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.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.