The Dangerous Ideas Being Pushed by the (New) Democrats – Part I

This is the first post of a series of Guest Posts on Economics

Universal Living Wage

Along with free healthcare, free housing, and free education, the new Democrats (aka Democratic Socialists) are promoting the idea of a universal living wage. Like the other aforementioned ideas of the left, this sounds like a dream come true to those who struggle to survive in the current economic climate. To those people who can’t ever seem to afford a place to live, can’t afford to go to school, or can’t afford a doctor’s visit, these ideas sound wonderful. And to add to that, some money in their pocket!? They didn’t even know it was possible until these modern day saviors, called Democratic Socialists, came and enlightened them. Tens of thousands of young, eager-eyed hipsters wait in long lines to hear these prophets speak about how this amazing thing can happen right here, in the good old US of A.

The older generation, for the most part, is groaning at this idea. To those who are old enough to have had civics classes in school (before the politically correct versions were implemented) and who lived through the first-hand stories of the Bolshevik Revolution, the World Wars, the Weimar Republic, and even the Cold War, they’ve heard all this before. They heard it from the communist Bolsheviks, they heard it from the socialist Germans, and they heard it from the Soviets in the USSR. They also have worked in the USA for years and know the dirty little secret of social programs – that those who have jobs or businesses are the ones who foot the bill for the programs.

But what’s the problem? Surely, with Jeff Bezos having $143 billion and Warren Buffet having $81 billion, we can easily fund all this through taxing the rich right? The 1% can foot the bill right? Surely we can simply cut some military spending and fund all these programs right?

Well, first let’s look at what the bill would be. With 42.6 million Americans on food stamps, we can take a quick guess that roughly the same would qualify for the universal living wage. Well, what is that wage exactly? Realistically, on the west coast, the number would probably be $1500 per month or similar. Maybe in Nebraska, the number would drop to say, $700 per month. But, to go easy on our Democratic Socialist friends, let’s just use the low number of $700 per month. So, let’s say 42.6 million Americans are suddenly being paid $700 per month, just because we’re such a benevolent nation. That’s a bill of $29.82 billion per month which is $357.84 billion per year. To put that in perspective, the federal government spends less than a third that much on transportation or education. And what if the number grows? What if more people suddenly decide they want free money instead of working a crappy job? What if the number doubles to $700 billion per year? Or more?

This is where economics are lost on the youth and those who don’t know any better. There are multiple problems with the idea of just milking the rich for all this money. First of all, Jeff Bezos doesn’t actually have $143 billion. What? Google says he does! That number is based on stock values. Those stocks are only worth that much if he can sell them for that much. If the stock market crashes say, due to bad news (like the implementing of socialist programs by the federal government), the value of those stocks could be erased overnight. At the time of this writing, Mark Zuckerberg of Facebook lost $15 billion in a single day due to jittery stocks. Current tax rates already tax the rich for 37% of their money every year. In fact, the top 1% of American earners (the ones the left loves to attack), paid 39.48% of all US tax revenues last year. When you hear Democratic Socialists like Ocasio-Cortez saying “pay their fair share,” you have to wonder what she considers fair. But, for argument’s sake, why not tax the rich at 50% or 60%? Well, for one, they can flee to another country with lower tax rates. The European Union currently taxes its top bracket of earners at 38.6%. Why would the rich stick around and pay 50% or 60% when they can hop on a plane and set up shop elsewhere? Another problematic question is obvious, but may be lost on the eager-eyed followers of paradise – how long will the rich stay rich if they are taxed for 60% of their money every year? Rich people are rich because they have extra money. If you tax all of it away, they are no longer rich. What you end up with are declining revenues from this avenue of trying to milk the rich to pay for social programs.

OK, so let’s say we can’t milk it all from the rich, but what about those evil corporations? Surely we can make them pay for it! Again, this is where basic economics escapes many people. If a corporation is looking at its finances and sees extra money, it can choose to pay that money out in extra wages to its executives, managers, etc, in which case it is written off as wages and not subject to corporate tax. That money then shows up on the individual tax returns of the managers and executives who get the bonus, and it gets taxed at the personal rates (see the previous paragraph about milking the rich). If the corporation chooses instead to make profits, these profits can be used to fund new business ventures, like new buildings, new stores and, drum roll… more jobs! If you tax that money away from the corporation, you slow their expansion and therefore slow job growth. With the slowed job growth, you get more unemployed people and more folks signing up for their free money aka the universal living wage.  Any gains in tax revenue from the corporate tax are offset by the loss of jobs caused by the taxation. Remember, if the corporation heads want to keep the money for themselves, they will pay it out in wages, rather than retain it as profit.

