Monday, June 7, 2010

Slaves of the Ethereal Machine

Another excellent essay from Doc Zero:

As reported by MoneyNews.com, investment guru Warren Buffett is worried about a “meltdown” in municipal debt:

The Pew Center on the States recently estimated that as of the end of 2008 budget years, states had $1 trillion less than needed to pay for future pensions and medical benefits. And that number doesn’t even reflect much of the losses suffered by pension fund investments in the second half of 2008.

“There will be a terrible problem, and then the question becomes will the federal government help,” Buffett said at a hearing of the U.S. Financial Crisis Inquiry Commission in New York, Bloomberg reports.

“I don’t know how I would rate them myself. It’s a bet on how the federal government will act over time.”

I wouldn’t want to take that bet. Of course, I have no choice but to take it, and neither do you.

In May, Buffett said the feds may end up having to bail out some states from their extreme financial woes.

“It would be hard in the end for the federal government to turn away a state having extreme financial difficulty when they’ve gone to General Motors and other entities and saved them,” Buffett said at Berkshire’s annual meeting, Bloomberg reports.

I don’t doubt Buffett’s predictions. They illustrate a terminal, and utterly inescapable, flaw in socialist governments. The same fate awaits every last one of them, around the world and across all of history.

The socialist racket operates by concentrating benefits and diluting costs. The benefits go to loyal constituencies, while the costs are spread across the population. A dwindling percentage of that population pays direct income taxes to state and local governments, but much of the tax burden is hidden, and paid by nearly everyone. Some taxes are pulled quietly out of our paychecks, before we ever have a chance to bank a dime of our money. Others are levied against businesses, which pass them along to us by folding them into the prices we pay for goods and services.

The government also extracts resources from the private sector through regulations and command economics, such as the political imperatives which led to the subprime mortgage crisis. The costs of such regulations are ultimately paid by individual citizens, in the form of opportunity costs. For example, massive resources were shifted into new home construction during the boom created by the subprime mortgage market. The ultimate cost of the ensuing financial crisis was more than just the staggering sums of money poured into bailouts. It also includes the lost opportunities that could have been exploited with the resources we plowed into the foreclosed homes littering our landscape.

These diluted costs are largely invisible to the average citizen. Most of them scarcely bother to glance at their paycheck stubs. Many of them believe in fairy tales about their employer “paying half their FICA” or “matching their Medicare contribution.” Every penny of those employer “contributions” is coming out of your pocket. It makes little difference to the employer if those thousands of dollars per year are paid to you, or handed over to the government. In fact, they’d really prefer to give them to you, because the paperwork would be a lot simpler.

The rest here.

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