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Risk, Not Redistribution, Motivates America’s New Socialists

Housing market risk

A recent survey reports 37 percent of Americans over the age of 18 “prefer socialism to capitalism.” After Bernie Sanders near-run candidacy last year, that cannot be much of a surprise. Still, the U.S. historically has stood out among Western nations due to its lack of a sizeable socialist movement. So what’s changed?

Well, first, it’s unclear that the U.S. actually has a socialist movement, despite these numbers. Surveys have yet to plumb what self-identifying American “socialists” believe. I see little evidence of a broadening desire for “hard” socialism, coming in the form of desire for widespread social ownership of the means of production. Rather, advocacy for social ownership remains on a case-by-case basis, with the health system being the focus of most attention today. And even then advocates for a truly socialized system of medicine still reside on the edges of the policy debate.

The American socialists I see tend merely to advocate weaker forms of socialism, namely broader social insurance policies. Democratic Party and political liberals have advocated these same policies for decades.

So why then the seemingly greater acceptance among Americans of the “socialist” label today?

First, it could simply be a nominal thing. To wit, the Clintons’ and Obama’s corporate liberalism so discredited “liberalism” and “Democrat” that many liberal Democrats desire a label to distinguish themselves from the rent-seeking corruption at the core of the Clinton-Obama Democratic Party. Relatedly, perhaps the Bernie Sanders insurgency provided a hitherto lacking cachet, or even a transgressive thrill, to identifying oneself as a socialist.

So, too, on the level of nominal distinctions, the survey question reported above did not ask people if they were socialists, it asked whether they preferred “socialism to capitalism.” That begs the question not only of what defines “socialism” for the respondents, but also how they understood “capitalism” for the purposes of comparison. Rent-seeking corporatism can, literally, be understood as a form of “capitalism,” even if it is a form of state capitalism that is antithetical to free market capitalism.

Moving from nominal explanations to explanations responding to economic events, there is the issue of socialism as a response to the “excesses” of capitalism.

First, there is the much vaunted hypothesis that Americans, particularly younger Americans, increasingly identify as “socialists” in response to increased economic inequality. To be sure, the energy and attention of the “Occupy” movement seemingly provides initial support for this explanation. Yet I don’t think the hypothesis does quite as much work as it needs to in order to get us up to 37 percent of Americans identifying as socialists.

After all, to say that the U.S. never had a socialist movement is to say the U.S. never had a broad-based socialist movement. There’s always been a small, if nonetheless vocal, radical movement in the U.S. Bernie Sanders is perhaps the most successful political candidate produced by this movement in recent decades. But we can look at the 1960s and the 1930s for others. Nonetheless, Americans have proven remarkably tolerant of economic inequality, if for no other reason than most Americans dream someday of joining the One Percent themselves.

My suspicion is that most Americans still don’t resent really rich people. They may envy them, but we don’t resent them. In market economies people can get rich without making other people poorer. And while living standards for most Americans haven’t increased much over the last generation, they haven’t decreased either.

Where there has been a shift, however, has been a transfer in risk, particularly a shift that places more risk on the American middle class. While there can be multiple causes, this transfer of risk to the American middle class accounts, I think, for much of the angst that has made Americans more willing to identify as “socialist,” at least in the weak sense of socialist, of support for broadening and strengthening government systems of social insurance.

While median household income has basically stayed the same over the last generation, I’m guessing that the variance around that income level has increased. It’s increased most notably as a result of the shift from defined benefit retirement programs to defined contribution retirement programs. One’s 401(k) payout now varies with stock and bond markets. Risk has also shifted as businesses increasingly hire “contractors” rather than hiring people as employees (a change motivated particularly by the fact that employers need not provide benefits to contractors as they do to employees).

