by Ron Paul
We must be vigilant when the cry is for closed borders, since such a policy may turn out to be more harmful to us than those who come here illegally. The Patriot Act did great harm to the liberties of the American people, and that sacrifice has not made us safer. Arizona-type immigration legislation can turn out to be harmful. Being able to stop any American citizen under the vague charge of “suspicion” is dangerous, even more so in the age of secret prisons and a stated position of assassinating American citizens if deemed a “threat,” without charges ever being made. The Real ID, supported by those demanding stricter control of our borders, was rejected by many because it was eventually seen as a step toward a national ID card.
There’s no reason to assume that any single group of hardworking Americans won’t accept the principles of a free society. That’s what most immigrants seek regardless of the color of their skin. Why shouldn’t they be open to the arguments of defending private property, free markets, sound money, right to life, low taxes, less war, protection of civil liberties, and especially a foreign policy designed for peace rather than perpetual war?
Some conservatives and Republicans, in my view, insult many minorities by appealing for their votes only by trying to outdo the Democrats with giveaway programs. Why shouldn’t a strong message of personal liberty, self-reliance, and economic opportunity be appealing to immigrants as well as lifelong citizens? With the total failure of the welfare state and our foreign policy, it will become more evident that the door is wide open for the solutions that a free society provides.
INSURANCE
One of the most serious misconceptions in public affairs today is related to an erroneous understanding of government insurance. Once government gets involved in providing insurance for any economic purpose, it no longer qualifies as insurance.
Insurance is about measuring risk and finding market opportunities to reduce the consequences associated with inescapable risk that exists as part of our lives. The market provides insurance against untimely death, against automotive accidents, against fire in our homes, against burglary, and the like. The market does not provide insurance against risk that we create on our own. For example, you cannot buy insurance against losing the lottery, against business failure, against losing a sports match. This is because those are risks we create on our own. Market-based insurance is about cushioning the results of inadvertent events that negatively affect our lives.
Insurance is only profitable for both the insurer and the insured if risk is properly measured and priced. Only the competitive market can measure risk and find a price for the insurance. In the same way that the failure of socialism is inevitable due to the absence of free market pricing, government subsidized or regulated insurance will always fail in the same fashion, because there is a moral hazard embedded as part of its underlying structure: It is not properly priced according to the level of risk. Regardless of how we behave or what we do, our premiums do not change and the payout does not change. Moral hazard, that is, the tendency to adopt the very behaviors against which we are being insured, is all but guaranteed.
The government’s definition of insurance is grossly misleading. Social Security is not, properly considered, insurance. Government-provided health benefits are not insurance either. And even such institutions as tax-funded flood insurance are not really insurance. All these programs are more accurately considered transfer payments. They redistribute wealth from one group to another. The rhetoric about insurance is just a cover to give these institutions legitimacy, effectively fooling people as to their true nature.
In fact, the term “government insurance” is an oxymoron—a total contradiction. And this applies to all government “insurance” programs. It comes from the deliberate twisting of language by those who know better, and economic ignorance on the part of others. Many believe—at least they want to believe—the government is quite capable of “insuring” all of us against risks: economic, personal, and foreign.
When government provides “free” benefits or services, people prefer not to admit they are actually receiving a subsidy or welfare. People feel good that they can “pay their own way,” not realizing that the program or assistance would cost a lot more or wouldn’t be available without government. The future harm done and the penalty that inevitably is paid far surpass facing up to the truth that government has nothing to give to some, other than that which they steal from others.
One approach is accomplished by voluntary choices; the other depends on an authoritarian approach to managing society. If we ever expect to make progress in solving our problems while preserving liberty, the term “government insurance” must be removed from our lexicon.
In the past hundred years, too many, and especially those in public educational institutions, have been taught that government supervision is efficient and proper. The trend toward dependence on government solutions violates the restraints in the Constitution and ignores history’s explicit record of authoritarian government’s failure.
If we follow the rules of limited government and personal responsibility, the issue of moral hazard would be dramatically reduced to those who commit fraud against insurance companies instead of endorsing an entire political and economic system based on immoral behavior that has given us our economic crisis and a foreign policy of perpetual war.
The authoritarian approach of government has appeal despite its history of devastating failure. Trust in authoritarianism is the foundation on which modern-day moral hazard rests. Those who promote the virtues of government interference in our lives and economy do it with a proud arrogance, convinced that average people can’t and won’t do what’s in their best interest.
The planners are not bashful in saying that average people aren’t smart enough to take care of themselves. They deny they seek power over others just for the sake of power—heaven forbid. Whether they seek power for their own sake or they are truly motivated to make a better world, most authoritarians pursue government and domination over others by espousing humanitarian causes passed off as virtues. And for a long time, too many citizens have accepted the rationale that we need government to bring about a fair, moral, peaceful, and prosperous society. This deception persists as we witness the perpetration of failed policies even though we’re in an economic crisis brought on by these false premises.
What we really need is a generous dose of reality. If this understanding is not challenged and refuted, the moral hazard that will result will guarantee an end to the grand American experiment in personal liberty and self-reliance. H. L. Mencken said, “The urge to save humanity is almost always a false front for the urge to rule.”
But it also requires the people’s complacency to buy into the free lunch argument. Not everyone wants their freedom and accepts responsibility for their own well-being. The problem is, there are always individuals who want to control others and a significant number of people who believe they will benefit forever from the gravy train. This allows the erosion of liberty to progress.
And then both groups come to believe their own lies. The authoritarian is convinced he is needed to take care of the stupid and inept of society, otherwise they will suffer. Though authoritarians reek with arrogance and the power serves as an aphrodisiac for them, they convince themselves they are truly serving humanity.
The recipients of the humanitarian efforts never see themselves as participating in an immoral process, nor do they see the ultimate failure of the collectivist approach to improving mankind, whether socially or economically.
Almost all tyrannies are achieved with public acceptance, as a result of successful humanitarian propaganda that guarantees fairly distributed prosperity and personal and national security. Those who do not accept these premises are deemed unpatriotic and uncaring of their fellow man. Government propaganda is a powerful weapon used to instill fear into the hearts and minds of the citizens. Once this is done, it’s easy to get the people to accept government authority they otherwise would have rejected.
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C. S. Lewis warned of the great danger of this “worst” tyranny. “Of all tyrannies a tyranny sincerely executed for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated, but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.”
The danger of using humanitarian arguments is well known. Henry David Thoreau said in Walden that if he saw such an individual coming at him he would run for his life. Bastiat detested the do-gooders’ attitude as “philanthropic despotism.” Isabel Paterson recognized it as “the humanitarian with the guillotine.”
The saying that the road to hell is paved with good intentions dates in various forms back to as early as the twelfth century. Today we see that the road to tyranny is paved with delusions of grandeur. One would think that after so many warnings over the centuries we would be more alert to the danger of deceitful humanitarianism gone amok. But I suppose wielding power by some combined with a desire for a free lunch by others makes it difficult to overcome these human traits. A “winning the lottery” attitude prevails.
Yet that’s what a free society attempts to do—properly understand “humanitarianism.” And for a while in this country, we did emphasize the value of liberty over security and authority. The question is, Will we ever again get our priorities straight? Let’s hope so, since all human progress depends on it.
Paterson, Isabel. 1993. The God of the Machine. New Brunswick, NJ: Transaction Publishers.
KEYNESIANISM
Modern-day economic policies throughout the world have been greatly influenced by J. M. Keynes’s The General Theory of Employment, Interest and Money, published in 1936. Many believe that Keynes was the originator of this theory of massive government intervention to keep an economy strong. Ludwig von Mises made the point that Keynes was not actually presenting any new ideas. Keynes’s prescription for getting out of the Depression of the 1930s had been around for a very long time, and it was those ideas that actually got us into the Depression. By 1936, they had already done great harm to the United States and the world economy.
But something did change with the publication of The General Theory. Keynes gave the governments of the world a seemingly scientific rationale for doing what governments wanted to do anyway. Government intervention gained further acceptance as the world’s official economic theory—except for the more radical interventionists who advocated outright socialism, communism, or fascism. Inflation, price controls, and government controls have actually been known for literally thousands of years.
Mises’s explanation for Keynes’s notoriety was that those who already practiced interventionist economics believed that Keynes provided them with a “scientific” explanation for doing the things that they were already doing.
Our economic and political leaders were anxious to remove the restraints on government growth that free markets and the gold standard had placed on them. Having “scientific” justification for their plan to have government manage all parts of the economy emboldened them in their efforts. The disastrous shape of the economy in the 1930s provided the fear that intimidated people into accepting the promises of the New Dealers while ignoring their loss of liberty.
FDR actually, with reverse psychology, taught Americans to fear “fear” itself and worked to generate more of it. The fact that the Austrian free market economists had already explained the boom-bust cycle and predicted the onset of the Depression meant that they had to be discredited in order to expand the age of welfarism, inflationism, and warfarism.
The sad part is that the Keynesians won the intellectual and political arguments, even though the system they devised was destined to fail and had been tried many times before.
