Slaves of the Ethereal Machine

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As reported by MoneyNews.com, investment guru Warren Buffett is worried about a “meltdown” in municipal debt:

The Pew Center on the States recently estimated that as of the end of 2008 budget years, states had $1 trillion less than needed to pay for future pensions and medical benefits. And that number doesn’t even reflect much of the losses suffered by pension fund investments in the second half of 2008.

“There will be a terrible problem, and then the question becomes will the federal government help,” Buffett said at a hearing of the U.S. Financial Crisis Inquiry Commission in New York, Bloomberg reports.

“I don’t know how I would rate them myself. It’s a bet on how the federal government will act over time.”

I wouldn’t want to take that bet.  Of course, I have no choice but to take it, and neither do you.

In May, Buffett said the feds may end up having to bail out some states from their extreme financial woes.

“It would be hard in the end for the federal government to turn away a state having extreme financial difficulty when they’ve gone to General Motors and other entities and saved them,” Buffett said at Berkshire’s annual meeting, Bloomberg reports.

I don’t doubt Buffett’s predictions.  They illustrate a terminal, and utterly inescapable, flaw in socialist governments.  The same fate awaits every last one of them, around the world and across all of history.

The socialist racket operates by concentrating benefits and diluting costs.  The benefits go to loyal constituencies, while the costs are spread across the population.  A dwindling percentage of that population pays direct income taxes to state and local governments, but much of the tax burden is hidden, and paid by nearly everyone.  Some taxes are pulled quietly out of our paychecks, before we ever have a chance to bank a dime of our money.  Others are levied against businesses, which pass them along to us by folding them into the prices we pay for goods and services.

The government also extracts resources from the private sector through regulations and command economics, such as the political imperatives which led to the subprime mortgage crisis.  The costs of such regulations are ultimately paid by individual citizens, in the form of opportunity costs.  For example, massive resources were shifted into new home construction during the boom created by the subprime mortgage market.  The ultimate cost of the ensuing financial crisis was more than just the staggering sums of money poured into bailouts.  It also includes the lost opportunities that could have been exploited with the resources we plowed into the foreclosed homes littering our landscape.

These diluted costs are largely invisible to the average citizen.  Most of them scarcely bother to glance at their paycheck stubs.  Many of them believe in fairy tales about their employer “paying half their FICA” or “matching their Medicare contribution.”  Every penny of those employer “contributions” is coming out of your pocket.  It makes little difference to the employer if those thousands of dollars per year are paid to you, or handed over to the government.  In fact, they’d really prefer to give them to you, because the paperwork would be a lot simpler.

Around this nebula of hidden and indirect cost lies a ghostly haze of deficit spending, the ultimate diluted cost.  Politicians describe it as money conjured magically from an indeterminate future, as if Doctor Who’s time machine had suddenly appeared on Capitol Hill and released a tornado of greenbacks.  The people who will be expected to pay for these costs are children, many of them yet unborn, so they have no way to object to the burden being placed upon them.  They will simply grow up into servitude, and find a staggering debt – currently standing at about forty thousand dollars each – written into their DNA.

This system accumulated over the course of a century in the United States.  It was not engineered all at once.  Generations of politicians, both Democrat and Republican, have come and gone, each following the same strategy: a little more targeted benefit for favored constituencies, funded with a little more burden spread across the larger population, growing into layers of transparent cobwebs.  Politicians will always do this, unless the supreme law of the land forbids them from doing it.  It’s too easy to make promises in exchange for votes, and shred the invoice for those promises into a few hundred million bits of confetti… or tuck them into baby carriages.

The socialist racket makes an absolute mockery of the idea of representative government.  If Warren Buffett’s prediction comes true, taxpayers across America will soon find themselves bailing out the lunatic government of California.  Did anyone from the other 49 states have any say in the election, or continued power, of the people who turned California into the fiscal version of “28 Days Later?”  Of course not… no more than we have any representation in the government of Greece, which we’re already shoveling money into, since we provide 20% of the funding for the International Monetary Fund.  More direct American payments into the black hole of Athens are likely to follow.  You may also find yourself on the hook for more bailouts of companies you would never willingly do business with, and the benefit packages of unions you will never belong to.

The final tragedy of these distributed cost networks is that they failcatastrophically, all at once.  The system survives by concealing the very hardships that would provide feedback to the populace.  They are assured everything is going just fine.  Social Security and Medicare are solid as rocks.  Fannie Mae is completely solvent, and only a heartless racist would argue otherwise.  Everyone can have free health care, and the program will actually reduce the deficit!  The electorate is kept comfortably sedated, until the fiscal tumors worming through the body politic reach its heart, liver, and brain, all at once… and suddenly their transparent lightworker messiah President is telling them every form of tax is on the table, to fund a rising spiral of sadly unavoidable bailouts.  All the spending is automatic, and the unsustainable entitlements are wrapped around our necks with titanium chains.  We can do nothing except wait for suitable private-sector villains to be presented, so we can focus our impotent rage.

This is one of the most powerful arguments in favor of federalism, and decentralized government.  Local politicians can be held accountable for their actions, and voters must live with the results of their votes.  Responsible citizenship requires a government small enough, and close enough, to comprehend.  Vast central governments are inherently corrupt, because they will always jump at the chance to produce spectacular benefits for a favored few… dispensed from an ethereal machine that only becomes visible to the people marching on its treadmills when it collapses.

(Hat tip to @JiangxiDad for Tweeting me the link to Warren Buffett’s remarks.)

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