Central Planning and the Erosion of Liberty

Listening to President Obama's speech last Tuesday triggered many thoughts. Perhaps the one which hit me the hardest is that he is doing exactly what he was elected to do: design and implement government programs to actively "fix" the economy. But there is a massive problem with using government to actively solve our problems. To the very extent it "solves" our problems, it robs us of our liberty.

The political thought in this country has shifted from the time of the founding. The constitution was designed to create an environment of security and freedom which would allow individuals to live their lives and pursue their chosen values with minimal government interference--that means solving their own problems. The purpose and structure of government was simply to establish objective and predictable laws to protect individuals from the violation of their rights to Life, Liberty and Property--not just by fellow citizens, but more importantly, by the government itself.

Limiting government to the setting up and enforcement of the "rules of fair play" is no longer the major focus of politics. Politicians are elected based on their promises to intervene in the private affairs of men, pitting one special interest group against another, each jostling for a piece of taxpayer money (or more accurately, future taxpayer money as we go further and further into debt.) Politicians are reelected based on their ability to deliver the goods and to solve our problems for us.

But acting to solve our problems, to "fix the economy" means increasing government control. Government control means central planning. Central planning involves preempting and crowding out individual planning. Central planning's most fundamental essence is the deprivation of individual liberty.*

Let me repeat that:

Central planning's most fundamental essence is the deprivation of individual liberty.

Central planning substitutes the priorities and decisions of private individuals with the priorities and decisions of politicians. Instead of acting as a disinterested umpire, government has become the most powerful player on the field. The most fundamental requirements of liberty--the Rule of Law and the right to private property (which includes the presence of sound money)--are being actively undermined. Interestingly, these principles are also the same ones which allow and promote a prosperous, growing economy.

Arbitrary changes in policy and procedures, such as what we have seen in the recent actions of the the US Treasury and the Federal Reserve, both violate property rights and create an atmosphere of fear and uncertainty, destroying the predictability necessary for private economic planning. Raising taxes and bailing out insolvent businesses and individuals punishes those who have been prudent and efficient users of resources and rewards those whose poor choices have led to waste and failure. Expanding the role and burden of government has been shown time and time again to hinder economic growth**, and yet this administration (and the previous one) are attempting to defy both theory and evidence.

But getting back to my original point, these actions are what the populace seems to be clambering for. Until the general public regains its understanding of the proper role of government, we will continue to have leaders who attempt the impossible.

“You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.”
---Dr. Adrian Rogers, 1931-2005

*Those who wish to place "community" ahead of the individual will often incorrectly equate liberty with license in attempt to justify the imposition of their central plans upon others. True liberty is simply freedom from the initiation of force (and of fraud, that sneaky and non-violent form of force.) Liberty is not "doing whatever you like." One man's freedom ends where another man's begins. Equality before the law is the principle which embodies this principle--and invalidates all the political claims of special interests.

**See Economic Freedom of the World, the Index of Economic Freedom , the Global Competitiveness Report, The Noblest Triumph, The Capitalist Manifesto, The Conquest of Poverty, The Improving State of the World, Ultimate Resource 2

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Actions Speak Louder than Words, Mr. President

"Not because I believe in bigger government—I don't."

President Obama, Address to Congress, Feb. 24, 2009

Watch what he does, not just listen to what he says. Can adding $800 billion worth of spending be anything else BUT Bigger Government? For more, see here.



UPDATE #1:
Encouraging news from a Rasmussen poll shows that most Americans still don't want big government--though that makes it less clear why Obama won the election when he very openly campaigned on a platform of government as the solution to the ills caused by the "free market."

UPDATE #2:
House OKs $410B spending
Moving toward socialized healthcare
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Nietzsche on The State:

"It bites with stolen teeth. "

-- Friedrich Nietzsche (1844-1900)
Source: from "Thus Spake Zarathustra"



This image nicely sums up my reaction to President Obama's speech last night (which I hope to respond to in more detail later.) I am well aware of the fact that the previous administration did it's share of biting as well. My 'beef" is not just with Democrats but with all politicians who coercively use other people's money (a.k.a. yours and mine) to gain power and prestige, and in the process undermine both individual freedom and responsibility.

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Even Putin sees Obama's Socialism

It's hard to take a break when so much is happening--especially when so much of it is destroying our freedom and our ability to improve our lives through wealth creation.

Here is an article I just learned about. It was posted February 11th and is reporting on a speech by Putin given January 28th.

Putin Warns US About Socialism

“In the 20th century, the Soviet Union made the state’s role absolute,” Putin said during a speech at the opening ceremony of the World Economic Forum in Davos, Switzerland. “In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.”*

Why has this not made more headlines?

