Is Social Security a Ponzi Scheme?

They used to call Social Security the third rail of politics.  To question the program at all was politcal suicide.  Times of economic crisis have a way of putting issues on the table that were once taboo.  Today that issue is social security.

To start off, my view on Social Security is that it violates the Constitution and any kind of social security program should be done on the state level.  This is not a very radical idea, considering that before the New Deal many states did have social security programs and other safety net programs that worked fairly well.  From a philosophical point of view, I am against any kind of social security.  But social security by the states, if they so choose, is legal under the constitution.  That being said, the government has made a contractional obligation to pay Social Security, so the program as it is today cannot be ended over night.  All this being said, this article has nothing to do with what we should about reforming Social Security but, instead attempts to analyze whether Social Security is a Ponzi Scheme.


Is Social Security a Ponzi Scheme?  Pundits from Bill O’Rielly to Rachel Maddow say no.  Bill O’Rielly says social security is not a Ponzi scheme because it can be salvaged.  Rachel Maddow says that Social Security is not a Ponzi Scheme because “it works” and has protected the elderly during the recession.  I would conted that O’Reilly and Maddow are missing the point entirely. Both Maddow and O’Reilly can be competely right about the system being salvageable and “working” to protect the elderly but, this has nothing to do with the system being a Ponzi scheme.

Ponzi Scheme definition: “an investment swindle in which some early investors are paid off with money put up by later ones”

The true question is whether Social Security is set aside for the individul for later use or whether social security payments are spent by government immediately.  If the government spends the social security money immediately upon receipt and relies on future social security payments from workers to pay of retirees down the road, this would qualify as a Ponzi scheme. This is exactly how Bernie Madoff was able to pay his investors massive yields, he simply paid early investors with the money from new investors entering into his Wall Street firm attracted to the high yields.  Little did investors know that their money was almost immediately used to pay other investors that were previously involved.  Such an investment scheme is a giant pyramid with the diverted investors’ money used to make payments to earlier investors.  Such schemes in the private economy are always destined to collapse. Government ones will as well but, the collapse will take longer.

The Social Security Trust Fund

Defenders of Social Security point to the “Social Security” trust fund to claim that Social Secuirity is in fact sustainable for a very long time.  Upon the most minimum evaluation this claim falls short.  It is a well known fact that the Social Security trust fund does not really exist, the money has been spent and has been instead replaced with government bonds (promises to pay in the future)  Social Security is called insurance but, there is no money that it holds.  This would be similiar to private insurance company having a massive amount of debt with no capital at all.  It could only pay insurance claims by creating new debt. Obviously, at some point, lenders will stop lending an insurance company that is so deep in the hole. The insurance company would have to defualt on its contractual agreements.  The obvious problems with the social security system have been known for a very long time.  Frank Chardov wrote in 1954,

“To give some plausibility to the “insurance” advertisement, the government sets up a so-called reserve fund. In place of the money it collects, it piles up its own bonds, or IOUs, in an amount equal to the collections. The interest on these bonds, it says, will be adequate to meet the old-age obligations when due. But the interest on these bonds is paid out of what it collects in taxes; where else can the government get money? Since the so-called premiums are only taxes, and since the benefit payments are also taxes, the operation is the same as if an insurance company used up its premium collections in salaries and cocktail parties and then paid out benefits from new premiums. For doing that, the directors of the company can be sent to jail. However, the laws made for ordinary citizens are somewhat different from the laws made for public officials.”

So is Social Security a Ponzi Scheme?  When considering the dictionary definition, I think the obvious answer is yes.  If the Social Security trust fund truly existed, it would not be a Ponzi Scheme but unfortunately the fund has been raided by greedy politicians for the last 60 years and there has been nothing there for a long time. The only way Social Security can be “saved” is by a massive injection of funds, likely in the tens of trillions, from another source.  If such a course of action is taken, (if it were even possible which is highly unlikely), this would not mean that Social Security is not a Ponzi Scheme because the program would still be in default.  This would be similar to the government ordering liquidation of Apple Computers to pay off Bernie Madoff’s investors, the orginal program still defaulted.

