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Have We Ever Been This Close to Socialism Before?

Name: Dave P.
City & State: Mansfield, OH

Question/Comment: Have we ever been this close to socialism before? Referring, of course, to all of the bail outs and attempted influence on the "free" market.

Paul Solman: It's an intriguing question, Dave. Yes, I think the New Deal was this close - in fact, a lot closer. A simple metric of "socialism-ization" is the percentage of the economy represented by the state. By that measure, Denmark, at 60 percent or so, is the most socialist of the industrialized countries; the U.S., still around 30 percent, among the very few least.

Specifically, U.S. GDP for 2007 was around $14 trillion; federal expenditures, nearly $3 trillion; state and local governments, the extra trillion-plus that gets the total to 30 percent: some $4 trillion.

Now, add the bailouts and a massive government spending program to the next year. That may be, what, another trillion or two? Possibly. Say that it gets us to $6 trillion. Meanwhile, the economy is doomed to contract. Call it $13 trillion, to be dramatic and help make your point.

What portion of a $13 trillion economy is $6 trillion? Close to half. That's why I've been wondering aloud about the Scandinavianization of America. Because the only time the U.S. government represented half of the economy (actually, slightly more than half) was at the height of World War II expenditures: 1943.

So, to your question, "Have we ever been this close to socialism before?" I think the answer has to be: in peacetime, no.

Update to this post on Nov. 27:

A reader I ran into notes that I contradict myself in this posting, beginning by saying the New Deal was closer to Socialism, ending with the assertion that we've never been this close in peacetime. Hmmm.

I guess I got carried away with my calculations about government spending as a percentage of GDP. Because no, upon reflection, it's kind of hard to argue that we're as close to "socialism" now as in the '30s. Even the current "nationalization" of banks has been with the "purchase" of preferred, non-voting stock that gives the government little control of the institutions it now "owns," in whole or in part.

There was simply more government direction of the economy in the '30s than there is at the moment: more government employment; more intervention of other sorts. We may well get back to that point -- perhaps even soon -- but allow me to retract: even for peacetime, we're not there yet.

-- Posted November 25, 2008 | Comments (1) | Permalink