The Economic Results of Socialism

For the serious discussion of weighty matters and worldly issues. No off-topic posts allowed.

Moderators: Azrael, Moderators General, Prelates

User avatar
Absolute
Posts: 39
Joined: Sat Sep 27, 2008 11:13 pm UTC
Location: Undisclosed

The Economic Results of Socialism

Postby Absolute » Mon Nov 10, 2008 2:48 am UTC

I see this argument popping up frequently in various unrelated fora, but it is never fully discussed for fear of wandering too far off topic. The basic idea is that "European-style" socialism produces better economic results than "American-style" capitalism. By "European", proponents of this idea really mean "Nordic", since the performance of continental economies has been abysmal. The explanation given for these supposed economic benefits is that the social goods provided by the welfare state make workers more productive. The obvious implication is that the U.S. should move further toward this model by implimenting policies such as higher, more progressive tax rates and a more extensive welfare system. I contend that each of these claims is false, and that both cross-national and historic data support my contention.

This topic relates only to socialism as currently exists in mostly capitalist nations, called "market socialism", "welfare capitalism", etc. When I say socialism, this is what I mean. This topic is not concerned with Marxist/Communist ideas, as these are unrelated to the form of socialism under discussion. I would also like to avoid discussing the morality or fairness of various economic systems, as this would quickly result in an impasse. The same goes for the value of any social benefits socialism may provide, aside from economic effects. So, If we just focus on the measurable economic results of systems which actually exist, we can have a manageable, civilized discussion.

Some light reading to start us off:

The Heritage Foundation's Index of Economic Freedom provides an in-depth look at the economic policies of various countries.

Of course a list of countries by per capita GDP is useful. Note that the only sizable nation above the U.S. is Norway, which has significant oil revenue. It would be very difficult for the U.S. to emulate the Norwegian model unless we conquer Norway.

This study directly answers the Nordic question. Say what you will about the Cato Institute's bias, they have a reputation at stake which keeps them honest.

This OECD paper reaches no conclusion, but the data presented dispute the notion that social factors improve economic performance.(Edit: fixed broken link, sorry)
Last edited by Absolute on Tue Nov 11, 2008 10:44 am UTC, edited 3 times in total.
"To the intransigent mind, to the inviolate truth"

I don't really have "mornings", so much as "times when I switch from booze to coffee"

User avatar
Bubbles McCoy
Posts: 1106
Joined: Wed Jul 09, 2008 12:49 am UTC
Location: California

Re: The Economic Results of Socialism

Postby Bubbles McCoy » Mon Nov 10, 2008 2:58 am UTC

Is the American system really any different than the UK? People tend to cite how taxes are lower in the US, but I think this may be obscured by the fact that a significant amount of taxation in America occurs on the state and local level (I beleive the composite of all taxes in America suggest a net tax of around 36% on the GDP; the UK is 35% if I recall correctly). The UK might also have significant local taxes, but they might already be included in the 35% number as it's not a federal system. Any locals around to shed more light on the subject?

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: The Economic Results of Socialism

Postby Indon » Mon Nov 10, 2008 3:26 am UTC

And I'd like to preemptively make a point: More than one european government is fueled by money coming from natural resources, and the presence of those resources might make for a nice reason for that country's prosperity.

This discounts the fact that the USA is a massive nation with relatively low population density and the second-greatest concentration of natural resources currently being exploited on the planet (#1's China, and their population density's way worse than ours). Certainly if another nation could funnel windfall resource profits into its' government, so could we, considering how much more we have than most.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

++$_
Mo' Money
Posts: 2370
Joined: Thu Nov 01, 2007 4:06 am UTC

Re: The Economic Results of Socialism

Postby ++$_ » Mon Nov 10, 2008 4:04 am UTC

No one is saying that "socialistic" (I put that word in quotes because it doesn't mean what you think it does) policies would increase the GDP (or per-capita GDP) of the US. Notice that even the Cato Institute paper only manages to cherrypick one quote that says that. It's a straw man.

There really isn't much more to say about this. But I'll point you to this map. It shows how happy people report themselves to be. Green is happiest, then blue, then purple, orange, and red. I'm sure you'll dispute these results ("subjective reporting, cultural differences, blah blah blah") but I think it's indisputable that people in Scandinavia are, at least, decently happy, and that the same is true of people in the US. The map actually shows Scandinavians ahead of us, so you'll have to argue pretty hard to convince me that they are not at least AS happy as we are. Since the Cato Institute claims that their per-capita GDP and disposable income are both low, there must be some explanation for this happiness. And I'm guessing it's not the polar nights.

Anyway, the Cato Institute has observed that Nordic countries have lower per-capita GDP than the US does. To me, this seems similar to saying (as many do) that the Bush tax cuts increased government revenue. But then they point out figures that show something different: that revenue increased after the Bush tax cuts were enacted. This is different, because revenue would have increased anyway, due to economic growth. So what's really needed is not a set of "before/after" pictures of the economy, but an analysis of what government revenue WOULD have been, had the tax cuts not been enacted. Such an analysis shows that the tax cuts actually hurt government revenue. In the same way, the Cato Institute's paper doesn't tell us what the Nordic countries GDPs would have been if they had US-style governments. It doesn't even attempt to answer that question, which should be an obvious question for any intelligent person to ask. I conclude that the author is talking out of his ass, and that the paper is a waste of pixels.

And it's a straw man argument anyway.

User avatar
Yakk
Poster with most posts but no title.
Posts: 11077
Joined: Sat Jan 27, 2007 7:27 pm UTC
Location: E pur si muove

Re: The Economic Results of Socialism

Postby Yakk » Mon Nov 10, 2008 5:55 am UTC

Solving for "what would nation X's revenue be if you changed Y" is ... very difficult.

So people use proxies -- they build models. Sadly, people build crappy models, and do crappy analysis of them (I mean, least squares? You shitting me?)

Second, is your goal GDP per capita? Or is it, say, log-sum GDP per capita? Log-sum total wealth?

If you have a massive concentration of GDP in one person, in such a way that it doesn't benefit the rest of society, and trying to spread it around would cause massive loss, would that be better than having less GDP and having it spread out?

Should you use PPP measures, or current exchange values? If PPP, what is it you are buying? How about resources that cannot move -- how much do you value the weather in Hawaii, given the price of land, vs the weather in Maine given the price of land? I mean, even if the GDP of Maine and Hawaii was the same, and all goods that aren't local-only (like land) had the same price, Hawaii sure would look like a better place to live for most folk.

This isn't as much of a tangent as you might think. Knowing, for example, that if you lose your job due to an injury, you won't go bankrupt paying for hospital bills then die of your new chronic condition, isn't that reflected in the GDP statistics listed. If you had a health system that was half as efficient as another country's health system due to structural reasons, reflecting this is tricky when comparing nations (and, in particular, the USA spends a larger percentage of their income on health care, and the outputs (life expectancy, survival rates, birth death rates, etc) are basically the same as nations that spend a bunch less).

You can examine narrow, well defined issues, much easier than you can look at broader ones. Making strong statements about broad issues like "which twerk on a given form of government works best" isn't science: it is politics and rhetoric.
One of the painful things about our time is that those who feel certainty are stupid, and those with any imagination and understanding are filled with doubt and indecision - BR

Last edited by JHVH on Fri Oct 23, 4004 BCE 6:17 pm, edited 6 times in total.

Kachi
Publicly Posts Private Messages
Posts: 781
Joined: Fri Apr 04, 2008 2:53 pm UTC
Location: Everywhere except SB.

Re: The Economic Results of Socialism

Postby Kachi » Mon Nov 10, 2008 9:31 am UTC

Much as I would love to engage in a discussion on the merits of socialism, I don't think I can really do so within the confines of the rules you've laid out.

