Ron Morley's Freedom Blog

Constitution? What Constitution?

The President of the United States fired the President of General Motors Corporation over the weekend. This would have been unthinkable even a decade ago. But, things have changed and, apparently, this doesn't bother most of the American people or the great majority of the mass media's talking heads. However, it is troublesome for several reasons. Where is the Constitutional power granted to the President of the U.S. to make such decisions? There's nowhere that I can see that there's a clause which, even given the twisted reasoning lawyers are so proud of, gives the Executive the power to reach into the board rooms of private corporations and pick and choose who will be allowed to head up those organizations. Surely no one can argue with a straight face that the Commerce Clause grants the President this sort of power. If it does then there is no limit on the powers of the Federal government and no one is safe from the exercise of arbitrary government power. For if the President can fire the head of General Motors, then there is nothing to prevent him from firing the head, or, indeed, any employee, of any business in America. An extremely dangerous precedent has been set over the weekend and a large number of the American people, if not an outright majority, are applauding the move; indifferent to the potential harm that such power can do to everyone in the country. Instead, the State's propaganda machine continues to spout the party line: the move was “necessary” in order to give President Obama's plan to save the domestic auto industry a chance to succeed politically; Rick Wagoner was too “old school” General Motors to be able to make the changes to the company that the President has deemed necessary for the corporation to be considered for nationalization, er, excuse me, more "bridge loans"; the firing “sends a message” to the automakers that it is “no longer business as usual” to quote one commentator on NPR yesterday.

The only person who seems upset by President Obama's firing of Mr. Wagoner is Michigan Governor Jennifer Granholm, who seems almost offended by the move. This is ironic in that Governor Granholm was one of the prime cheerleaders for a Federal bailout of the Detroit automakers. Apparently, the good governor of my state overlooked the fact that granting the Federal government unconstitutional powers by way of allowing it to “lend” money to individual companies, would lead to further abuses of power. Was she really so naive as to think that the Federal government would not impose all sorts of new rules and regulations upon the companies that it was moving to “save”? Did she really imagine that the Federal government would not seek to exercise that power in such a way as to strike fear into the hearts of any in the business community who might oppose it? If that's the case it's no wonder that the State of Michigan is in the severe economic trouble that it finds itself. Of course, even the good governor's objections to the President's action is not based on Constitutional or other legal grounds, but on the fact that Rick Wagoner is a “good man” who was, according to the governor, leading GM out of its troubles.

There is an extremely dangerous mindset growing in this country – that only the Federal government can solve the nation's economic ills and that it must be granted virtually unlimited powers in order to be able to accomplish this goal. Almost no one is heard objecting to the vast expansion of power over the nation's economy that has occurred over the last few months. There is no longer any debate as to whether or not the Federal government has the Constitutional authority to undertake any particular action. No, the debate is now only over how much money a certain program is going to cost and what group it will favor when put in place. We are seeing the culmination of the many precedents that we've allowed our presidents, ever since at least the days of Franklin D. Roosevelt's tenure, if not earlier, to set in the direction of increasing the amount of power wielded by the occupant of the house at 1600 Pennsylvania Ave. The President is now looked upon as the one person upon whom all of the nation's hopes, fears, and troubles lie. To paraphrase (and greatly condense) an article from Reason Magazine sometime last year, Americans are so used to placing all blame or, conversely, all accolades upon the President for whatever is happening that the Presidents over the years have found it more and more easy to argue that they “need” all the power in order to match the supposed responsibility they have for everything that is going on. The cultural trend away from persons accepting responsibility for their own actions and, instead, placing that responsibility on some third party is finding its logical conclusion here. If individual Americans are not accountable for their own actions then they do not need power to decide how to live their lives: that power should, by rights, be given to the person who is primarily accountable for everything that goes on – the President of the United States. It is not right, constitutionally, morally, or ethically, but it is now a fact of life. The government of the United States, in the person of the President, has asserted that it has the right to dictate the smallest details of the operations of businesses and the manner in which individual citizens may live.

Many people will say that I'm being overly-pessimistic, that the Federal government will not make it a habit to fire corporate executives, or set business policy, or interfere in matters of citizen's private affairs. Those who maintain that idea are sorely lacking in historical perspective and understanding of the nature of the State. A few examples of how Federal power has expanded over the decades should be sufficient to show the trend. When the income tax was first put in place, in 1913, it was limited to 1% on income above $3,000 (a large income for the period) rising to 7% at $500,000 and the people were assured that there was no reason to think the rates would ever increase. As of 2008 the lowest tax rate is 10% for those making less than $8,025 per year to 35% for those making over $357,701 per year and those rates will have to increase in order to pay for the Obama regime's “economic stimulus” packages. Indeed, we've already been told that $250,000 per year is to be considered as making too much money. (Figures from: http://en.wikipedia.org/wiki/Income_tax_in_the_United_States) The New Deal brought with it the minimum wage, first set at $.25/hr. it covered only workers directly engaged in interstate commerce or those producing goods sold in interstate commerce, the minimum wage has grown to $7.25/hr. and covers virtually every worker in America. (figures from: http://www.dol.gov/ESA/minwage/chart.htm) The Federal Occupational Safety and Health Administration is another example of the growth of Federal power and interference in the lives of citizens and ways in which businesses may operate; with precise standards set for such things as the height above the floor for fire extinguishers, the construction of ladders, and the placement and types of myriads of safety equipment – even though there is no constitutional justification for the agency. The ubiquity and power of the Federal government is such that most people don't even stop to think whether or not that government has any right to operate as it does – they simply acquiesce and attempt to carry on as best they can. To believe that the Federal government, especially in light of the furor over the retention bonuses paid to AIG employees, will not continue to expand its power in what was once called “the private sector” is the equivalent of believing that the local McDonald's will suddenly appear with three stars in the Michelin guide.

Now that President Obama has established that he has the authority to fire the heads of corporations we can expect to see yet more interference in the operations of private enterprises, in particular those which have accepted the poison pill of Federal bailout funds. Furthermore, I will not be surprised to see the definition of “Federal aid” expanded to include taking advantage of so-called “tax loopholes”. The reasoning will be relatively straightforward for Washington. We have already been told, repeatedly, that paying Federal taxes is patriotic. It follows, therefore, that failure to pay the maximum Federal tax one may be eligible for is unpatriotic. Taking advantage of “tax loopholes” is to avoid paying the maximum tax to the Federal government. Therefore, taking advantage of “tax loopholes” is unpatriotic in that it amounts to taking money from the American taxpayer. As we know from the actions of the Federal government up to this time, taking money from the American taxpayer gives the Federal government the right to determine how a business may operate. Thus, the power of the Federal government, which will become ever more hungry for tax revenue, will be extended. And, again as the recent AIG case attests, one cannot rely on Congress not to at least attempt to change the rules retroactively; so that what is permissible today will be illegal tomorrow, in spite of the Constitutional ban on bills of attainer and ex post facto laws.

President Obama has nearly completed the job of destroying the U.S. Constitution in the arena of what was formerly considered “private activity”. He is doing for Federal regulatory agencies what the G.W. Bush regime did for Federal law enforcement and espionage agencies with the PATRIOT ACT – extending the power of the State and destroying the foundation of civil liberties that this nation was founded upon. The truly sad part is that the American people are largely applauding him as he does so.

More money to be wasted on U.S. auto industry

It's the day before we are supposed to be told whether or not the Federal government will continue to shovel money into the hands of the moribund American automakers, GM and Chrysler. In spite of protestations from the White House that “bankruptcy is an option” there is, and I don't think I'm going out on much of a limb here, no chance that the companies will be allowed to enter Chapter 11 proceedings. This situation can no longer be viewed as strictly an economic question: what's best for the economy overall?, but from a political viewpoint: what's best for the Obama regime? Looked at from that standpoint the answer is obvious as to the course the Federal government will take – more money will be wasted in an attempt to keep ineffective corporations afloat, the only question will be – how much more of the taxpayers' money will be wasted to gain political favor for the new President?

