Red-baiting appears to be a crucial part of President Trump’s reelection campaign. He regularly accuses Democrats of wanting to turn America into another Venezuela. In the State of the Union address, he went straight from denouncing the Maduro regime to proclaiming, “Here, in the United States, we are alarmed by new calls to adopt socialism in our country.” On the present trajectory, it won’t be long before Trump, like a latter-day Richard Nixon, will be accusing Sen. Kamala D. Harris (D.-Calif.) of being “pink right down to her underwear.”
Having emigrated to the United States as a small boy from the Soviet Union, I am instinctively suspicious of socialism and inveterately opposed to communism. But it is cretinous to conflate Sen. Bernie Sanders (I.-Vt.) and Rep. Alexandria Ocasio-Cortez (D.-N.Y.) with Nicolás Maduro. They may all call themselves socialists, but that’s all they have in common. Trump’s attack makes as much sense as suggesting that the Democratic Party is made up of Kim Jong Un loyalists because the official name of North Korea is the “Democratic People’s Republic of Korea.”
The free-market economist Friedrich Hayek warned of this confusion in his book “The Road to Serfdom.” Socialism, he noted, “may mean, and is often used to describe, merely the ideals of social justice, greater equality, and security, which are the ultimate aims of socialism.” But it could also describe the means that some socialists used to achieve their objectives: “In this sense socialism means the abolition of private enterprise, of private ownership of the means of production, and the creation of a system of a ‘planned economy’ in which the entrepreneur working for profit is replaced by a central planning body.” Obviously Sanders/Ocasio-Cortez represent the former strain of socialism and Maduro the latter, even if Sanders has been foolish enough to praise Venezuela in the past.
Maduro and his predecessor, Hugo Chávez, grossly mismanaged the state oil company, which accounts for almost all of Venezuela’s exports. They expanded the government by cobbling up more than 500 private companies, and they imposed “controls on prices, imports and foreign exchange.” When oil prices sank, Maduro piled up debts and printed money. The result is hyperinflation (377,678 percent and counting) and an economic free fall worse than the one the United States experienced during the Great Depression. Along the way, Chávez and Maduro crushed the remnants of democracy, rigging elections and locking up or killing political opponents.
This is one model of socialism — the same approach that has been applied in Cuba and the Soviet Union. But there are many other varieties that are far more benign. France has had socialist presidents on and off since the 1920s, and it remains a free country. Socialists have ruled in many South American countries without ushering in disaster.
Sanders himself cites the Scandinavian model. The achievement of Denmark, Norway and Sweden is indeed remarkable: Those countries are roughly as wealthy as the United States on a per capita basis but they have less income inequality and a stronger social safety net. By some measures, moreover, they are freer, economically and politically, than the United States. They show that a “free-market welfare state” isn’t an oxymoron.
So there is nothing sinister about wanting to emulate the Scandinavian example. But that doesn’t necessarily mean it’s practical. The Scandinavians have lower corporate tax rates than the United States but much higher individual taxes. According to the Tax Foundation, “The top marginal tax rate of 60 percent in Denmark applies to all income over 1.2 times the average income in Denmark. From the American perspective, this means that all income over $60,000 (1.2 times the average income of about $50,000 in the United States) would be taxed at 60 percent.” The Scandinavian countries also charge hefty value-added taxes of 25 percent on consumption. The United States doesn’t have a national sales tax, and the average rate for state sales taxes is only 7 percent. In all, Scandinavians pay $25,488 a head in taxes compared with $14,793 a head in the United States — 72 percent more.
This is what it takes to finance a Scandinavian-style social welfare state. It can’t be done simply by raising marginal tax rates on the wealthiest taxpayers to 70 percent, as Ocasio-Cortez suggests, because few taxpayers pay the top rate. It requires a massive tax hike on the middle class. There is a good reason Sanders and Ocasio-Cortez aren’t advocating this: It’s unpopular. Support for Medicare-for-all plummets from 71 percent to 37 percent if people are told it will require “most Americans to pay more in taxes.”
We are far more likely to do what we have done before and add new social-welfare benefits with deficit spending. That’s not the Scandinavian way: In those countries, government debt averages 35 percent of GDP; in the United States, it’s 108 percent of GDP and climbing. Fiscal responsibility is one lesson that Sanders and Ocasio-Cortez refuse to learn from the Scandinavians. That doesn’t mean that they are trying to turn the United States into Venezuela. It does mean that turning America into Scandinavia will be a lot harder than they imagine.