Beyond formal changes in nature of employment and in employee benefits, globalization has necessarily increased the risk that labor in the U.S. faces, even at the same time that U.S. capital owners have benefitted from increased globalization. The risk of one’s job being “exported” overseas initially was faced among manufacturing workers in the U.S. But it’s been working its way up into white collar jobs as well. Parents are now concerned for their college-educated children, as are the college-educated children themselves. After all, overseas, non-American accountants regularly do the U.S. income taxes for American expat workers. There’s no need to limit this work to expats; it’s only a computer link away to outsource an accounting job in the U.S. to an accountant in India who will perform the same job at a third of the cost.

One irony of course, assuming my reading is correct, is that the same phenomena that gave the edge to Trump in the last election are the same phenomena that lead other voters to self-identify as socialists. Many of Trump’s economic policies focus on responding to this transfer of risk. Indeed, in ways that other candidates did not, Trump acknowledged the increased stress that American workers felt under as a result of this risk transfer.

And if correct, my hypothesis that this shift is about risk rather than about inequality has policy implications as well. To wit, a demand among many voters, not for economic redistribution for the sake of redistribution, but rather a demand for government intervention to manage the increased risk American workers now face in their lives. To be sure, social insurance policies are redistributive policies as well. But their goal is risk management rather than naked redistribution, or redistribution for its own sake. I’m not saying one is better or worse than the other, but there are different motivations.

To be sure, this leaves a host of additional questions, not least is whether the U.S. government has the same power today to manage risk for its citizens that it had in the 1930s, and after World War II. Or does today’s globalized context mean that generous social insurance systems in Western Europe and the U.S. are increasingly unsustainable? Competition for capital (and labor) that once was confined among U.S. states is now global, with international competitive pressures to minimize cost burdens placed on both capital and labor. If so, even if there is demand for increased “socialism” in the U.S. among voters, it may simply be impossible for the U.S. government to supply the demand.

Reader Discussion

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on July 05, 2017 at 09:57:13 am

"Or does today’s globalized context mean that generous social insurance systems in Western Europe and the U.S. are increasingly unsustainable?" Somewhat. What really makes them unsustainable are the demographic changes in dependency ratios. Those have implications not only for financing social programs, but also means fewer productive workers will be competing to buy the houses, pension fund assets, and personal wealth of retirees once they need to sell.

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DOUGLAS S WENZEL
on July 05, 2017 at 21:46:21 pm

The so-called "(domestic) jobless recovery" probably has caused Socialistic tendencies to increase. It would be interesting to see how Americans would respond in support of Socialism if the question was so worded as to include reference to the substantial increased tax burdens for all (especially the middle class) necessary under a socialist political system.

Politicians like B.S. (hmm, interesting initials for a politician) never seem to mention the massive funding requirements or funding (it ain't ALL coming outta the top 1%'s pocket if its to be sustainable), source.

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Paul Binotto
on July 06, 2017 at 11:50:07 am

While median household income has basically stayed the same over the last generation, I’m guessing that the variance around that income level has increased. It’s increased most notably as a result of the shift from defined benefit retirement programs to defined contribution retirement programs. One’s 401(k) payout now varies with stock and bond markets. Risk has also shifted as businesses increasingly hire “contractors” rather than hiring people as employees (a change motivated particularly by the fact that employers need not provide benefits to contractors as they do to employees).

Beyond formal changes in nature of employment and in employee benefits, globalization has necessarily increased the risk that labor in the U.S. faces, even at the same time that U.S. capital owners have benefitted from increased globalization….

Yup.

Everyone’s seen the charts that document yawning income inequalities in the United States. The picture around wealth inequality is worse. But a large and growing number of Americans suffer because of a third gap — between those who enjoy financial stability and those who don’t. In other words, it’s not just a dearth of money that hurts families, but the unpredictability of their cash flows.

[A] study called the US Financial Diaries … tracked 235 families for a full year. The families shared information about every dollar that they earned, spent, borrowed, saved and gave away….

On average, families in the Diaries study had about five months of each year in which they earned at least 25 percent more or 25 less than their average monthly income. In that situation, the idea of setting a monthly budget and sticking to it becomes nonsensical. The standard advice for middle-class families — such as ‘paying yourself first’ by automatically saving a portion of each month’s paycheck — becomes similarly difficult to follow. It’s not surprising that [a worker] has cashed out his 401(k) when he has switched jobs. This month’s bills are a nearer-term problem than retirement.

