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American Tolerance of Government Intervention and Socialist Agendas During an Economic Recession

Studienarbeit 2009 45 Seiten

BWL - Wirtschaftspolitik


Table of Contents

List of Figures

Research Issue

Welfare or Socialism?
American Welfare in Comparison to European Socialism

Business’ Relationship to Government Social Programs and the Economy
Public and Governmental Response to Social Reform
Past Three Decades of Social Reform (1980-2008)
Future of Social Reform (2009 and Beyond)

The New American Welfare Recipients- Banks and Businesses
Mounting Debt and the Dilemma of Inflationary Policies

Why American’s May Tolerate Social Reform
How to Cover the Debt
The Way Ahead


Annotated Bibliography

List of Figures

Figure 1. U.S. Unemployment Rates

Figure 2. Who Pays America’s Tax Bill .

Figure 3. U.S. Government Spending as Percentage of GDP

Figure 4. Current Marginal Tax Rates as Percentage of GDP

Figure 5. Inflation corrected S&P Composite Stock Price Index

Figure 6. The Top Twenty Recipients of TARP Money

Figure 7. American’s Level of Happiness

American Tolerance of Government Intervention and Socialist Programs During an Economic




In November 2008, the United States of America was on a rapid economic descent, unseen since the Great Depression of the early twentieth-century (Davidson & Rees-Mogg, 1993). The yearlong housing slump, bankrupt mortgage companies and investment firms, and subsequent government bailout permeated every news outlet. Unemployment creped steadily higher and the President-elect, Barack Obama, was promising reform months before he could affect any such change. The ensuing American financial meltdown had global ripples as the Nikkei, Dax, and Hsing markets capitulated in the face of American economic woes. The American dollar, once the currency of choice for many foreign bank reserves, gave way to the Euro and gold commodities.

In this same period, the American automotive industry, one of the last major products made in America and competing internationally, was feeling the tightened purse strings of homeowners who no longer had the luxury of credit to finance new cars and trucks. One by one, the three automotive giants: General Motors, Chrysler, and Ford were summoned to Washington, D.C. to explain their operating plans and need for government assistance. The last American foothold in industry would be bankrupt forcing millions of American to be unemployed. These unemployed automotive industry workers, suppliers, and distributors would add to the huge amount of existing foreclosures, forcing workers to face unemployment and homelessness at wintertime.

The U.S. Congress approved a multi-billion dollar bailout to the tune of $700 billion. As part of this monetary assistance, the automobile manufacturers agreed to this U.S. government intervention. Months went by and some things got better. Ford Motor Company did not need the government-offered funds and restructured its organization to pull itself up by the bootstraps to resurface as a solvent corporation. However, General Motors and Chrysler Motor Corporation were not as fortunate. General Motors took the money and came back to the table a month later pleading for more. The U.S. Congress provided more and took a 30% ownership interest in the company. The Chrysler Motor Corporation told Congress that even with the bailout, without outside assistance or investment, they were too far gone to ever recover. Incidentally, Chrysler appealed to several other solvent carmakers only to be lightly considered and quickly refused. As company-by-company, around the world, considered and passed on Chrysler, Fiat finally took an interest and then took over the faltering giant.

Research Issue

In light of American citizen’s predisposed opposition to European socialism and government control of the free market, the American Public offered only token resistance to the government backing and takeover of the largest remaining profitable industry of this country. The research undertaken attempts to determine if the public is really against socialism or are we against the negative legacy that socialism has left in other parts of the world. Americans tend to associate socialism with communism and the loss of civil rights so enjoyed by this citizenry. The research seeks to reveal whether Americans are acceptable of government intervention and radical socialistic reform, where government controls the free market, when the light at the end of the tunnel is obscured and national hegemony lies in jeopardy.


Welfare or Socialism?

