Sunday, March 6, 2016

Socialism Created America's Greatest Economy

Addressing the Backlash:

I imagine at reading the title of this Blog post, that the capitalists, conservatives, moderates and Libertarians began foaming at the mouth, incensed that someone would dare question their leaders breadth of knowledge concerning economics. Desperate to click on this blog post, scan through my arguments quickly, and then refute them in the comments section below.

I know, because I used to defend capitalism with the same vigor. When I was a Libertarian, I scoured through Youtube videos, News Boards, and all forms of Social Media to destroy any arguments that questioned the purity of Capitalism. I would quickly identify incorrect arguments against capitalism in articles, and too impatient to finish reading, would jump down to the comment section to berate the author.

So if you fall under one of the political labels I listed above, I can only say - Don't shoot the messenger. I didn't make the rules. I didn't write the history. And I certainly didn't create the facts. I'm just a messenger. I also pride myself on truth, not on bias. So if you can refute these facts, by all means my comment board awaits your source-filled, well researched and documented rebuttal of this blog. You'll never meet someone who changes their views quicker than me in the face of new information.

The Arguments against Socialism: 

I've claimed a lot of different political labels over the course of my life. And when you're a part of their crowd, you begin to learn a certain vocabulary that belongs solely to that group. Having worn many different political masks, I know all the lines, arguments, and tendencies of each group. I know what phrases a republican can say that will make conservatives cheer, and libertarians shake their heads in embarrassment. But everyone's vocabulary tends to overlap the moment the term Socialism is brought into a conversation.

"Capitalism grew the greatest economy in the world!"
"Socialism doesn't work, just look at (insert country currently facing hardships here)"
"Socialism is class warfare!"
"Socialism punishes success"
"It is human nature to be lazy, if you provide no incentive, no one will strive to improve."
"Taxation is theft."
"If you tax businesses higher, they'll move out of America."
"Socialists just want free stuff, and to freeload off of those who work."
"The richest Americans already pay 40% of all tax revenue."
"It's immoral to demand that the wealthy pay more than the poor for the same services. The only moral tax is a flat tax, or a sales tax."

Some of these are legitimate arguments or concerns. Others are downright laughable. This blog post is too short to address each of these issues here, but I will address every one of these in my blog series "Addressing the Arguments Against Socialism" for which this is the first post in that series. If you've heard of other arguments against socialism not listed above, please write them in the comments section, so I can address those as well. In this post I'll be addressing the first argument I listed above. Capitalism did not grow the greatest economy in the World, it didn't even grow the greatest economy in America. Socialism did. So let's get started.

Qualifying a Great Economy

There are probably many factors that contribute to the health of an economy. But there are objectively only a few that economists look at to judge this qualification.

Unemployment - You can't have a strong economy when unemployment is high. Anything below 5% would be considered good, anything above would be bad.

GDP Growth - (A strong economy sees their GDP grow by an avg. of 4-5% a year)
What is GDP? I'll let google define it:
"Gross Domestic Product (GDP) is the broadest quantitative measure of a nation's total economic activity. More specifically, GDP represents the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time."

Purchasing Power - How much value is behind our money. If prices go up because of inflation, but wages don't, Americans have less expendable money and less purchasing power because of it.

Strong Middle Class - Perhaps the best line Ayn Rand ever gave the world was the following:
"Upper classes are a nation's past: The middle class is its future."

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1945-1980 | The Socialist Years

So, now that we've qualified the main identifiers of a great economy, let's look at the policies that were in place when America had it's greatest economy - A 35 year span that I will refer to going forward as The Socialist Years.

FDR was President in 1945, followed by Harry Truman, Dwight D. Eisenhower, JFK/LBJ, and then Richard Nixon, Gerald Ford and Jimmy Carter. These were the presidents during the Socialist Years, and here's the policies that existed during their Socialist presidencies.

