Happy New Year--Tough Times Ahead

Happy New Year. January 2009 brings with it the landmark inauguration of Barack Obama. The GOP machine that has held the executive reins in Washington will yield to the new Democrat executive. Yet, what will change? Despite his occasional antiwar rhetoric, Obama has announced that he will retain Robert Gates as Secretary of Defense. So much for "change." Gates was slippery enough to avoid criminal liability in the Iran-Contra scandal. As deputy director of the Central Intelligence Agency, Gates was a belligerent influence, encouraging covert bombing raids against the Sandanista government in Nicaraugua. However, his refusal to cooperate with the Office of Independent Counsel eventually paid off for him--his endurance in stonewalling OIC investigators outlasted that office's political capital and Gates escaped mostly unscathed, although the scandal lost him his 1987 bid to become top spook at Langley.

Obama also promises to step up the efforts of the Bush administation in hemorrhaging dollars for the sake of some ill-conceived "stimulus" program, as if more wild spending could be used as an effective salve for the pains now felt from years of carefree government excess. Even worse than the monetary helicopter that Obama plans to deploy to bribe the electorate, leading voices in the new administration and in the Democrat-controlled Congress are calling for trillions more in direct and indirect bailouts for companies either too irresponsible or too outmoded to perform efficiently in modern markets. The penalties against companies like Ford that refuse to participate in such quasi-nationalization of industry will likely continue as well. A $1 trillion plan for expansion of public works projects, which was pushed in part by steel industry lobbyists, is in the works. Numbers in the trillions are hard to fathom, but a useful point of reference is the gross domestic product (GDP) of the United States, which is somewhere in the neighborhood of $12–14 trillion, if World Bank, CIA, and IMF figures are any indication.

More central the current economic crisis is the epidemic of bank failures. As reported by ABC News last year, the Federal Deposit Insurance Corporation (FDIC) has compiled a secret list of 117 banks that are on the brink of failure. After the twenty-five bank failures in 2008, the FDIC Deposit Insurance Fund has been drawn down to roughly $20 Billion. This means that the fund could be bankrupted by as few as two of three large bank failures. Despite the looming insolvency of the FDIC, Obama has decided to retain current FDIC chair and 2006 Bush nominee Sheila Bair, probably though the end of her original term in 2011. Bair, one might recall, took unprecedented steps to extend the liabilities of the FDIC by providing unlimited backing for some kinds of non-interest-bearing accounts and backing other kinds of debt issued by at-risk banks.

All of these decisions seem to indicate that Obama's inauguration represents not a refreshing change from the irresponsible and short-sighted policies of the Bush II years, but rather a continuation of those failed policies, compounded by wild new spending initiatives and more monetary expansion from the Federal Reserve. Instead of a sober period of fiscal belt-tightening, Obama appears to be suffering from the same Keynesian delusion as his predecessor—that the answer to irresponsible, wasteful spending is even more spending, including the creation of up to 600,000 new government jobs. The same mental malaise has also taken hold of the minds behind the Wall Street Journal, which on January 6 ran an article entitled "Hard-Hit Families Finally Start Saving, Aggravating Nation's Economic Woes." While decreased consumer spending will mean slower growth, this is a good thing where we are talking about phantom growth driven by monetary policy mania rather than solid economic fundamentals. Far from "aggravating" the crisis, responsible financial decisions—choosing to live within one's means, saving, and planning for lean times ahead—are the only way to end what will otherwise blossom into America's Second Great Depression. Sadly, Washington seems set to continue on as a fount of fiscal lunacy, and the American people will suffer because of it.

(Also published in the January issue of Dicta, Suffolk Law's newspaper)

Your Presidential Choice: Two Names for More of the Same

On Tuesday, November 4, 2008, voters across the United States will take to the polls in hopes of determining their political and economic futures. Fat chance. The two major party candidates are so close in terms of policy positions that only a two-party system could produce two "opposition" candidates so nearly identical to one another. Both Republican John McCain and Democrat Barack Obama advocate managed, rather than free, international trade, although each candidate's rhetoric is expertly designed to appeal to his respective political base. Both candidates voted to again canonize Big Brother government by reauthorizing the USA PATRIOT Act in 2006. Both accept as a given the productivity-discouraging fractional slavery of the federal income tax. As best-selling author and historian Tom Woods snidely remarked in a speech on September 5,

On taxes, the Democrat favors a top income tax rate of 39.5 per cent and the Republican favors a top rate of 35 per cent. Well ain't democracy grand? We get to debate a whole four and a half percentage points. We'd better spread this system around the world!