If you want to reduce an economy to GDP, then perhaps socialism won't win out, but GDP is merely a means to an end. As an end itself, it really says little about the average quality of life.

Iv
Posts: 1207
Joined: Thu Sep 13, 2007 1:08 pm UTC
Location: Lyon, France

Re: The Economic Results of Socialism

Postby Iv » Mon Nov 10, 2008 11:18 am UTC

Ok, let's try to keep it as economical as possible. Several observations. Mostly positive because the negative is probably obvious (more taxes) :

Here (France) some people claim the current crisis will result in less unemployment than in US because of the mandated noticing period an employer must give to the employee he wants to fire (3 to 6 months). A less-than-3-months financial depression would result in companies going low profile for a few weeks then waking up very quickly as opposed to US-style laws that allow companies and employers to quit work or to fire workers with no notice. (Not necessarily my opinion, but this can be an effect)

Here also, there is a popular meme. We have a regular legal week that is 35 hours of work. It is less than most countries but we are supposed to be more efficient during these hours (I don't know how true this is but I can tell you that I have witnessed Koreans working for 18 hours a day and I do much more work in my 6 hours than they do). If this is true, that means that workers have more time to be consumers.

The more extended the healthcare, the less serious are health problems because they are treated earlier. This could economically be a bad thing as pharmaceutical firms make less profit but this has a positive impact on the efficiency of workers.

Cheaper education means higher education level and also means more qualified workers, hence higher wages, therefore richer consumers.

I don't know if this enters in your definition of socialism, but some infrastructure are sometimes managed by the government : highways, airports, trains, phone... Granting access to these infrastructures even to remote and non-profitable regions allow these regions to develop economically. Sometimes it is best to let the government manage this (here trains and highways are fine) and sometimes it is not (airports are a mess and phone has been backward until it opened up for competition)

About progressive taxation : you always get more money on your bank account when you earn more money, but a 20% increase in revenue may only result to a 15% increase, so the incentive is still here. It means that for the same government revenue, poor people will pay less taxes, giving them more room to live off small jobs or starting a business.

User avatar
Azrael
CATS. CATS ARE NICE.
Posts: 6491
Joined: Thu Apr 26, 2007 1:16 am UTC
Location: Boston

Re: The Economic Results of Socialism

Postby Azrael » Mon Nov 10, 2008 1:53 pm UTC

Keep this discussion *purely* economic or else I'll merge it into one of the existing socialism threads. As it currently stands I'm not fully convinced this *needs* it's own thread at all.

-Az

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7415
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: The Economic Results of Socialism

Postby Zamfir » Mon Nov 10, 2008 2:46 pm UTC

Absolute, I think the argument is more that social-democratic welfare do not damage an economy as much as naive economics might suggest. There is a very large study, "Growing public" by Peter Lindert that looks at public spending over the last two centuries. It's very interesting, not just for the "do welfare states hurt growth" question.

Among other things, it compares OECD countries and American states decade by decade, for correlations between welfare spending( in various forms) and economic growth afterwards. His conclusion is that there is not much correlation, while you would expect a serious effect. He argues for two main causes that counteract the effects of a large welfare state:
Two general principles seem to explain why the welfare state does no net damage to GDP per capita and why welfare states will not collapse. The first is that high budget democracies show more care in choosing the design of taxes and transfers so as to avoid compromising growth. The second is that broad universalism in taxes and entitlements fosters growth better than the low-budget countries' preference for strict means testing and complicated tax compromises.


A note on the first: if you look at proposals that Americans of the right make to increase the economic efficiency of taxation, you'll find that many are incorporated in Europe: lower capital gains taxes, a flat consumption tax, earned income tax credit.

The second part means that large welfare states tend to be large because they have universal programs, while smaller spenders have more programs focussed on the poor. The latter may sound more efficient, but has as serious drawback that it gives poor people high effective tax rates, since they loose lots of benefits if they start earning more.

User avatar
Yakk
Poster with most posts but no title.
Posts: 11077
Joined: Sat Jan 27, 2007 7:27 pm UTC
Location: E pur si muove

Re: The Economic Results of Socialism

Postby Yakk » Mon Nov 10, 2008 4:39 pm UTC

Note that you can generate some really crippling welfare policies. Strict means testing, where you claw back benefits at nearly the same rate as someone earns income elsewhere, discourages those people from working -- much like an 80% to 90% marginal tax rate would discourage the top end from working.

In both cases, they end up moving outside of the taxed economy -- the poor enter the black market, earning money under the table. The rich move their income into tax sheltered and non-taxed locations (off shore if they have to!) And in most cases, these choices tend to cause real economic inefficiencies while they produce tax efficiencies.
One of the painful things about our time is that those who feel certainty are stupid, and those with any imagination and understanding are filled with doubt and indecision - BR

Last edited by JHVH on Fri Oct 23, 4004 BCE 6:17 pm, edited 6 times in total.

User avatar
Bubbles McCoy
Posts: 1106
Joined: Wed Jul 09, 2008 12:49 am UTC
Location: California

Re: The Economic Results of Socialism

Postby Bubbles McCoy » Mon Nov 10, 2008 6:59 pm UTC

Iv wrote:Here (France) some people claim the current crisis will result in less unemployment than in US because of the mandated noticing period an employer must give to the employee he wants to fire (3 to 6 months). A less-than-3-months financial depression would result in companies going low profile for a few weeks then waking up very quickly as opposed to US-style laws that allow companies and employers to quit work or to fire workers with no notice. (Not necessarily my opinion, but this can be an effect)


French unemployment rate was already at 8% when America's was 4% back in 2007, and now Americans are up in arms about it reaching 6%. The strict labour laws in France generally seem to reduce overall employment as employers can't always stomach the risk of having too many employees in down times as it is right now, which in effect leads to permanently heightened unemployment. I suppose this might be a benefit to those so fortunate as to be employed, but this does reduce the speed at which business' can adopt changing times and the overall flexibility afforded them, harming their competitiveness and leaving some without jobs.

Lemminkainen
Posts: 91
Joined: Fri Nov 07, 2008 9:26 pm UTC

Re: The Economic Results of Socialism

Postby Lemminkainen » Mon Nov 10, 2008 8:53 pm UTC

I noticed that nobody seemed to be commenting on why countries practicing the Nordic style of economic government (that is: Norway, Sweden, Denmark, Finland, and maybe the Netherlands and Ireland) have strongly outperformed the continental European Economies (ie: France, Germany, Italy) (note that a few others, like Britain practice something close to American-style capitalism). I think that this has something to do with the differing role of the government in these different countries. In the Continental economies, the governments frequently limit the trading rights of individuals with things like set workweeks, job-changing restrictions, crippling agricultural tariffs, subsidies, and quotas, holding large stakes in companies, creating "National Champions," and the like, as well as taxing heavily and providing a number of services to citizens like unemployment insurance, healthcare, education, etc, all of which it controls. In the Nordic economies, the government exists mostly as a provider of services, but less as a regulator, which helps economic freedom and thus efficiency.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7415
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: The Economic Results of Socialism

Postby Zamfir » Mon Nov 10, 2008 10:48 pm UTC

Lemminkainen, I don't think your division works. The NEtherlands may have some things in common with the Nordics, but Ireland has definitely followed a separate track for the past 2 decades, while the UK's policies really are not that different from mainstream Europe as they sometimes appear. The British government sector is for example not that much smaller than France's, and a whole lot bigger than in the US.

The division you mention is more between (self-perceived) big countries and small countries. small countries are much more afraid to lose companies, and are therefore more prone to ease some of their labour regulations. They also have a relatively open economy, and less hope of nurturing strong national champions. The smaller countries used to have much stronger protectionist tendencies in the past, think of aircraft companies like Saab and Fokker, but it has become much harder to afford them. A larger country can hope to turn its national champion into a European champion, like for example Electricite de France or RWE try to do.

