Classical (Laissez-Faire) Liberalism discussion

What About the Welfare State?

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message 1: by Quee (last edited Jan 17, 2009 07:39PM) (new)

Quee | 31 comments Here's a quotation:

"Sweden is not the richest country in the world. It is not even close. It is far poorer than the United States. Current statistics put it in the low teens internationally, just below Italy (by contrast, in 1970, Sweden ranked fourth). Frederick Bergstrom, a neoliberal Stockholm economist I interviewed, recently put out a study comparing Sweden to the fifty American states. He found that in terms of gross domestic product per capita, Sweden is poorer than all but West Virginia and Mississippi."

That isn't some Republican blogger, it's a quote from Dissent Magazine (Daniel Brook, "How Sweden Tweaked the Washington Consensus," Fall 2004).

Reuters story, May 4, 2002, "Swedes Less Well Off than Poorest Americans---Study":

"Weak growth means that Sweden has lost greatly in prosperity compared with the United States," HUI's President Fredrik Bergstrom and chief economist Robert Gidehag said.

International Monetary Fund data from 2001 show that U.S. GDP per capita in dollar terms was 56 percent higher than in Sweden while in 1980, Swedish GDP per capita was 20 percent higher.

"Black people, who have the lowest income in the United States, now have a higher standard of living than an ordinary Swedish household," the HUI economists said.

If Sweden were a U.S. state, it would be the poorest measured by household gross income before taxes, Bergstrom and Gidehag said.

They said they had chosen that measure for their comparison to get around the differences in taxation and welfare structures. Capital gains such as income from securities were not included.

The median income of African American households was about 70 percent of the median for all U.S. households while Swedish households earned 68 percent of the overall U.S. median level. This meant that Swedes stood "below groups which in the Swedish debate are usually regarded as poor and losers in the American economy," Bergstrom and Gidehag said.'

Blog "Creative Destruction" analyzed the issue in September 2006:

"Interesting article at TCS about comparing Sweden to the United States (always a favorite pastime in our household, when we get bored of trying to guess how many yellowjackets the yellowjacket trap will kill today). Bottom line (but read the article): after transfer programs and such are taken into account, the poorest 10% of Americans earn about 39% of the US median income. The poorest 10% of Swedes earn about 38% of the US median income. In standard of living terms, anyway, it appears that poor Americans are infinitesimally better off than poor Swedes, despite all the transfer programs and such."


The bottom line is that after many years of running what has been the most widely approved "Third Way" welfare state experiment, the result is that Swedes ended up at a standard of living below African-Americans. Since Swedish-Americans live significantly above that level, comparing Swedish Swedes with Swedish-Americans might give us a benchmark to measure the performance gap between the two countries.

Now that Sweden isn't Eden anymore, it's Norway's turn. With an economy boosted by the lucky accident of being the world's third leading oil exporter (second only to Russia and Saudi Arabia), not to mention record high oil prices, Norway is set to be the new poster child.

message 2: by Quee (last edited Jan 17, 2009 07:41PM) (new)

Quee | 31 comments The most important problem concerning the "Third Way," i.e., the interventionist welfare state, is usually completely ignored by everybody. Republicans, Democrats, Libertarians, and leftists debate the question as if the central problem is one merely of incentives and justice. They argue back and forth about what various people have in justice "earned" and "deserve," and what we "owe" each other. They argue about "perverse incentives," "moral hazards," and the principles of charity.

But none of this makes any difference once we realize the poor are poorer, not richer, in a "generous" welfare state. If pure laissez-faire capitalism makes each and every class richer than any other system, then most of what people say about it has been little more than barking up the wrong tree.

According to the classical liberal economist Ludwig von Mises ("the Marx of Capitalism" socialists called him), "incentives" and "moral hazards" aren't really the problem. The problem is that a redistributive welfare state, while it attempts to redistribute consumption, is actually doing more to redistribute production into consumption. The idea of the welfare state is supposedly to take from the rich and give to the poor, but what really happens is that it takes from the future poor, to give to the present poor, and the problem is, what it takes from the future is a whole lot more than what it gives to the present.

As one study showed, for example, the damage done to the rate of growth by capital consumption means that if the US had instituted the redistributive welfare state a lot earlier, we would today enjoy a standard of living no higher than that of Mexico. The very modest increase in consumption that would have been enjoyed by the poor of one generation would have cost their own grandchildren far more than it was worth.

The Problem isn't "Incentives," it's Capital Consumption.

Just ask yourself: what would happen, really, seriously, if everybody suddenly became extremely charitable and voluntarily we all agreed to redistribute all the wealth of the world equally? What would happen?

The world would begin to plummet towards a kind of Dark Ages poverty which would eventually wipe out most of the human race. Why? Because there would be no more accumulation or even bare maintenance of the world's capital. The capital would all be consumed (used up, worn out, not repaired/replaced). As is happening, for example, in parts of Africa today.

Tear away the veil of money from your view of the economy, and see the real world behind the green pieces of paper. The wealth of a rich man, or a developed country, isn't a pile of paper. It isn't even land, or gold coins. Real wealth is capital. But what is capital? Capital means spinning wheels, tractors, sewing machines, water pumps, drill-presses, grain silos, conveyor belts, trucks, planes, ships, factories, and bags full of seed corn for next year's planting. All the things a rich country has, and a poor country needs and lacks. All the tools of production, upon which the unprecedentedly high standard of living in any developed nation depends.

