We have got to be absolutely clear that protectionism offers no solution. It’s the road to ruin. It protects no-one in the long run at all and we are for a free trade world where we remove barriers rather than create barriers, no matter what the temptation is at this particular point in time for individual countries.”/span Gordon Brown, U.K. Prime Minister, talking about his hopes for the G20 summit.br /br /I have no doubt that the G20 will make a strong statement in opposition to protectionism. After the G20 leaders have agreed that protectionism is the road to ruin and have lined up for the group photo, they will then go home and continue to increase assistance to domestic industries at the expense of imports. The most we can hope for is that the threat of retaliation will prevent the most overt kinds of protectionism that could result in escalation of retaliatory protectionism. If we are lucky the world economy will begin to pick up before protectionism gets out of control.<br /><br />Why am I pessimistic about the effectiveness of the anti-protectionist pronouncements that seem likely to come out of the G20? It is because decisions by governments about industry assistance are made primarily in response to domestic political pressures and because prevailing perceptions about domestic economic impacts will cause governments to take most notice of the narrow interests that stand to gain from protectionism.<br /><br />The prevailing perceptions I am writing about include the belief that during a recession it is possible to protect jobs in one industry without any adverse effects elsewhere in the economy, unless there is foreign retaliation. It is easy to see why this is economic nonsense. Import restrictions cause consumers to buy higher-priced domestic production rather than imports – they work in the same way as a tax on consumption of a good that is used to finance a subsidy to producers. The result is that consumers have less income to spend on other goods. Jobs are saved in one industry at the expense of jobs elsewhere in the economy.<br /><br />Some readers might be thinking that this reasoning doesn’t apply to industry assistance that is funded from government spending because the increased spending just goes to increase the fiscal deficit and government debt. Some government leaders who increase budgetary assistance to industry might even think they have reason to expect to be patted on the head by leaders of other governments for doing something to stimulate the world economy. The truth is, however, that such covert protectionism does not even stimulate the domestic economy since private investors are likely to be forced to pay higher interest rates in order to fund their investments, and domestic taxpayers are likely to increase precautionary savings in anticipation of having to pay higher taxes in the years ahead.<br /><br />Is there anything that the G20 countries could do that would help governments to deal with the domestic political pressures that result in increased protection during recessions? The least they could do is to compare notes about how they cope with such pressures in their own countries. Australia’s prime minister, Kevin Rudd, is probably too modest to trumpet the success of the Hawke government in dealing with protectionism in the 1980s with the help of domestic transparency arrangements. It might be possible, however, for leaders of other governments who have an interest in this matter to prevail upon our Kevin to provide them with some helpful information on this topic.
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Obamanomics are an Obamanation. Robin Hood. President Obama. Are they the same persona? Based on TV and Obama’s news conferences both he and the media seem to think so. “Rob from the rich; give to the poor.” Of course, he uses the words “you should give more, because you have more”. But the reality of Obama’s accomplishments remain the same. I do not see the likeness between this man and Robin Hood. While Robin Hood is a great folklore hero, I contend that Obama has nothing in common with the man. Let us review some of the finer points of the story. A tale with which I hope you are already somewhat familiar. Robin Hood lived in feudal times. Kings, Lords and Barons ruled the country as the sole land owners. King Richard departed the country to fight in the crusades leaving Prince John to rule in his stead. Prince John and the Sheriff of Nottingham decided that they would claim the throne for themselves but they needed the support of the Lords, Barons and similar figures in the surrounding countries. Their plan required many goods – Gold, Silver, Wine, and Food in order to bribe these leaders to join their cause. In acquiring this stuff to buy the allegiance of the lords and barons they began taxing the people heavily if not outright stealing their possessions. Enter a man with the courage and skill to fight such tyranny, Robin Hood. As a loyal and patriotic man he fought to protect the people and the throne of the king. He would steal the money/taxes back from Prince John and return it to the poor from whom it was wrongfully taken; establishing the mantra “rob from the rich; give to the poor”. In doing so he protected both the people and the crown until King Richard’s return. So I ask you; how in any conceivable way could President Obama be likened to this man? Recently Obama began to push sweeping legislation to steal (*ahem, sorry tax) from the rich of this country. One assumes he is doing this to give to the poor; yet somehow all of the money ends up in the hands of banks and automakers. President Obama performs this redistribution in broad daylight. The more I stare at his policies; the more I liken the man to Prince John. He is trying to steal the very life out of people to buy the right allegiances, also known as votes, in order to keep the