In a recent speech, Spain’s acting Finance Minister advocated for an increase in the size of the government and announced a brutal tax hike while criticizing the idea that “taxpayers’ money is better in their own pockets,” a concept she dismissed as a “mantra”. The whole sentence, copied word for word from an article published by a leftist journalist two months ago, describes well the disaster that is coming upon us like a curse with this government. The minister also called for improving the “pedagogy on taxation” and on that I agree: as a radical socialist, she herself urgently needs to take a few economy lessons, and with her the vast majority of our political class.
Indeed, socialists of all parties, whether out of ignorance or sectarianism, believe that money grows on trees and are completely unaware of the wealth-creating process. Wealth is created by the ingenuity and sacrifice of entrepreneurs, large, medium and small, who risk their net worth to offer goods and services to their fellow citizens in better conditions than the competition, creating jobs and wealth for all (those who survive), together with the effort of the entire community of coworkers in the business, united by a common project. How easy it is to talk about spending the money that others have earned through their sweat! To their ignorance, the socialists add the fatal arrogance denounced by Hayek, that is to say, the belief that a group of politicians and minions, escorted by a myriad of rather unproductive bureaucrats specialized in making things difficult for regular citizens with their set of absurd rules, are a supposed elite that knows better and can decide better than each one of us the destination of our money. The reality, of course, is exactly the opposite. Everybody’s money (public money) becomes nobody’s money managed by politicians, and is a scarce resource (another concept unknown to the socialist mind) that is squandered scandalously in shameless vote-buying with subsidies, in ruinous feel-great Pyramid-like public investments or in creating and maintaining a giant bureaucracy with which to extend the tentacles of power. Of course, public expenditures can only increase, never decrease, since the budget of each department of the Administration is the measure of its power – so no one plans to reduce it. With “public” money there is no need to worry about a profit and loss account or a balance sheet, nor is there an investor to demand explanations and audits to check the truthfulness of the accounts, nor is anyone held responsible for the mistakes made in managing such money. Socialists of all parties neither have skin the game nor answer to anyone for their actions. With this perverse incentive system, how are they going to effectively manage our money?
As for sectarianism, in the defense of “public money” and tax collectors’ voracity underlies the pathological aversion of the cultural left (which extends well beyond the political left) to freedom and private property. The two concepts are inextricably linked: the defense of private property through a robust system of the rule of law (which should also protect against the abuse and arbitrariness of tax authorities) is a sine qua non condition for the maintenance of individual freedom and progress. Private property is not only in accord with justice, but, as Saint Thomas Aquinas explained 800 years ago, it is much more efficient than its alternative, first because “each one is more solicitous in managing that which exclusively belongs to him than that which is common to all, since each one, fleeing from work, leaves to others the care of what is convenient for the common good; second, because human things are administered more orderly if each one is responsible for the care of his own interests”. The hallway of your home, dear reader, will always be cleaner than the sidewalk down in the street.
The power junkies who aspire to dominate us are the greatest defenders of the Vampire State, cleverly called the Welfare State. Always ignoring the enormous squander of resources in the feeding of the huge machinery of bureaucrats, they justify the pillage of taxpayers with the argument of social spending. In reality, social spending (health, education and public pensions) is only an alibi that allows them to continue expropriating the taxpayer from a position of supposed moral authority. If social spending were aimed exclusively at covering the basic needs of the weakest, we would all agree in strongly defending it, since this is nothing more than the sign of a civilized society. It should be noted, however, that the principle of subsidiarity would apply in this case, that is, that aid should be offered in concentric circles from closest to furthest of the recipient: first come family and friends, then private charities and, only when the other institutions have failed, the State in a limited and subsidiary way, starting with the local administration, the one closest to the citizen. But when social spending is deemed universal in order to benefit all without exception, it is clear that the objective is not altruism, but political power, following two paths. The first is the vote buying process that turns elections into auctions. The second is the creation of the figure of the citizen dependent on politicians’ largesse who surrenders his freedom and responsibility to become a submissive subject of the government in power. Both roads morally corrupt citizens and end in totalitarianism and poverty.
Finally, public services to the self-sustaining majority could well be carried out in free competition with lower costs and better service while encouraging en passant saving and individual responsibility. When carried out from the government with a vote-buying, short-term criterion easily exploited by demagogues, “social spending” brings a false and dangerous sensation of wealth, offering benefits that are unsustainable in the long term (such as the public pension system, doomed to bankruptcy). The nonsensical level of public debt in virtually every Western nation is the obvious symptom that the perversion of the Vampire State incentives and the inflation of frivolous electoral promises have made us live well beyond our means as nations. The Great Debt Crisis of 2008 caught Spain with an 8% unemployment rate and a public debt of 36% over GDP. How are we going to face the next recession overwhelmed by the burden of a debt of 100% of GDP (which hampers growth, as Reinhart and Rogoff proved) and with an unemployment rate of 15%? And what about the recession that will inevitably come after that one?
Lastly, and as homework, I would suggest our political class to read specialized economic literature, plagued with econometric studies that stubbornly show an inverse relationship between the size of the government and the economic growth of a country: the larger the government, the lower the economic growth. Rahn famously managed to establish an optimal size of the State of between 15% and 25% of the GDP (typical of times not too long past when the economies grew much faster) and a figure much lower than the average of the European social-democratic sclerotic model that is slowly sinking Europe and that, strangely enough, Spanish ruling class still takes as its paradigm. Nor would it be a waste of time if they read an exhaustive study published in 2011 by the European Central on 108 countries for the period 1970-2008, which concludes categorically that “there is a significant negative effect of the size of government on growth “ and that “the negative effect of government size on GDP per capita is stronger at lower levels of institutional quality”, as is unfortunately the case in Spain after decades of deterioration caused by its irresponsible political class and the absence of true checks and balances.
Socialist economic ideas go exactly in the opposite direction of the road to economic progress and freedom: what economic laws, common sense, human nature and overwhelming empirical evidence dictate is we should simultaneously reduce public spending and taxes, foster individual responsibility and voluntary solidarity (the only virtuous one) and reinforce the rule of law by strongly protecting freedom and private property. Socialism only leads to poverty and tyranny, which already loom on the horizon. Will we never learn?
Fernando del Pino Calvo-Sotelo