There are many who fear the country is headed towards socialism. There are some patterns emerging. Interestingly, though, the move towards socialism is not so much being pushed by socialists. Rather, the American form is really a trend away from free market capitalism.
It appears to have started in 1977 when Congress amended the Federal Reserve Bank to take on the mandate of price stability and full employment. These goals belong in Congress. In a shift away from democracy and free markets, Congress decided to place their burden on unelected bureaucrats. The Federal Reserve has proven they are unfit for these tasks and their efforts have been a disaster. Even the manipulation of the Consumer Price Index and labor statistics could not help.
There are social aspects within this trend well before the ideology is manifest. A political decision has been made to protect the wealthy and powerful from their own financial mistakes. This is achieved by restricting the normal forces of the free market. This is very apparent by the actions of the Federal Reserve and the U.S. Treasury. It popped up noticeably when Federal Reserve Chairman Greenspan exercised his “put” after the 1987 crash. This was an attempt to contain the damage that could have hurt Wall Street. This created the notion of “moral hazard” that continues to this day.
Historically, the trend continued in 1998 with the rescue of the mutual fund for the wealthy, Long Term Capital Management. Despite its Nobel affiliation and descriptive name, it quickly lost almost all the money. The Fed and the Treasury helped round up the cavalry to rescue the rich people. This set a new standard to protect the wealthy and powerful.
The “put” came back in vogue along with “quantitative easing” with Chairs Bernanke and Yellen. It may have had a more legitimate use during the Great Financial Crisis (2008) and pandemic. All in all, though, it was a great excuse to protect Wall Street and shower the public with fiscal largesse as a salve for the injury caused by Wall Street and the politicians who support it. Chair Powell was able to use these tools again during his current reign, along with interventions in money markets, corporate bonds, swaps, etc.
In the big picture, during the last 14 years, the decline in interest rates with the increased availability of liquidity and leverage openly displayed the drama against the free market urge for price discovery.
As the push back against free markets continues, it creates a gap which is being filled by socialist dynamics. It becomes more pronounced when Congress fails to do its fiscal job and turns more and more over to unelected regulators and the courts.
So even though, it may seem that the move is coming from Bernie Sanders, he is really late to the game. The move to socialism began a long time ago.
If history repeats itself, the final phase will be against the wealthy, who have interestingly, enjoyed the rise of American style socialism. They will leave it behind by moving their wealth and eventually themselves elsewhere. I observed this many years ago and in 1999, I was invited to present the idea at the International Lawyers Association meeting in New York. (I am not a lawyer) Since then there has been an increasing trend of Americans giving up their citizenship and leaving the country. Its hard to get good statistics on this and it does not get the same attention as immigration at the border.
The phenomenon is obviously very important for investment.