Why does a Communist from Russia need to warn the President of the United States about the dangers of central planning?

What is going on here?

Where is the outrage?

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*Of course with Putin, it's not that straight forward. The rest of the speech is an outline of Russia's statist recommendations and activities. Still, it's interesting that the reminder of the failed Socialist experiment is coming from him.

Don't ignore the data: key requirements for growth and prosperity

This 6 minute video from the Cato institute is a brief introduction to the the key requirements for economic prosperity: property rights, rule of law and sound money. It references several important works which compare the economic laws and policies of various governments to growth and prosperity indicators. These works include Economic Freedom of the World, the Index of Economic Freedom and the Global Competitiveness Report. The current administration is instituting policies which go exactly counter to the data presented in these reports. Those who believe that enlarging government's role in the economy will reverse the recent down turn and bring us growth and prosperity need to be aware of the data which clearly counters that conclusion.

This is a dangerous time to be economically ignorant. We are loosing not only the path to prosperity, but key aspects of our freedom as well.

Mr. Madison speaks

"I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on the objects of benevolence, the money of their constituents."

-- James Madison (1751-1836), Father of the Constitution for the USA, 4th US President
Source: 1792, in disapproval of Congress appropriating $15,000 to assist some French refugees

(HT Liberty Quotes)

"If Congress can do whatever in their discretion can be done by money and promote the General Welfare, the Government is no longer a limited one, possessing enumerated powers, but an indefinite one...."
James Madison, letter to Edmund Pendleton, January 21, 1792

(HT Walter Williams homepage)



(P.S. Still regrouping.)
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The People's Stimulus

Hat tip Prof. Lydia Ortega of SJSU from Donald Boudreaux on Cafe Hayek

Won't somebody please tell the Senate!!

(Just couldn't resist this one.)

CBO: Obama Stimulus Harmful Over Long Haul

Stephen Dinan Washington Times 2-4-09

President Obama's economic recovery package will actually hurt the economy more in the long run than if he were to do nothing, the nonpartisan Congressional Budget Office said Wednesday.

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Time to Regroup

Greetings.

Looking back through my last few posts, I am not satisfied with the direction I have seemed to inadvertently taken. Too much reacting to events, and not enough reflection and analysis.

I am going to take a short break to rethink what it is I want to accomplish here.

I hope you'll check back in about a week to see what I've come up with.

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The Action Americans Need

An Editorial by Barack Obama Thursday, February 5, 2009; Washington Post
(Interspersed with comments by various authors.)

"By now, it's clear to everyone that we have inherited an economic crisis as deep and dire as any since the days of the Great Depression. Millions of jobs that Americans relied on just a year ago are gone; millions more of the nest eggs families worked so hard to build have vanished. People everywhere are worried about what tomorrow will bring."

Rather than spending money we don't have, I wish Obama would use his political capital to change the parts of our political system that are dysfunctional - our entitlement programs that are demographically bankrupt, our broken budget system, our Byzantine tax system, our financial system that is in disarray. These changes would be more likely to create the confidence and trust in the future that our economy needs to get healthy again rather than borrowing and spending. Borrowing and spending is how we got into this mess. Let's look in a different direction.

--Russell Roberts, professor of economics at George Mason University, “Stimulus just digs debt hole deeper.”

"What Americans expect from Washington is action that matches the urgency they feel in their daily lives -- action that's swift, bold and wise enough for us to climb out of this crisis"

The saying “First, do no harm” is the cardinal rule of medicine. It applies equally to economic policy. At the very time that the Senate is debating whether to spend $800 billion or $900 billion to stimulate the economy, the government is considering other legislative and regulatory initiatives that would impede economic recovery.
--Diana Furchtgott-Roth, First Do No Harm RealClearMarkets

"Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse."

American Institute for Economic Research Research Reports Vol. LXXVI, No 2 Feb. 2, 2009
"In absolute terms, 2.6 millions is indeed the biggest annual job loss since 1945...However, it's a great exaggeration to say this represents the worst annual job loss since World War II...A 2.6 million job loss represents a much smaller percentage of the work force now than it did back then...The risk is that such exaggerations will further erode the confidence of consumers, businesses, and investors, and be used to justify extraordinary policy responses to not-so-extraordinary cyclical phenomena."

"That's why I feel such a sense of urgency about the recovery plan before Congress. With it, we will create or save more than 3 million jobs over the next two years, provide immediate tax relief to 95 percent of American workers, ignite spending by businesses and consumers alike, and take steps to strengthen our country for years to come."

