By Robert Schmidt
Aug. 4 (Bloomberg) -- The Federal Reserve plans to strengthen its examinations of banks’ lending practices and financial health with new teams composed of experts in everything from law to economics and markets.
Fed Governor Daniel Tarullo outlined the step in testimony to a Senate Banking Committee hearing in Washington today. The overhaul, which would make reviews more uniform across the banking system, builds on the stress tests the central bank completed on the biggest 19 banks in May, he said.
The initiative comes as criticism spreads of President Barack Obama’s proposal to give the Fed powers to oversee systemic financial risks. Treasury Secretary Timothy Geithner last week told regulatory chiefs -- including Sheila Bair, the Federal Deposit Insurance Corp. chairman who opposes making the Fed the sole systemic-risk agency -- they should stop attempts to campaign against the administration’s revamp of rules for the industry, a person familiar with the matter said.
“We are prioritizing and expanding” the examination process to “assess key operations, risks and risk management activities of large institutions,” Tarullo said in his testimony today. “This program will be distinct from the activities of on-site examination teams so as to provide an independent supervisory perspective.”
Regulatory Lapses
The Fed, like other bank agencies, has come under criticism by lawmakers and investors for not curbing excessive risk taking on Wall Street that led to the worst financial crisis since the Great Depression. Congress is weighing the administration’s proposals to toughen oversight and set new rules for banks, the biggest overhaul in decades.
Regulators have each opposed some aspect of the Obama plan. Fed Chairman Ben S. Bernanke has sought to retain authority for protecting consumers of financial products after the administration sought to create a new agency for the task.
Bair and Securities and Exchange Commission Chairman Mary Schapiro have favored a council of agencies -- rather than the Fed -- to have powers to rein in risk-taking at financial firms so large or interconnected their failure would threaten the system.
Geithner, in a July 31 meeting aimed at cracking down on dissent, used strong language with the regulatory heads, reflecting concern at the fate of the administration’s proposals, the person briefed on the matter said on condition of anonymity.
Tarullo, Bair and other regulators at today’s hearing said in response to a lawmaker’s question that they were giving their own views independent of Geithner’s direction.
Fed Staff
“The only people I discuss this with is the other members of the board and the staff of the Federal Reserve,” Tarullo said.
The Obama plan has drawn fire from both Democrats and Republicans who argue that the central bank should focus on monetary policy. They have pointed out that the Fed, as the regulator of bank holding companies, supervised some of the biggest lenders that required rescuing, including Citigroup Inc. and Bank of America Corp.
Tarullo, 56, the first Fed governor appointed by Obama, has become the central bank’s coordinator on revising the examination process. Within the Fed, he has become an advocate for increasing the board’s control over supervision.
The Senate banking panel also plans to hear testimony from Bair and other regulators about how to improve bank oversight.
‘Significant’ Deficiencies
“The crisis has revealed significant risk-management deficiencies at a wide range of financial institutions,” Tarullo said. “It has also challenged some of the assumptions and analysis on which conventional supervisory wisdom has been based.”
While not giving many details on the supervisory overhaul, Tarullo indicated that the examinations, now run largely by Fed district banks across the country, will be bolstered by the board in Washington.
He said the Fed is “creating an enhanced quantitative surveillance program that will use supervisory information, firm-specific data analysis and market-based indicators to identify developing strains and imbalances that may affect multiple institutions, as well as emerging risks to specific firms.”
“This work will be performed by a multidisciplinary group composed of our economic and market researchers, supervisors, market operations specialists and accounting and legal experts,” Tarullo said.
Losses Soared
Banks and other financial institutions have reported more than $1.5 trillion in credit losses and writedowns worldwide since the global credit crisis began. Many of those losses stemmed from mortgage-related investments that declined with the collapse in the housing market.
Tarullo didn’t discuss the outlook for the U.S. economy or monetary policy in his testimony.
He said the central bank will soon release guidance on how to “promote compensation practices that are consistent with sound risk-management principles and safe and sound banking.”
The Fed governor also said that General Electric Co. and companies that already own finance arms or industrial-loan businesses, known as ILCs, should be able to retain them without being subject to Fed oversight of manufacturing and nonbank operations. While the Fed favors not adding more ILCs, existing structures should be “grandfathered” and not forced to separate “in the interest of fairness,” he said.
GE has supported no changes to the status quo so that it can keep its manufacturing operations along with its GE Capital finance arm without having to separate under a bank holding company structure. Last week, Representative Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, supported Fairfield, Connecticut-based GE’s stance. GE has said it is in favor of systemic regulations and expects change in the rules governing its finance arm.
By Bomi Lim
Aug. 4 (Bloomberg) -- The closing of Kim Yong Gu’s fur clothing factory in North Korea may be the beginning of the end for the communist country’s only cross-border business center with the South, the last symbol of reconciliation between the former wartime foes.
As the North makes documentaries about leader Kim Jong Il following reports he has terminal cancer, businessman Kim pulled out after his managers were stranded in a government protest of military drills by the U.S. and the South. Other manufacturers may follow because of demands they quadruple factory wages and pay 31 times more for land leases, according to Lee Im Dong, who heads a group representing companies at the park in Gaeseong.
South Korean companies at the complex employ more than 40,000 North Koreans and helped increase trade between the countries to a record $1.8 billion last year from $222 million in 1998. The dispute may mark the end of the North’s experiment with a Chinese-style market economy, said Derek Scissors, a research fellow at the Heritage Foundation’s Asian Studies Center in Washington.
“This is North Korea’s way of saying, ‘We looked at the Chinese economic model, and now we’re rejecting that,’” he said. “This would be the last nail in the coffin of the direction they were going.”
China’s former leader Deng Xiaoping started opening its economy to the West in 1977 while maintaining the Communist Party’s monopoly on power. The country’s economy grew 82 times from 1978 to 2008.
Clinton Visit
Tensions between the two Koreas, which fought a civil war from 1950-53, have mounted over the North’s testing of a nuclear weapon and 18 missiles since April 5. North Korea said July 27 it may be open to new negotiations on its nuclear program if they take place outside of six-party talks involving the U.S., China, Russia, South Korea and Japan. The U.S. says any talks must involve the parties.
Former U.S. President Bill Clinton arrived in Pyongyang on a surprise visit today, North Korea’s state-run Korea Central News Agency reported, without giving a reason for the trip. Andy Laine, a spokesman for the State Department in Washington, earlier told journalists he had “no information” after reports of the visit.
Clinton may defuse tension and secure the release of two U.S. journalists imprisoned in June, said Yu Ho Yeol, a professor of North Korean studies at Korea University. Euna Lee and Laura Ling were sentenced to 12 years of “reform through labor” for charges including an illegal border crossing from China.
