Jun 4 2009, 9:17AM
What Socialism Looks Like, Part Two
Commenter Michael Goodfellow (a great last name) emails:
I see Sullivan ran your "socialism" chart on his blog today. Too bad, since I think it's pretty silly. If you want to look at government share of the economy, I think you'd draw the graph showing Federal, state and local expenditures as percentage of GDP. [...] It would add up to at least 40% of the economy. Not a nice looking chart at all.But I wasn't interested in the government spending as a percentage of GDP! The socialism charge that I've been hearing for the past week hasn't had much to do with the size of the federal government. The charge has been that the government now thinks it can run private industry -- GM, AIG, whatever -- better than, well, private industry. The point of the chart was that, if Rahm Emmanuel and Peter Orszag and Barack Obama really felt deeply in their hearts that they could run Caterpillar or Kraft Foods better than the incumbent management, you wouldn't see 99.71% of the nation's business assets remain in the hands of the nation's businesses.
But enough about that. Here is the chart Michael has in mind:
I don't have a whole lot to say about this, except (1) I agree that it's "not pretty" and (2) If you're going to equate an increase in the deficit or in federal spending as a percentage of GDP with socialism, then every modern American president (with the partial exception of Bill Clinton!) is a socialist. In which case I'm not sure Barack Obama has a lot to worry about.Update: For something that resembles socialism more closely, you might check out Sarah Palin's state of Alaska.
Congrats on your new gig! I hope it pays (your email didn't say, but I suppose it's none of my business). The exception I take to your entry is not to quibble over percentages since I think that misses the point (I will grant that the point may be wrong, but still...).
First, what percentage of a nation's economy is controlled by the typical socialist government? My understanding is that they only control major industry, in which case the percentage of the economy as a whole will always be fairly small (the point your graph makes is really that the United States is not Communist).
Second, the graph is a snapshot, not a movie. This economic crisis is only about nine months old (from when the junk really hit the fan) and yet it seems to be the government's first reaction to a company in trouble is to exchange taxpayer dollars for ownership percentages.
So I see a real threat that this currently small percentage will grow, ultimately leading to something undeniably Socialist and the current administration (and maybe the last one too) is ok with that result.
Congrats on your new gig! I hope it pays (your email didn't say, but I suppose it's none of my business). The exception I take to your entry is not to quibble over percentages since I think that misses the point (I will grant that the point may be wrong, but still...).
First, what percentage of a nation's economy is controlled by the typical socialist government? My understanding is that they only control major industry, in which case the percentage of the economy as a whole will always be fairly small (the point your graph makes is really that the United States is not Communist).
Second, the graph is a snapshot, not a movie. This economic crisis is only about nine months old (from when the junk really hit the fan) and yet it seems to be the government's first reaction to a company in trouble is to exchange taxpayer dollars for ownership percentages.
So I see a real threat that this currently small percentage will grow, ultimately leading to something undeniably Socialist and the current administration (and maybe the last one too) is ok with that result.
Congrats on your new gig! I hope it pays (your email didn't say, but I suppose it's none of my business). The exception I take to your entry is not to quibble over percentages since I think that misses the point (I will grant that the point may be wrong, but still...).
First, what percentage of a nation's economy is controlled by the typical socialist government? My understanding is that they only control major industry, in which case the percentage of the economy as a whole will always be fairly small (the point your graph makes is really that the United States is not Communist).
Second, the graph is a snapshot, not a movie. This economic crisis is only about nine months old (from when the junk really hit the fan) and yet it seems to be the government's first reaction to a company in trouble is to exchange taxpayer dollars for ownership percentages.
So I see a real threat that this currently small percentage will grow, ultimately leading to something undeniably Socialist and the current administration (and maybe the last one too) is ok with that result.
It is surprising how little difference there is between administrations when you look at graphs like these. The growth of government is a basic impulse, unrestrained by either Democrats or Republicans.
My point (and I think that of others) is that throwing around the word "socialism" tells you nothing. As government grows, more and more of the economy is run by the political process, which as we know, is not very concerned with doing a quality job.
