To Understand the Riots

Baltimore is burning and the book most relevant to the tragedy, and to that of Ferguson, MO, Detroit, MI, and many other cities in the US is Friedrich Hayek’s Road to Serfdom.

The media will pimp the idea that racism caused the rioting, looting, and burning, but racists live in every city in the US that is not on fire. Baltimore and Ferguson have more in common with the Arab “Spring” and the frequent rioting in Paris and London than with the civil rights marches of the 1960s. Cairo and Tunis erupted a few years ago because they had armies of unemployed young people with no jobs, many of them with worthless university degrees.

Both countries had been socialist for decades and had guaranteed a free education to any student who wanted one. Most of the time the state created new jobs in the bureaucracy to absorb the graduates. They were “rubber stamp” jobs because the state would add jobs by requiring more stamps for the myriads of licenses they required for everything from driving permits to selling water. Eventually, the states had to stop fabricating worthless jobs because they couldn’t pay for them any longer. That caused the army of unemployed to surge. The Arab “Spring” blossomed when an out-of-work college grad in Tunis set himself on fire because the government refused to give him a permit to open a hot dog stand, his last hope for an income.

The socialist government in France has created similar armies of hopeless people on welfare. They are Muslim for the most part and will never be able to find a job because businesses don’t create jobs in France. Labor regulations that amount to extortion and ridiculously high taxes ensure that businesses fail or leave unless protected from competition. The backgrounds in the riot-prone cities of the US are similar. The largest cities are showcases for socialism. The US’s largest cities, like Baltimore, are proud bastions of the left.

The owner of the Baltimore Orioles, John Angelos, tweeted that

“… my greater source of personal concern, outrage and sympathy beyond this particular case is focused neither upon one night’s property damage nor upon the acts, but is focused rather upon the past four-decade period during which an American political elite have shipped middle class and working class jobs away from Baltimore and cities and towns around the U.S. to third-world dictatorships like China and others, plunged tens of millions of good, hard-working Americans into economic devastation…”

Mr. Angelos is not quite right that jobs have left Baltimore. Baltimore has a lot of wealthy people earning very high incomes in finance. What Baltimore lacks is jobs that employ the middle and lower classes, such as manufacturing jobs. Those jobs left Baltimore because high taxes and strangling regulations forced them to leave just to survive. Some sources estimate that federal regulations alone cost US businesses almost $2 trillion per year; that’s more than 10% of US GDP. The US also enjoys the highest federal corporate tax rate in the industrialized world. Add to those the swarms of state, county and city regulations and taxes and it’s a miracle any business survives in the US.

Baltimore city councilmen and pastors in TV interviews rarely mention racism. Instead they talk about the hopelessness caused by the lack of opportunities through jobs.

And Mr. Angelos neglected to tweet which “political elite” has ruled Baltimore for the past half century. Just as in most other major cities in the US, especially in the north and California, the elite have been exclusively socialists, though they refer to themselves as Democrat or “progressives” or “liberals.” Republicans and conservatives are not much better; they’re socialist-lite. They have followed the same strategy as Moscow, Cairo, Tunis, and Paris: punish businesses and drive them away while expanding the welfare rolls for the unemployed. To paraphrase Ludwig von Mises, socialism is paradise until the money runs out, then it’s hell. The socialist elite have transformed once-great US cities into third world disasters where a small, extremely rich elite rules over poverty stricken masses and an emaciated middle class.

Someone should be asking why the rioting is happening in the showcase cities for socialism and not in the southern cities like Atlanta and Dallas? Not that those cities are examples of pure laissez-faire. They’re far from it, but in comparison to Baltimore they look very free. Are there no racist police in the south?

So why doesn’t socialism work like the “progressive” or “liberals” or Democrats or socialist-light conservatives claim it will? And why will they and their mainstream media public relations departments spend most of their time convincing people that wild west capitalism is a problem?

Hayek answered both in Road to Serfdom.  Most historians since World War II have convinced the public that Nazi Germany represented advanced capitalism. The British during the war had the same idea. Hayek knew better. After all, the real name of the Nazis was “National Socialists.” Hitler and his crew thought they carried the banner of socialism. So how did people become confused? Nazis were smarter and more devious than communists, who gladly relieved people of their property. Nazis allowed business owners to keep the paper title to their businesses while controlling every aspect of the business from pricing to what and how much to produce. Along with the Italians they invented a form of socialism properly called fascism. Apologists for socialism didn’t want to claim Hitler as one of their own, so they used the paper title that business owners retained as an excuse to label German socialism as capitalism. The economic system in the US today, but especially in cities like Baltimore, is closer to German and Italian fascism than to Adam Smith style free market capitalism.

The answer to the question of why socialism doesn’t work is the other theme of Hayek’s book. Hayek shows that socialism of any flavor destroys more wealth than it creates and impoverishes the people, but it also guarantees that the worst sort of people capture the top power positions. Any casual observer understands that people don’t advance in politics on merit. They advance by proving their loyalty to the party ideology. Even a hint of disloyalty can end a political career. In the same way that members of gangs climb the ranks by committing the most violent crimes, so members of political parties enhance their careers by biting heads off snakes to prove their loyalty. They must sacrifice all personal integrity and be willing to say what the party wants said and do what the party needs done regardless of scruples.  That’s one reason so many successful politicians end up in prison.

The media and socialist politicians have a long history of blaming every failure, like Baltimore, on residual capitalism and using every crisis to promote greater socialism through state control of every aspect of our lives. Don’t let them get by with it this time. Baltimore is showcase for socialism.

Reprinted with permission from Affluent Investor.