We would expect the world’s stock markets to rise as liberty spreads. If men expect to be allowed to retain the fruits of their production, they ought to invest more money in the markets for ownership, which the equity markets are.
Stock markets have risen rapidly in Asian nations (not counting Japan) over the last fifteen years, matching the spread of free market ideas and practices there. So have Asia’s real estate markets. There is no question that over the last fifteen years, there has been an historically unprecedented expansion of property rights in China and India.
Discounting for price inflation, what about the U.S. stock market? If we take the Dow Jones Industrial Average as the benchmark, it was about 1,000 at its peak in early February, 1966. It is about 14,000 today. According to the Inflation Calculator of the Bureau of Labor Statistics, the dollar bought 6.5 times as much in 1966, so dividing 14 by 6.5 gives us about 2,150. So, it took 41 years for the DJIA to double in real terms. That’s about 1.9% per year. There were dividends, of course, but these were taxed as regular income. Dividends after 1982 fell to about 2% or less. If the investor was in a DJIA index fund, he paid management fees: maybe 2% per annum. (There were very few no-load index funds in 1966.) If he invested $1,000 in February, 1966, and sells for $14,000 today, he will be taxed 20% on his $13,000 increase. So, he will take away $10,400 in after-tax profits. Divide this by 6.5. We get $1,600. Over 41 years, that’s a return on investment of 1.15% per annum. In other words, the stock market investor after taxes and fees has just about nothing to show for his 41 years of doing without the use of his money.
This is not the story which the "buy and hold" cheerleaders for the American stock market tell today’s investor.
Lyndon Johnson’s Great Society gave us war, Medicare, and a vast expansion of Federal power over the economy. Economic liberty contracted. The performance of the stock market has reflected this contraction of economic liberty. There was economic growth, but it was not spectacular after 1973, when real wages grew stagnant for two decades. The stock market did not outperform general economic growth. After taxes, it did not match economic growth.
In this report, I compare the differences between 1974 and today in terms of two things: the idea of economic liberty and the institutional reality of economic liberty. If we believe that stocks do well when economic liberty increases, we had better make an estimate of the "market for liberty." In this way, we can get some idea of the case for the American stock market.
To assess the validity of my thesis that stock market performance is closely related to the market for economic liberty, let us compare the market for economic liberty in 1974 vs. today. I am saying that the stock market has performed poorly. So, I am also saying that the market for economic liberty has performed poorly. Is my conclusion correct?
Money and Government Debt Since 1974
I think back to when I began publishing Remnant Review. That was in May, 1974. It was a period of enormous confusion in international currency markets: the end of an era. It was the beginning of international currency instability. This provided the first visible warning that the Bretton Woods monetary arrangement of the post-War world was about to come apart at the seams. The funding of the American welfare State got its wake-up call in this period. That system was Keynesian to the core. Keynesian economic theory got its wake-up call in this period.
On Sunday, August 15, 1971, Nixon unilaterally revoked the convertability of the dollar into gold at $35/oz, a legal right possessed by foreign governments and central banks. This convertibility had been the central institutional guarantee of the Bretton Woods plan. "Hold dollar-denominated debt instruments instead of gold. They are as good as gold." This, in turn, had been the underlying promise of the Genoa Conference of 1922, where the world’s central banks substituted pounds sterling or dollars for gold. It was fractional reserve banking for central banks. "We’ll pay you interest; plus, you can get your gold back at any time on demand." Fractional reserve banking is built on a lie. There will eventually be a bank run in which the promising banks will suspend payment. The post-1922 system was called the gold exchange standard – a fake gold standard.
Great Britain went back to the gold standard in 1925, but at the pre-war price, as if there had been no wartime inflation. This was Churchill’s decision, as Chancellor of the Exchequer. It caused a deflation in Britain and then depression. Great Britain went off the gold standard in 1931. In short, it reneged. Fractional reserve banks always renege. The United States reneged to its people in 1933 when Roosevelt outlawed the ownership of gold bullion by Americans. That was a herald of things to come in 1971.