The volatility of household income from one year to the next has been rising for several decades. Yale political scientist Jacob Hacker draws on longitudinal data to argue that incomes have been ‘rising and falling much more sharply from year to year than they did a generation ago. Indeed, the instability of families’ incomes has risen faster than the inequality of families’ incomes.’ According to the most recent Federal Reserve Survey of household decision-making, 30 percent of American families say they have incomes that vary substantially from month to month. Forty percent of those say that the month-to-month volatility makes it harder to pay the bills on time.

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nobody.really
on July 06, 2017 at 15:35:13 pm

Yup! as well.

Essayist makes a persuasive case - it is about risk. Above a certain minimum income, one can "make-do", even if it is only 10 - 20% of top tier. It is the doubt arising from an *unstable* income that causes frustration, anxiety and anger.

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gabe
on July 07, 2017 at 10:50:09 am

I would describe myself as a libertarian conservative, so what I am about to say is not inherent in my political philosophy. It seems to me that this risk mitigation used to be the domain of the union movement. This increased risk correlates with the dimunition of union power. Is there a model for a union movement which can avoid the past excesses that ultimately resulted in the union movement's demise?
Furthermore, our ridiculous text code, which severely disadvantages the middle class needs an urgent upgrade. I don't believe we need to "soak the rich", but some of the arbitrary advantages built-in to the tax code for the rich and serve no social purpose need to be re-thought and most likely eliminated.

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James Cunningham
on July 07, 2017 at 10:57:58 am

Good points re: unions and risk! (as well as union excesses!)

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gabe
on July 07, 2017 at 12:23:52 pm

1. On unions:

Labor and management have some interests in common, and some interests in tension. Some union leaders (like some managers, and some politicians) gain a following by de-emphasizing their common interests, and instead emphasizing an us-vs.-them mentality. This can cause needless harm—especially when it comes to defending workers that really don’t warrant defending.

That said, I am not persuaded that unions did much to cause their own demise. Unions (like other economic actors) function based on supply and demand: Unions seek to restrict the labor supply relative to demand (for example, by threatening to strike) as a means of extracting a larger share of the profits of a firm. But they can only do that when they can actually make the threat credible. Over time, the supply of labor has expanded faster than the demand. Women entered the paid workforce. Other industrialized nations recovered from WWII. Globalization (including global telecommunications) has permitted people living in non-industrialized nations to compete with US labor. Immigration expanded. Automation expanded. I really don’t see how unions caused any of these dynamics.

Once unions found that they could no longer make a credible threat to restrict the labor supply, they really lost their bargaining power. This has resulted in an ever smaller share of productivity flowing to labor. Today unions must act largely as political action committees for workers, seeking to achieve via legislation what they can no longer achieve via negotiation.

2. Back on the main point: I would not describe myself as a libertarian conservative, so what I am about to say is not inherent in my political philosophy. The fact that workers face unstable income certainly burdens them and complicates planning, borrowing, investing, etc. But, while I find this undesirable, I don’t necessarily find it wrong. Our economy is not creating more risk; it’s just reallocating it. That is, this income instability has always existed—but historically management bore that risk. We now have a system by which that risk is increasingly passed on to labor.

Now, maybe this is a sub-optimal allocation of risk. Historically, entrepreneurs have embraced greater risk, and employees less so. Arguably this allocation fit the temperaments of each group. If you embrace this theory, entrepreneurs are made richer by bearing less risk—but the benefits they experience from this shift are less than the burdens that labor feels for bearing more risk.

But maybe not. The article I linked to above includes an example of a worker who struggles with a fluctuating income, and eventually opts to get a lower-paying job with a more stable income. Who is to say that this is a bad economic outcome?

