Politics, et Cetera

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Tuesday, June 4, 2013

They Said It:

What are the perils of deficit financing?   Prior to understanding this subject, certain superstitions about money must be overcome.  First to be dispelled is any untoward faith in gold or the gold standard, which Tarshis (author of an economic text used by Yale) compares, by no means favorable, to a limburger cheese standard.  It is a good thing that gold certificates no longer exist, Samuelson (another favored textbook author) tells us because the gold standard “made each country a slave rather than a master of its own economic destiny” . . . Let the student constantly bear in mind that there is no practical limit to government debt: . . . Samuelson underscores this, as he concludes his analysis with the statement: “In short, there is no technical financial reason why a nation fanatically addicted to deficit spending should not pursue such a policy for the rest of our lives, and even beyond.”   There is no disagreement from Bowman and Bach (authors of another economic text used at Yale), who assert: The fear that increasing the public debt will make the nation go bankrupt is almost completely fallacious” . . .

William F. Buckley, God and Man at Yale, 1951.



For the past several weeks, we and the vast majority of the rest of the conservative commentariat have, for obvious reasons, been preoccupied with the evils of big government, that which Tocqueville would have called the tyranny of “centralized administration.”  When he visited America in the years 1830 and 1831, this beast was largely unknown here.  Tocqueville recognized this as a great boon to the American people and their liberty.  But he famously warned that this condition was perilous at best:

I have already pointed out the distinction between a centralized government and a centralized administration.  The former exists in America, but the latter is nearly unknown there.  If the directing power of the American communities had both these instruments of government at its disposal and united the habit of executing its commands to the right of commanding; if, after having established the general principles of government, it descended to the details of their application; and if, having regulated the great interests of the country, it could descend to the circle of individual interests, freedom would soon be banished from the New World . . .

In the American republics the central government has never as yet busied itself except with a small number of objects, sufficiently prominent to attract its attention.  The secondary affairs of society have never been regulated by its authority; and nothing has hitherto betrayed its desire of even interfering in them . . .

This point deserves attention; for if a democratic republic, similar to that of the United States, were ever founded in a country where the power of one man had previously established a centralized administration and had sunk it deep into the habits and the laws of the people, I do not hesitate to assert that in such a republic a more insufferable despotism would prevail than in any of the absolute monarchies of Europe; or, indeed, than any that could be found on this side of Asia.

For several decades now, observant Americans have been witness to the cold, harsh truth of Tocqueville’s warning.  But in the past several months, the insufferably despotic nature of the Obama administration has brought this reality home to a much larger population.

We wrote of this two weeks ago, noting that the real scandal in the current travails of Barack Obama and his cronies is that the government they oversee is so large, powerful, and centrally administered that it would be dangerous even hands of an honorable and wise leader, and is virtually suicidal in the hands of fools who have lost touch with both the tenants of Judeo-Christian morality and the prescriptive wisdom of their ancestors.

Indeed, no entity on earth, perhaps, has descended to “the circle of individual interests” quite as effectively or as forcefully as has Obama’s Internal Revenue Service, which most Americans fear and detest almost as much as the old Soviets feared and detested the KGB.  Only in the case of the latter, its evil powers were generally acknowledged to be illegitimate uses of state authority.  Not so the IRS.

In any case, there is a second aspect to the growth of government and the centralization of administration that has, in the midst of all the scandal, largely been overlooked, despite its equal, if not greater ability to impinge upon the liberty and well-being of an erstwhile free people.  This is one that, until recently, has plagued much of the rest of the world far more than the United States, but which is rather quickly becoming a formidable problem for the American people as well.