throne he is guarding. After all, large portions of bailout money will be distributed in 2011. Obamanomics, my unoriginal pet name for the “New” new deal, scares me to death. Recent polls suggest that FDR should be considered one of the top 3 presidents in the United States history. While history books have been favorable I do not understand. Why is it that no one remembers the perpetual unemployment FDR created with his policies? How can anyone in today’s time acknowledge ponzi schemes, like Madoff or Social Security, as good ideas? Eventually FDR did successfully reduce unemployment in this country but it took a war and the loss of a few million good men. Is this really the direction we want to head? It is Obamanable to think that World War II was a good thing and that FDR should be praised. Yet the whole nation is looking to resurrect FDR’s policies. This time which future generation will be burdened? Are there even any left unburdened? We are staring at the greatest redistribution of wealth in our era. Unless theft is considered “earning” the wealth is going to the people who did nothing to earn it. By the way, theft income is required to be claimed on your income tax return unless you are a tax eater for the government and are not required to report it. The hardest part is trying to be Robin Hood in this story. The Prince has a larger army and superior guns. Government propaganda attempts to paint tax evaders, like Treasury Secretary Geithner, Senator Daschle, etc. as leeches on society and unpatriotic. But how does one protect their own country when the nanny state government is attempting to steal it from them? I anxiously await the return of the king and President Obama is not him either. First let me state a few qualifiers when it comes to the Mets’ now infamous Citi Field. Citi Field is gorgeous. The team that will inhabit it is not as gorgeous. It is outrageous that the taxpayers are backstopping the bank which made the naming deal with the team. It is embarrassing to an organization that has already suffered epic collapses the last two seasons to be going into a new stadium dealing with this kind of headache. With this in mind, let me proceed to the broader controversy regarding the naming deal. Today in the New York Times, representative Dennis Kucinich argues regarding naming deals that “Treasury has the power under TARP to make broad changes, They have to. It’s not whether they can or should; they have to. The legal issues are very easy to maneuver.” According to Kucinich, Citi Field represents “an egregious example. But we have a list of other banks we’re working our way through. We’ll hold hearings.” I do agree with Kucinich that naming deals such as Citi’s with the Mets represent extravagent, and probably poor expenditures. I don’t know how Citi projected that it would recoup their $400 million investment in the naming rights to the stadium, but investment banks made all sorts of investments far more ridiculous over the last decade to be sure.
The outrage amongst politicians when it comes to naming deals not only masks their lack of appreciation that this would not be an issue were it not for propping up failing ventures, but also masks the greater implications of their intervention. Since we all are now shareholders in these institutions, the government will tinker with their management. This begins with caps on executive pay, but who is to say that it will end there? As poorly as some of these institutions were managed, and granting that a lot of their poor management was due to incentives created by government intervention, I would guarantee that government control of the banks will be even worse. Do you think that Nancy Pelosi knows how to create a DCF model in Excel? Does Barney Frank know how the market for CDO^2’s works, let alone what a CDO^2 is? Much as I think that President Obama could give a hell of a pitch to investors on the virtues of a closed-end real estate fund, there is no way that the government can ever run these businesses properly. Command economies have always failed. The government lacks the profit motive and the knowledge to successfully manage these companies. Putting the firms under the purview of government represents the greatest moral hazard of them all. Remember, these are only the direct effects of strict government regulation of the banking sector. There would also be a great effect on the markets. If the government is to have say over the operating activities of the major banks, what kind of implications will this have for retail and institutional investors? Will money flood out to less-regulated private equity and hedge funds? Will those shops then become as regulated as the (remaining) big banks? What kind of confidence will exist in the markets when the biggest broker-dealers are being managed by politicians? Will people not recall what happened to all of the other GSE’s? There are a plethora of problems with these institutions being managed by the government. The Citi Field naming rights deal is very small relative to the big picture, but it exemplifies the direction the government is going. I am just as angry as everyone else that we are responsible for keeping the Citi naming deal alive, but we must remember that it was because of government intervention that we got ourselves into this mess in the first place. As if it wasn’t bad enough that the Mets aren’t going to pursue Manny Ramirez, now us tortured fans have to deal with this pathetic situation. When Illinois Governor Rod Blagojevich was arrested by the FBI on charges of corruption, he was allegedly seeking to sell Barack Obama’s soon-to-be-vacated U.S. Senate seat. Although the Constitution requires that special elections be held in the case of a vacant House of Representatives seat, it vests the power of appointing fill-in senators to the governor of the given state. Unfortunately for