Borrowing to “put money in people’s pockets,” say, by tax rebates, is exactly as pointless (or inflationary) as borrowing and spending. but lowering the distortions caused by high tax rates can do a lot of good. However, to really do any good, tax rates have to be low and predictable for a long time…Even if we borrow to lower tax rates, we have to raise tax rates in the future to pay back the debt, so any borrowing-financed tax reduction can’t be permanent and thus have the desired incentive effects. the only real fiscal “stimulus” is to lower tax rates, broadening the base, while at the same time attacking the structural deficits that everyone knows otherwise mean higher tax rates in the future.
--John Cochrane, “Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?”

"This plan is more than a prescription for short-term spending -- it's a strategy for America's long-term growth and opportunity in areas such as renewable energy, health care and education. And it's a strategy that will be implemented with unprecedented transparency and accountability, so Americans know where their tax dollars are going and how they are being spent."

[A]t various times in American history, moments like this one have been used for big programs, from integrating the armed forced to creating Social Security and, later, Medicare. So it is little wonder that everyone with a big, stalled, transformative project--green energy programs, broadband networks that reach into rural America, health insurance for the newly unemployed or uninsured—is citing the precedent of Franklin D. Roosevelt, and declaring that a New deal is over due.
--David Sanger, “A Stimulus Plan with Dual Goals: Reform and Recovery” NYT 2-1-09

"In recent days, there have been misguided criticisms of this plan that echo the failed theories that helped lead us into this crisis -- the notion that tax cuts alone will solve all our problems; that we can meet our enormous tests with half-steps and piecemeal measures; that we can ignore fundamental challenges such as energy independence and the high cost of health care and still expect our economy and our country to thrive."

These ideas changed because Keynesian economics was a failure in practice, not just in theory. Keynes left Britain 30 years of miserable growth. Richard Nixon said “we’re all Keynesians now” just as Keynesian policy led to the inflation and economic dislocation of the 1970s…Keynes disdained investment, where we all now realize that saving and investment are vital to long run growth. Fiscal stimulus advocates are hanging on to ..ideas that everyone including they abandoned, and from hard experience, If we forget all that, we could repeat the economics of postwar Britain, of spend-and-inflate Latin America, and of bureaucratic India
--John Cochrane, “Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?"

"I reject these theories, and so did the American people when they went to the polls in November and voted resoundingly for change. They know that we have tried it those ways for too long. And because we have, our health-care costs still rise faster than inflation. Our dependence on foreign oil still threatens our economy and our security. Our children still study in schools that put them at a disadvantage. We've seen the tragic consequences when our bridges crumble and our levees fail."

How can anyone claim that we have tried laissez-faire and it has failed when, as pointed out by Dr. George Resiman:
1) Government spending in the United States currently equals more than forty percent of national income...
2) There are presently fifteen federal cabinet departments, nine of which exist for the very purpose of respectively interfering with...the economic freedom of the individual...
3) The economic interference of today’s cabinet departments is reinforced and amplified by more than one hundred federal agencies and commissions, the most well-known of which include, besides the IRS, the FRB and FDIC, the FBI and CIA, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA,CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA...
4) To complete this catalog of government interference and its trampling of any vestige of laissez-faire, as of the end of 2007, the last full year for which data are available, the Federal Register contained fully seventy-three thousand pages of detailed government regulations...
5) And, of course, to all of this must be added the further massive apparatus of laws, departments, agencies, and regulations at the state and local level...(emphases are mine)

"Every day, our economy gets sicker -- and the time for a remedy that puts Americans back to work, jump-starts our economy and invests in lasting growth is now."

[A]ny jobs created by government make-work programs will be slow to arrive, quick to disappear again...minimally stimulative to the broader economy as they largely substitute government-based jobs for true private-sector jobs.
--Jim DeMint, Senator, South Carolina

"Now is the time to protect health insurance ...and to computerize the health-care records of every American...Now is the time to save billions by making 2 million homes and 75 percent of federal buildings more energy-efficient, and to double our capacity to generate alternative sources of energy within three years. Now is the time to...upgrad[e] 10,000 schools with state-of-the-art classrooms, libraries and labs...and [bring] the dream of a college education within reach for millions of Americans. And now is the time to create the jobs that remake America for the 21st century by rebuilding aging roads, bridges and levees; designing a smart electrical grid; and connecting every corner of the country to the information superhighway."

The only way [the government] can pay these individuals is by taxing others who are still generating real wealth. By doing this, the government weakens the wealth-generating process and undermines prospects for economic recovery...The only way fiscal stimulus could "work" is if the flow of real savings (i.e. real funding) is large enough to support (i.e. fund) government activities while still permitting a positive rate of growth in the activities of the private sector...If, however, the flow of real savings is not large enough, then, regardless of any increase in government outlays, overall real economic activity cannot be revived...thereby retarding, not promoting, overall real economic growth.
--Frank Shostak, "Can Fiscal Stimulus Revive the U.S. Economy?"

