July 20, 2016

The Donald and Mercer's "Trump Revolution"

For a political junkie like myself, every four years, watching and retching over the major political party conventions is a rite of passage into the Fall Election campaign for President of the United States. This week, I've watched wall-to-wall coverage of the GOP convention, and I will somehow get through the Democratic Party convention next week. A rite of passage is a ritual, and not all rituals are pleasant, but in my political playbook, they are necessary.

As a prelude to some of my observations on the Trump campaign, I just added a 5-star review, "A Must-Read Book for Trump Fans and Foes," of Ilana Mercer's newest book, The Trump Revolution: The Donald's Creative Destruction Deconstructed. Much of what appears here is taken from that review, though I have added links and a few additional observations.

Starting with a quote from Mercer's book, I state: "Donald J. Trump is smashing an enmeshed political spoils system to bits: the media complex, the political and party complex, the conservative poseur complex. In the age of unconstitutional government—Democratic and Republican—this process of creative destruction can only increase the freedom quotient." So begins Ilana Mercer's provocative take on The Trump Revolution: The Donald's Creative Destruction Deconstructed.

Ilana Mercer is no fan of Obama or The W who came before him, but she thinks that "Trump is likely the best Americans can hope for." She’s “not necessarily for the policies of Trump, but for the process of Trump.” This, in itself, is the most interesting of her arguments in a well-constructed book of essays that builds the case for that process. Quoting favorably the views of Justin Raimondo of, Mercer drives home the point, most crucial in my view, and perhaps the most appealing aspect of Trump’s foreign policy views insofar as we know them: that there is something fundamentally wrong with the way NATO functions and that the role of the United States in foreign affairs must be fundamentally re-evaluated. Trump takes pride in being an opponent of the Iraq war, which many of us predicted would lead to the kind of chaos that has developed in the ensuing years [a .pdf link to my article, "Understanding the Global Crisis"]. But no one man or even a movement of disaffected voters behind him, a mere echo of the Old Right that was “usurped by neoconservatives,” will be able to fundamentally alter the “military-industrial complex” that lies at the root of American foreign policy, or the overall government intervention that fuels it both at home and abroad.

Though Trump is probably the least homophobic of GOPers, I am still uncomfortable with his mixed views on same-sex marriage and his stances on abortion. I am uncomfortable with his talk about deporting 11 million people, and the police power that would be required to do so; I am uncomfortable with talks about building walls when it was Ronald Reagan who talked about tearing walls down (and if the reason for the Mexican wall is to keep out criminals and drugs, as claimed by Trump, then he’s not as radical a thinker as some would have us believe … since he needs to re-evaluate the whole “war on drugs” that has fueled the crime coming out of our southern neighbor). I look back at the history of stopping certain types of people from entering this country, and I see a mixed bag; after all, many Muslims have run from their own countries, ruled by extremist Islamic dictatorial ideologues, because they have faced discrimination, torture, and death in their struggles against everything from centuries-old tribalism to oppressive misogyny. This country has had a history of being afraid of outsiders, even though it was built on the backs of so many of those who came to America seeking the freedom to live and produce in peace (not to mention the shameful chapter in our history when people came to this country unwillingly to live and produce in a state of involuntary servitude). Do we need to be reminded of the Japanese-American internment camps constructed during World War II? Or of how many German Jews were denied access to America, because of highly restrictive immigration quotas, in the years leading up to and including World War II? Incredibly, widespread anti-Semitism in this country fueled the fear that some Jews were seeking refuge here and might very well be working as agents of the Nazis! How many of them ended up in gas chambers rather than in that “shining city upon a hill” that beckoned them to the promise of America?

Mercer is completely correct that much of what corrupts our political economy is the role of the state in economic affairs; such is the root of crony capitalism, championed by Democrats and Republicans alike. And like all businesspeople, Trump knows he has to wheel and deal with city, state, and federal politicians, who are corrupt almost by definition. Using things like eminent domain, however, is not the language of the free marketer; Trump can never be confused with a libertarian, no matter how much better he might be in the eyes of some, than the Establishment Politicians (and none of what I’ve said here is meant as an endorsement of Hillary Clinton, whose politics I’ll address at the end of next week’s Democratic convention).

