Pop quiz:
The United States is:
A) a capitalist country
B) a socialist country
No doubt, you were raised to call our economic system, "capitalism". But did you know that the term "capitalism" is actually a derogatory one? Do you know who made that term popular? Did you know that that term didn't exist when the founders designed our economic system? And is it even true that we are a "capitalist" country today?
The original design of our economic system could best be described as "free-markets and limited-government", not capitalist. But by the numbers, we have spent the last 100 years moving, or "progressing", away from our original design. Arguably, we can no longer be considered a free-market / limited-government country. Here's a graph that chronicles this "progress": (click on the graph to view it in higher resolution)
In 1900, total government spending (federal, state, and local) consumed less than 10% of the private sector (private sector = GDP minus federal, state, and local government spending). Then, in 1919, exactly 100 years ago, the Communist Party of the USA was founded on an agenda of labor unions and totalitarian socialism. By the 1930s labor unions were in full bloom, and some of CPUSA's socialist wish-list was already law. Under Barack Obama, the last President to have a complete record, peace-time government spending consumed about 70% of the private sector. That is the highest peace-time level in our history. Only WWII exceeded it. When 70% of a nation's wealth is consumed by government during peace-time, that may not be textbook socialism, but it certainly isn't the free-market / limited-government we had prior to 1929.
In nominal terms, the largest socialist programs on Earth are all U.S. programs. They make-up about 50% of our total federal, state, and local government spending. Social Security is the largest government retirement program in the world. Medicare, Medicaid, SCHIP, Obamacare, etc., make up the largest government medical programs in the world. Our government welfare programs, federal, state, and local, are the biggest on the planet. Our food stamp program is the biggest on the planet. And our accumulated government debt is the largest in the world. Among the most populist countries, none, including countries like China, India, Indonesia, and Russia spend anything near what we do on social programs. Many European countries do spend more per capita, but they are small compared to the U.S., and the spending differences are, for the most part, minimal.
But spending is not the only measure of a government's size. Regulation plays an equally important role, and the U.S. economy is highly regulated at the federal, state, and local levels. In short, one can make the case that between government spending and our high levels of regulation, we have already turned the corner. For socialists though, there are no limiting principles, and thus there is always more to do.
Our latest socialist push, which began with Barack Obama, is gathering steam and is represented today by Bernie Sanders, Alexandria Ocasio-Cortez, and over half the Democrat party which supports Medicare for All, The Green New Deal, Guaranteed Income, Guaranteed Jobs, 70% - 90% marginal tax rates, and the like. Today, socialism polls higher than capitalism among Democrats and the young. It is an inexorable political force that is clearly visible on the graph above. And it will undoubtedly continue to overtake our once free-market / limited-government system.
Unlike free-markets and limited-government, socialism in its fully realized form requires unlimited, or "totalitarian" government. That's because coercion is at the heart of it. Totalitarian government is required to force citizens to do something that is entirely unnatural - work hard without the ability to realize the fruits of one's labor. (Gee, that sounds familiar. Didn't we fight a civil war over that?). Dissociating work from reward is the "fatal conceit" of socialism, to borrow a phrase from F.A. Hayek.
But none of that is taught in America today. Which is why we are where we are, and are careening rapidly towards totalitarian socialism. Why is this accelerating now?
Pop quiz:
- Who is the father of modern socialism/communism?
- Who is the father of modern capitalism?
Conversely, if you are asked who the father of modern capitalism is, odds are you'd either draw a blank, or be mostly wrong.
If you attended a public school in the U.S., chances are most of your teachers were union members. Unions were prohibited for most government workers prior to the 1960s because organized labor in the U.S. began as a communist/socialist movement. Public sector unions were seen as a huge conflict of interest. But that changed in the 1960's under Democrat John F. Kennedy, and since then government workers, including school teachers, have flooded into organized labor. That's not to say all teachers and organized laborers are socialists. Most probably don't even think in those terms, but the politics of organized labor leans undeniably in that direction. You may or may not have been taught Marxism in school, but you probably weren't taught anything positive about "capitalism"!
If you attended a college in the U.S., particularly in recent years, you are very likely to have been taught Marxism. Karl Marx's "Communist Manifesto" is the third most assigned book at U.S. colleges today. That's out of all the books ever published! The next most assigned book in economics, capitalist or otherwise, is not even close.
