Contempo Magazine Blog

Karl Marx, the Founder of the Socialist Ideal

Lately Republican Vice-Presidential Candidate, Sarah Palin, and others have taken to calling Senator Barack Obama, the Democratic Presidential Candidate, a “socialist”.  Many in the media as well as Obama supporters have called this an unfair characterization and an attack on Mr. Obama’s patriotism.  The Democratic Senator has defended himself saying he is not a ” socialist”.

In 1994, John Roemer, Professor at Yale University, wrote a landmark book on the subject of socialism,A Future for Socialism. In the book he described the history of socialism as having developed in five stages, from early communist  experiments to the latest more modern form. He discusses how pure socialist thought with too much central control and no clear cut way to control demand could be modified successfully and in fact would likely ultimately occur into a form of socialism he called “market socialism”.  In theoretical papers he wrote at the same time he also described how this theory could be incorporated into political parties campaign strategies for winning elections and also as a way to deal with racial inequity.

In this economic model, the ownership of corporations would be different than by freely transferable stocks which can be sold at a market price. Instead workers would own shares without rights to transferability until such time as they retire or die. They would then trade in these coupons to a central authority (government) without any lasting value which would then redistribute them to new workers.  Workers would be paid in currency for labor at a semi-competitive price to buy their every day needs.

Competition in this industrial climate would be limited. Raising of capital would be controlled by a central government bank which controlled smaller banks. Foreign investment would be prohibited because it might upset the balance.  Government would guarantee any bad investments or business failures in the system to allow for some innovation experimentation. This would prevent the mistakes of a “central planning board”. The state would see that there was fairly egalitarian  distribution of property rights, profits, and resources. Although details of planning would be tested by business failure as above, the broader aspects of planning would be done by the government.

There are many similarities between the long term goals of the Obama economic program and the idea of “market socialism” as suggested by Professor Roemer.

• Senator Obama intends to pass the Employment Free Choice Act as soon as he enters office as President which will establish a unionized workforce in the vast majority of American workplaces rather quickly which is a necessary first step.
• Instituting close Federal regulation of the banking system and taking ownership of private banks will establish the banking control necessary for market socialism.
• Congressional Obama supporters are calling for an end to 401ks as retirement instruments and want to replace them with government issued securities such as treasury bonds.  This combined with the government bailout and take over of troubled industries like the auto industry will reduce the liquidity and transferability of ownership in the means of production. In effect, turning private stock into the ” coupons of market socialism”.
• Although some competition would be allowed for labor and management pay, there would be strict controls of pay to avoid diversion of profits away from the government.
• Profits previously given to the private sector would be used to fix “bads”, problems like pollution, and pay for social necessities like health care.

An Obama surrogate on cable television interviews with Fox News today when asked if Mr. Obama’s plan seemed similar to what is present in Europe gave an affirmative response and in fact named Finland which has many features of a “market socialist” state.

It would appear that to call to Mr. Obama,a classic socialist, would be incorrect but to say he is a “market socialist” would probably be the best way to describe his economic plan for America.

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No doubt one of the key concerns in the upcoming election is jobs. The State of Texas has been luckier than some states but still has seen unemployment increase from 4.3 % in September 2007 to 5.0% in September 2008 according to the Texas Workforce Commission. In our local McAllen area the unemployment rate is actually 7.8% which is higher than 6.3% a year ago.  Although that was the highest unemployment rate in the state it is notable that the McAllen-Edinburg-Mission area was reported by  the Texas A&M Monthly Review of the Texas Economy to still have the fastest growth job rate in the state at 4.1% in September 2008.

What if any difference will there be between the Obama and McCain presidency in job creation for our state?

Shanea Watkins, Ph.D., Policy Analyst for Empiric Studies at the esteemed Heritage Foundation this week published an in-depth analysis looking at the likely job creation on a state by state basis which would occur under either an Obama or McCain Presidency. A macroeconomic model which has been commonly used by government agencies and Fortune 500 companies to evaluate economic indicators effects was combined with each states employment data to formulate outcomes. Employment over a ten year period, gross domestic product, and disposable income were evaluated. 

