Harris and Warren are Wrong on Reparations for Slavery

In the last few weeks, the issue of whether the descendants of black slaves should be given “reparations” has become a hot topic in the Democratic presidential primary race. It all started when Kamala Harris came out in favor of reparations, when asked about the issue during a radio interview. Soon afterward, Elizabeth Warren and Julián Castro chimed in, declaring that they also supported reparations.

During CNN’s recent town hall with Senator Bernie Sanders, one of the questioners asked him whether he would support reparations for slavery, too. Sanders responded that he couldn’t answer the question without first getting clarification about what the word “reparations” is supposed to mean, since advocates have used the term in many different ways:

Many activists on the Left were very unhappy with Sanders’ response here. They believe that Sanders must come out unequivocally in favor of reparations for slavery, and that it is cowardice for him to do otherwise:

reparations tweet

But Sanders was right to demand clarification. Candidates like Harris and Warren have been muddying the waters on the issue of reparations, using the word disingenuously to refer to policies that are not race-specific. In order to adequately address this issue, we need to get clear on what kind of policy we’re actually talking about.

Historically, the term “reparations” has been understood to refer to race-based, cash reparations. That means that a cash payment would be given specifically and exclusively to the descendants of black slaves, in an effort to “bring justice” to African-Americans who are still dealing with the socioeconomic legacy of slavery and Jim Crow segregation. Sometimes other types of reparations have been proposed, such as grants to “black” nonprofit organizations, but the common thread is that they are all race-based, and not universal programs. Reparations are often promoted as the best way to address the ongoing, substantial racial wealth disparities that exist in the US:

“Universal programs are not specific to the injustices that have been inflicted on African-Americans… I want to be sure that whatever is proposed and potentially enacted as a reparations program really is a substantive and dramatic intervention in the patterns of racial wealth inequality in the United States.”
— William Darity, pro-reparations economist

We know that Senator Sanders is outright opposed to this kind of race-based reparations. In a 2016 interview, he pointed out that such a policy would be “very divisive.” On this point, Sanders is exactly right. Reparations for slavery are an incredibly divisive policy proposal, and they’re something that the Left should firmly oppose.

The case against reparations

If we want to elect a Congress and a president that are committed to enacting a left-wing, democratic socialist program, we need to win tens of millions of white voters over to our side. Including reparations in our platform would make it almost impossible to do that. Polling has shown that just 6% of white Americans support cash reparations for slavery, while 79% actively oppose them. And we should expect that white opposition would only deepen as whites are exposed to the right-wing propaganda that would accompany serious push for reparations.

Source: 2014 YouGov poll

If somehow reparations for slavery were ever enacted, they would create a tremendous amount of resentment by whites, Latinos, and Asian-Americans alike. Non-blacks would view reparations as a redistribution of wealth away from themselves and their families, toward black Americans who did nothing to deserve them. Racial discrimination and hate crimes against African-Americans would substantially increase, and the whole political spectrum would lurch far to the right. The backlash would cause whatever Left government that enacted them to be voted out of office, making it impossible for us to carry out the rest of our program.

If that’s not enough, the logistical problems with such a reparations program would be immense. Because of the widespread intermarriage between African-Americans and other ethnic groups over the decades, the government would have to be in the grotesque business of determining who is “black enough” to deserve reparations payments, dredging up genealogical records to find out who is a descendant of slaves and who is not. This would only reinforce, rather than undermine, right-wing pseudoscientific racial ideologies that assert the existence of a “black race” with an essential character.

Furthermore, reparations would not do much of anything to end systemic racial disparities in wealth and income in this country, because they would leave the structure of the economy intact. Giving black families a one-time payment of a few thousand dollars might help them make their rent payments and shore up their savings for a year or two, but there would still be widespread discrimination in the job market and long-term outcomes would likely be unchanged. As Senator Sanders aptly put it, there are much more effective ways to address racism than simply “writing out a check”:

In a post-reparations scenario however, the political will for further efforts to address systemic racism would largely evaporate. The Right would be able to argue, “Hey, we already did reparations for slavery, now racism must be over.” And millions of Americans would buy into those arguments. In the long run, reparations would only harm the standing of African-Americans in this country, rather than helping them.

What about Latinos?

While the reparations debate has so far only focused on the issue of poverty among black Americans, Latinos are actually not much better off than blacks in this country. Reparations would do nothing to benefit the Latino population, so even if reparations succeeded in raising black families to the same level as white families, Latinos would be left behind as a new underclass.

racial wealth gap
Source: “The Racial Wealth Gap”, Demos 2015

The sheer fact that Latinos are roughly as disadvantaged as African-Americans calls into question the assumption, essential to the idea of reparations, that blacks are worse off because they are the descendants of slaves per se. Rather, it’s likely that both Latinos and African-Americans are disadvantaged due to similar processes of racial discrimination and the inter-generational poverty. The interests of Latinos and African-Americans are closely linked, and both of these populations would benefit from similar policies. It is totally counterproductive and wrong-headed to separate these issues, and thereby pit people of color against one another, by advocating for a reparations policy that exclusively targets one disadvantaged minority without addressing the plight of others. As Bernie likes to say, we need to bring people together, rather than dividing them up.

Reparations are probably unconstitutional

All of this is assuming, however, that a reparations act would not be struck down by the Supreme Court before it could take effect. This is not a good assumption. The Fourteenth Amendment, which stipulates that US citizens must be given “equal protection” under the law, has been consistently interpreted by the courts to severely restrict the extent to which the government can allocate any kind of benefit on the basis of race. The Court has found that any use of racial classifications must be subjected to “strict scrutiny,” which essentially means that there must be no other, narrower, or non-race-based method for achieving the same “compelling government interest.”

Strict scrutiny is very demanding. For example, in the landmark case Regents of the University of California v. Bakke, the Supreme Court ruled that it was unconstitutional for a public university to set aside a specific number of seats in a medical school program for students of “disadvantaged minorities” in order to help them overcome the effects of discrimination:

“We have never approved a classification that aids persons perceived as members of relatively victimized groups at the expense of other innocent individuals in the absence of judicial, legislative, or administrative findings of constitutional or statutory violations… Hence, the purpose of helping certain groups… perceived as victims of ‘societal discrimination’ does not justify a classification that imposes disadvantages upon persons like [Bakke, a white medical school applicant], who bear no responsibility for whatever harm the beneficiaries of the special admissions program are thought to have suffered.”
Regents of the Univ. of Cal. v. Bakke, 438 U.S. 310 (1978)

Essentially, the Court is saying that it is impermissible for the government to relatively disadvantage white Americans, who have not committed any crimes, in order to “make up for” past or ongoing discrimination against minorities. This ruling is fundamentally at odds with the idea of reparations, and it is very unlikely that the Court would overturn decades of precedent by upholding such a program.

Advocates might try to defend the constitutionality of reparations by formulating the act so that it does not refer to “race” at all, but only to whether an individual is a descendant of slaves. But this is very unlikely to pass Court muster. The category “African-American” is often defined in terms of whether a person is a descendant of American slaves. Recent immigrants from Africa, or migrants from Haiti, are generally not considered to be “African-American.” Additionally, the Court has ruled that strict scrutiny must be applied to many non-racial classifications, such as national origin, so the constitutional question would not hinge on whether the reparations were strictly speaking “racial” or not.

Some reparations advocates have pointed to the example of the Civil Liberties Act of 1988, which provided cash reparations to victims of Japanese internment during World War II. They argue that these reparations prove the viability and constitutionality of reparations for slavery. But the Civil Liberties Act gave reparations only to those who were personally interned during World War II, not their children or grandchildren. Reparations for slavery, by contrast, would involve giving reparations to the distant descendants of those who were directly wronged. That is the critical legal and political difference between these two cases. It is a core assumption of American jurisprudence that children are not punished for wrongs that were committed by their parents, nor are they awarded compensation for wrongs committed against their parents.

Given that reparations are almost certainly unconstitutional, it’s simply a waste of time and resources to continue advocating for them, especially when there are many alternative policies that are compatible with the Constitution which would be much more effective at ending systemic racism than reparations ever could be.

Alternatives to reparations

Black workers in this country have the same basic needs as workers of any other race. Universal, class-based policies like a $15 minimum wage, the Green New Deal, Medicare for All, free college tuition, and free public childcare would all disproportionately benefit African-Americans and Latinos, thereby reducing the racial income and wealth gap in this country. These are things that Senator Sanders has forcefully advocated for throughout his career. Kamala Harris and Elizabeth Warren, however, have been much less enthusiastic about these kinds of universal, social democratic reforms.

