Does Anyone Really Know What Socialism Is? (Ep. 408 Rebroadcast)

Trump says it would destroy us. Biden needs the voters who support it (especially the Bernie voters). The majority of millennials would like it to replace capitalism. But what is “it”? We bring in the economists to sort things out and tell us what the U. S. can learn from the good (and bad) experiences of other (supposedly) socialist countries.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Stephen J. Dubner?

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• 0:45Stephen J. Dubner?

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• 1:29Stephen J. Dubner?

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• 2:05Stephen J. Dubner?

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• 2:45Stephen J. Dubner?

  Hey there, it's Stephen Dubner. What you're about to hear is an updated version of an episode we released just before the COVID-19 pandemic took hold in the US. We thought with an upcoming election, it might be useful to hear it again. Hope you agree.

• 3:06Stephen J. Dubner?

  The United States, like many countries around the world, seems to have entered a period of broad and deep discontent. Much of this discontent is related to economic issues, some of them specific, like wage stagnation and the spike in healthcare and college costs, and others are more systemic, like inequality and crony capitalism. This discontent has grown into an indictment of our entire political and economic system with multiple constituencies harboring multiple grievances, some overlapping, others in deep conflict. I'm telling you nothing here you don't already know. You also know that different actors have harnessed this discontent in an attempt to

• 3:50Stephen J. Dubner?

  steer the country in different directions. Perhaps the most successful to date is Donald Trump, who in 2016 defied just about every prediction on earth to win the US presidency. The Democrats have also tried to steer that discontent in their direction, especially Vermont Senator Bernie Sanders, a longtime registered independent, who was for a time a leading candidate for the Democratic presidential nomination.

• 4:17Speaker 01

  We now have an economy that is fundamentally broken and grotesquely unfair.

• 4:25Stephen J. Dubner?

  Sanders's support came largely from young and progressive voters who think capitalism should be overhauled or perhaps replaced entirely. The majority of American millennials now identify as socialist.

• 4:38Speaker 02

  Why are so many millennials gravitating towards socialism over capitalism?

• 4:43Speaker 01

  The United States must choose the path that I call democratic socialism.

• 4:52Stephen J. Dubner?

  As much as Sanders embraces the socialist label, he does understand.

• 4:57Speaker 01

  I do understand that I and other progressives will face massive attacks from those who attempt to use the word socialism as a slur.

• 5:07Speaker 03

  If Bernie Sanders says we need Medicare for all, Trump's answer is that's socialism like Venezuela.

• 5:16Speaker 04

  The socialists have done in Venezuela all of the same things that socialists have done everywhere.

• 5:24Speaker 01

  I'm not looking at Venezuela.

• 5:26Speaker 04

  The results have been catastrophic.

• 5:29Speaker 01

  I'm looking at countries like Denmark and Sweden.

• 5:32Stephen J. Dubner?

  Sanders, of course, lost the Democratic presidential nomination to Joe Biden, but the Trump White House has still found it useful to connect the Democrats to socialism.

• 5:42Speaker 05

  Whether it be Joe Biden, whether it be Bernie Sanders, they're advocating a socialist agenda.

• 5:48Speaker 04

  And now Joe Biden and the radical left are trying to impose socialism plus in America.

• 5:53Speaker 01

  Do I look like a radical socialist, really?

• 5:57Stephen J. Dubner?

  How can one little word possibly contain such a range? Today on Freakonomics Radio, what we talk about when we talk about socialism. And if it makes you feel any better, everybody else is confused, too.

• 6:13Speaker 06

  I personally would not use the word socialist. I find the word socialism in the US context kind of odd.

• 6:20Speaker 07

  You know, how is it to live in a socialist society? And then I say, what are you talking about?

• 6:38Speaker 08

  From Stitcher and Dubner Productions, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner.

• 6:54Stephen J. Dubner?

  If you want to talk to someone about politics and economics, about Venezuela and Scandinavia, about what socialism is and isn't, there are few better people to talk to than the economist Jeffrey Sachs.

• 7:08Speaker 03

  Stephen, hi, how are you?

• 7:10Stephen J. Dubner?

  His official title?

• 7:11Speaker 03

  University professor at Columbia University and director of the Center for Sustainable Development at Columbia University.

• 7:19Stephen J. Dubner?

  Also?

• 7:20Speaker 03

  I'm an advisor to the UN in several capacities.

• 7:24Stephen J. Dubner?

  Sachs has also advised governments around the world, especially as they try to climb out of poverty or after the Cold War to shift from communism to a market economy.

