Socialism is growing in popularity in the United States. Many found it shocking when Bernie Sanders, an open socialist, declared his run for the Democratic Party’s Presidential nomination in 2016. But this go around it is not just Bernie Sanders who is getting behind policies widely characterized as “socialist.” The growing popularity of socialism indicates that it is becoming politically acceptable. It’s the cool thing.
I don’t think it’s so much that people love socialism. I think it is that people are becoming frustrated with Capitalism and are looking for an alternative. An article in the Seattle Times (Socialism Is Gaining in Popularity and Today’s Capitalism Is To Blame) argued that: “Many millennials say they like socialism. I suspect they are frustrated with record levels of student debt, low-paying entry jobs except for the tech elite, and looking around at a nation with growing inequality and shrinking opportunity.”
It is my sense that that assessment is pretty much on the mark. People are turning to socialism not because they have been persuaded by theoretical arguments for it but because they don’t believe that capitalism is working for the little guy anymore. I am a capitalist. I believe that, when it is working well, capitalism can be the best economic system for the little guy. It creates growth and growth opens up opportunities for the little guy that no other system has been able to produce. So it pains me to see people losing confidence in our capitalist system.
But I do understand why this is happening. Too many of the people who share my enthusiasm for capitalism act as if widespread support for capitalism is a given, that the majority of Americans are always going to support this economic system because it has done so much good for so many of us for so many years. I don’t think that’s right. If capitalism is going to remain popular, it needs to adapt itself to changing times. Capitalism needs to be reinvented from time to time if it is going to continue to maintain enough public support to survive.
I was having a conversation with a friend the other day and, as often happens in conversations in which I play a part, the discussion turned to consideration of the need for a national debate on the far-reaching implications of Robert Shiller’s “revolutionary” (his word) research findings. My friend indicated that he does not have a problem with my claims re the importance of Shiller’s work. But he certainly did not share my intensity re the topic. He said that he is not a Buy-and-Holder himself and that thus he does not think that failing to spend too much effort understanding Shiller’s work is going to do him much harm.
I softly suggested that he might be missing the point. Shiller is not an investment advisor. His research can certainly be used by investors to develop more effective investment strategies. But I don’t think that it is Shiller’s primary aim to help people invest more effectively. Shiller is an economist. His aim is to help us all understand better how our economic system works. The stock market is a big part of our economic system. He helps us understand the stock market as part of a project of helping us to put our economic system on a stronger footing.
Shiller is trying to improve capitalism. By doing so he is helping those of us who love capitalism from the threat of the growing popularity of socialism. We are not going to defeat the growing popularity of socialism by making theoretical arguments for why capitalism is better. We need to address people’s concerns that the capitalism of today is not getting the job done. Shiller’s work, properly understood, does that.
I wanted to jolt my friend (who is a very good and highly intelligent man) out of the complacency that I thought he evidenced over the big-picture concerns to which Shiller’s research points. Shiller’s work shows that stocks are today priced at two times fair value and that, once the irrational exuberance that causes such overvaluation is expelled, stock prices always fall to one-half of fair value. If we were to see that long-repeating historical reality play out one more time, we would see a price drop of 70 percent. I pointed out to my friend that a price drop of that size could bring on a Second Great Depression, it could cause millions of people to lose their jobs.
My friend was unimpressed. I know for certain that he would be horrified to see the human anguish that would follow from an economic catastrophe that caused millions to lose their jobs. But there is something that causes many of us to become fatalistic about these sorts of scenarios. Many people do not challenge me when I raise such possibilities. They shrug their shoulders. The idea seems to be that there is nothing that can be done. Capitalism is a wonderful system most of the time. But every now and again it brings on crushingly painful reversals of fortune. That’s the way it has always been, that’s the way it always will be.
Until Shiller came to the rescue!
Shiller predicted the 2008 economic crisis in a book published in March 2000. Shiller understands better than anyone else the true cause of the crisis (high stock prices, which always bring on trillions of dollars of losses in the long run). Since Shiller was able to anticipate the crisis, he was the one that we should have turned to explain it and to advance a new understanding of how stock investing works that would rule out a recurrence of all the horrors that we experienced during the months of panic that we saw in late 2008 and early 2009. Of course we did not turn to him at all. We ignored Shiller’s message even when his warnings came true and now we are again at price levels dangerous to all of us, stock investors and non-stock investors alike.
If Shiller is right, we will soon be getting another chance to open our minds to his message to us. High stock prices do not carry the positive message that they pretend to carry. High stock prices do not last. Investors who push stock prices to super high levels are borrowing from their own futures, insuring both stock downturns and economic downturns in days to come. The boom/bust cycle that is encouraged by the widespread promotion of Buy-and-Hold strategies causes too much pain to too many people to be an acceptable part of a capitalist system that hopes to retain the support of the people who must vote for it for it to remain in place.
A pre-Shiller capitalism doesn’t get the job done. Millions of middle-class people are counting on the money in their retirement accounts to assure their financial futures. If half of that income is the product of a temporary irrational exuberance, those people are going to lose confidence in our economic system when they see years of saving effort laid to waste. A healthy capitalism does not permit the sort of price crashes that have become typical of our stock market in pre-Shiller years. Shiller is trying to help us build a better capitalism. As someone who is concerned about the growing popularity of socialism, I hope that we begin listening more carefully to what he is trying to tell us.
Rob’s bio is here.