Obama’s Budget Would Push U.S. into Socialism

Economic Snapshot for April 1, 2009—April Fools’ Day edition

by Ethan Pollack and Kathryn Edwards

President Obama’s 10-year budget proposes to increase government spending by 2.4% over the baseline spending trajectory. This increase, which represents 0.5% of gross domestic product (GDP), has numerous goals: address the current economic crisis, create jobs, and transform the economy for the 21st century through improvements in energy, health care, and education.  Sadly, this upsurge in spending pushes the United States past the socialist threshold.

Developed by Friedrich Hayek, the Socialist Threshold—or “Tipping Point” as it is commonly called—states that an economy abandons capitalism and becomes socialist when spending exceeds exactly 23% of the economy.¹ Any government spending beyond that threshold indicates a bleak future filled with universal health care, energy independence, and, in the worst-case scenarios, high-speed commuter rail.

Although Obama’s budget would return spending to its pre-spiral-into-socialism level of 22% by 2012 and keep it well within the Reagan-era average (22.3%) for the remainder of the budget window, the effect of having spending exceed the Socialist Threshold, even if for only three years, is enough to permanently purge capitalism and commitment to “free” markets from the U.S. economy.

Note:
1. The Hayek Tipping Point was brought into some question in 1983 when, under President Ronald Reagan, spending reached 23.5% of GDP. Most economists agreed, however, that Reagan’s dedication to free market rhetoric and avuncular humor inoculated the U.S. from backsliding irrevocably into socialism.