• 7:34Speaker 03

  I've had the chance to see economies functioning and malfunctioning in more than 130 countries around the world. And my view is that the countries that come closest to what we're after for decent lives on this planet are the Scandinavian countries, the social democracies of Northern Europe.

• 7:59Stephen J. Dubner?

  Because why?

• 8:00Speaker 03

  The model of universal quality public services is at the core of social democracy. That means health, education, starting from early childhood development up through university level, childcare for all that enables a very high level of labor force participation of women, of mothers of young children.

• 8:28Stephen J. Dubner?

  So does that make Sachs a fan of socialism, per se?

• 8:32Speaker 03

  The first thing I would say is that terms like socialism are too big, too loaded, too poorly defined to be a very useful starting point.

• 8:42Stephen J. Dubner?

  Okay, what's a better starting point?

• 8:44Speaker 03

  There are two concepts that I think should be distinguished at the start of any sensible discussion. One is the concept of a mixed economy, which means that an economy has A market system, including private ownership and trade, market functions and supply and demand, but it also has government, government that may run the schools or may provide for healthcare or the police and the fire department and so on. That's a mixed economy. A socialist economy, in the traditional usage of economics and in political

• 9:27Speaker 03

  history, though it's a term that has been used for all sorts of things, generally means an economy organized around social ownership, which might mean state ownership, or it could mean a cooperative ownership, or in some views it has meant worker ownership, or in other interpretations, citizens' ownership, but the idea is that it's some kind of social ownership of the means of production.

• 9:57Stephen J. Dubner?

  When you talk about, let's say, a Nordic economy, Norway, let's just pick, as a socialist democracy, what component of that economy is socialist?

• 10:06Speaker 03

  Well, the Nordic economies are not socialist democracies. They call themselves "social democracies." That's a very big difference. They do not call themselves socialist in general, because most of the production, most of the businesses in the economy are private corporate ownership, but what they do, which is quite different from the United States, is that they collect far more in total tax revenues and then use those additional revenues to provide far more public services than the United States provides.

• 10:46Stephen J. Dubner?

  So, Saks's nomenclature for the Nordic or Scandinavian countries is "social democracies with mixed economies."

• 10:56Speaker 03

  Now... My claim would be that all successful economies are mixed economies and that there is an important set of questions about where boundaries should be drawn between government and market.

• 11:13Stephen J. Dubner?

  How does he see those boundaries in the US?

• 11:15Speaker 03

  In my view, the United States draws that line in an inappropriate place. Too much market, not enough government.

• 11:23Stephen J. Dubner?

  And where in the US would Sacks like to see more government?

• 11:27Speaker 03

  So, top of the list would be Medicare for All or a single payer health system. And I would say to somebody who said that that's socialistic, that that is exactly what was said about Medicare and why Medicare was so strenuously opposed.

• 11:47Stephen J. Dubner?

  It may not surprise you at this point to learn that Jeffrey Sacks supports Bernie Sanders. He was an advisor to Sanders's 2016 campaign and he's endorsed him this time around. But if you would like a prime example of the confusion around the word socialism, here's one for you. Sacks says that even Bernie Sanders is using it wrong. When, for instance, Sanders talks about the path America needs to choose.

• 12:14Speaker 03

  And that is the path that I call democratic socialism. It is part of our confusion, which has fascinating roots also in our intrinsane left schisms in America. He calls himself a democratic socialist. That has explanations back to the verbiage in the United States in the 1960s, 70s and 80s, actually. But to my mind, what Bernie Sanders is talking about is social democracy that is what we see in operation, not only in the Nordic countries, incidentally, but in Germany, in the Netherlands, in most of Western Europe.

• 12:58Speaker 03

  My sense is, that works. That's nice. We should do that, too.

• 13:05Stephen J. Dubner?

  This may sound like nomenclatural hair splitting to you, the difference between a social democracy and democratic socialism, but Sacks argues otherwise, especially because socialism, as opposed to so-shul, has plainly become a political term.

• 13:21Speaker 03

  Now, the term socialist... Is used often as a pejorative for a mixed economy with more government than the US has. In other words, if Bernie Sanders says, we need Medicare for all, Trump's answer is that's socialism like Venezuela.

• 13:42Stephen J. Dubner?

  So since we're on the nomenclature, what do you call Venezuela?

• 13:46Speaker 03

  Oh, typical Latin American populist mess, which I've seen for many decades and have been involved many times in trying to help clean up.

