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Why Ayn Rand Laughs — The Las Vegas Democratic Socialism Debate

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Since the politicians are still falsely claiming that the successful Nordic economies are socialist, we are -reposting this Mark Shupe article from 2018.

“In one century, Sweden had the fastest economic and social development that its people had ever experienced, and one of the fastest the world had ever seen.” This quote from Johan Norberg is about the years 1850 – 1950. What has happened in Sweden since the democratic socialists infiltrated government in the 1950s is another story. And Nina Sanandaji adds muscle to the factual narrative by writing for the Institute for Economic Affairs:

The phenomenal national income growth in the Nordic nations occurred before the rise of large welfare states. The rise in living standards was made possible when cultures based on social cohesion, high levels of trust and strong work ethics were combined with free markets and low taxes.

Regarding Denmark, economist Otto Brons-Petersen wrote in 2015:

Danish per capita GDP relative to other countries reached a maximum 40-60 years ago. At the time Denmark became rich relative to the rest of the World, it was not a welfare state. In fact, Denmark has historically been a low tax country by international standards. Until the 1960s, the Danish tax revenue to GDP ratio was at the same level as the US, and lower than the British.

So it would make sense, that in the 1960s, that the Nordic countries of Europe were well on their way to sustainable prosperity and a model for the developing world.

The Dawning of the Age of Absurdity

And then in the 1960s everything changed. The western world was experiencing social and political transition in the wake of complete victory over national socialism after World War II. The massive government infrastructures that remained were repurposed for the new welfare state, and the vanquished enemy was rebranded as fascism in order to create ideological distance. Perhaps the most eloquent description of the dominant philosophy of the 1960s is this lyric from the Fifth Dimension’s inspirational hit song of 1968:

Peace will guide the planets. And love will steer the stars. This is the dawning of the age of Aquarius. Age of Aquarius! Harmony and understanding. Sympathy and trust abounding. No more falsehoods or derisions. Golden living dreams of visions. Mystic crystal revelation. And the mind’s true liberation.

The astrological mysticism aside, the 1960s was defining itself in the western world as the Age of Love, and this was illustrated brilliantly in Ayn Rand’s prophetic 1957 novel, Atlas Shrugged. Essentially, it was the transfer of compassion and benevolence from the individual and privately funded charities to the progressive administrative state. Virtue was nationalized, personal responsibility was sacrificed.

The economic might created during the previous century in Scandinavia and America, by free individuals unencumbered by onerous taxes and regulations, was to be liberated for the common good. And make no mistake, your mind was to be liberated as well. Or else.

The Lost Decades

By 1950, the Nordic countries were finally enjoying a world free of Nazi threats and resuming their lives of peace and prosperity. However, according to Stefan Karlsson, Sweden experienced a 30 year expansion in government spending that was unprecedented during a period of peace. “Virtually every year, taxes were increased while the welfare state expanded relentlessly.” In 1970, Prime Minister Olaf Palme stepped up the socialist transformation, rapidly increasing regulations and payroll taxes. And along with increasing union wage demands, Swedish business became highly uncompetitive on the global markets. To combat this, Palme introduced currency devaluation, and inflation rose sharply.

And in Denmark, income tax rates grew rapidly in the second half of the 1960s. “A left wing coalition government and then a right wing one increased the tax to GDP ratio by some ten percentage points. Petersen writes “The welfare state attracted new clients and new programs were added, the economic crisis led to increasing unemployment. By the early 1980s the economy was in very bad shape, with high unemployment, an inflationary spiral, a huge and widening government deficit.”

But the Age of Absurdity was not confined to Scandinavia. In the United States, President Johnson initiated his Great Society programs in 1964. Phil Gramm and John Early report in a recent Wall Street Journal article, that during the 20 years before the War on Poverty, the portion of the nation living in poverty had dropped to 14.7% from 32.1%. According to Edward Glaeser in the City Journal, 95 percent of “prime-age” men between the ages of 25 and 54 in 1967 worked. Today however, more than 15 percent of such men aren’t working. “The rise of joblessness—especially among men—is the great American domestic crisis of the twenty-first century.”

A Return to Reason

The Scandinavian experience has a lot to teach us, especially before the Age of Absurdity. As Norberg paraphrases a 1763 essay by Anders Chydenius:

The problem is the oppressive and corrupt system that makes it impossible for people to stay in Sweden and build a good life there. Privileges, license requirements, and trade prohibitions protected a small lazy aristocracy and stopped hard-working people from making their own luck. High taxes confiscated whatever they managed to create; a corrupt justice system made it impossible for them to win against the powerful.

Starting in the 1990s, Nordic governments have been rolling back the stifling regulation and reducing the economic burden of the welfare state, but it continues to permeate their societies. As a 38 year old Norwegian named Liam recently posted to an online forum:

“To do business of any kind you need to register with the state and pay a license fee. And there are a lot of regulations. Still they claim that we have a free non-socialistic economy. Well, it is practically regulated into a monopoly for a chosen few. The government of Norway are today on the right officially, but still they play into the hands of the EU. It is still a monster in between. You can see more on how this works at The Capitalist Party of Norway. We do work hard to get into the Norwegian parliament to stir it up a bit. I see a lot of similarities in the Norwegian economy to what happened in Atlas Shrugged.”