The good news is that all the shortcomings and errors of a centrally managed economy are now becoming readily apparent, though it has taken a remarkably painful correction for them to do so. Though Washington has yet to grasp the reality of the failure of our economic policies of the past eighty years, the American grassroots have a different opinion. Many had hoped that the failure in 1989–1990 of radical economic interventionism, as practiced by the Chinese and Soviet communists, would usher in an age of free markets and individual liberty. It didn’t happen, and instead we got greater worldwide support for Keynesian policies that perpetuated the theory that central economic planning was necessary to sustain economic growth. Dropping the militarism of communism and National Socialism (fascism) was thought to be enough to make economic planning palatable to the people.
The failure to recognize the shortcomings of regulated trade, inflationism, and macroeconomic management, and the danger of the government being the protector of last resort for all economic activities has allowed a much larger economic bubble to develop. That worldwide bubble economy which is on its last legs must be understood in order to refute the false notions that created the bubble.
Government and private sector spending borrowed money is not a panacea as Keynesians claim. Spending money on bailouts, propping up malinvestments, borrowing, and inflating the currency cannot produce sound economic growth. Debt finally consumes the fictitious wealth built on sand that deceived the politicians, Main Street, and Wall Street into believing real economic growth was occurring. Government borrowing and spending is not the solution; it’s the problem. Producing and saving is the source of sound economic growth, a policy Keynesians readily decry.
Emphasizing spending and borrowing means that the problems relating to borrowing, inflation, and the cause of the business cycle need not be addressed. Federal Reserve Board Chairman Ben Bernanke, as all Federal Reserve Board chairmen tend to do, frequently chides the U.S. Congress for deficit spending, but at the same time Bernanke argues that deficits are justified during recessions and war, both of which are perpetual.
All this clamor and grandstanding against deficits divert the people’s attention from the question of whether the Fed has any knowledge whatsoever concerning what the proper interest rates and the money supply are supposed to be in order to generate sound economic growth. The fact is that without a Federal Reserve to accommodate deficit spending through monetary inflation, huge deficits would be virtually impossible. Though many mainstream economists now admit that interest rates were held too low for too long between 2000 and 2008, they nevertheless believed that even lower interest rates, indefinitely, is the Keynesian answer to a Keynesian-created recession.
For a while, the policy of inflating the currency during a recession can keep the bubble temporarily inflated. From 1971 to 2000 it worked at various times to some degree, but for the past ten years, spending and money creation have not reenergized a slumping economy. The idea that wealth without productive effort is possible is a Keynesian myth. It is this myth that deceives the Fed into believing it can create capital with the click of a computer and reject the notion that true capital can only come from production and savings.
This myth perpetuates the notion that a government and its citizens can live beyond their means and never be forced to live beneath their means. Depending on government stimulus programs, paid for with deficits and money creation, becomes an economic narcotic addiction. The longer the dependency lasts, the greater the dosage required to alleviate temporarily the unwelcome symptoms of the necessary correction.
Politicians are unable to tolerate any symptoms coming from stopping or even slowing the policies that require excess spending, borrowing, and monetary inflation. The message that the markets are sending today is that the age of Keynesian central economic planning is over.
The meltdown of 2008 and its aftermath was a global event resulting from the fact that the world has accepted the dollar as the reserve standard and that all economies are linked to its value and therefore to the status of our economy; the maintaining of a global empire also amounts to a subsidy for the dollar. The
failure of Keynesianism is the belief that central economic planning is workable, that spending is a panacea, that borrowing is unlimited, that deficits don’t matter, and that governments can solve all our problems. All one has to do is listen to the Paul Krugmans of the world. It’s amazing to me, but it seems he actually believes what he espouses. He has swallowed the bait hook, line, and sinker.
To reject the pie-in-the-sky promises of Keynesianism, one would have to reject the authoritarian goals of welfarism and warfarism on the cheap. But that’s too much to expect at present. It won’t occur deliberately by the Keynesians, but eventually an economic collapse will end it. Ultimately, the only alternative is to outright reject all Keynesian economic theory and replace it with the more modern understanding that the role of government should be based on honest money.
The end stages of the current monetary and economic system—based on a pure fiat dollar—that started in 1971 are growing more apparent every day. Grassroots Americans are well ahead of the political leaders in Washington. Average Americans are very much aware of how serious our problems are and literally laugh at the old clichés regarding increased government spending, more government programs, and the importance of our representatives bringing home the pork. Something big is now ongoing in our political system.
Still, there are plenty of disagreements as to exactly what should be done. Agreeing on the solution to each problem we face is secondary to agreeing to the moral principle that defines the role of government in a free society. There remains a significant number of people in Washington whose goal it is to nationalize our whole economy. The angry Americans now gathering in larger numbers and affecting political races are certainly not crying out for socialism.