A fashionable trend and temporary event?

A self-declared democratic socialist as mayor of Big Apple*.

We will prove that there is no problem too large for government to solve, and no concern too small for it to care about.

Zohran Mamdani

I

It is rather unfortunate but hardly disputable that Socialism, despite its theoretical blunders, its catastrophic record, and all its suggestive epithets and facets, almost cyclically floats up and inexplicably triggers recurring fashionable trends. The numerous variants of Democratic Socialism and their current popularity are no exception.

It was Ludwig von Mises (1881-1973) in his A Critique of Interventionism (1929/1976) as well as F.A. von Hayek (1899-1992) in his The Road to Serfdom (1944) and Joseph A. Schumpeter (1883-1950) in his last essay on The March into Socialism (1950) among others, who clarified that Democratic Socialism does not mean a direct expropriation of the means of production by the state. However, the various shades of Democratic Socialism stand for calculated, seductively wrapped and often semantically concealed state interventions in markets and in every day’s life of citizens. This method, often referred to as piecemeal social engineering (Karl R. Popper, The Open Society and its Enemies, 1945), is a political strategy that prefers small steps to the sudden transformation of social systems. In other words, it is a gradual introduction of Socialism in democratically compatible and often barely perceptible doses.

Most of these open or obscured state interventions not only distort the market process and the entire private sector through regulations, prohibitions or taxation. Often packed up in enticing offers, government run welfare programs also supervise and steer individual life plans from the ‘cradle to the grave’. To facilitate the working of such measures, the system itself is also subjected to further gradual changes. In accordance with respective political traditions and established customs, these interventions frequently lead to inefficiencies, misperceptions of reality and ultimately to coercion and force. As virtually all interventions create new, unintended distortions, they entail further interventions and the cycle repeats itself, with state power growing, funding imploding, and prosperity dwindling. And reforms are promised at ever shorter intervals, with the deceived citizen once again being asked (or forced) to shoulder the bill for their financing.

II

Zohran Mamdani’s clear victory in the New York City mayoral election cannot be seen as an endorsement of Democratic Socialism. Rather his program is based on a failed ideology that will inevitably end in economic failure with eventually exercised coercion by an overbearing state. Despite his politics, however, one must note with somewhat grudging respect that Mamdani’s honesty is rare compared to most politicians today. He has neither concealed his ideology nor did he pivot closer to the political center thus far.

With his win with almost 52%, Zohran Mamdani (34) the new mayor of Big Apple successfully joined the list of about 110 democratic socialist mayors elected in the US since 1898. Mamdani is a gifted, engaging speaker and his occasional jibes at Donald Trump are popular and sometimes quite funny. Like all populists, he promises programs in his speeches that almost everyone would support. To rapturous applause, he pledged among other ideas, a four-year rent freeze for rent-stabilized units, free city bus service, free universal childcare (ages 6 weeks to 5 years), the construction of some 200,000 affordable units, and even government-run grocery shops or raising the minimum wage to $30/hour in four years. And with his ever-popular slogan “I don’t think we need billionaires”, he often calls for a substantial taxation of the rich. Thus it is no surprise that, as a democratic socialist, he makes price controls a central part of his economic program. He may have found inspiration for his programs in a recent book We Own the Future: Democratic Socialism—American Style (2020) and is using these collected ideas of leading US left-wing scholars and political activists as his road map. However, as he wants to replace “the frigidity of rugged individualism with the warmth of
collectivism” it seems that basic economic reasoning and even the most superficial knowledge of twentieth-century social history show that Mamdani has it exactly backwards.

Since elected or appointed leaders always bear personal responsibility for their actions, politicians can of course also be held accountable for the results of their decisions, regardless of who paved the way for them to come to power. However, it is one thing to understand the economic, social and ideological environment in which an electorate that was obviously largely rationally ignorant promoted Mamdani to this powerful position. It is quite another to declare him guilty for the failure of the ideas he will be implementing in the exercise of his mandate.

