A Drucker Perspective: Who Else Wants To Understand What’s Happening and Apt To Happen With Respect to America’s Democracy/Economy/Future?
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Editor's Note
For many of our readers, there is a profound sense of unreality about the objectives and policies of the current administration.
Here are some points to ponder:
- A border invasion with possibly 2.5 million people illegally entering the United States in 2021.
- Giant increases in welfare & entitlement payments coupled with no work requirements & no education/training requirements for receiving what could amount to both cash and non-cash incomes of $60-$65,000 per year.
- Most agree this amounts to a conscious plan to create government dependency.
- Inevitable shrinkage in the value of the dollar, pension funds and 401(k)s if individual/corporate taxes increase to the levels predicted. Raising taxes will decrease consumer spending (people have less money to spend) which thereby dampens business investment as demand for companies' goods and services shrinks, leading to stock market declines. Economic history backs this up!
… Currently, the so-called 1% pay 40% of the taxes; 50% of the population pays no tax; with the administration's misguided goals, the percentage of people who do not pay taxes could reach 60/65%-putting a much bigger tax burden on the middle class – with potentially 35% of the taxpaying public charged with the awesome responsibility of paying for the bulk of America's increasing tax burden.
Yet we remain hopeful. A suddenly much more aware America is emerging because of better reporting about what's really happening to America's democracy/economy/future if current trends continue.
More...
This article presents the 1942 and 1957 uncanny predictions of Joseph Schumpeter and Ayn Rand as they relate to the possible/potential collapse of capitalism and Democracies worldwide. Many have not heard of these people; but better late than never.
Reading their predictions should be a wake-up call for concerned citizens.
Why? Because, as you will soon discover, Schumpeter and Rand were "spot on" in their uncanny predictions about inept politicians practicing absurd economics - which forces them to print money in near-uncontrollable amounts and simultaneously increase both individual and corporate taxes to what might be termed "a nation's breaking point."
We believe a careful reading of this article will change many readers' perceptions of what's happening and what's apt to happen unless government policies are changed by voter demand.
Said Peter F. Drucker: "With a small change in perception the facts don't change... Their meaning does." Hopefully, this article will provide "new meaning" to today's undisputed facts.
Drucker's Genius in Predicting 'A Future That Has Already Happened'
We strongly recommend reading Drucker's highly acclaimed book Managing in a Time Of Great Change (Chapter 25).
Many have said no forecaster could've imagined 25 years ago the alarming realities of 2021. Drucker proves that statement wrong.
In his book Managing in a Time of Great Change (Chapter 25), Drucker clarifies the true assignable causes of many of today's current happenings – including rapidly increasing levels of civil unrest and violence.
Now… Schumpeter's Prediction About the Consequences of Government Deficit Financing
Joseph Schumpeter (1883- 1950) was named as Austria's finance minister after World War I.
Austria's financial situation was terrible. Austria experienced an episode of soaring inflation, registering an annual inflation rate of 10,000% between January 1920 and August 1922.
Several years before, in 1918, Schumpeter warned of the disastrous inflationary consequences that would occur due to the debt financing of World War I. No one listened.
Schumpeter's Core Message
Using debt financing to pay for ever-increasing yearly federal deficits inevitably leads politicians to irresponsibly print money and raise taxes which will – more likely than not – plunge countries into major recessions, depressions and hyperinflation rates that could destroy the mightiest of nations.
At the time of this writing, America's accumulated public debt – the sum total of past deficits – exceeds $28 trillion. And if the current trend continues, will reach $35 trillion in a not-so-distant future.
With the expected/eventual increases in interest rates on that mind-boggling debt, trillions of dollars will be used for debt servicing as opposed to funding solutions to our most pressing, ever-increasing societal and economic problems.
Drucker's Summary Of Schumpeter's 1942 Prediction
In his much-praised Forbes Magazine article (1983) entitled Schumpeter and Keynes, Drucker succinctly summarized one of Schumpeter's most important prophecies:
"… In 1942…Joseph Schumpeter (1883-1950) published his best-known book, Capitalism, Socialism and Democracy, still, and deservedly, read widely… In this book, he argued that capitalism would be destroyed by its own success…
…This would breed what we now call the 'new class': bureaucrats, intellectuals, professors, lawyers, journalists, all of them beneficiaries of capitalism's economic fruits and, in fact, parasitical on them, and yet all of them opposed to the ethos of wealth production, of savings and of allocating resources to economic productivity…
… He then proceeded to argue that capitalism would be destroyed by the very democracy it helped create and make possible…
… For in a democracy, to be popular, the government would increasingly become the 'tax state,' would increasingly shift income from producer to non-producer, would increasingly move income from where it would be saved and become capital for tomorrow to where it would be consumed…
…Government in a democracy would thus be under increasing inflationary pressure {to print money and raise taxes to pay for all the freebies}… Eventually, he prophesied, inflation would destroy both democracy and capitalism…"
How to Stop Inflation
According to Drucker in his book Toward the Next Economics, he intertwined with Schumpeter's capitalism/democracy destroying prophecy a much more subtle message: "Every economist since the late 16th century knew how to stop inflation – cut government expenses and with it the creation of money."
But the reason inflationary surges are inappropriately managed is economists do not have the required political will or political power to do what's necessary.
The politicians control these inflation containment decisions – many of whom possess little or no economic literacy and/or a self-serving agenda.
When inflations finally end, said Drucker, "They are ended by politicians (perhaps economists who became politicians) who had the will rather than by economists who had the knowledge."
