated everything, the current favored policy of the left because it leaves them rich (regulatory socialism).

Under traditional socialism, the government owns the means of production. It employs everyone who is employed and makes everything that is sold. In milder versions, it allows businesses that employ only family, or uses no capital, or employ fewer than 20 people, or employ nobody. In the extreme version, though, nobody can run a family farm or be a freelance journalist or own a lathe and make his own furniture.

It is important to remember that modern America is to a surprising degree a traditional socialist country. The goverment owns most grade schools, high schools, and universities, a huge amout of employment and output. It owns many hospitals. It owns much of insurance--- in the form of Medicare and veteran's benefits. It makes and sells electricity--- remember the quaint controversy in the 1920's over whether the federal government should sell power from a dam at  Muscle Shoals? Hoover vetoed a bill in 1931 to do that; a few years later FDR did it as the Tennessee Valley Authority. And of course the traditional government production of public goods is a large part of the economy--- the army, roads, police, firemen, the courts. 

But we economists have been pretty successful in subduing traditional socialism around the world. People realize the downside of government ownership. Hayek won the 1940's debate, in the end. Although at one time it seemed as if the government could replicate te efficiency of a market economy, nobody serious believes that any more. The problem is not computing power--- figuring out what products people want and how to make them, the most obvious part of Adam Smith's Invisible Hand--- as incentives, "government failure". Government-owned entities just aren't good at running things. The problem is in giving managers and workers the right incentives. A successful business needs a boss who has the freedom to make what consumer want, to fire workers, and compensation that is both very high and varies depending on how good a job he does. No government can resist telling the boss what to make, protecting complaining workers from being fired, and paying the boss the wrong amount and for the wrong reasons--- too much if he's incompetent and hired as a favor to someone and too little if he's brilliant, and an amount only vaguely related to how well he's doing. And as far as creating innovative new businesses that do things in a novel way most people think is wrong, a government is hopeless.

So nowadays we have Regulatory Socialism instead. Under regulatory socialism, the government doesn't own businesses and gives them considerable freedom. It takes a big share of the profits via the corporate and individual income tax, and it regulates them heavily, but the government's commands are via general policies rather than direct control. This helps efficiency quite a bit. The shareholders and managers can still get rich, just as under pure capitalism, so they still have incentive to come up with products consumers like. They can still fire workers who are unneeded or incompetent. Both of these are most attractive to Establishment liberals, who are rich and want to run their businesses efficiently. But the government can ban or restrict products the Establishment does not like, such as cheap housing, toilets and washing machines that use a lot of water, cigarettes, cars that generate an amount of smoke inappropriate for Beverly Hills, and so forth. In the extreme, it can ban publication of conservative speech on the Internet, radio, and TV. It can require employees who are known conservatives to be fired. It can give a boost to privileged groups in hiring. It can require ideological training of workers by every employer by means of government-approved commissars. It can blacklist dissident individuals from employment.

[to be continued]