At a meeting of corporate counsel I spoke with Kenneth Starr, a former federal appeals court judge and Solicitor General of the United States. Judge Starr opined that recent Supreme Court rulings demonstrated a tilt toward the conservative wing of the Court. On the other hand, I argued that the Supreme Court was really split between statist versus libertarian philosophies. Statism is the theory that political and economic planning power should be concentrated in the state, in effect weakening the individual or the community. Libertarians hold the opposite view: we should maximize individual rights and minimize the power of the state. Further, they decry Supreme Court decisions that have focused on maximizing the power of the state at the expense of the individual and the community. After pausing for a moment, Judge Starr agreed that statism versus libertarianism may be a better way to frame the debate occurring in the US Supreme Court.
2012 is an election year. Republicans and Democrats seem to be drawing battle lines, but in fact little difference exists between the two parties. Both espouse statist solutions to America’s economic woes. The Republicans would utilize the state to enforce a conservative social agenda (pro-life, marital fidelity, “family values”) and channel money to the defense complex. Democrats would utilize the state to enforce a seemingly different agenda: pro-choice, mandatory medical insurance, social equality and a secure network of social services (unemployment insurance, social security, welfare). Except for Ron Paul, who has been marginalized, no one debates the proper role of the state. All the candidates give lip service to reducing budget deficits, but little serious discussion to the proper role of the state.
The Long Emergency
Current economic policy demonstrates the state’s overbearing hand. Doug Noland, in A New Bull Market? analyzes current government economic policies. We have had four years of unprecedented economic stimulus with, among other artifices: zero interest rates, Federal Reserve asset purchases, economic stimulus, and Federal Reserve participation in worldwide liquidity operations (outright money printing). Further, these unprecedented economic interventions show no signs of abating. On the contrary, The Federal Reserve trumpets that it will keep interest rates at near zero through 2014. Further, the Fed and the Treasury have assumed the role of supporting the stock market, housing prices, Fannie Mae, Freddie Mac, private banks and virtually decreeing the current artificial 2% inflation rate. And even worse, no one in a position of policy or decision making seems self consciousness or regretful that these policies go on and on without an exit strategy.
We arrived here through past government interventions and bailouts. The history of bailouts is long and undistinguished: The Penn Central Railroad (1970); Lockheed (1971); Franklin National Bank (1974); New York City (1975); Chrysler (1980); Latin American Debt Crisis (1982); Continental Illinois National Bank (1984); Savings &Loans (1989); Mexico (1994); Russia (1998); Long Term Capital Management (1998); Airline Industry (2001); Bear Stearns (2008); Fannie Mae and Freddie Mac (2008); AIG (2008); Auto Industry (2008); Troubled Asset Relief Program – leading banks (2008); Citigroup (2008); and Bank of America (2009). See History of U.S. Gov’t Bailouts; Top 6 U.S. Government Financial Bailouts; A Brief History of Government Bailouts; Are Financial Crises Alike?; A New Bull Market?
In every bailout we pay a high price for these statist solutions to economic problems. A bailout is nothing more than a monetary transfer. Instead of bondholders or shareholders in flawed enterprises taking a loss, the US taxpayer, essentially all of us, are paying for the mistakes of others. This practice is a cowardly undermining of the essence of capitalism. In true capitalism we would punish failure and reward success. This government cowardice also distorts the legal system, as the government unilaterally claims a superior economic right over other creditors to economic relief.
Statism, Capitalism and Freedom
Ideally, capitalism and freedom are intertwined; that is, we are free to make mistakes. Yes, in this scenario our mistakes are punished in the marketplace. But the rule of law in this scenario can also proceed as intended; that is, a poorly run enterprise can go through bankruptcy and either liquidate or reorganize. If we want political freedom, we need economic freedom. It is risky and sometimes painful, but the imprudent among us need to be economically punished and the rightful parties, rather than the entire electorate, need to bear the losses.
What Questions Should We Be Asking?
The political debate should ask the hard questions:
- Why is the Federal Reserve keeping interest rates at zero until 2014 when we are supposedly in the fourth year of a recovery?
- If we are in the fourth year of a recovery why are we fiddling with the capital markets with Operation Twist and talk of QE 3?
- With unprecedented levels of fiscal and monetary stimulus, why has government intervention produced only below average and mediocre economic growth? Why is there no recovery in housing prices? Or no growth in jobs?
- Why is the Federal Reserve targeting 2% inflation when the legal mandate is no inflation?
- Why is the Federal Reserve artificially supporting the stock market?
- When will we ever return to a “normal economy” without the need for outsized deficit spending and monetary stimulus?
- Why are we privatizing profits and socializing losses?
These are but some of the important questions. The key question to ask is where did genuine capitalism go? We pride ourselves as the land of free market capitalism. Unfortunately, it has not been practiced in the United States since the 1920’s. Right now we have fascism, state socialism, crony capitalism, but certainly not the real thing. And that is scary. Someone should be asking where free market capitalism went.
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Related posts:
- Economics and the Welfare State: Oil and Water?
- Are We a Socialist Country?
- Shredding the Social Fabric
- Who Pays?
- Wildfires and the Economy
Tags: AIG, bailouts, Bank of America, Citicorp, libertarianism, statism, TARP, The Federal Reserve
