Earlier today, in an attempt to develop a thumbnail metric for how socialist and capitalist a national economy is, I examined where 26 counties fell in a public-private mixed economy continuum. While much of the discussion on the story involved whether this was the proper use of the term "socialism" (some people can get really sensitive over which broad, vague signifiers should be applied to abstract concepts), the lead item of the story remains powerful. Namely, over the last two years, public expenditures as a percentage of GDP has risen dramatically in the United States, from 35.5% in FY 2007 to a projected 44.7% in FY 2009. Outside of World War Two, this is the largest the public sector has been in the US relative to the nation's GDP. The two-year increase of 9.2% is also great than any experienced outside of World War Two. Here is a graphical illustration of trends from 1900 through 2009:
There have been similarly rapid increases in the past, though perhaps not a single, 7.7%, jump that was not directly related to war, which we experienced from 2008-2009.. From 1929 to 1933, public spending rose from 11.3% to 22.4% of GDP. From 1948 to 1954, public spending rose from 20.5% of GDP to 29.3%. On a slightly smaller scale, we went from 30.2% to 34.0% from 1974 to 1976. The sharp, upward climbs punctuating long eras of stability are shown on the graph by the black line and the red arrows.
The two previous, sharp upward gains, from 1929 to 1933 and from 1948 to 1954, were never reversed. The pre-1930 status quo of 11-12% was erased permanently by post-1929 spending. The pre-1948 status quo of around 20% was erased permanently by the 1949-1954 spending increase. The upward movement in the mid-1970's was also never reversed, as we stayed in the mid-30% range for the next 30 years. As such, one of the main question for our times is whether the recent upward shot into the mid-40% range will ever be reversed.
I think that it is important to consolidate our new status in the mid-40% range as, combined with a shift in public expenditures, it would allow us to enter a Western European realm of social investment. Consolidating this upward increase will require finding new sources of government revenue that are easier, from a political perspective, than cutting down the size of the public sector. There are avenues through which that can be achieved, and I will explore them tomorrow (hint: expanding Social Security revenues by eliminating the income cap is both very popular and lucrative). For now, it should suffice to note the historic shift that has occurred, and also the tremendous opportunity it presents the American left. Given that it has been about 60 years since a shift of this magnitude last occurred, it is possible that we won't get another opportunity like this again in our lifetimes. As horrible as the economic downturn has been, it really is a crisis / opportunity point for the American left.
Ever since the financial sector bailout process started seven months ago, there has been quite a lot of talk about socialism. Over the past 30 days, Google News records 8,251 matches for "socialism" or "socialist" within American media outlets along. Most of this talk has been extremely naïve and uninformed. The most frequent abusers of the term, conservatives, have lobbed the charge around as though there was a switch governments flip in order to change from "capitalist" to "socialist." The general presumption seems to be that an economic system is either socialist or capitalist, and that the two systems are mutually exclusive.
This is, of course, hogwash. Every economic system in the modern world has elements that are both capitalist (private ownership and / or administration) and socialist (public ownership and / or administration). The two co-exist alongside each other, as they have done in every economic system since the beginning of time. Unless you want to make the postal service, police and fire departments, military, and education 100% private, then you are proposing a certain level of socialism. The fundamental ideological debate over economics is not whether the economy should be socialist or capitalist, but what proportion of it should be capitalist and what proportion should be socialist.
Currently, the best available projections for 2009 are that the United States will be 44.7% socialist, and 55.3% capitalist, for the year. This is determined by the following formula:
(total projected 2009 public expenditures minus intra-governmental transfers / projected 2009 Gross Domestic Project)
Now, one area where the conservatives are not wrong is that we are witnessing an increase in socialism in America. Last year, America was only 37.0% socialist, and 63.0% capitalist. From 2002-2007, the standard range was 35.3%-35.7%. In 2000, the year before Bush took over, the USA was only 33.0% socialist. Since the mid-1970's, public expenditure a as a percentage of GDP has consistently hovered in this 33%-36% range, no matter which parties controlled Congress and the White House, and no matter if there was split or single-party government. However, with the various government bailouts, the jobs / stimulus package, and President Obama's expanded budget, the last year has seen a break with a longstanding 65%-35% capitalist / socialist split in America. Currently, we are roughly a 55%-45% capitalist-socialist country, with future numbers probably settling around 60%-40% capitalist-socialist, as our various bailouts and wars (hopefully) wind down, and (hopefully) economic growth picks up again. (Yes, socialism can also be right-wing, even if it means war spending funneled to private contractors.)
