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Let's Give Bernie-Syle Socialism a Try in California First

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Tags Decentralization and SecessionSocialismTaxes and Spending

03/11/2020

I have a suggestion for the people in America who dream of the US becoming a socialist paradise—try it in California first and see what happens. Of course, I don’t really want this to happen. I live in California. But I think that this idea of California becoming an independent republic based on “democratic socialism” would be a helpful thought experiment.

Socialism has imploded everywhere it has been implemented, but socialists always give the excuse that they “just didn’t do it right.” If California’s experiment with socialism failed, there would be no more excuses. No state has a more diverse amount of natural resources. No state has better weather. No state has a better technology sector. California is the fifth-largest economy in the world. And California is primed for socialism already, having one of the most progressive legislatures in the country. Bernie Sanders could be president of the Socialist Republic of California, which would secede from the union. Their new currency (called the “pinko”) would have Bernie’s and other socialists’ pictures on it.

Think of all the programs the Bern and progressives/socialists could enact—Medicare for All, the Green New Deal, free college education, and providing a living income to those who choose not to work would fly through the state legislature in pursuit of the socialist utopia. The problem is that all these government programs have been shown to lower economic output, because they divert lots of money to unproductive ventures. Lots of money means lots of taxes on everyone.

But people don’t like high taxes. California has already lost many businesses and workers to higher taxes and a bad business environment. Once socialist, California would lose thousands of millionaires more, who would pack up and leave the state, taking with them their investments, businesses, and the tax money that they would have paid. I’m willing to bet that even the big shots in Hollywood would leave, even though they claim to want to have more of their earnings and wealth confiscated. The middle class would continue to emigrate from the state as well. And nonproductive people would pour into the state for all the free benefits. That is a recipe for disaster.

Commensurate with the outflow of producers, tax revenues would plummet. The top 1 percent of income earners pays 48 percent of the income tax collected. The state is expected to receive around $100 billion in income tax revenue this year, amounting to 68.8 percent of all revenues; total revenues are estimated to be just $146 billion. These revenues are way too low to provide for any of the socialists’ grand schemes.

And those grand schemes will cost ever increasing amounts of money. People not just from Mexico but from all over the world will come to the promised land for all the handouts, such as Bernie’s proposed free medical care for undocumented immigrants. And migrants will be able to easily enter the state, as Bernie wants to significantly relax immigration laws. The costs of these programs will explode at the same time that revenues plummet, something that is not sustainable for very long.

In fairness, California would be able to increase its income tax rates, since no one in the state would owe federal taxes any longer, which should raise revenues. But even if they raised the tax rates to 52 percent (Bernie’s ideal top tax rate) for those with adjusted gross incomes of over $100,000, they would still realize less than $400 billion in total income tax revenues. Since the amounts raised would not be sufficient to fund the socialists’ programs costing trillions of dollars each year, huge fiscal deficits would be created. Then the only way to pay for all of Bernie’s handouts would be for California to borrow like crazy, even if all the producers remained in the state and paid the higher taxes (which they wouldn’t).

A vicious cycle would ensue. Borrowing tremendously to fund these programs would reach a tipping point. The state’s credit rating would go down precipitously, forcing it to offer junk bonds at much higher rates of interest, compounding its cash flow problems. At that point, their only option to provide for government spending would be the death knell for an economy—printing more pinkos. Printing money that is not commensurate with wealth production results in hyperinflation. Venezuela’s inflation rate hit a high of over 344,000 percent in February 2019, mostly from printing money that is worthless. And we all know how life in Venezuela is right now.

Why subject the entire country to a socialist experiment that everyone knows will fail in the long run? Instead, allow one of the strongest economies in the world, California, to vote itself socialist, secede, and then elect Bernie as president. After it became the next Greece and failed, the rest of the country could welcome California back into the fold, where the state would become a powerhouse once again.

If my predictions of the demise of California under socialism ended up being wrong and the state became a paradise instead, then the rest of the country should emulate California’s socialism. However, if my predictions of gloom were to come true, we could finally put to bed the notion that socialism can be successful if “just done the right way.”

Author:

J. Kyle deVries

J. Kyle deVries is a financial planner residing in southern California. He is the author of an Amazon #1 New Release entitled Bern, Baby, Bern!: Why Bernie Sanders’ Policies Would Incinerate the U.S. Economy.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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