By Cedric Muhammad
At the root of both the Obama administration’s pitiful roll out of the Affordable Care Act and the dearth of economic growth policy from Tea Party and Congressional Republicans is the same thing – a fundamental misunderstanding of Socialism and Capitalism. Because of this Obamacare will probably fall under its own weight and the GOP will produce a candidate from its centrist wing who will take the White House in 2016, as I predicted the morning of the government shutdown.
Although the electorate is sending clear signals regarding what it wants in growth-redistribution balance, delivering it is compounded by both President Obama’s acumen in picking up the redistributionist impulse but in failing to deliver upon it – a scenario that will now take the rest of his term to unwind – and the intellectual bankruptcy of Republicans who mask their lack of agenda with Obamacare-hate. Nothing typifies this more than the Club For Growth’s single-variable attention to Obamacare as opposed to its policies most faithful to ‘growth.’
Both sides need to sit in the class of the late, great Jude Wanniski who articulated the key insight when he wrote, “What we should admit to begin with, if we can, is that good socialism is better than bad capitalism. The logic of the statement is really inescapable. It is only when capitalism fails that people and nations resort to alternative forms of political economy. A socialist system that is working well is one that is fully deploying the nation’s resources through a central plan that has the approval of the people. It would be superior to a capitalist system that is working so poorly that its adherents must find excuses for mass unemployment, widely diverging income classes, and deepening social pathologies. The price paid for any form of socialism is the loss of some degree of individual freedom, but when the only alternative is bad capitalism of the type described, a people willingly pay that price.”
There are three reasons why good socialism (which the President is proving he is unable to deliver) defeats bad capitalism (which Republicans are perfectly offering).
1) Capitalism is not a political system, but an economic one. Jude stated, “The distinction is extremely important, for it frees supporters of capitalism from having to defend it as a caring or compassionate institution, which it is not. It is coldly mechanical.” The problem is ‘free-market’ advocates think capitalism is a political system and through rationalizations and justifications for the single-variable profit pursuit deny one of Jude’s best insights, “What must any system accomplish? At the core, it must provide a method by which its smallest constituent unit, a household, can save the surplus of its day’s work for the day when it cannot work.” When millions of Americans could not work the Right had nothing to offer that would speak to this reality- in economic contraction, the daily output of Americans is not sufficient to provide for illness, accident or natural disaster. There must be a system of either risk-pooling and income distribution, the question though is whether it is paid for by taxation or bond finance. President Obama realized this but his solution is proving to look like something other than he promised and potentially at a greater cost to freedom than the electorate bargained for.
2) Socialism is more sensitive to signals of wealth inequality. Although its prescriptions for the problem – things like raising the minimum wage, universal healthcare and shared ownership of productive assets – are trickier to deliver than they assume, socialism is far superior to capitalism in telling us that a member of the electorate is being left behind and that a gap in the wealth distribution is widening. This is natural – capitalism puts a premium on unbridled freedom rather than egalitarian equality. It is socialists who have been more vociferous in opposition to the central problem of the post-Bretton Woods environment – “a breakdown in the system of financial intermediation — the ability of the market to finance the exchange of relatively simple tasks, because of the risks attached to a floating currency and almost confiscatory taxation of capital,” as Jude described. Republicans whine about the latter problem without doing anything about currency stability. If they were to follow Nathan Lewis’ advice and offer growth-oriented tax reform coupled with a return to the gold standard they would achieve what Karl Marx articulated better than Adam Smith about money par excellence.
3) A Socialism that permits more market signals and personal freedoms can be superior to a Capitalism that permits pursuit of profit by an elite manipulating public policy. As Jude wrote, “Capitalism did not fail in the Great Depression because profit was burdened with social concerns. It failed because the capitalist ruling class saw an opportunity to increase its profits by an increase in the protective tariff— using its political muscle to push Smoot-Hawley through the Republican Congress and persuade President Hoover to sign the legislation. This was a blatant intervention in the market, not for the usual purpose of increasing government revenues, but to engineer a social outcome desired by Big Business.” The same thing can be said of Wall St. banks last decade – those who have benefitted the most during the derivatives-era regime birthed by a floating dollar – who financed the mortgage mess via wholesale lending and extreme securitization, a far greater problem than either Fannie Mae or Freddie Mac’s role.
Nevertheless, the clock is ticking on President Obama to deliver good socialism. My sense is he cannot and that he must now swing to growth policies centered around entrepreneurship before Republicans figure it out for themselves and triangulate him on redistribution.