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Your Uplfiting Sunday Message

February 7, 2010 Leave a comment

From Albert Jay Nock’s Our Enemy, the State:

What we and our more nearly immediate descendants shall see is a steady progress in collectivism running off into military despotism of a severe type.  Closer centralization; a steadily growing bureaucracy; State power and faith in State power increasing, social power and faith in social power diminishing; the State absorbing a continually larger proportion of national income; production languishing, the State in consequence taking over one “essential industry” after another, managing them with ever-increasing corruption, inefficiency and prodigality, and finally resorting to a system of forced labour.  Then at some point in this progress, a collision of State interests…will result in an industrial and financial dislocation too severe for the asthenic social structure to bear; and from this the State will be left to “the rusty death of machinery,” and the casual anonymous forces of dissolution will be supreme.

We’ve survived 75 years since this was written back in 1935 when lovers of liberty already thought we were doomed.  Are we too far down the road to serfdom or can we still reclaim our nation?

Democracy, Progressivism and Decivilization

February 1, 2010 1 comment

Over the last couple of days I came across two striking articles, one in the American Thinker and the other in the National Review on the destruction of our republic due to the concepts of democracy and progressivism.  The authors come to different conclusions.  On the one hand, Mark Hendrickson concludes in his AT piece that “The republic they gave us has been corrupted and possibly lost forever.”  Alternatively, Matthew Spaulding end his NRO piece: “The American people are poised to make the right decision. The strength and clarity of the Founders’ argument, if given contemporary expression and brought to a decision, might well establish a governing conservative consensus and undermine the very foundation of the unlimited administrative state. It would be a monumental step on the long path back to republican self-government..”  These are the two fates we face, and it is the job of conservatives, libertarians and regular Americans to determine which way we go.

On Mark Hendrickson’s piece, there is much fodder for any fan of The Law by Frederic Bastiat.  Hendrickson argues that there has grown a dichotomy in the notion of democracies since our founding:

The gulf between the founders and contemporary Americans stems from very different usages of the word “democracy.” Benign “democracy” connotes the empowerment of individuals and a corresponding freedom from tyranny and oppression.

Further according to Walt Whitman, government was to “make no more laws than those useful for preventing a man or body of men from infringing on the rights of other men.”

My interpretation of democracy is simply a system in which 50% + 1 of people can vote away the rights of the other 49% of individuals.  While this may be semantics, I would argue that Whitman believes in individual liberty, as opposed to democracy, secured by a severely limited and divided government.  Clearly, Hendrickson concurs, and argues that Whitman’s so-called democratic ideal is best served by a:

constitutional republic…premised on the primacy of individual rights. It sought to restrain governmental power in order to protect those rights…Democracy, by contrast, is a theory of power: What the majority wants, the majority gets. The founders — great students of history and human nature — understood that individual rights could be trampled by democratic majorities as readily as by individual tyrantsThe founders knew that if America’s constitutional republic ever degenerated into a formal democracy, then Americans’ rights and Whitman’s democratic ideal would be lost.

This is essential.  Tyranny by the masses is no less evil than tyranny by a king.  Hendrickson rightly notes as I have argued that the socialists encouraged democracy as a means to their end.  He argues:

In The Communist Manifesto, Marx wrote that the way to attain socialism was to “win the battle of democracy.” The cold-blooded Lenin taught, “A democracy is a state which recognizes the subjection of the minority to the majority.” The democracy that the founders loathed and that the communists coveted is a political system in which government ceases to protect individual rights and instead annihilates them.

True enough.  Further,

In the words of British archeologist and historian Sir Flinders Petrie, “When democracy has attained full power, the majority without capital necessarily eat up the capital of the minority and civilization steadily decays.”

The end result of the push towards democracy has been decivilization, where various interests plunder various other interests overtly.  In our current system, the wealthiest financial interests (with all the capital) have stealthily (and sometimes not so stealthily) expropriated the wealth of the middle class in their bailouts and Fed-induced inflation and cartelization, whilst the lower classes have made use of the legislative branch and the courts through the unions and community organizing groups to further bilk the middle class.  Those with the most capital and those with the least have feasted on those in the middle.  Generally, as I have argued time and time again, the masses have been practicing legal plunder for well over a century.  The end result of this system however is that you run out of productive people to rob at the point of the legitimized gun of government.

