Showing posts with label capitalism. Show all posts
Showing posts with label capitalism. Show all posts

Monday, November 5, 2018

Socialism is the Darwin Award for Economic Ignorance



Socialism is poised for a big victory in tomorrow's 2018 midterm elections.  The so-called "big blue wave" is, among other things, a big socialist wave.  Democrats have overnight become the 'Democrat Socialist Party" and across the board are running on massively expanding government entitlements, all paid for by redistributing wealth from everyone richer than you... to you.  What could possibly go wrong?   

Most people paying attention to economic history know full well that all forms of socialism lead to economic misery and human suffering.  It's not surprising that some would wish that fate on their fellow countrymen, after all some people are inherently cruel, nihilistic, and even suicidal.  But that doesn't account for everyone sucked into this self-destructive vortex.  Some people are true believers and think that socialism will actually help people.  Why is that?           

Pop quiz:   
  1. Who is the father of modern socialism/communism?  
  2. Who is the father of modern capitalism? 
Odds are you will be able to answer the first question correctly and can name Karl Marx as the father of modern socialism/communism.  You probably can do a decent job of explaining Marxism without even looking it up on Wikipedia.  You may even be familiar with the Marxist slogan, "From each according to his ability, to each according to his need."

Conversely, if you are asked who the father of modern capitalism is, odds are you'd either draw a blank, or be mostly wrong.

If you attended a public school in the U.S., chances are most of your teachers were union members. Unions were prohibited for most government workers prior to the 1960s because organized labor in the U.S. began as a communist/socialist movement.  Public sector unions were seen as a huge conflict of interest. But that changed in the 1960's under Democrat John F. Kennedy, and since then government workers, including school teachers, have flooded into organized labor. That's not to say all teachers and organized laborers are socialists.  Most probably don't even think in those terms, but the politics of organized labor leans undeniably in that direction. You may or may not have been taught Marxism in school, but you probably weren't taught anything positive about "capitalism"!  

If you attended a college in the U.S., particularly in recent years, you are very likely to have been taught Marxism.  Karl Marx's "Communist Manifesto" is the third most assigned book at U.S. colleges today.  That's out of all the books ever published!  The next most assigned book in economics, capitalist or otherwise, is not even close.      

So how did you answer the second question above?  In one sense the answer to that one is again... Karl Marx.  Yes, Karl Marx is both the father of modern communism/socialism AND the father of modern capitalism. Karl Marx was the person who defined that term for the masses in his risible critique of 1860s capitalism, "Das Kapital".  

Many scholars credit a Scotsman named Adam Smith as the person whose ideas most influenced our economic system.  Adam Smith’s book, “An Inquiry into the Nature and Causes of the Wealth of Nations” was actually published in 1776.  (That date rings a bell, no?)  But the word capitalism wasn't in common use in Adam Smith’s day.  He never used it.  We mistakenly call our economic system capitalism because that's what Marx and the critics called it.  The name unfortunately stuck. 

If everyone knows what "Marxism" is, why doesn't everyone know what "Smithism" is?  Because it’s not taught, except to select economics majors.  According to the Open Syllabus Project, Adam Smith is assigned at a rate about 25% compared to Karl Marx.  "Smithism" never became a word the way "Marxism" did.  You can go through K-12 and well beyond in schools in the U.S. and never hear the name Adam Smith, never learn about his ideas, and never understand the influence those ideas had on the founding and success of our country.

Pop quiz:  
  1. What is Supply Side Economics?  
  2. What is Demand Side Economics?
You are probably familiar with the first term, but can you accurately define it?  Have you ever heard of its opposite, Demand Side Economics?  

·         Supply side economics is the theory that people will SUPPLY (create) more value if they are allowed to function in a free market.
   
·         Demand side economics is the theory that people will DEMAND (consume) more value if wealth is redistributed to them.    

These are opposite approaches for achieving different economic goals.  Supply Side seeks to optimize overall economic vitality (Smithism).  Demand Side seeks to stimulate consumption (Keynesianism), or at times to redistribute wealth (Marxism).

If you look up supply side economics on Wikipedia, you’ll find a thorough entry along with plenty of criticisms.  If you look up demand side economics, you’ll get... crickets.  The language in this case does not favor the Marxist/socialist demand side ideology.   Hence, it is not even defined.  [UPDATE:  There is now a short and inaccurate entry on Wikipedia for Demand Side Economics.  When the first version of this piece was written in 2016, there was only a re-direct to "Keynesianism".] 

Pop quiz:

The financial crisis of 2008 was caused by:

      A) Greedy bankers, deregulation, George W Bush, and capitalism
      B) Socialism

Most likely, you are 100% certain the correct answer is A.  

No event had a more profound impact on this country's recent tilt towards socialism than the financial crisis of 2008.  It is said that history is written by the victors.  That has never been more true than in the wake of the financial crisis.  Democrats controlled the government commission that wrote the post-mortem.  Barack Obama won the presidency.  Democrats had both houses of congress.  And liberals made the movies and wrote the books explaining the crisis to the masses. Unfortunately, everything they told you was a deliberate deception designed to exonerate socialism, and scapegoat capitalism.   

The fact is, the financial crisis of 2008 was a perfect demonstration of the failures of socialism. Redistribution of wealth, in this case redistribution of mortgage credit, was at the heart of the financial crisis.  At times, the support for this redistribution was bi-partisan, but the ideology behind it was socialist/demand side regardless of who was advocating.

It all began with the affordable housing goals promoted by Democrats in the early 1990s, which lowered mortgage requirements.  It accelerated in the mid 1990s under Democrat Bill Clinton with further loosening of mortgage standards, pressure on banks to write loose loans, and mandates for government backed companies FNMA (Fannie Mae) and FHLMC (Freddie Mac) to buy all the new mortgages.  It finally reached its apex in 2007 under Republican George W. Bush, while Democrats including Senator Barack Obama, ran both houses of congress.

All of the risk from this socialist redistribution was supposed to be assumed by the federal government, mostly in the form of the afore mentioned government backed companies.  Fannie and Freddie were ground zero for the financial crisis.  No government official took more money from these two companies, and at a faster rate, than the junior Senator from Illinois named Barack Obama.  His closest competitors in that money grab included Barney Frank, Chris Dodd, and Hillary Clinton.  If this is news to you,  it's because they wrote the history.

