Liberty Defined: 50 Essential Issues That Affect Our Freedom (21 page)

But something did change with the publication of
The General Theory
. Keynes gave the governments of the world a seemingly scientific rationale for doing what governments wanted to do anyway. Government intervention gained further acceptance as the world’s official economic theory—except for the more radical interventionists who advocated outright socialism, communism, or fascism. Inflation, price controls, and government controls have actually been known for literally thousands of years.

Mises’s explanation for Keynes’s notoriety was that those who already practiced interventionist economics believed that Keynes provided them with a “scientific” explanation for doing the things that they were already doing.

Our economic and political leaders were anxious to remove the restraints on government growth that free markets and the gold standard had placed on them. Having “scientific” justification for their plan to have government manage all parts of the economy emboldened them in their efforts. The disastrous shape of the economy in the 1930s provided the fear that intimidated people into accepting the promises of the New Dealers while ignoring their loss of liberty.

FDR actually, with reverse psychology, taught Americans to fear “fear” itself and worked to generate more of it. The fact that the Austrian free market economists had already explained the boom-bust cycle and predicted the onset of the Depression meant that they had to be discredited in order to expand the age of welfarism, inflationism, and warfarism.

The sad part is that the Keynesians won the intellectual and political arguments, even though the system they devised was destined to fail and had been tried many times before.

The good news is that all the shortcomings and errors of a centrally managed economy are now becoming readily apparent, though it has taken a remarkably painful correction for them to do so. Though Washington has yet to grasp the reality of the failure of our economic policies of the past eighty years, the American grassroots have a different opinion. Many had hoped that the failure in 1989–1990 of radical economic interventionism, as practiced by the Chinese and Soviet communists, would usher in an age of free markets and individual
liberty. It didn’t happen, and instead we got greater worldwide support for Keynesian policies that perpetuated the theory that central economic planning was necessary to sustain economic growth. Dropping the militarism of communism and National Socialism (fascism) was thought to be enough to make economic planning palatable to the people.

The failure to recognize the shortcomings of regulated trade, inflationism, and macroeconomic management, and the danger of the government being the protector of last resort for all economic activities has allowed a much larger economic bubble to develop. That worldwide bubble economy which is on its last legs must be understood in order to refute the false notions that created the bubble.

Government and private sector spending borrowed money is not a panacea as Keynesians claim. Spending money on bailouts, propping up malinvestments, borrowing, and inflating the currency cannot produce sound economic growth. Debt finally consumes the fictitious wealth built on sand that deceived the politicians, Main Street, and Wall Street into believing real economic growth was occurring. Government borrowing and spending is not the solution; it’s the problem. Producing and saving is the source of sound economic growth, a policy Keynesians readily decry.

Emphasizing spending and borrowing means that the problems relating to borrowing, inflation, and the cause of the business cycle need not be addressed. Federal Reserve Board Chairman Ben Bernanke, as all Federal Reserve Board chairmen tend to do, frequently chides the U.S. Congress for deficit spending, but at the same time Bernanke argues that deficits are justified during recessions and war, both of which are perpetual.

All this clamor and grandstanding against deficits divert the people’s attention from the question of whether the Fed has any knowledge whatsoever concerning what the proper interest rates and the money supply are supposed to be in order to generate sound economic growth. The fact is that without a Federal Reserve to accommodate deficit spending through monetary inflation, huge deficits would be virtually impossible. Though many mainstream economists now admit that interest rates were held too low for too long between 2000 and 2008, they nevertheless believed that even lower interest rates, indefinitely, is the Keynesian answer to a Keynesian-created recession.

For a while, the policy of inflating the currency during a recession can keep the bubble temporarily inflated. From 1971 to 2000 it worked at various times to some degree, but for the past ten years, spending and money creation have not reenergized a slumping economy. The idea that wealth without productive effort is possible is a Keynesian myth. It is this myth that deceives the Fed into believing it can create capital with the click of a computer and reject the notion that true capital can only come from production and savings.

This myth perpetuates the notion that a government and its citizens can live beyond their means and never be forced to live beneath their means. Depending on government stimulus programs, paid for with deficits and money creation, becomes an economic narcotic addiction. The longer the dependency lasts, the greater the dosage required to alleviate temporarily the unwelcome symptoms of the necessary correction.

Politicians are unable to tolerate any symptoms coming from stopping or even slowing the policies that require excess
spending, borrowing, and monetary inflation. The message that the markets are sending today is that the age of Keynesian central economic planning is over.

The meltdown of 2008 and its aftermath was a global event resulting from the fact that the world has accepted the dollar as the reserve standard and that all economies are linked to its value and therefore to the status of our economy; the maintaining of a global empire also amounts to a subsidy for the dollar. The failure of Keynesianism is the belief that central economic planning is workable, that spending is a panacea, that borrowing is unlimited, that deficits don’t matter, and that governments can solve all our problems. All one has to do is listen to the Paul Krugmans of the world. It’s amazing to me, but it seems he actually believes what he espouses. He has swallowed the bait hook, line, and sinker.

To reject the pie-in-the-sky promises of Keynesianism, one would have to reject the authoritarian goals of welfarism and warfarism on the cheap. But that’s too much to expect at present. It won’t occur deliberately by the Keynesians, but eventually an economic collapse will end it. Ultimately, the only alternative is to outright reject all Keynesian economic theory and replace it with the more modern understanding that the role of government should be based on honest money.

