Ted McLaughlin : Our Fear of the 'S' Word

Graphic from gapingvoid.
Do the American people like socialism
as long as we don't call it that?

By Ted McLaughlin / The Rag Blog / October 11, 2010

There is little doubt that for most Americans, "socialist" would be about the worst thing they could be called. Americans seem convinced that having a socialist system of economics (and it is an economic system -- not a type of government) would be against everything America stands for. They feel this way because the word has been demonized for decades in this country by right-wingers and corporate interests.

Most Americans equate socialism with communism (a different economic system) and dictatorship (a type of government). The truth is that socialism has little to do with either one. I don't think most Americans even know what socialism is. To them it is just an evil lurking in the shadows waiting to steal our freedom, something akin to slavery or tyranny.

But there is an interesting survey that tends to show we, as Americans, may be more afraid of the word than the reality. There's no doubt Americans are afraid of the word, but the survey by Michael I. Norton of the Harvard Business School and Dan Ariely of Duke University shows that a huge majority of Americans may actually think socialism produces a fairer and better result than our own biased-toward-the-rich capitalist system.

Their survey, which included a large group of 5,522 American citizens, showed a couple of very interesting things. The first is that most Americans don't realize just how out-of-whack the distribution of wealth is in America.

Survey respondents believed that the richest 20% of Americans control about 59% of the country's wealth. The truth is much worse. In 2005, the richest 20% actually controlled about 84% of the wealth in America (and that percentage has undoubtedly grown in the last five years).

The authors of the survey then presented the respondents with three unmarked pie charts. The first showed an even 20% of wealth for each fifth of the population. The second showed the distribution of wealth in the United States. The third showed the distribution of wealth in Sweden (definitely a socialist country, where the richest 20% controls 36% of the country's wealth). They were asked to choose which pie chart showed the most appropriate (fairest) distribution of wealth. Here are the results:

When asked to choose among all three charts
United States...............10%
Equal portions...............43%
Sweden...............47%

When asked to chose between Equal and Swedish charts
Equal...............49%
Sweden...............51%

When asked to choose between Equal and U.S. charts
Equal...............77%
United States...............23%

When asked to choose between U.S. and Swedish charts
United States...............8%
Sweden...............92%

It is interesting that a small majority of Americans chose the Swedish distribution of wealth over an exactly equal distribution of wealth. They were quite willing to accept that there will be some inequality in an economic system and thought the Swedish (socialist) distribution of wealth was the best possible outcome. But very few (8%) of the respondents thought the distribution of wealth created in the United States was fair or appropriate.

And even more amazing is that the preference for the Swedish distribution of wealth over the U.S. distribution of wealth cut across gender, party and income lines. Here is that breakdown:

Preferred the Swedish (socialist) distribution of wealth
Women...............92.7%
Men...............90.6%
Democratic voters...............93.5%
Republican voters...............90.2%
Make under $50,000...............92.1%
Make $50,000-$100,000...............91.7%
Make over $100,000...............89.1%

These lop-sided figures bring into question the supposed American hatred of socialism. It turns out that at least 90% of Americans would prefer the distribution of wealth created by a socialist system to the distribution our own capitalist system has created.

They may be afraid of the word "socialism," but they believe the results of socialism are better -- as long as you don't use the "S" word to describe it. In other words, years of propaganda and scare tactics have frightened them into accepting a system they know is fair only for the richest few Americans.

Now I know that some will be screaming that socialism involves "income redistribution" -- another term Americans have been convinced is a bad thing. But the truth is that there is income redistribution in all economic systems. In our form of rich-biased capitalism, that redistribution is to the richest citizens in the country from everyone else. In socialism, the redistribution is much fairer and more even.

Americans are really socialists at heart and believe in a fairer system of wealth distribution. They have just been convinced by decades of propaganda to vote against the their best interests of those of their fellow citizens, and that's just sad.

[Rag Blog contributor Ted McLaughlin also posts at jobsanger.]

The Rag Blog

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Stopping a Financial Crisis : How Sweden Did It

Sweden's Bo Lundgren sought an 'upside' for the taxpayer.
'Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks.'
By Carter Douherty

A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?

It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

“If I go into a bank,” said Bo Lundgren, who was Sweden’s deputy minister of finance at the time, “I’d rather get equity so that there is some upside for the taxpayer.”

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.

The tumultuous events of the last few weeks have produced a lot of tight-lipped nods in Stockholm. Mr. Lundgren even made the rounds in New York in early September, explaining what the country did in the early 1990s.

A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.

The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.

Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. “The public will not support a plan if you leave the former shareholders with anything,” he said.

The Swedish crisis had strikingly similar origins to the American one, and its neighbors, Norway and Finland, were hobbled to the point of needing a government bailout to escape the morass as well.

Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden’s banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times.

Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden’s currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.

After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks.

Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt’s conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.

Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.

Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s largest bank. Mr. Wallenberg, the scion of the country’s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.

The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.

“For every krona we put into the bank, we wanted the same influence,” Mr. Lundgren said. “That ensured that we did not have to go into certain banks at all.”

By the end of the crisis, the Swedish government had seized a vast portion of the banking sector, and the agency had mostly fulfilled its hard-nosed mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.

More money may yet come into official coffers. The government still owns 19.9 percent of Nordea, a Stockholm bank that was fully nationalized and is now a highly regarded giant in Scandinavia and the Baltic Sea region.

The politics of Sweden’s crisis management were similarly tough-minded, though much quieter.

Soon after the plan was announced, the Swedish government found that international confidence returned more quickly than expected, easing pressure on its currency and bringing money back into the country. The center-left opposition, while wary that the government might yet let the banks off the hook, made its points about penalizing shareholders privately.

“The only thing that held back an avalanche was the hope that the system was holding,” said Leif Pagrotzky, a senior member of the opposition at the time. “In public we stuck together 100 percent, but we fought behind the scenes.”

Source / New York Times / Posted Sept. 22, 2008

Thanks to Jim Retherford / The Rag Blog

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