I suspect both strategies have their place, for smaller countries agility is important, while the larger countries can benefit from trying to dominate some sector on Europe-wide scale.

Spuddly
Posts: 264
Joined: Sat Mar 01, 2008 7:11 pm UTC

Re: The Economic Results of Socialism

Postby Spuddly » Tue Nov 11, 2008 1:15 am UTC

I know Norway has a lot of oil wealth per capita, and they tax the hell out of it. Part of why Norwegian socialism works is due to Americans paying for it.
Give me your eyes;
I need sunshine.

User avatar
Azrael
CATS. CATS ARE NICE.
Posts: 6491
Joined: Thu Apr 26, 2007 1:16 am UTC
Location: Boston

Re: The Economic Results of Socialism

Postby Azrael » Tue Nov 11, 2008 2:01 am UTC

Norway doesn't break the top 15 of oil-exporting nations supplying the US. And those top 15 make up 84% of the daily imports and #15 accounts for just over 1%. There is no doubt that North Sea oil is a huge economic factor in that region, but apparently, it is sold to another market than the US.

Spuddly
Posts: 264
Joined: Sat Mar 01, 2008 7:11 pm UTC

Re: The Economic Results of Socialism

Postby Spuddly » Tue Nov 11, 2008 4:00 am UTC

This puts "the most important individual markets (first recipient countries) for Norwegian crude oil" as "the UK, the Netherlands, France, Germany, and the US." It goes on to say that it's the third largest exporter of natural gas, second largest exporter to continental Europe.

So it appears that US markets play a relatively small part of that market.

I think my point still stands, though. The burden of Norwegian social programs is largely placed on countries who buy fossil fuels from them, which works great for Norway.
Give me your eyes;
I need sunshine.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7415
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: The Economic Results of Socialism

Postby Zamfir » Tue Nov 11, 2008 11:14 am UTC

I encountered this meme that European social states pay for themselves by oil exports quite a few times here on xkcd, so I decided to take a closer look to the numbers.

Unsurprisingly, Norway has indeed a per capita production of oil and gas comparable to Arabian oil states, hundreds of barrels per person per year. Part of that income is invested abroad, but it is still very reasonable to say that Norway cannot be used in any comparison.

But the other North sea oil states are not that extreme. Denmark and the Netherlands have production of oil and gas of nearly 30 barrels per person per year, while the US gets 20. The UK's per capita production is a bit below the US. If you keep in mind that the US has loads of other mineral resources as well, on the order of several hundreds of dollars per person per year, I would say that the US is comparable to the most resource-rich countries in Europe, with the exception of Norway.

User avatar
Absolute
Posts: 39
Joined: Sat Sep 27, 2008 11:13 pm UTC
Location: Undisclosed

Re: The Economic Results of Socialism

Postby Absolute » Tue Nov 11, 2008 5:24 pm UTC

First off, I'd like to thank you all for taking the time to read and respond to my post, I will do what I can to return the favor.
@Azrael: I only started this thread after confirming there was no existing one at all related to this discussion, this is still the case. If this thread degenerates to the level of those others I'll beg you to destroy it. I will do everything I can to keep that from happening, though.
Bubbles McCoy wrote:Is the American system really any different than the UK?

In terms of government spending/GDP the two are similar. Americans, however, recieve far less social services than Britons, and I'd argue this makes the U.S. a better "small government" example than the U.K. Peter Lindert's "Growing Public", discussed further below, makes an important distinction between gov't spending and social transfers, the latter being more relevant to the current discussion. In this respect, the U.K. is further "Left" than the U.S. but less so than most of Europe, so lumping us together is somewhat justified.
Indon wrote: Certainly if another nation could funnel windfall resource profits into its' government, so could we, considering how much more we have than most.
U.S. natural resource wealth is nowhere near Norway's 25% of GDP from oil alone, and profits from them are already taxed just like any others, for the most part. The point is simply that oil-rich nations get a boost to per-capita GDP which other nations cannot hope to copy, but what they do with that wealth still affects how quickly it grows.
++$_ wrote:No one is saying that "socialistic" (I put that word in quotes because it doesn't mean what you think it does) policies would increase the GDP (or per-capita GDP) of the US. Notice that even the Cato Institute paper only manages to cherrypick one quote that says that. It's a straw man.
I have seen this exact argument in these fora and elsewhere, even in serious economic papers, although it's more common to claim only that socialism has little to no economic impact. Thus, this idea is not a straw man but a real, flesh-and-blood one, albeit a frail one easily beaten up by more virile economic theories, so to speak.
Anyway, the Cato Institute has observed that Nordic countries have lower per-capita GDP than the US does. To me, this seems similar to saying (as many do) that the Bush tax cuts increased government revenue. But then they point out figures that show something different: that revenue increased after the Bush tax cuts were enacted. This is different, because revenue would have increased anyway, due to economic growth. So what's really needed is not a set of "before/after" pictures of the economy, but an analysis of what government revenue WOULD have been, had the tax cuts not been enacted. Such an analysis shows that the tax cuts actually hurt government revenue.
You seem to miss the point of these claims, which is that the tax cuts caused the economic growth, so you could not have had both the growth and higher tax rates. If a doctor were to amputate a gangrenous leg, saving your life, would you scold the doctor for making you a cripple? It would appear you would, since you believe your recovery would have happened anyway and you would still have both legs. You make a similar logical error below.
In the same way, the Cato Institute's paper doesn't tell us what the Nordic countries GDPs would have been if they had US-style governments. It doesn't even attempt to answer that question, which should be an obvious question for any intelligent person to ask. I conclude that the author is talking out of his ass, and that the paper is a waste of pixels.
As Yakk points out, trying to answer such questions is to truly talk out of one's ass.
Yakk wrote:Solving for "what would nation X's revenue be if you changed Y" is ... very difficult.