What they told you was that it was a perfect storm involving greedy bankers, deregulation, and the natural flaws of capitalism.  It was a plausible argument designed to deceive.  Bankers today are no greedier than their banking forebears.  So why did they suddenly engage in such risky lending? Because they were coerced to do so.

Deregulation also had nothing to do with it.  Canadian banks are lightly regulated compared to their U.S. counterparts and none of them failed.  Why the difference?  Only in the U.S. was mortgage credit redistributed.  To make matters worse, government regulations encouraged financial institutions to load up on mortgage backed securities.   Unfortunately, when the scheme went bad the damage quickly spread to the private financial sector bringing the entire global financial system to its knees.

The deceptions about this animated the Occupy Wall Street movement, got Barack Obama elected twice, and are responsible for the acceptance of openly socialist candidates like Bernie Sanders and Ocasio-Cortez today.   They are also part of the continuing campaign that has mischaracterized the mortgage market as an example of free-market failure.

The frightening thing about this is, if history is written by the victors and they engage in deception, aren't we doomed to repeat it?  Fannie and Freddie own just about every new mortgage written since 2008, and the socialist policies promoting home ownership and borrowing accelerated under Barack Obama.  We are currently in the process of building a second real estate bubble.  Adding to that are new socialist bubbles in national debt, student loans, auto loans, and equity prices.

Pop quiz:

People love Scandinavian socialism because:

      A) Scandinavian countries are happy, healthy, productive, prosperous, AND socialist
      B) They misunderstand Scandinavian economics and history

Scandinavian success came long before their experiment with socialism.  They were happy, healthy, productive, and prosperous prior to the 1960s when they first began their turn towards socialism. Socialism had nothing to do with their success.  But sixty years of high taxes and socialism has slowed their growth and momentum.  Until recently, Sweden and Denmark spent more than 100% of their private sectors on government - an obviously unsustainable level.  In response, socialist Europe has been freeing their economies and sharply turning away from socialism.  Switzerland, Ireland, and the U.K. are economically freer than the U.S., and Sweden, yes "socialist" Sweden, is essentially tied with the U.S. in economic freedom today.  (According to the Heritage Foundation rankings.)

Here's the thing:  National socialism has never produced anything long term other than misery, poverty, totalitarianism, and death.  Think Soviet Union, Cuba, Venezuela, and North Korea.  The NAZIS, who brought about the holocaust, WWII, and directly or indirectly caused the death of 70 million people, were known by the German acronym for "National Socialists".

So, that's at the national level.  And long term.  At the local level, socialism can survive a bit longer. Local socialism does not eliminate the incentive killing aspects of socialism, but it does avoid the inevitable monetary collapse.  That's because local governments cannot create money and therefore tend to be more fiscally responsible. National governments can hide their insolvency, plunder future generations, devalue currencies, manipulate interest rates, and cause much bigger problems down the road.

This is an important point that deserves repeating;  socialism cannot work long term at the national level.  The national level is where money is created and controlled.  Our system was never designed to be a socialist system.  The Constitution implied that the states were the proper place for redistributive experimentation.  The conflict of interest at the national level is just too great.  National politicians will eventually destroy the currency, borrow too heavily, undermine the work ethic, and undermine national defense in an attempt to gain and maintain power. The founders knew that.  It is happening today.  We doubled our national debt during just Obama's eight years.  Interest rates were artificially held near zero for that entire time.  If and when rates normalize to historical levels, the debt service alone will cause the kind of pain socialist nations have felt throughout history. We are not immune.
  
In summary: You were indoctrinated to be a socialist. You were indoctrinated to call our system capitalism.  You've been deceived about the benefits of socialism.  You've been deceived about the evils of free markets.  And you've been deceived about the perils of national socialism.  If you still think socialism is great after all that, congratulations, you've earned a Darwin Award in Economics!

Friday, August 17, 2018

Sorry, We're Already a Socialist Country [UPDATED]

The Undiepundit Socialist Index:


First, let's talk about socialism.

Strictly defined, socialism refers to government owning the "means of production".  That means business assets like buildings, fixtures, tools, machines, vehicles, goodwill, etc. all become the property of the state under textbook socialism.  But that's not what we mean when we use the word today.  Socialist Bernie Sanders isn't calling for government nationalization of business assets.  He just wants medicine, education, housing, food, transportation, etc. provided for free to anyone who wants it, whether a citizen or not. How he intends to do that and how the quality of those things will be affected is never explained.

And that's the point; socialism is not a specific policy-set.  It's more a mindset.  It starts out being about economic issues, and it ends up being about power.

Here's a simple test:  if you believe that the federal government should provide basic human services to everyone for free, then you are a socialist.  If you understand that this kind of cure is always worse than the disease, then you are not.

Again, that's when the FEDERAL government does it.  State and local governments providing basic human services is another matter.  States cannot print and borrow money like the federal government can.  This imposes "limiting principles" on their largess.  States must make ends meet when they go socialist; they cannot hide insolvency for very long.  The U.S. federal government has no such limiting principles.

The U.S. government has found myriad ways to socialize whole sectors of our economy without making ends meet or doing it openly.  For example, in the 1990s the U.S. federal government wanted to massively subsidize housing, but they were unwilling to raise the revenue to pay for it.  So, they simply changed the mortgage requirements.  All of a sudden, any person regardless of credit history could obtain a mortgage.  It worked fabulously well for over a decade until the housing market stalled in 2006.  By 2008, the entire financial system of the planet was in ruins.

Very little has changed. No one would accuse Donald Trump of being a socialist, yet under him every new mortgage in the U.S. is owned by a government sponsored enterprise (GSE) like Fannie Mae or Freddie Mac.  Those same GSEs were the epicenter of the financial crisis in 2008.  The unfunded liabilities of Fannie and Freddie do not appear as "spending" until a crisis hits, as it did during the sub-prime financial mess.  You can see the effects on the graph above.

