The USA Will Not Become Socialist, But Wealth Inequality is Real

In a recent article in the USA Today, the point was made that America's youth (the millennials) are innovators and capitalists, but also have a strong social conscience.  They spend their money making corporations rich, and even start their own businesses--but they reward those companies that make society better.  So it looks like the next generation won't be raving, Socialist lunatics, so feel free to not jump off the bridge.  The United States is not going to become a socialist, communist nation, so let's set the panicked hyperbole aside because there is something much more important to talk about. IS THE USA SOCIALIST?

The United States can no more become a Socialist, Communist paradise than I can become the next LeBron James.  It's set in our American DNA.  In the same way that I will never be nearly 7 feet tall and able to physically dominate NBA athletes, the United States will not be able to turn itself into a Socialist nation.  The US is the most individualistic, hyper-capitalistic society in the world.  It has always been this way, and it will always stay this way.  The word "socialism" itself is over-used and used badly and broadly at that.  Sweden is "Socialist."  Germany is "Socialist."  Japan is "Socialist."  They are also all capitalist.  There's always a mix of both socialism and capitalism in a modern, successful economy--the U.S. included. The U.S. Post Office, Medicare, the construction of the freeways and railroads, the power grid and the Homestead Act are examples of when U.S government intervened to make sure things were done and resources distributed fairly, or set up to serve all people using taxpayer money.  Medicare is not left up to Capitalist market forces.  If it were up to true capitalistic market forces, the old in the U.S. get insured in the U.S. even though they should be less insurable because of their age. Somehow, 80 years ago as a society, we decided that this isn't fair.  Both political parties (Democrat and Republican) still want it this way.  Is this Socialism?

One area where the US certainly dabbles in "Socialism" in the broad, sloppy sense is in the high finance industry.  Our tax dollars definitely get distributed to Goldman Sachs to make sure that it continues to exist.  Whether you believe that these banks and investment firms are "too big to fail" is beside the point.  Major corporations receive government subsidies and protection that would be labeled socialist if it were aimed at the common man or lower income regions.  Corporate Welfare is enormous in the United States and very much backed by both parties. States too, are willing to give taxpayer money away to corporations, yet continue to tax the citizens. Is this socialism?

Recently, a story has been floating around the internet about a teacher who wanted to show his students the futility of socialism.  His millennial students believed in some form of wealth distribution, so he started to grade the class cumulatively.  The students had their grades averaged out so that everyone would receive the same grade.  Nobody would receive an "A" and no one would receive an "F."  The first test averaged a "B."  The second test averaged a "D" and the students were upset.  When the third test rolled around, the average was "F."  Of course the students were upset.  The ones that had worked hard suffered low grades, and the ones that didn't work hard had their grades...(sort of) elevated.  The professor seemed quite satisfied that he had proven the idiocy of Socialism to his students.  Well, he would have made a good point...if they were North Koreans.  But since they are American students, he actually did them a disservice by setting the stage incorrectly. It was a false analogy.

Socialism Isn't the Danger. Inequality and Imbalance is:

What is currently happening in the USA is more like this:  A school is filled with some of the top, hardest working students on the planet (time and time again, we see that Americans work longer hours, with less vacation, and have more productivity than just about any nation on earth). Very few of these kids are truly lazy, because they come from a successful neighborhood that has always believed in hard work and has been far more successful than other neighborhoods.  But when these kids get to school, one of the kids is put into a separate classroom than the others.  This lone kid will get the full attention of the teacher, and whether the student learns or not, he is guaranteed an "A+."  The rest of the kids are in a second classroom.  There is a second classroom and the teacher who will lavish his attention on 2 of the 30 students, and those 2 kids will get an "A" because he helps them so much.  For about 23 of the students, they are going to work really, really hard, but will never get above a "C."  Only about 5 students in the class have no pride or concern for their work, because the reality is most people are not hardwired to enjoy being unproductive and a total failure.

In this school system, only a select few even have the potential to get an A or even rarer still, an "A+."  And it is not because of the quality of their work; it is because of privilege.  Somewhere along the line, hard work and studying were no longer rewarded equally.  The class changed its paradigm so that upward grade mobility was no longer as possible.  The teacher's attention belonged only to 2 students.

This has happened in U.S. history before (the Roaring 20's anyone?) and it is happening now.  It is not about Capitalism vs. Socialism.  It is about a deeply Capitalistic society which reaches a tipping point where a super-rich elite class is created to the detriment of the whole country.  The U.S. always changes course and corrects the imbalance when this happens. It does this through government. The Great Depression and World War II brought top tax rates to a high of 99% and 95%.  They were in the high 80's under the Republican Eisenhower.  Even Reagan raised taxes on Capital Gains and raised taxes in 1982 and 1984. So the Patron Saint of Low Taxation Ronald Reagan raised taxes.  So much so, that the business magazine, "Money" (not exactly a Leftist, Socialist, Commie-pinko's called "Money") wrote:

"Reagan's behavior might not pass muster with those voters today who insist their Congressmen treat every proposed tax increase as poisonous to the republic."

