Thoughts and Impressions

Month: July 2009

“Trust Me” is Not a Cost-Cutting Reform

This post was originally written for Americans for Tax Reform’s Blog, where I am an Associate (intern).

This weekend, the CBO shot down another hollow Obama administration “savings” proposal.  Obama’s budget director Peter Orszag endorsed an Independent Medicare Advisory Council (IMAC), which would have transferred some authority to the executive to reduce Medicare expenses (probably by reducing payments to doctors).

Savings might not be realized at all because the proposal specifies a process without specific goals for savings or a “fall-back” plan for ensuring spending reductions if the combination of annual IMAC recommendations and Presidential approval does not produce hoped-for savings.

To translate for the CBO: “Trust me” is not a savings proposal.  IMAC is a vague promise to figure out, at some unspecified date in the future, some unspecified way of generating an unspecified amount of savings.  Congress and Obama might as well just admit that they don’t want to deal with the hard, important stuff now.  To be nice, CBO scored the proposal for just $2 billion in savings over the next ten years.

Democrat policy cheerleaders like Ezra Klein have complained that Americans aren’t paying enough attention to supposed-cost control measures.  There’s a good reason Americans aren’t impressed.  The cost-cutting reforms just aren’t serious and the draft health care bills prove it.  The Democratic “reform” proposals are larded with massive subsidies that cost hundreds of billions of dollars a year.  Why?  Because if they smother the health care industry with money they can make costs look like they are decreasing – for a while.

If Democrats believed their proposals actually cut costs, they wouldn’t need the subsidies.  Alternatively, if they were confident that measures like IMAC actually produced budgetary savings, they could make subsidies floating and dependent on CBO measurements of actually attained savings.  Until the subsidies go away or are linked to attained savings, it is reasonable to assume that Democrats don’t take their own reforms seriously.  With the stakes this high, “trust me” is not an option.

Hayek Defines Socialism

From Hayek’s preface to the 1976 edition of The Road to Serfdom:

During the interval of time [since he had published the book in 1944] terminology has changed and for this reason what I say in the book may be misunderstood.  At the time I wrote, socialism meant unambiguously the nationalization of the means of production and the central economic planning which this made possible and necessary….  Socialism has come to mean chiefly the extensive redistribution of incomes through taxation and the institutions of the welfare state. In the latter kind of socialism the effects I discuss in this book are brought about more slowly, indirectly, and imperfectly.  I believe that the ultimate outcome tends to be very much the same….

Color me skeptical that the definition had simply “changed” in the 22 years – or in a mere 4 years, if Mises was indeed using it in the looser sense as early as 1948.  More likely, as Hayek drifted from more economic subjects (Brian Doherty pegs this at 1941 with the publicaion of The Pure Theory of Capital) to more liberal topics (The Road to Serfdom in 1944 and The Constitution of Liberty in 1960) he found himself engaging with a different group of people who used the term in a different way.

Is Socialism Best Defined Down?

I’ve previously argued that the term “socialist” should not be slavishly confined to its dictionary definition (common ownership of the means of production to achieve more equally distributed wealth).  Conservatives and classical liberals use it casually to describe redistributivist philosophies.  Today, I stumbled on a story about Ludwig von Mises that I think underlines my point.   From a Reason interview of Milton Friedman:

Reason: But you knew Mises personally. Did you see the intolerance that you find in his method also in his personal behavior?

Friedman: No question. The story I remember best happened at the initial Mont Pelerin meeting when he got up and said, “You’re all a bunch of socialists.” We were discussing the distribution of income, and whether you should have progressive income taxes. Some of the people there were expressing the view that there could be a justification for it.

I’ve been reading about Mises in Brian Doherty’s Radicals for Capitalism.  A leading economist of the Austrian school, Mises famously argued in his book Socialism that socialism faced intractable difficulties.  Mises snorts at sloppy labeling in one of the prefaces to Socialism.

My own definition of Socialism, as a policy which aims at constructing a society in which the means of production are socialized, is in agreement with all that scientists have written on the subject. I submit that one must be historically blind not to see that this and nothing else is what has stood for Socialism for the past hundred years, and that it is in this sense that the great socialist movement was and is socialistic. But why quarrel over the wording of it! If anyone likes to call a social ideal which retains private ownership in the means of production socialistic, why, let him! A man may call a cat a dog and the sun the moon if it pleases him. But such a reversal of the usual terminology, which everyone understands, does no good and only creates misunderstandings.

Assuming Friedman’s recollection was accurate, why did Mises (in circa 1948?) commit the error he criticized in 1932?  I think Socialism may partly answer the question itself.   A commonly owned system of production, Mises explained in the book, faces crippling knowledge problems.  All decisions on what to produce must be made by central (governmental) planners.  But planners have no way of knowing the best way to use any given set of inputs.  Because of dispersed knowledge about production, there is no guarantee that it will pick an efficient manufacturing scheme.  And because tastes vary, there is no objectively identifiable target basket of goods to aim for.  Without access to inherently subjective consumer preferences, planners cannot meaningfully choose between apples and oranges, much less between guns and butter.  In order to gain access to this knowledge, we need markets and private property.  Consumers reveal their true preference – in a way no census could capture – by the very actions of buying and selling on the market.

Many view the collapse of the Soviet Union as evidence that Mises was correct.  But, as Brian Doherty explains, this may miss the point:

To Mises, the so-called socialist economies never achieved a true functioning socialism, which was not possible to begin with.  The Soviet Union and other communist countries suffered from a particularly virulent form of interventionist state capitalism larded with hampered merkets.

If pure socialism is truly “impossible”, then to reserve the word for complete instances of its academic sense is to kill it.  Progressives who realize how toxic the term has become would no doubt be comfortable with this.  But conservatives and classical liberals use it in another commonly understood way outside of the university.  As with Mises at the Mont Pelerin meeting, the word describes redistributivist policies that aim at better equalizing income.  Pedantically discarding this more common meaning, which everyone uses, does no good and only confines our rhetorical lexicon.

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