Of Claiming Good and Doing Bad

October 13, 2013 1 Comment

A very good book was published this month. Ostensibly, it is about our economy and the recession. It is actually about much more. It is the first book about the current American economy written by a philosopher, and it is perhaps the best book I have read yet about all the recent unpleasantness. Some might say that the economic trouble still continues, more like a long, slow convalescence from a serious illness than a healthy recovery. For many whose financial condition stagnates, for those who have replaced a full-time job with one or two part-time jobs, for graduates who have a degree in hand but no work in the field for which they have trained, and especially for the millions who remain out of work, talk of an economic turnaround can seem like a mockery.

For those and others, Infiltrated, by Jay W. Richards, can help make some sense of what hit us. The book does not suggest that there was a massive conspiracy to drive our nation into economic turmoil. It explains how turmoil came nevertheless as national policymakers followed the prescriptions of people who claimed to be doing good but tried to cheat the laws of economics and markets to impose what they might call “benevolence” on the rest of us.

It was their idea that in order to help more people own homes lenders should ignore such things as ability to repay a mortgage, strong history of employment and steady income, and having some equity in the value of the house so there would not be an incentive to walk away if prices dropped. They also agitated for the government to expand its guaranties for mortgages to people with poor credit histories and loans where lenders cut corners. And they badgered builders to keep building more houses.

Their plans horribly miscarried, and yet those people have even more control over us and our economy today and are more able and determined to try again. The recession, rather than educating and deterring them, has made them bolder.

I am reminded of what the late Louis Rukeyser, the very popular host of the PBS program Wall Street Week, wrote in the 1990s:

Washington has been taken over by an impregnable mob of short-sighted, power-hungry megaclowns.

They try their worst to micromanage every detail of the economy, but succeed only in whipping the markets back and forth, up and down in spastic patterns. They despise the gentler forces of a free market, which would moderate swings far more predictably.
(Louis Rukeyser, 1993 advertisement for his financial newsletter)

The people to whom I refer and whom Richards exposes in his book do not like the markets. They trust themselves more and think that you should trust them, too. They seriously do believe themselves smarter than the markets, and that is the problem. No one, other than God, is smarter than the markets. A large part of economic history, the tragic part, is a chronicle of the disasters caused when a small coterie of people are able to enforce their wishes and preferences on the rest of us in contravention of economic reality. It never works.

That was the story of the Great Depression, and it was entirely the story of communism, where whole societies were based upon the now well-proven fallacy that any group of people, no matter how smart or well intentioned, can gather sufficient data and know and understand enough to run a national economy. It is just far too complicated, with billions of economic decisions being made by millions of people all day and all night long. The markets make it all work, because the markets are the sum combined total of all of those economic actions and decisions interacting with each other. No human five-year plan for economic control has escaped failure.

What is worse, as well intentioned as such people may start out, all too often, as Richards’ book exposes, their efforts not only fail to do what they set out to do, they fail to stay virtuous and instead become enlisted in the service of private gain at the expense of the rest of us. The Soviet system might have worked pretty well for the party owners of the dachas along the Black Sea but only by impoverishing the workers their leaders claimed to be serving.

Do not let yourself be put off that Richards is a philosopher. His book is remarkably readable, one that you can take with you to the beach and actually enjoy, and feel that you have learned something—a lot—in the reading. Richards mixes real life narrative with hard facts and good research, unified by sound reasoning to expose a nasty and growing problem in American government today. The problem is a big part of why government is expanding and becoming more intrusive in all aspects of our lives, including our financial affairs, education, healthcare, energy use, the products we buy, the food we eat, and the entertainment we enjoy, and even the breath we exhale.

That is to say that the story told by Jay Richards, in Infiltrated, is actually a longer story, a story that began long before the recession, and continues afterward, a story that is bigger than his book. The recent economic events and their painful aftermath illuminate Richards’ core message, the human wreckage caused when some people are able to harness the coercive force of government to impose their personal notions of “benevolence” on the rest of us.

Roger Kimball, writing in 2011 in The New Criterion, warned that such efforts are “intoxicating, addictive, expensive, and ultimately ruinous.” (Roger Kimball, “Liberty versus benevolence,” The New Criterion, February 2011, p.6) Richards offers several well-described examples, well illustrating the truth of Kimball’s observations.

A valuable lesson for policymakers and for the people they would govern: the more discretion you give to government, the more you create the opportunity for abuse of that discretion for private gain. Europe in the 18th century was lousy with the practice. Our forebears sought to escape it and fought a revolution to get out of its grip. The men who threw the tea into Boston Harbor were acting in protest of the partnership between the British Crown and the British East India Company.

Beware the public-private partnerships. Jay Richards explains how some public-private mortgage partnerships went bad, very bad, for the partners and for all of us caught in the dust and debris of their collapse. I am reminded of the warning by former Congressman Dick Armey, that when you enter into a partnership with the devil, you are always the junior partner.

I conclude with the words of New York City Democrat Congressman Bourke Cockran, delivered 110 years ago:

That Government only is good, that Government only is great, that Government only is just, which has neither favorites nor victims.

