A nation founded on the self-evident truth that “all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness”28 could not forever tolerate slavery within its midst. And it did not.
For the Conservative, the lesson comes back to man’s imperfection. Even good men are capable of bad things. The disgrace of slavery is a disgrace of the human condition—as is all tyranny. Man’s institutions, like man himself, are imperfect. They can be used for good or bad, and they have been used for both. Therefore, diffusing authority among many imperfect men—by enumerating federal power, separating power within the federal government, and sharing power with the states—isolates and limits tyranny. Had slavery been affirmed in the Constitution and urged on all states, who knows when and how it would have been abolished.
The Conservative acknowledges that there are occasions when it is difficult to discern the legitimate and preferred demarcation between the different parts and levels of government. But unlike the Statist, he earnestly endeavors to find them. For example, he accepts today, as certain Conservatives may not have yesterday, that the civil rights acts of the 1960s, while excessive in their application in some respects (such as imposing overly broad speech and behavior codes on universities, secular goals on religious institutions, and a wide range of employment and housing restrictions, which ultimately embrace an authoritarian approach that threatens civil liberties),29 were the proper exercise of federal statutory authority under the Fourteenth Amendment to address intransigent state racism against African-Americans.30 For the Statist, however, the advantage of a federal government monopoly without effective challenge from a diversity of states or their citizens is obvious: It is a pathway to his precious Utopia where, in the end, all are enslaved in one form or another.
In “Federalist 39,” James Madison wrote, in part, “Each State, in ratifying the Constitution, is considered as a sovereign body, independent of all others, and only to be bound by its own voluntary act. In this relation, then, the new Constitution will, if established, be a FEDERAL, and not a NATIONAL constitution.”31
Of course, today it is more national than federal.
6
ON THE FREE MARKET
THE FREE MARKET IS
the most transformative of economic systems. It fosters creativity and inventiveness. It produces new industries, products, and services, as it improves upon existing ones. With millions of individuals freely engaged in an infinite number and variety of transactions each day, it is impossible to even conceive all the changes and plans for changes occurring in our economy at any given time. The free market creates more wealth and opportunities for more people than any other economic model. But the Conservative believes that the individual is more than a producer and consumer of material goods. He exists within the larger context of the civil society—which provides for an ordered liberty. The Conservative sees in the free market the harmony of interests and rules of cooperation that also underlie the civil society. For example, the free market promotes self-worth, self-sufficiency, shared values, and honest dealings, which enhance the individual, the family, and the community. It discriminates against no race, religion, or gender. The truck driver does not know the skin color of the individuals who produce the diesel fuel for his vehicle; the cook does not know the religion of the dairy farmers who supply milk to his restaurant; and the airline passenger does not know the gender of the factory workers who manufacture the commercial aircraft that transports him—nor do they care.
The free market is an intricate system of voluntary economic, social, and cultural interactions that are motivated by the desires and needs of the individual and the community. The Conservative believes that while the symmetry between the free market and the civil society is imperfect—that is, not all developments resulting from individual interactions contribute to the overall well-being of the civil society—one simply cannot exist without the other.
The key to understanding the free market is private property. Private property is the material manifestation of the individual’s labor—the material value created from the intellectual and/or physical labor of the individual, which may take the form of income, real property, or intellectual property. Just as life is finite, so, too, is the extent of one’s labor. Therefore, taxation of private property, or the regulation of such property so as to reduce its value, can become in effect a form of servitude, particularly if the dispossession results from illegitimate and arbitrary state action. Hence, the Conservative believes that the federal government should raise revenue only to fund those activities that the Constitution authorizes and no others. Otherwise, what are the limits on the Statist’s power to tax and regulate the individual’s labor and, ultimately, enslave him?
The Marxist class-struggle formulation, which pits the proletariat (“working class”) against the bourgeoisie (“wealthy merchant class”), still serves as the principal theoretical and rhetorical justification for the Statist’s assault on the free market. But it is an anathema to the free market in that the individual has unto himself the power to make of himself what he chooses. There is no static class structure layered atop the free market. The free market is a mutable, dynamic, and vibrant system of individual interactions that engages all aspects of the human character. For this reason, the Conservative believes the free market is a vital bulwark against statism. And it would appear the Statist agrees, for he is relentless in his assault on it. Indeed, the Statist’s rejection of the Constitution’s limits on federal power is justified primarily, albeit not exclusively, on material grounds.