The end stages of the current monetary and economic system—based on a pure fiat dollar—that started in 1971 are growing more apparent every day. Grassroots Americans are well ahead of the political leaders in Washington. Average Americans are very much aware of how serious our problems are and literally laugh at the old clichés regarding increased
government spending, more government programs, and the importance of our representatives bringing home the pork. Something big is now ongoing in our political system.

Still, there are plenty of disagreements as to exactly what should be done. Agreeing on the solution to each problem we face is secondary to agreeing to the moral principle that defines the role of government in a free society. There remains a significant number of people in Washington whose goal it is to nationalize our whole economy. The angry Americans now gathering in larger numbers and affecting political races are certainly not crying out for socialism.

Accepting the principle of free markets, sound money, and private property and recognizing that the welfare-warfare state is incompatible with our Constitution would go a long way to solving our economic crisis. This would require debunking all Keynesian economic false assumptions and understanding how significant a role the central bank plays in facilitating the authoritarian approach of government.

The grand safety net that many believe the government can provide is a policy failure that has caused millions to believe they would be taken care of no matter the circumstances. It is now evident that all government promises are suspect, and millions of Americans realize that they better take charge of their future and not blindly depend on federal government promises.

We have for years papered over the many mistakes made by false promises and an economy manipulated by spending and artificially low interest rates. Sadly, the reality of our shrinking wealth is becoming more and more evident by the day.
Here are some of those misconceptions that are now causing a great deal of hardship to the average American citizen.

• Everyone can own their own house with the help of a subprime mortgage and assistance from a government housing program.
  
• Unemployment insurance can provide income indefinitely for those out of work.
  
• Education is free.
  
• Medical care is a right.
  
• Bank deposits are safe (but what about the value of the money?) because the FDIC and the insured loans will always be there to protect the depositors.
  
• “Capital” is unlimited because it’s provided by the Federal Reserve, and it does not require savings.
  
• Insurance—flood, mortgage, medical—can be provided by government at lower than market rates while forgetting that once the government provides this service, it’s no longer insurance but rather a welfare benefit.
  
• The GDP can be increased by government spending with borrowed or newly created money.
  
• Deficits are good—no need to worry.
  
• The Plunge Protection Team—the President’s Working Group on Financial Markets—can prevent a stock market crash. It is designed to keep Wall Street going and keep the investments going. (The President’s Working Group was established by Ronald Reagan in 1987 by executive order to stop rapid market corrections.)
  
• Government regulations make markets safe—SEC, Sarbanes-Oxley, new reforms (Dodd-Frank reform
  legislation)—even though they only add more moral hazard and increased costs with higher consumer prices.
  
• Oil well drilling and coal mining are safe because government grants licenses and leases and inspects operations while removing this responsibility from business and labor.
  
• Governments are capable of managing public land and natural resources.
  
• OSHA can provide worker safety, and EPA protects our environment with no need to be concerned about cost.
  
• Welfare programs help the poor, yet corporate welfare and foreign welfare get far greater benefits.
  
• The fact that the poor suffer first with an economic downturn, with loss of homes, jobs, and standard of living, is ignored.
  
• Social Security will always be there (until the baby boomers retire and the dollar loses its value).
  
• Taxes are okay if they are made to be “fair.”
  
• DEA, FDA, and the Consumer Protection Agency keep citizens safe.
  
• Licensing guarantees quality and protects consumers and patients.
  
• Only government can manage the highway “industry,” yet more than 3,000 individuals die every month in accidents.
  

The dedication of the Washington political class to government management is not isolated to one party alone. Most conservatives in Congress don’t think of themselves as supporters of Keynesian economics. But in truth, most are strong
advocates of a special kind of “military” Keynesianism while being critical of liberal Keynesian politics of taxing, spending, and regulating the domestic economy. This involves another kind of stimulus of spending money on the military-industrial complex rather than purely domestic sectors like schools and infrastructure.

Most conservatives, along with many liberal and moderates, support militarism and world occupation, which makes it convenient to believe that military spending is a “patriotic” jobs program. They want to protect freedom and create jobs—great politics, especially if the jobs end up in certain members’ districts.

Think of the clichés that conservatives use to push their own form of big government. They say that want to protect our oil, remake the Middle East, make the world safe for democracy, get rid of the bad guys, fight cold wars and hot wars, fight the global war on terrorism, stop radical Islam, arrest the supposed danger of North Korea, all while condemning big government. Incidentally, these programs are all about providing jobs for one’s congressional district.

I constantly heard the jobs argument to get support for military spending. Major weapons systems are built in many different states, and congressional districts garner the votes required to build even those weapons that serve no benefit to our security. Instead, military buildup contributes to our economic insecurity.

Military Keynesianism supported by both conservatives and liberals has led to an obscene amount of taxpayer dollars being spent, now surpassing the military spending of all other
nations combined. And the politicians feel good about it. They can tout their “conservativism” even while spending as never before. We face zero threat from any country invading the United States, yet we never stop the massive spending on weapons. The military culture has made us the largest arms merchant of the world, and of all history.

Having so many weapons, especially those offensive in nature, only encourages the deeply flawed and immoral policy of “preventive war,” which is really just another phrase for aggression. Since World War II, in many of the conflicts around the world, U.S. weapons have been used on both sides, and not infrequently, against us.