“If this were Germany, and Obama were in fact Hitler, which he is not, SEIU would be the brownshirts. In point of fact, SEIU are the brownshirts.”
“Jonathan Alter, the professional hagiographer on retainer at the DNC.”
“Rand Paul, who believes in vesting individuals with the power to deny rights retained by others while fully committing to the notion that governments cannot do the same, wins the prize for drawing useless and non-sequitur distinctions.”
“While Democrats and Leftists crow about Sue Lowden advocating a barter system for healthcare, they may want to reflect on the fact that Obama’s nominee for Surgeon General engaged in a barter system for healthcare whereby she accepted fish, grits, greens, and other assorted foodstuffs in exchange for healthcare while a physician in Bayou La Batre, Alabama.”
“The current slate of Republican nominees for governor in Alabama proves one thing beyond the shadow of a doubt: we are regular in Alabama.”
“Rachel Maddow, who had the fortuitous occasion to run into Rand Paul while one foot was in his mouth and the other was on its way, managed to make a point by allowing Rand to continue to speak. It’s a pity he couldn’t have just allowed her to speak, given that the liability would have shifted.”
“The Rand Paul campaign, previously endorsed by Dr. James Dobson, would have done well to have Dr. Dobson advise them on the scriptural maxim ‘Slow to speak, quick to listen.’”
“Sidney Blumenthal, that wastrel with an australopithecine jawline , remembers the invective and physical assault suffered upon his return from reserve status. He will doubtless remember for all eternity the whipping he is about to endure.”
“President Obama, in order to prove that a corrupt oil company cannot be relied upon to prevent a catastrophe or clean up its mess, will allow the marshlands, wetlands, and coastlines of the Gulf states to be defiled in order that he may be proven right.”
“The federal government, which never met a law it could not ignore, has seen the net consequence of laws which lack enforcement in the form of Arizona’s recent immigration law and the British Petroleum debacle down in the Gulf of Mexico.”
“And on Wall Street, fraud is conducive to profit and greater returns for the shareholders when the government refuses to enforce anything resembling a law or a contract.”
“Anyone who doubts that time is something which can be purchased with money should view the various bailouts, especially that package recently passed by Germany, as a total repudiation of their belief.”
“Ed Schultz, that globular orb of a man, will one day be happened upon in a quarry some years from now by archaeologists, who will realize at long last the fulfillment for the quest to find a missing link in the record.”
“Tim Geithner, the Treasury Secretary who did not know how to elude taxation without getting caught, will soon find that he did not know how to delay the inevitable either.”
“Ben Bernanke, who gives economists an accurate name.”
“In America, being totally wrong is a virtue which will see you promoted to higher office and rank. See the economic advisory board for proof of this.”
“George Soros, a Jew who accompanied a German on his rounds as other Jews were systematically stripped of their wealth, is a being of few principles and much pragmatism, much like an intestinal parasite.”
“Robert Gibbs proves that one does not have to be attractive in order to retain employment as a whore. What he does with his mouth causes his clients to overlook certain liabilities in appearance.”
“Elena Kagan has a record more notable for its paucity than anything else.”
“Janet Napolitano proves that the difference between a Republican and Democrat as the head of Homeland Security is some hair and about 70 pounds.”
“After 50 years of rule by the best and the brightest, we ought to have realized that Yale and Harvard are perhaps not the institutions they purport to be, and that the best and the brightest are not what they purport themselves to be, given 40 consecutive years of deficits, political polarization, a government that cannot even enforce the laws it enacts, and a debt on the verge of exceeding our GDP.”
“A gentlemen’s C at Harvard and Yale translates into an F in public service and fiscal management later on.”
“If, after 40 years of deficits, a tolerance of an intelligence agency which violates the law over 100,000 times a year by its own admission, and a war entered into under false pretenses, the world looks upon us with contempt, it is because of our contemptible failure to turn those responsible out of office and employment.”
“Al Gore, who purchases carbon credits before every utterance to offset the impact.”