Other moral problems with social security:

Social Security is a transfer from the poorest age demographics in society (the young) to the wealthiest age demographics in society (the old).  As long as the program exists, the young are getting exploited by the elderly.  This is even more pernicious when considering how much wealthier the old are compared to the young.  The numbers are staggering, the average net worth for people under 35 in 2009 was $3,662.  The average wealth for those over 65, $170,494. See here for more details.  Simply put, the elderly on average do not need social security checks, the young on the other hand need every penny they can get.  Especially when considering how social security deduction will dramatically lower their wealth over time.   For as long as the program exists in its current form, it will get worse and worse.   Frank Chardov, once again goes into more detail:

“One of the arguments which helped to sell social security is that the “contributor” will not be dependent on his children for a livelihood when he can no longer work. Let’s see if that is true. We must keep in mind that taxes are part of production; they are levied on what is being produced currently, not in the past. The payments to the nonproductive aged therefore come from what the government collects from those who are producing, their children. The government cannot get the money from anybody else. So that, in effect, the children are supporting their parents, collectively and without love.”


The government has already defaulted those dependent on social security by inflating the money supply year over year.  The government does not count food and fuel and other commodities when calculating inflation, so each year when social security payments are “adjusted” to inflation, the govenment shorts social secuirity recipients.  Each year Social Security recipients buying power becomes less and less.  It is not an outright default but a gradual one instead.  Each year, those dependent on social security find it harder and harder to make ends meat.  This has been especially true since 2008 where government calculated inflation has stayed flat but food prices have gone through the roof.  In the end, Social Security is actively defrauding the very people it is trying to protect.

Finally, it should be recognized that Social Security is not the third rail of American Politics that it used to be. Americans need to start talking about it and making tough choices because in the near future, those choices will be made for us as the Social Security system completely collapses.

Slate magazine mentions Austrian Economics!

Though the article does have some things wrong, the more Austrian Economics is mentioned the better.  This is because Austrian Economics makes such obvious sense that any mentioning of it might lead some of the public to start reading more about Austrian Economics.  Once they do, a whole new world will open before them. No longer will economics be a realm for super intelligent mathematicians with PHDs but, it will become instead something that an intelligent lay person can understand.  The more Austrian Economics is brought up in the national dialogue, the better for liberty and the human condition. Though this article takes some jabs at Austrian Economics, it in many ways inadvertently supports the Austrian view.  Let’s take a closer look at it.

The article starts off by mentioning Ron Paul’s announcement that “We are all Austrians Now!”.  This statement had much of the media confused as they were desperately researching economics trying to find out what the phrase meant.


Lucky for readers of Slate, Mathew Yglesias already has some understanding(kind of) of the topic!

Yglesias writes “The average Republican presidential candidate would sooner officiate a gay marriage than praise Europe, yet here was Paul pledging allegiance to Vienna. What did he mean? Why would we all be Austrians?  Paul’s statement was crystal clear to those familiar with the internecine controversies of the libertarian movement”

As one who is familiar with such “internecine controversies” the statement is very clear but to those who are not, let me expound.  Nixon in 1971 took the United Sates and by default, the whole world, off the Gold Standard.   He announced that “we are all Keynesians now”.  This was a watershed moment in American history.  John Maynard Keynes and his ideas had basically taken over both ideological spectrums.  Now both Left and Right had given into the Keynesian paradigm of deficit spending, inflation, and state control over money.   Remember this statement was so important because it was not Lyndon Johnson or Jimmy Carter that said this but, it was instead a “conservative” Republican that said this.  Even Milton Friedman and the Chicago School in general gave way to the Keynesian paradigm of central banking.  So what might be uncommon knowledge or “internecine controversies” among libertarians is becoming much more widely understood.  This is because the current monetary order is in the process of breaking down.   Nixon’s ending of the gold standard put the U.S.on a trajectory of inflation and money printing that has resulted in multiple bubbles, a much lower standard of living for the middle class and tens of trillions of mal-investments that will have to be liquidated.  Today’s current financial mess is part of this Keynesian/Nixonian legacy.  As the crisis deepens the quote “we are all Austrians now” will become much more common.

Yglesias writes: “The Austrian school originally referred to a set of classical liberal thinkers with diverse interests who came out of the Austro-Hungarian Empire. Many of these thinkers are obscure today, but the most distinguished member of the group, Friedrich Hayek, is anything but. By the same token, an appreciation for Hayek’s work by no means makes you an “Austrian.” 

 Yglesias goes on to say that Hayek is not “Austrian” the way Ron Paul means it.  Well, this point is certainly not true.  Ron Paul read Fredrick Hayek in college, from then on Ron Paul has been studying Austrian Economics ever since.  Hayek was Ron Paul’s whole inspiration.  It is true that Austrian economists today try to push Mises and Rothbard but this is by no means meant to take away from Hayek.  This is because these economists have been neglected by the mainstream and Austrian economists think they have something to offer.  Without a Mises, their never would have been a Hayek.  I would even argue that Ludwig Von Mises should have won a Nobel prize over Fredrick Hayek because Hayek’s work on the business cycle was just a further development of Mises’ writings on it.  Ludwig von Mises also contributed to many other areas as well but, this is beside the point.  A true understanding of Austrian economics requires reading from all three: Mises, Hayek, and Rothbard.  Whether one becomes a Misean, a Hayekian, or Rothbardian within the framework of the Austrian school is more of an obscure academic debate among libertarian philosophers.  The gulf between Austrian economics as a whole and Keynesianism is not obscure or academic but, critical to the understanding of the world.  Yglesias emphasis on Hayek on being mainstream and Rothbard and Mises being fringe is unnecessary when they are so similar to each other compared to every other school of thought.

