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Wednesday, August 3, 2011

The Animal Farm of Social Justice

"An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation." — John Marshall

After months of talk about the nation's runaway debt, lawmakers managed to agree on a plan that, at most, will cut spending by a mere 5%. Is it any wonder federal spending is out of control? According to IBD's analysis of available budget numbers, the deal's $2.4 trillion in 10-year cuts amounts to a mere 5% trim off total projected federal spending during that time. It's like a 400-pound man boasting that he plans to drop 20 pounds over a decade, while his doctors warn about the risks of losing weight so fast. Even calling these 'cuts' is a bit of a stretch, since spending will continue to increase, just at a slightly slower pace. By 2021, federal spending would still equal 22% of the nation's economy, above the post-World War II average of 20%. Not really a cut, is it? Plus, in the short term, these 'deep,' 'sharp,' 'slashing' cuts would still leave the federal government spending roughly 4% more in 2012 than it did in 2010, and 20% more than it did in 2008. Shorn of all the hyperbole, what this agreement really demonstrates is why it's so hard to get federal spending under control. Both sides routinely use budget gimmicks to exaggerate spending cuts, while armies of special interests swarm Washington to make sure their pet programs don't get touched. All the while, spending marches upward. And reporters too dumb, lazy or biased to understand how budgets work keep falling for this nonsense." — Investor's Business Daily.

A recent celebratory video showed a mildly content Obama applauding Congress for "compromising" by agreeing to raise the debt ceiling through the next election cycle in exchange for long-term spending cuts, but he went on to reiterate the need for the wealthy to chip in more than they have because "that's only fair."   Yes, the American people have twice rebuked his attempts to legislate tax hikes for the wealthy within the last year, and a multitude of economists have warned of the danger of any such legislation, and yet he still he clings to the notion with uncanny resolve.

Apparently, losing consecutive battles and his troops' morale will not deter him from fighting his war to increase taxes upon the rich.  But in preparation for the renewed offensives against the wealthy that Obama will undoubtedly launch in the coming months, perhaps we should just focus on simple facts to prove that raising taxes will yield utterly destructive economic results.

The left very rarely deviates from their standard talking points about the moral imperative of taxing the wealthy; like how the rich make "enough money" or that they "need to pay their fair share." But when they do, the argument usually goes something like this: taxing the rich more will yield more revenue for the federal coffers, and more money in the coffers means economic growth.  But this, their best argument of any substance, is little more than a dreadfully flawed assumption that does not take current global contexts into account.

In his monthly market forecast, Markus Schomer, Chief Economist for Pinebridge Investments, lets us in on some grim facts, assuring us that "spending cuts and tax increases will both hamper growth."  And he suggests that employing both of these tactics at once, which is the "balanced" approach Obama suggested two weeks ago in the White House, would likely result in the toxic economic scenario we've seen play out in the UK, "where drastic spending cuts and tax increases have pushed domestic demand back into recession."  A more proper solution, he describes, might be to achieve "credible long-term deficit reduction through spending caps and entitlement reform, but refrain from damaging domestic demand any further."

In 1948 George Orwell wrote his famous novel 1984 about a about a society ruled by an oligarchical dictatorship. For years I heard that this novel predicted a dictatorship of the right, when in fact it has turned out to be more descriptive of the left’s socialism and communism.

Orwell was a Fabian Socialist when he went to Spain to cover the Spanish Civil War in 1936. He became so disillusioned with Republican Left that he eschewed his Fabian beliefs for social democracy and in 1943 wrote his famous allegorical book, Animal Farm. The novel was not published for two years because the liberal Bloomsbury establishment did not want to offend the new Labor Party majority in London or Stalinist allies in Moscow.  After WWII, Orwell defended his fable, saying that his intention was to illustrate how easily otherwise intelligent people could be "misled by propaganda in a democracy” — in other words turned into useful idiots.