Officially, the dollar’s exchange rate on August 16, 1971, was allowed to float temporarily. In December, 1971, there was an attempt by the International Monetary Fund to re-fix exchange rates: a 2.25% band in which currencies were allowed to fluctuate. This policy failed. Confidence in fixed rates was gone. In February, 1973, floating rates became official policy of the IMF. In 1974, it was still illegal for Americans to own gold bullion. That would not end until January 1, 1975.
On October 17, 1973, during the Yom Kapur war (Oct. 5–26), the Arab oil states imposed an embargo on oil sales to countries supporting the State of Israel. Oil prices went from $3 a barrel to $12 by early 1974. The academic economists had no clue as to what was about to happen. Consider the 1972 prediction by M. A. Adelman, an academic economist specializing in oil, that OPEC would be unable to maintain high prices, and that the price of oil was about to enter an era of long-term price decline. (The World Petroleum Market, Johns Hopkins University Press, 1972.) This prediction matched Milton Friedman’s prediction that if the dollar were ever floated, the "system of floating exchange rates would eliminate the balance-of-payments problem. . . ." (Newsweek May 15, 1967).
I look around me today and find that the Federal government still extracts a quarter of the output of American citizens. It regulates the economy with greater intensity and zeal in many fields.
There are some exceptions. Airlines and transportation have experienced falling prices and vastly increased volume because, under Carter, there was de-regulation in these fields. Because the Federal Communications Commission does not regulate satellite radio or the Internet, there is a new world of information available to us. The U.S. Postal Service charges ever more money to mail a letter or a package, but email and on-line bill payment have dramatically cut into USPS revenues. FedEx and UPS have taken away the government’s one-time monopoly in packages. So, where the government has receded or has never run the show (Internet), productivity is up dramatically. Then there are the currency markets: floating rates. But where the government still regulates, we are in worse shape than in 1974.
The level of Federal debt relentlessly climbs upward. This fiscal year, the on-budget debt will rise by over $200 billion. The economy is still growing, so revenues have increased enough to slowly cut rate of increase, despite an Iraq war bill of $450 billion so far and seemingly endless. The off-budget debt now approaches $70 trillion. The next prescription drug bill, which Bush is expected to sign, will hike this by several trillion more. Nothing is done to deal with this statistically inevitable disaster. The public trusts the government, and says nothing. The government just keeps passing more Medicare-related legislation.
Despite Ronald Reagan, despite talk radio, and despite the Internet, the spread of government power has not been reversed. It has been challenged intellectually, which is positive, but the last major round of government-slashing came under Carter: the Civil Aeronautics Board, the Interstate Commerce Commission (which went out of operation in 1995, under Clinton), and a few other price floor agencies.
By 1974, I had been in the conservative movement for almost two decades. I came into the conservative movement in 1956. The impetus was a speech by Fred Schwarz, an Australian physician who spent his career arguing against Communism. He was a very effective speaker and teacher. His little books on Communism remain among the best introductions to the topic ever published. He aimed them at the common man, not scholars. Yet his understanding of Marxism-Leninism was equal to any scholar I ever came across in my own studies of Marxism. I came across a lot of them. I wrote my first book on this topic: Marx’s Religion of Revolution (1968).
Since 1956, I have seen a lot of conservative people and organizations come and go. I have seen some victories, though not many. I have seen many failures. But this is normal in life. Most ventures fail. Capitalism’s great benefit is that it links responsibility with outcomes. It imposes the costs of failure mainly on individual entrepreneurs, who would have benefited greatly, had the ventures succeeded. Capitalism transfers to consumers – people with money – the veto power over unsuccessful ventures.
Communism failed because of its own internal contradictions. Reagan did stand up to Gorbachev, but the reality of the USSR’s disintegration was becoming clear by the late 1980’s.
When the USSR went under in 1991, it owed the West about $60 billion, which it could not pay. Today, due to revenues from oil and natural gas, the Russian government has foreign exchange reserves of $406 billion – third behind Japan and China. That is up by $150 billion in eleven months. Eleven months!
