[David Stockman’s Note: This Wednesday, I’m streaming a live video broadcast from my home in Aspen, CO. I believe the most popular investment of the 21st century is about to implode. The collapse of this $3 trillion bubble could be the “final nail: in your retirement if you’re unprepared. But, if you invest in a discreet alternative investment right now your savings could be spared… and you could actually make up to 300% by July. That’s why I’m hosting this live video training from my home. I’ll lay out all of these details and more for you. All you need to do is RSVP right here before your spot is taken. There’s nothing to buy in order to get access — it’s free.]
By Gary North
If Forrest Gump's mother were around, she would remind us of this fundamental truth: "Socialism is as socialism does." With all the hoopla surrounding Bernie Sanders' campaign, let us apply this principle to his message.
As far as I have read, he has not recommended that the federal government nationalize America's industries. He has not called for government ownership of much of anything.
If socialism does not mean state ownership of the means of production, then what does it mean? If the distinguishing feature of the socialist ideology is not government ownership, then how can we distinguish socialism from run-of-the-mill welfare state/Keynesian policies? If socialism is simply an extension of the principal of Keynesian government deficits and central bank monetary inflation, then how is it distinguishable from what we have today?
In other words, from what we can see from Bernie Sanders' campaign rhetoric, he is simply another version of what we have had in the United States ever since the end of World War II. I call it Keynesianism on steroids.
I realize that he calls himself a socialist. I also realize that virtually every Keynesian calls himself a capitalist. The question is this: what is the economic content, analytically speaking, of what a self-proclaimed socialist or a self-proclaimed capitalist actually teaches?
THE COMMUNIST MANIFESTO
Let us go back to Karl Marx's famous 10 points that define the transitional socialist order after the proletarian revolution but before the arrival of the Communist paradise, which Marx prudently never defined or even described for more than a paragraph in an unpublished manuscript.
For as long as I can remember, which goes back to about 1956, I have heard conservatives supposedly quoting this portion of The Communist Manifesto. "We have most of these 10 points today," they have argued.
No, we have not. And it is unlikely that we ever will.
Here are the 10 points, verbatim
1. Abolition of property in land and application of all rents of land to public purposes.2. A heavy progressive or graduated income tax.
3. Abolition of all rights of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.
6. Centralization of the means of communication and transport in the hands of the state.
7. Extension of factories and instruments of production owned by the state; the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal obligation of all to work. Establishment of industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.
10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production, etc.
The second point has been applied in the West: progressive income tax. The tenth point, tax-funded education, began in Massachusetts a decade before The Communist Manifesto appeared anonymously in German.
Other than these two, we have none of the other eight points in the West. And in each of these two areas, things have gotten better.
1. Abolition of property in land. Enough said.
2. A heavy progressive or graduated income tax. The federal government did impose a horrendously graduated income tax, but that came under Woodrow Wilson as a wartime measure. It certainly did not come as a result of any socialist political party. We had a 91% top bracket rate under Dwight Eisenhower and John F. Kennedy. Rates at the very top were dropped under Lyndon Johnson to 70%, and again under Ronald Reagan to 29%. There are horrendously high rates of marginal tax rates in Scandinavian countries, and Britain had high rates for a long time. But high marginal tax rates on the rich have always been popular with voters. This is not because they were socialists; they are just run-of-the-mill thieves who believed in a reworked commandment: "Thou shalt not steal, except by majority vote." This outlook has been basic to Western political theory for well over a century. But the people who favor this do not call themselves socialists, and they are correct in this regard. They are just people who believe that it is legitimate to impose high marginal tax rates on the rich. So, the super-rich hire lawyers and donate to PAC's, so the effective tax rate imposed on them in the United States is well under 20%. Nothing the Democrats have done under Obama or Clinton has changed this. It is business as usual in Washington.
3. Abolition of all rights of inheritance. We have seen this imposed on the very rich, but not total abolition. The federal government takes about 55%, but the rich have evaded this by creating tax-exempt foundations, and they hand over their assets to these foundations. Then their sons and daughters go on the board of directors, or in some way get compensated.