Another perspective is that if society believes it would be better for workers to have more stable incomes (to facilitate home ownership or investments in education, etc.), then society--not entrepreneurs—should bear that cost. And that’s what a social safety net is for.

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nobody.really
on July 11, 2017 at 20:45:41 pm

Democrats are quick to run to the well of "the rich" to fund every socioeconomic welfare initiative in sight: stabilize Medicare and Social Security, free college tuition for all, single-payor health care, expanded Medicaid, free child care for all, expanded parental leave, improving primary education, rebuilding America's cities, investing in infrastructure, national intercity passenger rail, etc.

Perhaps any one of these can be done by "taxing the rich". But not two or three or four. In fact, given the fiscal abyss into which we are surely heading under existing laws, it is not clear that any "big idea" can be done; deficits are about to begin a terrifying increase under the weight of existing laws and programs and demography. (The Trump White House is now wresting with this reality).

I have wondered if Democrats have emphasized "social justice" causes precisely because they know down deep that they cannot really deliver any substantial new federal programs to enhance "economic justice". There simply isn't the money to do so without major increases in taxes on the middle class.......a group that has experienced steady tax decreases over the past 20+ years under both Democratic and Republican Administrations.

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Brian Kullman
on July 12, 2017 at 00:28:46 am

[G]iven the fiscal abyss into which we are surely heading under existing laws, it is not clear that any “big idea” can be done; deficits are about to begin a terrifying increase under the weight of existing laws and programs and demography.

Yup, with the declining birth rate, the average age of the population is increasing, and we’ll have big safety-net bills coming due. And what resources do we have to meet these burdens? Only the highest real after-tax personal income, per capita, in history—and it’s growing by the day. Plus the opportunity to increase the workforce pretty much any time we like, simply by admitting more immigrants. So I’m not persuaded that people who have been enjoying this enormous run-up in personal income are over-taxed, or that the US lacks the capacity to finance the social safety net.

I have wondered if Democrats have emphasized “social justice” causes precisely because they know down deep that they cannot really deliver any substantial new federal programs to enhance “economic justice”.

Well, I expect many people are sincere in their advocacy of anti-discrimination causes. But the idea that people might gravitate to causes that are salient and inexpensive to the protagonists/government is rational, too. I often suggest that a universal basic income might provide more freedom to workers than all the union, workplace safety, and workplace anti-discrimination laws combined. Letting the boss know that every worker has a viable option to simply what the boss dishes out would be a powerful thing. But expensive. So in the meantime, we stick with union, workplace safety, and workplace anti-discrimination laws—‘cuz the costs are borne initially by the employer.

Likewise, during campaigns Republicans love to focus on abortion. True, the Supreme Court limits the kinds of relief Republicans can really provide. True, rates of abortion have been falling and are now lower than before Roe v. Wade. But the beauty of this expression of love for innocent life is that the cost of the policy is borne by OTHER PEOPLE. Curiously, Republicans don’t campaign to compel people to maintain other people’s lives by donating kidneys, or even by supporting Obamacare, because those policies would forthrightly burden themselves. The drive to preserve innocent life is paramount—insofar as its burdens can be shifted to others.

(Likewise, Republicans loved to rail against state recognition of same-sex marriage. It’s un-Biblical! True, Jesus never said anything against the practice—whereas he explicitly opposed divorce. Yet to outlaw divorce would clearly burden many Republicans, so that’s out of the question. Biblical marriage is paramount—insofar as its burdens can be shifted to others.

But as the public grows ever more supportive of SSM, we no longer hear so much about the need to oppose it. In other words, opposition to SSM is becoming like opposition to divorce—Biblical, but politically burdensome, and therefore abandoned.

Again, it's not that people aren't sincere in their views--but they're sincerely strategic.)

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nobody.really
on July 12, 2017 at 07:58:39 am

Wow, that's some self-righteous rant. Mr. Kullman (and maybe I, too) must've really gotten under your Progressive Tax & Abort skin; the truth will do that, hey, nobody?

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Paul Binotto
on July 12, 2017 at 10:31:12 am

Wow, that's a pretty contentless rebuttal. The truth will do that, hey, Paul?

