Socialism… Still Not Cool
2019-07-28 · Guest: Ben Powell (Director of the Free Market Institute at Texas Tech) · 52:04
Socialism and the economics of beer
Bob Zadek interviews Ben Powell, Director of the Free Market Institute at Texas Tech, about his book Socialism Sucks: Two Economists Drink Their Way Through the Unfree World. They discuss the practical failures of socialist economies in countries like Venezuela, Cuba, and North Korea, contrasting them with the success of free-market reforms in Georgia and the high-tax but market-oriented system in Sweden.
Topics: Socialism, Capitalism, Economic Freedom, Free Market, Venezuela, Cuba, North Korea, Georgia (Country), Sweden, Democratic Socialism, Incentives, Price Systems
Speakers: Bob Zadek, Ben Powell
Introduction to Ben Powell [00:18]
Bob Zadek: Good morning, my friends. Welcome to The Bob Zadek Show, the longest-running live libertarian talk radio show on all of radio. The show always of ideas, never ever the show of attitude. Thanks so much for listening this Sunday morning.
I have done many, many shows on dealing with the high cost of higher education, what a rip-off it is, and student loans. We’ve covered that show, that topic many times. This morning’s guest will give us a cure for the cost of higher education, specifically the cost of getting an advanced degree in economics. That discipline requires an advanced degree, of course, a doctorate degree, and all of that is expensive.
However, if you want to learn all you need to know about economics and have fun doing it, as this morning’s guest will teach us—never mind the educational aspect—just buy yourself a coach ticket on a cheap airline and visit the countries we will enumerate this morning. And you will have learned, as you visit each country, drink beer in each of those countries. So have some beers, have some cheap food, visit some inexpensive-to-visit countries, fly coach, come back, and you will have learned all you need to know about economics. You can have the equivalent of a PhD.
And who better to explain this theory on curing the higher education cost in economics is this morning’s guest, Ben Powell, who both has advanced degrees in economics and has taken exactly the trip that I suggested at the introduction to my show. Ben Powell, who is now—we’re welcoming back to the show—Ben Powell is the Director of the Free Market Institute at Texas Tech University. He’s a professor of economics at the Rawls College of Business, and he’s the North American editor of the Review of Austrian Economics, among his many, many other writing and educational credentials. Most relevant to this morning’s show, Ben’s book, which has been an immediate hit both in beer devotees and economics devotees, Ben’s book, which has just come out, is called Socialism Sucks. Ben, welcome to the show this morning and tell us whether you support or have questions about my suggestion that the takeaway from your book is: never mind an advanced degree in economics, you can learn virtually all you need to know about economics from drinking North Korean or Cuban beer. Ben, what does beer in third-world countries have to do with socialism specifically and economics in general?
Ben Powell: Well, hey Bob, it’s great to be back with you. And you’re exactly right of what we’re trying to do with this book. It’s—the subtitle is Two Economists Drink Their Way Through the Unfree World. And myself and my co-author, Bob Lawson, who’s a professor at SMU, two of us took a trip around the world to socialist countries, not socialist countries, formerly socialist countries. And we drank a lot of beer because, well, that’s what we do when we travel. And learned about their economies. And the writing up of this book, it’s based on, you know, serious economics, but it’s written in a very fun Anthony Bourdain-type style of distilling the economic knowledge for normal people to understand and to have fun drinking beer while we’re doing it. And you’re right, the beer can serve as a metaphor for how these different economies function.
Defining Socialism and the Sweden Myth [04:31]
Bob Zadek: Now, of course, the subject of socialism is very much in the news because it is part of the conversation, at least in the battle for the Democratic presidential nomination. And we have, of course, the poster children of Bernie Sanders, Elizabeth Warren—who does not use the term socialism very carefully—but we have AOC, who is not a presidential candidate, very much in the news. And we have Bernie Sanders, who frequently referred to the term socialist or democratic socialist. But of course, they use the word socialist as a placeholder for doing nice things, not as an economic concept. But sort of socialism to them means doing nice things and specifically it means giving away lots of stuff without any concept to where you’re going to get the stuff that you’re going to give away.
So our friends out there can follow the conversation in the media and on the presidential trail, help us understand just briefly, when we use the term socialism, you are using it in the term as it is actually practiced in the countries you visited—and we’ll go in some detail in those countries and what socialism means on the ground in those countries. But help us just to follow along the dialogue in the presidential debate, at least on the Democratic side. When they’re talking about socialism, how much are they not talking about socialism?