Sunshine Policy
South Korean President Lee Myung Bak has taken a harder line against the North since he took office in February last year. He pledged to change the so-called Sunshine Policy of the previous decade, which was intended to open up the communist country. The South’s cash support of the past administrations may have helped Kim Jong Il make nuclear arms, he said in a July 7 interview with Euronews television.
Three meetings between the two governments to resolve the June 11 demands for more money from Gaeseong companies have ended without agreement.
“The Gaeseong complex is the last symbol of reconciliation and cooperation,” said Paik Hak Soon, director of inter-Korean relations at the Seongnam, South Korea-based Sejong Institute, a research center. “Without it, we will be left with nothing but confrontation and armed conflict.”
‘Big Bucks’
Kim, 41, president of closely held Skin Net, was lured to Gaeseong by tax exemptions and labor costs less than a third of what he pays his Beijing workers. He opened his factory at the park, an hour’s drive north from Seoul across the fortified border, in September 2007.
He had an 825-square-meter (8,880-square-foot) room with 103 North Korean workers in light-blue uniforms seated in rows, some behind sewing machines, others cutting fur and fabric or ironing finished clothing.
“I thought, ‘This is where I’ll make big bucks,’” Kim said, puffing on a cigarette inside his Seoul office. To obtain a travel pass to North Korea, he took a four-hour class that included learning how to avoid offending the regime. “I thought Gaeseong was where unification will sprout,” he said.
Exports to Spain
Some of the coats, vests and scarves made in Gaeseong from imported mink, muskrat, fox and rabbit fur were exported to China and Spain, Kim said. Goods made at Gaeseong are usually labeled “Made in North Korea” and are “virtually impossible to be exported to the U.S., which levies higher tariffs on North Korean products,” the South’s Unification Ministry, which handles cross-border issues, says on its Web site.
Skin Net’s North Korean workers each earned about $65 a month, compared with $220 for his employees in Beijing, Kim said. They were paid through the government in Pyongyang, which sought to increase wages to $300 while asking companies to pay $500 million for using the land.
Kim’s two South Korean supervisors couldn’t give direct orders to workers, he said. His complaints to the North Korean middle manager that the workers were lazy and stole soap and chocolate snacks were ignored, Kim said.
After the supervisors were stuck across the border for two days in March, Kim said he feared for their safety. His concern escalated later that month after a worker with Hyundai Asan Corp. was arrested at the complex on charges including enticing a North Korean female to defect. Roh Jee Hwan, a Hyundai Asan spokesman based in Seoul, confirmed the arrest and said the firm hadn’t been allowed to see the employee since.
Production Lines Closed
“I couldn’t put up my workers’ lives as collateral to make money,” said Kim, who withdrew in June.
Some of the 109 other South Korean manufacturers operating there have closed production lines and may also leave, said Lee, the director of the Corporate Association of Gaeseong Industrial Complex. It represents most of the businesses based there and their suppliers, totaling 125 companies. A shoemaker and six other operations have decided to close by the end of August, the Dong-A Ilbo newspaper reported on July 15.
Companies at the park lost a combined 31.3 billion won ($25.2 million) in the six months ended May 31, said Lee. Orders slumped more than 30 percent as buyers feared products wouldn’t be delivered on time, he said.
“Our companies are fighting just to stay afloat,” Lee said. “There is a growing likelihood that more companies will pull out.”
Demands ‘Unacceptable’
North Korea’s demands are unacceptable as they would hamper South Korean companies’ operations at the park, said Lee Jong Joo, deputy spokeswoman at the Unification Ministry.
“We remain committed to maintaining and developing the Gaeseong Industrial Complex in a stable manner,” she said.
The industrial park was intended to help North Korea emerge from isolation while earning much-needed cash, said the Sejong Institute’s Paik. South Korean companies have produced at least $617 million of goods since Incheon-based Livingart Co. first made pots and pans at the site in December 2004.
The complex added $28 million to North Korea’s income last year, mostly in workers’ wages, according to the Unification Ministry. North Korea’s gross national income stood at 27.3 trillion won ($22.1 billion) in 2008, less than 3 percent of South Korea’s, according to the Bank of Korea in Seoul.
‘Hard Currency’
“This is probably the largest legitimate source of hard currency for North Korea, since they are banned from selling arms,” said Troy Stangarone, director of congressional affairs and trade at the Korea Economic Institute in Washington. “It will be difficult to replace that.” The United Nations Security Council toughened sanctions on North Korea on June 12, expanding an embargo to cover the trade of all arms.
South Korea suspended a tourist resort at the North’s Mount Geumgang, known as Diamond Mountain, in July last year after a tourist was shot dead by a North Korean soldier. Some 2 million people had visited since 1998.
The dispute has stoked concerns about the unpredictability of 67-year-old Kim Jong Il, who is suffering from pancreatic cancer and has less than five years to live, South Korea’s YTN television reported on July 13. He has tapped Kim Jong Un, 26, the youngest of his three known sons, as his political heir, which may spark a power struggle, a South Korean official said June 24. He declined to be identified because of the sensitivity of the issue.
“Kim Jong Il is getting fidgety as time runs out,” said Yang Moo Jin, a professor at the University of North Korean Studies in Seoul. “If the U.S. and others push him into a corner, he will only build up the nuclear arsenal.”
By Heejin Koo
Aug. 4 (Bloomberg) -- Former President Bill Clinton met in North Korea with leader Kim Jong Il during a surprise visit that may help defuse tension over the communist regime’s nuclear program and secure the release of two jailed U.S. journalists.
The White House denied a report from North Korea’s official Korean Central News Agency that Clinton delivered a message from President Barack Obama to the country’s leadership during today’s meeting in Pyongyang. “That’s not true,” White House spokesman Robert Gibbs said in Washington, referring to the report by KCNA.
Clinton was met at Pyongyang airport by Kim Kye Gwan, the country’s chief negotiator at talks to dismantle North Korea’s nuclear capability, KCNA said. The mission to secure the release of the journalists wouldn’t last long, an official traveling with Clinton’s wife, U.S. Secretary of State Hillary Clinton, said during a stopover in Spain.
The former president and the North Korean leader “had an exhaustive conversation” and a “wide-ranging exchange of views on the matters of common concern,” KCNA said without giving further details. The country’s National Defense Commission hosted Clinton at a dinner in his honor that was attended by officials including Kim Kye Gwan, the agency said.
The U.S. journalists, Euna Lee and Laura Ling, were sentenced in June to 12 years of “reform through labor” for charges including an illegal border crossing from China. The imprisonment coincided with increased tension with the U.S., with Hillary Clinton pushing through United Nations sanctions against the North following the regime’s detonation of a nuclear device in May.
‘Private Mission’
The White House spokesman earlier today declined to comment on Bill Clinton’s visit, saying in a written statement, “While this solely private mission to secure the release of two Americans is on the ground, we will have no comment. We do not want to jeopardize the success of former President Clinton’s mission.”