“Jay Leno, who lost his comic timing but retains his decisive focus on the prize, ought to switch slots with the President, who possesses the former in abundance but lacks the latter altogether.”
“Michael Steele, who rode race further than any other individual in the GOP since Jesse Helms.”
“Karl Rove, whose insight into political campaigns has the added benefit of proving just how right John Calvin was about total depravity.”
“MSNBC, which finds itself in a deathmatch for ratings with Comedy Central, has yet to realize that hiring Mo Rocca could be the first step towards redemption.”
“In a hugely ironic turn, Sarah Palin will be employed by The Learning Channel.”
“Tim James, the Republican candidate for governor, was hugely irritated when he was informed that the governor’s race was not determined solely by hereditary succession. After all, it made sense to him.”
“In an example of covetousness that shows just how low he can go, Jay Leno was reprimanded by NBC brass for trying to displace Johnny Carson from his slot at the mausoleum.”
“Pity the gays, whose political benefactors have adopted a strategy of appeasement and patronizing from the Broadway musical Annie: ‘Tomorrow, tomorrow, I love you, tomorrow, you’re only a day away!’ Proof that even in politics, at least one thing can’t be bought.”
“Anyone who believes the Democrats are committed to equality for all and integration ought to look at two key indicators: income since 1950 among African Americans; and public housing, which is the American way of apartheid.”
“Whereas George W. Bush was, for better or for worse, the Decider; Barack Obama is the Prevaricator.”
“Reported from the Undertow Bar & Grill in Alabama, where individuals found an oiled up bird and tried desperately to contact BP’s hotline in order to ascertain who could rescue the animal: ‘They dudn’t answer.’ Indeed.”
“One wonders why, given the fact that a Dawn commercial clearly shows how to intervene in order to help animals covered in oil, the local zoo director’s explanation that her staff was not trained in how to deal with oiled up animals could suffice.”
“Keith Olbermann, bringing his peculiar brand of overstatement from sports reporting to political punditry, feels qualified to designate the ‘Worst Person in the World’ as though he has competition for the laudatory in question. Emeritus, perhaps?”
“Ron Paul, the Libertarian slash Republican from Texas, opposes wasteful spending, but only after his earmarks have been safely inserted.”
“It is notable to consider that Marco Rubio’s practice of law became lucrative only after he attained election to the Florida House, which ought to indicate just what type of lawyer he was and what type of politician he is.”
“Congress believes that the American people do not want to know what goes into the sausage that elected representatives vote on. What is perhaps offensive to the American people is that Congress increasingly has no idea what is in the sausage either, with the recently passed healthcare reform package as the chief example.”
“Governor Rick Perry, safely rehabilitated in the eyes of the public from his days as a chair of Democratic presidential campaigns in Texas, is also ensconced in the irrelevant office of governor, which says much about the wisdom of Texas voters in quarantining their most dangerous politicians from the ability to do too much harm to the state’s interests.”
“Governor Gary Johnson, the former executive officeholder in New Mexico, will find that original ideas are the most dangerous thing to bring to a political campaign in 2012.”
“Washington longs for the days when being caught with a live girl was not a disqualifying offense.”
“Mark Sanford, the South Carolina Lothario, would do well to be tested for syphilis if he genuinely believes that the other woman is his soulmate.”
“Rielle Hunter, who found out just how much of a lightweight John Edwards was when he leapt into her arms, will have no problem carrying him through life after his legal problems are resolved.”
Saturday, May 22, 2010
Thursday, May 20, 2010
The other day, during a spirited conversation with Leslie Marshall, a self-identified liberal progressive radio host, I encountered yet another example of the Left’s functional incoherence. Ms. Marshall informed her listeners and me that the recession was officially over. With 9.9% official unemployment, an economy that isn’t generating jobs at a rate which lowers the official unemployment rate, not to mention the unofficial unemployment rate of nearly 18%, there are those of us who beg to differ with the official version of events, especially given the number of months between the beginning of the recession and the official acknowledgement of what many of us were experiencing.
