The Conscience of a (Classical) Liberal

Amidst the madness (March and otherwise), around America we have been seeing signs of outrage at all sorts of characters, from our elected officials to AIG execs to foreclosure auctioneers. Indeed worldwide, the signs of growing unrest amongst the populace are beginning to spread. But while people are angered by all sorts of errors, they are failing to see the causes of these errors. Indeed, in many cases they are pointing their fingers in the wrong places, blaming for example the unbridled free market or greedy profit-seekers for bringing us all down. The truth is that we are very far removed from true free market capitalism, and have been since well before the recent nationalizing of various sectors of the economy. Regarding greed, it is greed that has brought us the opulence and luxury that we take for granted. It is greed that leads us through voluntary trade to obtain products that we cannot produce in order to better our condition. It is greed that drives a company to produce a better product than its competitor at a lower price. It is greed that allows us to survive and thrive, instead of sacrificing our lives to others. But enough about greed.

More fundamentally, what we are lacking is morality. To this end, the title of this post mocking Paul Krugman is meant to signal that it is the liberal (little l, not big L) flavor of morality that is what is killing us. When we begin to examine things from a moral level, this will lead us to see the proper path to peace and prosperity.

One of the principle beliefs in liberalism is that it is the job of the government to better the conditions of its people. If this were limited to protecting individuals from the harm of other individuals, this would be a noble and just undertaking. But liberals would like to accomplish this goal by going far beyond the limited scope granted to the state by the Constitution, and instead seeking to impose their brand of morality through a host of programs that in the end amount to stripping the people of their most cherished liberties, often with chosen groups benefiting at the cost of society as a whole. If we examine our system of political economy under this scope, it becomes much clearer to see that what we are living under is an entirely immoral system, in which liberals through the academia and media have used their sophistry to serve their perversely unjust agenda.

First, let’s take a look at the central bank. The Federal Reserve, a government-granted monopoly, was instituted because it was felt that banking crises in the past were too painful, and a central bank could prevent against them. With the noble goals of price stability and full employment, it would appear that the central bank would be a boon to prosperity in America. However, the central bank in fact insures that neither of its dual mandates can be met. First, the Federal Reserve has the sole power to set interest rates for the entire financial system and through this process also control the money supply. It is through these powers enhanced by a fractional-reserve monetary system and legal tender laws in which no other banks can compete with their own currencies that the government crystallizes the boom-and-bust cycle (ensuring periods of mass unemployment), inflates (destroying the purchasing power of one’s store of wealth, causing price instability and helping banking institutions at the cost of other businesses) and moreover creates through the power of law an inherently insolvent financial system. Inflation decreases debts, and so public debtors like the government benefit in being able to pay for social programs with cheaper money at the expense of the taxpayer, while private debtors like individuals benefit at the expense of the creditor. The banking system as a whole of course is technically insolvent because were there to be runs on every single bank, since banks only hold around 10% of funds in reserves, they would be unable to pay their depositors their money back in full. The FDIC further could not cover all the funds needed (unless push comes to shove they decided to ask the Fed to print money, meaning massive inflation), and in itself represents a moral hazard, but that is not essential to our discussion. The principle stands that a cornerstone political entity which is supposed to help people hurts all of us (though bankers and other people with access to artificially cheap credit may benefit for a time at our sake). Further, it stands as a fraud in its ability to print infinite money out of thin air and its insolvence. In other words, it is immoral.

Let us take a look at some other recent examples of liberals trying to help Americans through regulations. In order to protect American unions, Congress voted to stop Mexican truckers from being allowed to travel through the US, violating NAFTA. In theory, it seems like it would hurt American truckers to allow competition from Mexico. Yet what is the end result of this seemingly well-intended policy? Mexico will now be slapping tariffs of between 10 and 45% on approximately 90 US industrial and agricultural products.  In addition, if others are able to ship products through our country more cheaply, than this means that our workers are wasting their time on less profitable ventures, when they should shift into other lines of work where we have a competitive advantage. Are the gains from the blocking of free trade to support a specific union greater than the losses to the American people in having to pay for more expensive goods? Ask yourself whether that rhetorical question seems moral.