So people use proxies -- they build models. Sadly, people build crappy models, and do crappy analysis of them
Agreed, I think my rule for climate models is applicable: when you can accurately predict the past, we'll talk about your predictions for the future. To my knowledge, no model meets that criterion for the weather or the economy. This doesn't mean I want economists or climatologists to just give up, just that I prefer to wait for my food to cook before I try to eat it.
Second, is your goal GDP per capita? Or is it, say, log-sum GDP per capita? Log-sum total wealth?
If you have a massive concentration of GDP in one person, in such a way that it doesn't benefit the rest of society, and trying to spread it around would cause massive loss, would that be better than having less GDP and having it spread out?
Unfortunately, GDP per capita is the only reputable, readily-available measure we can use to compare different economies. I'm not aware that anyone publishes log figures(nor am I convinced these would be useful), even median income stats are hard to find, and I have neither the math nor the inclination to work out such figures from raw data. If you have a good source for any other economic stats, I'd appreciate a link. Secondly, I think the notion that one person's wealth does not benefit the rest of society is false, but I'll grant it as a thought experiment. If those are the only possibilities, I'd choose to live in the former because it means that becoming wealthy is possible, and when comparing economies as an outsider it would get the win as well because it's better at creating wealth. Furthermore, I'd prefer to avoid things like Gini coefficients because they only further complicate a complex issue. But, if you'd like to further discuss whether high income equality makes for a healthier economy, this is the thread for it, I guess, and I'll play if you serve.
You can examine narrow, well defined issues, much easier than you can look at broader ones. Making strong statements about broad issues like "which twerk on a given form of government works best" isn't science: it is politics and rhetoric.
I disagree. Macroeconomics is a science, just a young one. All sciences started with attempts to describe and predict phenomena which could not be understood. Chemistry is an apt metaphor here, Mendeleev recognized certain patterns of properties recurring among the elements with only a vague understanding of what an element even was. His work made predictions about chemical reactions which could be tested against reality, and gave a crude but workable explantion for why these things happened. I would say that economics has nearly reached this point, and the work being done with mathematical models is analogous to searching for a unified field theory. It would be absurd to deny the validity of all of chemistry just because string theory is incomplete. It's equally absurd to dismiss the idea of general economic principles because there is no good explanation of why they work.
Iv wrote:Here also, there is a popular meme. We have a regular legal week that is 35 hours of work. It is less than most countries but we are supposed to be more efficient during these hours (I don't know how true this is but I can tell you that I have witnessed Koreans working for 18 hours a day and I do much more work in my 6 hours than they do). If this is true, that means that workers have more time to be consumers.
While I think the Koreans you mention are a poor comparison, I have seen legitimate studies showing greater productivity in countries with shorter working hours. I think this fits neatly with the law of diminishing returns, and if citizens of these countries worked as many hours as Americans, I think this difference would go away. Many American workers and even companies voluntarily have such work weeks, although the concensus seems to be that they get less work done overall. I guess more time in the rain makes you wetter, even if it's not raining as hard.
The more extended the healthcare, the less serious are health problems because they are treated earlier. This could economically be a bad thing as pharmaceutical firms make less profit but this has a positive impact on the efficiency of workers.
The OECD paper to which I just fixed the link finds only a weak correlation between health outcomes and wealth. I don't dispute that health has value as such, this just isn't the place to talk about it.
Cheaper education means higher education level and also means more qualified workers, hence higher wages, therefore richer consumers.
While I agree with that as a general idea, I have some points to make, but this is not the place to make them.
I don't know if this enters in your definition of socialism...
It doesn't. We mostly agree there.
Zamfir wrote:Absolute, I think the argument is more that social-democratic welfare do not damage an economy as much as naive economics might suggest. There is a very large study, "Growing public" by Peter Lindert that looks at public spending over the last two centuries. It's very interesting, not just for the "do welfare states hurt growth" question.
Granted, and thank you for the recommendation, it was quite interesting. I do think he used a fundamentally unsound methodology to arrive at his conclusion, though. He accuses Roger Freeman, et al. of relying too heavily upon models which make unwarranted assumptions, and then proceeds to do the same. His summary dismissal of other studies as "intelligent, well-informed fiction, but fiction nonetheless" thus applies to his work as well. The raw data indicate a significant (but not crippling) economic cost to socialist policies, and to make them appear otherwise one has to cook them just right. I also fully agree with the other points you make, but they do not change the fact that social programs have a cost. Nations can make decisions which reduce it or improve economic performance in other ways, such as lowering trade barriers, but there is still a price to be paid. The "free lunch" problem is all I'm trying to dispute here, aside from that, Mr. Lindert made some very interesting points.
Yakk wrote:Note that you can generate some really crippling welfare policies. Strict means testing, where you claw back benefits at nearly the same rate as someone earns income elsewhere, discourages those people from working -- much like an 80% to 90% marginal tax rate would discourage the top end from working.

In both cases, they end up moving outside of the taxed economy -- the poor enter the black market, earning money under the table. The rich move their income into tax sheltered and non-taxed locations (off shore if they have to!) And in most cases, these choices tend to cause real economic inefficiencies while they produce tax efficiencies.
Valid points, but I'd like to confine this discussion to policies which actually exist or have existed. As far as tax dodging goes, I know many people who have done the former, and if my short-term plans work out I might have to do the latter soon. These things are obviously very hard to quantify, though, so I won't press this line of attack on socialism.
Bubbles McCoy wrote:French unemployment rate was already at 8% when America's was 4% back in 2007, and now Americans are up in arms about it reaching 6%. The strict labour laws in France generally seem to reduce overall employment as employers can't always stomach the risk of having too many employees in down times as it is right now, which in effect leads to permanently heightened unemployment. I suppose this might be a benefit to those so fortunate as to be employed, but this does reduce the speed at which business' can adopt changing times and the overall flexibility afforded them, harming their competitiveness and leaving some without jobs.
Unemployment is a major factor in the lower growth rates of socialist nations on average, but the Scandinavian nations prove that this is not a necessary feature of the welfare state. A related point is that whenever minimum wage rises, some people get raises while others get fired.
Lemminkainen wrote:I noticed that nobody seemed to be commenting on why countries practicing the Nordic style of economic government (that is: Norway, Sweden, Denmark, Finland, and maybe the Netherlands and Ireland) have strongly outperformed the continental European Economies (ie: France, Germany, Italy) (note that a few others, like Britain practice something close to American-style capitalism). I think that this has something to do with the differing role of the government in these different countries.
The only thing I disagree with here is the inclusion of Ireland in the Nordic list. If socialism is something a nation decides it must do, the Nordics definitely have the best way of doing it. Once again, by keeping markets fairly free and taking money from the sources least likely to damage growth a nation can minimize the cost of social programs, they can just never eliminate it.
Zamfir wrote:Unsurprisingly, Norway has indeed a per capita production of oil and gas comparable to Arabian oil states, hundreds of barrels per person per year. Part of that income is invested abroad, but it is still very reasonable to say that Norway cannot be used in any comparison.
I wouldn't write Norway off completely, just keep their oil wealth in mind when comparing them to nations without such resources. I think it's a reasonable assumption that without their oil they would fare about as well as Sweden, which is still very impressive, even by OECD standards.

I'll leave you for now with a bit more reading material, not so light as last time though. A vast wealth a research is summarized here. I know it's not an impartial source, but the sources it cites are. You can even just hit "end" and work up through the footnotes. Lots of footnotes. I think it's rarely unfair to judge an article by it's sources, and this article has some really good ones, and when you finish with those check out the appendix it links.
"To the intransigent mind, to the inviolate truth"

I don't really have "mornings", so much as "times when I switch from booze to coffee"

User avatar
Yakk
Poster with most posts but no title.
Posts: 11077
Joined: Sat Jan 27, 2007 7:27 pm UTC
Location: E pur si muove

Re: The Economic Results of Socialism

Postby Yakk » Tue Nov 11, 2008 5:36 pm UTC

Absolute wrote:
Yakk wrote:Note that you can generate some really crippling welfare policies. Strict means testing, where you claw back benefits at nearly the same rate as someone earns income elsewhere, discourages those people from working -- much like an 80% to 90% marginal tax rate would discourage the top end from working.

In both cases, they end up moving outside of the taxed economy -- the poor enter the black market, earning money under the table. The rich move their income into tax sheltered and non-taxed locations (off shore if they have to!) And in most cases, these choices tend to cause real economic inefficiencies while they produce tax efficiencies.
Valid points, but I'd like to confine this discussion to policies which actually exist or have existed. As far as tax dodging goes, I know many people who have done the former, and if my short-term plans work out I might have to do the latter soon. These things are obviously very hard to quantify, though, so I won't press this line of attack on socialism.

Ah. I think you misunderstand me -- there are a number of situation in the real world, both historical and sometimes present day, where you have marginal rates of taxation and clawback exceeding 90%. In some cases, I've seen descriptions of some US needs-based education subsidies that can break the 100% marginal rate of clawback on saving for education if you have particular income curves. And welfare clawbacks that far exceed top tax rates are not that unusual, especially when you have situations where the welfare recipients are given drug plans, and the working poor lack them.

Hell, many unemployment insurance setups generate huge clawbacks if you get a job that pays sufficiently less than your old job.