According to one Neil Barofsky, the TARP inspector general, America has expanded the TARP bailout from its initial tally of some $800 billion to nearly $23.7 trillion. What is so utterly astounding about that tally is this: we could have retired the national debt with that money, which will by year’s end tally just $14 trillion, and we would have had some $9 trillion left over to function as a backstop to our economy and the financial sector. The motto of Washington is quite simple: never let the obvious crowd out the irrelevant, and always take the route which goes around your elbow to reach your posterior.
Then again, what Ms. Marshall fails to comprehend is quite obvious in and of itself: anyone can put boosters on the stock market with $23.7 trillion in liquidity, especially when that money is clustered among banks who will invest rather than issue loans due to the peculiar way in which regulation has impacted our banking industry. The fundamentals of our market are thus: we have low trading volume, which indicates that the number of participants driving our market above 11,000 were few. The higher the volume, the greater the number of participants; the lower the volume, the fewer.
Moreover, the realities on the street are obvious enough. A few of us are doing well, but the overwhelming majority of us are underwater on our mortgages, our credit card debt, and our overall situation. It reminds one of that immortal line uttered by one David Lee Roth: “I don’t feel tardy.” Indeed. The majority of us don’t feel as though we are out of a recession, because we are not. Our wealth and our growth are still contracting quite painfully.
The stock market is growing, but relative to what? The dollar is rising, but relative to what? Allow me: the stock market is growing relative to last year, and this is not a barometer or an index which reflect anything other than the fact that we aren’t doing as badly as we did last year in our current performance. Many of the gains do not reflect higher sales per say, or even greater demand. They reflect growth in productivity, as companies have slashed expenses and overhead and reaped the accompanying profitability. The dollar is doing well relative to the currency of Europe, which is functionally insolvent due to the various deficits currently imploding Greece and threatening to implode Portugal, Spain, Ireland, and even Great Britain. What is more, by backing Greece, the Germans have invited their own economy to implode.
Considering that the growth is due entirely to government spending and government issued liquidity, and that the first recession was the direct legacy of a bubble created by Federal Reserve issued liquidity and government spending, we are arguably in the midst of the greatest bubble in human history. Yet as we have seen due to the European crisis, the bubble has not yet reached its apex: the $23.7 trillion is now over $24 trillion, as the United States backstops Europe through the IMF with a trillion dollar bailout.
When this bubble inevitably explodes, and it will, the resulting downturn is likely to rival and even exceed the Great Depression for sheer wealth destruction and human desperation. And what will we do then? I know: we’ll bury money at an appropriate depth a la Keynes, and hire someone to dig it out.
Our machinations, much like those of Roosevelt during the Great Depression, have ensured that this Great Recession will, like the Great Depression, stretch out for a decade or longer beyond its natural length. Two years after the inauguration of Barack Obama, nothing has been done to address the systemic issues within our economy; namely the national debt and the rampant fraud which contributed to the collapse of the mortgage market in the first place. How does one expect investors to invest in wealth creating endeavors when they can park their money in bonds and various puts and holds associated with those bonds? Say what you will, government debt does not generate jobs. In point of fact, it attracts investment capital away from endeavors which would generate jobs.
And then there is the matter of gold, which has risen to over $1200. The banks, in their infinite wisdom, have decided to treat gold as money for any number of reasons, not the least of which is the fact that they can apply fractional reserve approaches to gold and therefore sell far more gold in the marketplace than they physically have on hand. The price of gold will likely be inflated to unimaginable levels before this crisis is over, and when all is said and done, the result will be disastrous as investors realize that there is no specie on hand commensurate with their paper holdings. They have a certificate.
As Bastiat noted succinctly many years ago: “Man is not fed with coin. He does not dress in gold, nor warm himself with silver. What does it matter, then, whether there be more or less specie in the country, provided that there be more bread in the cupboard, more meat in the larder, more clothes in the wardrobe, and more fuel in the cellar?” The inevitable result of our current course is that money will be in abundance, as will certificates indicating ownership of specie, but there will be no bread in the cupboard, no meat in the freezer, no clothes on the racks, and little fuel at the filling station. After all, with worthless money or paper certificates indicating ownership of non-existent specie, how will you generate demand, and who will meet your demand with supply when what you have to offer in exchange isn’t worth the paper and ink it is printed upon?