(W. Bourke Cockran, speech given before the National Liberal Club of England, London, July 15, 1903, in W. Bourke Cockran, In the Name of Liberty, p.190)

Our government should be that government.

(First published August 18, 2013)

Filed under banking, benevolence, economic depression, economic growth, economics, healthcare, jobs, markets, personal finance, progressives, recession, rule of law, socialism, statism, tyranny

Of Politicians’ Words and Deeds

October 9, 2013 2 Comments

A neighbor friend once asked me during election season how to tell the difference among the candidates. She pointed out that it was difficult from their messages to find enough difference on which to base a judgment. I cannot recall exactly what I told her, but if asked again today, this is how I would like to answer.

It is true that in the course of many political campaigns it is hard to tell from what candidates say who would serve better in office. With the candidates competing for the same office seeking the votes of the same electorate, a certain sameness can creep into their message, particularly if principles do not play a significant role in the campaign or in the mind of one or more of the candidates.

Far more important than what politicians say, however, is what they do—and where available, a record of what they have done. Many candidates for public office have served in another public office before. Most candidates for Senate were once a congressman, a governor, a mayor. Viable candidates for President have always had a history of prior service in public office, usually a fairly long history. Check into this history and trust it.

I do not know of any President whose service departed from the pattern of his prior service in other offices. I know of many whose campaign rhetoric did, but once in office they acted as they did before. While he talked a different game on the campaign trail, President Clinton served very much in the style of Governor Clinton. President George Bush has not acted very differently from Texas Governor Bush.

That brings us to the 2008 presidential election. Both major candidates have served in prior office. Both are Senators, Senator McCain having served for several terms. I have no expectation that a President McCain would act differently from Senator McCain.

Senator Obama’s record is much shorter. Four years ago he was a rather undistinguished member of the Illinois state legislature. Now he is a freshman Senator. Although he has not accomplished much while in office, he does have a voting record in the Senate. That brief record is even more eloquent than the Senator himself. While Senator Obama’s speeches may be rich in vacuous platitudes—however well delivered—his record is very clear and deep with meaning. It is the record of an ordinary partisan Democrat.

That record shows a strong adherence to the doctrine that problems need to be solved by government, by government rules, regulations, and funding. It is a record that is deeply mistrustful of individual choice and initiative. It trusts markets the most when they are the more guided by government and is fearful of them the freer that they are from governmental control.

Senator Obama’s record is short, but it is consistent and clear. You can trust it as a reliable testament of how a President Obama would act in office.

(First published August 12, 2008)

Filed under Barack Obama, elections, freedom, government, markets, politics, Senate, statism

Of the Constitution and the States

October 8, 2013 Leave a comment

It must be the least employed part of the Constitution. In fact, “never used” may be a better description. I am not sure but that it may be the one part of the Constitution not only never used but never really tried.

I draw your attention to Article V, which offers procedures for amending the Constitution. Article V has been successfully invoked 27 times–25 or 26 times if you reconcile the count for the fact that the Twenty-first Amendment repealed the Eighteenth Amendment, the prohibition of intoxicating liquors.

So why do I refer to Article V if it has been used on more than two dozen occasions? I have in mind an important but neglected part of Article V. Article V provides two methods for amending the Constitution. Only one method has been used. We might call that the Washington Method, since it relies upon the Federal Government to propose amendments and send them to the States. The other, unused method I would call the State Method, as it relies upon the State legislatures to initiate the amendment process.

Article V is short. Here is the text in full:

The Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution, or, on the Application of the Legislatures of two thirds of the several States, shall call a Convention for proposing Amendments, which, in either Case, shall be valid to all Intents and Purposes, as Part of this Constitution, when ratified by the Legislatures of three fourths of the several States, or by Conventions in three fourths thereof, as the one or the other Mode of Ratification may be proposed by the Congress; Provided that no Amendment which may be made prior to the Year One thousand eight hundred and eight shall in any Manner affect the first and fourth Clauses in the Ninth Section of the first Article; and that no State, without its Consent, shall be deprived of its equal Suffrage in the Senate. (Emphasis added)

Constitutions are foundational documents and so should not be changed any more often than you would consider changing the foundation of your house. Change the foundation and a lot of other things change, too, and if you are not careful you can weaken the whole structure. But the Founders of the nation knew that they were not omniscient and that the need for adjustments or even corrections to the basic plan of the government would surely become obvious over time.

For example, the original process for counting electoral votes for President and Vice President almost put Aaron Burr in the White House instead of Thomas Jefferson in 1800. Jefferson was the candidate for President, Burr the running mate, and both received the same number of electoral votes, but the electoral college ballot under the Constitution did not distinguish between President and Vice President. The two were tied, and Aaron Burr got the notion that maybe he should be President instead of Jefferson. The House of Representatives had to sort it out. Afterwards, this flaw in the Constitution was corrected by the Twelfth Amendment.

The first ten amendments, the Bill of Rights, were made almost immediately and were demanded by several states as essential conditions for their ratification of the Constitution itself. We could very appropriately consider those ten amendments as part of the original Constitution since it would not likely have been ratified without their promised addition. In that view, the Constitution has subsequently been amended little more than a dozen times in over two centuries.

It is also worth noting that Congress has proposed amendments that the States have subsequently and appropriately turned down. One such proposed amendment that never got past the States was approved by Congress in 1861, denying Congress the power to interfere with slavery. The Constitution does not, however, limit the power of the States to only considering amendments that come out of Washington. It provides to the States the power to initiate amendments of their own.

Mark Levin, in his recent book, The Liberty Amendments, argues that it is important for the States to exercise that authority. He offers some suggestions for amendments that the States might consider, designed to restore the balance between Washington and the States that the Founders envisioned when creating our federal system.

It is a sign of how distorted things have become that using the word “federal” today almost always leads one to think of the government in Washington. Yet our federal system was designed specifically to preserve State authority and limit the power of the national government. Levin argues that those limits have been dangerously eroded, especially over the last century.

Consider the many aspects of our daily lives that are determined one way or another by Washington laws and regulations rather than by the States whose representatives are closer to the people whom they govern. The list would include the fixtures in our bathrooms, the design of our cars, the food offered to children in school lunch rooms, the subjects that they are taught, the products and services offered by banks, and now the healthcare that we can receive.

A major consequence of the problem is that the power appetite of Washington has taken on more than it can handle and is seriously threatening the health of the nation. Regardless of which parties are in power or whether power is divided, Washington is becoming increasingly dysfunctional. But the professional politicians in Washington will not let go of the power that they have taken from the States, even as they sink under the weight.

What has tied Washington up in knots this fall? It is conflict over Obamacare. Would that even be a problem if healthcare were left to the States to regulate? Congress is having trouble passing a farm bill because of apparently unbridgeable differences over food stamps. Would Washington be stuck in the mud—and at the same time affecting all the rest of the nation—if farm and nutrition policies remained in State hands? At the same time, many States are facing major budget problems coming to grips with paying for programs forced on them by the national government.

The State Method for amending the Constitution was put into the Constitution specifically for the time when the national government was the problem and would be incapable of solving its own problems. Surely that time has come. Washington has gotten tied up in a Gordian knot of its own devising. The wise Founders of the nation apparently knew that things could come to this. It is time for the States to exercise their constitutional power to cut the knot.

(First published September 22, 2013)

Filed under America, banking, Congress, Constitution, federalism, government, healthcare, politics, statism, tyranny, Washington

Of the World Bank and Washington Parties

October 8, 2013 Leave a comment

Last evening and this afternoon I was in Washington, D.C. That would be an unremarkable statement, since I work in Washington. But I am not often there in the evening and even less often on a Saturday afternoon. I was in Washington at those unusual times because my son, I’ll call him Peter, was participating in a choral program at a church in the city.

I write this to explain why in the world I would be in Washington not only on a Friday night and a Saturday afternoon, but of all weekends, on the weekend when the World Bank and the International Monetary Fund (IMF) are having their annual meetings. Two out of every three years they hold their joint meetings in the capital of the Free World, the third year somewhere else. They like holding their meetings in the capital of the Free World because they are very much interested in the capital of the Free World.

Finance ministers, government economic development experts, and related hangers on from all over the globe gather to talk about poverty and economic hardship in the poor countries and how the rich countries have an obligation to channel more money in the direction of the poor countries. They have been doing this for something over 65 years. And yet, with a few exceptions, the poor countries seem to remain poor, the most notable growth being in the number of poor countries.

Early in my career in Washington, back in the early 1980s, these meetings used to be a lot of fun. The world’s largest commercial banks would hold lavish parties. In those days the big banks, encouraged by the IMF, the World Bank, and their own governments, were big into lending money to the poor countries, billions and billions of dollars. That money was supposed to fuel economic growth by funding big projects that politicians could take credit for and where they could have their pictures taken at elaborate ribbon cutting ceremonies. The projects were started, some of them built, but very little economic development resulted. The poor nations were not very good at paying back the loans. In the mid-1980s it almost destroyed the banks. Since then, they have gotten out of that business. They stopped holding the parties, too.

Walking through Washington last night and this afternoon I could see nevertheless that lavish parties were still going on. I am not sure who was hosting them. I think that at least some were sponsored by non-profit groups. But they were still lavish. It was very difficult getting past the fanciest hotels and restaurants and some of the popular museums. Stretch limos were packed in as the financial leaders of these poor countries were climbing out and milling around, dressed in tuxedos, evening dresses, and pricey jewelry, to hear speeches from well-paid development experts, delivering their latest reports on the tough financial times and their clever theories about the obligations of rich nations like the United States to send more money to the poor nations.

This afternoon we walked by Lafayette Square, within earshot of a group of protesters in front of the White House. Somebody was bellowing through a bullhorn. I could not quite make out what he was chanting. I think it had something to do with the World Bank and IMF not giving poor nations enough money. As I say, I could not quite make it out. My son said it sounded all the world like,

No more pencils,
No more books,
No more teachers’
Dirty looks.

(First published September 24, 2011)

Filed under banking, economic growth, IMF, poverty, statism, Washington, World Bank

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