Quote of the Day
People are in greater need of your praise
when they try and fail,
than when they try and succeed.
Bob Moawad
Combating Progressive Propaganda
One Soundbite at a Time
Master Legal Plunderer Jerry "Junior" Brown (D) of the People's Republic of California included the following soundbite in his 2012 "
State of the State Address" rationalizing how a state government routinely running massive budget deficits can afford to spend money on dubious infrastructure projects:
Critics of the high-speed rail project abound as they often do when something of this magnitude is proposed. During the 1930’s, The Central Valley Water Project was called a “fantastic dream” that “will not work.” The Master Plan for the Interstate Highway System in 1939 was derided as “new Deal jitterbug economics.” In 1966, then Mayor Johnson of Berkeley called BART a “billion dollar potential fiasco.” Similarly, the Panama Canal was for years thought to be impractical and Benjamin Disraeli himself said of the Suez Canal: “totally impossible to be carried out.” The critics were wrong then and they’re wrong now.
What's particularly annoying is that I've seen this passage routinely replicated by progressives, as if the interstate highway system is the trump card in any debate on public infrastructure; do an Internet search and you'll read
tributes to Eisenhower (an admirer of the 1930's German autobahn system), the Bush Administration issued a report on the payback of interstate highway system, etc. You'll see all over the Internet progressives assert that the interstate highway system could not have happened without the federal government's "investment".
Okay, fellow libertarians, you can stop laughing now--I honestly think that the progressives are being serious: they just don't know enough American history to push back on Brown's unquestioned disingenuous assertion. For instance, a number of people actually believe that the USPS has always delivered mail to people's homes.
A word to my fellow libertarians here: just like James Carville innovated campaign politics with a
Propaganda Truth Squad/"quick response" strategy, you need to hit back twice as hard at this sort of nonsense.
Briefly, before going on, let's assume for the sake of argument that, in fact, the government is able to do something (that the private sector can do) "profitably" (let's say, the Export-Import Bank). We can rattle one case after another of government programs that don't maintain adequate reserves for government guarantees including the bankrupt GSE's (bailed out by TARP), FHA, PBGC, NFIP, etc. (If the government guarantees it, I bet that it's underfunded.) We have had rampant fraud in the Medicaid/Medicare program. The federal government doesn't carry entitlements on its financial statements, unlike business and state/local governments, not to mention underfunded liabilities for its own employees. We have flagrant expensive, unnecessary duplication of functionality all across the government (and obsolete, unneeded, money-losing military bases and post offices are just the tip of the iceberg).
If the federal government as a conglomerate was regulated like the private sector, Obama and Congressional leaders would be facing longer prison sentences than Bernie Madoff. Now, a simple response to profitability: due to its monopoly power of taxation and control of the printing press (delegated to the Fed), the government has no competitive need to ensure efficiency of operations, unlike the private sector, exposed to the risks of creative destruction and global competition: just look at what has happened to high tech blue chips from just a decade ago, e.g., AOL, Nokia, and RIM (Blackberry) or the recent bankruptcy of Kodak.
But even if you argued that Export-Import is profitable on a sustainable basis, has adequate loss reserves, etc., there's the question of
opportunity costs, e.g., the exporting company is socializing part of its risk to the American taxpayer; scarce government resources could better utilized elsewhere; private banks have a natural incentive to assess and price risk efficiently, etc.
Now one just might wonder why, if we don't need the government to invest in railroads, airlines, etc., why do we need them to invest in roads? I guess there just couldn't be any paying customers like truckers or commuters willing to pay for the privilege of bypassing "free" road congestion.... It's not like time is money... Could it be the high capital costs to building roads? Like building a nuclear power plant or a computer chip manufacturing facility in the private sector? Hmmm. Methinks something is rotten in the state of California--and all the other states. And Washington DC.
Gabriel Roth of Cato Institute has a
relevant answer (my edits):
Before the federal government began financing highways in the 20th century, that role was assumed by state governments and the private sector. Private turnpike companies built thousands of miles of toll roads across the states during the 18th and 19th centuries. There were upwards of 2,500 companies that operated private toll roads in America in the 19th century. The total length of those roads was 30,000 miles or more.
Despite the benefits to communities, the road companies were often hamstrung by regulations on toll rates and toll collection. Unfortunately, rather than encouraging the revival of private toll roads for automobiles, politicians of the era favored abolishing the private ownership of roads and substituting state-owned "free" roads financed by taxes.