Massively expanding the stock of high-quality, affordable public housing in this country would also disproportionately benefit racial minorities. And affirmative action policies could be used, to the extent permissible under the Constitution, to ensure that public housing projects are occupied by a diverse mix of races and ethnicities. This would reduce housing segregation and help break down racist attitudes over time. Singapore’s public housing program is a great example of how this can be done.

Finally, anti-discrimination laws in employment must be much more vigorously enforced than they currently are. Studies have shown that job applicants with “black names” are around 36% less likely to get a callback than applicants with “white names,” even when their résumés are otherwise identical. There are similar findings for the results of in-person job interviews. In order to address this issue, the Equal Employment Opportunity Commission (EEOC) must be greatly expanded, allowing it to actively investigate and press charges against employers it finds to be engaging in discriminatory practices, without first waiting to get a complaint.

If all of these measures were enacted, we would be a long way toward achieving genuine racial equality in the United States. Furthermore, these policies are much more politically viable than reparations, since they do not involve an overt redistribution of wealth from non-blacks to black Americans. It’s about time that the Left stop advocating this wrong-headed, counterproductive idea of reparations and instead fight for things that really could help end systemic racism in this country.

Nobody is More Left-Wing Than Bernie Sanders

The American Left has been celebrating for the past few days, as Bernie Sanders’ second presidential campaign has rapidly gained steam. Sanders was able to raise nearly $6 million in the first 24 hours after his announcement, and he is close to reaching 1 million volunteer sign-ups on his website. But there is a vocal minority on the Left who aren’t so happy about Sanders’ bid for the presidency. Some leftists are arguing that Senator Sanders has problematic positions on a number of issues, that he is not as left-wing as he is often made out to be, and that the Left should not support his candidacy.

This Left skepticism of Bernie Sanders is largely baseless, however. Bernie is by far the most left-wing presidential candidate in the race, and his platform represents the most transformative change that the Left can reasonably hope to achieve in the near term. Sanders’ so-called “problematic” positions— like his opposition to reparations for slavery, his refusal to endorse the “Abolish ICE” slogan, and his alleged “softness on US imperialism”— are really not problematic at all. Furthermore, we have good reason to believe that Sanders’ long-term vision is thoroughly socialist and anti-capitalist. Sanders wants to eliminate wage labor and guarantee a high standard of living for everyone. He just recognizes the merits of a gradualist approach for carrying out his socialist program.

Bernie isn’t “soft” on imperialism

Many on the Left have criticized Bernie for being “soft” on the military-industrial complex and US interventionism around the world. This issue has especially risen to prominence in recent months, as the economic and political crisis in Venezuela has worsened. Some leftists are furious at Sanders for failing to fully defend Nicolás Maduro’s nominally socialist government. Sanders has staked out a nuanced position on the Venezuela issue, criticizing Maduro for his anti-democratic moves and his refusal to accept humanitarian aid, while also opposing US sanctions on the country. But to pro-Maduro leftists, this is not enough.

bernie venezuelaThey argue that Maduro is the rightful democratically elected president of Venezuela, and that any anti-democratic moves on Maduro’s part, like banning opposition parties or ruling by decree, are either necessary evils or are being exaggerated in the mainstream media. I don’t have time to address this issue in full here, but you can read my recent blog post on Venezuela for more detail. Needless to say, there are many valid criticisms of Maduro’s regime, and his legitimacy as Venezuela’s president is seriously in doubt. It is also true that US sanctions on the country are exacerbating the ongoing economic and humanitarian crisis, and must be ended immediately. Bernie’s position on this issue is eminently reasonable.

Furthermore, Sanders has consistently attacked the bloated American military budget for decades, calling for major reductions in military spending in order to fund social welfare programs at home. He also has repeatedly condemned US interventionism and attempts at regime change in foreign countries. It is not an exaggeration to say that Sanders’ foreign policy positions are the most left-wing of any federal elected official.

It seems that in order to placate the most radical “anti-imperialists” on the Left, Sanders would have to advocate something close to the unilateral dismantling of the US military. But as long as there is no world government to keep the peace among nations, the idea of unilateral disarmament is simply untenable. It makes good sense for the United States to maintain a sizable army and navy, alongside a modest nuclear arsenal, in order to deter aggression from rising great powers such as China and to a lesser extent Russia. This does not mean that the bloated American military budget should not be substantially scaled back— it ought to be. But Sanders’ proposals are completely reasonable and are proportionate to the size of the problem.

Why reparations are a bad idea

Bernie skeptics often argue that Bernie Sanders has a “race-blind” approach to politics, focusing excessively on class issues at the expense of racial justice. They point to his opposition to reparations for slavery as proof of this. It’s argued that providing monetary reparations to African-Americans is necessary in order to eliminate the legacy of systemic racism in the United States.

These criticisms have gotten more intense now that Kamala Harris and Elizabeth Warren have come out in favor of reparations. It seems that Sanders is being outflanked on the Left by Harris and Warren— candidates that don’t even identify themselves as democratic socialists. However, Sanders is simply correct on this issue. Reparations would be a highly divisive and counterproductive endeavor which would harm, not improve, the standing of African-Americans in the United States. Polling has shown that 68% of Americans, and a staggering 79% of whites, oppose reparations for slavery. Sanders himself opposes them on the grounds that they would be divisive:

The simple matter of fact is that, if the US government were to give a monetary lump sum to every African-American in this country, the vast majority of white Americans would view this as an undeserved redistribution of wealth from working-class white people to black workers. It would create a tremendous amount of resentment and would likely cause whatever Left government that enacted the reparations to be voted out of office. It’s vitally important that the Left not advocate for policies that emphasize and deepen the separation of American workers based on race. As Bernie likes to say, we need to bring people together rather than dividing people up.

Additionally, the logistical problems with such a reparations program would be immense. Because of the widespread intermarriage between African-Americans and other ethnic groups over the decades, the government would have to be in the grotesque business of determining who is “black enough” to deserve reparations payments, dredging up genealogical records to find out who is a descendant of slaves and who is not. This would only reinforce, rather than undermine, right-wing pseudoscientific racial ideologies that assert the existence of a “black race” with an essential character.

Furthermore, reparations very likely would not do much of anything to end systemic racial disparities in wealth and income in this country, because it would leave the structure of the economy intact. Giving black families a one-time payment of a few thousand dollars might help them make their rent payments and shore up their savings for a year or two, but there would still be widespread discrimination in the job market and long-term outcomes would likely be unchanged.

But in a post-reparations scenario, the political will for further efforts to address systemic racism would largely evaporate. The Right would be able to argue, “Hey, we already did reparations for slavery, now racism must be over.” And millions of Americans would buy into those arguments. In the long run, reparations would only harm the standing of African-Americans in this country, rather than helping them.

Kamala Harris and Elizabeth Warren’s support for reparations is merely a cynical ploy to win more votes from African-Americans in the Democratic primaries, and it certainly doesn’t make them any more left-wing than Bernie Sanders. Sanders’ platform of universal social programs would do much more for black Americans than any one-off reparations payment ever could.

Bernie is right on immigration

Some on the Left have also criticized Sanders’ stance on immigration. Bernie Sanders has been reluctant to back the slogan “Abolish ICE,” and has said that abolishing border controls is “a Koch Brothers idea.” Instead, he supports a comprehensive immigration reform package which would include a path to citizenship for undocumented immigrants residing in the country. He also advocates an end to mass deportations, and wants to grant full citizenship to DACA recipients.

Those leftists who do want a complete and immediate dismantling of the immigration enforcement apparatus of the United States are understandably very upset about his refusal to endorse this idea. But calling for open borders and the abolition of ICE is simply a mistake. While full freedom of movement across the globe should be a long-term goal for socialists, this can only be achieved in the context of a world government which could put an end to the very large disparities in wealth between countries that we see today.

Without global political integration, unilaterally opening our borders with Latin America would likely cause a chaotic wave of mass migration that the United States would simply be unable to handle. It would also cause a brain drain in Latin American countries which would ruin their economies, thereby motivating further migration into the US, in a downward spiral. In the absence of a world government, immigration restrictions will still be necessary. Our goal should be to establish an immigration policy that allows for the successful integration of immigrants into American society, ensuring that they have access to living wage union jobs which do not push down wages for native-born workers.

This means providing legal status for the millions of law-abiding, gainfully employed undocumented immigrants in this country. But it does not mean dismantling our entire immigration enforcement system. Furthermore, the proposition of abolishing ICE and adopting an open borders policy is wildly unpopular among Americans. Advocating for it only marginalizes the Left and makes it harder for us to take power. The fact that Sanders understands this, and has chosen not to adopt it as part of his 2020 platform, is a strength, not a weakness of his campaign.

