Free Markets, Free People


We’re gonna ride this puppy down in flames

It’s no secret that my optimism well has about run dry. Signs like this don’t make the level rise any. Read the whole thing. Go on. I’ll wait.

You see here’s the thing: I’ve been writing about how close we are to and economic and currency meltdown, but not a lot about societal meltdown. But troubling signs are there, too. There’s a fundamental and growing lack of respect for the government. Not because we’re bad people, but because we recognize the growing divergence between what the government does and what common sense tells us.

So, as the linked article points out, we engage in an endless list of violations. It’s estimated that in perhaps in the course of a day, and almost certainly in the course of a week, all of us commit some act that, statutorily, makes us criminals. The range of government powers, and the scope of activities they cover, make it almost possible to obey the law in it’s entirety. We know this, and we know, just as surely, that there is something wrong about it at a very basic level. And we respond to that knowledge.

It’s not civil disobedience that I’m talking about. It’s the opposite: Civil disobedience is meant to be noticed. It is a price paid in the hope of creating social change. What I’m talking about is not based on hope; in fact, it has given up much hope on social change. It thinks the government is a colossal amoeba twitching mindlessly in response to tiny pinpricks of pain from an endless army of micro-brained interest groups. The point is not to teach the amoeba nor to guide it, but simply to stay away from the lethal stupidity of its pseudopods.

The amoeba does not get smarter but it does get hungrier and bigger. On the other hand, we get smarter. More and more of our life takes place outside of the amoeba’s reach: in the privacy of our own homes, or in capital accounts in other nations, or in the fastest growing amoeba avoidance zone ever created, cyberspace. We revolt decision by decision, transaction by transaction, because we believe deep down that most of what government tells us to do is at bottom illegitimate.

In other words, in a thousand small ways, an increasing number of us are learning the power of "no". We just haven’t started acting on it seriously yet. And, of course, it’s not all of us. There are still a fair number of people whose faith in the government to be everyone’s mommy and daddy would be touching, if it weren’t so frightening. But a lot of people are waking up to the fact that the government, in matter both large and small, is increasingly incompetent.

Now we might never act on the increasing size and scope of government, if we felt we were getting some value out of it. If it could keep the trains running on time, we might think we’d gotten a fair trade-off, or, at least, enough of us would that society would keep humming along in a fairly stable trajectory. Sadly, it’s increasingly obvious that ever-larger government not only can’t keep the trains running on time, it actively prevents them from doing so.

Nowhere is this more clear than in the economy, and the government’s response to an increasingly irrational monetary and fiscal policy.

After World War II, the debt:GDP ratio stood at 128%, approximately 24% higher than it is now.  How did we reduce that debt? First, the entirety of wartime regulation was eliminated practically overnight. Rationing, wage and price controls, industrial production controls, confiscatory business and personal taxes…all gone. And, in the three years after the war, government spending was cut by half.

That would be impossible today, of course. Social Security and Medicare alone make up more than half of government spending. Unless we gut entitlements—along with everything else—we will never have a balanced budget again. This is especially true when you consider that, though debt service is just under 6% of the Federal Budget today, that’s only true because we have artificially low interest rates. If interest rates return to the 1996 levels, then over 20% of the budget will have go to debt service payments alone…a percentage that will steadily increase as the amount of debt increases. That means 80%+ of the federal budget will be Social Security, Medicare, and interest payments on the debt.

Today, the Treasury announced that the June fiscal deficit was $904 Billion for the year so far. So, we’re going to have another $1 trillion deficit this year. Just like last year. Just like next year. And as far as the eye can see.

It doesn’t take any advanced math to see what’s going to happen. We’re going to default on our debt. Or, considering that, according to today’s announcement of the money supply, by next week, there’ll be $10 Trillion in M2 floating around out there, we’ll simply monetize it through inflation, which amounts to the same thing. But we’re clearly not going to restrain spending, which means we are years, if not months, from an economic and monetary collapse.

