Socialized Risk

Roger Berkowitz

Hannah Arendt was a critic of both capitalism and socialism. She saw the risk of capitalism in the oppression by large corporations. She saw the risk of socialism in the oppression by large bureaucracies. The great danger to political freedom was bigness of all sorts, big government, big business, and big bureaucracy, all of which marginalized the importance of individual action and made self-government meaningless. If the size of government is a danger to individual freedom, the United States is confronting real challenges. As Ruchir Scharma writes in his essay “What Went Wrong with Capitalism?”, we are witnessing a quasi-capitalist system of socialized risk that is ballooning the size of both government and business at the expense of individual freedom and innovation. Shawarma writes:

I worry about where the US is leading the world now. Faith in American capitalism, which was built on limited government that leaves room for individual freedom and initiative, has plummeted. Most Americans don’t expect to be “better off in five years” — a record low since the Edelman Trust Barometer first asked this question more than two decades ago. Four in five doubt that life will be better for their children’s generation than it has been for theirs, also a new low. According to the latest Pew polls, support for capitalism has fallen among all Americans, particularly Democrats and the young. In fact, among Democrats under 30, 58 per cent now have a “positive impression” of socialism; only 29 per cent say the same thing of capitalism. 

That’s not surprising, given what we’ve all been told. When Joe Biden won in 2020, op-eds in newspapers around the world hailed his presidency as a death knell for “the era of small government”, which they dated to the “neoliberal” rebellion against the welfare state launched by Reagan and Margaret Thatcher. Recent histories of capitalism sketch the same arc, arguing that those two leaders ended three “glorious” postwar decades for social democracy, when ambitious governments worked with corporate and union leaders to generate faster growth and distribute the proceeds more fairly. In short, these thinkers cast Biden’s plans for new spending and regulation as a welcome break from small, penny-pinching government and a plausible fix for popular frustration with capitalism.

Just one problem: the era of small government never happened. Government has been expanding for nearly a century in virtually all measurable respects, as a spender, borrower and regulator; the one brief retreat, under Bill Clinton, proves the trend. In the US, government spending has risen eight-fold since 1930 from under 4 per cent to 24 per cent of GDP — and 36 per cent including state and local spending. What changed under Reagan was that as spending rose, tax collections remained steady, so government started paying for its own expansion by borrowing. Deficits went from rare to routine and as a result public debt has quadrupled in the US to more than 120 per cent of GDP today.   

Rather than reversing the course of government, Reagan changed the conversation, which did often focus on a neoliberal agenda of cuts to taxes or deficits or regulation. But even when governments attempted to deregulate, the result was more complex and costly rules, which the rich and powerful were best equipped to navigate. By the 1980s, fearful that mounting debts could end in another 1930s-style depression, central banks started working alongside governments to prop up big corporations, banks, even foreign countries, every time the financial markets wobbled.   

With good reason, progressives deride this new version of capitalism as “socialism for the very rich”, but governments were doling out relief for the poor and middle class too. More than socialism for the rich, this is “socialised risk”, a campaign to inoculate an entire society against economic downturns. Although still widely criticised as the land of “raw” Reaganite capitalism, America is displacing Europe as the society least tolerant of financial distress for anyone, up to and including the super-rich.   

Something has been changing in the culture. Just as the American “revolution in pain management”, which insisted on treating even moderate injuries with powerful opiates, was hooking the nation on OxyContin, its approach to economic pain management was addicting the system to a drip feed of government support. During the past two decades, the US fell from fourth to 25th in the Heritage Foundation rankings for economic freedom as both regulation and debt increased.