Got that? China and Russia are second and third. The United States was over $2.5 trillion in the hole at year-end, 2006, according to the Bureau of Economic Analysis. The United States is the biggest debtor on earth. No other nation comes close. This has taken place since 1985.
Americans have experienced the expansion of debt on a scale undreamed of in human history. There is no thought given as to how these debts will be repaid by the government. Private debt ratchets upward along with private assets. Monthly debt service payments as a percentage of disposable income for the Average household in 2007 is a little above 19%. It was slightly below 16% in 1980. This figure has risen, but not spectacularly. Consumers do pay attention to their monthly income and outflow. But government debt ratchets upward.
This process is relentless. Americans get political rhetoric to the contrary, but the reality is seen in these graphs. The government is tireless in its expansion. There are a few victories, but in terms of its rate of growth vs. the private sector’s rate of growth, it’s no contest.
The War of Ideas
Here, we are way ahead of where we were in 1974. The 1970’s were still the era of Keynesian dominance. By 1980, the price inflation of the ’seventies, coupled with two major recessions (1970 and 1975), had undermined the intellectuals’ confidence in Keynesian intervention. Keynesianism was supposed to overcome recession by adopting policies of increased government spending. Government spending rose in the 1970’s, but so did unemployment and prices. This was not supposed to happen.
In 1974, Marxism was still taken seriously as an intellectual system. There was a reason for this, which had nothing to do with Marx’s economics. His economic theory had been completely refuted by Böhm-Bawerk in 1884 and again in 1897, then by Mises in 1920 and 1922. Hardly any intellectuals in 1974 (or today) knew who these critics were. Hardly any of them had read Marx’s writings. Then why the attraction? Because intellectuals usually worship power and hope to gain it. The Soviet Union had demonstrated enormous power, 1917 to 1991, so it gained respect from Western intellectuals. When the USSR went belly-up in full public view in August, 1991, this ended the cachet of Communism. The books-for-a-buck bins immediately filled up with books with titles like What Marx Really Meant. Marxist professors started getting laughed at by their colleagues on campus. They were not used to this. By 1991, China’s experiment with capitalism was producing unprecedented economic growth. Marxism as an ideology was finished, except in a few departments where tenured Marxists had gained access to fireproof pulpits.
As far as I can see, Keynesianism is on the run on campus. Its practitioners are retiring. There is no economics textbook with the influence that Samuelson’s Economics had from 1946 to 1970. The "unified field theory" that neo-Keynesians thought they had achieved in 1965 is a thing of ancient history and widespread contempt. Keynesianism is in defensive mode. The economics departments have more Chicago School people than ever before. There are also public choice theorists, who analyze the actual performance of governmental institutions in terms of Adam Smith’s observation that men seek their personal economic self-interest. This includes government employees. There are also rational expectationists, who were obscure figures in 1974. They don’t think that government intervention can make things better. These schools of opinion are far more suspicious about the effects of government intervention than Keynesians ever were.
There has been a resurgence in Austrian economics thought since 1974. Mises died in October, 1973. A month after I launched my newsletter, I attended the Austrian economics seminar held in South Royalton, Vermont. There, several dozen young scholars came to hear lectures by Israel Kirzner, Murray Rothbard, Ludwig Lachmann, and other older men in the field. A few months later, Hayek was named co-winner of the Nobel Prize in economics. That event renewed interest in Austrian economic theory. Austrian economics is still very much on the fringes of the academic economics guild, but it is more visible than it was in 1974, especially because of the Ludwig von Mises Institute.
What about book publishing? Regnery Books today produces best-sellers. In 1974, as in 1954, it was a small, struggling publisher of conservative books. Arlington House existed, but not for long. Caxton was no longer visible. Devin-Adair might as well have been gone. The only publisher that seemed to put out consistently good conservative books was Basic Books, a neoconservative operation.
