The Sad Road to Socialism

reprinted with permission

“But if the government undertakes to control and to raise wages, and cannot do it; if the government undertakes to care for all who may be in want, and cannot do it; if the government undertakes to support all unemployed workers, and cannot do it; if the government undertakes to lend interest-free money to all borrowers, and cannot do it; if .... ‘The state considers that its purpose is to enlighten, to develop, to enlarge, to strengthen, to spiritualize, and to sanctify the soul of the people’ -- and if the government cannot do all of these things, what then? Is it not certain that after every government failure -- which, alas! is more than probable -- there will be an equally inevitable revolution?”

-Frederic Bastiat, “The Law,” June, 1850

It’s been more than 150 years since Frederic Bastiat wrote his treatise, The Law, a small work, challenging the ravages of failing socialism thrust upon France as a result of the French revolution.

In that unique pamphlet, Bastiat points out that when the law of any country supports the moral belief systems of a people, defends the rights of said people and their property, the law is perceived as being moral; a defense against evil and those who flaunt it as being immoral. Payment of taxes and civic obligations are perceived as a virtue and those who flout this as criminals.

However, when the law becomes a source of plunder or pits itself in opposition to the morals of the people, the people perceive the law to be immoral and widely despise it. Indeed, in those times, flouting the law is extolled as virtue.

Another book by contemporary author Hernando Desoto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, points out much the same thing, that the security of ownership of private property guaranteed by law for the lower and middle classes has been the essential ingredient resulting in the prosperity enjoyed by many western countries. Without this security, where the state becomes an impediment to commerce or property ownership, the people are forced to operate their economies outside of law, which is once again perceived as evil, rather than a force for good.

In essence, when a government goes from being a protector of private property to a plunderer of it, it places itself on a course of chaos, economic ruin and its own ultimate self-destruction.

The Three Steps of Socialism

Socialism is the mechanism which transforms government from its noble role as a protector into a predator and, since the citizens of our fine country seem determined to plow through socialism to its bitter end, we should examine the territory through which these three sad steps lead. The core result of socialism is the destruction of private property and wealth.

The events described in this piece are a composite of the ravages of socialism experienced in other countries. While each country does not experience all the events portrayed, all socialist countries follow the same miserable path. The U.S. doesn’t have to go down this path, but it seems determines to do so.

We’re Off to See the Wizard

One of the great dangers of any government by the people is that sooner or later their politicians discover they can vote largess from the public trust. Their first experiment at this bold new adventure invariably revolves around social programs enacted in the name of morality and the public good or even solving some current crisis. Who could oppose that? “After all,” it will be argued, “don’t you care about people, or the welfare of the country, or the environment?”

The lure of this argument has been absolutely irresistible from the Roman Empire to the French and Bolshevik revolutions to Socialist Parties (D) and (R) in the USA today.

Step One - The Moral Argument: A Promise of Something for Nothing

The moral argument that we can finally solve poverty, pain, sickness, and hunger with “free” money seems just too good to be true. It usually is but it sells to the public. To fund these allegedly moral programs, the assets of the gentle citizens must be quietly taxed in the name of the public good.

Only a few wise and isolated voices warn that this baby dragon they have just hatched will grow up to be a fire-breathing monster. But not to fear, the wise voices are generally shouted down by the gentle politicians, who fiercely demonize protestors as selfish “whabbledygots” blocking the road to the perfect society. After all, how could something so noble do anything bad to the country?

At first the rich are the only ones asked to pay more of their “fair share.” In the U.S. income tax originally only affected upper-bracket individuals. In this early stage, few complain and everyone seems happy, except for those nagging voices still warning of dire consequences ahead; the ones the gentle legislators wish would just shut up. Other than that they have little to fear because the gentle legislators appear to be heroes placing our feet firmly on the road to utopia. Soon they promise all the have-nots will have and those who do have, will have just a little less. After all, as we said, it’s just their “fair share.”

Ah but time rumbles onward, and the number of people dependent upon these programs swells along with the number of “free” government programs. Free things do sell, and that’s what politicians want to do: sell their programs.