Ultimately, Hendrickson laments that

politicians and jurists have ignored Washington’s wise counsel and undermined liberty by ignoring or defying (thus, usurping) the clear language of the constitution in pursuit of their ambitions.  The rule of law lies in tatters. Our political degeneration has progressed to the point where Speaker Pelosi and Senate Majority Leader Reid write major legislation behind closed doors and order their partisan minions to approve their proposals before they even read them. In the name of democracy, the national government has become blatantly undemocratic.

The founders’ misgivings about democracy were spot-on. The republic they gave us has been corrupted and possibly lost forever.

Matthew Spaulding recounts the systematic destruction of our rights over time which has left us in this predicament.  There is much worthy of analysis here.  Spaulding notes the incestuous relationship between government and society:

Americans are wrapped in an intricate web of government policies and procedures. States, localities, and private institutions are submerged by national programs. The states, which increasingly administer policies emanating from Washington, act like supplicants seeking relief from the federal government. Growing streams of money flow from Washington to every congressional district and municipality, as well as to businesses, organizations, and individuals that are subject to escalating federal regulations.

It makes you question, given the fact that our lives are so heavily regulated; that business seems to serve at the leisure of government – how there is any innovation and advancement…how the human spirit remains free when all around it the walls close in upon it.

Spaulding argues that this system has as its origin,

the theories of Thomas Hobbes, who wanted to replace the old order with an all-powerful “Leviathan” that would impose a new order, and Jean-Jacques Rousseau, who, to achieve absolute equality, favored an absolute state that would rule over the people through a vaguely defined concept called the “general will.”

While true, I might add that given Plato’s view of an ideal society growing not through organic spontaneous order, but under the direction of an elite class, we can trace the roots of the tyranny of elite control back much further.  This split is also embodied amongst the founders in the difference between Jefferson and Hamilton.

Progressives were the ones to implement a system completely anathema to that created by the founders.  As Spaulding puts well:

American “progressives,” under the spell of German thinkers, decided that advances in science and history had opened the possibility of a new, more efficient form of democratic government, which they called the “administrative state.” Thus began the most revolutionary change of the last hundred years: the massive shift of power from institutions of constitutional government to a labyrinthine network of unelected, unaccountable experts who would rule in the name of the people.

The great challenge of democracy, as the Founders understood it, was to restrict and structure the government to secure the rights articulated in the Declaration of Independence — preventing tyranny while preserving liberty. The solution was to create a strong, energetic government of limited authority. Its powers were enumerated in a written constitution, separated into functions and responsibilities and further divided between national and state governments in a system of federalism. The result was a framework of limited government and a vast sphere of freedom, leaving ample room for republican self-government.

Progressives viewed the Constitution as a dusty 18th-century plan unsuited for the modern day. Its basic mechanisms were obsolete and inefficient; it was a reactionary document, designed to stifle change. They believed that just as science and reason had brought technological changes and new methods of study to the physical world, they would also bring great improvements to politics and society. For this to be possible, however, government could not be restricted to securing a few natural rights or exercising certain limited powers. Instead, government must become dynamic, constantly changing and growing to pursue the ceaseless objective of progress.

This belief in an administrative state in my view is really just a nice way of saying a centrally planned or authoritarian state.  As we have seen, the results of states based upon these principles have always failed because central planning fails.  This process leads to chaos, bloodshed and decivilization.  There is also a major fallacy that somehow because there are rigid principles that confine the spheres that government can influence, and the extent to which it can influence them, that this stifles “change.”  In fact, only a system that constrains government and thus maximizes individual liberty, built on bedrock principles can create a fertile ground for dynamic development, technological progress, widespread prosperity and peace.  Government’s effort to create these outcomes ensures they can never be reached.  The progressives have halted progress, and will push us backwards as a people through moral debauchery and economic servitude due to their subversion of the Constitution through the legislative, judicial and executive branches of our Leviathan central government, with the help of the media and academia in brainwashing the American people into either blind ignorance or delusional belief in the fatherly state.  The great advances of man have always been attributable to the individual, never the collective.

Spaulding notes that in the permanent administrative class created by the Progressives,

bureaucrats would address the particulars of accomplishing the broad objectives of reform, making decisions, most of them unseen and beyond public scrutiny, on the basis of scientific facts and statistical data rather than political opinions. The ruling class would reside in the recesses of a host of alphabet agencies such as the FTC (the Federal Trade Commission, created in 1914) and the SEC (the Securities and Exchange Commission, created in 1934). As “objective” and “neutral” experts, the theory went, these administrators would act above petty partisanship and faction.