Senator Obama’s job growth plan depends mostly on income redistribution through tax changes and rebates or credits to low income groups to bust consumption while Senator McCain’s plan decreases business taxes and allows for deductions of business purchases complete within the first year. Dr. Watkins concluded that owners of businesses would hire more employees and invest more in development under McCain’s plan than Obama’s plan.  Interestingly, the Obama plan would depend upon a trickle down effect from boosting consumption, however, based upon the data she concluded it was not likely that business investment or increased job creation would occur. Overall her analysis found that “job growth under Senator John McCain’s  plan at the national level is more than two times faster than job growth under Senator Barack Obama’s  plan.

The Table below shows a state by state comparison:

As the table above indicates the difference in outcome between job creation is rather dramatic throughout the United States. Under a McCain plan Texas would gain an additional 91,739 jobs than with the Obama plan. Total job creation for the State of Texas would be 161,171 for the ten year period. This important academic study should be considered by voters.

Since the study did rely on mostly macroeconomic factors it is very possible that the job creation effect could be magnified in South Texas where there has been a more robust economy than in other parts of the country. On the other hand, if a President Obama negates the North American Free Trade Agreement than of course that would be very deleterious to our area even more than his less favorable approach overall.

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The testimony of the Chairman of the Federal Reserve, Paul Bernanke, today does not give a lot of hope that the current economic slowdown will improve anytime soon.  In fact according to the New York Times he supported a second round of an economic stimulus package go forward.

The Congressional Democrats and Presidential Candidate Senator Barack Obama are advocating for “an additional $300 billion package of spending measures that would include a big increase in spending on infrastructure projects; an additional extension of unemployment benefits; and increases in spending for food stamps, home heating subsidies and state Medicaid programs.”

Mr. Bernanke warned that continued job loss and slow if any economic growth is likely for the “next several quarters.”He is asking for government policies that will at the same time reduce the effect on increasing the government deficit.

Republicans are strongly advocating a reduction in the corporate tax rate as way to stimulate growth given the fact that no one seems to be predicting that with monetary policy alone there will be any improvement in less than a few years.  The CATO Institute released a report by Jack Mintz, Chair of Policy Studies at the University of Calgary, that stated “the U.S. corporate tax policy is an important barrier to economic growth.” In his analysis, he noted that the United States effective tax rates from both Federal income tax and local taxes put the United States at a rank of 8th world wide in highest tax rates. By reducing the corporate tax rate by 10 percent as well as local taxes, an incentive for multinational corporations to invest in the United States would be created.  The economic stimulus from this new business would increase revenues over any lost by reducing the tax rate.

Martin Neil Bailey, Senior Fellow for Economic Studies at the Brookings Institute testified to the U.S. House of Representatives Committee on the Budget that in addition to stabilizing the housing market, additional tax rebates, extending unemployment insurance, rebuilding infrastructure, and aiding state and local economies that the United States has a “higher marginal tax rate than countries with which we compete”. He added that business tax changes may be necessary.

The Democrats have harnessed the anger that the  American public is feeling towards government officials and corporate executives whose misjudgments and misdeeds ravaged our pocketbooks. However, government by itself cannot and will not be able to solve the current financial crisis.  The private sector of commerce must be allowed to develop new business and jobs or there will be no economic recovery.  Even supporters of Mr. Bernanke’s plan are saying that any idea of reducing the deficit will have to take a back seat to stimulating a recovery.

Mr. Obama and the Democrats must act to give private enterprise a real chance to spark the economy.  His current plan penalizes the whole business community for the acts of the finance sector of Wall Street which represents but a tiny part of the whole of American business. Criminal and civil punishment must be dealt to those that are guilty and regulatory rules changed to prevent a recurrence.  However, failure to act on putting American business on an even platform with other countries by equalizing the corporate tax rate to that of our competitors will paralyze our economic growth and actively disinhibit investment in our recovery.