Liberty Defined: 50 Essential Issues That Affect Our Freedom

by Ron Paul

  Corporations, unions, and governments stand between the patients and their doctors regardless of motivation. The quality and cost of medical care can never be improved by forcing on the American people greater debt-financed involvement in medical care. Medicare and Medicaid are already bankrupt. Creating a new trillion-dollar system will only hasten the day of reckoning.

  MONETARY POLICY

  I have written in great detail about the shortcomings and grave danger of an unchecked central bank—the Federal Reserve—but the argument needs to be repeated in every discussion of public policy.1 All talk about the dangers of big government and loss of liberty is inadequate if the negative impact of the money managers is not addressed. Avoiding the subject, deliberately or not, serves the interest of those who support expanding government welfare and promotes an indirect way to pay for unpopular and unjust wars.

  The problem is easily summarized. Money was once rooted in a scarce commodity like gold or silver. It could not be manufactured by governments. In the late eighteenth and in the nineteenth centuries, there were many debates about the first and second Bank of the United States. In 1913, Congress created the Federal Reserve with the power to print new money. This allowed government to pay for wars and welfare, but it also generated economic instability with booms and busts. Each time we’ve gone through this, the government and the Fed removed more of money’s commodity backing. Since 1971, the dollar is not redeemable in anything but itself. It is nothing but a symbol, and there are no limits on the number of dollars government and the Fed can create. The result has been an unchecked expansion of the state and a brutal and long inflation that has reduced our living standards in deceptive ways.

  Until just a few years ago, the number of Americans who understood the dangers of this policy of monetary destruction was quite small. Most Americans, because of what they had been taught for decades, believe the Federal Reserve provides the ultimate safety net for everyone concerned: bankers, Wall Street, investors, businesses, employees, consumers, et al. Most believe that the Fed gets us out of jams such as too much inflation, recessions, or too high interest rates.

  Alan Greenspan was called the Maestro and was heralded as the genius who had a magic touch and could fine-tune the economy in a new economic era. The fact that the Fed was set up to be the lender of last resort, along with easy credit granted by the Fed, encouraged huge malinvestment and excessive debt. The gargantuan size of the derivatives market—a crisis not yet resolved—could not have occurred without a Federal Reserve and the moral hazard its policies generate. The Fed should have been blamed for most of our economic problems rather than credited with providing solutions to them.

  Legislation and regulations added fuel to the fires of speculative excesses, especially in home mortgage derivatives. Keynesians encouraged everyone to trust the safety net of government spending and Federal Reserve easy credit. This misplaced trust, based on false assumptions, has generated, in my estimation, the largest financial bubble in all of history.

  The Fed has, in the past, been able to take credit for the good times and for pulling us out of the bad times. But no longer will it remain exempt from blame. The monetary system guarantees that investors and banks will push the envelope and make careless speculative decisions that generate a bubble economy waiting to burst.

  I’m sure the historians one day will express great amazement as to some of the silly notions that were accepted as being sound for so many years, before the current collapse occurred. What sane person would advise a family member or a friend who was in over his head financially, in debt, and about to lose his home that the solution was to borrow more money and spend it and sign up for as many new credit cards as possible? It is ludicrous. In addition, he is told that it is not necessary to work overtime or take a second job to reduce his debt.

  And yet that’s exactly what our nation has been doing—in spades—since the crisis hit in 2008. And the Keynesians are still surprised and annoyed that the economy has not recovered. Their answer continues to be spend more, borrow more, and increase the debt even faster. It’s hard to believe that reasonable people believe this. An individual is not better off by assuming more debt and spending more, so how can a nation expect to be?

  Keynesians have lost the intellectual debate. After the total failure of the most militant forms of economic planning—fascism and communism—the worldwide failure of Keynesian-type central economic planning is staring us in the face. They have but one card left to play: the argument that anyone who doesn’t go along with their bailout programs, which are nothing more than rehashes of the programs that created the crisis, doesn’t care about people and is devoid of all compassion. Instead of debating the underlying economic policies, they resort to demagoguing the issue with innuendoes and false charges regarding compassion.

  Keynesians and their political cronies in Washington are quick to accuse anyone who opposes unlimited unemployment benefits as heartless. The question they won’t even consider is what would they do if it were shown that extracting funds from the productive economy to subsidize unemployment results in prolonging the unemployment and actually increases the number of jobs lost? As funds are drained away from those who are barely hanging on and trying to expand their businesses, the economy is made weaker.

  Those who refuse to engage in the intellectual debate and look at the consequences of ideas and policies resort to politicizing the issue with offers of transfer programs based on increased taxation and inflation in order to maintain power. If a reversal of this process is not achieved, total bankruptcy will force us to consider an entirely new system.

