Margaret Thatcher famously quipped, "The problem with socialism is that you eventually run out of other people's money." But the former prime minister of the United Kingdom was only half right: What's really wrong with socialism is its philosophy.
Economies dominated by public ownership and redistribution of wealth eventually stagnate or collapse, as evidenced just this past week by the continuing implosion of big-spending European countries like Portugal and Greece.
What's to blame? Socialism's core principles, which say your life and with it your earnings are not your own but property of the state, to dispose of as it wishes. While capitalist economies are based on private ownership, socialist economies are founded on the idea that wealth should be distributed and allocated based on the "public good."
What's wrong with a government which prioritizes helping people "in need" is that those needs health care, housing, education, insurance and so on are insatiable. The role of government, according to our own founding fathers, was not to provide for the "needy," but to protect the individual's right to pursue his or her own life, liberty and happiness.
Yet need has become the prime standard of value in the United States. In our current economic climate, the CEO who earns a bonus is seen as undeserving. But the deadbeat homeowner who can't pay his bills is somehow seen as deserving of financial help.
Need has become the justification for every new government expenditure. How could you be against government-run health care, argue supporters. Don't you care about families in need? The same reasoning was used for housing programs and other attempts to stop foreclosures -- none of which proved remotely effective.
And nowhere in the Declaration of Independence, the U.S. Constitution or the Bill of Rights is charity mentioned for obvious reasons. After all, how would you determine who is "more needy": someone in danger of losing a house or running out of medication? A child unable to afford college or an older person struggling to pay for groceries? In a free country, individual actions and private charities make those determinations, not central planners in the government.
In 1935, the original Social Security Act was passed with Franklin Roosevelt promising "a law that will take care of human needs and at the same time provide the United States an economic structure of vastly greater soundness."
Neither prediction proved accurate. The program, which totaled $35 million in 1940, paid out nearly $700 billion in 2010. It's now the largest expenditure in the federal budget, bigger than even national defense which, unlike Social Security or other programs to "help" Americans, is explicitly discussed in our founding documents. As it already stands, over half the U.S. federal budget goes towards Social Security, Medicare and other entitlement programs, all of which were launched as relatively small programs with the same altruist justification: need.
As we pointed out last year, the supposed "safety net" is anything but. Social Security tax rates have risen from 1% in 1937 to 12.4% today, as has the retirement age, which is almost certain to be pushed even higher. The program has a $17 trillion unfunded liability not exactly the "economic structure of vastly greater soundness" Roosevelt envisioned.
Beyond the waste, the real danger is that such government help comes at the price of individual freedom. Just last Friday new health care regulations were announced that would force any restaurant with 20 or more outlets to display calorie counts on their menus; even restaurants with salad bars will be required to label the caloric count of every single item they serve.
The cost of providing such information is estimated to be more than $1,100 per establishment and $300 million nationwide in the first year, funds these businesses won't be using to hire more workers or expand. Moreover, studies have shown the labeling to have minimal impact on customer's menu choices. In some cases customers actually end up eating more.
In the final analysis that's a secondary point. In a free economy, persons are welcome to support any charity they choose to provide for people in need. But to accept that the proper role of government is to facilitate that charity doesn't just pervert our status as a capitalist economy, it destroys the basic premise of individual liberty on which the U.S. is built.
Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC .