Episode 111 - Communism by proxy

I’ve been realizing just how statistics don’t tell a complete story of the decline of civil liberties, individual freedoms and life quality. For most people who have some memory of the cold war, or are students of 20th century history, it is well accepted that giving up all power and control to the state, in return to get your physical needs met, is a deal with the devil that has continually failed. Yet we seem to have done this without even realizing it. I call this ‘Communism by proxy’. Let this episode be a warning about our current world and society.

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Show Notes

A few years ago, I was talking with a friend of mine who was excited about a new client they had – a company that built and managed shipping ports.  That company was a direct vendor to the government.  They employed hundreds of workers, and dozens of vendors to provide these services.  The income was substantial and the profits were there.

It wasn’t long after that, when I spoke with another friend who had a manufacturing company making brass fixtures.  He told me that his business had been tough, but along came a big contract to upgrade fixtures for a prime contractor to the government, who was overhauling a lot of older government buildings.  The contract was lucrative and his business was restored.

It seemed that these businesses were indirectly benefiting from government spending.

I realized that there is a circular motion to money.

The government prints the money, by issuing treasury bills and selling them to the central bank.  The central bank buys them and issues money back to the government.  The government then pushes that money back out to the citizenry by way of initiatives, entitlements, pays interest obligations, invests in defense spending, etc. which then generates contracts & employment.  The citizens enjoy money for their toil, and pay back the government by way of tax revenue.

This circle of life of money means that the issuance of money from the government, generates that money back to the government.  But although we might think that our taxes paid back are maybe 25% of our income, the reality is that all the other 75% that we spend goes indirectly back to the government as well.  If the money doesn’t return to the government at the same rate it went out (ie. Balance the budget, etc.) then the money is created again, diluting the money already in circulation, to cover the shortfall.

Income taxes, Sales tax, property tax, tariffs on imports, duties, fees, compliance costs, licensing, fuel taxes, surcharges, etc. generates the tax revenue going back to the government.

With all of this money recirculating back to the government, it leaves our hands so we have no spending power, and it returns back from whence it came.

And there are more direct send/receive models, particularly when the government employs directly.  We call those people “public servants”.

In those cases, the government cuts out the middle man and is the direct provider of income to the individual, who then spend the money and recycle it back to the government.  Rinse & repeat.

In the past, in countries where communism was the accepted form of management, the government would employ the vast majority of the workers to keep this circular flow of money tight and well controlled.  But with no motivation to do exceptional work, since the public servant isn’t incentivized that way, the quality of service is typically extremely poor.

This model has been around for a long time, but never has there been a time when the individual’s right to keep their money has been diluted than in today’s economy.

Now academics have been debating about these things for centuries.  They seem to love to talk about communism or socialism or Maxism or capitalism.  All the “isms”.  They get excited to wax philosophically on these topics.  But it is just mental gymnastics that only goes to give their brains some adrenalin rush.  They return from their university tenured job (a University that is funded by way of government grants, student grants, spending, or often a state university – that is GOVT university) to their homes, pay their mortgages after their pay stubs show the money extracted by said government, buy their groceries, feed their family, etc. just like any other.  But rather than directly and pragmatically look at their own situation, they detach and try and justify it away by academic thought.

Hence having a discussion with an academic about all of this is pointless.  They don’t have a solution for their own lives, so they can’t do anything other than “Monday morning quarterback” the whole thing.  That’s why I don’t waste my time listening to these debates.

The truth is that governments have been empowered by technology and the current levels of technology that are now freely available to governments that help them keep their citizenry focused in a certain way, makes it a very cheap and easy process to corral the herd.

The very money that seems to be magically created out of thin air and then turned into spendable cash is diverted into research projects by DARPA or other research agencies, often in conjunction with defense departments, to create technologies that benefit said government first, and then maybe trickle down to the average person.  The Internet is a direct example of this.

But the technologies that I am most concerned about enslave us.  AI, robotics, facial recognition, means to “tag” us, track us, monitor us, control us.

The true motivation of government here is power & control.  That’s a natural thing because once you don’t need money, what motivates you to get up in the morning then?

Since government, by its design, generates money, distributes money and gets it back again, there is no motivation to profit, etc.  And since those working in said government have jobs they rarely get fired from, there is no real incentive for those workers to do anything but the bare minimum to just keep generating the money each pay check.  So your service levels at the DMV or any other government agency is poor, and subject to a comedic skit on The Simpsons.