4. Confiscation of the property emigrants and rebels. Well we got a taste of this in the decade after the American Revolution, when about 100,000 loyalists fled the country, but that was a long time ago.
5. Centralization of credit by the state. There are certainly central banks. We certainly have this in the United States since 1913. The Federal Reserve System's regional banks are privately owned. The central bank has a monopoly, but commercial bankers are allowed to do pretty much whatever they want with their money. So, while there has been centralized direction in a Keynesian way, there has never been anything like a state monopoly of banking. This is true all over the West.
6. Centralization of the means of communication and transport in the hands of the state. From the telegraph system to the Internet, we have seen private ownership. Privatization is accelerating. Think "Post Office vs. email."
7. Combination of agriculture with manufacturing industries. America has had mostly private ownership of farms and factories. We do not hear of any politician calling for the nationalization of factories and farms. We have never heard it in the United States inside the two major political parties. Some fringe socialist groups or fringe Marxist groups may have proposed this, but we have not heard very often. The labor unions in American history have wanted a larger slice of the pie. They have not called for Marxism. The IWW -- International Workers of the World (Wobblies) -- were never representative of trade union opinion.
8. Equal obligation of all to work. This has never applied in Western countries. People who have had enough money not to work have not been compelled by the state to work. We do not know such people. We never hear of these people. They are on the extreme fringes of society. They are mostly rich sons and daughters who inherited trust funds. How many people like this do you know? I know a couple of them, and they work. They may not work for a salary, but they are involved in charitable activities, investing, and so forth. I cannot remember hearing any professor in all of my years of college and graduate school call for compulsory labor laws imposed by the federal government. I studied in graduate school under a man who was known as the most prominent of younger Marxist economists, Howard Sherman, and I never heard anything like this in a class taught by Sherman. In fact, I never heard any of the 10 points of the Manifestotaught by Sherman.
9. The combination of agriculture and factory production. Conagra and Archer Daniels Midland have achieved something like this. Agribusiness produces most of America's crops. We have seen the fusion of rural living in urban living, simply because rural living no longer exists. Something the range of 2% of America's population are on the farms, and these people have access to the Internet, just like everybody else does. Farmers sit in their $450,000 air-conditioned tractors, and they listen to music on their iPods or whatever is the hottest playback system in the latest tractors. Marx hated the countryside. He spoke of "the idiocy of rural life." Well, I guess he got his wish. There is hardly any more rural life. What we have is Iowa farmers calling for government subsidies of ethanol. I do not see these people going to the Communist barricades. In any case, there are many barricades in rural America.
10. Free education for all children in public schools. Number 10 is the one area of The Communist Manifesto that we have seen imposed all over the West. Here is the heart, mind, and soul of socialism in the West -- and all the other isms. But this has been implemented in the West since before World War I. The abolition of factory labor for children came in the middle of the 19th century in Great Britain. One of the primary goals of the public school movement has been to keep students in school by state compulsion, specifically so they would not go to the factories. The labor union movement did not want competition from teenagers and even younger children in the factories. So, as a means of subsidizing the trade union movement, public school promoters demanded compulsory attendance.
So, the main area of production in which we have seen The Communist Manifesto being implemented is in the area of education. And here, the conservatives are just as bad, or almost as bad, as the Communists. The conservatives want to control the public school curriculum. They endlessly complain about the fact that liberals control the public schools. They are correct. They have always controlled the public schools. This goes back to the public schools set up in New England under Unitarian educator and lawyer, Horace Mann. That was in the late 1830's.
I do not notice that any Republican candidate for anything has called for the cessation of all funding of government schools, including the military academies. I am certainly waiting to hear about such a candidate. But candidates prefer to avoid this issue. On point number 10, "we are all Communists now."
Today, because of the Internet, we are beginning to move away from point 10. This may take a couple of generations, but the direction we are headed in is clear. The public schools keep getting worse in terms of output, and online education has become more respectable. We are going to see a shift of opinion on homeschool education, and the Khan Academy is already part of this. It has something the range of 26 million enrolled students. It is free of charge. It is online. It has the support of Bill Gates and other billionaires.
