Aesop's Golden Goose Fable

Aesop's Fable of the goose that layed golden eggs is an ancient metaphor for why Socialism cannot work. In the fable, for those that cannot remember their Mother Goose days, a man and his wife had a goose that layed eggs of gold. This made them very wealthy, but as is the norm for humans, they were not satisfied. The wife suggested that if they cut open the goose, they could have all the eggs at once. Of course, there was not a hoard of golden eggs in the goose, and the dead goose was done laying eggs.

The Capitalist Free Market (CFM) system of economics is the real manifestation of the golden egg laying goose. Those societies that have embraced it have enjoyed the greatest increase in the standard of living of any in history. Although it is inevitable that those capitalists that represent the goose in a CFM system do enjoy relatively more 'eggs', their standard of living is only incrementally better than the poorer members of the society that are merely consuming the eggs. One need only visit the typical Walmart to see that the rank and file are not only well fed, well clothed and as healthy as their voluntary choice of lifestyle permits, but they enjoy all the smartphones, TV's and other toys that the wealthy do. The Welfare State is only possible because of the eggs produced by CFM, not in spite of it.

The current mania of the populace advocating for socialism is, relating back to Aesop's Fable, the equivalent of the wife wanting to kill the goose to get all the eggs at once. All schemes of taking from those, rich or not, that invest savings in productive enterprise, are an attempt to kill the goose to get all the eggs at once. Most of the 'wealth' that the non-investing public covets is in fact the goose that they benefit from, i.e., the capital of CFM. With a welfare system that consumes most of the eggs CFM currently produces, it is a testimony to the robustness of CFM that our standard of living is as great as it is. Make no mistake though, if you take the last egg or kill the goose, the good times end.

The fable of the goose is also a good metaphor for a point made in my earlier post Socialism CANNOT Succeed. Just as there were no eggs in the goose, there are no hoards of desired goods and services in the Capitalist's pantry. Appropriating the Capital that is the basis of CFM is the immediate end of the great standard of living we currently enjoy.

University Admissions Scandals

The breaking scandal concerning the rich 'buying' their offspring's admissions to prestigious universities has elicited two reactions against the practice. Since most of the offenses have an illegal aspect to them, there is a justifiable cry for charges to be brought against the perpetrators. To the extent that applicants test scores and accomplishments have been falsified there should be repercussions for the fraudulent acts involved. On the other hand, however, the proper reaction to the universities lowering or ignoring admission criteria based on money offered by the wealthy is a more complex problem.

The practice of giving priority to wealthy donors' children is as old as the university system itself. It is well known that considerations other than academic merit have always existed, although with all of the athletic, political, affirmative action, diversity and other factors currently in play it may well be worse now than in the past. If such advantages can be proven to violate published admission criteria on which an applicant has expended time and money only to be rejected, there ought to be a legal tort case against the school, but apparently this is rarely if ever done.

However, the point that I would like to make is related to the arguments against socialism that I posted only a little over a week ago. As I pointed out there, there is not an unused supply of goods and services lying around waiting for sale, including university admission slots. The money from the rich, whether spent by them or stolen by government, can buy available slots, but only by bumping more deserving applicants. The same money can build more universities and train more professors, but only with considerable time and at the detriment of other goods and services. Those that profess alarm and disgust at the usurpation of a few admission slots for the scions of the wealthy somehow fail to see the vastly greater problem with buying admissions for huge numbers of less wealthy (and probably less qualified) freebie seekers.

Socialism CANNOT Succeed

As the tsunami of enthusiasm for socialism builds, it seems an appropriate time to try to understand why socialism is ultimately disastrous for every society that embraces it. Although the term 'socialism' is used to describe everything from a modest amount of welfare to total government control of all productive resources, metaphorically it is like cancer. Even a small tumor grows and metastasizes and ultimately kills its host. Those that embrace socialism are never satisfied until they are standing in line for a loaf of bread.