The so-called "class struggle" is an illusion: the real social conflict is the perennial conflict between present and future. In every kind of society, socialist, capitalist, or interventionist, there is an unavoidable conflict of interest between the needs of the masses today, and the needs of the masses of the future. If the average clerk today lives at a level beyond the wildest dreams of Bob Crachitt, we have to thank the old misers like Ebeneezer Scrooge. What was saved and invested by the capitalist misers of the past is cranking out a wealth of goods upon us, now, today.

As Ludwig von Mises puts it: "we are the spoiled scions of past saving."

"None of the passionate tirades of Marx, Keynes and a host of less well known authors could show a weak point in the statement that there is only one means to raise wage rates permanently, and for the benefit of all those eager to earn wages---namely, to accelerate the increase in capital available as against population. If this be unjust, then the blame rests with nature, and not with man."

Marx says that for the bourgeois capitalists, the idea is: "Accumulate accumulate, that is Moses and the Prophets!" Yes, that's right. Let capital accumulate. Don't eat the seed corn. Even Marx, in his Critique of the Gotha Plan, admitted this.

Now, socialism, as a matter of fact, does not necessarily suffer from the consumption of capital. Many people don't know it was once a big selling point of socialism that it would be able to force society to save and invest more, and thus the economy would be able to grow more rapidly. The socialists realized they could force a greater rate of capital accumulation. But socialism has its own special problems (like economic calculation) that make it fail.

message 3: by Quee (last edited Jan 13, 2009 12:18PM) (new)

Quee | 31 comments

Capital accumulation was the essence of the Industrial Revolution. Now, today many schoolchildren are taught to deplore capitalism's Industrial Revolution. For example, most schoolbooks, though they are usually careful not to come right out and say the poor got poorer, nevetheless go out of their way to leave that impression.

Let's take the bull by the horns. If the Industrial Revolution made the workers poorer, then why did the population explode? Economic historians like Joel Mokyr have shown the Industrial Revolution actually made the poor richer, not poorer.

Anti-capitalists try to explain away the unprecedented economic boom of the Industrial Revolution by attributing it to slavery and/or colonial exploitation. Their zero-sum worldview suggests to them that the West must have prospered at the expense of the rest of the world.

But if slavery and/or colonial exploitation was really the cause of this unprecedented boom, then why did Switzerland, Poland, Austria, and the Scandinavian countries—without slaves or colonies—do so well?

If slavery was the cause of the boom, why was the US North so much richer and more developed than the US South? Brazil had more slavery, and kept it much longer, so why did it fall even further behind?

If capitalism and/or colonialization made the third world poorer, then why should we find that wretched Haiti is the poorest country in Western hemisphere? They threw off colonial rule the same time we did. They’ve always been less colonial (and less free market capitalist) than the rest of the Third World. And yet Haiti is even worse off.

Why didn’t being an exploited colony make the US poor?

If capitalism and/or colonialization made the poor poorer, why is Zimabawe (after doing everything possible to overthrow capitalism, institute social justice, and undo colonialization) now a nightmare land of famine and plague? Why has Africa in general suffered such impoverishment since de-colonialization? Why do the most de-colonialized and leftist African states become ones where people starve to death?

India threw off colonial rule, but then were extremely poor. Now, finally, beginning to throw off leftist economics has begun to turn things around. China was but little colonized, and has never enjoyed a free market, and has enjoyed an almost uninterrupted history of complete poverty.

Does anybody pretend third world countries were prosperous, or free, before colonialism? Let’s remember smallpox, which wiped out most of the Amerindians before 1500, can be blamed on colonialism, but not on capitalism. Classical liberals like John Locke and Adam Smith, with their laissez-faire capitalist ideology of Natural Liberty, were the ones who began the fight against the exploitative, mercantilist colonial system. They were the first to argue that everybody has an equal right to be free.

The evil side of colonialism (slavery, mercantilism) is too be regretted and condemned, but that side deserves no credit for the economic boom. What caused the boom was the concomitant rise of capitalism during the Industrial Revolution, and capitalism benefitted everybody, not just the West. The third world is not poor because of too much capitalism, but because of too little. Mercantilism was bad, but the solution was free trade. Free trade benefits all. It's perverse for the left to give slavery and mercantilism credit for the Industrial Revolution.

Capitalism's laissez-faire liberalism did not condone slavery, but condemned it to death. If exploitation and slavery deserve credit for the Industrial Revolution, then why didn't this revolution take place a thousand years earlier? Slavery and exploitation are as old as the hills. The Romans had excellent water-driven mills. The steam engine was invented in China, long before the 1800s. Why no Chinese Industrial Revolution?

The Industrial Revolution was caused by an explosion of capital accumulation, an accumulation of capital caused by the classical liberalism that really for the first time in history permitted it. This capital did not spontaneously grow out of the ground, nor fall from the sky.

Why is North Korea so much poorer than South Korea? Has there ever been a single famine, in a place where laissez-faire capitalism reigned? Why was East Germany so much poorer than West Germany? Why were the workers of capitalist Hong Kong, Singapore, and Japan so very much richer than in Red China, Communist North Korea, anti-capitalist Myanmar, and socialist North Vietnam? Why are pink Swedes, including all their benefits, now at a real standard of living below the average black American?

The anti-capitalist version of history doesn't fit the facts.

message 4: by Quee (last edited Apr 13, 2009 11:47AM) (new)

Quee | 31 comments Try this priceless example of economics made hilarious:

message 5: by Erich (new)

Erich Franz Linner-Guzmann (erichfranzlinnerguzmann) | 1 comments That Tom Naughton bit was pretty good!

message 7: by [deleted user] (new)

Quee wrote: "Try this priceless example of economics made hilarious:"

Loved it.

message 8: by Patrick (new)

Patrick Peterson (freedomworks) | 13 comments Mod
Love it. Naughton is fantastic.

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