Photographs were later released showing Clinton and Kim standing together and smiling. Kim had a stroke in August 2008, according to U.S. and South Korean intelligence officials. He appeared at North Korea’s Supreme People’s Assembly in April limping slightly and looking gaunt and aged. He is grooming his third and youngest son, Kim Jong Un, as heir, Japanese and South Korean media have reported. The elder Kim will soon transfer power to Jong Un, a South Korean government official has said.
Yu Ho Yeol, a professor of North Korean studies at Korea University in Seoul, said the visit “will certainly serve as a turning point in the U.S.-North Korean dialogue.”
Carter Trip
“A visit by Bill Clinton is certainly a more than acceptable level for North Korean officials, and will likely achieve good results in winning the journalists’ release,” the professor said.
Clinton’s visit echoes a similar trip by former President Jimmy Carter in June 1994. Following that visit, Clinton, as president, reached an agreement with Kim to freeze the communist nation’s nuclear activities.
In 2000, Clinton met Vice Marshall Jo Myong Rok, the first encounter between a U.S. president and senior North Korean official since the end of the Korean War. Later that year he sent Madeleine Albright, then secretary of state, to Pyongyang to meet Kim, the highest-ranking U.S. government official to visit the country.
The Clinton accord, known as the “Agreed Framework,” fell through in 2002, after North Korea admitted it had secretly restarted the nuclear program. It kicked out international inspectors and conducted a first nuclear test in 2006.
‘Higher Standing’
“Clinton in some ways has a higher standing now than Carter had in 1994, since he was the U.S. president who made the most tangible progress in relations with North Korea,” said Paik Hak Soon, a researcher on North Korean issues at Sejong Institute outside Seoul.
North Korea fired more than a dozen missiles this year in defiance of international pressure. Hillary Clinton has been gathering allies for her attempts to isolate the North, winning over China to impose the UN sanctions in June.
North Korea in April said it would never return to talks involving the U.S., China, Russia, South Korea and Japan. Last week Pyongyang signaled a softening of its stance, saying it may be open to negotiations outside the six-party setting.
North Korea had asked in unofficial contacts through its UN mission in New York that Clinton or a high-ranking Obama administration official visit for negotiations, South Korea’s Yonhap News said, without citing a source for the information.
Bill Richardson
Kim’s administration also used the “New York channel” to contact former Congressman Bill Richardson for informal talks in 2003, the White House said at the time. Richardson, who was Bill Clinton’s ambassador to the UN, negotiated the freedom of a U.S. helicopter pilot shot down in 1994 and a U.S. citizen who crossed into North Korea in 1996 and was accused of spying.
The State Department won’t comment until Bill Clinton’s mission is over, said an official, who declined to be identified. He was commenting in Rota, Spain, where Hillary Clinton’s plane was refueling.
Ling and Lee were detained in March while reporting for San Francisco-based Current TV, co-founded by Clinton’s former vice president, Al Gore.
Asked about their status last month, Hillary Clinton said the two women had expressed “great remorse for this incident.”
“Everyone is very sorry that it happened,” she said. “What we hope for now is that these two young women will be granted amnesty.”
By seeking an amnesty, the U.S. appears to be conceding that the two reporters broke North Korea’s laws, Paik said.
“The visit indicates that the U.S. and North Korea are willing to resolve this matter through dialogue,” he said. “We’ll have to see if this expands to the nuclear issue.”
By Courtney Schlisserman
Aug. 4 (Bloomberg) -- The number of contracts to buy previously owned homes in the U.S. rose in June for a fifth straight month and exceeded economists’ forecasts, as lower prices and mortgage rates attracted buyers.
The 3.6 percent gain in the index of signed purchase agreements, or pending home resales, followed a 0.8 percent gain the prior month that was larger than previously estimated, the National Association of Realtors said today in Washington.
Foreclosure-driven declines in home values and tax incentives are putting houses within reach of first-time buyers, helping to stabilize the real-estate market, which has been the biggest drag on economic growth. At the same time, with mortgage rates no longer dropping and unemployment still rising, it may be months before a sustained recovery in housing takes hold.
“It’s a modest recovery, however these numbers are exceeding people’s expectations,” said David Sloan, senior economist at 4Cast Inc. in New York, one of three forecasters who shared the highest projection in a Bloomberg News survey. Nonetheless, he said, while there are “genuine signs” of recovery in housing and manufacturing, “the consumer is still the big sort of worry.”
Economists forecast the index would increase 0.7 percent, after an originally reported 0.1 percent gain in May, according to the median of 35 projections in the Bloomberg survey. Estimates ranged from a 1.2 percent drop to a 3 percent gain.
Incomes, Spending
A report from the Commerce Department today showed personal incomes tumbled 1.3 percent in June, more than forecast and the biggest drop in four years. The report showed spending rose 0.4 percent as prices climbed. Adjusted for inflation, purchases fell 0.1 percent, the report showed.
Incomes had jumped in May by the most in a year as tax cuts and the Obama administration’s stimulus package pushed the U.S. savings rate to a 15-year high.
Pending resales are considered a leading indicator because they track contract signings. NAR’s existing-home sales report tallies closings, which typically occur a month or two later. The group, whose pending data goes back to January 2001, started publishing the index in March 2005.
All four regions in the U.S. saw an increase in pending sales, today’s report showed, led by a 7.1 percent gain in the South and a 2.9 percent increase in the West.
“Activity has been consistently much stronger for lower priced homes,” NAR chief economist Lawrence Yun said in a statement, noting that first-time buyers must see their contracts close by Nov. 30 to get an $8,000 tax credit.
Affordability Index
The agents’ association said July 23 that home resales in June rose for a third straight month, supporting the case that the industry’s downturn, now in its fourth year, will end in 2009. The median price dropped 15 percent from a year earlier.
Sales of new homes soared 11 percent in June, the most since 2000, according to Commerce data released July 27.
The Realtors’ group’s affordability index, which takes into account home values, household incomes and mortgage rates, reached a record high of 178.8 in April. The index was at 159.2 in June. Readings greater than 100 indicate a family earning the median income can afford a median-priced home at current borrowing costs.
M.D.C. Holdings Inc., the Denver-based builder of Richmond America Homes, said July 31 that its orders had increased on a quarterly basis for the first time in four years.
“Building and sales activity for the industry overall improved from historic lows recorded earlier this year,” M.D.C. Chief Executive Officer Larry Mizel said in a statement.
Mortgage Rates
While mortgage rates have crept higher as the economy improves, they are still below year-earlier levels and near record lows. The average rate on a 30-year fixed mortgage was 5.25 percent in the week ended July 30, according to Freddie Mac, compared with 6.52 percent in the same week a year earlier. Rates reached an all-time low of 4.78 percent in late April.
A weak labor market is one reason economists say a rebound in housing will be slow to develop. The unemployment rate, which reached a 25-year high of 9.5 percent in June, may exceed 10 percent by early 2010, according to the median forecast of economists surveyed by Bloomberg last month.