We speak here of the centralized government’s inexorable desire to devise and implement economic schemes designed to ameliorate and bypass the vicissitudes and instability of the market.  The inimitable Friedrich Hayek called this “planning” and famously noted, in his 1944 classic The Road to Serfdom, that it inevitably makes economic problems worse and, even more importantly, severely undercuts the liberty and character of a people.  He put it this way:

It is not difficult to see what must be the consequences when democracy embarks upon a course of planning which in its execution requires more agreement than in fact exists. The people may have agreed on adopting a system of directed economy because they have been convinced that it will produce great prosperity.  In the discussions leading to the decision, the goal of planning will have been described by some such term as “common welfare,” which only conceals the absence of real agreement on the ends of planning.  Agreement will in fact exist only on the mechanism to be used.  But it is a mechanism which can be used only for a common end; and the question of the precise goal toward which all activity is to be directed will arise as soon as the executive power has to translate the demand for a single plan into a particular plan.  Then it will appear that the agreement on the desirability of planning is not supported by agreement on the ends the plan is to serve.  The effect of the people’s agreeing that there must be central planning, without agreeing on the ends, will be rather as if a group of people were to commit themselves to take a journey together without agreeing where they want to go: with the result that they may all have to make a journey which most of them do not want at all.

It may be the unanimously expressed will of the people that its parliament should prepare a comprehensive economic plan, yet neither the people nor its representatives need therefore be able to agree on any particular plan.  The inability of democratic assemblies to carry out what seems to be a clear mandate of the people will inevitably cause dissatisfaction with democratic institutions. Parliaments come to be regarded as ineffective “talking shops,” unable or incompetent to carry out the tasks for which they have been chosen.  The conviction grows that if efficient planning is to be done, the direction must be “taken out of politics” and placed in the hands of experts – permanent officials or independent autonomous bodies.

Two very short decades ago, global events had, for all intents and purposes, validated Hayek’s arguments.  The collapse of the centrally planned Soviet and ancillary Communist states and the considerable backlash against the Clinton administration’s attempts to “reform” health care had created a philosophical and political atmosphere in which free markets and smaller government were not merely ascendant, but were seen as “victorious” as well.  Francis Fukuyama, the neoconservative intellectual, famously forecast “the end of history,” with liberal democracy and associated free markets forming the decisive evolutionary point in governance.  And even Bill Clinton, the erstwhile keeper of the “New Left” flame, told the country – and the world – that “the era of big government is over.”  Planning had failed and failed miserably.  And it was thus repudiated.

Unfortunately, people and their leaders have short memories.  And neither the era of big government nor the more virulent planning of the socialist variety stayed dormant for long.  With the advent of the European Monetary Union in 1998, the emergence of the quasi-capitalist economy of China, and the expanse of the American state during the Bush and Obama administrations, the era of big government and of centralized planning was reborn.

As you undoubtedly know, we predicted that the “planners” of the Eurozone would lead the continent to ruin.  And as you also undoubtedly know, that ruin is upon us.  In Europe today, the inadequacies and distortions of economic planning are today laid bare for the whole world to see, with economic retrogression and social and cultural decay as the manifest and incontrovertible results.  We covered this ground fairly comprehensively last week, so we won’t dawdle long on Europe today.  It should suffice to say that 15 years ago, when we anticipated that the euro would be the point at which 21st century Europe began to unravel in earnest, we may well  have understated the case.

Of course, Europe is hardly alone in bearing the destructive consequences of central planning.  Indeed, its impact is today being felt far and wide, in every proverbial corner of the globe.

Last week, for example, the Wall Street Journal reported on one of the most predictable and yet most tragic aspects of the Chinese economic “miracle,” namely the great human cost of the deliberately calculated transition from a traditional, agricultural society to a Communist, collectivist society, and from that to a nominally market-oriented, centrally planned economy.  To wit:

China’s elderly are poor, sick and depressed in alarming numbers, according to the first large-scale survey of those over 60, an immense challenge for Beijing and one of the greatest long-term vulnerabilities of the Chinese economy.

The survey of living conditions for China’s 185 million elderly paints a bleak picture that defies the efforts of the government to build what it calls a “harmonious society,” one dedicated to human welfare rather than simply economic growth.  Of the generation that built China’s economic boom, 22.9%—or 42.4 million—live in poverty with consumption of less than 3,200 yuan a year ($522) . . .

John Strauss, a professor at the University of Southern California and one of the leaders of the project, pointed to China’s relatively low level of development as part of the explanation for higher poverty levels there.  “We need to remember that China is still a developing economy, it is not yet a high-income country,” he said.

