Category Archives: Progressivism

>A Century of Bipartisan Tyranny

>“Americans are tired of partisan bickering. They are looking for their representatives in Washington to put partisanship aside and get to the work of the American people.”

Statements like this have become a mantra over the past few decades. Like Democracy, “Bipartisanship” is now held up as an ideal and an end in and of itself. It would seem that no matter how ludicrous or destructive a policy might be, it must be just and beneficial if both major political parties agree that it should be law. Implicit also in this reasoning is that a truce between the two rival gangs in Washington, D.C. on any particular issue represents the consent of the governed for that policy – a fallacy that is becoming increasingly exposed as the American people begin to take to the streets.

The first question that comes to mind when hearing the bipartisan mantra is “who are these Americans that are tired of partisan bickering?” I haven’t been able to find any of them. In my own experience, Americans seem to be divided into two groups. The first and largest has no idea what their representatives are doing or what they stand for (or even who they are in many cases). They have no interest in the political process and regard any broach of the subject as in slightly bad taste. The second, smaller group is rabidly partisan; they will back whichever side they associate themselves with no matter how wrong their side might be on a particular issue and attack the other side no matter how right it might be. They associate left or right with issues that largely do not affect them, like gay marriage, abortion, or stem cell research, while entirely failing to evaluate either party on its core purpose: to secure their unalienable rights to life, liberty, and property.

Reality aside (a prerequisite for politics in Washington), this mantra is repeated ad infinitum at every opportunity. Whenever the two parties reach some dubious consensus, as they currently have on Keynesian economics, we have to endure the typical gloating about how “Republicans and Democrats came together in a bipartisan manner” to “get the work of the American people done.” There is the implication that these parasites somehow made some sacrifice in putting aside their differences to agree upon what usually amounts to another scheme to loot more of the American people’s rightful property. In reality, the destruction of our republic that has occurred over the past century has been completely bipartisan.

While one can find examples of these two parties collaborating against us every single day, let us consider some of the more egregious milestones over the past century and what part both parties played in each.

The seminal moment was, of course, the bloodless coup of 1913. During the first year of the Wilson administration, the federal government established the income tax, the Federal Reserve System, and passed the 17th Amendment. All of these changes were indicative of the change of philosophy in Washington about the role of government. No longer was the government’s purpose to secure individual rights, as the Declaration of Independence said it was. Instead, the role of government was now to achieve societal goals of social and economic equality and a world safe for democracy – all at the expense of individual rights.

We associate these ideas and these changes with Woodrow Wilson, but the “progressive movement” certainly did not start with him. In fact, it was Republican Theodore Roosevelt that began the assault on free enterprise with his “trust-busting” and other incursions into the markets that set the stage for Wilson. Remember also that Wilson was only able to get into the White House with 42% of the popular vote because Roosevelt jumped into the 1912 election on the Progressive ticket. Why did he challenge his former protégé William Howard Taft? He did so because Taft turned out not to be progressive enough – especially in withholding support for a central bank. The bloodless coup of 1913 – which planted the seeds for the destruction of the American Republic – was a completely bipartisan effort.

Moving forward a few years, let us look at the next massive move away from liberty – the New Deal. Here again history grossly distorts reality in characterizing Democrat FDR’s policies as diametrically opposed to those of his Republican predecessor, Herbert Hoover. Ironically, Roosevelt the Democrat actually ran on a platform criticizing Hoover’s policies as fiscally irresponsible. However, just like the Obama bailout/interventionist policies of today, much of FDR’s “New Deal” was merely an expansion of the policies of his Republican predecessor. By the time that FDR took office, Hoover had already worsened the depression with his own bailout program via the Reconstruction Finance Corporation, set up a Public Works Administration to
expand federal public works, created the Home Loan Bank discount system to reflate the deflated housing bubble, and perpetrated other crimes against free enterprise and property rights that FDR would merely expand upon. To be fair, FDR made much more fundamental changes in establishing Social Security and the vast regulatory system that continues to strangle our economy and violate our rights, but the underlying philosophy was shared by both Hoover and FDR. Therefore, score the Great Depression and the resulting destruction of liberty as another great victory of “bipartisanship.”

Let us move on to the next fundamental shift – Lyndon Johnson’s “Great Society.” It was during this administration that the other of the two entitlement giants that will eventually bankrupt America was born – government-provided healthcare under Medicare and Medicaid. Johnson actually pursued his “War on Poverty” and other “social reforms” at the same time as he tried to prosecute a permanent war in Viet Nam. This was the infamous “guns and butter” philosophy that led directly to the collapse of the U.S. dollar and the rampant stagflation of the 1970’s.

