“The Man is Hiding the Stash” Fallacy

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.

18 thoughts on ““The Man is Hiding the Stash” Fallacy”

  1. Corporations have lobbyists, and lobbyists write the laws, and the regulations. Government power is captured by private businesses, which use that power to insulate themselves from competition, to create moral hazard, to get bailouts, and to gain various other benefits for the insiders at those businesses.

    You don’t have to be a Leftist to see all that.

    Pro-market, yes. Pro-freedom, yes.

    Pro-business? It depends.

    Pro-Jeffrey Immelt? No.

    Pro-Peter Orszag? No.

    Pro-Bill Daley? No.

    When “business” is a racket relying on access to government power, then it is a very big part of the problem.

  2. Well yeah, there isn’t a stash of nuts, rather there is title to a grove of nut trees. Gotta take control over those nut trees. And then maybe those nut trees don’t get fertilizer as that costs money; the trees don’t get pruned as that takes effort; the trees don’t get the right kind of spray because that harms the environment.

  3. More generally, what the leftoids don’t believe in is production. For them, “wealth” is a static value or arrives like a bolt from the blue; the idea that it’s a process totally eludes them. People have stuff purely by the luck of the draw, and if the stingy bastards won’t share it’s only natural to beat them up and take it.

    This is the ethic of the hunter-gatherer band, one of whose rovers might find a stash of food; if he doesn’t bring it back and share, the tribe goes hungry. There is nothing the band can do to make food appear. It comes according to chance (i.e., by processes they don’t understand) and can only be found, and when it is found the finder mustn’t cabbage on to it.

    So the soi-disant “Progressives” are in actuality reactionaries, reverting to the oldest version of human organization in existence.


  4. I do love how the subversively conservative ‘South Park’ managed to insert the “Underpants Gnomes” into the culture like a worm.

    In case you don’t know what they are, and you should, the Underpants Gnomes were little gnomes that went around stealing underpants. Their purpose was a spectacularly brilliant business plan that consisted of:

    1) Steal Underpants
    2) ????
    3) Enormous profits!!

    Step 2 being just a couple of minor details that it was certainly someone else’s job to figure out.


    Obviously, this is obrutally mocking both pie-in-the-sky capitalism and standard socialist “build a better society through ????” brilliance, and it certainly parallels the appallingly stupid economic fallacy described by Shannon, i.e. “We don’t have any clue where that wealth is or how it is created, but we damn sure are entitled to it!”

    There is genius in ‘South Park’.

  5. There is no specifically European crisis. Some European countries had property bubbles of their own. The bubbles led to problems as they inflated, and their collapse leads to even more problems.

  6. A ($45,000 plus benefits) teacher was upset that an optometrist was making nearly six figures, and had “less education” than she did. There was no concept of running a business … equipment, inventory, leases, employees, advertising, competition, upset customers, risk … no guarantees and no tenure.

    Her opinion was also that she would have of course made much more in the private sector, but she was giving of herself to serve society. Of course there are a lot of well educated people that don’t make a lot more in the private sector, that lose jobs and pensions. Enron comes to mind, or all those that get merged in the merger wars.

    Perhaps this type “socialist” is a variation of the “hidden stash” concept. They see a non-existent hidden stash, but don’t see an existing hidden mountain of executive coordination that makes America work. The vibrancy and flexibility of the open market scares them, and they prefer everyone live in equal boxes (though their box should probably be a little bigger, since they are more noble, more equal, citizens).

    “They” don’t seem to get the energy involved in entrepreneurial enterprise. When an inventive person succeeds, they seem jealous and feel the need to chastise that success. Then they feel good about taxing more of those profits, and putting up obstacles (regulations) to constrain those damn freedom loving, risk taking capitalists. Any profits greater than theirs must be ill gotten, and should be redistributed.

    But the corporate/union success through bribed government exemption/intervention is a real problem. Certain connected players have a hidden stash of government power. (as I see it)

  7. I hear such comments in teaching medicine quite a lot, although, most physicians understand that if you make less in a teaching hospital you (technically) have more time for teaching, reasearch, etc.

    One reason teaching hospitals are in crisis is that the push to see more patients essentially mimics a private practice pace. So, why stay when you can’t trade higher salaries for time?

    By the way, one reason people are so distrustful of the “free market” is that they conflate it with the corporate b.s. and management mumbo-jumbo they are exposed to in their daily lives.

    Dilbert = “free market” to a lot of people and so they think you are crazy to champion it.

    To be fair, our politicians are pretty confused as well.

    – Madhu

  8. Well, I have a personal corporation but I haven’t been able to contact my lobbyist in 35 years. Not all corporations are listed on the S&P 500.

    I am seeing medical students get more left wing over the years. Some of it is because doctors are no longer small business people. They are increasingly salaried and have an employee relationship in which vacation and benefits dominate their concerns. Some of the entrepreneurial tendencies are expressed by doctors going into other businesses as a sideline. I read of one ER doc who had a construction company (Probably not now) as a second business. He was on salary as a doctor but ran his own business on the side. Several OB GYN docs in my area bought MacDonalds franchises. One of them was too old and fixed in his (patient centered) ways and so was dropped by most PPOs as “not suited for managed care.” He still had most doctor’s families as patients but lost so much of his practice that he took out a second on his house to pay his office expenses.

