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The America They Believe In Part 3: America’s Slide To Socialism?

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Last week, the founder and CEO of Interactive Brokers, Thomas Peterffy, explained, during an appearance on CNBC, his belief that America is well on her way to socialism. Peterffy’s warnings come on the heels of his recent election ad, intent on cautioning voters against casting ballots for the party which would ‘take away the wealth that helps us [the wealthy] take care of the needy”. According to Peterffy, the America that regulates businesses, imposes higher taxes, and increases spending all in the name of social equality is ripe for a ‘socialist takeover’. To his credit, the federal government has spent trillions over the last four years rescuing banks buried in debt, combating unemployment and has tried its hand at some regulatory reforms with Dodd-Frank and Affordable Care, but is this really socialism? How exactly do higher taxes on the wealthy set the stage for a socialist takeover, when nearly every social revolution in history came from the working class? Is Peterffy, an immigrant from Communist Hungary, even correct when he says socialism? At best, Peterffy’s acusations boil down to yet another sad coloring of federal spending and regulation by a misstepping conservative playing the communism card.

The America Peterffy Believes In

During his interview, Peterffy stressed the upcoming election’s impact on the development of socialism in the United States. He argued that the choice for voters was between a path of increased government influence over the economy through regulation and deficit spending, and a path that returns to the “American tradition of economic freedom and individual liberties.” In his view, America has reached a critical turning point in its history, thanks to the increased dependency on federal entitlement programs and if Democrats win in November, more than half of Americans would be dependent on some form of government assistance by 2016, laying the groundwork for a ‘socialist takeover’. 

For Peterffy, a Democratic administration also means dramatic increase in taxes since the Constitution doesn’t explicitly limit the government’s ability to set income tax rates. The wealthiest Americans and corporations could see tax rates up to 100 percent which would catalyze the abandonment of businesses by owners, increase starvation, and prompt the formation of a police state. He dismisses the idea that corporate America hopes for a Republican administration because of the potential benefits of lower corporate and capital gains tax rates alongside less regulatory oversight from federal authorities.  

Is Spending And Regulation ‘Socialism’? 

Peterffy’s confusion of socialism aside, the increase in federal public debt (the actual liabilities on the government’s balance sheet) is largely the product of the government’s stabilization and recovery efforts. CBO data shows that the government spent around $7.21 trillion between FY2008 and FY2010. Of that, $3.847 trillion can be accounted for in the government’s various recovery and recapitlization programs 

  • American Recovery And Reinvestment Act: $787 billion
  • Troubled Asset Relief Program: $700 billion
  • AIG recapitalization: $60 billion
  • Sale of Bear Stearns to JPMorganChase: $25 billion
  • Capital Injection to Fannie and Freddie: $275 billion
  • Quantitative Easing through 2010: ~2.054 trillion

It’s important to note that most of these funds have gone to the banking sector to encourage lending and investment, and despite the guarantee of continued liability purchasing and low interbank rates from the Federal Reserve, levels of economic activity remain modest. 

On regulation, claims of socialism are equally overstated because the most recent regulatory enhancements only moderately increase federal presernce in financial markets. New improvements in federal oversight come from Dodd-Frank, but as discussed in “The American Recession” Parts 1 & 2, Dodd-Frank focuses on regulators identifying systemic risks and managing the bankruptcy of banks ‘Too Big To Fail.” The only portions of the Dodd-Frank law that permit federal authorities to intervene in the business of financial markets are titles V, VII, and IX. Dodd-Frank grants no new authority to really intervene in financial markets by: separating commercial and investment banking, monitoring high frequency trading, or prohibiting special purpose vehicles. 

Could America See Peterffy’s Socialism?

No because Peterffy isn’t really talking about socialism, he’s talking about Communism and calling it Socialism. Thomas Peterffy was born in Hungary in 1944 and emigrated to the United States in 1965. History tells us that after Nazi Germany was relieved of its conquests in Eastern Europe, Soviet Russia’s Red Army began a military occupation of Hungary and for five years tried (with varying degrees of success) to install Communists in important political positions. With reinforcements from Moscow, the communists in Hungary formed the People’s Republic of Hungary in 1949, beginning the era of Stalinism in Hungary. Peterffy would have seen much of the failed 1956 Revolution and lived through the early years of the Goulash-period in Hungarian communism until he finally left Hungary in 1965. 