Again, conventional wisdom or perhaps intentional spin characterizes these destructive policies with the “big government Democrat” Johnson, but he did not emerge out of a vacuum. History seems to have forgotten that it was the Republican Eisenhower that created the massive Department of Health, Education, and Welfare within the federal government, setting the stage for federal government involvement in healthcare. Similarly, the Republican Nixon ran on a platform to end the Viet Nam war, but managed to take almost six years to do so, while assaulting free enterprise himself with wage and price controls to address the inflation that he helped perpetuate with his own spending on top of Johnson’s. In retrospect, it is clear that both the “Great Society” and the “guns and butter” disasters were completely bipartisan efforts.

This brings us to the present. Another depression is upon us, and the similarity of the Bush/Obama dynamic to that of Hoover/Roosevelt couldn’t be more striking. Again, we have a Republican president that is criticized for being “too laissez faire,” when in fact he was a massive interventionist both before and during the crisis. Just as in 1933, we have a new Democratic president that is merely continuing or expanding the interventionist policies of his Republican predecessor, yet is credited for bringing some ill-defined “change” to Washington. Like FDR, President Obama seems intent upon using the crisis to make even more fundamental changes to American society – among them universal government healthcare – that will further destroy our liberty and prosperity. However, whatever destruction Obama brings upon our Republic can only be seen as the result of a completely bipartisan effort. Clinton and then Bush created the crisis with their policies encouraging home ownership at the expense of responsibility and property rights (remember the loans were guaranteed with other people’s money through Fannie Mae and Freddie Mac), and Bush and Obama responded to it with further violations of property rights that turned it from a recession to a depression. Score another “victory” for bipartisanship.

The fact that any substantive difference between the two parties is an illusion was never more apparent than during the last presidential campaign. It astounds me how anyone could have perceived any difference in the platforms of these two candidates. By the time he was nominated, Obama had completely abdicated his anti-war position, now campaigning that America is merely in “the wrong war,” and that he would get us into the right one. For both candidates, the vast overseas military empire was going to grow. In addition, both candidates supported the bailouts, more intervention into the economy, more regulation on commerce, and even the idiotic idea that American young people are somehow obligated to do slave labor for their government (yes, McCain also supported a “national service” plan – a fact the right has conveniently forgotten).

The similarity of these positions is rooted in a similarity of philosophy shared by both parties. In contrast to the most important of our founding principles – that the rights of the individual are unalienable and cannot be taken away – not even by majority vote – both of our political parties believe that the state and the state’s needs take precedence over the rights of the individual. After a weak appeal to traditional Republican rhetoric about individual liberty, John McCain went on to advocate a philosophy at least as collectivist as Obama’s, continually appealing to Americans to sacrifice the pursuit of their own happiness for a cause “greater than themselves.”

Likewise, Obama continually reminded Americans that they had a duty to “service and sacrifice.” Like most of his platitudes, he never answered the most crucial questions. Sacrifice What? For Whom? Allow me to answer them now, on behalf of both Obama and McCain. “Sacrifice your individual rights, especially the hard-earned fruits of your labor, for the needs of your country – “country” and “government” being synonymous for both of them.

It should be abundantly clear that the left-right, Republican-Democrat dichotomy that we have been divided by over the past century has been one, vast Jedi mind trick. Over and over, the political ruling class has divided us with acrimony over meaningless, fringe issues while the two parties have consistently collaborated to loot our wealth, rob us of our liberty and dignity, and transform American society from one built upon self-reliance, personal responsibility, and the rule of just laws to one built upon dependence, fear, and legal plunder. It is past time for a third party movement. It is time for Americans to reject the paradigm of political party altogether. The answer to the problem of political gangs using the brute force of government to rob its people is not to form a rival gang and try to compete for or share in the plunder. The answer is to dissolve the two rival gangs and replace them with nothing.

As Americans, we have it in our power to do this in just eighteen short months. As Thomas Paine put it, “We have it in our power to begin the world over again.”[1] What is imperative is that we do not allow ourselves to fall for the same trick that has been played upon us in the past. We cannot continue to vote one political party out and vote the other one in and expect any substantive change. Instead of succumbing to voting for the lesser of two evils, I would suggest a third alternative. We can select representatives from among ourselves, affiliated with no political party and committed in writing to what most Americans truly want – a government that protects their life, liberty, and property and otherwise stays out of their lives.