The progressives emphasized not a separation of powers, which divided and checked the government, but rather a combination of powers, which would concentrate its authority and direct its actions. While seeming to advocate more democracy, the progressives of a century ago, like their descendants today, actually wanted the opposite: more centralized government control.

So it is that today, many policy decisions that were previously the constitutional responsibility of elected legislators are delegated to faceless bureaucrats whose “rules” have the full force and effect of laws passed by Congress. In writing legislation, Congress uses broad language that essentially hands legislative power over to agencies, along with the authority to execute rules and adjudicate violations.

The objective of progressive thinking, which remains a major force in modern-day liberalism, was to transform America from a decentralized, self-governing society into a centralized, progressive society focused on national ideals and the achievement of “social justice.” Sociological conditions would be changed through government regulation of society and the economy; socioeconomic problems would be solved by redistributing wealth and benefits.

On this so-called ruling class of bureaucrats, there are a few things worthy of note.  First is the principle that there is a certain elite that should decide things for everyone else; that there are some who by the grace of G-d are preordained to rule, while the masses must follow.  This is an immoral and non-progressive principle.  Aren’t the progressives supposed to be all about freeing the oppressed from tyranny?  Further, the argument that the end goal was more centralized government control in my view merely touches on a means to an end which is power for the elite class.  Regardless of what they feel is the proper role of government vis-a-vis the masses, deep down control is about power and stoking one’s ego; the elites lust for power over their perceived intellectual subordinates.  Ayn Rand sums this relationship correctly: “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.”  It is no surprise then that Barack Obama so stresses service and sacrifice, and even seeks to make it a permanent requirement for all citizens.


Additionally, on the belief that “Liberty no longer would be a condition based on human nature and the exercise of God-given natural rights, but a changing concept whose evolution was guided by government,”  this again reminds me of Yuri Bezmenov’s video on ideological subversion.  He describes a condition in which the people are so numbed to morality, and the sanctity of their natural rights that they support causes completely averse to their livelihood.  In addition, as Hans Herman-Hoppe argues in his Democracy: The God that Failed, in a system in which definitions of essential principles constantly sway at the whim of public opinion, it becomes highly difficult for positive human action to occur.  Uncertainty and constantly changing rules and regulations again undermines progress.  As Spaulding notes, FDR adviser Charles Merrian argued that “The question is now one of expediency rather than of principle.”  Expediency over principle is a surefire way to destroy the rights of the people.

Spaulding adeptly notes the changing view that the progenitors of the welfare state like FDR began to take on under policies such as those enumerated in the

Second Bill of Rights” that would “assure us equality in the pursuit of happiness.” Roosevelt held that the primary task of modern government is to alleviate citizens’ want by guaranteeing their economic security. The implications of this redefinition are incalculable, since the list of economic “rights” is unlimited. It requires more and more government programs and regulation of the economy — hence the welfare state — to achieve higher and higher levels of happiness and well-being.

In other words, FDR, his predecessors and followers believed in legalized plunder to ensure “equality in the pursuit of happiness.”  Instead of ensuring a playing field in which all could seek to attain what they subjectively defined as the good life, or the happy one, under the guise of equality, FDR and the others believed that they could socially engineer the American people in order to provide “economic security.”  This economic security is nothing more than a system of wealth transfers that create moral hazard and cause the American people to cease to strive to create wealth; rather, it leads people to use politics to grab it.  The modern welfare state was an edifice created to make the people parasitic, lazy sheeple dependent upon the facilitator of expropriation of government.  If the people understood this they would surely not stand for it.

The genius of the progressives is that once they began to radically expand government, it became almost impossible to stop politically, especially when these expansions often occurred because of crises perpetuated by government that purportedly only government could fix.  A politician doesn’t want to alienate one constituency or another by scrapping it of its government-granted privileges.  In addition, entitlement programs in particular as laws are difficult to repeal, continuously grow and become politically almost impossible to defeat because the public has gotten so used to them as rightful fixtures of the state.  How can you expect the American people to accept at face value that they should no longer expect Social Security or Medicaire, even if you can rationally explain that in the long run a state devoid of these programs will prove better for them.  Immediately, opponents will say that you want old people to be broke in retirement, or sick children to die.

Yet again, Spaulding is optimistic.  He notes:

There is something about a nation founded on principles, something unique in its politics that often gets shoved to the background but never disappears. Most of the time, American politics is about local issues and the small handful of policy questions that top the national agenda. But once in a while, it is instead about voters’ stepping back and taking a longer view as they evaluate the present in the light of our founding principles. That is why all the great turning-point elections in U.S. history ultimately came down to a debate about the meaning and trajectory of America.

In our era of big government and the administrative state, the conventional wisdom has been that serious political realignment — bringing politics and government back into harmony with the principles of the Declaration of Independence and the Constitution — is no longer possible. Yet we are seeing early indications that we may be entering a period of just such realignment. Perhaps the progressive transformation is incomplete, and the form of the modern state not yet settled — at least not by the American people.

This creates a historic opening for conservatives.

Growing opposition to runaway spending and debt, and to a looming government takeover of health care, doesn’t necessarily mean that voters want to scrap Social Security or close down the Department of Education. But it may mean that they are ready to reembrace clear, enforceable limits on the state. The opportunity and the challenge for those who seek to conserve America’s liberating principles is to turn the healthy public sentiment of the moment, which stands against a partisan agenda to revive an activist state, into a settled and enduring political opinion about the nature and purpose of constitutional government.

To do that, conservatives must make a compelling argument that shifts the narrative of American politics and defines a new direction for the country. We must present a clear choice: stay the course of progressive liberalism, which moves away from popular consent, the rule of law, and constitutional government, and toward a failed, undemocratic, and illiberal form of statism; or correct course in an effort to restore the conditions of liberty and renew the bedrock principles and constitutional wisdom that are the roots of America’s continuing greatness.

The American people are poised to make the right decision. The strength and clarity of the Founders’ argument, if given contemporary expression and brought to a decision, might well establish a governing conservative consensus and undermine the very foundation of the unlimited administrative state. It would be a monumental step on the long path back to republican self-government.

If nothing else, this is an inspiring and hope-filled message.  While there are signs that the masses are awakening, I do not believe that a slowdown in the growth of government will set us straight.  The man on the street does not realize how rotten our system is to the core — that we require fundamentally transforming America by scrapping the entire welfare state and returning power to the people.

One of the principle institutions symptomatic of our problems both in terms of the increase in government and the diminution of the individual is the Federal Reserve.  It facilitates infinite government growth in part through wars, robs people of their income and savings and allows government to stealthily tax.  But try to explain to the average person why they should care about the Fed and most Americans (likely with good reason) will probably either stop listening or be unable to comprehend the magnitude of its evilness.  Amongst the “elite,” they will default to either Keynesian arguments or ad hominem attacks.  They can’t imagine that the foundation of the economy is a mirage.  They can’t imagine that a group of unelected Fed governors has such a great effect on our prosperity, liberty and peace.  They can’t believe that much of our government is pure fraud.

In general, people do not want to believe that government efforts to help people almost always end up hurting them, and that institutions that have been for a long time may be inherently corrupt and/or cease to be (just look at the investment banking houses).  People pray at the altar of the status quo because it is easier to accept things as they are instead of critically questioning and radically reevaluating the world.  It took me until these last few years to do so myself.

It is our job if we are to revive the tattered law, refound the relative paradise of republicanism that Hendrickson mourns and realign the country according to the principles that Spaulding espouses to open the eyes of the public to our view.  Ironically, progress requires a radical return to “reactionary” principles.  Civilization hangs in the balance.

It’s the Constituency, Stupid

January 28, 2010 Leave a comment

Every time I see talking heads question the positions of politicians on various issues, I have to laugh at their widespread blind belief that policy is based on principle.  Citizens must be vigilant when it comes to judging their nominal representatives.  The first question in evaluating a politician’s stance on an issue that must be asked is not, “What does the politician feel is the right thing to do?” but rather, “What constituents does the politician intend to appease or bribe with this piece of legislation?”  This is the nature of politics.  If a politician held views on principle averse to the interests of those he served, he likely would never have made it into office.

Thus, when the public and the media make a big deal about legislation being not only massive but mind-numbingly cryptic, they are missing the point that this is all intended to deceive the people from understanding the true nature of the bills.  The sad fact is that most legislation is about political plunder, in which certain interests benefit at the expense of others.  I have harped on this fact before, that government as it is currently constituted is merely an instrument for systematically carrying out the redistribution of wealth and/or power.

