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Archive for Sunday, October 5, 2008

Delusions feed government excess

October 5, 2008

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That crafty rascal Lenin was right when he said that the best way to destroy capitalism was to debauch the currency - in other words, to increase the supply of money, to make it worth less. This is the classic way that governments try to weasel out of their debts. It's also, as Lenin said, an insidious way of confiscating the wealth of their citizens. Their cost of living goes up and the value of their assets goes down.

Debauching the currency is, in effect, what the Federal Reserve has been doing in recent years. Some say that the price of oil and other commodities has gone up because of increased demand from China and India. But a more convincing explanation is that the Federal Reserve's policy has reduced the value of the dollar. Monetary policy may be difficult to understand. But no one has trouble understanding a $3 loaf of bread or a $4 gallon of gas.

Loose monetary policy is also the most interesting explanation of our current financial crisis. The Fed kept interest rates too low and flooded the economy with dollars. Cheap money enabled financial institutions to take foolhardy risks. Other explanations for the crisis include greed, the growing disparity between rich and poor, the corruption of credit rating institutions and wanton deregulation.

Investors were intoxicated by the delusion that "this time is different" and that stuff can only go up, a feature of all bubbles. Good regulations were relaxed. Flawed regulations were enforced. Mortgage loans were cut up, repackaged as securities, and somehow peddled on the illusion that the new fabric was worth more than the sum of its parts. It was all abracadabra, smoke-and-mirrors type stuff. A web of financial gimmicks that can't be valued or even understood was spun.

But government remains the chief culprit. Its low interest rate, easy money policy fed the housing bubble, creating a "subsidy for debt." Government-sponsored enterprises, Fannie Mae and Freddie Mac, created a huge market for unsound loans. It didn't matter, because their junk was implicitly backed by Uncle Sam. These mongrel institutions exemplify the kind of mischief that results when government meddles in the economy. Fannie and Freddie did little to promote "affordable housing." They were notoriously generous contributors to politicians.

Some practitioners of intellectual voodoo blame all our problems on the demon, "Bush." Put a Democrat in the White House and all will be well. But the next president won't be able to lead us out of this wilderness. Congress itself is dysfunctional. It has lower ratings than Bush. It has inoculated itself against reform. The primary activity of its members is to secure re-election.

The bureaucratic maze that oversees our sprawling government's commitments is inefficient and self-serving by nature. The government's own budget office estimates that 40 percent of the money it spends is wasted. Yet many are eager to give government more power over their lives.

The most illuminating comment I've read on the subject comes from French economist Frederic Bastiat, who wrote that government is "the fictitious entity by which everyone seeks to live at the expense of everyone else." This endearing insight implicates all of us, from exploiters of welfare to CEOs who beg for protection from competition. Everyone wants the government to bail them out.

Lenin would say that capitalism and the free market have failed. But we don't have a free market. The market is a maze of government subsidies, loopholes, rewards and penalties. The government's hand is everywhere, picking favorites, buying votes. Its 67,000-page tax code is a testimony to dishonesty and confusion.

Of course, ultimately "the government" is us. It's our money that gets wasted when government fails to watch its nickels and dimes. And a loss of integrity has infected us too. You can see it in our delusions: that we can spend more than we make, that medicine can rescue us when we abuse our health, that we don't have to save for retirement, that we can let our children raise themselves, that they can get an education just by acquiring self-esteem. Yes, we need change. We need to change ourselves.

But it has to start with government. I would vote for the presidential candidate who acknowledged that the government has some responsibility for the mess we're in. I'd like to hear Congress promise, "No more earmarks. No more Fannie Maes." You can't restore faith in government until government commits itself to change. So far all we've seen is a parade of congressmen congratulating themselves on the courageous work they've done.

We can take some comfort in the fact that economic disasters are cyclical. Affluence leads to excess and an eventual crash. The Depression was a great teacher. It taught our parents the virtues of taking responsibility for themselves and living within their means. In adversity, we may re-learn some of their virtues, thus disproving the adage that there's no lesson in the second kick of a mule.

The alternative is to entrust our destinies to politicians and bureaucrats. Down the path of higher taxes and a lower standard of living we will go. Keep your hand on your wallet, folks. The government is coming and it wants to help.

- George Gurley, a resident of rural Baldwin City, writes a regular column for the Journal-World.

Comments

imastinker 5 years, 6 months ago

George Gurley for President!!

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Godot 5 years, 6 months ago

Fantastic. Thank you, JW, for giving George Gurley a venue. And, thank you, George, for being a voice of reason in a den of insanity.

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jmadison 5 years, 6 months ago

Its too bad a guy with this common sense does not write on a daily basis for the Journal World.

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