This is not, as Ms. Marshall indicated during her outburst on the recession, evidence of pessimism. Instead, it is realism, and it is devastating, concise, and brutally honest about the course of our country and the plight of industrialized nations, nearly all of whom are overextended and on the verge of reaping the reward of tolerating financial fraud and outright corruption in their markets and in their governments.. The recession is over for that narrow band of individuals who have driven our stock market up nearly
70% in a year’s time. For everyone else, however, the recession is still on, and we are attached precariously to our houses, our jobs, and our hopes for the future.
Capitalism thrives on certain essential components, each of which tends to regulate the other. At the core of capitalism is the relationship between supply and demand. Success is determined by mediating the relationship between the two: if you have too much supply, you will drive prices below the threshold at which you can sell your good or service and still maintain a working profit; whereas if you have too little supply, you will drive prices up to a point where your potential customers consider your goods to be beyond the range of what they can afford. This balance is essential to the mutual success of merchants and consumers, as merchants seek to sell as much as possible and consumers seek to buy as much as possible. Scarcity is eliminated or reduced, and a “natural price” is arrived at, a price defined by Adam Smith as the lowest price at which merchants can sell an item and still survive.
The elimination of scarcity is the driving concern behind capitalism. It impacts everything from monetary policy to trade policy to productivity. The reason consumers support free trade is because free trade opens up opportunities and choices they would never have had in a trade environment blockaded by barriers. Consumers are able to choose, and the merchants who best meet the needs of the consumer are able to enrich themselves. The merchants who do not tailor their offerings to consumers or who do not adapt to the realities of the market inevitably fail.
That is, until the rise of corporatism. Corporatism’s abiding concern is not with the natural price, but rather with the market price. What corporatism seeks to do is to erect economies of scarcity rather than scale, so that the market price can be manipulated and even controlled apart from actual supply or actual demand. There are any number of ways to accomplish this, but chief among those ways is the formation of certain entities built on cooperation such as oligarchies, cartels, and monopolies.
Corporatism employs any number of political agendas or ideals to justify the existence of such oligarchies, cartels, and monopolies, but these ostensible ideals or intentions are never realized in the end results. Full employment, protection of domestic industry from unfair competition, protection of domestic labor from alien labor, the provision of “fair credit,” equality, energy independence, green technology, environmental protection, free trade, fair trade, economic justice, fair housing, redistribution, and so on and so forth. These ideals or goals can never be arrived at through government programs. Myths do not an economy make. No one ever moves from working poor status to middle class status by virtue of the dole.
The way forward is for individuals to attain capital of their own. An individual with rights has nothing of significance. An individual with rights and the capital to enforce the acknowledgement of those rights has everything of significance. He is empowered. The best way to accomplish this end, which is the only legitimate end to be recognized or defended by any government of free people, is to remove barriers to the individual’s industriousness being the determinant of his ability to achieve capital of his own.
The corporatist recognizes that an individual empowered to make his own way apart from government as an intermediary is an individual who cannot be directed or controlled. In short, he is a threat to the sort of power a corporatist seeks, which is very similar to the sort of power sought by his ancestors in continental Europe during the Holy Roman Empire. Legitimacy came from the Roman Church, and no one could approach God except through the Roman Church. Today, legitimacy or permission to engage in industrious activity for the purposes of self-advancement comes from the government in the form of licenses and permits. There are paths and channels which must be navigated by any individual seeking to go into business for himself or herself, and these are put in place ostensibly to protect consumers, but the reality is this: not a single ounce of red tape can be shown to have prevented any malfeasance in any industry. Nearly all of the perpetrators of fraud or malfeasance within industry are licensed individuals certified by the states in which they operated. Those individuals who did not manage or attempt to attain licensing or certification are simply common criminals who had the good criminal sense to forego state certification in the pursuit of their ill-gotten gain.
