Category Archives: Political Philosophy

>Housing in the New America II: The Stage is Set

>“Abolition of private property and the application of all rent to public purpose.”

– Karl Marx and Friedrich Engels (1848)[1]

Just after the abominable housing bill of this past July, I wrote an article about the very real prospect of the government getting into the property management business, due to the nationalization of the mortgage industry that effectively occurred when the government seized Fannie Mae and Freddie Mac. The scenario was admittedly conjectured, but unfortunately it seems to be playing out even worse than I could have imagined (and I can imagine pretty bad from our government). An article in the New York Times put one more piece of the puzzle in place.

Keep in mind that the real devastation of this economic crisis has not really occurred yet. We still don’t have double digit unemployment (at least using the government’s numbers), but that is inevitably what is coming. Right now, we have unemployment that is setting records for one-month growth, but we do not have tens of millions of Americans out of work. That makes today’s news all the more disturbing.

If you have any experience with rental properties, as either a landlord or a renter, you know that when a rental property goes into foreclosure, the tenants are routinely evicted. It is much easier to sell a foreclosure property without tenants, among other reasons because choosing tenants is one of the skills that separate successful landlords from unsuccessful ones. Good landlords also usually want to do some renovation to the property, which is at least inconvenient and to some extent virtually impossible with the property already occupied. The justification for the eviction is, of course, that the property now lawfully belongs to someone else (the bank), who never consented to the rental agreement and has every right to refuse to honor it.

Or do they? According to the Charles Duhigg of the Times, Fannie Mae announced today that it would “sign new leases with renters living in foreclosed properties owned by the company.” Of course “owned by the company” is an ironic choice of words, because “the company” is none other than the U.S. government. While my previous article envisioned Section 8 as the possible vehicle for converting large percentages of the (former) middle class into government tenants, this new policy today goes one step farther. Section 8 uses public funds to subsidize rent payments to private owners of rental properties. This policy represents renters making rent payments directly to the U.S. government, for the “privilege” of living in government-owned[2] homes. While the numbers for homes owned outright by Fannie Mae are small at the moment, it is no less a watershed moment.

Of course the policies of Fannie Mae are not binding upon the so-called “private sector” (is there still one?), at least not yet. As the Duhigg reports,

““We’re not in the business of managing rental properties, and we’re not in the business of being a landlord,” said Thomas Kelly, a spokesman for JPMorgan Chase, which owns about two million loans. “Clearly the renter is caught in the middle in cases like this. When a property is in foreclosure, we follow the law.”[3]

It is somewhat amusing that a representative of J.P. Morgan Chase would speak so reverently about the law, as if it were some bastion of property rights and justice. Having been the beneficiary of the lion’s share of the largesse during the financial sector bailouts, this bank should know better than anyone that the law and justice no longer have much to do with each other. If property rights get in the way of some new government theft, a law is simply passed to eliminate the obstacle. Having eschewed the concept of republican government in exchange for “democracy,” there are now no rights that cannot be violated, as long as a sufficient number of votes can be raised among elected representatives. Indeed, our government does not really recognize “rights,” which transcend government. It grants privileges and erroneously refers to them as rights.

I doubt that private sector banks will retain the privilege of evicting tenants from the properties they acquire in foreclosure for very long, once the new presidential administration and Congress take office. Already, the cries for “fairness” are beginning to be heard. As the Times article reports,

“Some lawmakers and housing advocates say such policies are unjust.
“If your loan is owned by Fannie Mae, you get to stay in your home. If your loan is owned by someone else, you’re on the street,” said Mr. Taylor of the National Community Reinvestment Coalition. “These banks need to realize they’re in the property management business now, whether they like it or not.”[4]

Note the use of 21st century coercion-euphemisms. Any statement beginning with “You need to…” is one that could just as well start with “I ORDER you to…” At least the tyrants in centuries past made such statements with swords drawn and pointed at their victims. Today’s authoritarianism with a smile is actually more horrifying.[5]

With all of the travesties of justice taking place during this blackest of years in our history, one might argue that insisting that banks retain the right to put renters out on the street represents confused priorities. Perhaps so. However, one thing is certain. The line was already blurred regarding the right to own property before this, as the government could seize it from you merely for being unable to pay its property taxes. Now that the banks (and soon anyone buying properties in foreclosure) have no say over who lives in the house that they just bought, that line has become a smudge at best. In reality, there really is no such thing as homeownership. Government merely grants the privilege of stewardship over ITS homes. This latest farce merely makes that fact clearer.

So much for the moral considerations on this issue. I seem to have been far less efficient in confronting them than the government, which breezed right on by them. Who says it can’t get things done quickly?

As far as unintended consequences, this latest bit of idiocy is so ripe with them that it is hard to know where to begin. I am not sure who truly manages these properties, now that they are the property of the government but still occupied. Who does the tenant call when the sink starts leaking? If you think you see a program like Medicare or Medicaid coming, you’re not alone. We could always use another network of overpaid providers rendering sub-par service at a cost of hundreds of billions of dollars to taxpayers. Worse yet, as more and more average Americans wind up in government-owned or subsidized homes, the program to pay handymen to do repairs could grow into an institution, just like the aforementioned medical programs. Among other negative consequences, this will tend to push the prices for these repairs through the roof for everyone, just as government-provided medical care and student loans push up the cost of healthcare and tuition for everyone. Let’s hope the government doesn’t start providing beer – we can’t afford bubble prices for that in times like these!

Of course, the glaring weakness in this latest move has to do with the central issue – selling the foreclosed properties. The whole reason behind lenders taking possession of a property when the borrower defaults is to sell that property and recover some of the losses on the loan. This new policy of Fannie Mae’s, which will almost certainly become a law sometime during the next Congressional term, will only prolong the time that these properties are on the market. Far less buyers will be willing to acquire properties if they are forced to take their chances on a tenant that they haven’t personally vetted, and on a property where their options are limited in terms of what they can do with it after they acquire it. This fits the FDR pattern of intervening into the markets and preventing a needed correction perfectly. The market is trying to liquidate these properties and allow them to be sold at more reasonable prices to more viable customers. The government policy will arrest that process, causing the crisis to take longer resolve itself, if it is allowed to resolve itself at all.[6]

It also goes without saying that the landlords who will buy the homes are more likely to be poorer landlords, as they are by definition landlords who care less about who they rent to. This tends to manifest itself in the appearance and upkeep of the properties, affecting property values throughout the entire neighborhood. Add to that the poor service and quality of work that comes with the government or banks providing the property management and you have the recipe for some scary neighborhoods. Collateral damage certainly isn’t just a military term, once our federal government gets rolling.

So where does this all lead us? I said at the beginning that one of the most disturbing aspects of this story was that an idea like this has been born before the real crisis gets rolling. We have had a market crash and ensuing credit crunch, but everyone seems to be in denial over what inevitably comes next – massive unemployment. Once that starts really manifesting itself (probably as early as next summer), the “state of emergency” mindset will kick in with our government and things could really deteriorate quickly. Right now, loan defaulters are being evicted from the property that they borrowed against and are finding homes in the abundant rental market. However, when the vast majority of them are unemployed, they will need the government to help them, too. It is certainly not hard to imagine a scenario where unemployed loan defaulters are evicted from their homes in foreclosure, only to be “placed” into rental properties that the government owns (but cannot sell), or even into another property that the same bank that just seized their home acquired in foreclosure on somebody else!

For those properties owned by the government, the renters would pay the government directly (eventually it may even be a standard payroll deduction). For those properties owned by a private bank, the Section 8 program will provide the rent subsidies, which the government is now obligated to pay the bank/landlords because they forced them to get into the property management business in the first place. Alternatively, the government may just start buying the houses from the bank, in order to “stablilize” the housing market and because it now has an incentive to grow its new program. The government will certainly have an incentive to put people into the houses that it already owns and cannot sell. This program could realistically feed itself until tens of millions of Americans are in government housing.

On the brighter side, at least this will further solidify the close relationship between our banking institutions and the federal government. We could always use more tight collusion between government and big business. There is no sense in repeating the worst mistakes of the past century without throwing in a little more fascism.