An aging population means the problems are compounded.  The number of old people for every hundred working-age members of the population—known as the dependency ratio—will rise from 11 in 2010 to 42 in 2050, according to projections from the United Nations.  Other countries will also see a rise in the dependency ratio.  But the pace of aging in China is particularly marked – a consequence of the one-child policy . . .

China is also unique in encountering a serious problem with aging while still a poor country.  “Other countries are old and rich,” said Albert Park, a professor at Hong Kong University of Science and Technology and another survey leader.  “China will be old at a relatively early stage in its development.”

For decades now, demographers and other interested parties have noted the “graying” of developed countries, with a special emphasis on Japan and Europe, where plummeting birth-rates have made the social-welfare model unsustainable in the long term.  China, of course, artificially grayed its population through government coercion, i.e., the one-child policy mentioned above and the pitiless, sinful slaying of female babies in particular.

The planners, of course, loved the idea, arguing that China’s billion-plus people were a burden on the “global community” and that harsh population control was the only way to solve a terrible problem.  As is often the case, however, the planners created more problems than they solved.  One supposes that the defenders of the global community will make their peace with the tragedy of the Chinese elderly, insisting that their sacrifice is for the “greater good.”  For our part, we find it hard to label any “sacrifice” measured in human lives a “good” of any sort, “greater” or otherwise.

Elsewhere in the world of planned economies, Egypt, whose economic policy has been mapped out for decades by either the military-autocratic regime or, more recently, the Islamists, is in increasingly dire straits.  As we have noted before in these pages, this summer will all but certainly prove exceptionally brutal for the Egyptian people, as food shortages and cuts to domestic food subsidies finally hit home.

Beyond that – and in advance of that – Egyptian civil society appears to be collapsing under the weight of the planners’ incompetence.  Violent crime has tripled in the two years since the “Arab Spring.”  Police are intimidated – frightened even – by the gangs of thugs.  Murders and kidnappings have become commonplace.  And now, as hard currency reserves dwindle, the government can’t even keep the lights on, as the AP reports:

When his neighborhood is plunged into darkness, high school student Maximos Youssef is forced to study for his year-end exams — critical in determining his future job prospects — by the light of a candle.

Youssef says he is in no mood to learn, and the flame only makes sweltering summer nights without fan or air conditioner even hotter.  But, he says, “there is no other option.  We have exams.  We need to study.”

The 18-year-old is one of millions of Egyptians whose tempers have been frayed by the recurrent power cuts hitting the country in recent days, blamed on — and contributing to — the nation’s plummeting reserves of foreign currency . . .

[President Mohammed] Morsi says Egypt only has 80 percent of its electricity needs met and that its turbines are outdated.  “We have a real energy problem in Egypt,” he told reporters over the weekend.

A surge in crime, persistent street violence and political instability have compounded the crisis by scaring away tourists and investors, leaving the country cash-strapped for fuel needed to keep power stations running.

In the southern city of Luxor, a popular tourist destination, the lights went out in the international airport and in ancient Egyptian temples recently —raising fears that the power outages will further sap tourism.

Fuel shortages have already impeded daily life for millions.  For months, drivers have had to wait hours in long lines to buy subsidized fuel.  Some factory owners have turned to the black market to cover their needs.

Meanwhile, in Hollywood’s favorite worker’s paradise, the People’s Republic of Venezuela, the Bolivarian Utopia is proving somewhat less than utopic.  The late socialist despot Hugo Chavez took the easy way out, it would seem, finding a way not to live in the disaster he created, a disaster in which everything from food to toilet paper is in exceptionally short supply.  Just yesterday, Bloomberg Businessweek noted that supplies of nearly everything are shrinking in Venezuela, and there is no possible hope of any sort of respite:

Venezuelan Finance Minister Nelson Merentes is planning the nation’s first overseas meetings with creditors in nine years as a scarcity of dollars exacerbates shortages of everything from toilet paper to soap . . . Venezuela, which has the world’s largest oil reserves, uses much of its oil production to repay loans from China or to subsidize allies including Cuba.