Yglesias goes on to say ““Austrian economics,” in this sense, goes beyond standard-issue free market thinking in a number of ways. Most notably, it seeks to build a strong ethical case for strict libertarianism without admitting that this would lead to any practical problems whatsoever. “

I am not sure what Yglesias point is here, Austrian economics goes “beyond standard-issue free-market thinking.”  Austrians simply explains how government intervention creates distortions in the economy.  Beyond this, a free-market implies strict libertarianism, so how is Austrian Economics a more radical free-market? I would also like to point out to be an Austrian does not mean you have to be a libertarian.  Austrian economics simply explains how economics works and how interference in the free-market creates a poorer society.  Mises described economics as a “value free” science.  I could conceivably want a poorer society and push for government programs and be adherent to Austrian economics.  Austrian economics itself does not make value judgments.

Yglesias goes on to say “Therefore, along with rejecting the legitimacy of any intervention to protect the poor or regulate anything (a position much more extreme than even the Hayek of Road to Serfdom)”

I guess I am going to have to go into the weeds a little bit on this one.  It is true that Hayek was not strictly against welfare programs in a moral sense.  Hayek was a utilitarian and simply said that wealth redistribution reduced the overall productivity in society.  He also considered them dangerous because they could lead to socialism.  Any endorsements of such programs was given with a huge amount of skepticism as well.  It is true that many Austro-libertarians today are against state welfare because it is immoral.  Simply put, Austro-libertarians hold the state to the same moral standard as an individual, if it is immoral for a person to steal it is also immoral for the state to do so as well.  Wealth-redistribution is obvious theft because it takes from one group and gives to another.  This is in contrast to defense spending and road construction that benefit society as a whole.  Some Austrians are even against this as well because they think that roads and defense can be provided better by the free-market.  As far as regulation goes, there has not been one beneficial regulation in 100 years, so yes, they are against this as well.  This is not from some kind of free-market warship but, is instead because regulation itself never benefits the consumer but instead benefits big business.  Many liberals and socialists understand this as well, so this should not be considered some kind of ideologically driven view.

Yglesias “Austrians reject the idea that there is anything at all the government can do to stabilize macroeconomic fluctuations.”

Well, this is probally the most important (mis)statement about Austrian economics.  Austrians hold the view that all macroeconomic fluctuations are caused by interference in the financial system.  The most common is governemnt driven booms through artificially lowered interest rates and inflation.  This again is not just some kind of ideological prattel but is instead backed up by a huge amount of evidence.  This is why the Austrians have been able to predict every single boom and bust over the last one hundred years.  If “macroeconomic fluctiations” are simply random events, how have the Austrians been able to predict them so well?  The fact that the government caused the boom leads to totally different conclusions when considering what governments should do in the bust.  Yglesias, intentionally or not, would have the government keep the boom going.  The Austrians know this would create more misery down the road.  Some people like to say that the government should create a “a soft landing” but this is not even possible.  The misallocation of resources in the economy have already been created, they must be cleared out, and they will be because this is how markets work.  The government cannot do anything to prevent this, any effort to prevent this will keep the boom going and make the bust much worse down the road.  If Austrians thought that government intervention could “stabilize” the economy they would be all for it but, history proves otherwise.

Yglesias “This, to be clear, is different from the mainstream Republican view that the stimulus bill enacted by Congress in 2009 and signed into law by President Obama was wasteful or ineffective. Austrians also believe that cutting taxes to boost economic activity doesn’t work either. And they disagree with Milton Friedman that appropriate monetary stimulus by the Federal Reserve could have prevented the Great Depression. Indeed, they disagree with even the least controversial of all stabilization measures, the ordinary tweaking of short-term interest rates that all modern central banks use to try to prevent either inflation or deflation. In the view of the Austrians, practically every economic policy pursued by the federal government and Federal Reserve is a mistake that distorts markets. Rather than curing recessions, claim Austrians, stimulative policies cause them by producing unsustainable bubbles.”