The Obama regime (yes, I'm aware of the connotations of the word, but “group of sycophantic toadies” is too long for general use), and its allies, will mount a large propaganda campaign in order to justify the waste of still more money that the country doesn't have, in order to prop up corporations that have shown themselves incapable of making good use of their resources. Nothing has really changed since the last time the Federal government made “bridge loans” to the automakers. The unemployment situation is worse than it was in late November, so we'll be told that the country can't take the chance of losing the supposed three million jobs that directly or indirectly depend on the U.S. automakers continuing in business. On top of that, since the State now has a financial interest in the companies, we'll be told that further “investment” is needed in order to “protect the investment taxpayers have already made” - the State's excuse for throwing good money after all. And, I suspect, we'll hear about how our “national security” depends on the continued existence of a “viable” American automotive industry.

This last is totally specious as automotive factories are not suitable for manufacturing tanks, APCs, or most of the rest of the panoply of modern war. The only vehicles the auto companies produce, on a routine basis, for the armed forces are Hummers and trucks – which could be purchased elsewhere if needed. The idea that automobile plants could be converted to the production of heavy equipment, as was done during WWII, is no longer viable. Given the pace of any large conventional war the conflict would be over long before the needed conversion could take place. Even in WWII it took the better part of eighteen months before significant military production was rolling off Detroit's assembly lines and the process was sped up to some degree because large amounts of manufacturing capacity was still idle from the effects of the Great Depression and didn't need to be shut down prior to being converted to military use. In the long run our nation's security interests would be far better served by strengthening the economy over the long run by ending State interference in the marketplace – the very sort of interference that is being pushed as the solution to our economic ills.

We will be told that the recent report of General Motors' auditors, which expressed grave doubt as to the company's ability to continue as a “going concern”, is overly pessimistic. The State's propaganda mill will push the idea that all that is needed is to make sure that GM continues to operate during the current economic crisis. The company will announce that its coming products, such as the Chevy “Volt”, a high-priced (recent estimates put the price at ~$35,000) “green” vehicle, will allow the organization to regain profitability as soon as the economy recovers from the current downturn. We will be asked to suspend disbelief, in much the same manner as when we go see a science fiction movie, and accept the idea that the automakers will be competitive when things improve, in spite of all the historic evidence to the contrary. All that will need to be done is to shovel more billions of dollars of “loans” to GM, loans which are supposed to be repaid, in order to assure that this rosy view of the future comes true. No mention will be made of the fact that GM's indebtedness to the Federal government will approach the amount it owes its UAW-approved healthcare trust fund. It is costs associated with on-going healthcare expenses (an estimated $47 billion) that are a large part of GM's financial problems; yet, somehow repaying government loans will not have the same effect on the corporation's balance sheet. This type of thinking can only come from government employees who have access to unlimited funds thanks to their ability to reach directly into the pockets of every American.

Finally, the Obama regime cannot afford to alienate the country's labor union movement, which would surely happen if the UAW was not to be given a huge chunk of the public's money. The simple fact is that the UAW, in spite of all the damage it has done to the automakers over the last fifty years, is to be rewarded by being granted the opportunity to feed at the public trough. Ordinary Americans, most of whom make considerably less than the average UAW worker, will be required to subsidize the lifestyles of those workers. Labor inefficiency will be rewarded at the expense of the overall economy. The majority of Americans will be required to accept a lower standard of living so that a few politically connected workers may be spared the “economic turmoil” that the rest of us will be subjected to.

So, come midweek, don't be surprised to hear that the Federal government, after having carefully examined “all options”, will “invest” more money in the dying American automotive industry. It will make no sense economically. Indeed, it will be counterproductive in the long term. However, politics is more important, in Washington, D.C., than anything else, including the long term health of the overall American economy.

What? Us Worry?

It is a well-known Wall Street expression that “the market dislikes uncertainty.” Yet, this has seemingly been forgotten, if it was ever known, by Senator Chris Dodd (D-Conn) when he said “I'm concerned that we may end up having to do that [nationalization], at least for a short time,” in order to bring stability to the nation's financial markets. Wall Street reacted violently to this hint that the State may continue its destruction of private enterprise in the United States and bank stocks led the downward trend. The market recovered slightly by the end of the day when a White House spokesman denied that the Obama regime has any intention of taking over the country's banks. One of NPR's “Marketplace” commentators reminded the show's audience of the old Wall Street adage, but seemed unaware that it is largely the acts of the Federal government that has made the nation's stockholders so jittery.

And that, indeed, is what is behind most of the recent volatility in the stock market: uncertainty about what actions the Federal government may take to try to correct the current economic crisis. And why shouldn't the markets be unsure of what lies ahead? In the last year we've seen the State intervene to force the sale of Bear Stearns to JPMorgan Chase at fire sale prices. This was done, “to avoid economic turmoil”, instead of allowing the company to go bankrupt so that the market could efficiently reallocate the mismanaged assets. Yet, only a few months later, the same wise men who had declared Bear Stearns to be “too large to be allowed to fail” decided that Lehman Brothers did not meet that standard and that company was allowed to go under. The Lehman Brothers bankruptcy had been preceded by the Federal takeover of Fannie Mae and Freddie Mac only a few days earlier. These actions took place after several months during which former Treasury Secretary Henry Paulson had repeatedly said that there would be no more Federal bailouts of financial firms. Of course, there's no reason to think that this say one thing, do another, policy of the Federal government might have led to a few Wall Streeters wondering what was going to come next: no reason to think that the State's arbitrary actions might introduce some uncertainty into the calculations of the nation's financial managers.

Then came the infamous Paulson Wall Street bailout bill, since renamed TARP, which was originally to use government funds to purchase so-called “toxic assets” from banks and other financial institutions that had gotten overly involved in the sub-prime mortgage market and were now losing money in the wreckage left by the implosion of the housing bubble; itself a result of Federal government mismanagement of the economy. However, only a few weeks after the Congress was stampeded (through the use of a never-ending stream of doom and gloom statements coming from Treasury Secretary Paulson, Federal Reserve Bank Chairman Ben Bernanke and large numbers of media commentators) into agreeing to spend some $700 billion, to rid the system of toxic assets, Mr. Paulson decided that the money would best be used to purchase equity stakes in various large financial institutions. The Secretary justified this move by saying that it was the best way to get the credit markets moving again. Certainly, Wall Street has no reason to be concerned about the policy flip-flops of a man who, at that time, had virtually unlimited power over the financial markets of the United States: no reason to be worried about arbitrary actions by the Secretary of the Treasury, no matter which party is in power in Washington.

Then came the debate over whether or not to bailout the Detroit automakers by providing them so-called “bridge loans” which supposedly would allow them to restructure themselves and become “financially viable” once again. We were told that the Detroit companies could not be allowed to go bankrupt, which would have been the best and quickest method of reallocating mismanaged assets, and that the Federal government would have to provide them the loans. At first the lame-duck Bush regime opposed this course of action, but eventually, it caved-in to mounting political pressure from various Midwest state governors, the UAW, and the auto company executives themselves. This backing and filling and posturing by all involved is no reason to think that yet more uncertainty was introduced into the minds of those who hold and manage stocks. After all, simply because it is no longer possible to tell what the State is going to do in regard to the economy is no reason to be concerned. There's no reason to think that the many changes in policies and methods of dealing with the economic crisis was the result of State functionaries throwing things at the wall in hopes that something would stick. No reason to believe that the Washington wise men had no idea how to manage the use of the State's power to intervene in the supposedly free American financial marketplace. No reason to get a little jittery if one had significant amounts of money tied up in the financial markets.