Blagojevich, there are federal laws prohibiting the outright sale of these gubernatorial tickets to D.C. The response to Blagojevich’s arrest was universal shock and dismay—or feigned versions thereof. After all, is it really that surprising that a politician would put his own self interests ahead of his constituents’? Isn’t that what congressmen and senators do every day in Washington? In fact, there’s a case to be made that Blagojevich is truly a rare breed: an honest politician. The Sad Reality FBI tapes allegedly catch Blagojevich saying how “valuable” a U.S. Senate seat is. A senator has more resources available to him than even a large-state governor, Blagojevich said, and if someone didn’t want to give him something “of value” in exchange for the appointment, he was going to just take it for himself. In response to these caught-on-tape comments, U.S. Attorney Patrick Fitzgerald said this was a “sad day for government.” Sad, indeed, for the true believers in civics-class propaganda, for the true nature of the state was exposed. Now they’ll be quick to “make an example” of Blagojevich and return to business as usual: doing exactly what he was trying to do, just more covertly. Why Are Senate Seats so Valuable? But why is a U.S. Senate seat so “valuable?” Senators are paid $169,300 a year, but this is not the “value” to which Blagojevich was referring. No, the true “value” of a senate seat is measured in the millions—maybe tens or even hundreds of millions—of dollars; and that’s because senators routinely engage in the selling of favors. They call it something else, of course, but make no mistake about it: extortion and receiving bribes are a senator’s primary activities. Remember how the $700 billion bailout was defeated in the House of Representatives only to be passed, overwhelmingly, by the Senate just a few days later? Why is it that congressmen were so much more willing to listen to the will of the people than U.S. Senators were? Could it be because senators’ statewide campaigns attract bigger money that has to be repaid in the form of votes? Only by bribing a senator can a few thousand dollars be turned into millions—after all, the Senate isn’t spending its own money…it’s spending yours! Is What Blagojevich (Allegedly) Did Really That Bad? So we’ve established that the mock horror at Blagojevich’s indiscretion is unwarranted. His only “crime” was being blasé about the true nature of government. In fact, maybe it would be better if politicians were, like Blagojevich, more out in the open with their buying and selling of favors. In his classic book, Democracy: The God That Failed, Austrian economist Hans Herman Hoppe makes the case that monarchy is a better form of government than democracy. Although Professor Hoppe himself is an anarcho-capitalist, he sees monarchy as preferable to democracy because kings took pride in the “ownership” of their countries. Since they were able to pass on their kingdoms to their heirs, they didn’t loot as aggressively as democratic rulers—who, by comparison, “rent” their kingdoms—do today. Blagojevich was simply trying to collect a rental fee. Just a Symptom of a Greater Illness “This conduct would make [Abraham] Lincoln roll in his grave.” That was another whopper from Attorney Fitzgerald. Lincoln, of course, was a corporate lawyer who believed strongly in Henry Clay’s “American System” of central banking, protective tariffs, and corporate welfare—the system of looting that now makes senate seats so valuable. And it was Lincoln’s invasion of the South that led to the abolition of state sovereignty, a fait accompli with the passage of the 17th Amendment, which ushered in the direct election of U.S. Senators. I hardly think “Honest” Abe—who illegally suspended habeas corpus, jailed Northern dissidents, shut down opposition newspapers, and unconstitutionally assessed an income tax and printed the nation’s first fiat money to fund his war—would be half as outraged as the modern punditocracy pretends to be. Indeed, in all of the feigned horror misses the point: U.S. Senate seats are too valuable. The way to fight corruption is to make them less valuable, and the way to do that is to take power from the federal government and give it back to the states and the people. A good start would be the repeal of the 17th amendment, which would return the election of senators to the state legislatures. This way, senatorial candidates would serve in their original role as “ambassadors of the states,” and would be looking out for state interests, not always seeking to expand federal power (and thus, bribery income). Blagojevich is a corrupt politician, to be certain, but his corruption is just a symptom of the larger problem: an unconstitutional and overreaching federal government. 1. The duty of the government is to protect the rights of the people, not the other way around. 2. The people have the right but not the obligation to dispense of their property as they see fit. 3. Borrowing from the 10th Amendment of the Constitution: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. 4. America was built on profit and loss, not profligacy and largess. 5. True laissez-faire capitalism is the surest way to prosperity; the middle path will always lead to socialism. 6. Entrepreneurs and competent business managers make our economy grow, not politicians. 7. For a man or a nation, the responsible fiscal path is to produce more than one consumes, and to spend less than one earns. 8. Every public dollar spent is a private dollar stolen. If a politician tells you that spending is “investment,” ask yourself if you would undertake that same investment with your own money. 9. Equality of condition is not the same as equality of opportunity; our laws are meant to preserve the latter. 10. The safety of American citizens is the single most important priority of the American government. When I started Socialist Watch, I did not anticipate how quickly things would unravel in the US and abroad. Perhaps it is because despite my best judgment, I did not want to believe it. Unfortunately, my worst nightmares are being realized. This time, things are different. When Rahm Emanuel said, “You never want a serious crisis to go to waste,” he meant business, like Ari Gold negotiating on the High Holidays. Glancing over the headlines of the week, it is clear that a creeping sense of socialism in this country is no longer creeping — it is a very real threat that no future administration may come close to being able to stop. If I am reading this situation correctly, we are at a true turning point in world history. The forces of freedom and liberty are fast being swept aside. We are heading into a Rousseaun era in which the United States and indeed all other states will degenerate in a large collectivist cesspool. Ayn Rand said, “We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.” How right she was. As I forewarned, other states, besides just New York are beginning to come up with creative ways to tax their citizens. One policy analyst says, “The most common phrase you hear from the states is, everything is on the table.” A California legislator says “We’re all jonesing now for money.” States are throwing out creative “solutions” to their shortfalls like making marijuana legal so as to tax it, or allowing gay civil unions in order to boost tourism. But think this through for a second. If people are struggling to make ends meet, why should taxation to support government be the number one priority? Why does a state have a right to our property to support itself before we do? Why in the hell do they have these big budgets to support in the first place? If we are having trouble paying our own bills, then forget about the state’s bills. Let it wither away! If I sound angry, it’s because I am. Meanwhile, on a national scale, things are no better. We continue to throw money down the bottomless pits that are AIG and Citi. If what we are doing is not nationalization, then I don’t know what is. We are nationalizing everything: banks, insurance companies, automobile manufacturers and the housing market. We are burdening future generations with insolvent and bankrupt institutions that should have been allowed to go under months ago. I thought this was America, but alas, we have car czars (call it the Presidential Task Force on Autos, same thing) and urban czars too. Lenin is blushing in his grave right now. Then we have this whole green issue. I largely ignore reading what environmentalists have to say because it generally enrages me. Being at Columbia, everywhere I go everything is green anyway. It’s not that I have anything against nature…I like clean air and clean parks just like everyone else. But this stuff is not about a clean world. This is about politics. Al Gore has made a fortune selling global warming to idiots across the world. Scientists have made their careers off of pandering about this stuff. But the bottom line is, as I understand it, there is no consensus at all as to whether or not what we do on Earth even makes so much as a dent in the overall climate patterns that occur over thousands of years. Even if we did, how could anyone honestly feel that their livelihood should be sacrificed to nature. If people want to reduce themselves to foraging for berries then they can go right ahead, but they should bear in mind that they wouldn’t be able to survive without that food taken from nature. I for one will continue eating what I want, driving cars, using my computer, television, lights and paper because I want to live my life. It is not the government’s job to tell me what I can and can’t consume. If we followed this kind of philosophy from the start, we would still be cavemen. There would have been no Industrial Revolution. A million of the things that we take for granted today would have never come to be. If we didn’t use the fruits of nature, we would not be able to live. But I suppose the Democrats might prefer this. Their cap-and-trade bill looks to me like Smoot-Hawley’s little grandson in terms of its disastrous implications and terrible timing. For a little taste of what we might be looking at, listen to what Obama himself had to say about it:
But forget about specifics. What this represents is a commitment to the environment over the people. It seems like a great idea to me to raise the price of all types of energies, while putting hundreds of people out of business by imposing these costs on our economy in the midst of a depression. There is also talk of funding roads with a tax based on how many miles we drive. The government would be able to implant some kind of chip in our cars to keep tabs on us. I mean is there any way possible that this could be considered Constitutional? What justification is there for this based upon the limited powers we are supposed to grant our government? This stuff is sickening. They are literally looking to make robbery legal. More sickening are Gordon Brown’s a musings on a “global New Deal,” led largely by President Obama and himself. This sounds like another brilliant idea — what better way to shepherd in socialism then to subject everyone in the civilized world to it. What is so ironic about it all is that Brown calls for a world “where we defeat not only global terrorism but global poverty, hunger and disease.” Yet socializing one’s nation creates these very things. It brings civil unrest and leads to poverty, hunger and disease for the masses. This also factors into the discussion of having a world government. We see the problems that have befallen the EU now that some states aren’t quite carrying their weight, yet with the world putting their blind faith in Barack Obama, there is more and more talk of global solutions to problems, and perhaps