"These are the actions Americans expect us to take without delay. They're patient enough to know that our economic recovery will be measured in years, not months. But they have no patience for the same old partisan gridlock that stands in the way of action while our economy continues to slide.

So we have a choice to make. We can once again let Washington's bad habits stand in the way of progress. Or we can pull together and say that in America, our destiny isn't written for us but by us. We can place good ideas ahead of old ideological battles, and a sense of purpose above the same narrow partisanship. We can act boldly to turn crisis into opportunity and, together, write the next great chapter in our history and meet the test of our time."

So if not a stimulus, then what?

"The first step is to stop chaotic interventions. Who would buy bank stock, lend long term, or buy securitized debt, knowing that the government might rewrite the rules at any point?" --John Cochrane, “Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?"

"Capitalism is in the end reliant on the efficient deployment of capital, and when the blunt hand of government distorts this process, the certain result is less capital for all manner of new business entrants... [W]ithout access to capital, the entrepreneur 'cannot become an entrepreneur'... In short, the answer to these difficult times isn’t more government, but instead a humble government that simply allows producers to produce"
--John Tamny, "Government Solutions are Slowing the Economy" 1-15-09, RealClearMarkets

"Rather than spending money we don't have, I wish Obama would use his political capital to change the parts of our political system that are dysfunctional--our entitlement programs that are demographically bankrupt, our broken budge system, our Byzantine tax system, our financial system that is in disarray. these changes would be more likely to create the confidence and trust that our economy needs to get healthy again rather than borrowing and spending. Borrowing and spending is how we got into this mess. Let's look in a different direction.
--Russell Roberts, "Stimulus just digs debt hole deeper" 02-02-09, Boston Globe

The ultimate solution, of course, is economic freedom: free trade and private property. Successful ventures would retain their profits as the just reward for the efficient use of resources in satisfying real market demand. Inefficient and unsuccessful businessmen would be allowed to fail, and to try again. Free men, protected by the government from fraud and the initiation of force. Free to work, save and spend according to their individual judgment and to the best of their abilities. Free to trade to mutual advantage through voluntary exchange. In other words, ...simply Capitalism.

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Notify Your Senators Today on the "Stimulus" Bill

Please contact your Senators and let him or her know what you think of the "Stimulus" package which is scheduled to come to the Senate floor this Wednesday, February 4th, 2009.

The $819 billion-dollar bill passed the House of Representatives last week with a vote of 244 to 188. Read what the Wall Street Journal has to say on a few of the specifics. Or a recent article on how Japan's "stimulus" failed. Other interesting articles can be found here, here, here, and here.

Here is my letter:

Dear Senator ________,

RE: American Recovery and Reinvestment Bill of 2009

I realize this bill was broadly supported by Democrats in the House. This bill is not broadly supported by either Democrats or Republicans in the nation. Please vote no on this "stimulus" package.

Since the summer, economists with a Keynesian perspective have gained the public ear, but other prominent economists have been expressing their doubts and objections, even several Keynesians. Empirical evidence exists which reveals that government stimuli and do not work. (See references below.)

In spite of President Obama's pledge that this bill would not contain "earmarks," it is full of funding for special interest groups and politically motivated projects. What our economy needs now is not more spending, taxes and debt, but an opportunity to build back the savings and capital that were depleted, to shift workers into industries which are in greater actual demand by consumers (instead of jobs which are politically mandated by special interest groups) and to let those business fail which have not made profitable use of scarce resources.

Throughout history, and across the nations of today, the evidence is clear: the greater the economic and political freedom, the better off are people in every economic strata.

I urge you to think carefully before committing us to such a huge amount of wasteful spending, and to courageously speak and act against burdening us with an even larger amount of public debt or taxes.

