Director's Law Repealed

An interesting issue is why doesn't the bottom 51% of a democracy simply expropriate the rich every couple of years. The Constitution is subject to considerable tendentious interpretation (the 10th Amendment, the right to privacy). In this video, Friedman states that it is a common myth to think the government takes from the rich and gives to the poor. He mentions Director's law--really an empirical tendency in the US circa 1960--that the rich and poor pay for programs to the middle class.



A bottom 51% coalition isn't effective because they are not as skillful at political activity: someone has to write the speeches, write initial checks, and those people usually are above average in economic standing. The top 51% would be a good coalition, but as the top 10% make so much money they are ripe for expropriating. Thus the most logical coalition in Friedman's argument is from the lower middle class to the upper middle class, feeding off the the very rich and very poor.

As depressing as Friedman's argument may be, there are worse things than tyranny of the middle class: a coalition of the elites with the lowest classes. We have legislators bestowing all sorts of sinecures, pensions, and welfare on the masses, creating a coalition of the unproductive, and they grow in popularity and power by granting more entitlements. The end game is bankruptcy.

We have replaced Say's Law--that supply creates its own demand--with the Liberal's Law--that demand creates its own supply. Thus, Krugman contemptuously ridicules Paul Ryan's proposed budget because it freezes discretionary spending in the future, as if this modest fiscal restraint is insane. How is this sustainable? In a private company, if you are losing money you cut until revenues meet expenses, whereas in government that's illogical via the sophistry of macroeconomics. All good liberals presume any spending (a component of Aggregate Demand) is a good idea in times of higher than average unemployment. What or how it is spent is not of any importance. The fact that debt is created is presumably irrelevant, because if the markets lends us the money, it must mean it's prudent. The thought of having government get out of the way to promote growth is considered stupid and mean.

So, we can increase the size of the Transportation Safety Administration even though they spend all day looking out for signs of the repeat of a crime that will not happen again anyway, a lot like the way our financial regulators analyze financial practices. They will look closely at arrow-heads in the pockets of 11-year old boys, as the did to my son recently who was taken aside and given a serious work-over for this transgression (he was literally crying during the interrogation). These do-nothings are not adding to our nation's wealth or safety, but they are creating permanent liabilities and voting union members.

If you read Roman history, you see the constant struggles between the patricians, equestrians, and plebeians, questions about who is considered a citizen, and finally the apotheosis of the Emperor. There was a general trend from an aristocracy that built the Republic, to the end where a god-like emperor ruled with the support of the masses who were placated with free grain and big coliseum events. It was a barbell strategy, and was unstable, always extending.

A cardinal mistake in the last expansion was to presume that merely because lenders would give home buyers money it was a good idea. Even after the defaults you hear people excuse the home buyer who put nothing down as if he's the victim (current muni-bond and sovereign debt salesmen take note). Similarly, the US is currently borrowing at record peacetime level, and the solution to our problem seems to have the government spend more. As anyone with some fiscal discipline knows, you don't buy something merely because you can, bills must be paid.

So, perhaps every society has a different optimal coalition at various times, and currently I don't see what will keep it from bringing everything down to the coalition of a few elites, sincerely deluded as to their belief in the virtue of government spending, combined with a vast entitlement mob at the bottom, all literally feeding off the middle class. It sounds a lot like South America.