Madoff is Small Potatoes …

… Compared to Governments.

Bernard Madoff has confessed to a Ponzi scheme whereby he swindled investors of billions of dollars. “In court documents, prosecutors say Madoff reported he oversaw $64.8 billion.” Multiply that staggering amount of money by 3,000, and you get roughly the amount of money that Americans have lost over the past two generations to federal, state and local government spending on the welfare state, which totaled roughly $5 trillion dollars in 2008 alone.

The Ponzi schemes known as Social Security and Medicare continue. When these programs started, elderly Americans received benefits without having paid into these programs. The programs count on baby booms so that there are more young people paying than there are old people collecting. When the baby boomers of the ’40s and ’50s turn 65, these Ponzi schemes will collapse. Will today’s politicians ever confess in court as Madoff did yesterday? Will they be reviled as Madoff has been? They should be.

Madoff allegedly wiped out the assets of many wealthy people. But he could not have wiped out more than half their wealth, because the welfare state had already wiped out the first half or more. Consider federal personal income tax, federal corporate income tax, state and local income taxes, sales taxes, property taxes, and other taxes I don’t know about because I’m not rich myself. Even tax shelters cost the wealthy tons of money, because the returns from tax shelters are much lower than what the wealthy could make from other investments if the other investments were not taxed. And then there’s the government’s inflation of the money supply, which robs people who own assets and taxes people on interest income that merely keeps up with inflation.

Welfare statists sometimes argue, wrongly, that the percentage in tax paid by the wealthy is lower than the percentage paid by the middle class. This argument omits most kinds of taxes and the cost of tax shelters and inflation. But the deeper evil of this argument is the smuggling in of the premise that the standard for tax fairness is the percentage of income that is taxed.

Why should an individual who makes $50 million a year pay the same percentage in tax that an individual who makes $50 thousand a year pays? In other words, why should the rich person pay 1,000 times as much money as the average person pays? When you check out at the supermarket, does the cashier say, “That will be 5% of your weekly income, please”? If everyone had to pay the same percentage of his income for everything, then everyone would have the same purchasing power, because everyone has 100%.

It might cost more for the government to protect the extensive property of a wealthy man compared to the modest property of an average man, but little of government spending these days is for the protection of life, liberty, and property. State and local spending in the U.S. was roughly $2.5 trillion in 2006. Less than one tenth of that was for police, prisons, and judicial and legal. The other nine tenths was for the welfare state: food, shelter, health care, “education,” etc. At the federal level, less than one fifth of 2009 spending is for defense, Homeland Security, veterans affairs, policing, and courts. The other four fifths is for the welfare state.

Does the millionaire, who pays 1,000 times as much to the government, receive back 1,000 times as much in services as the average man does? Does the millionaire have 1,000 times as many of his children in public schools? Does he receive 1,000 times as much in Medicare and Social Security benefits, food stamps, and public housing?

Of course not. In fact, the millionaire avoids lousy government services as much as possible. In other words, the millionaire pays 1,000 times as much, and receives much less in return.

From each according to his ability, to each according to his needs!” America has been following that slogan more and more since the federal income tax began in 1913. Obama is just much more of the same.

4 thoughts on “Madoff is Small Potatoes …

  1. “It might cost more for the government to protect the extensive property of a wealthy man compared to the modest property of an average man…”

    I am compelled to chafe at this. In capitalism the function of the police is not to protect the property or even the lives of individuals against criminals. Its proper function is to investigate crimes that have already occurred and bring the suspects to court.

    The right of self defense, codified in the Second Amendment, rests firmly with the individual, rich or poor.

  2. I think the police do have a proper protective role. A police presence on the streets does deter crime. Look what happened in New York City when Guiliani became mayor–the police presence went way up and crime went way down. I liked seeing the police in the subway and in the park.

    Since the rich own more property and are more likely to be targets for robbery, it does cost more to provide this police presence to them.

  3. The two previous points notwithstanding, I think the main issue is that if he were *free* to, the wealthy man would voluntarily pay for whatever services were needed to protect his wealth – such services of course, creating a side-benefit for those who paid less, or nothing. Those having the means to pay in proportion to what they have to lose, would “carry” the rest of us along.

    Those who argue that these services would not be paid for voluntarily blank out on the fact that in a free society, only the most rational would have the wealth in the first place, and they would certainly be the first ones willing to pay to protect their wealth.

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