The roads of the 20th century were virtually all government roads provided outside of the market system. The highway laws of 1916 and 1921 were the first major federal interventions into road financing. In 1817, President James Madison vetoed a bill that would have provided federal aid to construct roads and canals. He was followed by Presidents Monroe, Jackson, Tyler, Polk, Pierce, and Buchanan, who all vetoed transportation bills on the grounds that they were unconstitutional.
Okay, got it, progressives? I bet you dollars to doughnuts that if the private sector had been allowed to construct toll interstate highways and various other roads from the get-go, we would not be seeing today's low-quality, poorly maintained, congested public highway system, with its regressive tax funding scheme. (Notice how progressives love to transfer road upkeep costs, say, from yuppies driving subsidized purchases of Chevy Volts to lower middle-class drivers whom can barely afford to operate a used gas guzzler. Roth and others point out that we have GPS-based technology today to record road utilization for purposes of billing toll micro-payments.)
One of the signature sayings of this blog is:
government is part of the problem, not the solution.
The Best Course Description I've Ever Read
One of my favorite libertarian economists, Thomas J. DiLorenzo, is offering a course on F.A. Hayek's Road to Serfdom, starting mid-month next month via Mises Academy.
Here I simulate my own interview with DiLorenzo using takeaways from his course description (my edits):
What do you think of how President Bush, and more recently and predominantly, President Obama, handled 2008's economic tsunami and its aftermath?
The US government, in particular, responded to the bust portion of the Greenspan Fed’s boom-and-bust cycle with the most economically destructive — but politically centralizing — policies:
- trillion-dollar bailouts of failing corporations that will create moral-hazard problems the likes of which have never been seen;
- an escalation of the money supply that dwarfs the monetary inflation of the Greenspan Fed;
- the Soviet-style nationalization of automobile companies, banks, and much of the healthcare industry;
- government regulation of executive compensation;
- the appointment of dozens of dictatorial “czars” with unaccountable power to regulate and regiment myriad industries;
- trillion-dollar-a-year deficits;
- an expansion of the powers of the Fed (!); and
- a president who believes he has the power to fire corporate executives, nationalize industries, and send unmanned “drone” bombers to any country in the world on a whim.
Who or what do you hold responsible for the economic tsunami? The private sector run amok? Laissez-faire economic policies? What do you think of this Administration's attempts to lure the best and brightest away from the real economy by promotion of college loan forgiveness for public sector employment?
Governments all over the world created the economic crisis with their own monetary policies and other interventions. Massive government propaganda demonizes the civil society, individualism, and the system of peaceful voluntary exchange and private property (capitalism), while glorifying all aspects of the state.
What do you think of class warfare rhetoric, vacuous sound bites, and vapid, ironic campaign slogans (like "Yes We Can", "Change We Can Believe In", "I’m asking you to believe. Not just in my ability to bring about real change in Washington . I'm asking you to believe in yours", "America , we cannot turn back. We cannot walk alone", "We are the change we’ve been looking for. Change can’t happen without you", or "Change in America doesn't start from the top down. It starts from the bottom up")?
It only took a couple of decades of socialistic sloganeering to persuade Germans to abandon their classical-liberal roots [the virtues of a free society, the need for limitations on government power, the dangers of centralized power, and the workings of capitalism as a worldwide network of mutually advantageous exchange] and embrace Big Government of the worst sort.
IPPON!
I used the term at least once before in a
prior post without explanation. (I trusted interested parties would check out
Wikipedia or some other source.) Probably my favorite outside activity on the Air Force base while in junior high (sixth and seventh grade) was judo. In fact, I was also enrolled in basketball, and I'll never forget this one time when I had a time conflict and chose judo over a basketball game. I guess the coach was desperate, because he offered to let me play center if I suited up, my once-in-a-lifetime offer. (I was never tall, on the shorter side of average, and a few girls my age were up to a full head taller. The one time I did go out for the school team was in eighth grade basketball in Kansas; I didn't make the final cut, even though I was one of the best shooters to try out. As the saying goes, you can't teach height: I had grown since sixth grade, but I was now playing with guys in the 6-foot range.)
There is something about the martial arts that equalizes things like height difference: I could use his size against the taller opponent. I'll never forget my first victory over an opponent nearly a foot taller, throwing him on his back for an emphatic "ippon!"
So I've decided to create a recurring feature called "Ippon!" when I think another author makes a decisive point.
To set the context for my first "Ippon!" award, to one of my favorite libertarian economists, Don Boudreaux, there is in Keynesian mythology an explanation that involvement in WWII brought our economy out of the Great Depression,
e.g.,:
The common view among economic historians is that the Great Depression ended with the advent of World War II. Many economists believe that government spending on the war caused or at least accelerated recovery from the Great Depression.