The Labor Department is scheduled to release July payrolls data on Aug. 7.
Rising defaults and foreclosures may depress property values for months, making buying a home risky even though such purchases become more affordable and perpetuating a difficult climate for homebuilders.
Foreclosure filings reached a record 1.5 million in the first half of the year, according to data from RealtyTrac Inc., an Irvine, California-based seller of default data.
Ryland Group Inc., a California homebuilder that focuses on first-time buyers, reported a second-quarter loss on July 30 that was greater than analysts estimated. New orders fell 16 percent to 1,716 in the period, the company said.
Monday, August 3, 2009
Are We Really All Healthcare Collectivists Now?
Save us from the know-it-alls.
“We have to do something about health care.”
The scariest word in that sentence is not something. It’s we.
The first-person plural form is not merely a convenience, as in “We’re in for a cold winter.” It indicates that decisions about “the healthcare system” are to be made collectively, with one decision binding everyone.
That’s collectivism.
So why is virtually everyone a collectivist when it comes to heath care? I do not exaggerate. Every prominent participant in the current debate over how to “reform” the medical and insurance industries — regardless of party — approaches the issue in collectivist terms. They have differences at the margin — tax increases versus tax credits, a government-run “public option” versus subsidized nonprofit cooperatives — but there is no disagreement that we must have a policy.
But why must we do anything about health care? Why can’t you do what you want, I do what I want, and he and she do what they want? Isn’t that what’s supposed to happen in a free society? Reformers would say that costs are rising too much and some people can’t afford insurance. But that is no answer. It tells us only that possibly ameliorable conditions exist, not that collectivism is a good approach.
When we see problems in the other important markets, most of us don’t expect televised presidential town-hall meetings, congressional committees, and omnibus legislation to give us The One Answer. We individually adjust our behavior in the marketplace and anticipate that entrepreneurs will cater to us. Solutions are micro, marginal, and tailored to individual needs, not macro, holistic, and procrustean. Out of this arises an orderly marketplace — without a conscious overall plan. That’s why it works so well. No one has found a better way to make masses of people at all income levels better off.
Health Care Is Different?
Why is health care different? Must we collectively and consciously reinvent it? The social knowledge problem that F. A. Hayek spelled out should make us wary of any such response. All of us together acting in the market are wiser than any group of congressmen. (Did I really need to say that?)
The reformers’ stock answer is that this is something only we, working through the “democratic process,” can handle. That’s an assertion. Where’s the proof? What if earlier collectivist decisions gave us rising medical and insurance costs?
In fact they did. Nearly every aspect of medicine and health insurance that the politicians say needs fixing is the result of politicians’ previous attempts to fix something. Much of the escalation of prices comes from consumer demand that is freed from normal cost constraints thanks to third-party payers: government-privileged insurance companies, Medicare, and Medicaid. While that intervention boosts demand by eliminating cost consciousness, others constrict supply: occupational licensing, insurance mandates and barriers to entry, patents on drugs and devices, FDA regulations, certificate-of-need requirements, and more.
Making Things Worse
With each so-called reform, we (in reality, they, the politicians) made things worse. It’s time we — collectively — stopped trying to reinvent the medical and insurance industries. Instead that task should be left to us individually — acting, transacting, competing, and cooperating in the marketplace. Only then will solutions emerge from people’s — not politicians’ — choices, as entrepreneurs (neither aided nor impeded by the State) pursue profit by producing goods and services that make us better off.
Notice that entrepreneurship is missing from the public debate over medical care. Typical of the politicians’ arrogance, they can’t appreciate the role entrepreneurs— without privileges of any kind — play in bettering our lives. In a free market they look for unmet or poorly met consumer demand and devise ways to meet it. To do that job well, they need price signals that convey accurate information about consumer preferences and resources — which means prices undistorted by government policy. The successful entrepreneur’s payoff is profit, the result of transforming lower-value inputs into higher-value outputs.
Profit is the key, but “profit” is a dirty word in the current debate, one more arrow against freedom in the demagogues’ quiver. Insurance company profits are condemned not because the corporate state bulks them up through anticompetitive regulation, but rather in principle. The politicians are always ready to exploit people’s deep suspicion that profit is added to the price rather than extracted from the costs. If government interferes with profit-making, it suppresses entrepreneurship, which in turn cripples the market’s ability to serve us. To paraphrase Hayek, profit-seeking is a discovery procedure. The government condemns profit at our peril — especially in the medical industry.
Let’s hear no more about what we — collectively and coercively — must do about health care. If government would get out of the way we — individually and cooperatively — would figure out what to do. Collectivism and government planning trample freedom and foster social stupidity. Individualism and free markets respect each person’s dignity and liberty while getting the most out of the “wisdom of crowds” in the marketplace.
DECLINE AND FALL OF THE AMERICAN EMPIRE
by James Quinn
"The decline of Rome was the natural and inevitable effect of immoderate greatness.
Prosperity ripened the principle of decay; the causes of destruction multiplied
with the extent of conquest; and as soon as time or accident had removed
the artificial supports, the stupendous fabric yielded to
the pressure of its own weight."
Edward Gibbon – The Decline and Fall of the Roman Empire
After ruling much of the known world for centuries, Rome fell due to a number of factors that, historians believe, would not have been fatal in isolation, but that proved terminal in combination. Military overspending and overreach, an untenable economic system, and currency debasement all played a role. As has been well documented, the Roman emperors attempted to distract the populace from the increasingly dire reality of their situation by providing bread and circuses. But entertainments could not stop the nation-state from yielding to the pressure of its own weight.
There are numerous parallels between the end of the Roman Empire and the path the 226-year-old American republic is now on. One difference in these fast-moving times is that empires can rise more rapidly, but are also likely to decline more rapidly.
Conquest & Overreach
“The decay of trade and industry was not a cause of Rome’s fall. There was a decline in agriculture and land was withdrawn from cultivation, in some cases on a very large scale, sometimes as a direct result of barbarian invasions. However, the chief cause of the agricultural decline was high taxation on the marginal land, driving it out of cultivation. Taxation was spurred by the huge military budget and was thus ‘indirectly’ the result of the barbarian invasion.” Arthur Ferrill – The Fall of the Roman Empire: The Military Explanation
The Roman Empire’s economy was based on the plunder of conquered territories. As the empire expanded, it installed remote military garrisons to maintain control and increasingly relied on Germanic mercenaries to man those garrisons.
Ultimately, as its territorial expansion waned and began to contract, less and less booty became available to support the empire’s widespread ambitions and domestic economy. The outsourcing of the military and the cultural dilution from the bloated empire led to lethargy, complacency, and decadence amongst the formerly self-reliant and hard-working Roman citizenry.
In the modern context, as the only major power whose productive capacity was not destroyed during World War II, the American Empire emerged from the ashes of that conflict.