The recently-passed economic stimulus bill is another example of irresponsible Federal meddling in the marketplace and is the economic equivalent of pouring gasoline on a fire to put it out. By now, the combination of the Federal Reserve's acquisition of approximately $1.5 trillion of bad assets, the $700 billion TARP program, the nearly $800 billion Obama stimulus package, the potential $5 trillion liability that came with the nationalization of Freddie Mac and Fannie Mae, and the as yet untold billions to be poured down the drain of the Detroit automaker “bridge loans” add up to a significant fraction of the nation's GDP of $14.3 trillion. However, to listen to the Statists there's no reason to be concerned about the size of these liabilities, no reason to wonder whether or not the U.S. can pay the bills that our all-wise leaders in Washington are running up. There's certainly no reason for the folks on Wall Street to be concerned about further arbitrary actions by the State: no reason to think that President Obama may not find it politically convenient to extend his unilaterally imposed pay cap for Wall Street bankers to other classes of employment or otherwise exercise the State's nearly unlimited economic powers. No, the State never mis-uses its power.

And yet, seemingly none of the highly educated fools who are running the show in Washington seem capable of putting two and two together and realizing that it is the State's actions which are largely responsible for the current economic downturn. However, they can be forgiven for being so blind publicly, as they know that admitting their responsibility would lead to public demands that they stop what they are doing. Instead of admitting responsibility, the powers that be have embarked on the largest disinformation campaign seen in recent years. We are told on a daily basis that the crisis is a result of the failure of the free market, that the only solution is to give more power to the State, that consumers must resume their profligate spending and continue running up those credit card bills, that we must continue to loan money to Detroit, and that the State must be allowed to place caps on the amount of money a person may earn should he or she decide to become a banker. The truth is buried in an unceasing torrent of lies and distortions, about both current events and history, particularly the history of the Great Depression. The State is held up as the source of all wisdom and goodness. We are told that Federal budget deficits no longer matter, that we must “get the credit markets working again” by spending enormous amounts of money that we do not have and will not be able to repay. No, there's absolutely no reason that the stock markets should be concerned about the State's continued exercise of its ever-growing power to arbitrarily intervene in the workings of the market.

Why the Delay?

President Obama, after spending the better part of the last month insisting that his so-called economic stimulus package be passed immediately (maintaining that failure to do so would spell utter ruin for the country), is going to wait until tomorrow to sign the bill, which was passed last Friday. The fact that the President has delayed signing the bill puts the lie to the supposed emergency conditions that required the immediate passage of the bill. Remember, this is a bill that the Statists consider to be so important that time could not be spent debating any of its multitude of provisions or even whether or not it was necessary. The President repeatedly went on radio and television and spoke before live audiences berating Republicans, and others, for daring to ask what is in it, who is going to reap the benefits of the hundreds of billions of dollars that are being spent, and trying to make modifications that might actually help the economy, such as including more tax cuts in it and cutting back on the actual spending that the President proposed. We were told many times during the last three weeks or so that passage of this bill was imperative; that every minute that was taken before passage meant that more American jobs were lost, more homes were foreclosed, and more damage was being done to the very fabric of the American economy itself. Now that the bill has been passed and the spending of the hundreds of billions of dollars is assured, the sense of urgency has, apparently, vanished.

One must ask, why is this? Why is delay acceptable now, but not during the time leading up to the passage of this incredibly wasteful, and damaging, piece of legislation? Why are not the President's supporters camped outside the Oval Office chanting, “Sign that bill, save our jobs, spend that money” at the top of their voices? The simple fact is that, as with the TARP bailout bill that was rushed through under similar conditions of feigned urgency last October, those who backed the bill understand full well that a delay of even several months would not make a significant difference to the overall effect on the American economy in the long run. The American economy is too large to quickly change direction, either up or down. It has taken months, if not years, for the effects of the collapse of the housing bubble, which actually began in late 2006/early 2007 to reach the point they have. It will take equally as long, if not longer, for the many malinvestments that were made, in large part because of mis-guided policies of the Federal government, to be corrected so that the assets involved can be put to good use and the economy can resume growing. The only reason that the Keynesian economists and statist politicians painted such a dire picture was to panic the American people, many of whom are woefully ignorant regarding economics, into demanding that “something be done” to forestall the looming disaster which supposedly threatened to engulf mom, apple pie, and all that is good. Politicians know from long practice that the best way to get what they want, in this case more power over the economy for the Federal government, is to evoke a sense of urgency around whatever their current issue is. The result is that, between the actions made possible by the TARP bill, loans of billions of dollars to the Detroit automakers, and, now, the economic stimulus package, the power of the State to intervene in the United States economy has grown tremendously. Large parts of the financial and manufacturing segments of the economy are now effectively nationalized, though most Americans don't realize it because that term is never used.

Instead, we are told that “bridge loans” have been made to the automakers so that they can go on to “financial viability”. "Equity stakes" are taken in large and important financial institutions. New regulations are called for so that “this will never happen again.” Trillions of dollars are pumped into the banking system by the Federal Reserve in an attempt to “get the credit markets moving again.” Executives of businesses which have taken Federal money are now told how much they may be paid instead of having their wages set by voluntary negotiations and market forces. The strings that are attached to the billions of dollars about to be spent as part of the economic stimulus package are presented as the means of “making sure the taxpayers' money is well spent.” In other countries these actions are called “forced nationalization” (as was the case when Venezuela took over oil fields and other assets owned by foreign oil companies). In other countries the proliferation of new regulations is called authoritarianism. In other countries if the government sets maximum wages it is seen as socialism or communism. In other countries when the central government decides how money must be spent and who the winners and losers are in the marketplace it is called “central planning.” Something must be different about the United States when the same actions are called by other names and the motives of those who back the new powers of the State are automatically assumed to be pure and benign. It's probably something in the air that ensures that the United States' government would never, ever, do anything but good.

As always when dealing with politicians it is more important to pay attention to what they do, than to what they say. Actions do, indeed, speak louder than words and President Obama's delay in signing his much ballyhooed and supposedly vital “economic stimulus” bill reveals that he knew all along that his story was a tissue of lies and distortions. The American people have, again, allowed themselves to be duped into giving up more of their freedom in the mistaken belief that the State will keep them “safe”; this time from “economic turmoil.” There is precious little real freedom left in this nation, as most citizens will discover when they wake up one day to find that the State has decided how much they are allowed to earn, how much of some good they may purchase at the local market, how limited their choices of domestically manufactured motor vehicles (and the options on those which are available) are, and what doctors they may see and what treatments they may be offered, among other things. Americans have forgotten, if indeed most of them ever stopped to realize, that a State which can “give” them everything also has the power to take those things away. Liberty may not guarantee that everyone can have everything they might desire, but it does guarantee that what they do get they will be allowed to keep.

War crimes and economic policies

The following is essentially the text of an email that I recently sent to a friend who'd asked me if I thought that senior members of the former Bush regime should be prosecuted for war crimes because of the use of torture as an instrument of national policy. He also asked what I thought about the economic policies of the Bush regime and its expansion of the power of the Federal government. I've edited the original email slightly to make it suitable for publication here, but the changes have been minimal.

Yes, I do think that former President G.W. Bush, Vice-President Cheney, Attorneys General Alberto Gonzales, John Ashcroft, and Michael Mukasey should be tried before the International Criminal Court in the Hague for war crimes and other crimes against humanity. Only this will serve as a warning to those who occupy those positions in the future that the leaders of the United States, no matter the circumstances, are not laws unto themselves, but must be held accountable for their actions. As for the Bush regime's management of the economy, I would think that a reasonable case could be made for malfeasance in office, though I'm not sure it would extend to criminal prosecution. After all, it could be argued that these things fall under the heading of making general policy and that a chilling effect would occur if government employees were made to feel that their actions could be second guessed years down the road and then be prosecuted because of it. On second thought, that might not be all bad. Seriously, though, everything that you mention [the auto company bailout, the Wall Street bailouts, using Federal Reserve policy to encourage the growth of the speculative housing bubble, etc.] is, to my mind, unconstitutional to start with as there is nothing in Article I, Section 8 that gives the Federal government the power to muck about in the market place except to regulate commerce, which, if you look in your dictionary, is defined as the buying and selling of things and the Founders intended regulation to be used in the sense of "to make regular" as is pointed out by both Madison and Hamilton in The Federalist Papers.