A welfare state is one that takes care of all of its citizen’s basic needs and is very similar to socialism. Very few true welfare states exist today. The United States is an example of a country that has welfare programs such as Social Security and Medicare, but it does not espouse socialistic views. Whereas, France, The Netherlands, and Germany are socialistic democracies with extensive government-managed welfare programs (Wilson, 1996). True socialism and true democracy are not mutually compatible in the same political system, one would be stronger than the other and, where conflicts exist, the more impressive system would garner public support and dictate governmental policies and civil rights (, 2009).

The goal of the U.S. welfare system is to break the cycle of dependency by enabling individuals to gain employment, allowing them to provide for themselves with minimal government assistance. Besides welfare, the U.S. government provides job assistance and training in assisting citizens to find employment. Most Americans only need temporary assistance, but others need it for a longer duration. Welfare is usually awarded to those who have very low income and lack assets that the person or family can use to sustain themselves (, 2009). At a time when the institution of marriage is under attack and popular legislation favors legal unions, the government provides welfare to women with children as long as they stay unmarried. If a woman gains employment or earns money, her welfare funds decrease or cease. However, the same government program rewards a woman if she has more children by increasing her welfare check (Bork, 1996).

However, a national health care plan has very clear socialistic tenements and is unconstitutional (Shaw, 2009). The U.S. Constitution does not give Congress the power to legislate national health care. The American Congress, comprised of two main parties but currently held by a larger majority in the Democratic Party, has allowed liberalism to creep into legislation, ushering in the moral decay of our free society (Bork, 1996).

With a failing economy, Americans gravitated to Obama’s candidacy with the promise of change for the better. But even Barack Obama admitted that Americans could not hope that we would “... turn back the clock on this new world; that the only chance to maintain our living standards is to build a fortress around America; to stop trading with other countries, shut down immigration, and rely on old industries.” (Barack Obama, 2008). He was correct in saying that we can never go back to the days of cheap gas, affordable healthcare, and low taxes. Oil is required for ever-increasing global consumption, which in normal supply and demand economics causes an upswing in prices. The decline in healthcare workers, expense of technology and research, and a growing population of elderly citizens makes a national healthcare plan an expensive proposition. With a mounting deficit, rising unemployment, stagnant inflation, and the value of the U.S. Dollar at an all-time low, something has to give in our economy or else something will break.

The unspoken variable for relief is through the increase of taxes, whether they be sales, personal consumption, or income tax. The administration has already stated that an increase in taxes is unavoidable, but they do not have a plan on how to tackle tax reform that will reduce our debt. Instead, the administration promised that 95 percent of workers will be recipients of tax relief from a tax cut of up to $500 per worker and $1,000 per working family (Steere, 2009). Additionally, the tax cut will eliminate income taxes for 10 million Americans. Leaving the lingering question “Who pays for the government spending?” Unemployment is increasing to almost double-digits, as the tax burden becomes heavier with fewer employed to pay their portion of income taxes (Figure 1).

U.S. Unemployment Rates
(Aug 2008 – Aug 2009)

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Figure 1. U.S. Unemployment rates from Aug 2008 through Aug 2009 depict an upward trend of rising unemployment, consistent with the Obama administration’s views.


American Welfare in Comparison to European Socialism

What is socialism? Better yet “What do Americans interpret socialism to be?” Looking back over the last 50 years, American government has had some form of socialism as a part of our society. As early as the days of Pres. Franklin Delano Roosevelt, government inacted legislation, such as the Social Security Act, providing a form of social insurance to the elderly and unemployed, and even a lump sum benefit upon death. Decades later, Pres. Lyndon B.

Johnson fully implemented another government assistance program, in the form of Welfare, for single, unmarried women with children (Wilson, 1996). Other programs included women and children and infants (WIC), food stamps (FDIC), and Blue Cross and Blue Shield.

