Backing into Complete Socialism...

"We are less than one generation away from Congress being unable to pay for anything other than Medicare, Medicaid, Social Security, and interest on the federal debt -- leaving not so much as a penny for defense or homeland security."
-- Dr. Edward Feulner, President, Heritage Foundation

Frightened? I am.

Whether you believe that the leftward trend of the last half-century has been damaging and dangerous to our country and its future, you must certainly notice that politicians will find the easiest solution to the problem Dr. Feulner describes by simply completing the destruction of the Republic, and casting us all into the socialist pit.

When the means of production are all state-owned, and the production of money is unconstrained by any realistic considerations, then the problems of Medicare, Medicaid, and Social Security are ended.

When we are all chattels of the State, then security and medical care are what the State says they are, and the quality of care is similarly subject to no discussion.

Retirement age and health decisions will be decided for us, and no appeal will be needed, or in fact, possible.

We have come to this pass, I believe, largely because our citizens are largely ignorant of basic economic principles. Were the average citizen aware of some fundamental realities, the lies told by politicians on both sides of the aisle would readily be seen for what they are, and voters would be likely to turn the scoundrels out.

Some key points:

• Corporations cannot be taxed
• Minimum wage creates unemployment
• Government benefits are expensive, not free

When a corporation is taxed, the corporation has limited choices available. The one most favored is to raise prices and pass the tax to the consumer, leaving profits unaffected. Competition may make this impossible, however, and then the tax may result in a) reduced profits or b) layoffs and other cost cuts.

It is easiest to appreciate this reality if you consider a public corporation, which is required under law to make every legal effort to be profitable. You didn't know that? Think back to some of the arguments about why a Microsoft monopoly was a Bad Thing, and needed to be punished. Or think of the many Enron stories. Damage to shareholder equity is a phrase that should come to mind. The Board of any public corporation is legally required to work for the benefit of the shareholders, and such benefit comes only through profits. Therefore, when a corporation is taxed, they can only look at the tax as overhead, and seek to defend their profits from erosion.

What this means is that all corporate taxes are actually taxes on consumers.

When Congress sets a minimum wage, they are declaring that any work at all has a minimum value. While that make sense to a politician pandering for votes, it is unlikely to have the same meaning to people paying for things. Consider any sort of casual labor, such as taking out the garbage, sweeping the sidewalk, and so on. Are these tasks worth paying the current Federal minimum wage of $5.15? Here in California, the state mandates a minimum wage of $6.75, and in San Francisco, that bastion of liberal caring, the minimum wage is $8.50. For details, and to see where your own state stands, look here.

When an employer decides that some jobs are not worth the minimum wage, the likely solution will be to cut jobs, and to distribute the tasks to other employees. Moreover, when approached by a teen looking for work, how many employers will consider the average teen of today to be worth paying the minimum wage?

In places where the minimum wage is higher than in others, history shows that unemployment is also higher, and that jobs for teens are few and far between.

President Bush has suspended the Davis-Bacon Act for the repairs to New Orleans post-Katrina, and has been loudly criticized for doing so. But the Davis-Bacon Act requires that wages be paid not at the local prevailing rate, but at a mythical rate even higher, that satisfies the arcane terms of that law. It also results in employers hiring only the most highly qualified and most productive workers they can find, and effectively locks out the thousands of locals whose skills may be below standard, but whose need for employment is dire. President Bush has opened the possibility that locals will be employed in this process, and no other choice would have been rational.

The only mystery is why the population at large remains so much in ignorance of the harm done by minimum wage laws.

Government services are not free, they are paid for by the labor of taxpayers. That much should be obvious to all. But there's more, as usual.

Tax dollars are not very well used. When we pay taxes, there is a percentage that covers pure government overhead. You won't find it anywhere, but it's there, and it's where things like the salaries of Senators and Representatives, and IRS employees come from, as well as those of other, less easily identified government employees. But that's minor.

Next, the tax dollar is divided according to the various things on which government spends money, such as defense, Medicare, Medicaid, and other things.

But there is another division that demands your attention, as it's the biggest single impact on your tax dollars: at present, just less than 50% of wage earners pay taxes. So regardless of how the budget is apportioned, you may consider that for every dollar of your taxes that goes to benefits, no more than 50% of it will come back to your own benefits.
Most of us are inclined to make investments only for profit. Whether in a savings account, a certificate of deposit, or a mutual fund investment, we make the investment in the expectation of greater returns. In government benefits, not only do you get no greater returns, but you are guaranteed to get less than you paid in.

And that may be the biggest mystery of all.