No special training is needed for this job. If there was any illusion that the members of the entrenched political class in Washington, D.C. possess some special skills that make them more qualified for the job than average Americans, their performance over the past year and a half should have dispelled that falsehood completely. Not only are they not qualified for leadership, but they are beholden to interests that conflict with the interests of their constituents. There is absolutely no way we can improve our lot while they remain in power.

Americans are waking up to this. The consistent message from the recent Tea Party protests, despite media spin in contradiction to observable reality, was that Americans are fed up with BOTH Republicans and Democrats. While these events were characterized by media outlets on the left as “right-wing extremist” rallies, one need only watch video of Republican Gresham Barrett’s reception in Greenville, South Carolina, where attendees booed and even turned their backs upon him, to see that this couldn’t be farther from the truth. I doubt that Mr. Barrett will be returning to Washington after the next election. One down, 534 to go.

Eighteen months. During that time, let us not forget the outrage that has driven us to the streets. Let us remember the BIPARTISAN destruction of our Republic over the past century. Let us remember that there is no way to restore our republic while these rival gangs remain in power. We do not need violence – our founders gave us an easier method. In eighteen months, let us demonstrate that we are no longer fooled by the left-right, Republican-Democrat illusion. In eighteen months, let us once and for all throw ALL of the bums out. Instead of a third party, let us replace them with representatives of the only legitimate special interest – We the People.

[1] Thomas Paine Common Sense (1776)

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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>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.

The Bill Clinton Myth Finally Debunked

clintonWhether 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

>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

>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

>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

>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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The Populist Myth of the 19th Century

1024px-Mill_Children_in_Macon_2Spending too much time talking with people that share your views can skew your perception of public opinion. Once you are close to any subject, there are certain conclusions that you accept as self evident because their validity has been proven over and over again. As time goes by, and you have discussions with people that are equally convinced of the validity of those conclusions, it is easy to begin assuming that everyone recognizes them. It is only by talking with people outside your group that you realize that, however valid your beliefs may be, the vast majority of people are either ignorant of them or remain unconvinced. This is undeniably true for me regarding the 19th century.

Despite irrefutable evidence to the contrary, there is a popular view of that period that I call The Populist Myth of the 19th Century. Before dismissing its relevance, consider the fact that this myth has been and remains the driving force behind most public policy from the turn of the 20th century to the present day. Belief in this myth has been behind the gravest errors made by government, not only in domestic policy, but in foreign policy as well. The great wars of the 20th century may well have been avoided and the defeat of poverty might be within our grasp had this Myth not gained acceptance with the great majority of people. These are extraordinary claims, to be sure. However, not only are they provable with diligent research, they can be proven theoretically as well. However, before getting to the proof, let us first define our terms. What is the Populist Myth of the 19th Century? It goes something like this.

After the United States won its independence from Great Britain, it established a system of government that placed priority of individual rights over all others. As a natural result of its system of laws, an economic system of unprecedented free trade, or laissez faire capitalism, naturally emerged. As a result, the Industrial Revolution came to America and flourished even more so than it had in Great Britain. Unencumbered by government control, America became a great wealth-producing engine and hotbed of innovation that resulted in a reshaping of the way human beings lived their lives and made great fortunes for captains of industry that lead the way in this period of explosive progress.

However, the price of this unencumbered freedom was oppression of the working and poorer classes by these same captains of industry. Unrestricted by government regulation, large corporations were free to drive down the price of labor, cut their costs by skimping on safety and other protections in the work environment, and increase their vast fortunes at the expense of misery for the working class, which was reduced to virtual slavery. Eventually, even the children of working class families were sent into the factories to help families on the brink of starvation try to earn enough to survive.

By the turn of the 20th century, it was apparent that reform was needed to save the working class from the victimization inherent in laissez faire capitalism. The social reform movement began, establishing social programs for those left behind, imposing tighter regulation on business, giving a fair chance to workers to unionize, and preventing the natural inclination towards monopoly that was also apparently inherent in capitalism. The fight for the common man had begun, with its champions Woodrow Wilson, Teddy Roosevelt, Franklin Roosevelt, and other bright lights of the 20th century. That fight goes on to this day, championed by the “liberal” or “progressive” parties in politics, with the goal of someday achieving the economic equality that a free society desires.