The main problem we have at the moment is that the supposed solutions to our economic problems are not only antithetical to our way of life, but they are nonsensical from an economic standpoint. What got us into this trouble in the first place was the over-extension (some of it State-mandated) of credit to those who could not afford to pay down the debt they were taking on. Leaving aside discussion as to "whose fault" that is as irrelevant, the Fed's policy of attempting to "unfreeze the credit markets" is simply trying to continue the policy that got us here. It is the economic equivalent of pouring gasoline on a house fire in an attempt to put it out. How does this make sense? One of the biggest lies that's being told by virtually every so-called economic guru that is given air time on the news these days is the idea that people should not be trying to save any money, but should, instead, continue their practice of spending every cent that comes their way. The only way that a society generates wealth in the long term is to have capital available to invest in new factors of production, whether those be new employees, machine tools, physical plant, or research and development doesn't really matter. The only way that capital is generated is when people do not spend every dollar they have, but, instead, put some aside in savings accounts, CDs, and so on. Those deposits then allow banks to lend that money to those who wish to borrow it to purchase new factors of production, which leads to more production of physical goods, which increases the overall wealth of the society in question. Leaving aside the issue of whether or not fractional reserve banking is a good idea (I don't think it is as banks which are allowed to practice it are inherently bankrupt and are only playing the odds that the majority of their depositors will not want to withdraw their money at the same time) an economic downturn is exactly the time when people should be encouraged to save as that's the way out of the downturn.

However, John Maynard Keynes convinced the politicians of the world that his "cure" of lots of government spending to "prime the economic pump" was the way out of the economic troubles of the 1930s. Of course, this appealed to the politicians because it allowed them to be seen to be "doing something" to "help" the people, while simultaneously increasing their power over the economy: they couldn't make all that new money available without putting some rules in place about how it could be used, now could they? To top it off, deficit spending is wonderful for politicians as future generations get stuck with the bills and future politicians get stuck with making the unpopular choices that should have been made in order to avoid the deficits in the first place. Is there any reason to wonder why America's first Fascist Dictator Franklin Delano Roosevelt loved these economic ideas? Combine the Keynesian economics with the Progressives' ideas of allowing Congress to delegate its legislative authority to "expert decision makers" in numerous Federal regulatory agencies (another unconstitutional idea that was only allowed to really take off after the Supreme Court rolled over for Roosevelt following his attempted court-packing scheme) and you have the basis for the behemoth Federal government that is the bane of freedom which we now live with.

We are but witnessing the logical end of the path which we began to tread in the early 1900s when Theodore Roosevelt began his campaign against the so-called "malefactors of great wealth" and used that as an excuse to put in place the first pieces of a strong regulatory apparatus, which his cousin, Franklin, then expanded enormously in the 1930s. Once the nose of the camel of unconstitutional Federal regulation was allowed into the tent of the free market the march to eventual nationalization of the economy and totalitarian rule was under way. I highly recommend that you read Frederick Hayek's The Road to Serfdom for a more formalized and academic treatment of the reasons that we have reached the current state of affairs. As it is, the Federal government has now effectively nationalized large portions of the financial markets by taking equity positions in large banks as part of the Paulson "bailout program". That process is being extended to the automotive industry via the so-called "bridge loans" being made to GM and Chrysler. Those companies will be unable to demonstrate "financial viability" any time in the near future and the previous loans will be used to justify making more under the guise of "protecting the taxpayer from further losses", instead of allowing the bankruptcy process to take its course so that other companies, which could more efficiently make use of the assets GM and Chrysler now own, are allowed to purchase them. Rather, the majority of Americans are being required to subsidize the life-styles of UAW workers who played a major role in the destruction of the companies they work for by effectively looting them for their own benefit. It's ironic that the socialist who now sits in the Oval Office is going to preside over a situation in which waitresses who work for minimum wage will be taxed so that the money can be given to UAW workers so the union workers don't experience any "economic turmoil" of their own.

And speaking of the minimum wage, one must ask if it makes any sense in a declining economy to require potential employers to continue to have to pay minimum wages to employees who are economically marginal? If job creation is the goal towards which all of the Federal spending and bailout programs are aimed why are private employers not given the freedom to set wages according to the demands of the marketplace? There are a lot of people who would work for $5/hr. right now, and likely a number of jobs that could be economically viable if private enterprise were allowed to follow the laws of economics rather than the dictates of politicians in Washington who have never run a business and whose only goal is to continue themselves in power no matter the cost to society at large. All minimum wage laws have done is to ensure that the economically marginal are unable to find gainful employment, which is why the rate of unemployment among black and Hispanic youth goes up every time the minimum wage is raised (it lags by some time but the correlation is there). Thus, we have the absurd situation, so common with programs foisted upon us by so-called "liberals" (who, in case you haven't noticed, are not liberal with anything except the expansion of the power of the State to interfere with your life, but I digress), in which programs designed to help an economically troubled group simply makes the situation worse for those supposedly being helped. I highly recommend Thomas Sowell's Basic Economics and Economic Facts and Fallacies for further reading in this area.

So, to get back to your original question about whether or not those who profited from the collapse of the housing bubble after putting in place Federal government policies that led to the trouble, I doubt that one could prove a direct link between action and profit. However, I would be in favor of establishing an economic "Truth and Reconciliation Commission" that would be required to investigate and publicize the actions of those responsible in both the government and private sectors, along with undertaking the education of the American people about economic principles that our State-controlled "education system" fails so signally to do. However, there is no chance that such a thing will be done. Instead, the American people will continue to be told that the current economic mess is entirely the result of a “failure of the free market”, while ignoring the major role that the Federal government played in the fiasco that became the housing bubble. Those in power have no interest in the public learning the truth behind the current economic problems and every reason to continue to lie to and mislead the public regarding those issues. The only hope we really have of getting the truth out is via the Internet and the libertarian blogs that thinking people continue to read and discuss.

Thomas Jefferson, the nature of the State, and President Obama

I got an email today from an old friend asking whether the signature line of an email which I'd sent him was really something that which Thomas Jefferson had written. What follows is more-or-less my response to him (slightly edited to leave out personal information).

Actually, so far as I know, Jefferson did write all of those things. I've got a collection of his complete correspondence and other writings and every time I've questioned the authenticity of one of those quips I've looked it up and, by golly, there it is. Jefferson constantly wrote about the dangers of the power of the State and the inherent evil of that structure. One of the things that he was at pains to point out was that it is the State that is evil, regardless of the intentions of the individuals who make up the power-wielding apparatus thereof. He contended, and history has certainly borne him out, that, because the only power the State has is based on coercion it is inevitable that such power will be used by someone to extend the power of the State further and it is the small encroachments which lead, inexorably, to great reductions in civil liberties such as we are seeing in our own time. Each little encroachment, if not opposed to the utmost, is used as a precedent to justify the next small extension of the power of the State: it matters not the motivation of those who espouse the initial extension of power. In the end the State reaches a point at which the continuation of its existence is seen as more important than anything else and it is at that point that one begins to see the identification of the State with the Nation: which are actually separate entities, the one made up of government functionaries, the other of the mass of the people themselves. That is why Presidents such as FDR, G.W. Bush, Bill Clinton, Barak Obama, etc. go to such great lengths to try to be seen as "men of the people", which encourages the mis-identification of the State with the Nation.

