In just a couple of years in 1989-1991 Soviet Communism vanished in the USSR and Eastern Europe. At the same time, Maoist Communism in China narrowly avoided collapse by permitting free markets in many sectors.
In just a couple of years in 1989-1991 Soviet Communism vanished in the USSR and Eastern Europe. At the same time, Maoist Communism in China narrowly avoided collapse by permitting free markets in many sectors. Almost overnight Totalitarian Socialism was largely gone from the world. In the Eastern Bloc it left a trail of poverty, backwardness and staggering levels of pollution. Socialists of all stripes, including environmentalists, have been desperate to hide these simple facts from you ever since.
Before the collapse happened, only a few Austro-Libertarians recognised that such a collapse was not just possible but inevitable. Of course, the timing was impossible to predict. It nearly always is. But Mises had explained back in 1920 that a heavily centrally planned society cannot, even in theory let alone practice, use inputs and resources well. In can’t avoid wasting them. In the end the accumulated weight of value destroying sectors brings down the whole edifice. That is what happened. When the USSR broke up in 1991 it had living standards at around the 1913 level. It had imposed what amounts to a three-generation depression. It had also managed to kill some tens of millions of its own people - for no particular reason as Forest Gump would say.
Living under Democratic Socialist regimes we might be excused a certain smugness. We have a higher level of prosperity because we have relatively free markets in many sectors. But we too have massive state sectors full of value destroying activities. Many state activities are clearly destructive (the deep state, the endless war machine, social engineering, the war on drugs etc) or pointless (Ministry of Culture anyone?).
Government services such as healthcare, education and retirement provision are also woeful.
Government services are monopolies. This is never good. All monopolies have an incentive to produce less and cost more. State monopolies are protected from having to shape up to provide a decent service. They engage in predatory pricing – in other words they are free at the point of use. They cannot go bust. Nobody gets fired for being useless. Spanish Customs are everywhere. The whole set up is all about cost plus.
Success in a state bureaucracy consists of spending as much money as possible. Ideally, from its point of view, it always faces intractable problems which can be used to demand more funds looted from productive people. (For more on waste and expense in bureaucracies see the venerable but never obsolete ‘Parkinson’s Law’ by C Northcote Parkinson.) Mises called centrally planned sectors in otherwise free societies ‘islands of chaos’. The railways are to put it mildly another example. They are all Soviet Union style value destroyers.
Democratic Socialist states have many other problems too. There are also vote buying transfers to people with unviable beliefs and attitudes. Not surprisingly their numbers grow. You always get more poverty and other ‘problems’ the more money you are willing to pay people to have them. Our bought-and-paid-for politicians support crony corporate drafted regulation. This regulation is not about people’s wellbeing. It is there to protect the crony corporate status quo at the expense of consumers and competing small businesses. The regulations kill innovation and stymie progress. Not coincidentally, such organisations are often big, if indirect, political donors. Last is the demographic problem of ageing populations. The state pushed women into taxed employment and away from child bearing. So, there are going to be fewer productive employees to shoulder unaffordable vote buying promises for the elderly.
Every state intervention shuts down win-win voluntary arrangements. Instead the state imposes coercive you lose-I win dictates. Every intervention is an offence against nature. There are always unintended consequences. To the socialist every unintended consequence is an opportunity to demand more and more destructive meddling. Long story made short. The love affair between IYIs (‘Intellectuals yet Idiots’, please see Nicolas Taleb’s ‘Skin in the Game’) throughout society and the dream of Democratic Socialism never stops draining the genuinely productive activities. More recently however government lies (‘statistics’) have no longer been able to hide the latter’s decay.
But we can never suffer a Soviet style collapse? Surely? Yes, we can! If enough resources are wasted then any and all systems must crash once the balance of harmful activity reaches a tipping point. Yet almost nobody is expecting this outcome. The exception again is members of the Austro-libertarian fraternity. Everyone else is still mesmerised by the regular crony corporate and deep state press releases. These are pre-digested by MSM IYIs and presented as ‘news’.
Is there a ticking bomb under the apparently peaceful surface of our comfortable existence? In the film ‘Independence Day’ the Jeff Goldblum character realises that the apparently random signals coming from the alien spaceships are counting down to a particular point in the future when something big might be expected. And big and bad the event turns out to be. Here the count-down signal is the steady decay of our currencies.
