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Monday, August 10, 2009

Other People's Money

The debate over ObamaCare has also once again raised the debate over socialism in America. Its proponents argue that their plans are a social safety net that will coexist with the free market, that unfortunately is wrong, because socialist systems are parasitic on the free market. Think of a pumping system fueled by water, that pumps water out of a bucket and then redistributes half of it back into the bucket. The system will sooner or later run out of water. Or in Margaret Thatcher's words, "The problem with socialism is that eventually you run out of other people's money."

Socialism derives its wealth from the free market and its power from restricting the free market. That paradox ensures that sooner or later, socialism will kill the free market since it can only expand its power by strangling and robbing the free market. As socialism expands, so does crime which serves a funnel for laundering money, as well as outsourcing and exporting industry abroad out of reach of high taxes. This in turn leads to a cycle of crackdowns on profiteers, industrialists and black markets that end virtually all economic freedom.

That of course is the problem with "Other People's Money", which is that given a choice people will make the effort to try and protect their incomes and their ability to make money. Socialism works by punishing them, and as a result punishing the free market, which decreases available jobs, and drives greater government expansion to provide more services to a growing underclass. As the birth rate falls, immigration rises to compensate for the loss of a generation of workers. The social problems that immigration breeds, then further expands government. This cycle ends with social collapse, revolution or the replacement of the free market economy by total government control.

Running out of other people's money was a major concern for Karl Marx, which is why he proposed his economic and political system for the rather wealthy European states, rather than Russia or the Third World. When it was implemented in Russia, which had a comparatively small middle class, the bourgeois being the usual reservoir of other people's money that socialism feeds off, the "other people's money" ran out fairly quickly. This was followed by Russia selling off its paintings and cultural treasures. Finally the USSR following in the footsteps of National Socialism, invaded and looted Eastern Europe. By the time the USSR ran out of "other people's wheat" for its collective farms, it was forced to buy food from its American enemies.

It took a few generations to learn their lesson, but Russia and China, the two former Communist superpowers, rebuilt themselves as capitalist oligarchies, under Communist leaders who chose Nationalism over Marxist ideology. Meanwhile Europe and America were busy following down the same well worn road of socialism, sidelining the free market in favor of trying to solve social and political problems by building a massive government bureaucracy hanging overhead like a monstrous tower of babel, swaying in the global wind.

Socialism centralizes planning, but centralization has a ceiling beyond which it ceases to be an efficient means of control. Most socialist governments pass that ceiling very quickly, especially since democratic elections or radical revolutionaries do not tend to be the type of people who are very good at being efficient, and create bureaucracies that fulfill a political agenda, rather than being results oriented, and provide appointments based on personal loyalty or acquittance, rather than performance.

The free market remains a more efficient means of distributing resources because it harnesses the power of motivated individual initiative. While individuals will make mistakes, in the larger scale of things, a million monkeys are more likely to produce Hamlet, than a Ministry of Great Literature is. That is because mistakes are also part of the learning process. Individuals employ different strategies, and learn from each their own and other's mistakes, pursuing goals for their own and for mutual benefit. This is a far more organic economic strategy, than centralization. Centralization favors collective decision making, discourages change and initiative, and values control and ideology, over actual results.

Which is why centralization is an excellent recipe for failure. An elephant is a horse designed by committee. A government bureaucracy is a white elephant designed by a commission. If you want poor decision making and plans that don't pass the common sense test, by all means call in the government.

It is ironic that the failures of big government easily outweigh its successes. Yet most people have been conditioned to think of government as the ideal solution for solving our problems, by growing up in an age when the government's mandate to do virtually anything it wants is an absolute and constant unchanging presence in our lives. So people who will readily talk about how many government agencies they hate, how government can't get anything right, and how useless the many bureaucracies they deal with are, and how much of their salary goes to pay for them, queue up at the next election to vote in the man who promises even bigger government with more services and sections than ever.

That of course is because politicians have long ago learned to promise them that somehow the government will do more for them, but that their taxes will not go up. An economic paradox that should not be able to pass even a third grader's understanding of math and logic, that nevertheless millions of voters swallow over and over again. And of course its hypocritical corollary, that whatever taxes will be collected, will be done from "Other People's Money."

In a democratic system, socialism is the government asking permission to take more of your money and freedom, on the promise that it will be actually the money and freedom of the fellow next door. Who deserves it. But in a culture where people rush to buy the latest conveniences, driven into a frenzy by ads, trends and shiny packaging, without understanding or learning that what is inside the box will never match the packaging. Where people run up credit card bills and then pay them off using other credit cards. Economic logic has become solely lacking. And that is what created the opening for socialism in the first place.

There was never any revolution, no armed men seizing the palace and declaring that from now on the government will run your lives. It was the corruption of the free market that did it. As people ceased to work for themselves, became detached from the results of their labor, the entire system quietly began to rot.

Prosperity made people devalue money, which led to frivolous consumer spending and populations that did nothing but try to fill the empty holes in their lives with material possessions. The breakdown of the extended family, made multi-generational planning increasingly meaningless. People moved away from the family circle. Children were expected to leave their parents behind, and unlikely to follow in their parent's footsteps. People no longer worked to build something larger than themselves. They worked to be able to retire and buy all the things they always wanted. Less money was left behind and more of it was spent.