Back to Schumpeter
Schumpeter's outspoken opinions on the danger and causes of hyperinflation eventually cost him his position as Austria's finance minister.
Slightly paraphrasing Drucker: "He resigned as finance minister in October 1919 – shortly moving to Harvard in 1932, where he was a much-respected professor of economics."
Drucker believed Schumpeter's economic contributions will shape the thinking and inform the questions on economic policy for the next 50 years.
It's unlikely today's administration will heed the timeless advice (really basic truths) of Schumpeter... and America could very well be on the road to experiencing out-of-control inflation rates, the likes of which will bring much misery, severe cuts in entitlements of all kinds (the government will simply not be able to meet its obligations when economic growth comes to a near-standstill) and a host of other unpleasant happenings that could have been avoided.
About Ayn Rand
Ayn Rand (1905 – 1982) was a Russian-born American novelist, philosopher, playwright & screenwriter. She is best known for her two best-selling novels The Fountainhead and Atlas Shrugged.
Her views, as interpreted by many scholars, were criticisms of unbridled entitlement spending… the failure of modern welfare to focus on creating competency… and the welfare recipient's natural inclination to view welfare payments in all forms as a "couch" rather than a "safety net" – which produces government dependency rather than self-supporting members of the middle class.
Rand's Prophetic 1957 Vision
Rand in her best-selling book, Atlas Shrugged (1957), captured the essence of Schumpeter's prediction when she described a society in which its most productive citizens refuse to be exploited any longer by increasing taxation and mounting government regulations.
Rand describes how business leaders rebel by shutting down their enterprises and joining a rebel leader named John Galt who has effectively mobilized a rebellion to demonstrate that the "war on profits" will inevitably lead to the destruction of a functioning civil society.
Only if these leaders return to society, will a job-rich, upwardly mobile, growing economy continue to provide the highest possible standard living for the bulk of its members and enable people to lift themselves out of poverty.
Looters and Moochers
Rand attributes the pending collapse of society to the "looters and moochers" created by politicians seemingly motivated by the outward appearance of the spirit of collectivism, but, in essence, Rand believed, are actually fueled by the need to gain power over others and riches for themselves.
To do this, they have to equivalently "buy votes" through what Drucker called "Salvation by Society.”
Marxism, in all its forms, rests on utopian coddling or the creation of an earthly paradise that claims "this is the best way by far."
Evidence-based history clearly shows in the real world many have risen to power on the promise they will create a more equitable society through a redistribution of income tax system (e.g., Cuba, Venezuela, North Korea). Never happens!
To reiterate: History also shows us, in the final analysis, the appealing idea of equality always tends to be subverted by people that want power and ultimately organize authoritarian regimes.
More on Egalitarianism…
"Officially, there was egalitarianism in the Soviet Union."
In reality, true egalitarianism never happened. It never does!
According to Drucker:
"As everyone knows by now, especially the Russians, the two million "bosses" representing, [in large part, the political elite]…1% of the total population – enjoyed perks of all kinds: special stores, special schools, special hospitals, special vacation dachas, reserved transportation and so on... This gave them the standard of living in real income of the very rich… "
What Creates Looters and Moochers?
Looters, in Rand's thesis, appropriate property belonging to contributing members of society (i.e., producers) through force, lawlessness, fear tactics, government tax policies and all the rest.
These long-ago Ayn Rand quotes hammer home her point about looters:
- "Creation comes before distribution—or there will be nothing to distribute. The need of the creator comes before the need of any possible beneficiary."
- "The creator produces, the parasite loots."
In essence, Rand believed the rapidly growing Welfare State is the assignable cause of many of today's societal problems. Welfare has not ended poverty. it has created degradation and dependence.
Many of today's government policymakers believe "all the poor need is money." That's not true.
Said Drucker: "All the poor need is competency." It should be the job of welfare to provide those competencies in one form or another. Welfare becomes a good investment if its primary focus is to make the poor productive.
Mooching is a direct result of our welfare system; moochers just mooch; they create no value.
The welfare system, according to Rand's reasoning, is quite seductive. It fails to create self-supporting members of the middle class. People are financially rewarded for staying on welfare and financially penalized for getting off it.
In Conclusion
There are people who truly need government support. And they should be supported.
But the money has to come from somewhere - and if it's spent elsewhere on result-less projects and activities, the truly American needy (e.g. children with special needs such as autism, elderly Americans who will be greatly penalized by runaway inflation, disabled veterans) will inevitably suffer the consequences.
Many believe – the able-bodied – should be encouraged to develop the competence and their capacity to develop themselves.
Said Drucker: "But for the good of the poor it must be help that helps… Help that creates competence… Help that encourages self-esteem, rather than the help of the Welfare State that creates dependence, destitution, incompetence, self-loathing."
Looters, which come in all forms, prefer to take away the property of others through government taxation and other means; they cannibalize the wealth-contributing members of society under the guise of seemingly limitless social programs based on iffy moral causes designed to help the less fortunate.
Today, we are bombarded with gloom and doom causes. Yet history shows us that technology has always intervened to save the day. (A future article will detail this assertion).
These overlooked acts include the need for analyzing the best "trade-offs" between solving a given problem (e.g., A cleaner environment versus increased unemployment, a downward spiraling economy and a much-weakened nation vulnerable to outside threats.
Atlas Shrugged was an instant success. Of course, it drew its share of outspoken critics, who appeared horrified (and expressed as what could be called "injured innocence") concerning Rand's major thesis. A thesis many believe is proving remarkably true.