Tax Rates: The average marginal tax rate on the richest Americans during these years was 81%. More than twice our tax rate today. (You can find every presidents tax rates here) Fun fact, from 1913 (when income tax was incorporated) the average tax on the richest Americans up until 1980 was 69%. The average capital gains tax was 28%. Since 1980 the average tax for richest Americans has been 40%, and average capital gains has been 21%)

Minimum Wage: FDR started the minimum wage in 1938, which was a part of the 'New Deal' he implemented. During the span of those 35 years, these socialist presidents increased the minimum wage over 1100%. It started off at .25 cents (nearly $4.00 in current dollar value or in other words when you adjust for inflation). And by 1980 the minimum wage had increased to $3.10 ($8.46 when you adjust for inflation, a higher value than our current minimum wage). If you recall, purchasing power was one of the main indicators of a healthy economy. The highest minimum wage (when adjusted for inflation) came under Lyndon B. Johnson's presidency in 1968 with the purchasing power of $10.34. Now if you were to ask a capitalist, they'd tell you that such a high minimum wage would do great damage to the economy, would stunt job growth, and create high levels of unemployment. However, Lyndon Johnson holds the record for president with the lowest unemployment rate in American history. Highest minimum wage in history coupled with lowest unemployment in history. Businesses, it would seem, do just fine when more people have expendable money.

Now - Those were just two of the socialist policies in place during the socialist years, high taxes on the rich, and high minimum wages. But many more socialist programs were created as a part of the New Deal that FDR introduced, including Social Security, Banking regulations, and much more (read about it here).

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So, now that we've identified what factors go into labeling this timeframe The Socialist Years, let's look at how these policies created the greatest economy in the world.

Unemployment: I mentioned above that Lyndon B. Johnson holds the record for the lowest unemployment rates in American history. Let's see if you can guess who came in 2nd, 3rd, and 4th? If you guessed Reagan, the bastion of conservative capitalism, you'd be wrong. Reagan was the 3rd worst president in American history for unemployment. If you guessed the other presidents that were elected during the Socialist Years, you'd be right. Truman, Eisenhower, and Nixon claim the next three spots for presidents with lowest unemployment in American history.

GDP Growth - If you thought unemployment rates make capitalists look bad, and socialists look good - wait till you see this:

Here's the History of GDP growth in America.
1960-1965 | 40% GDP growth - Lyndon B. Johnson
1965-1970 | 45% GDP growth - Lyndon B. Johnson
1970-1975 | 50% GDP growth - Richard Nixon
1975-1980 | 70% GDP growth - Gerald Ford, Jimmy Carter
1980-1985 | 50% GDP growth - Jimmy Carter, Ronald Reagan
1985-1990 | 35% GDP growth - Ronald Reagan, H.W. Bush
1990-1995 | 27% GDP growth - H.W. Bush, Bill Clinton
1995-2000 | 35% GDP growth - Bill Clinton, G.W. Bush
2000-2005 | 25% GDP growth - W. Bush
2005-2010 | 14% GDP growth - W. Bush, Obama
2010-2015 | 21% GDP growth - Obama

From 1960 until 1980 (the second half of the Socialist Years), the average yearly GDP growth was 10.2%. Since 1980, the average yearly GDP growth has been 5.9 - A 45% decrease in growth.

Purchasing Power - I hope I'm not the first person you're hearing this from, but as far as purchasing power, the average American hasn't seen a raise since 1979. (and that's taking into account employer provided health insurance, and employer benefits)
I'll just quote the pew research article word for word:
"In fact, in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today."

Middle Class:

The middle class is collapsing - if you guessed that it's collapse started in 1980, the years that deregulation, trickle down economics, and capitalism overthrew FDR's socialist New Deal - you'd be right.



In 1981 Reagan came into office, and that presidency marked the end of the socialist years, as he introduced us to the capitalist theory of trickle down economics, and deregulation.  Since then the rich have gotten richer, unemployment in comparison to the Socialist Years has been abysmal, Purchasing Power has been consistently stagnant, and GDP growth is 55% of what it was. The correlation couldn't be more clear. GDP, Purchasing Power, Employment, and the Middle Class all show a steep decline that started in the 1980's. Every indicator of a healthy economy was stronger under socialist policies.

Conclusion:

Now, I know that correlation doesn't equal causation. And I'm not suggesting that these socialist policies were what created the great economy that existed during the Socialist years. I'm merely pointing out the fact that these socialist programs existed during the greatest economy in American history. This isn't even a claim I made - Capitalists are the ones claiming their policies built the greatest economy in the world. They're the ones who rewrote history, I'm just trying to correct it.

Now, capitalists can play around with these terms, claiming that it wasn't 'pure' socialism, therefore we can't call it socialism. Fair enough, I'll stop calling it socialism when you stop calling it socialism. Stop claiming that Obama is a socialist for increasing the highest tax rate 4 points to 39.6%. Stop calling it socialism when the minimum wage gets raised. And if you want to continue calling it socialism, stop claiming that it's destructive to an economy - facts, history, and reality refute that claim.

