Comments on a Zerohedge repost; Why Socialism (And/Or Big Government) Sucks In One Simple Chart

Is socialism the cause or is socialism the result?

Note: In the new world order, there are no “fair weights and measures” aspects to the monetary system. If this system is to be viable longer-term, the elites need to conceal the true rate of monetary inflation by promoting the concept of free trade; the arbitrage of manufacturing and labor inputs between high-cost and low-costs nations. The elites also need to promote the technologies that assist in reducing manufacturing costs. Furthermore, asset prices that collateralize debt must continually move higher.

I came across a Zerohedge article this morning titled, Why Socialism (And/Or Big Government) Sucks In One Simple Chart, which was just a repost of a January article titled, Chart of the day…. or century?, from the American Enterprise Institute, and wanted to comment on its line of reasoning.

I have no argument about these numbers. They do paint a grim picture for items that cannot be imported.

While I do not disagree with any of the data, I do have a contention with its logic. Free trade is not the answer and socialism is often not the cause of the author’s findings. Rather, socialism often results from something else – it’s the government’s response to the nightmare of excessive monetary inflation.

We have discussed in the past that whenever the government intervenes in any economic sector, it distorts the supply/demand equation. We can all agree on this. If we observe the chart above we can clearly see that the sectors that cannot be imported are under tight government control. Thus, at first blush, we may conclude that government intervention is the cause of higher prices and restricted supply. However, I conclude that government intervention is the result of high rates of monetary inflation and massive deficit spending. Socialism is the outcome, rather than the cause.

Government intervention is the result of inflationary monetary printing

In some sectors, government intervention has become a necessary evil. Monetary printing over the past 40 years has been so great that if the governments did not intervene in the marketplace in certain sectors, the direct costs to the consumer would have exploded even higher.

Socialism and government intervention is the result of inflationary monetary printing and deficit spending. We cannot complain about socialism in isolation, thinking that by eradicating social programs and social spending we will somehow return to a freer market. That ship has sailed. In some sectors, government intervention has become a necessary evil. Monetary printing over the past 40 years has been so great that if the governments did not intervene in the marketplace in certain sectors, the direct costs to the consumer would have exploded even higher.

Thus, we see how the supply/demand dynamics in healthcare and housing (government control in the owner-occupied mortgage market) have been distorted with government intervention. Supply is restricted and the marketplace is subject to massive regulatory action and bureaucratic red tape. However, given the high rate of monetary inflation over the past 40 years, I wonder what the marketplace for housing and healthcare would be like if there were no social programs. We cannot arbitrage these costs with lower-cost nations. Their explosive rises are just a direct reflection of our government’s profligate ways.

I can say this. If the government did not intervene in the mortgage market, the banks would not lend at prevailing rates and mortgage yields would be much, much higher. In a free market the banks would charge much higher levels of interest, but that would have resulted in much lower housing prices. I also think of all the IRC changes over the decades to promote house prices. Imagine if the federal government rescinded all those tax benefits. I think we get the picture.

In the new world order, asset inflation is also a necessary ingredient to support monetary inflation. If assets collapse, the collateral that supports the debt would collapse as well and the system would unravel. So, get used to growing government intervention and that is only the result of the rising levels of public debt outstanding. Asset prices must inflate if this system is to continue and the government (and central banks) will do whatever that takes to make certain it happens. Wages will fade as asset prices rise. Socialism will fill the void. The public will rejoice.