How Socialism Happens Here1

The two big demands in Bush’s January 28, 2003, State of the Union address were for the government to go to war with Iraq and for new domestic spending programs, among which he included the vast expansion of Medicare now barreling through Washington. That winter of our discontent has led directly to a long hot summer in which our tax dollars are being torched. At least he gave fair warning.

In retrospect, it is clear what he was really saying to the Democrats: you give me my war and I’ll give you your socialism. The original idea between separating executive and legislative power was to have one check the power of the other. Government is stupid but not that stupid: cooperating in a mass looting of the public turns out to be a win-win proposition for everyone but those paying the bills.

That’s not to say that war and socialism are not designed to address real problems. Just as prior military interventions seemed to create the conditions and a rationale for the war on Iraq, the expansion of Medicare seems to be driven by systematic problems in the system that were crying out for a solution. That’s the nature of government, always fixing problems of its own creation that create ever more problems for government to fix. It’s like the plumber who breaks more pipes than he repairs — except that you can’t fire him.

It was Ludwig von Mises’s point that interventions in the market economy create instability that generates dislocations that seem to call for more intervention — and so on until the logical result is socialism. I emphasize logical result because the practical reality is not written in stone. With political courage and ideological conviction, it is possible to change course, and thus those who do not should be held to account.

This huge expansion of Medicare is a clear case of a wrongheaded intervention designed to repair other bad policies and destined to create more bad outcomes. It will guarantee vast amounts of drug payments to seniors (welfare) in exchange for a flat monthly premium. The higher your bills, the more government pays. The poorer you are, the less you pay. The plan is complicated and not final, but the result is a foregone conclusion: the coercive transfers of another trillion (over time) from working younger and middle-age Americans to older Americans already too dependent on government.

The bill’s passage is made inevitable by the soaring costs of prescription drugs (in part, due to patent laws and inflated demand due to existing medical socialism), the guaranteed income that comes to medical service providers and drug companies from a government subsidy, and the growing expectation on the part of old people and their middle-age children that “society” ought to pick up the bill for the costs of aging (after all, they’ve been paying taxes their whole lives).

Consider the absurdity of the proposed solution to the problem of high costs: pass a law and make them affordable! No one would consider this a solution in normal life. Let’s say you are at the grocery checkout line and the cashier shocks you with a $150 bill. Let’s say you respond by saying: the government must pass a grocery-benefit bill to lower the amount I have to pay. The cashier would laugh uncomfortably and hope that you would soon be on your way. Try it with the car dealer, the real estate agent, or the airlines: they will all think you are nuts.

Yet when it comes to government, reasonable people are under the impression that the costs of prescription drugs can somehow be whisked away by the right kind of legislation. Sure, some people benefit but others are paying the tab in one form or another. Let’s not pretend this is really “insurance”; it’s welfare, the coerced transfer of wealth from one group to another, as immoral as it is inefficient. And further subsidizing and therefore increasing the demand for drugs is hardly designed to cut their costs. Just the opposite.

How costly will it be? Look at the demographics. People in general are living longer (in 1900, people died at 47; today at 76), but the big change is found in the shape of the survivor curve. In 1900, only 40 percent of the population lived beyond the age of 65; now 80 percent do, while 40 percent live past the age of 85. In the postwar period, the biggest change involves the vast numbers that see their 90th and 100th birthdays — an extremely rare event a century ago. (See fun demographic data from the CDC.)

Those who credit government programs with this progress are partially correct: government has subsidized the prolongation of life at the expense of other social needs, simply by taxing the heck out of young and middle-age people to fund a medical establishment dedicated to pushing the lifespan limits through ever more impressive life-sustaining gizmos and drugs. This has given rise to a huge and largely socialized gerontology industry that does nothing but serve the needs of people who live a decade longer than they might have before LBJ created Medicare and Medicaid. But instead of giving us long lives, the government has given us long and expensive deaths during which the public sector and its connected interests benefit at the expense of the rest of us.

