The Arrogance and Futility of Obamanomics

According to this article in the Washington Post:

President Obama on Wednesday made his latest pitch to lift the nation’s beleaguered housing market, unveiling a series of proposals to help struggling borrowers reduce their monthly payments and to stem the continuing slide in real estate prices.

Mr. Obama's proposal includes coercing mortgage lenders to lower monthly mortgage payments to a rate affordable by those currently holding mortgages which are "under water." The proposal also coerces taxpayers to further subsidize mortgage rates on a "matching" basis. Reportedly, Obama's plan to intervene in the housing market "would cost taxpayers between $5 billion and $10 billion." Mr. Obama proposes to "pay" for this intervention by intervening in financial markets by "imposing a new tax on the profits of financial firms."

This is not the first intervention in the housing market by the the Obama administration:

The proposals are the latest in a long list of programs Obama has unveiled to address the problems facing homeowners. Almost all of the programs have fallen far short of their goals. Obama has acknowledged that his response to the housing crisis has not worked as well as he had hoped it would, and most economists say that the depressed housing market is one of the biggest drags on the economic recovery.

Despite all the President's interventions over the past three years, housing prices continue to slide. Why? Ludwig von Mises answered this question over sixty years ago in this essay on the futility of interventionism (from Planned Chaos, 1947):

The system of the hampered market economy, or interventionism, differs from socialism by the very fact that it is still a market economy. The authority seeks to influence the market by the intervention of its coercive power, but it does not want to eliminate the market altogether. It desires that production and consumption should develop along lines different from those prescribed by the unhindered market, and it wants to achieve its aim by injecting into the working of the market orders, commands and prohibitions for whose enforcement the police power and its apparatus of coercion and compulsion stand ready. But these are isolated interventions; their authors assert that they do not plan to combine these measures into a completely integrated system which regulates all prices, wages and interest rates, and which thus places full control of production and consumption in the hands of the authorities.

However, all the methods of interventionism are doomed to failure. This means: the interventionist measures must needs result in conditions which from the point of view of their own advocates are more unsatisfactory than the previous state of affairs they were designed to alter. These policies are therefore contrary to purpose.

Minimum wage rates, whether enforced by government decree or by labour union pressure and compulsion, are useless if they fix wage rates at the market level. But if they try to raise wage rates above the level which the unhampered labour market would have determined, they result in permanent unemployment of a great part of the potential labour force.

Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other. If government spending is financed by borrowing from the commercial banks, it means credit expansion and inflation. If in the course of such an inflation the rise in commodity prices exceeds the rise in nominal wage rates, unemployment will drop. But what makes unemployment shrink is precisely the fact that real wage rates are falling.

The inherent tendency of capitalist evolution is to raise real wage rates steadily. This is the effect of the progressive accumulation of capital by means of which technological methods of production are improved. There is no means by which the height of wage rates can be raised for all those eager to earn wages other than through the increase of the per capita quota of capital invested. Whenever the accumulation of additional capital stops, the tendency towards a further increase in real wage rates comes to a standstill. If capital consumption is substituted for an increase in capital available, real wage rates must drop temporarily until the checks on a further increase in capital are removed. Government measures which retard capital accumulation or lead to capital consumption—such as confiscatory taxation—are therefore detrimental to the vital interests of the workers.

Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump.

It can hardly be asserted that the economic history of the last decades has run counter to the pessimistic predictions of the economists. Our age has to face great economic troubles. But this is not a crisis of capitalism. It is the crisis of interventionism, of policies designed to improve capitalism and to substitute a better system for it.

No economist ever dared to assert that interventionism could result in anything else than in disaster and chaos. The advocates of interventionism--foremost among them the Prussian Historical School and the American Institutionalists—were not economists. On the contrary. In order to promote their plans they flatly denied that there is any such thing as economic law. In their opinion governments are free to achieve all they aim at without being restrained by an inexorable regularity in the sequence of economic phenomena Like the German socialist Ferdinand Lassalle, they maintain that the State is God.

The interventionists do not approach the study of economic matters with scientific disinterestedness. Most of them are driven by an envious resentment against those whose incomes are larger than their own. This bias makes it impossible for them to see things as they really are. For them the main thing is not to improve the conditions of the masses, but to harm the entrepreneurs and capitalists even if this policy victimizes the immense majority of the people.

