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The Destructive Consequences of Socialism

Summary:
In the early 1980s, when I was a senior economist at President Reagan’s Council of Economic Advisers (CEA), we put out one publication annually for the public: The Economic Report of the President. The rest of the time, we spent our time analyzing and arguing about economic policy. So, for example, as the senior economist for energy from 1983 to 1984, I argued against re-imposing price controls on oil and gasoline, for allowing Alaskan oil to be sold to foreigners, and against increasing the stringency of the fuel economy standards for cars and trucks. But with the all-pervasiveness of the web, it was only natural that at some point, CEA economists would want to bring their economic thinking to the public without waiting for the annual report. Former President

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In the early 1980s, when I was a senior economist at President Reagan’s Council of Economic Advisers (CEA), we put out one publication annually for the public: The Economic Report of the President. The rest of the time, we spent our time analyzing and arguing about economic policy. So, for example, as the senior economist for energy from 1983 to 1984, I argued against re-imposing price controls on oil and gasoline, for allowing Alaskan oil to be sold to foreigners, and against increasing the stringency of the fuel economy standards for cars and trucks.

But with the all-pervasiveness of the web, it was only natural that at some point, CEA economists would want to bring their economic thinking to the public without waiting for the annual report. Former President Obama’s CEA economists published reports on the web a fair amount in his second term. And President Trump’s CEA economists followed suit. Their latest is a fact-filled, well-footnoted report published last week, titled “The Opportunity Costs of Socialism.” Why now? Probably because over half of Democrats have a positive view of socialism, and economists have a lot to say about socialism. The tone is calmly passionate, yet academic in the best sense of the word. I challenge anyone to read it open-mindedly and conclude that socialism, whether extreme or moderate, is a good economic system.

These are the opening two paragraphs of my largely positive review of the CEA’s recent study, “The Opportunity Costs of Socialism.”

One highlight:

It’s easy to show that our mixed economy in the United States performs way better than the horrible socialist economies of Lenin’s and Stalin’s Soviet Union, of Chairman Mao’s Communist China, and of Fidel Castro’s Cuba.

For that reason, you might think that such a demonstration is unnecessary. But they point out that in 1989, U.S. Nobel Prize winners Paul Samuelson, who won in 1971, and William Nordhaus, who won this year, wrote that “the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.” If it’s worthwhile to correct the fuzzy thinking of two leading American economists, it’s definitely worthwhile to point it out to the American public, many of whom learned economics from the textbook in which that quote appeared.

Another:

Although the CEA does a great job of analyzing socialized medicine, it would have done an even better job if it had brought the same skepticism to our two major socialized health-care schemes: Medicare and Medicaid. Also, you don’t need to be a fan of government medical care to realize how badly the current U.S. system is distorted by the tax code and heavy regulation on both the demand and supply sides, something on which the CEA report is completely silent. My guess is that they didn’t want, for obvious political reasons, to tread in that dangerous territory.

Given his particular interests and strengths, I think Casey Mulligan, the chief economist of the CEA, who is on leave from the University of Chicago, is the lead author.

Both my review and the much-longer CEA report are well worth reading.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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