Magical Economic Thinking

Has any politician ever taken Econ 101?  If so, did anyone pass?

On the Republican side, why don’t they get the idea that mutually advantageous trade leads to lower prices, higher employment and enhanced economic growth?  That non-partisan, empirical analyses show that some government programs are extraordinarily effective, a prime example being SNAP (the Supplemental Nutrition Assistance Program), which stands to lose significant funding as part of President Trump’s “Big Beautiful Bill.” And let’s not forget the Trump administration’s threat to the long-standing partnership between the federal government and research universities that has unequivocally paid for itself in terms of economic and health benefits.  

Scary stuff, but not as scary in my mind as the increasingly popular ideas among Democrats that undermine an economic system that has served so many in this country so well for so long.  

Remember when the debate between market and command economies seemed settled? The colossal failure of the Soviet Union and its satellite countries, and the growth in wealth in China after it abandoned socialism for capitalism, surely signaled the death knell for the notion that government ownership of the means of production and distribution was a viable alternative to capitalism. Except it didn’t. How ironic would it be if previously socialist economies adopt the price system as a resource-allocating mechanism while the once proudly capitalist countries move in the opposite direction?  

The results of a Pew Research Center survey from the summer of 2022 showed that while 73% of Americans aged 65 and over viewed capitalism favorably, only 40% of those in the 18 to 29 age group felt the same. Most shockingly, only 29% of Democrats aged 18 to 29 had a positive view of capitalism, while twice as many (58%) viewed socialism positively. It follows that one in three Democrats of all ages, and 42% of those aged 18 to 29, reported that they liked politicians who identify as “Democratic Socialists.”  

These numbers confirm what we already know — Bernie Sanders and Alexandria Ocasio-Cortez are rock stars among young Democrats. Their “Fighting Oligarchy” tour was the hottest ticket since Taylor Swift’s Eras tour.

That brings us to the curious case of Zohran Mamdani, the 33-year-old Democratic nominee for mayor of New York. He embraces the democratic socialist playbook: additional taxes on corporations and on affluent New Yorkers, freezing rents on a million apartments, free childcare for every child aged 6 weeks to 5 years, free buses for all 1.1 million riders, an increase in the minimum wage to $30 per hour by 2030 and the creation of city-owned grocery stores, one in each of the five boroughs, 

Why stop there? How about the city government running restaurants, or department stores? Aren’t governments famous for providing goods and services at lower cost and higher quality than the private market?  In a word:  no.

Talk about magical thinking! How convenient to ignore basic facts, such as that almost two of every three Americans own pieces of those “greedy” corporations through their mutual funds and retirement savings accounts, or that the richest New Yorkers already face federal, state and local taxes approaching the level that results in significant labor disincentives. Or that governments are notoriously inefficient.  

Perhaps one reason Mamdani hates Israel so much is that Israel has a vibrant, entrepreneurial, capitalist economy. And recall that Sanders chose to spend his honeymoon in the Soviet Union (nobody goes there for the weather).   

Capitalism isn’t perfect, but the alternative leads to reduced economic growth and prosperity.  

Capitalism isn’t perfect, but the alternative leads to reduced economic growth and prosperity. Maybe if Mamdani, Sanders and friends had spent more time working in the real world (rather than for the government), they would understand that. 

Will a larger share of a shrinking economic pie satisfy the needs and desires of the alienated lower and middle classes? I doubt it.

And I am assuming that many Gen X, Millennials and Gen Z will stand by their convictions and not dirty themselves by accepting the $84 trillion dollars in wealth transfers that is on their way from their capitalism-loving, baby boomer parents. Who needs that money, after all, when you can shop in government-subsidized stores, live in subsidized housing and avail yourself of free childcare and transportation?  

Morton Schapiro served for more than 22 years as President of Northwestern University and Williams College, where he was also Professor of Economics.