Political ideology in America has devolved to forms that would make Orwell cringe today: socialists (née Marxists) and democratic socialists (née Keynesians).  The former views government as an all-purpose solution and the latter views government as a "stimulator," a kind of economic and social Wizard of Oz.  The two are more alike than they are different.  The fatal flaw of both is the chronic inability of voters and their elected representatives to distinguish between wants and needs.  Elections are now confused with democracy, and the majority seldom votes for the common good — or their own best interests. 

Neither debt nor deficits are national security crises.  Both are just two symptoms of civic decline, a bloodless coup in slow motion.  The end may come slowly or catastrophically, but collapse seems inevitable.  And the solution isn't Democrats or Republicans; both parties are now "democratic" in name only.  Neither major party represents the will nor the best interests of the people.

Before the turn of the 21st century, Francis Fukuyama wrote a provocative essay for National Interest where he argued that the fall of the Soviet Union represented the "end of (authoritarian) history" as we knew it and a triumph of "liberal democracy."  Fukuyama didn't have much to say about the advent of totalitarian Islamism or the spread of virulent socialism in the West.  Indeed, Frank might have been more candid had he called the 20th century a triumph of "social," not liberal, democracy.  Fascists and old-school Communists may be gone, but socialism has metastasized in every Western democracy under the tutelage of "progressives."

Socialism, with the able assistance of Islamism, is now poised to do to Europe, the British Commonwealth, and America what Nazis, Fascists, and Communists could not.  The threat from social democrats may be more subtle than the naked aggression of Islamists, but the endgame might be the same.  The illusions of socialism and the worst instincts of democracy are now joined in a death spiral.

The fatal flaws of social democracy include but are not limited to promises that cannot possibly be kept; outlays that might always exceed income; the necessity for Orwellian mendacity; the absence of all moral hazards; and ultimately, a terminal erosion of the electoral process and democracy itself.

Social democracy is a kind of piñata politics, a system where special interests seek like-minded politicians who will cater to a host of creative dependencies.  Few distinctions are made between real needs and simple greed, or as Bastiat stated; “everyone plunders everyone”. Once established, most federal programs quickly outlive their usefulness.  Results become immaterial.

Once funded, the legislature might be lobbied by bureaucrats from within and beneficiaries from without.  Social democracy is a perpetual motion machine where the prime function of government is spare parts — spare parts for itself.  Mission statements for most social agencies are adorned with adjectival admonitions like "better" or "improved," yet few if any measures of effectiveness are ever established or enforced.  The "wars" on poverty, illiteracy, drugs, and terrorism and their associated federal departments are all examples of dismal, yet expensive failures.  The only function that most federal agencies do well is write checks — checks against funds which must be borrowed from folks that may not have our best interests at heart — like China.

The liberal or progressive proposal for solving the deficit/debt dilemma is "more of the same": tax and spend.  The strategy is aptly defined as "leading from behind."  Four in ten spending dollars must be borrowed today to keep America afloat.  Paul Krugman tells us we must spend now, cut later.  Later, unfortunately, never comes and never has.

The proper Orwellian state requires a language of euphemisms. Discretionary and non-discretionary spending are two of the best. The latter term is designed to protect sacred cows — as if any spending is ever "mandatory." Taxes are never taxes; words like "investments," investments that never pay, mask the pain. Keynesian deficit spending masquerades as "stimulus." If a stimulus package doesn't work, clearly it wasn't big enough. A corruption of language is necessary for any successful fraud. Deceit is a standard kit for grifters and social democrats.

The most egregious deception turns rhetoric and logic on their heads. Those who argue that spending should not exceed income are libeled as immature, radical, insensitive, and dangerous. Those who would end the spending bender are labeled as right-wing "nuts." Somehow a balanced budget threatens the future, full faith, and credit of America. In the bizarre world of social democracy, all facts and logic are subverted by compulsive spending and fiscal deficit disorders. Blaming the thrifty for impending default is a little like blaming fire on the alarm.

There are no moral hazards in the world of social democrats.  Indeed, government is not required to produce goods, nor does it necessarily deliver services.  In spite of decades of Keynesian stimulus, government at all levels has become a net consumer, not a creator of wealth.  And most programs and departments are vampires, they cannot be killed.  Failure always looms, yet there are no penalties for poor performance.  No-fault politics is a value that crosses party lines.  Of 15 cabinet departments, six have been in default for decades.  All are immune to reform or the axe.