That's an understatement.  Ronald Reagan would have been hung, drawn and quartered by the anti-tax, anti-socialist brigades of today. But U.S. history has never been American's strong-suit.  That is one of the country's strengths and one of it's biggest weaknesses.

The British Magazine The Economist (another Conservative magazine that cares about's called "the Economist") writes about the shorter life-spans of poor Americans being a problem for the wealthy (not just the poor, but the wealthy!):

"One need not be a radical egalitarian to find this picture morally troubling."

Wealth Inequality Should Matter to the Rich

In the same way that hardcore North Korean Socialism is dangerous, destabilizing and soul-erroding, so is hyper-capitalism.  Societies historically fall apart when the rich get too rich and the divide between rich and poor is too great.  This is not a direction any civilization wants to go, for it ushers in its demise.  This is why the United States has always wisely made adjustments to swing back in a more equitable direction when we have reached the point that the Middle Class is no longer upwardly mobile.  A country of extreme rich and poor is dangerous to the wealthy--let alone the poor.

Last week, the crisis in Cyprus illustrated this point.  Like many countries, Cyprus is economically falling apart, and it seized the assets of the rich to survive.  Cyprus as a tax-haven has probably seen its last days.  And there will be others to come making it more difficult for the super rich to store their money because what they are getting away with is untenable.  Many of the rich are Russians happy to not be paying into the new Russia and hoarding their wealth for themselves by living outside of Russia and not paying taxes.  Super capitalist  Mark Faber, (once again, not a commie, pinko socialist, but a very wealthy investment guru) says that this is a growing danger around the world.  The rich (and he doesn't mean you, he means multi-billionaires) are no longer safe:

"The problem is that 92 percent of financial wealth is owned by 5 percent of the population. The majority of people don't own meaningful stock positions and they don't benefit from a rise in the stock market. They are being hurt by a rising cost of living and we all know that the real incomes of median households has been going down for the last few years."

Exactly.  The economy reaches a point where it is like the 2 classrooms I described above.  The wealth becomes so unevenly distributed that it becomes dangerous to all of society.  What people often fail to realize is that Reaganomics and Thatcherism were meant as pragmatic (conservative) corrections in 1980/1981---not as a recipe for all-economics, for all-time.  An inflexible, ideological economic program is against the principles of true conservatism.  Today it's harder to find a true conservative than it is a martian, although they are starting to make a comeback in the U.K.  That is why Reagan and Thatcher would not be welcome amongst "conservatives" today. As much as they reigned in bad economic policies from the 1970's, they would not have advocated extreme ideological economic policies from their own party.  Pragmatism trumps ideology for the true conservative.  Their skepticism about government was matched by a skepticism about ideological solutions.

In my 2008 book "Faith in the Future," I wrote about "the Disappearance of the Third World."  I meant that globalization was creating a new, highly global, educated, and wealthy class of people in most every nation of the world.  No longer would the rich in a country like Russia, Nigeria, or China be laughingstocks compared to the rich in the USA or Europe.  A new superclass was being created.  But as this happens (as in Russia, China, and now in the U.S.), the disparity between rich and poor goes beyond normal boundaries and becomes far too extreme.  (I also discuss the divide between rich and poor in a section entitled "a New Divide Between Rich and Poor," in my book Passport of Faith 2006).

I also pointed out in "Faith in the Future" that the poor are themselves getting richer at a faster rate than at any time in human history.  In underdeveloped and emerging nations, more poor people are being lifted out of poverty than ever before.  This is something I have literally seen with my own two eyes.  A new middle class is emerging globally in countries that did not have a middle class.  But in developed nations like the United States, wages are stagnating and the middle class is shrinking as the underclass grows and the super-elite pull far way from the pack playing on another field entirely.

What Happens Now?

The millennials are showing us what will happen.  In a healthy society (like the United States), a major correction will take place.  Just as there was a swing toward hyper-capitalism in the 1980's which resulted in a new wave of globalization--but, alas,  also with a credit bubble, there will be a swing toward equality over the next 20 years.  The truth is that the era of fast economic growth (1980-2008) did not really happen as it was perceived.  It could not have existed without massive debt and bubbles. So attempts to replicate it in the same way will not work.  More modest and balanced growth is the only course for the future.

In countries like China, the nouveaux riche and the income inequality will eventually get challenged by a revolution from the middle or lower classes, or the rich will abandon the country completely as they take their wealth to places like Australia, The USA, and New Zealand.  The United States has the opportunity to not have such a messy adjustment as some of these other nations.

Morally, all of the world's major religions teach the need for materialism to be tempered and some wealth to be distributed: that is not solely a Marxist idea.  It's possible to desire prosperity and value hard work without turning into a religious Darwinian materialist.  Jesus preaches far more about the dangers of money than he does about the dangers of over-sharing.

The coming re-balance will be slow and painful.  It will take a full generation to enact and not without more economic pain as we climb out of an unsustainable bubble that lasted a full generation, but the United States will come out stronger.  That is why it is time to abandon the extreme rhetoric about socialism.  The real danger that lies before us is not of being hostage to Marxist Socialism (which is far too boring for Americans), but of being slaves to an unrealistic expectation of material wealth at the expense of others.

To see the imbalance, please watch the video based on Michael I. Norton's Harvard Study.