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The socialism scam - Peter Diekmeyer (04/09/2018)

The socialism scam - Peter Diekmeyer

Sept 04, 2018

Alexandria Ocasio-Cortez’s recent win of the Democratic Party’s nomination in New York’s 14th Congressional district has given America’s socialists a breath of fresh air.

The telegenic 28-year old ex-waitress, who lives in a one-bedroom Bronx apartment, defeated Joseph Crowley, a 20-year incumbent and one of the Party’s most powerful members.

Ocasio-Cortez’s win has given particular hope to American youth. Polls suggest that millennials, like generations of youth before them, broadly support a socialist agenda.

However, there are growing signs that increasing government involvement in the economy is bad for Americans, particularly its youth.

Making government big again

Ocasio-Cortez’s unlikely win comes on the heels of growing momentum in the socialist movement.

Bernie Sanders almost won the Democratic Party’s presidential primary in 2016 by running on a socialist agenda. His platform (which Ocasio-Cortez supported) included government-financed universal medical care and tuition, as well as a $15 per hour minimum wage.

Indeed, even Republicans are moving to the left.

The nominally conservative Trump Administration increased public spending, the deficit, taxes on imported goods and (through its trade policies) has vastly boosted government control of the economy.

Lies my teacher told me

The bad news for Americans, particularly youth, many of whom have been badly misinformed about socialism by unionized teachers in government-financed schools, is three-fold.

First, increasing the size of the public sector beyond a certain point makes everyone poorer. The world saw this in dramatic fashion after the fall of the Soviet Union, when all of the country’s bullish economic data turned out to be false.

Countries that were split in two during the Soviet era, such as Germany and Korea, were particularly illustrative. In both cases the zones that had less government involvement did better.

Secondly, there are strong signs that the American government, which has been growing faster than the economy for more than three decades, is on a similar path.

A free currency market would have checked government spending, which, when accruals are included, now exceeds 60% of the US economy,

However, since the abolishment of the gold standard, governments, through a variety of mechanisms, can now effectively print whatever money they need.

Thus, thirdly, the resulting lack of a stable unit of account now makes it almost impossible for observers to measure just how bad the situation is.

America’s national pastime: stealing from each other

Younger Americans, who don’t vote in large numbers and have few inside connections, appear particularly ill-suited to succeed in a socialist state.

This is due in part to socialism’s very nature, which rewards special interest collectives who pressure governments for funding, the creation of jobs with above-market wages, and legislation which enables favored professions to extract “rents.”

Unlike free markets, which rely on voluntary exchanges, governments thrive on coercion, ultimately at gunpoint. In that sense taxes are, to a large degree, theft.

Using government to steal from each other has thus become America’s largest economic activity.

A pernicious effect on the national character

This leads to a fourth result of socialism, which is hardly studied at all: its pernicious effect on the national character.

That didn’t matter so much a century ago when communism was first implemented. Back then most people were unskilled workers or farmers who could be muscled around.

But in an information economy, in which many workers know more about their jobs than their bosses, this is highly dangerous.

Policy makers haven’t yet realized that it isn’t a good idea to steal half of their doctors’ salaries.

Stealing half the salary of your accountant, the guy who sets your economic policy or the scientist who advises you about climate policy isn’t too smart either.

Kids come last

Socialism thus leaves American youth at a severe disadvantage, because income distribution only works if your special interest group can steal more from others than they steal from you.

For example, if you vote to tax businesses, but those businesses raise prices by a higher amount, you may be worse off.

The trouble is that when government tax revenues are divvied up among special interests, kids come last. Older Americans get the lucrative government jobs. They then implement seniority laws and credentialism requirements to keep others out.

Government spending, much of which is financed by borrowing, also disproportionately benefits seniors. Kids get stuck with the debts.

Are American youth being scammed?

Critics rightly argue that the young come last under any form of government.

American youth can thus be admired for advocating a sharing society, which socialism is supposed to foster.

However, they’d do well to question their teachers and consider a sentiment famously misattributed to Winston Churchill.

“If you aren’t a socialist at twenty, you have no heart. But if you are a socialist at forty, you have no brain.”

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About the Author

Peter Diekmeyer has been a business writer/editor with publications such as Sprott Money News, the National Post and Canadian Defence Review and Jane's Defence for nearly three decades. He has studied in MBA, CA and Law programs but dropped out of all three after failing to convince the academics that they were wrong about everything.  Diekmeyer has interviewed more than 200 CEOs and filed reports from dozens of countries. 

His most terrifying moment came when he spoke to central bank economists for the first time and realized that (unlike politicians) they actually believed their own analysis and forecasts. 
He has been a regular contributor to the Sprott Money blog since 2015.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

Comments

JJ
September 5, 2018 at 9:55 AM
"Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery". The only quote attributed to W.Churchill that I really like.