Wednesday , January 22 2020
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Three Things I Think I Think – More on Socialism

Summary:
Here are some things I think I am thinking about: 1) Scandinavia really isn’t Socialist. I got a lot of emails over the weekend about my piece on Socialism and Capitalism. One of the common themes was about how “Socialist” Scandinavia is. This is a tired old myth. Scandinavian countries are predominantly Capitalist with an average of about 33% of wealth owned by the state.¹ Some are quite high (like Norway at 56%) and some are quite low (like Denmark at 12%). But even countries like Norway are actually just state run Capitalist systems because the government takes large stakes in public companies and runs them based on a shareholder value basis. In any case, you can make an argument that Norway is relatively Socialist, but the others are all predominantly Capitalist systems run for the

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Here are some things I think I am thinking about:

1) Scandinavia really isn’t Socialist. I got a lot of emails over the weekend about my piece on Socialism and Capitalism. One of the common themes was about how “Socialist” Scandinavia is. This is a tired old myth. Scandinavian countries are predominantly Capitalist with an average of about 33% of wealth owned by the state.¹ Some are quite high (like Norway at 56%) and some are quite low (like Denmark at 12%). But even countries like Norway are actually just state run Capitalist systems because the government takes large stakes in public companies and runs them based on a shareholder value basis.

In any case, you can make an argument that Norway is relatively Socialist, but the others are all predominantly Capitalist systems run for the benefit of shareholders and using that profit motive to then redistribute large amounts of wealth to public purpose. So, it’s better to say that Scandinavian countries are Capitalist economies with large public programs.

2) NYC should have paid Amazon. Amazon announced that they were adding 1500 jobs and a new office in Manhattan. AOC and Bernie Sanders took this as a victory after they made a big stink about potentially paying Amazon $3B during the bidding for their new HQ in Queens. Hmm. This seems like a huge loss for NYC. Amazon expected 25,000 new jobs at the HQ. So that would have cost them about $120,000 per job per year or 2 years of median wages in exchange for one of the world’s most innovative firms.

I find it very hard to believe that this wouldn’t have paid off in the long-run in a very big way. After all, $3B is not a lot of money for a state like NYC. And the multiplier effect from 25,000 jobs and a large tech firm like Amazon is huge. On the other hand, at a national level the deal is more beneficial in Virginia where the multiplier is potentially even larger, but at a local level this seems like a big loss for NYC.

Look, I don’t love corporate subsidies, but states engage in corporate subsidies all the time via relative corporate tax rates. And this seemed like a relatively small price to pay for lots of jobs and a huge multiplier effect.

3) Capitalism isn’t failing us. I saw a related Tweet from actor Mark Ruffalo claiming that Capitalism has failed us. This seems like another basic misunderstanding. Capitalism is an inherently monopolistic system. It is literally designed to incentivize the maximization of private ownership of the means of production. If you let this system run its natural course you’d have one big Capitalist owning everything.

Once you understand that you can apply some logic to this system that argues for the need for a government, regulations, some redistribution, etc. because it isn’t healthy economically or socially to have this kind of ownership concentration and power structure. But the broader point is that Capitalism isn’t failing us. Capitalism is literally doing exactly what it’s supposed to be doing. So, it’s kind of like we’re the drivers of a Ferrari and we’re barreling down the road at 150 MPH clipping other cars and causing problems and everyone is like “Ferraris are failing us!” No, the Ferrari is just doing what it’s designed to do – drive very fast. If you don’t tap the brakes or have rules limiting the way the car drives then that’s a policy failure. So it’s ironic when I see policymakers claiming that Capitalism is failing us. No, in most cases policymakers have failed to understand the essence of Capitalism and have failed to provide the right policies to keep it in check.

¹ – Source: Even Newly Corrected Data Doesn’t Support Claims That Scandinavia Is Socialist

Cullen Roche
Former mail delivery boy turned multi-asset investment manager, author, Ironman & chicken farmer. Probably should have stayed with mail delivery....

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