Capitalism vs Socialism: socialism for some, capitalism for the rest of us

Let's unpack piece by piece the provincial, American-centric and ahistorical argument Professor Busler has presented here. It exemplifies why George Bernard Shaw said you could lay every economist end to end around the world and never reach a conclusion.

Professor Busler can't accuse me of being a socialist, since I'm an angel investor in seven startups and an experienced stock, forex and options trader. I’ve also taught behavioral investing and entrepreneurship courses in seven business schools in five EU countries. At 65, I’m one of those older and wiser Americans he was writing about when he insulted the young as “ignorant” for choosing socialism over the digitized plutocrats’ plantation the US has become.

They sense what the socialist historian Eric Hobsbawm (The Age of Extremes: the Short 20th Century, The Age of Capital, The Age of Industry) and financier George Soros (The Alchemy of Finance) said in different ways: “capitalism tends to saw off the tree branch upon which it sits.” If you’re sitting high up on one of the tree’s weaker branches it makes sense to sit on a different branch — to try a different mix of socialism and capitalism that’s succeeded elsewhere.

Bernie-voting young people with positive views of socialism care neither about Marxist theory nor Professor Busler’s misinterpretation of communism. It is not through ignorance that young Americans with socialist sympathies conclude that Bernie Sanders, AOC and Elizabeth Warren are no further to the left than the German Social Democrats, New Zealand’s Jacinda Ardern or Scandinavian prime ministers. And it’s not just young Americans who desire a much more equal society. When surveyed using wealth distribution pies modeled on a more egalitarian version of Sweden and the USA with the charts unlabeled, most Americans choose the former (https://www.theatlantic.com/business/archive/2012/08/americans-want-to-live-in-a-much-more-equal-country-they-just-dont-realize-it/260639/).

Lifting Whose Veil of Ignorance?

So the “ignorant” youth Professor Busler insults, as well as the 5500+ people surveyed here know one big idea: that their counterparts in Europe, Australia, New Zealand, Taiwan and Canada live with less financial pressure and risk of downward mobility. They know other countries have government guaranteed healthcare, mostly or completely tuition-free university education, better funded public schools and transport and no worries about student debt and school shootings. They therefore know that changing the mix of socialism and capitalism in the USA is in their best interests.

Examples of Socialism That Works and Capitalism That Doesn’t

1. Transport

State-owned French, German and Spanish trains. Berlin to Amsterdam (same as Chicago to NY) in 6 hours for 34 euros. Paris to Marseille in 4 hours (774 km) for as little as 19 euros. Private British trains cost a lot more and are chronically late and have a track record of fatal and near fatal accidents. America’s national rail joke Amtrak is pitied by every European or Japanese who experiences it. Since rail, like power transmission, is a natural monopoly, it works better if operated in the public interest.

2. Healthcare: The Best American Insurance is a Plane Ticket.

Professor Busler debunks his economist’s rational agent theory if he prefers the American system that spends nearly 20% of GDP on a profit-driven patchwork system that generates 2/3 of all personal bankruptcies. This dysfunctional system combines socialism without planning and predatory capitalism with no free market in which insurance cartels are exempt from antitrust enforcement through limiting regulation to the state level. It’s astonishing that an economist ignores the “study that launched a thousand studies” article by Nobel economics winner Kenneth Arrow’s 1963 article about market failure in healthcare markets due to information asymmetry between patients and the medical system. To apply the Efficient Market Hypothesis, now discredited even for financial markets, to medical markets combines intellectual hubris with fantasy.

Professor Busler might want to pay attention here, since my familiarity with healthcare markets and systems is not just theoretical or academic. I’m an early stage investor in telemedicine startup Vizi Healthcare, did mobile health and electronic health records research for a Wall St research firm, for which I attended the Barcelona Mobile World Congress in 2012. I’ve also lived in the healthcare systems of Spain, Italy, France and Latvia, the last of which has performed six surgeries and lots of physical therapy on me. My brother lives in Amsterdam and I’ve seen the Dutch system up close through him and his Dutch doctor brother in law. An asthmatic American friend of mine in Tallinn was intimately acquainted with the Estonian system. Professor Busler might recall Yogi Berra’s immortal aphorism about the theory vs practice: “in theory there’s no difference between theory and practice, but in practice there is.”

The world’s best healthcare systems, those with the best health outcomes and care access obtained for the lowest % of GDP expenditure, combine carefully regulated market mechanisms with a government guarantee of care for all. Some, like Canada, France and the UK, are single payer. In the UK the medical practitioners of the NHS are directly employed by the state and work in state-owned facilities. Some, like Singapore, have health savings accounts. Taiwan is single payer, but uses market incentives to control costs. None emulate the American profit and employer-provided private insurance and fee for service model. Some examples of healthcare access and costs below:

Estonia: ambulance cost + emergency care for asthmatic patient in hospital for non-citizen, non-EU resident: 66 euros. Ratio of Estonian GDP per capita to American GDP per capita in 2006 at the time of the incident: 1:4

Latvia: Emergency appendectomy, 2018: 1024 euros, 800.00 covered by private insurance costing 286 euros/year. Hemorrhoid surgery, anesthesiology + 8 day hospital stay, 2011: 1700 euros, 50% covered by private insurance. Physical therapy visit of 45–60 minutes each: 9–24 euros each, most 70–100% covered by insurance. Doctor visits, 30–60 minutes each: 30–40 euros each, 67–100% covered by insurance. In two of the three clinics visited, I just hand over my insurance card.

Italy: Emergency hospital visit after a fall by my then 65 year old mother in 1995 in Lecco. Free treatment and never a question about payment or a bill.

France: Hippocrates Meets Adam Smith

90 minute visit with orthopedist and sonogram of hip area in private Paris clinic: 65 euros. Why? No clinic can charge more than what the government reimbursement rate is for a visit or procedure. In Otherwise patients will go elsewhere. The French system is single payer, but, unlike the UK’s NHS, the healthcare practitioners do not work for the state.

4. American Socialism

Municipal-owned Utilities

America has a long history of municipally owned power and water companies that charge users less than their profit-driven counterparts elsewhere. As of 2018 there were 830 such companies. https://www.publicpower.org/public-power . This is an example of successful socialism in an industry that’s a natural monopoly.

The Internet, Cell Phones, Microprocessors, GPS, DARPA, Big Pharma & Fed-funded University Research

DARPA, the Defense Advanced Research Projects Agency created the internet with taxpayer funds. No tech company has ever paid a dime in royalties to compensate the federal government for this gift. The stem cells of Zuckerberg’s, Bezos’, Sergey Brin’s and Larry Page’s, Gates’, Tweeting Jack Dorsey’s billions all come from the same source: the Pentagon’s DARPA. The GPS in your iPhone or Android is military tech:

“The microprocessor was sponsored by the US government back in the day, which needed a lightweight computer for missiles, aircraft, and other systems. The technology was quickly put to use in F-14 fighter aircraft, intercontinental ballistic missiles, and submarine-launched nuclear missiles. General Dynamics, known at the time as GTE, helped the US Army create an advanced network for a device invented some 12 years earlier. The device was the cellphone, which would face its first true test in Operation Desert Storm. The Army needed a reliable wireless communications system that could be easily deployed. And the cellphone fit the bill. Many of the iPhone’s accessories and supporting functions were developed for similar purposes. The idea of digital photography was developed by the National Reconnaissance Office, which needed a more efficient way to produce photographs taken by their satellites. Maps and location services likewise have military origins. GPS was originally meant to accurately guide the systems and vehicles of the armed forces, not Uber drivers. The satellites that make GPS possible, even today, are operated by the US Air Force….The more recent generations of iPhones feature voice recognition software. SIRI, as we’ve come to know her, was originally a DARPA-funded project of SRI International, an American research institute.” https://www.mauldineconomics.com/editorial/george-friedman-high-tech-is-born-in-war-not-silicon-valley

Most of Big Pharma’s profits are derived from government-funded me-too research at universities. Watch former FDA regulator Marcia Angell describe how the system works: https://www.youtube.com/watch?v=uDbQNBla6aU

Again, socialism and privatized profits for shareholders and the corporate executives, capitalism, socialized losses and externalities for consumers, employees and other stakeholders. This is why I like owning or selling cash-supported 20% below the money put options on Big Pharma stocks like Gilead, Astra-Zeneca, Abbvie, Bristol-Myers-Squibb, Sanofi, Roche and Novo-Nordisk: high yield limited downside. I may not be rich, but I get how the system leaves a few crumbs on the table for those who understand how it works. My How Not To Be Dumb Money article explains this in more detail.

Federally Owned and Operated Highways

The interstate highway system: mostly free to use vs the privately owned and very expensive tolls you’ll find in supposedly more socialistic Italy, Spain and France. If Professor Busler rents a car in Italy, I’ll happily take his money by buying shares in Autostrade SpA, controlling interest owned by the Benetton family.

Socialism for the Military and the Political Class

Single payer healthcare for members of Congress, but not for their Capitol staff that keeps the place functioning. Socialism for the lords, but capitalism for the serfs. Another example of the refeudalization of American society through free market fundamentalism.

Single payer healthcare for the military. Ever hear them ask for applying free market mechanisms to Pentagon-financed healthcare? Didn’t think so.

Socialism for Home Owners Subsidized by Renters

Mortgage interest tax deduction: subsidizes the buyers of the most expensive real estate at the expense of working class renters while exacerbating the housing affordability crisis.

Socialism for Financial Engineers

Tax deductible interest on debt: subsidizes the most leveraged, financially engineered companies and their private equity asset stripper investors. Also benefits residential REIT investors like me. If you don’t know what a REIT (real estate investment trust) is, you’re one of the fiscal victims.

Socialism for Higher Earners’ Health Insurance

Tax-deductible and tax-sheltered employer-provided Cadillac health insurance plans costing many thousands of dollars for America’s executive class. Who pays for it? Those who pay a much higher percentage of their income in Social Security taxes since only the first $115k of earnings are subject to this tax. Also those who pay income taxes at a much higher rate than the hedge fund managers whose tax rate on their carried interest is only 10%, fruit of the Bush 2.0 tax cuts of 2001 that treated carried interest as a capital gain instead of ordinary income. Again, state-subsidized socialism for plutocrats and capitalism for the rest of us.

Socialism for Sports Oligarchs

The antitrust exemption for major league baseball and lucrative tax breaks for team owners to build stadiums.

The Ever-renewable Free Market Fable

Every generation free market fundamentalist economists like Professor Busler peddle ahistorical fables like his article and forget about the inconvenient part of Adam Smith’s Wealth of Nations : “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” They also forget about Robert Michels’ Iron Law of Oligarchy, applicable to capitalism, just like any other complex organization (https://en.wikipedia.org/wiki/Iron_law_of_oligarchy ). Free market fundamentalist peddlers of efficient market mythology contribute to this Iron Law of Oligarchy by labeling the losers in this winners take all process of creative destruction as “unproductive”, which is social darwinist language similar to the Nazis’ “useless eaters”. Myth-peddling economists like Busler ignore market failure as monopolists like Facebook, Amazon, Apple, Microsoft and Google, the Standard Oils and J.P. Morgan’s of our century, crush innovation and create unsustainable wealth concentration and refeudalize a caste-bound American society. We know what the antidote to this economic poison is, since we’ve taken it before.

Because of a single family, the Roosevelts — Teddy and Franklin — the United States temporarily escaped from this Iron Law during Progressive Era and the New Deal. Since Reagan’s election in 1981 the oligarchs have returned the US to the Iron Law’s cage. You have the key to the oligarchs’ cage you’re stuck in while free market fantasists such as Professor Busler are telling you you’re ignorant if you see the cage all around you in nearly 50 years of stagnant wages and increased concentration of wealth. Will you refuse to turn the key to the cage’s door because an economist tells you that theoretically the cage isn’t really there?

_______________________________________________________________

I’d love to have this conversation with Professor Busler’s students as the antidote to his naive faith in efficient markets. His naive unawareness of Minsky Moment Black Swan Big Short market failure exemplifies why you should never let an economist be your fund manager, unless it’s John Maynard Keynes, who was the Buffett-caliber best investor of his 1921–46 generation — 12% CARs (compounded annual returns).

Since I taught history at UCLA from 1981–83, it would not be the first time I taught students in California.