In this discussion, we will look at the problems of the 'socialism lite' that is promoted and practiced in the Western Democracies, where the government limits itself to redistribution, rather than the totalitarian version where the government owns and controls all productive resources. However, the full version is probably ultimately inevitable since, as is pointed out above, all socialism is unworkable and its proponents will resort to totalitarian control as a last ditch strategy.

Part of the lack of understanding in the U.S. of socialism's flaws is a result of the fact that economics is not taught in the public school system, and counter arguments are limited to citing historical examples and cliches such as Margaret Thatcher's “The problem with socialism is that you eventually run out of other people's money.” This quote highlights another part of the problem - arguments against socialism tend to be couched in terms of money. Unfortunately, money is an abstraction that most people, including a lot of academics, do not really understand. Those that do tend to argue in terms of nuances and jargon that mean nothing to the general public.

It is more insightful to look at socialism in terms of the actual goods and services that proponents like to promise as 'free' or provided by a socialist government. The current list includes 'free education' over and beyond the current K-12 public school system, 'free healthcare' over and above the current Medicare, Medicaid and the like, and a liturgy of other freebies that already partially exist in one form or another. But government financed K-12 education already consumes the bulk of most local governments' budgets. Government support for higher education has driven the cost of college to the point that without some financial support most people cannot afford to attend. And government involvement in healthcare has resulted in skyrocketing costs that threaten to bankrupt even the Federal Government, etc. All this seems to have been lost in the bleat for more 'freebies'. But this again presents the problem in terms of costs and money, and the pro-socialism forces just counter with their cure-all mantra - we can just tax the rich to pay for everything.

The first and foremost thing to think about in understanding why socialism can't work is to to realize that, although the government can steal the people's money, rich or poor, and can even create money out of thin air, they do not produce more goods and services. They can even steal non-money assets to redistribute, but again they cannot add to the total goods and services available. Thus goods and services that are transferred to the beneficiaries of the socialist system must be taken from the rest of the populace. There is no net benefit to the society as a whole. This inevitably must reduce the total goods and services available since few will be inclined to produce or provide if the fruits of their efforts with be stolen from them. Saying it differently, you can take away the money (from the rich) but can only take away a minimum amount of goods and services from them. It's not like they have giant stores of hard goods and services lying around.

The temptation is again to believe that only the rich will be stolen from, but this is a fallacy. Whereas the rich may have the most 'money', they only consume a small fraction of the total goods and services available. In fact, most of their supposedly excessive wealth is actually invested in capital goods, those factories and other infrastructure that are necessary to produce the consumer goods that the bulk of the populace want and need. The rich obviously only account for a pittance of the education and healthcare services that are at the top of the socialist's 'freebie' list, so virtually all of those goods and services to be redistributed in the socialist's schemes must come from the rest of the people. Putting it differently, the impact on the available goods and services in the marketplace by the actual consumption by the rich is negligible. If any attempt is made to redistribute the capital goods part of the rich's wealth, the obvious result has to be less production and less total goods available. Once you kill the goose, there are no more golden eggs.

Returning to money arguments, let us just point out that neither taxation nor inflating the currency (creating money out of thin air) create more goods and services, as is discussed above. In fact, all such schemes are almost guaranteed to reduce the available goods and services, so any short term benefit to those hoping to gain from the 'freebies' will be very brief if not totally nonexistent. Increasing tax rates will decrease investment in capital goods as well as tax revenue, as has been demonstrated several times, and even a tax rate of 100% just guarantees that production of goods and services will cease.

Lastly, creating money to fund socialist schemes just reduces the value of existing dollar denominated savings such as bonds and CDs, and even the money under the mattress, but again does not add to the goods and services that such savings hope to buy in the future. Thus anyone who saves will find the proverbial cupboard bare when they try to cash in their savings.

Once again, the moral is clear. Socialist schemes cannot share the wealth, only the poverty. Or, in other jargon, there ain't no such thing as a free lunch.

Democracy is Not a Panacea

Back in the early 1980s Mikhail Gorbachev visited the United States, presumably to learn why we seemed to be much more prosperous than his communist dictatorship. If I remember correctly, he was shown through a few stores and was 'blown away' by the cornucopia of goods available to the US consumer. He returned to the USSR with a determination to try to apply what he had seen to improving the lot of the Russian people. The problem was, he went away with the wrong impression.