Ben Powell: Yeah, they’re not talking about socialism in its real functional definition. Bernie Sanders, when he gets called out on what socialist countries, he says countries like Denmark, like Sweden, like Norway. But the thing is, none of those countries are socialist. So let’s clear this up, we’ll say it loud for the people in the back row. Socialism, of all its varieties, means abolishing private property in the major factors of production and replacing it with some form of collective ownership. Usually, in practice for any large society like a country, that means de facto state ownership and control of the means of production. This is when your government has to plan the economy, it owns all of the major businesses in the economy. That’s socialism. That’s what it meant under Lenin, that’s what it meant under Stalin, that’s what it means today.
So when the Bernie Sanders says these things—now, he has affinities with real socialists who mean it like that, and a history of liking things like that—but in terms of policy of what he means today, he’s not suggesting that government should own Walmart. That said, these things, if we think of capitalism and socialism, it’s two poles of a spectrum and there’s no country in the world that’s purely capitalist and entirely free market. And while the world came pretty close to pure socialism during the period of war communism in the Soviet Union in the 1920s or the Great Leap Forward under Mao, each socialist regime still has varying degrees of private property in various factors of production to at least de facto. But we can group countries and think about the ones that are pretty close to that socialist pole as being socialist. And the places that Bernie talks about is not. The first chapter of the book is called “Sweden: Not Socialism,” because Sweden is predominantly organized on market forces with private property in the means of production. In fact, my co-author on this book does the Economic Freedom of the World annual report that basically ranks how economically free or how capitalist versus how socialist a country is. Sweden comes in number 27 in the world in terms of economic freedom. It’s near the top of the pile.
Bob Zadek: And what Sweden has discovered, and part of its success in terms of quality of life of the citizens of Sweden, is Sweden, in picking an economic model, has discovered that the reason so much private ownership and free markets—or relatively free markets—but freedom needs it while maintaining a higher level of a welfare state than, for example, the US. It does so by funding the welfare system with high taxes, and the taxes are for the most part on income. Now, that’s the key. You can’t fund a welfare system by taxing income if you don’t have any income. So the free market part of the Swedish economy is essential because that provides the money in order to fund the welfare system. In other words, you cannot have one without the other. And the big gap, I think, Ben, that I’d like you to speak to is Bernie Sanders is doing the welfare part of Sweden—the giving away, the income transfers—but he’s not focusing on where the money’s going to come from as Sweden has. So let’s discuss the system of how the wealth gets created in a socialist system—and it doesn’t—in order to fund the welfare part of a Bernie Sanders-type program.
Ben Powell: Yeah, so let’s be clear. The Swedish history here, this in the mid-19th century was a very poor and backward economy. They went on radical free market laissez-faire reforms in the mid-19th century. It was a very free market economy up until about the 1950s that starts changing. But it rocketed up in terms of wealth and became at one point the wealthiest nation in the world. By the 1970s, they’ve become wealthy and they’ve put this big welfare state and high taxes in place. And also, we should say a lot of labor market regulation too. Those are the big areas where Sweden messes with freedom in terms of economic freedoms. And what happened is, it wasn’t socialism, it didn’t instantly turn the country backwards and become poor, but it created stagnation. That big welfare state and high taxes and labor market regs prevented the economic growth from happening at the rate it was before. And now Sweden is in the bottom half of OECD countries in terms of its per capita incomes. But it’s still a really nice place and it’s because of the parasite of the welfare state that’s living off their market economy. The parasite doesn’t kill its host, but it does stop you from racing forward as fast as you otherwise would. And what Bernie and other democratic socialists in the United States—at least in terms of mainstream politicians—would do is the same. They’d grow the parasite bigger here in the United States and drag us down and push us on that road to serfdom a little bit farther, but they’re not advocating nationalizing the means of production.
Bob Zadek: And Bernie Sanders knows full well you cannot take over—and he gets very defensive when we talk about socialism. He quickly says, “No, we are talking about democratic socialism,” a variation on socialism which is so much of a variation it’s not socialism at all, which means: keep the means of production in private hands so as to feed the beast, so as to provide the income necessary to provide a more generous welfare system.