The GM takeover shares with socialist nationalizations the problem that the goals of the company are now at least partly political (keeping UAW jobs, buy American, don't close so many dealerships, make small cars, make green cars) and not driven by profitability. The company is also less worried about being driven out of business by market forces, since the government owns it and would not let it fail. And so we would expect the company to be confused at best, and a wreck at worst.
Other private competitors will find competing with GM a real problem. Not just because of the government subsidy, but because of the politics. If Toyota took advantage of its better financial position, lowered its prices and aggressively drove GM to the wall, it would become very unpopular with the administration. Given the political credibility at stake here, the administration probably wouldn't take kindly to that.
It's all another step down a very bad path. Call that socialism or something else, it's worth pointing out.
The original graph, showing the government owning a trivial percentage of the economy, was silly. Any country, no matter how much government it had, could draw a graph of what left of the market, and say "see, we don't own any of that!" You just define the parts the government does own or run (the government itself, the defense industry, K-12 education, big parts of the medical system, etc.) as not part of the economy, and then don't show them in the graph.
That tells you nothing.
Another pie chart you could make would compare the size of private assets ($39 trillion in your other chart) with the size of government debt ($12 trillion.) Also not pretty.
"more and more of the economy is run by the political process, which as we know, is not very concerned with doing a quality job."
Yes. The "political process" (aka "democracy") is wholly incapable of achieving the stellar performance of the de-regulated free market. What recession? I don't see any recession!
"The GM takeover shares with socialist nationalizations the problem that the goals of the company are now at least partly political (keeping UAW jobs, buy American, don't close so many dealerships, make small cars, make green cars) and not driven by profitability..."
You know what else isn't driven by profitability? Safety standards and any other concession to the notion of a public good. Profit simply cannot be the only sine qua non of success. And anyone who says otherwise is either "silly" or sociopathic.
At least in principle, car companies could compete over safety or repair costs or any other thing the public wanted. What the public did seem to want for a long time was just styling and power and cheap cars.
Like a lot of market-haters, you seem to think there's this wise class of government overlords who are smarter and more compassionate than the evil trolls running businesses. I don't think they are any better (or much worse.) They will make and have made mistakes just as stupid and short-sighted as anything found in business.
The recession is as much a result of government action as it is from market incentives. While you are going on about government, care to explain the Katrina response to me? And don't blame it on Bush -- FEMA was accused of the same kinds of mistakes under Clinton after Hurricane Andrew.
"accused of the same kinds of mistakes" - brilliant obfuscation there. Never mind the extent or scope of the mistakes. All mistakes are created equal. No thinking required.
Of course the Clinton FEMA was ineffective for Hurricane Andrew; the hurricane happened in August of 1992 almost four months before Clinton was elected, and he had no impact upon FEMA until after his inauguration, in January of 1993.
In the history of the U.S., the government has bailed out large corporations before (what you would call a path towards socialism), often with great concessions by the companies, and the government has temporarily nationalized businesses (trusteeship or bank receivership) with positive results (like the Chrysler bailout under Lee Iacocca, or the Harley Davidson bailout, or the resolution of the Savings and Loan crisis).
What we have seen in the case of GM is that GM thought the interest on the loans would be more profitable through GMAC financing than it would be to make profit on its vehicles. And with the laws that were enacted in the last two years of the Clinton administration along with the gutting of executive funding to the oversight agencies under the G. W. Bush administration, it was just a matter of time before a major recession hit. GMAC was able to operate as if it were a "bank" and not need to keep the same types of reserves that a true bank really needed. Without government oversight, the market adjusted to reward fraud and a Ponzi scheme the likes the world had never seen. All in the name of "free market".
The major fallacy of a "free market" is that there really is no such thing as a "free market". A market is only free when a government enacts safeguards to keep the playing field fair. For an example of a free market, look to what happened in the former Soviet Union after the collapse. Look how well the "free market" protected consumers in the United States between the end of the civil war and the enactment of the anti-trust acts, and the Pure Food and Drug acts of the early 20th century.
Profitability and the public good should go together. People should be capable of budgeting, purchasing, and allocating risk for their own good.
That our expenditures often do not coincide with our best interests is not a failure of the free market. It's a failure of the individual to act rationally. Safety and environmental conservation, for example, are in everyone's best interest, but too many consumers and companies look to externalize the cost of achieving them.