But we've been pretty socialist since about 1982.  That's when government spending first consumed over 50% of the private sector in the U.S..  50% is the tipping point.  When half the population becomes dependent on government, they tend to vote accordingly.  Before long it leads to "totalitarian" socialism. 

Why totalitarian?  Because without "limiting principles", socialism eventually requires force.  Once the predominant belief is that the federal government should provide basic needs for free, then those needs become "rights".  Once those needs become "rights", it's only a matter of time before that necessitates confiscation of wealth and power.  Your money, your power, your freedom, must all be subordinated for the "rights" of others.  Without limiting principles this has been proven throughout history.

Limiting principles are what saved the Scandinavian countries.  They reversed course from socialism because they were constrained by limiting principles.  Prior to the 1960s the Scandinavian countries were free market exemplars of health, literacy, productivity, and happiness.  Then in the 1960s they became enamored with socialism.  After about fifty years of progressive socialism they realized the cure was worse than the disease.  Wealthy citizens were fleeing, businesses were moving, economies were lagging, birthrates dropped, labor was being imported at unsustainable rates, and the fiscal trajectory was ominous.  These countries are relatively small compared to the U.S. and do not control the world's reserve currency.  Those on the Euro do not even control their own currency! They have built in limiting principles.  So they changed course.

Today, Scandinavian countries still retain some of the legacy socialist items, but the mindset has changed.  The Prime Minister of Denmark recently admonished Bernie Sanders for calling Denmark a socialist country.  In a 2015 speech at Harvard he said:
"I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy."
Sweden also backtracked, and both countries improved.

Similar results can be seen in the U.S. after the modest two year Trump reversal that is evident on the graph above.  To be clear, many manifestations of Trump's reversal cannot be seen in the numbers. Deregulation, a huge part of Trump's reversal, does not appear immediately on a spending graph.

But Trump is an anomaly.  We can see that the socialist mindset has inexorable momentum.  We were at 10% on the Undiepundit Socialist Index when WWI broke out.  One hundred years later, we averaged about 70% under Barack Obama.  Notice: the other two big spikes were for major World Wars!

So why doesn't it feel like we live in a socialist country?  If government was consuming 70% of the private sector from 2008-2016, wouldn't we sense that and change course?  No, because we were insulated due to massive borrowing, printing, and near 0% interest rates.  During that period the  federal debt doubled from $10 to $20 TRILLION and the Federal Reserve Bank added another $3.5 TRILLION to its balance sheet. You can hide a lot of economic signals when you create 13.5 TRILLION dollars from thin air.   At least temporarily.  The dollar's status as the world's reserve currency removes ALL limiting principles.

Sorry, we've been motoring towards totalitarian socialism since at least FDR.  Donald Trump is probably just a speed bump on that road.

[UPDATE]
It is also worth noting that Karl Marx's Communist Manifesto is the 3rd most assigned book at U.S. colleges today according to the Open Syllabus Project.  Of all the books ever published in history, the 3rd most assigned one is the one teaching socialism and communism to our kids.  You are what you teach. 

Tuesday, April 5, 2016

Socialism is the Darwin Award for Economic Ignorance


Pop quiz:   
  1. Who is the father of modern socialism/communism?  
  2. Who is the father of modern capitalism? 
Odds are you will be able to answer the first question correctly and can name Karl Marx as the father of modern socialism/communism.  You probably can do a decent job of explaining Marxism without even looking it up on Wikipedia.  You may even be familiar with the Marxist slogan, "From each according to his ability, to each according to his need."

Conversely, if you are asked who the father of modern capitalism is, odds are you'd either draw a blank, or be mostly wrong.

If you attended a public school in the U.S., chances are most of your teachers were union members. Unions were prohibited for most government workers prior to the 1960s because organized labor in the U.S. began as a communist/socialist movement.  Public sector unions were seen as a huge conflict of interest. But that changed in the 1960's under Democrat John F. Kennedy, and since then government workers, including school teachers, have flooded into organized labor. That's not to say all teachers and organized laborers are socialists.  Most probably don't even think in those terms, but the politics of organized labor leans undeniably in that direction. You may or may not have been taught Marxism in school, but you probably weren't taught anything positive about "capitalism"!  

If you attended a college in the U.S., particularly in recent years, you are very likely to have been taught Marxism.  Karl Marx's "Communist Manifesto" is the third most assigned book at U.S. colleges today.  That's out of all the books ever published!  The next most assigned book in economics, capitalist or otherwise, is not even close.      

So how did you answer the second question above?  In one sense the answer to that one is again... Karl Marx.  Yes, Karl Marx is both the father of modern communism/socialism AND the father of modern capitalism. Karl Marx was the person who defined that term for the masses in his risible critique of 1860s capitalism, "Das Kapital".  

Many scholars credit a Scotsman named Adam Smith as the person whose ideas most influenced our economic system.  Adam Smith’s book, “An Inquiry into the Nature and Causes of the Wealth of Nations” was actually published in 1776.  (That date rings a bell, no?)  But the word capitalism wasn't in common use in Adam Smith’s day.  He never used it.  We mistakenly call our economic system capitalism because that's what Marx and the critics called it.  The name unfortunately stuck. 

If everyone knows what "Marxism" is, why doesn't everyone know what "Smithism" is?  Because it’s not taught, except to select economics majors.  According to the Open Syllabus Project, Adam Smith is assigned at a rate about 25% compared to Karl Marx.  "Smithism" never became a word the way "Marxism" did.  You can go through K-12 and well beyond in schools in the U.S. and never hear the name Adam Smith, never learn about his ideas, and never understand the influence those ideas had on the founding and success of our country.

Pop quiz:  
  1. What is Supply Side Economics?  
  2. What is Demand Side Economics?
You are probably familiar with the first term, but can you accurately define it?  Have you ever heard of its opposite, Demand Side Economics?  

·         Supply side economics is the theory that people will SUPPLY (create) more value if they are allowed to function in a free market.
   
·         Demand side economics is the theory that people will DEMAND (consume) more value if wealth is redistributed to them.    

These are opposite approaches for achieving different economic goals.  Supply Side seeks to optimize overall economic vitality (Smithism).  Demand Side seeks to stimulate consumption (Keynesianism), or at times to redistribute wealth (Marxism).