  I would like to see a dollar as good as gold. I would like to see the banking system operating as it would under free enterprise, meaning no central bank. I would like to see competitive currencies emerge on the market and be permitted to thrive. I’ve been pushing for these solutions for decades. The problem of the transition is not technical. It can happen. The problem is political. Paper money is a drug and Washington is addicted. What, then, is a realistic solution? As Hayek used to say, we need choice in currency. Washington should get out of the way and let another system built on human choice emerge spontaneously. That would require an end to the crackdown on competitive currencies. I’m fully confident that we would see the dollar outcompeted in time.

  Hayek, F. A. 2009. Choice in Currency: A Way to Stop Inflation. Auburn, AL: Mises Institute.

  Paul, Ron. [1982] 2008. The Case for Gold. Auburn, AL: Mises Institute.

  Rothbard, Murray. [1963] 2008. What Has Government Done to Our Money? Auburn, AL: Mises Institute.

  MORAL HAZARD

  The expression “moral hazard” is frequently used today to describe economic decisions that have been influenced by government programs. It’s generally recognized that with a government policy that insulates against risk, individuals might react differently than they otherwise would have. These changes in behavior are sometimes subconscious and seem natural, yet the consequence turns out to be hazardous to all parties involved.

  Our society and economic system is now engulfed with moral hazard and its many serious unintended economic consequences. The term “moral hazard” originated in the sixteenth century. It was initially used to describe behavioral changes as a consequence of owning insurance. English insurance companies, in the late nineteenth century, became especially aware of this phenomenon.

  They came to understand that individuals who had property insurance were more inclined to engage in risky behavior knowing that compensation was guaranteed if the property was lost or damaged by fire, carelessness, or theft. It was recognized that insurance may well be, under certain circumstances, an incentive for arson and other forms of fraud meant to cheat the insurance companies. This early use of the term was associated with explicitly immoral behavior.

  The modern use of the term started in the 1960s and was applied to government economic policies. This more recent meaning dropped the emphasis on immoral or fraudulent behavi
or and concentrated on inadvertent economic consequences of government policies that interfered in the free market economy. The past fifty years have given us an epidemic of government intrusions in all economic decisions, and the results have been an exponential growth of consequences that represent moral hazard.

  Moral hazard in economics is not too far removed from the concept of unintended consequences brought about by all government policies. Government actions, regardless of motives, are promoted with promises that the people will be insured or protected against every risk conceivable, from natural disasters, health problems, and economic needs to foreign threats. We live in an age when the majority believes the government is the ultimate protector, not only from all outside risks but also from our own unwise behavior.

  The government now is expected to protect us from ourselves. This should be offensive to anyone who loves liberty. We are not expected to make any decisions for ourselves. Governments make sure everything we use or take into our bodies will be safe and beneficial. If we need an immunization, no need to think, the government will pay and provide it for us without question. No personal responsibility is required in making the decision; no market-directed consumer groups can be expected to supersede bureaucratic decisions that involve everyone. When mistakes are made with central economic planning, the consequences are horrendous and magnified.

  The moral hazard of accepting assurance from our government that we will be taken care of with only a modicum of loss of freedom is unlimited and is a significant reason why we are facing an economic and political crisis today.

  Contrary to the current conventional wisdom that uses the term “moral hazard” while avoiding the implications that this process doesn’t imply immoral behavior, this book emphasizes the immorality associated with the term. Though private insurance is discussed, I’m more interested in discussing the concept of moral hazard as it relates more broadly to government policies, assurances, insurance, myths, guarantees, clichés, false notions, lies, emotional arguments, and economic planning.

  Using this broad definition of moral hazard, it can apply as well to policies designed to regulate personal habits and to the fallacies associated with foreign affairs. It includes all the unintended consequences of government actions and programs.

  Instead of using moral hazard as a benign, nonjudgmental economic term, I emphasize how most government action is hazardous to morality. Government assumption of illicit power starts the process and it spreads to the special interests, which use these powers to serve their own interest. Though they may do this consciously for gain, the ultimate hazard later on cancels out the “benefits” they may have gained.

  Home-building and mortgage companies benefit from easy credit in the short run and promote policies that artificially stimulate home building, but later on suffer consequences beyond their expectations. The participants are not innocent of wrongdoing. The government acts immorally by illegally assuming its powers, and the business interests yield to the offer and act immorally by participating in the political process. Those who argue that moral hazard is strictly an economic phenomenon disagree and want to characterize this participation as merely an intended consequence of no moral significance.