Abolish ICE
Source: July 2018 Politico/Morning Consult poll

Bernie really is a socialist

There’s a broader, more general argument that is often made against supporting Bernie Sanders: he’s not really a socialist. While Sanders has consistently identified as a “democratic socialist” for decades, there is a widespread belief on the Left that he doesn’t qualify as a socialist in the robust sense of the term, because he doesn’t publicly advocate for the collective ownership of the means of production. Some leftists even argue that Sanders is harming the socialist movement by actively sowing confusion about the definition of socialism, such as when he defines it as “having a government that reflects the interests of ordinary people, rather than… the billionaire class.”

But these concerns are misguided. First of all, democratic socialists should be very wary of defining socialism in terms of specific forms of property. If socialism is defined as “collective ownership of the means of production,” then authoritarian regimes like the Soviet Union and North Korea would qualify as socialist, which is a proposition that the democratic wing of the socialist movement has always denied.

Instead, it is much better to define socialism in terms of concrete ethical goals, like the abolition of the exploitative employer-employee relationship, and the de-commodification of social goods like healthcare, education, housing, and food. Some of these goals, like the abolition of wage labor, cannot be achieved in the here and now, but must wait until advances in automation technology make them possible. Ultimately, it will likely be necessary to bring most industries into public ownership in order to fully achieve these goals, but advocating for this in the meantime can only be counterproductive.

Furthermore, Bernie Sanders does advocate for forms of collective ownership of industry. As recently as 2017, he introduced a bill which would provide incentives for the development of worker-owned enterprises. But Sanders understands that simply promoting worker cooperatives or nationalizing industries won’t improve the lives of most workers. That’s why his most urgent priority is the establishment of a robust welfare state, modeled on the example of Norway and Sweden.

It is a great merit of Bernie Sanders that he understands which policy proposals will be popular among American workers today, and which will not. The calls of many leftists to “push Bernie to the left” and to “keep him accountable” simply fail to recognize the fact that Sanders’ current platform is close to the furthest left we can go without starting to alienate substantial numbers of American voters. Going further left would only harm, not help, the socialist project.

One of the ways we know that Sanders is committed to a transformative socialist vision is the simple fact that he has continued to insist on using the phrase “democratic socialism” to refer to his political ideology, even when this probably modestly hurt his short-term appeal. If Sanders was simply a moderate social democrat or a New Deal liberal, he would not have bothered trying to revitalize the term “socialism.” Clearly he sees the value in promoting the label to refer to an ideology that is opposed to capitalism. Unlike Elizabeth Warren and even Alexandria Ocasio-Cortez, Bernie has consistently refused to identify as a capitalist:

Furthermore, Sanders has repeatedly expressed his deep admiration for the radical socialist activist Eugene Debs, who was put in prison for his opposition to World War I:

“[Debs] fought to achieve a truly democratic society in which working people, not big money, would control the economic and political life of the nation… Eugene Victor Debs remains a hero of mine. A plaque commemorating him hangs on the wall in my Washington office.” — Outsider in the White House, 2015

debs
Debs speaking against WWI

Sanders is possibly the only member of Congress today who would be willing to associate himself with someone like Debs, who advocated for “the emancipation of the working class from wage-slavery.” This should give you an idea of just how radical Bernie really is.

For Sanders, and for millions of socialists all over the world, democratic socialism means reducing exploitation and expanding economic rights (healthcare, housing, childcare, etc.) as much as possible given our current level of technological development. Increasing automation will end the need for wage labor in the next century or so, but we shouldn’t try to rush toward that that kind of society prematurely. Getting Sanders elected President of the United States in 2020 is the first step in the long process of socialist transition.

Advocating for policies that are premature or simply inadvisable does not make someone more left-wing. It just makes them counterproductive to the socialist movement. That’s why nobody is more left-wing than Bernie Sanders.

No Easy Answers: A Left-Wing Analysis of the Venezuela Crisis

Venezuela’s economy is collapsing. Hyperinflation is causing widespread chaos and uncertainty, leaving millions of Venezuelans destitute. More than 10% of the population has fled the country in the past year alone. The unemployment rate has reached a staggering 35%, and 90% of the population is living in poverty. Crime is pervasive, and Venezuela’s murder rate is now the highest in the world. The country’s economy is now less than half the size it was just a few years ago. The ongoing economic meltdown in Venezuela is significantly worse than the Great Depression was in the United States, or the depression that occurred in Russia after the collapse of the Soviet Union.

maduroMeanwhile, Venezuela’s president Nicolás Maduro has been sworn in for another six-year term. Last year’s presidential election was widely regarded as illegitimate by the international community because the main opposition coalition, the MUD, was banned from participating. It was largely boycotted by opposition groups, and featured a record-low voter turnout. In response to Maduro’s inauguration, the opposition-controlled National Assembly declared the centrist legislator Juan Guaidó to be interim president of Venezuela, citing a clause in the constitution which allows the President of the Assembly to be declared acting president when the office is “vacant.” The United States and its Western allies have recognized Guaidó to be the one true president of Venezuela, while China, Russia, and many left-wing commentators consider Guaidó’s attempt to take power from Maduro to be a “coup.” This political uncertainty is only exacerbating the ongoing economic crisis, by further undermining confidence in the Venezuelan government.

Maduro is the hand-picked successor of former president Hugo Chávez, who initiated Venezuela’s left-wing drift when he was first elected in 1999. Maduro wants to keep the country’s current economic model essentially intact in the hope that oil prices will rise, which would give a boost the economy since oil is Venezuela’s #1 export. But things have now spiraled so completely out of control that even a significant rise in oil prices could not save Venezuela’s economy. Confidence in Venezuela’s currency, the bolívar, and its government has been completely destroyed by recent events. To make matters worse, the United States has recently imposed tough sanctions on Venezuelan oil, and is considering a full oil embargo. This is sure to further devastate Venezuela’s economy, making the current political crisis even more severe.

Chávez’s legacy

chavez venezuelaBut things didn’t have to turn out this way. The first several years of Hugo Chávez’s presidency led to widespread prosperity and poverty relief for millions of Venezuelan citizens. Oil prices were high in the 2000s, and this allowed the government to fund generous social welfare programs from the proceeds of its state-owned oil company, PDVSA. The poverty rate was slashed from 55% in 1995 to 26% in 2009. Unemployment fell from 15% to 7.8%. The government was overwhelmingly popular, with Chávez winning re-election by a wide margin four times in elections that were certified as free and fair by international monitors.

How Chávez could have prevented this

The problem, however, is that these years of prosperity were built on very shaky ground. The entire system was built on high oil prices, and when the price of oil collapsed in 2014, so did the economy. While Chávez pledged to make the Venezuelan economy less dependent on oil exports through investment in other industries, the country actually got more dependent on oil during his presidency, not less so. Oil now makes up over 95% of Venezuela’s export income, up from 67% in 1999. As long as Venezuela’s economy remains so completely dependent on oil revenues for its survival, left-wing policies will be seriously threatened every time the price of oil declines significantly. This is the fundamental problem facing Venezuela today, and it is a problem that Chávez did nothing to address.

But Chávez could have made progress in diversifying the Venezuelan economy, if he had made different choices during the 2000’s. The key would be to invest in the manufacturing sector, encouraging the growth of a Venezuelan industrial base that could outcompete Chinese industries on the world market. Using export subsidies, state owned enterprises, and other “protectionist” measures, Venezuela would be able to take advantage of its natural resources and proximity to the United States to develop its manufacturing base and its economy rapidly. South Korea, Taiwan, Japan, and more recently China have demonstrated that this strategy can succeed. But these policies require long-term planning and discipline, something that the Chávez government apparently did not have.

Chávez’s failure to diversify the Venezuelan economy set the stage for today’s hyperinflation. Here’s how it got started.

The road to hyperinflation

Like most developing nations, Venezuela needs to import a lot of the goods it needs from other countries. And since Venezuela is a small, relatively poor country with a history of political instability and a chronically high inflation rate, virtually no one outside of Venezuela is willing to accept Venezuelan bolivars as payment for anything. This means that Venezuela needs to pay for its imports in US dollars. But in order to acquire US dollars, Venezuela needs to export goods to foreigners in exchange for dollars. And around 95% of Venezuela’s US dollar revenue comes from its oil exports.