In the eyes of the interventionists the mere existence of profits is objectionable. They speak of profit without dealing with its corollary, loss. They do not comprehend that profit and loss are the instruments by means of which the consumers keep a tight rein on all entrepreneurial activities. It is profit and loss that make the consumers supreme in the direction of business.It is absurd to contrast production for profit and production for use. On the unhampered market a man can earn profits only by supplying the consumers in the best and cheapest way with the goods they want to use. Profit and loss withdraw the material factors of production from the hands of the inefficient and place them in the hands of the more efficient. It is their social function to make a man the more influential in the conduct of business the better he succeeds in producing commodities for which people scramble. The consumers suffer when the laws of the country prevent the most efficient entrepreneurs from expanding the sphere of their activities. What made some enterprises develop into "big business" was precisely their success in filling best the demand of the masses.

Anti-capitalistic policies sabotage the operation of the capitalist system of the market economy. The failure of interventionism does not demonstrate the necessity of adopting socialism. It merely exposes the futility of interventionism. All those evils which the self-styled "progressives" interpret as evidence of the failure of capitalism are the outcome of their allegedly beneficial interference with the market. Only the ignorant, wrongly identifying interventionism and capitalism, believe that the remedy for these evils is socialism. [emphasis added]

There you have it. All of Mr. Obama's efforts to make life "easier for homeowners" at the expense of taxpayers and financial industry profits are doomed to failure before they begin. Still, Mr. Obama and the economic whiz kids who surround him continue to make proposal after failed proposal.

Cynics might refer to such dogged efforts to control housing prices by intervening in the marketplace as insanity or pure, political pandering. In all probability it is simple stupidity. Despite the plethora of economic doctorates bestowed on Mr. Obama's advisers, these meddlers remain clueless about economics. Instead of stepping back and allowing the judgement of consumers to hold sway over housing prices by means of the inexorable law of supply and demand, these hapless interventionists continue to throw good taxpayer money after bad, prolonging the inevitable and accelerating the consumption of capital.

However, these futile interventionist measures could not thrive were they not abetted by the economic stupidity of the media and the general electorate. In our day there is an all too general belief that the "State is God," that it can accomplish by decree whatever it wishes. All that is needed for the State to succeed in its various interventions is a Godly plan proposed by the right variety of Godly authorities. Mindful of their human imperfection, these authorities acknowledge that their first few, interventionist attempts may fall short of their purpose. But Godly success is inevitable with wise, diligent and well-meant persistence.

Sadly, their unspeakable arrogance and stupidity are dragging the rest of us to inevitable economic doom.

The Choice In Florida: Economic Freedom Or Totalitarian Socialism

Voting can be a maddening process. Sometimes it helps to strip away the political fluff and narrow the choice down to one of two philosophical alternatives.

I suggest voters in Florida read the following few paragraphs. I guarantee the choice before them will be much easier:

Those interventionists who consider interventionism as a method of bringing about full socialism step by step are at least consistent. If the measures adopted fail to achieve the beneficial results expected and end in disaster, they ask for more and more government interference until the government has taken over the direction of all economic activities. But those interventionists who look at interventionism as a means of improving capitalism and thereby preserving it are utterly confused.

In the eyes of these people all the undesired and undesirable effects of government interference with business are caused by capitalism. The very fact that a governmental measure has brought about a state of affairs which they dislike is for them a justification of further measures. They fail, for instance, to realize that the role monopolistic schemes play in our time is the effect of government interference such as tariffs and patents. They advocate government action for the prevention of monopoly. One could hardly imagine a more unrealistic idea. For the governments whom they ask to fight monopoly are the same governments who are devoted to the principle of monopoly. Thus, the American New Deal Government embarked upon a thorough-going monopolistic organization of every branch of American business, by the NRA, and aimed at organizing American farming as a vast monopolistic scheme, restricting farm output for the sake of substituting monopoly prices for the lower market prices. It was a party to various international commodity control agreements the undisguised aim of which was to establish international monopolies of various commodities. The same is true of all other governments. The Union of Soviet Socialist Republics was also a party to some of these intergovernmental monopolistic conventions.[9] Its repugnance for collaboration with the capitalistic countries was not so great as to cause it to miss any opportunity for fostering monopoly.

The programme of this self-contradictory interventionism is dictatorship, supposedly to make people free. But the liberty its supporters advocate is liberty to do the "right" things, i.e., the things they themselves want to be done. They are not only ignorant of the economic problem involved. They lack the faculty of logical thinking.

The most absurd justification of interventionism is provided by those who look upon the conflict between capitalism and socialism as if it were a contest over the distribution of income. Why should not the propertied classes be more compliant? Why should they not accord to the poor workers a part of their ample revenues? Why should they oppose the government's design to raise the share of the underprivileged by decreeing minimum wage rates and maximum prices and by cutting profits and interest rates down to a "fairer" level? Pliability in such matters, they say, would take the wind from the sails of the radical revolutionaries and preserve capitalism. The worst enemies of capitalism, they say, are those intransigent doctrinaires whose excessive advocacy of economic freedom, of laisser-faire and Manchesterism renders vain all attempts to come to a compromise with the claims of labour. These adamant reactionaries are alone responsible for the bitterness of contemporary party strife and the implacable hatred it generates. What is needed is the substitution of a constructive programme for the purely negative attitude of the economic royalists. And, of course, "constructive" is in the eyes of these people only interventionism.

However, this mode of reasoning is entirely vicious. It takes for granted that the various measures of government interference with business will attain those beneficial results which their advocates expect from them. It blithely disregards all that economics says about their futility in attaining the ends sought, and their unavoidable and undesirable consequences. The question is not whether minimum wage rates are fair or unfair, but whether or not they bring about unemployment of a part of those eager to work. By calling these measures just, the interventionist does not refute the objections raised against their expediency by the economists. He merely displays ignorance of the question at issue.

The conflict between capitalism and socialism is not a contest between two groups of claimants concerning the size of the portions to be allotted to each of them out of a definite supply of goods. It is a dispute concerning what system of social organization best serves human welfare. Those fighting socialism do not reject socialism because they envy the workers the benefits they (the workers) could allegedly derive from the socialist mode of production. They fight socialism precisely because they are convinced that it would harm the masses in reducing them to the status of poor serfs entirely at the mercy of irresponsible dictators.

In this conflict of opinions everybody must make up his mind and take a definite stand. Everybody must side either with the advocates of economic freedom or with those of totalitarian socialism. One cannot evade this dilemma by adopting an allegedly middle-of-the-road position, namely interventionism. For interventionism is neither a middle way nor a compromise between capitalism and socialism. It is a third system. It is a system the absurdity and futility of which is agreed upon not only by all economists but even by the Marxians.

There is no such thing as an "excessive" advocacy of economic freedom. On the one hand, production can be directed by the efforts of each individual to adjust his conduct so as to fill the most urgent wants of the consumers in the most appropriate way. This is the market economy. On the other hand, production can be directed by authoritarian decree. If these decrees concern only some isolated items of the economic structure, they fail to attain the ends sought, and their own advocates do not like their outcome. If they come up to all-round regimentation, they mean totalitarian socialism.

Men must choose between the market economy and socialism. The state can preserve the market economy in protecting life, health and private property against violent or fraudulent aggression; or it can itself control the conduct of all production activities. Some agency must determine what should be produced. If it is not the consumers by means of demand and supply on the market, it must be the government by compulsion.
Ludwig von Mises, Planned Chaos, 1947 [Emphasis Mine]

There is only one candidate running for President, including the incumbent, who has spent a lifetime advocating the market economy. As his opponents recommend the infamous "middle-of-the-road" mixed economy of interventionism to one degree or another, Ron Paul fights them tooth and nail, unflinchingly standing tall for unhampered economic freedom.

Choose between the market economy and socialism. As Mises writes: "Some agency must determine what should be produced. If it is not the consumers by means of demand and supply on the market, it must be the government by compulsion."

Choose economic freedom! Choose Ron Paul!

Capitalism Is Outdated!!!

