Democratic governments, almost all of them, are normally run by career pols.
They have ravenous appetites for wealth. They almost always have big plans to expand the government, which means they always want more money. (I remember Hillary Clinton’s recent book, What Happened. Here she spoke about her plans for a presidency and said she likes “to think big”). Most popular governments, faced with money problems, will usually pretend they’re only after the wealth of the rich, but it is the great middle class that is bloodied.
In a typical democracy the first order of business of the pol is get elected. The second order is get re-elected.
Winning elections usually means making huge, sometimes insane, promises about creating or expanding programs. Here is an example.
Back in 1972, for example, the president, Republican Richard Nixon, and a Congress controlled by the opposition party, the Democrats, were running for re-election. They started trying to outdo each other over which party could out-promise the other in raising Social Security benefits since the elderly were, and remain, a key voting block. Many elderly were delighted to receive higher benefit checks just before they went to the voting booths. They were so happy that they re-elected both the president and most Democrats in Congress. (The president and Congress started arguing over who deserved more credit for the benefit hikes).
The problem was later the bills came due. And payroll taxes funding Social Security programs started soaring. Most pols didn’t care. They won elections. I wrote about this here in “The Disastrous Deal of 1972.”
Given the risk of new “Disastrous Deals, the only way to minimize risk of financial ruin under these political conditions is to amass as much wealth as possible. The risk that government will be spending and taxing much more in the near future — despite what Trump and others say — is simply too high to ignore. It is business as usual for most pols to make promises on the hustings, then forget to mention the bills that come due after the elections.
For instance, in its glowing endorsement of Hilary Clinton for president, even The New York Times wrote this of her and her many promises of new or expanded government programs: “Mrs. Clinton and her team have produced detailed proposals on crime, policing and race relations, debt-free college and small-business incentives, climate change and affordable broadband. Most of these proposals would benefit from further elaboration on how to pay for them, beyond taxing the wealthiest Americans.”
There was no way she could have ever kept all her promises by just taxing the rich. In almost any modern welfare democracy there are never enough rich people to pay all the bills of an ever-expanding state. Mind you, The Times said these things in endorsing Clinton, who lost in part because many Americans didn’t trust her promises of bigger government with only the rich paying more.
Political promises usually are paid for in one way or another either directly through taxes or through money printing and inflation. The political promises of 1972 led to red ink in the Social Security system. A few years later Social Security taxes had to be raised. And benefits, sometimes in subtle ways, were cut. One example: At one time, you never paid taxes on Social Security payments. Why? By the time you get Social Social Security, you typically pay into the system for decades. Paying taxes on your payments constitutes double taxation.
Inflation is a subtler, but no less destructive tax that affects almost everyone. But luckily for governments most people don‘t understand how it happens so they rarely become angry with our spendthrift political ruling classes and mainstream media that enables them. Too much spending leads to persistent cycles of more and more taxes until they can become almost unbearable and you get the stagflation of the 1970s. Too late, the average person understands what inflation does as the value of the currency shockingly deteriorates.
The never ending government spending combined with taxation, along with a rampant “I‘ve got to have it now consumerism,” have ruined many a life. Many of these people now have broken financial lives.
Yet, at some point, they made good money —- sometimes very good money —- and often for decades. They were people we once envied.
Indeed, they ended up with nothing or just barely surviving in their last years, partly because when you make good money you usually are murdered on taxes. The Magnificent Ambersons end up in the same place as famous talk show second banana Ed McMahon — a man who likely made over $100 million in his storied career. They all ended up broke.
[This article is adapted from the book MoneySense: A Libertarian View of Money Management, now available at Amazon.]