And government controls legislation, so they can create situations where the onus of responsibility is shifted from them back to the individual.  This means they can promise something, but never deliver on it.  And they are pretty much impervious to lawsuits and responsibility here because they created the laws in the first place.

Case in point….   Recently we had a sewage block in a pipe at one of our rental properties.  At 7PM, we received 4 phone calls from the tenants in the building that their toilets and bathtubs were filling with raw sewage!  So we kicked into solutions mode, called the emergency plumber who immediately dispatched to solve the problem.  And I called the 24 hour City water services.

The city told me that they can take a look, but ultimately whatever is going on will be our problem.  The guy cited ordinance this, or statute that, declaring that because it was a 4 plex, the city won’t touch it and what they are doing was a “courtesy”.  As it happened, our plumber found the problem to be a blockage right on the connection point between our property and the city sewers, cleared it and resolved the problem.  At my expense.

But that experience was just another example of the government shirking responsibility.  The guy told me that if there was a problem with the sewer line, we would have to fix it.  But that before we could, we would have to go to the city and get a permit to do it.

Hold on, I thought.  You are telling me that I have to fix your sewer line at my expense, but before I do that I have to dance through your beauracracy to get a permit to have permission to do this?

The same is true of the roads.  We, by city ordinance, are responsible for the alley way behind our properties, but the city state that we must provide a clear and safe thorough-fare and keep it all clean.  But this is city property.  Apparently when you write the laws, you can write yourself out of the area of responsibility.  

Meanwhile we pay the city $500 a month in city water fees, trash collection, and taxes each month.  Per building.  

This is just a small example of how this works.  

But let’s get back to the concept of communism by proxy.

If you are reliant on government money and government services, and you can’t take that responsibility back, then how is that any different to the government controlling the means of production?  Is that not communism?

Look at the % of GDP for a country that comes from government spending.  When that reaches 100%, you have pure communism.   Many of the countries that we never consider to be communist, are in fact driving their economies by direct government spending.  I call that “Communism by proxy”.  It is hard to find true statistics on this, but here’s one website that helps.

https://tradingeconomics.com/country-list/government-spending-to-gdp

The problem is that the statistics only show the direct correlation to govt spending against the output of the country (GDP).  There is little statistical data about the indirect nature of how that spending is moved through prime contractors to secondary contractors, and then the impact on the local economic region as workers need to buy lunch at the local cafeteria, etc.

The one difference between the long food lines in soviet Russia and today’s western world, is that the food lines are automated by big corporations who rely on government issued money and legislation that benefits them.  By proxy, they are the providers of the food and products to the people, and if they make a profit, they pay a portion of that back to the government for the right to operate and exist in their region.

Consider the world according to Amazon.  You order groceries from Whole Foods, and it is delivered to your door within 2 hours.  Yes, that is real.  It happened to us in Scottsdale, Arizona this week.  My wife was shocked to see the efficiency of delivery.  Is Amazon soon to be the preferred food provider as well?  It seems so, given this incredible supply chain management.  But how much of that came from or returns back directly to the government?  Is it no surprise that the White House constantly expects the “big tech” leaders to visit and obtain their marching orders so they can continue down the path of being the world’s richest?

If the services are broadcast communications, the government controls the issuance of licensing for radio frequencies.  The government controls the content by way of FCC regulations on that spectrum.   As technology has expanded to the Internet (developed by DARPA as a government contract), the use of the technology by way of IP address issuance and domain registration, goes back to the government directly and indirectly.  Then the government funds, by way of grants or direct financial injection through various black ops agencies (we’ll call those 3 letter agencies) to mega corporations that invest in massive data center infrastructure for billions, and they become the main focal points of where the citizenry go to get their information.

Google, Facebook, Amazon, etc. become the central focus of attention, so that anyone with a discenting voice cannot be heard as they are nullified on those platforms.   And with so much at stake, and a direct line of communications to the center of power in government, those mega corporations will, of course, do the will of the government over your best interests.  Particularly because they found a way to give you what you wanted for free, and get reimbursed by advertising revenue.  You are, after all, the product.

Although the government was created with rules that benefited “we the people”, those rules can be bypassed if a private company is offering the platform.  No more freedom of speech if you are using Google’s computers through YouTube, etc.  They don’t have to abide by the constitutional norms of protecting freedom of speech.  If you say something they don’t want said, you are blocked, shadow banned or pushed down so far into the search algorithms – never to be found again.