The family business gave way to the corporation, run by men looking for short term bonuses, with no longer plans. The corporation turned to the government and asked for funding and bailouts, because it was easier than actually taking your lumps. The government raised taxes on the corporations. The corporations moved overseas, but kept asking for bailouts. Corporate socialism turned into just plain socialism, as "Other People's Money" began to run out, forcing the government to begin thoroughly looting the middle class.

The genesis of it all however was the failure of the same cultural codes and family relationships that had made the free market work efficiently in the first place. Because the free market works best when it is actually free, and when people are capable of using it to advance larger goals. As more people chose to work for others, to detach themselves from being economic actors, to becoming cogs in a great machine, it turned out that no one actually knew what the machine was doing or where it was headed. Its scale had made it inefficient, and it was no longer run by people who cared whether it would be around ten years from now, let alone a generation from now.

Corporate centralization paved the way for socialism, sharing that same detachment from individual goals and family structure, and the same density and ignorance that characterizes large inefficient organizations. Socialism became inevitable when people worked to pay off credit card bills, rather than building their own businesses, which made them equally eager to pass the burden onto the government. And those who did try to build their own businesses in the old fashioned way would be the first in the firing line of corporate socialism and just plain socialism.

When the good life became the easy life, hard work is traded in by passing the buck to someone else, preferably someone in authority who promises to take care of you in exchange for taxing you to death. Once upon a time we called that serfdom. And when the participants in the free market economy sell out the free market economy, other people's money looks like an easy solution to every problem. When you don't worry what will happen a generation from now, it becomes easy enough to run up deficits to power government programs that can never be paid off. The cycle ends in socialism, because centralization, passing the buck, has become an easier solution than taking responsibility. And the problem with passing the buck, is that sooner or later, the bill will still have to be paid, with your money, not just with other people's money.


  1. Anonymous11/8/09

    You realize that something similar happened to the Roman Empire.
    If memory serves, the process accelerated under Emperor Diocletian.

  2. Rouanda Plishtim11/8/09

    To desire socialism in America is to be a traitor.
    The nation was not founded on socialism nor was it meant to go that way. People who want socialism as government should leave the country and go to a socialist/communist nation rather than trying to hijack this one.

  3. Anonymous11/8/09

    Very good analysis, as always. I grew up in a communist country (not Israel). The little people have no HOPE. If you are not part of the aparat you have no life, so don't work as hard--it doesn't matter to you, or work "under the table" after hours of work, to make a few bucks, then the lineups to goods come (who can even imagine that in the land of plenty, America).It's a vicious cycle, no hope, don't work hard, no goods, system has money only for the few close to the money and everything becomes corrupt, everything colapses and voila, dark ages upon us.

  4. miriam11/8/09

    It seems that there is a way to work it. Israel started off with lots of kibbutz. I suspect that was a way to bring "communism" without all the protests to it.

    As things progressed and got better, things switched over to a socialist government. (less kibbutzim).

    I wonder if its time (and the powers that be have become too corrupt to pass that stage) to switch over to a more free market type government there?

    As for America, I worry that people are too far gone asleep. Those who are active and awake and trying to protest this are fighting an uphill battle.

  5. The Kibbutz system's role has been overstated, but the types of Kibbutzim also vary, from ones that were borderline Communist, to those that were religious and nationalist. They were never very many and they never really worked well as an economic entity, they were effective as a way to quickstart Israeli agriculture. Once Israel was independent and there was land available, the Kibbutzim began to decline. And there was less and less reason to keep them going.

    Israel's problems with socialism however were tied less to the kibbutzim, which were not all that centralized, but instead to the various labor monoliths that bred corruption and tried to suppress the free market economy and have made life hard for independent businessmen without connections to the labor old boy's network.

    Netanyahu did make some dramatic reforms, particularly in the area of privatization, and with the labor party badly imploding now, we'll see what comes next.

  6. Anonymous11/8/09

    What a fine article.

    Tying in how the good life became the easy life, no continuation of family businesses (taxes maybe), etc. make for simple explanations of how we have gotten into this mess.

    I am glad I found this site.

  7. There is also the larger cultural issue of children being taught to despise their parents, and to leave them and their reactionary ways behind


  8. Anonymous15/3/10

    You have simplified the view too much.

    Corruption and corporatism is much a free market creation as socialism.
    But we need large businesses, for they are the only ones who can develop more and more complex products.
    Could a family firm have developed computers?
    Do the talents of the father always go to the son?

    More to the point, this system has been tried before - and failed miserably. It was called the feudal system, which reigned from the dark ages until the enlightenment.

    I hope you can see, freedom to move from your family economic unit has contributed greatly to our scientific, technological and cultural progress.

    What needs to be done, is a paradigm shift in the way we work, and how we interact with businesses. And the easiest way to do that, is to make large businesses partly owned by all the employees - making them have a stake in the business would help make a more productive workforce, and foster a sense of communal direction.
    Would you tolerate a lazy worker, if at the end of the day, his performance is affecting your income?
    But I must admit, this would not work in the financial system - their are some who are just to greedy to care.

  9. the home computer was in many cases developed by hobbyists. Some of the biggest products have come out of garages. So yes it is possible. Increasingly complex companies actually innovate less.

    Employee owned businesses are hardly a solution, because it comes down to who actually runs and significantly contributes to the business.



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