Corporatism seeks to place men and women in positions of power in much the same way that the Borgias once sought to put their own in the papacy. In the end, the Borgias were not all that concerned about preserving holiness in the papal office; they wanted power as a means to their end: enriching their own family and its various interests and concerns. For the very same reason that the Borgias sought the papacy, the corporatists seek the Congress and the White House. They seek to attain political power as a means of enriching themselves and their various interests or concerns. The sole merit of their enrichment stems not from innovation or merit, but rather from their ability to stifle those two items in competitors through regulatory power or statutory prohibition which gives them a means of preserving an inferior business practice or product in the face of a superior alternative. In the world of the corporatist, it is who you know rather than what you know.
Corporatists eschew merit-based competition. Their idea is to either exclude merit from the competition, or to enact some advantage in order to obtain merit through purchase, so that they can then shelve merit and prevent it from reaching the larger marketplace as a choice for consumers. Free competition and free choice are two ideals which corporatists hate.
In America today, success in business is determined not by industriousness or thrift, but rather by the ability of individuals and businesses to extract favorable regulatory concessions, tax breaks, or subsidies from government. Those who are most successful at extracting such items from government usually gain advantages for themselves in the market which can offset or overcome any inferiority or disadvantage in their product or business model. Those who are not successful, like those locally owned and operated businesses who invest the whole of their savings and effort in the construction and maintaining of their businesses only to be undone when Wal-Mart comes to town on a red carpet of concessions rolled out by the very elected officials who are supposed to represent their local taxpaying constituents, do not stand a chance of competing with a retail behemoth generating $11 billion or more a year in profits with $2.5 billion additionally spent by governments and paid out to their employees in the form of food, housing, and medical assistance.
The end result is a market where the success of a business is not determined solely by its ability to deliver products at a beneficial price to consumers endowed with free choice, but rather a market where products and their prices are determined government regulation over and above consumer choice. It is an environment where elected officials do not represent their constituents, but represent some notion of progress which ultimately leads to regressions in tax revenue, locally owned and operated businesses which comprise the base of any community, and the reduction of services funded by locally generated tax revenues.
What we must understand is that all government actions have a distorting effect on markets. If the government does anything at all in relation to the economy, whether in the form of regulation or deregulation, the market is affected. Conditions and rules are altered, and very often not within the parameters of a government’s initial intent.
The reason governments must be kept out of the marketplace is quite simple and quite obvious: governments are political, and they pick winners with their arbitration. Government involvement in a marketplace ultimately has a detrimental effect on competition as the arbiter of a business’s success or failure.
What we must understand about government involvement is that it always begins with the noblest of purported intentions and usually results in the exact opposite result. Where government action is concerned, initial intent is of no relevance. The Bible says that we shall know others not by their professions, but by the fruits of their actions. If this is the case, and a good many of us likely believe that it is, the fruit of government action is a damning indictment of the government itself.
The government ostensibly interfered with pensions in order to shore up failing pensions, enacting the Employee Retirement Income Security Act, or ERISA, which created an entity known as the Pension Benefit Guaranty Corporation. Initially this was done as a reaction to the Studebaker Coporation’s failure to pay full pension benefits to its workers upon its dissolution. Occasionally, businesses do fail. When they fail, their pensions aren’t likely to be fully funded. This isn’t nice, or even fair; with that said, nowhere is it written that you are entitled to have fair treatment from the cradle to the grave. Bad things happen to good people, and the rain falls on the just and the unjust.
In 1974, the government’s attempt to ensure equality and fairness in outcome led it to enact the aforementioned Employee Retirement Income Security Act of 1974, which created the Pension Benefit Guaranty Corporation, whose ostensible purpose was to ensure that failing pension plans would be picked up and funded when the company underwriting the pension failed. The government intended to save pensions, but its actions would ultimately lead us to the dissolution of the pension as the primary way of providing for a worker’s retirement. This is significant for any number of reasons, not the least of which is that pensions are funded by a share of a company’s profits rather than a deduction from a worker’s paycheck.