In the end, however, it is a testament to Mercer’s muscular writing and clever reasoning that I was able to read her book in a single sitting. That is a compliment in and of itself. She challenges all of us to think about what so many thought unthinkable: that this guy often dismissed as a reality-show clown, just might become President of the United States.

I should say that I have only one personal proviso to add with regard to the Trump family; in the last year of my mother’s life, it was Blaine Trump, ex-sister-in-law of Donald (she was married to his brother Robert), who paid for Mom’s Make a Wish Foundation round trip, via luxury limousine, with her immediate family (me, my sister, brother, and sister-in-law) to Trump Plaza in Atlantic City. At a time when mom was in the throes of her five-year battle against lung cancer, it was a charitable gesture that we will always remember and cherish, and the Trump family has always played a big role in funding that foundation. That charity aside, it certainly cannot influence my views of this man’s candidacy, even if it says something positive about his character. In any event, this proviso has absolutely nothing to do with my views of Mercer’s controversial, wonderfully readable book. Buy it, read it. You won’t be disappointed.

So ends my review of the Mercer book. For Notablog readers, I would like to make a few additional points. I have long observed the pendulum phenomenon in politics, the one that emerges from the old adage: "The job of the new leader is to make the last one look good." So disgusted were Americans with the collapse of U.S. economic and foreign policy in the Bush years, that Obama was swept into office for two terms, no less, on the promises of "Yes, We Can!" Yes, we can change things fundamentally. Yes, we can end recession at home and a war without end abroad. Yes, we can. Well, as it turned out: We can't. So, disgusted Americans, especially those attracted to the GOP, but many of these partying among the Elephants for the first time as disenfranchised "blue collar" and "working class" people, have embraced Trump. They have given the Grand Old Party Establishment a Grand Middle Finger of revolt, precisely because they are revolted by the state of affairs in this country.

When I was 8 years old, I went to my first political rally, purely out of curiosity, with my Uncle Sam and my sister Elizabeth. We stood at the corner of 85th Street and Bay Parkway in Brooklyn, across from the Chase Manhattan Bank that still stands there (except the 4-sided clock that topped the building actually worked back then!)

In attendance was Vice President Hubert Horatio Humphrey fighting for the Democratic Party, in place of President Lyndon B. Johnson, who, despite having crushed the GOP's Barry Goldwater in a 1964 landslide, had announced that he would not seek re-election. The Great Society he sought to create was collapsing under the weight of an expanding welfare-warfare state. With the assassinations of Martin Luther King, Jr. and Robert F. Kennedy, Humphrey was left standing, fighting for his political life. That night in Brooklyn, the antiwar crowd, which had blamed LBJ for the thousands of soldiers coming back from Vietnam to America in body bags, drowned out Humphrey's speech by a constant refrain, screamed louder and louder: "Dump the Hump! Dump the Hump! Dump the Hump!"

Humphrey's battle was lost to the newest "Law and Order" man in town, who was actually part of the older long-time GOP Establishment. A former virulently hostile anti-communist Senator, Vice President to Dwight D. Eisenhower, Richard M. Nixon, went on to lose the 1960 election to JFK, but by 1968, he had reinvented himself into a winning candidate. And we all know what happened after that. The anti-communist shook hands with Brezhnev and Mao, one of history's greatest mass murderers (which may help us to put Obama's handshake with one of the Castro brothers into perspective). But neither law nor order followed, in the depths of Nixon's political corruption. And so, the pendulums of U.S. politics swung with ferocity against the Watergate-corrupted administration, forcing Nixon to resign, as he handed presidential power over to the thoroughly un-elected Gerald Ford. Ford went down to defeat, in the Bicentennial Year, in another pendulum swing, handing the presidency over to the bumbling ineffectiveness of one-term Jimmy Carter. And then came the ultimate swing for the fences, as former Democrat-turned-Barry Goldwater advocate, Ronald Reagan, ushered in the modern conservative movement.

And so the pendulum continues to swing from W to Obama to ... I don't know. And right now, "None of the Above" is looking mighty good to me. Given the excitement that so many have for the Trump candidacy, but who drop the context of the real dynamics of American politics, it would not surprise me if those disgusted with Obama-Clinton carry the day. It would not surprise me if Trump became President. And it would not surprise me to hear echoes of those 1968 chants all over again, as they morph from "Dump the Hump!" to "Dump the Trump!" We've been hearing variations on that, for months, in any event. Cliché though it is, time will tell.

