To keep the spirit of Christmas usefully at bay, and reinforce my proudly-held Grinch-like reputation, I will this week examine the little-known discipline of Sado-economics, the use of economic policy to punish the disfavored. It is a policy tool used more than you might think, and it sometimes has some virtue, since it reverses the usual politicians’ urge to preside over the distribution only of handouts for the electorate.

The most extreme uses of sado-economics, without any redeeming features, were the agricultural policies of Joseph Stalin in the Great Ukrainian Famine and Mao Ze-dong in the Great Leap Forward. In both cases, the policies’ principal objective was to destroy the power and wealth of the richer peasant farmers with private plots of land. In both cases, millions died and the objective was achieved, but at the cost of impoverishment, hunger and economic destruction to entire populations not originally the object of the regime’s hatred.

A similar objective, also without redeeming economic merit, caused the ultra-high tax rates of Franklin Roosevelt in the United States, Clement Attlee in Britain and most recently Francois Hollande in France. (Hollande’s income tax rate reaches only 75%, different in principle from Roosevelt and Attlee’s tax rates above 90%, but it is supplemented with a wealth tax at rates ranging up to 2%, making the effective tax rate more than 100%.)

All three statesmen may or may not have hated the rich, but were beholden to an unholy crew of leftist intellectuals and hangers-on who undoubtedly hated them with a passion (even if, as in the case of FDR’s Treasury Assistant Secretary Harry Dexter White, that passion was enhanced by cash payoffs from Moscow.) As with Stalin and Mao, hatred of the despised class brought about policies that were highly damaging to the economy as a whole but had the desired effect of hurting the detested victims, or at least of driving them abroad. They were sado-economics with a vengeance, in other words, and without any redeeming feature of overall benefit from the cruelty.

Going further back in history, the mediaeval Poll Tax was sado-economics in the opposite direction, an attempt by the aristocracy who controlled the government to reduce the wages of the peasantry who didn’t. Following the Black Death in 1348, wages and living standards among the English working class had shot up, demand for their services having been greatly increased by a disease that wiped out a third of the labor force and left the same amount of tillable land. The aristocrats naturally resented the peasants’ uppity demand for higher wages, and persuaded John of Gaunt, ruling the country in the minority of Richard II, to push through Parliament a poll tax of three groats per head. This caused the Peasants’ Revolt of 1381, whose leader John Ball was declared by the upper-class chronicler Froissart to be mad, which confronted the young King Richard II and forced the revocation of the hated Poll Tax.

A similar class hatred motivated the French aristocracy before the Revolution; they forced through a Poll Tax in 1696 which stayed in force until 1790. In this case, however the ruling classes hated merchants even more, and so in 1718 with the help of Scottish financier/economist/con-man John Law, they extended sado-economics to the monetary field, establishing the Banque Royale, which acted as a magnet for merchant deposits and financed the regime by issuing paper money. Needless to say this Mississippi Scheme collapsed, but unlike after the contemporary British South Sea Bubble, no attempt was made to mitigate the merchants’ losses. Consequently, market confidence in the Ancien Regime collapsed, and it was unable to finance its expensive wars through the rest of the eighteenth century.

So far we have discussed sado-economic policies that proved counterproductive to the economy as a whole. A further example of these was Thomas Jefferson’s Embargo of 1807, motivated primarily by hatred and distrust of the New England merchant classes. Again the initial objective was achieved in that the New England merchants were impoverished, but in the long term the Embargo led to the War of 1812, doing far more damage to the U.S. economy than was justified by its modest sectional effect.

However later sado-economic policies in the United States were more productive for the overall economy. Notable among these were the Morrill Tariff of 1862 and its successor the McKinley Tariff of 1890. The Morrill Tariff was initially imposed as an act of political revenge by the dominant Republicans over their low-tariff Democrat rivals, particularly as the principal low-tariff bastion, the South, had recently seceded from the Union. Its successor, the McKinley Tariff of 1890, was devoted to the same end, although in that case nationalist hatred of free-trading Britain also played a role. In their destructive tendency, both tariffs were successful. The South lost the Civil War and remained in a state of dependent impoverishment until tariffs finally began to be lowered in the 1950s. British industry, shorn of any protection by the country’s foolish unilateral free trade policies, went into terminal decline and even before the two world wars represented only a small fraction of U.S. economic might.