As the programs swell, they become unwieldy, requiring large bloated bureaucracies to administer them to ward off the inevitable fraud and corruption, consuming an ever greater part of the tax booty and servicing less to the originally intended recipients. In order to control the chaos of a large group of people cueing up to get something for nothing, large volumes of laws and regulations have to be written to control who gets what and where and when and who the givers and who the takers are. Now, the bureaucrats who administer these programs are also dependent on them for their livelihoods. This entrenches the program and assures its progression to Stage Two.

The Magic Dragon Isn’t Cute Anymore

Somewhere along the line, the gentle legislators discover that their baby dragon has grown and it’s snarling at them a lot. It wants much food. They’re not controlling it; it’s controlling them. However, in order to retain their prestigious position, ever-increasing sources must be found to feed their growing rapacious raptor.

The food source (tax burden) shifts rapidly downward into the middle class, as the gentle politicians coo that only the rich are being soaked. Concomitant with the increase of taxation, the miracle of hidden taxation through monetary inflation is discovered as central banks print more and more money to allow the good times to continue over and above what direct taxation will allow.

This process of monetary inflation results in debasement of the currency, causing the citizens to work harder and harder and run faster and faster to keep up with the loss of their currency’s value and the concomitant rise of prices. It’s slow at first but accelerates along an insidious exponential path. Ultimately it destroys everything the middle class works for.

Additional reptilian food sources called “revenue streams” are created. More fees, fines, “mitigation payments” and permits are required to do almost anything, driving the cost of doing everything upwards. Coupled with this is a bewildering array of regulation and laws making the business of life more and more difficult to accomplish. Big businesses can absorb this but the middle class ultimately buckles under the strain. The dragon is never satisfied.

Stage 2: Silent War Between Government and Its Citizens

At some point, the unwashed masses suspect their politicians aren’t really gentle anymore much less benevolent. This is where a silent war between government and people erupts. It’s a blurry transition through never-never land when the politicians still claim to be gentle but the people sense that they have gone from being protectors of the public good and private property to a plunderers of it; from morality to immorality.

The “Bastiat” transition doesn’t take place all at once but, one by one, members of the working class realize they’re toiling like mad and getting nowhere. What they do make is confiscated in taxes or destroyed in inflation. They have little left over and their life’s savings are being destroyed while the politicians tell them all is just fine, creating cognitive dissonance between the hardship workers experience and the good times the politicians promise.

But those friends of the dragon on the dole still insist the dragon’s intentions are moral, even if its methods are not. As tax rates push ever higher into confiscatory ranges, self-preservation kicks in and the people take defensive action against what they no longer perceive as moral duty but legally-sanctioned plunder. They do this [while] at the same time they pretend the gentle politicians are correct even though they know better.

The rich catch on and move their assets offshore and sometimes themselves out of the reach of the dragon; they expatriate. They have the means to structure their finances in such as way as preserve wealth. Besides, the politicians are frequently among this class so they aren’t about to let the dragon loose on themselves.

Unfortunately, the middle class doesn’t have this option, so it fights the dragon by engaging in evasive maneuvers. Citizens cheat on taxes, and seek to conceal taxable assets. Whenever possible transactions are shielded from the ever-prying eyes of the hungry dragon.

As the ravages of taxation and inflation eat out the middle class’s substance, a vibrant underground economy springs up, utilizing barter, cash, foreign currencies, precious metals or other means to conceal taxable activity. Regulatory laws are flouted as people try to “see what they can get away with.” Often times this underground economy has an organized crime component vis a vis the former Soviet Union.

The second half of Stage Two of the war kicks into gear as the dragon responds to the rising opposition and imposes a growing panoply of laws and regulations with increasing fines, penalties and prison sentences. To block the rampant flouting of law, the dragon wants to monitor everything the citizens do in order to assure that plunder shall be paid, all in the name of the rule of law, public order and morality. Civil rights break down, all in the name of morality and public security.

Every once in a while the beleaguered middle class pleads with the gentle politicians to fix the problem, unaware that it was the gentle politicians, who created it all in the first place. But politicians are more than happy to be seen as dragon slayers, and create a series of scapegoats for the problem, transferring blame for the mess and enacting a new series of programs to supposedly fix the problem. In reality, they just delay the pain, put the dragon on steroids and [make] the problem far worse.