So how did you answer the second question above? In one sense the answer to that one is again... Karl Marx. Yes, Karl Marx is both the father of modern communism/socialism AND the father of modern capitalism. Karl Marx was the person who defined that term for the masses in his risible critique of 1860s capitalism, "Das Kapital".
Many scholars credit a Scotsman named Adam Smith as the person whose ideas most influenced our economic system. Adam Smith’s book, “An Inquiry into the Nature and Causes of the Wealth of Nations” was actually published in 1776. (That date rings a bell, no?) But the word capitalism wasn't in common use in Adam Smith’s day. He never used it. We mistakenly call our economic system capitalism because that's what Marx and the critics called it. The name unfortunately stuck.
If everyone knows what "Marxism" is, why doesn't everyone know what "Smithism" is? Because it’s not taught, except to select economics majors. According to the Open Syllabus Project, Adam Smith is assigned at a rate about 25% compared to Karl Marx. "Smithism" never became a word the way "Marxism" did. You can go through K-12 and well beyond in schools in the U.S. and never hear the name Adam Smith, never learn about his ideas, and never understand the influence those ideas had on the founding and success of our country.
Pop quiz:
- What is Supply Side Economics?
- What is Demand Side Economics?
· Supply side economics is the theory that people will SUPPLY (create) more value if they are allowed to function in a free market.
· Demand side economics is the theory that people will DEMAND (consume) more value if wealth is redistributed to them.
These are opposite approaches for achieving different economic goals. Supply Side seeks to optimize overall economic vitality (Smithism). Demand Side seeks to stimulate consumption (Keynesianism), or at times to redistribute wealth (Marxism).
If you look up supply side economics on Wikipedia, you’ll find a thorough entry along with plenty of criticisms. If you look up demand side economics, you’ll get... crickets. The language in this case does not favor the Marxist/socialist demand side ideology. Hence, it is not even defined. [UPDATE: There is now a short and inaccurate entry on Wikipedia for Demand Side Economics. When the first version of this piece was written in 2016, there was only a re-direct to "Keynesianism".]
Pop quiz:
The financial crisis of 2008 was caused by:
A) Greedy bankers, deregulation, George W Bush, and capitalism
B) Socialism
No event had a more profound impact on this country's recent tilt towards socialism than the financial crisis of 2008. It is said that history is written by the victors. That has never been more true than in the wake of the financial crisis. Democrats controlled the government commission that wrote the post-mortem. Barack Obama won the presidency. Democrats had both houses of congress. And liberals made the movies and wrote the books explaining the crisis to the masses. Unfortunately, everything they told you was a deliberate deception designed to exonerate socialism, and scapegoat capitalism.
The fact is, the financial crisis of 2008 was a perfect demonstration of the failures of socialism. Redistribution of wealth, in this case redistribution of mortgage credit, was at the heart of the financial crisis. At times, the support for this redistribution was bi-partisan, but the ideology behind it was socialist/demand side regardless of who was advocating.
It all began with the affordable housing goals promoted by Democrats in the early 1990s, which lowered mortgage requirements. It accelerated in the mid 1990s under Democrat Bill Clinton with further loosening of mortgage standards, pressure on banks to write loose loans, and mandates for government backed companies FNMA (Fannie Mae) and FHLMC (Freddie Mac) to buy all the new mortgages. It finally reached its apex in 2007 under Republican George W. Bush, while Democrats including Senator Barack Obama, ran both houses of congress.
All of the risk from this socialist redistribution was supposed to be assumed by the federal government, mostly in the form of the afore mentioned government backed companies. Fannie and Freddie were ground zero for the financial crisis. No government official took more money from these two companies, and at a faster rate, than the junior Senator from Illinois named Barack Obama. His closest competitors in that money grab included Barney Frank, Chris Dodd, and Hillary Clinton. If this is news to you, it's because they wrote the history.
What they told you was that it was a perfect storm involving greedy bankers, deregulation, and the natural flaws of capitalism. It was a plausible argument designed to deceive. Bankers today are no greedier than their banking forebears. So why did they suddenly engage in such risky lending? Because they were coerced to do so.