And historically, taxation rates exceeding 90% on the highest income levels is not unheard of.
One of the painful things about our time is that those who feel certainty are stupid, and those with any imagination and understanding are filled with doubt and indecision - BR

Last edited by JHVH on Fri Oct 23, 4004 BCE 6:17 pm, edited 6 times in total.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7415
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: The Economic Results of Socialism

Postby Zamfir » Wed Nov 12, 2008 8:25 am UTC

Absolute, I would be very careful with using Heritage as a source for these kind of topics, especially if you yourself are already leaning towards their point of view. Heritage is not an institute with a slight right-wing philosophy, it is an institute with the explicit aim of opposing social democracy. Their people are literally paid to promote the idea that the slightest amount of socialism is harmful. If they then do research supporting their idea, it tells you exactly nothing new.

It's clear that reliable answers to these kind of questions are extremely hard to find, even the same data can be twerked in any direction. It is probably impossible to find truly neutral studies that have no political prejudice at all. But using Heritage as your gateway assures that you will not find even an attempt at neutrality.

User avatar
Ixtellor
There are like 4 posters on XKCD that no more about ...
Posts: 3112
Joined: Sun Jan 13, 2008 3:31 pm UTC

Re: The Economic Results of Socialism

Postby Ixtellor » Wed Nov 12, 2008 2:38 pm UTC

I read the whole thread, and am still confused about the exact stats you are looking for.

I have access to a variety of academic journals dealing with economics, both macro and micro, and if you have a specific question, I will try to find it for you.

I would have been more proactive, but I can't really tell what exact kind of data you are looking for.

Ixtellor
The Revolution will not be Twitterized.

++$_
Mo' Money
Posts: 2370
Joined: Thu Nov 01, 2007 4:06 am UTC

Re: The Economic Results of Socialism

Postby ++$_ » Wed Nov 12, 2008 9:03 pm UTC

Absolute wrote:
++$_ wrote:No one is saying that "socialistic" (I put that word in quotes because it doesn't mean what you think it does) policies would increase the GDP (or per-capita GDP) of the US. Notice that even the Cato Institute paper only manages to cherrypick one quote that says that. It's a straw man.
I have seen this exact argument in these fora and elsewhere, even in serious economic papers, although it's more common to claim only that socialism has little to no economic impact. Thus, this idea is not a straw man but a real, flesh-and-blood one, albeit a frail one easily beaten up by more virile economic theories, so to speak.
I'm not exactly a reader of economics papers, but I'd be interested to see the papers that do claim this.

Anyway, the Cato Institute has observed that Nordic countries have lower per-capita GDP than the US does. To me, this seems similar to saying (as many do) that the Bush tax cuts increased government revenue. But then they point out figures that show something different: that revenue increased after the Bush tax cuts were enacted. This is different, because revenue would have increased anyway, due to economic growth. So what's really needed is not a set of "before/after" pictures of the economy, but an analysis of what government revenue WOULD have been, had the tax cuts not been enacted. Such an analysis shows that the tax cuts actually hurt government revenue.
You seem to miss the point of these claims, which is that the tax cuts caused the economic growth, so you could not have had both the growth and higher tax rates. If a doctor were to amputate a gangrenous leg, saving your life, would you scold the doctor for making you a cripple? It would appear you would, since you believe your recovery would have happened anyway and you would still have both legs. You make a similar logical error below.
I'm not making the logical error. Anyone making the claim you say they are is making a demonstrably false claim. Take a look at http://graphics8.nytimes.com/images/blogs/krugman/posts/16chart2.gif. Also, consider that economic growth during the Bush years was basically the same as it was before. This is not evidence that the tax cuts caused the growth.

The point, anyway, is that it's possible to say something that's true, but yet totally unrelated to the actual question that needs to be asked. That's what straw-manning is, and it's pretty much what Cato is doing.
In the same way, the Cato Institute's paper doesn't tell us what the Nordic countries GDPs would have been if they had US-style governments. It doesn't even attempt to answer that question, which should be an obvious question for any intelligent person to ask. I conclude that the author is talking out of his ass, and that the paper is a waste of pixels.
As Yakk points out, trying to answer such questions is to truly talk out of one's ass.
No, trying to answer such questions is addressing some difficult issues that have to be addressed if we're going to understand economic policy. On the other hand, asserting that you know the answer to the questions, as the Cato Institute does, based on insufficient data, is talking out of one's ass.

User avatar
Bluggo
Posts: 366
Joined: Wed Jul 11, 2007 6:12 pm UTC

Re: The Economic Results of Socialism

Postby Bluggo » Wed Nov 12, 2008 10:06 pm UTC

Also, continental European economies' performances are not as abysmal as you seem to think.

I have never lived in the U.S., but my second-hand impression is that the overall quality of life in the States is approximately equivalent to that in Europe.
And indeed, let's have a look at the Human Development Index Rankings: the U.S. is 12th, while France is 11th, Spain is 13th and even relatively underdeveloped countries such as Italy, Greece and Portugal have the 20th, 24th and 29th positions.

Sure, we are not Canada or Iceland, but we are not faring so bad, all things considered.

EDIT: also, I am intrigued that Germany has a lower ranking than Spain. This was not really my impression when I visited these countries...
Mary Ellen Rudin wrote:Let X be a set. Call it Y.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7415
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: The Economic Results of Socialism

Postby Zamfir » Thu Nov 13, 2008 8:06 am UTC

Bluggo, the HDI is not a good instrument to judge developed countries. It was designed to tell something about developing countries, and its inputs are aimed at those. It measures literacy, life expectancy, school enrollment and log(GDP/capita). Those are very useful characteristics for a developing index, exactly because developed countries have very similar scores.

Especially the first three are close to 'maximized' in the first world, or at least at a level where further progress is hard for relatively little gain. Basically, if your score comes over 0.90 or so, you've 'won the game', and have become a developed country. That's what the index is supposed to measure. It's less clear whether the score has much meaning for comparison between developed countries.

User avatar
Absolute
Posts: 39
Joined: Sat Sep 27, 2008 11:13 pm UTC
Location: Undisclosed

Re: The Economic Results of Socialism

Postby Absolute » Thu Nov 13, 2008 4:25 pm UTC

Yakk wrote:Ah. I think you misunderstand me -- there are a number of situation in the real world, both historical and sometimes present day, where you have marginal rates of taxation and clawback exceeding 90%.
Hell, many unemployment insurance setups generate huge clawbacks if you get a job that pays sufficiently less than your old job.
And historically, taxation rates exceeding 90% on the highest income levels is not unheard of.
Tax rates that high are exceedingly rare, and their impact is obvious. I don't know much about clawback rates in other counties, although I know firsthand how stiff they can be in the U.S., but I think their effect on the economy is negligible because those at the bottom contribute so little in the first place. High clawback rates discourage people from taking low-paying jobs, but high tax rates discourage people from investing in, starting and expanding businesses (I'm presently learning firsthand about these). These disincentives are present in varying degrees in nearly every nation, and are one of the main factors in the stronger economies of less socialistic countries.
Zamfir wrote:Absolute, I would be very careful with using Heritage as a source for these kind of topics, especially if you yourself are already leaning towards their point of view. Heritage is not an institute with a slight right-wing philosophy, it is an institute with the explicit aim of opposing social democracy. Their people are literally paid to promote the idea that the slightest amount of socialism is harmful. If they then do research supporting their idea, it tells you exactly nothing new.