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nobody.really
on July 12, 2017 at 12:43:48 pm

Actually, Nobody, I deleted three paragraphs of rebuttal for no other reason than, because you seem like a decent enough person, and there is no question, you are highly intelligent, out of respect for that much, I couldn't sufficiently edit out the most uncharitable portions. So I settled instead to only posting the most civil of incivilities contained in the initial draft.

I will only say this, whether or not any particular party or person is willing to bear the burden or cost of policy, as you say, is quite immaterial as to whether or not abortion is morally (my apologies, I know, you can't bear to hear the word) defensible option for solving a personal or societal crisis.

Peace, Nobody

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Paul Binotto
on July 12, 2017 at 13:33:36 pm

So you think that nobody. really is a decent person or highly intelligent? There's a commentary.

But thank you.

And snarkiness aside, yeah, the main point I intended to make is that EVERYONE has an incentive to pursue policies that are low-cost (to themselves), even when they refrain from pursuing apparently analogous high-cost policies. That's nothing especially partisan about this behavior.

The main point I did NOT state is that I'm procrastinating on another project. That's often the REAL driver of long posts on my part. Since you're not feeding my addiction, fine--I'll just have to go be productive.

So the next time I post data about the continuing rise of US productivity, and thus the growth in after-tax personal income per capita, remember that I doing my part to alter these statistics--but you wouldn't cooperate. So there!

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nobody.really
on July 12, 2017 at 14:02:49 pm

You're welcome. From what I've seen, you really don't need any help from me. Just don't tell Gabe I said so. :-)

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Paul Binotto
on July 17, 2017 at 13:44:33 pm

'@nobody really says -

I like the way you parsed arguments.

On your first point, though, I would push a little bit harder - not because "unions deserve more blame" in some sense, but because without acknowledging potential problems there will probably not be improvement.
Starting with your statement: Labor and management have some interests in common, and some interests in tension. So we expect some measure of conflict from the interests in tension. But what interests do they really have in common? The example that I tend to fall back on is UAW and the auto companies, since their conflicts in some sense personified the decline in unions in my mind. (Note: I do not consider government workers unions to be labor - they are civil service and really need a different treatment. This also means that in my thinking the unions have declined much further than commonly described.) I could argue that they don't have any common interests in that for example the UAW didn't care about Ford selling cars or GM selling cars, etc, since they were representing autoworkers for all of them. This led to the UAW calling for strikes against Ford to improve their bargaining position with GM, for example. This may not be obvious now, but was common knowledge at the time - a strike would be called in one location where for example salaries and benefits were good, because the union felt they could extract concessions that would be leveraged as a baseline against the next strike where there may have been actual grievances. Since the UAW controlled labor from many suppliers as well as the car companies themselves they had many opportunities to disrupt business. In some sense, they represented workers across an industry, and therefore had no real common interest with individual companies. The industry that might have been their counterpart of course could not represent itself without violating monopoly laws, so there was no management counterpart with common interest. In that sense the union damaged the industry as a whole and opened the market to foreign car companies more quickly than might have been the case. That is the loss of union power was not soley due to additional available labor (from women and internationally as you note), but also due to self-inflicted damage to the industry on which it depended - domestic car manufacturing.

These other forces would still have contributed to loss of union power, but this does actually distinguish US labor from European labor: unions in the countries that I have interacted with are generally a single company, so their interests are always aligned in the success of the company, regardless of the interests in tension. US unions don't have that common interest.

I think this also led to another problem: as unions became more interested in manipulating the industry to seek profits for the union as an organization, their interests became less aligned with their membership - who wanted jobs.

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mnemos
on July 20, 2017 at 15:00:15 pm

[…] the Library of Law and Liberty, James Rogers says it’s risk, not redistribution, that motivates America’s new […]

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Image of What motivates America’s new socialists? – Acton Institute PowerBlog
What motivates America’s new socialists? – Acton Institute PowerBlog

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