Friday, August 17, 2018

Sorry, We're Already a Socialist Country [UPDATED]

The Undiepundit Socialist Index:

First, let's talk about socialism.

Strictly defined, socialism refers to government owning the "means of production".  Business plants, fixtures, tools, machines, vehicles, goodwill, etc. all become the property of the state under textbook socialism.  But that's not what we mean when we use the word today.  Socialist Bernie Sanders isn't calling for government nationalization of business assets.  He just wants medicine, education, housing, food, transportation, etc. provided by the federal government for free to any who want it whether citizens or not. How he intends to do that and how the quality of those things will be affected is never explained.

And that's the point.  Socialism is not a specific policy set.  It's more a mindset.  It starts out being about economic issues and ends up being about power.  If you believe that the federal government should provide basic human services to everyone for free, then you are a socialist.  If you understand that this kind of cure is always worse than the disease, then you are not. 

State and local governments providing basic human services is another matter.  States cannot print and borrow money like the federal government can.  This imposes a limiting principle on their largess since they have to pay for it.   The U.S. federal government has no such limiting principles. 

The U.S. federal governments has found myriad ways to socialize whole sectors of our economy while hiding the costs.  In the 1990s the U.S. federal government wanted to massively subsidize housing without raising taxes or spending a dime.  So, they simply changed mortgage requirements.  All of a sudden any person regardless of credit history could obtain a mortgage.  We know what that led to in 2008.

Those policies are alive and well even today.  No one would accuse Donald Trump of being a socialist, yet under him every new mortgage in the U.S. is owned by a government sponsored enterprise (GSE) like Fannie Mae or Freddie Mac.  Those liabilities do not appear as spending until a crisis hits, as it did during the sub-prime financial crisis.

Since about 1982, government spending has consumed more than 50% of the private sector in the U.S.  That is what I consider the tipping point.  Again, the mindset is the important thing.  Once the predominant belief is that the federal government should provide for basic needs, then those needs become "rights", and then it's only a matter of time before that necessitates totalitarianism.

Why totalitarianism?  Because without a limiting principle the socialist mindset requires it.  Once the federal government is in the business of providing basic needs for free, it's just a matter of time before they have to confiscate everything to do that.  Your money, your power, your freedom, must be subordinated for the "rights" of others.  Without limiting principles this is what has happened throughout history.

Limiting principles are what saved the Scandinavian countries.  Prior to the 1960s the Scandinavian countries were free market exemplars of health, literacy, productivity, and happiness.  Then in the 1960s they became enamoured with socialism.  After about fifty years of progressive socialism they realized the enormous downsides.  Wealthy citizens were fleeing, businesses were moving, economies were lagging, labor was being imported at unsustainable rates, and the fiscal trajectory was ominous.  These countries are relatively small compared to the U.S. and do not have the world's reserve currency like we do.  They have built in limiting principles.  So they changed course.

Today, they still retain some of the legacy socialist items but the mindset has changed.  The Prime Minister of Denmark recently admonished Bernie Sanders for calling Denmark a socialist country.  In a 2015 speech at Harvard he said:
"I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy."
Sweden also backtracked, and both countries economies improved.

Similar results can be seen in the U.S. after the modest two year Trump reversal that is evident on the graph above.  To be clear, many manifestations of Trump's reversal cannot be seen in the numbers. Deregulation, a huge part of Trump's reversal, does not appear immediately on a spending graph.

But Trump is an anomaly.  We can see that the socialist mindset has inexorable momentum.  We were at 10% on the Undiepundit Socialist Index when WWI broke out.  One hundred years later, we averaged about 70% under Barack Obama.  Notice: the other two big spikes were for major World Wars!

So why doesn't it feel like we live in a socialist country?  If government was consuming 70% of the private sector from 2008-2016, wouldn't we sense that and change course?  No we wouldn't.  During that period the  federal debt doubled from $10 to $20 trillion and the Fed added another $3.5 trillion to its balance sheet. You can hide a lot of economic signals when you create $13.5 trillion from thin air. At least temporarily.  The dollar's status as reserve currency removes all limiting principles. 

Sorry, we've been motoring towards totalitarian socialism since FDR.  Donald Trump is probably just a speed bump on that road.

It is also worth noting that Karl Marx's Communist Manifesto is the 3rd most assigned book at U.S. colleges today according to the Open Syllabus Project.  Of all the books ever published in history, the 3rd most assigned one is the one teaching socialism and communism to our kids.  You are what you teach. 

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