Gorbachev mistakenly believed that the success of the US and the rest of the West was due to the fact that they were 'Democracies'. Apparently this was in part due to an overwhelming majority of Westerners also believing the same, so much so that leaders such as George W. Bush have tried to export Democracy to the Third World, mostly with disastrous results. Gorbachev returned to the USSR with the intent of moving toward a Socialist Democracy. This had in part the positive result of the collapse of the Communist Soviet Union, but did not lead to the economic results he had hoped for.

What Gorbachev and the others do not seem to appreciate is that it is Capitalism and the Free Market (CFM) that is the secret behind the overflowing shelves of the Walmarts and the like of the Western World. Exactly which form of government is most compatible with CFM is certainly debatable, and may yet to be determined, but Democracy has been shown to be only MORE compatible with CFM than Communism, at least in the short run. China's economic success as a result of embracing more CFM in spite of retaining a totalitarian government illustrates my point. However, the degree to which China's rulers interfere with the Free Market may yet be its undoing.

The point to be made here is that Democracy is not the source of wealth and prosperity, nor is it even a guarantee of such that comes with CFM. In fact, pure Democracy may tend to destroy CFM in that allowing universal suffrage seems to engender anti-capitalist government. The envy of the lower classes of those that succeed in CFM leads to legislation and regulation that ultimately stifles economic activity. The egocentric nature of the individual that, because of Adam Smith's "invisible hand", produces the benefits of Free Markets is very detrimental to the same when lumped together to produce governmental laws and regulations. It is not unrelated that the West, as it has become more democratic, has also become more socialistic.

Austrian economic theory points out that economic control of production by a governmental body is a guarantee of disaster because, as Ludwig Von Mises noted, it cannot solve the problem of what he termed 'economic calculation'; i.e., it fails to properly ascertain what products to produce in what quantities. In the extreme case of such control as was the case in the Communist USSR, the result was disastrous. Unwanted goods piled up while the populace stood in lines for bread.

It is very unfortunate that, as the Western Democracies become more and more socialistic, the economic failures are blamed on Capitalism and Free Markets. This is the basic flaw with Democracy, in that when the mob is in control they will never admit that the problems they create are their own doing, and only total collapse will end the errors.

Who pays the National Debt?

With the 'official' national debt over $20 trillion (and many times that in unfunded liabilities such as pensions, Social Security, Medicare, etc.), I keep hearing from the chattering classes that we are leaving our children to pay for our sins. I don't agree with this, although we are in the process of leaving our children with a failed United States which will be much worse that just a debt to pay. However, let's look at the debt claim for now.

Some time about 1990 I wrote an essay about funding government comparing taxing, borrowing and inflating the currency. In discussing financing the government in part with government bonds, I said:

"Since those called on to pay the final tab are likely to be later generations, there are serious questions as to the morality of borrowing to finance any expense of government. It is a cruel joke to buy a Savings Bond for little Johnny's birthday when, in fact, little Johnny will be called on to pay for it several times over when he grows up.

Actually, the above paragraph is not quite correct. Borrowing by the government from either domestic or foreign sources does represent a debt that must be repaid at a later date with interest. However, when the Federal Government ’borrows’ from the Federal Reserve, we are witnessing nothing more than sleight of hand attempting to hide the fact that what is really happening is inflation of the currency. That portion of the National Debt that is held by the Federal Reserve represents only the amount of fiat money created by the government. If it were ‘repaid’, (money removed from circulation by taxes, returned to the Federal Reserve to ‘retire’ the debt, and then both parties burning their little pieces of paper), we would have deflation of the currency. This is just not going to happen."

As this implies, the Federal Reserve portion of the National Debt is not paid by our children in years to come, but in reality is paid now by those of us who are foolish enough to have our savings in dollar denominated investments. The dilution of the currency (monetary inflation) that is effected by the Fed 'loaning' money to the U.S. Government by buying its bonds is paid by savers immediately by devaluing their savings. Paying off the Fed bonds at a later date would deflate the currency, and would be a bonanza for those that had a dollar left, but the political class would rather leave the currency inflated to avoid the effects of deflation.