The Beer Metaphor [06:20]
Bob Zadek: Now, Ben, in your book, the reason beer is in the book, the reason you chose beer I suspect—although I wasn’t in the planning of the book obviously—but the reason you chose beer is because beer is first of all relatively simple to produce. If an economy is going to produce anything, it ought to be able to produce a product which simply requires natural processes, fermentation, and water and some grain that’s been around forever. And if you can’t produce beer, how can you produce anything even slightly more complex? So beer is a wonderful way to explain in ways that everybody can understand the failure as an economic model of socialism.
So now, when you traveled in the countries you visited, each country presents its own wonderful lesson about what beer tells us about the economy. And each chapter in your book which discusses a different country, the wonderful thing about it is each chapter has a different lesson. So give us a little bit of a romp through the countries you visited and what you learned in each country from its beer and from your visit there.
Ben Powell: Sure, so let’s just do a brief alcoholic romp from country to country here, we can go into detail about the countries and their economies afterwards if you want. But for beer, listen, you have beer in Sweden, there’s a wonderful wide variety of selection of wonderful beers, except they tax the bejesus out of it. It’s a big taxes and welfare state. So a Belgian beer that’s just across the water, produced just across the water from Sweden that’s delicious, costs more there than it does in the United States or for that matter on the opposite side of the world. I had some Belgian beers in South Korea that were cheaper. And that’s the Swedish welfare state and high taxes. But it’s still private property, the variety is there.
Venezuela: Running Out of Beer [08:11]
Ben Powell: Now, Venezuela is the polar opposite. Let this one sink in, Bob. The country ran out of beer. I don’t know about you, but if I were a socialist dictator, like toilet paper and beer, these are the things I wouldn’t let the place run out of. But more specifically, what happened in Venezuela is the monopoly beer producer, Polar, the government was planning the economy and they did not allocate enough foreign exchange for the beer company to import barley. As a result, they couldn’t make the beer, the country ran out of beer.
Cuba and North Korea: Quality and Variety [10:49]
Ben Powell: Cuba—now Cuba’s more—we call Venezuela “starving socialism,” Cuba we call “subsistence socialism.” It’s kind of chugging along. They have beer there, but in the whole country, there’s two types: Cristal and Bucanero. They’re both about four and a half to five percent alcohol. They’re about a half percent difference in alcohol, both of them taste like a Budweiser that’s been left out in the sun a little bit too long. That’s the product variety that you get in Cuba. Even when it’s functioning and they can give you quantity, there’s no variety in their beer or really anything else.
Move along to North Korea and that’s just god-awful swill. I suppose if I lived there I would drink it to try to forget where I lived, but otherwise it tastes like think about the worst malt beer you’ve ever had and then make it worse. That’s North Korean swill.
Georgia: A Free Market Success Story [12:11]
Ben Powell: But then you get to countries that are reforming, and one that I always focus on is this former Soviet republic of Georgia, which made essentially no reforms when the Soviet Union collapsed.
Bob Zadek: By the way, Ben, if I could just interrupt, your discussion of Georgia was fascinating. And one can learn a great deal because you think of the former Soviet Union as kind of monolithic. But of course you have Georgia and then we have Estonia, which you didn’t visit. So there are these very interesting pockets of free market capitalism in the remains in the now separate countries which used to be part of the Soviet Union. So that’s an especially fascinating story.
Ben Powell: Yeah, Georgia is a wonderful late success story. So they make essentially no reforms for over a dozen years after the fall of the Soviet Union. And then a guy comes to power, Saakashvili, who is a kind of Washington Consensus-leaning politician. But he brings in a guy, Kakha Bendukidze, as his finance minister. And this guy’s as rabid free market as I am or probably you are, Bob. And he just starts radically reforming the economy there, firing government bureaus entirely, privatization of everything and putting it online and making it transparent so the highest bidder gets the property, no corrupt deals like in the rest of the Soviet Union. He eliminates taxes, lowers the rates, gets a flat tax. They start limiting government debt and debt issue. He fired the entire traffic police force in a day and crime went down, so the joke goes there because they were the most criminal in the country. The net result of all of these reforms, they went from being unranked in that economic freedom index, which means way down bottom of the barrel over 150, to now they’re in the top 10 freest economies in the world. Now Georgia is still relatively poor, about $8,000 per capita income, but that’s because the reforms have all been since the Rose Revolution more recently. They’ve been growing very rapidly and they’re going to keep gaining ground as they’ve done these wonderful reforms. They’re doing it in an area that’s, you know, a tough part of the world. They have a hostile neighbor, Russia, to the north, and they’re just east of the Black Sea and above the Middle East there. And free market reforms there are doing wonders and you can see it in their wine too, if we want to continue with the alcohol theme. During Soviet times, Georgia was the main producer of wine in the Soviet Union because the Soviet central planners were commies, not idiots. They understood that warm Georgia would do wine better than say Siberia. But they mass-produced swill on fertile lands that were easy to farm that nobody liked. Since becoming economically free, those vineyards have gone fallow, wine-making’s gone back to the hills, traditional Georgian wine-making, which is very different than—particularly their white grapes because they put the stems, the skins, everything into the vat together so it ends up coming out more of a golden orangey for white wine. They do them in underground vats that they age them in. It’s innovative new grapes that you haven’t seen as the normal international varieties. The transformation of their wine industry is like the transformation of their economy.