It's clear that reliable answers to these kind of questions are extremely hard to find, even the same data can be twerked in any direction. It is probably impossible to find truly neutral studies that have no political prejudice at all. But using Heritage as your gateway assures that you will not find even an attempt at neutrality.
I had pointed out that the Heritage Foundation was not politically neutral in the vain hope of avoiding this line of attack, clearly I failed and must now defend myself.
First, you so grossly misrepresent the Heritage Foundation and their position on this issue that I cannot but think you are entirely unfamiliar with them and their work, save for the caricature presented in other media. Perhaps if I had linked the supplement, rather than the body of that particular article it would have made it harder to paint them as rabid zealots, rather than the nuanced, erudite intellectuals they happen to be. This would still require one to read further down than the URL bar without fear of catching conservatism. For both foundations and people, biased is not equal to wrong, although the two very frequently coincide. I do not know or care about Peter Lindert's political beliefs, they are incapable of changing what he has written or my opinion thereof.
Secondly, I used the Foundation article as a gateway out of pure laziness. I wanted to avoid both excerpting and linking their sources and trying to say what they had said more simply and eloquently than I could. I know better than to start looking for serious research work on a policy analysis website, although again I'll note that valid arguments are valid regardless of who presents them. The cited papers from the U.S. Congress, OECD and IMF are not stained by those who have read and referenced them, and like the original article should be judged on their own merits.
Ixtellor wrote:I have access to a variety of academic journals dealing with economics, both macro and micro, and if you have a specific question, I will try to find it for you.
I would have been more proactive, but I can't really tell what exact kind of data you are looking for.
I think you can help this conversation greatly, I've had a hard time finding complete academic papers online(for free anyway), and my local library is pitiful. My basic premise is that citizens of nations with large welfare states are materially less prosperous than those of (developed) nations with smaller ones. The issue of whether certain social benefits are worth the trade-off is not to be discussed here (although I'm sure you all could guess my answer), I'm simply challenging the notion that no such trade-off is needed. To this end, any data you find indicative of material wealth in these nations is helpful, and if you're uncertain about the implications or reliability of some data you find, post them anyway. We're grown-ups here, we can interpret information for ourselves.
Also, if possible, I'd prefer raw data to conclusions based on mathematical models, since with the latter subtle modifications to the model can have a greater effect than large changes to the dataset. I've caught alot of sleight-of-mind at work in such models, and I know my math skills are so poor that I've caught only the crudest examples, god knows what I've missed.
"To the intransigent mind, to the inviolate truth"

I don't really have "mornings", so much as "times when I switch from booze to coffee"

User avatar
Yakk
Poster with most posts but no title.
Posts: 11077
Joined: Sat Jan 27, 2007 7:27 pm UTC
Location: E pur si muove

Re: The Economic Results of Socialism

Postby Yakk » Thu Nov 13, 2008 5:10 pm UTC

Absolute wrote:Tax rates that high are exceedingly rare, and their impact is obvious. I don't know much about clawback rates in other counties, although I know firsthand how stiff they can be in the U.S., but I think their effect on the economy is negligible because those at the bottom contribute so little in the first place. High clawback rates discourage people from taking low-paying jobs, but high tax rates discourage people from investing in, starting and expanding businesses (I'm presently learning firsthand about these). These disincentives are present in varying degrees in nearly every nation, and are one of the main factors in the stronger economies of less socialistic countries.
I'm talking about the disincentive to crawl out of the hole of state dependency.

It is hard to get a 20$ an hour job if you lack experience and education, and it is hard to get a 10$ an hour job if your take-home from it is 1$/hour. And it is hard to justify going to school when if you do so, your benefits get cut.

Remember that the economic impact of someone working is greater than their salary in most cases. But if you remove or starve the salary incentive, it massively discourages the activity.

It isn't as if the poor are destined to be poor and have low productivity -- things like massive marginal taxation help cause it. Every parent who works for a living wage, and teaches their kid to work hard by example and get a good job (possibly one that is priced far higher than their parent's job), can have huge economic impact, far beyond the size of their salary.
One of the painful things about our time is that those who feel certainty are stupid, and those with any imagination and understanding are filled with doubt and indecision - BR

Last edited by JHVH on Fri Oct 23, 4004 BCE 6:17 pm, edited 6 times in total.

Calorus
Posts: 144
Joined: Wed Jun 25, 2008 6:54 pm UTC

Re: The Economic Results of Socialism

Postby Calorus » Fri Nov 14, 2008 4:32 pm UTC

Bubbles McCoy wrote:Is the American system really any different than the UK? People tend to cite how taxes are lower in the US, but I think this may be obscured by the fact that a significant amount of taxation in America occurs on the state and local level (I beleive the composite of all taxes in America suggest a net tax of around 36% on the GDP; the UK is 35% if I recall correctly). The UK might also have significant local taxes, but they might already be included in the 35% number as it's not a federal system. Any locals around to shed more light on the subject?


Yeah, we're at ~35% all-in. Our Council tax is variable and is the only un-included factur, but on average this would account for probably 1.5 per cent on average. (Average family income being £60,000, average council tax £1,000.) However that should be offset against family tax credits where applicable, and should not count people who are exempt.

dabigkid
Posts: 56
Joined: Wed May 09, 2007 3:09 am UTC
Location: NJ
Contact:

Re: The Economic Results of Socialism

Postby dabigkid » Sat Nov 15, 2008 4:47 am UTC

Kachi wrote:As an end itself, it really says little about the average quality of life.

Quite the opposite! While there are some obvious immeasurable qualities to life, economists note that higher GDP per capita correlates with higher standards of living.
wut

User avatar
Charlie!
Posts: 2035
Joined: Sat Jan 12, 2008 8:20 pm UTC

Re: The Economic Results of Socialism

Postby Charlie! » Sun Nov 16, 2008 8:47 pm UTC

dabigkid wrote:
Kachi wrote:As an end itself, it really says little about the average quality of life.

Quite the opposite! While there are some obvious immeasurable qualities to life, economists note that higher GDP per capita correlates with higher standards of living.

Actually, beyond a certain point, it seems to flatten, especially when you think about correcting for civil liberties. It's really quite an interesting discussion, because I think the data show that at some point, more GDP doesn't make us happier, other things being equal. But it's very hard to untie collective prosperity and individual prosperity when looking at happiness.
Some people tell me I laugh too much. To them I say, "ha ha ha!"

dabigkid
Posts: 56
Joined: Wed May 09, 2007 3:09 am UTC
Location: NJ
Contact:

Re: The Economic Results of Socialism

Postby dabigkid » Mon Nov 17, 2008 5:03 am UTC

Charlie! wrote:Actually, beyond a certain point, it seems to flatten,

If what you're trying to say is that GDP growth is met with diminishing returns on utility (i.e. the second derivative of a person's utility function as a function of GDP is negative), then yes you're right. Still, the very things that make our lives so great, such as literacy and Internet access and life expectancy... they all correlate with GDP per capita, which is my point.

Charlie! wrote:I think the data show that at some point, more GDP doesn't make us happier, other things being equal.

Some work has been done on what's called the Easterlin Paradox, which is basically an extension of what economists, especially liberal economists, think about how people rank their lives (relative to their peers', that is). In contradiction to the paradox, it seems that GDP correlates with how highly people rank their lives, albeit weakly (the income scale on the graph is logarithmic).
wut

User avatar
VannA
White
Posts: 1446
Joined: Thu Sep 21, 2006 1:57 am UTC
Location: Sydney, Australia
Contact:

Re: The Economic Results of Socialism

Postby VannA » Mon Nov 17, 2008 6:47 am UTC

Absolute wrote:High clawback rates discourage people from taking low-paying jobs, but high tax rates discourage people from investing in, starting and expanding businesses (I'm presently learning firsthand about these).


Excessively high company tax rates will, high personal tax rates usually start to do the opposite, especially if the company tax rate is lower.
Jealousy is a disease, love is a healthy condition. The immature mind often mistakes one for the other, or assumes that the greater the love, the greater the jealousy.