This means that when oil prices fall, Venezuela’s supply of US dollars shrinks dramatically, leading to a variety of economic problems. Venezuelan citizens in need of dollars try to sell their bolivars in the black market, but few people want to give up their safe, stable, internationally accepted US dollars in favor of the volatile, rapidly inflating bolivar. Those who do decide to sell their dollars demand a very high price, which pushes the value of the bolivar downward. And when the exchange rate falls, imports get more expensive, which tends to raise the price of everything else. This is why the inflation rate rises dramatically in Venezuela whenever the price of oil falls.

hyperinflationBut while inflation has been a problem in Venezuela for a long time, the country had never before experienced the horrors of hyperinflation until recently. Hyperinflation is essentially a vicious feedback loop wherein high inflation rates cause people to try to exchange the domestic currency for a safe foreign currency, which pushes down the exchange rate, which in turn accelerates the inflation, in a downward spiral. During a period of hyperinflation, prices can sometimes double within just a few days or weeks. It’s a highly destabilizing phenomenon that hits the poor and the working class the hardest.

The main reason why inflation turned into hyperinflation this time around is that the Venezuelan government started running very large budget deficits. Accurate statistics on Venezuela’s economy are hard to come by, but multiple sources indicate that by 2018 the government was running a budget deficit at around 40 percent of GDP. Maduro is trying to maintain a generous level of social spending even as the economy is contracting, and the country’s US dollar supply is drying up. There is clearly something admirable about this from a left-wing perspective— Maduro is wants to avoid cutting social programs at all costs. But arguably the negative consequences of this policy are much worse for Venezuela’s poor and working class than austerity would be. The government is financing its deficits by taking out massive loans directly from the central bank— effectively “printing money”— which greatly exacerbates the inflation problem. And the inflation, in turn, erodes the real value of wages and leads to higher unemployment.

No easy answers

None of the options that are available to Venezuela at the moment are very attractive. Maduro’s preferred strategy, which is to change nothing and simply wait for oil prices to rise, is reckless and irresponsible. There is no reason to expect a major increase in oil prices in the near future, and even if one were to occur, it would not be enough to resolve the crisis at this point. On the other hand, while a US-backed Guaidó government would go a long way toward restoring confidence in the Venezuelan economy, this confidence boost would come at a steep price: deep cuts to social services, which would hurt the poor the most.

Fundamentally, the most pressing short-term task for Venezuela is to transition to a different currency, one that workers and businesses alike can have confidence in. The Venezuelan economy simply cannot hope to recover while the hyperinflation continues. Many commentators have called for “dollarization“— that is, the adoption of the US dollar as Venezuela’s currency. Several countries, including Ecuador and Panama, have dollarized their economies in an effort to curb the same kind of chronic inflation problems that Venezuela has been experiencing for decades. The main problem with dollarization is that it would require a tremendous amount of austerity, since the Venezuelan government would no longer be able to simply print money in order to finance its social spending.

The Chinese option

yuanIn theory, Venezuela could try to adopt the currency of a foreign country other than the United States— say, China. Adopting the Chinese yuan would have a similar economic effect to dollarization, since the yuan is a much more stable currency than the bolivar, and its value is backed up by the trillions in US dollar reserves held by the People’s Bank of China. Since China wants to make allies with Latin American countries in order to undermine US hegemony, it might be willing to offer Venezuela much better terms on a currency deal than the United States, allowing Maduro to maintain most of the country’s social spending. In exchange, Maduro could offer to allow China to build military bases in Venezuela, which would increase Chinese power in the region and would protect Venezuela from potential US aggression.

Unfortunately for Venezuela, however, this “Chinese option” is likely to remain purely theoretical. While China would love to have a client state in Latin America, similar to Cuba’s relationship with the Soviet Union during the Cold War, in reality China would not want to make such a bold move against the United States at this time. Unlike the Soviet Union, modern China is heavily reliant on trade with the US for its economic growth, so antagonizing the US by building military bases in Venezuela would likely end up hurting Chinese power more than it would enhance it. In the future, when China is much more powerful than it is today, aligning with China may become a serious and attractive option for developing countries in the Western Hemisphere. But today, this option is not really on the cards.

The Cuba option

The final option is what I like to call the “Cuba option.” Some socialists argue that Venezuela needs to move toward an overwhelmingly state-dominated economic model, along the lines of Cuba or the Soviet Union. It’s argued that by confiscating private property and implementing a planned economy, Venezuela could overcome its current problems with hyperinflation and unemployment:

“The control and direct administration of the means of production by the working class is vital to end both capitalist sabotage and the corruption of the bourgeoisie and the bureaucracy. As long as the big companies are not expropriated, the sabotage of production will continue.”
Izquierda Revolucionaria, a small Venezuelan Trotskyist group

But this idea fundamentally misdiagnoses the cause of Venezuela’s current woes. The problem is not simply that Venezuela’s economy is dominated by privately owned, profit-seeking firms. Rather, the current crisis is due to Venezuela’s over-reliance on oil exports to finance its imports from the rest of the world, as well as the dominance of the US dollar in world trade, which makes it an imperative for Venezuela to acquire dollars in order to pay for its imports. If Maduro attempted to convert Venezuela into a planned economy, the crisis would be made even worse. The United States and other Western countries would almost certainly place a full oil embargo on Venezuela, thereby starving it of almost all its oil income. Venezuela would then have to undergo a painful process of becoming economically self-reliant, which would inevitably make Venezuela a much poorer country than it currently is.

The future of Venezuela

In reality, the question is not if, but when a US-backed regime takes power in Venezuela. At this point, it is unclear whether Maduro will be able to maintain his control over the country for the rest of his six-year term, or whether the military will place Guaidó in power. If Maduro does remain in power, the economic situation will continue to get worse. Eventually, Maduro will either be voted out in another election, or the military will force him out once the crisis becomes severe enough. At that point, a US-backed government will come to power. It will make major cuts to public services, and will likely change the official currency to the US dollar.

These events will bring stability, but they will also cause major suffering for the poor and working people of Venezuela. The hope is that, after these things come to pass, the Left will again be able to come to power, this time equipped with the hard-won experience of the past 20 years. This new Left government would not make the same mistakes as Chávez or Maduro. It would understand the vital importance of diversifying Venezuela’s economy, so that it is no longer dependent on the whims of international oil markets to stay afloat. And it would usher in an era of rapid economic growth and shared prosperity for all Venezuelans.

bernie venezuelaWhile my short-term predictions are pessimistic, this does not mean that there is nothing we can do to help the Venezuelan people. The Left should argue forcefully against US sanctions and military intervention into Venezuela, which will only make the current dire situation even worse. We should advocate for democratic norms and the rule of law, which have been greatly eroded under Maduro’s administration. The people of Venezuela must be able to choose their own leaders in free and fair elections, where all political parties are allowed to participate. And most importantly, the Left must work harder than ever to elect socialist candidates to Congress who can change US foreign policy toward developing countries like Venezuela. The United States could use its economic might to help poor countries through the process of diversifying and developing their economies, rather than simply leaving them on their own. Without a more compassionate US foreign policy, our international comrades will be severely constrained in their ability to pursue a left-wing agenda in their own countries. It’s time that the American Left took this responsibility seriously.

Why The Minimum Wage Creates Jobs

When Seattle became the first major city in the country to enact a $15/hour minimum wage back in 2014, mainstream economists and the business community predicted that it would end up hurting those low-wage workers it was meant to help. The cost of living would increase dramatically, as businesses increase prices in order to absorb their rising labor costs. Jobs and working hours in the service industry would be cut, leaving thousands of workers unemployed.

Five years have passed since then, and we now have a lot of data on the impact that the new minimum wage has had for Seattle workers. The evidence is clear: the wage hike has overwhelmingly benefited workers in Seattle, and the city’s economy as a whole. Employment in the food service sector has steadily increased since 2010, with no discernible slowdown due to the minimum wage increase, even though restaurants tend to have some of the highest labor costs of any industry.

Seattle employment

The wage hike seems to have had little to no impact on the cost of living in Seattle, with consumer prices going up an average of 2.3% from 2014 to 2017, compared to 1.9% from 2011 to 2014. This could easily be statistical noise, but even if it isn’t, low-wage workers’ 50% wage hike (going from $9.57 before the increase to $15 today) more than makes up for the rising cost of living.

Seattle isn’t the only city that has increased its minimum wage in recent years, and the data from those municipalities tell the same story. But have you ever wondered why minimum wages don’t lead to unemployment and major price increases? This is the question I’d like to answer.