Shock Therapy and Economic Indicators [15:31]
Bob Zadek: Now, what’s really interesting to me is how long did it take—we’ll use Georgia as an example—how long did it take for the transformation to have really taken hold? One would think when you start with a society that has no tradition of markets, no tradition of economic freedom, whatever, you would think no one knows how to do it. How do they get trained? And yet, how many years did it take for this massive transformation and for immediate effects to be shown in Georgia?
Ben Powell: Very short amount of time. It was shock therapy. It was economy-wide slashes in the size and scope of government over the course of just a few years. And when you look at their economic indicators, growth picked up. The only blip that you see that would seem to be negative during these reforms—but I’m going to tell you it’s not in just a moment—is unemployment spiked during the reforms. But unemployment spiked because they fired the government. It was negative value-added bureaucrats that were being fired. Now, after a few years, unemployment was back down to and actually at historically low levels because these people got re-employed in the productive sector rather than the predatory government sector that they had. But all of these indicators changed direction and are going up and getting better. It’s just, you know, in terms of incomes, growth compounds over time. So when you start very, very poor, it takes a while to become very, very rich. But they’re doing it rapidly. Incomes are probably about 30 percent higher than they would be without the reforms right now, according to some of the scholarly studies that have been done on it.
Bob Zadek: The reason I asked about the timeline of how short a period of time it takes is because what that demonstrates, at least to me—and I am of course not a trained sociologist—but what it demonstrates to me is that freedom is the natural state of affairs. That doesn’t have to be forced upon anybody, nor does it have to be taught. That is the default way humans, if not all species—but let’s say humans—are wired. So therefore, that is the natural condition of man is to operate in freedom and to trade fairly with your counterparts in a trade. So am I overstating it, or is Georgia an example to prove you don’t have to send an entire country to school to learn how to operate under freedom? It just is the default rule and people just take to it and prosper for the benefit of all.
Ben Powell: Well, Bob, I think you’re right. When you give them the rule of freedom, people naturally find ways to make gains from trade and prosper. What I’m not as sure about is how natural culturally this is and sticks in terms of what the rules of the game are.
Institutionalizing Freedom [18:18]
Ben Powell: This is a case where there was a lot of luck involved of getting a finance minister of lots of power who happens to be a rabid libertarian. It’s also the case that when they left office, the last thing they put in place was what they called the Economic Freedom Amendment. And what that does is it doesn’t allow the government to have a deficit of more than 3 percent of GDP, can’t have debt over 60 percent of GDP, and any new tax the government cannot put in place, they have to have a popular referendum and get permission from the people to put a new tax in place. And this amendment was just renewed a little over a year ago. In fact, when we were there, we debated some local professors about the desirability of this. And this has helped to handcuff the governments that have followed so that they wouldn’t undo the free market reforms that are there. So it’s yet to be seen whether it sticks, but so far it has since they left office.
Bob Zadek: Ben, your discussion of the tax system in Georgia sounds like the tax system can be summarized as just a form of crowdfunding. They throw it out there and if enough people support the funding, they spend the money and they impose the tax. So it’s a system almost of voluntary taxation, something like what they imagine for Liberland, what they hope to do someday with Liberland. This is Bob Zadek, we’re talking with Ben Powell this morning. Ben has written the quickly becoming a bestseller Socialism Sucks. It is the story of two trained economists who decided to learn about socialism on the ground, if it were—or maybe in the glass, to use a better metaphor—as they drank beer through a bunch of socialist countries to learn whether what they are teaching in the classroom is proven by the quality of the beer. More from Ben and we’ll be back in 30 short seconds. Please stay tuned, we’re going to talk about North Korea and the system of prices and what the price of stuff teaches us all about the economic system. Lots more to follow.