Another example of the fallacy that these types of regulations help would be the SEC. The Ponzi scheme of Mr. Madoff if anything should have shown that the SEC is an incompetent entity, and further one that creates moral hazard, hurting all consumers. They failed to pick up on the scheme despite repeated efforts by individuals to prove the firm to be a fraud, and in their incompetence took down investors who assumed that the operation was legitimate given the rubber stamp of the United States government. This same situation has been replayed in other fraudulent schemes as well only now being uncovered. But this is exactly what happens when you have a government entity given monopoly power over regulating companies. In a system in which private investors were responsible for their investing decisions, as opposed to having a government institution their to insure safety, these problems would be avoided. In fact, private firms have been all over these frauds in the past, but have lacked the power to stop the fraud because of the SEC’s complacence. Is it really so hard to envision a system in which firms competed against each other to provide the best oversight of companies for investors? Instead, again we see a situation in which a state agency ostensibly there to protect the public ends up hurting the public through its incompetence in stopping fraud, and in its lulling of the public into a false sense of security. Verdict? Immoral.

Another hallmark of leftists is the belief in the use of the state to promote “equality.” Take a goal the lefties have like shrinking the inequality gap in incomes. In order to do this, the government developed a system of progressive income taxation whereby those earning more would sacrifice greater percentages of their incomes in order to subsidize those who were worse off through various programs. This system of redistribution has led to a tax regime in which 60% of people pay income taxes, subsidizing the 40% of people who do not.

Yet leaving aside the grave injustice that such a large percentage of people get the benefits of programs paid for by others, progressive taxation ends up hurting the very people it purports to help. Since those earning more are taxed at a higher rate, this discourages productivity; businessmen will be disincentivized to generate better products at cheaper prices. This will mean fewer jobs, smaller profits, lower wages for employees, and for the consumers, worse and more expensive products. Thus, everyone loses as a result of progressive taxation.

Further, in principle, it seems immoral to my mind that people should be penalized for being more financially successful than others. Doesn’t it strike you as odd that people are punished for success and rewarded for failure in order to level the playing field? Should a dominant right-handed pitcher have to pitch lefty in order to make it more fair for opposing batters? Should a Nobel Prize winner have to incur a few concussions so as to knock his intellect down a few notches?

One can see that this principle pervades not just the tax structure, but also the way in which we have dealt with our entire financial crisis in that financial institutions that made poor decisions are being propped up by everyone, specifically at the cost of the financial institutions that were superior who deserved to gain market share as a result of the failures of their competitors, and who could use the assets being wasted by the poorer institutions productively. In addition, again all of us are paying through direct taxation, debts which will have to be paid in future taxes and/or inflation a more deceptive but equally odious tax for the failures of a given group. Forcing everyone to pay for private failure is immoral, especially when we are burdening yet-to-be-born generations of American citizens in doing so.

Another example of this perversion of morality is in affirmative action. By taking into account race and sex when it comes to college admissions or employment in businesses, we have institutionalized an inherently racist and sexist system. I find this to be degrading in that we are judging people not on their merit but on traits they are born with. I feel especially bad for someone like Clarence Thomas, a brilliant jurist who unfortunately has had his whole career doubted because of affirmative action. In other situations, an individual lacking in merit may be put in a position in which they are ill-equipped to thrive due to preferential treatment from affirmative action. In this case, the employer or school is left with an underperforming employee or student. In the case of business, the shareholder and/or consumer is left with a worse investment and/or product. And again, just thinking logically, imagine if you managed a baseball team where in evaluating a player you had to add 50 points to the batting average of anyone with red hair. Not a good way to succeed, and a pretty arbitrary way to pick a team if you ask me. This is akin to affirmative action. In sum, as a result of trying to break down social barriers, these barriers are erected and all bear the cost of falsely trying to help those seeking redress for prior injustices. Members of the “minority” and “majority” alike suffer.

