The Bear’s Lair: The economics of subverting democracy

Portugal’s Socialists recently won an unexpected victory after gaining access to €45 billion in Covid recovery funds – magic doors opened for the party favored by Brussels’ bureaucrats. In Italy, Mario Draghi’s socialist government is propped up by €200 billion in Covid recovery funds, as the years drag on without free elections. This is an EU problem, yet elsewhere also subsidies, slush funds and taxes are being used to subvert democracy and support socialism. While such subsidies are in place, we are in grave danger of subsiding into a George Soros tyranny indistinguishable from the former Comecon.

The free market, provided it is accompanied by a truly stable currency, moderate taxes, moderate government spending and fiscal, monetary and economic policies that are not too unhelpful, is by far the most efficient method of making us all richer. One-man one-vote democracy cannot say the same, but it is similarly a mechanism whereby, with adequate checks and balances against subversion, the good sense of the outsiders generally outvotes the “woke” nonsense and false theories of the insiders.

The problem is that democracy can be subverted. In the EU, the central bureaucracy has freed itself from effective democratic control, so is able to perpetrate “woke” nonsense, self-aggrandizement and false leftist schemes without adequate control by a powerless electorate. The 2020 Covid crisis was a golden opportunity for that bureaucracy; it persuaded the national premiers to authorize gigantic “recovery” funds, completely without adequate national control, which become gigantic debt burdens upon national taxpayers. The European Central Bank’s loans to individual governments are a similar mechanism, even less subject to democratic control.

As a result of the EU bureaucracy’s actions, twice imposing a bureaucratic government on Italy against the wishes of its electorate, they have ballooned Italian public debt to 150% of GDP, while producing real GDP 5% below that of 2008, now 14 years ago. Any national government with that track record would be thrown out by the electorate, but the Italian electorate is denied elections by the country’s phony proportional representation system, so must simply suffer while incompetents imposed by the EU destroy its economy and burden it with unimaginable debt. Thus, democratic wishes are ignored, while an unaccountable EU bureaucracy subsidizes socialism and its inevitable result of economic failure.

The subsidization of socialism is not however confined to the EU, nor to the spending side of the fiscal income statement. In the United States, the deduction for state and local taxes is also a subsidy to bad local governments at the expense of good ones. More important, the charitable tax deduction is an untouchable shibboleth, that remains in place even as the gap between Federal revenues and expenditures yawns ever wider. It allows the very rich to set up political foundations to channel money to left-wing causes, while writing off more than 40% of the cost thereof against poorer U.S. taxpayers. It and the “funny money” policies of the Gosplan Fed (also a subsidy to socialism) are the principal barriers to good government in the U.S. today.

Other subsidies include colleges, which have been captured by the left and now use their tax-sheltered endowments to propagate destructive doctrines and discriminate against Asians as they did against Jews before 1941. The government-guaranteed student loan programs are another subsidy here, now totaling $1.6 trillion of taxpayer money poured down the rathole of increasingly useless social science degrees, all of them indoctrinating their victims in “woke” culture. The lynch mob at Georgetown Law this week, attempting to get a center-right Jewish professor fired on the grounds of an ill-phrased but well-considered tweet, resembles that he would have faced in the University of Heidelberg in 1935 – presumably the even more draconian treatment of non-leftists, Jewish or otherwise, will shortly follow.

The media subsidy is largely an extension of the college subsidy; if the principal staffing of media companies is recent college graduates of liberal arts programs, then journalists will be thoroughly infused with the prevailing college ideology. In the social and other on-line media that now reinforce conventional media, the subsidy to the left from “woke” Silicon Valley denizens becomes explicit. Add the recent tendency to “cancel” nonconformists and the subsidy’s effect becomes overwhelming. The only counteraction to it is that outsiders are rapidly coming to distrust thoroughly both conventional and social/online media, so over time this subsidy to thoughtless leftism may become less effective.

Subversion need not come from a government: the $400 million of “Zuckerbucks” poured into election administrations before the 2020 election was a further democracy-subverting subsidy from a private source. Subsidizing election administration systems only in heavily Democrat districts produced a massive surge in Democrat votes from inner-city voters, that was certainly enough to turn the close 2020 election. It must be outlawed.

Karl Rove in the Wall Street Journal this week claimed that the top priority of an incoming Republican government should be to make the 2017 Trump tax cuts permanent. This is laughably wrong; the corporate portion of those tax cuts was a complete waste of money, allowing the greedy multinationals to pay even less than before towards the bloated costs of the U.S. government. If a Republican government (a real one, not another Bush) wants to survive, it must immediately attack the subsidies that subvert democracy. The tax privileges of colleges and the tax deduction for charitable contributions would be the best place to start. Abolish them altogether or cap the charitable tax deduction at some level like $5,000 that allows the indigent rural gifts to the local church but shuts out the billionaires and their foundation corruption.

Democracy cannot work if its systems can be subverted; election integrity is a central value that must be upheld at all times. A democracy that subverts elections is not a democracy, it is a dictatorship. The 2020 election may not have been technically “stolen” but there was enough wrong with it to prevent the proper operation of democracy’s balancing and cleansing mechanisms, which are in any case much weaker than those of the free market. Future elections, unlike 2020, must be beyond reproach, or we are lost.

Outside the United States, the international institutions, financed by taxpayers or by borrowings in the international capital markets, have become huge subsidizers of socialism. It was always obvious that they would be so; that is why Maynard Keynes established them at Bretton Woods in 1944, working with the Soviet spy Harry Dexter White and the Soviet government itself to ensure that the traditional financiers of emerging markets, the London merchant banks, would be cut out of the market by subsidized competition.

The merchant banks favored free market policies – they had to, their money was on the line, and so before 1914 emerging markets included such stunning success stories as Argentina, at that time one of the world’s 10 richest economies. The IMF still finances Argentina, with a debt restructuring every 3 years, on average, the latest totaling $57 billion. The money has been used to elect ever more anti-market governments, a horrible contrast to the fine market-oriented gentlemen Argentina elected before 1914, when Barings and Rothschilds were their only foreign source of funds.

The United Nations, also financed by Western taxpayers, has taken to promoting extreme “climate change” policies, whose only practical effect will be to destroy the economies of those countries foolish enough to implement them. In Africa, the countries such as post-2000 Rwanda that have received the least aid and “technical advice” from the World Bank and aid agencies (because of varying levels of international disapproval) have achieved the most economic success. As the staff of the United Nations and other international aid agencies has grown “woker” their influence has grown more pernicious; it should now be a top priority for any decent government to close them down.

A democracy that is subverted by the left through hidden subsidies is no democracy and prevents the benefits to all of us from the more powerful operation of the free market. All means should be used to prevent such subversion.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)