The argument against the minimum wage

The basic argument that mainstream economists make against the minimum wage is quite simple; it’s based on a naive supply-and-demand model of the labor market. These economists argue that when the price of any commodity goes up, the demand for that commodity will go down. Since labor is a commodity under capitalism, it is assumed that firms will demand less labor if the price of labor (the wage) is propped up to an artificially high level. You may remember these supply and demand diagrams if you ever took an introductory economics class in high school:

Neoclassical min wage

The market wage is plotted on the vertical axis, and the number of jobs offered is plotted on the horizontal axis. Demand for labor is assumed to be “downward-sloping” because less labor is demanded as the wage increases. It’s argued that a minimum wage reduces demand for labor without reducing its supply, leading to unemployment.

The Keynesian critique

keynes

The flaw in this point of view was exposed by the British economist John Maynard Keynes in the 1930’s. The thirties were a time of mass unemployment, and mainstream economists were using the exact same supply-and-demand model of the labor market to argue that mass unemployment was a result of wages being too high. Workers were simply too prideful to accept lower wages in the midst of the Great Depression, and they were getting in the way of the market automatically self-adjusting to return to full employment.

But Keynes pointed out that there is a kind of feedback loop between workers’ wages and employment. Businesses will only employ more workers if they need to boost production in response to increasing demand. But most demand comes from workers’ wages— if wages fall, demand will also fall, causing businesses to lay off even more workers, in a downward spiral. On the other hand, if wages rise, demand will rise, causing businesses to hire more workers. This is a fundamental instability in capitalism. Once the economy starts going downhill, market forces will tend to make the downturn even worse. Government intervention is needed to prop up demand during recessions and get the economy out of slumps.

Effects of the minimum wage

If we apply this Keynesian reasoning to the minimum wage, we will find that a minimum wage increase should increase consumer demand, and thereby create jobs, rather than destroying them. Of course, there are limits to this. If the minimum wage were increased to some very high level, say $100/hour, prices would have to increase dramatically in order to keep up with costs and the chaos and uncertainty involved would likely cause a recession.

Additionally, if a state with a lot of manufacturing jobs tries to boost its wages much higher than surrounding states, companies will likely start to move those jobs to lower-wage states. Service jobs are very unlikely to leave an area in response to wage increases, because they basically have to locate themselves wherever the customers are. The same is not true of manufacturing or tech companies, which is why it’s important for the federal government to implement strong labor protections and to pursue a trade policy that protects American workers from the global “race to the bottom.”

Automation McDs

It is sometimes argued that higher minimum wages encourage the automation of low-wage jobs, because they make hiring human workers more expensive relative to robots. Over the long run, there is actually some truth to this— but this is a good thing. Here’s why. First of all, technological progress will eventually lead to the automation of most low-wage jobs anyway, so higher minimum wages simply speed up an inevitable process. Furthermore, in the context of high consumer demand created by a minimum wage hike, workers laid off by automation are likely to find other, better jobs relatively quickly. Besides, the Left should want to speed up the automation low-wage jobs. These are mundane, boring jobs that most people don’t want. They key thing is to use government policy to ensure that those who lose their jobs due to automation are able to find better, higher paying, more fulfilling jobs quickly. Free college and job training programs, along with aggressive stimulus programs to keep the economy running at full employment, can ensure that all workers benefit from automation.

American workers deserve a raise

To sum up, minimum wage increases have four positive effects:

  1. Low-wage workers’ incomes increase, lifting many households out of poverty;
  2. New jobs are created, due to increasing consumer demand;
  3. Pressures to automate increase, eliminating the most menial jobs over time;
  4. Inequality is reduced, as income is redistributed from profits to wages.
LPR
Labor force participation rate, 2008-2018

American workers could certainly use a substantial minimum wage increase. Income inequality is high, and the labor force participation rate, which measures the proportion of working-age adults who are either working or looking for work, has never recovered from the Great Recession. This means that there are millions of Americans out there who would like to work, but have given up the job search. Increasing the federal minimum wage to $15/hour would reduce income inequality, and would help to employ discouraged workers by stimulating the creation of new living wage jobs. Pegging the minimum wage to the cost of living and productivity gains would also help to ensure that workers share in economic growth going forward.

The next time an Econ 101 student tries to tell you that the minimum wage kills jobs, you can tell them that they simply don’t understand how the economy works.

Elizabeth Warren Doesn’t Deserve Your Vote

Today, Elizabeth Warren announced that she will be forming an exploratory committee to consider a presidential run in 2020. That means she’s almost certainly running for president.

Certain progressive groups are celebrating Warren’s announcement, hailing her as a champion of “bold, inclusive populist ideas.” Even many committed Bernie Sanders supporters view the announcement as a positive development, since it guarantees that at least one progressive candidate will be in the race.

Warren’s Problematic Past

It’s true that Elizabeth Warren has worked hard in the last few years to cultivate a reputation for being a strong progressive leader, in the same vein as Senator Bernie Sanders. But if we look underneath her populist façade, we will find that her basic political philosophy profoundly neoliberal and committed to free market capitalism.

The most striking evidence of this is the fact that Warren spent much of her adult life as a member of the Republican Party. When asked about this in 2011, she explained:

“I was a Republican because I thought that those were the people who best supported markets. I think that is not true anymore,” Warren said. “I was a Republican at a time when I felt like there was a problem that the markets were under a lot more strain. It worried me whether or not the government played too activist a role.”

In these telling remarks, Warren makes it clear that her most fundamental political commitment is the protection of free markets and private property. In fact, her reasoning for becoming a Democrat in 1995 was that Reagan’s neoliberal agenda had actually undermined markets, rather than protecting them. She apparently failed to realize the tremendous harm that Reagan’s policies were inflicting on workers, the environment, and the poor while Reagan was in office. Indeed, when she was asked whether she voted for Ronald Reagan in 1980 and 1984, she declined to comment.

Warren’s deep, enduring commitment to capitalism is the common thread that connects her early days as a Reaganite Republican with her liberal progressivism today. In a recent interview, she reaffirmed her support for free markets, declaring that she is “capitalist to the bone.” This is a fundamentally right-wing and neoliberal perspective, because it prioritizes markets and private property over human needs. No progressive, let alone democratic socialist, should support a candidate with views like this.

Elizabeth Warren’s long history of conservatism stands in stark contrast to Bernie Sanders’s record. Senator Sanders has been an outspoken socialist for over 50 years. As a student at the University of Chicago, Sanders was a member of the youth wing of the Socialist Party USA, and was deeply involved civil rights activism throughout the 1960s. In the 1970s, he ran for office on the Liberty Union Party ballot line multiple times, championing socialist and anti-war causes. In 1981 he was elected mayor of Burlington, Vermont as an open socialist, and spent the rest of the decade battling developer interests in the city and building affordable housing. As a US Representative in the 1990s and early 2000s, he consistently opposed Bill Clinton’s right-wing policies, and was an early opponent of the Iraq War and the Patriot Act.

An Unreliable Progressive

Since Warren joined the Democratic Party in the 1990s, she has been a very unreliable supporter of progressive causes. During her 2012 campaign for the US Senate, she refused to endorse Medicare for All— a shortcoming for which her primary challenger, Marisa DeFranco, criticized her on numerous occasions. When she was asked about her views on Medicare for All in June 2012, she explained:

“I think right now what we have to do — I’m serious about this — I think you’ve got to stay with what’s possible. And I think what we’re doing – and look at the dust-up around this – we really need to consolidate our gains around what we’ve got on the table [the Affordable Care Act].”

This quote is very telling about her overall political philosophy: Warren is an unwavering pragmatist, focused on incremental improvements to existing institutions, rather than radical change. In this respect, Elizabeth Warren is much closer to Hillary Clinton than to Bernie Sanders.

It wasn’t until 2017, after Bernie’s presidential campaign popularized Medicare for All, that Warren publicly endorsed the idea. Even today, it’s not clear how committed she is to the principle of publicly provisioned healthcare for all Americans. She has repeatedly proposed halfway measures that would actually expand the subsidized private health insurance market that Obamacare created. Her commitment to pragmatism means that a Warren administration would, at most, carry out a modest expansion of the Affordable Care Act’s programs. Like Obama, Warren would likely weaken her bargaining position from the outset by conceding the “political unacceptability” of Medicare for All, and instead advocate for more subsidies and tougher regulations on private insurers.

Tellingly, Senator Warren refused to endorse Bernie Sanders during the 2016 Democratic primaries, instead assuming a position of “neutrality.” Presumably Warren was concerned about maintaining her strong relationship with the establishment wing of the party. But the 2016 primaries were not a contest that any principled progressive could sit out. It was the most high-profile struggle yet between the two major wings of the Democratic Party: the neoliberal establishment wing, and the insurgent, social democratic wing. If Warren had endorsed Sanders, it likely would have tipped the scales in his favor during the Massachusetts primary, which he ended up losing by just 1.4 points. Warren’s cowardice during the historic 2016 primary race is simply inexcusable.

