The ancient Greeks gave us “democracy,” a set of rules for candidates to compete for the right to rule. They also gave us the Olympics, a set of rules for individuals, teams and ultimately countries to compete in athletic events. The Olympics outlawed certain drugs, standardized the technology and separated males from females (historically) due to genetic differences, but otherwise there is no favoritism due to race, ethnicity, family history, country of origin, etc. Medals are awarded only to the top performers, gold/silver/bronze (all formerly used for money). Capitalism is a comparable set of rules for competition among individuals, teams and countries. Technology and management differences are allowed, even encouraged, as all contestants share in it over time. Similarly, capitalist competition is the source of virtually all human improvement for winners and losers alike. The US Constitution uniquely established rules for a competitive democracy and competitive market economy, historically the source of US economic growth.
The Olympics is a big business, with a history of scandals relating to kickbacks to judges, host country officials or Olympic Committee Members that corrupts the competition. Similarly, politicians who make the rules for a market economy that show favoritism to particular industries, firms or people, i.e., crony capitalism, is the corrupt antithesis of competitive market capitalism.
Competing with Olympic coverage in France, ironically under the French banner of “equality,” is the current political competition for the US presidency, which both sides agree is “pivotal” for democracy’s future, but the democracy spectrum runs from a limited government representative republic on the right to a majoritarian “peoples democracy” on the left. Each campaign accuses the other of hate, fear mongering, political pandering and the usual lies and misinformation (political spin). So far it has been an entertaining tag team mud wrestling match (even these have rules and limits).
But for over a century the fundamental economic choice has been between competitive market capitalism and egalitarian socialism, growth versus stagnation. The divide has never been more clear, although the Democratic Party eschews the socialist label. In 2020, when openly socialist Democratic candidate Bernie Sanders appeared a certain victor, the Party pulled the candidate, but adopted his “democratic socialism” platform. Current candidate Harris, similarly anointed, has either agreed with or been to the left of that platform on every issue, recent flip/flops notwithstanding. Their radical distributional “democratic socialism” goes beyond “to each according to his needs” to require “to each equally.” Their production ideology, eschewing state ownership, calls for a fair degree of state control.
Democratic Socialism: The Roads to Perdition
Bruce Cannon Gibney, in A Generation of Sociopaths (2017), accuses the Baby Boom Generation of “turn[ing] American dynamism into stagnation, inequality and bipartisan fiasco…” setting a “catastrophic time bomb” for the 2030s, asking whether it is still reversible. Given the deficits of the past 7 years, the timetable likely moved up to the 2020s. The baby boom generation has, with the exception of the Vietnam War (for those that served), lived in a time of unprecedented uninterrupted prosperity, which they take for granted. If the next President doesn’t reverse this behavior, nothing else will matter. How did it come to this?
Democratic socialism that started during the Great Depression explains much of the existing $35 trillion US debt and existing unfunded obligations of another $200 trillion, unsustainable by any measure. The largest current deficits at the federal level are due to Social Security and Medicare, public pensions at the state and local level. First consider public pensions. Through the end of the 1960s these government entities paid for a private annuity out of current revenues when an employee retired. These annuities were mostly sold by very old mutual insurance companies that fully funded them at a conservative assumed 2% nominal yield. There was no federal regulation and no defaults. When governmental entities took over this function, they generally assumed they would earn an 8% real yield and even at that only partially funded them. In addition, many governmental entities offered an extra month’s pension payment in the good years, adding to the already huge taxpayer deficit in the bad years that seriously impinges on public services.
The current Social Security website describes the System as a retirement plan. As such, it could have followed the same approach as state and local governments at the time, purchasing a private annuity. But the founder of Social Security, Francis Perkins, was a socialist and FDR recognized the political benefit of having recipients beholden directly to the government and Party. Those who currently understand Social Security as a progressive welfare system call wealthier Baby Boomer recipients greedy, but as a retirement system it is a rip-off relative to a private annuity. Had the Reagan or Clinton administrations followed through with the 1982 Greenspan Commission funding recommendations, this generation would have had time to increase private retirement savings.
The Social Security System is the greatest fraud ever perpetrated. It eliminated much personal retirement savings and hence the productive investments necessary to support the non-working retired population, replacing it with trust in the unlimited ability to tax. There is no funded Trust Fund.
The Baby Boom Generation “Checks In” to the Hotel California
I’ve been to the Hotel California on the Baja numerous times, but never dared check in. For me it is the perfect metaphor for a country that adopts socialism then cannot escape. When a socialist state tries to recover it is very difficult to rebuild the credibility necessary for capitalism to flourish as socialism infects the bureaucracy and all the other supporting institutions. Sixty five countries have been, and a few still are, socialist. Most of those that tried to return to capitalism and growth are very unstable economically and politically, trapped in the Hotel California. (Don’t) cry for (me) Argentina.