This is a compelling story. It appeals to the natural instinct in humans to pull for the underdog and fight against injustice. The basic tenets of this myth have inspired great works of literature and iconic films over the past century. It remains the core belief of most celebrities in America, an assumption of the media when looking for compelling news or attempting to appear “on your side” to the average reader/viewer, and most importantly, a fundamental assumption of government in making the laws which determine what we can and cannot do. There is only one problem. None of it is true.

Certainly, the general “solutions” alluded to occurred, but the problems did not exist. This may seem ridiculous to most 21st century Americans. EVERYBODY knows that working conditions were poor in the 19th century, workers were economically oppressed, that unrestricted capitalism naturally results in monopolies, and that, however distasteful it might seem, some government control of the economy is necessary or most of society’s wealth ends up in the hands of the wealthy few at the expense of the starving masses. Let us take a look at the fallacies of the Myth one at a time.

First, the quality of life of the working class did not deteriorate as the industrial revolution progressed, it rose dramatically. Pictures of what we would consider today squalid living conditions and relative poverty are extremely misleading when viewed in a vacuum. When one considers the quality of life for the working classes – the peasants of the old world – for all of history before the Industrial Revolution, it is apparent that the quality of life during the 19th century was much better. More importantly, IT WAS CONSTANTLY IMPROVING. This was the natural result of innovations like mass production. A simple understanding of supply and demand dictates that when the supply of goods and services is increased, their prices go down. The supply of goods and services, especially manufactured goods, exploded in the 19th century. Products that had previously been only available to the rich were now available to everyone, and their prices had dropped low enough that even those on an average income could afford them. For the first time in history, the primary market for the output of society’s production was the common people themselves, rather than the rich.

Detractors of capitalism often point to periods of decline in average wages as “proof” of the inherent oppression of the worker in laissez faire capitalism. This argument demonstrates either an attempt at deliberate distortion or a pitiable lack of understanding of basic economics. While wages sometimes did go down, prices declined at a much faster rate, resulting in a dramatic rise in “real wages” for the average working class American. Money is only the medium of exchange, and its nominal value is irrelevant without considering its corresponding purchasing power. If one had the power to cut all wages by 10%, but also to cut all prices by 50%, one would have the power of making everyone much, much richer. That is exactly what laissez faire capitalism did during the 19th century. It not only made the captains of industry richer, it made the working class richer. This trend was still continuing when the social reform movement started. Had it not been interrupted, one can only imagine how much better off the working class might be today.

There is also the myth that laissez faire capitalism naturally results in monopolies for large corporations, which then use their advantage in the market to raise prices for consumers and drive down wages, resulting in a general impoverishment of the working class. Again, the most basic understanding of economics (or even simple logic) refutes this claim easily. First, one must consider that there are two kinds of monopolies. One certainly can result from laissez faire capitalism. The other kind is a government created monopoly. The first kind of monopoly actually benefits society, while the second harms it.

Monopolies occur naturally in a laissez faire system only one way: when one company is able to deliver better products at lower prices than any of its competitors. Contrary to the Myth, this type of monopolist cannot then use its advantage to drive up prices and drive down wages. It must continue to keep its quality higher and prices below that of its competitors, or its monopoly status will cease to exist. Similarly, it is also competing with other firms for quality labor. If it offers lower pay or poorer working conditions than its competitors, its labor force will naturally migrate to the higher pay and better conditions of the competitors. While it might be argued that neither of these can happen once the monopolist’s competition has been eliminated, competition is NEVER eliminated. If there are no active firms competing at the moment, the possibility of investors entering the market is always present, and new firms enter the market the minute that a monopolist shows signs of vulnerability in its domination of a particular industry. Thus, the possibility of competition hangs over the head of the natural monopolist like an economic sword of Damocles.

A government-imposed monopoly, on the other hand, suffers from none of these pressures. Since no other firms are ALLOWED to compete, the monopolist is free to set prices wherever it sees fit. For any workers that desire to work in that particular industry, they must accept the wages offered by the monopolist or not work in that industry at all. It is within the government-imposed monopoly that all of the evils associated with monopolies exist.