Yglesias has this exactly right.  The Austrian Economists think Republicans had it exactly wrong in 2009.  They even predicted that the Republicans would do exactly what they did years in advance before anyone had any clue that there was a bubble. They do disagree with Milton Friedman because Friedman was wrong on the Depression and is wrong on central banking.  And yes, they disagree with tweaking short-term interest rates because interest rates provide an actual real world market function and “tweaking” them destroys capital. Yes, every policy pusued by the Federal Reserve is a mistake because not only does this not help the economy but, it transfers wealth from the poor and the middle class to the Wall-street elite.

Yglesias continues:  “The way this works, according to the Austrians, is that artificially low interest rates spur “malinvestment” in unworkable enterprises that inevitably crash when the stimulus is withdrawn. This is an emotionally appealing idea, positing that the suffering of a bust is a kind of cosmic payback for the boom. But it doesn’t make much logical sense. For one thing, as GeorgeMasonUniversityeconomist Bryan Caplan, who’s ideologically sympathetic to the Austrians, points out, it’s hard to understand why businesspeople would be so easily duped in this way. If Ron Paul and Ludwig von Mises know that cheap money can’t last forever, why don’t private investors? Why wouldn’t firms avoid making the supposedly dumb investments?”

Well this is pretty easy; they duped because they have been educated in public schools and Universities and have never heard of Austrian economics.  There are many firms that have invested in the Austrian approach and have made a lot of money by avoiding the housing boom as it was popping.

Yglesias: “Ironically, the Austrians have replicated an error from the crudest forms of postwar Keynesianism—the failure to consider the role of expectations feedback in macroeconomic policy”

The market is not the only thing creating the feedback loop, the central bank and the government is as well.  Austrians understand very well how feedback loops work but, they also understand that false information can distort the feedback loop.  Yglesias has it just the opposite, it is the Keynesians that fail to consider how false feedback loops that are created when interest rates are artificially moved.

Yglesias: ” More broadly, the Austrian story of investment booms and busts doesn’t actually explain recessions and unemployment. Spending patterns shift all the time without sparking a recession. People stop buying BlackBerrys and they buy iPhones instead. Or people stop buying boot-cut jeans and buy skinny jeans instead. Across sectors, maybe people go see fewer movies and with the money they save they eat out at nicer restaurants. A business that curtails its investment spending should have extra money to pay out as dividends. Or if they want to horde the cash, it sits in a bank for someone else to lend out.”

Actually, it is the Austrians and only the Austrians that do try to explain these things.  Unlike the Keynsians that try to blame it on “animal spirits” the Austrians give a very in depth answer for how booms and busts are created.  This is totally different than changes in consumer spending.  Ludwig Von Mises noticed that busts are not simple shifts of spending patterns but (1)happen across a nation’s economy as a whole.  (2) Affect longer stages of production like mines and car manufacturing more than near term goods like retail (3)  Are characterized by businessmen making a huge amount of errors in a small time frame. Mises then sought to explain how booms and busts happen.  This was why he was able to predict the Great Depression while the Keynesians did not.  Want a simple cure to Keynsianism, here it is.


Yeglesias: “It may seem “obvious” that the decline in housing activity caused the current recession, in line with the Austrian view, but in fact fixed residential investment turned negative in 2006. It stayed negative for more than a year before the recession began, and then continued negative for a couple more quarters before it turned severe. People spent less on home-building and renovation and more on other things. If investment spending in general declines, you would expect spending on consumer goods to rise to offset it. In practice, this doesn’t always happen and you get a recession. It’s this anomalous collapse in overall spending that needs explaining, and describing some of the past spending as “malinvestment” doesn’t help you understand it.”

Well, there are a couple things wrong with this but, the most obvious is that people thought that they were actually richer than they were because of Fed stimuli that went mostly into the housing sector.  When housing prices stopped going up they changed their spending patterns because they realized they needed to save and could not retire and use their house’s equity like an ATM.  This decline in spending fits perfectly within the Austrian paradigm.


Yeglesias : “The interesting question is what to do about it. Many of the original Austrians found their business cycle ideas discredited by the Great Depression, in which the bust was clearly not self-correcting and country after country stimulated real output by abandoning the gold standard and engaging in deficit spending. Then for a long time after World War II, policy elites more or less agreed on a combination of “automatic” fiscal stabilizers (the deficit naturally goes up during recessions as tax revenues fall and social service outlays rise) and interest rate cuts. And it worked, so nobody much cared about Austrian economics outside of crank circles. But when short-term rates hit zero and the Fed couldn’t push them any lower despite high unemployment, political consensus broke down.”