However, the fascist model is more the Republican brand of socialism, at least in this century. The Democrats seems to favor the Marxist variety, as evidenced by their increasingly Marxist rhetoric and their choice of a presidential candidate. Make no mistake, government-provided housing is right in their proverbial wheel house, and you can expect them to jump on the “opportunity” next year’s emergency will afford them to hit this one out of the stadium. The Carter years might look like an economic golden age before this is over. Let’s hope that it is apparent to most Americans in four years that the medicine is killing the patient. Medicare may not be around to cover the catastrophic care needed by 2016.

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[1] Mark, Karl and Engels, Friedrich Manifesto of the Communist Party (The Communist Manifesto) 1848. (This is Plank One of the famous Ten Planks of the Communist Manifesto)
[2] I suppose I should be grateful that the patronizing assertion that “the taxpayers” own Fannie Mae was not made in this particular article. That characterization has been an especially insulting aspect of our conversion to socialism. Ownership can only occur when you CHOOSE to own something, and when you have some control over its disposal. Moreover, it should be evident that even in the unlikely event that our government somehow makes money on this travesty, not one dollar will be coming back to taxpayers, nor should we accept it if it did.
[3] Duhigg, Charles “Fannie Mae Lets Renters Stay Despite Foreclosures” New York Times December 14, 2008
[4] Ibid
[5] Sadly, this expression has become ubiquitous in the private sector as well. Americans brought up under the yoke of coercion know no other way to deal with one another.
[6] Of course, this policy would not by any means be the only factor in houses not selling. Neither will it be the only action government will be taking to block the overall correction and make the depression worse.

>Government’s Old Shell Game

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>Most Americans have seen the hilarious skit on Saturday Night Live, where the CEO’s of the Big Three automakers return to Congress with the “turnaround plan” demanded of them as a condition of receiving (stolen) bailout money. In the skit, the CEO’s drive cars manufactured by their respective companies from Detroit to Washington in order to make amends for flying corporate jets en route to their first appeal for our money. Of course, all three cars break down on the way, making the CEO’s late for their appointment with the (looting) Congressmen. The punch line of the skit is that the only plan that the automakers have come up with is to return to Congress every six weeks to ask for more money. To top it off, the GM CEO promises that by the time that they are ready to accept the December payment – provided that car sales rebound – they would actually need even more money.

It is sometimes said that life imitates art. As funny as the Saturday Night Live skit was, real life proved even funnier. The CEO’s did manage to marshal the resources of their Fortune 500 companies (referencing the 2006 list) and come up with three Detroit-manufactured vehicles that could make it to D.C. However, as in the comedy, the CEO’s show up at Congress three weeks after asking for $25 billion and actually ask for more! Rather than outrage, Americans should really take the opportunity to find some humor in this. As the last vestiges of our Republic are destroyed, one can either laugh or cry. Let’s recognize this ridiculous exercise for what it is – a farce – and have ourselves a good, hearty laugh. We deserve it. Then, let’s stop laughing and turn our attention to the real villains in this immorality play: the United States Congress.

As tempting as it is to focus our attention on the pompous CEO’s of these horribly run companies, let’s not forget why they became so horribly run. It seems to be routinely forgotten that it was Congress that created the labor union problem, with its National Labor Relations Act of 1935 and subsequent violations of property rights. This is why the American auto companies can’t afford to compete. It is also forgotten that Congress created Fannie Mae/Freddie Mac and the Federal Reserve (the three entities entirely responsible for the housing bubble), Medicare and Medicaid (the programs entirely responsible for the both the bubble-prices of healthcare and the lion’s share of our $50 trillion in unfunded entitlement liabilities), the Department of Education (the agency entirely responsible for the next bubble – tuition prices), and every other economic problem that the United States faces. It is no less than tragic that Americans still have not figured out that, left to themselves, with a government limited to enforcing contracts and protecting them against violence, they would trade freely with each other indefinitely to their mutual benefit. Instead, Americans still look to this body of criminals to SOLVE problems that said criminals created. How are they continually fooled?

There are a number of answers to that question, but there is one strategy employed by our ruling class that is particularly frustrating. Students of philosophy may call it the Hegelian Dialectic, while political strategists may call it “framing the debate.” For us plain folks, you might just call it the “heads I win tails you lose” strategy. Every time that Congress wishes to commit some new crime, they present it with a ready-made debate, eagerly facilitated by our so-called journalists. In each case, the issue is presented as if there are only two alternatives, both of which advance government’s purpose to our detriment. Any alternatives beneficial to the people are excluded entirely. It’s the oldest manipulation trick in the book, not much more sophisticated than the old shell game where the pea actually isn’t under any of the shells. Unfortunately, we fall for it hook, line, and sinker, every single time.

This latest farce with the auto companies provides a good example, although there are hundreds (maybe thousands) more. When the idea of stealing our money to give to the failing automakers first came up, there was immediately “fierce debate” in the media about whether the automakers “deserved” the money. Some argued that it was the companies’ own fault that they were in the shape that they were in. Others argued that even if given the money, the automakers would still eventually fail. Congress pompously demanded a turnaround plan from the automakers as a condition of their receiving the money. The media provided (and is still providing) the façade of spirited debate about all of these straw man issues. Every angle to come at this problem is argued, except one: Does Congress have the RIGHT to take our money and give it to somebody else?

Once the deafening silence on this issue is acknowledged, the underlying assumption behind all of the rest of the arguments becomes clear. We no longer have any individual rights. In debating whether or not the bailout money would keep the companies from failing, the obvious assumption is that if the bailout would save the companies, then Congress has the right to forcibly steal our money to save them. In debating whether or not the companies themselves had caused their own demise, you must assume that if they did not, then Congress has the right to steal our money to help them. When demanding that the automakers come up with a turnaround plan to ensure that they do not need taxpayer money again in the future, Congress assumes that they have the right to steal our money as long as the automakers present a reasonable plan.

Not one journalist, not one talk show host, not one panelist – no one anywhere – no matter how liberal, conservative, or even libertarian they claim to be, has made the argument that Congress DOES NOT HAVE THE RIGHT to forcibly take money from one person and give it to another. This argument has been excluded from all debate.

There is a very good reason for this. It is that there is no reasonable argument that can be made on these grounds justifying this theft of our property. The Declaration of Independence tells us that governments are instituted to secure our rights. The Declaration also says that those rights are unalienable, meaning that no government – not even a democratically elected government – can take them away. No majority can vote them away. Foremost among these rights is our unalienable right to the fruits of our labor – our property. THIS was the right that the American Revolution was fought over. Read your history. King George wasn’t denying the colonists free speech, or freedom of the press. The colonists didn’t tar and feather censors. They tarred and feathered TAX COLLECTORS. As I’ve said before, it is your property that tyrants covet, not your right to free speech or freedom of religion. This hasn’t changed in two hundred years, nor will it ever change. Government’s job is to protect our property from theft by other people. There is no circumstance that justifies them committing this crime rather than defending us against it.

Therefore, by stealing our money – for any reason – Congress is contradicting the sole reason for its existence. It doesn’t matter if Congress thinks its actions will save jobs (they won’t), if their actions will save the economy (they won’t), or even if they believe the majority of Americans support their bailout. Even if every American citizen alive save ONE was in favor of giving the auto companies this money, Congress WOULD NOT HAVE A RIGHT to give it. To do so is incompatible with liberty.

Seen in this light, it is obvious why it is imperative that the subject of rights does not come up in any discussion of government bailouts. At all costs, Americans must be distracted away from their rights and lured into arguing about something else. Thus, we argue about CEO bonuses, private jets, energy efficient vehicles (and why Detroit doesn’t make them), and a long list of other unimportant details, while ignoring the one and only issue that matters: that this money is the property of each individual American and that government has no right, under any circumstances, to take it from us. Period.

The automaker bailouts are not unique in this regard. This same parlor trick was played on us with the bailouts of the financial companies. Would the executives keep their golden parachutes? If not, then Congress had the right to steal our money. Would the financial system collapse if Congress did not act? If so, then Congress had the right to steal our money. Would 401K’s and other retirement accounts be decimated without the bailout? If so, then Congress had the right to steal our money (did you notice that they were decimated anyway?).

