Quietly socializing…the world’s seemingly inexorable journey to socialism

When asked how one could tell whether a country had left capitalism and become a socialist economy, the Austrian economist Ludwig Von Mises said:

“A stock market is crucial to the existence of capitalism and private property. For it means that there is a functioning market in the exchange of private titles to the means of production. There can be no genuine private ownership of capital without a stock market: there can be no true socialism if such a market is allowed to exist.”

In Mises’ view, as long as a private stock market exists, individuals will make the valuation of capital and steer capital towards the most financially remunerative projects.  But was Mises right?  In the abstract, of course he was.  But in the world we live in, perhaps not.

What happens when there is a stock market, but it is heavily manipulated by the public sphere?  How much manipulation of markets is allowable before we have crossed the line to socialism?  I don’t have the answer, but questions are being raised.  One headline this week was in Japan:

The Bank of Japan’s controversial march to the top of shareholder rankings in the world’s third-largest equity market is picking up pace.  Already a top-five owner of 81 companies in Japan’s Nikkei 225 Stock Average, the BOJ is on course to become the No. 1 shareholder in 55 of those firms by the end of next year, according to estimates compiled by Bloomberg from the central bank’s exchange-traded fund holdings. BOJ Governor Haruhiko Kuroda almost doubled his annual ETF buying target last month, adding to an unprecedented campaign to revitalize Japan’s stagnant economy.

If the government is the #1 shareholder in a country, can we really say that the market is allocating capital?  It’s not much different in the U.S. (and indeed the rest of the world), with monetary and fiscal policy artificially guiding resources.  In a reflection of this reality, this week we see the gleaming new Fannie Mae headquarters being built in Washington DC.

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Contractors work at the site of the new Fannie Mae headquarters under construction in Washington, D.C., U.S., on Wednesday, Aug. 17, 2016. The hole at the corner of 15th and L streets, in downtown Washington, is deep -- and getting deeper. Earth-movers there are digging the foundations of a shiny new headquarters for Fannie Mae, the bailed-out giant of American mortgages. Photographer: T.J. Kirkpatrick/Bloomberg
Contractors work at the site of the new Fannie Mae headquarters under construction in Washington, D.C., U.S., on Wednesday, Aug. 17, 2016. The hole at the corner of 15th and L streets, in downtown Washington, is deep — and getting deeper. Earth-movers there are digging the foundations of a shiny new headquarters for Fannie Mae, the bailed-out giant of American mortgages. Photographer: T.J. Kirkpatrick/Bloomberg

This uneconomic behemoth is the epitome of crony capitalism gone bad, an institution which almost no one thinks is something we ought to be doing, but Washington can’t imagine doing away with it. Do you see this kind of building being built by other money-losing ventures?*  I’m afraid we’re continuing down the quiet path to socialism.

* Granted there are money-losing ventures that build nice buildings in many new ventures, but they are expected to make ample returns in the future.  Virtually no sane person would have that high a hope for Fannie Mae

16 thoughts on “Quietly socializing…the world’s seemingly inexorable journey to socialism”

  1. In today’s age, manipulation of the market is almost expected as stock prices go up and down so irregularly. It seems only large corporations can take the risks of buying. It seems easier for certain organizations to take control of businesses if they set that as a goal.

  2. Why are they constructing a new building for Fannie Mae if it’s a money-losing venture? Also, how much of the stock market does our government control as of now and how long will it take, on our current trajectory, for the United States to become a socialist nation?

  3. I had no clue Fannie Mae was building that new building; it seems excessive. Nonetheless, I appreciate the questions you raise and agree that we are slowly moving towards socialism.

  4. Because stock is partial ownership of a company, whoever owns stock in that company has an investment within both that company and the economy. Interestingly, if that money did not come from within the economy than the market has had nothing to do with that investment.

  5. I have never put too much thought into the stock market before but this article has definitely opened my eyes to what is going on around me. I agree that the stock market experiences such dramatic ups and downs that it really does start to feel like only large corporations can buy in. It is hard to tell if we are moving down the path of socialism, but now that questions are being posed and examples like the government being the #1 shareholder in a country, it makes you wonder.

  6. I’m wondering for my own sake: why is this a bad thing? Sure, pure socialism is not where we want to go, but why is this specific step a bad one? I really appreciate your questions and points that you raised, though. I think that we, as a country, might not be worse off with governmental influence in the stock market and I believe that the federalist party of the 18th century would agree. But, for the lack of my economic insight, I’ll just base my reasoning on the fact that this is just all part of “the great American experiment” (Tocqueville)

  7. Why is the worlds journey to socialism only seemingly inexorable? Is there some way that we could stop it if we looked deeper into the issue?

  8. Personally, I think that socialism can only be slowed down in capitalist societies. As the number of ignorant uneducated voters increases and corruption in government continue, I don’t have high hopes for America.

    While the events in Japan are unsettling, they aren’t surprising. It will be interesting to watch how their economy develops once the government controls most of its stock.

  9. I think socialism is taking its roots in America and as well as other parts of the world in much more subtle ways than what Von Mises said. I knew stock markets where largely manipulated by governments and large corporations, but I did not expect the government to be the top shareholder in Japan. I studied Japan and spent some time in Japan last year, and I did not think it was an overwhelmingly socialist country, although I did not study the government any significant amount. It is certainly nothing like China, that is for sure (I have not actually been to China, but from what I know this is true).

  10. Where were all of the students this summer? I would hope they’d be interested in politics and the economy twelve months of the year, not just while they are in class. :-(

    1. Just a thought, but maybe some of these people are newcomers to the blog. Maybe they have just heard about it. Maybe some of these new ones will continue participating year-round. Instead of jumping to a negative conclusion, why not a positive one? :)

  11. The construction of the new Fannie Mae building reminds me, in a way, of the manipulation that occurred in the years leading up to the recession in 2008. Mortgaging companies were giving out loans to people that ultimately would not be able to afford them, because it was a quick profit for the mortgaging companies. Because of this, around 2008, the housing market crashed because everyone realized that they were not able to afford what they had already spent which caused mass panic. Its not the same scenario, obviously, but whoever is building the Fannie Mae headquarters knows that they ultimately won’t be able to afford it. So why build it in the first place? What do they have to gain? Is it to give the illusion that they are doing better than they truly are in hopes that their stocks will be in higher demand?

  12. I was just reading up about socialism and its economy style for our politics class… Interesting that at the root of a socialist economy is that individuals have a freedom of choice. However this freedom to choose is limited by policies of the government. Over the past 20 years government involvement has skyrocketed so it’s no shock to see it especially in the stock market. Yes, we all still have the freedom of choice but that choice is being persuaded and controlled in ways that aren’t as noticeable.

  13. Hah, I wasn’t aware that Japan had a stock market. For whatever reason I just assumed that it was only an American thing.

    Also, I normally would question why the “uneconomic” Fannie Mae headquarters is being built, but this is Washington DC we’re talking about. Rarely anything done there ever makes sense. The president went golfing when Louisiana was flooding for crying out loud! It’s like partying when you’re supposed to be taking an exam.

  14. I agree with your evaluation of Mises’ statement. Just because a stock market exists in America does not mean that our country is safe from socialism, especially since the government’s influence in the stock market is so prevalent.

  15. Less encouraging, however, is the seemingly inexorable march of the population momentum which ensures that the number of people being added to the world ‘ s population is still rising and is now approaching 90 million annually.

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