Thursday, August 9, 2018

Little Red Hen Economics Lesson

There’s an old folk story called “The Little Red Hen.” A hen comes upon a grain of wheat and decides to plant it. She asks for help from various barnyard animals, but none will help. Not with the planting, the watering, the weeding, the harvesting, the threshing, the milling, or the baking into bread.

But then, when it comes to eating, they’re all willing. But the hen turns them away, and feeds the bread only to her little chicks and herself. Image from Wikipedia: 

Was that fair to the other barnyard animals? The purpose of the story is to teach that yes, it was. She worked for her bread, so she got to use it for her own family.
book cover image
from Wikipedia

Having the bread, as the ultimate end of all her labor, meant she was more wealthy than all the other barnyard animals. Is that fair?

Was she more wealthy because she took advantage of the other animals? No.

Had she deprived them of opportunities to work and earn their share? No.

She did make use of the found seed, which seems to be a free resource advantage. But we don’t know if that was a commonly available resource to all, and anyone else who had picked one up and done the work might have yielded the same result.

So you might say that it’s natural for us to believe that the person who makes the bread eats it—or, in other words, the person who earns the wealth gets to decide how to spend it.

That hasn’t been happening for a while in Venezuela. One of the richest in resources, this country had plenty to start with, but socialism ate it all up. People are starving. Money is undergoing hyperinflation. People have shortages of essentials like toilet paper.

Stuart Varney, on Fox News, Monday, points out that Venezuela is a corrupt socialist dictatorship with a collapsing economy. But he warns against intervention. “Send in food, and Maduro extends his power.” It’s a sad tale and not getting better soon. Varney suggests: 

screen shot from Varney on Venezuela

Maybe Venezuela is best used as an example for our own socialists here in America. Socialism is making great strides among young people. Venezuela could be one of those teaching moments. After all, in our schools and colleges, socialism is often held up as something wonderful. The sight of Venezuelans eating out of trash cans might open some eyes. But let’s be clear: Venezuela is done. It is not our fault. It’s not our responsibility. But it is a very strong warning to the pie-in-the-sky socialist dreamers.
One of those pie-in-the-sky socialist dreamers said more economically ignorant things this week, which brought a response (and eye roll) from Ben Shapiro.

Alexandria Ocasio-Cortez on Pod Save America
image from here
Alexandria Ocasio-Cortez was asked on a Pod Save America interview how she planned to pay for her various socialist necessities: single-payer healthcare, free college tuition, guaranteed jobs, guaranteed income for all, etc. You can see her answer here, along with a transcription, which is pretty painful. A friend, who is socialist/progressive/leftist-minded but otherwise a decent guy, and old friendships require some tolerance, promoted a video of her on Facebook today, because he was so impressed with her. There’s no accounting for taste, I guess. Or like-mindedness appeals.

Anyway, on yesterday’s podcast (starting at about 23 minutes) Ben Shapiro shared some of the numbers related to her (and Bernie Sanders’) intended plans. Her answer, Shapiro points out, never responds to the actual question:

I do love the fact that the original question here was, “How do you pay for things?” And her answer is, “Nobody pays for things.” Thank you, Alexandria Ocasio-Cortez, for that brilliant exposition on the debt and deficit in the United States.
So we’ll just magically keep spending money we don’t have, because she thinks government has an unlimited supply, and all that is needed is someone convincing government to spend it the way she sees fit.

Some things, though, she thinks are stupid spending: tax cuts and wars. Of the $4.3 trillion federal budget this year, what percentage was military spending? 16%. But on social programs?

62% of the entire federal budget goes to mandatory spending under Social Security, Medicare, and Medicaid. The vast majority goes to social welfare programs that Alexandria Ocasio-Cortez says we’re spending too little money on. The fact is, the amount of money we spend per capita in the United States on social welfare programs is actually almost on par with that of the European countries, and actually surpasses some of the European countries.
He adds,

Social Security will be bankrupt in the next decade. Medicare will be bankrupt a decade after that. These programs are not going to be around. Or, if they are around, they’re going to require massive cuts or massive taxes.
While she says we shouldn’t worry about spending, because we’ve never worried about it before—she’s wrong; many of us do worry, because we know debt always comes due, but at least we have economic growth right now, which mitigates the damage slightly—we’ve also never contemplated the insane level of spending she suggests. Ben Shapiro continues:

According to the Mercatus Center, the libertarian leaning center at George Mason University, they estimated that Bernie Sanders’ Medicare for all plan—we talked about this last week—would cost the government $32 trillion over the next decade.
But, we can actually do a budget exercise using nonpartisan and even left-leaning groups., a left-wing source. They talk about what exactly we would have to pay for single-payer health care, a jobs guarantee, and free college; what exactly would it cost? Well, it turns out that it would cost, according to the Tax Policy Center, it would cost legitimately trillions and trillions and trillions and trillions and trillions of dollars. $42.5 trillion in new proposals over the next decade, on top of the $12.4 trillion baseline deficit.
To put this into perspective, according to, Washington is currently projected to collect $44 trillion in taxes—in revenues, that’s what they call it—over the next decade. Ok, the Republican tax cut, the “fiscal Armageddon,” will cost less than $2 trillion over the next decade. So we’re going to spend $44 trillion, but Alexandria Ocasio-Cortez says the real problem is those tax cuts that “cost” $2 trillion.
What is the 30-year projected tab for these programs that they’re talking about? The 30-year projected tab is, I kid you not, $218 trillion, on top of an $84 trillion baseline deficit driven by Social Security, Medicare, and the resulting interest costs. Federal spending, which is typically between 18 and 22% of GDP in the United States, would soar past 40% of GDP on its to 50% of GDP within three decades.
She thinks the government shouldn't do something so profligate as letting Americans keep $2 trillion, spread over a decade, of money they earned, but it's a wise "investment" to spend two hundred times that on things that are not within the enumerated powers of government.

I’m trying to picture how vast that $218 trillion "infinity and beyond" number is.

Here’s the Federal Reserve's historical chart of federal spending as a percentage of GDP:

See that spike in the 1940s? That's WWII. Imagine a spike that high by 2030, and nearly triple the normal within 30 years. It’s usually around 20% of GDP. The socialist spending plan would blitz past WWII-era emergency spending, up to between 50%-60% by 2050. 

Assuming we continue with good GDP growth, which we wouldn’t. Because, as we know from the Little Red Hen, when you do all the work yourself, you’re entitled to decide how to spend it. And we know from all the socialist experiments, if you don't get the fruits of your labor, you're not willing to do the labor.

There’s a socialist argument that, all those failed states, they just didn’t do it right; "This time we’ll do it right," they say. But if you’re talking about letting someone as out of touch with reality as either Sanders or Ocasio-Cortez give it a try, there’s zero chance of not making the mistakes that have caused every socialist state to fail. And the more corrupt or just plain wrong those elites who make the decisions, the quicker you get to Venezuela, or Stalinist Russia, or Cuba, or North Korea—any place where you have to force people to stay, and where the state blithely says to its subjects, “Your death is a loss I’m willing to bear.”

Every time a tyrant comes in and seizes power over your decisions on how to spend what you earn, and how to live your life—the eventual end is that you may not get to live your life at all.

The socialists start by breaking “Thou shalt not covet,” continue by breaking “Thou shalt not lie,” and end up breaking, “Thou shalt not murder.” Every time. Don’t trust a covetous liar to wield positions of power.

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