We are about to get a huge dose of that now that Barak Obama has become the President. Indeed, it's already under way. Using the guise of "helping the people" President Obama is acting vigorously to extend the power and influence of the State. Given the extent of the so-called "economic stimulus" package, with its plethora of new programs and spending, the power of the Federal government is about to take another great leap forward. All of the money which is to be spent directly will come with significant strings which will define who may use the money and how they must act in order to get it. The tax breaks amount to the same thing, the people are being bribed into acting in ways which the State finds acceptable by promising them that they will be allowed to keep a little more of the money which is rightfully theirs to begin with. The State reached the point years ago at which, for all practical purposes, it began acting as though all of the money which people earn actually belongs to it and the people are allowed to keep some of it out of the goodness of the State's heart. Just listen to the political rhetoric when our leaders talk about the "need" to raise taxes for this, that, or the other thing. There is never any doubt in their minds (or their speeches) that the money belongs to them in the first place, and that it's simply a matter of determining how much of it people will be allowed to keep for their own purposes.

Given the philosophy of the economists who are now in charge of developing "programs" and "stimulus packages" designed to end the economic crisis which we are in the midst of we will see yet more trillions of dollars of Federal debt racked up. All that debt amounts to is a tax on the future earnings of all Americans and, at the rate the debt is being increased, it is one which cannot be paid off short of virtually confiscating all earnings and property so that the State may have direct control of all economic activity. That's been tried before - it was called Communism - and it utterly failed to meet the needs of either the people or, ironically enough, in the end, the State itself; as was seen with the collapse of the Soviet Union in the early 1990s. Americans have been blinded to the reality that the TARP program and the so-called "bridge loans" to the auto companies have effectively nationalized large chunks of the American economy. That fact has been driven home, though few have seen it for what it is because of the skillful use of State propaganda, when President Obama declared that a certain class of citizens - "bankers" - will no longer be allowed to earn more than $500K per year if their banks have taken any money from the State in the form of TARP funds. Most Americans are willing to see those horrible, nasty, evil, greedy bankers punished for their supposed lead role in creating the current economic, but they fail to realize the precedent that has been set: the State has now asserted that it has the right to cap the earnings of anyone who takes advantage of some Federal program. Today, it's the TARP program, but who's to say what it will be tomorrow: perhaps it will be those who use the State's higher education system and make above a certain arbitrarily set number, say $250K per year to use President Obama's definition of excessive earnings. By allowing the State to set the earnings of one class, Americans have opened themselves up to allowing it to set the earnings of all. For decades it's been accepted by the idiots of this nation that the State has the right to set the minimum wage that employers can pay, effectively casting large numbers of teenagers and other marginally employable persons (mainly black teens and young males) into the loving arms of the State's welfare system - effectively creating an entire class of people who are wholly dependent on the State for their existence. As of last week we're seeing the logical extension of the State's supposed "right" to interfere in the free market; which will do nothing, but introduce more uncertainty and aberrations into that market. And, of course, by ensuring that the best management talent will go to banks which are able to pay the going market rate for their talent, the State is setting up those banks which have taken TARP funds for yet more failure in the future, which will be used to "justify" yet more State control over that sector of the economy: funny how that works out, huh?

What President Obama could have said

Newly sworn-in President Barak H. Obama could have said a lot of things during his inaugural address today. He could have said that he recognizes that the current financial crisis is a direct result of interference by the Federal government in the workings of the marketplace. He could have said that he understands that Federal policies aimed at extending credit to those who could not afford it fueled the fires under the housing bubble. He could have said that it is now obvious that Federal regulatory policies have led to marketplace collapses of unprecedented magnitude and that those policies need to be not simply re-examined, but scrapped wholesale so that the markets in the United States could indeed be called “free”, not simply in the rhetoric of politicians, but in reality. President Obama could have admitted that his proposed economic stimulus package is economically wasteful, inefficient, and likely to prolong the economic problems that it is supposed to solve.

President Obama could have said that no more bailouts will be provided to any business or group which finds itself in economic trouble. He could have called for an immediate halt to the on-going process of the nationalization of large parts of the American economy. He could have forthrightly said that the Federal gravy train for UAW workers, in the guise of the “bailout” of the Detroit automakers, and for Wall Street bankers in the form of TARP funds, is going to come to a screeching halt. He could have said that it is unfair, unethical, and economically unsound practice to require taxpayers who make less than UAW workers and Wall Street bankers and brokers to support those who wantonly gutted the companies which provided them employment. The new President could have said that he realizes that the only way out of the economic mess we find ourselves in is to allow a marketplace free of restrictive Federal regulation to sort itself out and reallocate the malinvestments, that have been made over the last couple of decades because of misguided Federal policies, so that assets are once again usefully employed and people are able to find work in private enterprise instead of within some gigantic make work Federal program which will simply suck the lifeblood out of private enterprise.

President Obama could have said that the Federal government will no longer be in the business of choosing who will win and who will lose in the marketplace. He could have announced that he would begin this process by canceling his much-ballyhooed plan to spend billions of Federal dollars on“green” technology. He could have said that , after careful study, he now understands that the best way out of the health-care crisis that this nation finds itself in is to get the Federal government out of the business of paying for, providing, and regulating health-care. He could have forthrightly recognized that much of each dollar spent on health-care in this country is the direct result of providers having to pay for the expense of ineffective and unnecessary Federal regulation of the health-care marketplace. He could have said that, after further study, he understands that any government-funded health-care system automatically leads to the rationing of health-care resources. He could have said that he realizes that the way to lower health-care costs is to remove Federal regulation and allow competition to determine the price and availability of health-care services.

The newly inaugurated President could have said that he intends to abide by the oath which he took to “preserve, protect, and defend the Constitution of the United States” and that he would begin that process by vetoing any bill which falls outside the list of eighteen items found in Article I, Section 8 of that document. He could have called for the immediate reigning in of the power of the Federal government by saying that he would immediately disband Federal agencies such as Health and Human Services, the Environmental Protection Agency, the Labor Department, the Surface Transportation Board, and every other Federal bureau and agency not authorized in the explicit and plain language of the Constitution. He could have said that he plans on making the expansion of liberty the keystone of his new administration, not by expanding the reach of Federal regulators to control what American citizens can do, but by disbanding those agencies which are not only unconstitutional, but are also counterproductive so far as the expansion of liberty is concerned. President Obama could have admitted that our government has strayed very far from the vision of a free nation, inhabited by citizens for whom the government acts as an enabler of liberty, rather than the restrictive beast that it has become. He could have gone on to say that he will begin immediately to dismantle the liberty-destroying apparatus of the Federal regulatory state which has grown up since Franklin Delano Roosevelt's open assault on the classical liberalism that this nation was founded upon.

However, President Obama chose not to say any of those things. Instead, he focused on how the role of the Federal government will expand under his administration: “this crisis has reminded us that without a watchful eye, the market can spin out of control “ is as direct a statement that he intends to expand the interference of the Federal government in the marketplace as one will get in an inaugural address. He intends to go ahead with his economically foolish “stimulus” plan by stating, “...we will act - not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together...” He went on to say that, “The question we ask today is not whether our government is too big or too small, but whether it works - whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. “ There is no recognition here that it is the State itself which is the cause of much of our current distress. Instead, we will be served up more of the same: more Federal government regulation, more Federal spending (under a misguided belief in Keynesian economics), more Federal interference in the marketplace, and certainly, a continuation of the process of nationalizing yet more pieces of the American economy. President Barak Obama did indeed have an opportunity to lay out a plan for making a radical break with America's immediate past, and a return to the principles upon which this nation was founded and which served it well until certain “progressive” politicians decided that they knew better how to live the lives of ordinary American's, than did those citizens themselves. There will be no real change, no recognition that the current way of doing things simply does not work, but is, simply put, destructive of that freedom which the new President claims to hold in such high regard. Because the old policies have signally failed there is no reason to believe that the so-called “new” policies, which are, in reality, merely rehashes of tired liberal programs and goals, will fare any better. The American people are in for yet more disappointment and disillusionment. Perhaps this time they will recognize that electing another Democrat or Republican will not change things, and that the way forward is to vote for those candidates who actively support the libertarian principles that made this nation great. To continue to do otherwise is simply to prove that, according to Einstein's definition of insanity (repeatedly doing the same thing while expecting different results), the American body-politic is far from sane.