Postscript: In discussions on Facebook, I make a few additional points. In response to one comment, raising the issue of the Libertarian Party, I write:

. . . I don't endorse Trump. Honestly, however dishonest Clinton is--and what politician isn't?--she is a known quantity, but that's not exactly a rousing endorsement either. Gary Johnson and William Weld are good men, though I have my criticisms. I would have voted for Weld way back, but he stood absolutely no chance in a socially conservative GOP. To echo the opening words from "Harry Potter and the Deathly Hallows, Part I": "These are dark times, there is no denying. Our world has perhaps faced no greater threat than it does today. But I say this to our citizenry: We, ever your servants, will continue to defend your liberty and repel the forces that seek to take it from you!" When those forces exist within your own country, you are in the darkest of times.

In reply to another comment, which stresses the point that we should concern ourselves with those things that are most within our power to control, things at the "local" level, I state:

. . . that's a very good observation. Unfortunately, however, what happens on the national level and even the global level can so intrude on the things that are more within our power to influence that it gets to the point where it becomes difficult even to make changes locally. The more complex and interrelated the world becomes, the more difficult it becomes for all of us. When an insane ideology from halfway around the world inspires local lone wolf nutjobs to attack a San Bernadino facility for people with developmental disabilities or to go into a gay nightclub in Orlando and kill 49 people, wounding another 53, the world starts to become smaller and smaller. That doesn't mean that I don't agree with your point that asserting ourselves on the local level is a good thing.

April 30, 2009

A Crisis of Political Economy (in The Freeman)

My essay, "A Crisis of Political Economy," which made its debut here on Notablog, appears in a slightly edited form in the May 2009 issue of The Freeman: Ideas on Liberty. Check it out here.

October 01, 2008

A Crisis of Political Economy

Oy, what a mess.

The "mess" of which I speak is, of course, U.S. Political Economy. And make no mistake about it: We are talking about political economy.

One of the things that I have long admired about Austrian-school theorists, such as Ludwig von Mises, F. A. Hayek, and Murray Rothbard, is their understanding of political economy, a concept that conveys, by its very coupling, the inextricable tie between the political and the economic.

When Austrian-school theorists have examined the dynamics of market exchange, they have stressed the importance not only of the larger political context within which such exchanges take place, but also the ways in which politics influences and molds the shape and character of those exchanges. Indeed, with regard to financial institutions in particular, they have placed the state at the center of their economic theories on money and credit.

Throughout the modern history of the system that most people call "capitalism," banking institutions have had such a profoundly intimate relationship to the state that one can only refer to it as a "state-banking nexus." As I point out in my book, Total Freedom: Toward a Dialectical Libertarianism:

A nexus is, by definition, a dialectical unity of mutual implication. Aristotle (On Generation and Corruption 2.11.338a11-15) stresses that "the nexus must be reciprocal ... the necessary occurrence of this involves the necessary occurrence of something prior; and conversely ... given the prior, it is also necessary for the posterior to come-to-be." For Aristotle, this constitutes a symbiotic "circular movement." As such, the benefits that are absorbed by the state-banking nexus are mutually reinforcing. Each institution becomes both a precondition and effect of the other.

The current state and the current banking sector require one another; neither can exist without the other. They are so reciprocally intertwined that each is an extension of the other.

Remember this point the next time somebody tells you that "free market madmen" caused the current financial crisis that is threatening to undermine the economy. There is no free market. There is no "laissez-faire capitalism." The government has been deeply involved in setting the parameters for market relations for eons; in fact, genuine "laissez-faire capitalism" has never existed. Yes, trade may have been less regulated in the nineteenth century, but not even the so-called "Gilded Age" featured "unfettered" markets.

One of the reasons I have come to dislike using the term "capitalism" is that it has never, historically, manifested fully its so-called "unknown ideals." Real, actual, historically specific "capitalism" has always entailed the intervention of the state. And that intervention has always had a class character; that is, the actions of the state have always, and must always, benefit some groups differentially at the expense of others.

