Daily Archives: July 27, 2008

The Fruits of Socialism

America is among the wealthiest nations on earth. Its people enjoy one of the world’s highest standards of living. Its government is one of the wealthiest, with assets of over $1.2 trillion, according to the OMB balance sheet of September 30, 2007. The government and the people exist in a symbiotic relationship, a relationship built on mutual self-deception. The government deludes itself into believing the people have an unlimited supply of wealth that can be appropriated at will for its benefit. On the other hand, the people delude themselves into believing the government has an infinite supply of money they can demand be spent for their benefit.

The thinking of both groups contains fatal flaws that, unless corrected, will eventually lead to the economic destruction of both. Wealth is a finite resource for both the government and the people. Like a delicate houseplant, it must be carefully nurtured and managed if it is to continue to thrive and grow. Irresponsible spending by government and irresponsible demands on government by the people has given us an illusion of prosperity that is unsustainable for any lengthy period of time.

The process by which a government goes from wealth to ruin is not complicated. We are currently spending approximately $3.1 trillion annually. Revenues amount to about $2.7 trillion. The only source of revenue the government has is what is confiscated from the people through taxation. Contrary to popular belief, 81% of taxes come directly from personal earned income. Only 12% comes from corporate income taxes, 2% from excise taxes, 1% from estate and gift taxes, 1% from customs duties and 1.9% from all other sources. The remaining 81% comes directly from you and me, 47% from individual income taxes and 34% from FICA, Medicare and similar taxes.

The $1.7 billion per day difference between what the government spends and what it takes in in taxes is handled in one of two ways. It either increases revenue, (taxes) or puts it on the credit card (national debt). Whenever government raises taxes it decreases economic activity. If the tax increase is on the lower or middle class, consumers have less to spend which results in fewer jobs and lower personal income. If the tax increase is on the “rich”, investors have less money to invest in expansion, business start-ups and payrolls which results in fewer jobs and lower personal income. In other words, no matter who gets the tax increase we all eventually get a lower standard of living.

The alternative, practiced by irresponsible government and irresponsible consumers alike, with the same disastrous results, of paying day-to-day expenses by borrowing against future income eventually leads to bankruptcy. It takes longer for a government with an income in the trillions than for a family with an income in the thousands, to experience the inevitable, but the day of reckoning always comes.

When you track our national debt from the end of World War Two to the present you notice an interesting fact. Our financial woes track perfectly the rise in socialism, from the new deal, to the great society, to the present day. In 1946, the national debt was around $300 million in 2007 dollars. Today it stands at $9,543,844,967,504.65 as of July 26, according Ed Hall at the National Debt Clock.

61% of the government’s annual budget is spent on unconstitutional social programs such as Social Security, Medicare, income security, health, education, training, employment and social services.

I should also note that government regulations have the same affect on the economy as increased taxes. Regulations increase the cost of doing business and add to the price of all goods and services. (gasoline for example) Again, the result is a lowering of the standard of living for us all. We need to think about these things as we decide whom we are going to send to Washington next year.

Americans are funny people. Most of our current financial woes are the direct result of government interference in the economy, in the name of “fairness” according to socialist standards. This is true whether we are talking about energy, healthcare, or housing. When government really gets things screwed up, what is the answer? More government.  More socialism.  Karl Marx must be dancing for joy, wherever he is today.

Neither the agendas of McCain or Obama will solve our problems, since both want more government control over the economy. In their defense, however, it must be pointed out that the voters are demanding more interference, not less. This could be the decade when we get the government we deserve.

If Obama is successful in getting his agenda implemented, both taxes and the national debt will skyrocket and the economy will plummet. Not only is he promising unrealistic social programs for America, but he also promises to expand many of those programs into other parts of the globe as well. Under Obama, the Middle East, Africa, and Latin America can all expect to profit from the largess of the American people and their labor.

In pointing out the oddity of the American people demanding more action from government as the negative effects of government actions surface, I should also point out that the government suffers from a similar malfunction. As the government increases spending, it must also increase taxes, which in turn, dampens economic activity resulting in fewer taxes going to the government. The government, like many citizens prefers to spend available income on luxuries hoping the “tooth fairy” will supply the money for necessities. When the hoped for funds fail to materialize, what is the answer? More taxes. Yes, it is a great country.