Ideally, a democratic society should regulate action from the bottom up, with a healthy emphasis on the rational self-restraint of the free individual and only a thin dusting of nationally legislated regulation.
Profitability will be driven by the common good when citizens make truly rational, circumspect purchasing decisions.
Yeah! Who cares if along the way, a few kids get poisoned by tainted baby formula, or some retirees are driven into homelessness by fraudulent securities peddlers? The market will work it all out eventually. And the victims should appreciate the honor of giving their lives as martyrs to the glory of Milton Friedman.
Poison baby formula is terrible for business. So is putting diethylene glycol in toothpaste, painting toys with lead, dumping solvents in rivers, and abusing workers.
But the government is not the answer. We, individually and collectively, are the answer. As a nation, we need to reconcile our values with our actions. We do ourselves a disservice by divorcing personal responsibility from corporate and professional responsibility. Efficiency and quality must be balanced against the real costs of production. Unsafe products, environmental contaminants, and labor abuses largely occur because consumers fail to take responsibility for their choices, demanding ever lower prices and avoiding the consequences, while producers focus on short-term gains at the expense of sustainability.
Progress requires responsibility not regulation. Corporations break laws all the time, and consumers pay for it in every sense of the phrase.
Systemic problems require paradigm shifts.
How much of that increasing % of GDP that is government spending is interest payment on the national debt? I'd read that the US has pretty consistently spent 18% of GNP on Federal Government services, but from 2000-2008 ran up the deficit by only taxing at 16% of GNP. Does that hold with your numbers?
When the economy does heat up again, would the government be wise to keep interest rates low (to keep down interest costs on the national debt), but increase taxes as needed to avoid inflation, and use the windfalls to pay down debt?
The original graph that I sent Conor (which I couldn't find the source of) showed Federal revenues remaining more or less stable, and the state revenues steadily increasing. So that's the source of the long-term trend, not the Federal government. It didn't show debt, but that really gets out of hand only recently.
Remember when Reagan wanted to shift power to the states by cutting federal spending and taxes, and letting the states handle things? This is one result of that decision.
Michael Goodfellow is right (as the chart shows) regarding Government spending as compared to GDP. If anything, those politicians just now claiming "socialism" are just a couple decades late, but never before has it been so clear until the Taxpayers bought GM against their will.
You mentioned private assets in the last graph is about $40 trillion. (Government unfunded obligations is closer to $60 trillion.) You have to remember, Government has no money of its own, it has to borrow AND pay it back - the other side of the coin we seem to ignore. So, in the meantime, the Government uses private assets to "back" their ridiculous spending. So, if the Government spends $1 trillion (which is an understatement), the taxpayers pay for it, correct? But wait, our assets, as you stated, totals only $40 trillion. That's scary.
Unfunded obligations aside, which is astronomical, we're still screwed. Government spent our money before we even had it... how can you spend that much with the assumption you will simply tax the paople with revenue that has yet to be collected?
"(2) If you're going to equate an increase in the deficit or in federal spending as a percentage of GDP with socialism, then every modern American president (with the partial exception of Bill Clinton!) is a socialist." Wrong -- The Congress spends the money. It may not be popular to call someone a socialist, but what's popular isn't always right. Don't get me wrong, he's not try to socialize everything (food markets, life insurance, savings) Oh wait, he does through subsidies, mandatory life insurance, and capital gains tax. Hmm.. Maybe Obama wasn't all he's cracked up to be?
"99.71% of the nation's business assets remain in the hands of the nation's businesses."
Conor, that statement really doesn't make any relevant point. What percentage of the nation's business PRODUCTION remains in the hands of the nation's businesses? That is a relevant question and that is why you were asked to produce/comment on this chart, but even in light of seeing it you refuse to acknowledge how it completely undermines your original point.
You also make the classic mistake of looking at the static picture instead of the history and the long term implications.
If the government does take over health care, then the next time you do your pie chart do you just consider that not part of the business assets anymore? That is essentially what you have already done.
Private industry is the engine of our economy and what drives wealth, productivity and innovation. The more the government spends it's earnings away, in many cases relieving people of their burden to be responsible for themselves, the harder it becomes to undo. We have been on a steady path to shifting their burden to the fewer and fewer actual producers, providing everyone less incentive to produce and invent. That is the slippery slope.
