Back To The Basics

(Cross-posted at Heritage)

In the New York Times today, David Brooks has a column in which he describes two theories about the financial crisis: “greed” and “stupidity.” The “greed” theory is not what you might be thinking—it is not the simplistic notion that Wall Street is just full of greedy capitalists that swindle the people out of their money. It is a little bit more sophisticated than that, because it involves the government bailing out the banks. They do this, of course, because politicians earn handsome rewards for it. This theory has some merit.

The second theory, “stupidity” is also more sophisticated than it sounds. Wall Street did not know that it was engaged in such risky behavior. The theory as presented blames the complex financial instruments, but one could as easily blame monetary policy, subsidies, bailouts, or policy uncertainty, for creating this ignorance.

Government certainly had a hand in creating this crisis, yet now these same leaders are attempting to blame free markets, and resurrect socialism. Right before our eyes we are seeing the pattern: even as government spending backfires, we cede more control to it, and the love and faith in politicians grows. Even free market economists forget the basics.

Now more than ever, we need to return to the fundamentals. We need to relearn our Adam Smith, our Frederic Bastiat, the roots of liberalism and the morality of freedom. Only if the people understand these basic principles do we have a chance. Then we can see through the politicians, and not let them take our freedom and control our lives.

A Taste of the Control Inherent in Planning

Hayek said "Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."

This is very true, and key to understanding why the experiments with socialism have inevitably led to totalitarian dictatorships. It is also critical to remember when we little by little feed government power, the power to control our economic lives, and hence our lives in toto.

A fascinating reminder of what economic control truly means comes from the excellent - truly golden - book The Soviet Economic System: A Legal Analysis. Especially those of you who enjoy law and economics both, and "libertarian theory" on Leviathan and freedom, should check it out.

So, here Ioffe and Maggs here are discussing ownership in the Soviet Union, and describing the rights of the state firms, who possess "operative administration" rights, but are not owners. The state is the legal owner, and they investigate whether it can also be considered the de facto owner. They also consider what it means that "the state" is the owner -- of course, it turns out to mean that the Politburo and Secretary are the real owners. In any case, here they are describing the actual rights of the firm. It turns out that some of the restrictions on "possession, use and disposition" which apply to those holding only "operative administration" include strict limitations to use the property for planned purposes only and not to "sell postcards if you are a pharmacy," and that all money must reside in "funds" to be used for specific activities - investment, purchases, wages, depreciation, etc. The state bank which holds the funds ensures that the seller and buyer in any exchange both have the appropriate rights and use the appropriate funds, etc. And then here is the golden paragraph:

An examination of the legal provisions established for goods produced, goods which are the result of production rather than a fund for production, is useful for a full comprehension of the operative administration exercised by a producing entity. In this case, the rightholder has the rights of possession and disposition, but not the right of use. To use its own product, the economic entity must transfer the requisite portion of it from goods produced to production or other funds. If the goods produced are subject to planned distribution, then, in order to acquire its own product, the producer must be included in the plan of distribution issued by the planning agencies. Violations of this rule lead to legal sanctions. If the goods produced are excluded from planned distribution, then, in order to acquire its own product, the producer must have adequate resources in a monetary fund that may be employed for such an acquisition, and when part of the entity's product becomes a part of its fund of physical goods, the price of the product thus obtained must be deducted from the appropriate monetary fund and added to the amount of gain resulting from the sale of the product.

Yes. If you want to use some of the paper that your paper factory makes, you must be part of the planned distribution. Even if the distribution of paper is not being planned out - miraculously - this year, then you must sell the paper to yourself within the guidelines of the use of your monetary funds and adjust your balance sheet to reflect that you fulfilled output and simply sold to yourself some amount of the paper, which you were able to pay for out of your budget for purchases.

Now, I suppose that many firms do this kind of accounting anyway - to ensure that they are not being wasteful. However, the key thing to note here is who is in charge of all of this: the state. And "violations are subject to legal sanctions." This is entirely another kind of "accounting" when this is taken to heart.

America Serves

(cross-posted at Heritage)

President-elect Barack Obama has quietly changed the meaning of the American Dream and introduced a proposal for American Serfdom. In America, what it means to serve one’s country is very clear. It is voluntary and for the purpose of defending the country during a time of war, or for the purpose of upholding the constitution by serving, for example, as a judge or on a jury.

Obama has reinterpreted the American Dream of “life, liberty and the pursuit of happiness,” as a collectivist ideology. He believes it is a dream about the collective happiness. He connects the notion of “service” to the American Dream, as he interprets it:

When you choose to serve -- whether it's your nation, your community or simply your neighborhood -- you are connected to that fundamental American ideal that we want life, liberty and the pursuit of happiness not just for ourselves, but for all Americans. That's why it's called the American dream.

Obama is wrong. It is called the American Dream because in America the individual is secured rights and liberty, and with those rights protected and liberty ensured anything is possible. The American Dream is an individual dream. It is the dream of each of us, not the dream of a collective hive, or a collective outcome. This is not to say that private charity in un-American. Private charity and civil society are very much part of the American spirit. But this is because they are private and voluntary.

But then Obama goes on to describe what it means to him to serve. He has a list of new “corps” to add to his expansion of the Peace Corps. Then he lists “a plan to require 50 hours of community service in middle school and high school and 100 hours of community service in college every year.” That is, 500 hours of mandatory community service.

Obama says that it is when “you choose to serve” that you are connected to the American Dream. But this quote is used to bolster support for a program which includes mandatory community service for every American child and college student. So, now mandatory community service is the American Dream. Now, it is not an independent pursuit of a better life but performing manual labor for the state that constitutes the American Dream.

Now to serve one’s country in America will have the taste of being a servant to the state, a serf, rather than the proud voluntary service of a free man.