[Sponsor Break Removed]
The Korean Natural Experiment [22:17]
Bob Zadek: I’m Bob Zadek, broadcasting here every Sunday morning at 8:00. Welcome back to The Bob Zadek Show, the longest-running live libertarian talk radio show in all of radio. This morning we are welcoming back Ben Powell. Ben has just written the soon-to-be a must-read bestseller called Socialism Sucks. And man, does socialism suck. Ben and his co-author Bob Lawson have traveled through a bunch of socialist countries in Europe and in Asia and in Central America to sample the beer and see what quality of beer tells us about—and tells Ben about—their economies and whether socialism truly does suck, at least as measured by the quality of the beer. Ben, you visited North Korea. Your experience in North Korea was—it itself makes the book a must-read. Tell us about your visit, which really wasn’t a visit, to North Korea.
Ben Powell: Well, you’re right, the visit that really wasn’t a visit. On the North Korea one, we had to kind of sketch around the borders there because our wives had told us we weren’t allowed to get killed or imprisoned while writing this book. Not to mention the North Korean government’s probably not going to give a visa to the guy who runs something called the Free Market Institute. So what we did is we flew into South Korea first, did some work there, toured the DMZ, but that’s not very informative because you can’t see much in there because it’s the demilitarized zone. So we traveled up to the north border in Dandong, China, and went up and down the Yalu River looking into North Korea, talking to people who had left Korea there. And one of the more striking things that you see with North Korea—I bet you, given your libertarian show, a number of your listeners will have Googled, you know, the satellite image of the Korean Peninsula at night. If you haven’t, go ahead and do it. And what you’ll see is, you know, the light, the south is lit up like a Christmas tree, the north is dark except for a little light at the capital, and then it’s lit up again just across the Yalu River in China. And it’s striking to see that firsthand. Flying in there in the evening, go to my hotel room, look out across the river, can’t see anything. It’s like there’s nothing there. Next morning wake up, open the blinds, whoa, there’s a city of 300,000 people right across the river. This is the main export city in North Korea to China, their main trading partner. And at night it looks as if it doesn’t even exist.
Bob Zadek: And it doesn’t exist because there is no electricity, because there’s no electric power, because that’s a result of a socialist economy. So we do have—this is not a theoretical conversation. What you get from the book is, while Ben has written extensively where Ben’s audience are trained economists and those people who are studying economics, the book Socialism Sucks is written for us street people, us people who are not trained economists, but it explains as perfectly as an economic text would the contrast between socialism and a socialist economy. Because it’s not theoretical, Ben was there.
The contrast between those economies and free market—or relatively free market—economies. And I say relatively free market because while Bernie Sanders has complained that the United States is an example of—I think the phrase he uses is “unfettered capitalism”—of course, would that that be true, but it is not. We are totally fettered, if that’s a word. So Bernie Sanders’ choice of words is inaccurate and unfortunate. So but we are a relatively free market economy, Ben. We’re not unfettered, are we? We’re not in the top five like Hong Kong and Ireland and Switzerland, which are more unfettered.
Ben Powell: Yeah, no, the United States fell way down to like 18 at one point, it’s bounced back up to the top 10. But let’s talk about this relative comparison and stick with Korea for just a second there. Because this is the rare natural experiment where you have a single peninsula with one people, one language, one history, one culture, that basically the only difference between the two of them is one adopted a socialist economic system and one adopted a relatively capitalist economic system. And in fact, at the starting point at the end of World War II, if anything the north was more advantaged. It had more of the electricity, more of the manufacturing, more of the mining. The south’s only advantage is it’s a little bit warmer for agriculture. But give them two different economic systems, South Korea explodes, has an income per capita nearly $40,000 per person now. Incomes in the north—in any socialist country it’s BS when you calculate incomes per capita because the normal accounting doesn’t work—but it’s somewhere in the ballpark of $2,000, maybe $3,000 at most per capita incomes in the north. And it’s the difference in the economic systems.