Given that we are only talking about a temporary, 10% increase in socialism in America, and a long-term 5% increase, one might wonder what all the brouhaha about socialism is these days. However, if you consider that the entire range of mainstream socialist vs. capitalist debate in all wealthy democracies on Earth is over where whether we should be 29% socialist (South Korea), 61% socialist (France), or somewhere in between, a 10% shift in one year is a pretty big deal. As I show in the extended entry, the recent shift noticeably alters the location of the United States in the socialist-capitalist continuum relative to other major nations.
I have long been enraged by the idea of for-profit corrections facilities. It is just not a good idea to make locking people up (or detaining them) profitable. In a capitalist system such as the U.S., profit becomes king - ruling over all other consideration. This is something we have seen a lot of lately. However, a case in point is the Pennsylvania corruption case that has resulted in overturning hundreds of juvenile convictions.
The whole house of cards seems to be crashing. The funny thing is, the capitalists, through their greed, did it to themselves. If they had left in place the safeguards and regulations established in New Deal welfare state capitalism, this depression - brought on by the housing bubble collapse - would not be happening. Instead we would have seen the continued slow grinding erosion of working class living standards we have had since the late 70's. Which was working out pretty well for the capitalists - inequality had reached record levels in the 90's and 2000's. But no, they had to completely tear down all the stabilizers built into their own system. They thought, hey there's no Soviet Union any more, communism and socialism are dead, so we can just go hogwild and take everything we want, let the average American citizen pay the price.
I never thought I would see these kinds of headlines. We're living in pretty bizarre times, aren't we? Now where is that old Democratic Socialists of America button I used to have?
There are many who are saying that this collapse "proves" that the US capitalist model is obsolete, or based upon false ideas.
I claim that it is just the reverse. What the US has had since the 1870's is syndicalism - a partnership between big business and government. In an earlier time people weren't afraid to call it what it is.
"The business of America is business." -- Calvin Coolidge
"...because for years I thought what was good for the country was good for General Motors and vice versa". -- Charles Erwin Wilson, GM president (1953)
The way this free market biology works is that capital builds up in the hands of a few top of the food chain predator/parasite families through a process of inheritance. This volume of capital greatly diminishes the threat of competition. In order to better control the predatory influence of the democratic process, low level resources are employed, namely the slowest and most gullible kids from exclusive universities (Yale and West Point will do.) When given a little attention these nerds become devoted for life, and will believe anything the source predator/parasite tells them. With this influence, potentially predatory governmental regulations are controlled, allowing the predator/parasite to reap huge sources of pay, even though they really don't even need it. This indulgence deprives the American prey and more fully nourishing the predator/parasite. There is no worry about driving up overhead by over nourishing the predator/parasite families. Large corporate salaries do two important things: they make the predator/parasite appear fiercer than it actually is, and they help keep more the American prey impoverished. The predator/parasite has now collected so much capital and controls so much of the market that the American herd is as dependent on it as a runt pig is to the hind tit (to stay within the swine theme of the season.) So now, rather than letting the predator/parasite go bankrupt because they did not follow sound business practices, the very American tax payer herd that the predator/parasite has kept weak and impoverished by convincing them that there should be no governmental influence in the market, will give huge sums of money just to protect the hind tit. The only thing that can disrupt this parasitic relationship is revolution. To control that the predator/parasite must develop sophisticated means of mind control, which they do by putting the most swill of the swell in charge of these deviously diabolical systems, importing them from as far away as Australia if they must.
Yesterday no less an authority than Seeing The Forest's Dave Johnson explored the tangled web binding private equity firm Lazard, its "real estate investment fund" Lazard-Freres Strategic Realty Investors Fund II, and the fund's largest asset--the Atria assisted living facilities business. In discussing my own post about this terrible story, Dave made a point that I myself hadn't considered:
Martin, I think you have it wrong here. Who is Lazard's customer, in this situation?... Lazard's customer is people and companies with a ton of money. They hand the money to Lazard and expect a good return. The seniors under Atria's care are Lazard's product, not their customer! In today's America the vulnerable, elderly, sick and captive are a product to be exploited.
We're all familiar with the black-hole collapse of Enron, where millions of employees who were forced to vest their retirement savings in Enron stock lost their shirts and more when the company imploded. Since then, there's been a much more comprehensive focus on ensuring that pension fund investors make sure that whatever holdings they put employee savings into will at least maintain enough stability to, y'know, actually be there when the investor hits the golden retirement age.
Given that, why would Pennsylvania's school employees retirement system (aka PSERS) make the move of investing a whopping $350 million into the terribly underperforming Lazard-affiliated fund, the biggest asset of which is the "troubled" Atria assisted living chain?:
The broad sweep of economic history for the past century has been a tug of war between unrestrained capitalists and constrained capitalists. It may surprise some that liberals used to be the former and are now the latter, and conservatives were the latter but are now the former.
More importantly, the constrained capitalists are losing and the consequences of that are severe.
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