Thursday, September 8, 2011

Corporatism IS Socialism

The signs said it, the chants were all proclaiming it.  The first Tea Party-based rally I ever attended was filled with assertions that our President was taking us down the road to Socialism.  With many of them, however, if you asked about social security or medicare they'd tell you that that was their right and you couldn't take it away.  Well, that's actually not even the most glaring way in which they were...not mistaken, because they're right...just incomplete in their assessment of our current economic condition.  We've been a socialist society for years. 
So, let's take a look at Socialism.  The idea is that a group of central planners can set market conditions from the outside that are "fair" to all participants and stimulate growth.  The problem is that it just doesn't work.  When you attempt to set by fiat, you take away the incentives to production.  No one or nothing produces to capacity.  The primary problem is that it leads to fascism.  Nobel Prize winning economist Ludwig von Mises and fellow Austrian FA Hayek have both discussed this issue in depth.  The Road to Serfdom, Hayek's seminal work discusses Democratic Socialism that led to the fascist regimes in Germany and Italy in the run-up to World War II.

The form of socialism we have followed is a bit more deceptive, but it amounts to the same thing.  Instead of boards of bureaucrats making all economic decisions, which ultimately leads to the appointment of a totalitarian system, we've used a combination of congressional grants to bureaucrats and the use of subsidies and incentives to drive economies through certain favored industries and favored companies.  It's quite laughable to suggest that our current economic condition has anything to do with Capitalism run amok.  Sadly, it is entirely the opposite that is true.  Capitalism was strangled, snuffed out, and buried in the early 20th century.  Small vestiges remain, usually in new industries formed by entreprenneurs, but the lure of regulating competition, subsidies, and planning usually quashes it in relatively short order. 

Well, if Capitalism is so great, why do businessmen support Government intervention so often.  Two words come to mind:  Profit Motive.

In a capitalistic system when you have a business idea that is profitable, it draws competition.  Increased supply of the good or service brought about by competition lowers profits.  So, with the expansion of powers available to the Federal Government, businesses can seek protection for their profits by supporting government regulation of their industries.  This erects what are known as barriers to entry.  It makes the initial cost of getting into a particular industry higher and slows the rate in which competition can impact their profits.  The types of regulations can be anything from licensing requirements, forced unionization, permitting requirements, reporting mandates, capitalization mandates, government subsidies, mandates that products follow a certain patented methodology, or by restricting access to materials.  These restrictions on competition, restraints on trade, barriers to entry, and other government supported monopolies form up what is known as Corporatism.  Basically it's a combination of government and government sponsored corporate planning. 

We can't get capitalism back.  Even if all the old regulatory schemes, bureaus, boards, and planning authorities were wiped out.  They'd just come right back.  So long as our Government has the authority to shape so much of our economic life, so long as they have unchecked authority to pass any regulation, mandate or tax, then there will be corporations and individuals who will pursue these to maximize their profits.  On this front I have good news and bad news. 

The Good News is that our Founding Fathers drafted a Constitution that limited the power of government to impact every economic aspect of our lives. 

The Bad News is that we've been ignoring these limitations for so long that the vast Majority of people have no idea that they ever existed in the first place.

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