• 13:58Stephen J. Dubner?

  And just how big a mess is Venezuela at the moment?

• 14:03Speaker 09

  It's really unprecedented.

• 14:05Stephen J. Dubner?

  That's Ricardo Hausmann, a Venezuelan economist who teaches at Harvard's Kennedy School.

• 14:11Speaker 09

  In the US Great Depression, GDP fell by 28%. In Venezuela, at the end of this year, GDP will have fallen by 62%.

• 14:20Stephen J. Dubner?

  We spoke with Hausmann in the fall of 2019, so he was talking about the end of that year.

• 14:25Speaker 09

  So it's something of a completely different order of magnitude. Last year, we had 2 million percent inflation.

• 14:32Stephen J. Dubner?

  Along with this inflation, Venezuela has seen severe shortages of food and medicine. It is a full-blown humanitarian catastrophe. President Trump and others have blamed this catastrophe on socialism, and Venezuela surely seems to fit Jeff Sachs's description, wherein the means of production are owned by the state. This intensified not so many years ago.

• 14:57Speaker 09

  They were expropriating things left and right. They expropriated over 10 million acres of land. They expropriated the whole steel sector, the whole cement sector, supermarkets, yogurt factories, detergent factories, banks, telecoms, electricity companies, et cetera, et cetera.

• 15:17Stephen J. Dubner?

  A government nationalizing the means of production. That sounds pretty much like the textbook definition of socialism. It also calls to mind the heyday of the former Soviet Union, the mother of all socialist models. But Ricardo Hausmann doesn't think the label fits Venezuela.

• 15:33Speaker 09

  Socialism is a term that is used too broadly. I would refer more to kind of like totalitarian economic systems where property rights are very weak.

• 15:46Stephen J. Dubner?

  In Venezuela, for instance.

• 15:48Speaker 09

  You never know when your property can be taken away by the government. There's extensive price controls, exchange controls, import controls.

• 15:58Stephen J. Dubner?

  We should say here that Houseman is a strong and vocal opponent of the Venezuelan government that's currently in power.

• 16:05Speaker 09

  You're constantly having to request permission for many, many things. And these permissions are an opportunity to extort money from you or to blackmail you. So I wouldn't want to call that by the same name of whatever is happening in Scandinavia.

• 16:23Stephen J. Dubner?

  But Hugo Chavez, the architect of Venezuela's current political and economic system, did call his vision 21st century socialism. So how did Venezuela get to this point? It's a fascinating story, if a depressing one. Remember, Jeff Sachs calls Venezuela today a typical Latin American populist mess. But for decades, Venezuela was an outlier. Between 1920 and 1980, it was one of the fastest growing countries in the world. Most of this growth was fueled by the country's great good fortune, or at least what seemed like good fortune, massive oil deposits. Venezuela began producing oil way back in the 1910s,

• 17:07Stephen J. Dubner?

  and it soon became the number one exporter in the world. Did it become too reliant on this single industry? In retrospect, the answer is yes. But at the time, it must have been less evident. Venezuela was a country on the rise. And in 1958, it became a democracy at a time when many Latin American countries were moving in the opposite direction.

• 17:30Speaker 09

  But after, say, August 81, oil revenue started to decline. OPEC tried to protect prices by cutting production. So we were cutting production. By 1986, the price collapsed. In some sense, we had overborrowed and overspent, and we mismanaged that. We didn't prepare ourselves for a period of low oil prices.

• 17:54Speaker 03

  Has lived on one resource for decades now, and that is like standing on one leg or even the stool with one leg. It is profoundly unstable. Every country that has oil loves to live off of this resource rent, but it doesn't work.

• 18:15Stephen J. Dubner?

  Economic and political instability created an opportunity for the man who would become Venezuela's next leader. In February 1992, Chavez organized a military coup attempt. Ricardo Hausmann, at the time, was Venezuela's Minister of Planning. I must say, it caught me completely by surprise. It's completely outside the thinkable. Hausmann was trying to help reform Venezuela's economy to make it less dependent on oil. Hugo Chavez was briefly imprisoned for his attempted coup, but the government was sufficiently destabilized and soon lost power. Hausmann's market reforms were abandoned. And we're paying a very, very hefty price for that.

• 19:00Stephen J. Dubner?

  Chavez, a high-ranking military officer, was charismatic and popular. In 1999, he was elected president.

• 19:09Speaker 03

  I went to see Hugo Chavez early in his presidency, and he gave me a big bear hug, and we talked about baseball, which was his real passion. And then we talked about the Venezuelan economy. And I felt quite good about the meeting because I had listened to myself talk, I suppose, and I went home. And then watched over the next decade-plus that he and his revolution did everything the opposite completely of what I had recommended.

• 19:41Stephen J. Dubner?

  Which was what?

• 19:42Speaker 03

  So what one needs, of course, is to undo the mistakes of trying to live off of one natural resource. And you need a normal set of financial operations, restructuring of the debt.

• 20:00Stephen J. Dubner?

  But rather than diversifying the Venezuelan economy, Chavez nationalized it.

• 20:06Stephen J. Dubner?

  Remember, as Hausmann told us.

• 20:08Speaker 09

  They expropriated the whole steel sector, the whole cement sector, supermarkets, yogurt factories.

• 20:15Stephen J. Dubner?

  Why did the government need to seize all those assets?

• 20:18Speaker 09

  So you end up with an economy that has oil and very little else that can be exported. Now, when oil falls, you need more dollars, but you don't have a part of the economy that is able to generate those dollars. When Chavez got into power, Venezuela was producing 3.4 million barrels of oil a day. When he died, it was producing something like 2.5 million barrels of oil a day. Last month, it probably produced 600,000 barrels of oil a day. So you need somehow to shift towards more non-oil exports. And it's very, very difficult because in order to become good at things you were not good at before,

• 21:02Speaker 09

  you face a chicken and egg problem. You cannot export because you don't know how to do it, and you don't know how to do it because you're not in it.

• 21:11Stephen J. Dubner?

  Hugo Chavez died in office in 2013. His successor, Nicolas Maduro, has essentially held Chavez's course. For the average Venezuelan, the economy has gone from very bad to terrible. Ricardo Hausmann says the minimum wage is about $2 a month.

• 21:31Speaker 09

  In 2012, it was something closer to $400 a month. And then people say, "Well, but maybe the dollar buys a lot in Venezuela." So instead of measuring it in dollars, we measure it in calories. And the cheapest available calorie, which right now happens to be yuca, and we find that the minimum wage buys 400 calories of yuca a day.

• 21:58Speaker 09

  If you stay in bed, you will consume 2,000 calories. So this doesn't even feed the person going to work, let alone his family.

• 22:09Stephen J. Dubner?

  In 2018, Maduro won a second term as president of Venezuela. Now, how does the president of a country failing so badly win a reelection? Many observers claimed the election results were, shall we say, irregular. The US and many other Western countries rejected the outcome. Among the countries that accepted it? China, Cuba, Iran, and Russia. So more than a few echoes of the Cold War and the battle between capitalism and socialism. Venezuela's own general assembly declared that Maduro was out, and they installed as president the young reformer Juan Guaido.

• 22:53Stephen J. Dubner?

  But that was only a declaration. Maduro chose to stay in office, and the military, for now, is on his side. The US and other countries have recognized Guaido's legitimacy and have been trying to oust Maduro. This has left Guaido in a rather precarious limbo. For what it's worth, the Harvard economist Ricardo Hausmann is an advisor to the Guaido government, such as it is. President Maduro has called Hausmann "an economic hitman," which means Hausmann cannot practically return to Venezuela.

• 23:27Speaker 09

  As they say, there's no problem returning. It's getting back out. My brother-in-law spent three years in jail for being a journalist.

• 23:36Stephen J. Dubner?

  So let's think about Venezuela. Was it socialism, as practiced by Hugo Chavez and Nicolas Maduro, that drove the country into the ground, as Donald Trump likes to say? Or was their embrace of Chavez's version of socialism just a late-stage attempt to recover from the underlying problem, which was chronic mismanagement of a one-resource economy? There is a famous concept in economics called the resource curse. That's when a country seemingly blessed with valuable natural resources ultimately suffers because it fails to diversify their economy.

• 24:18Stephen J. Dubner?

  And that is a pretty appealing explanation for what went wrong in Venezuela. But not all economists embrace this sort of explanation.

• 24:28Speaker 06

  I don't think there is a resource curse.

• 24:30Stephen J. Dubner?

  James Robinson of the University of Chicago is co-author of the book Why Nations Fail.

• 24:36Speaker 06

  The consequences of natural resources for a society's development are completely conditional on their institutions.

• 24:43Stephen J. Dubner?