In the name of “economic justice” and “equality” the Statist creates the perception of class struggle through a variety of inventions, including the “progressive” income tax. In the Communist Manifesto, Karl Marx wrote, “In the most advanced countries the following will be pretty generally applicable: a heavy progressive or graduated income tax.”1
A recent study by the Organisation for Economic Co-operation and Development found that when measuring household taxes (income taxes and employee Social Security contributions), the United States “has the most progressive tax system and collects the largest share of taxes from the richest 10 percent of the population,” placing a heavier tax burden on high-income households than other industrialized nations do.2 The latest Congressional Budget Office figures show that the top 1 percent of income earners in the United States paid 39 percent of federal income taxes while earning 18 percent of pretax income and the top 5 percent of income earners paid 61 percent of federal income taxes while earning 31 percent of pretax income. Indeed, the top 40 percent of income earners paid 99.4 percent of federal income taxes. The bottom 40 percent of income earners paid no federal income tax and received 3.8 percent from the tax system. And the middle 20 percent of income earners pay only 4.4 percent of federal income taxes.3
While the Conservative, like Adam Smith, does not object to wealthier individuals paying more to finance the legitimate functions of government, the government has grown well beyond the limits placed on it by the Constitution, particularly since the New Deal. Redistributing wealth is a central objective of the progressive income tax, which Marx would endorse and Smith would reject. For the Statist, there must be a class struggle and it must be a never-ending struggle, for it is perhaps his most valuable weapon in his war against the individual, the free market, and ultimately the civil society. The Statist, therefore, not only opposes efforts to eliminate the progressive income tax, including such alternatives as the FAIR tax (a national sales tax) or the flat tax (a flat-rate income tax), he opposes most any income tax reductions that might weaken the “class structure.”
Inasmuch as economic equality is unachievable, even in the most repressive socialist states, it serves the Statist’s purpose to contrive a class system in which individuals are grouped by officially sanctioned, arbitrary economic categories. In this way, the Statist stirs up class envy. The free ma
rket is, therefore, said to be incapable of serving the public interest, for it produces unjust results, thereby requiring further government intervention. The Statist also attempts to manipulate the intensity of the “class struggle” by routinely redefining terms and categories of wealth—who qualifies as the detested “rich,” the righteous “middle class,” and the disenfranchised “poor.”
But it is the so-called “middle class” that is the object of the Statist’s exploitations. He believes if he can win the “working man’s” favor, he can win the day. As Marxist community organizer Saul Alinsky explained in Rules for Radicals, “Organization for action will now and in the decade ahead center upon America’s white middle class. That is where the power is. When more than three-fourths of our people from both the point of view of economics and of their self-identification are middle class, it is obvious that their action or inaction will determine the direction of change. Large parts of the middle class, the ‘silent majority,’ must be activated; action and articulation are one, as are silence and surrender.”4
Alinsky continued, “…Our rebels have contemptuously rejected the values and way of life of the middle class. They have stigmatized it as materialistic, decadent, bourgeois, degenerate, imperialistic, war-mongering, brutalized, and corrupt. They are right; but we must begin from where we are if we are to build power for change, and the power and the people are in the big middle-class majority.”5 And so it is that for Alinsky, the “middle class” is both celebrated and despised. Alinsky’s views were an important influence on President Barack Obama.6
A minority of Conservatives agree with Alinsky and Marx only to the extent that they see the future as pandering to the “middle class” or “working class” or “Sam’s Club shoppers” or “the suburbs” with appeals of further government intervention aimed at this (or these) loosely defined grouping(s) of citizens. But who populates this “middle class”? Is the twenty-five-year-old female paralegal who graduated from college, works at a large law firm, earns $85,000 a year, is unmarried and without children, lives in an apartment in Manhattan, and rarely attends church in the same “middle class” as the fifty-seven-year-old male auto mechanic who did not graduate from high school, works at Pep Boys, earns $55,000 a year, lives in a row home in northeast Philadelphia, is married with four children, and attends church every Sunday? For the Conservative, this manner of thinking has the potential to evolve into a politically dangerous myopia that substitutes the hard work of advancing conservative principles and preserving the civil society with a political strategy that has ephemeral usefulness yet suggests universal acceptance of a static class structure that is foreign to the free market and civil society. This manner of thinking also places artificial constraints on conservatism’s attractiveness by focusing too much on the wrong thing.
For the Conservative, the challenge is to deconstruct the Statist class argument and inspire the individual to appreciate the miracle of the free market and enthusiastically engage in it. He should emphasize that the free market is the only economic system that produces on a sustainable basis, and for the overwhelming majority of Americans, an abundance of food, housing, energy, and medicine—the staples of human survival; it creates an astonishing array of consumer goods that add comfort, value, and security to the qualify of life; and the free market recognizes that it is in man’s DNA to take risks, to innovate, to achieve, to compete, and to acquire—to not only survive but also improve his circumstance.
Furthermore, the Conservative should appeal to man’s nature. He should emphasize that the individual knows better how to make and spend that which he has earned from his own labor and provide for his family than do large bureaucracies populated by strangers who see classes of people rather than individual human beings. As Founder James Wilson observed, “By exclusive property, the productions of the earth and the means of subsistence are secured and preserved, as well as multiplied. What belongs to no one is wasted by every one. What belongs to one man in particular is the object of his economy and care.”7
The Statist seeks to impose on individuals a governmental and economic structure that is contrary to human nature. He attempts to control the individual by subverting his spirit and punishing his natural impulses. For example, the parent teaches the child that stealing is wrong. Faith also teaches it is immoral: “Thou shalt not steal.” Laws, in turn, make it a crime to steal. One can only imagine the complete breakdown of the civil society that would result if stealing were an acceptable practice. For the Statist, however, thievery by government is a virtue in that it is said to be compelled for the “public good” or in the “public interest.”
