The Fabian Socialists Are Winning

The Fabian Socialist movement, first begun over one hundred years ago, is moving faster today than ever before. The success of their slow evolutionary drive toward central planning was highlighted a few days ago when we presented our Depressing Chart of the Day, shown to the right. It shows that the total of federal, state and local government spending as a percent of GDP has skyrocketed over the past few years, approaching 50% of all GDP.

By coincidence, your intrepid author is in the midst of Hayek's "The Road to Serfdom". In the excellent book is the excerpt that follows. TILB highlighted several points below [all emphasis added], but most important is the emphasis on Germany in 1928 (immediately prior to Nazi rule).

Of additional note is the description on how socialism is most effective in a republic or democracy - by taking the power away from elected leaders and handing it to non-elected bureaucrats (a modern day example would be the Federal Reserve's central planning role in determining the amount and price of money).

The words that follow are from Hayek published in 1944.

We can rely on voluntary agreement to guide the action of the state only so long as it is confined to spheres where agreement exists. But not only when the state undertakes direct control in fields where there is no such agreement is it bound to suppress individual freedom. We can unfortunately not indefinitely extend the sphere of common action and still leave the individual free in his own sphere. Once the communal sector in which the state controls all the means, exceeds a certain proportion of the whole, the effect of its actions dominate the whole system. Although the state controls directly the use of only a large part of the available resources, the effects of its decisions on the remaining part of the economic system become so great that indirectly it controls almost everything. Where, as was, for example, true in Germany as early as 1928, the central and local government authorities directly control the use of more than half of national income (according to an official German estimate then, 53 per cent), the control indirectly almost the whole economic life of the nation. There is, then, scarcely an individual end which is not dependent for its achievement on the action of the state, and the "social scale of values" which guides the state's action must embrace practically all individual ends.

It is not difficult to see what must be the consequences when democracy embarks upon a course of planning which in its execution requires more agreement than in fact exists. The people may have agreed on adopting a system of directed economy because they have been convinced that it will produce great prosperity.

In the discussions leading to the decision, the goal of planning will have been described by some such term as "common welfare," which only conceals the absence of real agreement on the ends of planning. Agreement will in fact exist only on the mechanism to be used.

But it is a mechanism which can be used only for a common end; and the question of the precise goal toward which all activity is to be directed will arise as soon as the executive power has to translate the demand for a single plan into a particular plan. Then it will appear that the agreement on the desirability of planning is not supported by agreement on the ends the plan is to serve.

The effect of the people's agreeing that there must be central planning, without agreeing on the ends, will be rather as if a group of people were to commit themselves to take a journey together without agreeing where they want to go: with the result that they may all have to make a journey which most of them do not want at all.

That planning creates a situation in which it is necessary for us to agree on a much larger number of topics than we have been used to, and that in a planned system we cannot confine collective action to the tasks on which we can agree but are forced to produce agreement on everything in order that any action can be taken at all, is one of the features which contributes more than most to determining the character of a planned system.

It may be the unanimously expressed will of the people that its parliament should prepare a comprehensive economic plan, yet neither the people nor its representatives need therefore be able to agree on any particular plan. The inability of democratic assemblies to carry out what seems to be a clear mandate of the people will inevitably cause dissatisfaction with democratic institutions.

Parliaments come to be regarded as ineffective "talking shops," unable or incompetent to carry out the tasks for which they have been chosen. The conviction grows that if efficient planning is to be done, the direction must be "taken out of politics" and placed in the hands of experts-permanent officials or independent autonomous bodies [TILB - see the Federal Reserve for a modern day socialist example].

The difficulty is well known to socialists. It will soon be half a century since the Webbs began to complain of "the increased incapacity of the House of Commons to cope with its work."' More recently, Professor Laski has elaborated the argument:

"It is common ground that the present parliamentary machine is quite unsuited to pass rapidly a great body of complicated legislation. The National Government, indeed, has in substance admitted this by implementing its economy and tariff measures not by detailed debate in the House of Commons but by a wholesale system of delegated legislation. A Labour Government would, I presume, build upon the amplitude of this precedent. It would confine the House of Commons to the two functions it can properly perform: the ventilation of grievances and the discussion of general principles of its measures. Its Bills would take the form of general formulae conferring wide powers on the appropriate government departments; and those powers would be exercised by Order in Council which could, if desired, be attacked in the House by means of a vote of no confidence. The necessity and value of delegated legislation has recently been strongly reaffirmed by the Donoughmore Committee; and its extension is inevitable if the process of socialisation is not to be wrecked by the normal methods of obstruction which existing parliamentary procedure sanctions."