The Foundation for Economic Education was barely visible in 1974. I had left FEE in early 1973, after only a year and a half on the senior staff. I saw no future there. FEE was staffed by people in their late fifties or older. It held three two-week summer seminars for about 25 high school teachers per seminar. It did not publish books, other than collections of short essays by FEE’s founder, Leonard E. Read. The cost of homes in Irvington, New York, was high. It would soon rise much higher. It was just 25 miles from New York City, on the Hudson River. No one who did not already own a house in the area would be able to buy one. There was therefore no possibility that young men would replace the old men on the staff. Read had a rule: every dime a senior staff member made outside of FEE had to be paid directly to FEE. Every lecture, every book royalty, everything: it all belonged to FEE. This meant its senior employees belonged to FEE. No one had an economic incentive to do anything new, because Read never fired anyone. Working at FEE was a retirement career. FEE had no future except as the publisher of The Freeman, which was still a good introduction to free market ideas. It had begun publication in 1956. Its subscription base was declining. It could have been published from anywhere. FEE in 1974 was basically Leonard Read’s retirement home, with a staff of 25: free housing, free lunches, free transportation, weekend trips to resort hotels around the country for the price of two 30-year-old speeches: all tax-free. I quit in 1973. Read died in 1983. Getting out at age 31 was as good a decision as I ever made.
As for popular journalism, there was National Review, founded in 1955, which had not yet gone neoconservative. There was Bob Tyrrell’s tabloid, The Alternative, published in Bloomington, Indiana. It had not yet become The American Spectator, which it did in 1977, nor had it become neoconservative. There was Human Events, another tabloid. It had been around since 1944. It was readable, but it had few readers. The only other widely read journal of popular opinion was Christian Economics, a twice-monthly tabloid which was sent to every pastor in the country for free. This policy of free subscriptions was canceled in 1974 or 1975. Its financier, Calvinist-libertarian oil billionaire J. Howard Pew, died in 1973, and the foundation he started had quietly begun its drift into liberalism. It soon pulled the plug on Christian Economics.
It was very difficult for a conservative scholar to get published, other than in Modern Age or Intercollegiate Review, which was published by the Intercollegiate Studies Institute. Neither of these publications counted for academic tenure. Maybe an article in The Public Interest would have counted, but it was neoconservative. It was limited mainly to exposing why government boondoggles – never actually called boondoggles – had failed to achieve the promises which their political sponsors had made. This fact had astounded the journal’s ex-Trotskyite founders, beginning in 1965.
There were two Beltway think tanks in 1974, both brand new. Both were geared to public policy, not theory. The Heritage Foundation had been operating for a year in 1974. It was co-founded by Paul Weyrich. Ed Fuelner did not arrive until 1977. Weyrich’s Committee for the Survival of a Free Congress began operations in 1974. There was no Cato Institute, which came in 1977.
Then there is the home school movement. It did not exist in 1974. Millions of parents have pulled their children out of the public schools. Their children are getting a better, safer education than what they themselves received in a public school in 1974.
So, compared with 1974, 2007 is Nirvana. There are many outlets for conservative and libertarian writers and talkers. There is a large market of readers. It costs almost nothing to self-publish a book through a Website or a blogsite or print-on-demand. In terms of getting our message to the general public, 2007 is better than I could have dreamed of in 1974.
The mainstream media are in defensive mode. The TV news networks lose audience share every year. The newspaper industry is literally dying. They can’t make their on-line models work, except for the Wall Street Journal. Liberalism is on the run.
In only one area are we still as bad off as we were in 1974: higher education. The same two dozen schools remain the only conservative places that are suitable for sending our kids too – all are private, all are way too expensive for the education received, and most of them compromised with humanism, because their professors have Ph.D.’s and have imbibed at least part of the training that screened them.
Families can do an end run around this, but they won’t. I explain how here: www.LowestCostColleges.com. At least 40,000 people have seen my video report. There have been no follow-throughs saying, "I have done it."
The collegiate accreditation system, which was launched by Rockefeller’s General Education Board in 1903, when coupled with the lust for exam-based certification, is the bane of the West. The West has universally adopted the medieval Chinese system of exams, which screened the Mandarin bureaucrats for a thousand years. The Jesuits imported the model from Asia during the 18th-century Enlightenment, and their students adopted it when they went secular and launched the French Revolution. The Chinese model was the basis of France’s écoles of Napoleon’s era. This was also true of the University of Berlin. Thomas Jefferson imported the Jesuit model for the tax-funded University of Virginia. It was solidified by the tax-funded land-grant college system, passed in 1862 as a Civil War measure.