If you look up supply side economics on Wikipedia, you’ll find a thorough entry along with plenty of criticisms.  If you look up demand side economics, you’ll get... crickets.  The language in this case does not favor the Marxist/socialist demand side ideology.   Hence, it is not even defined.  [UPDATE:  There is now a short and inaccurate entry on Wikipedia for Demand Side Economics.  When the first version of this piece was written in 2016, there was only a re-direct to "Keynesianism".] 

Pop quiz:

The financial crisis of 2008 was caused by:

      A) Greedy bankers, deregulation, George W Bush, and capitalism
      B) Socialism

Most likely, you are 100% certain the correct answer is A.  

No event had a more profound impact on this country's recent tilt towards socialism than the financial crisis of 2008.  It is said that history is written by the victors.  That has never been more true than in the wake of the financial crisis.  Democrats controlled the government commission that wrote the post-mortem.  Barack Obama won the presidency.  Democrats had both houses of congress.  And liberals made the movies and wrote the books explaining the crisis to the masses. Unfortunately, everything they told you was a deliberate deception designed to exonerate socialism, and scapegoat capitalism.   

The fact is, the financial crisis of 2008 was a perfect demonstration of the failures of socialism. Redistribution of wealth, in this case redistribution of mortgage credit, was at the heart of the financial crisis.  At times, the support for this redistribution was bi-partisan, but the ideology behind it was socialist/demand side regardless of who was advocating.

It all began with the affordable housing goals promoted by Democrats in the early 1990s, which lowered mortgage requirements.  It accelerated in the mid 1990s under Democrat Bill Clinton with further loosening of mortgage standards, pressure on banks to write loose loans, and mandates for government backed companies FNMA (Fannie Mae) and FHLMC (Freddie Mac) to buy all the new mortgages.  It finally reached its apex in 2007 under Republican George W. Bush, while Democrats including Senator Barack Obama, ran both houses of congress.

All of the risk from this socialist redistribution was supposed to be assumed by the federal government, mostly in the form of the afore mentioned government backed companies.  Fannie and Freddie were ground zero for the financial crisis.  No government official took more money from these two companies, and at a faster rate, than the junior Senator from Illinois named Barack Obama.  His closest competitors in that money grab included Barney Frank, Chris Dodd, and Hillary Clinton.  If this is news to you,  it's because they wrote the history.

What they told you was that it was a perfect storm involving greedy bankers, deregulation, and the natural flaws of capitalism.  It was a plausible argument designed to deceive.  Bankers today are no greedier than their banking forebears.  So why did they suddenly engage in such risky lending? Because they were coerced to do so.

Deregulation also had nothing to do with it.  Canadian banks are lightly regulated compared to their U.S. counterparts and none of them failed.  Why the difference?  Only in the U.S. was mortgage credit redistributed.  To make matters worse, government regulations encouraged financial institutions to load up on mortgage backed securities.   Unfortunately, when the scheme went bad the damage quickly spread to the private financial sector bringing the entire global financial system to its knees.

The deceptions about this animated the Occupy Wall Street movement, got Barack Obama elected twice, and are responsible for the acceptance of openly socialist candidates like Bernie Sanders and Ocasio-Cortez today.   They are also part of the continuing campaign that has mischaracterized the mortgage market as an example of free-market failure.

The frightening thing about this is, if history is written by the victors and they engage in deception, aren't we doomed to repeat it?  Fannie and Freddie own just about every new mortgage written since 2008, and the socialist policies promoting home ownership and borrowing accelerated under Barack Obama.  We are currently in the process of building a second real estate bubble.  Adding to that are new socialist bubbles in national debt, student loans, auto loans, and equity prices.

Pop quiz:

People love Scandinavian socialism because:

      A) Scandinavian countries are happy, healthy, productive, prosperous, AND socialist
      B) They misunderstand Scandinavian economics and history

Scandinavian success came long before their experiment with socialism.  They were happy, healthy, productive, and prosperous prior to the 1960s when they first began their turn towards socialism. Socialism had nothing to do with their success.  But sixty years of high taxes and socialism has slowed their growth and momentum.  Until recently, Sweden and Denmark spent more than 100% of their private sectors on government - an obviously unsustainable level.  In response, socialist Europe has been freeing their economies and sharply turning away from socialism.  Switzerland, Ireland, and the U.K. are economically freer than the U.S., and Sweden, yes "socialist" Sweden, is essentially tied with the U.S. in economic freedom today.  (According to the Heritage Foundation rankings.)

Here's the thing:  National socialism has never produced anything long term other than misery, poverty, totalitarianism, and death.  Think Soviet Union, Cuba, Venezuela, and North Korea.  The NAZIS, who brought about the holocaust, WWII, and directly or indirectly caused the death of 70 million people, were known by the German acronym for "National Socialists".

So, that's at the national level.  And long term.  At the local level, socialism can survive a bit longer. Local socialism does not eliminate the incentive killing aspects of socialism, but it does avoid the inevitable monetary collapse.  That's because local governments cannot create money and therefore tend to be more fiscally responsible. National governments can hide their insolvency, plunder future generations, devalue currencies, manipulate interest rates, and cause much bigger problems down the road.

This is an important point that deserves repeating;  socialism cannot work long term at the national level.  The national level is where money is created and controlled.  Our system was never designed to be a socialist system.  The Constitution implied that the states were the proper place for redistributive experimentation.  The conflict of interest at the national level is just too great.  National politicians will eventually destroy the currency, borrow too heavily, undermine the work ethic, and undermine national defense in an attempt to gain and maintain power. The founders knew that.  It is happening today.  We doubled our national debt during just Obama's eight years.  Interest rates were artificially held near zero for that entire time.  If and when rates normalize to historical levels, the debt service alone will cause the kind of pain socialist nations have felt throughout history. We are not immune.
  
In summary: You were indoctrinated to be a socialist. You were indoctrinated to call our system capitalism.  You've been deceived about the benefits of socialism.  You've been deceived about the evils of free markets.  And you've been deceived about the perils of national socialism.  If you still think socialism is great after all that, congratulations, you've earned a Darwin Award in Economics!