More Washington hypocrisy and the State takeover of the auto industry

The hypocrisy which surrounds the proposed bailout of the U.S. auto industry is reaching heights rarely seen, even in Washington, D.C. The automakers are being held to a totally different standard than is the UAW, which is, at least, partially responsible for the dire financial straits that the car manufacturers find themselves in. The politicians who support the bill, and are revealing themselves to be Statists of the worst sort in the process, are not calling on the union to make the sorts of changes they are demanding of the automakers. The UAW is not being told that it must make the wage and benefit concessions that are needed if the Big Three are to regain any type of long-term financial stability. This point has been driven home, in no uncertain terms, this morning after last night's failure of the Senate to pass the bailout bill. Not one of the Democrats who are so eager to expand the power of the Federal government, House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, Senators Christopher Dodd, Diane Feinstein, Debby Stabenow, Carl Levin, and others, have called the UAW to task for failing to make wage and benefit concessions. UAW President Ron Gettelfinger stated yesterday, prior to the Senate vote, that the union would not make any concessions in the area of wages and benefits. Yet the Statists are strangely silent about the union's role in the breakdown of the domestic automakers' financial positions.

Not one of the supporters of the bailout of the auto industry is willing to take on the UAW. Instead, supporters of the move, such as Michigan's Governor Jennifer Granholm, are loudly shouting that the Senate Republicans killed the bill as an act of revenge against the UAW. Americans are being told that failure to nationalize the industry, euphemistically called “making bridge loans to the companies,” will result in the total loss of America's manufacturing base. One of Governor Granholm's arguments, made in an interview on NPR's “Morning Edition” today, is that failure of one of the Big Three will “cause a ripple effect throughout the economy” in the form of failure of suppliers to the industry. The governor then went on to state that such failures would have an adverse effect on foreign automakers such as Honda and Toyota because they are also customers of the same companies that supply parts to the Big Three. There is, evidently, no chance that the parts suppliers will shift production to meet the demands of the foreign companies, or move into new fields of endeavor.

The UAW has been told that it doesn't have to make wage and benefit concessions as, according to Governor Granholm, “the union has already done that.” This is patently untrue as UAW wages and benefits are still significantly higher than those of the non-unionized employees of the foreign auto companies. Why is the union not being required to make changes in the same way that the Big Three are? Why is UAW President Ron Gettelfinger not being hauled in front of Congressional committees to answer questions, such as why union workers should be exempted from the pain being suffered by those of us who aren't paid outrageous wages for performing jobs that have been made as simple and repetitious as possible? Why should most Americans be required to finance the lifestyles of a relatively small number of employees of companies which face dissolution no matter how much money is “invested” in them by the State? The answer is simple: union votes are more important to Statist politicians than is the overall health of the United States. Hypocrisy reigns supreme in Washington and ordinary Americans will pay the price in further economic troubles and loss of yet more freedom as the State absorbs another chunk of the economy.

Of course, all of the above was written before word came from the White House that President Bush is going to allow money from the $700 billion Wall Street bailout to go to the automakers. The Big Three will become simply another arm of the government and the American people will pay a high price in economic terms and loss of yet more freedom. This doesn't change the points made above, but it does mean that the Statists have scored another victory through the use of lies and distortions.

Why the State Loves Keynesian Economics, continued

As a result of my last entry here some people have commented that my statement, “...no matter how it is sugar-coated, the policies of John Maynard Keynes are essentially ways of increasing the power of the central government at the expense of individual freedom”, was too strong. Some readers felt that I had not made a sufficient case for that statement. I will attempt to correct that issue here.

The current discussion of whether or not to bailout the Detroit automakers by providing billions of dollars in loans is as good a starting place as any. The basic idea of Keynesian economics, that deficit spending by the Federal government will stimulate the economy during an economic downturn, applies to the proposed bailout. The end result of the proposed policy is to save jobs in the hope that doing so will cause Americans to, once again, resume their profligate spending habits and pull the economy out of its doldrums via the mechanism of consumer spending. There is no substantive difference between the Federal government giving the automakers billions of dollars, via the mechanism of deficit spending, or its spending those billions on some other form of “stimulus package” such as President-elect Obama's spending on infrastructure projects. The money is still obtained by borrowing, which denies the private sector access to those funds, and the Federal government still controls how the money is to be spent.

How does this act to limit individual choice and freedom? For the answer one has to look at what the proposed office of “Car Czar” will be empowered to do. The Federal officer who will be put in charge of the bailout of the automakers will have tremendous powers to determine what actions the manufacturers may take. He will decide whether or not the Big Three put together reorganization plans that will “make them viable”. There is every reason to believe that those decisions will extend to what types of vehicles the companies will be allowed to produce. After all, forcing the Big Three to make small, fuel-efficient cars is a project near and dear to the hearts of politicians such as Nancy Pelosi and Harry Reid. That will certainly mean that GM and Chrysler, at least, will be required to put a lot of emphasis on building the small, fuel-efficient cars that Americans have supposedly been demanding, in spite of all the evidence to the contrary, for the last thirty years. Gone, or at least severely limited, will be the supply of large SUVs and pickup trucks that have been so beloved by Americans for the last decade at least. In their place will be vehicles such as the Chevy “Volt” and the various small hybrids that have been developed over the last several years. The judgment of one person will be substituted for that of the millions who make up the market for new autos. In the process individuals will be denied the ability to purchase the type of vehicle that they may want and be forced to take, in its place, a substitute that, by and large, the marketplace has deemed inadequate to the needs or desires of many Americans.

The stimulus package that is being proposed by President-elect Obama will act in a similar way to limit the choices of individuals. As I pointed out in my last entry, deficit spending by the State acts to limit the amount of money available to private enterprise. Thus, the vast majority of the jobs that will be “created” by the proposed State spending will be construction jobs as it's difficult for salespeople, computer programmers, or those engaged in manufacturing to build the bridges, roads, airports, and other infrastructure projects that are so dear to the heart of the President-elect. By limiting the amount and type of jobs that the market would ordinarily be able to provide the State will, again, be acting in a way which arbitrarily limits the freedom of choice of Americans. Once again, Keynesian economic policies act to limit freedom.

There is simply no way around it. The fact is that the Federal government will not provide money to the states or once-private enterprises without establishing rules for how that money may be spent. The limitations that the Feds will put on how the funds may be used will, in the end, act to limit the freedom of individual Americans, even if only in seemingly inconsequential ways. It is time for Americans to realize that there is no such thing as a free lunch, and that while the State may say it is “giving” money or services to help citizens during these economically-troubled times, that money, or those services, invariably come with rules about who may qualify for them and what actions they may or may not take to remain eligible. The more Americans acquiesce in allowing the State to nationalize large pieces of the United States' economy, the more they will find their freedom of action limited by the arbitrary actions of Washington bureaucrats and politicians. And that, in the end, is why the State loves Keynesian economics: adopting those policies, by limiting the freedom of action of the marketplace, automatically enlarges the powers of the Federal government and diminishes the freedoms of the people.

