THROW THE RASCALS OUT!
Now that the California recall circus is over and the Governator is in, a pre-mortem is in order for the nation's economy. California's recall election will be viewed by history as the first shot in a series of battles nationwide fought to the cry of "throw the rascals out," tantamount to the "Grito de Dolores" of Mexican history.
The cry will increase in tempo and volume as the national economy continues to contract, inflation runs rampant, jobs become tenuous, unsustainable environmental policies can't be sustained, and governments become rapacious for revenues and tax evasion becomes the order of the day.
Above all, the movement will pick up immense steam when it becomes obvious that various governments are defaulting on an extensive litany of promises made since the days of FDR, for which the taxpayers have already dished out trillions. Notable among this will be the inability of social security to pay the baby boomers, who are rapidly approaching retirement. The numbers simply war against any peaceful solution to the problem.
Leading the Pack
California has led the pack in the process of unsustainable self-destruction, literally a microcosm of wild-eyed socialism run amok. Once having the third largest economy in the world, California has slipped to fifth and continues to slip. Taxes are soaring. Environmental regulation is almost unbearable for many businesses. Businesses jump through more regulatory and non-productive hoops than they imagined possible, while being forced to pay exorbitant fees for permits just to endure the privilege of being harassed by a plethora of state agencies. Even the state's liberals complain about the new car tax. Wait until they read the fine print and discover the state's mileage tax, whereby all cars will be taxed for the number of miles put on their odometers each year.
So business has been fleeing the state en masse along with retirees who have found it just too expensive to live there on limited incomes. As illegal immigration continues in deluge proportions, the money earned by illegals is sent out of California's economy back to Mexico to support their families. In an exclusive Spanish-language interview on Univision, Mexico's Presidente Vicente Fox said a few weeks ago that the money sent back by illegals to Mexico exceeded the amount of money Mexico receives in its annual oil revenues!
No Mea Culpa
But for all of the severe problems California created for itself, only one of the major candidates in the recall election demonstrated any cognizance of exactly what brought the state to the brink of financial disaster. This violates a core rule of problem-solving: If one can't accurately identify the cause of a problem, it can't be fixed.
Americans have commenced the game of throwing one set of rascals out, just to install another set. The way out of the American economic dilemma is painful, which means it just doesn't fly politically to tell the public that. To understand why this is so, we must review the three fundamental principles of all socialist bureaucracies, which must:
(1) Give lip service to their public mission. Bureaucracies come into existence usually for good purposes. So all during their lives they must present a face to the public that they are saving "the little guy" or "the environment" or "the children" or the public from themselves. In some cases, there really are idealists in the bureaucracy who believe in the mission. Others are more realistic - it's about money and power, stupid.
(2) Defend the bureaucracy at all costs, even at the expense of its public mission. As it begins to bloat, a bureaucracy will fight for its life even when it has ceased to fulfill its public mission and will frequently penalize the very people it is supposed to be serving, making it harder and harder to get benefits. Increased amounts of monies will be demanded to keep the game afloat, and those who refuse to cough up will be demonized, as the bureaucrats point to their sacred public mission. A bureaucracy always analyzes everything in the light of its own survival and not in terms of its public mission.
(3) Defend itself from accountability. Sooner or later the jig is up and all sorts of reasons must be found for the failures that point blame away from politicians and onto anyone bold enough to try to defend themselves from a rapacious state. Frequently they will talk about "reinventing government " or "reforming education" but it really means more of the same old same old. The goal is to get everything started again so the good times can roll again for political and bureaucratic careers.
The Socialist Replay
Every socialist experiment ever attempted has followed the same pattern of decline and collapse. California's welfare state grew on the myth that some form of welfare utopia could be constructed on the backs of a theoretically unlimited pool of rich people, which is a myth.
First, tax rates are distorted to tax the rich more to support every imaginable welfare and social program to help the "little guy" or "those less fortunate." With each program a huge bureaucracy comes into existence to administer it. The bureaucracies invariably become bloated and corrupt, requiring increased operating monies consumed by the bureaucracy, with less money getting to the target populations and programs. Despite promises of reform and fixing things, it never happens. Just look at the dollars wasted in education bureaucracies!
As the insatiable thirst for money increases, the definition of "rich" is notched downward to the not-so-rich, who are now called rich. The real rich are usually successful in finding schemes to shelter their money, something which the middle classes cannot afford to do. Even Hollywood types put a lot of their money and investments offshore.
At the same time the state becomes desperate to find new revenues and levies all sorts of fees, permits, and taxes. In the case of national governments, inflation of the money supply commences with vigor, causing a sharp up-tick in prices and the cost of living, making people and businesses run faster just to stay even. Meanwhile, the state can't seem to deliver on the basic functions, such as roads and bridges.
The economy begins to groan under the weight of taxation, inflation and sprawling social programs. The middle class bears the brunt of this and either slides into the poverty sector, flees outside the state's jurisdiction or shelters its assets legally or illegally.
Due to the lack of business opportunities, the poor become even poorer and at some point everyone begins to notice that one group of overworked people are supporting another group of people who aren't working at all. Thus, for example, while many working people struggle to provide healthcare and insurance for themselves, another group gets it for free. Moreover, the working class gradually looks at lot like those "less fortunate than they are."
The first people to get crushed by the "compassionate" welfare state are invariably the little guys. Even Lenin understood this, which is why he favored a heavy progressive taxation system, since it would eliminate the middle class. He also liked the class warfare it generated because the instability enabled his political agendas to be forwarded and people always clamor for a political solution from the very same people who created the problem in the first place.
Small or medium businesses go under first because they cannot comply with the taxation and regulation burden, spending more time complying than producing. With each business closure, cutback or flight, jobs are lost and less revenue is paid to the state in taxation, increasing the government's craving for more money, money, money.
Finally the state becomes rapacious as people try to shield their assets from plunder and the "compassionate" state turns to demonizing those who don't want to pay their "fair share," seizing whatever can be choked out of what remains of the populace.
Eventually the economy grinds to a sickening halt. At this point history is replete with revolutions, sometimes bloody, sometimes just political, which is where California is. There is no such thing as a free lunch and there are not enough rich people around to support a bloated welfare state. Sooner or later, everyone has to pay the tab.
Like California, there is an immense day of reckoning coming for the U.S. as a whole, one people aren't being told is underway. So remember the golden rule of all socialist bureaucracies: "In any situation, even life-threatening ones, bureaucrats will always act like bureaucrats in their own interests." When you throw one group of rascals out, don't put more rascals in!
© 2003 John Loeffler - All Rights Reserved
John Loeffler is host of the weekly syndicated talk show Steel on Steel, which can be heard at www.steelonsteel.com. Online subscriptions to the show or by tape are available. John also produces and co-hosts The Financial Sense Newshour with Jim Puplava at www.financialsense.com. He can be reached at (800) 829-5646 or (208)765-8337. These articles are published at www.newswithviews.com.
"California has led the pack in the process of unsustainable self-destruction, literally a microcosm of wild-eyed socialism run amok. Once having the third largest economy in the world, California has slipped to fifth and continues to slip. Taxes are soaring. Environmental regulation is almost unbearable for many businesses."