Here we go, the Great Depression myth! I don’t really blame Yeglesias though. This is widely believed by most mainstream economists as well, including the Chicago school.  The Austrians know what they are saying is unconventional but, this is precisely why they speak of it so loudly.  Conventional economics and the supposed cure for the Great Depression is precisely what the Austrians are trying to fight.  Yglesias is correct that policy elites with their Keynsian policies have dominated since World War II but, this does not make them correct.  A near flat standard of living since 1971 is nothing to brag about.  Let’s look at the Great Depression though.  A little common sense can shed some light on the errors of “conventional” economic thinking.   Why did the depression of 1921 last a year and the Great Depression last fifteen years when every other depression was one or two years?  Why was unemployment near 20% ten years later after government did tons of things to stimulate the economy?  Why was there never a Great Depression before the Federal Reserve?  Why was there never a Great Depression before the New Deal?  How does burning crops, pouring milk down sewers, slaughtering livestock help stimulate the economy when people are going hungry?   How do wage and price controls on every single level of the economy help an economy grow?  The Great Depression and the myths around it are precisely what the Austrians are trying to expose.

Yeglesias starts to wrap things up: “Unfortunately, however, it’s the Austrian school, which preaches despair and demands no action at all, that has the most effective political champion and the most dedicated followers.”

Despair?  I guess it depends on how you look at it?  If you want government intervention and largesse then I guess it is despair.  But, if Yeglesias generally wants people to be better off than the Austrian school preaches hope.  Is it not more inspiring that people can quickly turn around the economy if left to their own devices without government intervention?  Is it not inspiring to know that economics works like nature and has a natural order that is self correcting without paid bureaucrats?  Is it not inspiring that capital formation can happen at a much faster rate if individuals are left free?  Is it not inspiring that one day we can hope for an economy that does not have a boom bust cycle that wastes trillions in wealth and hurts the poor the worst?  Is it not inspiring that we can hope for an economy where people can hold real wealth in their hand instead of the empty promises of politicians in the form of Federal Reserve notes?  The Austrian School is the ultimate hope for the common man.

Yeglesias finally concludes “If I’m wrong, and the economy doesn’t recover in 2012, then these faddish views may gain more steam and perhaps we really all will be Austrians someday soon. But let’s hope not. The developed countries that have done best in the recession—places like Israel and Sweden—are the ones that have pursued the least “Austrian” courses of action, while the European Central Bank’s insistence on pursuing a somewhat Austrian-style course in Spain and Italy is creating a deepening crisis.”

Well I think that the Austrians would be the most surprised at learning that their economics is “faddish” but, Yeglesias makes a good point here.  What if the economy does not improve in 2012.  Will he finally give in to the Austrian world view? Probably not but hey, we can still hope right?  He mentions Europe but, Iceland followed an Austrian style course of action and let their banks fail and is doing much better than the continent.  If Yeglesias really wanted the betterment of mankind he should read a few works from the Austrian School. He would quickly learn the errors of his ways.  Let’s hope that Austrian economics does reach more people and that people like Mathew Yeglesias will become a little more open minded.  The world will be better for it.

Silly Objections about the Gold Standard

I was listening to the radio today and some commentator mentioned that going back to the gold standard is totally unreasonable because we “don’t have enough gold”.  This is really a silly objection.  The merits of gold take some explaining while the “don’t have enough gold” line is just a slogan type phrase without any thought put into it.  So lets take a look at the  “don’t have enough gold” line and root out the falsehoods impregnated in it.

Gold has traditionally been used as money precisely because it is rare.  The freemarket picked gold and silver because they are precious metals.  What makes them precious?  They are uncommon/rare.  It’s pretty simple, we don’t want gold to be common place because it would not work well as money.  The maket could have chosen steel but, steel production is about 545,500 times that of gold.  If I wanted to buy stuff with steel, I would need a huge truck to transport it.  The reason that gold has been used as money is because of its high value per unit of weight.

It is true that if the U.S. returned to the gold standard today that their would be far more dollars in circulation than in the past in proportion to U.S. gold reserves.  I would say “so what?”  The fact that there are more dollars in circulation simply means that gold would have to be re-linked to the dollar at a higher amount.  This has been done before in the 1930s when FDR revalued gold because of all the money that was printed under his and the Hoover administration.  Today we could re-link to gold in much the same way (but hopefully without confiscation).  So instead of 36 dollars for every ounce of gold it would be something like 1500 dollars an ounce or maybe even 40000 dollars an ounce according to some estimates.  This would simply mean that I would need to turn in 1500 dollars to the bank to recieve an ounce of gold.  With modern banking electronics and bank cards I would not even need to turn in Federal Reserve notes to recieve hard currency.  When I swipe my card for $15 it would simply remove gold from my alloted pile in the bank and put it into another alloted pile that is owned by the seller of the good I just bought.  Whether the gold is physically moved or just kept track of in a ledger would probably be up to the bank.  As you can see, modern technology would make a present day gold standard much more cost effiecent than 100 years ago when you had to physically withdraw gold from the bank.

