Socialism: A Gift You’d Exchange?

After reading and reviewing a book by a socialism critic, I then did a book by an advocate. Then some told me “No, here is the advocate book you should have read.” I tried one of them: Nathan Robinson’s Why You Should Be a Socialist, said to be “A primer on Democratic Socialism for those who are extremely skeptical of it.”

Robinson won’t commit himself to what exactly is socialism’s proposal, other than pushing for big changes in light of some vague and widely-shared values (mostly equality and democracy). He says conservatives are mean and liberals are wimpy; liberals have similar goals, but are to be disdained for not calling for bigger changes. Yet the only specific changes he’ll clearly endorse are smaller changes widely endorsed by liberals. I’ll get to some of those below, but instead of writing a whole review, I’d rather make one big point, riffing off of these quotes:

If I grumble when I see what New York City developers have done, it’s because I miss the accordion shop on Forty-Eighth Street, and if I criticize what Amazon has done to small book publishers, it’s because I see how empty the bookstores in the French Quarter have become. …

Neoliberal principles [are] … you measure “value for money,” and if a public asset isn’t providing it, hand it over to the private sector. This is not the traditional leftist way of thinking about libraries. Leftists don’t say, “Is this asset performing?” They say, “People need … Caplan argues that public schools are not good investments because they do not actually produce a “return” for students in the form of useful job skills. Caplan believes that the school system should be privatized and, to a great extent, dismantled, because it is “inefficient” in producing good job market outcomes. … schools as little more than factories for efficiently manufacturing value for the job market. But here’s the part that shows you the bipartisan nature of neoliberalism: Caplan’s strongest critics accepted that premise. …

We don’t often consider just how radical public libraries are. A library is a place where anyone can go and—for free!—explore a mountain of human knowledge. It has meeting spaces, computers, and research assistance. It’s there for everyone, regardless of their means. A library is a pretty socialist institution, honestly. It’s owned by everyone, and there’s no money involved. (Unless you keep your books too long!) There’s no profit, no private ownership, no ulterior motive. It’s a place we all pay for and can all visit. They’re spaces of absolute equality, where anyone can go to study, learn, and hang out.

Imagine the library model in other spheres of life. Say, for example, free medical clinics where anyone could go and get treatment. Free colleges, where people could go and take whatever classes they wanted, without being bankrupted by debt. Free bikes to borrow, a free water park.

People love libraries. Now, I know, I know, nothing is actually free. But there is something very liberating about not having to think about money when you use a service, about having everything prepaid and accessible to all. It makes life less stressful and transactional. It means we don’t have to constantly be conducting little mental calculations about value, and we can just go and enjoy our lives. Lefties are often mocked for wanting “free stuff.” Free college! My God, what’s next, free ponies? But libraries work. Everyone loves them. …

Obama … encouraged the establishment of privatized schools, which are independent of school districts and could therefore fire “bad” teachers more easily. Instead of asking teachers what resources they needed for their schools to function well, the policy relied heavily on “performance” tests and punished schools whose students did poorly. This kind of approach to policy is not egalitarian or democratic.

Imagine that for your birthday, someone gave you a gift of classes to learn French cooking. Except that you had never suggested you wanted to learn French cooking. And in fact, even if courses were free, that’s not how you’d want to spend your time. For you, there is a large “opportunity cost” of taking such classes, such that you’d get a net negative (net) value from taking them. (At least if we ignore some signaling effects.) So if possible, you’d prefer to exchange this gift for cash.

In this case, I’d say that this gift of French cooking lessons fails a “cash gift test”. If it were not for the possibility that doing so might make someone look bad, such as you looking ungrateful or the giver looking thoughtless, you’d rather get the cash that were used to buy the gift, rather than keeping (or using) the gift as given. This idea of a “cash gift test” is the point I want to focus on in this post.

So far, I’ve noted that, relative to a cash gift, there can be real losses from giving someone French cooking classes that they don’t want. And there could be even larger losses if you forced them at gunpoint to take such classes. We all know this at some level, which is a part of why we don’t get most of what we need via gift exchange. We do like to give each other gifts once in a while to signal our bonds to each other. But we know that if we only ate food, wore clothes, and resided in housing that came from others’ gifts, we’d overall have food, clothes, and housing that is worse matched to our personal situation. Compared to what we get for ourself, we know that our gifts usually just aren’t as well informed about what others need or want.

Note that this analysis so far doesn’t depend at all on living in a capitalist society. In any society, you have an opportunity cost of your time, and there will be real opportunity costs paid by others to set up, run, and manage French cooking classes. Not only might it be a waste to force people to take such classes, but it could also be a waste for some philanthropist to build and staff a big system of French cooking classrooms, making a class available to everyone within walking distance on every night of the week.

Such a philanthropist gift of a system of classes might also be said to fail a “cash gift test” if we’d all prefer that whatever was spent on making this cooking class system be spent instead on a particular cash gift. (And of course we might prefer such a cash gift exactly because we plan to spent it on some other project, instead of just being handed out as cash to individuals.) We might hope to thank this philanthropist for their generosity, but note to them that if they switched to the cash gift variation, they could be even more generous to us at no added cost to themselves.