It shouldn’t come as a surprise to anyone when it comes. Anyone who can do simple math has the capability to see it coming. Anyone with common sense can see what we have to do to avoid it. Everyone knows that maintaining a reasonable fiscal policy and sound currency are two of the government’s primary domestic responsibilities, and everyone know that they simply aren’t doing it, and, worse, seem incapable of ever doing it again.

The excuses for not cutting government are innumerable. We can’t eliminate the Department of Education, or our children will become stumbling morons. We can’t cut Social Security, or seniors will be eating Alpo. We can’t cut the Department of the Environment, or we’ll die choking in the stinking gasses of industrial effluvia. We can’t cut Defense, or foreigners will walk openly on the streets of Washington. We can’t cut the DEA, or we’ll all be jumping out of windows from some sort of of acid-fueled illusion that we can fly over the pretty colors we smell. We can’t, in short, cut anything, because every penny of it is vital and necessary, and without it, we’ll be reduced to just a lucky few who flee from the zombie hordes inhabiting the stark, post-apocalyptic landscape brought on by smaller government. Assuming, of course, that anyone can "flee" with the acute diabetes they’ve acquired by lugging along an extra couple of hundred pounds they’ve gained from unrestricted access to 64-ounce Big Gulps.

So, not only are we gonna ride this puppy down in flames, anyone with any sense already knows that we’re gonna do it, if we stay on the current path.

The thing is: it’s no longer just some whacko fringe or criminal class who are turning into everyday scofflaws, it’s the middle class. The very people we depend upon for stability in society are the people who are now realizing that "society" is increasingly turning into a confidence game played to promote the interests of the politically powerful and their clients at the expense of the middle class. The people who aren’t rich enough to insulate themselves from the vagaries of fortune, but who are rich enough to have something to lose are supposed to be the stolid citizens, the defenders of the status quo. Increasingly, they aren’t.

So, the interesting question then becomes, what response will we see to the sort of entirely foreseeable and preventable collapse that is coming from a middle class that increasingly knows the government is a huge pile of fail? And how will they respond to the bleats of the not inconsiderable portion of their fellow citizens who will blame it not on government, but on "rootless cosmopolitans", "the 1%", "banksters", et al., and demand an even more powerful government to "fix" the problem?

Here’s another interesting question. Social Security and Medicare are about the only benefits the middle class has left. It’s almost the last thing they can expect to get back from all the money they’ve poured into the system their whole lives. How will they respond when you tell them that we can’t afford those entitlements anymore, and the only way to fix the fiscal disaster we’re facing is to take away the only skin they’ve got left in the game? What do they do when the advantages they receive from government are outweighed by the burden government puts on them?

Those are questions that really bear thinking on. Because if you lose the middle class, then their response to a crisis may not be to repair and reform the existing edifice in an attempt to return to status quo ante. Instead, it may be to simply burn the whole thing down, and start rebuilding something else from scratch. After all, when you’ve got nothing left to lose…what’ve you got to lose? What happens if the middle class are turned into revolutionaries?

Somebody may want to start figuring that out.

Dale Franks
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"Social Contract". You keep using that phrase. I do not think it means what you think it means.

This week seems to be the week for the more leftward-leaning members of the political elite to try to sneak past a unilateral revision to the "social contract". Bruce pointed out one example from Paul Krugman, and now I want to address another one, from Elizabeth Warren, formerly of the Obama Administration and now candidate for U.S. Senate in Massachusetts. Ms. Warren opined:

“I hear all this, you know, ‘Well, this is class warfare, this is whatever. No. There is nobody in this country who got rich on his own — nobody.

“You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did.

“Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.”

Let’s unpack this idiocy a little bit, shall we?

There is nobody in this country who got rich on his own — nobody.

This is a meme the Left has been pushing in recent years. The trouble is that it’s not just wrong, but it’s self-evidently wrong. It wasn’t "society" that gave Mark Zuckerberg the idea for Facebook, any more than it it gave Dale Carnegie the idea of teaching public speaking, or turned Bob Williamson from an alcoholic, drug-addicted homeless drifter to the Founder and CEO of WASCO and Horizon Software. Nor did society have to do much with Steve Jobs and Steve Wozniak selling homemade computers out of Woz’s garage. There are any number of lists of people who started with little or nothing, and who became extraordinarily wealthy due to their drive, entrepreneurship, and talent.