Government-imposed monopolies can occur in two ways. One is where the government simply passes a law saying that a particular firm will be the sole provider of a particular good or service. This was common in the 20th century for public utilities. The flawed logic that inspired these policies was rooted in the Myth. It was thought that for basic necessities, which everyone was entitled to, businesses should not be allowed to profit from providing them. Therefore, government would allow one company to sell those services to the public, with strict control over their prices. The obvious failure of this logic resulted in the deregulation movement later in the 20th century. Detractors of this will point to power shortages and blackouts such as those experienced in California earlier in this decade. However, analysis of those crises consistently reveals that they were caused by those government controls left in place after deregulation, rather than the deregulation itself. For example, in California, the mass blackouts of 2001 were the result of price ceilings left in place in the supply chain. A free market makes no compromises.

The other, more common type of government monopoly results from excessive regulation. This is the unforeseen result of copious regulations imposed on industry in trying to solve the imaginary problems of the Myth. When it becomes so expensive to comply with regulation that only the largest firms can operate in a given industry, you have a trend toward government-created monopoly. More often than an outright monopoly by one firm, a few large firms emerge and do compete with each other, but they are insulated from new competition by the cost-prohibitive aspect of complying with regulations. While competition amongst themselves brings some of the forces of capitalism to bear, a status quo emerges in how the industry does business and what the limits on price and wages are. The economic sword of Damocles does not hang over the heads of these protected firms, other than to the extent that they compete with each other. Only a new competitor can shake the industry up, and government has insured that new competition is unlikely.

John D. Rockefeller’s Standard Oil was an example of a natural monopoly. It resulted in oil being delivered to the market at higher quality and lower prices than any other company could compete with. Standard Oil’s monopoly was maintained by CONTINUING to deliver that high quality and those low prices. Rockefeller was later a major player in creating the Federal Reserve and other government interventions into the economy, which are harmful to the market. However, he attained his vast wealth and eventual monopoly in oil by benefitting customers, not harming them.

In contrast, the government-created monopolies in the public utilities sector resulted in poorer service and higher prices for consumers. This is the reason that deregulation was eventually pursued. Immediately upon introducing competition and a FREER MARKET, supply and quality rose, while prices fell dramatically. Only in cases where government controls were left in place did adverse results occur, as previously noted.

One more aspect of the Myth that immediately comes to mind is the specter of child labor. The Myth says that child labor was a natural result of the Industrial Revolution, and that only government intervention ended it. Again, a compelling story, but completely untrue. As Andrew Bernstein insightfully points out in his book, The Capitalist Manifesto, the Industrial Revolution didn’t create the practice of child labor, IT ENDED IT. Child labor had been a fact of life for the working class throughout history. Indeed, one of the reasons (and there were many) for the migration of people away from the country and into the factory jobs in the city was the fact that the jobs their children would do in the factories were far easier than the back-breaking work they did on the farm. After less than a century of industrialization, real wages rose to the point that most families did not have to send their children to work at all. Thus, government did not end the practice of child labor, laissez faire capitalism did. This is a verifiable fact of history.[1]

This is only a brief and incomplete critique of the Myth. It has many other components, each of which can be shown to be equally false. The Myth is based upon a core misunderstanding of capitalism. Today, capitalism is wrongly characterized as a system that gives an advantage to the rich, or to employers. It is no such thing. Capitalism is the system of freedom, where every transaction between buyer and seller is undertaken by mutual, voluntary consent. In this system, all participants make the best decision that they can based upon their rational self interest. Sellers attempt to sell at the highest price that their goods or services will fetch on the market, while buyers attempt to buy at the lowest prices that they can. Buyers seek the highest quality for their dollar, while sellers seek to provide higher quality for the same money in order to win business away from their competitors. The sum total of all of these voluntary transactions results in the economy becoming a wealth-generating engine. The secret is the ability of all participants to choose freely. By acting in their rational self interest they benefit both themselves and society as a whole. Without this free choice, the wealth-creating mechanism breaks down.

Many might argue that “buyer and seller” immediately excludes “worker,” but that is a tragic misunderstanding as well. In a capitalist system, labor is a market like everything else. “Workers” are really SELLERS. They are selling their services to employers. They compete with each other for the best jobs, and employers compete with each other for the best employees. When not disrupted by government, all of the benefits that accompany the free market for other goods and services occur in the labor market as well. Detractors of capitalism attempt to portray workers as servants that must be protected from their oppressive masters. They are no such thing. They are sellers that require no more protection from their customers than a car dealer requires protection from its customer shopping for the best car at the lowest price. By offering higher quality work, workers can demand higher prices for their services. They are free to accept an offer of employment or turn it down, or to leave their present employment for a better offer. In a truly free market, workers are empowered as the owners of the original means of production that they are.

