Saturday, February 06, 2010

Comment on the Belmont Club:
"Tiny bubbles"

In America we have endless economic trauma and market distortion because most of Health Care costs and almost all of retirement savings, whether through Social Security, Defined Benefits, or 401k type plans, are accounted for through the employer as a cost of labor. If they were all paid for like normal goods and services then the costs would be lower and the real wealth of the consumers would be higher. Businesses would also benefit by having an enormous non-core related drag on the firms assets, both financial and more important managerial, removed.

In China a vast array of other goods, housing, vacations, education, government obligations, etc, are also paid for and managed by the employer. That is the system that the Democrats like Thomas Friedman want to push us towards.

The Chinese Socialist model fails in two ways.
First is that it separates the individual from direct connection to and responsibility for their market choices. Whether in any of the goods purchased through the employer or in their relation to the government that does not tax them directly they become in fact de-socialized. They consume but have no direct relation to either the economic market nor to the political market. They become isolated and irresponsible units. It both infantalizes and alienates the people. The consequences of this are significant.

Second is the traditional accumulation of vices that authoritarian and socialized systems are prone to. These include corruption, intrigue, technical stagnation, misallocation of resources with wealth being drained from agriculture, and suppression of negative feedback.

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