Who then decides what is good for the public or in the public interest? The Constitution provides the parameters within which the federal government has authority to act. How does violating those parameters, which are intended to secure individual liberty (including private property rights) against the tyranny of an all-too-powerful government, serve the public interest?
Moreover, from where does the Statist acquire his clairvoyance in determining what is good for the public? From his ideology. The Statist is constantly manipulating public sentiment in a steady effort to disestablish the free market, as he pushes the nation down tyranny’s road. He has built an enormous maze of government agencies and programs, which grow inexorably from year to year, and which intervene in and interfere with the free market. And when the Statist’s central planners create economic perversions that are seriously detrimental to the public, he blames the free market and insists on seizing additional authority to correct the failures created at his own direction.
Consider the four basic events that led to the housing bust of 2008, which spread to the financial markets and beyond:
EVENT 1: In 1977, Congress passed the Community Reinvestment Act (CRA) to address alleged discrimination by banks in making loans to poor people and minorities in the inner cities (redlining). The act provided that banks have “an affirmative obligation” to meet the credit needs of the communities in which they are chartered.8 In 1989, Congress amended the Home Mortgage Disclosure Act requiring banks to collect racial data on mortgage applications.9 University of Texas economics professor Stan Liebowitz has written that “minority mortgage applications were rejected more frequently than other applications, but the overwhelming reason wasn’t racial discrimination, but simply that minorities tend to have weaker finances.”10 Liebowitz also condemns a 1992 study conducted by the Boston Federal Reserve Bank that alleged systemic discrimination. “That study was tremendously flawed. A colleague and I…showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination.”11 However, the study became the standard on which government policy was based.
In 1995, the Clinton administration’s Treasury Department issued regulations tracking loans by neighborhoods, income groups, and races to rate the performance of banks. The ratings were used by regulators to determine whether the government would approve bank mergers, acquisitions, and new branches.12 The regulations also encouraged statist-aligned groups, such as the Association of Community Organizations for Reform Now (ACORN) and the Neighborhood Assistance Corporation of America, to file petitions with regulators, or threaten to, to slow or even prevent banks from conducting their business by challenging the extent to which banks were issuing these loans. With such powerful leverage over banks, some groups were able, in effect, to legally extort banks to make huge pools of money available to the groups, money they in turn used to make loans. The banks and community groups issued loans to low-income individuals who often had bad credit or insufficient income. And these loans, which became known as “subprime” loans, made available 100 percent financing, did not always require the use of credit scores, and were even made without documenting income.13 Therefore, the government insisted that banks, particularly those that wanted to expand, abandon traditional underwriting standards. One estimate puts the figure of CRA-
eligible loans at $4.5 trillion.14
EVENT 2: In 1992, the Department of Housing and Urban Development pressured two government-chartered corporations—known as Freddie Mac and Fannie Mae—to purchase (or “securitize”) large bundles of these loans for the conflicting purposes of diversifying the risk and making even more money available to banks to make further risky loans. Congress also passed the Federal Housing Enterprises Financial Safety and Soundness Act, eventually mandating that these companies buy 45 percent of all loans from people of low and moderate incomes.15 Consequently, a secondary market was created for these loans. And in 1995, the Treasury Department established the Community Development Financial Institutions Fund, which provided banks with tax dollars to encourage even more risky loans.
For the Statist, however, this still was not enough. Top congressional Democrats, including Representative Barney Frank (Massachusetts), Senator Christopher Dodd (Connecticut), and Senator Charles Schumer (New York), among others, repeatedly ignored warnings of pending disaster, insisting that they were overstated, and opposed efforts to force Freddie Mac and Fannie Mae to comply with usual business and oversight practices.16 And the top executives of these corporations, most of whom had worked in or with Democratic administrations, resisted reform while they were actively cooking the books in order to award themselves tens of millions of dollars in bonuses.17
EVENT 3: A by-product of this government intervention and social engineering was a financial instrument called the “derivative,” which turned the subprime mortgage market into a ticking time bomb that would magnify the housing bust by orders of magnitude. A derivative is a contract where one party sells the risk associated with the mortgage to another party in exchange for payments to that company based on the value of the mortgage. In some cases, investors who did not even make the loans would bet on whether the loans would be subject to default. Although imprecise, perhaps derivatives in this context can best be understood as a form of insurance. Derivatives allowed commercial and investment banks, individual companies, and private investors to further spread—and ultimately multiply—the risk associated with their mortgages. Certain financial and insurance institutions invested heavily in derivatives, such as American International Group (AIG).18
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