Tag Archives: economic systems

A Fair And Balanced Economy

I have seen a fair number of articles recently suggesting that–if elected–Biden should pattern his economic approach on that of FDR.

Historians tell us that FDR was no ideologue; to the contrary, he was pragmatic. When he assumed office, he was faced with an economic situation for which there were no obvious remedies, and as David Brooks recently reminded us,

New Dealers were willing to try anything that met the specific emergencies of the moment. There was a strong anti-ideological bias in the administration and a wanton willingness to experiment. For example, Roosevelt’s first instinct was to cut government spending in order to reduce the deficit, until he flipped, realizing that it wouldn’t work in a depression.

“I really do not know what the basic principle of the New Deal is,” one of his top advisers admitted. That pragmatism reassured the American people, who didn’t want a revolution; they wanted a recovery.

One of the things about Joe Biden that I personally find reassuring is precisely that lack of rigid ideology, and what I perceive as a willingness to respond to the challenges of the moment. Sometimes, a proper response will be ambitious, sometimes cautious.

It depends.

There are two very different approaches to economic policy displayed in the comments readers post to this blog. There are those who have a favored economic system that they insist is “the” answer to every problem, and there are those who– recognizing the ambiguities and complexities of economic life– have come to terms with the fact that neither capitalism nor socialism is a one-size-fits-all answer to what ails us. Both systems are subject to distortion and capture, and both are destructive when they operate in economic areas for which they are unsuited.

Every successful economy currently operating is a mixed economy. That includes Scandanavia, which on several measures has a more robust free market than the U.S. According to research from the World Happiness Report

What exactly makes Nordic citizens so exceptionally satisfied with their lives? This is the question that this chapter aims to answer. Through reviewing the existing studies, theories, and data behind the World Happiness Report, we find that the most prominent explanations include factors related to the quality of institutions, such as reliable and extensive welfare benefits, low corruption, and well-functioning democracy and state institutions. Furthermore, Nordic citizens experience a high sense of autonomy and freedom, as well as high levels of social trust towards each other, which play an important role in determining life satisfaction. On the other hand, we show that a few popular explanations for Nordic happiness such as the small population and homogeneity of the Nordic countries, and a few counterarguments against Nordic happiness such as the cold weather and the suicide rates, actually don’t seem to have much to do with Nordic happiness.

The benefits of a comprehensive welfare state–the “socialism” element–are well documented. A reliable “floor” gives citizens a basic sense of security that research tells us mitigates crime and conflict, among other things. Taxes are high (although not as much higher than ours as Americans think), but citizens get real value for that money–they save what Americans must pay for education and health care, for example.

As economists will confirm, other than their generous welfare states, the Nordic countries are mostly free market economies–in fact, they rank high on several indexes of economic freedom. Businesses are not run by the state, nor are their employment practices dictated by the government. (That isn’t to say that there isn’t reasonable regulation of Scandanavian markets–the sort of reasonable regulation that America has largely abandoned.)

The bottom line is that any successful economy must be a mixture of appropriately-regulated capitalism and judiciously socialized public goods.

As I have noted many times, in order to operate properly, a market requires a willing buyer and willing seller, both of whom can access all information relevant to the transaction. We “socialize” police and fire protection and infrastructure provision, among other things, because that description doesn’t fit those services. (It doesn’t fit medical care, either.)  It does fit the production and purchase of consumer goods.

The challenge facing Joe Biden (and hopefully, a Democratic House and Senate) in the wake of the Trump administration’s destruction of both the economy and social trust, is to strengthen the social safety net and return a level playing field to a market that has been corrupted by crony capitalism.

That’s harder and more complicated than one-size-fits-all economic ideology. But properly implemented, it works.

About Those Cows….

A cousin sent me an updated version of the old “A man has two cows” explanation of capitalism, socialism, fascism and nazism (and yes, ranting radio people and Faux News anchors, there is indeed a difference between them–they aren’t just interchangeable insult words). I don’t usually pass on Internet humor, but this new version really does capture the crazy that is our global economic life. (Look especially at the “Venture Capitalist” explanation…)

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Subject: how the world REALLY works….made simple
*A Cow based Economics Lesson;

SOCIALISM
You have 2 cows.
You give one to your neighbor.

COMMUNISM
You have 2 cows.
The State takes both and gives you some milk.

FASCISM
You have 2 cows.
The State takes both and sells you some milk.

NAZISM
You have 2 cows.
The State takes both and shoots you.

BUREAUCRATISM
You have 2 cows.
The State takes both, shoots one, milks the other, and then throws the milk away.

TRADITIONAL CAPITALISM
You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.

VENTURE CAPITALISM
You have two cows.
You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows.
The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company.
The annual report says the company owns eight cows, with an option on one more.
You sell one cow to buy a new president of the 
United States , leaving you with nine cows.
No balance sheet provided with the release.
The public then buys your bull.

SURREALISM
You have two giraffes.
The government requires you to take harmonica lessons.

AN AMERICAN CORPORATION
You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyze why the cow has dropped dead.

A FRENCH CORPORATION
You have two cows.
You go on strike, organize a riot, and block the roads, because you
want three cows.

A JAPANESE CORPORATION
You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk.
You then create a clever cow cartoon image called a Cowkimona and market it worldwide.

AN ITALIAN CORPORATION
You have two cows, but you don’t know where they are.
You decide to have lunch.

A SWISS CORPORATION
You have 5000 cows. None of them belong to you.
You charge the owners for storing them.

A CHINESE CORPORATION
You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation.

AN INDIAN CORPORATION
You have two cows.
You worship them.

A BRITISH CORPORATION
You have two cows.
Both are mad.

AN IRAQI CORPORATION
Everyone thinks you have lots of cows.
You tell them that you have none.
No-one believes you, so they bomb the ** out of you and invade your country.
You still have no cows, but at least you are now a Democracy.

AN AUSTRALIAN CORPORATION
You have two cows.
Business seems pretty good.
You close the office and go for a few beers to celebrate.

A NEW ZEALAND CORPORATION
You have two cows.
The one on the left looks very attractive.