mattiasNYC said:
John,
My point regarding Scandinavia was simply that wealth can be created by governments. You said it can't, I say it can. The proof is that Scandinavian governments have done so. Whether or not it is optimal (or a net positive) for governments to do it as opposed to corporations is a very different question.
Yes, I forgot that, I'm not avoiding it.
Yes, government can create wealth. There is nothing in theory preventing that, and the Chinese government is the more recent poster boy for creating a lot of wealth.
My response was shorthand for the historical reality that government generally destroys far more wealth than it ever creates, and is generally less efficient at managing resources.
While it may seem like pointless semantics it's actually not. The distinction is crucial. After all, if a person suggests a system that involves a government producing wealth then if it were true that a government actually can not produce wealth in the first place would make the proposition unworkable if implemented. And thus we need not even discuss the matter beyond "Governments can't produce wealth". And THAT is the problem. Making that statement only seems to intend to shut down discussion because of an incorrect assumption.
I concede the theoretical point, but argue in practice (with very few exceptions) government is a net wealth destroyer. The question is what "will" government do, not what "can" government do.
When it comes to Sweden's decline the key is in the text you quoted. In the past century Sweden made great strides and became the envy and posterchild for certain ways of running a country. High levels of benefits, high taxes, more or less free services, a large government sector etc. But a happy, educated and healthy population. Not to mention wealthy. But the last paragraph indeed points out the decline, due to "neoliberal reforms".
Homogeneity actually plays little part in all of this. Sweden had big influxes of immigrants in the 70's/80's due to war in the middle east as well as the cold war and wars in south/central-America. No problem. People integrated and paid their dues. The current wave of immigration is post-neoliberalization, and thus after we began to see what I would characterize as a decline. In fact, those pushing for change haven't been those of lesser means, a demographic in which we find immigrants, but instead those with means. And it's clear why that's the case; neoliberalization increases their wealth. Has nothing to do with homogeneity.
"If a school does not create valuable results it should go out of business." Well, that's one way of looking at it. There's a big problem with that view though, or actually two problems;
a) we don't know that the bancrupcy is due to it not being able to create "valuable results". AS a matter of fact, from the standpoint of capitalism "valuable" = profit. Period. So, a business can operate at a loss on paper, while actually producing net wealth. But using creative accounting it can be made to operate at a "loss", and thus move into bankrupcy. And indeed, as I said, the problem wasn't that the school wasn't creating valuable results or wasn't profitable, it was that accounting allowed for the parent company to extract money out of it and then get rid of it. The parent company still made a big profit. That's how capitalism works.
Schools do not operate with a traditional P/L relationship. More like a service industry so the question remains, what is a satisfactory outcome? We all want our children to be prepared to succeed in life. I worry that the public is poorly equipped with scientific literacy, and even weak understanding of civics (including comparative government systems). It seems parents these days do not participate adequately in steering their children's education, perhaps a consequence of their poor education. The dominant force in education seems to be the teacher's unions arguing loudly against testing , perhaps because they fear being held accountable for their work product. Life is a constant test, education is just another process to manage, and testing reveals how effective the teachers are.
b) just how do you measure "valuable results"? While you could have argued that your point is broader (in which case I partially agree) and that a school that leaves us with poorly educated students should reform or cease to exist, from a "money value" perspective it's entirely reasonable for a school to operate at a loss if it is government owned, but where society as a whole then sees a net gain from it. The money comes back from taxes which one is able to receive because the more and better educated population creates more wealth.
investing in education is one of the good things done with our tax dollars, while I have little faith that our money is spent wisely. I am optimistic that education will improve dramatically with more use of electronic media and WWW.
I just read an article where a college teaching computer science, secretly used Watson (IBM's artificial intelligence program) to successfully replace one of the teacher's assistants. These are still early days for AI assisted teaching, and I am optimistic that even teacher's unions can not hold back this tide of progress. (I hate using that word for something good).
So again; my point was that Socialism does NOT have a problem because governments can NOT create wealth, they can. Some countries have problems when governments create wealth because the management is poor - BUT - the same is true for corporations. So the real question is what level of democracy we want when it comes to just how we manage our resources and wealth.
Ding ding ding... Both Venezuela and Norway have heavily nationalized oil industries. Norway (I ASSume) is well managed and healthy, while Venezuela has long been on a downward trajectory, accelerated with recent oil price drops. Since the Venezuela government can not even deliver full time electricity, and clean water, the public is in revolt, while the government has stacked the judiciary to thwart democratic reforms.
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The key issue, as has been argued better than I ever could by well known economists, is the difference between central planning where government workers manage other people's money, and private industry where people far more carefully manage their personal wealth. Fredrick Hayek (Road to serfdom, and more) said it far more eloquently than I ever could.
A condensed version of "The road to serfdom" was published in readers digest in 1945. This surely had a strong influence on my parents generation (I wasn't born yet). These days socialism and communism is viewed as far more acceptable, with Bernie Sanders mounting a credible campaign to head the democratic party (ignoring the super delegates that are fixed for Hillary).
JR
PS: The China wealth creation engine is still a work in process and too early to judge as success or failure. The combination of centrally planned large industries (like steel), with some small private industries is growing GDP far faster than the west. China gets upset when GDP growth is only single digit, while we worry about growth at all. Large industries in China suffer from over capacity and routinely dump finished goods at below cost, to destroy foreign competition. (look at european solar power industry, and more recently european steel industry ). I favor free trade, but never with government force on either side of the transaction. Protectionist tariffs generally amount to government picking winners and losers. China still needs to transition from a manufacturing economy to a consumption economy and that will be the real test of their success.
[update]
Coincidentally there was a front page article in yesterday's Wall Street Journal about the Chinese government subsidizing several of their massively over-capacity industries to keep them operating to preserve jobs after market prices for those goods have collapsed below profitable levels. A partial list of these industries include Steel, Aluminum, solar panels, copper, etc. Selling goods below their manufacturing cost is the text book definition of dumping and causes harm to industries in other countries. We have seen how the steel industry is struggling in UK, and the US has imposed sanctions on steel imports.
The open question is whether China's government is creating sustainable wealth with their simultaneous mismanagement and anti-competitive subsidization of several large industries. In the short term they are providing a benefit to those thousands of Chinese workers who keep their jobs, to the detriment of foreign workers who lose theirs. I have no problem if Chinese steel gains market share in free market trade, but this is a classic case of central planning failing to forecast demand properly and refusing to adjust production down.
I guess it depends on your personal perspective. The Chinese workers who keep their jobs (so far) probably think their government is doing good, the rest of the world not so much. Historically such mismanagement ends badly, and China has been trying to engineer a soft landing for years. While China's idea of weak growth is several times ours. :-[
It is worth noting that for years now we have been in a beggar thy neighbor currency war when every country tries to devalue their currency, to gain a competitive advantage in international trade. The US is on track to raise central bank interest rates that should nominally make the USD stronger. Japan who has been fighting deflation for decades has recently seen their excessive monetary policy not work. Some have argued that central bankers are losing control of the economic levers they like pulling. Negative interest rates are an experiment on top of another experiment with no (economic) history to study. I am nervous about what happens when the tide finally goes out and we can see who isn't wearing swim trunks.
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