CGA in a VGA World.

This topic comes up every now and again on TV when discussing economics. We openly discuss communism in terms of the Soviet Union. We discuss limited communism in the tract of China. We can have talks about the trillions of Kenyan dollars it takes to buy bread but the moment you mention the basis of Denmarks economic operation – the Third Reich – the ADL sues the living crap out of you.

Now, American Psychosis protrays one side of it, their point is basically that people who are amoral have corrupted the economic system. Nevermind that all commerce in the system they’re arguing for is consentual. The traders knew what was bundled in the bonds they were buying and they chose to buy them anyway. The article completely fails to mention Madoff, who actually did act in a fully illegal and reprehensible way through misrepresentation. And really this is where we can argue agianst liberty. In the examples chosen in American Psychosis, he’s arguing that because our leaders act in an amoral fashion, we as a nation can only expect morally bankrupt treatment. He cites Bush and “the suspension of haebus corpus” while ignoring the fact that in order for there to be liberty there needs to be security. I don’t think the founding fathers had any thought towards islam or air travel or the idea that you can be anywhere in the world within three hours for enough money. For them at least, the world was framed within how far you could get on a horse. American Psychosis would agree with the ADL that studying Hitler’s economic policy is the path to the next holocaust.

On the other hand, reading Hitler’s Economics, there’s an argument here for socialism (basically this is how Denmark works) by vertical integration. America is, for all intents and purposes, horizontally integrated. We have the market cornered on military engineering and complex devices. On times when it doesn’t work, such as the auto industry, there’s nothing to save the company because all the company does is make cars. It’s not interested in casting, minng, refining, etc. Even our basic oil infrastructure can only accept light sweet crude, it too is horizontally integrated. We too, are like Germany in the early 1900s. We do one thing well, and eveyone else either plays in that market or they don’t make money. We’re slightly better off because our version of capitolism allows us to have some varigated industry, but for the most part we’re set up to buy stuff from overseas and assemble it into cooler stuff. The problem we have, as a society, is that things are so cheap that we don’t need unskilled labor anymore. Again this isn’t entirely true, but this is where empires go to die. We either ignore our unskilled labor force and they go somewhere else (China, India), or we provide goods and services for them at the expense of taxing the living hell out of the producers. This is where Finland is. Unlike Finland, however, the tax rate isn’t 60% and we have open borders.

To put it bluntly, America is unsustainable.

So lets look at this another way – normally I am a staunch advocate of capitolism and conservative politics because the conservatives tend to want to secure the line and kick people out. This is basically what it takes to have a capitolist society – you control who comes in and you don’t care about imports or exports since you know if stuff becomes cheap enough people can simply buy one and learn. This is how small business works. But, given the new Obamaconomy, lets look at how full socialism works. Again, we hat tip Hitlers economic policy in Germany and Denmarks model (which has it’s own quirks, but it’s a good example of established semi-socialism).

The first requirement is almost total dictatorship. This is largely where America is headed. It used to be that people knew the president, the congressional speakers and the senate but nowadays all you read about is Bush or Obama or whoever. The attitude of the people has turned towards the office of one man who leads the country and thus makes them sympathetic towards dictatorship. (Shades of Rome, anyone?) This is a requirement because the government is wholly corrupt and we’ve entertained special interests for far too long. If the leader can act without consequence, then special interests can’t impose penalties on them just or not. If Obama said tomorrow he was dropping foreign aid, the JDL and other pro-israel groups would sue him into nothingness or congress and senate would surely oppose it. But does Israel matter to America? No, it does not. America could continue without Israel, and since we’re crouching the discussion in the idea of the survival of America, somethings got to be cut. For the people going “since when was America conceived as a dictatorship and why should I keep reading?” – this is why I tend towards conservatism and voting for the republic, this whole idea of America as a dictatorship doesn’t pass the common sense test of constitutionality. For America to continue as it is, let me be clear – we really need wholly open markets and secure boarders.