Hmmm. I knew that Obama is trying to emulate, as Dick Morris
recently noted, FDR's policies and campaigns; perhaps that explains why he hypocritically continues to
invest American blood and treasure meddle in global hot spots: he thinks that it's good for the economy! Wag the dog! Maybe if he starts WWIII...
Let us first focus on the point that conservatives have been focusing on: business uncertainty under what Robert Higgs refers to as the Great Duration (Higgs divides the Great Depression into 3 phases: the Great Contraction (through 1933), the Great Duration (through 1945), and the Great Escape (post-WWII)). Art Carden
explains:
In discussing the Great Duration, Higgs introduces the term "regime uncertainty" to argue that the Roosevelt administration's aggressive interventions produced considerable uncertainty in the entrepreneurial environment. Investors did not know whether they would enjoy the fruits of their investments. One of my mentors in graduate school, a Keynesian, pointed out once that firms will not produce what they do not expect to sell. I would generalize this to say that they will not invest in what they do not expect to control. The possibility of incurring the costs of an investment without enjoying any of the benefits made private investment much less attractive.
How do we know that regime uncertainty was responsible for the lack of recovery? Higgs brings several types of evidence to bear on the issue. First, business leaders who were polled expressed uncertainty about the entrepreneurial climate. Second, and more convincingly, Higgs shows that the risk premiums on long-term corporate bonds were substantial, suggesting fear of expropriation. A firm that wanted to borrow long-term had to pay much higher interest rates than firms that wanted to borrow short-term. This spread increased dramatically during the Roosevelt years.
Now we have the federal government meddling in over 90% of mortgage financing; Barack Obama has nationalized the student loan program; we have government involved with nearly half the spending in the health care industry. We have government loan guarantees all over the place, even underwriting nuclear power plants... We have bills thousands of pages long that require high-priced lawyers to comprehend, and perhaps even worse,
the iceberg below the surface: the proliferation of unaccountable, unpredictable rules-spewing bureaucracies. Never mind 5- or 10-year plans: companies are left warily not even able to predict two years ahead of time due to political impasses on issues like next year's tax rates.
Let us reflect on this neo-Keynesian take that the government regulatory scope creep at the expense of economic liberty in the aftermath of one of the worst, if not the worst, SCOTUS decisions in American history (Carolene Products Footnote 4) somehow stoked the economic growth engine through various government-dominating restrictions, e.g., wage and price controls, massive spending as a percentage of GDP, choking out private sector investment and competition for workers, etc. This is just the ticket, don't you know?
Why, world-class sprinters will run even faster if we just put hurdles in their 100-meter path, don't you think? Never mind the US experienced impressive economic growth during the prior century without the precedence of a similar massive government intervention.
What happened in the aftermath of cutting high-end income tax rates after WWI? Chicken Little's went running around like good little Keynesians ahead of their time, screaming: "Federal revenues are falling! Federal revenues are falling!" Only--it didn't happen. The same thing happened after the other major tax cuts (e.g., JFK, Reagan, and George W. Bush). Some will argue federal deficits, but the issue wasn't with federal revenues--
it was with federal spending increases, which outstripped revenue gains.
Ebenstein points out that Paul Samuelson, a prominent neo-Keynesian,
had predicted a post-WWII Depression, i.e., as wartime spending was scaled back.
Tabarrok and others pointed out Samuelson and others' wildly optimistic predictions over the Soviet Union's allegedly superior planned economy with more investment; at the same time, they all but ignored the resurgence of the German and Japanese economies and rapidly growing economies elsewhere in the developing third world.
Going back to
Higgs' concept of the Great Escape from FDR's wrongheaded pursuit of economic micromanagement, Higgs points out that the private sector gained as workers scaled back on savings (some of which was used to finance the war) and boosted spending, business taxes were cut, and the old command-and-control regime under FDR (wage and price controls, etc.) was dismantled.
Now let's shift back to a key debate over much of the last decade: progressive Democrats have made much of war/occupation spending of roughly $100B/year as a drag on the $15T economy (cf., e.g.,
here). I have expressed my own position expressing skepticism over US meddling in countries like Iraq and Afghanistan, but my intent is to set up the paradox of these hypocritical neo-Keynesians that Don Boudreaux points out
here:
If – as pop fiction and the opinions of many experts contend – the American economy was rescued from the Great Depression by World War II, why do a number of people today place part of the blame for America’s current fiscal woes on Uncle Sam’s unnecessary military adventures abroad?
Ippon!
Musical Interlude: My Favorite Groups
The Rolling Stones, "Undercover of the Night"