Over many decades, government has employed this simple subterfuge to bait us into abandoning our impregnable position – our rights – and dupe us into arguing the practical merits (or lack thereof) of their crimes. By taking the bait, we disguise the crimes of our government as ineptitude, and relegate ourselves to complaining about poor results rather than recognizing these usurpations for the crimes that they are.

When the banking bailout was proposed, we objected. For one, brief, shining moment, we were Americans again. We told our representatives that they were NOT to take this money. For one glorious day, our government blinked. Then, they told us that some unimaginable doom awaited us if we did not surrender our property to them. We believed them. They told us that our retirement accounts would be devastated if we did not allow them to violate our rights, so we let them take our money. Our retirement accounts were devastated anyway, and we deserved it. By surrendering our own rights, we violated those of our neighbors. The money we let them take was not theirs OR ours to give.

We have another chance. We can call them again and order them not to give this money to the automakers. Yes, I said ORDER them. Rights are not something that you request of your government. They are something that you DEMAND be respected. Our government is about to once again violate our unalienable right to the fruits of our labor. We must order them not to do so. Do not let them derail you with spurious arguments about what might happen if they don’t steal your money. Stick to your guns and keep bringing the argument back to the only issue that matters: this money belongs to you and they don’t have the right to take it. Make no threats of violence or harassment, but accept no compromise or offer to “agree to disagree” either. Hold their feet to the fire and remind them that this government is YOUR servant. You will be surprised how much power you actually wield.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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The Bill Clinton Myth Finally Debunked

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clinton Whether you are watching the stock market, the headlines, or merely your 401K account balance, there is not much positive about the economic collapse just getting underway in the United States. With each new negative earnings report, bankruptcy, and ominous unemployment report, it gets a little harder to see any silver lining around the black cloud. However, there is one positive consequence of the economic debacle: The Bill Clinton Myth has finally been debunked.

Most people are familiar with the Myth, but mistake it for history. It’s a wonderful story if you are a Democrat or other variety of government-worshipper. For those who practice that religion, the Bill Clinton years serve as a Golden Age to talk about, write about, maybe even pray about, hoping for their return.

Unforunately, this myth does not even offer the benefits of its more interesting ancient predecessors. While the ancient myths of gods and monsters contained spiritual and philosophical truth underneath their obviously fictional storylines, the Bill Clinton Myth contains no truth at all. Perhaps “myth” is the wrong word, because it gives good myths a bad name.

The Bill Clinton Myth goes something like this. After “mismanagement” of the economy by President George H.W. Bush, which resulted in the recession that coincided with the 1992 election, Clinton took office and “managed the economy” wisely during his eight year presidency. Clinton’s “centrist policies” were just what the economy needed at a time of technological revolution, and his wise stewardship resulted in not only unprecedented growth and low unemployment for the economy, but balanced budgets and even surpluses for the federal government. By the time Clinton left office, the United States was more powerful economically than it had been at any time in its history.

Like the Populist Myth of the 19th Century, this one is a great story, but none of it is true. While even some Republicans begrudgingly credit Clinton with the mythical budget surpluses or the equally mythical prosperity in the 1990’s, they do themselves a disservice in regard to their quest to discredit every Democrat who ever (or will ever) lived.

In reality, there were no federal government surpluses. The lion’s share of the prosperity was a Federal Reserve-created bubble (the dot com bubble) and what real economic growth there was occurred despite Clinton’s policies, not because of them.

It might be necessary to go back and read that last sentence again. It is heresy, as surely as Galileo’s heliocentrism was to the Inquisition. It’s also just as true.

First, the so-called “surpluses” were bogus. As Craig Steiner explains, the appearance of a surplus was merely increased tax revenues from the dot com bubble allowing the Clinton administration to borrow more money from Social Security. While the public debt went down in the last four years of the Clinton presidency, the intergovernmental debt (mostly to Social Security) went up by an even greater amount, resulting in an increase in the national debt in each of those years. These are easily verifiable facts out of the published federal government budgets for those years. Anyone who doubts this can simply look up the budgets from 1997- 2001 and see the deficits for themselves.

Certainly, there were astounding developments in technology in the late 1980’s and throughout the 1990’s. One could look at this decade as a mild version of the technological revolution that occurred at the turn of the 20th century, although the breakthroughs, mostly in computing, were not as paradigm-shifting as the invention of the steam engine or the automobile, much less the telephone or the computer itself. These advances resulted in vast increases in productivity. A whole industry was born, employing people in higher paying jobs and revolutionizing communication, commerce, and production.

All of this happened during Bill Clinton’s presidency, although its roots go back at least as far as the Reagan years, possibly even Carter. But what did Bill Clinton do to cause this technological revolution? Nothing. Microsoft, Oracle, Apple, and the rest of the real new companies that emerged during this technological revolution were children of the free market. Gates, Ellison, Jobs and the rest were all entrepreneurs who took enormous risks based on their superior vision of where breakthroughs in technology could take commerce.

Anyone old enough to remember knows the government had very little understanding of the tech sector and frequently complained it didn’t know how to regulate the new types of products or business processes the tech sector presented. In other words, much of the reason for the explosive growth was the absence of government involvement. Until the lumbering machinations of government caught up, a free market in technology existed that allowed for spectacular innovation and growth.

The most significant action undertaken by the Clinton administration regarding the tech revolution was its anti-trust case against Microsoft. Here, Clinton’s contempt for free markets and property rights came shining through. This particular anti-trust case had a bizarre twist, as it was based upon the ludicrous assertion that Microsoft had some responsibility to build opportunity for its competitors into its own product. As usual, the government tried to “ensure competition” by using its coercive power to cripple the leader, rather than protect the property rights of all.

There was another side to the tech revolution that wasn’t the natural result of free markets: the dot com bubble. This was Pets.com, online supermarkets, and other hare-brained schemes that only got capitalized due to the reckless monetary policy pursued by the bubble-maestro himself, Alan Greenspan.

To be fair, Clinton doesn’t deserve much blame for this bubble. Most politicians demonstrate little understanding of monetary policy, beyond their belief that lower interest rates raises stock prices and higher stock prices equals votes. At one point, Clinton actually made a speech in which he claimed the business cycle had been eliminated.[1] That shows his understanding was as limited as most other presidents’.

Regardless, the dot com bubble had nothing to do with Clinton. It was merely the Fed doing what the Fed does, inflate and distort the economy, regardless of who happens to occupy the White House.

Finally, in addition to the false credit Clinton receives for his imaginary role in the perceived prosperity of the 1990’s, he has somehow escaped all blame for his very real hand in the problems we are facing now. Remember, it was Clinton who appointed FDR II (Franklin Delano Raines) as CEO of Fannie Mae, and then pressured the GSE to significantly increase its loans to riskier sub-prime borrowers.

The Clinton administration bragged it had not only had a hand in the first black CEO of a Fortune 500 company,[2] but also that it had made home ownership possible for millions of Americans that otherwise could not have obtained mortgages. Raines is now the subject of over 100 civil lawsuits and a huge percentage of those mortgages are defaulting. As usual, the government’s results when interfering in markets are exactly the opposite of its intentions.

Contrary to the Clinton Myth, the Clinton presidency had nothing to do with what real prosperity there was in the 1990’s. The Clinton administration was as clueless and impotent as most others while the Federal Reserve blew up an enormous bubble on its watch, sowing the seeds for the mortgage crisis that started the present economic disaster. Economically, the Clinton presidency was an unmitigated disaster, and hopefully it is clear to all but the most fervent believers that his “stewardship of the economy” is a myth.

Lest this be seen as partisan, let me clear the air. There have been two presidents credited with prosperity that seemed to coincide with their years in office during the past 40 years. One was Reagan, a Republican, and the other, Clinton, a Democrat. In both cases, they were falsely credited with prosperity that was mostly an illusion caused by the Federal Reserve. Their policies otherwise failed miserably.[3]

With the Clinton Myth exposed as a fraud, perhaps we can get rid of the entire government religion. Centuries ago, most people of the earth ceased sacrificing animals to bring rain, better crops, or good fortune hunting. They had finally realized there is no cause-effect relationship between killing a goat and the end of a drought. We need to likewise recognize that no politician has ever had any more to do with prosperity than those unfortunate goats had to do with the weather.[4] Freed from this superstition, it becomes clear that only free markets, individual effort, and creativity can create wealth and prosperity.

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

[1] I recall him making this ludicrous statement, but have not been able to reference it. Perhaps someone can provide the citation in a comment.
[2] The focus by both the Clinton administration and the media on Raines, a political hack who took over a Government Sponsored Entity, was a disservice in that it distracted attention from REAL black executives, like Kenneth Chenault, and Richard Nanula, who had risen to their positions based upon their talent and hard work.
[3] To be fair, Reagan’s rhetoric was admirable. He talked constantly about lower taxes, smaller government, and more personal liberty. However, he failed to implement this ideology to any significant degree, possibly because of a Democratic Congress. More importantly, he ran huge deficits due to defense spending and the growth of entitlement programs on his watch that constituted bigger government rather than smaller.
[4] Actually, the government religion is far more harmful than the ancient religious cults. When the ancients sacrificed a goat, they neither benefitted nor harmed anyone (other than the goat). When government tries to “create prosperity,” it harms everyone in society.

>Obama and the Ghost of FDR

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>President-elect Barack Obama has not even taken office yet, and already the entire world seems to be celebrating the death of the last vestiges of capitalism. With the Democrats in control of both the executive and legislative branches of government, calls for a “new New Deal” are as commonplace today as the expression “it’s a free country” once was (you don’t seem to hear that much anymore. I wonder why?). It is not as if the “Change” Obama proposes to bring will be that radical. The United States has not practiced free market capitalism since at least before the last Great Depression, despite the ludicrous claims that capitalism is to blame for the next one. However, Obama will have to come up with something original if he is to leave an imprint upon history comparable to that of the original New Dealer. Not only did FDR turn the Hoover-created depression into the ten-year Great Depression, he has now actually reached from beyond the grave to take down the world’s largest automaker. Even apocryphal stories of the holy Obama walking on water pale in comparison to that.

It is nothing less than astounding that GM can fail so spectacularly as a direct consequence of the policies of the first FDR, while the entire world not only ignores the fact that the New Deal caused it, but actually demands another New Deal as the solution. Not even O. Henry gave us irony like this.

There is actually very little debate about what has caused the destruction of the American auto industry. Occasionally, a weak attempt is made to imply that the Big Three should not have concentrated on trucks and SUV’s while foreign competitors were making more energy-efficient vehicles. However, it is very easily demonstrated that the U.S. automakers had no choice but to concentrate on vehicles that had the necessary margins to cover their huge labor costs, both for current and retired workers. Decades of concessions to powerful labor unions have driven their costs so high that they are simply unable to make an automobile that competes with foreign imports.

There are those that argue that “unregulated capitalism” caused American manufacturing jobs to migrate overseas, where manufacturing labor was cheaper. However, this fallacy refutes itself. If “market forces” truly were in play, how did U.S. labor costs get so high? Did “greedy capitalists” simply abandon their profit ambitions and decide to pay their employees more than they could afford to? Surely, this would have required not merely irresponsibility but utter foolishness from the same crowd that MADE GM the largest automaker in the world. What caused this decades-long failure of basic business sense?

Of course, everyone knows the answers to these questions, but want to pretend that they don’t. The reason that manufacturers, especially the automakers, continually promised labor unions more than they could afford to pay was because government FORCED them to do so. It really is that simple. Under the euphemism “collective bargaining,” the government made it illegal for a manufacturer to refuse a demand from a union. An illusion of choice was sustained by merely requiring the employer to “make a reasonable counter-offer,” but the courts were there to see that “reasonable” meant that if the union asked for the moon and the stars, the employer would have to at least agree to a few planets. In the end, the employer could not choose freely as far as what to pay their employees or what benefits to offer. Without free choices, market forces are suspended.

To make this as plain as it can possibly made, this game is played like this: The union demands compensation beyond what the business model will support. The employer replies that they are unable to agree if they wish to stay in business. The government says, “Just give it to them or we’ll shoot.” Another “victory for the workers,” is won and the inevitable end draws nearer.

The entire union concession/cost escalation dynamic goes back to the National Labor Relations Act of 1935 and other New Deal legislation. It was these fundamental departures from capitalism that sowed the seeds of the eventual destruction of American manufacturing. What is honestly horrifying is that Americans can observe this government coercion of industry and seriously refer to it as “unregulated capitalism,” or to the series of concessions made by manufacturers at gunpoint as “market forces.” We are truly through the looking glass where a bull is stumbling through the china shop and the storekeeper is reprimanding the broken glass.

While it might seem unfair to blame a man that has been dead for over six decades for the failure of a company in 2008, one must consider the dominance that America enjoyed in the manufacturing sector to begin with. At one time, American manufacturers flooded the world with high-quality, low-cost goods, while still paying wages many times higher than their competitors overseas. There was no sector where America was more dominant than automobile manufacturing, an industry that America literally invented. It would not be brought to bankruptcy overnight. Year after year, decade after decade, the companies grew a little less profitable as government forced them to raise their labor costs IN OPPOSITION to market forces. It was not until decades later that those costs rose beyond the point where the companies could remain competitive.

However, the length of time it took for the disease to run its course does not change the nature of the virus that caused it. Indeed, the same reasoning could be applied not only to the entire manufacturing sector, but to other sectors of the American economy as well. The collapse we are experiencing is the result of an entire economy that has been rendered profoundly unproductive by systemic problems that all relate to government intervention into markets. We have still not found a cure for cancer or the New Deal. To be fair, the poisons we use to try to kill cancer before the they kill the patient are far less deadly and have a much higher rate of success than the medicine we are about to apply to our current economic crisis. The survival rates for many cancers continually improve. The survival rate for American businesses might not be significant enough to measure.

So, Obama will have to be creative to achieve staying power comparable to FDR’s. While Obama’s stated economic policies are terribly destructive, there is not much left of the American productive structure to destroy. More than likely, his interventionist and redistributive policies will merely apply the coup de grace to an economy that at this point merely retains the superficial façade of its former capitalist glory. In order to truly emerge from the shadow of the Ghost of FDR, Obama will have to find a completely new, original way to rend the fabric of our once-free society. One can only dread what that might be.

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>Our Last Emperor

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>Within hours of his historic victory, the official story of Barack Obama’s presidency began to be written by the corporate media machine. The general consensus of all of the coverage is that Obama is inheriting huge problems in the economy and foreign policy of the United States, and that he alone will have to solve them. Associated Press writer Jennifer Loven’s article of this morning, carried the headline, “Great Expectations: Obama will have to deliver.” The New York Times featured an article called “For Obama, A Towering Economic To Do List.” Perhaps most ominously, an article from Bloomberg contained this passage,

“The Democratic president-elect has much more on his agenda, amounting to what may be the broadest overhaul of the U.S. economy since Franklin D. Roosevelt’s New Deal. Beyond job creation and big investments in public works, Obama intends to shift the tax burden back toward the wealthy, roll back a quarter-century of deregulation, extend health-care coverage to all Americans and reassess the U.S. government’s pursuit of free- trade deals.”

Fate has not been kind to Barack Obama. His task is not monumentally difficult – it is impossible. An entire nation and, to some extent, an entire world, is looking to this relatively young man to bring back to life an American Empire that is beyond resuscitation. We are presently witnessing the spectacular failure of an ideology that has dominated the world for the past century. Like his predecessor, Obama brings terribly bad (although superficially different) ideas to the White House. Like his predecessor, Obama will make a bad situation a lot worse, albeit with different tools out of the same toolbox. However, the end of the Empire that will occur on his watch is inescapable, no matter who occupies the White House. The Empire is ending because, like all empires, it is unsustainable.

Make no mistake, Obama’s policies will make things much worse. For an economy that has never really recovered from the original New Deal, the policies described in the Bloomberg passage alone should be enough to put America’s “mixed economy” out of its misery. Following the example of past American emperors, particularly from the (in past decades) more socialist Democratic party, Obama may do damage in one term that another president might take two to do. Nevertheless, this collapse is not going to be remotely his fault, although he may take much of the blame.

