Trickle-down Socialism

Originally published at

Republican nominee Mitt Romney has coined the term “trickle-down government” for audiences, beginning with the first debate. The term aptly describes the Marxist-based logic of the liberal-left:  the notion that government must expand so as to impact more activities of everyday life—via programs, regulations, entitlements and mandates. Only then, so the logic goes, will all Americans enjoy a “level playing field.”

Mr. Romney, of course, appears to take issue with this notion, as have many Republican candidates before him—by saying that “growing government” is not the answer to jobs, health care, poverty or anything else.

Unfortunately, both Republican and Democratic administrations and all Congresses of the recent past have skewed government toward a “level playing field” concept, as opposed to the pre-1960s theme that promoted “risk and reward” to achieve “upward mobility.”

“Growing the government,” of course, smacks of egalitarianism; but neither Republicans nor Democrats will call it that—which perhaps is just as well inasmuch as most people don’t understand what egalitarianism means. Although most understand “over-regulation” in the context of too many rules and too much paperwork, government incursions continue unabated.

What we are seeing is “creeping egalitarianism,” which comes neatly wrapped in the comforting flags of “fairness,” “equal outcomes,” “living wages,” and “equality.” Everyone gets A’s for effort—sort of—while the concept of merit takes a hit.

What we are left with is “trickle-down socialism.” Americans have grown so accustomed to mega-buck entitlements and government programs that even a proposal to “tweak” them a bit to reflect modern realities is enough to send shivers up the spines of the electorate. No matter how the “tweak” is explained, a majority of voters, unschooled as they are in economics, hear “cuts.” Thus candidates Romney and Paul Ryan can talk all day about how only certain age groups are affected, and how entitlements might be “saved.” But listeners will still mentally translate all their verbiage to “cuts.”

Talk of a “financial cliff”—or national bankruptcy—worries those savvy enough to build some type of investment portfolio, because “investments,” no matter how diversified, basically are not protected or assured. But those living from paycheck-to-paycheck typically do not identify with the “financial cliff”—unless newscasters and pundits start throwing around the word “inflation.” 

This sad state of affairs can be laid at the feet of an education system that spends more class time pushing condoms than market-related economic knowledge. Thus, the threat of inflation typically produces a “get-it-now” syndrome—a line of reasoning that incites people to spend before the price goes up, whether they have the money or not. This means less commitment to savings, and explains why “austerity measures” imposed by governments worldwide are greeted with contempt.

All but the wealthiest Americans—that is, people raking in hundreds of millions every year (not $250,000)—blanch at the thought of high inflation combined with the threat of oppressive regulations. They react by sheltering earnings (quite legally) via trusts, converting cash into tangible goods, buying “in bulk,” and utilizing various networks that allow them to “scatter” their true worth. They decline to start new ventures that require vast outlays of capital, which reduces employment opportunities. 

Interestingly—and not mentioned in any of the candidates’ talking points about “closing loopholes”—is the fact that tax shelters are more typically created by government to promote certain “desirable” activities, especially social behaviors and causes, and to “help” the economy or culture. Upper-middle-class workers, in particular, see these as a way to avoid being bumped into a higher tax bracket. Then, of course, there’s the so-called grey market (again, legal), in which commodities are distributed via alternate channels not generally known to the public or even to the original manufacturer or vendor. 

So, let’s cut through all the misunderstandings about market economics-versus-socialism, and see how “trickle-down socialism” plays out in real life.

Remember that “leveling the playing field” is based on the notion that outcomes, or results, should be universal and risks shared. These concepts proliferate in proposols like “public ownership,” “independent cooperative,” and quasi-government sponsored enterprises (or GSEs). GSEs are privately held corporations (at least at the outset), but with public purposes, disingenuously approved by the U.S. Congress to reduce the cost of capital for large sectors of the economy—including students, farmers, homeowners and in our example, utility companies at the behest of state and local governments. The most infamous of the GSEs—since the housing market meltdown—are Fanny Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation), which were originally established to help people realize the American dream of home ownership.

