Uneven Recovery Brings New Attention to Old Ideas
- Socializing Socialism
- Testing Modern Monetary Theory
- Trends in Global Poverty
One of my college professors used an agrarian example to describe different economic regimes. In a capitalist system, he said, you start with two cows; you sell one and buy a bull to help grow your business.
In a socialist system, you start with two cows; the state takes one of them and gives it to your neighbor.
In a communist system, you start with two cows; the state takes them both and gives you some of the milk they produce.
The past generation has seen a pronounced drift away from the latter two models. Forty years ago, Deng Xiaoping began an economic liberalization in China that laid the foundation for the country’s emergence as a global power. Thirty years ago, the Berlin Wall was opened to passage thirty years ago, signaling the failure of the European communist bloc. The subsequent ascent of global capitalism has been evident in the trade and market liberalization that has created substantial wealth across countries.
In spite of these achievements, we are hearing more about socialism these days. Candidates across the globe are espousing principles that had fallen into disrepute, and finding broadening support. As this movement gathers steam, we should pause to consider what socialism is (and isn’t), why it has gotten traction recently, and the implications for the global economy.
The current expansion, nearing its tenth birthday, is remarkable for its humble beginnings. At the depth of the financial crisis, it wasn’t clear whether normal economic function could be restored. The world’s central banks turned the tide with innovative, creative policies.
The resulting turnaround was tremendous. Global gross domestic product (GDP) grew by 34% since 2009, and global equity markets are now 185% higher. But outcomes have been uneven within and across countries. The gap has expanded between those who have done well and those who haven’t.
National income is divided between corporations and workers. After recessions, the proportion of “profit share” for companies typically rises as firms hold down costs to make up for lean times; as time passes, the “wage share” normally recovers.
That has not been the case during this cycle. Wages have moved ahead very slowly, despite low levels of unemployment. Furthermore, those below the upper quintiles have not benefitted much from the performance of the stock markets. And some communities have endured significant economic displacement as globalization and automation take deeper root.
These factors have created a groundswell of discontent that has become a powerful political force. The initial targets of the movement have been trade and immigration, which have both been curtailed over the past several years. The evidence suggests these steps do more harm than good to an economy and its workers. But viscerally, the appeal of closing borders has increased.