User avatar
Absolute
Posts: 39
Joined: Sat Sep 27, 2008 11:13 pm UTC
Location: Undisclosed

Re: The Economic Results of Socialism

Postby Absolute » Tue Nov 18, 2008 7:06 pm UTC

++$_ wrote:I'm not exactly a reader of economics papers, but I'd be interested to see the papers that do claim this.
Are you interested enough to do serious searching for them? I'm not. If anyone wishes to seriously champion the claim that socialist nations outperform less socialist ones they can find their own studies to cite. I can provide some leads though. Get hold of Growing Public and wade through his sources, some of them are peer-reviewed papers making this claim, but he does a poor job with his endnotes, making it difficult to figure out which ones (this might just be a problem with the edition I found). Judging by most of the posts, the better question seems to be how much do social policies harm the economy? Unfornately, "how much" is the hardest question in economics.

I'm not making the logical error. Anyone making the claim you say they are is making a demonstrably false claim. Take a look at http://graphics8.nytimes.com/images/blogs/krugman/posts/16chart2.gif. Also, consider that economic growth during the Bush years was basically the same as it was before. This is not evidence that the tax cuts caused the growth.
First off, what is this a graph of? I'll grant that it shows what you claim it shows anyway, but only for the sake of argument. To recycle my metaphor, you've proven that the patient is just as alive now as he was before amputation, thus the amputation had no effect. This is conflating correlation with causality, and before you say "NO U" keep in mind that there were valid, widespread theoretical reasons for the tax cuts to circumvent a recession. The Bush claim before passing the tax cuts can be reduced to "If we do not do x, y will happen. If we do x, z will happen.", along with a summary of the theoretical case for such a claim. Thus, neither is it a post hoc fallacy to conclude that z was caused by x, especially as y was generally assumed to be inevitable. This is the last I will say on this tangent, if you would like to debate this further, please respond only with directions to an appropriate forum.

No, trying to answer such questions is addressing some difficult issues that have to be addressed if we're going to understand economic policy. On the other hand, asserting that you know the answer to the questions, as the Cato Institute does, based on insufficient data, is talking out of one's ass.
Which answers they have is more important. The Cato paper answers the "who, what, when, where, why" questions relevant to this subject and provides a rough idea of how much economic growth is lost due to welfare policies. The answer you demand is the hardest to put forth without looking like an idiot, so Cato, like many others, wisely avoids even attempting. The fact that one does not know everything does not mean one knows nothing. If every economist took on such questions, the field would look like string theory.

Bluggo wrote:Also, continental European economies' performances are not as abysmal as you seem to think.

I can see how my remarks could be misinterpreted this way, I apologize for not clarifying. What I meant was only that continental European economies have grown slowly when compared to the Nordic- and Anglo-style nations. I did not mean to imply that they are poor nations, they are not by any reasonable definition of the term.

Yakk wrote:It isn't as if the poor are destined to be poor and have low productivity -- things like massive marginal taxation help cause it. Every parent who works for a living wage, and teaches their kid to work hard by example and get a good job (possibly one that is priced far higher than their parent's job), can have huge economic impact, far beyond the size of their salary.
Well said, but I still think "the poor" have less economic impact than "the rich", no matter how you define those terms, because rich folks' decisions have tangible effects on so many more people.

VannA wrote:Excessively high company tax rates will, high personal tax rates usually start to do the opposite, especially if the company tax rate is lower.
A citation would be nice, or at least some elaborabation. It makes sense that when reduce the rewards an individual will get from an action without reducing the effort or risk involved, the individual will be less likely to do it. Arguing about how significant this effect is makes sense, but I do not see how claiming the opposite does.
"To the intransigent mind, to the inviolate truth"

I don't really have "mornings", so much as "times when I switch from booze to coffee"

++$_
Mo' Money
Posts: 2370
Joined: Thu Nov 01, 2007 4:06 am UTC

Re: The Economic Results of Socialism

Postby ++$_ » Tue Nov 18, 2008 7:48 pm UTC

The Cato Institute's paper is basically one giant mound of circular logic, with a few pieces of data thrown in.

When you look at the data alone (without reading their interpretation of it), what you have is "Nordic countries have lower per-capita GDPs than the US." This is what all the graphs, data points, and so on, show. There is also another set of data, which shows that "Nordic countries have larger welfare systems than the US." This is the data, and I'm sure were both on the same page with respect to correlation/causation issues. (Note: If we had a whole galaxy of planets, and nations on each planet, and you plotted Per-Capita GDP versus Size of Welfare System, and you got a moderate negative correlation, then there would be an argument that we should at least investigate causation very carefully. However, we don't; the paper really only gives one example of a country with a medium-size welfare system, so there isn't really even a basis to determine correlation. But that's not the issue.)

When you look at their interpretation alone, without looking at the data, you see that their arguments are basically "Welfare systems shrink the economy; therefore, if Nordic countries didn't have welfare systems, they would have larger economies." I'll present some quotes from the paper to elaborate on this point; there are a lot of them, so they're inside this spoiler tag.
Spoiler:
All of the following are quotes from the Cato institute paper.
The main difference between the American
system and the Nordic Model is that America
has a medium-size welfare state and the Nordic
nations have large welfare states. That explains,
at least in part, why the U.S. economy generally
outperforms the Nordic Model.

High levels of government spending in Nordic
nations have hindered economic performance.
Excessive spending invariably creates a culture
of dependency and misallocates a nation’s economic
resources. A heavy burden of government
also requires an onerous tax burden, even
if a government seeks to raise revenue in a relatively
nondestructive manner.

“Our analysis using the [New Area-
Wide Model] confirms the widely-held view
that reductions in tax distortions have beneficial
effects on labour-market outcomes and
general economic performance. In fact, lowering
euro area tax wedges to levels prevailing
in the United States is found to result in a rise
in hours worked and output by more than 10
percent in the long run.

Indeed, they are
among the world’s wealthiest economies, but
high taxes and excessive government spending
mean that they are not as wealthy as they could
be. It also means they trail the United States in
almost all measures of economic success.

This may be more a reflection of positive reforms
in nations such as Ireland rather than an
indicator of problems in countries like
Sweden, but it does suggest that strong economic
growth is better than income redistribution
if the goal is to help the least fortunate
in society.

The larger burden of government
presumably does not bode well for
Nordic competitiveness since this means
politicians and bureaucrats have more power
over how resources are allocated.

...whereas tax
revenue is an important measure since it is a
rough approximation of the extent to which
the fiscal system discourages work, saving,
investment, and entrepreneurship.

But just as all types of spending are not
equal, neither are all forms of taxation.
Revenues raised by a low-rate consumption
tax impose only a modest burden on economic
performance. Revenues collected as
the result of high tax rates on productive
behavior, by contrast, are likely to be associated
with lower levels of work, saving, investment,
and entrepreneurship.

Key factors to examine include the top tax
rates on individual income and corporate
income, but double taxation of dividends
and capital gains is also an important gauge
of the tax code’s bias against saving and
investment, as are direct taxes on capital,
such as death taxes and wealth taxes. The
existence of such taxes, particularly if tax
rates are non-trivial, reduces incentives to
engage in wealth-creating activities.

Payroll taxes reduce incentives to work

Value-added
taxes (VATs) tend to be less destructive than
income taxes, but they still undermine growth
by driving a wedge between earnings and consumption.
Simply stated, people sacrifice
leisure and earn income because of the things
money can buy. But if taxes reduce the
amount of possible consumption—either
because the money is taxed when earned or
spent, then there is less incentive to be productive.

there is ample evidence that excessive
government spending34 and high tax
rates35 hinder economic growth.

A poor nation that
adopts the welfare state, however, is unlikely to
ever become rich.