The parallels with Rome do not repeat, but they do rhyme.
Rather than plunder, the U.S. used its unique status to dictate terms that made the U.S. dollar the world’s de facto reserve currency and positioned its robust new manufacturing sector to supply the world with the cars, machinery, appliances, and electronics it so desperately needed. The U.S. trade surplus with the nations of the world led to escalating U.S. wealth and prosperity.
Meanwhile, the U.S. military, about which I’ll have more to say in a moment, was increasingly asked by the nation’s politicians to take on the role of the world’s policeman, leading to action in dozens of conflicts. And even where no direct military role was taken, the U.S. has shown a keen willingness to exert coercive power – including threats, sanctions, and even assassinations – if it was seen to advance American interests.
Simply, in the 20th century, the U.S. became an empire in all but name.
Bread and Circuses
“Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions — everything, now restrains itself and anxiously hopes for just two things: bread and circuses.” Roman Poet Juvenal – 77 AD
British historian Andrew J. Toynbee convincingly argues that the Roman Empire had a rotten economic system from its inception and its institutions steadily decayed over time.
The government didn’t have proper budgetary systems, and so it squandered resources maintaining the empire while producing little of value. When the spoils from conquered territories were no longer sufficient to cover its many expenses, it turned to higher taxes, in effect shifting the burden of the immense military structure onto the back of the citizenry. The higher taxes forced many small farmers to let their land go barren. To distract its citizens from the worsening conditions, Roman politicians played the populist card by providing free wheat to the poor and entertaining them with circuses, chariot races, and other entertainments.
The American Empire has reached the point where it now faces similar structural imbalances, but to pay its bills, it has largely chosen to borrow from foreign countries in recent years. And the bills are large.
The $765 billion of annual military expenditures by the United States equals the military expenditures of the rest of the world combined.
The social safety net put in place over the decades by politicians attempting to get reelected has resulted in a large number of Americans now almost totally dependent upon the almighty state for their well-being. Threatening to rip apart the country’s social fabric, the “new American” will vote for anyone who promises to sustain his dependency even as the nation increasingly struggles under the weight of $56 trillion of unfunded liabilities.
The non-farm workforce in the United States totals 133 million people. Of that number, the government directly employs 22.5 million. Millions more are employed by industries heavily dependent on government spending, such as defense, construction, and healthcare. The annual maintenance cost of the country’s safety net now costs American taxpayers hundreds of billions.
- Medicare and Medicaid annual spending $682 billion
- Social Security annual spending $612 billion
- Food stamps & other food programs $60 billion
- Federal unemployment payments $45 billion
America has evolved from a nation of savers to a nation of consumers with a throw-away mentality and driven by little more than the desire for instant gratification. Worse, large segments of our society are convinced that they are owed something. To most, civic duty has become a quaint, outmoded concept. Happy to accommodate – in exchange for a reliable vote come election time – the government keeps the public satiated and sedated by providing them with an ever-increasing list of “public services.”
Roman poet Juvenal described how the Roman citizens abdicated their duties to the state and turned to bread and circuses. The programs listed above represent just some of the bread that American citizens now feel entitled to.
Here in America, we know how to provide circuses on a grand scale. Roman citizens were satisfied with a good chariot race. In these modern times, Americans can find entertainment and distraction with 24-hour-a-day cable TV, the Internet, iPhones, iPods, Blackberries, 1.1 million retail stores, 1,100 malls, 17,000 golf courses, Britney Spears, Kim Kardashian, Housewives of Orange County, New York, Atlanta, and New Jersey, American Idol, Survivor, Rock of Love, Flip That House, 660 stations with nothing on, Las Vegas, Disney World, MLB, NFL, NBA, NHL, WWF, porn, and mega-churches all competing to fill the void in people’s lives.
There isn’t enough time in the day to take in all of the circuses, but with what little spare time we have available, we are now able to check our email anywhere on Earth and stay in constant contact with the office even in the middle of the night or, more typically these days, in the middle of dinner. And we can text and twitter our every thought to our circle of friends and followers, providing next to no lasting purpose or benefit to anyone.
Approximately 12% of the U.S. population (36 million people) is considered poor, and many of them are totally dependent upon the state. Yet that term seems out of sync with the fact that many of those individuals have cell phones ($500/yr.), cable TV ($900/yr.), Internet access ($500/yr.), cars ($5,000/yr. lease), houses ($6,000/yr.), eat fast food ($1,000/yr.), and can smoke a pack a day ($1,500/yr.).
How can this be?
For the answer, look no further than Alan Greenspan, Ben Bernanke, and the Federal Reserve, in cahoots with the financial geniuses on Wall Street, who made it standard practice to create money out of thin air and encourage anyone with a heartbeat to avail themselves of it in the form of low-cost loans – no proof of income or assets required.
The arrangement worked just fine until the banks could no longer hide the bad debt or sell it to the greater fool. Now it has collapsed onto the backs of American taxpayers.
Debasement
"The supply of foodstuffs in the cities declined. The people in the cities were forced to go back to the country and to return to agricultural life. Consequently, the emperors made laws against this movement. There were laws preventing the city dweller from moving to the country, but such laws were ineffective. As the people did not have anything to eat in the city, as they were starving, no law could keep them from leaving the city and going back into agriculture. The city dweller could no longer work in the processing industries of the cities as an artisan. And, with the loss of the markets in the cities, no one could buy anything there anymore." Ludwig von Mises – Human Action
Economist Ludwig von Mises argued that flawed economic policies played a key role in the impoverishment and decay of the Roman Empire. He contended that interventionist economic policies, including price controls that resulted in prices substantially below their free-market equilibrium levels, ultimately led to inflation.
Further, Rome was spending more than it could afford. The free food rations for the poor of Rome and Constantinople – as well as the many entertainments – were costing a fortune. The purchasing of exotic spices, silks, and other luxuries from the Orient bled Rome of its gold… gold that didn't return. Soon Rome didn't have enough gold to produce coins. And so it debased its coins with lesser metals until there was no gold left.
To cover the trillions it is spending each year propping up its empire, the U.S. government is now increasingly forced to rely on printing and borrowing the funds to do so, steadily debasing the currency in the process.
But the nation’s currency debasement is nothing new. Rather, it began in 1913 with the creation of the Federal Reserve. It accelerated when FDR confiscated all the gold in the country in the 1930s. When Richard Nixon took the U.S. off the gold standard in 1971, the show really got on the road, as that freed the Federal Reserve to print unlimited amounts of dollars. As a result, the dollar has lost 93% of its value versus gold since 1970.
The Military Complex
Lessons from ancient Rome regarding the cost of maintaining a far-flung empire have been ignored. Today, U.S. boots stomp on the ground of over 117 countries. Even the use of mercenaries, in the form of thousands of Blackwater guards and other private contractors filling roles formerly left to the military, has become commonplace.
