And the winner for the 2012 words of the year are … ? Thanks to the US 2012 election, socialism and capitalism are forever wed as Webster’s dictionary’s most looked-up words of 2012. Democracy, globalization, marriage and bigot — all touched by politics — made the Top 10. Last year’s word of the year was austerity. Before that, it was pragmatic. Other words in the leading dictionary maker’s Top 10 for 2012 were also politically motivated. It shows where people’s minds are at today.
This recent political discourse has driven the interest in the word socialism, with many conservative activists arguing that the nation may be “on the road to socialism,” even “communism.” After all this progression of socialism to communism, is mentioned in the third definition in Websters. We all know that the 1950s McCarthy communist witch hunt era and America’s 20th century cold war foe, USSR, has driven largely this lingering hysteria. Both have long past, but clearly this period in American history has made the word socialism equivalent to evil, today. So the question I have is – is this hysteria justified? Is America becoming a socialist state?
To answer this question lets take a financial look at both spending and tax collection over the past few decades (see the insert chart). We can see by revenues that what the state takes from the people, we are at the lowest point in decades – hardly the signs of a socialist state. Historically revenues have been around 21% of GDP – currently this now is about 15%. But wait, it is true that spending is out of control from historical norms. It has recently under the Obama administration risen to 25% of GDP, from a historical mean of about 20%. Signs of socialism?
To understand more we need to drill down on this spending. The two big budget busters are health care costs and the military industrial complex. These two items have ballooned out of control. Most other costs in the US budget are relatively constant. America could return to a fiscally stable state as it was before, if it would just return to tax rates as before, reduce its war footprint as before and manage better its health care system costs. The current discussions around the so called “fiscal cliff” will do mostly just this – so America needs to take the plundge – and yes it will be painful. Unfortunately I do not hear this in the current political discourse – rather hysteria about socialism and communism. So no, America is not becoming a socialist state, rather a war mongering financially mismanaged state.
Daily Market View: (click here for the video)