Mises understood this when he constructed his theory of money and credit. For Mises, there is no such thing as a "neutral" government action, just as surely as there is no such thing as "neutral" money. As he pointed out in his Theory of Money and Credit (pdf at that link), "[c]hanges in the quantity of money and in the demand for money . . . never occur for all individuals at the same time and to the same degree and they therefore never affect their judgments of value to the same extent and at the same time." Mises traced how, with the erosion of a gold standard, an inflation of the money supply would diffuse slowly throughout the economy, benefiting those, such as banks and certain capital-intensive industries, who were among its early recipients.

One of the reasons a gold standard was abandoned is that a gold standard is incompatible with a structural policy of inflation and with a system heavily dependent on government interventionism.

The profiteers of systematic inflation are not difficult to pinpoint. Taking their lead from Mises, Hayek, and Rothbard and such New Left revisionist historians as Gabriel Kolko and James Weinstein, Walter Grinder and John Hagel III point out in their classic article, "Toward a Theory of State Capitalism: Ultimate Decision-Making and Class Structure" (pdf at that link):

Historically, state intervention in the banking system has been one of the earliest forms of intervention in the market system. In the U.S., this intervention initially involved sporadic measures, both at the federal and state level, which generated inflationary distortion in the monetary supply and cyclical disruptions of economic activity. The disruptions which accompanied the business cycle were a major factor in the transformation of the dominant ideology in the U.S. from a general adherence to laissez-faire doctrines to an ideology of political capitalism which viewed the state as a necessary instrument for the rationalization and stabilization of an inherently unstable economic order. This transformation in ideology paved the way for the full-scale cartellization of the banking sector through the Federal Reserve System. The pressure for systematic state intervention in the banking sector originated both among the banks themselves and from certain industries which, because of capital intensive production processes and long lead-times, sought the stability necessary for the long-term planning of their investment strategies. The historical evidence confirms that the Federal Reserve legislation and other forms of state intervention in the banking sector during the first decades of the twentieth century received active support from influential banking and industrial interests. ...
Most importantly, however, cartellization of banking activity permits banks to inflate their asset base systematically. The creation of assets made possible by these measures to a great extent frees the banking institutions from the constraints imposed by the passive form of ultimate decision-making exercised by their depositors. It thereby considerably strengthens the ultimate decision-making authority held by banks vis a vis their depositors. The inflationary trends resulting from the creation of assets tend to increase the ratio of external financing to internal financing in large corporations and, as a consequence, the ultimate decision-making power of banking institutions increase over the activities of industrial corporations. Since the capital market naturally emerges as a strategic locus of ultimate decision-making in market economies, it is reasonable to assume that, by virtue of their intimate ties with the state apparatus, banking institutions will acquire an additional function within the state capitalist system, serving as an intermediary between the leading economic interests and the state.

So one of the major consequences of inflation (especially in a monetary system stripped of a gold standard) is a shift of wealth and income toward banks and their beneficiaries. But this financial interventionism also sets off a process that Hayek would have dubbed a "road to serfdom," for inflation introduces a host of distortions into the delicate structure of investment and production, setting off boom-and-bust, and "a process of retrogression from a relatively free market to a system characterized by an increasingly fascistic set of economic relationships," as Grinder and Hagel put it.

Just as the institution of central banking generates a "process of retrogression" at home, engendering additional domestic interventions that try to "correct" for the very distortions, conflicts, and contradictions it creates, so too does it make possible a structure of foreign interventions. In fact, it can be said that the very institution of central banking was born, as Rothbard argues in The Mystery of Banking (pdf at that link), "as a crooked deal between a near bankrupt government and a corrupt clique of financial promoters" in an effort to sustain British colonialism. The reality is not much different today, but it is a bit more complex in terms of the insidious means by which government funds wars, and thereby undermines a productive economy. (Of course, the funding itself benefits certain interests too, but we'll leave our sermon on the "military-industrial complex" for another day.)

So where does this leave us today?

Much has already been said about the most recent financial crisis, viewed from a radical libertarian and Austrian perspective, which helps to clarify its interventionist roots (see, for example, the links in "The Bailout Reader"). The seeds for this particular crisis were planted some years ago but the interventionist policies now being proposed and implemented have been around even longer. They are tried and true methods of further concentrating the power of "ultimate decision-making" in the state-banking nexus. (Indeed, as Robert Higgs notes, even the Federal "authority" to take over AIG is rooted in a Depression-era law. See also this post by David Theroux and the links therein, as well as commentary by Ron Paul and Sheldon Richman.)