Warren Would Lose to Trump

Furthermore, we have good reason to believe that if Elizabeth Warren were to win the Democratic nomination for president in 2020, she would likely lose the general election to Donald Trump. At the very least, she would be much less competitive against Trump than other potential Democratic nominees, especially Senator Bernie Sanders.

She underperformed in her home state

One sign of Warren’s poor electability is her weak performance in her re-election campaign for the US Senate. In November, Elizabeth Warren won re-election by 24 points. That may sound like a lot, until you realize that Hillary Clinton managed to win Massachusetts by 27 points in 2016— a much less favorable year for Democrats overall. In fact, Harry Enten from FiveThirtyEight has shown that Warren was one of the worst performing Democratic Senate candidates of 2018. When taking into account the demographics and overall partisanship of Massachusetts, her vote share was 7 points lower than what would be expected from a generic Democratic candidate.

One potential reason for Warren’s weak performance in her re-election campaign is the massive public relations blunder that she made in October, when she released the results of a DNA test that supposedly proved that she has some Native American heritage. Native leaders quickly denounced this PR stunt, pointing out that DNA is irrelevant to the legal and cultural criteria for Native American heritage that are accepted by all Native tribes in the United States.

She’s unpopular

Warren’s cynical ploy to gain media attention and recognition for her alleged Native identity clearly backfired on her. A recent Politico/Morning Consult poll found that just 30% of voters view Warren favorably, while 38% view her unfavorably.

Warren favorability

It seems that Americans like Warren less, the more they get to know her. Back in August 2017, a Gallup poll found that 34% of voters viewed Warren favorably, compared to 31% viewing her unfavorably. In other words, Elizabeth Warren’s net favorability rating has gone down by 11 points in just over a year. This is a terrible sign for Warren’s general election prospects, if she were to win the nomination in 2020.

Compare these dismal poll numbers with those of Senator Bernie Sanders. Gallup has found that 53% of voters view him favorably, compared to 38% viewing him unfavorably. These numbers have stayed quite stable since September of 2016:

Sanders favorability

Senator Sanders’s 15% net favorability rating should speak for itself. Sanders enjoys a much broader appeal than Warren does, especially among those independent voters that we need to win over in order to have any chance of defeating Trump in 2020. Among independents, Sanders has a 54% favorability rating, compared to a dismal 22% for Warren (see here, pg. 351). Given these numbers, nominating Elizabeth Warren would be suicidal.

She’s a spoiler candidate

In short, progressives and socialists should not be happy about Elizabeth Warren’s candidacy. Elizabeth Warren has been sliding in recent polling among likely Democratic primary voters, and she’s not likely to get very far, but it’s important that she drops out of the race as quickly as possible. A prolonged Warren primary campaign would pull valuable funds, volunteers, and votes from Bernie Sanders, effectively splitting the progressive wing of the party and benefiting the more explicitly establishment candidates, like Joe Biden.

The 2020 elections offer a historic opportunity to make an avowed democratic socialist president of the United States. Urgent social democratic programs, like Medicare for All, free college tuition, and a Green New Deal would have a real chance of being enacted under a Sanders administration. By entering the Democratic primary race, Elizabeth Warren is getting in the way of all of this. She simply does not deserve your vote.

Government Debt is Actually Good

There’s a common narrative about the national debt that is repeated over and over in the media. It goes like this:

Over the last 50 years, the national debt has increased dramatically. This is a very bad thing, because the government will need to repay this debt someday. We are passing on a huge burden to our children and grandchildren, who will have to live with greatly restricted government spending while we pay down our $21 trillion national debt. We need to start cutting public spending and raising taxes now before something very bad happens. We wouldn’t want the United States to become the next Greece, now would we?

Elected officials and pundits across the mainstream political spectrum buy into this narrative to one degree or another. It’s a very powerful tool in the hands of the Right, because they can use it to argue for massive cuts to public services. The good news, however, is that this narrative is completely wrong in every way.

The mainstream narrative is based on assumptions that can be traced back to the gold standard system, which the United States abandoned in 1971. Under the gold standard, the federal government voluntarily agreed to restrict its own spending by promising to exchange US dollars for gold at a fixed price. Since the supply of gold was finite, and much smaller than the total value of all US dollars outstanding, the government had to avoid creating too much money. There was always the risk that investors might try to exchange too many dollars for gold all at once, thereby depleting the stock of gold held by the government. The government was forced to restrict its own spending well before that point in order to avoid a crisis.

The government can never run out of money

Today, however, the American government no longer promises to exchange US dollars for gold. This is a dramatic change, which greatly increases the policy space that is available to us. It means that, because the American government is the monopoly issuer of the US dollar, it can never run out of money or become insolvent. The Treasury spends money by simply electronically crediting bank accounts, and taxes by debiting bank accounts. There is nothing to “run out of.” Unlike many European countries, which have agreed to use the euro as a common currency, the American government has complete control over the supply of dollars and can therefore deficit spend without limit.

This may seem like an extreme claim, but you don’t have to take it from me. Listen to former Federal Reserve chairman Alan Greenspan, a Reagan appointee, answer a question about the solvency of Social Security:

As Greenspan said, government spending is only limited by the real resources that are available. If the government spends too much, it could put a strain on the productive capacity of the economy, thereby driving up prices and creating inflation. But as long as the workers, the raw materials, and the tools are available, the government can “afford” anything. And even if the economy is at full capacity at the moment, the government may decide to use taxes or inflation to bring resources into public use that are currently being used by the private sector.

In fact, while taxes aren’t strictly needed to fund spending, they can be used to prevent inflation. If the government simply spent $4 trillion into the economy each year without taxing any of that money back out, the likely result would be a high rate of inflation. In other words, while the government doesn’t need your money in order to spend, it needs you not to have it, in order to prevent excessive inflation.

Public debt is private savings

But if the government doesn’t need to “get” money from the private sector before it can spend, this raises the question: why does the government bother with issuing debt at all?

Treasury bond
When the government deficit spends, it creates new Treasuries out of nothing, auctions them off, and spends the proceeds back into the economy. The new Treasuries add to private savings.

The reality is that practice of selling government debt in the form of Treasury bonds is largely a relic of the gold standard era, when the government offered  Treasuries to investors as an alternative to exchanging dollars for gold. This is a public policy decision, which Congress could change at any time. Instead of issuing Treasuries, the government could directly create new bank reserves to finance its deficits. This would have the benefit of ending the $400 billion in interest payments on Treasury securities each year, which is paid disproportionately to investors with high incomes. On the other hand, there are some good reasons for the government to continue issuing these interest-bearing bonds. Treasury securities are a virtually risk-free asset that the whole world relies on to hedge against uncertainty in the market. Without Treasuries, capitalists might be tempted to invest their money in riskier assets with higher returns, which could increase financial volatility.

Those who ring the alarm about the growing national debt tend overlook the fact that any debt, whether public or private, is necessarily someone else’s savings. If you owe your bank $1000, your debt to the bank is an asset from the bank’s point of view. Similarly, all $21 trillion of the federal government’s debt count as savings for someone in the private sector. In fact, because the government will almost certainly never pay off its debts, it’s quite misleading to call government liabilities debts at all. It would be just as correct, and arguably more appropriate, to call the national debt “net private savings.” The national debt is the sum total of all the dollars that the US government has spent into the economy, without taxing them back. Government deficits increase private savings, while government surpluses reduce them.

Public deficits are private sector surpluses

Deficits Since 1968

Furthermore, history shows that expanding private savings is good public policy. The US government has run a budget deficit for all but four years since 1969. Those four years of surplus were during Bill Clinton’s presidency— and they were immediately followed by a major recession. This is not a coincidence. The private sector has a strong desire to save in the aggregate, in order to hedge against uncertainty and plan for the future. But if the private sector as a whole is saving— spending less than its income— then some other sector must be spending more than its income. This is usually the government (although trade deficits can also make up the difference).

Sectoral Balances Since 1990
The balance of payments between the public sector, the private sector, and the foreign sector must all sum to zero.

Because of the private sector’s desire to save, there will always be demand for new Treasury securities. Even in the event that there is a shortage of demand for Treasuries, the central bank can buy them as a last resort, as it did during the 2008 financial crisis. This means that the government can run a deficit indefinitely. When the public sector tries to run a surplus, this usually forces the private sector into deficit, as it did during the Clinton administration. Neoliberal economists have it exactly backwards: public sector deficits are sustainable, private sector deficits are not.