The fiscal problem results from the reversal of the numbers of young and middle-age taxpayers versus old people living on the dole. As the costs of paying for the costs of a non-working long life rise, the pool of the population working to pay the bills continues to shrink. The costs themselves continue to rise because the old-age health economy is increasingly immune from the competitive forces of market discipline. As Sean Corrigan said in a different context, the system looks ever more like burning your house to stay warm. Some years after the boomers retire, there won’t be any house left.

Many experts have warned of the problem, and persuasively argued that the programs face unthinkable long-term liabilities and will go belly up in a few decades. No one disputes the claim. But why should today’s old people, who lobby for ever more benefits, care what happens to old people 30 years hence? They should, but leaving the check for the next patron, especially given the perception that they should get something out of the system, seems to be the democratic thing to do.

Today’s young people, meanwhile, aren’t entirely unhappy that they are let off the hook for shelling out for their elderly parent’s medical care. The doctors and drug companies are glad to take the cash, the bureaucrats are not displeased by the security the system gives them, and, as for the political class, few members of this group think about much more than the next act of legal extortion and bribery.

Alan Greenspan has recently warned of this problem, insisting that Congress should control itself. But he has failed to mention that none of these crazy pyramiding debt schemes, and ever more accumulation of unfunded liabilities, would be possible were it not for the implicit guarantee that the Fed will print as much as necessary. If he weren’t backing up the entire system, government debt would be subject to risk evaluation just like that from private corporations and municipal governments. If politics is the driving force behind piecemeal socialism, the Fed is the original source of energy.

The idea of turning the sector over to the market is not even part of the debate. For the most part, we trust the market to deliver food, energy, housing, clothing, electronics, entertainment, and just about everything else that matters, but somehow when it comes to health (meaning our lives), we are pleased to let government take full control and loot the population in the process.

The Bush administration perfunctorily toyed with the idea of making prescription drug coverage contingent on participation in a subsidized private health insurance program, but that idea was quickly shot down. Even the Wall Street Journal, which is one of the few opinion organs to condemn the Medicare expansion, endorsed two government programs as an alternative: a “drug discount card” and a “means-tested subsidy.” It is a small step from these to the proposal now being shoved through the Washington meat grinder.

If we take a look at all the sectors in which government socialism is expanding most dramatically — whether education, health, or security — we find that they are ones where the government has been heavily involved for the longest and failed the most miserably. These failures breed more failures to be “fixed” by more programs that inevitably fail. On the other hand, sectors that are relatively free of political involvement (high tech, for example) are largely left to the dictates of the marketplace. There are few evident failures that seem to call forth political solutions.

The intervention in health care began with the licensing of doctors and the restriction of competition to keep their incomes high, continued with the suppression of non-establishment medical schools to further restrict supply, and ramped up with third-party payments systems during wartime in lieu of wage increases then forbidden by law, and further bolstered with faux-insurance programs to circumvent Soviet-style taxation.

It continued with tightened patent restrictions on drugs, new subsidies for low-income and older citizens, and became ever greater with more and more government funding, regulations, restrictions, mandates, taxes, and subsidies — all of which seem to increase more under Republican rule (when these ideas are deemed “responsible governance”) than Democratic rule (when these ideas are fought as socialistic). This is a system that has been patched so often that it cannot possibly sustain itself over the long run.

What is the solution? No one wants to contemplate it: we must reverse the intergenerational looting. The young should stop paying in. The old should start paying market prices. The sad stories of older people who do not have the means to care for themselves or buy drugs should stimulate the efforts of private charities (though their care would then cost much less). Drug companies should compete in a free market without federally granted monopolies. All of us need to stop treating the national pool of wealth the way the Iraqi mobs treated Saddam’s palaces after the war. And the next time a president promises a thrilling war and free goodies for everyone, we might exercise a bit more critical intelligence.


  1. The title borrows from It Didn’t Happen Here: Why Socialism Failed in the United States by Seymour Martin Lipset and Gary Marks (Norton, 2002),

June 18, 2003

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