A Sprinkle of Socialism is What We Need

But, socialism does not have to be that way. Today, many socialist countries are not poor; they enjoy some of the highest living standards, and their people are rated by international organizations as the happiest in the world. Take Denmark, for example. In several studies, the Danish are found to be happier than the Americans, British or French, not to mention the Russians or the Chinese.

You see, the basic circumstances of life have changed, and we need to change accordingly. It used to be that if you studied diligently and worked hard, you could secure a good life for yourself and your family. But this is becoming less and less true. The long lines of the unemployed include many highly educated and hard-working people. New technologies have reduced the need for highly-skilled workers and for workers in general. Computerization is increasingly replacing the jobs that used to require higher education and training.

In the United States, jobs are also harder to get because the country is no longer the world's leader in manufacturing. Most of the manufacturing and professional service jobs have already gone to developing countries where the cost of labor is lower.  In fact, the job market is changing so dramatically that it is going to be very difficult to ever gainfully employ all those who are now unemployed. The old jobs are no simply longer there to be had.

In the U.S. today, those at the top of the economic ladder are reaping more and more of the benefits, while those at the bottom are earning less and less. The country now has one of the highest levels of income inequality in the developed world. It has the largest number of billionaires and, at the same time, the highest proportion of the poor and near poor. More than one-fifth of Americans do not have enough money to buy adequate supplies of nutritional food, and their children are going hungry. Most of those people are willing to work but cannot find work. Yet, while half a million Americans are still looking for jobs, just thirty or so of them are worth over a billion dollars each. Why do they need to be so wealthy in the midst of such poverty? As one of my friends used to say, "You can't eat two chickens at the same time".

In a recent article, the Nobel Prize-winning economist Paul Krugman suggested that the answer to our economic and social ills could be a system that provides "a strong social safety net, one that guarantees not just health care but a minimum income, too." The safety net "would have to be paid for to an important extent via taxes on profits and/or investment income." Such a system sounds to me like a capitalist system with a sprinkle of socialism.

No one needs to have an income of over five-million dollars a year. And no hard-working American should be forced to struggle to make ends meet with an income under the poverty line. Our country's economy is now characterized by pockets of obscene wealth that coexist with many poor people and a decaying infrastructure. If nothing is done to correct the situation, the result will be the same social pathologies that can already be seen in several Central and South American countries: higher levels of crime, kidnappings, drug wars and the like. The rich will be forced to live in well-guarded communities surrounded by envious and aggressive neighbors who are always looking for the chance to get what they need and don't have. The general economy will also suffer. Obviously, a fairer income distribution would be better for all of us: both the rich and the poor.

Great Wealth Is No Longer Based on Hard Work and Education

Today, most huge fortunes are not gained through hard work or higher education; they are made through manipulation of the stock market or other investments. Through their money and influence, the rich also manipulate the politicians and make sure the laws they pass guarantee their interests. Most of them couldn't care less about the welfare of the majority. They don't want the government to spend on public health, schools, police, roads or bridges. They hate so-called "big government."

In the funding of social welfare, the social security contribution of the rich amounts to only about 0.9% of their incomes; the rest of us pay about 7%. The very wealthy use their money mainly to acquire more property to increase their fortunes, or to buy more television stations,  radio stations, and publishing houses to increase their influence. It seems obvious that, as long as the people we elect to run the government are influenced mainly by the money they need to gain and keep office, they are unlikely to govern on the democratic principle of safeguarding the interests of the majority.

Today, the inequality in the distribution of wealth in the United States is twice that of countries like Finland, Norway, Sweden, and Denmark. And this inequality is, in many ways, a matter of life and death. Health, in particular, is tied to wealth. The rich live longer than the poor, especially in the United States. The United Nations Development Program estimates that the effect of inequality on life expectancy in America is nearly twice as strong as it is in Japan. But such problems could be easily remedied. By some estimates, if the United States were to use the tax system to redistribute incomes more fairly, it would still have one of the lowest overall tax rates in the developed world.

The hypothesis that higher taxes will discourage the wealthy from working, saving and investing has long been disproved. In 1993, President Clinton raised the top marginal tax rate, and GDP growth increased over the next five years. In 2001 and 2003, President Bush cut taxes, and we faced a disappointing expansion followed by a Great Recession. Well into the 1950s, the top marginal tax rate was above 90%. The economy was growing and the gap between the rich and poor was the smallest. That is also when the interstate highway system was built and we had near full employment. We had vibrant and socially sensitive capitalism then, with less poverty and a happier population. And no one would dare accuse President Eisenhower of being a socialist.

Some people have worried that raising tax rates on the wealthy and expanding social welfare programs could have two adverse consequences: it could induce some of the rich to expatriate from the United States, and create a culture of dependency among the poor by reducing their incentive to better themselves and escape poverty.

In response to these worries, I would say, first, that we should not be concerned about the expatriation of the ultra-rich. They are not good citizens in the first place: Depardieu leaving France for Russia was good for neither France nor Russia. In addition, taxing the rich at higher rates is an indispensable part of the solution to our economic problems.

As for the effect on the poor: If we were to upgrade our tax system to support the increased spending we desperately need for healthcare, education and infrastructure, we can and should do it in a way that also increases the incentive to work hard and to innovate. The distribution of income must continue to reward those who contribute more. That contribution, however, should not only be for the contributor's own benefit, but for the benefit of society as a whole. To achieve that result, all we need is a sprinkling of socialism.