After World War II, when the New York Times propaganda of a Soviet Utopia was exposed, Americans feared the Soviets and socialism. In primary school first thing every morning us Baby Boomers would pledge allegiance, say the Lord’s Prayer, then occasionally hear the civil defense siren. That was the signal to crawl under our desks to protect ourselves from a Soviet nuclear surprise attack. On Sundays we were taught to be charitable to the poor, but that they too had to tithe. Envy was a cardinal sin (eternal hellfire). I had the additional benefit of my uncle Fred’s wisdom: the rich engage in politics to serve; the poor engage in politics to get rich.
America’s capitalist economy boomed, while the Soviet economy deteriorated, collapsing in 1989. That should have solidified the fear of socialism, but the new Baby Boom leaders lacked the fear of the Greatest Generation that fought in WWII and the Korean War to protect American freedom.
After World War II, many countries turned to “democratic socialism” out of desperation, distributing the fruits of a rebuilt capitalist economy to the impoverished war survivors. Following the administrations of Ronald Reagan in the US and Margaret Thatcher in the UK, the first baby boomers to come to power started proposing “soft socialism,” e.g., Tony Blair’s “third way,” well after the post war recovery, to promote greater equality. The politics of envy served politicians well.
Bill Clinton, a baby boomer who grew up poor in the South, became a lifetime politician and multi billionaire (including his tax free foundation). Blocked by the Contract with America from funding Clintonian socialism, he declared “the era of big government over,” while using his regulatory powers to expand it, extending it to middle class homeowners.
Barack Obama, whose estranged father was a socialist economist from Kenya, was also a “democratic socialist” who accumulated a net worth over $70 million after leaving office.
Bernie Sanders, a baby boomer who grew up in a poor Jewish neighborhood in Brooklyn, admitted to being a life long socialist after the stigma wore off. Never having left office, his net worth is a piddling $3 million.
Joe Biden grew up in a middle class neighborhood (later claiming to be poor). A political chameleon who let his administration govern to the left of Sanders’s platform, he is accused of raising over $100 million from influence peddling funneled through tax-free off shore accounts.
Kamala Harris’s father from Jamaica was deemed a Marxist economist at Stanford, accused of being “a pied piper leading students astray from neo-classical economics.” Her VP pick apparently shares her political views.
This has worked less well for voters as living standards, measured as per-capita GDP growth, have been relatively stagnant this century, while US borrowing capacity has been squandered. More than a half century ago as he delinked the dollar from gold internationally, President Nixon reportedly said that the American economy is so strong even politicians can’t kill it. The national debt has since grown 100 fold.
American Fascism; Crony Capitalism Takes Root
Capitalism’s “creative destruction” is the only system to raise the prosperity of almost all of society, but it produces greater inequality in the short run, often engendering a socialist response. The roots of US socialism had been planted during the Great Depression, made Great by anti-capitalist FDR. Very few people actually starved to death, even though FDR paid farmers to destroy food crops to raise prices. But FDR was well aware that Heir Hitler’s “national socialism” provided a more powerful antidote to Germany’s depression. To put the US on a war footing, he emulated the German fascist model.
The Wehrmacht was ruthlessly efficient but too small to take on the US and the Soviet Union. The post war Soviet economy grew in spite of massive mal-investment by dramatically suppressing consumer spending and repressing free speech, as did the Chinese economy four decades later. This works well enough for a while, such that liberal economist Paul Samuelson predicted the Soviet Union would overtake the US shortly before its unpredicted total collapse as repression of consumer welfare and speech reached its limit.
During the Obama administration the federal government gained control of the “Commanding Heights” of the US economy with the adoption of Obamacare. The Trump administration offered a $200 billion infrastructure to top up $1 trillion in state, local and private funds, leaving the latter both control over project selection and completion as well as accountability. Democrats turned this down. President Biden calls his subsequent multi-trillion “Build Back Better” proposal, following his $1.9 trillion stimulus, both debt-financed with no local contribution, a “throwback to Lyndon B. Johnson’s 1960s Great Society and Franklin D. Roosevelt’s 1930s New Deal.” That is, large scale crony public spending.
US Education System’s Radical Socialist Indoctrination: Diversity, Equity and Inclusion (DEI)
The US spends twice as much for primary and three times as much for secondary education as OECD countries with significantly worse results. Yet a larger share of US students go on to higher education than in Europe, where admittance is still based strictly on academic achievement, with a greater focus on general education and liberal arts than scientific and technical training. Twenty-five percent of Baby Boomers obtained college degrees, 30% of Gen X and 40% of Millennials. There are twice as many Gen X and Millennial voters as Baby Boomers, so while the Boomers offered up the socialist candidates, the “educated” Gen X and Millennials fearlessly voted them into office.