And to make it quite clear that a socialist government must not allow itself to be too much fettered by democratic procedure, Professor Laski at the end of the same article raised the question "whether in a period of transition to Socialism, a Labour Government can risk the overthrow of its measures as a result of the next general election"-and left it significantly unanswered.

It is important clearly to see the causes of this admitted ineffectiveness of parliaments when it comes to a detailed administration of the economic affairs of a nation. The fault is neither with the individual representatives nor with parliamentary institutions as such but with the contradictions inherent in the task with which they are charged.

They are not asked to act where they can agree, but to produce agreement on everything--the whole direction of the resources of the nation. For such a task the system of majority decision is, however, not suited. Majorities will be found where it is a choice between limited alternatives; but it is a superstition to believe that there must be a majority view on everything.

We are fast approaching a tipping point. In the course of a decade, we have gone from the government representing an already egregious one third of economic outpoint to one that represents 44% of our economy. It seems likely not to shrink as the current administration clearly believes in its just and beneficent wisdom and will impose that wisdom upon us, whether we want it or not.

To be fair, the trend of the graph at the top of this page is party neutral - both donkeys and elephants share the blame - having built over the course of 80 years. The acceleration, though, is perhaps most frightening of all. TILB is not sure what will cause a secular shift back toward freedom and away from centrally planned oppression. We suspect that, in the end, the will of the people must exert itself and reclaim lost liberty.

Lord hear our prayers...

TILB Depressing Chart Of The Day: Government Spending As A Percent Of GDP

This basically speaks for itself. It is all government spending: federal, state and local. The data series can be found here.



Another way to think of this is that 45% of your productive effort goes to supporting The State. While you may say, "but that's impossible because the sum of the average tax rate we pay doesn't get to 45%", then you just figured out what government borrowing allows for.

Paying off that debt (without defaulting) means one or a combination of higher explicit taxes, higher implicit taxes (money printing), or massively reduced government spending in the future. Guess which one of these is unlikely.

If you just vomited in your mouth and subsequently swallowed it, you're not alone.

September Car Sales Fall Flat On Their Face

Apparently this Boston Globe writer missed the memo that the reason September auto sales are just an abysmal disaster is not because demand was pulled forward into July and August from today and the future, as TILB predicted it would, but that it's simply an inventory problem. The author, Megan Woolhouse, seems to believe - crazily, we might add - that there is a demand problem when clearly there is a supply problem.

If only the automakers would provide dealers with more inventory, all of these ills in the auto industry would be cured, as the lunatic Peter Fong stated.

Here are a few choice quotes from the article which highlights Woolhouse's fundamental misconception [emphasis added]:

Manager Adam Silverleib said business was “pretty intense’’ as a result of the federal stimulus program, with the dealership hustling to accommodate customers and handle the piles of paperwork required for them to receive reimbursement on vouchers. “Now we’re kind of back to where we were in the spring,’’ he said.

In an attempt to draw customers back to showrooms, some dealers are offering new incentives, albeit none as enticing as a $4,500 for a rusting junker. Silko, for example, is promoting 2.9 percent financing on new Accords, along with other deals on its website.

Nationwide, customers snatched up 700,000 new cars, most of them foreign-made, and the government ended up paying out nearly $3 billion toward the purchases. But from the start, analysts predicted that Cash for Clunkers would not boost sales for the year. September’s sales swoon seems to be making their case. Car sales are usually slow after Labor Day, but because of the recession consumers this year are especially reluctant to say yes to major purchases. To make matters worse for dealers, most are still waiting for voucher reimbursements.

“It was probably, in the end, a complete waste of taxpayer money,’’ said John Wolkonowicz, a senior auto analyst at IHS Global Insight, Lexington forecasting firm. “The dealers, who were supposed to be the primary beneficiaries, many were forced into cash flow problems because the government didn’t pay them in a timely fashion.’’
...
This program was very good at getting product off the lot, but there haven’t been long-term benefits,’’ he said. “Dealers are reporting that showrooms are pretty dead right now.’’

Wolkonowicz said the fall slowdown may have been worsened by the program because many buyers came out early to take advantage of the program instead of waiting until now to shop.

In Raynham, Silverleib is relying heavily on longtime customers ready for a new model. But he is realistic about the state of the auto business, and skeptical that the economy is out of the woods.

