The Democratic primaries are in the spotlight now, especially as Super Tuesday is now underway today. The front runner candidates are all avowed socialists and they aren’t ashamed to say they are. I’ve been getting a lot of questions lately about their policies, and the questions all come from an emotional angle. 

I know that because when I am asked, the phrasing is always along the lines of “It’s just not fair that 3 people own X% of the wealth in the country and they don’t share it with everyone else.” Forget the fact that those still in the running are the very people of wealth who they propose to tax (meaning themselves).  Heck, they haven’t even made the donation to the government yet. And the super-wealthy billionaires who speak of paying higher taxes also haven’t given their wealth over to the government. The hypocrisy is sure to raise an eyebrow or two. 

I don’t post my articles to get into politics.  That’s why I haven’t named the politicians like Bernie Sanders by name, or the billionaires like Warren Buffet either.  I just want to have a logical look at what the candidates are proposing and the likely outcome.

Recently, though, a few people have asked me if I think all these programs they promise will completely collapse the economy and/or America as we know it? Policies like free medical care, free college, etc, and why can’t we just stop bombing other countries in favor of taking care of our citizens? Even if costs go unchecked, what will happen?

While I agree that we can’t upend our military presence across the world (just ask anyone who was a hostage in Iran during the Carter Administration), I think we’ve financially outstretched our arm too far.

But again, I am here looking at the issue at hand for the economics of it all, so let’s get to it.

Whenever someone asks me about expanding the government, I usually respond with two ideas.  One is that the government has no place telling me who I can or can’t marry, what food to feed my kids, etc.  The other 99% of my response is that anything government-sponsored is a burden on the economy, regardless of real or perceived need. This includes all currently proposed versions of medical coverage for everyone, as well as all the other free stuff that has been proposed. No, I don’t think that we should take away government benefits from those who are truly incapable to help themselves, such as the mentally impaired or those with overwhelming physical disabilities. In and of itself, I don’t think these policies will lead to total economic collapse. But they will lead to a crisis of confidence in the USD and a total downgrade in the standard of living of all Americans.

The underlying issue, which is relied upon by proponents of free medical care for everyone, is something called Modern Monetary Theory, or MMT for short.  It’s not modern at all, and as a theory, it’s been disproven many times, in many countries, and during many different eras of history.  Look no further than South American countries like Argentina or Venezuela, who’ve tried and failed.  Or African countries like Zimbabwe.  European countries like Weimar Germany or Hungary. Perhaps the former USSR or North Korea, or any other country throughout history, they’ve either tried and failed, or they are in the midst of trying and are desperately failing.  Rome also failed because of MMT, having stretched its military too thin and made too many promises to the soldiers and their families.

In a nutshell, MMT says that government can print as many currency units as it wants (also called debasement) and there will never be any net effect on the purchasing power of that currency.  In their eyes, lots of free stuff can be promised to everyone…college education, medical services, prescription drugs, jobs, food, housing, and anything else the general populace demands of the government to supply.

They get away with it because they claim that they can just tax the rich dollar for dollar against whatever is printed, then destroy the currency units that have been taxed.  They think it’s a wash.  If they print one-trillion currency units, they just tax the rich the same one-trillion.  1T in and 1T out.

But history tells us this is never what happens. Every fiat currency in the world in the last 100+ years that disappeared, suffered its demise because of this very theory.  Why? Because more is always printed than taxed, and for a few reasons.

First is that if the total wealth in a country can be represented by 100T currency units, what happens when the government prints 200T units?  They’ll tax 100% of the wealth of the nation and still have a shortfall for half of what they printed. The next year they print and there’s nothing left to tax because the government taxed its way to ownership the prior year.  This can be summed up that there is a limited amount of wealth, but an unlimited number of currency units to be printed.

The second issue is that the very people who stand to lose the most under these policies are the most mobile. This group are the richest people around. They can pick up and leave at a moment’s notice. So the government loses its tax base pretty quickly, as the wealth bearers move out long before anything happens in anticipation of the need to protect their financial future.

State and local politicians are wising up to this already. On the one hand, there are economic imbeciles like Bill De Blasio in NYC.  They’re driving away their tax base.  Across the river in NJ, the state legislature and governor are majority Democrats. We find the governor continually trying to raise wealth taxes, yet  NJ state legislators are actually beginning to rebel and tell him, “Hey wait a sec. We’re losing the tax base and an accelerated pace because of these policies. There is only so much they’ll tolerate before we lose them all.” There's lots of evidence for this too, as seen here from the latest info at the Census Bureau.

We know that MMT is the road being paved to economic hell. Most people don’t understand that, and the politicians play with that ignorance. When MMT brings an economy down, look no further than Venezuela, Argentina, Weimar Germany, Hungary, Zimbabwe, or any of the others. They all tried and failed. No, this time is not different; the same will happen here in America. The people don’t believe it because if they think for themselves at all, they say to themselves, “This time is different,” when in fact it is not, or just they deny what is obvious.