socialism Archives - the patient investor

November 2, 2014

The western model is broken | Pankaj Mishra | The Guardian

Pankaj Mishra opines:

….economic power had begun to shift from the west. The Chinese, who had “got capitalism”, were, after all, now “downloading western apps”, according to Niall Ferguson. As late as 2008, Fareed Zakaria declared in his much-cited book, The Post-American World, that “the rise of the rest is a consequence of American ideas and actions” and that “the world is going America’s way”, with countries “becoming more open, market-friendly and democratic”.

One event after another in recent months has cruelly exposed such facile narratives. China, though market-friendly, looks further from democracy than before. The experiment with free-market capitalism in Russia has entrenched a kleptocratic regime with a messianic belief in Russian supremacism. Authoritarian leaders, anti-democratic backlashes and rightwing extremism define the politics of even such ostensibly democratic countries as India, Israel, Sri Lanka, Thailand and Turkey….

I don’t agree. This is not a conflict between East and West or between capitalism and communism/socialism, but between totalitarianism and liberal democracy — a people’s right to govern themselves. Western forms of liberal democracy are mostly flawed, with many governments effectively hijacked by special interest groups whose needs determine government priorities. Russia is just a more extreme example of the situation in Washington DC.

Only by evolving new forms of liberal democracy, with more direct representation, are we likely to ensure its survival. We presently see many attempts at establishing new democracies fail because too much power is concentrated in the hands of a single individual or group. Only when power is shared between all major parties/interest groups, as in the Swiss system, are we likely to improve the success rate. It will take time to learn these lessons, but history is patient. The timescale is measured not in years but in decades, if not centuries.

March 9, 2014

Income inequality: Ask the wrong question, get the wrong answer

John Mauldin writes

That income inequality stifles growth is not simply the idea of two economists in St. Louis. It is a widely held view that pervades almost the entire academic economics establishment. Nobel prize-winning economist Joseph Stiglitz has been pushing such an idea for some time (along with Paul Krugman, et al.); and a recent IMF paper suggests that slow growth is a direct result of income inequality, simply dismissing any so-called “right-wing” ideas that call into question the authors’ logic or methodology.

The suggestion that income inequality stifles growth is a fraud, designed to promote a socialist agenda of redistributing wealth to the poor. We are currently experiencing slow growth because of the GFC, not because of rising income inequality.

The real question that needs to be answered is: which system best promotes growth and improves the living standards of the broad population? Evidence of the last 100 years is difficult to dispute. Socialism has an abysmal track record in uplifting the poor, while capitalism has fueled a massive upliftment in living standards over more than a century. High rates of tax on top income earners kills growth and redistribution to the impoverished does little to improve their living standards, whereas low tax rates encourage growth and raise living standards.

To recover from the GFC we need to allow capitalism to flourish instead of impeding it at every turn.

July 9, 2013

Margaret Thatcher (1975)

Some Socialists seem to believe that people should be numbers in a State computer. We believe they should be individuals. We are all unequal. No one, thank heavens, is like anyone else, however much the Socialists may pretend otherwise. We believe that everyone has the right to be unequal but to us every human being is equally important.

March 2, 2013

Nations Must Prepare For Robots Destroying The Low-Skill Job Market | Business Insider

This opinion piece from the Economist proposes redistribution on a grand scale to remedy massive unemployment from mechanization of assembly lines.

If society wishes to avoid such an outcome, the only real option is redistribution and a lot of it. That, in turn, could be managed in a few ways. Society could make a go at raising the earnings potential of less skilled workers by investing heavily in education. That will strike many as the most attractive solution, but it is also one that will face limits. Not everyone can be educated to Google-engineer level.

More skilled or richer elements of society could effectively tax themselves by protecting certain job categories in order to maintain employment opportunities for the less skilled. So, driverless cars may soon be an operating reality. But society could pass laws banning or limiting AVs in order to protect certain jobs: taxi driver, for instance, or trucker. Depending on the size and organisation of less-skilled groups, that’s conceivably a benefit they could vote themselves.

This is why socialism does not work. The typical reaction of a central planned economy would be to increase taxes or outlaw technological advances in order to protect jobs. Capitalism coped comfortably with the mechanization of agriculture, introduction of the automobile and the computer. Should we have banned the use of tractors, automobiles and automatic teller machines to protect the jobs of farm laborers, ostlers and bank tellers? The first instinct of central planning is to protect the status quo — which is why socialist countries fail to grow. Visitors to communist bloc countries during the Cold War felt they were going through a time warp: the contrast with Western advancement was striking. A more recent example is the economic stagnation in Southern Europe. Without the creative destructive process that allows capitalist economies to adapt to changing needs, progress grinds to a halt and economic gridlock develops.

