America's GDP will drop by 19 per cent if it implements socialism of Nordic countries, the White House said Tuesday in a report which argues that India and China were able to elevate a large number of people from poverty only after making policy changes away from socialism.
The major report titled 'Opportunity Costs of Socialism' warns the dangers of socialism and has come two weeks ahead of pivotal mid-term elections.
"Although socialist policies are ostensibly implemented to reduce poverty and inequality, it was the end of highly socialist policies in China that brought these results on a worldwide scale," the White House said.
China's major reforms began in 1978, which is about the time that the poverty rate in China, and therefore world poverty rates and world inequality, began a remarkable decline, said the report brought out by the White House Council of Economic Advisors.
"Policy changes in India also coincided with reduced poverty in that country, although it is debated whether the early Indian policies were socialist," it said.
The report comes out at a time when there is increasing debate in the American political discourse about the benefits of socialism, a model that poses a grave challenge to capitalism.
Without naming any politician, the report said that American socialists were envisioning moving US policies to align them 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 per cent in the long run, or about USD 11,000 per year for the average person," it said.
According to the report, replacing US policies with highly socialist policies, such as Venezuela's, would reduce real GDP at least 40 per cent in the long run, or about USD 24,000 per year for the average person.
It said the experiences of the Nordic countries supported 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," the report said.
They do not provide healthcare for "free"; Nordic healthcare financing includes substantial cost sharing, it added.
Marginal labour income tax rates in the Nordic countries today are only somewhat higher than in the US, and Nordic taxation overall is surprisingly less progressive than US taxes, the report said.
The Nordic countries also tax capital income less and regulate product markets less than the United States does, the report said.
"However, the Nordic countries do regulate and tax labour markets somewhat more; thus, American families earning the average wage would be taxed USD 2,000 to USD 5,000 more per year net of transfers if the US had current Nordic policies. Living standards in the Nordic countries are at least 15 per cent lower than in the United States," it said.
The report asserted that a large body of evidence shows how the high tax rates, state monopolies and centralised control of socialism disincentivise effort and innovation and substantially reduce the quantity and quality of a nation's output.
It noted that even Cuba, China, and the erstwhile USSR, and other highly socialist countries eventually permitted private enterprises both in and outside the agriculture sector to coexist with the state-owned enterprises.
"With the exceptions of Cuba, North Korea, and Venezuela, all the highly socialist countries eventually transitioned to primarily private economies," it said.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)