And indeed, both candidates seem poised to continue spreading away, with each man supporting the expansion of the United States' global hegemony, already enforced by the troops manning the more than 800 U.S. military installations in 140+ countries around the world. The differences between Obama and McCain on foreign policy are nuanced and unsatisfying, especially to the radical anti-war activists that have worked for many long years to bring American service members home to their families and productive domestic lives. Both candidates advocate increasing troop deployments, although Obama's military adventurist aspirations would in part serve to satisfy the pop-interventionists who have been lusting for American involvement in Sudan and would in part show that Obama is a tough guy who can really get the arch-terrorists along the Afghanistan-Pakistan border. McCain's hawkishness, on the other hand, alternates between chest-pounding and talk of saving face by "winning," as measured by some undefined standard that, in its vagueness, may as well be synonymous with "make war for as long as possible wherever possible."

Of course, "as long as possible" just may be growing shorter, since the Federal Reserve's enaction of Ben Bernanke's brand of Friedmanite monetarism—mistakenly labeled "free market"—is likely to prolong the current recession by both preventing the full correction needed to adjust for the misallocations of the boom period and by compounding these misjudgments by luring entrepreneurs and consumers alike into even further debt. The plutocrats like United States Treasury Secretary Henry Paulson and his former financial market colleagues, along with activist central bankers, led by Chicago School true-believer Fed Chairman Ben Bernanke, are now in a position to really distort markets, thanks to the extensive new powers granted by the pork-induced congressional "bailout," a clear capitulation to the executive branch's whims.

With the current hyper-interventionist Bush regime often being incorrectly described as laissez-faire, one cannot help but be reminded of the popular but incorrect account of the Great Depression and the Hoover-Roosevelt regime change. The story goes that speculators ran amuck in a too-free market under a free-wheeling do-nothing Herbert Hoover. Then along came Franklin Delano Roosevelt, armed with his New Deal, to rescue the battered proletariat from the merciless jaws of its capitalist abusers. Of course, this account is incorrect. During the 1932 campaign, FDR actually criticized the incumbent Hoover for excessive government spending. Hoover said the following about his own policies:

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action. No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times. Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom. We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction.

Rather than being a do-nothing president, Hoover was indeed an economic interventionist of the first order. Historian Joseph Stromberg argues that FDR only extended and formalized the corporatist policies of Hoover.

Herbert Hoover was a major architect of peacetime corporatism. As Commerce Secretary he encouraged the cartelistic integration of trade associations with labor unions. As President, he pioneered most of the New Deal measures, which had the unexpected effect of prolonging a depression itself caused by governmental monetary policy. In the election of 1932, important business liberals shifted their support to FDR when Hoover refused to go over to a fully fascist form of corporatism. By contrast, the Roosevelt Administration pushed through the National Recovery Act, which openly sanctioned the cartelizing activities of trade associations, and the Agricultural Adjustment Act, cartelizing the farm sector. The Wagner Act of 1935 integrated labor into the nascent system.

Under the Hoover administration, the American people saw increased inheritance taxes, sales taxes, income taxes, public works spending, extensive stock market regulation, systematic immigration and labor restrictions and regulations, and unsound monetary policy. That last was made possible by the creation of the Federal Reserve in 1913. FDR's own interventions certainly extended beyond those of his predecessor, but it should be noted that on March 9, 1933, only five days after assuming office, one of FDR's first acts was to push through a sweeping "Emergency Banking Relief Act" that was largely drafted by the supposedly do-nothing Hoover administration. Austrian School economists such as Murray Rothbard have shown that the actions taken by both Hoover and Roosevelt actually deepened and extended the depression.

In keeping with the tradition of inaccurate portrayals demonstrated by the Hoover-FDR example, George W. Bush, who has presided over one of the largest, most interventionist governments in human history, is largely portrayed by both parties and by uninformed commentators as a champion of free markets. The present crisis is being blamed—mistakenly—on "market failure," when nothing could be further from the truth. The current financial crisis is only the natural result of the meddlesome policies of the federal government, combined with the incentivized responses of market actors reponding to manipulations of money and credit. One wonders if those objecting to the operation of economic law would be equally vehement in denouncing physics for interrupting one's upward travel by operation of that pesky law of gravity.

With "freedom" like what we've seen over the past eight years, it is no wonder that many people are seeking an alternative. Unfortunately, the American people are faced with the disconcerting certainty that the next president will preside over an America that is less free, less prosperous, and more inhibited by government intervention in the marketplace than any time since the New Deal. It isn't clear that democratic action can or will prevent the desperate actions of lawmakers who are willing to break any oath in order to appear busy in the face of a looming catastrophe, and who are even more desperate to protect the position and influence of the plutocrats who in many cases played a major role in getting them elected. When it passed the Emergency Banking Relief Act of 1933 and the $850 billion Emergency Economic Stabilization Act of 2008, the Congress leapt before it looked. Both acts were passed by a congressional body before it could fully read and understand what it was approving. Both major party 2008 presidential contenders voted in favor of the latter legislation. Regardless of which candidate succeeds George W. Bush, Americans face the very real threat of the next top executive wielding even broader emergency powers than Lincoln, Wilson, and FDR did.

(Also published in the HTML Times, at LewRockwell.com and in the October issue of Dicta, Suffolk Law's newspaper)