On the current crisis, Steven Horwitz has written a superb open letter to those on the left, from which I'd like to quote at length. It explains the origins of the housing bubble in the creation of Fannie Mae and Freddie Mac, and places that crisis in a wider political-economic context shaped by governmental and Federal Reserve policies. By all means, read Horwitz's whole essay, and follow the links therein as well, which are missing in the passage cited here:

For starters, Fannie Mae and Freddie Mac are "government sponsored enterprises." Though technically privately owned, they have particular privileges granted by the government, they are overseen by Congress, and, most importantly, they have operated with a clear promise that if they failed, they would be bailed out. ... In 1995, Fannie and Freddie were given permission to enter the subprime market and regulators began to crack down on banks who were not lending enough to distressed areas. ... In addition, Congress explicitly directed Fannie and Freddie to expand their lending to borrowers with marginal credit as a way of expanding homeownership. What all of these [policies] did together was to create an enormous profit and political incentives for banks and Fannie and Freddie to lend more to riskier low-income borrowers. However well-intentioned the attempts were to extend homeownership to more Americans, forcing banks to do so and artificially lowering the costs of doing so are a huge part of the problem we now find ourselves in.
At the same time, home prices were rising making those who had taken on large mortgages with small down payments feel as though they could handle them and inspiring a whole variety of new mortagage instruments. What's interesting is that the rise in prices affected most strongly cities with stricter land-use regulations, which also explains the fact that not every city was affected to the same degree by the rising home values. ...
While all of this was happpening, the Federal Reserve, nominally private but granted enormous monopoly privileges by government, was pumping in the credit and driving interest rates lower and lower. [Ah... one way to keep those funds flowing for the Iraq war... --CS] This influx of credit further fueled the borrowing binge. With plenty of funds available, thanks to your friendly monopoly central bank (hardly the free market at work), banks could afford to continue to lend riskier and riskier.
The final chapter of the story is that in 2004 and 2005, following the accounting scandals at Freddie, both Freddie and Fannie paid penance to Congress by agreeing to expand their lending to low-income customers. Both agreed to acquire greater amounts of subprime and Alt-A loans, sending the green light to banks to originate them. From 2004 to 2006, the percentage of loans in those riskier categories grew from 8% to 20% of all US mortgage originations. ... The banks were taking on riskier borrowers, but knew they had a guaranteed buyer for those loans in Fannie and Freddie, back[ed], of course, by us taxpayers. Yes, banks were "greedy" for new customers and riskier loans, but they were responding to incentives created by well-intentioned but misguided government interventions. It is these interventions that are ultimately responsible for the risky loans gone bad that are at the center of the current crisis, not the "free market."
The current mess is ... clearly shot through and through with government meddling with free markets, from the Fed-provided fuel to the CRA and land-use regulations to Fannie and Freddie creating an artificial market for risky mortgages in order to meet Congress's demands for more home-ownership opportunities for low-income families. Thanks to that intervention, many of those families have not only lost their homes, but also the savings they could have held onto for a few more years and perhaps used to acquire a less risky mortgage on a cheaper house. All of these interventions into the market created the incentive and the means for banks to profit by originating loans that never would have taken place in a genuinely free market.
It is worth noting that these regulations, policies, and interventions were often gladly supported by the private interests involved. Fannie and Freddie made billions while home prices rose, and their CEOs got paid lavishly. The same was true of the various banks and other mortgage market intermediaries who helped spread and price the risk that was in play, including those who developed all kinds of fancy new financial instruments all designed to deal with the heightened risk of default the intervention brought with it. This was a wonderful game they were playing and the financial markets were happy to have Fannie and Freddie as voracious buyers of their risky loans, knowing that US taxpayer dollars were always there if needed. The history of business regulation in the US is the history of firms using regulation for their own purposes, regardless of the public interest patina over the top of them. This is precisely what happened in the housing market. And it's also why calls for more regulation and more intervention are so misguided: they have failed before and will fail again because those with the profits on the line are the ones who have the resources and access to power to ensure that the game is rigged in their favor.