  Meaning, natural resources don't have to be a curse. The argument Robinson makes, along with his co-author Duroon Asimoglu, is that a given country's long-term success is dictated primarily by the strength of its institutions, its judicial and legislative systems, its educational and healthcare and social safety apparatus, a fair and transparent economy, even its culture. If you've got a lot of that going for you, then striking oil can be a blessing. Just ask Norway.

• 25:16Speaker 06

  You know, Norway was a pretty poor country relative to many parts of Western Europe when it discovered oil, but it had very strong institutions. It wasn't corrupt. They were able to take the resources and use them in the interests of the average Norwegian. The problem in Venezuela is not the oil, it's the political system. The fundamental problem is the institutions.

• 25:43Stephen J. Dubner?

  Coming up after the break, we'll ask just how miraculous the Norway miracle is. We'll see how socialistic-ish it is or isn't. And, more important, since we're American, what does all this talk about socialism mean for the US?

• 26:00Speaker 06

  The most important thing to learn is how precious the institutional architecture that the US has created is, and how important it is for people to... Defend the institutions in the United States.

• 26:15Stephen J. Dubner?

  That's coming up right after this. Also, the Freakonomics Radio network has been expanding. We now have two spinoff shows, No Stupid Questions with me and Angela Duckworth, and People I Mostly Admire with my Freakonomics friend and co-author Steve Levitt. You can subscribe to both of them right now, wherever you get your podcasts. Also, we will be dropping Levitt's latest episode right here in the Freakonomics Radio feed, so keep your ears out for that. But the best way to make sure you keep getting his show is to subscribe right now to People I Mostly Admire, as well as to No Stupid Questions. And thanks.

• 26:59Stephen J. Dubner?

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• 27:32Stephen J. Dubner?

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• 28:19Stephen J. Dubner?

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• 28:56Speaker 03

  Norway is the exemplar of a hydrocarbon economy that does not want to live off of its hydrocarbons.

• 29:05Stephen J. Dubner?

  That, again, is the economist Jeffrey Sachs.

• 29:08Speaker 03

  What they do, in fact, is save most of the hydrocarbon earnings rather than turn them into a consumption binge. And that's why they've accumulated a trillion dollars in their sovereign wealth fund for the 4 million Norwegians, and they're going to live very well into the future. Thank you.

• 29:28Speaker 07

  So my name is Chell Salvaness.

• 29:31Stephen J. Dubner?

  Salvaness is one of those 4 million. He is a professor at the Norwegian School of Economics and also...

• 29:38Speaker 07

  And also the deputy director of a research center there for 10 years.

• 29:43Stephen J. Dubner?

  Most of this research is related to income inequality, of which Norway has not very much. Norway, like the other Scandinavian countries, ranks among the world's best in equality and, probably not coincidentally, in happiness. The Norwegian government provides a big basket of universal benefits, including healthcare, free college at public universities, parental leave, childcare, unemployment insurance, and more, which, to some people, sounds like socialism.

• 30:16Speaker 07

  So I have been met with this argument also. You know, Chael, how is it to live in a socialist society? And then I say, what are you talking about? I mean, we don't think about it like that.

• 30:28Stephen J. Dubner?

  A more appropriate description, remember, would be a social democracy with a mixed economy.

• 30:34Speaker 07

  I mean, we have a free market economy, as you have in the US. The important part is the combination of, you know, let's say, a liberal society, free market and a welfare state. You need three things. And that is not what people think about socialism.

• 30:52Stephen J. Dubner?

  So nobody in Norway talks about socialism?

• 30:55Speaker 07

  No, nobody.

• 30:56Stephen J. Dubner?

  How then does a Norwegian economist think about the Nordic economies if not in terms of socialism?

• 31:03Speaker 07

  It's not so clear, and nobody can give a precise definition. But it means that sort of everybody gets something. As I said, we do have a free market economy, meaning that the cake should be as big as it could be, and then you try to share it.

• 31:21Stephen J. Dubner?

  And how is this sharing accomplished?

• 31:23Speaker 07

  Taxes is an important part.

• 31:26Stephen J. Dubner?

  This is, of course, a huge point and a huge differentiator from country to country. The Nordic countries rely on most people paying relatively high taxes, which is how they can afford such generous benefits. Norway, in addition, has that trillion-dollar sovereign wealth fund built up by selling oil. Sweden, just so you know, has no oil and relies on a more diversified economy and relatively high flat taxes. By comparison, the US has most people paying relatively low taxes, which leaves less money available for the more generous programs that many Democrats would like to see. Which is why Bernie Sanders and Elizabeth Warren and others have been calling for raising much more tax money,

• 32:09Stephen J. Dubner?

  but primarily from the very wealthy. In Norway, the tax burden is more equally shared, and then those taxes are aggressively reallocated.

