Due to the large number of American voters who want a planned economy and the tendency of American politicians to bury the nation in debt and pension obligations, a large proportion of our economy is already “socialist” in the senses that (a) government ministries decide what kind of housing people will occupy, how much they will spend on food every month, and what kind of health care they will get, and (b) the government needs to collect roughly 50 percent of GDP in taxes in order to stay solvent (currently less is being collected, but insolvencies, such as Detroit and Puerto Rico, are becoming more commonplace).
In other words, we may already have become a “socialist” country without any public debate on whether or not that is what we want.
This Wall Street Journal article by Larry Lindsey, a former Federal Reserve governor, has some interesting statistics on the extent to which our economy is now centrally planned:
In 1968, government transfer payments totaled $53 billion or roughly 7% of personal income. By 2014, these had climbed to $2.5 trillion—about 17% of personal income. Despite the redistribution of a sixth of all income, inequality measured by all three of the Census Bureau’s indexes is far higher today than in 1968.
Transfer payments under Mr. Obama increased by $560 billion. By contrast private-sector wages and salaries grew by $1.1 trillion. So for every $2 in extra wages, about $1 was paid out in extra transfer payments—lowering the relative reward to work. Forty-five million people received food stamps in mid-2015, an increase of 46% since the end of 2008. Similarly, 71.6 million individuals were enrolled in Medicaid and the Children’s Health Insurance Program, an increase of 13.3 million since October 2013.
In 2008, during the deepest recession in 75 years, 13.2% of Americans lived below the government’s official poverty line. The Great Recession officially ended in June 2009, but in 2014, after five years of economic expansion, 14.8% of Americans were still in poverty. The economy was better, and there were a lot more handouts, but still poverty rose.
The structure of American households shows how this happened. From 2008 through 2014, the most recent year for which we have data, the number of two-earner households declined. These two-earner households have become the backbone of the American middle class.
Research by the Hamilton Project and the Urban Institute show that when families with children making between $20,000 and $50,000 attempt to have a second earner go back to work, the effective tax rate on the extra earnings—including lost government benefits such as food stamps, the earned-income tax credit, and medical support payments—is between 50% and 80%.
While the number of two-earner households declined during the first six years of the Obama presidency, the number of single-earner households rose by 2.6 million and the number of households with no earners rose by almost five million. In other words, two thirds of the increase in the number of families under Mr. Obama was accounted for by households with no one working.
Some of this is territory covered in The Redistribution Recession, but the relevant point is that these dramatic changes in the structure of society have occurred without any real political debate. No politician stood up and said “Who agrees with me that sitting at home playing Xbox should result in roughly the same spending power as working 40 hours per week at a lower-wage job?” (As noted in an earlier posting, paying people to sit home idly is neither a necessary nor even a conventional feature of “socialist” economies; the Soviet Union didn’t have able-bodied people without jobs.)
With Bernie in the White House Americans would be forced to answer questions such as “What does American socialism mean” and “Under what circumstances should someone be provided with a lifetime of free housing, food, and health care?” Perhaps the answers would result in a similar system to what we have now, but at least it would then be an affirmative answer rather than a place to which we were gradually nudged.