The war is not without casualties. As it becomes ever more difficult for small businesses to function in the poisoned atmosphere of taxes, fees, fines, regulations and prosecutions, more of the middle class throws up its hands and goes elsewhere or becomes part of the dependent poor. Small business goes out of business or operates illegally. As inflation devours life savings, people are wiped out. Retirees have a difficult time getting on as their lifetime achievements are destroyed. Most of the middle class slides inexorably down the slope into poverty.

There is a moral consequence as scandals erupt in the politico and monied classes. Disrespect of law is common. In the free-for-all, everyone is in it for himself and no one can afford to obey the law. Jails swell with those unfortunate enough to get caught. As more complex laws are steadily passed, finally all citizens become law-breakers.

This enables the dragon to seek pretexts for seizing the assets of citizens. Businesses are nationalized. Wage and price controls are instituted. Property ownership is forcibly transferred from those who oppose the dragon to those who support it. Retirement plans are brought under the “protection” of government and their owners left with government-issued IOUs. Assets are seized on the mere allegation of criminal activity. Indeed, law enforcement agencies encourage their members to plunder. They even make arrangements with organized crime at times. The list of plunder-and-defend possibilities is astounding.

In an effort to stem the hemorrhage, the middle class starts throwing out the rascal politicians, only to elect another group of rascals. This has little effect, since the dragon is now a self-existing monster that doesn’t require gentle politicians. By this stage it’s clear: Small and middle class businesses, ranchers and farmers all know who the enemy is: the dragon. There is no illusion that the politicians are gentle or acting in their best interests.

As the security of property ownership declines, investments flee and the economic environment becomes unstable, no one wants to invest where earnings will be heavily taxed, or even the possibility of direct confiscation on the allegation of having violated a plethora of unknowable, unobservable laws. Doing business is just too dangerous.

As doing business becomes dangerous, investments die, jobs go out of existence, increasing the pain of the working lower and middle classes. Small business is always the primary creator of employment and it is the most abused. In the end, the rich are never soaked, the middle class is destroyed and the poor discover that there is no free lunch.

Stage Three: Dies Irae: A Day of Wrath and Mourning

Ultimately the dragon cannot keep its promises. This last stage is where events turn nasty and chaotic. It is a dangerous time. It is a time no country should ever wish to reach.

Politicians are perceived as ravenous wolves. Blame and finger-pointing frenzies among politicians erupt to deflect responsibility for the chaos they have caused as they attempt to hold onto their privileged status.

Faith in government dissolves along with faith in the currency. Widespread flouting of law is common and tax payments quit. If it gets bad enough, crime flourishes, both organized and random. The domestic economy collapses into a depression and the currency just collapses.

By this time there are several violently outraged groups of people: the first group consists of those who have been dependent on the dragon for their free programs, and once the dragon reneges on its promises to provide these, they are outraged at the violation of their imagined rights to a free lunch. This group can include pensioners who paid the dragon money but discover the dragon spent it all before they retired.

The second group is the middle class, who have been beaten to death to feed the dragon and his cronies. They have lost all their livelihood and property. This is the point where many revolutions occur. Sometimes the revolutions are non-bloody and occur only at the voting booths; sometimes they are bloody and violent. It is a dangerous time because the chaos caused by the breakdown of economic and political order coupled with the collapse of morality often requires brute force to restore order, and brute force is the fertile ground for dictators and the destruction of rights.

One of the great ironies of history is that those who started the mess and benefitted greatly from it are rarely ever called to pay for the crimes and carnage they caused.

Finally the dragon dies.

Conclusion

No country trapped in socialism goes through all the events described above, which is a composite of past histories. It can turn itself at any time providing it is prepared to discipline itself to undergo the pain required to get off the public dole, much like coming off an addiction. Few societies ever want to face that, so they condemn themselves to all three stages. And the longer they wait to enact the necessary changes, the worse the pain becomes.

From currency, to energy to property rights, issues today are clouded with so much static and partisan bickering that the average person has little real comprehension of what is happening. Frequently Democrats and Republicans blame each other when often they’re both responsible and fiddle while Rome burns.

America is truly at an economic and moral crossroad, having already started into Stage Two of the sad road to socialism. Whether or not we plow through all three stages remains to be seen. It takes great moral courage to prevent this but politicians tend to be neither moral nor courageous.

Thus it is up to what actions are moral, legal and necessary to see us, our families and friends safely through the tempest. But as a ray of hope, it is here where Americans in times past have always shown themselves most noble.

July 2008