Deregulation also had nothing to do with it. Canadian banks are lightly regulated compared to their U.S. counterparts and none of them failed. Why the difference? Only in the U.S. was mortgage credit redistributed. To make matters worse, government regulations encouraged financial institutions to load up on mortgage backed securities. Unfortunately, when the scheme went bad the damage quickly spread to the private financial sector bringing the entire global financial system to its knees.
In summary: You were indoctrinated to be a socialist. You were indoctrinated to call our system capitalism. You've been deceived about the benefits of socialism. You've been deceived about the evils of free markets. And you've been deceived about the perils of national socialism. If you still think socialism is great after all that, congratulations, you've earned a Darwin Award in Economics!
Pop quiz:
A) Greedy bankers, deregulation, George W Bush, and capitalism
B) Socialism
Most likely, you are 100% certain the correct answer is A.
No event had a more profound impact on this country's recent tilt towards socialism than the financial crisis of 2008. It is said that history is written by the victors. That has never been more true than in the wake of the financial crisis. Democrats controlled the government commission that wrote the post-mortem. Barack Obama won the presidency. Democrats had both houses of congress. And liberals made the movies and wrote the books explaining the crisis to the masses. Unfortunately, everything they told you was a deliberate deception designed to exonerate socialism, and scapegoat capitalism.
The fact is, the financial crisis of 2008 was a perfect demonstration of the failures of socialism. Redistribution of wealth, in this case redistribution of mortgage credit, was at the heart of the financial crisis. At times, the support for this redistribution was bi-partisan, but the ideology behind it was socialist/demand side regardless of who was advocating.
It all began with the affordable housing goals promoted by Democrats in the early 1990s, which lowered mortgage requirements. It accelerated in the mid 1990s under Democrat Bill Clinton with further loosening of mortgage standards, pressure on banks to write loose loans, and mandates for government backed companies FNMA (Fannie Mae) and FHLMC (Freddie Mac) to buy all the new mortgages. It finally reached its apex in 2007 under Republican George W. Bush, while Democrats including Senator Barack Obama, ran both houses of congress.
All of the risk from this socialist redistribution was supposed to be assumed by the federal government, mostly in the form of the afore mentioned government backed companies. Fannie and Freddie were ground zero for the financial crisis. No government official took more money from these two companies, and at a faster rate, than the junior Senator from Illinois named Barack Obama. His closest competitors in that money grab included Barney Frank, Chris Dodd, and Hillary Clinton. If this is news to you, it's because they wrote the history.
What they told you was that it was a perfect storm involving greedy bankers, deregulation, and the natural flaws of capitalism. It was a plausible argument designed to deceive. Bankers today are no greedier than their banking forebears. So why did they suddenly engage in such risky lending? Because they were coerced to do so.
Deregulation also had nothing to do with it. Canadian banks are lightly regulated compared to their U.S. counterparts and none of them failed. Why the difference? Only in the U.S. was mortgage credit redistributed. To make matters worse, government regulations encouraged financial institutions to load up on mortgage backed securities. Unfortunately, when the scheme went bad the damage quickly spread to the private financial sector bringing the entire global financial system to its knees.
The deceptions about this animated the Occupy Wall Street movement, got Barack Obama elected twice, and are responsible for the acceptance of openly socialist candidates like Bernie Sanders and Ocasio-Cortez today. They are also part of the continuing campaign that has mischaracterized the mortgage market as an example of free-market failure.
The frightening thing about this is, if history is written by the victors and they engage in deception, aren't we doomed to repeat it? Fannie and Freddie own just about every new mortgage written since 2008, and the socialist policies promoting home ownership and borrowing accelerated under Barack Obama. We are currently in the process of building a second real estate bubble. Adding to that are new socialist bubbles in national debt, student loans, auto loans, and equity prices.
