Streetwise Professor

News of socialism on the march comes daily. For example, 50 percent of Democrats view it favorably. It’s actually worse than that, because the energy in the party clearly comes from socialist true believers.

As I noted in yesterday’s post, it is particularly prevalent in the “educated” (i.e., indoctrinated) young. Case in point:

Clara Mattei brilliantly debunks a century of capitalist propaganda by explaining how capitalism is unnatural, has existed for only 0.1% of human history, took control of the world through violence, and is maintained by coercion and the superficial facade of liberal democracy. pic.twitter.com/eNb9SZWYkD

— Power to the People ?? (@ProudSocialist) June 20, 2026

So confident in her mastery of the grand sweep of history, and of her superior grasp thereof in contrast to economists, who are “profoundly ahistorical.”

But in fact she is a poster girl for the Dunning-Kruger effect. She vastly overestimates her intelligence and knowledge.

I’m being kind. She’s a blithering idiot.

To begin with, her whole analysis is predicated on a fallacy–the naturalistic fallacy specifically. Natural does not imply good, unnatural does not imply bad. Hume’s Guillotine (“is does not imply ought”) also applies.

And the statistic she cites–that capitalism has existed .1 percent of human history–demonstrates the orthogonality of nature and worth. That .1 percent of human history also corresponds to the period in which much of humanity escaped abject poverty. The “natural” human state was, as Hobbes put it, brutish, nasty, and short. And to which must be added–profoundly poor.

What changed that? Capitalism. And the parts that didn’t escape grinding poverty were not capitalist. (South African economist William Harold Hutt often pointed out that the poorest regions in the world, Ethiopia and Afghanistan, were the ones least touched by the “highest stage of capitalism,” as Lenin called imperialism).

To believe that “natural” implies “good” requires you to believe that crushing poverty is good.

And who has shown this? Economists. Maybe Clara should read economic historian Deirdre McCloskey’s Bourgeois Trilogy. The whole point is how the bourgeois revolution–i.e., the rise of capitalism–propelled Hobbesian humanity into a far more prosperous existence.

And as for economists being historically ignorant, there are many very accomplished economic historians. Robert Fogel, Douglas North, and Joel Mokyr, economic historians all, have won economics Nobels.

And Clara might actually learn something if she read them (and McCloskey) too. For they render risible her situating the beginning of capitalism to the enclosure movement in England. McCloskey in particular decenters (how’s that for prog speak!) England, arguing that the Dutch commercial republic was truly decisive.

The profoundly weird part of her discourse is the full on embrace of Rousseauian noble savage romanticism and her belief that the institutions which she imagines prevailed pre-capitalism would be remotely feasible in a post-capitalist, socialist world.

I say imagined, because she makes things out of the whole cloth. She says that pre-capitalist indigenous societies were egalitarian, consensual, and peaceful. Hardly. She offers a single example–the Cherokee. They had warriors, right? Who were they fighting? Not to mention that they practiced slavery.

Although anthropologists have striven mightily to show that indigenous people lived in a Rousseauian state of nature, the honest ones have often described societies that would make Hobbes blanch. And Steven Pinker has persuasively argued that violence was far worse in the “natural” period of human history than it is in the modern–and capitalist–era.

But even putting that aside, pray tell how we can return to Eden? Path dependency is a thing–you’d think that someone who claims superior knowledge of history would get that. Or maybe she thinks she can actually put the toothpaste back in the tube.

Moreover, a socialist, especially one of the Marxist persuasion, would believe that social organization and institutions are adapted to technological conditions, and that technology shocks drive social change. As Marx put it: “The hand-mill gives you society with the feudal lord; the steam-mill, society with the industrial capitalist.”

So even if Mattei’s characterization of societies during 99.9 percent of human history were correct, we can’t go home again. A Marxist would conclude that those social organizations were adapted to the subsistence agricultural, pastoral, and hunter-gatherer production technologies, and are completely maladapted to modern information and industrial technologies.

Meaning that the passionate advocate for socialism doesn’t understand socialism.

Unfortunately, she is hardly alone. I surmise that she is all too typical of western socialism fans, especially the young and “educated.”

But here we are. Mattei and those like her embody the dynamic force in the Democratic Party. She and her ilk will exert substantial influence if Democrats prevail in November, and especially in 2028.

