by Veronique de Rugy
A lot of attention and ink are being poured these days in trying to
explain to a generation of voters why socialism always fails.
Not only does socialism
always fail to deliver the economic goods; it is also a source of
massive oppression and pain. I get why so many are devoting such
amounts of energy to this task.
First, the likes of
Senator Bernie Sanders and Representative
Alexandria Ocasio-Cortez (AOC)
and few others have made the notion of socialism acceptable
in some circles and even hip.
Also, according to a poll
from August, for the first time since Gallup has asked the question,
more Democrats approve of socialism
than of capitalism.
However, if all we do is talk about how Venezuela is a hellhole
and Cuba is a terrible place, I fear that we might end up
being the modern equivalent of Don Quixote fighting the
There is a ton of work still to do to help younger Americans
understand how Venezuela and Cuba ended up being such horrible
places (in some cases, we even have to explain that yes, indeed,
these are horrible places).
Until Venezuela was in
the news on a regular basis because of the approach of its people
toward starvation, as well as the expropriation and 'daily
Chavez-Maduro regime, there
were plenty of intellectuals praising the system.
And let's not forget the
praises or lack of condemnation for the oppressive regime that is
Cuba coming from many world leaders after Fidel Castro died.
So yes, there is a lot of work to be done.
However, if that's all we
do in response to AOC and Sanders promising Americans
that a socialist regime will produce a world where everyone works
less, earns more, gets free healthcare and schooling, and receives
generous subsidies from the government even when one decides not to
work, no one tempted by socialism will listen.
That's because when Sanders and his ilk talk about socialism,
they aren't talking about expropriating property rights,
nationalizing all businesses, or eliminating all but one - the
state's - television channel. They aren't talking about Venezuela or
Instead, they are talking
about Denmark and Sweden...
It is true that Sanders and his people fail to understand that
socialism exists on a spectrum.
On one side you have the
dictatorships, while on the other side you have the social
democracies. Both sides of the spectrum use oppression and
compulsory taxation to achieve their goals.
But the degree to which
they do so varies a great deal.
This variation in socialist methods gives rise also to variation in
the legitimacy of different degrees of socialism. No one seriously
ever thinks of French president Emmanuel Macron as a
despot (even though his own people happen to call him tyrannical
on a regular basis) in spite of the gigantic size of the French
state and the enormous amount of taxes extracted by the regime.
One side allows
elections, the other side either forbids them or makes a mockery of
Yet, it is also true that all varieties of socialism fail to achieve
their goals for the same reason:
attempt, to one degree or another, to substitute the decisions
of government planners for those of private citizens interacting
in competitive markets.
And in doing so, all
varieties of socialism suffer from the insurmountable knowledge
problem, as beautifully demonstrated by the late economist Don
Lavoie in his 1985 book, National Economic Planning: What is
That said, there is still a vast difference between Venezuela and
Denmark in term of how much of the economy planners try to control
and, as a result, how much of the economy planners destroy.
I worry that if we keep
talking as if today's American Democrats envision controls as
extensive as exist in Venezuela, those of us who warn of the
dangers that lurk in the schemes of Sanders and AOC won't get
In addition to this difficulty is the fact that while they claim
that they are talking about Nordic countries, what Sanders and AOC
actually have in mind is a regime more like that of France.
When Sweden and
Denmark each had in place a regime closer to what Sanders is
talking about, the results were so bad that each of these countries
put in place pretty dramatic free-market reforms.
These two countries are
by no means libertarian paradises, but thanks large spending cuts
and lower taxes, they aren't the hot mess that they once were.
France is, though, such a mess.
That's because there is
one aspect in particular that the AOCs and Sanderses of the world
fail to mention to their followers when they talk about their
all of the goodies
that they believe the American people are entitled to receive in
fact come at a great cost, and so the only way to pay for these
goodies is with oppressive and regressive taxes (i.e. taxes
heaped on to the backs of the middle class and the poor).
France was once a role
model for what big government can do for its people.
But it has become an
embarrassing example since "The
Gilets Jaunes" took to the streets to demonstrate against
the insane amount of taxes they pay.
These guys aren't upper
class. They are the people who have until now supported the policies
that are inevitable when you have the government providing so many
services and involved so deeply in so much of the economy.
Talking about taxes, the WSJ had a
good summary of the situation:
for Economic Cooperation and Development (OECD) released its
annual Revenue Statistics report this week, and France topped
the charts, with a tax take equal to 46.2% of GDP in 2017.
That's more than
Denmark (46%), Sweden (44%) and Germany (37.5%), and far more
than the OECD average (34.2%) or the U.S. (27.1%, which includes
all levels of government).
France doesn't collect that revenue in the ways you might think.
stereotype of heavy European income taxes on the rich, Paris
relies disproportionately on social-insurance, payroll and
Social taxes account
for 37% of French revenue; the OECD average is 26%. Payroll and
property taxes contribute 3% and 9%, compared to the OECD
averages of 1% and 6%.
As a reminder, the
payroll tax is very regressive; it consumes a larger share of low
and middle class earners than rich people.
Then Europe adds a
regressive consumption tax, the value-added tax
In France, VAT and
other consumption taxes make up 24% of revenue, and that's on
the low side compared to an OECD average of 33%.
often fall hardest on the poor and middle class, who devote a
greater proportion of their income to consumption.
To be sure, the spending
is also more regressive in France in that the biggest share goes to
the middle and low-income earners. But it is a stupid system in
which you tax one group to redistribute to that same group.
Add one more increase to an already high (and regressive) gas tax in
France to the existing 214 taxes and duties and the people went
They have been protesting
continuously since November 17th, 2018.
I don't condone the
violence, but I understand why the protestors are so furious.
Their anger is further fueled by the very rigid labor market.
France has all sorts of
labor regulations on the books:
some preventing firms
from firing workers and, hence, creating a disincentive to hire
workers in the first place.
such as the minimum wage, that make the cost of employing people
so high that employers don't employ people. It is also not
surprising that so many fast food restaurants in France have
replaced employees with robots.
Like other countries, the French also have all sorts of
"generous" family friendly laws that end up backfiring and
penalizing female employment.
The French government
is also very generous to those people who don't work.
All of these policies
make the lives of lower and middle-class people harder, unemployment
is high (24.5 percent for young French people) and economic growth
has been anemic for decades.
The bottom line is this.
All those people in
America who currently fall for the socialism soup that AOC and
Sanders are selling need to realize that if their dream came to
pass, they, not the rich - not the bankers and politicians -
will be ones suffering the most from the high taxes, high
unemployment, and slow growth that go hand in hand with the
level of public spending they want.
Everyone would suffer, of course.
But those who will be
screwed the most are definitely those at the bottom...