The Cato Institute's Adam Michel put a $200 trillion price tag on democratic socialism. The real problem: the policies would destroy the tax base needed to pay for them.
Governments have no resources. Adam Michel of the Cato Institute made the point inadvertently with a recent headline: "Who Will Pay for Democratic Socialism's $200 Trillion Cost?"
Conservative media seized on the number. Fox News, Newsmax, and The Ben Shapiro Show ran with the implied warning. But Michel knows the math better than his headline suggests.
Governments finance spending through taxable access to productive people and businesses. They do not draw from Pluto or central banks. The $200 trillion figure assumes a government that can collect that much revenue. Democratic socialism, Michel's own charts show, suffocates the prosperity that generates taxable income.
History offers a test. The second half of the 20th century saw collectivist economies struggle to fund basic services. The Soviet Union could not match U.S. defense spending because its economic model destroyed the tax base. Ronald Reagan understood that. The Soviet system collapsed not from military pressure alone but from fiscal exhaustion.
Michel's headline implies that democratic socialism could cost $200 trillion. It cannot. A government that implements the policies Michel describes would never have $200 trillion, or even $2 trillion, to spend. The spending power would evaporate as the economy shrank.
Government spending does not boost growth. It transfers resources from productive to unproductive uses. Michel channeled Margaret Thatcher at the close of his post: "There aren't enough rich people or corporations to pay for Democratic Socialism." He added that "Eventually, the bill will come for the rest of us."
The rich pay the vast majority of taxes. If the bill were to fall on the rest, the revenue base would be too small to fund the promises. Democratic socialism cannot happen because its own policies prevent the government from acquiring the resources to try.
Michel's underlying analysis is sound. The headline was the problem. It gave the impression that the cost is a real risk, when the real risk is that the policy never gets off the ground.
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