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American Socialism: Accept it, but Do it Right

A man in a suit pours water into an overfilling cup of coal

The United States is one of the most socialist economies in the world. Most Americans would be surprised to hear this because we still lack a legitimate social security net, an equitable public education system, and even a basic assurance of healthcare for all. However, none of these protections equate with socialism. Socialism is a form of state organisation in which the government regulates the production and distribution of select goods and services. From there, the government may decide to use its control to redistribute wealth throughout the economy. In countries like the UK, Australia, and France, socialist policies are used to help the people. They fund phenomenal public healthcare systems, outstanding education programs, and robust social safety nets. In the United States, socialist redistributive policies fund uncompetitive industries like commercial farming and coal mining.

Both varieties of socialism rely on the average taxpayer. However, while one form ploughs back wealth to the people more broadly, the other helps only a select few. This is no longer a matter of whether the United States practices socialism or not, it’s a matter of which type of socialism we are okay with.

Pricing and Understanding Farming Subsidies

Unproductive socialism is most obnoxious in the agricultural industry. Farming subsidies come predominantly from the Farm Bill, a Congress handout that equates to $428 billion in aid for the 2019-2023 period. Every five or six years a new bill gets passed. It’s a lot like the Soviet Union’s old five-year plans, the dominant force driving Stalin’s socialist industry policy. Under the Trump administration, support for farmers was drastically expanded. This expansion was justified as necessary due to the administration’s devastating trade-war with China, and later the coronavirus outbreak. In 2020, US farmers got $24.3 billion coronavirus payments, $5.9 billion from Payroll Protection Program loans that are generally forgiven, $3.7 billion in trade war payments, and $10 billion in additional farm subsidies and land steward payments.

Apprehension over this socialist protection program should become exasperation when you analyse the ‘redistributive’ reality of this aid. A study done on the payments through July 2019-2020 showed that over 70% went to just 100,000 individuals. Among them, ex-senator Kelly Loeffler, who received over $1 million in federal subsidies between 2018-2020. The problem lies in the programs’ designs. Payments to farmers and corporations, up to $250k and $750k respectively, depend on the size of production. So the bigger a farm, the more money they can get. This design runs in direct contradiction to the Republicans’ façade, in which they purport to protect America’s farming communities. They do the exact opposite. Already benefiting from economies of scale, these subsidies are based on aggregate output, and therefore ignore differences in fixed and variable costs, making competition impossible. 

As a result of these obscene redistribution policies, 39% of American net farm income in 2020 came from government handouts. To make a conservative estimate at the total price, adding the pro-rated farm bill assistance to special 2020 relief puts total farming subsidies for last year at $129.5 billion. That is socialism. There are no two ways around it. The free market approach would be to eliminate the subsidies altogether, and let the farms compete on their own. It definitely would not be to prioritise subsidisation for large industrial agriculturalists.

Coal Subsidies

Conservative socialism does not stop with agriculture. Fossil fuel subsidies are even worse, by both size and utility metrics. There is no point trying to quantify the total cost. To break down the government’s exact burden through both direct and indirect subsidies, like environmental costs, health costs, consumer purchasing assistance costs, etc., would take a lifetime. It’s a mess.

For simplicity, let’s just consider coal: an industry that academics at large have agreed is so unprofitable, and so full of externalities, that it’s beyond the point of economic reason. If this isn’t convincing enough, the private market has also shown clear signs of disbelief in coal’s future, evidenced by the fact that financiers and insurers are running in the opposite direction. When big corporates abandon something, you know there’s really no money left in it. In complete contradiction of this reality, as of 2017, the US government was still providing over $1 billion in fiscal support every year. This number also fails to capture consumption-facing subsidies, which are those that bring down the price of electricity. In effect, the government pays the coal industry because their product is too expensive. In 2017, these types of subsidies added another $718 million to the government bill.

Pricing this will, similar to farming subsidies, miss massive components of the total cost. But as will become clear, one doesn’t need to find every dollar spent to realise that this has gone too far. Estimates for 2019, put total fossil fuel subsidies at $20 billion, with 20% of that allocated to coal. That figure comes in at $4 billion in coal subsidies. It also likely understates how these increased in 2020 under former-President Trump as he attempted to buy more votes through socialist style government protection in the wake of his impending election defeat. 

Why are American Politicians Supporting these Subsidies?

To make it clear, socialist-style subsidization policies aren’t solely the result of Trump, nor can we isolate blame on the Republican party at large. Support for farming subsidies can often be bipartisan, coal subsidies not so much. It’s best to leave corruption and lobbying out of the picture. Not because it’s not going on, it is. But because there’s little point getting caught up in it. The two predominant reasons for which Congress and the Executive dispense so much aid toward farms and coal mines are votes and security.