By believing that politicians care one way or another about policy (with certain limited exceptions), the public and the media delude themselves.  They miss the fact that the question every politician asks before crafting or voting on a piece of legislation is, “Will this help me get re-elected?”  To believe otherwise is incredibly naive, idealistic and dangerous in a democratic system.  Cynicism is healthy.  After all, politicians have no incentive to be long-term oriented or principled.  Politicians meet the demands of consumers, their constituency, and the profit-and-loss mechanism with which they measure their performance is the ballot box.  Unlike those who compete in a free marketplace, the means by which they achieve success is through stealing from some and giving to others at the point of a gun.

Until lovers of liberty can articulate to the American people that NO political largess should be extended to ANY particular group – that ALL will be made better off in a system in which people freely compete on a level playing field, we will continue to have a shrinking economic pie and devolving civilization.

A Call to Arms

November 2, 2009 5 comments


American populist angst has been rising for some time now. The optimist in me hopes that the Tea Party movement, and with it the rekindling within Americans of the vision of the founders and the defense of our Constitution can “fundamentally transform the United States of America” to coin a phrase from our old socialist pal in the Oval Office.

Yet while my heart tells me that there is a chance to turn this ship around, the overwhelming evidence that I have documented in my more sober if not brutally honest moments speaks to just the opposite. The progressives have been hammering away at our freedoms for well over a century, aggressively indoctrinating the citizenry with their perspicacious propaganda campaign. While our ideas are better, we have not adequately defended them.

Today it occurred to me that the perturbed conservatives I saw on Ailes’ evil news network harping on the blasphemous spendthrift blowhards in Washington were missing the point in blaming our politicians for their actions. Sure I am just as outraged as the next fellow at the spending of taxpayer money on projects fraught with waste and corruption, the sheer arrogance of our leaders in running roughshod over our economic liberty and in general the out of control growth of the nanny state.

But just as it was these political leaders who were the great enablers for the bankers in the financial crisis, through the gobs of cheap government credit provided by the head of the banking cartel – the government’s Federal Reserve, through their implicit guarantees of too-big-too-fail taxpayer protection and through their push along with the ACORN thugs for providing housing for even the least creditworthy among us, so too was it the American people that have enabled this government.

James Madison said of democracies that they “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.” Perhaps more prescient, Marx posited that “Democracy is the road to socialism.” But alas, this is the system that we allowed to take hold though the Constitution never once mentions it, and we the people, who were supposed to vigilantly defend our liberty, have allowed our government to devolve into an instrument whereby each group plunders each and every other group. And what is this instrument of plunder of government but a representation of the people?

Herein lies the problem with blaming the politicians. It is we that have elected these scallywags. Their sole goal is retaining power in office, future of the nation-be-damned. Like for the bankers, though they know the system to be unsustainable in the long run, what matters to politicians is reaping the rewards before the storm. It is the American public that has let them continue to be irresponsible, leaving us with over $100 trillion in unfunded liabilities. We have condoned the profligacy and pillaging of our rights.

Throughout history in this country there has been a constant battle waged between those who espouse liberty and those who would sooner trade liberty for tyranny than live in a society based on self-reliance, merit and morality. Even if we have voted against the bad apples, we are complicit in having not convinced our fellow citizens to do so. Instead, we allowed the so-called elites, the political entrepreneurs to take over Washington, D.C., promising the people healthcare, housing and the rest of the hogwash spelled out in the Second Bill of Rights. They debauched our great nation by our sanction.

Now let me turn from criticizing us Americans (I am as complicit in this lack of vigilance as all my Libertarian brethren), lest I start to sound like Barack Obama. What we must do as the antidote to the growing Leviathan is to fight the intellectual fight for liberty on every street corner, in every classroom and through every other media possible. We must infiltrate corrupt and destructive institutions and reveal the truth to our fellow countrymen. We must seek out candidates with no interest in political power – no desire to cut deals but a sheer wish to restore America to its rightful place in the world; to serve as honest and capable stewards aiming to leave a better country for their children and children’s children. We must seek people willing to take unpopular positions with a firm and steadfast resolve, equipped with the knowledge of and confidence in the tenets of classical Liberalism. A good start would be to seek out those who have no desire to hold office.

Good government requires a populace that seeks good government. Further, it requires representatives with the courage to fight for prudent policy, not the petty politics of payoffs and plunder. Most importantly, it beckons those who wish to honor the vision of our Founders, in which the liberty of the most important minority, the individual is protected, in which free market capitalism is advanced through the protection of private property and contract rights and in which the defense of our citizenry and by extension the securing of our freedom is the highest priority of government.