I would also argue that the “not enough gold” argument misses the whole point entirely, or more precicely three points.

1)  The fact that gold is linked to the dollar means that the federal government could not print off money at will.  This money printing steals wealth from the population and hurts the poor and the middle class the worst because their wages are largely fixed and do not benefit from inflation like Wall Street and other politically connected groups. Putting a check on government inflation(theft) is the whole point of the gold standard. The dollar could be linked to anything hypothetically; silver, copper, land, or even oil could be used in the same way.  The reason gold has been used is because of its high value per weight but, this doesn’t mean that something else could not be used in the future.  Hell, the governemnt could use sea shells and it would still limit how much money it could print.

2)  Gold has value in itself.  I know pundits on TV and on financial shows say that gold does not have any value because it does not do anything but, they are simply wrong. Go into any pawn shop or Jewelry store. Gold is obviously highly valued by large segments of the population.  The reason it is money is because it is widely in demand.  This does not mean that everyone has to want gold but, instead means that someone, somewhere down the road will want to own gold.  This could change to silver or maybe energy units (like oil or killowatts) but gold has traditionally been the most widely valued good and that is why it is used as money.

3) Gold also provides a function as well. Gold provides a unit of account that allows all of society to make long term investment decisions.  Other things can be used as a unit of account but, gold arose on the free market because its supply is relatively stable, only growing at a very predictable rate of about 2% a year.  Today we use Federal Reserve notes as a unit of account but, we never know how much inflation is going to be year after year.  This creates massive distortions in the economic system that makes society poorer because of peoples inability to make long term investment decisions because of the intertemporal nature of investment.    All of civilization is based on people being able to judge the value of things in the present and over time.  Gold does this pretty well, government bureaucrats are pretty poor substitutes. Once again, many things can be used as a unit of account but in the past, the freemarket has used gold.



In conclusion, the whole “not enough gold argument” is pretty naive.  There are some better arguements against gold that are more intellectually sound like the “we need to inflate to save the economy!” argument. You can read more about that here, here, and here.


Irrational Foreign Policy North Korea VS Iran

“America’s foreign policy is so grotesquely irrational that most people believe there must be some sensible purpose behind it. The extent of the irrationality acts as its own protection:  like the technique of the ‘Big Lie,’ it makes people assume that so blatant an evil could not possibly be as evil as it appears to them and, therefore, that somebody must understand its meaning, even though they themselves do not.”  Ayn Rand

Nowhere is this more true than in looking at Neo-conservative/American foreign policy when comparing Iran and North Korea.  I recently read that the American Government plans to give more food aid to North Korea after the death of the “Great Leader”.  This is astonishing when looking at it from a moral or ethical perspective.  North Korea is by far the most evil nation in the world.  When I say evil, I mean it. I don’t use the term lightly and I would probably not use it for any other country.  I also don’t use the term to push any moral crusade like George Bush did in declaring North Korea as part of an “Axis of Evil”.  I mean that to live under the North Korean Regime would be one of the most unimaginable horrors of any human being.  The cruelty of the North Korean regime is even harder to imagine for Westerners because it’s almost the exact opposite of the Classical Liberal Tradition that has been embedded in Western society for centuries.  North Korea is the perfect example of the total state.  North Korea is the perfect example of what happens when property rights are abolished and natural rights are completely unkown.  You want to see an example of a jackboot on the throats of an entire population, look no further than North Korea.

North Korea is an almost impossible country to penetrate, so the crimes there are largely unknown.  Barbra Demick is a journalist who made six trips to North Korea, and not surprisingly the North Korean govenment did not let her talk to a single citizen.  She had to proceed and interview citizens that escaped to the south.  She describes what life is like in the brutal regime in her book “Nothing to Envy: Ordinary Lives in North Korea” Some of her descriptions are extremely sad, like a kindergarten teacher describing how the hardest part of her job was watching children starve and other descriptions are down right creepy when she describes how “Refugees described Public Standards Police who would often visit private homes to be sure that the mandatory glass-framed portraits of Kim Il-sung and Kim Jong-il were kept clean”.  If the country couldn’t get anymore strange and scary, when the supreme leader dies and if a person is caught not crying or wailing in sadness, they might be arrested and hauled off to a concentration camp where they will likely starve.  One defector desribed his experience in 1994 during Kim Il Sung’s furneral.  He said “I remember I could not shed any more tears after many days of crying. Fortunately it rained a lot during the mourning period and I did not have to watch out for the guards to pick on me for not doing so.”

