Why we need Bernie: We already have socialism

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.

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7 Comments

  1. jack crossfire

    March 6, 2016 @ 1:08 pm

    1

    It’s been a slow, 240 year evolution to socialism with the tipping point somewhere after 1960. Would say LBJ was the tipping point. He wasn’t elected. The “great society program” he implemented was the massive shift.

    240 years ago, there was no such thing as a market economy or people governing themselves. There was only 1 experiment in self government in the entire world that would prove or disprove the human mind was fundamentally capable of pulling it off. Not being entirely convinced of the Singapore & Taiwan miracle, the 240 year experiment has proven the human mind is fundamentally unable to govern itself.

  2. Russil Wvong

    March 7, 2016 @ 1:50 am

    2

    Philip, if you’re looking for a good discussion of the modern state, and what it should or should not be doing, Joseph Heath’s The Efficient Society is excellent. Heath is a Canadian political philosopher who writes for both academic and popular audiences. “The Efficient Society” describes specific collective action problems and how each of them may be best solved by competitive markets, or within a corporation (organized internally as a hierarchy rather than a market), or by the state. You may find Chapter 10 (on the division of labor within a household) particularly entertaining.

  3. Jackie

    March 7, 2016 @ 7:54 am

    3

    50% is not enough for socialists. Humans are black and white thinkers and socialists will not rest until the government owns or controls 100% of economic activity. So long as there is one privately held shoe shine stand, the mission is not yet accomplished.

  4. Jackie

    March 7, 2016 @ 10:37 am

    4

    ” Heath is a Canadian political philosopher ”

    Isn’t it an amazing coincidence that he thinks the ideal balance between public and private ownership is achieved in Canada?

  5. Vince

    March 7, 2016 @ 6:03 pm

    5

    Regarding this:

    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.

    The largest transfer program is Social Security. Statistics generally show that it has lowered poverty among senior citizens significantly.

    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.

    A sensible way to understand this is that the handouts increased because poverty rose. Poverty rose because a brutal recession was followed by a slow, feeble recovery.

    Also, Jack: my grandparents told me a little about what life was like when they were kids in the 1920s. It was pretty grim. Life in the 1770s was probably significantly less pleasant.

  6. Tom

    March 7, 2016 @ 6:36 pm

    6

    Poverty is interestingly defined; perhaps we should like with so many other terms just consider it “Property P”, a label attached to some political program without inherent meaning apart from existing as some sort of (bureaucrat) works program.

    The government “antipoverty” programs are specifically and intentionally designed to make absolutely sure that nobody who takes the handouts ever escapes from poverty. Far and away most of the government handouts are either post-tax or in-kind rather than cash (examples: food stamps, public housing, Medicaid, EITC, clothing and energy assistance). The official definition of “poverty” excludes all post-tax and in-kind benefits. Then there are benefits distributed in cash, notably TANF and SSI. These things count in the definition of “poverty,” but the level of the handouts is very specifically and precisely set to be sure that it is always just below any applicable poverty thresholds.

    http://manhattancontrarian.com/blog/2015/11/3/no-subject-generates-more-ignorance-than-poverty

  7. Tom

    March 7, 2016 @ 6:39 pm

    7

    I seem to recall a factoid that Hungary on exiting communism had 60% of GDP under government control. That might indicate a natural limit.

    However, it might also be that our more powerful western economies permit a higher rate, simply because reasonable subsistence for the country population doesn’t require a full 40% of GDP, ultimately leaving the remainder (perhaps even 70-80%) for government direction and redistribution.

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