Why the State Loves Keynseian Economics

In this time of economic turmoil it seems as though the majority of economists have become disciples of John Maynard Keynes. Turn on virtually any news broadcast covering the financial crisis which the State's economic mismanagement has thrust upon us and, most of the time, the “economic experts” the media turns to for explanations of what is going on, and for suggestions of what needs to be done to turn things around, turn out to do little but spout the same mistaken Keynesian economic ideas that Franklin Delano Roosevelt relied upon to justify his “New Deal.” According to most of the economists that the general public will have opportunity to listen too, men such as Robert Reich, Robert Rubin, Lawrence Summers, Henry Paulson, Chris Farrell, and others, there are two things which will pull America out of the financial disaster that we are supposedly heading for: an increase in consumer spending, and a large Federal government financial stimulus package. The fact that both history and economics tells us these steps are counter-productive, indeed will act to extend the length and depth of the economic troubles, does not appear to matter to these people.

In spite of the evidence, compiled by Murray Rothbard and others, that Keynes' preferred policy, called “pump priming” acts to prolong economic downturns and make them worse than they need to be, these policies continue to be number one on the State's list of tools to be used when faced with an economic downturn. There are a several reasons for this state of affairs. Passing so-called “economic stimulus” packages appeals to short-sighted legislators because they are seen to be “doing something” about the worsening economy. This action also allows the power-hungry Congresscritters, and members of the executive branch of the government, to extend the power of the State by attaching various rules and regulations to the money they thus make available: rules that must be obeyed by anyone wishing to avail themselves of this Federal largess.

However, the truth of the matter is that State intervention in the economy is always counter-productive, and rarely moreso than during an economic downturn. The reasons are fairly simple, though many people fail to understand them. The effects of the Federal government's interventions begin with one simple thing: any money spent by the Federal government, which adds to the government's deficit, is money that is no longer available to the private sector. The Federal government must cover its deficits by borrowing money from some source and, of necessity, the loans to the State compete against demand for the same funds from the private sector. However, most people do not recognize the truth of this situation, and its affect on their lives, and so they simply accept the loudly and oft-repeated claims that only the Federal government is capable of “making a large enough impact on the economy” to be useful. It's as if the economy is some large machine that will automatically respond positively to the government's attempts at percussive maintainence.

It is amazing that otherwise intelligent people do not seem to understand why the government's “economic stimulus” packages do not work as advertised. They seem to think that, because it is the Federal government which is borrowing money so as to be able to increase its deficit spending, the law of supply and demand is somehow bypassed. They do not, or choose not, to understand that every dollar borrowed by the State is a dollar that is no longer available to entrepreneurs in the private sector. Also not comprehended is that the increased demand for dollars in the loan market drives up the price of those dollars, I.e., interest rates increase, which increases the economic burden that must be borne by private sector borrowers. The higher interest rates also ensure that some potential borrowers, business people who might have created private sector jobs, are unable to afford to take out loans, reducing the amount of economic growth.

Some people will say that when the Federal Reserve acts to increase the money supply, as it has done recently to the tune of several trillions of dollars, that it offsets the increased demand for dollars by the Federal government and the overall effect on the private sector is neutral. This is simply not the case as the Federal Reserve's actions simply increase the rate of inflation within the economy. By flooding the economy with dollars the Fed simply makes each of those dollars is worth less than its predecessor. The increased inflation offsets any possible affect the increased supply of dollars may have had on overall demand. There is also the increased danger of the government's artificial expansion of the money supply triggering a hyper-inflationary spiral such as is now occurring in Zimbabwe. The simply truth is that government action cannot repeal the basic laws of economics.

The Federal government, of course, is all in favor of government-based economic stimulation. After all, from its point of view, it's all good. It is able to expand and extend the reach of its power. It lessens the economic power of the private sector, further enhancing the State's power. And, perhaps most important, the majority of the jobs which are created by the economic stimulus are directly connected to State spending and, therefore, the citizens holding those jobs are made yet more dependent on the State for their livelihoods. From the State's point of view this is all good and, if the economic crisis is lengthened, its power is only increased. In short, no matter how it is sugar-coated, the policies of John Maynard Keynes are essentially ways of increasing the power of the central government at the expense of individual freedom.

Facts, distortions, and the coming auto company bailout

The debate continues, among the economically illiterate lawmakers in Washington, D.C. About whether or not the Federal government should make some $25 billion available to the Detroit automakers to, supposedly, enable them to remain in business. As part of the theater surrounding this debate the Senate Finance Committee held a hearing today, 11/18/2008, at which the various Senators on the panel questioned executives of the GM, Ford, and Chrysler. During this process Connecticut Senator Chris Dodd, a supporter of wasting the taxpayer's money, trotted out what has become an all to familiar litany of Detroit's supposed sins and bad business decisions.

These bad business decisions include: not building cars that American want to buy; not “looking to the future” for their supposed failure to develop high mileage autos; resisting the imposition of Federal regulations such as higher CAFE mileage requirements, air bags, and ABS; and, of course, paying their executives “too much.” These canards have been repeated so frequently that they have become part of American folklore and few people stop to think about the truthfulness of the statements. On the whole the wide-spread acceptance of these so-called “facts” is further proof that Joseph Goebbels was correct; repeat a big enough lie often enough and people come to accept it as the truth.

Few of the charges against the Detroit automakers hold water when one really looks at them. Take the oft-repeated assertion that Detroit has failed to “build cars that Americans want to buy.” Until gasoline prices spiked this last summer that statement was, on its face, untrue. If Americans did not want to buy SUVs and large fuel-inefficient pickup trucks, why were so many of them being sold? And they were being sold not only by the Big Three. Honda, Toyota, Nissan, and other companies were also busily cranking out this type of vehicle by the tens and hundreds of thousands. And guess what? The fuel efficient cars that Americans supposedly wanted so badly to purchase sat on dealer's lots. Even Toyota's ballyhooed Prius failed to set sales records because Americans wanted to, and did, purchase larger vehicles that they perceived as being better able to meet their day to day transportation requirements.

Only when gasoline prices went above $4 per gallon did Americans suddenly begin to demand that large numbers of small, fuel-efficient vehicles be available for them to purchase. Guess what? It's not possible for the automakers to instantly re-tool their production facilities and begin turning out the much larger numbers, of the now popular small cars, required to meet all of the market's demand. It's unfortunate that the State-inspired housing bubble burst at the same time that Detroit, and other automakers, faced large re-tooling costs, but that is not a sign that the management of the Detroit car companies are incompetent. One has only to look at the inventories of Honda, Toyota, Nissan, etc. to see that those companies also have large numbers of unsold SUVs and pickups on their books.

The main reason that Detroit companies are facing dissolution and the foreign companies are not, does not lie entirely with management incompetence, but with the cost structures of the companies. And here is where Detroit has problems that cannot be resolved short of allowing the Big Three to go bankrupt if necessary. The simple fact is that Detroit's labor casts are far out of line with what the auto market will support. The inflated wages demanded, and won, by the UAW over the last fifty years of contract negotiations are no longer supportable in a global automobile marketplace. Detroit's labor costs are two to three times that of their foreign competitors and American workers are no longer productive enough, nor are profit margins high enough, to allow that state of affairs to continue.

Of course, it's much more palatable for our so-called “leaders” in Washington, D.C. to upbraid the management of the Detroit automakers, and they are not blameless in this mess, than it is for them to tell the American people the truth about UAW wage rates. Given UAW President Ron Gettelfinger's statements in the last several days that “it would be unfair” to ask “the workers” to make any more sacrifices to keep the American auto industry intact, it is unlikely that any of our lawmakers will make wage and benefit concessions any part of the new regulatory regime that the Detroit manufacturers will face when the bailout is finally approved, as it will be when Barak Obama assumes power at the latest. Rather, the State will require that the Detroit companies manufacture small fuel-efficient vehicles, which are already going back out of style with the reduction of fuel prices in the last few weeks. There will be more regulations regarding such things as executive pay and benefits, research and development efforts, and whatever else any given lawmaker's favorite hobby-horse is. None of that will help Detroit's balance sheets at all.