Using military assets to pursue political goals, as is the norm in empire building, has led to unintended consequences and wasted opportunities.
One of the most egregious of those lost opportunities came following the bankruptcy and collapse of the Soviet Union. The United States had won the Cold War, but failed to recognize the cautionary signs on the path ahead.
As the only remaining superpower on earth, America fell into the same trap that has befallen previous empires. Instead of concentrating on proactively confronting domestic challenges, such as unfunded Social Security and Medicare liabilities, and developing a comprehensive energy plan to wean ourselves off Middle East oil, we continued to intervene in costly foreign adventures.
Including, among many others, supplying both Osama bin Laden and Saddam Hussein with weapons and money during their fights against our enemies, leading to unintended consequences we live with to this day.
Seeking to maintain its widespread interests and to defend itself from the many enemies created by building and protecting those interests, the American military complex has grown to the point where it now spends an amount equal to 44% of all taxes collected from its citizens.
Since 1991 alone, the U.S. has interceded in Kuwait, Somalia, Bosnia, Sudan, Afghanistan, and Iraq, among others. In no case has Congress fulfilled its obligation of declaring war. Instead, it has delegated sole responsibility for waging war to the president, weakening the structure of our three-branch government. Over that period of time, the U.S. has spent $7 trillion on defense.
The National Debt in 1991 was $3.2 trillion. Today, it is $11.6 trillion, a 360% increase in eighteen years. In 2001, spending on defense was 17% of the government budget. In 2008, defense, Homeland Security, and war spending accounted for 26% of government spending.
Collapse
Economic history books will likely mark 1980 as the year that the rapid phase of the decline of the American Empire began. That’s when the first wave of the Baby Boomer generation reached the age of 35 and turned its attention to living the American dream – on borrowed money. Since that year, household debt has surged from $1 trillion to $14 trillion, while the savings rate has plunged from 12% to below 0%.
There are many ways to use credit, some quite intelligent and practical. Rotating credit card debt to buy the latest non-necessity does not fall into that category. Today in America, there are $956 billion of credit card debt outstanding, or $9,000 per household. The average American has nine credit cards. A credit card allows every person to live above their means for awhile... just as did the home equity loans taken against artificially elevated house prices anchored on mortgages people couldn’t afford.
This is where reality and fantasy meet. People can only borrow and spend if the Federal Reserve and bankers provide the funds to do so, and without asking a lot of questions about suitability. By creating money out of thin air and handing it out to people with no legitimate means of repaying it, the financial elite and their friends in Washington have played an essential role in bringing the U.S. and even the global economy to its knees.
Yet, for all the evidence, a large swath of Americans still believes the nation hasn’t gone off course. These people consider borrowing in order to live beyond their means a rational choice. They expect the government to save them when they get into trouble and think that taxing the rich to pay for a bigger and bigger safety net is a reasonable idea.
In a truly free-market society, this sizable segment of the public would have already learned a brutal lesson they’d remember for the rest of their lives. Instead, the brutal lesson is being learned by people who played by the rules and didn’t take ridiculous risks, but who are now being coerced by the government to pay for the misdeeds of the over-indebted fools who did.
The crushing levels of debt resulting from decades of excess; the far-reaching military presence; the politically motivated social safety net and other popular but unaffordable programs have now reached the point that the economic decline of the American Empire is a foregone conclusion.
The current downturn is not going to be like previous recessions that lasted on average 16 months. Even as the government responds by trying to borrow and spend the country back to prosperity, there is no ignoring that the economic base has been gutted and the future social program liabilities have essentially bankrupted the country.
As was the case in the final stages of the Roman Empire, the unsustainable military, social, and political excesses have reached the point that, in combination, they are now likely to prove catastrophic.
A Final Thought
"For over a thousand years, Roman conquerors returning from the wars enjoyed the honor of a triumph – a tumultuous parade. In the procession came trumpeters and musicians and strange animals from the conquered territories, together with carts laden with treasure and captured armaments. The conqueror rode in a triumphal chariot, the dazed prisoners walking in chains before him. Sometimes his children, robed in white, stood with him in the chariot, or rode the trace horses. A slave stood behind the conqueror, holding a golden crown, and whispering in his ear a warning: that all glory is fleeting." George C. Scott as Patton [emphasis added]
Which begs the question, who is now standing behind the current political leadership, reminding them that their elevated positions are temporal? Unfortunately, the excesses they have created, and the dislocations caused by those excesses, will be with this country for generations.
Reprinted with the permission of Casey Research. Sign up for the free Daily Dispatch for more great insights.
Why Are We Moving Toward Socialized Medicine?
Government intervention in medicine is wrecking American health care. Nearly half of all spending on health care in America is already government spending. Yet President Obama's "reforms" will only expand that intervention.
Prior to the government’s entrance into medicine, health care was regarded as a product to be traded voluntarily on a free market--no different from food, clothing, or any other important good or service. Medical providers competed to provide the best quality services at the lowest possible prices. Virtually all Americans could afford basic health care, while those few who could not were able to rely on abundant private charity.
Had this freedom been allowed to endure, Americans’ rising productivity would have afforded them better and better health care, just as, today, we buy better and more varied food and clothing than people did a century ago. There would be no crisis of affordability, as there isn’t for food or clothing.
But by the time Medicare and Medicaid were enacted in 1965, this view of health care as an economic product--for which each individual must assume responsibility--had given way to a view of health care as a “right,” an unearned “entitlement,” to be provided at others’ expense.
This entitlement mentality fueled the rise of our current third-party-payer system, a blend of government programs, such as Medicare and Medicaid, together with government-controlled employer-based health insurance (itself spawned by perverse tax incentives during the wage and price controls of World War II).
The resulting system aimed to relieve the individual of the “burden” of paying for his own health care by coercively imposing its costs on his neighbors. Today, for every dollar’s worth of hospital care a patient consumes, that patient pays only about 3 cents out of pocket; the rest is paid by third-party coverage. And for the health care system as a whole, patients pay only about 14 percent.
Shifting the responsibility for health care costs away from the individuals who accrue them led to an explosion in spending. In a system in which someone else is footing the bill, consumers, encouraged to regard health care as a “right,” demand medical services without having to consider their real price. When, through the 1970s and 1980s, this artificially inflated consumer demand sent expenditures soaring out of control, the government cracked down by enacting further coercive measures: price controls on medical services, cuts to medical benefits, and a crushing burden of regulations on every aspect of the health care system.
As each new intervention further distorted the health care market, driving up costs and lowering quality, belligerent voices demanded still further interventions to preserve the “right” to health care: from regulations mandating various forms of insurance coverage to Bush’s massive prescription drug bill.
The solution to this ongoing crisis is to recognize that the very idea of a “right” to health care is a perversion. There can be no such thing as a “right” to products or services created by the effort of others, and this most definitely includes medical products and services. Rights, as the Founders conceived them, are not claims to economic goods, but to freedoms of action.