THE MYTH OF AMERICAN SOCIALISM
In other words, it has always been mythical that America is in any way socialistic. It is a myth that there has ever been a socialist candidate for high political office. If we are talking about someone who campaigns in favor of even half of the 10 points in The Communist Manifesto, there has no such person in either of the two major political parties -- or three, if you count 1912.
I never heard anybody promote all 10 of these points in all of my years of higher education.
We are told that younger voters favoring Bernie Sanders represent a wave of socialism. This is simply ridiculous. The young people who voted for Sanders have no more conception of socialist economics and Sanders does. They are simply Keynesians on steroids.
They do not like the Pareto distribution of wealth, but nobody has told them that this distribution of wealth has existed for well over 100 years. Vilfredo Pareto discovered it in the early 1890's, and reported on this in 1897, it created no furor. He recognized that something in the range of 20% of the population owns 80% of the capital and because this was a power law, it meant that about 4% of the population owns about two thirds of the capital, and 1% of the population owns about half the capital. If anything, the distribution of wealth today is slightly more egalitarian than what Pareto discovered in the 1890's. It doesn't matter what government has been elected, a Pareto-like distribution of wealth always exists. In other words, political reform doesn't change the distribution of wealth; at most, it changes who gets into the top of the pyramid of ownership. Students do not know this, but neither do their leftist teachers. Neither did the writers of 99.9% of the articles we read on the inequality of wealth today. We are never told that this structure of inequality is permanent, and it has been permanent since at least the end of the 19th century.
We are not seeing a wave of socialism in the United States. We are just seeing Keynesianism on steroids. If Nancy Pelosi and Barack Obama could not reverse inequality, and if Franklin Roosevelt and the New Deal Congress could not do it, and if Lyndon Johnson in fact reduced top marginal tax rates, then where is there a wave of socialism in America? When are we going to see the rich put in their place?
It is all rhetoric. There is not any substance to any of it. Americans don't want socialism, and they never have. The kids may use the rhetoric, just as Bernie Sanders uses the rhetoric, but there has never been a serious socialist movement in the United States. There has never been a time when even 10% of the voters were socialists, as defined by Karl Marx and Frederick Engels in the 10 points.
Pelosi and Obama got ObamaCare, and the public has generally bought into it at this point, but the insurance companies are still in existence, and the private hospitals still operate pretty much the same way they did in 2007. Nothing much has changed. This was the most that Obama ever got out of Congress when he had control, supposedly, of both houses of Congress. That is all he has to show for seven years of his administration.
If elected, Sanders is not going to have control of both houses of Congress. Even if he does, he is not going to get the kind of reform that he says he wants. This is the odd man out in Congress. He was an independent until just a couple of years ago.
Does anybody seriously think that any of the 10 programs of The Communist Manifesto would be implemented if Bernie Sanders is elected? Does anybody really think that millions of these millennials have ever read The Communist Manifesto? Have they read anything except textbooks? They have been taught by tired, tenured bureaucrats. They had been taught in public institutions where the SAT scores have gone down ever since 1964. High school teachers gave up on convincing their students of much of anything sometime in the early 1980's. They finally figured out what their predecessors knew by 1948. The system of public education United States does not change the opinions of its graduates. Textbooks are written for committees, and they reinforce public opinion. The textbooks of the 1950's reflected the New Deal. They still do today.
It is time to stop the hand-wringing. We have bipartisan Keynesianism in this country, and we have it in all Western countries. But Keynesians rarely call themselves socialists. They think of themselves as capitalists. They just want the state to tinker at the edges of the economic order. They want marginal changes in tax rates, which they rarely get. They want marginal revisions of banking laws, which they get, but nothing much changes. They just want to be reelected. The American public is not on the verge of implementing nine of the 10 points of The Communist Manifesto. The 10th point, on public education, the voters have believed in since at least 1900. There is nothing revolutionary about this.
We need to keep things in perspective. There is no socialist wave in America. If we are talking about defenders of the government ownership of the means of production, we are shadowboxing with ghosts. They do not exist in the United States. You cannot find them in the public school systems. You never could.