The academic mandarins have successfully screened out most of those would-be academics who reject tax-funded education, the mandarin examination system, and the abandonment of the apprenticeship model. William F. Buckley half a century ago quipped, "I would rather be governed by the first 200 names in the Boston telephone directory than by the faculty of Harvard." (Spoken like a Yale man.) Conservatives say they believe this, but they would send their children to Harvard if their kids got accepted, and they had an extra $190,000 per child.
The breadth of resistance to liberalism today is very great. The main problem we face is that of the neoconservatives, who have a lot of money, plus a lot of smart, academically certified people. Their view dominates Fox News and the talk show hosts. They are committed to an aggressive American foreign policy in defense of the State of Israel. This goal resonates with millions of premillennial dispensationalists, who have votes. This has led to a true disaster in the Middle East: two wars, both of which we are losing, and the possibility of a third in Iran before January 20, 2009.
On the issue of war and peace, the fall of the USSR gave an opportunity to the West to disengage from empire. From August, 1914 until August, 1991, there had been an escalation of confrontation. The conservative movement had divided over the issue of war and peace, intervention and nonintervention (isolation) after 1945, with the dominant element becoming pro-Cold War. This, at long last, could have ended, beginning in 1992. But it didn’t. The American empire, with its 700-plus military bases in over 100 countries, was not dismantled. Then 9-11 led to the two wars.
So, on two issues – war and the New Deal’s welfare State – conservatives did not make a clean break with the liberals. But these were the two halves of the central ideological and political issues of our century: the warfare-welfare State. Here, there was almost no improvement after 1974. If you want two words to describe the victory of the statists, who are the enemy, they are these: Medicare and Pentagon.
If I were to identify the two most important political speeches of the second half of twentieth-century America, I would select these: (1) Eisenhower’s farewell address in 1961, in which he identified the military-industrial complex as the great threat; (2) Ronald Reagan’s 1964 speech in defense of Goldwater’s doomed campaign. Conservatives and liberals alike ignored Eisenhower’s warning. They did nothing to challenge the military-industrial complex. Conservatives responded to Reagan’s speech, which was magnificent rhetoric. But his vision was not implemented by Reagan in his eight years of opportunity, except in two areas: reduced marginal income tax rates – a major success in 1981 – and his refusal to back down on his threat to deploy the strategic defense initiative ("Star Wars") in 1986, a bluff that Gorbachev believed. It was a bluff. The Air Force has made sure that SDI would never be deployed, from its forgotten days as BAMBI in 1960 until today.
Politics
In 1974, there was still the nagging issue of the Vietnam War. The United States had disengaged. Saigon fell a year later. The war had been a disaster. Americans were tired of it in 1974. They were happy to be out of the front lines. Nixon had abolished the draft, so white middle class families no longer had to worry about their sons. That pulled the fuse on antiwar protest movement’s of the future.
Then there was Nixon. Die-hard Nixonians were in a fruitless defensive battle when I launched Remnant Review in May. It was all over three months later. Nixon resigned. The tapes had done him in. Nobody at the time suspected that an inside man had illegally leaked the tapes to the investigators. Even today, I am the only academically certified historian who periodically returns to this theme.
Then Ford pardoned him. His own press secretary resigned in protest – unheard of. The pardon pretty much guaranteed Ford’s loss in 1976. The recession of 1975 did guarantee it.
Nixon’s departure cleared the field for conservatives. Reagan was their first choice – in 1968, in 1976, and finally in 1980. Richard Viguerie’s mailing lists got him elected. This, too, was a sign of what new technology could do. It let outsiders play. Anyone in 1965 could have gone to the House of Representatives and written down the names and addresses of every donor to the Goldwater campaign who gave over $50. Only Viguerie did. He got about 12,000 names. That was all it took.