As I’ve written here, we are experiencing the deflation of the mother of all bubbles, the socialism bubble. America’s problems are not the result of the mistakes of specific leaders or of the failures of specific policies. America’s problems are systemic. They are the result of building the edifice of our society and economy around the idea of central planning and an all-powerful federal government. The media ludicrously portrays the welfare state, the worldwide military force, the central economic planning via the Federal Reserve and alphabet soup regulatory agencies, etc. as failing because they have been poorly managed. Sometimes they have. The Bush Administration jumps to mind. However, it is crucial to realize that there is no way to successfully manage them. They are part and parcel of an ideology that is doomed to fail regardless of the skill of its execution. When America has prospered in past decades, it has been in spite of these institutions, not because they have been managed well. Until Americans realize this, the “change” they seek will never come.

The real tragedy is that neither the majority of Americans nor Obama himself understand this. So, all look to Obama to take some action, although most really can’t say what it is. Each time I hear Obama or one of his followers dutifully mouth his one word slogan, “Change,” I am haunted by Charlotte Iserbyt’s insightful question/retort, “From what, to what?” I have occasionally asked an Obama supporter this question. Despite long, uncomfortable silences on each occasion, I have yet to hear a reply. They do not know what they mean. They just want government to make their lives better. They do not realize that government, by its very nature, does not have the power to do so.

Not long ago, I stumbled upon Mel Gibson’s Apocalypto while channel surfing just before going to sleep. It is not a movie for the faint of heart. It depicts life at the end of the Mayan empire, complete with human sacrifice in state-of-the-art digital clarity. I was struck by the words of the sacrificer to the maniacally cheering crowd. He mentions a short list of afflictions of the people – poor crops, disease, drought – and then goes on to say,

“They say this strife has made us weak. That we have become empty. They say that we rot. I say we are strong. Great people of the banner of the sun, I say we are strong. We are a people of destiny. Destined to be the masters of time. Destined to be nearest to the gods…”

He then goes on to brutally murder two captives in order to appease the gods and renew the land.

On Tuesday night, I was reminded of this scene while watching Barack Obama’s victory speech in Chicago. The similarities were more striking than one might at first think. As in the film, tens of thousands were gathered to implore their government to save them. As in the film, Senator Obama reviewed the list of problems afflicting his people (two wars, the financial crisis, healthcare costs, etc.). As in the film, President-elect Obama’s proposed solutions will do nothing to relieve the suffering of his people. As in the film, the tens of thousands gathered erupted into wild applause and adulation at each meaningless pronouncement. I am not sure what I found more horrifying: the sight of thousands of people cheering a brutal murder, or the sight of the citizens of the so-called “land of the free” worshipping their government. Each is an outward indication of systemic societal flaws within.

Perhaps President Obama’s legacy will find some luck. The great majority of Americans still believe that FDR resolved the Great Depression, when in fact he caused it. Perhaps Obama will get some credit for the eventual recovery in America, even though it will happen in spite of his policies rather than because of them. Unfortunately for him, it would be better if Americans finally saw their present form of government clearly for what it is.

After the end of the Empire, there will still be a United States of America, just as there is still an Italy, France, Spain, and England. However, this moment in American history is different. In the past, the productivity of the American economy has eventually been able to overcome the disastrous policies of an FDR or an LBJ. That is no longer the case. The accumulated effects of government intervention and government-created systemic problems that have been built into the American economy have finally destroyed that productivity. The parasite has killed the host. This crisis is going to force some substantive change, whether for better or for worse.

The real question confronting America is what will come next. None of the empires of the past were succeeded by freer societies for their people. Will America take a different path? No nation in history has achieved the liberty of its people that the United States did during its freest, most prosperous period. It is possible that this spirit of liberty is not completely extinct. Following the reign of this our last emperor, we will have the opportunity to truly remake the United States. Instead of repeating the mistakes of history, we can make history once again. After the fall of our empire, we will have the opportunity to restore our republic and reclaim our freedom. That is the real change that we need.

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>The Crusade Against Greed: Government’s Scapegoat

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>Despite the fact that this economic crisis is unfolding exactly the way that the Austrian economists predicted it would, along with the impending police state that Hayek predicted over 60 years ago, the American people show absolutely no sign of figuring out the CAUSE of this crisis. The most discouraging aspect of the whole debacle is the propensity of the American people to take the government bait by blaming this financial and economic collapse on “greed.” This plays right into the government’s hands.

As platitudes go, those warning against greed are the ones that people should be most suspicious of. Anyone that seems overly interested in making you feel guilty about accumulating too much property probably has an interest in acquiring what you leave behind. If nothing else, the fact that both Republicans and Democrats are vilifying greed should make people think twice about whether they may be burning the wrong witch when they seek to blame greed for our present troubles.

Webster’s defines greed as “a selfish and excessive desire for more of something (as money) than is needed.”[1] Any student of economics should be suspicious of this vice. While “selfish and excessive” certainly conjures up distasteful emotions, those are little more than prejudicial adjectives accompanying the real substance of the definition: desire for more of something than is needed. Does this mean that anyone with a savings account is greedy?

While one could counter that some savings are actually “needed,” a moment’s reflection should have one questioning what the real motivation for vilifying greed might be. Who do we find denouncing greed the most vehemently? The rich and powerful. Does this bother anyone besides me?

Let me be clear. Greed had nothing to do with causing this financial crisis, no matter how many times you are told that it did by the media and politicians looking for votes. In economics, the goal of every market participant is to acquire “more than is needed.” If the truth be told, acquiring more than is needed is what Jefferson really meant when he talked about the “Pursuit of Happiness.” Property – the fruits of your labor – is the means by which you sustain your existence and provide opportunity for intellectual and spiritual enrichment. Those who must work every waking hour just to provide the basic necessities of life have time for neither quiet meditation nor for reading Dostoevsky. By acquiring more than you need, you create leisure time to pursue your other interests and enable yourself to provide for your children or to give to charity. In this life on earth, acquiring more than you need is the means to happiness and security for yourself and those that you love. It is also your unalienable right, as our founders repeatedly told us.

The whole point of participating in a free market is to acquire as much property as you possibly can. Not only is there nothing wrong with this, it is actually vital to the health of the market. With every participant acting in their rational self interest to maximize their wealth, the minds of all participants are leveraged and society as a whole reaps enormous benefits.

One of the key mistakes that critics of free market capitalism make is failing to understand that there is only one way to acquire great value in that system: to offer great value in return. Listening to the proponents of socialism, one might be led to believe that one can only gain at another’s expense. This is not true. In a laissez faire capitalist system, economic agents trade to their mutual benefit. Every exchange is perceived by both parties to be an EQUAL exchange, or it does not occur. That is the nature of VOLUNTARY exchange. No one deliberately causes themselves harm. While they may not always trade wisely, more often than not they do, and in every case they make an exchange that they believe is in their best interests. One can only consume great wealth by producing great wealth.[2]

Thus, it should be clear that there is no such thing as acquiring “too much” in a free market. Only by supplying enormous value can any economic agent acquire enormous value. Acquiring property in a voluntary trade by offering equal value in return is the essence of “earning.” In a free market, all transactions are voluntary. Therefore, all wealth must be earned.

A second reason for wrongly perceiving a threat from greed in a free market is the failure to acknowledge the role played by risk. There is always some amount of wealth that can be acquired with very little risk. However, in order to achieve greater amounts of wealth, economic agents must accept greater amounts of risk. Risk acts as a counterbalance to what is commonly referred to as greed. If an economic agent seeks to acquire value far beyond the value he is offering in return, he can only do so by taking inordinate risk, and will virtually always fail. While the attempt to acquire value with this type of speculation might not be admirable, others certainly have no right to forcefully stop him from doing so. The risk is his, as are the gains or losses he realizes as a result. In a free market, there is no moral or economic justification for attacking “the speculator.”

