At Belmont Club, Richard Fernandez says of the Marxist Piven’s philosophy:
The problem with Piven’s theory is that events in Europe have shown those “major economic reforms” to be unsustainable, if not actually ruinous. However, she appears to believe that the European crisis is only apparent, being the result of the Man hiding the Stash. Find that stash and things become sustainable again.
I think this fallacy deserves its own name because I think this is the central economic fallacy of leftists in general. Whether we are talking about unions, public workers, redistributionists, etc., there is always the implicit idea that somewhere there is this big pile of money that the rich business people are hoarding away like a squirrel with its winter store of nuts. Leftists tell everyone that all problems can be solved if we just use the force of the state to threaten the squirrels to give up their nuts.
The problem is that rich people don’t own a lot of nuts, they own nut producing trees, i.e., rich people don’t have a stash of cash, they own assets that can, if managed properly, produce a stream of income. Worse, for the leftists, those assets usually provide jobs for the majority of the population, so you really can’t alter their use too much. If you cut the tree down to get the nuts, what are going to eat next year?
Take the housing boom. The economically naive leftists believe that “greedy” bankers stole a lot of money and squirreled it away somewhere. They believe that a big chunk of the money that went into the housing boom ended up in a rich man’s pile, and if we can make the rich man give up his pile we can fix the economic problems caused by the boom.
Unfortunately, for the naive leftists, banks aren’t places to store money. Banks work as brokers, connecting depositors with borrowers. People put money in the bank and then the bank immediately lends it out again. The bank repays depositors with the money stream from borrowers repaying loans on schedule. The assets that a bank holds, such as the banks equity on a residential mortgage, are really assets legally assigned to repaying the depositors. The profits for a bank basically come in the form of broker’s fees for managing the relationship between depositors and borrowers. (This is simplified but basically correct.)
When a government “bails out a bank” it is really bailing out the depositors. The assets actually owned free and clear by the bank itself can’t cover more than a percent or two of the money owed to depositors, even assuming that the bank could quickly convert them to cash. The government steps in and injects money to replace the money that should be coming in from borrowers repaying their loans so that depositors can keep getting their money.
So, in the end, there is no big pile of cash in the banks for the leftist rioters to grab and redistribute. There is just a pile of nearly worthless mortgages or mortgage backed securities held in trust for the depositors. There is no large-scale way to convert those mortgages into cash to redistribute to the “masses.” Even if you did, you would only end up stealing from the ordinary people who deposited money in banks. (Like, say, the bank/financial institution that pays Piven’s generous professor’s pension.)
All leftist dreams of the secret stash of cash end up this way. Unions don’t pry open the secret vaults of the corporations they control. Instead, the unions use their state granted monopoly on production to extort above-market prices from consumers. Corporate and capital gains taxes do the same thing. Ditto for high taxes on income such as that of small-business people and professionals. The cost of both unions and taxes on production and investment are ultimately paid by the consumer. The left always ends up picking the pockets of the people they claim to helping.
There is no big pile of money anywhere and there never was. The belief that there is represents just another of the many, many economic fallacies that make coercive economics always fail.