Thomas Sowell, Conquests and Cultures, (1999) pg.205 notes:
“However, many institutions of higher education in the region (East Central Europe) also turned out what has been aptly characterized (by Joseph Rothschild, East Central Europe Between the Two World Wars, 1974) ‘an economically superfluous and politically dysfunctional academic proletariat,’ for their students tended toward specialization in the softer fields, rather than in the science and technology in which the region lagged behind Western Europe. In Eastern Europe, as elsewhere around the world, such soft subject intellectuals have been major sources of intergroup polarization and political instability.” If the shoe fits…
America’s current safety net is wide and deep. Private charities provide for minimum subsistence while attempting to avoid fostering dependency and insolvency. State measures of poverty, especially the official statistics do not include public subsidies, hence are based on relative income and wealth. In other words, whereas other countries adopted socialist distribution with fascist production out of desperation, the motivation of recent US politicians wasn’t charity, but greed, and envy under the rubric of “social and economic justice.”
Sanders, always up front, redefined socialism’s goal from “need” to equality of outcomes.
Candidate Harris has not only adopted Sanders ideology, but promised to internationalize it. The socialists offer a Faustian bargain of equality for liberty: “The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both.” Milton Friedman – 1980.
America’s universities, like its federal bureaucracies, have become bloated with rent seeking DEI employees, a major factor in the rise of tuition costs. Most of the private think tanks founded by great American entrepreneurs, e.g., Rockefeller and Ford, may be similarly characterized.
The Baby Boomers, ironically the founders of the Berkeley free speech movement, have for over a quarter century been suppressing free speech. It is already extremely limited in academia. Now a crony capitalist billionaire owner of the Washington Post squares off against another crony capitalist owner of X. Sounds very Russian.
Nobody Saw This Coming
It is not like we couldn’t see the current economic crisis coming. The Clinton Administrations implemented regulatory guidelines forcing mortgage lenders to make trillions of dollars in loans they knew were too risky. When the bubble burst in 2008 under a Republican Administration, politicians claimed “nobody could see this coming” then spent $50 million on the rigged Financial Crisis Inquiry Commission to cover up, blaming “greedy (Republican) bankers.” Then they doubled down on the regulatory approach with the Dodd-Frank Act of 2010 that created a Treasury/Federal Reserve agency to protect the economy from systemic risk. The effects still linger as the balance sheet of the Federal Reserve System remains seriously bloated.
Market economies have always had to support a rent seeking political class. When rent seekers outnumber producers, the system collapses. Optimists argue that the US is now only in purgatory. One can simulate a sufficiently high rate of productivity growth for taxes to eventually cover expenses to escape the debt trap. But that requires not only an overly optimistic scaling back of “democratic socialism” expenses but renewing capitalist dynamism to restore productivity growth. Candidate Harris hasn’t proposed an economic plan, but the New York Times forecasts more of the same.
Financial crises are like heart attacks: engage in enough bad habits and the probability approaches one. This one will be worse than the 2008 attack. It will happen suddenly, when creditors get spooked. Politicians will again say “nobody could see this coming.”
Franklin Delano Roosevelt, who upon taking office closed the banks and confiscated private gold holdings, then told people that “the only thing we have to fear is fear itself,” before doubling down on capitalist restrictions. The Democratic Party would not likely waste the crisis, seeking the one-party status the Great Depression provided, a “peoples democracy.” I’m very afraid!
Their radical distributional “democratic socialism” goes beyond “to each according to his needs” to require “to each equally.”
Strictly speaking, Our Better would say “to each of you peons equally”. For themselves, there have to be special provisions, because of the immense burdens they carry on our behalf. What we seem to be heading towards is a system that combines the worst features of fascism and feudalism. How long before Our Betters demand the re-institution of “Ius Prima Noctis”?
Now a crony capitalist billionaire owner of the Washington Post squares off against another crony capitalist owner of X. Sounds very Russian.
It seems to me that the US has been long ruled by a loose collection of shadowy behind-the-scenes Bond Villains who have both bleeding the country dry and wearing the idea of a representative republic as a skinsuit while demanding respect.
But as someone smarter than me noted, revolutions generally happen when the elites split.
Elon Musk was a Hillary supporter in 2016. He has since come out for Trump and has at least made an effort to support free speech on his platform. He joined billionaire Peter Thiel, who backed J. D. Vance. More recently Bill Ackman- another billionaire- has signed on.
Crony capitalists they may be, but I’ll take my allies where I can find them- and they all seem to be opposing the communism of the demonrats.