China: Crony Capitalism vs. Socialism [24:31]
Ben Powell: And the unfortunate thing is, from the South Korean side you can’t see it side-by-side the same. But when you’re up on the Yalu River in the north, this is just unnatural. You look at one side of the river and there’s poverty, dilapidated buildings, old machinery struggling to till a field. Turn your head and just a hundred yards in the other direction, there’s brilliant new skyscrapers going up, a thriving economy, multi-lane roads with tractor-trailers whizzing down. And that’s China. Now China is far from unfettered capitalism, but China is no longer socialist. In fact, we call it “fake socialism” in the book when we tour China, because China, while the Communist Party has a political control, they’ve made so many economic reforms that they’re nowhere near government ownership of most of the major means of production anymore. It’s a form of crony capitalism. But crony capitalism next to the socialist hell of North Korea looks a hell of a lot better.
Bob Zadek: And what’s interesting—you’re so right, Ben, as you know, about North and South Korea being a perfect petri dish for examining the two systems. I’m reminded of there was a—an experiment where identical twins who were separated at birth and who lived different lives, whether there was a sociological and biological examination of what their two different lives had in common and how they grew up differently based upon the families in which they grew up and the places they grew up in. And North and South Korea is an example of that in economics. And the reason it is so is because North and South Korea were at one time one people. And the DMZ, the 38th parallel, was simply a line on a map, an artificial line where the Western powers after World War II gave North Korea in effect to Joseph Stalin. So that was a distinction without a difference. So we had two people, a line was drawn on a map with a ruler, and we created two countries out of one. And now we have two countries with the same cultural background, the same people, the same history, and then one is given an opportunity under capitalism and the other under socialism. So we don’t have to theorize about how it’s different. It is really a perfect example of what happens under socialism versus what happens in a free market. So I think that is—you’re right, Ben, that is the perfect, if you needed to look at the globe and say, how can we learn the difference between capitalism and socialism, you only have to point to the Korean Peninsula as the perfect answer.
Incentives and the Lack of Variety in Cuba [26:51]
Ben Powell: That might be the perfect answer, you’re right, Bob. But we can also look closer to home for some examples too. So just south of us, 90 miles from Florida, we have socialist Cuba. And we traveled all around socialist Cuba and there’s lots of things we could talk about within there. But one of them that I want to mention is this kind of natural experiment thing. Across Cuba, the food is bland. There’s no flavor to it. And Cubans have a reputation for having great food, but Cuban food in Cuba sucks. And it’s because—now they do have limited private property rights to establish restaurants. Initially they weren’t allowed to serve meat or seafood, they had severely restricted seating capacities. Now you’re allowed to have about 50 tables in the restaurant, they can serve meat and seafood. But as you go to these private restaurants—and they operate alongside the state-owned restaurants, and the state-owned restaurants are god-awful—but the private ones, what you notice over the course of a week or two is that they all serve basically the same dozen to 18 items prepared basically the same ways. And it’s because they interact with the Cuban supply chain of how they get their ingredients. As a result, there’s sameness and blandness. Take a plane to Florida, go into Little Havana, Cuban food is delicious and highly varied. They operate with Cuban cuisine and culture with a capitalist system and produce wonderful things. Take the same Cubans, give them a socialist economic system, and you’ve got a crappy ham and cheese sandwich.
Bob Zadek: That is—you know, the lack of variety which you mentioned in your book as one of the ways in which a socialist economy does not satisfy the needs and the desires of consumers. Consumers are ultimately the audience to which an economic system has to serve—it’s the consumers, giving people what they want at a price they’re willing to pay. And the lack of variety is a perfect proof or perfect example of the difference between a socialist society economy and a capitalist economy.
You also talk in your book about the—in a socialist system—the absence of incentives. The incentive to give people what they want. There’s an entirely different incentive system in a socialist economy, and that’s what sucks all the energy out of the economic system and all of the desire to simply be good at what you do. So tell us a bit about the profound difference in incentives at the individual level between a socialist economy and a capitalist economy.
Ben Powell: Sure, let’s stick in Cuba and let’s even do it side-by-side within Cuba of where you have some limited private property rights versus the incentives under socialized property rights and state ownership. The hotels in Cuba suck. The hotels are part of the means of production—remember for those in the back, socialism means government ownership of the means of production. So the hotels are government-owned. As a result, they don’t make a profit by having you stay there. The managers don’t have an incentive to better serve you. The hotels are run-down and awful. And we didn’t sandbag it by staying in crappy places. You could go to the Hotel Nacional, that’s the diplomat hotel, that’s nice. But just hotels in general in Cuba are awful. We get in the first one, our balcony’s glass is shattered, there’s tiles missing from the suspended ceiling in the bathroom, didn’t have hot water one morning. Another one there was holes in the towel they left the previous guest’s soap in the holder for us, the toilet seat wasn’t bolted to the toilet so you could slide right off. These hotels were disgusting. But that’s because they don’t have an incentive.