There is even a benefit to the worker of this free buying and selling relationship when it results in lower wages. Remember that in a laissez faire capitalist system, the workers are also the chief market of the mass supply of goods that results. Thus, if the market lowers the price of labor, the corresponding price of consumer goods also falls. Therefore, even if the worker is earning less money, his purchasing power increases. His real wages go up. He becomes wealthier. Just as wages never rise nearly as rapidly as the general price level of consumer goods in an inflationary pattern (making workers poorer over time), wages never fall as quickly as the decrease in the general price level that is the result of natural economic growth (making workers wealthier over time). That real wages went up during the 19th century is a verifiable fact, and is not in dispute.

At the turn of the 20th century, even the proponents of the social reform movement recognized that capitalism was making the working class wealthier and eliminating poverty. They did not start the reform movement because capitalism was not helping the lower classes, they started it because they did not feel the improvements were occurring fast enough. This fact, too, has faded from memory, but a little research will bear it out. With all of the achievements of the century behind them, and the marvelous innovations that mankind had accomplished, they felt that there was no reason that anyone should ever want for anything again. Within 50 short years, the telephone, the moving picture, the automobile, and most of the rest of what we think of as the modern world had been invented, mostly in America. Surely, they thought, poverty could be eliminated as well. They attempted to use the power of government to ACCELERATE the progress that laissez faire had resulted in.

However, there was a fundamental flaw in their thinking. They failed to understand the mechanism that made all of that wealth creation and innovation possible. The mechanism relies on the choices between buyers and sellers being VOLUNTARY. Once the introduction of force is introduced, the process is disrupted. Detractors of capitalism consistently fail to recognize or are able to ignore the reality of what “social reform” is. It is GOVERNMENT USING THE THREAT OF VIOLENCE TO SEIZE AND REDISTRIBUTE PROPERTY, AND TO FORCE BUYERS AND SELLERS TO MAKE CHOICES THAT THEY OTHERWISE WOULDN’T MAKE. However they try to euphemize it, THIS is the alternative to laissez faire capitalism that they offer. Most non-economists probably do not realize this when they advocate for most government economic policies. They would probably find them morally repugnant if they understood them properly. However, this is the REALITY of even the “mixed economy.”

This use of force is not without consequences, however. By disrupting the voluntary nature of the transactions, capitalism’s wealth-creating mechanism breaks down. The more property is stolen for welfare programs, the less capital is left to expand production. The more government intervention there is, the less wealth is created. Productivity and innovation cannot be forced. That is the reason that free people are more productive than slaves. It is the reason that communism has failed wherever it has been practiced. Russia had a larger population and more natural resources than the United States, but tens of millions of their people died amidst those vast resources because they were practicing an economic system that did not allow the wealth-creating mechanism of capitalism to function. The same can be said of China, Viet Nam, and every other country that practiced communism. As they have moved toward a free market economy, they have become more and more prosperous. As America has moved toward a less free market economy, it has declined.

Today, the United States practices a “mixed economy” because of the persistent belief in the Myth. Refusal to recognize the plain facts of history, that the working class was becoming richer under laissez faire, rather than poorer, is the only reason that laissez faire is not still the economic system of the United States. It is also the reason for the socialist movement throughout the world, which directly led to the World Wars and the ensuing Cold War. Despite the fact that both economic systems have been taken to their logical extremes, and socialism produced mass starvation while capitalism produced mass prosperity, America continues to try to mix socialism with capitalism. After a century of “government reform” of capitalism, the gap between rich and poor is far wider than it was under laissez faire capitalism, the quality of life of the working class is declining, and a much greater concentration of wealth in the hands of the very few is occurring. Everything that the social reformers set out to do has not only failed, but resulted in the exact opposite of what their intention was. It is not a matter that the reform was not done skillfully or completely enough. It is a matter of the “reform” being the use of coercion to force people to make choices against their will. It is morally repugnant, and it does not work.

Politicians are naturally disposed to believe and promote the Myth. It gives them a reason to do a whole lot more than they would be allowed to do otherwise. Promoters of the Myth cite their “heroes” of the 20th century. Only by believing the Myth can you admire the policies of Woodrow Wilson, Teddy Roosevelt, or FDR. These men were great destroyers of prosperity and violators of individual rights, not heroes. They attacked capitalism under the pretense of solving the imaginary problems of the Myth. When crises occur in our “mixed economy,” politicians consistently blame the capitalist aspect of our society rather than the socialist aspect, and suggest more socialism as a solution. “Coincidentally,” this results in more power for the politician.