But doesn’t this test depend on what method “we” use to pick what cash gift “we” prefer? Well, we can actually use a unanimity standard: the system of classes gift fails our test if there is any per-person plan for a (same-cost) cash gift that each and every one of us prefers to the gifted system. Of course this cash gift might need to vary across people. Some who are really interested in cooking might get a larger cash gift, and some who have no interest in cooking might get nothing. But, and here is the key point, if we believe that there is some same-cost cash gift plan of who gets how much cash, such that everyone prefers this plan, then the non-cash version fails our cash gift test. And is a bad gift, relative to the cash gift alternative.

Let me further stipulate that we shouldn’t need to know exactly how to identify who are the strongest lovers of cooking to see that this philanthropist gift is a mistake. That is, we might not be able in practice to construct an actual cash gift plan that guarantees that everyone actually prefers this particular plan to the system of cooking classes. The point here isn’t to make realistic systems for replacing real gifts with cash gifts which everyone is guaranteed to prefer. The point here is instead to clarify what we mean by a policy change being a waste (ignoring signaling incentives). If we believe that this philanthropist gift fails our cash gift test, it seems that we should hope to recommend to this philanthropist that they instead make a similar cash gift, even if they can’t design a detailed cash gift plan guaranteed to make everyone prefer it to the original gift plan.

So far I’ve been talking about a philanthropist’s gift, but now let’s apply this idea to any government policy change. For any such change, we should consider its opportunity costs to see if it is a net gain or net cost, relative to a cash transfer. (Again, setting aside signaling issues.) The fact that libraries, universities, or hospitals are given away for “free”, after being paid for via taxes, doesn’t at all settle the matter. For example, it could well be that most university education is in fact a waste; the question isn’t settled by merely noticing that sometimes some people benefit from some school in some ways.

For every proposed change in government policy, we should ask if there plausibly exists a cash-transfer-only that everyone would prefer to that proposed change. If such a preferred cash policy exists, then we should prefer to consider adopting that policy instead of the one that was proposed. “Cash” here just refers to whatever commodities are easiest to use in trades and transfers, being relatively stable, uniform, divisible, and easy to move. Money, when it exists, is usually a fine type of cash. Again, capitalism isn’t implied.

And, again, we shouldn’t have to know how exactly to construct the cash transfer plan. For example, consider the “Everest prize” policy of handing a million dollars (once, paid for via taxes) to everyone who manages to climb to the top of Mt. Everest. If we think everyone would prefer to just get handed the million without having to climb Everest, then we can know that there is a cash transfer plan that beats this Everest prize policy, even if we don’t know who exactly would get to the top of Everest to get paid if we adopted this policy.

We economists usually evaluate policies in terms of “efficiency” (or “cost-benefit analysis”). Under our usual (weak) assumptions, the only way for a policy change to pass this cash gift test is for the policy to improve efficiency by counter-acting some market failures, such as due to externalities. In particular, “free” schools, libraries, and hospitals only pass this cash gift test if there is some positive externality with their use to counter the fact that making something “free” induces wasteful over-consumption of more than they would consume they had to pay for its real marginal cost.

For more examples, in his “Sensible Agendas” chapter where Robinson endorses specifics, he starts by mentioning some items from Bernie Sanders’ 2016 book Our Revolution. Lets go through them.

“End fossil fuel subsidies” seems a win, if in fact there are not net positive externalities with using fossil fuels. But all of these look like likely inefficient giveaways, analogous to “free” French cooking classes:

free college tuition, cut student loan rates, universal childcare, loans to turn firms into cooperatives, banking at post offices

Now I’m open to the possibility that such policies may counter market failures. For example, maybe banks collude to raise prices, so post office banking would offer more cost-effective competition. But that’s the sort of argument I want to hear (and that Robinson doesn’t give).

These items look like inefficient paternalistic limits on the deals people can make:

$15 minimum wage, limit for-profit schools, new financial regulations, 12 weeks paid leave to workers with new kids

Though again I’m open to efficiency arguments. To me, most of these “socialistic” policies seem likely to be “gifts” that I think most of us would prefer to exchange for cash. We appreciate the thought, but please, don’t bother yourself, we’d rather take the cash.

One last thought. I worry that many of you will get stuck on the issue of it being hard to figure out how to plan a cash gift that everyone prefers. So here’s a more symmetric approach, using two tests.

Let us say that a policy change passes the “negative cash gift test” if there is no cash gift plan that everyone prefers to it, and say that a policy passes the “positive cash gift test” if there is a cash gift plan such that everyone prefers the policy to this cash gift plan. In theory, all policies with either pass both tests or neither of them. (Only cash gift plans sit right on the border.) So regarding any one policy you can ask yourself: which looks harder, finding a cash gift plan to beat this policy or finding a cash gift plan that this policy beats? Knowing which of these two tasks looks harder tells you if this policy is efficient, and thus good.