  The new Percora Investigation, the Financial Crisis Inquiry Commission established by Congress, started public hearings in January 2010. But we cannot expect that this government inquiry will be any more helpful than the first one was in 1932, and for very similar reasons. All the members of the commission and most likely all who testify are totally oblivious to free market Austrian economics and have no understanding of how artificially low interest rates and Federal Reserve policy are the culprits. In many ways, it’s just another cover-up permitting the Fed to escape blame and gain a massive new expansion of regulatory power. The new commission will once again blame free markets, sound money, and lack of regulation for the crisis, unless the right ideas are presented and accepted.

  We cannot depend on any government commission to be objective enough to sort out the issues. Their job is to defend the need for government and ignore or downplay its errors. A solution can’t possibly be found by talking only to the people whose policies caused the disaster and who never anticipated the crisis.

  The establishment economists’ first awareness came after the collapse of the financial markets; yet there were many free market economists who were well aware of the pending crisis, the financial bubble, and how it came about. If it ignores those individuals who correctly expected the bubble to burst, there is not much hope for this commission to return us to a sound economy.

  Even the end beneficiaries of a government housing program of easy credit and congressional affirmative action programs are participating in the immoral process. One group steals, another becomes the “fence,” and the recipient doesn’t complain; that is, until the magic wears off, the system unravels, and only the very well-connected continue to salvage benefits in the bailouts.

  Moral hazard should be considered an immoral process in today’s usage. It’s a hazard to morality to devise grandiose schemes that promise so much, and when the scheme fails or has bad consequences, they write it off as simply people who believe they are protected from risk acting in unpredictable ways. It is argued that it’s a mere consequence that we should be aware of and guard against without condemning the whole process.

  Justifying moral hazard as a benign economic reaction should be seen as part of the grand scheme of central economic planning, including regulating personal habits and enforcing foreign policy and the harm that results. The economic planners argue that the problems can be solved merely with more regulations and more promises.

  Grant, James. 1994. Money of the Mind. New York: Farrar, Straus and Giroux.

  MORALITY IN GOVERNMENT

  The U.S. government has been operating without a moral compass for decades, and without a moral compass, the rule of law is meaningless. Neoconservatism, which follows the philosophy of Leo Strauss and Irving Kristol, along with the modern-day liberals who accept the principle of authoritarianism, provides no moral leadership. And most people in Washington, though influenced by both ideologies in various forms, may not be devout followers or even aware of their influence.

  There are no neat categories in which members of Congress can be placed. The Obama administration, though continuing many of the policies of the neoconservatives of the previous administration, is not as visibly run by the neocons at the American Enterprise Institute. But it makes little difference.

  The prevailing attitude in Washington has evolved because there has been no moral compass or respect for the rule of law or individual liberty. Regardless of what party is in power, social welfarism, government regulation of personal nonviolent habits, and foreign military entanglements never change, despite the campaign promises regarding the Constitution or freedom. Policies are dictated by prevailing attitudes and influenced by the ideology of the establishment that supports unlimited government. So-called conservatives’ support for preventive wars and so-called liberals’ support for social welfare policies always prevail in the moral vacuum that exists. Everything that happens in Washington is done in defiance of the moral precepts that undermine individual liberty.

  Without a moral foundation to government policies, the purpose of government no longer has any resemblance to the intent of those who settled our country and rebelled against the tyranny of King George.

  The majority of Americans today expect to be taken care of by the government. They care little about where the government will get the resources to satisfy all the needs that might arise. Certainly there’s little concern expressed about the morality of a welfare state associated with massive economic intervention. Those who are on the receiving end of the government transfer system, whether it’s the wealthy, the poor, or the middle class, don’t want to be bothered with the question of whether or not the whole system is based on a moral principle. It would never occur to them that theft and violence are used to carry
out these policies.

  The transition away from the original notion upon which we were founded, that government was to be strictly limited to the protection of individuals from out-of-control government authoritarians, has been going on a long time. Washington responds to the noise that the voters make, and the demand for ultimate security and an economic safety net for all has overwhelmed the cries by some who ask only for their liberty. The time when government was held in check by the limitations placed in the Constitution has long been forgotten.

  The erosion started early, and it could be argued that even the Constitution itself weakened this principle that was embedded in the Articles of Confederation. In spite of the early erosion of personal liberty, it was in the twentieth century that the moral compass guarding our liberties was completely cast aside.

  What moral system should government follow? The same one individuals follow. Do not steal. Do not murder. Do not bear false witness. Do not covet. Do not foster vice. If governments would merely follow the moral law that all religions recognize, we would live in a world of peace, prosperity, and freedom. The system is called classical liberalism. Liberty is not complicated.

  NOBLE LIE

  The noble lie is anything but noble. The idea is mostly associated with government, for good reason. Government lies to us to manipulate public opinion to bring about certain results, like war and wealth redistribution. But because the noble lie persists and too many people over the centuries have lived by it, it has created an environment in which moral hazard thrives. Lies perpetuate themselves even though most people know two lies don’t equal the truth.