“Speaking as someone on the front lines, we’re still in a recession,’’ he said.

I love the smell of napalm in the morning...especially when its victim was my tax dollars.



[HT: LB]

There Is No Such Thing As "Government" Spending

There is no such thing as government spending. Period.

The government is not a private citizen that creates wealth that it subsequently uses for its own investment or consumption. The government does not "earn" money.

The government is simply a conduit through which we make collective decisions.

Government is, in essence, a private club with broad membership. It makes regular assessments (taxes) to fund what we require of it. However, unlike most clubs, it does not assess members evenly or based simply on usage, it actually charges successful members (from a monetary success standpoint) a greater assessment than less successful members. It charges an uneven rate for its membership.

We make the point about the non-existence of government spending because we believe it is vital to understanding what "government spending" actually is. Government spending is simply the act of taking money from certain citizens to use for some purpose that, presumably, those citizens would not make via the sum of their individual collective decisions. It serves as an override on individual liberties in the name of the greater good.

In order to grasp this important idea - that the government has no wealth to spend that it does not first take (or prepare to take via borrowings) from its citizens - we need to recognize that this is a limitation on freedom; that man should not be allowed to retain the fruits of his labor or to use them as he sees fit.

Warren Buffett wrote that value investing is like an inoculation: it either quickly takes or it never does; once explained people either quickly grasp the concept or they never do. The concept of government spending that we are talking about is similarly an inoculation: you either quickly understand or you don't that if you ask your government to spend on something, you are asking the government to take money and liberty from your fellow citizens and redirect it toward your purposes and away from theirs.

The majority of people either do not understand this or willfully ignore it...and yet it is so fundamental to our lives.

TILB was skimming Facebook the other day and noticed that a friend from college wrote, after being frustrated with her inability to get private health insurance at a price she appreciated, "bring on the Obama health care plan." Her view was that the government should spend "its" money on her health care insurance rather than her spending her own money. If instead we worded her desire as, "I would like to force my neighbor to pay for my health care plan because I don't like having to pay for it myself," we would quickly extrapolate the implication that her actual request is for the few to pay for the needs of the many. Clearly her request is not that the burden or assessment should be made equally, otherwise she would reap no benefit. Rather, she implicitly believes it should be an unequal system. She obviously does not believe she should pay for other folks' health care; she doesn't even think she should have to pay for most of her own! Instead she wants to go up the pyramid and take resources from the few and shower them on the many.

Yet I honestly doubt she recognizes that is the essence of her request.

We cannot ask the government to spend in a vacuum. All we can do is ask the government to confiscate wealth from our neighbor in order to sprinkle our neighbor's former wealth onto others or ourselves. When thought of this way, the insidiousness of "government spending" comes quickly to light. It seems easy to ask the faceless, bottomless pocket of government for more handouts. It is quite another thing to go next door and shakedown our neighbor to their face.

Sadly, that is exactly what a request for government spending is: an impersonal way of requisitioning our neighbor's wealth.

TILB stands against this theft of liberties other than for limited constitutional purposes: national defense, protecting personal liberties, prosecuting cheats, and contract enforcement. All else falls outside the duties of government. If not explicitly limited in this way, the incremental theft of freedom becomes too easy to give into and the desire too great to resist.

After writing the above paragraph, TILB went searching for a good quote on the matter. We came across the below from Congressman Ron Paul, which we will leave you with for today:

"In a truly free nation, the government acts only as a referee by protecting property rights, enforcing contracts, prohibiting force and fraud, and providing national defense. Such was the system [envisioned] by the Founding Fathers, who strictly limited regulatory and tax powers in the Constitution. They were tired of having their business affairs managed by the Crown, so they created a servant government that would allow freedom and capitalism to flourish.

"Today’s political rhetoric demonstrates that the servant has become the master. Most politicians, and too many Americans, have accepted the premise that government should plan our lives and control the economy. This subservient mindset encourages political pandering, as candidates strive to convince voters of their superior plans to take care of all of us. For a nation founded upon rugged individualism and self-reliance, the modern political landscape represents a wake-up call. Unless and until Americans begin to reclaim the mentality that made us great, we are destined to slide further into an economic and political malaise that cannot be solved by the grandiose plans of politicians."

PS: Keep your eyes peeled for a similar post in the future about corporate taxation, which is a misnomer. There are, of course, no corporations that are not ultimately owned by people. Corporate tax is simply another form of personal income tax.