That brings us to our present crisis and its real cause. It was not greed – the desire to accumulate more than one needs – that caused the crisis. What caused the crisis was government removing the risk of lending to sub-prime borrowers by guaranteeing mortgages through Fannie Mae and Freddie Mac. With no fear of losing their investment, lenders had no reason not to take inordinate risk in lending to sub-prime borrowers. In fact, Fannie Mae CEO Daniel Mudd told the New York Times that he was actually pressured by the government to continue increasing the risk that Fannie was exposed to. According to Times reporter Charles Duhigg,

“Capitol Hill bore down on Mr. Mudd as well. The same year he took the top position, regulators sharply increased Fannie’s affordable-housing goals. Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority homebuyers.”[3]

Whatever the true intentions behind creating these government-sponsored enterprises (GSE’s), they violated moral and economic law with predictable – and predicted – results. This intervention into the market and suspension of market forces was the direct cause of the sub-prime crisis, not greed.

This was more than just a bone-headed mistake by government. It was a crime. Governments are instituted to secure individual rights, including property rights. Instead of protecting the property of its citizens, government stole it to guaranty sub-prime loans. Now that its ill-advised program has failed, government is looking for a scapegoat. Enter “the greedy financier,” and the real culprit walks.

None of this is meant to absolve the lenders, who knowingly made loans to people who could not pay them back. However, the guilt should be shared equally between the lenders, the borrowers, and the government. It was not greed that they were guilty of, it was stealing. They stole money from the taxpayers to make the loans possible. All three parties benefitted by passing risk onto taxpayers without their consent. The problem was not the desire for too much wealth. It was the desire for wealth that they did not earn.

This is an important distinction, because we will soon be subject to a government “solution” to this supposed problem of excessive greed. Blaming greed for the crisis plays right into the government’s hands, as it allows government to respond with measures that will limit the amount of money that can be earned, even legitimately. Already we are hearing calls for more regulation. This amounts to a further violation of our rights and will continue the destruction of our markets. On the other hand, if we recognize the true cause of the crisis, we can demand less regulation and an end to government intervention into the marketplace, which is what our markets actually need. One cannot prescribe the medicine until one has accurately diagnosed the disease. Don’t let the government off the hook by buying into their crusade against greed. Instead of free markets, let’s punish the truly guilty for once.

[1] https://www.merriam-webster.com/dictionary/greed
[2] It should be noted that this applies to truly free markets. In the U.S. mixed economy, government privilege allows some to accumulate great wealth because of that privilege, rather than any great value they offer the marketplace in return. Of course, the solution to this is to eliminate government privilege, not restrict the market further.
[3] Duhigg, Charles “The Reckoning: Pressured to Take More Risk, Fannie Reached Tipping Point” The New York Times Oct. 4, 2008 https://www.nytimes.com/2008/10/05/business/05fannie.html?pagewanted=1&sq=mudd&st=cse&scp=1

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>The Bursting of the Socialism Bubble

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>In the midst of what “debate” there has been about the eventual bailout of the financial sector, it is clear that even most of those opposed to the bailout do not understand what is happening. The unfortunate aspect of some of the commentary is that there is a faction arguing that without the bailout, the stock market will not crash. Thus, the debate is shifted to “which course of action can best protect stock market values?” They cannot be protected. The government argues that the credit squeeze could result in unemployment, while the other side argues that unemployment will not necessarily result if the bailout is not passed. Another position blames the crisis on too little regulation. All of these positions are wrong. There will be a painful adjustment in the stock market and massive unemployment, whether the government bails out the financials or not. The only question is how long it will last. That is reality when any bubble deflates.

The most unfortunate result of all of this misunderstanding would be for the American people to reverse their position and support the bailout just because there are severe market losses if it does not pass. Their initial instinct was correct, whether for the right reasons or not. The losses that these companies suffered due to massive malinvestment are real, and that must eventually be reflected in the value of their stocks.

Similarly, it will be unfortunate if the American people are convinced that more regulation is needed to prevent this from happening again. More regulation will not prevent a problem that was in part caused by too much regulation.

We have heard about the “tech bubble,” the “housing bubble,” and even the “dollar bubble.” All of these are real. The dollar bubble is about to burst, with global catastrophic consequences, but even that is not the biggest bubble that is out there. The biggest bubble, which has been building literally for the past century, is what I will call “the socialism bubble.”

What is the socialism bubble? Let’s define “bubble” first. The term “bubble” is used in economics to describe a large misallocation of resources (malinvestment). Anyone with even a passing familiarity with economics knows the basics: the central bank artificially infuses money and credit into the economy, that money flows toward projects that appear to be profitable under the artificially created conditions, but aren’t, and those projects ultimately fail, causing the bursting of the bubble. The worst part of the bursting of a bubble is that the greatest misallocation of resources has been human resources, and those people now have to find new jobs. They have to be reemployed elsewhere, in more profitable ventures, just like the capital goods that were misallocated to the projects. That is why unemployment accompanies recessions.

Like any other bubble, the socialism bubble is also a misallocation of resources. It has just taken longer to form and is much huger in scope. The principles behind it are the same, however. It represents government intervening into the economy to create artificial conditions that misallocate resources. Under these artificial conditions, the entire economy appears to be profitable, but isn’t. When the inevitable bubble bursts, all of the resources, including human resources, that were misallocated, become unemployed. We are about to experience the massive correction following this socialism bubble.

How did it happen? One must look back to before it started to understand it completely. It started at the turn of the last century. The United States of the 19th century had the closest thing to laissez faire capitalism ever achieved in history, arguably followed next by Great Britain. The defining principle of laissez faire capitalism is VOLUNTARY EXCHANGE. With everyone acting in their rational self interest, the minds of all participants were leveraged by the system to consistently produce optimal results.

In the laissez faire marketplace of the 19th century, wages generally declined over time. A pitiable lack of understanding of economics caused social reformers to condemn the free market for this.[1] They ignored the fact that the general price level fell faster than wages, making workers richer in real terms. They attempted to improve on the results that laissez faire capitalism had produced with government policy.

However, there is only one alternative to voluntary exchange: INVOLUNTARY EXCHANGE. Government economic policies FORCE economic agents to make choices that they otherwise would not make. No matter how one tries to euphemize socialism, that is what it is. By attacking voluntary exchange, socialism attacks the mechanism that creates wealth. That is the true root of the problem.

One way in which this manifests itself is in the cost of production. Government cannot come to a company that makes automobiles and force them to pay their employees more, provide them healthcare or pensions, pile one regulation on top of the next in terms of how the company operates its business, and then expect the company’s cost of making that automobile not to rise. As the cost of production rises, the company must find a way to keep the cost of producing their product below the market retail price. They might decide to manufacture SUV’s, which have larger margins, even though a spike in gasoline prices could put them out of business. See General Motors. The truth is that none of the American auto manufacturers are able to produce an automobile that is competitive in the market. Government will come up with a host of villains to blame for this, but look at the balance sheets of the Big Three and you will see why they are not viable. Concessions to labor unions (mandated by government) have made it too expensive for them to operate.

Similar government intervention is behind virtually all of America’s loss of manufacturing infrastructure. It is simply not economically viable to manufacture anything in the United States anymore. This is not a natural result of free markets. As previously noted, wages and other costs of production fell under the laissez faire system. Falling prices are a natural result of economic growth and innovation. Only the artificial conditions created by government intervention – the use of force to coerce economic agents – have made it more expensive to make things in America.

The cost of production is not the only pressure that socialism has put on the American economy. The welfare programs currently consume 11% of GDP. Keynesians would say that this is ok, because the recipients spend that money and increase demand. Hopefully, the coming calamity will discredit this economic school of charlatans once and for all. Wealth is created by production, not consumption. This redistribution destroys voluntary savings and ultimately capital. It also eliminates the other conditions that accompany a period of voluntary savings that facilitate natural expansion of the productive structure.

In any case, increasing socialism has put artificial pressures on the American economy for almost a century, and those pressures have accumulated to make America profoundly less productive. Like the communist countries, we have lived in a dream world in which government could use coercion to change economic reality. We have pretended that a business venture can spend more than it takes in and continue to survive. For a time, the free market aspects of America’s “mixed economy” allowed her to overcome these negative pressures, but that time has passed. Economic reality is about to assert itself in devastating fashion.