The reaction of the voters in the November, 1974 election was to elect a new group of Democrat Congressmen. These men set the tone for the next two decades. When Carter came in, there was a clean sweep: House, Senate, and President. Yet Carter did begin to undermine the Civil Aeronautics Board and the Interstate Commerce Commission rate-setting (price floors). Ted Kennedy backed him. Those were major institutional victories for economic liberty. But there were not many under Carter.
National politics, like economics, is all about small changes at the margin, short of an economic collapse (1932) or a major war. The price system sets the limits in economics. The Council on Foreign Relations sets the limits for American politics. People generally ignore the price system. They pay attention only to specific prices. Conservatives generally ignore the CFR. They pay attention only to specific campaigns.
A few "conspiracy theorists" mention the CFR, but when they really believe in its power, they lose interest in national politics. They know the system is rigged. Yet conservatives before 1960 had never heard of the CFR. In 1960, Dan Smoot’s paperback, The Invisible Government, appeared. It was sold only by direct mail – a million copies, he told me two decades later. The John Birch Society figured out what had been going on politically only in 1964, when Welch’s speech, More Stately Mansions, appeared in print. Few Birch members ever read it. Prior to 1964, Welch had been an anti-Communist. After 1964, he became an anti-conspiratorialist. The anti-Communism theme disappeared from the pages of American Opinion. In 1967, the JBS published a newly typeset edition of John Robison’s Proofs of a Conspiracy (1798), a book written about the Bavarian illuminati.
Those few conservatives in 1974 who had actually read the famous twenty pages of Carroll Quigley’s massive, non-footnoted Tragedy and Hope (Macmillan, 1966), knew another story: the leftist journals (e.g., New Republic) and organizations (e.g., Institute for Pacific Relations) that had infuriated conservatives for 50 years, had in fact been Morgan Bank operations from day one. The CFR was part of the Morgan-Rockefeller banking interests’ friendly rivalry, and it had been since its formation in 1921. As a result of Quigley’s book, W. Cleon Skousen moved from anti-Communism (The Naked Communist, 1958) to anti-conspiracy (The Naked Capitalist, 1970).
It had taken five decades to get this story to a small group of conservatives. The Establishment Left has never officially figured it out. So, most conservatives and liberals get all excited about national politics every four years, as if every candidate except Goldwater since at least 1912 had not been vetted by the Eastern Establishment’s bankers by way of the CFR. The clearest examples of this control are the cabinet members for Carter and Reagan. Susan Huck described this sometime around 1981: CFR Team A vs. CFR Team B.
The best statement of this process was made, naïvely, by Hamilton Jordan, Carter’s campaign manager. Journalist Robert Scheer interviewed him for an article published in Playboy in the month of the election. Time got wind of this in early October, and ran a story on it. Sheer quoted Jordan as follows:
If after the Inauguration you find a Cy Vance as Secretary of State and Zbigniew Brzezinski as head of National Security, then I would say we failed. And I’d quit. But that’s not going to happen. You’re going to see new faces, new ideas. The Government is going to be run by people you have never heard of.
Vance and Brzezinski got these posts two months later, and Jordan did not quit. I can think of nothing else in so pithy a statement that summarizes the nature of politics in America.
Nothing has changed fundamentally since 1976 – or 1921. Anyone who thinks politics is not rigged needs to read Antony Sutton’s book, Wall Street and FDR (Arlington House, 1975), which traces the closely linked employment background of Roosevelt and Herbert Hoover in the early 1920’s. In 1924, within three years of the CFR’s formation, a co-founder of the CFR got the Democrats’ nomination for President, John W. Davis, a prominent Wall Street lawyer. (Davis is less well known as the lawyer who lost the school integration case, Brown v. Board of Education of Topeka, Kansas, 8 to 0, in 1954.)
I contend that because national politics is controlled by a small group of connected intellectuals and representatives of very large banks, the basic structure of American politics does not change. So, the degree of economic liberty doesn’t change. It changes only at the margin – the political margin.