The Myth is pervading our current presidential election campaigns. McCain claims Teddy Roosevelt as his hero. Obama has invoked FDR. Both agree that more regulation is needed to solve the current financial crisis. Popular acceptance of the Myth allows them to frame the debate where only less freedom can solve our problems. It is up to the American people to choose. The proof that the Myth is false is everywhere, even in public records maintained by the government itself. However, there will never be a large movement to truly solve our problems until Americans learn accurate history and stop believing in the Myth. Once they do, they will see that the great experiment has been completed, and the results are indisputable. Only laissez faire capitalism – the economics of freedom – can restore America’s prosperity. It is the only moral and practical choice.

[1] Bernstein, Andrew The Capitalist Manifesto: The Historic, Economic, and Philosophic Case for Laissez Faire. University Press of America 2005

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

>Life in the Post-5/7 America

>We have spent the past seven years in a “post-9/11 world.” We started hearing this insidious slogan not long after the terrorist attacks occurred. To translate the slogan for anyone who has not realized what it means, it means this: Whatever was left of your personal liberty before the 9/11 attacks is no longer a privilege your government can afford to grant you (and make no mistake, your government considers liberty a privilege, not a right). It seems that personal liberty is something that was nice in the Old America, but is just impractical in a “post-9/11 world.”

Of course, the struggle for economic freedom was lost decades ago with the onset of public and corporate welfare, the abolition of the gold standard, and the emergence of the American Empire. However, as with the other “civil liberties,” some traces of the economic freedom of America’s former Republic have survived several decades into America’s post-WWII social democracy. Those last traces are about to disappear as well. The following is one way it could happen.

Why May 7th? There is no compelling reason for the exact day. However, it is the Thursday of the first full week after the next president’s first 100 days in office are completed. It may be just a coincidence, but cataclysms never seem to happen during those 100 days. Perhaps world market movers don’t do much until they get a feel for the new administration. Perhaps it is some kind of statist magic, left over from government sorcerers like Merlin or Morgan Le Fay. In any case, even the terrorists respected the first 100 days of George Bush’s administration before launching their attacks. So, I am going with the odds to say that the economic day of reckoning will not manifest itself until May 7, 2009 – the new “Black Thursday.”

Even if the American economy is already dead for all intents and purposes, an historic crash of the stock markets will officially signal the dawn of the new era. When it does, all pretense of the “possible moral hazard” accompanying massive government interventions into the marketplace will be dropped. We will be in a “post-5/7 economy,”[1] much like our “post-9/11 world,” and the last vestiges of your economic freedom will be lost, just as your personal liberty was lost after 9/11. Forgotten in debates regarding whether these interventions will be good or bad for “the economy” is the fact that each one amounts to stealing from someone – legal plunder because it is committed by government. Each new intervention, “unavoidable” because of the latest threat to the U.S./world economy, will cause three more problems for the government to solve with further interventions. Pointing out that the original problem was caused by a previous government intervention will be pointless. Free markets were a nice idea in the 20th century, but government control of the marketplace will be needed in a post-5/7 world.[2]

Despite the fact that government already treats the right to the fruits of your labor as a granted privilege, the small percentage Americans have been allowed to keep will seem relatively large compared to what they will be allowed after the big event. At that point, there will be a continual state of economic emergency that requires “Americans and Europeans to do more, not less,” as Barack Obama recently said in Berlin. There will be Housing in the New America and Universal Healthcare to be paid for, tens of millions of unemployed Americans to feed and clothe, and the “challenges of the 21st century (all created by government)” to meet.

Perhaps at that point it will occur to someone, somewhere, that none of this is necessary. Without the parasitic influence of a few thousand people, the other 300 million would naturally trade with each other to their mutual benefit, and would have little to fear from people thousands of miles away whom they would never think to bother themselves. It really is that easy. Americans can make a decision for freedom anytime they wish to, and rid themselves of the parasites once and for all. Hopefully, there will come a time when they will be easier to convince in the post-9/11, post-5/7 world.

[1] Whatever the actual date of the crash, simply insert it into the new government slogan and it works just as well.

[2] While it would be impossible in a Republic to enslave people with such nonsense as a market crash or a terrorist attack creating “a new world” where natural rights no longer exist, it is relatively easy in a Democracy, where only 51% of the people have to believe it for the scheme to work. This is just one reason why no politician refers to America as anything other than “a Democracy” anymore. Be suspicious of anyone who speaks likewise.