In life, the logical response to every situation is to take the default position. I'm not a socialist or a capitalist. I just look at history and the facts, and then conclude what works and what doesn't. And the facts conclude that socialism is benign to an economy at worst, and at best could be beneficial in economic growth. That's the history, and those are the facts.

The Art of Oppression is a blog that relates to how authorities in society oppress ideas, opinions and human beings from being happy, healthy, and intelligent. In this case these authorities used propaganda and rhetoric to give socialism a bad reputation, and the perception that it's destructive to an economy. That rhetoric has prevented people from being open minded about the social and economic philosophy, and stunted an open and honest discussion about its merits and history. This is another device that authorities use to oppress people - they convince you to be close minded, and give you no reason to be. They simply build up pride in your currently held beliefs, then mock those who oppose those beliefs.

4 comments:

  1. All good points Justin. There is no denying that Socialism when used correctly in conjunction with Capitalism definitely promotes a stronger nation as is seen in the western European countries. Unfortunately many people to often mischaracterize and offer a false dichotomy of Socialism with Communism although it might be similar, it is not the same, in fact socialism still maintains the tenants of capitalism in that citizens are allowed to own private property, including private business, the only difference being is that government owns rights to the public goods, i.e. energy, healthcare etc.

    To offer my two cents, although I feel that the socialism definitely helped grow the American middle class and only helped the GDP by allowing so many affordable earning wages and buying power and offered a sense of American pride in the economy and that feeling that they were in it together. I feel that I need to wax a bit more liberal here in why I feel that this was even possible.

    The years that you use are 1945-1980, while it's easy to point that the politicians during this time were promoting a more socialist system, regardless of party, see Richard Nixon specifically; this was also the end of the most destructive war that this planet has ever seen. Practically every country on earth was affected by it. The saying, to the victors go the spoils? Well the American economy was the greatest victor of WWII. The European and Asian infrastructure was completely decimated along with a large number of deaths among that wasn't there to build it back up. The American infrastructure, although by no means perfect, was untouched by the war. Without the competition of war torn Europe in the world market to produce agriculture and industry, that left it up to the United States as the largest mass producer of goods and exporter. Granted the USSR equaled us in military might, though their system of governance (not socialism, rather despotism) stalled their economy so much, especially when they were spending more money on bullets rather than butter. I don't feel that even if the United States was to go back to socialism that we could back to those unprecedented increase of GDP for the simple reason that we are now back to competing with other nations for a piece of the global pie. However rebuilding the crumbling infrastructure, building and investing in green technology and other entrepreneurial endeavors will make us competitive in the world market place. The best way I try to describe to people is that capitalism is the raging river and Socialism is the Dam that keeps it in check.

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    1. I'll disagree with the title in that Capitalism and opportunity created America's greatest economy, Socialism shared the rewards of it.

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    2. Yeah, I knew everything that had happened after World War 2 that gave American's a good atmosphere to grow a great economy. There are many more variables to consider than the ones I identified here.

      The point was to show not how good things were before with socialist policies - but rather to identify when the economy started to decline. I find it incredibly coincidental that the moment that GDP, Purchasing Power, Middle Class, and Unemployment - all of those factors got worse the moment Ronald Reagan came into office. Ronald Reagan changed the way government operates, even Bill Clinton when he became president said the era of big government is over.

      Meaning that Reagan changed how government operates, and how the economy ultimately operates. Was he the problem of the decline, or was it simply coincidental that when he came into office, all of the other countries finally were able to compete?

      We could look into this as well - we could look at the GDP growth of other countries and see if they 'boomed' around the 1980's to start taking up more of the pie. So I'll definitely look into that.

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      As far as the title of the blog - it was merely to poke at the common capitalist rhetoric that they created the greatest economy. I have seen no reason to believe that their policies were what created it.

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    3. It is clear that the advent of the Reagan revolution was the beginning of the downward trend. I don't know if you've read the book by Will Bunch called Tear Down this Myth: How the Reagan legacy has distorted our politics and haunts our future.

      It's very good, and correlates that this was a time when families started requiring there to have multiple incomes just to make ends meet. You should read it if you haven't and have the time.

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