In assessing the effects of socialist policies, it is important to recognize that they provide little material incentive for production and innovation and, by distributing goods and services for “free,” prevent prices from revealing economically important information about costs and consumer needs and wants. To this end, as the then–prime minister of the United Kingdom, Margaret Thatcher (1976), once argued, “Socialist governments . . . always run out of other people’s money,” and thus the way to prosperity is for the state to give “the people more choice to spend their own money in their own way.”
...This literature finds a strong association between greater economic freedom and better economic performance.
- It suggests that replacing U.S. policies with highly socialist policies, such as Venezuela’s, would reduce real GDP at least 40 percent in the long run, or about $24,000 per year for the average person.
Although they are sometimes cited as more relevant socialist success stories, the experiences of the Nordic countries also support the conclusion that socialism reduces living standards. In many respects, the Nordic countries’ policies now differ significantly from what economists have in mind when they think of socialism. For instance, they do not provide healthcare for “free”; Nordic healthcare financing includes substantial cost sharing. ... Nordic taxation overall is surprisingly less progressive than U.S. taxes. The Nordic countries also tax capital income less and regulate product markets less than the United States does.... Living standards in the Nordic countries are at least 15 percent lower than in the United States.
- It may well be that American socialists are envisioning moving our policies to align with those of the Nordic countries in the 1970s, when their policies were more in line with economists’ traditional definition of socialism. We estimate that if the United States were to adopt these policies, its real GDP would decline by at least 19 percent in the long run, or about $11,000 per year for the average person.