WASHINGTON: As the presidential campaign proceeds, there has been much discussion of the government’s role in the economy. Bernie Sanders proclaims himself a “democratic socialist.” Donald Trump has spent his time in office challenging free trade and arbitrarily imposing tariffs. Advocates of genuine free enterprise seem to be fewer and fewer.
This, of course, has been true for some time.
We have been subsidizing farmers for many years. Taxpayers bailed out failing banks and auto companies. What many have called “crony capitalism” and socialism seem very similar.
Bernie Sanders points to the economies of Scandinavian countries as his ideal form of “democratic socialism.”
In Sanders’s view, billionaires should not exist.
In reality, Sweden and Norway have more billionaires per capita than the United States. Sweden almost twice as many. These billionaires can pass on their wealth to their children tax-free.
In Sweden, government spending as a percentage of gross national product doubled from 1960 to 1980. The tax going from about 30 percent to 60 percent. Swedish commentator Johan Norbert points out that these policies nearly destroyed the Swedish economy.
Between 1970 and 1995, Norbert points out, Sweden did not create a single new net job in the private economy.
In 1991, a prime minister who believed in the free market, Carl Bildt initiated a series of reforms, cutting government spending by a third Slowly, the Swedish economy began to improve.
Commentator Fareed Zaharia notes that in the Scandinavian countries, there is
“…a generous safety net and, in order to fund it, high taxes. What is not often pointed out, however, is that in order to raise enough revenue, these taxes fall disproportionately on the poor, middle and upper-middle class. Denmark has one of the highest top income tax rates in the Organization for Economic Cooperation and Development, 55.9 percent, but that rate is applied to anyone making 13 times the average national income, in the United States that would mean that any income above $65,000 would be taxed at the rate of 55.9 percent. In fact, the highest tax rate in the U.S., 43 percent, applies to income that is 93 times the national average. Only those with incomes over approximately $500,000: pay this rate.”
Beyond this, poor and middle-class citizens of Norway, Sweden and Denmark must pay a national sales tax (value-added tax) of about 25 percent. These countries raise more than 20 percent of their taxes this way. In the U.S., the average sales tax rate is 6.6 percent and accounts for only 8 percent of tax revenues.
Economist Robert Samuelson writes that,
“…if you ever wondered how much Sen. Sanders’s vast array of policy proposals would cost, we now have a reasonably good estimate from his own staff. The answer is about $50 trillion over the next decade.”
When it comes to President Trump, we also see a form of socialism, although it is called something else.
The president, for example, is using the government to prop up favored industries, such as coal. He has imposed tariffs upon almost every major trading partner around the world, to protect favored industries, such as steel.
This leading to retaliatory tariffs against American agricultural products.
The president then unilaterally decided to use taxpayer funds to bail out farmers hurt by his trade wars. When that failed, he did it again. The Trump bail-out of farmers is already the size of the 2009 auto bailout. Of the auto bailout, Republicans said it was “the leading edge of the Obama administration’s war on capitalism.” That it would “set us on the road to socialism.”
Republicans have also now embraced huge budget deficits.
The increasing deficit
The deficit in fiscal 2019 was 48 percent higher than it was in fiscal 2017. The latest Trump budget proposes to add another $3.4 trillion by 2024 to the debt. This on top of the $3 trillion he has already added, all by piling on $1 trillion a year in budget deficits.
By the administration’s own estimates, the debt would keep increasing until at least 2035.
Republicans, who once promoted balanced budgets, free trade, and genuine free enterprise now seem comfortable with the opposite.
A few Republicans have noticed. Former South Carolina governor and ambassador to the U.N. Nikki Haley, in a talk to the Hudson Institute, declared that,
“Some conservatives have turned against the market system. They tell us America needs…a different kind of capitalism. A hyphenated capitalism. Yet while these critics keep the word capitalism, they lose its meaning. They want to give government more power to make more decisions for businesses and workers. They differ from the socialists only in degree.”
Michael R, Strain, director of policy studies at the American Enterprise Institute, a conservative think-tank, argues that,
“President Trump’s brand of populism has made the United States worse off. Perhaps the most visible example is his ill-conceived and poorly executed trade war with China——which he promoted as a fight for American workers, but which has instead increased consumer prices, reduced the variety of products available and dampened U.S. exports. The 2017 tax cuts provided incentives for businesses to invest. Like many economists, I expected firms to respond with more spending on capital improvements, which would eventually increase workers’ productivity and wages. But that has disappointed. Why? One reason is that the massive uncertainty from the trade war makes it impossible for businesses to plan, so they have frozen investment spending. The president encouraged investment with his left hand while discouraging it with his right.”
The results of the trade war in which the Trump administration has engaged turns genuine capitalism on its head and has been destructive to the American economy. In Michael Strain’s view,
“Protection from import competition does increase manufacturing employment in isolation. But it also increased the costs businesses face for intermediate inputs to production and inspired retaliatory actions by China and other countries, hurting our international competitiveness. As a result, manufacturing employment was reduced by 1.4 percent due to the trade war, and manufacturing output was not increased.”
Neither Democrats nor Republicans, it seems, support genuine free enterprise.
That support comes mainly from academic economists who are not seeking political power. Professor Milton Friedman explains that,
“The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other…Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is the power to coerce, be it in the hands of a monarch, a dictator, an oligarchy or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent, and the dispersal and distribution of whatever power cannot be eliminated…a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement.”
In our current political environment, the idea of genuine economic freedom is in a dramatic retreat. If economic freedom is abandoned, how long will it be before the free speech, a free press and freedom of religion also come under attack?
The Founding Fathers created a system that they hoped would limit and divide the government.
They wanted to prevent one individual, the president, from wielding arbitrary power, what they had experienced under King George III. The constitution, for example, gives the power to declare war to Congress. The last time Congress did so was in World War ll. Since then we have gone to war in Korea, Vietnam, IRAQ, Afghanistan and elsewhere on the basis of executive power alone.
In some cases, as with the Gulf of Tonkin Resolution in Vietnam and the claim of weapons of mass destruction in Iraq, we now know that false information was the reason for going to war.
Arbitrary power is what the Founding Fathers feared.
Now, whether it is some form of socialism or crony capitalism, our economy follows the dictates of politicians, not the market. The founding Fathers would be disappointed, but they would not be surprised. This is what the feared might happen.