Demoralizing as our situation as a nation may be as a result of a government that we have allowed to run amok, I should say that in some ways I am optimistic no matter what direction this country takes. Should we rally to fight the fight against the socialist sophists and begin to roll back the last hundred-plus years of disgraceful governance, we will succeed. On the other hand, if we continue to hurtle towards the day of reckoning of default and/or hyperinflation in von Mises’ “crackup boom,” the welfare state will collapse of its own weight, and those of us armed with the right ideas will be able to step out of the darkness and help lead the country back to peace and prosperity.

Either way, we must fight on every front to advance the ideals of liberty and engage the leftists (many Republicans included) in debate. We can no longer blame our politicians, but must heed our own advice and take the individual initiative and personal responsibility to ourselves battle to make this country once again a shining city upon a hill. Nothing less than the future of the nation depends on it.

Immorality Writ Large and How to Fight It

May 20, 2009 1 comment

We are living through a time in which all common sense and logic has been sacrificed for blind hope and misplaced faith. According to the current gospel, peddled by the Messiah and even his anti-Christ enemies (the Republicans ironically), in a crisis in which millions are being thrown out of jobs, debts are being called in and people are being forced to cut back and save more, naturally we must see to it that these forces are prevented.

So we pump public funds into failed banking institutions that took risks imprudently and followed a business model in which short-term windfalls were rewarded over long-term viability and sustainability…all at the cost of the taxpayers and the financial companies that would have been able to find value and profitability in the assets that would have been liquidated had the banks been allowed to fail. We do the same with the auto industry, bailing out our failing companies, and specifically the UAW – the union that pushed the companies towards failure by demanding the massive salaries and benefits that bankrupted the companies in the first place. We reward debtors who purchased homes they could never afford by forcing lenders to rewrite mortgage contracts and allowing the government to purchase mortgage debt to keep interest rates low, with the government thumbing its nose at those who had responsibly paid off their mortgages. We relieve people who took on too much credit card debt by forcing lenders to lessen their fees (the fees necessary to compensate them for the risk involved in allowing people to finance their purchases through debt) by putting restrictions on “unfair” charges, inevitably causing those who were more responsible in paying off their debts to pay higher rates of interest.

When it comes to the protection of failing bureaucracies, it looks as if all of the states in the nation will be forced to bail out California (amongst others) when the federal government comes in and helps ameliorate their debts created by reckless spending. More importantly, the responsible states will not only be sacrificing their money, but their sovereignty to the federal government, due to the fiscal idiocy of the other states.

Even looking to something as fundamental as our progressive tax structure, whereby those who generate more income are penalized through higher levels of taxation (and forced to subsidize) those who earn less income, in every single case the people that are in the wrong are rewarded, while the people that are right or at least not responsible for these problems are penalized. Given the rate at which our national debt is expanding, the burden of these current problems unfortunately will be borne on the backs of future generations of Americans as well.

At length I have spoken in the past about how economically destructive these policies are, merely exacerbating problems instead of allowing markets and the individuals that make up the markets to adjust. I have explained that many of these problems were created by the government in the first place. I have also spoken to the fact that the holes that we are digging in attempting to stave off our problems, in the wasted future resources and diverted current resources being put towards government-planned projects, the massive amounts of money and debt creation by the federal government and also in our move overall towards a collectivist society.

But fundamentally, what I am seeing is that there is something far more insidious at play. What this crisis has illuminated to me is that because everything the government does has the force of law, it allows it to embody all of the worst traits of fallible man, writ large. More specifically, practically every single thing the government does and has done is about taking things from one group of people or more often all people and redistributing them to other people. Since the government can tax, it has the legal authority to rob you of your wealth and give it to someone else. Since the government can regulate, it has the power to help certain companies and harm the ones it doesn’t like. Since all can vote for government officials, government can allow 50% + 1 of the people to destroy the rights of all people; or allow 99% of people to subjugate the rights of the other 1%.

What I have come to realize is that unfortunately, our Founding Fathers did not think through deeply enough how far men were from angels, because the Founders were imperfect just like the people that they built the government for. They did not understand that while they tried to protect us from democracy, given the power to amend the Constitution, democracy could be implemented, with certain classes plundering other ones and bankrupting the nation in the process. Were the document to lay out in clear language any number of restrictions separating the public sphere from the private, this would simply lead to innovation amongst the people in subverting law and usurping power. Unfortunately, they didn’t understand the fatal flaw that they designed a framework in which the people got the government they deserved, not the government that was best. I do not mean to decry their efforts, but merely point out that as great as the Constitution they crafted was, it still could not ensure that people did not corrupt or disregard it.