even a global regime. When all the paper currencies collapse, I won’t be to surprised if at the least we move to a global currency, so we can all enjoy the hyperinflation together. It is dizzying how fast this is all unfolding before us. Dizzying and also sobering. I for one do not want live in a world in which I have to pay for someone else’s mistakes. I don’t want to live in a world in which the government has a claim on my property before I do. I don’t want to live in a world in which the government determines that the environment takes precedence over my life. I don’t want to live in a world in which free speech is protected, yet I have to be afraid that everything I say is “politically correct.” Most of all, I don’t want to live in a world in which the rights of the smallest and most important minority, THE INDIVIDUAL, are sacrificed to the mob for the public good. One of the reasons I look to Rousseau in all of this is that his love of the state of nature is reflected in the socialism of the day. Rousseau said of leaving the state of nature that “most of our ills are of our own making…we could have avoided nearly all of them by preserving the simple, regular and solitary lifestyle prescribed to us by nature.” Of imagination he says, “Imagination, which wreaks so much havoc among us, does not speak to savage hearts.” Rousseau marvels at the barbarian whose, “desires do not go beyond his physical needs. The only goods he knows in the universe are nourishment, a woman and rest; the only evils he fears are pain and hunger.” Of private property he said, “The first man who, having fenced in a piece of land, said “This is mine,” and found people naive enough to believe him, that man was the true founder of civil society. From how many crimes, wars, and murders, from how many horrors and misfortunes might not any one have saved mankind, by pulling up the stakes, or filling up the ditch, and crying to his fellows: Beware of listening to this impostor; you are undone if you once forget that the fruits of the earth belong to us all, and the earth itself to nobody.” Clearly ’tis better to be a savage than a civilized human being. This is the philosophy that is waging its war on whatever shreds of Lockeanism are left in this once great place. We need to fight this. People should be in the streets rioting over the ridiculous usurpations of power that the state is making right now, yet most seem to go on with their lives in many ways completely unaffected and ignorant of the terrors surrounding them.br /br /But these ignorantly blissful folk are getting the government they deserve to be sure. This is the ultimate result of a democracy in which every man seeks to gain at the sake of every other man through the instrument of legal plunder that is the state. Turning back to Rand, she said that, “It only stands to reason that where there’s sacrifice, there’s someone collecting the sacrificial offerings. Where there’s service, there is someone being served. The man who speaks to you of sacrifice is speaking of slaves and masters, and intends to be the master.” Barack Obama is the man collecting the sacrificial offerings and being served. But I don’t want to sacrifice my life to him. Deep down, I don’t think most Americans desire to either. But if the people do not awake shortly, they may find that one day soon they may not recognize the land they once called home, nor will they much appreciate the masters of the house. Amid cheers, President Obama showed his true colors when it comes to his plan to deal with the recession (soon to be a depression). Valiantly fighting off all takers on his stimulus, Mr. Obama exclaimed,
Now I understand that President Obama was speaking in front of a group of Democrats, trying to rally his comrades, but this type of message should outrage American citizens. Mr. Obama promised the people change, yet he makes the argument that since there are always earmarks in bills, the government should get a free pass for porking up its latest monstrosity. Apologies to the already suffering American people that have to pay for this. When it comes to buying a new fleet of green cars, the true politician in Obama comes out, spinning this ridiculous confiscation of private money as creating jobs. If this creates jobs, why doesn’t the government buy every taxpayer a Prius? Why not throw in some solar panels for every taxpayer too? Because this money has to come from somewhere of course. This is a textbook example of the broken window fallacy in action. Basically, Obama will be taking taxpayers’ money and transferring it to the auto sector. All of the taxpayers are going to be subsidizing one particular industry. One interest gains at the cost of all others. This is what American democracy has become. It is not about the public good; it is about the good of a specific set of interests. As to Mr. Obama’s final point that spending bills and stimulus are synonymous, one has to wonder how much longer this country will be able to stay afloat. Can Mr. Obama explain how taking $800 billion or most likely more money out of the private sector, and using some of it for pork, some for income redistribution and the rest for “shovel-ready” projects is stimulative? Can Paul Krugman or Larry Summers point to a situation in which wealth taken from the hands of the people has ever been used more productively by the government? Government spending has NEVER — not once pushed an economy out of a recession or depression. Even for those who acknowledge that the New Deal failed to bring us out of the Depression, most argue that it was only World War II that got the economy back rolling. Yet even this is false, another example of the broken window fallacy that somehow you can mobilize all resources under a command economy, and by allowing the government to channel them towards specific uses (in the case of war, towards bombs