Monday, October 12, 2015

Why Socialism is Chic, and Capitalism is Not (ICYMI)


Socialism is chic in 2015.   But, just a few short years ago Obama voters would mock and charge racism when anyone likened his ideology to socialism.  Now Bernie Sanders, an openly socialist candidate, is leading in some key polls of those very same voters!

Why is this happening in a country which enjoys the highest standard of living of any large diverse country, and one which uniquely earned it's place due to its historic reliance on free markets and constitutionally limited government?  Part of this is a triumph of deliberate indoctrination which has been going on for at least half a century.  Another part, and the most recent part, is a deliberate deception regarding the financial crisis of 2008.

Pop quiz:   
  1. Who is the father of modern socialism/communism?  
  2. Who is the father of modern capitalism? 
Odds are you will be able to answer the first question correctly, and can name Karl Marx as the father of modern socialism/communism.  You probably can do a decent job of explaining Marxism without even looking it up on Wikipedia.  You may even be familiar with the Marxist slogan, "from each according to his ability, to each according to his need".

Conversely, if you are asked who the father of modern capitalism is, odds are you'd either draw a blank or be mostly wrong.

You may not realize it, but socialists have been influencing you your whole life. Prior to the 1960's there were prohibitions on government workers joining organized labor.  That's because there was an obvious conflict of interest; organized labor and socialism have been synonymous throughout their shared history in the U.S.. But that changed in the 1960's under Democrat John F. Kennedy, and since then, government workers including school teachers have flooded into organized labor.   Most likely every teacher who taught you in a U.S. public school was a member of organized labor.  Of course, not all teachers, nor members of organized labor, are socialists, but the politics of organized labor in the U.S. leans undeniably in that direction.  

"Hold on!", you say, "Just because public schools are unionized and organized labor leans socialist doesn't mean it has had any real impact on our country!"  Actually it has.  After half a century of this, Karl Marx is the most assigned economist at U.S. colleges today.  By far.   


So how did you answer the second question?  In one sense the answer to that one is again... Karl Marx.  Yes, Karl Marx is both the father of modern socialism AND the father of modern capitalism. Karl Marx was the person who defined capitalism for the masses in his scathing critique of 1860s capitalism called "Das Kapital".  He constructed a convenient dichotomy between socialism and capitalism based on his own definitions to support his theories .  Of course Marx's preferred ideology, socialism, was defined in the most glowing light, while his version of capitalism was defined in the most sinister.

Many scholars credit a Scotsman named Adam Smith as the person whose ideas most influenced our economic system.  Adam Smith’s book, “An Inquiry into the Nature and Causes of the Wealth of Nations”, was actually published in 1776.  (That date rings a bell, no?)  But the word capitalism didn't exist in Adam Smith’s day.  He never used it.  We mistakenly call our economic system capitalism because that's what Marx and the critics called it.  The name unfortunately stuck. 

If everyone knows what Marxism is, why doesn't everyone know what Smithism is?  Because it’s not taught.   Except to select economics majors.  "Smithism" never became a word.  Marxism is taught everywhere all the time, and not just to economics majors.  If you want to learn about Adam Smith, you most likely have to do it on your own.  You can go through K-12 and well beyond in schools in the U.S., and never hear the name Adam Smith, never learn about his ideas, and never understand the influence those ideas had on the founding of our country.  If you go to Wikipedia and look up Marxism, you’ll find plenty.  If you go to Wikipedia and look up Smithism, you’ll get crickets. 

How about a more modern term, like Supply Side Economics?  You are probably familiar with that term, but can you accurately define it?  Can you define its opposite, Demand Side Economics?

·         Supply side economics is the theory that people will SUPPLY (create) more value if they are allowed to function in a free market.
   
·         Demand side economics is the theory that people will DEMAND (consume) more value if wealth is redistributed to them.    

These are opposite approaches for achieving different economic goals.  Supply Side seeks to optimize overall economic vitality (Smithism).  Demand Side at times seeks to stimulate consumption (Keynesianism), or at times to achieve egalitarianism (Marxism).

If you look up supply side economics on Wikipedia, you’ll find a thorough entry along with plenty of criticisms.  If you look up demand side economics, you’ll get zip.  The language in this case does not favor the socialist demand side ideology.   Hence, it is not even defined.

No event has had a more profound impact on this country's recent tilt towards socialism than the financial crisis of 2008.  It is said that history is written by the victors.  That has never been more true than in the wake of the financial crisis.  Democrats controlled the government commission that wrote the post-mortem.  Barack Obama won the presidency.  Democrats had both houses of congress.  And liberals made the movies and wrote the books explaining the crisis to the masses. Unfortunately, everything they told you was a deliberate deception designed to exonerate socialism, and scapegoat capitalism.   

The fact is the financial crisis of 2008 was a perfect demonstration of the failures of socialism. Redistribution of wealth, in this case redistribution of mortgage credit, was at the heart of the financial crisis.  At times, the support for this redistribution was bi-partisan, but the ideology behind it was socialist regardless of who was advocating.

It all began with the affordable housing goals promoted by Democrats in the early 1990s, which lowered mortgage requirements.  It accelerated in the mid 1990s under Democrat Bill Clinton with further loosening of mortgage standards, pressure on banks to write loose loans, and mandates for government backed companies FNMA (Fannie Mae) and FHLMC (Freddie Mac) to buy all the new mortgages.  It finally reached it’s apex in 2007 under Republican George W. Bush, while Democrats, including Senator Barack Obama, ran both houses of congress.

All the risk from this socialist redistribution was supposed to be assumed by the federal government in the form of the afore mentioned government backed companies.  Fannie and Freddie were ground zero for the financial crisis.  No government official took more money from these two companies, and at a faster rate, than the junior Senator from Illinois named Barack Obama.  His closest competitors in that money grab included Barney Frank, Chris Dodd, and Hillary Clinton.  If this is news to you,  it's because they wrote the history.

What they told you was that it was a perfect storm involving greedy bankers, deregulation, and the natural flaws of capitalism.  It was a plausible argument designed to deceive.  Bankers today are no greedier than their banking forebears.  So why did they suddenly engage in subprime lending for the first time in history in such large numbers? Because they were coerced to do so by their government.

