Hostile Takeover: Resisting Centralized Government's Stranglehold on America (5 page)

At the U.S. Department of Energy, the epicenter of informed strategic thinking on green energy within the Obama administration, “there just wasn’t that much known.” True enough, the very nature of capital investment and risk-taking in an inherently uncertain future always involves the potential of failure and loss. But in the private economy, the risks are borne by the same individuals and interests that will foot the tab for failure. Do you see a possible incentive problem with politicians and bureaucrats risking your money for their potential benefit? Does anyone believe that someone else will be more cautious with your money than you would be? Planners like Obama do, apparently.

President Obama is an unusually easy target when searching for politicians who think they know better than you do, even in Washington, D.C., where virtually every politician is likely to believe that they have been especially blessed with a vision to lead. Whenever Obama goes off script, his “vision thing” gets more transparent, easier for the rest of us to see. “We’re not trying to push financial reform because we begrudge success that’s fairly earned,” he told an audience in Quincy, Illinois, in April 2010. “I do think at a certain point you’ve made enough money, but you know, part of the American way is, you know, you can just keep on making it if you’re providing a good product or you’re providing a good service.”
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There’s that word again—at a “certain” point he knows certainly that enough is enough. Which successes are “fairly earned”? How much money is “enough”? President Obama has never publicly revealed his economic calculations on these points, but all this was said without the benefit of a teleprompter, so presumably with great personal conviction.

Democratic congressman Barney Frank, former chairman of the House Financial Services Committee, is also a regular culprit when it comes to political expressions of certainty. “It is also clear,” Frank said, “that left entirely untouched by public policy, the capitalist system will produce more inequality than is socially healthy or than is necessary for maximum efficiency.”
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How much touching by public policy do you suppose gets the market process to “maximum efficiency”? You may not know the answer to that complex question; I sure don’t. But Congressman Frank thinks he does.

Frank was also infamously certain about the financial soundness of Fannie Mae and Freddie Mac, the massive government-sponsored enterprises so culpable for putting buyers into homes they could not afford. He argued for “rolling the dice” in 2003: “I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation toward subsidized housing.”
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In July 2008, just weeks before the whole subsidized-housing house of cards collapsed, Frank knew that “Fannie and Freddie are fundamentally sound, that they are not in danger of going under. They’re not the best investments these days from the long-term standpoint going back [but] I think they are in good shape going forward.”
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He was certain it was so, because he was the chairman of the House committee of jurisdiction.

Think about how the housing bubble and the 2008 stock market crash was driven by the collapse in value of mortgage-backed securities. Now think about the culpability of the Federal Reserve, and the role of Fannie Mae and Freddie Mac. Didn’t they enable the bad actors and deceive the rest of us into making calculations based on corrupted price signals? To make matters worse, instead of acknowledging their mistakes and allowing the needed corrections to take place, the instigators of the first crisis now presume to know how to fix what they caused. Their “fixes” to the perceived failures of markets are making things worse. The presumption of knowledge and multiple efforts to improve on market outcomes by the government has resulted in systemic damage to the economy and real pain for countless individuals caught up in the boom and bust of government intervention. The unintended consequences of government decisions from on high seem only to encourage more intervention, but little accountability. There is no built-in correction mechanism in the top-down approach.

Before you leap to the conclusion that this “pretense of knowledge” is a disease that afflicts only Democrats, think again. Republican President George W. Bush proposed in 2004 “that mortgages that have FHA-backed insurance pay no down payment. . . . What we’re trying to do is make it easier for somebody to own a home, and there are practical ways the government can help.”
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As it turns out, making it easier for people to buy homes at the near peak of a government-induced bubble was exactly the wrong thing to do. Those mortgage contracts became a government-induced form of financial servitude for folks struggling to make their monthly payments on a home that was now underwater. But how could the Bush administration have known?