Venezuela, where about 70 percent of products consumed are imported or assembled from raw material shipped from abroad, is now facing shortages as the currency weakens and the lack of dollars means importers can’t pay . . . Private-sector imports fell 11 percent in the first quarter from a year earlier due to the country’s economic slowdown and the curtailed access to hard currency, the central bank said on May 31.

The central bank’s scarcity index, which measures the amount of goods that are out of stock, rose to 21.3 percent last month, its highest level since January 2008.  Imports may have fallen 30 percent in March, according to estimates from Bank of America economist Francisco Rodriguez, who extrapolated from published data on exports to Venezuela from six of the country’s trade partners . . .

“It’s a planned economy of the Soviet type we saw last century and the results are similar,” Alberto Ramos, the chief Latin American economist at Goldman Sachs in New York, said in a phone interview.  “They get billions of dollars from oil but they have to import everything else, which means there’s increasing demand for a finite and scarce supply of dollars.”

A planned economy, you say?  Well . . . no kidding?  But isn’t it a little unfair to compare Venezuela to the Soviets?  At least Chavez didn’t ban churches and excoriate religion like Lenin and Stalin did, right?  And that’s worth something, at least, you have to figure. Or . . . well . . . maybe not, as the BBC reported last week:

The Catholic Church in Venezuela has said it is running out of wine to celebrate Mass because of nationwide shortages of basic supplies.  It said the scarcity of some products had forced the country’s “only wine maker” to stop selling to the Church . . . “[Our supplier] Bodegas Pomar have told us that they can no longer make wine because they’re facing difficulties,” Church spokesman Monsignor Lucker told BBC News.

Some of the items the supplier had to import to make the wine were now scarce, said the spokesman.  Monsignor Lucker added that they had enough supplies for just two more months, and that he did not know if the Church could afford wines from abroad.

But the problem was not limited to wine, he said.  “The makers of consecrated bread have told us that they’ll have to raise prices because they can’t find enough flour.

That’s good stuff.  The world’s largest oil reserves.  But not even enough wine or wheat for the Church to provide Communion.  Viva la Revolucion !. . . errr . . . well something, we guess.  You don’t suppose Sean Penn would want to help the Venezuelan’s out with their toilet paper problems, do you?  After all, whenever we hear his name, we think of that . . . ummm . . . region . . . of the body . . .

Thus far, we’ve hit the highlights of some of the world’s planned economies:  Europe, Asia, Africa, and Latin America.  But we have yet to cover North America, you say, least of all the good ol’ U.S. of A.  Ask and ye shall receive.

The United States, of course, has been an outlier in a world of planned economies for most of its existence.  Markets have, for the most part, held sway.  The federal Leviathan has, of course, tinkered with the markets, most especially with respect to the money supply, and lately with numerous “green” energy projects.  We suspect that the limited nature of this tinkering will change a great deal over the next couple of years as the planned health care “reform” further perverts and distorts the health care market, which is already suffering greatly from federal planning.

In the meantime, however, state and local planning experiments continue to mimic the larger global pattern.   Most recently, for example, the once great city of Detroit has furthered its relentless march to the largest civic bankruptcy in American history.  Detroit was, you may recall, once a great and thriving metropolis.  But economic and social planning have ensured its inevitable demise.

Just over a year ago, we wrote of Detroit’s troubles in a couple of pieces about the collectivist state and the Obama administration’s sad and transparent attempt to reframe its bailout of the auto industry as a victory for “resurgent” Detroit.  We won’t bore you by rehashing the entirety of those arguments.  But we think the following, written in 2010 by the Manhattan Institute’s Steven Malanga will provide enough of a taste of what has happened to the city that was, in 1950, the nation’s richest.

We usually apply the word “feral,” which means “reverting to a wild state,” to domesticated animals that are abandoned and must survive on their own.  But in rapidly shrinking Detroit, where tens of thousands of structures have sat empty for years, people are starting to describe houses and neighborhoods as feral—that is, as places where human activity ceased so long ago that nature has reclaimed them.