This is why Eisenhower’s warning against the military-industrial complex remains valid. Part IV of his farewell address of January 17, 1961 is like an echo of George Washington’s farewell newspaper article of 1796. Not many people have read either one. In order to make my case, I ask you to read Eisenhower’s words. I have highlighted its key passages in bold face.
Our military organization today bears little relation to that known by any of my predecessors in peacetime, or indeed by the fighting men of World War II or Korea.
Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations.
This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence – economic, political, even spiritual – is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.
In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.
Akin to, and largely responsible for the sweeping changes in our industrial-military posture, has been the technological revolution during recent decades.
In this revolution, research has become central; it also becomes more formalized, complex, and costly. A steadily increasing share is conducted for, by, or at the direction of, the Federal government.
Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers.
The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present and is gravely to be regarded. Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite.
It is the task of statesmanship to mold, to balance, and to integrate these and other forces, new and old, within the principles of our democratic system – ever aiming toward the supreme goals of our free society.
Ike had the self-crafted reputation of being a verbal incompetent. Yet he held together the European theater of war during World War II. He was a very shrewd man. If I were to pick the shrewdest politician in American history who had no reputation for shrewdness, it would be Eisenhower. The media never caught on. Most historians never caught on. Ike knew what the supreme political issue was in American life in 1961, and he recognized that it had appeared during his own administration. "Our military organization today bears little relation to that known by any of my predecessors in peacetime, or indeed by the fighting men of World War II or Korea."
This system is not only still in power, it is more fully in power than in Eisenhower’s day. It is so fully in power that the Congress is powerless to stop it – is in fact wholly in support of it. We are heading for war with Iran, yet on July 12, the Senate passed Lieberman’s amendment to the arms appropriations bill. The amendment identifies Iran as a potential enemy. It passed 97 to 0. It was co-sponsored by Graham, McCain, and Kyl.
On July 16, an AP story posted on the Marine Corps Times’s Website discussed the time it will take to pull out our troops. One Army general said that it will take at least 18 months to pull out half of his brigade. A brigade is 3,500 troops. He is stationed in Northern Iraq, where there is little fighting.
But there soon will be. Turkey has announced that it will invade northern Iraq if the United States cannot control Kurdish guerrillas who are making raids inside Turkey’s border. Turkish troops are being massed on the Iraq border. This was reported by ABC news on May 31 and again on July 9, but the information has not penetrated the American public’s thinking.
Conclusion
Not only is the Iraq war not going to de-escalate, it is going to escalate rapidly on two fronts: the northern border and the eastern, meaning Iran. Bush has made it clear: he will not withdraw. He is stalling for September: Gen. Petraeus’s report. I can tell you what it will be if he is still in uniform: the military needs until at least Spring. Congress will scream, but it will not get the votes to override a Presidential veto. The Democrats will grouse, blame the Republicans, and grin like the Cheshire cat. They will wait for the voters’ response in November, 2008.
At some point, the U.S. will attack Iran, and all bets will be off politically. Will Congress attempt an impeachment at the beginning of a war? Not likely – not given the 97 to 0 vote on July 12.
Much as I hate to say it, the stock sector to buy is the military, even in a market downturn. There is no chance of an orderly withdrawal from Iraq, if one is attempted at all. The equipment will have to be replaced if we do pull out. If we merely re-deploy in the region inside our bases, which seems likely, the equipment will still need upgrading and replacement. The troops will not be home for Christmas, 2010.
My general conclusion is that politics will not change in the next decade. The existing political promises have removed politicians’ discretionary income. There will be no major rollbacks of taxes. The 2010 estate tax cuts will be allowed to lapse. The war of ideas will not affect the political order. That order is secure.
Stocks performed well, mid-1982 to early 2000, because interest rates fell. Short of a recession, interest rates will not fall. If they do fall, the stock market will fall with them: recession. To end the recession, the Federal Reserve will inflate, driving rates higher. So, the boom of 1982 to 2000 is not going to be repeated.
Economic liberty is still decreasing in the United States. Why should we expect American stocks to boom?
Economic liberty is increasing in Asia. There, the stock markets should continue to move upward.
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