The government never has to create a Polit Bueareu and be the direct issuance of state media, although that is still being done in some regions.  They can do this by proxy, by controlling the issuance of money and grants to these mega corporations.  It is like how a company is structured.  They sit on the board of directors and control the decisions at the top, but they never have to be known to be a board member.

In return for these grants and to do the bidding of said government, the very same mega corporations push money back to the government by way of funding political campaigns, donations, etc. so that their guy can be elected.  We mindlessly get hypnotized into some debates of this guy vs. that guy at the next election.  Yet it is a distraction from the reality that whoever gets elected, nothing will change.  The communism by proxy continues marching forward.

Now within this model, there are some countries that have a citizenry with a higher tolerance of pain for control and often that comes down to a trust factor.  If they are a trusting society, the government can portray themselves as the saviors to the people and the people will willingly give up their rights.  This is particularly true during times of crisis.

In wars, citizens gave up their rights, time and support to their government to do whatever was necessary to protect the homeland.   This was simply a change in government spending towards defense (and offense) rather than the normal spending back to production.  The production now went towards building weapons that were quickly destroyed in battle, requiring more weapons, more soldiers, etc. so it becomes a very lucrative model.  The mega corporations that made said weapons received bigger and bigger spending contracts, diverting government towards capitalizing these things.  The more fear pushed out to the citizenry, the more likely the citizenry were to give up their individual rights to the government.

It is often in times of peace that investigative journalists discover that wars were pre-arranged battles between cooperating nations to provide a reason for government to reign in their own people.  After all, once the battles are over and everyone is on speaking terms again, things just go back to normal.  Well at least what the “new normal” is after the war.

And this is exactly the same in times of pandemics or other crisis.  The citizenry is told to be fearful of something, and to give up their individual rights to the government who will keep them safe.  The vast majority of people just don’t want to die, so they give up their freedoms.  And in the case of bioweapons, etc. many have no choice.  Simply fighting back against inoculation is a fools errand, when you have no way to combat the weapon being thrown at you.

The crisis passes, but the freedoms don’t come back.  The Patriot act is a great example of this.  20 years after 9/11 we still have government surveillance on steroids, FISA courts that robo-issue warrants, and nothing is private anymore.

But the US model of this is actually the most resilient to communism by proxy.  Only because of the constitution.  That said, most of the protections for the people have been diluted to be almost pointless.  Yet still, the citizens can rise up.  As long as their mindset is unified.  If it is fractured or co-opted, then it is hard to get the majority to agree on anything, further destroying the very protections that they had faught and died for, for hundreds of years.

Consider other countries and you can measure just how much communism by proxy they have.  The best statistic is to look at the % of the working population that work directly for the government in some form of public service.

According to Wikipedia…

https://en.wikipedia.org/wiki/List_of_countries_by_public_sector_size

the highest % of the workforce in the public sector is Cuba, an openly communist country, with 77% of the workforce in the public sector.  

Russia, a “post” communist country has 40%

Let’s now look at countries that we consider to be private capitalist countries:

-     Norway has 32% (a country with vast wealth in fossil fuels from North Sea Oil)
-    Singapore has 32% - a country you would normally think of as a rich, capitalist country
-    The United Kingdom comes in at 21.5%
-    Canada at 20.2%
-    Australia at 18%
-    The United States at 13.3%
-    Mexico is at 11.5%

And here’s a shocker….

-    China at 28%

These are OECD numbers from 2019.  Those numbers don’t factor in those employed in secondary organizations that rely solely on the issuance of government contracts, or are under complete control of the “party”.

I think it is pretty clear that if you look at this and compare against population size, countries that have a relatively low population (ie. Norway, Singapore, Australia) that have massive % of the workforce in the public sector represent inefficiency at a massive level.  And typically life inside of those countries are dysfunctional, overly regulated and individual freedoms are controlled.

But with modern technology, you would think that public sector size could be reduced as automation in government comes in.  Yet that is obviously not the case on many fronts.  The government is the issuance agency of wealth, and it doesn’t seem to matter how efficient they are at doing it.  Unless that efficiency goes towards command & control of the citizenry.

It was interesting that my wife & I had a conversation with our daughter recently about efficiencies.  She was making a case that if only the government had some form of central database of people to determine who had been vaccinated and who had not, we could get past the COVID scare.  When she said this (she’s 24 years old), my wife & I looked at each other with fear.

