For Americans, socialism is a hugely divisive concept. There was the 1950s paranoia over communism with public warnings of ‘Reds under every bed’ and the cold war period of geopolitical tension between the Soviet Union and the United States, followed most recently by the Russian interference in the election of Donald Trump.
So, it’s a little surprising to see the rise of the democratic socialists in America. A recent US poll 1 shows that roughly 40% of adults would rather live under a socialist system than a capitalist system, and this rises to over 50% where they’re under 40 years old. That said, over half of adults still view socialism as bad for the country, continuing the polarisation of political discourse today.
The current version of socialism is vastly different to that of the cold war era. The new age socialism still supports the ideal of capitalism, but it wants far greater controls imposed and government programs to distribute resources more evenly. It is more in line with social democracy, which is common, and successful, in several European nations.
The shift in thinking for those under the age of 40 primarily stems from the financial crisis, subsequent recession, and probably no shortage of idealism – “Any man who is under 30, and is not a liberal, has no heart; and any man who is over 30, and is not a conservative, has no brains” is an oft quoted phrase, credited to Winston Churchill and John Adams amongst others.
But watching large American banks being bailed out by taxpayer dollars as families lost their homes and jobs has proven a real catalyst for the change. Post the recession, wages have stagnated and yet the cost of a university education has increased dramatically.
In such an environment it is little wonder that the ‘harder left’ candidates, such as Bernie Sanders and Elizabeth Warren, are gaining in popularity. In a recent speech Sanders warned of a “growing movement towards oligarchy and authoritarianism in which a small number of incredibly wealthy and powerful billionaires own and control a significant part of the economy and exert enormous influence over the political life of our country.”
At this stage, Sanders is the front-runner in the Democratic election campaign having won two nominations and tied for another. The next key date is 3 March, or ‘Super Tuesday’, when 16 states will vote for their preferred Democratic candidate.
If Sanders does become the Democrats presidential candidate, it will set up a very interesting tussle with President Trump. While Trump is advocating for further tax cuts, cutting business red tape, tougher sentencing and building the wall, Sanders is proposing scrapping student debt, free education, Medicare for all, greater controls on business and increasing the minimum wage – all to be funded through increased taxes on the wealthiest. No doubt these policies will resonate with many, especially those under 40 lumbered with student loans and those who haven’t seen any wage growth in the past 10 years.
With Trump and Sanders seemingly diametrically opposed to each other, the debates that we will witness later in the year will be fiery to say the least. No doubt Trump will try and stir the distrust of communism in the American psyche and direct that against Sanders. And there lies the problem in ‘the Left’s’ strategy of combating a global shift to the right by shifting further to the left – it’s easy to attack. Just witness the recent UK elections where an incompetent government won by a landslide on the back of a dreadful, staunchly socialist, opponent.
While the new version of socialism is on the rise in the US, at this stage I think the more centrist voters will hold their noses and put Trump back in. And this could further be amplified by our young principled US voters not actually turning out to vote which tends to be the case in countries where it isn’t compulsory (see Brexit for a stark example of this).
While we may enjoy, or otherwise, watching the political pantomime play out, markets will be watching the Democratic race very closely. If the polls indicate that Sanders or his like-minded associates have any chance of winning, markets will be very nervous for the simple reason that they hate increased regulatory oversight and higher taxes.
While I can’t guarantee who will win, I can assure you there will be increased market volatility and an obscene number of tweets coming from the White House.
Andrew Aylward is Chief Investment Officer at Keep Wealth Partners.
Keep Wealth Partners Pty Ltd (AFSL 494858). This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from a financial planner who can consider if the strategies and products are right for you.
[1] Gallup – 4 in 10 Americans embrace some form of socialism
