Can We Stop with the “Socialism” Nonsense Already?

I see an alarmingly high number of commentators and pundits referring to the USA as some sort of failed socialist state these days.  Obviously, the healthcare debate has much to do with that, but from a more macro perspective it’s really all about the broader government spending picture.  People seem to have this perception that the US government is firing money out of rocket launchers like never before.  But are we really a failing socialist state?  The data doesn’t seem to confirm that at all.

If we look at total government expenditures as a percentage of GDP we’re still in high historical territory.  The most recent level of 34.8% is almost as high as any previous peak.  Then again, the latest recession was worse than any recession in the post-war era so it’s not surprising that government spending kicked in as a result of automatic stabilizers and the recovery act (tax receipts fell as a result of decreased output so the deficit rose automatically – this isn’t “socialism” kicking in, it’s the simple math of how a budget deficit works in a recession).



But let’s put this in the right perspective.  The historical average government expenditures as a percentage of GDP is 32.3% over the last 50 years.  That’s 2.5% lower than today’s levels.  But keep in mind we’re coming off the historical high of 39% at a rapid pace.  In fact, it’s been the private sector that has increasingly picked up the slack during the last few years.  If anything, capitalism is winning again.  And if we were “socialist” in 2009 then we’re more than 4% less “socialist” than we used to be and quickly approaching our average “socialist” level of 32.3%.



What’s even more interesting about this data is seeing it by Presidential history.  If we were to list the Presidents by how “socialist” they are according to their historical average level then the list would look like this:


1.  Barack Obama (37%)

2.  GHW Bush (34.1%)

3.  Ronald Reagan (33.6%)

4.  GW Bush (32.6%)

5.  Bill Clinton (32.1%)

6.  Jimmy Carter (31.2%)


If we’re becoming a socialist state (which I don’t think we are) then some of the biggest contributors to that progression are the very people who are often placed on pedestals as the shining beacon of the “free market”.  In fact, out of the 4 Presidents who have presided over periods when the historical average was breached, 3 of them are Republicans.

Anyhow, I think we can all agree that 34.8%  vs 32.3% isn’t the equivalent of a socialist state veering out of control.  I don’t think any of the Presidents on this list have presided over anything remotely close to a socialist state.  And I think that when we put things in the proper perspective we can see that people are probably being a bit hyperbolic in the use of such terminology.

NB – Please feel free to use the comments section to leave your hyperbolic comments about how we are a failing socialist state.  

Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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    “Economists define a nation to be a welfare state when 20% or more of its gross domestic product (GDP) is spent by the state on welfare and education. The United States has never hit that level, but welfare and education “investment” spending under President Barack Obama rose to 19.4% of GDP in 2012. Implementing Obamacare will convert America into a welfare state for the first time in our history.”

  2. Education is welfare? What nonsense. And how about when mommy and daddy buy your education for you, what’s that called? And your source? Not biased at all. LOL.

    • wel·fare Noun /ˈwelˌfe(ə)r/

      noun: well-being, prosperity, weal, good
      The health, happiness, and fortunes of a person or group
      they don’t give a damn about the welfare of their families
      Statutory procedure or social effort designed to promote the basic physical and material well-being of people in need
      the protection of rights to education, housing, and welfare
      Financial support given for this purpose

      I would define any budget item that provides a monetary exchange, with a lack of payment or compensation is deemed as welfare…

      Remember, your side always complains about corporate welfare..

  3. Actually the US is a failed capitalist state if it is anything ,hence the skew in wealth. Let’s bear in mind capitalism is supposed to lead to an equitable share out of the gains of productivity that results in all contributor parties remaining motivated for the system to continue to serve them in the future. When “socialist” issues arise it is because the capitalist system has failed some of those contributors to such a degree that there are sufficient of them that they do have political power to to go about offsetting those failures.
    Look for why wealth has skewed and correct that then you won’t have to argue the toss about concepts that worry people because they don’t really understand them.

    • “Look for why wealth has skewed and correct that”

      And what was the reason for skewed wealth?

      • Politicians are too dependent on large corporations and the Fed’s policies are causing further wealth inequality.

    • I don’t think capitalism is “supposed to lead to an equitable share of the gains in productivity”. Capitalism is a method of group financing by investing in means of production. The aim is solely to gain profit. As to sharing, it is should be proportional to investment. I don’t know if that is what you mean be equitable, unless you feel employees payment should be related to that level of profit. Salaries are normally not part of a theory of capitalism. After all, one can have slaves and still engage in capitalism. A capitalist system is not based on a question of morality. Socialism does make that claim.

