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Thursday, March 28, 2019

Socialism and the Totalitarian State

I have a fourth and last installment coming on socialism in Sweden, but before I get to that I wanted to return to a conceptual discussion regarding socialism. In yesterday's article I suggested that:

Socialism refers to economic redistribution, i.e., the welfare state, its spending programs and its progressive taxation;

Statism refers to other government intrusions into private life, such as regulations, excessive policing (beyond what is needed to protect life, liberty and property), and other restrictions on individual and economic freedom.

We could think of the sum of these two forms of government intrusions as "totalitarianism". Some would rightly balk at that term, suggesting it should be reserved for the worst form of governments. That is a valid objection, but I will stick to it for now, until we can establish a better one.

There is obviously a plethora of literature on both these concepts, as well as on the economic role of government in general. However, this is not a theoretical exercise - it is a discussion on public policy in the context of:

a) what reforms we can do in order to reduce the size of government; and
b) how those reforms affect the economy and society in general, both during and after the reform process.

In doing this, we need to structure our understanding of government so that we can design the appropriate type of reforms for the appropriate type of government program. The ones that fall under the "socialist" category have a very different purpose than those that fall under the "statist" category.

Socialist programs make people dependent on government. This is the consequence of systematic economic redistribution, a.k.a., the welfare state. Since large numbers of Americans - half the population by some estimates - depend on the welfare state to a larger or lesser degree, generic reforms that cut spending on the welfare state will inevitably worsen their lives. Therefore, such reforms are likely to meet resistance from the people dependent on the welfare state.

Statist programs and regulations do not have this effect. They are not designed to directly benefit some people at the expense of others, although that can be the indirect effect in some cases. For example, regulations that prohibit entrepreneurs from freely entering new markets - licensing comes to mind - benefit incumbent businesses at the expense of both customers (who pay more than under broader competition) and prospective sellers who are not in compliance with the regulations. However, those who benefit do so indirectly, as opposed to the direct dependency that comes with welfare-state entitlement programs.

Many statist forms of government intrusion do not benefit anyone, even indirectly. This is the case with product design mandates, such as the requirement that passenger vehicles be equipped with back-up cameras or that they meet certain fuel economy standards.

The difference between socialist and statist intrusions translates into differences in reform efforts. The repeal of regulations is straightforward, as is the termination of spending programs that benefit nobody in particular (such as a government-paid agency to advertise Wyoming to prospective European tourists). Socialist incursions, on the other hand, require a far more elaborate approach where a reform to roll back government must provide a "pathway" for those dependent on government, to a life where they can support themselves entirely on their own. Such reforms are complex and require both ingenuity and persistence, but they do exist and they are possible.

Given the nature of the socialist version of government, it is reasonable to begin the roll-back efforts with welfare-state reforms. They will take time, both politically and economically. That is not to say one category is more important than the other - the choice where to start is just a matter of political and economic timing.

One aspect on reforms is, of course, the size of government intrusions. As a quick and very simple example, here is how we could quantify the socialist and statist types of government presence in our economy:

  • The welfare state claims roughly two thirds of all government spending in the United States;
  • Measured against GDP, this comes out to approximately 24 percent, meaning that we as a country use one quarter of our economic resources to politically change the economic outcomes for individual citizens;
  • The economic impact of regulations are difficult to quantify, but some studies place it at 50 cents for every $1 we pay in taxes;
  • Adding non-socialist spending (outside of minimal-state spending) the total cost of statist government intrusions on the economy could be placed, roughly, in the neighborhood of 16 percent of GDP (though in fairness this is probably a conservative estimate).

We thus have a combined socialist-statist government that directly or indirectly controls 40 percent of the economy. By contrast, the minimal-state functions of law enforcement, national defense and infrastructure claim about 7.6 percent.

Suppose we measure the "totalitarian" nature of government as follows:

Gs = the socialist share of government spending;
Gt = the economic value of statist intervention;
Gm = minimal-state spending;
Y = gross domestic product.

We need two measurements, one that estimates the profile of government - intrusive vs. constitutional - and one that estimates the presence of that intrusive government in the economy. Here is a suggestion:

(Gs + Gt) / Gm = a
(Gs + Gt) / Y = b

Now, multiply a with b and we get the "totalitarian" value of an economy. For the United States, this would come out to a = ((16+24) / 7.6) = 5.26. Since b is equal to 0.16+0.24 = 0.4, the "totalitarian" value is 2.104. For convenience, working with bigger numbers, let us multiply it up by 100 so we have 201.4.

Imagine, now, that we add a single-payer health care system which amends the socialist part of non-minimal spending by seven percent of GDP. The "totalitarian" value now increases to 290.7. By contrast, suppose we reduce the intrusive presence of government to only twice the size of minimal state spending:

a=2, b=0.2, t=40

In other words, a drastic decline. Of course, if all government did was spend on minimal-state functions, a=0, b=0 and consequently t=0.

Again, this is just a thought experiment in how we can classify and measure the intrusiveness of government. The goal, again, is of course to produce reforms that will roll back government from its intrusive functions, and to do it in a way that does not leave the poor behind. So long as we keep that goal in mind, we will eventually be successful.

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