Saturday, July 30, 2011

Socialism in America

Shocking, I know, but there are in fact multiple socialist institutions in America.

The Military, Social Security, Roads and the Family are all run on socialist principles.

Specifically, you have no choice in which one you get and the pay/services you receive are pretty much set in stone - no extra pay for superior performance within the 'commune'.  We all use the same stuff, regardless of how wealthy/poor we are.   Soldiers don't get paid more if they win a battle than if they lose it, retirees can't choose where to invest their money, you can't choose to use "Microsoft Roads", and Family members don't pay each other for the various services they provide.   We all use the same Military and Social Security, and we are mostly stuck with the family we are born to/give birth to/adopt (though we do get to choose our spouse).  Yes, Social Security has some competition - 401(k), IRA, pension plans, but almost all workers are required by law to participate in Social Security - the competition are add-ons, not replacements.

There used to be more - the School, US Post Office and Utilities, but modern innovation/rabid capitalism has given us choices (UPS/Fed Ex/email/ and you can now choose your electrical/gas supplier, if not your water - which many buy in bottles - or you can get from a well).

But the Military, Social Security, Roads and the Family all suffer from the two major problems with socialism:

  1. Lack of Innovation
  2. Lack of Financial Motivation
These two problems lead to poor financial performance for the Military and Social Security.  Not so much for the Family, but more about that later.  The first question is, why do we use Socialism in the these four institutions.

The military has two higher priority than money - protecting America (at all costs), and saving the lives of it's soldiers (at any cost except endangering America).    It counters the lack of innovation three ways - competition between various services (Marines, Army, Air Force, etc), discussions with friendly countries, and outside contractors developing weapons.   Instead of using financial motivation, it uses Patriotism, and espirit de corps (protecting your brother soldiers).

Social Security has some innovation problems (it would be nice to invest some of the 'lock box" in something besides US Treasuries) so it pushes innovation into those add-on products (401(k), IRA, pensions, etc.).   It lacks financial motivation - what you get is set in stone by the time you start using it.   But instead it is motivated by Security Motivation.  That is, the idea is to be absolutely SURE that you will get a minimal amount of money to live on, assuming you worked all your life.

Different states have different road systems, so we get some innovation there.  They also outsource production to construction companies which also helps out innovation.  Occasionally (innovation and financial motivation) you do have the option of paying more for greater service (toll roads).  But the fact that everyone benefits from roads (even if you don't drive, things you buy travel on them) means that we all basically have to use the same roads.   Throw in some innovation/financial motivation via the vendors (car manufacturers and trucking), with a bit of examining other countries (US Highway are based on Eisenhower's impressions of German road systems), and things work out OK.  Not perfect - which is why road construction is a bit expensive and sometimes bridges fail, but reasonably well.  It also helps that the industry is rather static - you can still use ancient roads from roman times, if they are well maintained.

The Family has innovation - because while you get little choice, there are 10 's (if not 100's) of millions of families in the country, and you can change your spouse, if not your parents/kids.  Your particular family may not work out great, but you can hear about what other people are doing.  The motivation issue uses Love instead of financial motivation. which works pretty well.   Without love, families do poorly.  (Which is why gays need to be allowed to marry each other, not be forced to marry people they don't and can't love.  Yes, they need a family, it is a major part of America's society and being deprived of one is a major issue.  Everyone should have a chance to get a loving family.)

The next question is, is ObamaCare socialism? The answer is no.  You get lots of choices, and the pay/services you get, while they include base level minimums, are variable.  Some of the Democrats wanted to expand Medicare/Medicaid into a single payer system, which may arguably have been socialistic (hard to say as those plans were never fully described).  But the moderate Democrats rejected that idea.   We went with a system based on multiple private insurance companies.  You have real choices and you can choose to pay more (or less).  Laws that charge you penalties for failing to get a service are NOT socialism - most states use those to force people that drive to have insurance for example.  Particularly if those laws have many loop holes (which ObamaCare does).

Third question: Is taxing the rich socialistic?   Again, no.    Not even if they tax them a lot more than they tax the poor.  But honestly, in the United States, the rich in general are taxed at a percentage rate LESS than the poor.  The poor spend most of their money, so sales tax, property taxes, and other fees tend to take a lot higher percentage of their total take home pay. Moreover, Social Security tax only gets paid on the first $100k (give or take 10%) of your take home pay.  That is currently a 4.2% (10.4% if self-employed) drop.  Finally, Capital Gains taxes (15%) are much lower than income tax and the richer you, the more of your income comes from "Capital Gains" as opposed to a salary.

What, you don't believe me?   Here are some numbers from the Tax Burden Study  This study examines state/local income taxes, property taxes, sales tax and vehicle taxes among major cities in the US.
The average local tax burden for a family of 3 with an income of $25,000 in the top 51 cities of the US is about 11.0%.  At $50,000 that number drops to 8.7%.   At $75,000, it drops a bit more to 8.5% .  At $100,000 it rises to 8.8%, but for $150,000 it drops to a 8.1% average.  Moving from poor to middle class drops your tax burden 3%. But it gets even better as your wealth rises, because you start saving/investing money instead of spending it on things that cost you property/sales/vehicle tax.      In effect, your local tax burden drops as your earn more and more money. 

The GOP constantly accuses the Democrats of trying to 'redistribute wealth', but the truth is, it is the GOP that has been redistributing wealth over the past 40 odd years, using changes in the Tax Code to move it from the poor to the rich.  From 1988 to 2003 the poor increased their average household income by 5.7%, while the rich gained 20.4%  (Source: Us 2004 Census = page 44/45, via Wikipedia)  If you start in 1967 and end in 2003, the numbers are 28.4% and 73.8%  - guess which one was the wealthy and who was the poor.

The only 'redistribution of wealth' that the Democrats want is to undue the GOP's 20 year campaign to ensure that the wealthy pay less taxes than the poor do.

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