In the years leading into the Clinton administration, government social programs provided for the bare necessities, medical care, food, and housing of millions of Americans who could not rise above the poverty level. Some could not work due to education, skills, or training and others childcare, but all recipients were disadvantaged. During his administration, President Clinton supported legislation that modified government programs were they inhibited the attractiveness of welfare, diminishing its prolonged utility. Through these initiatives, limitations were proposed that shortened the duration of assistance. Additionally, welfare recipients were required to actively seek and gain employment or lose their federal and state assistance. While this program was viewed by the administration as a means to compel welfare recipients to rejoin the workforce, many recipients had often tried to gain worthwhile employment, but the results of low-wage, and part time jobs placed them in significantly worse straits (Wilson, 1996). Inevitably, many welfare recipients weighed the inferior results of employment with the meager allowances of government assistance and chose the latter. The welfare lifestyle was not one to boast about, but welfare recipients were comparably better off with the government program.

Jeremy Rifkin, an economist who wrote the “European Dream” (2005), writes that the American dream has become defunct for the natural success of what is the European model. For the most part, the fault lies in Americans unwillingness to commit tax money to the task of redistribution. Comparingly, Europeans are far more willing to entertain the idea of government intervention to redress income inequities. The fact of the matter is that the wealthiest Americans, those in the top 1% and the top 25%, pay the largest burden of taxes in support of our economy (Figure 2). The Obama administration is now seeking to raise taxes on this group even further (Riedl, 2009). Whereas the poorest Americans, the lowest quarter-percentile or those whose income was less than $50,000, received rebates in the form of child tax credits, earned income tax credit, and other credits instead of paying taxes. This is a modern-day rendition of Robin Hood, tax the rich and pay the poor.

Who Pays America’s Tax Bill

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Figure 2. The wealthiest American taxpayers have carried the proportionally greater burden of tax debt for the past few decades. Future expectations remain unchanged.

Source: Internal Revenue Service

The European system, where incomes are reduced through the levy of taxes to support the citizenry, is unnatural to American society. Europeans believe that market forces, if left to their own devices, are unfair and, therefore, Europe designed a redistribution of taxes in the form of transfers or payments to those less fortunate (Murray, 2009). European society considers this as the appropriate antidote to unrestrained market capitalism and is why Europeans support the notion that the creation of the social democracy as a big system that balances market forces with government assistance was the greatest benefit derived from World War II.

European welfare programs are instituted with considerations that society, as a whole, benefits irrespective of race, language, or nationality (Kupchan, 2003). In the United States this is not so. There exists both racial and economic divides, which in turn cause class divides in how welfare is managed and distributed. The apparent fact that America now has a black president does little to sway the majority that the face of America’s welfare recipients single, unwed, black women with children. These welfare mothers are often portrayed as living off the government, avoiding work, and having more babies to affect the collection of more government assistance. Contrary to those beliefs, the number of single, unwed, white women with children on government assistance has increased to double figures since the late 1980s (Bork, 1996). This upward trend reflects that African-Americans are not the only portion of society trapped in a cycle of government assistance, low-paying work, and back to government assistance (Wilson, 1996).

Taxpayers, of all classes, contribute in some part to American social programs of welfare, Medicare, and Social Security. This does not necessarily need to change. America is not Europe; we do not share the same ideals, values, goals, or entrepreneurial spirit. Europeans have no problem with taxing the rich and, if we leave it to the Obama administration, the richest people in America will continue to pay the most in taxes (Riedl, 2009). Although this has historically been the case, if Obama passes his tax program the top rate in the United States will rise to 49%. If additional proposed legislation passes to eliminate the cap on Social Security, government spending will soar and so will the marginal tax rate, bypassing every European nation, including France (Figure 3).

U.S. Government Spending as Percentage of GDP

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*Dollar amounts are in Billions

Figure 3. Source: Forbes.

Current Marginal Tax Rates as Percentage of GDP

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Figure 4. Source: David Gauthier-Villars, "Sarkozy's Bette Noir: Tax on Rich," Wall Street Journal, March 18, 2009,



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Institution / Hochschule
Northcentral University – School of Business
American Tolerance Government Intervention Socialist Agendas During Economic Recession



Titel: American Tolerance of Government Intervention and Socialist Agendas During an Economic Recession