and fighter planes) leave yourself better off. As Robert Higgs shows, our productivity did not recover until after the war, when productive forces were released into the free market. The government cannot plan our economy and allocate resources profitably. Let me repeat this: THE GOVERNMENT CANNOT PLAN OUR ECONOMY AND ALLOCATE RESOURCES PROFITABLY. Not in the Soviet Union, not in Nazi Germany, not in Cuba, not in the United States. Even if I leave out the moral issue that people should have the right to choose how they use their money, productively or unproductively, and grant that somehow, some way, President Obama can spend the money as the people would, it is a proven fact that we are going to have to issue hundreds of billions of dollars in Treasuries to fund this. As George Melloan noted in the Wall Street Journal recently, this will inevitably prove inflationary. Our friends in China and Japan, already strapped for cash given their own economic problems will not be able to subsidize our profligacy much longer. They might even sell some of their existing Treasury holdings to raise cash. As has been noted repeatedly, Ben Bernanke may have to come in and buy Treasuries issued by his own government. Quite a queer concept. To carry out this plan, helicopter Ben will have to print up more dollars and thus we will see inflation in prices. You can also bet that with the collapse in demand for treasuries abroad, and the government’s inflationary actions, interest rates will rise for all of us. We will suffer from stagflation, and the government will have no way to pay for all of its entitlements without printing more money, generating more inflation and higher and higher interest rates. We will be crushed under our own debt. While the proper solution to all of this would be to allow ourselves as a nation to deleverage, paying off our debts and liquidating the bad assets, and forcing the government to reduce its spending and cut taxes, instead the President and the congress are sealing our fate to depression. The above steps would be the true stimulus. What the President proposes is no stimulus. As the Wall Street Journal quips, “The spending portion of the stimulus, in short, isn’t really about the economy. It’s about promoting long-time Democratic policy goals, such as subsidizing health care for the middle class and promoting alternative energy. The “stimulus” is merely the mother of all political excuses to pack as much of this spending agenda as possible into a single bill when Mr. Obama is at his political zenith.” One has to wonder if the reason Mr. Obama keeps telling us that things are going to get worse is intentional, a self-fulfilling prophecy. Perhaps he knows the true history of the Depression, that the more the government intervened the worse things got. He knows that this crisis will allow him to cement his place as President for at least eight years. As is the government’s wont, it will exploit any situation to gain more power. Every single citizen must realize that in allowing our representatives to pass this bill, we are dooming our children and our children’s children to pay for our mistakes, sacrificing our property without just compensation and allowing our representatives to further imperil our economy. This is taxation without representation. This is immorality. This is the death knell of a once great nation. On There’s No Painless Austrian economists accurately predicted this recession, As I’ve discussed in other articles on Citizen Economists, A tremendous amount of faith is being put in President-Elect Paul What needs to be done? Well, Obama That’s just what Volcker did—and Why is it that the Fed and the politicians keep on wrecking So when the chickens start coming home to roost, as they are What The best case scenario would be for Obama This would help put the economy back on sound footing for For the time being, at least, the United States of America is still considered a “capitalist” country. But what does this mean? What would it take to make the U.S. not a “capitalist” nation, but a “socialist” one? Generally, a country is considered to be more “capitalist” to the extent that it’s societal functions are handled by the private sector (the free market) rather than the public (government) sector. Since the Great Depression and New Deal, the Democratic Party has generally favored more government (i.e., less capitalism) while the Republican Party has, at least in its rhetoric, opposed expansion of the public sphere. But under the Bush administration, the federal government has grown much faster than it did under the Democratic administrations of Clinton and Carter. Americans who performed their “civic duty” and cast their votes on November 4 were thus left with a choice between Bigger Government and Even Bigger Government—with no clear indication of which party represented which. Taking Capitalism to the Extreme But under a regime of purely free-market capitalism, we wouldn’t need to have elections at all. That’s because under total laissez-faire, there would be no societal functions handled by the public sector—indeed there would be no public sector at all! Thus, there would be nothing to vote on—at least not politically. Consumers would vote with their dollars, and when 51 percent favored Selection A, the remaining 49 percent of society (which might favor an assortment of Selections B, C and D) would not be consigned to the will of the majority. We don’t choose a national brand of athletic footwear by popular vote, with everyone having to wear Nikes if the majority (or plurality) prefers Nike to Adidas, so why should we choose our governments this way? This is the radical notion of anarcho-capitalism: the idea that “monopoly government” is not only immoral but also unnecessary and ineffective. So with the 2008 election now behind us, let’s stop and consider whether we need to have elections—or “the government”—at all. There are lots of areas in which the government interferes now that it didn’t 100 or 200 years ago: education, healthcare, labor relations, marriage, charity (welfare), banking, retirement, etc.