The Road to Socialism (Serfdom)

Arthur Schopenhauer is famous for many statements. My favorite is the process of establishing truth. “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”

Taking a page from Schopenhauer, the road to socialism in America passes through three stages. First, combine small banks and companies into large banks and companies. Second, have the government take shares in large banks and companies. Third, have the politicians direct the flow of capital, investment, production, employment, and consumption.

We are part way into stages one and two, under a Republican president and administration, no less. It won’t take long for stage three to emerge.

Now that we Own the Banks,...

We, the American taxpayers, are now part owner of America’s leading banks. So, when can we expect to receive dividends from our investment?

The answer is very soon, but in the form of new taxes, not a check or electronic deposit. After all, somebody has to pay for the extra hundreds of billions of dollars that are being deployed to save the financial system. When and if our shares, of which the Treasury is temporarily trustee, are sold, hopefully for a profit, it is likely that Congress will find it more constructive to spend the money on new or existing programs than return it to us. That’s what they do with surplus Social Security taxes.

The constant refrain that the government is looking out for the taxpayer in administering the $700 billion appropriated by Congress will, in all probability, turn out to be a will-o’-the-wisp.

Saving vs. Consumption: The Age-Old Dilemma

Economists have long pointed to the lack of savings in the United States, which has contributed to the current financial crisis. The magnitude of U.S. debt is truly staggering: a $700 billion annual current account deficit, a $500 billion annual budget deficit (likely to reach a trillion dollars as the Treasury borrows money to implement the “rescue” package), private credit card debt, and so on. Roughly half of publicly-traded U.S. Government debt is held by foreigners. Foreigners also finance the current account deficit.

The result of too much spending and too little saving was aptly set forth in Chapter xii of David Copperfield, in which Charles Dickens spelled out the consequence of overspending:

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Wall Street financiers and analysts nonetheless proclaim that recovery from the current downturn requires consumers to open their wallets and purses wider. This will presumably happen when consumers feel comfortable to borrow and incur more debt. So much for increasing savings.

Senator McCain: You Cannot be Serious!

With apologies to John McEnroe, Senator McCain’s proposed nationalization of a portion of the private mortgage market—purchasing up to $300 billion in mortgages directly from homeowners and replacing them with new, fixed-rate mortgages based on the lower value of their homes—extends the $700 billion “rescue” of financial institutions to a more expansive level of government involvement in the economy. Let’s call it for what it is, “A New New Deal.” Perhaps David Stockman was right when he said that “There are no real conservatives in Washington.”

During the second presidential debate of October 7, 2008, McCain offered little to nothing to conservatives. Running under the Republican party banner, he repeatedly promised to reach out to Democrats to enact the major proposals of his campaign.

What’s next from Senator McCain? How about more billions to buy shares of stock that constitute the S & P 500 to prop up the stock market? Billions for delinquent credit card accounts? A new TVA-style Government Energy and Reconstruction Company?

“Say it ain’t so, John. Say it ain’t so.”

A New Era of Democratic Socialism has Begun in the United States

British Prime Minister Margaret Thatcher and President Ronald Reagan symbolized the end of socialism as a prominent economic philosophy. Its demise was reinforced in the collapse of the Soviet Empire, the emergence of market economies in Central and Eastern Europe, and the opening up of China’s economy under the leadership of Deng Xiaoping.

Reagan’s achievements were first undermined in 1991 by President George H. W. Bush when he approved an increase in the top marginal rate of income tax from 28 to 31 percent. Although President Bill Clinton added two higher rates of 36 and 39.6 percent, he agreed to welfare reform and limited increases in federal spending, resulting in record budget surpluses. Clinton himself proclaimed that the era of big government was over. Federal Reserve Board Chairman Alan Greenspan worried about the fed’s ability to conduct open market operations if the federal government redeemed all its debt.

The “compassionate conservatism” of President George W. Bush, coupled with record spending of a Republican Congress (2001-06), marked a return to the era of big government. The financial crisis of 2008 solidified the new era, socializing large chunks of the financial sector and who knows how much more to come. Assuming passage of the “financial rescue” bill by Congress, the projected deficit for fiscal year 2009 (October 1, 2008—September 30, 2009) might reach one trillion dollars.

What are those who espouse free markets and limited government in ostensibly conservative think tanks to do? Defending free markets in the light of massive government involvement to resolve the financial crisis that emerged under a Republican president and Congress does not appear promising in the foreseeable future.

The residue of genuine free-market analysts, along with a younger generation of similarly inclined scholars, will still have plenty to do, researching and recording the inevitable shortcomings and defects of the new American socialism. After a decade or two, free-market, limited government policies may once again look attractive.