• 32:20Speaker 07

  Since you are reallocating taxes, you also need a trust that it's being used for something useful. So I think to create institutions that are trustworthy is probably the most important thing. So in the Nordic countries, trust is extremely high.

• 32:36Stephen J. Dubner?

  One example of this high trust, or at least of less friction between employers and employees in Norway, is the prevalence of labor unions.

• 32:45Speaker 07

  The public sector has 90% unionization, and in the manufacturing sector it's like 50, 60%, and in the service sector it's about 30%.

• 32:55Stephen J. Dubner?

  In the US, meanwhile, the private sector industry with the highest share of unionized workers is the utility industry, with just under 11%.

• 33:04Speaker 07

  So unions are still strong in the Nordic countries. There is sort of negotiated minimum wages that differs across industries and differs across the age of the workers. That is extremely good for people at the bottom.

• 33:20Stephen J. Dubner?

  Economists tend to have mixed feelings about unions, pointing out their inefficiencies and inflexibilities. James Robinson, who has spent decades researching why certain states and societies prosper, he's come to a more nuanced understanding.

• 33:36Speaker 06

  You can't think of unions just from an economic point of view. Unions have all sorts of political consequences in society that may be even more important. US companies use their market power to repress wages, you know. Unions can play a powerful role in pushing back against that. You know, an economist might say, well, we should be using fiscal instruments, taxes, transfers to redistribute, but that means that the state has to be very involved in that process. So what happens if you're in a society where the social contract doesn't really allow that? Well, then you have to use other instruments. And I think the Scandinavians were clever by equalizing the pre-tax distribution of income. You know, the state actually had to do a lot less.

• 34:21Speaker 06

  That could be very politically important, especially in a place like the US where people are antagonistic towards the government doing more.

• 34:29Stephen J. Dubner?

  In other words, unions reduce the need for government redistribution through a sort of pre-distribution that's negotiated directly by employers and workers. This also tends to equalize financial outcomes, creating less of a gap between the higher and lower earners.

• 34:45Speaker 07

  So in many countries, including the US and the UK especially, you have seen an increase in inequality. If you go back to the 1930s, you will see that the income inequality in Norway was as high as in the US today. Norway today is half of that. Income inequality decreased, but also social mobility increased. If you look at cohorts born in the early 30s, you will see that income mobility was as low as in the US today. You know, your parents meant a lot for your own income or your position. And over 10, 15 birth cohorts, this completely changed. So it was a very fast development.

• 35:28Stephen J. Dubner?

  In his research, Salvanes has found that in Norway, parents' income has almost no effect on their children's income. A remarkable fact and uncommon in most places around the world. But that doesn't mean the Norwegian economic model is flawless. One disturbing trend tied to the oil industry is a diminished demand for education.

• 35:52Speaker 07

  And this is what you see in all resource-based economies. It's easier to get a job, a good job, in the oil sector without any education. It's very tempting. The people I grew up with, I'm from the core of the oil industry sector. That was very common. And you see it very clearly in the data that investment is much lower in education in those areas. And of course, that is fine as everything goes well and there is enough oil and gas. The problem is that when the wells dries out, you need to restructure to do something else. And then you don't have a human capital base for that. So that is the big worry, I think.

• 36:34Stephen J. Dubner?

  Another worry is that while Norway has high levels of income mobility, educational mobility is almost nonexistent.

• 36:41Speaker 07

  Completing a college and also have a master's degree, and especially going to an elite school, let's say, to become a lawyer. You see that it's extremely unequal. Then the parental background means a lot.

• 36:54Stephen J. Dubner?

  In this regard, Norway is closer to the US.

• 36:58Speaker 07

  Very similar. So that recruitment to the elite is very unequal.

• 37:03Stephen J. Dubner?

  And that's important because the Nordic model requires a high level of trust in your institutions and the people who run them.

• 37:11Speaker 07

  So for a trustworthy elite to rule, they need to have recruitment from different parts of society. You know, they need renewal and different perspectives and so on.

• 37:23Stephen J. Dubner?

  Another problem Norway faces, and this is what a lot of Americans are afraid of when you start talking about socialism or even social democracies, is that strong, universal benefits, including generous unemployment payments, can diminish the incentive to work hard.