Now they will fail. That’s inevitable. But the damage they can inflict in the process of failing staggers the imagination.

New York’s socialist mayor, Zorhan Mamdani, has announced a sweeping plan to expropriate vast swathes of New York’s residential properties and transfer them to his political allies in the NGO complex.

At first blush, it might seem that such expropriation is facially unconstitutional, specifically, a violation of the Fifth Amendment’s prohibition of seizing property without just compensation, and then only for a “public purpose.” And you’d be right. There is no compensation here, and no real “public purpose” as that phrase is properly understood.

But Mamdani clearly thinks he’s found a way around that little inconvenience of unconstitutionality. Perhaps taking a cue from a big part of his constituency, his plan identifies as being merely an exercise of New York’s police powers. (Wikipedia’s definition is actually pretty good: “In United States constitutional law, the police power is the authority of the U.S. states to pass laws regulating behavior and enforcing order within their territory for the betterment of the health, safety, morals, and general welfare of their inhabitants”).

You see, there are horrible landlords in New York. They fail to maintain their buildings, leading to shocking living conditions for residents. (Unmentioned is the fact that New York’s baroque system of rent regulations reduces the incentive to maintain). So by seizing the properties from these loathsome types, New York will improve the health and safety of New Yorkers. Meaning that these seizures are totes constitutional, under the 10th Amendment .

Even overlooking the issue of constitutionality, this argument is facially absurd. The upkeep and safety of public housing has always been appalling. Cabrini-Green, anyone? Pruitt-Igoe? I guarantee that any property that passes into the hands of New York City, or its NGO minions, will be markedly less livable afterwards than it is now.

Returning to the issue of constitutionality, this initiative will definitely face legal challenges. Will Mamdani’s police power argument persuade the courts–especially, as would be inevitable, the Supreme Court?

I highly, highly doubt it. Perhaps there is some judge in the various New York federal districts who will rule that the plan passes constitutional muster. Second Circuit? Unlikely. Supreme Court? Absent court packing, I can’t see how.

In part because Mamdani’s gambit is transparently a Trojan Horse to achieve unconstitutional objectives that he and his political cohort have long advocated. Mamdani and his fellow travelers have long made clear their desires to replace private ownership with public on ideological grounds, i.e., to realize their socialist vision. A vision that is patently in violation of the 5th Amendment. To turn around now, and say “Socialism? Heaven forfend! Wherever did you get that idea? This is purely a health and safety measure!”, is facially and totally incredible. An honest court will see through that in a minute. Their past words condemn them.

Not to mention that even if there is a police powers justification for some housing regulation, that does not justify such extreme regulation. New York already has various housing quality regulations. Indeed, they are the predicate for Mamdani’s initiative. Why not just enforce those more effectively? “We have police powers, we just suck at exercising them so we have to seize property” is hardly a persuasive argument. A police powers argument may be necessary for Mamdani’s plan to succeed legally, but it is not a sufficient one.

I think that in the end Mamdani’s socialist ambitions will be thwarted. But what’s troubling is what they say about the current American political situation. A proud and open socialist was elected mayor of America’s largest city. What’s more, socialism is making a big comeback, especially among the young, and especially especially among the “educated” young. (I put “educated” in quotes because attending college does not mean you are actually educated. Indeed, it means that you are almost certainly not: as Joel Kotkin persuasively argues, “indoctrinated” is a more accurate word). Mamdani’s plan is not meeting with outrage. To the contrary.

Despite the fact that socialism has failed everywhere and every time it has been attempted, it retains its allure in the minds of many. They seem hell-bent on learning by their own experience, rather than the sad experiences of others. Santayana’s warning (“Those who cannot remember the past are condemned to repeat it”) is lost on them.

In a word, socialism is a political weed. No matter how many times you cut it or pull it, it always comes back.

Wealth taxes are all the rage these days, especially in left coast states, but not only. Some alleged economists, like Thomas Piketty and Joseph Stiglitz, recently published an opus advocating high wealth taxes and massive wealth distribution. How high? Piketty et al advocate a 90 percent wealth tax.