Perhaps you've seen this article linked in the Drudge Report: Davos elites to seek reforms of 'outdated' capitalism. It begins:

Economic and political elites meeting this week at the Swiss resort of Davos will be asked to urgently find ways to reform a capitalist system that has been described as "outdated and crumbling."

Here's an opinion on the subject: 

The characteristic mark of this age of dictators, wars and revolutions is its anti-capitalistic bias. Most governments and political parties are eager to restrict the sphere of private initiative and free enterprise. It is an almost unchallenged dogma that capitalism is done for and that the coming of all-round regimentation of economic activities is both inescapable and highly desirable.

None the less capitalism is still very vigorous in the Western Hemisphere. Capitalist production has made very remarkable progress even in these last years. Methods of production were greatly improved. Consumers have been supplied with better and cheaper goods and with many new articles unheard of a short time ago. Many countries have expanded the size and improved the quality of their manufacturing. In spite of the anti-capitalistic policies of all governments and of almost all political parties, the capitalist mode of production is in many countries still fulfilling its social function in supplying the consumers with more, better and cheaper goods. 

It is certainly not a merit of governments, politicians and labour union officers that the standard of living is improving in the countries committed to the principle of private ownership of the means of production. Not offices and bureaucrats, but big business deserves credit for the fact that most of the families in the United States own a motor car and a radio set. The increase in per capita consumption in America as compared with conditions a quarter of a century ago is not an achievement of laws and executive orders. It is an accomplishment of business men who enlarged the size of their factories or built new ones.

One must stress this point because our contemporaries are inclined to ignore it. Entangled in the superstitions of statism and government omnipotence, they are exclusively preoccupied with governmental measures. They expect everything from authoritarian action and very little from the initiative of enterprising citizens. Yet, the only means to increase well-being is to increase the quantity of products. This is what business aims at.

It is grotesque that there is much more talk about the achievements of the Tennessee Valley Authority than about all the unprecedented and unparalleled achievements of American privately operated processing industries. However, it was only the latter which enabled the United Nations to win the war and today enables the United States to come to the aid of the Marshall Plan countries.

The dogma that the State or the Government is the embodiment of all that is good and beneficial and that the individuals are wretched underlings, exclusively intent upon inflicting harm upon one another and badly in need of a guardian, is almost unchallenged. It is taboo to question it in the slightest way. He who proclaims the godliness of the State and the infallibility of its priests, the bureaucrats, is considered as an impartial student of the social sciences. All those raising objections are branded as biased and narrow-minded. The supporters of the new religion of statolatry are no less fanatical and intolerant than were the Mohammedan conquerors of Africa and Spain.

History will call our age the age of the dictators and tyrants. We have witnessed in the last years the fall of two of these inflated supermen. But the spirit which raised these knaves to autocratic power survives. It permeates textbooks and periodicals, it speaks through the mouths of teachers and politicians, it manifests itself in party programmes and in plays and novels. As long as this spirit prevails there cannot be any hope of durable peace, of democracy, of the preservation of freedom or of a steady improvement in the nation's economic well-being.    Ludwig von Mises, 1947

My point?

Nothing has changed in the last 65 years except the virulence with which the free market is berated.

Will we ever learn?

Ignorance Or Spite?

There is an excellent post at Powerline by John H. Hinderaker on the President's State of the Union Address. In his article, Of The Ignorant, By The Ignorant, For The Ignorant, Hinderaker points out an obvious Obama lie with regard to the nation's energy reserves. He also exposes obvious lying by Rep. Henry Waxman (D-Calif.) in the same regard.

Though the article is excellent, I was fascinated by a particular comment made by a reader, Michael Johnson. Reacting to another reader's comment about socialist redistribution of income in this country, Johnson posted a link to the website of OECD (Organization for Economic Co-operation and Development) and to this page specifically. The OECD research paper contains this paragraph, which Johnson quoted:

Redistribution of income by government plays a relatively minor role in the United States. Only in Korea is the effect smaller. This is partly because the level of spending on social benefits such as unemployment benefits and family benefits is low – equivalent to just 9% of household incomes, while the OECD average is 22%.

This comment should give pause to every American who thinks this country is not exceptional or who worries that this country is heading down the path toward social democracy.