For at least two decades now, America has been producing far less than she consumes. All things being equal, this would not have gone on for long. However, all things have not been equal. The United States has a central bank, and the privilege of printing the world’s reserve currency. This is why the socialism bubble has been become so enormous.

Instead of a drop in consumption and a rise in unemployment[2] as its manufacturing sector migrated overseas, America went right on consuming, and those employees found new jobs in the “service economy.” With the Federal Reserve providing an unlimited supply of fiat currency, and with the ability to ultimately export that inflation overseas by importing foreign goods in exchange for U.S. dollars, America has been able to maintain the same standard of living as it enjoyed in its productive days. As long as foreigners accepted U.S. dollars, the dream world could persist. The bubble continued to inflate.

The ominous part of this is that today a large percentage of the American labor force is now misallocated by this bubble. There are tens of millions of American workers that are employed in ventures that will cease to exist once the socialism bubble bursts. We have seen the beginning of this with the failures of large retailers and restaurant chains, but that is only the tip of the iceberg. Worse yet, unlike previous recessions, there are no manufacturing jobs for these displaced workers to redeploy to. The productive structure must be rebuilt, and that doesn’t happen overnight.

Therefore, Americans must realize that a stock market crash[3] and mass unemployment are inevitable, whether government intervenes or not. The only question now is how long those undesirable conditions will last. There is no “solution,” government or otherwise, that will allow us to avoid this correction. If the government does not intervene, the stock markets will crash faster and the layoffs will begin sooner, but the total period of adjustment will be far shorter. If the government intervenes, no matter how they do it (including by allowing the Federal Reserve to massively inflate the currency), the adjustment period will be stretched out, with continued new malinvestment even as liquidation of current malinvestment occurs. That was the story of the Great Depression.

The only course of action that can speed up the recovery is a return to the laissez faire capitalism that made America great in the first place. This would include eliminating unnecessary regulation, abolishing the central bank and restoring sound money, eliminating minimum wages and other artificial price controls, capping and eventually phasing out the entitlement programs, eliminating other massive government spending like military welfare for other countries and unnecessary war, and restoring protections of property rights. In other words, Freedom. Don’t you think it’s time we tried it again?

[1] The lack of understanding of “real wages” was certainly not the only misconception of the social reformers, but it was a major misconception and representative of others.
[2] The European mixed economies have already experienced this adjustment, debased their currencies, regrouped under the European Union and an new currency, and are presently pursuing the same failed ideology to destroy this new economy as well.
[3] It is conceivable that the Federal Reserve could inflate the currency so much that the stock market remains at $11,000. However, if $11,000 only buys 10 loaves of bread at that point, it would still represent the same devaluation as a crash.

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>Be Careful What You Fight For

The Failure of Capitalism: Government’s Great Lie

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President_George_W._Bush_bipartisan_economic_meeting_Congress,_McCain,_Obama The historic rip-off of the American public that has just taken place met with little resistance from the victims. Lest any inconvenient contrarians or clear thinkers rise up from the masses, the Great Rip-off comes with a Great Lie to justify it. While there has never been a shortage of factions ready to decry the evils of capitalism, it is important during a heist of this proportion that EVERYONE get on board. Therefore, virtually every politician, including the Republican nominee for president, and the entire media are blaming the current meltdown as a failure of free market capitalism. This is government’s Great Lie.

A lie this enormous is necessary when you are stealing trillions of dollars from 300 million people who are watching your every move. To pull off a crime like that, you have to convince the victims you are really helping them out.

Despite decades of government intervention into the economy, including massive expansion of entitlements and regulation during the Bush administration, the American public seems to accept the narrative characterizing the past decade as “an experiment” with laissez faire capitalism. House majority leader Steny Hoyer told RTTNews,

“With inflation, everybody who had any investment has lost money, 401(k) savings plans, pensions, they’ve lost money,” he said. “That’s a stark failure of the economy and this administration’s laissez faire, take the referee off the field, let anyone do whatever they want to do and everything will be fine.”[1]

In an article published Saturday morning, AFP reported,

“The top Senate Democrat, Majority Leader Harry Reid, blamed the crisis on Bush’s laissez-faire policies, then called on the president to better explain why such a sweeping program was needed as the country prepared for a presidential vote in less than six weeks’ time.”[2]

While such rhetoric might be expected from Democratic Party leaders, especially during an election year, there is no substantive rebuttal from the other side. Quite the contrary, as John McCain’s interview with the New York Times makes clear.

“I’m a Teddy Roosevelt Republican. Teddy Roosevelt was the first one that took on the big trusts, first time we began to have regulatory agencies. He said, unfettered capitalism leads to corruption. I’ve always agreed with that.”[3]

If the Great Lie is this crisis representing a failure of capitalism, there are a lot of little lies that help support it. Congressman Hoyer’s characterization of laissez faire capitalism as letting “anyone do whatever they want to do and everything will be fine” is just such a supporting lie. It is a variation of the attack on freedom itself as if it places no limit on anyone’s actions. In both cases, the limit is harming another individual.

Laissez faire capitalism does not allow contracts to be broken, nor does it allow force or fraud to be initiated in forming them. While these limits are vital to laissez faire capitalism, Congressman Hoyer would have us believe otherwise. Take note of Hoyer’s choice of words. Even in the absence of any harm to others, Hoyer has an aversion to people doing “whatever they want to do.” He personifies statism.

The real substance of the Great Lie is the characterization of the American economy in any recent decade as “capitalism.” It isn’t. Even our government and media establishments acknowledge we have a “mixed economy,” supposedly combining the benefits of free market capitalism with socialist central planning and redistribution. The Lie says that it has been too much “unfettered capitalism” that has caused our current crisis, rather than too much socialist central planning. How can we know which is to blame?

It’s a false dilemma. In reality, there is no such thing as a mixed economy.” We are witnessing the inevitable failure of that idea. It is doomed from the start, because the moment any central planning is introduced, capitalism ceases to exist. Once government intervention is introduced anywhere, it must eventually be introduced everywhere, resulting in all of the failures of socialism throughout history.

In truth, there is no “capitalism” at all in our mixed economy.

The proof? Let us consider what capitalism is, and whether its definition applies to the U.S. economy. Merriam-Webster defines capitalism as,

“an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.”[4]

Of the three elements in this dictionary definition, private ownership of capital, voluntary exchange, and competition, it is the second that is fundamental to the other two. Why? First, as long as there is voluntary exchange of property, there will be private ownership of capital. There is no way for government to acquire property in a “voluntary exchange.” Even a revenue generating enterprise started by government has to be funded into existence by tax money, and taxes are collected under the threat of force. Therefore, in a system where all of the transactions are voluntary, all property, including capital goods, remain privately owned.

Second, when all transactions are voluntary, most buyers and sellers are going to try to act in their best interests. Sellers will constantly try to convince buyers to purchase their products or services, rather than those of others. Likewise, buyers are going to try to find the best products at the lowest prices, motivating sellers to maximize their quality and minimize their price so that their products will be chosen over those of other sellers. Therefore, voluntary exchange naturally results in competition. It is competition that motivates innovation and improvement in efficiencies, and lowers the cost of production. Thus, it is free choice that ultimately drives the wealth-creating mechanism of capitalism. Without free choice, there is no capitalism.

Investments in the U.S. economy can hardly be described as being determined by private decision when government actively steers the investment decisions of capitalists. It does so either by outright subsidization of investments it favors, or by providing tax breaks to companies that make those investments. It is ironic that government often characterizes this second method as positive action to stimulate growth. After taxing all business activity to the brink of insolvency, it then gives back a small portion of the booty to investors willing to do its bidding. By doing so it wins political support, and at the same time distorts the economy, creating new problems to solve with future interventions. Thus, the government protects the job security of its incumbents and creates the need for more government all in one fell swoop.

Neither are prices really determined by competition in a free market in the U.S. economy. Prices are routinely fixed by government intervention, such as the prices of agricultural produce by government farm subsidies or the price of healthcare by massive government subsidization through entitlement programs. The price of labor is distorted by minimum wages and massive regulation that makes employing people infinitely more expensive than it otherwise would be. Interest rates, or the price of borrowing money, are set by the central bank, which is the most harmful price fixing of all (we will look more closely at this momentarily). While some prices are set by market forces, a large percentage is affected in one way or another by government.