Anders Ingemarson of separatestateandtheeconomy.com sums it up well:

Sweden has much to teach us, but it is the opposite of what the progressive “democratic socialists” would like us to think. Swedes can primarily teach us what financial and spiritual mistakes to avoid. It is their costly missteps during the second half of the 20th century we should learn from.

How Sweden Overcame Socialism.

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Nearly half of millennials say they prefer socialism to capitalism, but what do they mean? “My policies most closely resemble what we see in the U.K., in Norway, in Finland, in Sweden,” Rep. Alexandria Ocasio-Cortez told “60 Minutes.” Yet Sweden’s experiment with socialist policies was disastrous, and its economic success in recent decades is a result of market-based reforms.

Until the mid-20th century, Sweden pursued highly competitive market-based policies. By 1970 Sweden achieved the world’s fourth-highest per capita income. Then increasingly radical Social Democratic governments raised taxes, spending and regulation much more than any other Western European country. Economic performance sputtered. By the early 1990s, Sweden’s per capita income ranking had dropped to 14th. Economic growth from 1970 to the early 1990s was roughly 1 percentage point lower than in Europe and 2 points lower than in the U.S.

Before its socialist experiment, Sweden had a smaller government sector than the U.S. By the early 1990s, government spending and transfer payments ballooned to 70% of gross domestic product, and debt had increased to 80% of GDP. Between 1966 and 1974, Sweden lost some 400,000 private jobs—proportionate to 16.7 million in today’s U.S.

In 1991 a market-oriented government came to power and undertook far-reaching reforms. Policy makers have privatized parts of the health-care system, introduced for-profit schools along with school vouchers, and reduced welfare benefits. Since 1997, government ministries that propose new spending plans have been required to find offsetting cuts in their budgets. As a result, public debt has declined from 80% of GDP in the early 1990s to 41%.

To increase incentives to work, Sweden reduced unemployment benefits and introduced an earned-income tax credit in 2007. The electricity and transportation industries were deregulated in the 1990s, and even the Swedish postal system was opened up to competition in 1993. The corporate tax rate was cut from its 2009 level of 28% to 22% today, and is scheduled to decline to 20.4% in 2021.

This policy mix has earned Sweden a Heritage Foundation ranking as the 15th freest economy in the world. The U.S. is 18th. And it’s paid off. Since 1995, Swedish economic growth has exceeded that of its European Union peers by about 1 point a year. Sweden is now richer than all of the major EU countries and is within 15% of U.S. per capita GDP. While Sweden still has a larger government than the U.S., its tax code is flatter. The progressivity of the U.S. tax code distorts incentives. These distortions would become even larger under the tax-increase proposals of democratic socialists like Ms. Ocasio-Cortez.

There is an example for the U.S. here, but the lesson isn’t what Ms. Ocasio-Cortez thinks. Command-and-control economic policies undermined Sweden’s prosperity, and they would do the same to America’s.

Mr. Fernández-Villaverde is a professor of economics at the University of Pennsylvania. Mr. Ohanian is a senior fellow at the Hoover Institution and professor of economics at UCLA.

This article appeared in the January 10, 2019, print edition of the Wall Street Journal.

Finland Set to End Its Two-Year Experiment with a Universal Basic Income

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American socialists have a love affair with praising the welfare systems of Nordic countries. Convinced that America is foolish not to follow in the footsteps of countries like Finland, Denmark, and Sweden, many claim that individuals in this country would be better off if our own government strengthened its welfare system.

One of the more popular proposals for expanding the welfare state is to implement what is known as a universal basic income (UBI). Under this type of system, individuals would be given monthly stipends from the government, instead of paying into welfare programs like we do currently. What the recipients do with this money, however, is up to them. Though it is hoped that this money will be used to pay for services once provided through government programs.

However, many proponents of the free market have been quick to warn that the UBI might not live up to all the hype. In fact, a recent study conducted by the Roosevelt Institute on the impacts of a UBI concluded that the implementation of this program did not yield positive effects, especially since the funds needed to pay for this program still come at a high cost to the taxpayer.

The study’s conclusions stated:

“When paying for the policy by increasing taxes on households rather than paying for the policy with debt, the policy is not expansionary. In effect, it is giving to households with one hand what it is taking away with the other. There is no net effect.”

However, while this gave us a grim look into some possible long-term effects of implementing a hypothetical UBI in the United States, Finland is about to wrap up their own real-life experiment.

Almost two years ago, Finland decided to scrap its own welfare system and replace it with a UBI. The experiment was only set to last for two years, at which point the government of Finland would analyze the results and reach a conclusion about the experiment as a whole.

