October 3, 2018

Assessing a “social wealth fund” with Samuel Hammond and Maha Rafi Atal

In the latest episode of Bloggingheads, I sit down with Maha Rafi Atal of the Copenhagen Business School to discuss the rise of socialist rhetoric in the Democratic Party, including new proposals for “co-determination” and the creation of a “social wealth fund.”

A big part of the current debate comes down to the distinction between “democratic socialism” and “social democracy.” As I point out, they may share many vowels and consonants in common but nonetheless represent very different visions of society. In a recent essay for National Review magazine, I explain the distinction this way:

The intra-socialist squabble du jour is illuminating as an example of what the economist Thomas Schelling called the “Titanic puzzle.” Schelling ex­plains (apocryphally) that the Titanic had only enough lifeboats for first- and second-class passengers. As a condition of their less-expensive tickets, steerage passengers were expected to go down with the ship. So when the unsinkable ship sank, the story goes, so did its poorest passengers — to the outrage of anyone with even mild egalitarian intuitions. (In reality, the rule was “women and children first,” and steerage happened to be mostly men. The patriarchy strikes again.)


According to Schelling, no egalitarian intuition is elicited when two different boats, with different fares, offer different levels of safety. It occurs only when the differential is within one boat. This poses a problem for egalitarians, who must somehow reconcile the “macro” equality of society as a whole with the “micro” inequality within any given organization. Thus if your goal is to flatten the organizational structure of every firm, it may come at the expense of efficiency and wealth creation that could be used to equalize incomes at an even higher level. Which bullet one chooses to bite is one way to understand the democratic-socialist/social-democratic divide.

In other words, I see social democrats (and market liberals like myself) as taking seriously the productivity trade-off that comes with the democratic socialist impulse to flatten inequalities within firms, whether it be through co-determination or, more radically, a worker-cooperative / syndicalist model. Instead, I argue the whole point of a shareholder corporation is to take advantage of certain, internal, efficiency-enhancing management hierarchies (In Ronald Coase’s words, the firm is an island of efficient command and control). To the extent that this drives greater productivity, the economic pie becomes bigger for funding broad based social programs that address society-wide inequalities after the fact, and at a much higher general standard of living.

Some of the links mentioned in the video include: