Liberty Defined: 50 Essential Issues That Affect Our Freedom (25 page)

The modern use of the term started in the 1960s and was applied to government economic policies. This more recent meaning dropped the emphasis on immoral or fraudulent behavior and concentrated on inadvertent economic consequences of government policies that interfered in the free market economy. The past fifty years have given us an epidemic of government intrusions in all economic decisions, and the results have been an exponential growth of consequences that represent moral hazard.

Moral hazard in economics is not too far removed from the concept of unintended consequences brought about by all government policies. Government actions, regardless of motives, are promoted with promises that the people will be insured or protected against every risk conceivable, from natural disasters, health problems, and economic needs to foreign threats. We live in an age when the majority believes the government is the ultimate protector, not only from all outside risks but also from our own unwise behavior.

The government now is expected to protect us from ourselves. This should be offensive to anyone who loves liberty. We are not expected to make any decisions for ourselves. Governments make sure everything we use or take into our bodies will be safe and beneficial. If we need an immunization, no need to think, the government will pay and
provide it for us without question. No personal responsibility is required in making the decision; no market-directed consumer groups can be expected to supersede bureaucratic decisions that involve everyone. When mistakes are made with central economic planning, the consequences are horrendous and magnified.

The moral hazard of accepting assurance from our government that we will be taken care of with only a modicum of loss of freedom is unlimited and is a significant reason why we are facing an economic and political crisis today.

Contrary to the current conventional wisdom that uses the term “moral hazard” while avoiding the implications that this process doesn’t imply immoral behavior, this book emphasizes the immorality associated with the term. Though private insurance is discussed, I’m more interested in discussing the concept of moral hazard as it relates more broadly to government policies, assurances, insurance, myths, guarantees, clichés, false notions, lies, emotional arguments, and economic planning.

Using this broad definition of moral hazard, it can apply as well to policies designed to regulate personal habits and to the fallacies associated with foreign affairs. It includes all the unintended consequences of government actions and programs.

Instead of using moral hazard as a benign, nonjudgmental economic term, I emphasize how most government action is hazardous to morality. Government assumption of illicit power starts the process and it spreads to the special interests, which use these powers to serve their own interest. Though
they may do this consciously for gain, the ultimate hazard later on cancels out the “benefits” they may have gained.

Home-building and mortgage companies benefit from easy credit in the short run and promote policies that artificially stimulate home building, but later on suffer consequences beyond their expectations. The participants are not innocent of wrongdoing. The government acts immorally by illegally assuming its powers, and the business interests yield to the offer and act immorally by participating in the political process. Those who argue that moral hazard is strictly an economic phenomenon disagree and want to characterize this participation as merely an intended consequence of no moral significance.

The new Percora Investigation, the Financial Crisis Inquiry Commission established by Congress, started public hearings in January 2010. But we cannot expect that this government inquiry will be any more helpful than the first one was in 1932, and for very similar reasons. All the members of the commission and most likely all who testify are totally oblivious to free market Austrian economics and have no understanding of how artificially low interest rates and Federal Reserve policy are the culprits. In many ways, it’s just another cover-up permitting the Fed to escape blame and gain a massive new expansion of regulatory power. The new commission will once again blame free markets, sound money, and lack of regulation for the crisis, unless the right ideas are presented and accepted.

We cannot depend on any government commission to be objective enough to sort out the issues. Their job is to defend
the need for government and ignore or downplay its errors. A solution can’t possibly be found by talking only to the people whose policies caused the disaster and who never anticipated the crisis.

The establishment economists’ first awareness came after the collapse of the financial markets; yet there were many free market economists who were well aware of the pending crisis, the financial bubble, and how it came about. If it ignores those individuals who correctly expected the bubble to burst, there is not much hope for this commission to return us to a sound economy.

Even the end beneficiaries of a government housing program of easy credit and congressional affirmative action programs are participating in the immoral process. One group steals, another becomes the “fence,” and the recipient doesn’t complain; that is, until the magic wears off, the system unravels, and only the very well-connected continue to salvage benefits in the bailouts.

Moral hazard should be considered an immoral process in today’s usage. It’s a hazard to morality to devise grandiose schemes that promise so much, and when the scheme fails or has bad consequences, they write it off as simply people who believe they are protected from risk acting in unpredictable ways. It is argued that it’s a mere consequence that we should be aware of and guard against without condemning the whole process.

Justifying moral hazard as a benign economic reaction should be seen as part of the grand scheme of central economic planning, including regulating personal habits and enforcing
foreign policy and the harm that results. The economic planners argue that the problems can be solved merely with more regulations and more promises.

Grant, James. 1994.
Money of the Mind
. New York: Farrar, Straus and Giroux.