Stalinism and Goulash Communism are two offshoots of Soviet Communism, which is commonly confused in the United States as a socialism, but the two couldn’t be any further apart in 20th century politics. Generally, communism is a left-wing radical movement seeking to supplant the existing political structure and replace it with a new one. The new government seizes the modes of production and reditributes them equally (in a quantitative sense) throughout the population. Most Socialism observed during the 20th century falls in line with what Marx described as, “Conservative” or “Bourgeois Socialism,” in which the existing political model is retained and only reformed to provide answers to societal concerns. Also problematic is Peterffy’s, socialist takeover theory, where he suggests that raising taxes on the wealthiest of society and regulating businesses would lead to some type of socialist revolution. History tells us that nearly all of the revolutions that established Communist governments began as popular uprisings from the lower or working classes. Interestlingly, most socialism originated from monarchist counter-revolutionaries trying to maintain the status quo, where the wealthly enjoyed the greatest privilege. 

Last Words

At its core, Peterffy’s election ad campaign shouldn’t be viewed as anything more than another Wall Street financier’s endorsement of a candiate who would lower his taxes. Peterffy is the founder and CEO of a major electronic trading firm, an industry the SEC is seeking to regulate if it ever crawls out from under the mountain of lawsuits over Dodd-Frank. He’s even maxed out his donations to the Romney-Ryan campaign and sits squarely in the one percent as the 77th Richest American. Pardon me if I choose not to heed the word of a socialist.  

 

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About Alexander J Smith III

  • Dr Dreadful

    Not your best work, Alexander. You set up a straw man by accusing Peterffy of confusing socialism with communism, then proceed to do it yourself. While it’s true that from a right-wing perspective the two systems are more or less interchangeable, it’s specifically Marx’s “bourgeois socialism” – the benign, non-revolutionary version that, as you say, has been the reality in most “socialist” countries – that Peterffy seems to be worried about.

  • Alexander J Smith III

    My position isn’t that Peterffy is worried about bourgeois socialism, my arguemnt is that Peterffy’s experience is with Goulash Communism that he’s referring to as socialism. I agree that “bourgeois socialism, is mostly counter-revolutionary, but Peterffy wouldn’t have any experience with this socialism since the People’s Republic of Hungary was founded and led by Soviet Communists.

  • Dr Dreadful

    Then he has about as much experience with socialism as most native-born Americans. :-)

    Whereas coming from Europe as I do, I am in a position to appreciate that what Republicans screech about as socialism is actually social democracy – and that the various social programs operating in the US are barely even that.

  • Alexander J Smith III

    Right, and that’s what I’m getting at here. Peterffy goes on and on about how the US Governments domestic economic policies have started the trend towards what he called socialism. But when you really look at what the government has done, and has the power to actually do, America couldn’t be any further from Communism, or Socialism if it tried. I’m not sure I was able to here, but I did want to present the idea that statements like this from America’s political conservatives (and I use that term cautiously) continually misrepresent the two quite contrasting ideologies and that these people honestly don’t know very much about either

  • Deano

    To quote the inestimable Inigo Montoya:

    “You keep using that word. I do not think it means what you think it means.”

  • Igor

    Socialism isn’t going to be the one to come and take your house away and redistribute it to idlers at the banks, capitalism is, in all it’s sanctimonious glory.

  • Winston Apple

    The number of people in the United States who could be accurately described as socialists (or Communists, Marxists, or Leninists) is insignificant . The “far left” equivalent of the hard core capitalist views held by radical right-wingers who cling to the orthodoxy of Milton Friedman, for example, is no where to be found. No one is advocating the abolition of private property, the freedom to start and operate a business, and complete ownership and control of all natural resources and means of production by the government.

    The right wingers toss the word “socialist” around because “liberal” seems to have lost it’s status as the pejorative of choice. The Democratic Party, taken as a whole, is a muddled mess gathered loosely on both sides of the middle of the road.