Until the Big Three are allowed to go bankrupt, as it appears certain they will so long as the State is kept from “rescuing” them, they will continue to be uncompetitive, primarily, because of their labor costs. If nothing else is accepted as an argument against a Federal bailout of the Detroit automakers it is this: until the industry's cost structure is brought into line with the realities of global competition any money which the taxpayers of the United States give to the Detroit companies will simply be wasted. This is because the “loans” would only put off the inevitable day of reckoning and will end up being a classic case of throwing good money after bad. Of course, once the Obama regime makes the bailout a fact, further losses will be used as a reason for sending yet further money to the companies, since it will be seen as senseless to have wasted the $25 billion currently being discussed. Lawmakers will find it easier to continue shoveling money into the pockets of overpaid U.S. autoworkers than they will to either stand up to the UAW and insist that it lower its wage demands, or to admit that the initial bailout made no economic sense in the first place. It will be easier to continue to heap opprobrium on the management of the car companies and to increase the control the Federal government will exercise over yet another section of the American economy than it will be for of leaders to admit that they were wrong and the marketplace was right.

Paulson Declares victory, sets stage for next economic crisis

The latest word from Treasury Secretary Henry Paulson is that he believes “we have stabilized the major financial firms” and that he does not anticipate any more failures of large companies. He has effectively declared victory in the so-called economic crisis that this nation is facing, a crisis largely the result of the overextension of credit. So what is his next goal? Why, to make sure that consumers begin borrowing again, because the economy needs to get moving again. So, he's decided that the $700 billion which were supposed to be used for the purchase of so-called “toxic mortgage-based assets” from troubled banks, will instead be used to encourage banks and other financial institutions to begin making more loans to consumers. In other words, he wants to start another round of loaning money to people who cannot afford to borrow it, simply to avoid something loosely defined as “turmoil in the markets”; which is evidently something to fear, at least for the entrenched political/economic power brokers in Washington, D.C. and on Wall Street.

We are being told that consumers must start spending in order to prevent the economy from falling into a depression. The truth of the matter is that the Federal government has made such a hash of the marketplace that it is impossible for anyone to be able to predict what is apt to happen next. And that is why banks are being so reluctant to resume their practice of lending to those on the fringe of economic viability as they don't want to pile up a bunch of potentially bad loans. Unlike the mortgage crisis, in which the banks are at least able to take possession of a physical asset, the house, of someone who defaults on their mortgage, they cannot do that with credit card-based debt. Those loans are what are known as unsecured loans, there are no assets at risk for the borrower should she default on her credit card payments. When a bank has to write off a credit card account as non-performing they have no way of recovering any of the money which they loaned the consumer. They cannot seize the flat screen TVs, the vacations, the PCs, etc.. that were purchased with the now worthless credit card.

Once again, the Federal government is acting in a way which will simply exacerbate the current economic difficulties that we find ourselves in. Rather than allow the market to take its natural course, go through a period of re-adjustment (known as a recession), and emerge with assets better distributed, to companies and individuals better able to use them than were the previous owners, the Feds insist that all troubles must be resolved in an extraordinarily short period of time. Thus, the State will put in place some sort of “program” to encourage the accumulation of yet more consumer debt, at a time when the economy cannot afford it. Rather than encourage savings, which will act in the long-term as an economic stimulus by providing a solid foundation for the economy to grow on, the State insists that “market turmoil” can only be avoided if consumers act now to continue to pile up their credit card debt. I would not be surprised to see Secretary Paulson propose that interest on credit card debt be made deductible from Federal income taxes, in the same way that mortgage interest payments are. After all, if such encouragement works for overly stimulating the housing market, there's no reason why it shouldn't work for credit cards. Remember, the goal of the State is to avoid “market turmoil” which could result in those currently feeding at the public trough being displaced. Thus, it is imperative, in the eyes of the State, that consumers continue to spend themselves into such debt that they will forever be in thrall to the banks, even if that enslavement results in yet another financial crisis in the near future.

Yet another Federal "bailout" in the works

The Federal government is about to stage yet another “bail-out” of a business which is “too important to fail.” This time the target will be Detroit's Big Three automakers, beginning with General Motors. We are hearing the now familiar drumbeat of predictions of horrible economic repercussions if any of the U.S.-based automakers are allowed to fail. The American people are being told that millions of jobs are at risk of disappearing and that it is essential to our economy that there be a U.S. automobile industry. Finally, we are being told that allowing these companies to go through the traditional and legal process of seeking chapter eleven bankruptcy protection is inappropriate given the turmoil our economy would supposedly be thrown into should one or more of General Motors, Ford, or Chrysler to go out of business.

President-elect Barak Obama has stated that he is in favor of “loaning” the Detroit automakers at least $25 billion. Nancy Pelosi, the Speaker of the House, is in favor of calling a lame-duck session of Congress specifically to consider just how much more taxpayer money is to be given to yet another set of special interests. President Bush has said that he would consider signing a bill giving the obviously incompetent management of a major industry more money. Michigan Senator Carl Levin is proposing that the Paulson Wall Street bail-out bill be amended in order to allow the automakers access to their share of the $700 billion that was originally intended to go solely to Wall Streeters.. Finally, the leaders of the United Auto Workers is campaigning hard for government assistance in order to save high paid manufacturing jobs, which are supposedly fundamental to our nation's economy.

None of this makes any economic sense, though it makes a lot of sense when one considers the politics of the situation. Once again, a set of special interests is to be allowed to feed at the public trough because they were incompetent and drove their companies into financial ruin. Incompetence, greed, and unwillingness to change are going to be rewarded on a scale that would have been unthinkable prior to September of this year. And, again, the Constitution is to be ignored; apparently it no longer matters what the Constitution says if the “emergency” is grave enough – the power of the State to deal with the situation is to be expanded at all costs, and issues of Constitutionality are simply ignored in the rush to feed Leviathan's ever-increasing appetite for power.

The incompetence is present in management, labor, and government. Management has had over thirty years in which to take steps to manufacture small, high quality, fuel-efficient vehicles, yet it has failed to do so, repeatedly. Likewise, the UAW has done its best to maintain pay rates that are simply unsustainable in the face of more efficient, less costly overseas labor. The Federal government is also not blameless in this as its ever-growing list of regulations governing everything from safety, to fuel efficiency, to the type of materials that may be used in the interior of vehicles has helped drive up Detroit's cost to a level that has made an entire industry uncompetitive on a global scale. Yet, all three of these groups are about to be rewarded for their incompetence and, worse, the bail-out will do no good as it will not address the underlying problems of the industry, though the parties involved will loudly trumpet the minor changes that will be made as major breakthroughs that will save the businesses, and the jobs, and will result in the Statist Utopia that the Federal government has been promising ever since the implementation of the New Deal in the 1930s.

What is going unsaid in all of this is that the bailout is going to be done by the upcoming Obama regime in partial repayment of its political debt to the United Auto Workers for its support during the recent presidential election campaign. It is more important to Barak Obama and the rest of the “Social Justice” wing of the Big State Party, known colloquially as the Democratic Party, to pay their political debt than it is to allow the market to function as it should. Rather than allowing these inefficient companies to go bankrupt and make their assets available to other business that could make better uses of them, yet another large chunk of the American economy will be nationalized. Another sector will be taken over by State bureaucrats who will dictate the details of its operation in a manner reminiscent of the central planning done in the former Soviet Union. The State will gain yet more power over the lives of its subjects and the Constitution will fade further into the background, a document supposedly revered by our political leaders, but, in reality a piece of paper that is increasingly viewed by them as an impediment to the further expansion of Leviathan's power and reach. It is particularly ironic that the Federal takeover will be done almost immediately following Senator Barak Obama swears to “preserve, protect, and defend the Constitution.”