—the list could go on and on. When we participate in an election, we are choosing the officials who will manage this growing public sphere. On rare occasions, politicians take actions to cut back government, but even the most libertarian-minded of elected officials would never touch the unholy trinity of government monopolies: the military, the police and the court system. If an argument can be made that even these entities could and should be privatized, than the case for “the state” (territorial-monopoly government) would be without merit. So let’s give it a go! Imagine an “Anarchist” America Imagine an America with no federal government or any of its agencies or programs. Your “state” (i.e., Michigan or California, etc.) would refer to a geographic region, but not a state government, for there would be none. And your local government would lack the authority to tax or regulate you in any way without your consent. Indeed, there would be multiple, competing “governments” vying for your business. When you shop at a department store, they may or may not have great customer service. To the extent that they don’t, they risk losing you as a customer. But even the most unfriendly greeter at Wal-Mart has never tased you or shot you or locked you in a cage for a “crime” you didn’t commit. If Wal-Mart did that, they’d not only lose business, they’d be the subject of massive lawsuits. But police departments can and do do these things precisely because there’s no threat of you shifting your business elsewhere—you are a “customer” of the police via your taxes, whether you like it or not. And if you sue the police department, what do they care? You and your neighbors end up paying the cost via a higher tax rate. But wouldn’t the streets be running with violent criminals if we didn’t have police to “protect and serve” our communities? Perhaps. But just because we wouldn’t have a coercively financed monopoly police department doesn’t mean we wouldn’t have police! In fact, the streets would be much safer and crime would be much lower if we had multiple police agencies competing for customers in the same geographical area. How would this work? One model rests on insurance. In fact, it could be said that insurance companies would be the “governments” of an anarchist America. Instead of paying taxes, you would take out an “anti-aggression” policy with the insurance company of your choice. If you were the victim of a crime, you would receive immediate compensation from your insurance company, which would then have a financial incentive to apprehend the criminals who violated your rights—for it is they, the criminals, who would be made to pay restitution to the insurance company. If the criminals lacked the money to pay the restitution outright, or if they posed a serious threat to society, they could be made to work off their debt in a privately run prison. How Courts and Defense Would Work without Government But who would determine whether the criminals were guilty? A private court system. Everyone who had an anti-aggression insurance policy would also agree to have their disputes settled in one of several competing courts. The criminals, in this case, might have insurance policies that stipulate any charges brought against them would be handled in Court A, while you (the victim) might have an agreement through your insurer with Court B. No problem: both of your contracts would state that in such a situation, Court C would be used. The jurors who served on Court C would be vetted just as they are in today’s trials, however, they would not be forced to comply with jury duty. For “volunteering” to be called up, they would receive a discount on their insurance premiums. The insurance companies would hire police agencies to prevent crime. The expense for this service would be covered by the premiums paid by the insurer’s subscribers. Unlike today’s police, these free-market police would not be allowed to violate the life, liberty, and property of individuals—they would face charges in a private court if they did. In fact, the insurance companies themselves might be held accountable, thus encouraging more responsible policing. National defense would also be paid for by the insurers. Today, the United States spends over a trillion dollars a year on so-called “defense.” The country with the next highest military expenditure is China, which spends only 10 percent as much—with a population four times the size of ours. We could have the same level of per-capita defense spending for just 2.5% of the cost—and that’s compared to a Chinese military that is expanding. In truth, a purely defensive America—where most households would be armed—could be had for no more than $10 billion a year, or about $33 for every man, woman, and child. The “What Ifs” What if the private defense and police agencies went rogue? What if the judges of the private courts were easily bribed? For almost every “what if,” the answer is: we already have those exact problems, along with countless others, with monopoly government—why not give the alternative a try? There are entire books written on the subject of how justice could function in a stateless society, and limited space prevents me from articulating a more thorough argument here. However, now that the election of ’08 is in the rearview mirror, perhaps you should consider a different “what if”: What if instead of choosing between Big Government and Bigger Government, or even Big Government and Small Government, what if the choice was no choice at all? And what if that choice actually represented true choice, as in choice of government? What could be more