All this sharing and egalitarianism sounds noble, until one discovers that individuals doing a poor job keep “getting” (not to be confused with “earning”) multi-million-dollar salaries, bonuses, severance packages, perks and pensions, while the guy or gal making that magical cut-off “rich person” sum of $250,000, or less, is working his or her derriere off, far in excess of any supposed 40-hour work-week.

How could this happen if government is “leveling the playing field?

Simple. With the ongoing de-emphasis on merit and the new focus on “fairness,” salaries and benefits (even awards!) must be based on something else. What is that “something else” going to be? The only benchmarks that are left consist of concepts like tenure, seniority, “connections” in high places, and pure elitism.

Every country that has gone down the road of socialism has seen upward mobility based on excellence vanish. Eventually, even tenure, seniority, connections and elite status come to be based on political factors—what we call “political correctness” in our society today. This, of course, results in a double standard, a larger gulf between “haves” and “have-nots,” and contributes to a culture of resentment and bitterness.

The U.S. has arrived at that juncture—the late Steve Jobs and his innovative Apple, and the obscene monetary success of various sports stars being the exceptions, not the rules.

This plays out in unexpected ways, especially if it occurs over a 40-year period, as it has in the United States.

Take, for example, the investor-owned Potomac Electric Power Company (Pepco), a utility that “serves” (if one can call it that) the Nation’s Capital and adjacent suburban communities in Maryland. The company has performed abysmally over the past 20 years. Because Pepco has interconnections with Baltimore Gas and Electric as well as Dominion Virginia Power, its effects are felt beyond its immediate domain.

The utility has failed to upgrade its 1940s and 50s technology to accommodate modern standards, with the tacit approval of government regulators. As a result, the entire infrastructure has disintegrated into a patchwork of half-repaired, above-ground power lines, which predictably break down with every rainstorm because of the company’s refusal to modernize. Even though many major streets are routinely torn up for other purposes—to replace sewer pipes, put in sidewalks, lay TV and Internet cables—Pepco has declined to take advantage of these construction opportunities, and even charged customers a surcharge for outages, when citizens and businesses were without power and Pepco meters were not operating, which can run into weeks.

Despite this, the CEO, Joe Rigby, made a startling $7.16 million in 2011 and his executive team some $18 million. Rigby’s compensation literally doubled over two years, with repeated, massive outages. Pepco investors rake in ever-higher dividends, even while facing harsh criticism from customers. The regulators, such as they are, merely imposed rate increases.

But poor Mr. Rigby:  His salary was “frozen” at $800,000 over “customer reliability issues,” even though his overall compensation for 2011 came to $7.16 million.

Meanwhile, Pepco’s board members continue to live in high style, complete with perks “such as free downtown parking and tickets to sporting events.” This is substantiated by the Securities and Exchange Commission.

Then it gets worse. In October 2012, it was reported by Jim McElhatton of the Washington Times, and quickly picked up by other news services, that Pepco gave a huge pay raise to a newly hired senior attorney plus a $700,000 severance package to its retiring general counsel, Kirk Emge. (No doubt Pepco needs a high-flying attorney to fend off lawsuits by customers and insurance companies.) Mr. Emge was slated to retire April 1—an April Fool’s joke of the first order, inasmuch as he won’t “retire” at all, but rather will be kept on indefinitely in a newly created consultant capacity at some $200 per hour!

And get this:  Mr. Emge’s replacement (as if he needed one), Kevin C. Fitzgerald, will receive $550,000 per year. That’s not counting an astronomical compensation plan and “long-term incentive plan award….”

Well, you get the picture. News services across the country report similar incidents. The question is:  Why? How do things like this happen in a supposedly market-based economy that purports to pride itself on merit-based remuneration?

The answer is “trickle-down socialism.” The elite get huge salaries and perks without having to worry about being replaced with competitors. Even many parents are so accustomed to this Brave New World of meritless advantages that they will go to schools and demand teachers give little Susie an “A” on her report card on the basis of “fairness”—egalitarianism!

Not that schools are teaching Susie anything—least of all about market-based economics.