Want Socialism? OK, Just Pay For It

Taxation is simply a form of mandatory consumption – taxpayers are forced to buy a package of “services.” Part of the package is paid for in cash, the remainder is financed. In general, these “services” destroy value – that is, the market value of their output is less than the market value of their inputs. The more government a country has, the faster value is destroyed and at some point it exceeds the ability of the market sector to add or create value. Sovereign debt allows government to grow faster than the ability or willingness of the market sector to pay for it.

One can certainly point to the Scandinavian countries (Sweden, Norway, Denmark, Finland) as relatively successful examples of socialism. Surveys say that Denmark, for instance, is the happiest country in the world. They all have strong social cohesion, ethnic homogeneity and low Gini coefficients. And they all pay as they go – per Wikipedia, none is running a government deficit, Denmark sports sovereign debt at 11% of GDP, Sweden 35%, Finland 49% and Norway is the bad boy at 60%. Yes, they have high rates of taxation but these are simply a symptom of the “pay as you go” policy which has contained the growth of government so that it is not excessively destructive.

The Keynesian myth is that government spending somehow results in economic growth. It does not – like the broken window, government spending destroys wealth although it provides an immediate mirage of increased economic activity. If deficit financing is used to pursue the elusive goal of economic growth through debt and consumption, it is easy to destroy the country’s wealth as investment falters and the capital stock ages.

I may be stupid, but one does not have to be a genius to see what follows when cheap and unrestricted debt is used to expand consumption of a good. Just look at the mortgage bubble or the student debt bubble. In these situations, prices soar and value disappears as the greedy crooks move in and prey upon the naive. The government debt bubble is the same, except that bubble is larger and the consequences are much more serious. The bubble is beginning to pop.

There is no reason that the people of any country cannot have however much government or socialism they want, whether it is wealth-destroying or not, so long as they are willing to tax themselves to pay for it, forgoing consumption of flat-screen televisions and other fripperies. While I have a personal point of view, I do bow to the democratic choice. Just don’t let the elites run up the debt and pocket the proceeds, which is what is going on right now.

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