The American voting system is the first problem. The electoral college is designed in such a way that you’d think cows have more votes than people. A state’s electoral vote total is a product of its population relative to others, plus two votes each. It’s nice in principle, but as farmland has been consolidated this allocates more and more voting power to fewer people. For example, one vote in Wyoming carried 3.6x more influence in the 2016 election than one vote in California. It should be no surprise that two of the three biggest states by coal reserves (and also major agricultural regions), Montana and Wyoming, have some of the most skewed electoral powers. Neither of them have gone blue for almost 30 years. As long as low population states with large industrial farms and mines have this disproportionate power, politicians will continue to pursue economically backward and socialist policies to grab these easy votes. If it didn’t have to do with votes, then why does this type of aid also seem to spike up right before election time?

The other reason is national security. This is straight out of Economics 101. Some industries are worth protecting, even if they’re not competitive in the global economy. For example, if the United States let its manufacturing or farming industry completely die and a war broke out, there would be no way to ensure we could produce arms and food for everyone. This makes sense. But there’s a difference between keeping US agriculture sufficient, and paying for 39% of farmers’ income. As of 2018, the American agricultural export-import surplus was $11 billion. That means the US government is literally paying for corporate farms to be able to export overseas, even though they produce at often uncompetitive prices. National security should, at the absolute maximum, ensure that we produce enough to have a trade balance. In reality, this is also way too cautious. Economic efficiency shouldn’t be compromised so far that we assume we’ll have absolutely no trading partners in the case of a war. A conservative standard would be to ensure we can produce say, 70% of the food we need without trade. This strategy would allow us to effectively eradicate farming subsidies. As for coal, the United States navy has run on oil for over 110 years. There is no reason to protect it.

How to Better Spend this Money

If we eradicated coal subsidies, and cut 85% of farming subsidies, this would free up over $114 billion a year. Here are three ways the money could be split. 

The biggest proportion should go to reskilling America’s 50,000 coal miners. We need to give up on coal, but not on these people. $50 billion toward this cause would mean $1 million in government support for each family relying on a coal worker. Obviously, blank checks are not the way to do it. Subsidies should come in the form of incentives for R&D investment in renewable solutions, free re-skilling education for workers under 50, and Social Security benefits for workers over 50 who do not wish to reskill. If we’re going to do socialism, we should at least do it right. Unlike the current situation, these efforts would actually lead to economic growth. Renewable energy is already more efficient to produce than coal, and R&D incentives will lead to it being even cheaper to produce. This initiative will also bring more than just 50,000 transitional jobs. In short, this move is better for the average American and better for the economy.

Farming subsidies should also be cut to 15% of what they are. This leaves about $20 billion a year. The five year plans should be scrapped completely. The subsidies should go toward small farms. If a corporate farm can’t produce competitively, let it die. $20 billion for small family farms should be invested in irrigation and innovation efforts. A large research subsidy could lead to new technology, which would help everyone. Blank check subsidies like the $250k and $750k ones in place need to go. These forms of socialism don’t actually fix everything. They only postpone the inevitable fate of uncompetitive production. As the Chinese proverb reads: ‘Give a man a fish, you feed him for a day. Teach a man to fish, you feed him for a life time.’ A subsidy should be aimed at expediting improvement, which in turn would enable American farmers to compete in the global economy without support. The best subsidies are those designed to disappear. 

This leaves $42 billion on the table. The best idea is probably to pay down the US deficit, which, thanks to Trump, is now at $779 billion a year. Other options include: investment in primary care for rural communities, registering over 50 million Americans to vote, investing in public lower-education, ensuring tap water is safe to drink across America, fixing America’s abhorrent tax filing system, larger government investment in corporate and personal cybersecurity protection, subsidizing the minimum wage increase, making baseball more fun to watch, building a giant, blue lamp-bear in rural Rhode Island that can be seen from the moon, etc. Literally any of these ideas would be better than propping up the coal industry and giving $750k cheques to corporate farms.

There’s nothing wrong with government spending. Socialism shouldn’t necessarily be labelled as a bad thing. We just need to understand how it’s being used. Any type of blank check support program (not including coronavirus relief) should be eradicated. Support for the dying coal industry should be eradicated. Most frustratingly, Republicans’ repeated screams at the idea of ‘socialism’ should be contextualised by their overwhelming support for socialist policies designed to protect these uncompetitive industries. There are a thousand different ways this money could be better spent. The government has an enormous potential to use such policies for things that not only help the average American (who pays for this in the first place), but things that can also lead to economic growth, and eventually to reducing federal spending. Let’s call these types of policies by their real name, and use them for good. 

Original illustration by Lucia Li