Is Barack Obama a Socialist?

October 31, 12:22 PMEconomic Policy ExaminerJoseph Hight

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There is something ironic about John McCain and Sarah Palin charging that Barack Obama is the candidate of socialism , when it is under their party, the Republicans, that the U.S has just made a very large move into the realm of socialism.

I’m talking about the $250 billion of the $700 billion bail out package that is being used to buy ownership shares in the nation’s banks .

Obama does plan to push for a redistribution of the tax burden by lowering taxes on those earning less than $250,000 per year, and raising taxes on those earning above that.  But that’s not socialism; it’s tax policy. And it is a classic way of making the distribution of income a little more egalitarian than what results from free market capitalist economics. 

There may be a cost to the Obama policy.  It could decrease incentives to invest and to work longer and harder among those up in the income scale, and this could cost lost output and jobs, and lower overall income for all us. But it is a judgment call. Are we willing to accept a little less economic growth and lower overall income levels for a little more equality in the distribution of income? 

Socialism is when the government takes ownership in what are otherwise private enterprises, for example, ownership in banks as the government is now doing under the bail out rescue plan.

The plan is for the U.S. government to be a passive investor/owner in the banks; that it won't tell management how to run the banks.  But what happens when the managers of those banks start to pursue policies that the government thinks unwise, or is contrary to public policy, or is unpopular with us taxpayers? The pressure will be on to be less than passive – to want to tell management that they cannot do that – to want to compel management to do what the government wants it to do.

This is what is happening with the banks who have so far received the government bail out money and want to continue to pay out the dividends to their share holders that they have been paying out all along. Paying out the scheduled dividends will eat up a substantial portion of the government injection of capital into those banks.  But the government wants them to lend the money out to businesses and consumers to keep the economy from collapsing.

Look for a move from Congress to prevent these banks from paying out these dividends.  That will be an added incentive for shareholders to pull out more of their capital from these banks, thus counteracting the government injection of funds onto the bank balance sheets.  This is what is likely to happen, especially in the long run as investors come to realize that bank management is not free to invest where market signals suggest it is most profitable to do so, but instead must do the government’s bidding.

Jeez!  This gets complicated.  Sometimes it seems it’s like squeezing on a balloon.  You squeeze one side only to see it bulge out on the other side.

Do you think we might yet see the government require these banks to make loans to General Motors so they can merge with Chrysler?  Or maybe the government will become part owner of GM.  Then they can require GM to make those cars that will get 50 miles to a gallon of gas, probably not a bad idea, but it would be much better if it were the market that was dictating this result, rather than politicians in Congress.

Don’t get me wrong.  I am not opposed to the bail out rescue plan.  We had no choice.  We have to do everything we can to prevent a long and deep recession that will cost us all very dearly, probably much more than $700 billion.  But here’s hoping that as soon as possible, after we get through this crisis, the government gets out of the private banking business promptly. 

It looks as if that will be up to Barack Obama to see that it does.  That’s when we will truly learn if he is a socialist or not.