Consider just three: Defense, Welfare, and Education.  America has waged a host of wars since WWII.  Few have been unambiguous successes.  Indeed, among four ongoing wars in the Muslim world, the word "victory" is the most notable casualty.  At home, two cabinet departments now service the welfare state.  Even progressives argue that misguided federal largess has created a host of pathologies and dependencies that never existed before the advent of the "nanny" state.  And American education is a domestic and international joke.  The technology sector, that is supposed to be America's economic salvation, must go abroad to India and China to find qualified employees.

Walter Williams writes in Capitalism Magazine:

Blacks and Hispanics, especially blacks, are the most politically loyal people in the nation. It's often preached and taken as gospel that the only way black people can progress is through racial politics and government programs, but how true is that? Let's look at it.

In 1940, poverty among black families was 87 percent and fell to 47 percent by 1960. Would someone tell me what anti-poverty program or civil-rights legislation accounted for this economic advance that exceeded any other 20-year interval? A significant chunk of that progress occurred through migration from rural areas in the South to big Northern cities. Between 1960 and 1980, black poverty fell roughly 17 percent and fell one percent during the '70s. Might this have been a continuation of a trend starting much earlier, or was it a miracle of the civil-rights movement or President Johnson's War on Poverty?

Dr. Thomas Sowell's research points out that in various skilled trades, the incomes of blacks relative to whites more than doubled between 1936 and 1959. What's more, the rise of blacks in professional and other high-level occupations was greater during the five years preceding the Civil Rights Act of 1964 than the five years afterward.

In 1940, 86 percent of black children were born inside marriage, and the illegitimacy rate among blacks was about 15 percent. Today, 31 percent of black children are born inside marriage, and the illegitimacy rate hovers around 70 percent.”

In the 18th century, the founding fathers restricted the voting franchise to the landed gentry — those who had a stake in the society. The idea was to restrict governance to the successful and accomplished citizens. If nothing else, successful and enterprising men were thought to serve as role models. No one anticipated a 20th-century oligarchy of venal lawyer/politicians without term limits.

It was John Adams who wrote in 1776 that no good could come from enfranchising more Americans:

“Depend upon it, Sir, it is dangerous to open so fruitful a source of controversy and altercation as would be opened by attempting to alter the qualifications of voters; there will be no end to it. New claims will arise; women will demand the vote; lads from 12 to 21 will think their rights not enough attended to; and every man who has not a farthing, will demand an equal voice with any other, in all acts of state. It tends to confound and destroy all distinctions, and prostrate all ranks to one common level.”

Like the wise men of 5th-century Athens, early American political philosophers were aware that even a representative republic could be hijacked -- where cupidity and self-interest could thrive at the expense of the common good. It's no accident that the word "democracy" does not appear in the Declaration of Independence or the Constitution.

The original vision of an entrepreneurial, capitalist republic has devolved now to a social democratic nightmare where government programs actually suffocate initiative and enterprise. Literal, and figurative, industry is now vilified from the Oval Office. At the local level, especially in urban areas, social democrats thrive in dysfunctional, one-party towns. These urban blights cannot afford incompetence, even; it must be subsidized.

Fifty percent of the population pays no income taxes, but they do have the vote. This constituency has no skin in the game except, maybe, to collect a government check. There's no incentive for fiscal prudence when deadbeats can be bought with other people's money.

Today we have an oligarchy comprised of the political elite, the left wing media, the wealthy in the entertainment industry and the corporate internationalist like George Soros and Jeffrey Immelt. These are the people, like the pigs in Animal Farm have learned to walk on two legs and believe that all pigs are equal, but some pigs are more equal.

The American crisis was not created by reformers or conservatives. It was created by a bovine electorate and a porcine federal government — a horrible model that actually cultivates social pathologies for political purposes. More than four out of ten dollars spent by Washington must be borrowed to finance what now amounts to an American "Animal Farm." Indeed, George! The pigs have taken over again. Napoleon and Squealer are back!

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