• 37:39Speaker 07

  The government and their new budget said that we are going to cut back on some of the support, especially for the young people, because it turned out that young people in their twenties on support, they were sort of paid better than people at the same age working. So that is a big concern.

• 37:58Stephen J. Dubner?

  It's a concern not just for individuals, but for the whole society, the whole economy. And this is something James Robinson has spent a lot of time thinking about. While it may be tempting for the US to import some elements of the Nordic model, how much would that affect the foundation that has made the US such an incredible engine for innovation?

• 38:20Speaker 06

  After the financial crisis in the United States, there was a lot of discussion of, oh, the US has the wrong model. The US should just be like Sweden. Look at Sweden. There should be more redistribution. We pointed out that's a sort of fallacy in economic theory.

• 38:33Stephen J. Dubner?

  A fallacy because, well, countries differ from each other on many dimensions, not just three or four. Yes, the strength of their institutions and their tax system and natural resources, but also their culture, their spirit.

• 38:49Stephen J. Dubner?

  The US, for instance.

• 38:51Speaker 06

  You know, it's a much more cutthroat society. Why, why is it like that? Well, because that creates enormous incentives to innovate and people are just very ambitious and entrepreneurial and there's much less social insurance and the stakes are very high. And that doesn't just benefit the US, it also benefits Sweden. Because all of that technology and innovation spills over to everybody in the world. You know, you create ideas, those ideas spread everywhere. So in some sense, the Swedes can have this very harmonious redistributive society because they're free riding off the cutthroat society. So the US is kind of stuck there because if you actually went to a model with more redistribution, then the whole world rate of economic growth would slow down.

• 39:36Stephen J. Dubner?

  There are, of course, counterarguments to what Robinson is saying here. Here's one. After decades of high-octane capitalism in the US and elsewhere that has left behind many, many people, what if economic growth is not as important as economists have been telling us? Also, Robinson's argument is a theoretical argument. Would it necessarily be true that growth would slow if there were more redistribution in the US? Here's something to think about. The economist Casey Mulligan, also of the University of Chicago, recently did a very rough analysis of the economic impact of Bernie Sanders's agenda if it were implemented exactly as Sanders has claimed during his campaign.

• 40:21Stephen J. Dubner?

  An assumption that Mulligan says makes this more of an academic exercise and not a very good forecast. Still, Mulligan's analysis considered Sanders's proposals for universal healthcare, free public college, free childcare, a full transformation of the energy sector, and more. Mulligan's verdict? Quote, "Senator Sanders's agenda would reduce real GDP and consumption by 24%."

• 40:47Stephen J. Dubner?

  Real wages would fall more than 50% after taxes. Employment and hours would fall 16% combined. There would be less total healthcare, less childcare, less energy available to households, and less value added in the university sector. The stock market would likely fall more than 50%, end quote. Now, keep in mind that predictions of any sort are nearly impossible, and even more so with something as complicated and massive as the US economy. Also, keep in mind that Mulligan is a former member of the Council of Economic Advisers in the Trump administration, so make of that what you will.

• 41:29Stephen J. Dubner?

  But if the question today is, as Jeffrey Sachs put it earlier, "Where in an economy should the boundaries be drawn between government and market?" If that's the question, the wisest counsel seems to come from James Robinson. He reminds us repeatedly that a nation's destiny is determined by a great many factors, some hard and some softer, with no two countries even close to identical. Now, why does that matter? Well, let's say you want to substantially increase the role of government in the US to make it look more like those trusting Nordic societies. But as Robinson points out, the US has a very different history, based in part on

• 42:14Stephen J. Dubner?

  a collective distrust of the state.

• 42:16Speaker 06

  In the sort of social contract, if you go back to the late 18th century, I think, that created this federal system with this very decentralized state rights and autonomies and limited role for the federal state, the way many things operate, you know, it relies on private initiative.

• 42:35Stephen J. Dubner?

  But how relevant is that history? How much does it affect our modern society and economy?

• 42:40Speaker 06

  It's not some disconnected thing. It's part of how the US has kept this balance between state and society historically. When we started doing research on these topics, we were too focused on political institutions. We didn't understand well enough. The role of society and, you know, social institutions.

• 43:05Stephen J. Dubner?

  Robinson's latest book, also co-authored with Drona Asimoglu, is called The Narrow Corridor: States, Societies, and the Fate of Liberty.

• 43:15Speaker 06

  We emphasize this balance between state and society. And having a balance between states and society, it's not just a sort of static thing that you achieve and then you feel good about yourself and go home. You know, it's not just some kind of moment like the Constitution in Philadelphia. Oh, we achieved a balance. No, no, it's a constant competition and struggle between state and society.