This is precisely correct; indeed, there are those of a certain political bent, who might seek to place blame for the current financial crisis on the recipients of subprime mortgages, particularly those in minority communities. But if elements of the current housing bubble can be traced to Clinton administration attempts to appeal to traditional Democratic voting blocs, it's not as if the banks were dragged kicking and screaming into lending those mortgages. This is, in a nutshell, the whole problem, the whole history, of government intervention, as Horwitz argues. Even if a case can be made that the road to this particular "housing bubble" hell was paved with the "good intentions" of those who wanted to nourish an "ownership society," their actions necessarily generated deleterious "unintended consequences." When governments have the power to set off such a feeding frenzy, government power becomes the only power worth having, as Hayek observed so long ago. If our Presidential candidates wish to end the influence of Washington lobbyists, they should consider ending the power of Washington to dispense privilege. Because that privilege will always be dispensed in ways that benefit "ultimate decision-makers."

It is not simply that intervention breeds corruption; it's that corruption is inherent in the process itself.

It is therefore no surprise that the loudest advocates for the effective nationalization of the finance industry are to be found on Wall Street; at this point, failing financiers welcome any government actions that will socialize their risks. But such actions that socialize "losses while keeping the profits in private hands" are a hallmark of fascist and neofascist economies. They are just another manifestation of "Horwitz's First Law of Political Economy": "no one hates capitalism more than capitalists."

In the end, the proposed Paulson Plan is nothing more than a "heist," as Robert P. Murphy argues, "a grand scheme in which the public will end up owing hundreds of billions of dollars to holders of new debt claims issued by the US Treasury." Such a plan will only compound the problem. As Frank Shostak explains, government policies that try to prevent

a fall in the stock market cannot prevent a fall in the real economy. In fact, the real economy has already been damaged by the previous loose monetary stance. All that the fall in the stock market does is inform us about the true state of economic conditions. The fall in the price of stocks just puts things in a proper perspective. The fall in the stock price is just an acknowledgment of reality.

By not allowing market participants to work through the distortions therein created, government might very well plunge "the economy into the mother of all recessions."

Of course, there is a lot more that needs to be done to correct this economy structurally, but have no fear: Such structural change will not come to this economy without fundamental intellectual and cultural change. That, my friends, is not on the menu. The chefs who prepare the current menu of "choices" belong to a loosely defined political-economic class, centered around that "state-banking nexus" I mentioned earlier. The "choices" they offer might modify the regulations here or there, free up some institutions, while regulating others more heavily. They can only hope that their limited choices will guide them out of the current crisis, while still enabling them to retain their hold on "ultimate decision-making." And they have been, in the past, remarkably effective at steering a course between "extremes," which is why the system has never toppled. (With regard to the "stability" of the current system, I strongly recommend a book by Sanford Ikeda on the Dynamics of the Mixed Economy: Toward a Theory of Interventionism, though it might make you feel that we're doomed and that nothing will ever change fundamentally.)

If all of this sounds diabolically conspiratorial, well, it is, in a sense, even if the "ultimate decision-makers" are not getting together in a single room trying to hatch the next great conspiracy. In fact, the reality is uglier: The culture of conspiracy is such that these plans are being hatched, ad hoc, by those within that state-banking nexus, presented to the public as the next great "rescue plan" for the "common good." Yet nobody inside or outside that nexus has the knowledge to coordinate any centrally-guided plan to "correct" the economy. But try to "correct" it, they will. Lord help us.

That's why, I maintain, it does not matter one iota who gets elected President. The emphases might vary slightly under Obama or McCain, but the fundamentals of U.S. political economy, and, I should add, U.S. foreign policy, will not change. Indeed, even for those of us who view the current Bush administration as the worst in our history, well, certainly the worst in our lifetime.... it is clear that nothing proposed by Obama or McCain is going to change the structural defects of this system.

It is the government's monetary, fiscal, and global policies that have created insurmountable debt and record budget deficits, speculative booms and bubble bursts. In such a "crisis of global statism," nationalizations and bailouts are not the only goodies in this "rescue package," being wrapped up as an unwanted gift for taxpayers. And because there is an organic link between domestic and foreign policy, be prepared for even more tragic fiscal and monetary irresponsibility at home, and an ever-expanding institutionalized war abroad.