On the other hand, the Morrill and McKinley tariffs also had a positive short-term effect, in building up immensely powerful U.S. industries, with immensely well-paid workers, behind a tariff wall of 50% or more. Of course, in the very long run even this effect proved ephemeral; when global competition returned after 1960 the U.S. automobile and steel industries proved hopelessly uncompetitive, with cosseted workers and strong trades unions imposing costs on them that rendered their eventual collapse inevitable.

Turning to current events, the “fiscal cliff” debate is a matter of sado-economics on both sides. President Obama and the more liberal Democrats have as their principal objective increasing the tax rates paid by the rich – not even increasing the amount of tax they pay through limiting their deductions, but increasing their marginal tax rate. The extra revenue if any which such increases would produce is irrelevant; in any case Obama and his friends have plans to spend it all and more if they can get hold of it.

There is also however a more interesting version of sado-economics on the other side. Fed chairman Ben Bernanke coined the term “fiscal cliff” in hearings last June, because he wanted to demonize the possibility that all negotiations would fail, and the automatic tax increases and spending cuts locked in by the August 2011 deal would kick in. Innumerable Keynesian economists have produced forecasts suggesting that the withdrawal of some $700 billion of “fiscal stimulus” per annum would cause an instant and deep recession.

But in reality there is no assurance of any such thing. The third quarter GDP revisions announced last week pushed the growth rate up to 3.1%, and more recent if partial data have mostly been positive. Thus the U.S. economy, far from being in imminent need of yet more “stimulus” as Bernanke and the left would have us believe, is in reality perfectly able to withstand the temporary withdrawal of purchasing power involved in the fiscal cliff.

Moreover it must be remembered that every dollar by which the budget deficit is reduced is a dollar that does not have to be sucked out of the capital markets to finance the insatiable maw of government spending. A $700 billion decline in the budget deficit is a $700 billion decline in the government’s demands on the capital market. Such a change will strengthen the dollar (as fewer dollars are sucked in from abroad to finance the deficit) and push 10-year Treasury bond yields below 1%. Thereby it will shut down the various “gapping” games by which banks have borrowed short-term and lent long-term and force the banks to undertake their proper function of financing those small and medium sized businesses that cannot access the capital market directly. In short, in all but the shortest term the “fiscal cliff” will stimulate the economy.

Meanwhile, if the “fiscal cliff” occurs, Ben Bernanke will be buying over $1 trillion of Treasury and Agency bonds annually to finance a budget deficit that is only around $300 billion. This will almost certainly cause inflation to kick up. That in turn will cause Bernankeism to collapse and interest rates to be increased, probably by a new Fed chairman after Bernanke’s resignation, to a level that allows the rebuilding of America’s savings base. The U.S. economy will no longer be dependent on dodgy Chinese oligarchs for its financing, but will become once more self-sufficient and prosperous, with plentiful blue-collar jobs created by the new domestically deployed capital. .

There is however an excellent sado-economic reason for conservatives and other free-marketers to welcome the fiscal cliff. The voting public have for the last four years received $1 trillion more in government services than they have had to pay for. Much of the extra $1 trillion is waste, fraud and abuse, but it’s impossible for even the government to spend that much money without providing the populace with some benefit. Normally, even the doziest voter would appreciate that such deficits would require to be repaid, but in the last four years Ben Bernanke has been financing them through bond purchases, having forced interest rates down below inflation so that the deficits are financed at a negative real cost. It should not thus have been surprising that on 6 November an electorate receiving $1 trillion worth of free goodies annually demanded more of the same.

The fiscal cliff stops this. It forces the electorate as a whole, not just the “rich” however defined, to pay more or less the full cost of the government bloat it demands. Over four years, this should prove highly educational. And if to some extent it also proves painful, well for conservatives this will be a just recompense to the electorate for subjecting them to four more years of President Obama and his policies.

As I said, it’s sado-economics. In general in past centuries this technique has successfully provided the pain, but has proved economically damaging to the economy as a whole. But in this instance it is irresistibly tempting, and as outlined above will almost certainly benefit everybody in the long run.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations—8% versus 46.5%, according to recent research. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)