"Ah," say the Lefties, "but without society, none of this would have been possible!"

Now, this is perfectly true, I suppose, but not in any way helpful to their argument. Without society, half of children would die in infancy, life expectancy would be somewhere in the low 40s, a significant number of people would be eaten by wild animals. Pretty much everybody else would be carried away at a young age by disease, infection, injury, or roving bands of sadistic steppe horsemen. So, sure, society helps, in the sense that the Zuckerberg/Winklevoss dispute wasn’t ended when their craniums ended up a pile of skulls deposited by a detachment of Genghis Khan’s hordes after razing their small farming village, but in courts of law to which everyone has access.

But the Progressive argument about the usefulness of society is different, and silly.

You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory — and hire someone to protect against this — because of the work the rest of us did.

But, of course, those roads didn’t get built, and those workers didn’t get educated so that capitalists could oppress the proletariat. That stuff got built because they were universally seen as a positive good in and of themselves. Millionaires aren’t taking advantage of roads, everyone is. For instance, it’s how the millionaires get all that food delivered to our supermarkets, and iPods to our electronics stores. We benefit from the millionaire using the roads in delivering stuff we want to us. The only reason millionaire is using our roads because we want the stuff he makes and that’s how he delivers it to us.

Everyone uses the roads. Everyone benefits from education. Everyone benefits from fire and police protection.  We have those things not because they are a positive good—though they are—but because they comprise the minimal requirements for maintaining a civilization that we all derive benefits from.

So, not only do the millionaires not derive some additional benefit from their existence, we would still want them even if millionaires didn’t use them at all. And we’d still pay for them, because we all derive an equal benefit from having them. They provide no special advantage to the millionaire that the rest of us don’t enjoy.

What the millionaire does—the only reason he’s even a millionaire—is to provide us with goods and services we willingly purchase. If we didn’t buy his product, he wouldn’t be a millionaire. Whatever advantages he accrues comes not from some benefit he derives from our roads, or teachers or our police. He accrues them because of our desire to give him money for his product. We are the beneficiaries, because we put a higher value on his product than we do on our money, or on someone else’s products. We choose to make him a millionaire, because we value his product more highly than other things. He doesn’t send hulking thugs to our door demanding our money. We go out and buy his product intentionally.

And let’s dispense that the millionaires are using services "the rest of us" paid for. The millionaire is using services that he paid for along with us. And he probably paid more for them, in absolute terms, than most other people. He also indirectly pays for maintaining society through the salaries for all those "workers the rest of us paid to educate". The payments those workers provide to maintain society only exist because the millionaire’s business provided their jobs. Without those jobs, society’s overall wealth would be smaller, and our ability to maintain that society would be proportionally lessened.

Now look, you built a factory and it turned into something terrific, or a great idea. God bless — keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay forward for the next kid who comes along.

That’s not the social contract. The social contract is "We maintain civilization because we all benefit from it. And we all have a responsibility to pay for it." Ms. Warren’s version of the social contract boils down to, "You have to pay more for maintaining our society because you can, and we outnumber you, and can force you to do so." That’s not a contract. That’s just extortion by majority. The millionaire’s responsibility is not to "pay forward" any more than any of the rest of us, because he doesn’t benefit any more than the rest of us.

To the extent that a "social contract" even exists, it is to provide the minimal necessary public infrastructure—physical and legal—for society to maintain itself. Ms. Warren’s concept of the social contract is that the millionaire derives some special benefit from society, so he should make special payments. But, since no special benefit actually exists, there is no excuse for extraordinary payment.

But, even so, the millionaire does make an extraordinary payment. As we’ve harped about endlessly here, the top 20% of income earners, with an average income of $264,700 per year, pay 69.3% of all federal income taxes. The "rich" are already covering 70% of the cost of "society"—loosely defined—at the federal level.

But Elizabeth Warren thinks they’re too stingy, and the "rest of us" deserve more.

Dale Franks
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