Before the 1960s, Nordic nations had modest
levels of taxation and spending. They also
enjoyed—and still enjoy—laissez-faire policies
and open markets in other areas. These are the
policies that enabled Nordic nations to prosper
for much of the 20th century.

if residents of
Nordic nations want faster growth, more prosperity,
and improved competitiveness, they
need to reduce the size of the public sector.
Excessive government diminishes growth.
I have attempted to quote every time the Cato paper asserts that some policy causes increased or reduced economic growth. Now, some of these assertions are backed up with references and some aren't. However, it's fair to say that every one of these assertions is in dispute. In other words, they are not arguments for economic conservativism, but rather things that only an economic conservative believes. Also, their citations are to academic papers whose results conflict with those from other academic papers. This situation would hardly be acceptable in science, where if two experiments give different results, more experimentation is done, and if differing results continue to be produced, the conclusion drawn is that nothing is known. But for some reason, the Cato institute declines to use the scientific method and instead chooses to look at the papers that confirm their points, while ignoring those that refute them.

So basically, the Cato paper in a nutshell is the following: "Under the assumptions of conservative economists, we would expect Nordic nations to perform worse than the US because of their welfare systems. Therefore, if Nordic nations perform worse than the US, it is at least in part because of their welfare systems. Oh, by the way, Nordic nations perform worse than the US. Therefore, it is because of their welfare systems."

Naturally, the most important part of the nutshell is the part that says "Under the assumptions of conservative economists."

This is why I was somewhat irked to see that you didn't think the discussion of the merits of conservative economic principles was appropriate for this thread, and requested a link to a more appropriate forum for the discussion of those principles. As I have just shown, the Cato Institute's argument is entirely based on conservative economic principles, so these are eminently relevant. However, I do agree that a discussion of those wouldn't be appropriate in this particular Serious Business thread, so I'll content myself with saying:

The Cato Institute's paper proves nothing, because it assumes that conservative economics is correct. We don't know (and won't be discussing) whether that is the case. Therefore, the Cato Institute's paper doesn't prove anything. I stand firmly by my assertion, therefore, that they are talking out of their asses.

User avatar
Absolute
Posts: 39
Joined: Sat Sep 27, 2008 11:13 pm UTC
Location: Undisclosed

Re: The Economic Results of Socialism

Postby Absolute » Tue Nov 18, 2008 8:10 pm UTC

@ ++$_: I was talking about the Bush tax cut tangent, economic theories are certainly well within the scope of this post.
"To the intransigent mind, to the inviolate truth"

I don't really have "mornings", so much as "times when I switch from booze to coffee"

User avatar
Ixtellor
There are like 4 posters on XKCD that no more about ...
Posts: 3112
Joined: Sun Jan 13, 2008 3:31 pm UTC

Re: The Economic Results of Socialism

Postby Ixtellor » Tue Nov 18, 2008 8:16 pm UTC

Having read all of ++$_ quotes from the paper. There seemed to be two problems which may ,or may not, be indicitive of the entire paper.

1) The quotes contained massive generalities, which perfectly proves your point about needed to see data.

2) They didn't bother to define some of their asserations:

"High taxes"
"low taxes"

If one is going to take the time to make a big argument like this, they should probably go ahead and define what they mean by high and low. Is a 28% top income tax bracket considered high? 35%? 50%?

Its very subjective and the quotes were full of those terms.


Ixtellor
The Revolution will not be Twitterized.

User avatar
Indon
Posts: 4433
Joined: Thu Oct 18, 2007 5:21 pm UTC
Location: Alabama :(
Contact:

Re: The Economic Results of Socialism

Postby Indon » Tue Nov 18, 2008 10:52 pm UTC

Absolute wrote:U.S. natural resource wealth is nowhere near Norway's 25% of GDP from oil alone, and profits from them are already taxed just like any others, for the most part. The point is simply that oil-rich nations get a boost to per-capita GDP which other nations cannot hope to copy, but what they do with that wealth still affects how quickly it grows.

I think you understate America's natural resources. Aside from that, Zamfir wrote an excellent preemptive response, part of which I'll quote:

Zamfir wrote:But the other North sea oil states are not that extreme. Denmark and the Netherlands have production of oil and gas of nearly 30 barrels per person per year, while the US gets 20. The UK's per capita production is a bit below the US. If you keep in mind that the US has loads of other mineral resources as well, on the order of several hundreds of dollars per person per year, I would say that the US is comparable to the most resource-rich countries in Europe, with the exception of Norway.


No, we couldn't pull a Norway - not barring some sort of superflu that wipes out 99% of the US population. But with our natural wealth, we should be better off than pretty much any other country in Europe, assuming that we magically had the same cultures and economies/governments.

I think that's the part we're neglecting in this calculation here: the impact of culture on productivity and happiness, and the interplay between culture and government. Does a welfare state have 30-hour work weeks because it is a welfare state, or is a state likely to become a welfare state when it has a culture that ends up with 30-hour work weeks? What would happen if we had a welfare state with 40-hour work weeks? Would it even be socially sustainable?

And in regards to GDP, what about production not captured by a government's tax system? Is there anything to indicate that this is consistent from nation to nation?

Also, Absolute, WTF's up with your sources, seriously? Do you think any of those 'studies' are listed in, say, Google Scholar? Google Scholar ain't exactly the model of scientific rigor, here, either.

Here, I found some real science supporting your claims. It wasn't hard. Still clearly biased and not the most professionally-written publication, if you read it you could well still pick it apart, but at least it doesn't obviously come from someone who got paid to produce propaganda.
So, I like talking. So if you want to talk about something with me, feel free to send me a PM.

My blog, now rarely updated.

Image

SpiderMonkey
Posts: 170
Joined: Mon Jul 07, 2008 6:30 am UTC

Re: The Economic Results of Socialism

Postby SpiderMonkey » Mon Dec 08, 2008 2:08 pm UTC

GDP/Capita is basically mean income, and taking a mean of something distributed like income isn't exactly informative. The US might have a higher GDP/Capita than most European nations, but European nations don't tend to have this shit:

http://news.bbc.co.uk/1/hi/world/americas/7106726.stm

You can raise the mean income by adding a couple of multi-billionaires, but it won't mean the poor are suffering any less. Trickle down is, and always has been, utter bullshit.

Also, given the current relative status of the US economy and the French economy, its hardly appropriate to discount continental economies. At least French banks seem to have a rough grasp of the concept that you should only lend money to people who can pay it back.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7415
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: The Economic Results of Socialism

Postby Zamfir » Tue Dec 09, 2008 9:17 am UTC

SpiderMonkey, French banks are also in trouble. Banks everywhere are in trouble, because they lend money to people who could no pay it back (i.e. Americans). America at least got a lot of houses out of the crisis, the rest of the world just lend money to the US and will not see it back.

SpiderMonkey
Posts: 170
Joined: Mon Jul 07, 2008 6:30 am UTC

Re: The Economic Results of Socialism

Postby SpiderMonkey » Tue Dec 09, 2008 3:46 pm UTC

Zamfir wrote:SpiderMonkey, French banks are also in trouble. Banks everywhere are in trouble, because they lend money to people who could no pay it back (i.e. Americans). America at least got a lot of houses out of the crisis, the rest of the world just lend money to the US and will not see it back.


Not all trouble is equal. French banks have been far less willing in the past to through money at people with dodgy credit records. Most French people, as I understand it, do not have credit cards (they use debit cards instead).

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7415
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: The Economic Results of Socialism

Postby Zamfir » Tue Dec 09, 2008 3:57 pm UTC

Yes, french banks are not in trouble because of their lending to French customers. But they, and almost every serious bank in the world, have also invested in subprime and other complex financial stuff from the US. Remeber, Lehman and the other investment banks went down because they still had part of their products on their own balance sheet. But most of their products were sold, and quite a bit of it to European banks and pension funds.

You'll find that a number of European banks have already gone under, not because of local trouble, but because they had too must exposure to American mortgages. Almost every financial in the world has send some money to the US, and everyone suffers.


Return to “Serious Business”

Who is online

Users browsing this forum: No registered users and 10 guests