You are free to see a doctor and pay him for his services--no one may forcibly prevent you from doing so. But you do not have a “right” to force the doctor to treat you without charge or to force others to pay for your treatment. The rights of some cannot require the coercion and sacrifice of others.
Real and lasting solutions to our health care problems require a rejection of the entitlement mentality in favor of a proper conception of rights. This would provide the moral basis for breaking the regulatory chains stifling the medical industry; for lifting the tax and regulatory incentives fueling our dysfunctional, employer-based insurance system; for inaugurating a gradual phase-out of all government health care programs, especially Medicare and Medicaid; and for restoring a true free market in medical care.
Such sweeping reforms would unleash the power of capitalism in the medical industry. They would provide the freedom for entrepreneurs motivated by profit to compete with each other to offer the best quality medical services at the lowest prices, driving innovation and bringing affordable medical care, once again, into the reach of all Americans.
Dr. Brook is the president and executive director of the Ayn Rand Institute.
Exploiting Public Ignorance
How can political commentators, politicians and academics get away with statements like "Reagan budget deficits," "Clinton budget surplus," "Bush budget deficits" or "Obama's tax increases"? The only answer is that they, or the people who believe such statements, are ignorant, conniving or just plain stupid.
Article I, Section 7 of the U.S. Constitution reads: "All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills." A president has no power to raise or lower taxes. He can propose tax measures or veto them but since Congress can ignore presidential proposals and override a presidential veto, it has the ultimate taxing power. The same principle applies to spending. A president cannot spend a dime that Congress does not first appropriate. As such, presidents cannot be held responsible for budget deficits or surpluses. That means that credit for a budget surplus or blame for budget deficits rests on the congressional majority at the time.
Thinking about today's massive deficits, we might ask: Where in the U.S. Constitution is Congress given the authority to do anything about the economy? Between 1787 and 1930, we have had both mild and severe economic downturns that have ranged from one to seven years. During that time there was no thought that Congress should enact New Deal legislation or stimulus packages along with massive corporate handouts. It took the Herbert Hoover and Franklin Roosevelt administrations to massively intervene in the economy. As a result, they turned what might have been a two or three-year sharp downturn into a 16-year depression that ended in 1946. How they accomplished that is covered very well in a book authored by Jim Powell titled "FDR's Folly." Here's my question: Were the presidents in office and congresses assembled from 1787 to 1930 ignorant of their constitutional authority to manage and save the economy?
If you asked President Obama or a congressman to cite the specific constitutional authority for the bailouts, handouts and corporate takeover, I'd bet the rent money that they would say that their authority lies in Article I, Section 8 of the Constitution that reads: "The Congress shall have Power To lay and collect Taxes, Duties, Impost, Excises to pay the Debts and provide for the common Defense and general Welfare of the United States." They'd tell you that their authority comes from the Constitution's "general welfare" clause. James Madison, the father of our constitution, explained, "If Congress can do whatever in their discretion can be done by money, and will promote the general welfare, the government is no longer a limited one possessing enumerated powers, but an indefinite one subject to particular exceptions." He later added, "With respect to the two words 'general welfare,' I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators." Thomas Jefferson said, "Congress has not unlimited powers to provide for the general welfare, but only those specifically enumerated."
That means only those powers listed.
The Constitution provides, through Article V, a means by which the Constitution can be altered. My question to my fellow Americans whether they are liberal or conservative: Has the Constitution been amended to permit Congress to manage the economy? I'd also ask that question to members of the U.S. Supreme Court. I personally know of no such amendment. What we're witnessing today is nothing less than a massive escalation in White House and congressional thuggery. Secure in the knowledge that the American people are compliant and willing to cast off the limitations imposed on Washington by the nation's founders, future administrations are probably going to be even more emboldened than Obama and the current Congress.
Born in Philadelphia in 1936, Walter E. Williams holds a bachelor's degree in economics from California State University (1965) and a master's degree (1967) and doctorate (1972) in economics from the University of California at Los Angeles.
Disaster in the Making
After many a disappointment with someone, and especially after a disaster, we may be able to look back at numerous clues that should have warned us that the person we trusted did not deserve our trust.
When that person is the President of the United States, the potential for disaster is virtually unlimited.
Many people are rightly worried about what this administration's reckless spending will do to the economy in our time and to our children and grandchildren, to whom a staggering national debt will be passed on. But if the worst that Barack Obama does is ruin the economy, I will breathe a sigh of relief.
He is heading this country toward disaster on many fronts, including a nuclear Iran, which has every prospect of being an irretrievable disaster of almost unimaginable magnitude. We cannot put that genie back in the bottle-- and neither can generations yet unborn. They may yet curse us all for leaving them hostages to nuclear terror.
Conceivably, Israel can spare us that fate by taking out the Iranian nuclear facilities, instead of relying on Obama's ability to talk the Iranians out of going nuclear.
What the Israelis cannot spare us, however, are our own internal problems, of which the current flap over President Obama's injecting himself into a local police issue is just a small sign of a very big danger.
Nothing has torn more countries apart from inside like racial and ethnic polarization. Just this year, a decades-long civil war, filled with unspeakable atrocities, has finally ended in Sri Lanka. The painful irony is that, when the British colony of Ceylon became the independent nation of Sri Lanka in 1948, its people were considered to be a shining example for the world of good relations between a majority (the Sinhalese) and a minority (the Tamils). That all changed when politicians decided to "solve" the "problem" that the Tamil minority was much more economically successful than the Sinhalese majority. Group identity politics led to group preferences and quotas that escalated into polarization, mob violence and ultimately civil war.
Group identity politics has poisoned many other countries, including at various times Kenya, Czechoslovakia, Fiji, Guyana, Canada, Nigeria, India, and Rwanda. In some countries the polarization has gone as far as mass expulsions or civil war.
The desire of many Americans for a "post-racial" society is well-founded, though the belief that Barack Obama would move in that direction was extremely ill-advised, given the history of his actions and associations.
This is a president on a mission to remake American society in every aspect, by whatever means are necessary and available. That requires taking all kinds of decisions out of the hands of ordinary Americans and transferring them to Washington elites-- and ultimately the number one elite, Barack Obama himself.
Like so many before him who have ruined countries around the world, Obama has a greatly inflated idea of his own capabilities and the capabilities of what can be accomplished by rhetoric or even by political power. Often this has been accompanied by an ignorance of history, including the history of how many people before him have tried similar things with disastrous results.
During a recent TV interview, when President Obama was asked about the prospects of victory in Afghanistan, he replied that it would not be victory like in World War II, with "Hirohito coming down and signing a surrender to MacArthur." In reality, it was not Emperor Hirohito who surrendered on the battleship Missouri. American troops were already occupying Japan before Hirohito met General Douglas MacArthur for the first time.
