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Tuesday, March 06, 2007

SOCIALISM In America?

According to today's New York Times: "The strongest job market New York City has had in decades has not helped the city's youngest workers find jobs, leaving them at risk of becoming permanently unemployable..."

New York is the city with the strongest unions, the highest taxes, the most government intervention and the most welfare. It is the city closest in the nation to a socialist model. Yet, New York has largely excluded minority youth from employment. The reason is in part lack of access to a failed educational system that relies on the failed theories of John Dewey, but also, that union entry restrictions limit minority employment in the construction crafts, and that political and business connections are necessary for jobs that rely on government support and political largess. Those without connections or an Ivy League education find themselves excluded from New York's socialist economy.

In this regard, there is a marked parallel between Paris and New York . Just as the French have relied on a heavy dose of socialism or dirigisme in their economy and have excluded low income minorities from participation in their economy, resulting in the riots in the banlieue, so New York has excluded low-income minorities. Both Paris in New York can be proud of their socialist policies.

The process by which socialist economies exclude minorities is administered wages. Administered wages are wages above the market clearing level. One key cause of administered wages is labor unions. Labor unions push for higher wages, but in order to pay higher wages employers must reduce the number of workers and substitute capital for labor in the form of machinery. The excluded workers can move to Colorado or London or start their own businesses, but if they lack basic skills they may end up unemployed. This crowding out effect is characteristic of socialist economies where workers are paid above-market clearing wages.

India is a more extreme example of socialist oppression of the poor through this crowding out effect. In recent years liberal economists have complained about income inequality and its supposed ill effects. There is no data or economic theory to support this argument. In fact, when income inequality was at its apex in the late 19th century and early 20th centuries, the United States first developed the telephone, kerosene (and subsequently gasoline), the light bulb, AC electricity, mass production of the automobile and a wide range of other innovations that subsequently improved life.

When income equality increased in the mid twentieth century due to punitive income taxes, innovation slowed. The mid twentieth century is best remembered for Elvis Presley rather than technological innovation. It wasn't until after the Reagan tax cuts in the early 1980s that the pace of innovation increased. Now our geniuses from the liberal economics establishment, the ones who brought us our piddling social security benefit and who apologized for Stalin in the 1930s, for Mao in the 1970s, and gave us stagflation in the 1970s, are arguing for a renewal of punitive taxation. True geniuses.

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