Some of you may be thinking, “So North Korea is a pretty bad place, so what?  Iran is ruled by Islamists and will likely use nuclear weapons because it is in their religion.  They even said that they ‘want to wipe Isreal off the face of the earth’.” The quote is actually a mistranslation (see here, here, here , and here) but, this is really beside the point.  Even if the quote was true, North Korea has been far more belligerent to its neighbors than Iran has.  Iran has not attacked a country in 100 years but, North Korea’s agression towards its neighbors has happened reapeatedly.  In the last couple of decades alone, North Korea has test fired ballistic missiles over and near Japan, has kidnapped dozens of Japanese citizens from the Japanese mainland, has bombarded a South Korean military base with artillery, killed 46 sailors when it torpedoed a South Korean warship, has built up to twenty  “Tunnels of Aggression” underground that can move 30,000 soldiers an hour under South Korean defenses, has used common terrorist tactics such as bombing airplanes, and killed 28 people in their attempt to assinate South Korean president Chun Doo-hwan.  As you can see, even if you think Iran is capable of some nasty stuff, North Korea has already perpetrated more terrorist crimes and military agression than Iran by far.

Now what has the United States done time and time again in response to North Korean military agression?  Easy, the United States completely capitulates.  We give them food, fuel, and other aid at the tax payer’s expense so they will stop misbehaving.  Whatever happened to being tough on the bad guys?  I guess the U.S. government is pretty selective on which countries it raddles their saber at and which ones it will give a pass to.  You would think that the U.S. would learn its lesson with North Korea but, time and time again the U.S. makes the same mistakes.  North Korea promises to stop its Nuclear program and ballistic missile tests and the U.S. gives them aid.  A couple of years go by and North Korea test fires a missile or announces the continuation of its Nuclear program and the U.S. comes back to the negotiating table to give them more aid in an effort to get them to stop.  The complete insanity of this policy is obvious but, what is more disturbing is how this aid allows North Korea to spend its resources on further oppressing its own people and building armaments to use aggressively against American allies in the region.

So what do you think Iran learns from this?  Getting a Nuclear weapon is a great way to expropriate resources from the United States.  Not to mention that Iran might have some legitimate security concerns about the United States.  If you look at a map and you look at which countries are occupied by the American government in the region, you might understand why Iran might be a little nervous about an American presence in the region.  In addition, If Iran does have a nuclear arms program, they have also learned never to trust American promises to give it up.  Libya had a Nuclear program, they gave it up under U.S. pressure, and less than a decade later NATO invades.  America’s actions speak louder than words.  A nuclear program shut down risks your own destruction, a completed nuclear weapon insures your survival and maybe even money and resources from the West.  If you were Iranian what would you do?

The question is an ethical one.  How can North Korea butcher its own people and engage in military aggression repeatedly and get a pass from the U.S., while Iran’s behavior has been relatively benign in comparison but, warrants a trade embargo that will likely kill thousands of its citizens as was done to Iraq in the 1990s.  Such an embargo is an act of war.  Do you think the U.S. would let other countries cut off it’s oil without a military response? American citizens should be vary wary when listening to politians pontificate on Iran.  After all, their foreign policy success record since 1945 has been pretty slim. The last decade has been even worse.

Maybe American politicians should learn some humility when it comes to warfare.

Maybe American politicians should listen to the former head of Mossad.

Maybe the greatest threat to the American people is not in the Middle East but here at home.

Maybe Iran closing the Strait of Hormuz is in response to the trade embargos put in place by the U.S. government.

Marxism, Fringe or Mainstream?

Do you believe in Marxism?  Most people would say no but, they should think more deeply about this.  The communist manifesto had ten planks that were totally revolutionary and a complete contradiction to the ideas of liberty.  Well many of the planks of the Communist Manifesto are part of society today and enjoy wide support from the public.  Let us consider what planks have been enacted by American society and why they benefit the communist ideal.

1. One plank was that society needed a central bank.  I think that there are many reasons that Karl Marx supported a central Bank. A central bank allows the state to be in complete control of society’s wealth.  A free monetary system puts money in the hands of the people.  A central bank allows society’s elites to control all wealth. Communism needs such centralization of wealth to operate.