Former Massachusetts governor Mitt Romney, a Republican who made his fortune as a management consultant, is widely viewed as a technocrat, and he does little to dissuade people from the characterization. Governor Romney, as everyone knows, aspires to be our next president; and he touts as his chief qualification his experience at taking over and fixing failing companies. A particularly revealing interview by Joseph Rago and Paul A. Gigot in the
Wall Street Journal
showed the planner inherent in Romney’s thinking. On the one hand, “Mr. Romney describes the core failure of Mr. Obama’s economic agenda as faith in ‘a wise group of governmental bureaucrats’ rather than political and economic freedom.” Romney called it “a refrain that we have seen throughout history where smart people are convinced that smart people ought to be able to guide an economy better than hordes of individuals pursuing their self-interest, the helter-skelter of free people choosing their course in life.”
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But in a 2007
Journal
interview, that same Mitt Romney revealed a very different outlook: “In that meeting the candidate began by declaring ‘I love data’ and kept on extolling data, even ‘wallowing in data,’ as a way to reform both business and government. He said he’d bring in management consultants to turn around the government, mentioning McKinsey, Bain and the Boston Consulting Group. Mr. Romney seemed to elevate the power of positive technocratic thinking to a governing philosophy.”
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Has he had a conversion? Like Congresswoman Michele Bachmann, who once confessed she reads Ludwig von Mises at the beach, did Mitt Romney sneak-read a copy of Hayek’s
Constitution of Liberty
? Not so fast, you hopeless optimist. When asked by the
Journal
, again in December 2011, about his views on how to fundamentally reform the monstrous labyrinth that is the U.S. tax code, he dodged the question, saying, “I simply don’t have the team . . . to be able to model out what will happen to all the different income groups in the country, what will happen to the different sectors of our economy based on dramatic changes.”
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The whole point of tax simplification is to eliminate the political biases and social engineering in the tax code that requires a team of experts to model, and an army of professional tax preparers to comply with. Wanting to redistribute income in a better way than the current tax code does make Romney almost sound like a wise “governmental bureaucrat,” doesn’t it?

Democrats and Republicans alike think that they know better, or at least can hire the experts who know better, than millions and millions of people acting on their own behalf. Sometimes their knowing is piecemeal, tinkering around the edges of the market process. Romney, for instance, seems more inclined to pick up a tuning fork than a hammer. But for some, like Obama, you really get the sense that his vision is, like the progressive planners before him, a wholesale rebooting of our economic system. Indeed, his whole mind-set—collect the dispassionate analysis of the smartest guys in the room, armed with the best data, and you’ve solved the problem—is an inherently progressive approach to public policy. William Schambra argues that Obama’s approach to public policy is textbook progressive, preferring “an approach to public policy that would make greater use of objective evidence, scientific facts, and expert counsel.”
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Obama, writing in
The Audacity of Hope
, argues for “having a nonpartisan group like the National Academy of Science’s Institute of Medicine determine what a basic, high-quality health-care plan should look like and how much it should cost.”
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AGGREGATING KEYNES

E
ITHER WAY, WHEN INTERVENTIONS ARE TRIED, PIECEMEAL OR
wholesale, they fail to produce the desired effect. Interventions can lead to destructive, unintended consequences that cause real suffering for real people, many of them deceived by government-distorted signals. And of course, each intervention is followed up by still more interventions to fix the problems caused by the presumption of knowledge from the top down.

Part of the problem with planners wanting to plan is the aiding and abetting they get from the economics profession and its flawed assumptions. “It is vitally important to always remember,” says Peter Boettke, one of the brightest of a new generation of Austrian economists, “that in the field of economics bad economic ideas lead to bad public policies which in turn result in bad economic outcomes.”
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He is referring specifically to major government-induced economic dislocations attributable to the intellectual legacy of John Maynard Keynes. According to Boettke, Keynes got it wrong by throwing basic economics out the window. He misrepresented markets as inherently unstable, and his arbitrary use of aggregation had no economic meaning, but allowed for simplistic, politically attractive policy prescriptions of aggregate demand management through more government spending.