Deregulation also had nothing to do with it.  Canadian banks are lightly regulated compared to their U.S. counterparts, and none of them failed.  Are U.S. bankers so much greedier than their Canadian counterparts that they drove their banks into insolvency while their less regulated neighbors to the north did not?  No, it was U.S. government regulation in the form of a socialist housing policy that caused the financial crisis.  Unfortunately, when the scheme went bad the damage spread to the private banking and investment sector bringing the entire global financial system to its knees.

The deceptions about this animated the Occupy Wall Street movement, got Barack Obama elected twice, and are responsible for the acceptance of openly socialist candidate Bernie Sanders today.   They are also part of the continuing campaign that has mischaracterized the mortgage market as an example of failed capitalism.

The frightening thing about this is, if history is written by the victors and they engage in deception, aren't we doomed to repeat it?  We are.  Fannie and Freddie own just about every new mortgage written since 2008, and the socialist policies promoting home ownership and borrowing have accelerated under Barack Obama.  We are in the process of building a second real estate bubble. Adding to that scenario is a socialist national debt bubble, student loan bubble, auto loan bubble, and equity bubble.

You might be saying, "OK, big deal, I'm a socialist.  Lots of countries are socialist, and some of them seem to be doing just fine.  What about the Scandinavian countries?  Why can't we have what they have?  Free healthcare, free college, and lots of benefits sounds pretty good to me!".  Scandinavian success came before their experiment with socialism.  They were happy, healthy, productive, and prosperous prior to the 1960s when they made the turn.  Fifty years of high taxes has slowed their growth and momentum and now they are "feeling the Bern".  Sweden and Denmark currently spend more than 100% of their private sector income on government services.  This is obviously unsustainable.  Socialist Europe is failing and is increasingly freeing their economies in response.

Here's the thing:  National socialism has never produced anything long term other than misery, starvation, poverty, and authoritarianism.  That's at the national level.  And long term.  At the local level, socialism can survive a bit longer.  Local socialism does not eliminate the incentive killing aspects of socialism, but it does delay the inevitable monetary collapse.  That's because local governments cannot create money. State and local governments must be more disciplined or risk imminent collapse.  Therefore, they tend to be more fiscally responsible.  National governments can hide their insolvency much longer, plunder future generations, devalue currencies, manipulate interest rates, and cause much bigger problems down the road.

This is an important point that deserves repeating;  socialism cannot work long term at the national level.  The national level is where money is usually created and controlled.  The Euro countries are a recent exception now that money is no longer controlled by the individual countries.  The Euro is controlled by the European Central Bank, which is a consortium of 19 Eurozone countries .  It's almost like they recognized the fatal flaw and are trying to work around it.

But in the U.S. we have no such arrangement.  We borrow and print money at the federal level. Our system was never designed to be a socialist system.  The constitution implied that the states were the proper place for redistributive experimentation.  At the national level, the conflict of interest is just too great for elected officials.  National politicians will eventually destroy the currency, borrow too heavily, undermine the work ethic, and undermine national defense in an attempt to gain and maintain power today.  The founders knew that.  It's happening today. We have doubled our national debt in just the last seven years.  Interest rates have been artificially held near zero for that entire time.  If and when rates normalize to historical levels, the debt service alone will cause the kind of pain socialist nations have felt throughout history. We are not immune.
  
In summary: You were indoctrinated to be a socialist. You were indoctrinated to call our system capitalism.  You've been deceived about the benefits of socialism.  You've been deceived about the evils of free markets.  And you've been deceived about the perils of national socialism.  If you still think socialism is chic after all that, that is your right.  Just keep it local, and maybe - just maybe, it won't collapse until after your kids inherit the mess.

Friday, August 14, 2015

Why Socialism is Chic, and Capitalism is Not


Socialism is chic in 2015.   But, just a few short years ago, Obama voters would mock and charge racism when anyone likened his ideology to socialism.  Now, Bernie Sanders, an openly socialist candidate, is leading in some key polls of those very same voters!

Why is this happening in a country which enjoys the highest standard of living of any large diverse country, and one which uniquely earned it's place due to its historic reliance on free markets and constitutionally limited government?  Part of this is a triumph of deliberate indoctrination which has been going on for at least half a century.  Another part, and the most recent part, is a deliberate deception regarding the financial crisis of 2008.

Pop quiz:   
  1. Who is the father of modern socialism/communism?  
  2. Who is the father of modern capitalism? 
Odds are you will be able to answer the first question correctly, and can name Karl Marx as the father of modern socialism/communism.  You probably can do a decent job of explaining Marxism without even looking it up on Wikipedia.  You may even be familiar with the Marxist slogan, "from each according to his ability, to each according to his need".

Conversely, if you are asked who the father of modern capitalism is, odds are you'd either draw a blank or be mostly wrong.

You may not realize it, but socialists have been influencing you your whole life. Prior to the 1960's there were prohibitions on government workers joining organized labor.  That's because there was an obvious conflict of interest; organized labor and socialism have been synonymous throughout their shared history in the U.S..  But that changed in the 1960's under Democrat John F. Kennedy, and since then, government workers, including school teachers, have flooded into organized labor.   Most likely every teacher who taught you in a U.S. public school was a member of organized labor.  Of course, not all teachers nor members of organized labor are socialists, but the politics of organized labor in the U.S. leans undeniably in that direction.  Today, Karl Marx is the most assigned economist in U.S. college classes.  


So how did you answer the second question?  In one sense the answer to that one is again... Karl Marx.  Yes, Karl Marx is both the father of modern socialism AND the father of modern capitalism. Karl Marx was the person who defined capitalism for the masses in his scathing critique of 1860s capitalism, called "Das Kapital".  He constructed a convenient dichotomy between socialism and capitalism based on his own definitions to support his theories .  Of course Marx's preferred ideology, socialism, was defined in the most glowing light, while capitalism was defined in the most sinister.

Many scholars credit a Scotsman named Adam Smith as the person whose ideas most influenced our economic system.  Adam Smith’s book, “An Inquiry into the Nature and Causes of the Wealth of Nations”, was actually published in 1776.  (That date rings a bell, no?)  But the word capitalism didn't exist in Adam Smith’s day.  He never used it.  We mistakenly call our economic system capitalism because that's what Marx and the critics called it.  The name unfortunately stuck. 