Pop quiz:
People love Scandinavian socialism because:
A) Scandinavian countries are happy, healthy, productive, prosperous, AND socialist
B) They misunderstand Scandinavian economics and history
Scandinavian success came long before their experiment with socialism. They were happy, healthy, productive, and prosperous prior to the 1960s when they first began their turn towards socialism. Socialism had nothing to do with their success. But sixty years of high taxes and socialism has slowed their growth and momentum. Until recently, Sweden and Denmark spent more than 100% of their private sectors on government - an obviously unsustainable level. In response, socialist Europe has been freeing their economies and sharply turning away from socialism. Switzerland, Ireland, and the U.K. are economically freer than the U.S., and Sweden, yes "socialist" Sweden, is essentially tied with the U.S. in economic freedom today. (According to the Heritage Foundation rankings.)
Here's the thing: National socialism has never produced anything long term other than misery, poverty, totalitarianism, and death. Think Soviet Union, Cuba, Venezuela, and North Korea. The NAZIS, who brought about the holocaust, WWII, and directly or indirectly caused the death of 70 million people, were known by the German acronym for "National Socialists".
So, that's at the national level. And long term. At the local level, socialism can survive a bit longer. Local socialism does not eliminate the incentive killing aspects of socialism, but it does avoid the inevitable monetary collapse. That's because local governments cannot create money and therefore tend to be more fiscally responsible. National governments can hide their insolvency, plunder future generations, devalue currencies, manipulate interest rates, and cause much bigger problems down the road.
This is an important point that deserves repeating; socialism cannot work long term at the national level. The national level is where money is created and controlled. Our system was never designed to be a socialist system. The Constitution implied that the states were the proper place for redistributive experimentation. The conflict of interest at the national level is just too great. National politicians will eventually destroy the currency, borrow too heavily, undermine the work ethic, and undermine national defense in an attempt to gain and maintain power. The founders knew that. It is happening today. We doubled our national debt during just Obama's eight years. Interest rates were artificially held near zero for that entire time. If and when rates normalize to historical levels, the debt service alone will cause the kind of pain socialist nations have felt throughout history. We are not immune.
The frightening thing about this is, if history is written by the victors and they engage in deception, aren't we doomed to repeat it? Fannie and Freddie own just about every new mortgage written since 2008, and the socialist policies promoting home ownership and borrowing accelerated under Barack Obama. We are currently in the process of building a second real estate bubble. Adding to that are new socialist bubbles in national debt, student loans, auto loans, and equity prices.
Pop quiz:
People love Scandinavian socialism because:
A) Scandinavian countries are happy, healthy, productive, prosperous, AND socialist
B) They misunderstand Scandinavian economics and history
Scandinavian success came long before their experiment with socialism. They were happy, healthy, productive, and prosperous prior to the 1960s when they first began their turn towards socialism. Socialism had nothing to do with their success. But sixty years of high taxes and socialism has slowed their growth and momentum. Until recently, Sweden and Denmark spent more than 100% of their private sectors on government - an obviously unsustainable level. In response, socialist Europe has been freeing their economies and sharply turning away from socialism. Switzerland, Ireland, and the U.K. are economically freer than the U.S., and Sweden, yes "socialist" Sweden, is essentially tied with the U.S. in economic freedom today. (According to the Heritage Foundation rankings.)
Here's the thing: National socialism has never produced anything long term other than misery, poverty, totalitarianism, and death. Think Soviet Union, Cuba, Venezuela, and North Korea. The NAZIS, who brought about the holocaust, WWII, and directly or indirectly caused the death of 70 million people, were known by the German acronym for "National Socialists".
So, that's at the national level. And long term. At the local level, socialism can survive a bit longer. Local socialism does not eliminate the incentive killing aspects of socialism, but it does avoid the inevitable monetary collapse. That's because local governments cannot create money and therefore tend to be more fiscally responsible. National governments can hide their insolvency, plunder future generations, devalue currencies, manipulate interest rates, and cause much bigger problems down the road.
This is an important point that deserves repeating; socialism cannot work long term at the national level. The national level is where money is created and controlled. Our system was never designed to be a socialist system. The Constitution implied that the states were the proper place for redistributive experimentation. The conflict of interest at the national level is just too great. National politicians will eventually destroy the currency, borrow too heavily, undermine the work ethic, and undermine national defense in an attempt to gain and maintain power. The founders knew that. It is happening today. We doubled our national debt during just Obama's eight years. Interest rates were artificially held near zero for that entire time. If and when rates normalize to historical levels, the debt service alone will cause the kind of pain socialist nations have felt throughout history. We are not immune.
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