Indeed, the "ultimate decision-makers" of U.S. political economy have a host of new battlefields on which to wage war, both literally and figuratively, in their efforts to stabilize the ship of state. None of the choices being offered will challenge their hegemony or topple them from their positions of power.

But a war beckons; it is primarily an intellectual and cultural one, and it must begin by questioning the fundamental basis of the current system---in any effort to overturn it.

Mentioned at L&P and

September 16, 2005

Bush, Krugman, and the Old Deal

Today's NY Times article by Paul Krugman, "Not the New Deal," gave me a few chuckles.

With George W. Bush projecting a huge federal government effort to reconstruct Louisiana and Mississippi and other areas affected by the devastation of Hurricane Katrina, fiscal conservatives are already murmuring. But little stands in the way of this vast projected increase in government spending.

As my colleague Mark Brady has asked: "Did You Really Expect Anything Else?"

A Bush critic such as Paul Krugman is busy objecting to a Heritage Foundation-inspired plan that would include "waivers on environmental rules, the elimination of capital gains taxes and the private ownership of public school buildings in the disaster areas." But he also believes that "even conservatives" must recognize that "recovery will require a lot of federal spending." Since this will have an appreciable effect on the deficit, Krugman wonders "how ... discretionary government spending [can] take place on that scale without creating equally large-scale corruption." Given the Bush administration's penchant for awarding so much pork to favored corporations in places like Iraq, Krugman is understandably concerned about "cronyism and corruption."

This, says Krugman, is in marked contrast to the efforts of Franklin Delano Roosevelt, whose "New Deal" provided "a huge expansion of federal spending" without corruption or cronyism. The New Deal, says Krugman, "made almost a fetish out of policing its own programs against potential corruption. In particular, F.D.R. created a powerful 'division of progress investigation' to look into complaints of malfeasance in the W.P.A. That division proved so effective that a later Congressional investigation couldn't find a single serious irregularity it had missed." For Krugman, FDR was committed to "honest government," because he understood that "government activism works. But George W. Bush isn't F.D.R. Indeed, in crucial respects he's the anti-F.D.R."

Is Krugman kidding me?

Throughout his presidency, Bush has looked to such American Presidents as Woodrow Wilson and FDR for inspiration. Bush believes that FDR himself "gave his soul for the process" of taking America out of the Depression and into a world war against authoritarianism.

As for the New Deal: There are no "honest government" spending programs that don't involve some kind of structurally constituted cronyism and corruption. That's just the nature of the beast. And FDR's New Deal is no exception. It was, in many ways, a paradigmatic case, no different from the "war collectivism" policies of World War I or World War II, all of which entailed using the vastly expanding power of government to privilege certain groups at the expense of other groups. Not even Herbert Hoover's response to the government-engendered Great Depression was "laissez faire" (see Rothbard's "Herbert Hoover and the Myth of Laissez-Faire" in A New History of Leviathan, and, of course, his fine book on the subject).

A cursory look at Jim Powell's recent book, FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression reveals "why so much New Deal relief and public works money [was] channeled away from the poorest people." From its inception, the New Deal was inspired by the corporatist model of Italian fascism. Even Krugman's beloved Works Progress Adminstration was constructed on the basis of patronage schemes. Citing economic historian Gavin Wright, Powell tells us that "a statistical analysis of New Deal spending purportedly aimed at helping the poor" gives us evidence that "80 percent of the state-by-state variation in per person New Deal spending could be explained by political factors."

Mainstream politics offers no genuine opposition to FDR's Old "New Deal" or Bush's New "Old Deal," not when "conservatives" and "liberals" are united in their support for massive government intervention.

Comments welcome. Cross-posted to L&P and Mises Economics Blog.

December 21, 2004

Social Security Links

I recommended to Arthur Silber (Eureka!) a host of links on Social Security reform, posted by Ari Armstrong at Colorado Freedom Report. It's good reading.

November 23, 2004

PBS and Wal-Mart

I comment on Keith Halderman's L&P post, "End Taxpayer Support of PBS Propaganda," with a question of my own: "End Taxpayer Support of ... Walmart?"