Anyway, getting back to my full on socialism, Germany knew what needed to be done. They required ID cards (normally crouched in Jewish discrimination but that was only a small part of it), they closed the borders, and they began massive government spending on social projects such as the highways and dams. In fact it was a lot like Hoover, but America never closed the borders. What does this do? It requires Germany use it’s own resources. Germany has no oil production so they invented – and I mean invented as in totally new product – synthetic oil and synthetic diesel. Since imports were now off limits, they now needed labor from all walks of life. And since the economic loop was closed because no-one was buying anything German after WW1, companies like BMW made high end aircraft engines and cheap car engines under the “People’s Car” label, which ran on synthetic diesel, which used material mined from German mines, which in turn went to German smelters, to be cast by German casting companies, and so on. Each of these industries was powered by German citizens and they were carrying German ID cards. (The holocaust industries were terrible mirrors of this, the camps were built by jews for the purpose of holding jews, but they still were built despite the best efforts to sabotage them and it goes a long way for demonstrating the production of this system in the face of opposition on all levels of workman).

We’re entertaining this terrible notion but we have to ask if it worked if we want to step into any sort of advocacy for this. If we examine the GDP of wartime Germany, things are marginally interesting. The GDP grew, but it grew across the board for most nations and systems of economics. But GDP also relies on exports. It’s a measure of an economy which is trading with the outside world. An economy which doesn’t do much trading would have an artifically low GDP. More frankly me and you don’t care about GDP in our daily lives and GDP doesn’t apply when you’re dealing with a closed system. If the price of imported gasoline was $10 a gallon but the price of American produced synthetics was only $3, you wouldn’t care that the rest of the worlds gasoline was much more valuable than your own. You only care that you have gasoline in your car. I would reference the wikipedia article here but in typical wikipedia fashion it’s more concerned with politics than points. The take away is that Nazi Germany had an effective tax rate of 13.7% (staggeringly low) and went from over 30% unemployement in 1929 to less than 1% almost overnight. Suddenly people had jobs and they could afford gasoline and food again. They wouldn’t be buying Fords any time soon, but what’s a Ford when you couldn’t even own a car before? So now people who are reading this are saying “So you want America to be Nazi Germany”?

Well, no. I want to make the comparison to Denmark. Denmark, has for the most part, been a socialist economy since world war 2. With little in the way of natural resources (except people) it had to be a socialism from the start as there was no currency for barter but labor. Where is Denmark today? For one it has almost no real GDP growth to speak of, the average income is $37,000USD, and the effective tax rate hovers around 60%. There is one single revealing statistic here – the GDP as Purchasing Power Parity is $37,000, while the GDP nonadjusted is almost $57,000. This is a major tip that the 60% tax rate is killing the average dane’s purchasing power. However this is coupled with an unemployment rate of 6.3%. The way the danes balance the books is by treating taxes as trading industries. By playing games with the tax rates on various goods, they control how the economy (in terms of money) works. By increasing taxes on a particular good or service they control the value of that good or service, which basically means the Danes have a barter based economy and money comes second. However, if you’re lucky enough to live in Denmark, education is free through college. And, if you’re wondering, Denmark has the strictest immigration policy of just about any nation in the world.

Can America live as an open state and continue the march towards socialised services? Probably not. I’ve picked two recent examples of economically successful social states. In the case of Germany, BMW, VW, etc live on today. In Denmarks case, it’s mostly a barter economy with money as an afterthought due to taxes, but they lead the way in skilled industries such as Nokia and Lego. In both examples, taxes skyrocketed to pay off the bills, and in both cases people had to pay those taxes. If America wants to be an open state, America needs to drop import/export restrictions on people and goods. On the other hand if America wants to become a socialist state, it needs to secure it’s imports and exports. I don’t see any other combination that would work in a sustainable way, and certainly not as things are now.

Protip: Invest in things. As the economy worsens, things will become more valuable than money. Durable goods such as houses are where it’s at.