Capitalism: A Bottomless Pit?

The following was written by Dr. Hurd soon after the election of Obama in 2008. It’s interesting to look back and reflect on how little has changed.


Forget the election results. Even if the outcome had been different, the basic agenda in place now will remain the same. Don’t kid yourselves. The liberal-statist agenda is to raise taxes on the wealthiest (who already pay the bulk of the taxes), lower taxes on the poor and middle class, and massively expand the welfare-entitlement state, especially for the middle class. The conservatives will ask, ‘How are we going to pay for it?’ But the real question should be: who is going to pay for it? Obviously, those who make the most money are the ones who are going to pay for most or all of it, as both taxes and government expand over time. Yet these are the same people who provide the jobs for the great majority of the working and middle class. They’re the ‘capital’ in ‘capitalism.’ How does hitting them up for even more money help the middle class? The politicians will take the credit for

the seizure of wealth and expansion of nice-sounding programs, but those upon whom the middle class and the career politicians depend for their paychecks are going to be burdened ever further. I don’t understand how this is any kind of solution, any more than a drinking binge for an alcoholic does anything other than (briefly) alter his perceptions of reality.

My fantasy is that the most productive would go on strike on the basis of moral principle and self-defense, as they did in Ayn Rand’s classic ‘Atlas Shrugged.’ I know there’s no chance this will happen. But what will happen is that those who do all the producing for the poor, the middle class and the politicians will become more and more strained in the wallet. Health insurance is already straining and even bankrupting many employers, despite the tax credits. And government is preparing to use even more coercion to force employers to pay. Election outcomes have little to do with these overall trends, because nobody elected into office seems ready to reverse anything.

This is all particularly important because America stands on the verge of expanding the already massive welfare-entitlement state from beyond the poor, and into the middle class. This is a HUGE step and an equally huge expense. The gamble here is the unquestioned assumption that the wealthiest who pay the lion’s share of the bill are going to be able to keep producing that wealth to supply untold billions and billions in entitlement money in the coming decades. Medicare and Social Security are already facing bankruptcy within our lifetimes. How will much more expensive programs be paid for, and who will pay for them? And this doesn’t even include the hundreds of billions spent on subsidizing the investment bankers and all the other failing businesses yet to come. This is not merely an argument for’ fiscal conservatism’ or restraint. It’s much deeper than that. You cannot have capitalism without capital. The more our government drains our economy of capital, the less capitalism there will be.

This means higher unemployment, more bankruptcy, and generally less productivity and economic growth. The world will be a less comfortable and poorer place as capitalism continues to fade away because of government spending and taxation. We cannot go on like we are. Since the 1980s, government has not altered or reduced its involvement in the economy, but it did back off slightly from the previous levels of intervention. Taxes were lowered–for the most part at the marginal levels. This had the effect of putting more capital back into capitalism, although it did nothing to control the growth of government. Overall marginal-rate tax cuts along with less intense government intervention did not bring about any reemergence of a free economy grounded in capitalism. It did, at least, make for a somewhat more productive(or less unproductive) period than we had seen during the government intervention of the Depression-era1930s through the stagflation-era 1970s.

Now, though, with the emergence of the mortgage and housing crisis, government is poised to intervene again on levels not seen since FDR and LBJ. In the long run, it doesn’t really matter who’s in charge. Government intervention generates more government intervention, and for one reason: People never question the efficacy (or the morality) of government intervention itself. Consider public schools, for example. Everybody agrees they’re a failure. I know of nobody who claims these schools are even tolerable or adequate, much less excellent. They ‘guarantee’ an ‘education’ for all young people, but at the expense of quality education itself. This ‘guarantee’ is also at the expense of the freedom and individual rights of people forced (taxed) to pay for schools they neither need nor want. The immorality and impracticality of the public school system has led to what is almost universally recognized as a disaster. But the near-universal cry, when millions of tax dollars didn’t improve things, was to spend billions of tax dollars instead. After all, isn’t education worth it? Now that billions upon billions of tax dollars don’t seem to be doing the trick, well, we’ll just have to spend trillions. After all, isn’t education worth it? So, where does it stop?

I don’t know that it will stop. But I know that it will end. It has to, because federalized, socialized education will necessarily continue to fail, and will necessarily cost more and more money—so long as the premise remains that more and more money must be spent until ‘we get it right.’ At some point, at the end of the road, this means a 100 percent tax-rate on every productive person and enterprise in the country. In other words: It all has to collapse into a communistic form of government, requiring all citizens to work for the sake of the education establishment which always needs more money since it’s always failing. (After all’isn’t education worth it?)

Granted, it might not play out this way, but that’s not a tremendous comfort. Why? Because the same irrationality is at work with Medicare, Medicaid and all the other government programs not authorized by the Constitution, and they’re incapable of performing even on their own terms. With each of these programs, as with education, the government must spend more. And as these programs fail one after another, spend even more, and so on, and so on, until you end up at the end of the road: A 100 percent tax rate on everybody. It may end sooner rather than later, especially in the aftermath of the massive government purchase of billions in bad mortgage debts. It’s amazing that it has gone on as long as it has. A great majority of Americans, with each election cycle, express disgust with ‘the system’ as we know it, and demand ‘change.’

Democrats, when in power, outspend Republicans. Then Republicans, once in power, outspend Democrats. I suppose the next step will be ‘Independents’ outspending both the Republicans and the Democrats. When will people understand that the ‘system’ is nothing more than this continued process of spending more money on things that patently and self-evidently don’t work, even on their own terms? Insanity, as the saying goes, is doing the same thing over and over again, and expecting different results. We have been doing the same thing for decades. ‘Spend-fail-spend more-fail-more.’ That’s the cycle. Failure can go on forever, but spending cannot. As vast and great as human potential is (and as remarkably well as that potential would flourish in a genuinely laissez-faire, capitalistic society), it’s still finite. When government robs the most productive of more and more of their wealth, their lifeblood, their energies, their talents, doing so in the name of ‘morality,’ well, the only thing you can truly predict is disaster and stagnation.

It’s still not too late to turn it around. But I see no signs of that yet. Hold on tight, because as long as we keep doing what we’re doing, we’re barreling down a dead-end street. And the winner of the election doesn’t even have a clue. That’s why it really doesn’t matter who won, because those of us who earn the money will lose, either way.