My wife said, “Like they could tattoo a QR code on our arms as well, like cattle?”.  It wasn’t meant to be a slight, but actually a valid point.  Primary key of a record in a database must be unique and if we are all put in a central database like this, with some identifier that makes us more of a data record than a human being, it might help automate various things but it loses the humanity that we have over the machine.  Yet to a generation that doesn’t understand the history of how this worked in totalitarian regimes in the past, this is a normal conclusion.

And that generation is now in public office – often in roles that are pivotal to legislation and public sentiment.  Recently I’ve been seeing the hypocracy of elected officials who portray themselves as representatives of the down trodden, and yet attend multi-million dollar gala balls with the audacity to wear dresses that state “tax the rich” on them.  You mean, return back the money the government gave out to those that seem to have found a way to keep what they earn, so you can go to a multi-million dollar gala?

But as much as this might make us all angry, the reaction is pointless.  The money will go back to the government anyway.  Money is just a protocol.  It moves around like bits on a fiber optic cable.  What is more important is who’s hard drive it is stored on at any point in time, and if it remains on one for a longer period, then the attacks will be brought forward to the servers to claw it back.  Usually from the very government that issued it in the first place.  We call that tax policy.

You see, we have to stop thinking about money and start thinking about freedom and the human experience.  We need to value our freedoms and fight to retain them.  And the worst thing you could ever do is to rely solely on the very raw material that your adversary is issuing to keep you constrained – particularly when they have the ability to claw it back and control its efficacy.

If you rely on money, you are never going to be free.  Sure, you can think that the answer is to make so much of it that you will be ok.  That’s just how you become a bigger target.  We see that in government tax policy.  If you earn more than $x, then they have more reason to go after you.  If you have liquid assets in excess of $y, then you are subject to audit.  And with changes in government culture currently, the empowerment of enforcement by way of diverting more funding to those agencies (the 3 letter ones specifically, which includes the IRS), means that your ability to duck & weave through all of this is a wasted level of effort.

I have to chuckle when I read or hear of others that are freaking out about this change in tax policy or that change.  The government will get back their money one way or another.  It is pointless to try and stop it, and a lot of wasted time & energy to structure yourself to be less of a tax target.  That can’t work forever and one way or another they will get the money back.  If they don’t get it back by clawing it back through tax policy, they get it back by issuing more currency and diluting the efficacy of the money (inflation).  So one way or another, your money is either worth less or taken from you.

Those freaking out about changes in Roth IRA policy, etc. need to start to question their thought process.  If you put your money into some account for decades, high fiving each other as it goes up magically in value, you know it will be taken from you when you eventually liquidate the fund.  And the spending power of the money will be so low that it won’t have much power at that time.  Betting on the future knowing that we are living in this world of communism by proxy is a loser’s bet.

What is the best way to break free of this?

Well that’s pretty hard to do, but if you understand that the reach of government is regional (with the exception of the two countries on this planet that tax worldwide income – unfortunately the USA is one of them), you would want to be as internationally diversified as you can.

But rather than keeping your wealth in liquid forms, deploy it.  Put the capital into things that actually benefit you.  Real estate, businesses, farming, income producing assets.  Then at least the cashflow that comes from those things can fund your day to day living costs or the direct output is what you need for survival.  If you think that freedom is about you having your time back, then the one thing that attacks it is your burn rate.  If you keep that reasonable and make sure that your organic income covers it, you never have to worry about the capital.

Take, for example, rental real estate.  If you sell a property that you’ve worked hard to build up the equity on, you are taxed on the sell price less the cost basis of the property.  That’s often referred to as “capital gains tax”.  This is a focus on current tax policy to raise it.  But what is often forgotten is that if you sold a $1 million piece of real estate, the capital gains on that would be at a very high rate.  Yet the realization of the income from the sale, then puts you into the high income tax rate.

That means all of your other earnings are now taxed at that higher rate.  

And now you are a “rich person” that the very legislators are going to galas in dresses with “tax the rich” on them.

So do you want to be rich?  Hell no!

What if you needed the cash from the equity?  Well that’s simple.  Borrow against it, equity strip the asset value and pay a bank some interest for the use of your money.  Sure, that seems counter productive and goes against my very edict of not having debt.  But if that debt can be serviced by the income from the asset, it is a way to get the cash fast.  And with that cash, you can move it to international locations and buy more assets with cash.  Then the income coming from those assets diversifies your risks and you generate 2x the income.  Sure, you will need to pay back those loans, but considering that the income should increase over time, yet the debt will be fixed at an interest rate until you no longer want the asset, you are effectively deferring the taxes.  Keep doing that, and make sure that the assets are housed in an entity that allows for the ownership to be shared with partners or members of an entity, and the entity never changes hands, and therefore never is taxed.  No more estate taxes on death, since the assets never change ownership.