Imagine we get to the point where more of the population is on the dole than contributing. Where does the wealth come from? The growing populous of takers will continue to extract the wealth of the producers, and with their growing votes, the process will accelerate. How do you recover from that? What do you call a system where only a small percentage of the population actually pays for the benefits of all? It's certainly not capitalism anymore. We are already there, and as you mentioned, no it wasn't just Obama, but he is certainly not helping by pushing us further into the abyss.
This is why our founding fathers stressed individual liberty - they knew the nature of man, and they tried to put in protections to stop this type of thing from happening, but we have slowly but surely, always with the best of intentions, allowed those liberties to be chipped away. I'll remind you that Obama promised to reduce taxes for 95% of the population. What about the other 5%? Is that concept consistent with the ideals of individual liberty, or is that more like Socialism?
Your first graph and article were completely worthless, except to prove how inept you are at critical thinking.
An economist would say that ownership of a productive asset entitles the owner to the future profits of that asset. Therefore, the first graph is precisely the correct graph, if you are interested in understanding how much government owns business. If you think it's the wrong graph, figure, or chart, go ahead and make your own.
"Individual liberty" except for the whole slavery thing. But otherwise, the Founding Fathers were infallible! We must never deviate from their pure ideological line!
@rogue409, This is the correct graph, produced at the request of critics of Mr. Clarke since his first, in his prior article, completely missed the mark. He left out all other government run enterprises, and in fact only included the most recent private sector asset/activity to get absorbed.
To the fraction of your point that is intelligible, GDP represents the profits of all companies, and despite the assertions of your theoretical economist, the government confiscates much of those profits and spends them as politicians and bureaucrats see fit, which is exactly the point I and others here are trying to make. The government spends 45% of GDP now, see the chart. At what % of GDP would you start to call it Socialism? If the government spends a large part of our country's wealth for us, aren't they essentially saying they know how to run a large part of society better than private companies and individuals?
Yes, the government is saying that, because these "private companies and individuals" have bungled their enterprises so badly that if they government didn't step in those enterprises would vanish. Either the government props up GM by buying stock or it disappears. I'm sure your Pinochet-style market fundamentalism is very important to you, but most Americans are more concerned with trifles like "eating" and "sleeping under a roof".
@southsidered, we should let them vanish, it's part of how the system works. Companies that fail should go out of business, and companies that know how to turn a profit will rise from or acquire the ashes, hiring any willing employees at reasonable and sustainable rates (beats being unemployed), and buying up any assets that it can use. The majority of companies fail, are you trying to suggest that means that therefore capitalism is a failure?
I don't understand your reference to eating and sleeping under a roof or how it is relevant to this topic, unless you are one of the lazy citizens that bought at the top and is now having problems making ends meet and just had that on your mind. If so, I understand why you might be bitter and trying to pass blame, but you have bungled in the same way you suggest "private companies" (not sure why you quoted that) have. It is our individual responsibility to assess risk before investing, signing a contract (committing to it, essential to the integrity of our system), to project worst case scenarios, and to look at historical graphs. Had these individuals and companies done that they might have had an indication that there are other directions than up that real estate and stock markets can move besides up - like down and sideways. You only had to go back to the 90s to see it for real estate, and a few years for stocks. It is an infringement on responsible people's liberty to level higher taxes, or an extra future burden on their heirs for the failure of the irresponsible.
People should lose their homes, I'm not quite sure what all the fuss about that is. It's not like the only alternative is to live on the streets - either rent or downsize until such a time as they can afford a bigger home again. Again, responsible citizens should not have to bear any burden (beyond the unavoidable general economic implications) based on the irresponsible actions of others.
Failure is good, as long as it helps you avoid it the next time. Propping up these failed companies, the irresponsible and the unmotivated only helps to mute the message, compromise the system and breed more of the same negative outcomes.
How about doing the chart with defense spending removed? It would be interesting to see if the slope changes.
1. The federal debt grew every year Clinton was president, although he was clearly better than most recent leaders with regard to the budget.
http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm
2. Growing government spending as a percentage of GDP is a trend toward socialism. If you only look at just ownership of "business assets" then you are throwing away data. Government assets crowd out business assets in provision of many goods and services.