Santa Claus is a magical and benevolent figure who is able to produce and distribute gifts to children every Christmas Eve at no cost to the recipients. But many economists and people in the general public mistake the political state for Santa Claus for failure to recognize the nature of government and one of the most basic rules of economics—a government has no resources of its own and cannot “give” with one hand what has not first been taken by the other.
In a recent Mises lecture, Joseph Salerno elucidated how politicians, many mainstream economists, and the general public operate according to the fallacious “Santa Claus principle” rather than the economic realities of scarcity, opportunity cost, trade-offs, production preceding consumption, and the nature of intervention. Salerno explains,
The central principle of economics is that the means for improving human well-being—what economists call “goods”—are naturally scarce and must be produced before they can be used to satisfy human wants. The scarcity principle also implies that, once produced, goods cannot be bestowed on one person without depriving some other person or persons of their use. In other words, there is no such thing as a free lunch. The state and its friends reject the scarcity principle and uphold its polar opposite, the Santa Claus principle… (emphasis added)
Government, by its very nature, cannot act as Santa Claus. It does not have a magical source of production and distribution of goods, it can only expropriate the prior production of others. All its actions of “production” are really acts of consumption and rearrangement of resources. Also quoted by Dr. Salerno, Mises and Fredric Bastiat, respectively, express the same principle,
...[at] the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens…
While government has no power to make people more prosperous by interference with business, it certainly does have the power to make them less satisfied by restriction of production. (emphasis added)
Here the public, on the one side, the state on the other, are considered as two distinct entities, the latter intent upon pouring down on the former...a veritable shower of human felicities [like Christmas gifts].... The fact is the state does not and cannot have one hand only. It has two hands, one to take and the other to give.... Strictly speaking, the state can take and not give.... [because] its hands... always retain a part, and sometimes the whole, of what they touch. But what has never been seen, what will never be seen and cannot even be conceived, is the state giving the public more than it has taken from it.... (emphasis added)
Dr. Salerno, Mises, and Bastiat all expose the often “unseen” costs of government intervention. The government is not and cannot be Santa Claus. Unlike Santa, governments necessarily must coercively extract scarce resources prior to distributing “gifts” to anyone.
Mises used Santa Claus several times as a way to teach economic realities. Politicians, several economists and economic schools of thought (e.g., especially those in the current vogue MMT school), and the general public need to learn that that state is not and cannot be Santa Claus. Mises said that, “No government, whether democratic or dictatorial, can free itself from the sway of the generally accepted ideology.” Thus, a danger in popular government and democracy is “the [widespread proliferation of] doctrines which aim at substituting the Santa Claus conception of government.”
What is more subtle, however, is that many politicians, economists, and laymen somewhat understand literal scarcity and trade-offs, but most do not understand the complex, painstaking development and importance of a capital structure. Thankfully, one does not have to understand the capital structure to benefit from it, but the presumption of the existence and maintenance of a capital structure can lead a society to assume it as a given and decide on policies of large-scale capital consumption which lead to economic destructionism. Says Mises,
The Santa Claus fables of the welfare school [and others] are characterized by their complete failure to grasp the problems of capital. It is precisely this defect that makes it imperative to deny them the appellation welfare economics with which they describe their doctrines. He who does not take into consideration the scarcity of capital goods available is not an economist, but a fabulist. He does not deal with reality but with a fabulous world of plenty. All the effusions of the contemporary welfare school are, like those of the socialist authors, based on the implicit assumption that there is an abundant supply of capital goods. Then, of course, it seems easy to find a remedy for all ills, to give to everybody “according to his needs” and to make everyone perfectly happy.
Mises sensibly realized that the social philosophies justifying interventionism and believing that the state was Santa Claus terminate in distortions of the price and capital structure, waste, and economic regression. Eventually, by assuming the Grinch was really Santa, Christmas is “stolen.” Mises explains the inevitable conclusion of such philosophies,
An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole doctrine of interventionism collapses when this fountain is drained off. The Santa Claus principle liquidates itself.
The Grinch!
No, the state is not Santa Claus. In fact, the state is more akin to the Grinch!
The Grinch hated the Whos down in Whoville and their yearly exuberant celebration of Christmas, thus he hatched a plan to steal from the Whos everything Santa brought, everything pertaining to Christmas, and even their other possessions. Having a change of heart (by it growing three sizes), the Grinch returned the gifts and possessions to the Whos. He was treated as a hero and benefactor, and even invited to participate in their Christmas celebration. We can assume that the Whos did not really believe that the Grinch had furnished them with gifts by returning stolen goods, but rather honored his penitence.
What lessons are we to learn from the Grinch? That a returner of stolen goods is heroic? What if—being tricked by his return of stolen items—the Whos thought the Grinch was awesome, a generous benefactor of gifts at no cost to them?
They would—like the general public and many so-called economists—be duped into believing that the expropriator who had taken their production and possessions, then returned them, was a magical Santa Claus-figure who could magically distribute gifts. At least the Grinch only did this once, felt remorse, returned everything he had taken, did not do it again, did not attempt to deceive the Whos into thinking that he was an independent, magical gift-giver, and did not morally lecture the Whos into believing that all he did was to their benefit.
On the other hand, the state takes regularly, keeps part of what it takes even as it rearranges and “gives,” allows people to think that government provides these “gifts,” and that this is all for the benefit of the recipients.
