The Bear’s Lair: Mankind’s taste for economic suicide

The democratic system of government has many advantages, but it is bedeviled by the electorate’s tendency to fall for snake-oil salesmen peddling economically devastating nostrums. In recent years, the climate change “net zero” nonsense is the most obvious of these follies, but they stretch back through democratic history to the repeal of the Corn Laws and beyond. Finding a way to quell these outrageous scams is essential if the human race is not to revert to barbarism and poverty.

I begin with one economic policy that is not even controversial: the U.S. tax deduction for charitable donations, and tax exemptions for charities generally. Most people are touched by the work undertaken by the better charities, whether alleviating Third World poverty or bringing better lives to animals; they therefore imagine fuzzily that the charitable tax deduction benefits these favored objects and should be retained. In addition, there is a great deal of media support for charitable tax exemptions and the activities of charities in general, and in the U.K. the Royal Family devote virtually their entire attention to charitable activity (frankly, I don’t know how they can stand it)! In more intellectual circles, the fashionable foundations and highbrow media are heavily supported by billionaires, and hence avoid at all costs criticizing the principal tax loophole from which the less scrupulous billionaires outrageously benefit.

The economic damage done by the charitable tax deduction and by charitable tax advantages in general is twofold. The tax deduction is a direct subsidy to billionaires and the very rich, that will denude the fisc of about $1 trillion over the next ten years, with the other charitable tax benefits adding another $2 trillion hole. Eliminating these drains does not close the absurdly large U.S. fiscal deficit, but it cuts it by about a quarter. What is more, it eliminates one of the most unpleasant ways by which the very rich have artificially widened the gap between themselves and the middle class: the Wall Street trader making $5 million a year, through the tax deduction, gets me to pay $2,000 of the $5,000 cost of the charity dinner that he attends to boost his social standing. That transaction is unacceptably exploitative at both ends (without the existence of $5,000 charitable dinners that I cannot afford, I might have some social standing myself)!

The other and probably even greater economic damage from the charitable tax deduction comes from the uses of the funds deducted. Yes, some few charities are legitimate, but the existence of charitable tax exemptions has spawned all kinds of illegitimate ones. At the top intellectual level, the Ivy League colleges, protected by their endowments, tax deductible to donors and tax free in their investment returns, have come to ignore completely the market signals from both employers and the parents paying their fees, have bulked up their costs with damaging administrators, have turned their curricula into havens of wokery and have now become hotbeds of leftist agitation, with the over-cosseted faculty being more clearly instigators than the students themselves, the traditional source of riots.

Without the charitable tax benefits, colleges, even the top ones, would be forced to study their market, provide education that was worth its cost and that produced graduates with an appropriately premium value in the employment marketplace. Needless to say, the $1 trillion of free money that the Biden administration has now handed out in college loan forgiveness, most of which subsidizes the most worthless students and the most worthless courses of study, has made the economic incentives in higher education even worse, so much so that we would all probably benefit if the wretched Ivy League colleges were forcibly closed down.

Even more economically damaging than Ivy League colleges are the innumerable leftist political agitation groups that have gained funding through spurious charitable donations from woke billionaires, most notoriously including George Soros. The “nonprofit sector” now accounts for some 5-6% of GDP; almost all this gigantic output and the employment within it are damaging to the economy, dedicated as they are to the undermining in one way or another of property rights, security of contract, the free-market system in general and the physical security of ordinary people in our cities. Never has a tax-deduction been more grossly misdirected!

The creation of economically damaging ways of fighting the long-term and pretty modest problem of climate change is another area of democratic failure. By hysteria campaigns in the media, politicians can be persuaded that opposing climate change nonsense is career suicide, so you get absurdities like a nominally “Conservative” government committing to a “net zero” policy. That policy is scientifically unnecessary, climatologically futile (because the U.K. has already halved its emissions to a tiny fraction of those of China and India) and economically catastrophic for working-class living standards, forcing poorly paid people to adopt fancy and inadequate “carbon-free” technologies as if they were Silicon Valley Californians. It also does not help that all the prime ministers who have sponsored this nonsense are liberal arts majors, highly susceptible as Boris Johnson proved to persuasive flannel with no basis in scientific reality from the deeply “woke,” scientifically illiterate but memorandum-writingly gifted Civil Service.

Related to climate change is the popular hostility to nuclear power. Back in the blessed 1950s, the public was gung-ho for new technology and correctly saw nuclear power, if decently managed, as an almost infinite source of clean non-polluting energy. The French nuclear power program, which generates 80% of French electricity, reflects this rational view. Then the environmental movement of the late 1960s, which utterly failed to understand the technologies involved, created a phony scare program about nuclear power, backed by a thoroughly dishonest 1979 Jane Fonda movie “The China Syndrome”. (Ms. Fonda did far more damage to her country of birth with that movie than by all her propagandizing for the Vietcong.)

Because the environmentalists had infiltrated the U.S. regulatory system, they were then able to insert glue into the regulatory works so that no nuclear power plants were built for the next 40 years (two at Vogtle have opened in the last year but no more are currently under construction). 120 nuclear power projects were cancelled, often after huge money had been spent and one perfectly good and fully completed nuclear plant (Shoreham) was never allowed to operate. However hysterical the climate change movement, the only economically viable solution to that problem is nuclear power, and environmentalists are therefore condemning the United States to a rapid return to the Stone Age when the current generation of plants wears out – this is very probably their ultimate objective, irrational cultists that they be. The encouragement given to these lunatics by modern democracy is an unanswerable criticism of that form of government.

Finally, the overwhelming betrayal of the populace committed by democracy is its destruction of property rights and free markets and its encouragement of socialism or indeed communism, since as the last few years have proved democracy is a less than robust defender of civil liberties. This dates back to the French Revolution, when despite the prominence of the Marquis de Lafayette, the French did not follow the sensible Americans and keep a capitalist system, but instead fought the free market, staged a mass destruction of property rights and the aristos themselves and then allowed a dozy military dictator to impose French quasi-socialism on the rest of Europe.

Karl Marx’s socialism could be excused – he was after all brought up in the former Electoral Bishopric of Trier, where the remnants of the Holy Roman Empire’s innumerable local tariff barriers prevented progress on industrialization until the Zollverein of 1833. However, other Germans, notably Friedrich List, overcame similar problems and came up with an intelligent protectionist version of capitalism, which allowed Germany by 1914 to overhaul all its competitors except the United States.

Meanwhile Britain, its economy undermined by the ridiculous policy of unilateral free trade, was slowly backsliding from its whole-hearted capitalism of 1825. Probably the most damaging steps were the decisions by successive governments led by Benjamin Disraeli and William Gladstone, to take the new industries of telegraph (1870), telephones (1880), electric power (1882) and later broadcasting (1920) into public ownership, the three electronic ones through the Post Office, a model of efficiency but already hopelessly overburdened by Gladstone’s witless and duplicative 1861 Savings Bank. With the private sector now limited to metal-bashing, coal mining and the dying textile and shipbuilding sectors, when the first computer, Bletchley Park’s Colossus, was built by a Post Office Engineer, Tommy Flowers, he was taken off computers at the end of the war and returned to delivering letters. By then, socialism was fully ingrained in the British system of government, with enthusiastic participation by the deluded electorate.

Surely the above examples are sufficient to convince us that democracy does not work – except, how the hell else are we to be governed?


(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.)