Respectfully,

Beth Haynes

Other Resources:

From economics professor Tyler Cowen:

"My point is simple: it is very hard to find examples of successful fiscal stimulus driving an economic recovery. Ever. "
http://tinyurl.com/marginalstimulus

From a research paper by Olivier Blanchard and Roberto Perotti, "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and taxes on Output"

"We find that both increases in taxes and increases in government spending have a strong negative effect on private investment spending. This effect is consistent with a neoclassical model with distortionary taxes, but more difficult to reconcile with Keynesian theory: while agnostic about the sign, Keynesian theory predicts opposite effects of tax and spending increases on private investment. This does not appear to be the case."
http://tinyurl.com/blanchardstimulus

Bartlett, Bruce “How not to stimulate the economy” Public Interest; summer 1993; 112; ABI/INFORM Global
--Shows that government stimulus packages have been uniformly passed in the U.S. after the recession had already ended.
http://tinyurl.com/bartlettstimulus

Mountford and Uhlig, “What are the Effects of Fiscal Policy shocks?”
--Tax cuts stimulate and government spending retard economic recovery.
http://tinyurl.com/mountfordstimulus

Greg Mankiw on “Spending and Tax Multipliers”
--Summarizes some key research which shows the ineffectiveness of government spending as an economic stimulus.
http://tinyurl.com/gmankiwspending

For California:

Boxer, Barbara - (D - CA) Class III
112 HART SENATE OFFICE BUILDING WASHINGTON DC 20510
(202) 224-3553
Web Form: boxer.senate.gov/contact

Feinstein, Dianne - (D - CA) Class I
331 HART SENATE OFFICE BUILDING WASHINGTON DC 20510
(202) 224-3841
Web Form: feinstein.senate.gov/public/index.cfm?FuseAction=ContactUs.EmailMe

All others:

Contact list for Senators of the 111th Congress


Cross-posted on simply Capitalism.
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What causes prosperity?

"Thinking to get at once all the gold the goose could give,
he killed it and opened it only to find - nothing."

-- Aesop (c. 550 B.C.) The Goose with the Golden Eggs


"If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of repercussions, the real income of the community, and its capital wealth, would probably become a good deal greater than it actually is."

-- John Maynard Keynes (1883-1946)
The General Theory of Employment, Interest and Money (London: Macmillan, 1936), p. 129.


"The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security is so powerful a principle that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security. "

-- Adam Smith (1723-1790)
An Inquiry into the Nature and Causes of the Wealth of Nations, 1776, par. IV.5.82


"[R]ational self-interest and the individual's freedom to act on the basis of it underlie private property and private ownership of the means of production, saving and capital accumulation, the division of labor, exchange and money, financial self-interest and the profit motive, economic inequality, economic competition and the price system--in a word, the whole range of capitalism's economic institutions.

The combined effect of these institutions is economic progress--that is, the increase in the productive power of human labor and the consequent enjoyment of rising standards of living. Economic progress is the natural accompaniment of rationality and the freedom to act on it."

--George Reisman, Capitalism: A Treatise on Economics, 1996, pg. 28


What do you think?

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Introducing: simply Capitalism

I have been honored by an invitation to participate in a new group blog on economics.Please take the time to check it out.

simply Capitalism

We are a group of bloggers brought together by a common love of business, economics, and free enterprise. Our intent with this blog is to provide a venue for discussion of these topics. We aspire to take a principled look at events of the day, and to disseminate and illustrate principles in action.

We come at these issues from a unique perspective.

First, we are not ivory-tower theoreticians, but we are intellectuals none-the-less. Collectively, we have decades of experience working in various businesses across a range of industries. We have the combined knowledge of the general principles and theories upon which our economy is based and also the day-to-day, concrete decisions, actions and effects which such a system implies.

Second, we are Objectivists which means that we think that capitalism, laissez-faire capitalism, is the only moral political and economic system. It is moral not because it is effective, although that is true, but because it is the only system that preserves individual rights, leaving man free to use his mind to advance his own life, and leaving men free to voluntarily trade with each other for mutual gain.

Today, we live in a mixed economy made up of both semi-free markets and government controls. We live in a culture that views business and businessmen as a necessary evil. While the ability of capitalism to bring general prosperity is begrudgingly acknowledged, big business and naked “greed” are routinely blamed for the country’s problems. Calls continue for more government controls and regulations to fix a "broken" system. We think this view is flawed.

When it becomes difficult to determine which effects are due to government interference and which are due to free market influences, our goal is clarity and proper identification. When we hear calls for pragmatism and “balance” in our approach, our goal is to find the principles that illuminate the proper course of action. When we see a system of political pull and coercive government replacing a system of merit, productivity and voluntary trade, our goal is to defend the individual rights that make the latter possible once again.

Our goal is … simply Capitalism.

If a detailed, factual study were made of all those instances in the history of American industry which have been used by the statists as an indictment of free enterprise and as an argument in favor of a government-controlled economy, it would be found that the actions blamed on businessmen were caused, necessitated, and made possible only by government intervention in business. The evils, popularly ascribed to big industrialists, were not the result of an unregulated industry, but of government power over industry. The villain in the picture was not the businessman, but the legislator, not free enterprise, but government controls.

“Notes on the History of American Free Enterprise,”
Capitalism: The Unknown Ideal