What has made this country great is its tradition of private enterprise rather than public welfare, subsidy and influence peddling. This is a trend President Obama and company are trying to reverse. They aim to bring the level of American governmental social spending up to the OECD average. Mr. Obama's first term in office has been a good start.

Of course, Mr. Obama and Mr. Johnson would say an increased level of social spending is necessary to offset the power and influence enjoyed by the "rich" in this country. The joke is that as government grows in influence and power, those in positions of authority in government are in a position to dispense influence and power to the highest bidder. Those with a vast amount of disposable income buy influence prodigiously. Those with the political clout of numbers and money, like labor unions, buy influence as well.

Who loses in such a system? The very individuals who have neither money nor power.

The ultimate joke is that so many of these moneyless and powerless individuals think they are better off in such a social welfare, income redistributionist system. They see no advantage in reducing the size of government or the power and influence of those in government. They would rather envy their neighbor's wealth, and send elected agents of government to seize it, than arrange the political and economic system in this country in such a way as to make it possible for them to earn and keep their own wealth.

They trust agents of government more than they trust themselves!

Perhaps Powerline is on to something. My only quibble is that "ignorance" is hardly an adequate explanation for such willful and self-sacrificial acceptance of the welfare state and its blatant lies. My mother would call it cutting off your nose to spite your face.

No Compromise

In this article at Political Realities Michael Fields argues that "progress" could be made in Washington if only Republicans would compromise with Democrats on the issue of increasing taxes on the "wealthy."

Compromise between Republicans and Democrats in the federal government always has the effect of moving government policy leftward. Why? Because Democrats always act to satisfy their base which is left and growing far left. The Republican base is center right, so any compromise winds up going left by increments.

Moreover, how do you compromise with The Anti-capitalistic Mentality? Republicans have been doing so for more than a hundred years and look where it’s got us. In his book, The Anti-capitalistic Mentality, Ludwig von Mises writes:

“All those rejecting capitalism on moral grounds as an unfair system are deluded by their failure to comprehend what capital is, how it comes into existence and how it is maintained, and what the benefits are which are derived from its employment in production processes.”

Compromise is good when both parties are aiming at the same goal. Compromise is bad when one party opposes capitalism on moral grounds and aims to destroy it.

The time for solving our American fiscal and monetary crisis by tweaking the edges of the tax system has come and gone. Fields writes: “How do we make progress when both sides have taken such strict positions?”

The implication is that "progress" toward a more capitalistic system is possible by compromise. It isn’t. Even a good share of the Republican negotiators are of the anti-capitalistic mentality.

Fields asks incredulously: “Conservatives wouldn’t accept a $500 billion tax increase combining higher rates on the wealthy and the elimination of tax disparities if it was accompanied by $5 trillion in spending cuts where the timing of both were well matched?”

I wouldn’t. To believe the Democrats would actually cut (and I mean REALLY cut) federal spending by $5-trillion is fantastically naïve. Why? Because Democrats are rabidly anti-capitalistic and Republicans are only moderately less so. Until that mentality changes, there is no hope in compromise.

Now is the time for those of us who are of the capitalistic mentality to take a strict position and stand firm: No new taxes.

Vichy America

Defeating an occupier is cut-and-dried when the invader wears jack boots and brandishes a rifle. In such a case there is no nuance to consider, no truth to divine, no advantage to weigh. There is only the stark line between life and death.

In 1940, after the Nazis subdued and occupied France, the invaders moved the capitol of that war-torn country from Paris to Vichy, a small town to the southeast. There the Nazis allowed the collaborator, Philippe Petain, to establish a puppet government: État Français (The French State). Others knew it as the traitorous regime of Vichy France.

No brutal, foreign army has yet invaded America. Nor has a conquering enemy installed a puppet regime in Washington. Still, this country is occupied. For over a century intellectuals and academics have invaded the American consciousness with the foreign mush of socialist and progressive ideology. American citizens have freely elected politicians loyal to this ideology. These politicians consequently established the massive American social welfare state centered in Washington, DC: Vichy America.

Sunday With Archbishop Fulton J. Sheen: On Temptation

God love you.