Economics and the New Left

The election of Zohran Mamdani as the Democratic candidate for mayor of New York City has conventional Democrats reeling, and most of the rest of the world greatly puzzled.

Mamdani calls himself “socialist.” He has mused that we might be better off without private property, that it might be desirable for government to own all the housing, and that we should probably nationalize the “means of production.”

Given the disastrous experience with these ideas in the 20th century in Russia, China, North Korea and Cuba, how could anyone in the 21st century seriously consider them?

Here is some background.

There are almost no Marxists in the world today who have a basic understanding of mainstream economics. It’s not just that they haven’t bothered to master the discipline. It’s worse. They don’t believe in economic theory at all. With few exceptions, they view mainstream economics as little more than an apology for capitalism.

It was not always so. Marx himself was a rigorous student of economics—who was heavily influenced by such classical economists as Adam Smith and David Ricardo. In the early 20th century, many economists treated socialism as a workable economics system. In 1929, Fred Taylor, in his American Economic Association presidential address, laid out the conditions under which a socialist economy could, in theory, achieve an efficient allocation of resources. These ideas were championed by such economists as Abba Lerner and Oscar Lange, among others.

For the first half of the 20th century, economists rejected the Marxist view of the world. But a great many of them viewed socialism as a system that could actually work.

As the century moved on, we began to get examples of socialism in practice. These were systems governed by dictators who were too busy maintaining power by killing their enemies to be bothered by achieving “an efficient allocation of resources.”

According to the best estimates, the Nazi government killed close to 21 million civilians. Roughly 70 million citizens were killed in the USSR, mainly by Stalin. And 35 million Chinese were killed, mainly by Mao Tse-tung.

R. J. Rummel estimates that close to 170 million people were killed by their own governments in the 20th century. The vast majority of all these deaths were the crimes of socialist governments.

How did the economies of these systems work (when people weren’t being killed or starved to death)?

In Marx’s view of capitalism, the capitalists captured a surplus value created by workers. The capitalists then lived in luxury while the workers lived at the subsistence level. Ironically, this is exactly what happened in socialist systems, except it was not the capitalists who were living in luxury. It was the socialist rulers.

This pattern of rulers living in luxury, while the populace as a whole lives in poverty, and rule is maintained by threats of torture and death has been repeated in this century under socialist regimes in North Korea, Cuba and more recently Venezuela.

Meanwhile, people on the left have long since lost interest in the efficient allocation of resources or in any other idea that would cause them to master basic economic concepts.

Poll the people who attended the last Democratic National Convention, and you would probably find that most of them think that if a price is too high the government should push it down and nothing bad will happen. Similarly, they think that if a price is too low, the government should push it up and nothing bad will happen.

After all, if you think that the reason for high prices or low wages is greed, when government pushes back the only thing that will suffer is greed itself.

Put differently, the modern left does not think market prices serve any socially useful function.

As for Mamdani, he has advocated specific reforms that any freshman taking Econ 101 should be able to see through in a jiff. Among them: rent control, a doubling of the minimum wage to $30 an hour and government-run grocery stores.

The economist Paul Krugman, a well-known liberal, has noted that economists are virtually unanimous in believing that one of Mamdani’s key proposals, rent control, reduces housing opportunities and leads to deterioration in the quality of housing units. (Check out his textbook on the issue.)

Krugman’s textbook is also quite good in explaining why minimum wage laws destroy job opportunities. While some economists believe that small increases in the minimum wage may not be that harmful, almost no economist believes that large increases won’t cause unemployment.

In what appears to be the largest increase in history, California recently raised its minimum wage from $15 to $20. The result: a loss of 18,000 fast food jobs.

And you don’t need to take a course in economics to know that the idea that government can run a grocery store more efficiently than the private sector is self-evidently silly.

The real puzzle is not why there are candidates espousing foolish ideas. The real puzzle is: Why aren’t economists more vocal in their condemnation of ideas that defy what all economists know?

Following the New York City primary, Paul Krugman wrote, “I was enormously cheered by Mamdani’s victory.”

Go figure.