Also, having a central bank, by making credit cheap, would shorten time preferences in society and over time would change the cultural values of society.  Jeffery Tucker talks about how an inflationary society leads to social decay and destroys traditional institutions.  For communism to rise, it was critical that the old Bourgeoisie values be overthrown.  Inflation creates a society that benefits the risk taker over the saver.  The impact on society becomes evident as those with a more present orientated outlook in life start to have more success than those who have longer termed, more prudent outlooks on life.  The respect for what is lasting and true is thrown out while rampant materialism becomes the norm.  Marx knew that a materialistic consumer society, with its old social institutions, such as churches, overturned would be ripe for communism.  With social power weakened, the state becomes supreme.  Marx needed a powerful state to enact his ideals.

2.  Public Schooling.  Though public schooling seems like a beneficial social investment, people should pause to think about why the communists were so supportive of it as well.  After a little thought, the communist reason should be obvious.  Marx wanted to control the minds of society.  He needed them inculcated with proletariat ideology. You might be thinking that, “well yeah, so what?”  We are not communists, we are not teaching communist ideology to our children.  Our education system is as objective as possible.  I would contend that many philosophical ideas of the communists have tacitly embedded themselves into the American curriculum.  Teachers may not be teaching communism directly or even knowingly but, proletariat/bourgeoisie class struggle is pervasive throughout our history books.  In every history textbook, labor is subject to rampant abuse throughout American history and it is only the American state that intervenes to prevent abuse by the industrialists.  The whole idea of “exploitation of labor” was an unknown concept before Marx. People were thought of as individuals not classes.  Wage rates were considered simple contracts between an employer and an employee.  This all changed after Marx, it was now thought that labor was simply given near substance level wages just to increase the profits of the capital owning class.   This idea still persists today, even though it has become patently absurd when one can look around and see how the working class has improved their condition over the last one hundred years, even as this completely contradicts Marxist ideology which states that the working class will stay in poverty forever.  I could also go into the economics about how supply and demand functions in labor markets the same way as other markets but, you can read it here and here if you want to know more.  Simply put, public schools are the brain child of Marx and our public schools today teach Marxist class structure whether in the traditional labor class vs capitalistic class or in the new versions of Marxist class struggle of racial minorities vs racial majorities or the female sex vs the exploitative male sex.  These ideas are all Marxist in origin.  Whether they are true or not is a topic for another time but, their roots in Marxism are not debatable.

3.  A progressive income tax.  Once again the idea of the progressive income tax was one of the ten planks of the Communist Manifesto!  This was one of the ideas that was so revolutionary at the time that Marx did not put his name on the Communist Manifesto until years after it was published.  I find it interesting that those today who want to go to a flat tax are the radicals but, those who support a Marx’s progressive income tax are just good citizens.  Is it any wonder that society is in such decay?  I guess people think that the progressive income tax exists in the name of equality but, is this really true?  Karl Marx certainly preached equality but, did he really mean it?  I would contend that he did not.  For one, it is estimated the Marx made a very good living from his writings, some estimates being 80 times that of the average German family at the time with no indication that he ever gave any substantial amount to alleviate suffering of the poor around him.  He was mostly a drinker and an ideal philosophizer.  I think that Marx’s hypocrisy was evident in many ways, one being that he took large amounts of money from businessmen, the very bourgeoisie that he railed against.  For more on Karl Marx “the man”, here is a presentation by Gary North.  From all of Marx’s hypocritical behavior, I don’t think it is unscholarly not to take Marx’s motives at his word.  I think Marx simply wanted to play on the most unsavory of human emotions, mainly greed and envy.  He knew that his society would need a new managerial class to rule and an intellectual class to defend the rulers.  He simply wanted to uproot the traditional land owning classes and replace them with the kind of class of his own liking. To be honest, I think this is the deep unspoken motive of many of the intellectual supporters of socialism/communism.  They want a society that will give them power and a steady income through the state.  After all, how can you take such people seriously when study after study has shown that most of them spend such little time or money helping those that are poorer than them.  I think they would rather spend their time like Karl Marx did, idly drinking coffee or martinis at there local trendy establishment rather than actually going out and helping the underclass that they claim to care for so much.  Then, as today, the idea of equality of wealth and the progressive income tax in particular were simply tools that Marx wanted to use to destroy the Old Order.

So is America philosophically communist?  I think the answer is no.  Deep feelings of individualism and natural rights still permeate society to such a wide degree that true communism/socialism has failed to take hold.  But this does not mean that communist ideology has not made tremendous inroads into American culture.  Something to think about the next time you send your kid to mandatory schooling, pay your income taxes, or buy an item with a Federal Reserve note.