The national debt will never be repaid

Now that we’ve established that there is always demand for new Treasury bonds, it should be clear why the idea of repaying the national debt is nonsensical. Barring some massive national catastrophe, bondholders will never try to “call in” their Treasuries en masse. And even if this did happen, the central bank could simply buy up the bonds as needed. United States Treasury securities are literally the most trusted financial asset in the world. If investors start to seriously question the full faith and credit of the US government, the national debt will be the least of our problems.

Furthermore, any attempt to repay the national debt would wreak havoc on the economy well before we could get anywhere near full repayment. The government would have to commit itself to unprecedented— say, $1 trillion a year— budget surpluses for decades. Just as budget deficits are a stimulus to the economy, budget surpluses are a contractionary force. If the United States made a serious attempt to repay its debt, it would experience a severe recession in just the first few years. At that point, the political pressure to resume deficit spending and stimulate the economy would be intense and irresistible. The national debt cannot and will not be repaid.

Even if it could be achieved, paying back the national debt would mean destroying the entirety of the net savings that the private sector has accumulated since 1836 (the last time the US government was debt-free). Owners of US Treasury securities don’t even want the US to repay all of its debts, since they would have to give up their risk-free, interest-bearing assets! The entire global financial system depends on Treasury securities. In a world where the United States had eliminated its debts, we could expect financial markets to be substantially more volatile than they are today. The idea that the national debt must be, should be, or could be repaid is totally absurd.

We need more deficit spending, not less

We’ve now established that governments with their own sovereign currencies should run budget deficits almost all of the time. The question is not whether to run a deficit, but how big the deficit should be. This depends largely on the amount of unused capacity in the economy, and particularly the unemployment rate. Maintaining full employment should be the primary goal of any government’s fiscal policy, because unemployment  causes suffering for those without jobs, and it makes us all poorer by failing to fully utilize the productive capacity of the economy.

LPR
Labor force participation rate in the US, 2008-2018 (source)

While the unemployment rate in the US has been steadily falling since the 2008 financial crisis (it now stands at 3.7%), we know that there are still millions of Americans who would like a job but can’t find one. The labor force participation rate, which measures the proportion of working-age adults who are employed or actively looking for work, fell from 66% in 2008 to 63% in 2014, and has stayed constant since then. This means that, while the official unemployment rate is down, this is due in large part to unemployed people giving up on the job search and dropping out of the labor force. This is a human tragedy, which could be ended tomorrow with substantially more deficit spending targeted at creating new good-paying jobs. This could include a “Green New Deal” to rebuild our crumbling infrastructure and move toward renewable energy, or a federal job guarantee program. Despite what neoliberal economists may say, the federal budget deficit is actually too small, not too large. We really can afford nice things.

Why the Soviet Union Failed

For over a century, socialists all over the world have been haunted by the legacy of the Russian Revolution, and the Communist state that it created. The Soviet project began with noble intentions: it aimed to create an egalitarian socialist republic of workers and peasants, where exploitation and oppression would end once and for all. With hindsight however, we can say definitively that this revolution utterly failed to achieve its purpose.

The Russian Revolution was a failure in two respects. Firstly, it categorically failed to create the kind of free and equal society it claimed to be fighting for. Instead of ending oppression, the Soviet Union pioneered an entirely new form of oppression, one more totalizing than any that had come before it. In doing so, it did irreparable damage to the ideas of “socialism” and “communism” that animated the imaginations of so many reformers, idealists, and revolutionaries at the beginning of the 20th century.

Boris Clinton

The second and final failure of the Soviet project was its inability to overcome its shortcomings and transform itself into a freer, more open society. The democratic and market reforms of Soviet leader Mikhail Gorbachev in the late 1980s quickly led to the total unraveling of Communism, first in the Soviet satellite states of Eastern Europe, and then in Russia itself. The radical pro-capitalist reformer Boris Yeltsin was elected Russian president in 1991, and he implemented a program of neoliberal shock therapy, rapidly privatizing public enterprises and dismantling the Soviet welfare state. The Soviet Union officially dissolved itself later that year, signaling the final restoration of capitalism in Russia and Eastern Europe.

It’s very important for democratic socialists in the 21st century to understand the underlying causes of the failure of Communism, so that we can be sure to not make the same mistakes in the decades ahead. The Soviet project did not fail simply because of the incompetence of this or that Soviet leader. Rather, the Soviet Union’s failure can be traced back to the Russian Revolution itself.

The revolution betrayed

The leaders of the Russian Revolution, the Bolsheviks, were profoundly committed to the cause of socialism. In this respect they were arguably no different from the leaders of the more moderate socialist parties, like the German Social Democratic Party. The thing that distinguished the Bolsheviks from most other socialist parties in 1917 was their deep conviction that global socialist revolution was right around the corner, rather than a more distant prospect, and their willingness to do anything to achieve their aims.

lenin colorOut of all the Bolshevik leaders, none of them was more instrumental in securing the Bolshevik seizure of power than Vladimir Lenin. As an orthodox Marxist, Lenin understood that Russia was not economically, culturally, or institutionally ready for socialism. Nevertheless, he was deeply convinced that it was necessary for socialists in Russia to seize state power, and hold onto it at all costs, in order to inspire the working class in industrialized Germany to start a socialist revolution there.

Unfortunately for the Bolsheviks, the German revolution never came. Isolated from the outside world, the new Soviet state instated increasingly brutal and repressive measures in order to cling onto power. It banned all opposition parties one-by-one, and eliminated every independent democratic institution in the country. The Bolshevik seizure of power also led to a convulsive and bloody civil war that left 10 million dead. By the end of the war the Bolsheviks presided over a country totally decimated by war and famine— there was no one who could offer a serious opposition to the new Soviet state.

The Soviet economic model

The newly established Soviet Union quickly consolidated itself into a totalitarian dictatorship under Joseph Stalin. The USSR was a one-party state, where any form of dissent or protest was quickly crushed by the secret police. The totalitarian power of the Communist Party would tolerate no internal opposition, and it brought the entire economy into direct state control. This highly centralized form of state ownership and planning led to severe economic problems throughout the Soviet Union’s existence, ranging from chronic shortages of commodities, bureaucratic inefficiencies, and a lopsided model of development which prioritized heavy industry and armaments over consumption goods.

But despite these inefficiencies, Soviet Communism was a coherent, viable social system whose components reproduced and reinforced one another over time. And once the Soviet Union had established itself as a rising great power and a viable alternative to capitalism, movements for social justice and national liberation consciously modeled themselves off of the Soviet example. In this way, Communism became a global phenomenon. Throughout the 20th century, wherever a Communist Party took power, it tried to establish the same basic kind of social system that existed in the Soviet Union.

János Kornai’s analysis of Communism

Kornai

One of the best and most well-known analyses of the Communist system was formulated by the Hungarian economist János Kornai in the early 1990s. Kornai started his intellectual career as a reformer, making policy proposals that he believed could have made the Communist system more efficient and dynamic. But over time, he became more and more convinced that Communism could not be reformed. As the Soviet puppet states of Eastern Europe were collapsing, Kornai wrote his most famous book entitled The Socialist System: The Political Economy of Communism.

Kornai breaks down the Communist system into five “blocks” of institutional characteristics, ordered from the most to the least fundamental. He argued that the undivided power of the Communist party was the most essential feature of the Communist system, from which all else followed.

Base and Superstructure.png
The theoretical model of society used by orthodox Marxists

For many socialists, this is a radical notion. It is at odds with the traditional Marxist view that economic relationships form the “base” of society, which shapes the political “superstructure.” But the history of Communist regimes should make it clear that the seizure of state power by the Communist party precedes the nationalization of the major industries. The Communist party despises private ownership and sees it as a threat to its power. Because the Party enjoys a monopoly on the use of violence in its territory, it has all the power it needs to shape property relations to suit its interests. As Kornai writes:

“It is not the property form state ownership that erects the political structure of classical socialism over itself. Quite the reverse: the given political structure brings about the property forms it deems desirable.”

This is an important point, which we will revisit later. The “original sin” of Communism was not the nationalization of the means of production per se, but rather the departure from democracy.

Kornai Coherence
Kornai’s model of Communism

The shortage economy

Since virtually the entire economy is in state hands, the Communist Party must centrally determine prices and production targets for every commodity and service in the country. This means that prices are irrational, and have little to do with the cost of production or the scarcity of commodities. It also means that the managers of state-owned enterprises are remunerated based on how effectively they carry out the directives of the plan, rather than how well they serve consumers. They have no incentive to improve product quality or to produce above production targets in order to meet excess demand, since consumers have no choice but to buy products from the state.

breadline
Soviet citizens queuing up for limited food rations in 1990

This lack of incentive to “chase after” consumer demand creates a seller’s market, as opposed to the buyer’s market that usually prevails in capitalist economies. In a seller’s market, the producer does not need the consumer, but the consumer does need the producer. Because the state decides what is produced and in what quantities, consumers are systematically frustrated by chronic shortages of the commodities they desire. They are coerced into making forced substitutions between consumption goods, substituting those goods that are available for the ones they actually want.

