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.
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.