Two Detroit residents writing for the blog Sweet Juniper describe these feral houses as places that “for a few beautiful months during the summer . . . disappear behind ivy or the untended shrubs and trees planted generations ago to decorate their yards.  The wood that frames the rooms gets crushed by trees . . . The burnt lime, sand, gravel and plaster slowly erode into dust.”  The bloggers’ striking photos show long neglected houses completely enclosed in vegetation; only the outline of the architect’s design suggests something created by man buried beneath.

Feral houses are perhaps the most visible sign of Detroit’s long decline, and their troubling numbers are starting to create talk within the administration of Mayor Dave Bing, who is running for reelection in November, that the city must shrink to survive.  Bing, the former National Basketball Association great who first won the mayor’s office in a special May election to replace the disgraced Kwame Kilpatrick, recalls how, during the campaign, he would travel through neighborhoods where only a house or two remained occupied on each block, where weeds had reclaimed abandoned lots, and where storefronts sat empty.

Today, officials estimate, the city contains an astonishing 70,000 abandoned structures—many of them houses, but also some commercial properties.  In downtown Detroit alone, a local newspaper identified 48 office buildings with “no outward sign of life.”  That’s not surprising, considering how many people have fled Detroit over the decades.  Over the last half-century, the city’s population has shrunk by 50 percent, from about 1.8 million people to fewer than 900,000.  Since 2000, the city has lost 35,000 residents. Detroit officials acknowledge that they see little prospect for a population turnaround soon.  [The 2010 Census placed the city’s population at a scant 713,777.] . . .

Detroit’s board of education, for instance, resisted downsizing for years and continued until 2007 to operate a school system with a capacity for 160,000 students, even though just 115,000 students attended that year.  The hemorrhaging budget finally forced the city to close some 40 schools.  But the system still faces insolvency and is even considering a bankruptcy filing.  Similar budget crises will require rolling back various other essential services, from police and fire to sanitation.

In the year since we discussed Detroit in these pages, the situation there has gone from bad to worse . . . or from worse to downright apocalyptic, to be more precise.  In March, the state appointed an emergency financial manager to try to clean up the mess and to fix what the elected “planners” could not.  That manager, Kevyn Orr, is a bankruptcy attorney by trade and has said that the city is “clearly insolvent,” and has suggested that “restructuring” its massive debt is inevitable.  And as the inimitable Walter Russell Mead pointed out late last week, the plans for this restructuring are causing considerable consternation:

Desperation has hit a new low in Detroit.  Last week, Emergency Manager (and bankruptcy lawyer) Kevyn Orr decided to list the holdings of the Detroit Institute of Arts among the city’s assets in preparation for a possible bankruptcy.  If the city goes through with it, it could be forced to sell off any of its assets—which now include the museum’s collection.

Museum administrators are outraged, but the choice may be keeping the art or paying for vital public services.  According to Orr, the city has “long-term obligations of at least $15 billion, unsustainable cash flow shortages and miserably low credit ratings that make it difficult to borrow.” . . .

The collection, which include treasures by Bruegel, Rodin and van Gogh as well as Diego Rivera’s famous “Detroit Industry” murals, is ostensibly worth billions of dollars, but those measures can’t really capture what such artistic treasures mean to a community.

Unfortunately the city is already struggling to keep the lights on.  Local businesses recently had to step in to buy the city police cars and ambulances.  Meanwhile, Detroit has closed nearly a quarter of the city’s firehouses, and the department’s equipment is beginning to fall apart.  At this point, the city may need the money more than it needs the art.

We could go on, we suppose, but we figure you get the point.  Economic “planning” sounds just great in theory.  Indeed, what could be better and more responsible than having a plan?  But it is universally disastrous in practice.  Markets may be harsh.  They may be brutal.  They may leave some people behind.  But they are also rational, which means that they can and do improve the human condition over time.  In his new book, The End is Near and It’s Going to Be Awesome, National Review’s Kevin Williamson compares markets and their ability to truly progress to the process of evolution, which also improves an organism’s condition.  We suppose he’s probably pretty close on that.  Certainly, the markets contain far more potential for human economic progress than do so-called “progressive” economics – as just a brief look around the world will attest.