Another important feature of Communist economies is the soft budget constraint. This means state enterprises are not constrained by the threat of going out of business if they don’t balance their books. The state will almost always bail out loss-making firms, since the bankruptcy of an enterprise will incur substantial costs on the state, and will reflect poorly on the higher-level bureaucrats who allowed the firm to fail. The soft budget constraint contributes to the pervasive inefficiencies and waste of resources that the Soviet Union was famous for.

Was there anything good about Communism?

Many socialists, while criticizing the totalitarian and anti-democratic nature of the Soviet Union, like to point out the positive aspects of Communism. To be sure, there were a few important achievements. Communist countries usually had very generous welfare provisions, guaranteeing healthcare, education, housing, and old-age pensions to all citizens. Most Communist states completely abolished unemployment, one of the persistent evils of capitalist society. Finally, many Communist states were able to achieve very high levels of economic growth.

But of these three achievements, only the abolition of unemployment can really be said to be something unique to Communism. Capitalist economies need unemployment to discipline workers and thereby prevent spiraling inflation. Under Communism, unemployment is simply seen as wasteful. The state does not need unemployment to discipline labor, since it is able to use overt violence and coercion to accomplish the same goal. Independent trade unions are almost always banned, and strikes are brutally suppressed. The abolition of unemployment under Communism certainly comes at a steep price for workers. And as far as welfare provisions go, many capitalist countries have built welfare states that rival or even surpass those of Communist regimes. It certainly isn’t necessary to bring the entire economy into state control before everyone can be given access to healthcare and education.

Command economies aren’t great for growth

The high levels of economic growth seen in Communist countries were due to the Communist party’s ability to use its undivided political power to enforce austerity on consumers, and funnel a large portion of national income into investment projects. In other words Communist states are able to exploit their workers even more than capitalists can, to force economic growth. But this growth is very unbalanced. Heavy industry and military production are overly prioritized, while light industry and production for direct consumption are left lagging behind.

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Soviet per capita GDP growth, 1950-1991 (source)

Furthermore, the growth rates achieved by Communist countries were not exceptional. During the 20th century, we’ve seen examples of mixed-economy, state capitalist countries achieving consistently higher growth rates than Communist countries ever could. For example, South Korea, Taiwan, and Japan all had per capita GDP growth rates in excess of 6% for decades during the postwar period. Over the same period, the Soviet Union experienced an average per capita growth rate of just 3-5%.

This seems to show that, given our current level of technological development, the best recipe for growth is a strong, interventionist state managing a market economy, rather than the abolition of markets and private property altogether. The main reason for this is that investments are utilized very inefficiently in Communist countries compared to capitalist countries. State bureaucrats under Communism face little or no personal risk if a major investment project fails, while capitalists risk financial ruin if they make the wrong investment decisions. While the bureaucracy may confidently push forward with investment projects that may or may not constitute a prudent use of resources, capitalists must tread more cautiously, leading to higher efficiency.

Per capita growth
Many capitalist economies, including Japan and Spain, were able to surpass Soviet per capita economic growth rates during the postwar period

These statistics should make it clear that in economics as well as in politics, the Soviet model was a failure. Needless to say, it is not something that democratic socialists should be trying to replicate in the decades ahead.

Friedrich Hayek’s failed prediction

Hayek

Now that we’ve seen the serious failures of the Communist model, we can turn to the issue of how to avoid a replay of Communism in the 21st century. I have argued that the key is that we reaffirm our commitment to democracy. But we should be prepared to answer criticisms by right-wing anti-Communist authors, such as Friedrich Hayek, who have argued that it was state planning of the economy itself which led to Communist totalitarianism. For Hayek, socialism and democracy are simply incompatible. Hayek wrote in his book The Road to Serfdom:

Planning leads to dictatorship because dictatorship is the most effective instrument of coercion and, as such, essential if central planning on a large scale is to be possible. There is no justification for the widespread belief that, so long as power is conferred by democratic procedure, it cannot be arbitrary; it is not the source of power which prevents it from being arbitrary; to be free from dictatorial qualities, the power must also be limited.

Hayek, who was writing just before the end of World War II, made a bold empirical prediction. He predicted that the expansion of state intervention into the economy in liberal democracies like the United Kingdom would inevitably lead to the destruction of democracy in those societies. His message was that the road of social democratic reform was a road to serfdom.

Luckily for the socialist project, however, the history of the 20th century has conclusively proven that Hayek was wrong. Countries like France, which had widespread state ownership of industry and “indicative planning” of investment throughout the postwar period, have shown no signs of sliding into authoritarian rule. India, for all its problems, has maintained a strong democratic tradition while centrally directing its economy through Five-Year Plans. The most extreme case is Portugal, which nationalized most of its economy during its transition to democracy in the mid-1970s, but never showed signs of returning to dictatorship.

Furthermore, we know that societies with muscular welfare states and redistributive taxation, like Sweden and Norway, actually have healthier democracies than countries without such protections. As long as we socialists maintain our commitment to peaceful, incremental social reform through the institutions of representative democracy, there is no risk that our policies will inadvertently lead to Communist totalitarianism.

The alternative: piecemeal social engineering

Karl Popper

The idea that liberal democracy and civil liberties are essential for protecting against tyranny was forcefully advocated by the famous Austrian philosopher Karl Popper. In Popper’s magnum opus on politics, entitled The Open Society and Its Enemies, Popper sought to diagnose the underlying causes of both Nazi and Stalinist totalitarianism. He pointed out that authoritarian ideologies tend to have in common the idea that they have unlocked the key to understanding history, and that they know what the future utopian society ought to look like in great detail. Because totalitarian ideologues are deeply convinced that they know the inevitable destiny of humanity, they feel justified in taking state power, by violence if necessary, and imposing their philosophy on their fellow citizens without any accountability or appeal.

Popper called this point of view historicism. Marxism-Leninism is a prime example of historicism, because it professes to hold the one true “scientific” method for understanding and predicting history. It concludes from this that it has the right to take state power, by violence if necessary, and to hold onto power indefinitely until it has established its vision of the Communist utopia. Nazism is another example. Nazis believe that all history can be explained by the struggle of different races for power. They further believe that the Aryan race is the master race, superior to all others, which will inevitably prove its supremacy by conquering Europe and ultimately the world.

Democratic socialists should not be historicists. We know that both capitalism and Communism have serious flaws, but we know very little about what alternative, superior models could emerge in the future. Socialists should recognize the fundamental uncertainty of our political project. We want to create a world where exploitation is abolished once and for all, but no such society has ever existed. We therefore have no rational grounds for being confident in any specific model for a future socialist society. All we can do is experiment with different ideas, expanding upon policies that have already been proven— like a robust welfare state, worker codetermination on corporate boards, and the nationalization of monopolies. We can try new things too, like a job guarantee, promoting worker-owned cooperatives, developing a prize system to spur innovation without private property, and much more. But what we can’t do is engage in utopian social engineering, confidently imposing an untested blueprint for society on our fellow citizens.

The alternative to the historicist approach is what Popper calls piecemeal social engineering. The idea is to focus on concrete social ills, and to formulate incremental reforms that can address these ills. If the new policy has negative effects, we can always reverse it through the institutions of representative democracy. Over time, we may be so successful at solving social problems that we will approach something that might be called a utopia. But the key is that we don’t know what the utopia will look like in advance, or how it will come about.

Democracy is essential for piecemeal social engineering because it is the only political system that allows rulers to be removed from power by the masses without violence. Through democracy, we can reverse bad policies and sack would-be dictators. Freedom of expression, association, and the press are also essential, because they allow the masses to criticize the policies of the government and organize against them. The combination of democracy and civil liberties constitute what Popper calls an open society. Democratic socialists should be the foremost proponents and defenders of the open society. The freedoms that the open society affords are a firm foundation for adding the positive freedoms socialists are fighting for (guarantees of healthcare, housing, employment, etc.)

The abject failure of Communism has led many to believe that we will never be able to transcend capitalism. But we have good reason to believe that the abundance necessary to build our socialist utopia is coming. Technological development over the next century promises to automate most involuntary work, making the employer-employee relationship and therefore capitalism obsolete. Let’s just not impose our utopia on society before it’s ready.