Will
Sovereign Debt Defaults Bring the End of Socialism? By by James Turk - Dec
21 2009 9:40AM
Socialism
has come to mean many different things to many people, but
regardless how it is defined, in the months immediately ahead
it will be put to a rigorous test. The test will be visible
to everyone as countries around the globe run out of money
and confront overwhelming debts that cannot be repaid as well
as other wide-ranging financial promises that can no longer
be met. In short, the ideological bankruptcy of socialism
will be laid bare by government insolvency.
It had to come sooner or later. The reasons
are not hard to understand.
The ideological bankruptcy is neatly captured
by British author and advocate for individual rights, Cecil
Palmer: “Socialism is workable only in heaven where it isn’t
needed, and in hell where they’ve got it”. And government
insolvency is explained by famed economist Frederic Bastiat,
who made this levelheaded observation nearly 150 years ago
about the nascent modern socialism then emerging. “The State
is that great fiction by which everyone tries to live at the
expense of everyone else.” More recently, Margaret Thatcher,
being a sensible politician, put it pragmatically: “The problem
with socialism is that you eventually run out of other people's
money.”
Take Greece for example. This past week yields
on its 10-year bonds surged in the wake of downgrades by the
bond rating agencies, which finally recognized that Greece
does not have the financial resources needed to repay its
debts, which now stand near junk levels. Not far behind are
Latvia, Spain, Ireland, the United Kingdom and almost every
other country in Europe, even though they may still flog paper
rated as “investment grade.” The reality is that the rating
agencies just have not yet come to grips with the breadth
and depth of widespread government insolvency, or have willingly
turned a blind-eye to it. And don’t forget Iceland which of
course has already collapsed.
How did we sink to this state of affairs?
Nobel Laureate Friedrich von Hayek provides the answer in
his brilliantly insightful and prescient book, The Road to
Serfdom, penned during the waning years of the Second World
War.
Hayek’s central theme is that wars expand
the power of the modern state because the national planning
to fight the war continues even during times of peace. This
perennial government planning then expands the social-welfare
state over time, with harmful results. Most importantly, economic
activity is impeded by the growing state as people and resources
become less productive. In other words, because the government
does not create consumable goods and services, it is an economic
burden to the productive sector of the economy.
Then as the government grows, interest groups
become increasingly numerous and powerful, leading to political
corruption. More wars or even foreign policy tensions and
economic crises can propel demagogues and dictatorial leaders
to expand further state powers to the detriment of each and
every one of us. In Hayek’s words: “Emergencies have always
been the pretext on which the safeguards of individual liberty
have eroded.”
Hayek noted that the subtle damage inflicted
upon the productive economy and the visible growth of the
state arising from socialism become evident only over time.
We have now reached that stage.
More people depend on the state than those
who provide it with the money the state needs to meet its
promises. Most of Europe long ago passed the 50% threshold
with more people depending on government than the private
sector, but even in the United States – long reigning as the
bastion of capitalism, free-markets and limited government
– 58% of the population derives their income from government
at some level.
http://www.usnews.com/money/blogs/flowchart/2009/11/09/how-the-government-is-swallowing-the-economy
Consequently, we are now approaching a fork
in the road. One way leads to more socialism, more demagogues
and eventually a dictator who promises that he will make socialism
‘work’. The other leads to the capitalist society that America
used to be, with free-markets, limited government and the
unconditional rule of law.
Hopefully, we will choose correctly. If we
don’t, we know from Winston Churchill what awaits us: “The
inherent vice of capitalism is the unequal sharing of blessings;
the inherent virtue of socialism is the equal sharing of miseries.”