Over the past several months, there has been a great deal of talk about “reform” conservatism and the challenge of building a conservative majority capable of competing electorally over the next several years and/or decades.  Among the most oft discussed aspects of this reform is the question of budgets and specifically federal budget deficits.  Should balance be mandated?  If so, would that dangerously restrict government’s ability to act in an emergency?   Can governments today “live within their means?”  And if so, would this be a good thing?

We appreciate this argument and understand why so many conservatives find budgetary concerns to be important.  But we find them scary too.  For they too involve “planning.”  Indeed, inherent in these discussions is the need to “foster growth.”

Of course, the problem with this is that big government can’t foster growth.  It can only foster various schemes, plans, and policies that deter growth and that shift resources from productive to unproductive ends.  Big government – and the planning it entails – suppresses the creative spirit that produces economic growth.  It quashes individual freedom, liberty, vitality, and drive.  It creates conditions in which unforeseen and utterly destructive consequences derail even the best of motives.  It does not work.  It cannot work.  It brings only misery.  As we noted last week and countless times before in these pages, the problem with big government is big government.  Period.

The catch here for the reformers is that there is, at present, no vehicle for the type of political reform they favor.  The GOP as it exists is likely incapable of learning this lesson.  It is unable to learn the lessons of Europe…and China, and Latin America, and Detroit.  Back in 1994, when “planning” was at its nadir and small-government conservatism was purportedly ascendant, the American people elected a Republican Congress that promised, among other things, to amend the Constitution to require a balanced budget, except in the case of a supermajority vote in both houses (The Fiscal Responsibility Act).  Instead, that Congress – the most conservative since before the Great Depression – managed to cut the House barber shop from the federal Leviathan the House barber shop – and almost nothing else.  As the Washington Post noted, very near the end of Newt Gingrich’s tenure as Speaker, the so-called Republican Revolutionaries proved somewhat less than revolutionary when it came to restraining government:

Four years after House Speaker-to-be Newt Gingrich’s post-election prediction that GOP leadership would “radically transform the way government works by Easter,” the federal government still does almost everything it did then. And while most Republicans still talk about taming the beast of big government and reining in runaway budgets, they have struggled mightily this summer to reconcile their lofty budget-cutting rhetoric with institutional and political pressures to spend.

Ah, yes.  The “political pressures to spend.”  As we have noted several times in these pages, we adore the Tea Party movement, not necessarily because we agree with everything it does, but because we appreciate that it represents a reform movement that emanates from outside the ruling class.  Unfortunately, the challenge for the Tea Party – about which the proverbial jury is still out – is to maintain the reform spirit, even as its representatives become the ruling class, even as the new revolutionaries face the heretofore irresistible “political pressure to spend.”

As much as we hate to say it, we’re dubious about the prospects.  We believe – and have long maintained – that the solution to Washington’s “planning” problem will have to come from outside of the political process altogether, not merely from outside of the ruling class.  What that means, we suppose, is that we agree with Kevin Williamson.  The end really is near.  We can only hope that it will indeed be awesome.

In the meantime, be leery of political efforts to reform politics.  Our parasite government has its own parasites.  And to mix our metaphors terribly, those parasites know where their bread is buttered.

Nowhere in Washington does one hear the voice of Hayek, or of the nation’s founders.  Or for that matter of the national poet of Scotland, who put it this way:

But Mousie, thou art no thy lane,
In proving foresight may be vain:
The best-laid schemes o’ mice an’ men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!


Copyright 2013. The Political Forum. 8563 Senedo Road, Mt. Jackson, Virginia 22842, tel. 402-261-3175, fax 402-261-3175. All rights reserved. Information contained herein is based on data obtained from recognized services, issuer reports or communications, or other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to its accuracy or completeness, and we are not responsible for typographical errors. Any statements nonfactual in nature constitute only current opinions which are subject to change without notice.