    The struggle is not between the far left and the far right. It is between a unified radical right and a confused and disorganized center.

  • Igor

    Actually, the struggle is between the moderate right and the radical brass-knuckles right, as David Frum has pointed out.

  • Alexander J Smith III

    -Winston

    Thanks for you post.

    I agree that traditional “far right” and “far left” divisions really don’t exist in the American political system, just another reason why claims of “socialism” don’t make any sense. If anything Obama and his party are mostly centrists with a few liberal like Sanders thrown in there for flavor

  • Winston Apple

    Igor (#8) You are probably right about the main struggle.

    Alexander (#9) You’re welcome. I would like to mention that Senator Sanders identifies himself as a “democratic socialist.” I find it interesting that I consider myself a “centrist,” and yet I am unaware of a single issue where I disagree with Senator Sanders. He seems to me to often be a lone voice of reason crying out in the wilderness of American politics.

  • Glenn Contrarian

    Winston –

    For the life of me, I can’t think of anywhere that I disagree with Sanders as well. He’s old, and it will be a tragedy when he finally retires.

  • Igor

    I’ll cast another vote for Bernie Sanders.

  • I Telefus

    Thomas Peterffy’ s family sold out Hungarian Jews to the Nazi’s. Mr. Peterffy obviously is very confused because Hungary has never been a Socialist country, instead it has been a Communist country. Big difference between the two. He makes me want Puke with his BS.

  • Igor

    All of the worst phenomena that rightists would blame socialism for have become part of capitalism: abuse of customers, abuse of suppliers, monopolisation of markets, destruction of competition, and last but not least, welfarism. The biggest hogs at the government trough are now the businesses of America, many of whom, incidentally, are foreign owned but empowered by a compliant congress to drain USA resources.

  • Igor

    Meanwhile, the republican Romney thinks that FEMA should be disbanded and it’s function doled out to the states. That way we’d have 50 FEMAs instead of one, with 50 staffs instead of one, 50 separate budgets instead of one, etc.

    Can you imagine how chaotic the East Coast would be now, during Sandy, with 50 agencies running around?

    Where’s that brilliant business acumen that Romney is supposed to have? When is he going to show us how smart he is?

    Romney wants to bring back the bad old days of Good-Job Brownie and his fumbling boss, GW Bush.

  • Loiseau Pierre

    Hi from socialist Belgium, were poor get richer, and rich get reliable customers- and finally get also richer ! It’s nice to have an health insurance that wil pay back for when you get tuberculosis, but it’s better when you do not catch tuberculosis, as your socialist care system cure the 0.2% of ‘infectious tank’… Finaly at less cost ! It’s nice to have a robbery insurance, and even to hire a body-guard, but it’s better when you are not robbed, as your socialist country gives anyone 1000$ a month, and nobody is angry hungry, or has to rob money to get cure for the kids… Anyway tey are going to spent all this money, which is going back to the tax-payers. The community health is its money times the number of times it circle. There is a huge difference between budget and cost; obamacare’s budget is 700 billions, but obamacare’s cost is 15% thereoff, ie 100 billons, provided the first thing medic will do with their money will be paying taxes, engaging nurses, who will also pay taxes, both medics and nurses are going to buy things on which theyre are taxes on one hand and revenue for the seller, the transporter, the manufacturer… And thus taxes, and revenus which will be spent -more taxes, more revenues… Allready 2000 years ago, Romains figured out it was less costly to pay ‘panem en circenses’ than to have social revolution; Greeks figure out better worship Hygiena, the public health god, which meauns to buit sewage for all the city and this way avoiding pest for both poor and rich, than to worship Panacea, the private health god, and everybody on his own, but rats dont remain on poor’s parcels ! And Hungary was a fascist country, who went on war on Russia, losses the war, and became an occupied country, not a socialist one, not even a communist one… We can’t understand here in Belgium how respectable networks accept to diffuse such a poor lying ad !

  • Mario M

    I lived in a Socialist country (born and raised) for 20 years, and I have to DISAGREE with peterfy’s ad. Also, I could never really see a whole lot of credibility in immigrants who bash their native country.