As some have argued, were the populace to be more educated, our government would be better policed and regulated by the people it is supposed to help protect, and closer to the kind of paradigm that was intended by our forefathers. However, the government through public education gets to indoctrinate the citizens from day one. Even for those who are home-schooled or receive a private education, they still might be deluded into voting for bad candidates — just look at the New York Times crowd or the Ivy League (I know, I can’t believe I am emerging from it with a clear head either). And an educated populace might be even more adept at using the government to serve its interests as is.

I have always found that more influential than any of these institutions are the people that we grow up with and live with – our families, our friends and our mentors. And this is why I believe that our role as free-thinking individuals is so important, and that we must seize this moment in which the world is upside down, when good is treated as bad and moral is treated as immoral to seek to open the eyes of our fellow men. We need to educate by teaching in theory, demonstrating in practice and appealing in good sense and morality to the fact that this system whereby everyone plunders everyone else in the end leads to our demise; into a land devoid of all values, corrupted and whithered like so many empires that came before us.

We need to engage in debate, unafraid of saying what we feel in our hearts and in our minds is right. We need to sharpen our arguments against our challengers so that we can swiftly, calmly and rationally show them the errors of their ways and turn them into our friends, or at least respectful enemies. We need to explain that our actions affect more than just those around us, but also our future: our children, and our children’s children. We need to preach that as Reagan put it “Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.” We need to argue that principles and values do matter, and that the consequences of sidestepping them are fatal. We need to scream at the top of our lungs that all progress comes from individuals, not coercive powers that dictate to free men that they must build pyramids or dingy fuel-efficient cars.

As things get worse and worse, people will first most likely react angrily. They will be looking for heads to roll. But we must keep our heads. We must be there with the answers, because it is only when people have lost everything that they will be willing to listen to the voices they dismissed before. If socialism can come into fashion so quickly from the height of what people thought was capitalism, then why can’t Liberalism supplant socialism just as quickly?

Until that day however, we must continue to advocate our principles in the face of angry, irrational intolerant sophists. We must keep fighting the good fight even if it means being hated. Derision and ridicule should be met with satisfaction, because it will mean that our detractors can only react emotionally to our reasoned arguments.

There is no shame in being hated by a group that is wrong theoretically, practically and morally. We must continue along, emboldened in the face of tyranny. We must defeat the gravest of evils with the greatest of goods: freedom.

Market as Regulator

April 7, 2009 4 comments


Regulators

We regulate any stealing of his property

And we damn good too

But you cant be any geek off the street,

Gotta be handy with the steel if you know what I mean, earn your keep!
Regulators!!! mount up!

The epic words of Warren G in many respects seem to sum up our government’s regulatory regime. Guys like Barney and Timmy clearly are “handy with the steel,” in their ability to influence businesses. They also in many respects do regulate stealing, ultimately robbing investors and businessmen in creating moral hazard for the bond and shareholders and all sorts of barriers to entry for the firms.

Yet recently amidst the market fallout there have been calls left and right for some sort of even more powerful “super-regulator.” After all, given that our regulatory architecture seems to have failed us this time, why not create an even bigger and stronger one to prevent the crisis next time?

Just like all government attempts to stop future crises, be it in healthcare or food and drugs, regulation always perpetuates the problems, creating greater ones down the road. In the financial system, we see perhaps the greatest case AGAINST regulation. Let us examine my seemingly counterintuitive claim.

The first and most obvious reason against regulation is that it creates a significant amount of moral hazard. If one has the SEC there to ensure that financial institutions are seemingly playing by the rules, or the FDIC there to ensure that even if a bank is insolvent, one will be able to receive his deposits (up to a point), then this encourages one to take far greater incremental risks than one otherwise would. After all, with the seal of approval of a government institution, why would you ever get your hands dirty in analyzing the institutions in which you entrust your money?

This problem is especially pervasive when it comes to the credit ratings agencies, namely Moody’s, S&P and Fitch, who are designated “Nationally Recognized Statistical Rating Organizations” by the SEC. Individual investors and institutional investors alike had become reliant on these agencies to gauge the risk of default of individual companies and securities, only for many of these companies and securities to blow up in their faces during this crisis. Had people actually gone in and done the risk analysis themselves, as opposed to relying on ratings assigned to companies largely by government decree, I would argue that people would have taken far more prudent positions with their capital.