Going back to the financial crisis, many people have spoken to the notion that housing is the key to fixing the crisis. Indeed, many of the assets crippling the financial institutions are those tied to non-performing mortgages. So the government, in an attempt to stem this problem has sought to keep people in their homes by allowing judges to alter contracts to lessen the debt burdens on those with mortgages they cannot afford. Again, this seems like a noble policy in which the state is trying to help out some of its people, just like the noble policy that the state pursued through the CRA and Fannie and Freddie in attempting to put every citizen into a home (note implied sarcasm here). It is this entitlement mindset however that hurts society as a whole.

Witness the collapse of Fannie and Freddie and the drain on taxpayers funding it, all of the homeowners now underwater who purchased houses they could not afford as a result of the easy credit fueled by the Federal Reserve and the inane policies that the government pushed upon lenders to put people into these homes. Then, perhaps even worse, remember that those who do not have mortgages or who can pay their mortgage are now being forced to subsidize those who can’t. This creates a moral hazard in signaling that it is okay for people to live in houses they cannot afford. This hurts renters who would otherwise be able to live in these vacant houses but who cannot because of the bailed out mortgage holders. This hurts the lenders who are being forced to take haircuts on properties that they will still probably not receive interest and principal on. This hurts people who have the desire and the means to be able to purchase these homes that should have been foreclosed. To blame the auctioneers of the homes, the ones who are helping stabilize the housing market by matching buyers with sellers makes me apoplectic.

At root and behind this by no means exhaustive and rather poorly organized list of various instances of government intervention with seemingly beneficial goals that end up having the direct opposite effects, plundering almost all citizens while benefiting small groups of others is the belief in democracy, immorality’s bedfellow. As Madison noted in Federalist #10, “…democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths.” In fact it was Karl Marx himself who said that “Democracy is the road to socialism.” Not once is the word democracy mentioned in our Constitution, and the founding father’s ardently defended against it throughout the Federalist Papers. Yet everywhere today, people speak of America as a democracy, and we know we have become one based upon the previous examples. The political system has become a free-for-all in which every single group has sought to gain power at the expense of every other group through government fiat. Our prescient old friend Frederic Bastiat describes the process by which we have ended up here:

Men naturally rebel against the injustice of which they are victims. Thus, when plunder is organized by law for the profit of those who make the law, all the plundered classes try somehow to enter — by peaceful or revolutionary means — into the making of laws. According to their degree of enlightenment, these plundered classes may propose one of two entirely different purposes when they attempt to attain political power: Either they may wish to stop lawful plunder, or they may wish to share in it.

Woe to the nation when this latter purpose prevails among the mass victims of lawful plunder when they, in turn, seize the power to make laws! Until that happens, the few practice lawful plunder upon the many, a common practice where the right to participate in the making of law is limited to a few persons. But then, participation in the making of law becomes universal. And then, men seek to balance their conflicting interests by universal plunder. Instead of rooting out the injustices found in society, they make these injustices general. As soon as the plundered classes gain political power, they establish a system of reprisals against other classes. They do not abolish legal plunder. (This objective would demand more enlightenment than they possess.) Instead, they emulate their evil predecessors by participating in this legal plunder, even though it is against their own interests.

In summation, all of our problems are a result of the inversion of morality by the sophistry of leftists, and a gullible public that deludes itself into believing that the government is working for fairness, equality, charity, security, peace and prosperity, the very things it undermines through its policies. The belief in the US as a progressive democracy has aided this cause. A simple dose of true morality however would provide the antidote for all that ails us.

It is this conception of morality in the tradition of classical Liberalism that was built into our Constitution, insuring that the state solely preserve our natural rights to life, liberty and property against the aggression of other individuals, and moreover against the tyranny of the majority. It was this system of government with limited powers, in which people could choose their own form of morality over that imposed by the force of the state. This choice of what was moral could be made at one’s own peril: people could choose to accumulate as much wealth as possible or sacrifice all of their wealth to charity; businessesmen could operate for consumers at a profit or for the “public good” at a loss; soul-searchers could choose to live good Christian lives or become pot-smoking hippies or dwell in hedonistic communes.

The point is that people had choice, and they were responsible for their choices and protected from harmful choices of others by the rule of law. Until we rekindle this system of limited government standing to protect free markets and free people — a system firmly grounded in morality — we will be doomed to mob rule and the perpetuation of the aforementioned immoral follies.