      • Unfortunately, the modern take on capitalism is oft based on the take on it defined by modern management theory. Hence, like most wars it’s been rewritten to suit the aims of the winners.
        Taking a more rational view though you would always wish for capitalism to be based upon a concept of shared equity ,because otherwise you are backing a system that will implicitly fail. I think you need to consider human nature first and economics second.
        It really isn’t a question of “morality”. This is exactly the kind of thinking that get’s people emotionally involved in this issue of capitalism and socialism. it’s wrong and frankly bad critical thinking.
        Concentrate on what do you need for the system to be sustainable? Think of answering that question in terms of human behaviour.

  4. We will very soon see if the USA becomes even a failed state, w/o the ‘socialist’ part, thanks to the incredible things happening in congress and senate.

  5. LOL, you’d have go a lot farther back than those presidents to make your point. probably well before FDR, the american father of socialism. and even reagan had a democratic house to deal with, and a moderate senate. try looking at tax rates also.

  6. I’ve actually met quite a few socialists and communists, and they even called themselves that. It’s quite different from what is referred to as socialism in your country.

    • to me, everything stems from individual liberty. all of that is out the window. we can argue all day long about what is communism, socialism, democrat, republican, right, left, moderate (all of these terms have different meaning depending on what imaginary line you were born in). the numbers really don’t matter at all at the end of the day. the rule of law is the real barometer of where society is at the moment, and right now, your primary rights to privacy, free speech, and more are all compromised. you can’t really say with certainty what your rights are. do you have free speech? well, if it’s not licensed, or you didn’t get a permit, or you looked at the police officer wrong… if you don’t have privacy, you don’t have free speech. if you don’t have free speech, you don’t have democracy. pretty simple logic. refute if you dare.

  7. Is this the Goebbels version of GDP you are using? Because everyone knows that its very hard to pin down Goebbels GDP numbers, they morph when needed to back-fit some data.

    You would think that a capitalist society would be able to sort out the winners and losers in a free market type system, but apparently that’s not what we have here.

    You would think that the cost of monies would be determined by a free market system of supply and demand, but thats not exactly what we have here.

    What we have is some sort of centrally planned economy and thus society. Maybe if you don’t like the term socialist, you should create a new word to describe what we have. Maybe you could call it an MMR society. A new sort of government run by people against goodness and normalcy.

      • HHmm… and I always thought government intervention created slavery in the first place. It must have been that whole ” all men are created equal” phrase that threw me off course. Oh wait, they changed that logic to ” all free men are created equal.” That solved that whole pesky, dude in my backyard working for beatings and meat. Now they can re-intervene their intervene to act as though their intervention created an environment where ” all men are created equal.”

        I will have to reverse engineer all logic now to come up with a substitute for common sense. Maybe we can call this solution “economics” or the Government Sponsored Logic Assistance Program, GSLAP for short.

        Anything but common sense as that would not allow for the guise of intervention.

        If you pull the strings off, its not much of a puppet show.

  8. Cullen,

    by using Federal, State and Local spending I get a peak of 42% of GDP, not 39% like your chat shows. What is your definition of spending?

  9. Sorry, which part? The Dragnet issue? Just parting some sarcasm into an otherwise endless circular debate on economics and what to call a hybrid money for nothing society where the banker is paid more than the skilled laborer. Unfortunately if the proverbial shit ever hit the fan, the first and most useless member of society is the one who knows only how to manipulate the flow of monies. Any reference to biblical tales are nothing more than coincidence as times have surely changed?

  10. This whole debate about capitalism vs socialism can be pretty easily summarized if you understand the inherent nature of a capitalist system.

    The USA has an overwhelmingly capitalist system. The vast majority of the means of production are owned by private entities. That shouldn’t be controversial.

    Capitalists, by their very nature, are profit hoarders and monopolists. In other words, if you hadn’t stopped Rockefeller and Vanderbilt and JP Morgan and Carnegie back in the 1900′s their firms would have eventually battled it out for the super conglomerate that WAS corporate America. That’s what capitalists do. They monopolize profits. And this means the capitalist system veers towards corporate control. This shouldn’t be controversial either.

