It's that season again: Republicans are claiming that Democratic Party office-seekers have taken a “hard left turn” toward socialism. This gambit evokes powerful negative imagery: economic failure, soup and bread lines, the suppression of individual initiative and innovation, and gulags for those who complain. This rhetorical device distracts from the difficult issues facing the public, as well as deflects responsibility for resolving those issues. The best defense is a quick pivot to offense, incorporating mainstream economics in the response. Consider a few examples:
Economic Issues of Great Concern to Voters
Many of today’s concerns (health insurance, infrastructure, climate) derive from the failure of the market sector to perform well (often dubbed "market failure") or from the failure of the government sector to perform the functions assigned to it (similarly dubbed "government failure"). As the socialist label is tossed around, both voters and pundits must keep in mind a guiding economic principle: capitalism requires efficient provision of public assets that private markets will not provide. Moreover, because capitalism requires a well-functioning public sector, it is crazy to call public investments "socialism."
We do not face a choice between capitalism and socialism: all capitalist economies are “mixed economies” in which a large number of activities are directed by private market forces while others are directed by government forces. In those sectors where market direction is chosen, profit-seeking private firms will compete to provide those goods and services that can be owned by individuals and bought and sold on markets. In those sectors in which government direction is chosen, the means of production will be owned collectively and directed by bureaucracy and elections and paid for with taxes and user charges.
Because capitalism is such a successful wealth-producing system, the American presumption is that goods and services are best directed by market forces rather than through government direction. However, the challenge for modern society is not to choose markets in all sectors of the economy versus government ownership of the means of production in all sectors. Instead, it is to determine task-by-task, sector-by-sector, whether private enterprise markets or a well-chosen level of government would be the better allocator of resources within each sector. In transportation, for example, while roads and bridges are built and maintained by government, the cars driven over them are produced by private enterprise
Two types of error can be made: Type I is the error of implementing government ownership of the means of production in a sector that would be better served by market forces. Type II is the error of relying on markets when government ownership of the means of production would serve society better. Steady improvement of an economy’s performance depends on avoiding both types of error.
Hitting Back When Hit with the Charge of “Socialism”
Candidates can use well-accepted economics to hit back sharply when confronted with a charge of socialism, with responses such as these:
On Deteriorating Roads … “We are plagued with terrible road conditions that increase costs for commuters and business firms. Fixing roads requires a collective initiative. … and money. To pay for the roads, we need user fees to require that those who use the roads pay for them. For now, that means raising fuel taxes; as technology improves so will better ways to impose user charges. It is ridiculous to apply the term "socialism" to investments in roads and the user charges to pay for them; roads provided publicly are essential for capitalism to thrive, and user charges employ one of the hallmarks of markets, which is using prices to require users to pay for what they use.”
On Health Insurance … “My opponent claims that the Affordable Care Act will lead to socialized medicine. Not true: as shown by the Heritage Foundation, a pro-market think tank, market insurance alternatives that are unregulated cannot provide universal health insurance coverage. Why not? Competition would force insurers to charge experience-rated premiums, i.e., charging higher premiums to higher-risk policy-holders. Low-income people, and those with pre-existing conditions, would be priced out of the insurance market and lose access to basic medical care.”
On Greenhouse Gas Emissions … “An important first step in addressing the climate threat is to recognize that the current cost of emitting carbon is too low; polluters use the atmosphere as a low-cost waste dump. Consequently, polluters are encouraged to overproduce and underprice their products. To re-direct those market forces toward reducing carbon emissions, we should follow the advice of the Climate Leadership Committee and implement a carbon tax of $40 per ton of carbon emitted, which will generate a $2,000 per taxpayer rebate. My opponent calls this socialism. Ridiculous. The carbon tax is an example of how to use market forces to reduce global warming pollution to sustainable levels."
William L. Holahan is Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.