Adaptation to new technologies will not come from government think-tanks, ivory tower academics or even big business. It will come from thousands of start-ups, all trying to take advantage of the changes. And the millions of lost jobs will be absorbed into other sectors of the economy as new needs arise.

Larger profit margins from mechanization will be eroded by increased competition. Prices of manufactured goods will fall, leaving consumers with more money to spend. Man has unlimited wants and only finite resources. As Abraham Maslow described: when one need is satisfied, new needs surface to take their place. Increased consumption in other sectors — whether bigger houses, more flat screen TVs, or longer holidays — will generate employment opportunities.

Like evolution, the beauty of the capitalist system is its simplicity. Recent failures like the global financial crisis are not the fault of capitalism but the result of central planners — at the Fed and in government — attempting to meddle with the system. The road to hell is paved with good intentions.

via Nations Must Prepare For Robots Destroying The Low-Skill Job Market – Business Insider.

December 9, 2012

Insight: Making France work again | Reuters

Marc John identifies the challenges facing France and how it can recover its lost vigor.

In just over 30 years after World War Two, France lifted itself from the ignominy of Nazi occupation into a sleek and modern Group of Seven economy with world-beating industrial champions in sectors such as energy and aerospace.

Its welfare system is among the most generous in the world. A road and rail transport network means its companies are within hours of tens of millions of potential customers. It is a leader in luxury goods and is the world’s top tourist destination.

But somehow that Gallic vigour is being lost.

Unemployment is at 14-year highs as plant closures mount, France’s share of export markets is declining, and the fact that no government in three decades has managed a budget surplus has created a public debt pile almost as big as national output.

After three decades of uninterrupted post-WWII boom — often described as the “Glorious 30” — the French government lost its way.

By 1980, French economic growth had shrunk to two percent compared to its pre-oil crisis rate of above six percent – a rate which France and most rich states have not seen since.

In the years that followed, governments around the world reacted in their fashion: Britain’s Margaret Thatcher faced down Britain’s unions in a drive to free up labor markets, while Scandinavian leaders sought to free their economies of debt.

In France, governments of left and right chose entrenchment: strong rises in public spending which helped ease the social and employment shocks but which sent national debt soaring from 20 percent of output in 1980 to its current record of 91 percent.

The next three decades are sometimes called the “Pitiful 30”.

Influence exerted by interest groups — or “insiders” — prevented government reform of the labor market, making France increasingly uncompetitive in the face of global competition. This is the same problem that Mancur Olson identified in Great Britain after WWII — when Britain floundered while Germany and Japan flourished. Narrow interest groups maximize their own welfare at the expense of the broader economy.

France faces massive challenges in overhauling — possibly “dismantling” — its welfare state and restoring international competitiveness. Responsibility has fallen to the unlikely figure of socialist President Francois Hollande.

Read the entire article at Insight: Making France work again | Reuters.

November 16, 2012

How Mitt Romney lost the unlosable election

William Bennett writes that President Obama won the 2012 election by winning 93% of the African-American vote and 71% of Latino votes, while Mitt Romney won white voters 59% to 39%, according to exit polls. If the GOP believe they lost the election because of race, they are destined to repeat the same mistakes over and over again. The key to their loss is that Obama won 60% to 38% among those who make less than $50,000 a year and among 18- to 29-year-olds he won 60% to 37%.

Capitalism is failing these two sectors of the population: low income earners and the youth. Poverty rates are highest among Black and Hispanic voters but young voters are also becoming disaffected, with almost half recent college graduates unemployed or under-employed. The seriousness of the situation is illustrated by the following statistic:

According to a Pew Research poll taken last year, 49% of Americans age 18-29 have a positive view of socialism while just 46% have a positive view of capitalism.

Mitt Romney might have sold his message to the middle-class and small business owners but he alienated the very people who suffered most from the economic downturn. He failed to define his campaign as a war against poverty and unemployment. Instead of looking the disaffected in the eye and telling them what he could do to get them a job, he spent his time preaching to the choir.

via Republicans lost the culture war – CNN.com.