Monday, August 10, 2015

The Rich, the Poor & the Problem with Socialism

Submitted by Tyler Durden on 08/09/2015 22:05 -0400

Alan Greenspan
Deficit Spending

Authored by Bill Bonner (of Bonner &  Partners) ,illustrated by Acting-Man's Pater Tenebrarum,
Rich Man, Poor Man

Poverty is better than wealth in one crucial way: The poor are still under the illusion that money can make them happy. People with money already know better. But they are reluctant to say anything for fear that the admiration they get for being wealthy would turn to contempt.

“You mean you’ve got all that moolah and you’re no happier than me?”

“That’s right, man.”

“You poor S.O.B.”

We bring this up because it is at the heart of government’s scam – the notion that it can make poor people happier. In the simplest form, government says to the masses: Hey, we’ll take away the rich guys’ money and give it to you. This has two major benefits (from an electoral point of view). First, and most obvious, it offers money for votes. Second, it offers something more important: status.

...and ending up moping.

After you have food, shelter, clothing, and a few necessities, everything else is status, vanity, and power. Extra money helps us feel good about ourselves… and attract mates. It’s not just the money that matters. It’s your relative position in society. From this point of view, it does as much good to take away a rich person’s money as it does to give money to a poor person.

Either way, the gap closes. Never, since the beginning of time up to 2015, has government ever added to wealth. It has no way to do so. And no intention of doing so. All it can do is to increase the power, wealth, or status of some people – at others’ expense.

The Trouble with Socialism

That is a perfectly satisfactory outcome for most people, at least in the short term. But the more this tool is used – the more some people’s power, status, and wealth is taken away – the more the wealth of all of them declines.

The trouble with socialism, as Maggie Thatcher remarked, is that you run out of other people’s money. You run out because there is only so much wealth available… and because the redistribution of that wealth distorts the signals and incentives needed to create new wealth.

Joseph Stalin’s modest little dacha in Moscow – highly appropriate for a the global leader of the proletarians

Photo credit: RIA Novosti

This means that society gets poorer relative to other societies that are not stealing from one group to give to another. After a while, the difference becomes a problem.

The meddlers see that they are falling behind and change their policies to try to get back in the race. (This is more or less what happened in Britain and China in the 1970s and the Soviet Union in the 1980s.) Or the poorer society is conquered by the richer one (which has more money to spend on weapons). There is one other wrinkle worth mentioning…

Stalin’s summer residence in Sochi – the leader of the proletarians after all needed to rest now and then.

Photo credit: Miracle Maker

Although it is true that “leveling” may have a pleasing aspect to the masses (bringing the rich down so there is less difference between the two groups)… it is also true that leveling is just what powerful groups do not want to happen. Even when the elite go after “the rich” with taxes, confiscations, and levies, they tend to look out for themselves in other ways.

Stalin’s private indoor swimming pool in Sochi – a marble-quiet place of contemplation, perfect for hatching out the new plans to improve the happiness of the proletarians.

Photo credit: Miracle Maker

They allow themselves special rations – special medical care… special pensions… special parking places… and various drivers, valets, and assistants. One study found that there was more difference between the way Communist Party members and the masses lived in the Soviet Union than there was between the rich and poor in Reagan’s America.

Soviet leader Leonid Brezhnev photographed during a hunt in the GDR with his buddy Erich Honecker. Only the “dear leaders” could indulge in such luxuries in the socialist Utopia.
Photo credit: Wladimir Musaelian / TASS

About to go deer hunting in the GDR’s hunting grounds for comrades that were slightly more equal than the rest of the population (from left to right): Günter Mittag, Secretary for the Economy of the Socialist Unity Party’s central committee, Erich Honecker, General Secretary of the central committee of the Socialist Unity Party, Andrei Gromyko, Foreign Minister of the Soviet Union of Socialist Republics, and Pyotr Abrassimov, the Soviet Union’s ambassador to the GDR
Photo credit: Bundesarchiv

Alan Greenspan Was Right

All of this brings us to here and now… and to gold. Traditionally, gold is a form of money. Money has no intrinsic value. It is the economy that gives money its value. The more an economy can produce the more each unit of money is worth. It doesn’t matter whether it is gold, paper, or seashells.

But just as the common man is deceived by money (he thinks more of it will make him happier), so are policymakers. Their belief is a little more sophisticated. They know it is the economy, not money, that creates wealth. But they believe that adding money (and more demand) will make the economy function better… and make people wealthier.

Digital credit galore: total US credit market debt (black line), gross federal public debt (green line) and GDP (red line). Somehow, adding more and more debt hasn’t really made us a lot richer. It has however created a great mass of debt slaves – click to enlarge.

And in today’s post-Bretton Woods monetary system, they don’t add physical money (gold, paper, or coins); they add digital credit. This new form of money takes the scam to a new level. We have been trying to understand (and explain) how the system works and why it is doomed to failure.

But Alan Greenspan – bless his corrupted little heart – was on the case even before the credit bubble began:

“Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets.

A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.”

Alan Greenspan, here photographed during a poker game as he announces a raise by ten dimes.



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