Further, without this pseudo-cartel of agencies, I would imagine there would grow hundreds if not thousands of competing private firms to do independent analysis, greatly benefitting the investor without the time or knowledge to do financial analysis. Sure some of these companies might partake of fraudulent activities themselves, but they would either lose credibility and have to fix up their act to compete, or be prosecuted for the fraud they perpetrated. I admit that in this case, you do need law enforcement when it comes to fraud, but it is far more likely (given all of the times that private companies for example had uncovered the Madoff scheme before the regulators ever did anything) that the authorities would be able to react were market participants able to signal fraud to them. Still, at the very least the consumer would have far more choice in determining which analysis was best.

This brings us to another problem with government regulation – the fact that it is done by government monopoly. Government officials just like businessmen are prone to error. Unlike businessmen however, they lack a profit motive to work efficiently and prudently. To this end, if we see how ineffectual the DMV is, why should the SEC or FDIC or SIPC or any of these other alphabet-soup agencies be any more trusted? Sure, many of the people that work for these agencies previously worked in private industry, but remember that this in itself creates many a conflict of interest. Madoff himself had ties to the SEC, which may have helped him keep his Ponzi scheme alive for so many years.

Government regulators also create problems in that they make costly work for businesses and investors. SARBOX and other forms of compliance cost businesses small and large millions each year, while the regulators’ decisions to allow off-balance-sheet financing in many ways incentivized companies to hide the risks that should have been plain as day to investors. All of this is bad for transparency and efficiency, two things regulators are supposed to encourage.

On the other hand, there is the crazy idea of letting the market serve as the regulator. I would argue that discerning, self-interested investors have the best judgment when it comes to the valuation because they are responsible for their money. For it is the market that assigns a price to securities – riskier ones command a higher risk premium. Companies that make mistakes, be it through poor compensation standards that reward incompetence, poor investment projects, etc will face prohibitive borrowing costs and lower stock prices, and ultimately if the market so chooses be taken under. It is this playing field that ensures regulation. The mercy of the market will hold people accountable. Government regulators, government-empowered ratings agencies and others merely create the moral hazard that stops this system from functioning properly.

When government regulators set a precedent of bailing people out for bad behavior under the guise that a company is “too big to fail,” you further destroy the regulation of the market. You encourage excessive risk-taking; you encourage striving for short-term gains at the cost of long-term sustained profitability. You hurt the investors who are trying to signal through bond and share prices that a firm is in bad shape, and ultimately hurt taxpayers if you make the private problems of some investors into the public problems of all Americans. To let bureaucrats go in and say that a company is stable, often disingenuously, as opposed to letting investors speak with their money is as arbitrary as it is abominable.

The fact of the matter is that government doesn’t want to let the market work as it did in blowing up companies with worthless assets (even if it was the moral hazard built into system and intervention that caused creation and investment in these assets), because it will hurt the interests that prop the elected officials up, destroy their own wealth, undermine their power (wouldn’t want to waste a crisis) and further cause unrest amongst the populace.

But the short-term dislocation versus the long-run fiscal and moral decay of the country is incomparable. The former will lead to an economy and a nation made stronger; the ladder to tyranny. The problem in our nation is that if you are a politician and trying to get reelected, you make this calculation and hope that things don’t collapse at the wrong time, namely under your watch. Interestingly, this sacrifice of long-term sustainability for short-term gain is just the calculation made by many at the banks who played with essentially free house money (courtesy of the Fed), leading us to the crisis today. But let these same government officials who in large part mucked things up the first time around gain even greater control over the economy. I dare you.

Spending Is Not Stimulus President Obama

February 6, 2009 2 comments


Today 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:

Then there’s the argument, well, this is full of pet projects. When was the last time that we saw a bill of this magnitude move out with no earmarks in it? Not one. (Applause.) And when you start asking, well, what is it exactly that is such a problem that you’re seeing, where’s all this waste and spending? Well, you know, you want to replace the federal fleet with hybrid cars. Well, why wouldn’t we want to do that? (Laughter.) That creates jobs for people who make those cars. It saves the federal government energy. It saves the taxpayers energy. (Applause.)

So then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is? (Laughter and applause.) That’s the whole point. No, seriously. (Laughter.) That’s the point. (Applause.)

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 job creation. 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 amongst 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 notes in the Wall Street Journal today, 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.