At any rate, as one of his first actions in office Mamdani appointed some members of the DSA (Democratic Socialists of America) in his administration and scheduled housing struggle sessions, probably designed to demonize landlords. After years of ideologic and bureaucratic restraints on housing construction in New York City that led to shortages and rapidly rising costs, he promised to triple the production of housing units, subsidized by the taxpayer. His administration would not only determine that about 200,000 new units would be built by union labor over the next 10 years, but also govern who would live in them and what rents would have to be paid. This would further distort the market and lead to demands for even more government intervention. It was precisely the interference in the housing market by his predecessors that made formerly affordable housing virtually unaffordable. Rent control is a form of price control, a rent cap that prevents sharp price increases but at the same time reduces the incentives for building and maintaining rental apartments, leading to a shortage of rental apartments and inefficiency. In other words, these measures exacerbate the very crisis they are supposed to solve. At least since the publication of Verdict on Rent Control (1972) it should be clear today that any attempt to enforce rent control or similar measures is one of the most efficient ways to destroy a city, alongside bombing raids during war. Although published more than half a century ago, to date this small book arguably contains the most decisive essays on the socio-economic consequences of rent control in various countries by Nobel Laureates F. A. von Hayek (1974), Milton Friedman (1976) and George J. Stigler (1982) and leading scholars like Bertrand de Jouvenel or F.W. Paish.

III

Almost simultaneously with the introduction of the currently trendy and politically effective word “affordability”, Mamdani promised to create a cooperative-based chain of public supermarkets that would supply New Yorkers with groceries at low prices and without making profit. These stores would pass on all savings (?) they receive from their broad tax exemptions to consumers. With these stores, Mamdani aims to contribute to lowering high food prices because they will be prohibited from charging extortionate prices. This means nothing more than that, in addition to their granted tax and infrastructural advantages, these stores would also be barred from charging true market prices. In order to implement his idea, Mamdani intends to enact anti-profiteering laws similar to those already existing in many states, which often target emergency situations such as natural disasters. However, their application typically leads to severe supply shortages. I.e. after a hurricane or an earthquake, getting food, water, or generators to an affected area can be difficult or hazardous. However, if prices are legally capped, there is no market incentive to further improve supplies. Yet, higher prices during times of extreme demand are not a form of exploitation. Rather, they are a way to allocate scarce resources more efficiently and increase supply. Given the many housing and rental problems in New York City caused by government intervention, it remains to be seen how well city-run supermarkets will function. The irony, however, is striking: Instead of removing regulatory hurdles and allowing one of the largest supermarket chains in the US to compete in all boroughs of New York City and giving consumers a choice, the new mayor is trying to build his own groceries.

Mamdani also assertively promised to introduce free childcare for all New Yorkers from six weeks to five years old, thereby ensuring high-quality programs for all families. And yet, we have known since Milton Friedman’s famous phrase that “there’s no such thing as a free lunch” (1975). Like any other service, childcare incurs real costs for staff, infrastructure, food, and overhead, which somehow have to be paid by someone. Public funding of childcare disadvantages families where mothers stay home to provide optimal childcare. In other words, these families are taxed to subsidize the childcare costs of other families. In a city with some of the highest taxes of all 50 US states, and in a state that ranks last in tax competition, the burden on families with children could be overburdening.

Even with the promised increase of the minimum wage to $30/hour in New York City by 2030, Mamdani intends to introduce price controls or a government-mandated minimum wage. However, if wages are pushed above market levels by decree, employers adapt by hiring fewer employees, reducing working hours, raising prices, or adjust by automating certain tasks. Mandatory minimum wage increases, are counterproductive, job-killing, and economically disruptive policies that harm low-skilled workers and small businesses. In other words, any minimum wage enforced at a level above the market-determined equilibrium creates unemployment, because the quantity of labor supplied rises due to the higher wage on offer, but the quantity of labor demanded falls given the higher wage costs to firms.  Unemployment and/or industrial relocation is the inevitable consequence of artificially inflated wages that exceed free market levels. When governments disrupt the market process with well-intentioned but ill-considered interventions, citizens suffer. The Big Apple grew because it enabled people to build, innovate, and prosper—not because the government directed them.

* Although the term Big Apple can be traced back to the early years of the 20 th century, this common nickname only became synonymous with New York City and its cultural diversity since the 1920s.