Now, what they did allow is casas particulares, people to rent out their apartments for private profit. Now we’re doing the same industry in the same place, one of them is a residual claimant who has a profit incentive to make sure that you come back or that other people want to stay with them. And the casas at a price the same or lower than the government hotels are well-kept, the people there are punctual at getting you into them, and they are wonderful places to stay. It’s the same service provided side-by-side, one with private property incentives, one with socialized government incentives. It’s, you know, akin to having the DMV, the Department of Motor Vehicles in your state, run your whole economy, of what it does to incentives for customer service.
Socialism and Coercion [31:17]
Bob Zadek: And what to me would also you had to have experienced is—and this to me goes to the heart of the difference—is that a socialist economy must be imposed by force on the people. Nobody instinctively warms to a socialist economy. And every—I’m sure every socialist country you visited, truly socialist country—and there really are only a few in the ones you visited—but obviously the presence of military force or paramilitary force to force you—you will take socialism whether you like it or not. And that is to say socialism has as an essential ingredient coercion. It’s never voluntary. And you don’t have to force freedom upon people. So tell us what you have observed as you visited these countries, whether how profound or how present it was to you that how socialism had to be forced upon people. Doesn’t socialism force you into a job you are assigned, not what you want to do? And am I overstating the relationship of force to a socialist system?
Ben Powell: So I’m going to separate this out into two parts, Bob. I think you’re absolutely right first of all that once you have a socialist system, you as a worker are part of the means of production. That means your labor is owned by the state and needs to be part of the economic plan. Now the question about adopting a socialist system, I think is a little bit more complex. What I think though is that in the long run, these systems only continue to last because of coercion, because it’s impossible to continue to get people’s consent to these systems because they are dysfunctional. So we can trace what’s happened in Venezuela as a perfect example of this. So Hugo Chávez comes to power in 1998, democratically elected. So it wasn’t a military coup. In fact, he had tried a military coup a few years earlier and ended up in jail. But he was popularly elected, international observers all said it was a fair election. He was re-elected and put in a new constitution and pushed his unique brand of what he called Bolivarian socialism in Venezuela. Now for a while, things looked like it was okay. In fact, Bernie Sanders was saying nice things about Venezuela in the 2000s. And what was going on was the economy, because of the socialist policies being put in place, was getting hollowed out. Food production was dropping, production of lots of things was dropping. And meanwhile, food imports were increasing to the country to keep them well-fed. But Venezuela sits on the world’s largest oil reserves. And prices were very high for a while. And in fact, they continued to be high right up until Hugo Chávez’s death in 2013. Since then, once oil prices started going down—and for that matter, by the way, oil production in Venezuela has been going down because the state nationalized oil company doesn’t have the right incentives to maintain their production—so production’s gone down, prices have gone down, the government now cannot pay for the goodies to import to hand out to everybody, and Venezuela’s collapsing and is a mess.
The Inevitability of Political Repression [33:51]
Ben Powell: But remember, this was democratic socialism. You can find your Hollywood celebs, your Oliver Stone, Sean Penn, who were praising Hugo Chávez saying, “This is democratic socialism in action.” Except what’s happened once the economic dysfunction was realized and obvious to everyone, people no longer support the regime. But they don’t allow it to be democratically thrown out anymore. Last year, just about a year ago now, Maduro was re-elected in Venezuela overwhelmingly in the polls, in a year where people lost an average of 24 pounds—not because they found Jenny Craig, but because the Venezuelan system could not feed them. You do not win a popular election when your population is starving. What Maduro did of course is he coerced the state employees to vote for him, otherwise you lose your jobs. They handed out food aid at the polling places to buy off the votes for the people. And as a result now, what has happened—so you had a sham of an election, the parliament declares an interim president in opposition to Maduro as they’re constitutionally allowed to do. Maduro doesn’t let him take office and uses the military to crack down. What started as democratic socialism ends up being merely socialism. And that’s because of the necessary connection between economic and political freedoms.