democratic than that? For four shining days last week, it appeared that America was still a representative republic—of, by and for the people. The week opened with the House of Representatives defeating the $700 billion Wall Street bailout by a vote of 227 to 206. But the Senate, the more aristocratic house of the bicameral legislature, quickly drafted its own bailout bill and passed it by a vote of 75-24. Then on Friday, while populists were still celebrating Monday’s bailout defeat, the bigger and badder bailout bill was passed by the House and quickly signed into law by President Bush. How did it happen so fast? How did we go from beating back this colossal transfer of wealth to an even worse version of the same bill becoming law just four days later? And what does the bailout’s passage mean for the future of capitalism and American democracy? What Does the Bailout Mean? First, the specifics of the bill. The general idea is that the federal government will buy up “$700 billion worth” of “illiquid” securities, thereby “stabilizing” the financial and credit markets. The “$700 billion” must appear in quotes because the securities have much lower value on the open market, which is why they’re “illiquid.” And while apologists for the bailout claim that the federal government actually stands to make money as a result of Friday’s legislation, the fact of the matter is that, if this $700 billion “investment” had any legitimate potential to be profitable, private entities would be more than happy to supply the capital. But the bailout bill that President Bush ultimately signed does much more than just transfer $700 billion from the American taxpayer to millionaires and billionaires on Wall Street: it also grants the federal government unprecedented powers. For example, there won’t be another bailout bill any time soon, and not because this one will have worked so well. One of the provisions of this bill allows the Secretary of the Treasury to use public funds to buy up any financial asset he wants—without congressional approval. All he (or, in the future, she) needs to do is “notify” Congress. Think about this for a moment: there will be no more debate. The next time a bailout is “needed,” Henry Paulson or his successor can be like Nike and just do it. The Federal Reserve already had that power, but it was reaffirmed in the bailout bill. Thus, not only was wealth transferred from the middle class and poor to the rich as a result of this bailout, but power was also transferred from the legislative branch—that branch most accountable to the people—to the executive branch and the Federal Reserve. Why Did the Bailout Pass? The original bailout bill was just three pages in length. The one that passed on Friday was several hundred pages long. In addition to added powers being given to the executive branch, the new bill was greased with enough pork to build a million bridges to nowhere. And of course, the pork was directed at those House members who had voted no on Monday but were of fungible-enough integrity that a little lard thrown their way could easily sway them. It worked, as the vote went from 206 for and 227 against, to 263 for and 171 against—a swing of 57 votes. Another cause of the bailout’s easy passage: Barack Obama, a supporter of the bailout, called on black legislators and urged them to change their no votes to yeses. It should be noted that Obama’s top contributor is Goldman Sachs, and that Citigroup, JP Morgan, UBS and the now-bankrupt Lehman Brothers are also in his top ten. But if voters want to express their disgust with the bailout, they’ll have to look outside of the two-party system, since John McCain and Sarah Palin support the bailout and oppose laissez-faire just as steadfastly as Obama-Biden. What Was the Immediate Impact? When the bailout first failed, the Dow Jones Industrial Average fell by a record 777 points. Financial pundits were nearly universal in blaming the House’s brief showing of fiscal restraint as the cause of the market’s woes. But when the new bill passed the Senate on Wednesday night, the markets crashed on Thursday, with the Dow falling by 3.2% and the S&P and NASDAQ faring even worse. And then on Friday, after the House passed the bill, the Dow swung from +3% to -1.5%, and the S&P and NASDAQ also turned gains into losses. For the week, the three major indices lost 7.3% (Dow), 9.4% (S&P) and 10.8% (NASDAQ)—these are all much greater than the one-day losses of Monday. Clearly, the failed bailout wasn’t the cause of the market’s decline, as the bill’s successful passage caused stocks to drop even further. Where Do We Go From Here? This is a critical time in American history, in which we must reevaluate what it means to be a democratic republic built on the principles of private property and free enterprise. As one Republican congressman put it, what we really have now is “capitalism on the way up and socialism on the way down,” meaning that we let corporations privatize profits in good times and then socialize losses when times are tough. What’s more, we allow our representatives to thwart the popular will and redistribute wealth from their constituents to their campaign financiers, while the mainstream media mis-reports and distorts all along. Libertarian columnist Bill Huff characterized the recent events as a “run on the state.” Much like a “run on the bank,” when people race to withdraw their deposits before a bank goes belly up, Huff says the bailout is the last ditch effort for the rich and powerful to extract wealth from the federal government before it goes bankrupt. With the national debt soaring this past week, and the Federal Reserve expanding the money supply at an unprecedented pace, one has to wonder when people are simply going to refuse to accept U.S. dollars anymore. And when that happens, then what? |
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