• 43:40Stephen J. Dubner?

  And on balance, the US has done incredibly well.

• 43:44Speaker 06

  We tend to see all the imperfections in the United States, but I suppose, working in Latin America, I tend to look at the comparison all the time over the last 200 years. And what you see is that, for all its imperfections, of course, the US managed to solve these problems much more effectively than any Latin American country. And it remains this enormous engine of innovation.

• 44:04Stephen J. Dubner?

  But Robinson says that's not a call for complacency.

• 44:08Speaker 06

  Yes, the United States managed to solve pretty well a lot of problems that Latin American countries couldn't solve. But there's been a cost to that. You know, the fact that you have Ferguson, Missouri, or you have the South Side in Chicago, the inability to deal with those problems is part of the architecture of the state. So in some sense, you could say, well, the US state is weaker than the Norwegian state or the Swedish state, because you don't really have problems like that in Norway. If you want to compare state institutions, I think the state institutions in Sweden are able to deal with problems that the state institutions in the US aren't able to deal with. But that's because the Swedish state didn't have to deal with so many problems historically, and it didn't have to figure out how to colonize this enormous territory

• 44:52Speaker 06

  and how to avoid kind of centralized tyranny, how to avoid decentralized anarchy, and how to find a balance between all these different competing forces and interests. And that just left gaps.

• 45:07Stephen J. Dubner?

  The gaps in the American state and society are particularly wide at the moment. They're evident in the general discontent you feel in this country right now. They're very evident in our political discourse. And they're evident in the fact that Donald Trump was elected as the biggest outlier in the Republican field, while Bernie Sanders, the self-declared democratic socialist, is the biggest outlier in the 2020 Democratic field. And what does this say for our future? There's one more mark of successful states and societies that James Robinson has observed.

• 45:44Speaker 06

  You know, you have to make compromises and you have to build coalitions and you have to recognize and respect, okay, we differ on that, but let's agree that this is in the benefit of the nation. I think this issue of taxing the rich in the US context, whether I think that's a good thing or not, it seems very unlikely that you can get a coalition around taxing the rich. But there's other things you could do, which is consistent with this whole notion of the American dream, corny though that may sound. I mean, my own view is that that still just resonates with a lot of people in this country, and you can't really deny it.

• 46:24Speaker 06

  But I think there's lots of ways of thinking about redistribution, which are consistent with this notion that there should be equality of opportunity. For example, look at the enormous inequality of the education system. Why is it that people in the US can't all agree that this is a problem? This is undermining a fundamental principle about US society. If you go back 200 years, this is one thing that made the US what it is. Enormous investment in education, going right the way back into the early 19th century. So I think there's some issues that you could focus on, where you could really get

• 47:03Speaker 06

  a political coalition that's consistent with some fundamental things that we think this society should be based on.

• 47:18Stephen J. Dubner?

  Coming up next time on Freakonomics Radio.

• 47:20Speaker 10

  I've heard the argument that paying protection money was part of the cost of doing business in Afghanistan, and I think it is a terrible, terrible argument.

• 47:30Speaker 11

  You have to weigh, okay, how much money is going to the Taliban and how much harm is being caused there versus the good that money is overall doing.

• 47:37Speaker 12

  The headline at the top of it was 17 killed outside of Kabul in a suicide bomber, and I collapsed, and they said he's gone.

• 47:45Stephen J. Dubner?

  Did protection money paid by American firms in Afghanistan fund Taliban attacks on US military personnel? We will be back with that story next time. Until then, take care of yourself, and if you can, someone else, too.

• 48:01Stephen J. Dubner?

  Freakonomics Radio is produced by Stitcher and Dubner Productions. This episode was produced by Matt Hickey. Our staff also includes Alison Kreglo, Greg Rippon, Zach Lepinski, Daphne Chen, Mary Duke, and Corinne Wallace. Our intern is Emma Terrell. We had help this week from James Foster. Our theme song is "Mr. Fortune" by The Hitchhikers. All the other music was composed by Luis Guerra. You can get Freakonomics Radio on any podcast app. If you want the entire 10-year back catalog, use the Stitcher app or go to Freakonomics.com. We are on social media, and you can reach us at [email protected]. As always, thanks for listening.

• 48:52Speaker 13

  Stitcher.

• 48:58Stephen J. Dubner?

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• 49:31Stephen J. Dubner?

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