Similarly, the distribution of goods in the U.S. is sometimes determined by competition in a free market, but that is only after government has taken over 12 percent of all goods and services produced in the economy and redistributed them through massive welfare programs, destroying the possibility of any real, voluntary savings. For those goods that are distributed in part as a result of competition, it can hardly be described as occurring in a “free market” when employers cannot really decide for themselves who to hire, employees cannot accept any wage they wish to, massive regulation protects large companies from smaller competitors, and even imports and exports are subject to over 20,000 pages of regulation in “free trade agreements” like NAFTA.

Most harmful of all is the supreme intervention into the economy by the central bank, which not only artificially sets the interest rates that ultimately determine the cost of investment, but artificially controls the volume and purchasing power of the money supply itself. While truly free markets are characterized by a steady decrease in general price levels over time, the artificial inflation of the currency by the central bank reverses this process. While the business cycle is relatively mild in a free market, the bubble-bust cycle caused by central banking ranges from painful to castastrophic.

Thus, the economic problems facing America today are not caused by capitalism, because it doesn’t really exist in the U.S. economy. Capitalism results in a natural, economic equilibrium. Central planning disrupts this equilibrium. In fact, not only are our economic problems caused exclusively by government intervention into the marketplace, rather than capitalism, these problems are the INEVITABLE RESULT of government intervention.

Why? Central planning, by definition, precludes free choice, and therefore capitalism, but does not change human nature. Human beings will still attempt to make choices in their rational self interest. This is one of the reasons for all of the unforeseen consequences of central economic planning. When government forces buyers and sellers to make choices other than those they would make otherwise, those economic agents seek another way to pursue their rational self interest. As these alternative decisions naturally run counter to the government’s desired result, more force is needed to prohibit those choices by economic agents, or to force other economic agents to address the consequences of its intervention. That in turn causes further unforeseen results, requiring further use of force by government. Once government intervenes in the market, it is inevitable that it will have to continue to intervene until it controls every aspect of economic activity. This has been the trend in the U.S. economy for the past 100 years.

In addition, government intervention cannot change economic realities, such as the cost of production. Only innovation can do that, and innovation cannot be created by government decree. Therefore, when government intervenes into the economy, all of the economic forces that were acting upon the market before the intervention continue to act upon it. For example, as Von Mises pointed out, if the government sets a price ceiling for milk, the smaller, marginal producers of milk can no longer afford to continue producing it, and may decide to produce cheese or butter instead. By intending to make milk more available to the poor, government has actually caused a decrease in supply. It then has to fix the prices of factors of production that are necessary to produce milk, causing the same pressure on marginal suppliers in that market and a decrease in supply of those factors of production. The cycle continues to repeat until the government either ceases to intervene in the market completely or nationalizes the entire industry.[5] At that point, even private ownership of capital no longer exists.

Thus, there are some conclusions that can be drawn. One is that there is really no such thing as a “mixed economy.” Economic forces do not allow it. Allowing some economic agents to choose freely in some circumstances does not produce the same results as when all economic agents are allowed to choose freely in all circumstances. Economic events are too interrelated. If the government subsidizes ethanol production, it decreases the supply of corn for food, and drives up food prices. When it imposes a minimum wage, it causes workers that would otherwise have jobs to be unemployed. That in turn decreases supply and drives up the prices of consumer goods. Economic agents making free choices under these circumstances necessarily choose differently than they would if conditions were different. There is no such thing as controlling part of a free market. Therefore, our mixed economy really is no such thing. If the choices of all agents are not free, there is no capitalism. The economy that results simply doesn’t fit the definition.

Another conclusion that can be drawn is that attempting to achieve a mixed economy inevitably leads to complete socialism. As we have seen, the first government intervention into the economy necessitates further interventions, which in turn necessitate further interventions still. The cycle continues until government controls all of the distribution and eventually must take control of all of the capital, as there are no longer private firms that are willing or even able to continue producing under the distorted economic conditions. For those who would argue on behalf of complete control of capital and distribution by government, the plain facts of history are against them. Socialism in its purest form has consistently resulted in mass shortages, famine, starvation, and eventual death for tens of millions of people.

The solution to all of our problems is simple: FREEDOM. While that may sound like a bland platitude, it is nevertheless 100% true, for all issues, without compromise. As Thomas Jefferson said,

“Our legislators are not sufficiently apprised of the rightful limits of their powers; that their true office is to declare and enforce only our natural rights and duties, and to take none of them from us. No man has a natural right to commit aggression on the equal rights of another; and this is all from which the laws ought to restrain him.”[6]

This “Non-Aggression Principle” is often associated strictly with libertarians or objectivists, but as you can see it did not originate with either. It was a central tenet of the founding fathers, because this principle is THE VERY DEFINITION OF FREEDOM ITSELF.

While it is possible to garner wide support for this principle on many social issues, such as gay marriage, somehow the great majority of people cannot seem to apply it to economics. Despite the fact that economic freedom is the most vital to our survival, as it is the means of sustaining our existence, there are even some libertarians that would apply different rules to economic policy than to the other “civil liberties.” It is vital to recognize that not only is this principle equally applicable to economics, BUT THAT IT IS IN REGARD TO ECONOMIC POLICY THAT IT IS MOST IMPORTANT. It is the only principle that prohibits government intervention and central planning. It is the principle upon which a truly free market is built.

The move toward a truly free market cannot occur without painful side effects. When resources are misallocated on a mass scale, especially human resources, reallocating them means losses, unemployment, and economic suffering in the short term. This would have been the result of government choosing not to intervene in the market to bail out Fannie, Freddie, Bear Stearns, and AIG, to buy up the bad debt of other debt holders, and to guaranty the assets in the money market. However, that economic suffering has not been avoided by government intervention, but merely postponed. In fact, the longer that government intervention succeeds in postponing the inevitable reallocation that must occur, the more resources become misallocated and the more painful the correction will be. At present, we are facing the largest correction in economic history, and government has postponed it longer than a correction has ever been postponed before. Make no mistake. The reallocation is inevitable, and we will experience it either voluntarily or involuntarily.

However, before considering how to survive the painful consequences of this correction, we must first decide that a free market is what we want. This will never happen until the vast majority of Americans recognize the Great Lie for what it is. Doing so immediately might bring political pressure to bear on our government to reverse its present policy while the Great Rip-off can still be undone. This is unlikely to happen anytime soon. It is much more likely that the trend toward socialism will continue until it reaches the conclusion that socialism has reached throughout history: economic collapse. We are closer to that end than most people think.

At that point, Americans will have a choice. They can continue to believe the Great Lie and allow government to try to solve the problem, or they can choose to see the truth and demand their freedom. Historically, the government solution to an economic collapse has been totalitarianism. The fact that the least economically free nations of history were also the most totalitarian is no coincidence. In order to avoid this, Americans must cease to apply special rules to economics and realize that there is no freedom at all without economic freedom. The economics of freedom is laissez faire capitalism. The Great Lie says that laissez faire capitalism doesn’t work. This is merely the application to economics of an even greater lie – government’s most insidious, Greatest Lie of All: that freedom itself doesn’t work. When Americans finally recognize and reject this fallacy, they will once again find themselves on the road to prosperity and peace.

[1] House Majority Leader Slams Bush For Economic Policies RTTNews
[2] “Top Democrats skeptical of Bush bailout package” AFP September 20, 2008
[3] Transcript of an interview with Senator John McCain by John Harwood of The New York Times and CNBC, as provided by CNBC and published in the New York Times on September 21, 2008
[4] https://www.merriam-webster.com/dictionary/capitalism
[5] Von Mises, Ludwig Middle-of-the-Road Policy Leads to Socialism from Two Essays by Ludwig von Mises (Auburn, Ala.: The Mises Institute, 1991, pp. 42-68). https://mises.org/midroad.asp
[6] Jefferson, Thomas Letter to Francis Walker Gilmer June 7, 1816

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.