OK, well, if we can’t milk the rich or the corporations for all of it, can’t we just borrow or print the rest? Yes! Finally, we reach a real solution to covering the costs of social programs. This is precisely what countries do when they run out of tax revenues to foot their bills. There’s only one problem with this solution. When the government just prints more and more money, the currency becomes less and less valuable. Imagine playing monopoly with your friends but instead of collecting $200 every time you pass Go, you get $200,000. Would you then accept an offer of $200 for one of your properties? Heck, no. You’d say, give me $20,000 or no deal. Such it is with actual dollars. As the government prints money and gives it away, it becomes worth less than it was before. What does that mean? It means that prices go up (inflation). Food, rent, gas, everything goes up in price. Suddenly the $700 universal living wage doesn’t cover rent anymore. Because now rents, even in Nebraska, shoot up to $1500. So then the receivers of government benefits demand more! So the government obliges and raises the universal living wage. But then they have to print more money, then prices go up again, then the receivers demand more again! Do you sense a pattern? You should, because this is precisely what has happened in nearly every socialist country where this has been tried. In the Weimar Republic (Germany, pre-World War II), they hit this spiral of money printing, and it got so bad that people were trading entire wheelbarrows of money for a loaf of bread! Some people even chose to burn the money because it was worth more as a source of fire than it was in trade. In Venezuela, this cycle happened even in the last ten years! People there were reportedly eating zoo animals last year because the money would no longer buy them food!

Finally, what about taking the money away from the military? Well, this sounds good for those of us who like peace anyway. But how much will you take? The entire military budget in 2017 was $598 billion. Even if you completely eliminated the entire US military, you still would not cover the cost of a universal living wage if it was expanded beyond the current level of food stamp recipients (which it surely would be once people heard about the free money!) A complete dismantling of the US military would also dramatically lower tax revenues for the US and cause more money printing. So you wouldn’t really gain $598 billion. Why? Well, for one, many of our tax paying corporations make money from the territories that we have set up as protectorates. Right or wrong, these protectorates feed money into our system. Take one obvious example of South Korea. We have many corporations that make money there, and it’s pretty safe to say that completely dismantling our military would invite a North Korean invasion. Even if we said, fine, let North Korea have it, we’d lose huge amounts of tax revenue from our loss of business there. So, realistically, cutting the military would not fund a universal living wage. It’s hard to say if we’d even have a net gain of revenue at all, compared to what we would lose.

Additionally, we are already printing and borrowing money, because our spending is currently over-extended. We already suffer from inflation every year. Have you not noticed rising prices? This discussion was only about the universal living wage but we’d also have to add the massive increase in government spending caused by the “free” healthcare and “free” education promised by the Democratic Socialists. Do they secretly own stock in printing presses? Why then do they make impossible promises? One can only speculate. Perhaps they don’t know any better. This is easy to believe with the newly promoted young face of Ocasio-Cortez. To listen to her speak, one gets the idea that she is young, naive, and simply hasn’t studied history or economics enough to realize how her ideas would lead to catastrophic economic results. That’s giving her the benefit of the doubt. Bernie Sanders, on the other hand, is old enough to know better. One can speculate that his intentions are far more sinister. What?! Bernie the Birdie? He’s an angel, they say. He wouldn’t hurt a fly. Well, if he does know better, then he knows that these programs will lead to an insolvent government and massive poverty, unrest, and violence. But maybe that’s the plan? That’s precisely the environment in which governments can be overthrown and replaced by a communist or national socialist regime. Some of the enlightened hipsters might glimmer at that idea and think we’d be better off. They should be encouraged to peruse some photos and writings of life in North Korea, East Germany or the Soviet Union and see if it looks like the utopia they are imagining. Extreme examples you say? Yes, because it is an extreme idea to give away hundreds of billions (if not trillions) of dollars every year. This is exactly the kind of extreme policy idea that creates situations like those of the Weimar Republic or Venezuela, that lead to violent overthrows, installments of dictatorships, and general tyranny.


For Additional Reading

F. A. Hayek THE ROAD TO SERFDOM The Definitive Edition Vol 2 2007 First Printing

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