If everyone knows what Marxism is, why doesn't everyone know what "Smithism" is?  Because it’s not taught, except to economics majors.  "Smithism" never became a word.  Marxism is taught everywhere all the time, and not just to economics majors.  If you want to learn about Adam Smith, you most likely have to do it on your own.  You can go through K-12 and well beyond in schools in the U.S., and never hear the name Adam Smith, never learn about his ideas, and never understand the influence those ideas had on the founding of our country.  If you go to Wikipedia and look up Marxism, you’ll find plenty.  If you go to Wikipedia and look up Smithism, you’ll get crickets. 

How about a more modern term, like Supply Side Economics?  You are probably familiar with that term, but can you accurately define it?  Can you define its opposite, Demand Side Economics?


·         Supply side economics is the theory that people will SUPPLY (create) more value if they are allowed to function in a free market.
   
·         Demand side economics is the theory that people will DEMAND (consume) more value if wealth is redistributed to them.
    
These are opposite approaches for achieving different economic goals.  Supply Side seeks to optimize overall economic vitality (Smithism).  Demand Side at times seeks to stimulate consumption (Keynesianism), or at times to achieve egalitarianism (Marxism).

If you look up supply side economics on Wikipedia, you’ll find a thorough entry along with plenty of criticisms.  If you look up demand side economics, you’ll get zip.  The language in this case does not favor the socialist demand side ideology.   Hence, it is not even defined.

No event has had a more profound impact on this country's recent tilt towards socialism than the financial crisis of 2008.  It is said that history is written by the victors.  That has never been more true than in the wake of the financial crisis.  Democrats controlled the government commission that wrote the post-mortem.  Barack Obama won the presidency.  Democrats had both houses of congress.  And liberals made the movies and wrote the books explaining the crisis to the masses. Unfortunately, everything they told you was a deliberate deception designed to exonerate socialism, and scapegoat capitalism.   

The fact is the financial crisis of 2008 was a perfect demonstration of the failures of socialism. Redistribution of wealth, in this case redistribution of mortgage credit, was at the heart of the financial crisis.  At times, the support for this redistribution was bi-partisan, but the ideology behind it was socialist regardless of who was advocating.

It all began with the affordable housing goals promoted by Democrats in the early 1990s, which lowered mortgage requirements.  It accelerated in the mid 1990s under Democrat Bill Clinton with further loosening of mortgage standards, pressure on banks to write loose loans, and mandates for government backed companies FNMA (Fannie Mae) and FHLMC (Freddie Mac) to buy all the new mortgages.  It finally reached it’s apex in 2007 under Republican George W. Bush, while Democrats, including Senator Barack Obama, ran both houses of congress.

All the risk from this socialist redistribution was supposed to be assumed by the federal government in the form of the afore mentioned government backed companies.  Fannie and Freddie were ground zero for the financial crisis.  No government official took more money from these two companies, and at a faster rate, than the junior Senator from Illinois named Barack Obama.  His closest competitors in that money grab included Barney Frank, Chris Dodd, and Hillary Clinton.  If this is news to you,  it's because they wrote the history.

What they told you was that it was a perfect storm involving greedy bankers, deregulation, and the natural flaws of capitalism.  It was a plausible argument designed to deceive.  Bankers today are no greedier than their banking forebears.  So why did they suddenly engage in subprime lending for the first time in history in such large numbers? Because they were coerced to do so by their government.

Deregulation also had nothing to do with it.  Canadian banks are lightly regulated compared to their U.S. counterparts, and none of them failed.  Are U.S. bankers so much greedier than their Canadian counterparts that they drove their banks into insolvency while their less regulated neighbors to the north did not?  No, it was U.S. government regulation in the form of a socialist housing policy that caused the financial crisis.  Unfortunately, when the scheme went bad, the damage spread to the private banking and investment sector, bringing the entire global financial system to its knees.

The deceptions about this animated the Occupy Wall Street movement, got Barack Obama elected twice, and are responsible for the acceptance of openly socialist candidate Bernie Sanders today.   They are also part of the continuing campaign that has mischaracterized the mortgage market as an example of failed capitalism.

The frightening thing about this is, if history is written by the victors and they engage in deception, aren't we doomed to repeat it?  We are.  Fannie and Freddie own just about every new mortgage written since 2008, and the socialist policies promoting home ownership and borrowing have accelerated under Barack Obama.  We are in the process of building a second real estate bubble. Adding to that scenario is a socialist national debt bubble, student loan bubble, auto loan bubble, and equity bubble.

You might be saying, "OK, big deal, I'm a socialist.  Lots of countries are socialist, and some of them seem to be doing just fine. Britain and much of Europe are pretty socialist.  Why can't we have what they have?  Free healthcare, free college, and lots of benefits sounds pretty good to me!".  Well, we can have those things too.  But it won't last.  Seen Europe lately?  It ain't pretty.  Socialist Europe is dying.

Here's the thing:  National socialism has never produced anything long term other than misery, starvation, poverty, and authoritarianism.  That's at the national level.  And long term.  At the local level, socialism can survive a bit longer.  Local socialism does not eliminate the incentive killing aspects of socialism, but it does delay the inevitable monetary collapse.  That's because local governments cannot create money. State and local governments must be more disciplined or risk imminent collapse.  Therefore, they tend to be more fiscally responsible.  National governments can hide their insolvency much longer, plunder future generations, devalue currencies, manipulate interest rates, and cause much bigger problems down the road.

This is an important point that deserves repeating;  socialism cannot work long term at the national level.  The national level is where money is usually created and controlled.  The Euro countries are a recent exception now that money is no longer controlled by the individual countries.  The Euro is controlled by the European Central Bank, which is a consortium of 19 Eurozone countries .  It's almost like they recognized the fatal flaw and are trying to work around it.