    Don’t expect most doctors under Obamacare to be conservative. Even if it is eventually repealed or gutted, the hospitals are buying up successful medical groups and integrating vertically. This is a primary effect of Obamacare and will not be reversed. Individual entrepreneurial medical practice will shift to cash practices and “retainer practice” in primary care. “Physician extenders” like nurse practitioners and physician assistants will provide primary care in big groups. Just like Kaiser in which anesthesia is provided by nurse anesthetists and MD anesthesiologists only supervise.

    Leftists predict a doctor glut, with some glee I should add. Instead, I think we will have two tier medicine with private care mostly cash, even for surgeons. As insurance and Medicare payments decline, cash practice looks better. It won’t provide more money, necessarily but overhead will decline. No more back office spending hours trying to collect from Medicare and Medicaid. Medicaid will massively expand if Obamacare stands. Nobody wants to care for Medicaid patients. I used to inject spider veins in women’s legs. I discovered that a lot of Medicaid patients were coming in for this treatment and the office staff told me that Medicaid was paying $6 per case, less than the cost of the supplies. We quit accepting Medicaid except for trauma.

  9. By the way, one reason people are so distrustful of the “free market” is that they conflate it with the corporate b.s. and management mumbo-jumbo they are exposed to in their daily lives.

    Dilbert = “free market” to a lot of people and so they think you are crazy to champion it.

    Good point. I blame the educational system.

  10. A family member is in Arizona right now. A snowbird. Lots of Canadians. They come for the weather and the healthcare. One canadian told my family member that the wait time for stuff is very very long.

    This is the part people never get. Access does not mean seeing a well trained person in a timely fashion and having time with that health care provider or access to more tests.

    I don’t know why this is such a difficult concept for people to understand.

    MK is correct. A certain percentage of physicians are salaried, concerned with benefits and time off (and salary), and know very little about business outside the business model of a teaching hospital which is kind of a rentier economy given the aid from the State and so forth.

    – Madhu

  11. The Criminal Mind08/20/10 – Richard Fernandez – A Comment by Tcobb [edited]

    I met career criminals as a defense attorney.
    (1) Although smart, they could not contemplate the future where they might be caught.
    (2) The victims were always supposed to believe their lies. How dare the victims not believe?
    (3) They believed that everything was somebody else’s fault.
    To what extent do the behavioral patterns of our current ruling class mirror that of career criminals?

    – –
    The Political Dictionary: Liberal Economics
    === ===
    Money falls from heaven for everyone to use. But, the immoral and sneaky rich gather more than their fair share. The government’s purpose is to redistribute the money the way God intended. Or, if you wish, the way Gaia, or the Tooth Fairy, or whoever intended.

    Taxes remove the excess income of the rich and give it to the voting poor, through a fair and organized bureaucracy. The rich oppose this action by selfishly and spitefully decreasing employment. Government responds by increasing grants and spending, to boost employment. The government runs a deficit while it tries to discover the “knack” for creating the jobs that the rich are hiding.
    === ===

  12. To what extent do the behavioral patterns of our current ruling class mirror that of career criminals?

    I am retired after 28 years as an LEO. There is one salient difference. Career criminals have something approximating a sense of morality. Twisted, and inconsistent, but it is there. Except for sex offenders and true psychopaths, there are things that a career criminal will not do. Not so with those who Rasmussen defined as the Political Class [which covers both parties].

    Subotai Bahadur

  13. You don’t understand, we’re really a lot smarter than you think.

    We understand that a lot of the wealth is potential in nature, and we know how to handle that.

    Take for example Joe, Joe has a nut tree valued at 200,000 nuts. Yes we understand that you can’t just take 200,000 nuts off the tree any time you feel like it. Yes we know that at the current valuation of nut trees a tree valued at 200,000 nuts probably only produces 10,000 nuts per annual harvest. Not a problem, we’ll sell the tree for 200,000 nuts. So “what will you do when you’ve eaten the 200,000 nuts?” you say. Simple, we’ll take the tree from whoever owns it at the time and sell it for another 200,000 nuts. We can do this endlessly, it’s a perfect plan and nothing can go wrong with it.

  14. People find Dilbert funny not because of their education but because of what they see with their own eyes at work.

  15. Alan K. Henderson,

    I like to call it the Scrooge McDuck Fallacy.

    That’s a good one and it does capture the essence better. Of course, Scrooge McDuck and his vault exist because they evoke the cultural expectation of what wealth is.

  16. If you cut the tree down to get the nuts, what are you going to eat next year?

    This is a brilliant analogy, and I’ve never heard it anywhere before. Except I think it could be more picturesque. Nuts don’t represent money well enough; maybe they should be made of gold in the analogy.

    If you cut the tree down to get the gold nuts, what are you going to eat next year?

    There’s still a problem here: some people are allergic to nuts. So maybe we should use something else. Hmmm, what’s round and golden? I know! Egg yolks! Except we’d better make it eggs, because egg yolks growing all by themselves makes no sense.

    If you cut down the tree to get the golden nuts eggs

    No wait, now the analogy makes no sense at all. Eggs don’t grow on trees, everyone knows that! Eggs are laid by farm animals like chickens. Except chickens are everywhere, they’re way too overused as an analogy. I know! How about geese? Not everyone has geese, so it would feel sufficiently rare. And while we’re at it, “cut down” doesn’t make sense for a goose, we should write “kill” instead.

    If you cut down kill the tree goose to get the golden nuts eggs

    This is a brilliant analogy, and I’ve never heard it anywhere bef–

    … Wait a minute …

    (That Aesop fellow sure knew what he was talking about, didn’t he?)

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