Democratic Socialism has a voracious need to create debt – and not to repay it, at least not to repay true value. There are so many state-interventionist scams and rackets to be funded. The greatest of these is war. As a result, there has been a steady move away from sound (precious metal) money from 1914. In 1971 the last link between gold and currency was severed by Nixon. Since then there has been a steady downtrend in interest rates. The state, with its banking and crony corporate mates, grows at the expense of productive people. Society becomes more fragile. Ever lower interest rates are needed to prevent collapse under the burgeoning weight of public and private debt.
The money printing needed to push interest rates down all the time, itself leads to more mistaken undertakings, ‘malinvestments’ as the Austrian School economists explain. This drives the economic system into recessions trying to clear the mistakes out. Keynesian central bankers then print more money to prevent these recessions from cleaning house. A further inflation of the debt mega-bubble ensues.
But this madness has an end point – Independence Day style. Interest rates have hit the bottom of the graph. They are are being tied to the zero interest rate by central banks. Literally infinite money printing will be needed to keep interest rates down at the levels needed to save the banks and the state.
In short, our vast Democratic Socialist establishments are already in ‘coffin corner’. That is an aviation expression which means that a deadly crash has already become unavoidable. It can however be delayed by persisting with the same mistakes that caused the original danger. This time, or very soon, the mess will simply be too big to paper over. We already knew that central planning was a dud. But governments are showing us this again by stupidly quarantining their own tax bases.
Even before the coronavirus fiasco, a big slump had been developing. As the slump bites, governments will have two alternative ways to react, as Mises makes clear:
If the current government spending and money printing manias were stopped now, a 1930’s style deflation would result. Falling tax revenues would force governments to renege on much of their debt and many promises. Consumer prices would fall but financial and property assets would fall faster. Accumulated malinvestments would finally be wiped out. The state would not be able to borrow money and would have to cut back hard.
Alternatively, governments may speed up spending and money creation to avoid having to retrench. They will not want to throw politically powerful interests under the proverbial bus. In that case infinite money printing is unavoidable. Hyperinflation will result. It will destroy the dollar and most other major currencies. At that point, when government monies and financial assets denominated in it are completely worthless, the accumulated malinvestments in the financial and crony corporate sectors will get liquidated anyway. The state will be unable to print money or borrow in this scenario too. It will collapse or violently retrench.
Either way, Democratic Socialism will be busted as a political ideal. What social order could then be adopted to protect the lives and restore the prosperity of billions of people?
It seems to me that there are three choices:
1) No Freedom: Eliminate all personal and property rights. This would end voluntary co-operation in society and replace everything by top down central planning. In other words, you would go back to Totalitarian Socialism. The coronavirus panic has certainly revealed many would-be Stalins amongst the political class. And the groundwork has been laid for totalitarian surveillance states. But reverting to Totalitarian Socialism really lacks common sense as well as novelty. We all already know such systems do not work. They can’t even survive in the long term so after more time-wasting a further choice will have to be made.
2) Put the Humpty Dumpty back together again: Take several zeros off the old currency or rename it. Trim the government machine a bit, stop throttling productive people quite so much and hope for the best. This will be many politicians’ default-option. But would it work second time around? People after the collapse will have lost savings, jobs, private and (probably) public pensions. Governments will be unable to borrow to buy their support – because they will have defaulted on their previous debts. Central bankers and politicians will be discredited and reviled, as they should be. The mystique of Democratic Socialism will be gone. The emperor will be in the buff for all to see. And if stability by some miracle returned, how could you stop the whole thing happening all over again? Feckless vote buying politicians would make all the same mistakes.
3) Libertarianism: Dismantle the state. Start over with a clean sheet. Expand the scope of voluntary co-operation in society. Ideally, we would go to 100% voluntary co-operation. But any and all movement towards more freedom and decentralisation – pretty much the same things – will be progress. Voluntary co-operation is what made for prosperous, stable and free societies in the Classical Liberal era, after millennia of agrarian misery. Human beings enjoy cooperating with each other and are very good at it when left to get on with it. Let’s have as much of it as possible!
Now is a good time to explain Libertarianism. It is the only new idea on the table. But few people yet know that it exists. That needs to change if societies are to regain freedom and prosperity after the fall of Democratic Socialism.
This site is just a little bit of the effort to communicate this hopeful alternative to more people. The plan is to explain what such a free society might look like and how it might turn out to be better than anything in our historical experience. It has got to be worth a try as the various damaging socialist experiments pass, un-regretted, into history.