The end game: Crash of 2008

Mark W. Hendrickson's picture

If you wanted to turn the United States of America into a socialist country, what strategy would you adopt?

Joseph Stalin, the world’s top communist from 1924 to 1953, is reputed to have advocated the following strategy to William Z. Foster, leader of the Communist Party U.S.A.: “Work for more government intervention and control of the business activities of the people. In this way the American people will accept communism without knowing it.”

Stalin would be pleased with the trend in America since he dispensed that advice. He would be positively delighted with the recent partial nationalizations of the housing, mortgage, financial, and insurance industries during the Crash of 2008. He would be even more thrilled by the future prospects for socialism in America.

The Democrats seem to have found the perfect strategy to replace free markets with government control. Their game plan is now clear: to move incrementally but inexorably from capitalism (free markets) to socialism (government control of economic activity).

The first stage in that transition, the proverbial nose of the camel under the tent, was accomplished by earlier generations of politicians, primarily Democratic.

It was to condition Americans to view government as a player, rather than a referee, in all sorts of previously private markets. That is, sell the voters on a government program for some worthy cause — nothing as radical as total government control, but simply as a supplementary aid in some important area of life, such as retirement, health care, housing, energy.

Thus, Social Security was created to put a modest floor under Americans’ retirement income; Fannie Mae and Freddie Mac to help poorer Americans afford homes; Medicare and Medicaid to help seniors and the poor afford medical care; the Federal Deposit Insurance Corp. to insure bank deposits; the Pension Benefit Guarantee Corp. to insure pensions, etc., etc., etc.

The second stage in creeping socialism is to keep expanding government programs. This is easy in a democracy. Understanding the political dynamic so pithily summarized by the great playwright (and socialist) George Bernard Shaw — “The government that robs Peter to pay Paul can always count on the support of Paul” — the politicians who want greater government control carry the day.

The party of Bigger Government — the Democrats — has skillfully employed demagoguery against all who dare question the wisdom or long-term financial viability of such programs, shamelessly and unfairly denouncing them as heartless and uncaring.

This Democratic and democratic pressure intimidates some Republicans to become “pragmatists” who acquiesce in fiscally unsustainable policies. The result has been that Congress has repeatedly increased the vote-buying benefits, while avoiding the prudent, but politically unpopular, steps of maintaining programs on a solid financial footing.

That brings us to the present. Today’s Democrats — some crypto-socialists, others not bashful about showing their socialist stripes — actually desire the fiscal mismanagement that bankrupts federal programs, because it precipitates stage three of their strategy: the crisis stage.

During a crisis, the choice becomes whether to shut down the insolvent program, or to rescue the program since so many Americans have become dependent upon it.

Few Republicans are willing to tell scared Americans that government can’t help them during an emergency (e.g., President Bush during the current crisis), and that gives rise to stage four.

The fourth stage of socialism on the installment plan has dawned in 2008. It is rescuing programs in the crisis stage by nationalizing them.

You can choose to believe that Congress was taken by surprise by the looming bankruptcy of Fannie Mae and Freddie Mac, but it wasn’t.

I wouldn’t be surprised if Barney Frank and other leading Democrats, who successfully blocked earlier Republican attempts to reform Fannie Mae and Freddie Mac, uncorked champagne bottles when Uncle Sam became the largest mortgage holder and de facto landlord in the country by nationalizing the bankrupt mortgage giants.

They will celebrate again when the federal Pension Benefit Guarantee Corporation goes broke and Uncle Sam nationalizes private pensions. Ditto for when the Federal Deposit Insurance Corporation some day runs out of funds and banks have to be nationalized.

Still looming in the future are the Big Three of precariously under-funded future liabilities: Social Security, Medicare, and Medicaid.

The Democrats are playing a giant game of chicken as these three programs march inexorably toward insolvency — Medicare alone being under-funded by $36 trillion for the next 65 years.

Democrats reject all attempts to reform these programs and put them on a sounder financial footing. When George Bush suggested private accounts as part of a possible reform, the Democrats went berserk. Being socialistic, they are as terrified of private property as Dracula is of a cross.

We were given a peek of the future of Social Security in October when Congressman George Miller (D-CA) held hearings that included discussion of nationalizing Americans’ IRAs.

Like the frog who doesn’t realize it is being boiled until it is too late to jump out of the pot, at some point during the ongoing government takeover of Americans’ businesses and wealth, we could wake up in a new country.

The U.S.A. could morph into the D.S.S.A., the Democratic Socialist States of America, with the Democrats entrenched in power, overseeing it all. That is their end game.

Will the Democratic strategy succeed? Having just been swept into power on a wave of expectations epitomized by the Sarasota woman who exulted, “I won’t have to worry about putting gas in my car. I won’t have to worry about paying my mortgage. If I help (Obama), he’s gonna help me” — the Democrats are in the driver’s seat.

We who believe in free markets have our work cut out for us.

[Dr. Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision & Values at Grove City (Penn.) College.]

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