Government Promises Are Hallucinatory Drugs
by Gary North: Budgeting
for a Lifestyle Contraction
Here is the
first political jingle I ever heard.
promise you the sky.
They promise you the earth.
But what's a Republican promise worth?
Don't let them take it away!"
It was sung
by a quartet at the 1952 national convention of the Democratic Party.
If you substitute the word "political" for "Republican,"
you get the right idea.
I have repeatedly
returned to the theme that all welfare schemes are paid for in
the present. You cannot get something for nothing. There is
no such thing as a free lunch. The resources that are used to fund
every government program are extracted in the present from asset
owners, and then these assets are transferred to new owners. The
losses are borne in the present by the people who pay taxes to the
government. Their taxes are then used to finance government spending.
The losses that are sustained by those from whom the money is taken
are offset politically by the benefits gained by the recipients
of money sent to them by the government. This transfer of wealth
is inescapable. It is inescapably a cost borne in the present.
In order to
reduce the costs of extracting this wealth from the victims, politicians
set up a massive system of IOUs. The government issues promises
to pay, which we can think of as carrots, rather than issuing threats
of fines and imprisonment, which we can think of as sticks. It is
much less expensive for politicians to extract wealth from people
if they issue promises in exchange for the extracted wealth. "Stick
with the program. You'll get yours someday. We promise. Trust us"
This is analogous
to how international trade is conducted. An exporter transfers valuable
economic resources to an importer on the other side of the border.
The exporter is given money for the goods money issues by
the importer's central bank but then he invests the money
in the nation where the importer has taken the goods. The exporter
thinks he has not suffered an economic loss, because he has gained
what he regards as a valuable asset. This may be a bond, meaning
a promise to pay. It may be an equity position in a business. It
could even be real estate, although this is rare. The point is,
the exporter has transferred a valuable economic resource to someone
across the border, and he has accepted some form of promise in exchange
for the resource.
is nothing wrong morally or even economically with such an exchange,
if voluntary, as long as the person who is surrendering the economic
wealth understands the risks involved. But Social Security and Medicare
taxes are not voluntary. By paying taxes to a government that is
incapable of repaying, and which is obviously going to default at
some point, the taxpayer is participating in a wealth-redistribution
system that is based on an illusion. At today's late stage in the
IOU game, you would imagine that taxpayers would understand that
they are playing a game of musical chairs. They would understand
that, when the music stops, most of the taxpayers will lose in the
transaction. There will be a default, and they will be left holding
worthless IOUs. This analysis also applies to investors who buy
U.S. government debt.
This is comparable
to the mentality of the Ponzi scheme. The economics of the transaction
clearly reveal that there is no possibility that all of the lenders
will be repaid. It is also becoming clear that the lenders will
not even be paid interest on their money. Everyone who lends to
the government today is in a losing proposition if he determines
that he will forever roll over the debt. The only way of escape
is to decide at some point to take the money and run. In other words,
this is a standard Ponzi scheme. The government relies on its knowledge
that the vast number of people who get involved in the Ponzi scheme
become psychologically committed to the scheme, even though it is
statistically guaranteed to fail.
is as committed to the Ponzi scheme as the founder of any Ponzi
investment system. So are the investors. So are all the people who
are dependent upon the checks that are sent on a regular basis by
the government. Everyone in the system becomes convinced that
he can beat the system, even though it is obvious statistically
that no one can beat the system who does not get out in time.
to Social Security and Medicare, the people who get out in time
are the people who die before the system goes belly-up. These are
the big winners in any government-mandated Ponzi scheme that promises
future medical care and future income to masses of oldsters. Nobody
gets out of the scheme except somebody who dies.
the government issues a promise to pay, which statistically it cannot
possibly fulfill to more than a small fraction of the people who
buy the IOUs, the government conceals the nature of the permanent,
immediate transfer of wealth from taxpayers to tax recipients. The
IOU is the basis of an illusion. It is part of the Ponzi scheme
nature of all modern government promises. The IOU creates an illusion
that future generations will pay for the goods that have presently
been transferred from those with wealth to those without wealth.
The transfer has been made in the present, and this reduces the
wealth of all of the taxpayers from whom the wealth has been extracted.
It also decreases the wealth of everyone who has lent money to the
government. By concealing the fact that Social Security taxes and
Medicare taxes are in fact taxes rather than investments, politicians
have lured virtually all American workers into a trap. The victims
caught in the trap assume that the promises are the equivalent of
present wealth. A promise to pay is considered the same as the asset
which is given up to the government. The asset is real and in the
present. The promise is in the present, but not the assets that
are required to fulfill the promise. Those are in the future. In
other words, all the costs of the system are borne in the present,
but the promise of future support by the federal government reduces
the cost of extracting the wealth from the victims of the wealth-redistribution
the rest of the article
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 31-volume series, An
Economic Commentary on the Bible.
2013 Gary North
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