Monday, January 12, 2009

A Little Bit of History Repeating Itself

The past several months have seen our President, a self-proclaimed proponent of the free market, abandon what he claims to be his core principles as pertains to the economy, resulting in the enormous bailout of some of the largest financial institutions our country and the world have ever known. Indeed, these institutions control so much money, and subsequently affect so many lives, that the general consensus was that they were "too big to fail." Stuart Butler at the Heritage Foundation even argued as much that "When the basic functioning of a market is breaking down, with potentially disastrous consequences for the entire economy, there can be a case for government to act to help restore a functioning market."

The summary result of the issuance by our federal government of these Troubled Asset Relief Program funds, is that the Treasury Secretary has essentially been given carte blanche to decide what entities require TARP funds, indeed which entities are considered "too big to fail." This is how it came to pass that the General Motors and Chrysler (Ford didn't need it) were bailed out despite the fact that neither of them have made a good car for a decent price in years, and in fact
lose money on every car they make. In return for the loans doled out, the US Government received a stake in each of the companies, effectively nationalizing a portion of the auto industry.

The purpose behind the formation of the TARP program was to stabilize our economy, settle the nerves of creditors and prod them into lending again, essentially by subsidizing their over-leveraged assets. Things have calmed, but since we as a people are entirely unaware as to where any of the TARP funds have gone we can't possibly be sure if the stabilization would have happened anyway, or if the injection of government funds into the banks actually did any good.

Last week,
President-Elect Obama announced his plans for an additional $775 billion "stimulus" plan that he wants to force through Congress immediately upon taking office, despite the fact that his three four million jobs saved created discussed for the sake of political posturing can't possibly provide a payback for the money spent. Ultimately this "stimulus" would, along with the initial bailout, accomplish only a substantial transfer of power from the private sector to the federal government. In effect, we are standing at the precipice of a new economic reality wherein since the federal government finds itself a large stakeholder in its own economy, the substantive desire by the politicians in charge (whose careers are based not on money but rather on power) will be to move toward an economy of central planning.

In his monumental work The Road to Serfdom, F.A. Hayek discussed that a government embarking on central planning is a government that has no choice other than to walk the road toward autocracy, even in such cases that the government in name may remain a democracy. He points out that: is at least conceivable that under the government of a very homogenous and doctrinaire majority democratic government might be as oppressive as the worst dictatorship. Our point, however, is not that dictatorship must inevitably extirpate freedom but rather that planning leads to dictatorship because dictatorship is the most effective instrument of coercion and the enforcement of ideals and, as such, essential if central planning on a large scale is to be possible. The clash between planning and democracy arises simply from the fact that the latter is an obstacle to the suppression of freedom which the direction of economic activity requires. But in so far as democracy ceases to be a guaranty of individual freedom, it may well persist in some form under a totalitarian regime. A true "dictatorship of the proletariat," even in democratic form, if it undertook centrally to direct the economic system, would probably destroy personal freedom as completely as any autocracy has ever done.
It is important to recognize in our current state of economic affairs, the parallels to prior historical scenarios. As Rahm Emanuel famously quipped, "You never want a serious crisis to go to waste." One can only glean from his statement in the context of the generated panic of the bailout atmosphere, that he is intent on a power grab at the federal level, and a power grab that is unlikely ever to be relinquished. In that respect power, via the initial bailout, has already been usurped at the federal level. The dim light at the end of the tunnel is the hope only that once the economy is "fixed" the federal government would discontinue the program, collect on its loans and once again allow capitalism to be the engine of our economy.

What is a more grim reality, unfortunately, is that there appears at this time to be little to no opposition in our Congress to Obama's projected stimulus. There is a general fear of things to come should government not do something. Obama last week claimed that
only government could pull us from the recession. In the respect that our representatives in Congress are either too uneducated or too scared to lose their political careers by taking the right stand, we are seeing in action what Hayek referred to as essentially a breakdown in parliamentary procedure when he noted that:

There may and probably will be criticism; but as no majority can agree on an alternative plan, and the parts objected to can almost always be represented as essential parts of the whole, it will remain quite ineffective. Parliamentary discussion may be retained as a useful safety valve and even more as a convenient medium through which the official answers to complaints are disseminated. It may even prevent some flagrant abuses and successfully insist on particular shortcomings being remedied. But is cannot direct. It will at best be reduced to choosing the persons who are to have practically absolute power.
Assuming you've been paying attention, have we not already placed such practically absolute power in the hands of the Secretary of the Treasury and the President?

Should we continue down this road of bailouts and stimulus packages federal power grabs how long will it be before, as Elie Halevy stated in "Socialism and the Problem of Democratic Parliamentarianism," in reference to pre-Hitler Germany's economic woes that "We are living in economic chaos and cannot get out of it except under some kind of dictatorial leadership?" As was evident to Hayek in remarking on the situation, "Hitler did not have to destroy democracy; he merely took advantage of the decay of democracy and at the critical moment obtained the support of many to whom, though they detested Hitler, he yet seemed the only man strong enough to get things done."

I can envision some readers misinterpreting my meaning here as that of comparing Obama to Hitler. I assure you this is not the case. I mean herein merely to bring about criticism of the bailout packages and the apparently soon to pass "stimulus" package, and hopefully a criticism that will travel to our representatives in Congress. We do not necessarily need to ever see a Hitler-like dictator in charge of our country for the economic fear to take hold so deeply that we find ourselves in the grasp of an autocracy. As Hayek put it, when attempting the avenue of central planning under democratic conditions:

The whole system will tend toward that plebiscitarian dictatorship in which the head of the government is from time to time confirmed in his position by popular vote, but where he has all the powers at his command to make certain that the vote will go in the direction he desires.

I believe you'll pardon me if that description conjurs thoughts in my mind of Putin's Russia.

We find ourselves standing on a slippery slope.

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