Thursday, March 25, 2010

Socializing Our Economy

Privatizing Gains, Socializing Losses, and Demonizing Wall Street

By Vedran Vuk
Since the crisis began, the phrase “privatizing gains and socializing losses” has been in the media constantly. Sure, at first, it seems to describe the current economy well. For a second, I even liked it. But, then I thought about the phrase some more.
The first problem is the idea of socializing losses. To accomplish this, the government needs to spend money. Of course, the government gets its money through taxes – essentially socializing gains. This kind of ruins the phrase’s appeal. America’s reality is much closer to “Socializing gains and Socializing losses.” The argument is circular. One cannot be done without the other.
This fits the Wall Street bailout perfectly, because unlike most handouts, this was a bailout of net tax payers by net tax payers. Wall Street’s gains were socialized for years and then losses were socialized later. Isn’t that how socialism is supposed to work?
The reason for the uproar over the bailouts wasn’t just about the money. It was class warfare center stage, specifically the idea that middle and upper class Americans deserve absolutely nothing from the government ever.
According to most, the bailouts rewarded failure. But, look at housing vouchers, food stamps, and free health benefits. These programs aren’t designed for people who work forty hours a week and make the right decisions. They reward failure and bad planning. However, in these cases, net tax payers bailout net tax consumers.
Once federal government employees are excluded from the equation, less than half the country pays nearly all income taxes and receives little in return. The average net tax payers drives down the road, gets some police protection, and that’s about it. Many consume even fewer public resources by sending their kids to private schools.
Year after year, government employees tax them for bigger budgets and higher wages. Then, there are the “special” professions. In America, a farmer, union worker, or fire fighter can beg for any subsidy or bailout endlessly. And, every other person on the planet wants this handout or that program – all at the net tax payer’s expense.
Remember that not every person in the financial industry is a hedge fund manager. When Citigroup fired over 50,000 employees during the crisis, the guys on the chopping block were average Joes making 40 grand a year, filing mortgage papers with little education but years of experience working teller and lockbox bean counter jobs. But, the one time the average Joe at Citigroup needs a handout – it’s suddenly the crime of the century. Everyone was calling their congressman and all kinds of anger and angst filled the country.
When the non-tax-paying half wants government programs, it’s business as usual. In fact, to criticize them makes one evil and greedy. If a net tax payer wants a bailout, then he’s basically viewed as the incarnation of Satan in the eyes of the American public. Now, I don’t support bailouts for anyone, but this hypocrisy is absurd.
The real question here is that of net gain versus net loss. For example, government employees clearly gain and put nothing productive into the system. But, if my neighbor has paid $200K in taxes over the last few years, and he then receives a bailout worth $100K, I don’t think that it’s right to scold him. He’s still in the red for another $100K tax-wise.
Don’t people who have always had their gains socialized ever deserve a break on a loss?
Certainly, the financial services have been one of the most productive sectors of the U.S. economy for nearly a century. Uncle Sam got a nice cut of that cash while the going was good. Did he give back more than he taxed? Maybe, but maybe not. With net tax payers, it’s always a tough call considering their years of tax payments. The financial industry deserves anger, but not foaming at the mouth fury – especially when compared to rest of the U.S.’s handout-obsessed population.

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