T
he U.S. government has been operating without a moral compass for decades, and without a moral compass, the rule of law is meaningless. Neoconservatism, which follows the philosophy of Leo Strauss and Irving Kristol, along with the modern-day liberals who accept the principle of authoritarianism, provides no moral leadership. And most people in Washington, though influenced by both ideologies in various forms, may not be devout followers or even aware of their influence.

There are no neat categories in which members of Congress can be placed. The Obama administration, though continuing many of the policies of the neoconservatives of the previous administration, is not as visibly run by the neocons at the American Enterprise Institute. But it makes little difference.

The prevailing attitude in Washington has evolved because there has been no moral compass or respect for the rule of law or individual liberty. Regardless of what party is in power, social welfarism, government regulation of personal nonviolent habits, and foreign military entanglements never change,
despite the campaign promises regarding the Constitution or freedom. Policies are dictated by prevailing attitudes and influenced by the ideology of the establishment that supports unlimited government. So-called conservatives’ support for preventive wars and so-called liberals’ support for social welfare policies always prevail in the moral vacuum that exists. Everything that happens in Washington is done in defiance of the moral precepts that undermine individual liberty.

Without a moral foundation to government policies, the purpose of government no longer has any resemblance to the intent of those who settled our country and rebelled against the tyranny of King George.

The majority of Americans today expect to be taken care of by the government. They care little about where the government will get the resources to satisfy all the needs that might arise. Certainly there’s little concern expressed about the morality of a welfare state associated with massive economic intervention. Those who are on the receiving end of the government transfer system, whether it’s the wealthy, the poor, or the middle class, don’t want to be bothered with the question of whether or not the whole system is based on a moral principle. It would never occur to them that theft and violence are used to carry out these policies.

The transition away from the original notion upon which we were founded, that government was to be strictly limited to the protection of individuals from out-of-control government authoritarians, has been going on a long time. Washington responds to the noise that the voters make, and the demand for ultimate security and an economic safety net for all has overwhelmed the cries by some who ask only for their liberty.
The time when government was held in check by the limitations placed in the Constitution has long been forgotten.

The erosion started early, and it could be argued that even the Constitution itself weakened this principle that was embedded in the Articles of Confederation. In spite of the early erosion of personal liberty, it was in the twentieth century that the moral compass guarding our liberties was completely cast aside.

What moral system should government follow? The same one individuals follow. Do not steal. Do not murder. Do not bear false witness. Do not covet. Do not foster vice. If governments would merely follow the moral law that all religions recognize, we would live in a world of peace, prosperity, and freedom. The system is called classical liberalism. Liberty is not complicated.

T
he noble lie is anything but noble. The idea is mostly associated with government, for good reason. Government lies to us to manipulate public opinion to bring about certain results, like war and wealth redistribution. But because the noble lie persists and too many people over the centuries have lived by it, it has created an environment in which moral hazard thrives. Lies perpetuate themselves even though most people know two lies don’t equal the truth.

Plato may have given birth to the noble lie concept in
The Republic
in 380 BC, but it has survived the centuries. Machiavelli in
The Prince
(1513) glorified government lying and argued that it was good for both parties, the government and the people. Religious reinforcement of the noble lie has been commonly used throughout history. Plato argued that its benefits are a moral good, while in the twentieth century it has been argued that modern-day rulers have license to lie because of their natural intellectual superiority.

Present-day champions of the noble lie are the neoconservatives, and their influence is strongly bipartisan. The principle
of lying and deception for the people’s “benefit” is endorsed by each administration regardless of party. The lies are considered noble since a cohesive society is sought. Modern-day neoconservatives have been largely influenced by Leo Strauss, who studied and was influenced by Plato and especially by Machiavelli. According to the neoconservatives, lying is reserved for the nobility; it’s not for the common person who may lie on an IRS form. Lying is reserved for the powerful and those who claim they are the only ones who can take care of the ignorant and disillusioned masses.

Adolph Hitler took the concept of the noble lie into something even worse. In
Mein Kampf
, he argued that if governments made their lies “colossal,” nobody would challenge the notion that anybody could deliberately make up something so far from the truth.

Hermann Goering, second in charge to Hitler, had an even more cynical understanding of how to use lying and patriotism. Goering said from his prison cell in Nuremberg in 1946, as recorded by G. M. Gilbert in his
Nuremberg Diary
:

Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece? But, after all, it is the leaders of the country who determine the policy and it’s always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a communist dictatorship… that is easy. All you have to do is to tell them they are being attacked and denounce the pacifist for lack of patriotism and exposing the country to danger. It works the same way in any country.

Leo Strauss came to the United States in 1938 at the age of thirty-nine and built a reputation at the University of Chicago, where he influenced a lot of future advisers and appointees of the George W. Bush administration.