But in the U.S. we have no such arrangement.  We borrow and print money at the federal level. Our system was never designed to be a socialist system.  The constitution implied that the states were the proper place for redistributive experimentation.  At the national level, the conflict of interest is just too great for elected officials.  National politicians will eventually destroy the currency, borrow too heavily, undermine the work ethic, and undermine national defense in an attempt to gain and maintain power today.  The founders knew that.  It's happening today. We have doubled our national debt in just the last seven years.  Interest rates have been artificially held near zero for that entire time.  If and when rates normalize to historical levels, the debt service alone will cause the kind of pain socialist nations have felt throughout history. We are not immune.
  
In summary: You were indoctrinated to be a socialist. You were indoctrinated to call our system capitalism.  You've been deceived about the benefits of socialism.  You've been deceived about the evils of free markets.  And you've been deceived about the perils of national socialism.  If you still think socialism is chic after all that, that is your right.  Just keep it local, and maybe - just maybe, it won't collapse until after your kids inherit the mess.

Thursday, April 23, 2015

Capitalism Sucks!

When was the last time you saw a movie where a businessman was the good guy?  (If you are one of the dozen or so people who saw the Atlas Shrugged movies, you can sit down now.)  Maybe I’m hanging out with the wrong people, but it seems to me most of my contemporaries lean anti-capitalist.  It gets even worse when I listen to younger generations.  Like our current president, it seems more fashionable in America today to be a Marxist, socialist, or communist.

This is no accident. 
    
Ask anyone who the father of communism or modern socialism is, and they will be able to name Karl Marx and explain Marxism in detail.  Next, ask them who the father of capitalism is.  I doubt you’ll get the right answer.
 
I contend the correct answer is again... Karl Marx.  Yes, I’m saying that Karl Marx is both the father of communism AND the father of capitalism.  In fact, Karl Marx was the guy who defined capitalism for the masses in a scathing critique of capitalism called Das Kapital.  In other words, the word most people use today when describing economic liberty, “capitalism”, is actually a Marxist epithet!

Many would credit Adam Smith as the guy who had the most influence in shaping America's economy. On that I agree.  Adam Smith’s book “An Inquiry into the Nature and Causes of the Wealth of Nations” was conspicuously published in 1776.  That date rings a bell, no?  But the word capitalism didn't exist in Adam Smith’s day.  He never used it!    

If everyone knows what Marxism is, why doesn't everyone know what Smithism is?  Because it’s not taught.  Marxism is taught everywhere all the time.  If you want to learn about Adam Smith, you have to go looking.  If you go to Wikipedia and look up Marxism, you’ll find plenty.  If you go to Wikipedia and look up Smithism, you’ll get crickets. 

Similarly, if you go to Wikipedia and look up communism, Marxism, or socialism you’ll find exhaustive explanations.  If you look really, really, hard you might find a brief criticism near the bottom of these entries.  If you look up capitalism, you’ll find a long section titled “Criticisms of Capitalism”.  Moreover, most of the entry is laced with subtle and not so subtle digs at capitalism.  This is not surprising because the word capitalism itself is a straw-man.

How about some of the more modern terms, like Supply Side Economics?  You are probably familiar with many criticisms of supply side economics.  But can you accurately define it?  Can you define its opposite, Demand Side Economics?
 
·         Supply side economics is the theory that people will enthusiastically SUPPLY their efforts and capital if they are free to realize the rewards.   
·         Demand side economics is the theory that people will enthusiastically DEMAND the efforts and capital of others if they are subsidized to do so.
 
These are opposite approaches for achieving economic goals:  Supply Side seeks to optimize overall economic vitality (Smithian).  Demand Side at times seeks to stimulate economic consumption (Keynesian stimulus), and at times to achieve egalitarianism (Marxist redistribution).

If you look up supply side economics on Wikipedia, you’ll find a thorough entry.  You’ll also find plenty of criticisms.  Look up demand side economics, and you’ll find nothing.  No definition, and certainly no criticism.  Again, the language is controlled by anti-capitalists.  (I made an attempt to define Demand Side Economics in a tongue-in-cheek cartoon a while ago:  See it here.  (language warning!))

I understand why Marxists, communists, socialists, and Keynesians use Marx’s term, capitalism, for our economic system.  What I can’t understand is why others use the term also.  

I’d love to see supporters of economic liberty use terms like Smithist, Smithism, Smithian or just plain "liberty" to describe their ideas.  Let the critics argue against economic liberty for a change!

Friday, December 11, 2009

Follow the Money

Everyone with an interest in such things is wondering; "Are we still a private-enterprise free-market economy or are we now socialist?" After all, the government now owns or virtually controls the car companies, the banks, most of the healthcare industry (soon to be all), the biggest insurer, education, a chunk of the media (think about it), the mortgage market, energy exploration, everyone’s basic retirement plan, passenger trains, airport screeners, the postal service, and on and on and on… But I think all this misses the point. If we were still a private-enterprise free-market economy, we could easily reverse all this with one election. Unfortunately, that is not very likely even with 2010 shaping up to be a big win for smaller government, and to understand why, all one needs to do is “follow the money”; in this case, the tax money.

We have now reached the tipping point where half of the US population either pays virtually no taxes or perceives that they pay no taxes. (Source: US Gov.)
http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html

Thanks to 100 years of progressivism, a massively progressive income tax, the Earned Income Tax Credit (EITC), entitlements galore, and stealth taxes which no one is aware of paying, only a minority of Americans are openly paying the tab. That doesn’t mean that the others are paying nothing. They are paying plenty, but they do so in ways that are hidden from them. Payroll taxes are matched by the employer but no worker ever thinks of that money as theirs; it is. Corporate income tax is added to the price of everything we buy, but no one thinks of that money as theirs; it is. The costs of business regulation are built into the prices of goods and services but no one realizes it is a tax. When the Fed pumps out money and deficits skyrocket, no one thinks of that money as theirs: it is and when inflation hits, they learn it. The bottom line is that a majority of Americans now embrace socialism (although they don't recognize it as such) because they believe someone else will pick up the tab; they won’t.

The political reality is that we are no longer a reliable private-enterprise free-market economy. Majorities rule in a democracy and as long as a majority of Americans perceive they are getting a free ride on someone else’s dime, they will continue voting for entitlements, earmarks, socialism, re-distribution, and big government. We will not travel this path towards socialism in a straight line as history has already shown, but travel it we will! Just follow the money…