Keynes was the first “macroeconomist,” and the author of
The General Theory of Employment, Interest and Money
, published in 1936. Around that time, a famous series of “debates” broke out between Keynes, who was at the University of Cambridge, and Hayek, who had just arrived at the London School of Economics. In many ways it was a debate between the classical traditions of fiscal responsibility and balanced budgets that had been, pre-Keynes, the accepted wisdom of public finance, and a wholly new way of thinking, from the top down, introduced by Keynes. The two academics’ arguments are brilliantly captured in the popular rap videos—“Fear the Boom and Bust” and “Fight of the Century”—of John Papola and Russ Roberts. The “fight” video depicts Hayek winning the intellectual argument but Keynes winning among the political and academic elites in the court of public opinion. And that’s exactly how it played out.

Not surprisingly, Hayek’s ideas about the decentralized power of freedom fare much better in the decentralized world of online media than they ever did in the cloistered monopoly of elite university academia. Freedom sells better in a world where people are free to choose what information they will consume. With total views of the two videos exceeding 4.5 million, Hayek is more relevant today than he ever was in his own lifetime.

There is, in fact, a boom in the market for Hayek’s ideas. “Fear the Boom and the Bust” was uploaded to YouTube on January 23, 2010. Glenn Beck featured a discussion of Hayek’s
Road to Serfdom
on June 8, 2010. “Aren’t you just a little curious,” Beck asked his audience, “if this is the first time you’ve ever heard of
The Road to Serfdom
, why that is? Gosh, it seems like a pretty important book. Why don’t we teach this everywhere?”

“Decide for yourself,” Beck advised. “Go online now and order it—
The Road to Serfdom
.”
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The endorsement, like a proverbial injection of artificial credit by the Federal Reserve Bank, created an immediate boom in sales. “The University of Chicago Press found itself in an unprecedented position: number one in Amazon and Barnes & Noble’s sales rankings with F. A. Hayek’s anti-big government book
The Road to Serfdom,”
according to a June 10, 2010, report from
Publishers Weekly
. “The 66 year-old book bested Stieg Larsson and Stephenie Meyer—at least for a day. . . . Press director Garrett Kiely told
PW
that the book has been a consistent seller since the election of Barack Obama in November 2008, selling about 27,000 copies annually. Although he declined to quote exact numbers, Kiely said that with Beck’s endorsement, the book has sold about half its annual number in a 24-hour span.”
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Even Steve Rattner, who served as Obama’s “car czar,” acknowledges the importance of Hayek’s ideas in the coming election. Writing in the
Financial Times,
he claims that the “2012 rivals can be named: Hayek vs. Keynes. . . . Providing intellectual underpinnings to each side—while lurking mostly out of sight—is the work of long-dead economists. The White House continues to lean heavily on the playbook of economist John Maynard Keynes—without uttering his name. As huge deficits have failed to lift the economy, ‘Keynes’ has almost become a vulgarity in US discourse, in part because a very Keynesian Obama initiative—the 2009 $825bn stimulus (another banished word)—has been widely derided as ineffective.” Rattner went on to observe that “Republicans have been less coy about their favourite school: Ludwig von Mises and Friedrich Hayek. The quasi-libertarian, anti-statist sensibilities of these philosophers appeal to a public that has soured on government.”
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ALIEN CONCEPTS

K
EYNES REPLACED CLASSIC MICROECONOMIC TERMS LIKE
DEMAND
(how much you want to consume at a particular price) with a new, imaginary construct of
aggregate demand
. He argued that government needed to step in to spend more money and boost aggregate demand to stimulate the economy because of chronic underconsumption by consumers. Hayek argued that government policies had, in fact, caused an artificial boom by distorting price signals with easy money. The bust comes when the false signals are discovered. More government distortions would prevent economic recovery, prolonging the economic pain.