This is not the first betrayal of his ignorance by Obama, nor the first overlooked by the media. Moreover, ignorance by itself is not nearly as bad as charging full steam ahead, pretending to know. Barack Obama is doing that on a lot of issues, not just history or a local police incident in Massachusetts.
While the mainstream media in America will never call him on this, these repeated demonstrations of his amateurism and immaturity will not go unnoticed by this country's enemies around the world. And it is the American people who will pay the price.
Thomas Sowell has published a large volume of writing. His dozen books, as well as numerous articles and essays, cover a wide range of topics, from classic economic theory to judicial activism, from civil rights to choosing the right college.
Saving Our Brave, New World
by Butler ShafferMy understanding of history, economics, and the laws of causation, have long led me to expect the present collapse of Western Civilization. I did not, however, anticipate the culture experiencing a free-fall into an awaiting black-hole. Like T.S. Eliot, I suspected Western society would end "not with a bang but a whimper." I envisioned a more gradual decline, one to which individuals could make the necessary adjustments in their lives that would lessen the impact and help to restore societal order.
The symptoms of our decline-and-fall are becoming increasingly evident even to those who, not so many years ago, regarded the outcome of an American Idol contest as the most pressing concern. A public-opinion-poll mentality substitutes for thinking in our modern world, creating a collective mindset that insists upon instantaneous answers to questions that few people are capable of asking. As the processes of causation play out the inexorable consequences of premises grounded in utter stupidity, a holiday for the expression of socio-economic fantasies has beset us. Hardly a week goes by without some twit – whether in or out of office – upping the ante in a bull market for runaway imbecility. Such efforts continue to produce an upswing in GDP ("Grotesquely Delusional Programs"), with politicians, academicians, and media hacks jostling one another – like San Francisco cable-car passengers – to be first aboard.
Murray Rothbard said, more than once, that there was nothing wrong about a person not fully understanding economics; but that those ignorant of economic principles ought not to be proposing governmental policies to govern economic activity. I have a hard time imagining Murray remaining calm as multitudes of men and women – with nary an understanding of economics – consult their Ouija boards for additional "solutions" to the calculated chaos generated by earlier practitioners of political mysticism.
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Unable to engage in the economic analysis that would both explain and provide a basis for resolving current crises – an approach that would call into question the entire logic of statism – the established order has been forced to seek other rationales for its authority. The New Deal gave us a proliferation of alphabetized federal agencies to do what Plato envisioned could be done, namely to plan for and direct the course of economic systems. But the study of chaos and complexity – along with the failed histories of state planning – have shown the fallacy of such thinking. As but one glaring example, ordinary people are discovering what Ron Paul and others have long observed: the vaunted, "independent" Federal Reserve system is not only incapable of regularizing the marketplace, but has been a principal agency for sowing confusion into our economic life.
The Platonic image of "philosopher kings" sitting atop pyramids of power and directing the lives of hundreds of millions of people to ill-defined ends, is increasingly questioned by those who produce the genuine order in society. Contrary to the basic tenets of all forms of statism, it is the spontaneous order generated by the individual pursuit of self-interests in a marketplace that accounts for both our liberty and material well-being. But in the marbled halls of state, as well as the sycophantic media and academic institutions that are well-paid to propagate a continuing faith in the cult of centralized power, the mantra is still heard, with only the content of the litanies modified to fit new situations. "Save the planet" now substitutes for "save democracy," but the premise of state power structures remains intact.
For a culture fast descending into history’s memory hole, and with the illusion of central planning no longer enjoying the intellectual support it once did, the established order has turned to the most desperate of measures: magical thinking enforced by undiluted, unprincipled coercion. No longer does the pretense of a scientific, rational basis for state planning prevail. Instead, resort is had to a kind of political sorcery – wrapped in the behavior-modification terminology of "stimulus." Trillions of dollars are given away to the corporate friends of those in power, and the system waits to see what happens. In what even the vice-president has termed a form of "guesswork," the state has revealed its underlying sophistry.
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In a society as thoroughly politicized as ours, the booboisie will always react with demands for the state to "do something," a mindset that gives the statists a continuing incentive to identify – or concoct, if necessary – fears that can be used to increase state power. When the civilization, itself, is in collapse, Boobus will insist that something – anything – be done, if for no other reason than to keep alive the illusion that the state is still in charge of events in the world, and can act to bring about desired results. An awareness that there is nothing the state can do to reverse the fate it has unleashed is as unavailable to most people as would be a physician’s assurances, to family members, that Uncle Willie’s terminal condition cannot be overcome with Dr. Quack’s Cancer Salve!
What else could be expected from political systems, whose only distinguishing characteristic is an enjoyment of a monopoly on the use of violence? "Reason" in the mouths of government officials, always reduces to no more than rationalizations to justify whatever it is the statists want to do. When the promised results of economic planning are not forthcoming, the troops – with their tanks, armored personnel carriers, attack helicopters, and machine guns – will be sent in to enforce the state’s will. At that point, Boobus may begin to learn what the German and Russian people learned, namely, that the alleged distinction between "law enforcement" and "national defense" has been but another deception employed to protect the establishment from its own people.
And so, we seem to have reached that stage where state violence has become its own raison d’être. Social and economic problems are no longer considered within the sphere of authority of legislative bodies; congress is too slow to act when "we need action, now!," and so the president or governor takes over and appoints – without anyone else’s approval – "czars" to rule over various realms of human activity. My thesaurus advises me that synonyms for "czar" include "despot," "tyrant," "dictator," "slave driver," "duce," "oppressor," and "Führer." One news report informs us that some thirty-two "czars" have been appointed in a number of states.
This is what we have become, a consequence that should reveal to all that scribbling words on parchment and calling them a "constitution" is ineffective to prevent any significant number of people from doing whatever they want to do. The response of some mainstream media’s "talking heads" to America’s embrace of "czars" has been not to question the statist power implications, but only to suggest calling such officials by a different name! As has become the norm in our world, if we use an alternative word to describe something (e.g., "waterboarding" instead of "torture") it becomes a different act.
With Boobus having learned his catechisms about health-care costs, and the terrible-of-terribles attending "climate change," might we expect some of these "czars" to get together and plan a solution to both? Perhaps we shall soon be informed that each person produces approximately 2.3 pounds of carbon dioxide per day, an amount that translates into 2.5 billion tons of carbon dioxide per year for all six billion humans. Perhaps people could be euthanized at age 65 – when most have become economically nonproductive, and increasingly costly drains upon Social Security and the health-care system – a result that would greatly reduce their production of carbon dioxide. While such a program would exempt the philosopher-kings from its operation, the next generation of Boobus – unfamiliar with both the philosophically-principled and spiritual nature of what it means to be human – could probably be counted upon to embrace it. After all, what denizen of our brave, new dehumanized world could resist a series of television commercials showing a polar bear on its small patch of ice?
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