    There’s a HUGE amount of good that comes from a capitalist system. Especially when the capitalists are good people. But that’s not always the case. Most of the capitalists just want to expand the bottom line and enrich the owners. After all, that’s the basic point of the business they run. Unfortunately, this means problems for a lot of other people. It means wages get suppressed. It means retirement plans get underfunded. It means a lot of people get left unemployed.

    So, what to do with those problems? Some people want to let the capitalists just control everything and get the govt out of the system. Others want the govt to control more things and reduce reliance on the capitalists. I think the most pragmatic approach is some blend. By understanding the inherent fragility and weakness of a capitalist system we can actually use the govt to make it stronger by providing some of the things that capitalists won’t ever provide. That makes our standard of living better in both a financial sense and a social sense.

    There’s balance to be found here. We don’t need to veer towards socialism or pure capitalism. The world is not black or white or red or blue like so many seem to think.

    • Outstanding comment Cullen. Now it comes down to the policy prescriptions

      I hope you plan on saying something similar to this while your in South Carolina.
      Those people need to hear something like this. Hell everyone needs to hear something like this

    • What’s your take on capitalism when governments need to bail out corporations?
      Capitalism means, in my opinion, that companies that perform well flourish while companies that don’t go bust. No government intervention needed since there will be other new companies that will do better than the rotten bankrupt ones.
      I don’t think companies should rule the government or public entities either; chances of getting corruption are too big.

    • These “capitalists” too often were demonized as profit mongers and people forget they were movers and shakers. They got things done.

      NYC is a great example. Take a poll of New Yorkers and find out how few of them know the NYC public libraries, Grand Central Terminal, the old Penn Station, the tunnels under the Hudson, etc. were funded and/or built by these capitalists and not the by the government.

      Vanderbilt built Grand Central, the Pennsylvania RR built the old Penn Station and tunnels, and Carnegie funded the libraries.

      • The government ripped down the old Penn Station, which many said was a superior building to Grand Central, and replaced it with the present Penn Station, which is a dump.

        Capitalists built the Empire State Building in 15 months; the government (Port Authority- quasi government) has spent over a decade on the unfinished Freedom Tower.

    • Tell that to the Europeans. They think we need to be more like them, which makes me burst out laughing. The problem is that most of the countries today are either mercantilist or socialist and the US is probably one of the most, if not the most capitalist country today. We’re about to see mercantlism begin to collapse into its death spiral while socialism is already collapsing. Either way, none of those garbage systems can withstand the innovative capacity and ingenuity of American capitalism.

  11. The word socialism gets people riled up, so maybe it’s just better to say that government is playing a bigger role in economic life than ever before.
    It basically owns the mortgage market, it is taking on an even bigger role in health care, it has more and more regulations and laws that restrict economic activity, it spends more, it taxes more.

      • More every year, when you count federal, state, local, property taxes, payroll taxes, sales taxes, licenses, fees.

    • Of course the government is more involved. You don’t grow a country from a few million people to 300 million people and expect the government to shrink. Some of you libertarians seem to have this deluded notion that the government should get less involved as our world becomes increasingly complex.

      Also, if you want to start shrinking the tax needs of the country then let’s start worrying about the size of our military more and less about taking care of old people. You guys have your priorities exactly backwards.

      • “Of course the government is more involved. You don’t grow a country from a few million people to 300 million people and expect the government to shrink.”

        I don’t believe the size, scope and power of government should be tied to population figures. I am an advocate for a center here in the valley for homeless senior citizens. Every day we serve the needs of roughly 150 elderly. We have an over worked full-time staff person whose job is to help folks navigate the red tape of our super-sized, mind numbingly complex government. They can at the very least just get out of our way.

      • gov’t is a purely self-interested entity-always has been and always will be. experienced business people understand that business partners do not care about them because it’s not what they’re incentivized to do. gov’t is not incentivized to concern itself with protecting property rights. an informed populace is the only thing to reign in their greed. unfortunately, that’s not going to happen.

  12. Misleading inasmuch as it does not address the vast increase in regulatory costs. THe sub-prime debacle caused by community reinvestment regulations, the energy costs arising from rules affecting coal fueled generating stations, bans on oil well exploration etc. aren’t included in the % of GDP above.

    • I’m definitely lol’ing as the kids say at the CRA comment. Try actually reading the CRA for yourself. Subprime anything doesn’t even count towards CRA credit for banks. Let’s retire that talking point. Next.

