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The Fall of Democratic Socialism

Updated: Oct 27, 2020

History is the study of the past as revealed by the written word. Writing appeared in the earliest agrarian grain growing state societies a few thousand years ago.


History is the study of the past as revealed by the written word. Writing appeared in the earliest agrarian grain growing state societies a few thousand years ago.


Since then history can be divided very roughly into three unequal bits. First there have been up to five thousand years of impoverished Agrarian States, lasting in places until the present day. Then the West had one or two hundred years of prosperous nearly free societies under Classical Liberalism, starting here in Britain around 1700. From about a hundred years ago we have had Socialism in the twin forms of Totalitarian Socialism and Democratic Socialism. Both are based ultimately on mid nineteenth century Marxism.


Fortunately the Russians destroyed Totalitarian Nazi and Fascist National Socialism in WWII. Then they and the Chinese dumped their own Totalitarian Communist Socialism in the 1980s. Impoverishment, mass murder and ultimate collapse have at last wholly discredited Totalitarian Socialism almost everywhere.


This has left Democratic Socialism as the ideology of our time. Politicians may in fact do what their donors want but they claim legitimacy from periodic democratic elections under universal suffrage. Society is seen as a collective entity led by an all-encompassing State. Classical Liberal states before WWI had state sectors about 5%-10% of the size of the productive sectors of society. Nowadays a typical Welfare State is the same size as the productive sectors it feeds off.


Just as importantly, the State pervades society. Law is replaced by regulations favouring vested bureaucratic, banker or crony capitalist interests and hampering businessmen, savers and investors. Compliance takes precedence over initiative. Personal freedom and property are no longer absolute values – the State is empowered to take away both.


It is hard to overstate the change. Before 1900 individual responsibility and freedom was the rule. Welfare, health and education providers were largely independent. Very few paid direct taxation. One could spend a useful lifetime having very little to do with the State at any level. But not anymore.


So are today’s Democratic Socialist regimes stable? They may not be perfect but if they are actually not stable they must and will end. A stable political regime is one which can reward enough supporters to avoid overthrow or collapse, and without compromising its future. Totalitarian Socialism was the negation of voluntary co-operation on which human flourishing depends, so it failed. Democratic Socialism tries to keep enough of a productive sector to meet the cost of the promises the political class makes to hold onto power.


For a long time after WWII it looked as though the balancing act was working. The US insisted on ending European protectionism as a condition of Marshall Plan Aid, and the Germans famously abolished all economic regulation overnight, causing their economy to double in size by 1960. There followed a generation of real prosperity and growth in the West.


But 20 years into the third millennium it is becoming clear that there is a ratchet effect stifling Democratic Socialist Regimes. Regulations and taxes are easily introduced but rarely removed. Political promises have a way of becoming more expensive. They accumulate endlessly as a drag on productive activities – effectively funding growing payments to reward unproductive values and lifestyles. People go along with this because governments manipulate information, and because they believe all political promises can be fulfilled. But resentment of the political class and its allies in the mainstream media, the banks and ‘crony capitalist’, privileged big businesses, has become common. People correctly sense they are losing ground. As public trust falters instability beckons.


A key indicator is the steady deterioration in the integrity of money and finance. Under Classical Liberal regimes in Britain and America money was tied to precious metals, interest rates were steady, reflecting and rewarding growing saving. Innovation led to falling prices.

But Democratic Socialist professional politicians cannot thrive with sound money. They borrow money to bribe voters but they cannot afford the resulting quick build-up of debt. The solution has been to separate currency from precious metals. The politicians’ allies in the banks create new money out of thin air for the politicians to borrow. Of course with more money created prices go up – cheating savers and wage earners. But the real cost of government debt goes down allowing the politicians to borrow more again.


In recent years governments have taken on so much debt that low or negative interest rates are necessary to prevent them going bust. Reality is that low interest rates are not sustainable but Democratic Socialist regimes cannot let them rise. To maintain their balance they are resorting to exponentially more creation of money out of thin air to keep interest rates down and honour spending promises. But new money destabilises the economy, reduces productivity and tax revenues and leads to more borrowing. 

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