Business

White House issues 70-page rebuttal to rise of socialist economics

Posted October 23, 2018 6:58 p.m. EDT

— Economists in the Trump White House see socialism creeping back into American public discourse, and so they've issued a 70-page report in an attempt to put a stop to it.

The Council of Economic Advisers' study, titled "The Opportunity Costs of Socialism," runs through the experience of socialist or Communist economies — such as the Soviet Union, China, and Venezuela — as well as of more open social-democratic Nordic countries, and presents a standard economist's critique of central planning: That it stifles competition and innovation, two qualities that make America great.

"The historical evidence suggests that the socialist program for the U.S. would make shortages, or otherwise degrade quality, of whatever product or service is put under a public monopoly," wrote the authors.

In a briefing with reporters, CEA chair Kevin Hassett said that the impetus for the report was the rise of proposals like Vermont independent Senator Bernie Sanders' Medicare for All plan, which would create a federally administered single-payer health care program.

The midterm cycle has also seen the emergence of self-described Democratic Socialists running for office, such as Congressional candidate Alexandria Ocasio-Cortez and actress Cynthia Nixon, who ran unsuccessfully against New York Democratic Governor Andrew Cuomo. In August, Gallup found that Democrats — particularly younger ones — viewed socialism more favorably than capitalism for the first time since they started asking the question in 2010.

"If our study convinces people of all parties that if they rely on central planning and try to reduce the influence of private property by either specifically nationalizing things or regulating or taxing things into oblivion that that would be bad for the economy," Hassett said, "I would feel that the paper had accomplished its objectives."

The CEA's 45-person staff writes as a team, so nobody's name is on the report. The body is part of the executive branch, and traditionally does analysis on issues that are relevant to the president's policy agenda. The CEA said it was issuing the report "coincidental" with the 200th anniversary of Karl Marx, who was born on May 5, 1818.

Under President Barack Obama, for example, the CEA issued reports on everything from the gender pay gap to progress under the Affordable Care Act.

But under President Donald Trump, the CEA has forcefully advocated for White House-driven economic initiatives, such as imposing work requirements in safety net programs and cutting regulations.

Hassett previously worked at a conservative think tank and was seen early on as a relatively mainstream pick for the job, since he previously advised the presidential campaigns of George Bush, Mitt Romney and John McCain. He has been a frequent guest on network television shows, trumpeting robust economic numbers and defending Trump's policies.

Some of Hassett's assertions have drawn criticism, such as his argument that last year's package of tax cuts would boost household incomes by $4,000 a year, contradicting most other projections. Hassett has also recently walked back some of his long-held positions, such as arguing for free trade, saying at a Rose Garden press conference in July that Trump's tariffs had brought down the trade deficit when the decrease was a blip that reversed itself several months later.

Hassett, in his briefing, said the idea for the socialism report came from recently added staff — specifically University of Chicago professor Casey Mulligan, who took a leave from his academic post to become chief economist.

According to a CEA spokeswoman, Mulligan had noticed socialism become a topic of interest among his students.

Mulligan has long made the case against economic redistribution. In 2012 he published a book arguing that the expansion of social safety net programs such as food stamps and unemployment insurance following the great recession reduced the incentive to work, thereby prolonging the downturn.

"The more you help low-income people, the more low-income people you'll have," Mulligan said, in remarks upon accepting the Hayek Prize in 2014 from the conservative Manhattan Institute. "The more you help unemployed people, the more unemployed people you'll have."

Obama's CEA chair Jason Furman declined to comment on the report, but some economists didn't hold back their criticism on Twitter, including University of Michigan professor of economics and public policy Justin Wolfers.

The report comes at a time when Trump is blazing through battleground states in advance of the midterm elections, painting Democrats as a far-left mob. "The new Democrats are radical socialists who want to model America's economy after Venezuela," he wrote in a USA Today op-ed.

The CEA paper uses the poor economic performance of Venezuela and other countries as evidence that socialist policies don't work. It says that the Nordic countries, often used as examples of successful Democratic Socialism, actually have lower tax rates and more cost-sharing in its health care program than is widely believed in the United States, but that they still have lower per capita income and consumption.

The report includes a chart of per capita incomes of people of Nordic ancestry in the United States, who earn more than people in their home countries. "This suggests that the incomes of Nordic people are not lower because, apart from public policy, low incomes are somehow part of Nordic culture," the report reads.

The Nordic countries are not, however, low-income. Iceland has the highest average annual full-time wage out of all developed nations, according to the Organization for Economic Cooperation and Development, with Denmark and Norway coming in fourth and fifth. In addition, the CEA paper argues that Norway's GDP per capita is "only slightly above" the U.S. average "despite being an oil rich country," when the U.S. is now the world's largest producer of crude oil.

The Nordic countries also top the 2017 World Happiness Rankings, which measure a host of well-being indicators.

In January, President Trump reportedly expressed a desire for bringing in more immigrants from Norway rather than people from African countries.

The CEA report did not address other proposals emanating from the progressive left, such as various forms of job guarantees and universal basic incomes, which are meant to combat inequality. Their proponents argue that such programs actually enhance economic freedom by allowing workers to pursue more education or take more risks because they're not afraid of living on the streets without taking one of the low-paying jobs available to them.

The Democratic Socialists of America, whose membership numbers have surged to 50,000 over the past few years, did not rebut specific aspects of the report in its response to a request for comment.

"DSA agrees with the White House 'socialism' report in one respect— 'socialism is making a comeback in American political discourse.' We believe this report is an opportunity to address the real needs of the American people," the group said in a statement. "Socialism provides hope for a future that this administration is doing everything in its power to destroy."