  13. Socialism is when the government owns the means of production, determines what will be produced, and generally directly pays the workers. We have this only in limited places in the US. The Military is the largest Socialist organization we have, but even here a large fraction of the production is privately owned and only paid indirectly by the government (e.g. Lockeed Martin). Military health care is more Socialist than any other segment, as the government owns the majority of the capital facilities and directly employs a segment of the workforce.

    The majority of what the wackos call Socialism are flows of funds with little or no direct involvement of government in decisions regarding means of production, goods purchased, or any other economic factor.

    The government does seek to make spending decisions in a small sector of the economy, the discretionary spending portion of the budget. For instance, almost all basic scientific research in the US is Federal spending, although the majority of scientists and staff work for contractors. The government does set broad research targets in some areas (basic physics, chemistry, mathematics, molecular biology, …) and tighter ones in other areas (detection of IED’s, radiation monitoring of container cargo, …)

    Even if we had didn’t have the lowest real levels of Social Welfare spending in the developed Western world it would have nothing to do with Socialism.

    Discretionary spending by the Government has come down more (and faster) under Obama than any President in history (defined as when we have data, ca. after 1940) and is now at the lowest level compared with GDP ever, and it’s still declining.

    It’s funny, the wacko world doesn’t care about reality and real data. They ignorantly call Obama a Socialist, when in fact in the only areas which are truly, or partially Socialist, Obama has presided over the greatest decrease in history, and will leave office with the least Socialist government in over 75 years. But people who live by absorbing the propaganda machine will still believe otherwise.

    • if it doesn’t transpire as you predict, are you going to come back on here and admit you were wrong?

    • “Socialism is when the government owns the means of production, determines what will be produced, and generally directly pays the workers.”

      Then what is Communism?

  14. If the government were using tax dollars to purchase private business I would be concerned about socialism. But the U.S government returns tax dollars back to the private sector by spending or re-distribution (welfare). Meanwhile corporate profits have been at an all time high and the level of income has increasingly moved in favor of capital not labor.

  15. The folks you are calling out for the “failed socialist state” nonsense seem to be misusing the word socialist. I believe their perspective is more accurately supported with the term welfare state. The data comfortably support the idea that we are,by definition, a welfare state. Throw in a state owned automobile company, the occasional mega-bank, a seized GSE or two, a mechanism to essentially control the equity market, a voracious appetite for MBS, vastly expanded food stamp recipients, growth in disability numbers, NSA and socialism actually sounds reasonable.

  16. to me, everything stems from individual liberty. all of that is out the window. we can argue all day long about what is communism, socialism, democrat, republican, right, left, moderate (all of these terms have different meaning depending on what imaginary line you were born in). the numbers really don’t matter at all at the end of the day. the rule of law is the real barometer of where society is at the moment, and right now, your primary rights to privacy, free speech, and more are all compromised. you can’t really say with certainty what your rights are. do you have free speech? well, if it’s not licensed, or you didn’t get a permit, or you looked at the police officer wrong… if you don’t have privacy, you don’t have free speech. if you don’t have free speech, you don’t have democracy. pretty simple logic. refute if you dare.

  17. “But are we really a failing socialist state?

    No that is the wrong expression.
    What is called when private sector and public sector melt together?
    Its called Fascism.

    Franklin D. Roosevelt
    “ The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism — ownership of government by an individual, by a group, or by any other controlling private power. ”

    — Franklin D. Roosevelt, April 29, 1938. Message to congress.

    “Originally, “fascism” referred to a political movement that was linked with corporatism and existed in a single country (Italy) for less than 30 years and ruled the country from 1922 to 1943 under the leadership of Benito Mussolini. “

  18. Socialism has a long and distinguished history in the USA. Eugene V. Debs ran a third party campaign early in the 20th century that was the Socialists’ high water mark as a political party. The Democrats co-opted the Socialists by adopting much of their platform. Unemployment insurance, social welfare, Social Security, Medicare, Medicaid, food security programs, state banking etc. are all Socialist ideas that were adopted by the USA in a classic mixed economy. The banking sector is now a government captive, GM is a ward of the state, the residential mortgage market is almost exclusively federal, the student loan market has been federalized, and the labor market is becoming ossified by well-meaning federal and state laws. There is little difference between the USA and the social democratic European welfare states, which is fine with the Democrats and a majority of US voters.