Jul282009

Entitlement Leads to Socialism

educated_borrowersMajor cultural events like The Great Housing Bubble change people’s lives. The populace built mountains of paper through burning consumerism; paper that is now smoldering in the ashes of our economic fire. Statistics measure the economic fallout, but more interesting is the impact on the people.

One trend in our consumer society has been an increase in our collective sense of entitlement. People came to believe in the permanence of the supply of consumer goods they enjoyed, the exaggerated sense of self-importance they created, and the unsustainable level of lifestyle spending they deserved. Since this sense of entitlement was only enabled by a massive Ponzi Scheme, many people in the aftermath must adjust to a new lifestyle that is considerably less affluent than the one to which they feel entitled.

Rather than retreat from a sense of entitlement, it is likely we will enact even more social safety nets to pander to this societal desire. Good or bad is in your perspective. Many European countries are suffering less because they have an expensive safety net that supports those in need. The European Socialist model may prove less traumatic to the society and the economy because the safety net provides liquidity and consumer demand — at a tremendous cost. With Democrats in full control of the House, Senate and the Presidency with a filibuster-proof majority, nothing stands in their way. We will almost certainly take a step toward Socialism.

These circumstances have precedence. During the 1920s, laissez-faire economic policies with little or no financial regulation resulted in a massive Ponzi Scheme in the stock market, widespread currency deflation, and a near collapse of our economic system. the deflation of that credit bubble was exacerbated by the passage of the Smoot-Hawley Tariff Act (enacted June 17, 1930) which decimated international trade. The resulting Great Depression saw a dramatic political shift with the landslide election of FDR in 1932 and the creation of much of our current and inadequate safety net; it was our first step toward Socialism.

Since the conditions now are so similar economically and politically, it is reasonable to expect the same response. Many of the social programs Conservatives fear most will be enacted or expanded. If these programs fail in the eyes of the electorate, Conservatives and Republicans will come back to power to “fix” things; however, if Progressives and Democrats succeed, they may consolidate power for a generation.