But once this is all done, what really is important?

It is your freedom.  Your ability to be unconstrained.  The greatest threat to that isn’t money.  It is the power that motivates political leaders to enslave their citizenry.  And this motivation appears in the most unlikely countries.  Countries that previously were considered “nice places” and “free countries” but where, due to either unexpected (or sometimes manufacturered) circumstances, they request their people to give up their individual freedoms for the good of that nation.

If we don’t learn from history how this plays out, then we might just find ourselves in a country not unlike the one on the leaderboard that employs 77% of the population into “public service”.

Communism isn’t some chapter in history.  It is actively being followed in places you probably don’t want to live in.  So don’t let it become rampant in the places you DO want to live in.  That means the minimization of government (if having it at all makes any sense given the tools that we the people have now to trade without counterparties, and a willingness to be more voluntary in our efforts rather than being forced at the end of a barrel of a gun to do something).  If you spend all of your time worrying about candidate A vs. candidate B, you are just empowering the very same government to do what its been systematically doing for the past few decades and dilute your individual power and freedom.

There are times when you have to put aside your natural inclination to be patriotic and nostalgic to the country of your birth and start to be patriotic and nostalgic to the country of you.  That you can move freely around and you can exist and thrive without being threatened to have to do something.  And that includes labor based employment, as well as fulfill the will of some legislator that prefers to dance around in multi-thousand dollar dresses that brandish their political platform for all to see.

It is very easy to fall prey to the promises of giving up responsibility – particularly in a world where coping skills seem to be a rare thing these days.  We are distracted away from developing individual coping skills and we lack the courage and willingness to take risks.  Consequently we develop little in our lives, and have therefore little to be responsible for at an individual level.  We must not fall prey to this – our individual humanity is the most important thing we can keep.  And we must protect it.

There are really smart people out there that believe so strongly in some ideology but it is like trying to justify investments with only a spreadsheet.  When the numbers look good on paper, they don’t always play out that way in the real world. Take, for example, buying an investment property.  It might be cheap, it might have decent rents coming in, and all looks good on paper.  You buy it, only to discover it is in the worst crime area in town.  But that doesn’t show up on the spreadsheet?  

Who’s to blame there?  Well you.  Because you didn’t leave the computer and go and visit it and see with your own eyes the graffiti or the homeless problem or the drug dealers on the streets.  That’s the problem most of us forget.  The best laid plans of mice & men are often destroyed by the physical reality of the world.  Yet those of us with little coping skills to go into that physical world have no right to tell the rest of us how to think, act and vote.

So I leave you with this thought.  Be critical.  Be engaged, but most important – participate.  Go to where things are that you may wish to have, and trust only what you own eyes tell you.  Realize things around you that may appear to be in poor condition, or poverty, but actually look into the hearts & minds of people there and see if they are happy.  Maybe they don’t own much, but maybe (given what I’ve just told you), they may not WANT to own much.  

There are many communities and societies that have existed and in some cases thrived as “parallel societies” within the governance of a country.  When you visit some major city like Los Angeles, New York, London, etc. take note of places like “Chinatown”, “Little Italy”, “Little Tokyo”, etc.    They are parallel societies that are existing within the confines of a country that is alien to them.  Consider the plight of the jewish people and how they have survived and thrived despite, for so long, not having a homeland.  Yet within that parallel society, trade is done internally.  Consider the expat communities around the world, and how they can exist and thrive in countries alien to their place of birth, or don’t speak their native tongue.  How trade and commerce can be maintained and encouraged within that community.

And finally consider the power of encryption.  That if you can communicate and transact in such a way that is unable to be read by anyone except the intended end-point, is a way that you can avoid having your world co-opted by communism by proxy.  This is how parallel societies have existed in the worst of times.  To see this in action, consider the history of the Czek Republic and Charter 77 that courageously allowed the Czek people to break free of soviet communism, despite the ordeals that they endured for decades under that regime.

Peace, unfortunately isn’t free.  And we can whine all day long about how much more effort it is to have encrypted communications, or a private and de-Googled smart phone, but in the end we all know these things to be righteous.  We know that our individual freedoms shouldn’t be given up directly or indirectly to others.  Because although they might appear to mean well, communism by proxy is real and alive in our world and I think very few of us want it.  At least I hope that is the case.