Bob Zadek: And thus, once you institute a system of socialism, the byproduct has to be sooner or later civic unrest, which means now, as Ben said, the democratic piece of the phrase disappears and now the government to stay in power says, “You will keep socialism whether you like it or not, and if you don’t, you will not work and you will not eat and you will not have any freedom.” So doesn’t that make us wonder how good can socialism be is that if every single citizen who lives under socialism has to be forced to live under it whether they like it or not? And there’s no instance where people have rebelled against freedom. And doesn’t that tell you all you have to know about the relationship between government coercion and an economic system?
Ben Powell: Here’s the magic mix that you’re pointing to of how this works. Socialism by its nature of government ownership of the means of production creates the bad incentives we’ve talked about, and it also doesn’t function like a price system to convey the information of how to plan the economy. The necessary result is economic stagnation and collapse. And the people don’t like economic stagnation and collapse. We know this in the United States: if unemployment and inflation are high, you throw the bums out of office. Socialism guarantees that you’re going to have bad economic outcomes. But in order to implement socialism, you must centralize power in order to plan the economy. But once you’ve centralized power, you have the means available for political repression when people, after the necessary failure of your economic system, oppose you. You can now crack down on them in a way in a freer economy you cannot. That is why socializing the means of production always leads to political tyranny.
Bob Zadek: And socialism, since it centralizes economic power in a central authority—the government—once the government can control the economy, it has maximum control over the population. There’s nothing else you need. Once you control the economy, once you have the power to determine who eats, who is free and who is not free and who doesn’t eat, once you have that power, you have total control over the people and you’re darn well never going to give up that power. And therefore socialism is only—is only a tool, albeit an economic one, to transfer power over us from ourselves to the government. Socialism is simply a transfer of power from autonomous individuals to a government.
The Price System and Value Creation [37:17]
Bob Zadek: And who on this planet wants to voluntarily transfer power? And you know, Ben, when AOC and when Bernie Sanders and Elizabeth Warren says, “Everybody is entitled to a good-paying job,” that phrase appears all the time. And I ask myself when I read that, okay, I’m entitled to a good-paying job, but doing what? Who decides what exactly I’ll be doing for that good-paying job? And ultimately the answer is somebody else. And if you ever want an example of what the surrender of autonomy means, it’s the good-paying job you will be assigned. Because certainly I’m not entitled to be a surgeon. That’s not my entitlement. I’m entitled to have some good-paying job, but I don’t get to decide what it is. So I don’t even know what that phrase means, Ben—“everybody is entitled to a good-paying job.”
Ben Powell: Well, I can tell you in the socialist context in a place like say Cuba, everybody being entitled to—I don’t know if “good” is the right word—a paying job, because they’re all desperately poor there. But when you start not using market forces and instead using brute government coercion to determine wage rates, and in Cuba when plumbers and musicians make the same money, guess what? Everybody would like to do musician. As a result, you don’t get hot water in your hotels because they’re short on plumbers. What we need is a price system that functions and shows people where they can create the greatest value for others. That’s what prices do. And we need the freedom to pursue a good-paying job, and you get the good pay by doing good services for others. That’s the nature of the voluntary market system.
Bob Zadek: Now Ben, we’re running out of time. So let’s sum up your book. Your book, I think, can be recommended to those people who want nothing more than a guide to good and bad beer. And so you cleverly appeal to two or more independent markets. It is written for the six-pack buyer and the book is intensely readable. It is a joyous read. It is—some might call it a romp through socialism, although you can’t really use the word romp and socialism in the same sentence. So the book is a growing bestseller. It covers Cuba, Sweden, Georgia, Venezuela—what countries have I left out?
Ben Powell: China, Korea, Russia, Ukraine, Georgia. We end up back in what we call “back in the USSA” by going to the biggest socialist gathering in the United States and talking to young millennial socialists and trying to figure out what the hell’s going on in their head. But Socialism Sucks: Two Economists Drink Their Way Through the Unfree World. The publisher originally described the book as the bastard stepchild of Anthony Bourdain and Milton Friedman. It’s Anthony Bourdain travel and language style while drinking beer, but replace the food with economics and history of capitalism and socialism as the theme.
Bob Zadek: And to all my friends out there, the book is available for free if you sign up today at my webpage to receive my once-a-week emails announcing my shows. And if you join the email list of The Bob Zadek Show, only today the book is available for free. Please sign up and thanks so much for Ben for his beer guide, socialism guide, and for his friendship. Ben, have a good rest of the weekend.
Ben Powell: I will, thank you Bob. Cheers.
Bob Zadek: Thanks, Ben. Bye.