Commenting on Finland’s experiment, The New York Times recently reported:

“For more than a year, Finland has been testing the proposition that the best way to lift economic fortunes may be the simplest: Hand out money without rules or restrictions on how people use it. The experiment with so-called universal basic income has captured global attention… Now, the experiment is ending. The Finnish government has opted not to continue financing it past this year, a reflection of public discomfort with the idea of dispensing government largess free of requirements that its recipients seek work. …the Finnish government’s decision to halt the experiment at the end of 2018 highlights a challenge to basic income’s very conception. Many people in Finland—and in other lands—chafe at the idea of handing out cash without requiring that people work. …Finland’s goals have been modest and pragmatic. The government hoped that basic income would send more people into the job market to revive a weak economy. …The basic income trial, which started at the beginning of 2017 and will continue until the end of this year, has given monthly stipends of 560 euros ($685) to a random sample of 2,000 unemployed people aged 25 to 58. Recipients have been free to do as they wished… The Finnish government was keen to see what people would do under such circumstances. The data is expected to be released next year, giving academics a chance to analyze what has come of the experiment.”

Prior to great UBI experiment, Finland’s welfare system was like that of other Nordic countries. Large portions of the people’s paychecks were taken by the government and then redistributed to the dozens of state-sponsored welfare programs. As can be expected, these programs became financially burdensome for Finland. In fact, one of the goals of the UBI experiment was to see if it could save money by reducing the need for many of the government’s programs.

While the results of the experiment are still pending, it is not likely that the Finland experiment will tell us anything different than we already know: The UBI doesn’t work. It’s too expensive and it completely negates the role incentives play in the job market. Even so, it will be interesting to see what the future of the Finnish welfare holds in the aftermath of the UBI experiment.

To understand more about why a universal basic income will never work, read more here. 

The Inconvenient Truth about Nordic Socialism

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A Millennial, I never cease to be amazed by my own generation’s obsession with socialism. While I don’t expect most people to have read The Road to Serfdom, the internet age has made information available at the click of a button. Yet, so many my one age refuse to do this. Instead, they rely on sensational rhetoric that promises economic equality for all, not realizing that this is not as easy as it may sound, or feasible.

One of the most surprising elements of the last election season was the outpouring of support many young Americans threw behind the self-proclaimed “socialist,” Senator Bernie Sanders. While addressing a large audience during a presidential debate, the senator from Vermont stated, “I think we should look to countries like Denmark, like Sweden and Norway, and learn from what they have accomplished for their working people.”

This praise of what is often referred to as the “Nordic” model, was a common theme woven throughout Senator Sander’s presidential campaign. However, while Sanders repeatedly praised the Nordic model as a prime example of a socialist success story, he failed to realize–or at least acknowledge– that the Nordic model’s prosperity was due to the same free-market components he often speaks out against.

By its very definition socialism exists when the state controls the means of production. However, this definition does not apply to the Nordic model. In these countries, the means of production are primarily owned by private entities and not the government, something Sanders is strictly opposed to.

While giving a lecture at Harvard’s Kennedy School of Government, the Prime Minister of Denmark rebutted this myth that his nation is a socialist country by saying, “I know that some people in the US associate the Nordic model with some sort of socialism. Therefore I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.”

Yet, despite efforts to correct this misconception about the Nordic model, Sanders and his supporters continue to associate these countries with socialism. Since Nordic nations have long been known for their long lifespans, high rates of happiness, and economic prosperity, proponents of collectivism credit socialism for these successes. Unfortunately for socialist proponents, many of these desirable qualities were achieved through free-market means and not through a socialist economy.

It’s true that Nordic nations are infamously known for having expansive welfare states which exist to support its citizens from cradle to grave. However, while these welfare states are often said to be the reason Nordic nations experience so much overall success, many forget (or simply do not understand) that this economic and social prosperity occurred before the welfare state was introduced.

While Denmark currently has the highest rate of taxation among any developed nation around the globe, at the time of the Nordic “boom,” the tax rate was only 25 percent of the nation’s GDP. As it turns out, this was actually lower than the 27 percent of GDP that America was taxing its citizens at the exact same time.

When it comes to praising the Nordic welfare state for its citizens’ long lifespan, it is also worth noting that in 1960, before universal health care became a pillar of the Nordic model,  Swedes, Norwegians, and Danes all experienced longer lifespans than Americans. However, since introducing universal health care the average lifespan in each country has actually decreased.

Another fascinating point worth discussing is how Nordic citizens who immigrated to America compare to those still living in the region.

Currently, Danish Americans enjoy a standard of living that is said to be 55 percent higher than those still residing in Denmark. Likewise, Swedish Americans experience a standard of living that is 53 percent higher than their native Swedish counterparts, and Finnish Americans are living in conditions 59 percent higher than those still living in Finland.

While it is clear that the myths surrounding the success of the Nordic model are misleading, there are still many young people who cling to socialist ideals. For those who still desire further proof that collectivists economies are not all they are cracked up to be, Venezuela presents a perfect, albeit grim example, of how devastating a truly socialist economy can be on a country and its people.

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