Although the idea already had widespread appeal among leftist politicians, the SpaceX IPO and Musk’s ascension to trillionaire status has put that political momentum into hyperdrive. As evidenced by geniuses like Elizabeth Warren:

If Elon Musk paid my ultra-millionaire wealth tax, we could pay for child care for all three and four year olds in America.

— Elizabeth Warren (@SenWarren) June 17, 2026

And Adam Schiff-for-Brains:

Adam Schiff released a video fantasizing about what “we” could pay for “by the wealth of our first trillionaire."

"$1 trillion, if we decided to distribute that equally among American households, your household would get $7,500…"

Sounds downright utopian, Adam. pic.twitter.com/uPFT11u3a0

— Western Lensman (@WesternLensman) June 18, 2026

Both the alleged economists and the politicians seem to have the idea that since the value of disparate goods and assets can be expressed in a common unit of account, they must be completely interchangeable. So it’s easy peasy just to shift these interchangeable things from greedy capitalists who have too much to the hoi polloi who have too little.

This is basically the shmoo theory of the economy. “Shmoo” being a term used by Robert Solow (an actual economist) to describe a homogeneous good–the only one in the economy–that can do everything. (Solow was basically critiquing economic theory that assumed the existence of a single good).

You can use shmoo as capital to produce more shmoo. You can consume shmoo. It slices! It dices! You can eat it! You can wear it! It satisfies your every need! In shmoo world, you can take the shmoo capitalists employ and give it to starving waifs who wolf it down hungrily.

The real world and shmoo world bear no similarities whatsoever. Let’s take Musk for example. His wealth consists largely of ownership claims on companies, like Tesla and SpaceX. These companies have assets, like the Gigafactory. Well, if you take away the Gigafactory from Musk, it will feed precisely zero waifs, because they can’t eat the building, tools, equipment, etc., that make it up. Well, you say, we’ll continue to operate the Gigafactory and . . . . And what? You’ll produce batteries, which will again feed zero point zero starving waifs, let alone provide childcare for every three and four year old in ‘Merica. (As if that makes sense anyways: recall Sherwin Rosen’s droll remark: “Women are paid at public expense to provide household services for other families.”)

But it gets better! The bulk of Musk’s wealth is attributable to stuff that doesn’t even exist yet. SpaceX is a prime example. I recall reading shortly before the IPO that at the IPO price, SpaceX was valued at 95 times revenue. Given the stock’s appreciation, that figure is now around 130. Meaning that the value people are assigning to SpaceX is based on an expectation of highly valuable production that will take place in the future.

Lacking time machines, there’s no way to turn those goods (rockets to Mars!) to be produced in the future into goods (again, rockets to Mars!) to be consumed today, let alone into child care or SNAP benefits or whatever today.

But that’s not all. Nobody in their right mind will invest today to produce goods in the future if the fruits of that investment are expropriated. So even if you had a time machine, there would be nothing to bring back from the future.

Not finished! Much of Musk’s wealth is attributable to his human capital, and the human capital of his employees. No one but cannibals can consume that (well the bodies that contain it anyways).

What a wealth tax would do is reduce the production of certain goods and services, especially those that are physical and human capital intensive, and which would be produced in the future. Resources would eventually move into the production of other things, presumably those encouraged by the government guided by Liz Warren’s brain spasms. But society as a whole–not just plutocrats–would be substantially poorer. That is, they will lead to a systematic restructuring of the economy, and the restructured economy will be profoundly less productive.

The edge cases illustrate this. Think the Khmer Rouge, who drove everybody into the countryside in what was basically a massive destruction of human capital–even of those who didn’t end up as contributors to the skull piles–in a radical restructuring of the economy in a monomaniacal drive for equality. Which kind of worked. Everybody was either equally dead or equally poor.

But maybe the taxers are fine with that. After all, Piketty, Stiglitz et al also advocate “degrowth.” That is, reduced output. To them, this is a feature, not a bug.

Many of these consequences would also occur in shmoo world. You expropriate capital there will be less investment. Labor productivity will decline leading to lower wages–there will be less shmoo in your paycheck, workers of the world. Overall consumption will decline (because less shmoo is produced) and this loss in consumption will not be confined to the capitalists. It will be spread widely.

Yes, depending on how the expropriated shmoo is spread around, some people, likely the least productive, will consume more. But that will come at an exorbitant cost that will be widely shared.