The parts of the National Debt that are held by citizens and by foreigners will have to be paid or the Government would have to default and declare bankruptcy. If real entities buy Government bonds, it removes the money from circulation that the Government then returns by spending it. When the Government taxes the economy to get the money to retire the bonds, it then returns it to the bond holders. These are net-zero operations - no currency is created or destroyed. Even if the Government defaults in the middle of this, there is still no net change in the currency - the Government spending of the money borrowed from the bond buyers has already returned it to circulation, and this is then effectively paid by the bond holders.

However, default is not going to happen with the Government controlling a fiat currency. Politically the final reckoning can be delayed by monetization of the debt until the currency collapses with hyperinflation. This is the most likely scenario. Little Johnny will be paying for our sins, but not with dollars.

It is worth pointing out that if we had a gold or other commodity backed currency, the scenario would be different. Firstly, there would be no Federal Reserve buying bonds with funny money, so by now no one with any financial savvy would be buying bonds and the U.S. would not be passing trillion dollar 'budgets'. Secondly, the bonds that have been sold would have to be repaid with undiluted currency or the Government defaulting, so our progeny would be on the hook in a more real sense than what currently exists. Of course, even when we had a supposedly gold backed currency, the Government just stole the gold, inflated the currency and ultimately declared the dollar a fiat currency. The end result is always the same. See the previous paragraphs.

The Left, Socialism, and Open Borders Immigration

It's not where you are that determines your prosperity, it's who you are.

For some reason unfathomable to a rational person the Political Left always seems to prefer being the last to sink in a bog to grazing with everyone else in a lush meadow. Since Marx promulgated his egalitarian anti-capitalist drivel, the Left has tried over and over to implement his flawed political/economic model, always with the same disastrous results. Whether the example is the communist versions of the USSR, the People's Republic of China, Castro's Cuba, or the Social Welfare States of Europe and Latin America, the final outcome is always a stagnant economy with a starving population.

These people never give up. Their mendacious rhetoric is always able to convince the ignorant and stupid to implement their schemes, always with the same long term disaster. In the worst cases cited above, the mob was stampeded into a 'revolution' to put the Political Left in power. In the more insidious implementations in the modern Western Democracies, the Left has utilized the ignorant and stupid mob to vote them into power. Once their foot is in the door, promises of something for nothing keeps the mob in their pocket no matter how obvious it becomes that the promises are blatant lies.

To guarantee that the gullible mob continues to dominate the electorate, the Left has refined two schemes to drastically increase their numbers. The first is to not only support the mob by wealth transfer, but to actually pay them to breed. The Welfare States in Europe and North America have become baby factories for the Left's constituency. In this scheme, the Left is seeking to augment their supporters by in effect an inverse eugenics mechanism.

Not content with destroying from within the prosperous civilization created by the Western peoples (primarily the currently despised 'white males' and the Judeo-Christian religion), the Left has a second game plan to guarantee the total collapse of Western Civilization. They have opened the doors of the Western Democracies to the Third World, and convinced the unwashed masses that they can all be prosperous by merely moving. But, as the first line of this essay implies, those that invade the First World will not become prosperous First Worlders, but the countries that they invade will become Third World hellholes like the ones they left behind. This has already become painfully apparent with the Muslim invasion of Europe. They have added virtually nothing to the economies of the invaded countries, and the Islamic 'no go' slums that they have created are cancers that will quickly kill their hosts. The U.S. Southwest is on the verge of economic collapse due to the Latin American invasion there. And in both the U.S. and Europe the threat of open borders enabling infiltration of Islamic Jihad is a serious security problem.

The thing that is difficult to understand is why the Left thinks that any of these schemes are in their long term interest. Not only does history demonstrate a high likelihood that their dominance will not last their own expected lifetimes, but their descendants are guaranteed a much less desirable world to live in. These people seem to exhibit a shortsightedness that can only be viewed to be as ignorant and stupid as the mob they exploit.