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>Housing in the New America

>Lest it fade from memory amidst almost daily violations of our rights by the federal government, let us consider some possible implications of the housing bill passed almost one month ago. Since then, the shares of Fannie Mae and Freddie Mac have plummeted yet again, and at this point, the “bazooka” that Treasury Secretary Paulson said he would likely never have to use is certainly loaded and ready for firing. In case you have forgotten, the urgency behind passing the housing bill, and the stated reason for President Bush withdrawing his veto threat, was the need to keep the two Government Sponsored Entities (GSE’s) from imminent bankruptcy. Paulson said that he needed vast powers at his disposal (the bazooka), including the statutory authority for the federal government to buy shares in Fannie and Freddie. He said at that time that he didn’t anticipate ever having to use the bazooka, but needed to have it to “boost confidence.” He was either lying or a fool.

It is apparent by now that the bazooka is not going to inspire investors to buy back into Freddie and Fannie. Shares have been as low as $3 and $4, respectively, in the past week, down from highs of $69 and $68 over the past year. They literally have trillions of dollars worth of bad mortgages on their books and no way to cover their obligations. While there is some justifiable outrage over the use of public funds to backstop these firms (although not enough), it doesn’t seem that the great majority of people see where this scenario is likely headed.

The U.S. government is going to have to buy a substantial portion of Fannie and Freddie, because no one else will. Of course, that will push up the price of their shares artificially, as the market has decided (rightly) that these companies are worthless. It is not out of the question that the federal government will acquire a controlling interest or all of the shares of the two GSE’s, perhaps with the stated intention of selling them back into the public sector after they have stabilized under the federal government’s “astute management.”

What happens then? Well, the tsunami of mortgage defaults continues, and another 2 million people walk away from their homes. However, these homes are not now owned by private sector banks, who must sell them at pennies on the dollar, if necessary, to recoup as much of their losses as they can. No, these houses are now owned by the federal government, for whom market forces do not apply. Of course, the government would want to get what they could out of these assets, but they have another alternative that is not available to the mortgage lenders, who cannot lose money indefinitely (in theory).

Before considering the government’s “other option,” let us take a step back and consider the bigger picture for a moment. It is obvious that the bursting of the housing bubble is symptomatic of a much bigger, more systemic problem for the U.S. economy. After decades of consuming more than it produces, its productive structure decimated by an increasingly predatory and parasitic government, the U.S. consumer economy itself is poised to collapse. Already, retailers are going bankrupt at an alarming rate, and despite the stock markets’ refusal to face reality, the U.S. economy no longer has the productive means to mount a recovery. The Federal Reserve has done everything it can do other than inflate further, which is what it will do, further destroying the U.S. currency. By this time next year, Americans will be looking into the abyss of an unprecedented economic disaster. We have had double digit unemployment before – this time it could be worse.

Of course, if government has proven one thing, it is that they will never learn that intervention into the marketplace never helps. After some inspiring speeches, our new, first-term president will declare war on the problem. That’s when things may really get ugly.

Just what could the federal government do with 30 million unemployed people and 7 million empty homes? Enter the Public Housing Administration and Section 8. Of course, there will need to be a “catchy” new government name to spin the new program to not sound like welfare. Perhaps “America Lives Together,” or “Communities in Progress” or some such nonsense. What is important is that the federal government will REALLY be in the housing business now, and not just for those below the poverty line. Average Americans will now be living in government-owned homes and paying rent directly to the government. Eventually, the rent payments could be incorporated into their payroll withholdings. One thing is for sure, once a federal government program is started, there is one thing it always does and one thing it never does. What it never does is go away. What it always does is grow larger.

Of course, this is not meant as a prediction, but merely one possible scenario among many that could result from America’s economic day of reckoning. However, while 40 years ago average citizens living in government housing was confined to the dark visions of Orwell and Burgess, today the unthinkable shouldn’t surprise us when it comes to any aspect of our society. We are presently giving serious consideration –in “the land of the free” – to socializing medicine, nationalizing the oil industry, and ending the rights of inheritance forever. A nation of socialized housing would complete that picture very well. Perhaps that America is still a few years off. On the other hand, we have been promised “change” during this next presidential term by a candidate with the most socialist platform we’ve seen in decades. Let’s hope it doesn’t look like this.

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