Numerous analyses conducted by legit economists (which Stiglitz sorta was at one time, but no longer) demonstrate that capital taxation is highly inefficient, precisely because of its effects on investment and thus on labor income. But leftist politicians (and some right-populists too) want to tax capital in the worst way. And with a wealth tax, they’ve found it.

So how do these insane ideas get traction? Arguably because understanding their consequences requires understanding the second and third order effects, which is all too rare. The deceptiveness of a standard unit of account which permits comparisons between things in a way that insinuates interchangeability and seduces people into thinking they live in shmoo world is a big part of it. Another big part is a failure to understand incentives and crucially a failure to understand that labor benefits from capital investment.

The interwebs are all ablaze with the news that Chinese oil demand has collapsed, and that this is why the rise oil prices has been moderate as compared to expectations, given the size of the supply shock.

No no no no no no no (repeat ad infinitum).

Chinese quantity demanded has fallen. That’s a movement along a demand curve. “Demand has fallen” is an inward shift in the demand curve. Very, very different.

If this seems pedantic: (a) it isn’t, because it is an important distinction, and (b) whatever–it’s a pet peeve precisely because I see this mistake over and over and it leads people to extremely erroneous conclusions.

The unexpectedly large decline in Chinese oil consumption (not demand) means that Chinese demand has turned out to be far more elastic than anticipated. That is, the demand curve is flatter than had been believed.

Note that a more elastic Chinese demand curve translates into a more elastic world demand curve for oil than previously believed, especially since China represents such a large fraction of world consumption. This, in turn, means that the price effect of the supply shock due to the closure of Hormuz has been far less severe than had been anticipated.

It’s interesting to ponder why Chinese demand is apparently so elastic, and why analysts apparently didn’t realize how elastic it is.

The Slutsky equation breaks down demand elasticity into two parts, a substitution effect and an income effect. The income effect is the product of expenditure share and income elasticity. So goods that account for a large share of consumption expenditure have large elasticities, ceteris paribus. Similarly, more income elastic goods are more price elastic. So high expenditure shares or income elasticity could be part of the story.

Furthermore, the demand for oil is a derived demand–it depends on the demand for final goods produced with oil, and the supply curve for transforming oil into final (or at least further downstream) goods. Meaning that elastic final goods demand and/or more elastic transformation supply curves contribute to elastic oil demand. With respect to China, the overcapacity situation can make supply elastic and contribute to demand elasticity.

With respect to why analysts seemingly underestimated Chinese demand elasticity, I wonder if they really seriously consider it at all. Elasticities are hard to calculate, and that would be especially true in China given the dodginess of its data and the distortions in the pricing system. And the fact that analysts so frequently refer to changes in Chinese consumption as changes in Chinese demand suggests that many of them operate under the all-to-common confusion of the two, and hence don’t even think about elasticity.

There are also the usual econometric difficulties, namely identification problems–which is all about separating the effects of demand shifts from the effects of movement along the demand curve caused by supply shifts.

Sometimes the best way to estimate elasticities is a natural experiment. And that’s exactly what the Iran War has created. A sudden shock to supply with no simultaneous shock to demand allows one to trace movements along the demand curve. And that’s what Hormuz is allowing us to do now.

The elasticity issue might explain the administration’s apparent nonchalance over oil prices. No doubt pre-war within the administration the effects of a supply disruption were modeled. If those doing the modeling had a fairly accurate estimate of Chinese demand elasticity, they would have concluded that the economic fallout would be far less than widely feared. This would have emboldened Trump to proceed, and explain the administration’s what-me-worry attitude and we-can-wait-this-out approach. Relatedly, it means that the impact of the blockade on Iran is a far more pressing issue for it than is the impact of the closure on the US.

The fact that China appears to be the main loser is also a plus from the US perspective.

In order to understand what has transpired, it is necessary to adopt the right analytical framing. Confusing consumption/quantity demanded with demand is the wrong framing, and leads to incorrect conclusions. Elasticity of demand is the right framing. So ignore anyone who writes or says “Chinese oil demand is plunging” or when the supply shock reverses “Chinese oil demand is soaring.” What is really going on is the consumption moves along the demand curve. Meaning that the main analytical challenge is to understand the slope (elasticity) of that demand curve, and why it is the way it is.