The impact on the market and corporations was near immediate. Corporations came to realize that they could jettison their pension plans, and the PBGC would backstop the obligations of the pension to existing pension beneficiaries. Instead of saving pensions, ERISA ensured their near extinction, with a few notable exceptions. Company executives and CEOs receive their retirements in pension plans. After promising utopian outcomes, Washington delivered a dystopia.
Furthermore, there were new opportunities for corporate America. Workers were now tasked with providing for their own retirements out of their wages, which were decimated not only by tax liabilities, but also by entitlements deductions as well. An obscure section the tax code took on a role of paramount importance: section 401(k) enabled workers to defer their tax obligations on savings for retirement. Those savings represented a boon to big corporations, who now had a vast new pool of capital to draw upon for investment. The reality that Social Security was inadequate to fund retirement is clearly obvious when you consider that there was a need on the part of workers to set aside a portion of their wages in order to fund their retirements.
A flood of new capital hit the market, stimulating investment in corporate stocks and generating a boon for the overall economy as the investment banks and mutual funds added on their fees to the newly minted 401(k) accounts. Workers who had no prior experience with investing now fancied themselves part of an ownership society, which was and is absurd for any number of reasons. The stock shares that you and I purchase are not the same stock shares purchased by those who really function as owners in our society. We get common stock; they get preferred stock.
To give you an idea of how pronounced the difference is between those two forms of stock, allow me to use the following illustration: the Ford family, which owns just 4% of the overall stock of the Ford Motor Company, has a voting majority which allows its members to outvote and overrule the remaining 96% of the shares held by other shareholders in the Ford Motor Company. Ladies and gentlemen, I give you reality: the Ford family are the owners, and it is their company, and the rest of us who hold stock in the Ford Motor Company are mere transients passing through their world.
These workers, who now fancied themselves as potential investment magnates, really had no comprehension of the market in which they were investing. They were the perfect investors from the perspective of corporatists. They didn’t know too much, they had money to pool and invest, but they weren’t wealthy enough to mount any significant challenge when they were hosed by those individuals in the know who from time to time manage to move the market one way or another.
These new investors (and I use that term loosely not out of snobbery but out of a sense of candor) did not comprehend the significance of newly erected financial reform laws like the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn-St. Germain Depository Institutions Act of 1982. Combined with the Tax Reform Act of 1986, these laws had an obvious effect on the overall market that was quite pronounced. Investors had previously sought to avoid taxes by investing in real estate, but when eager regulators and strident pro-tax advocates sought to eliminate the shelter of real estate as a refuge from tax liability by passing the Tax Reform Act of 1986, investors dumped their investments on the real estate market for far less than what they had paid, which ultimately drove real estate values down across the wider market.
In many respects, the government rightly recognized that there were problems within the thrift industry, but the government failed to acknowledge that the root of those problems originated in a 1966 decision to limit the rates thrifts and commercial banks could pay on savings accounts. In limiting the rates, the government essentially limited the appeal of thrifts to consumers. Consumers were denied access to a competitive market whereby they could choose between the savings options of a thrift as opposed to a commercial bank. They were denied choice so that Congress could promote an artificial notion of stability within the banking industry.
This had the effect of stifling the thrifts by limiting their growth, and it exposed them to fluctuations within the larger market. If high interest rates and low economic growth limited demand for the essential service provided by a thrift (i.e. that of savings accounts which were designed to result in home mortgages and the purchase of expensive manufactured items like cars) then the thrifts would be unduly exposed to the risk of collapse, as their ability to provide higher interest on savings had been restricted by the government in 1966. In short, the government tilted the playing field towards commercial banks, and when high oil prices choked the U.S. economy in the late 70s, thrifts were faced with mass failures because they could not adapt to the market conditions by raising their interest payments on savings accounts in order to attract customers. Thus the government came in to provide the two aforementioned deregulatory laws (Garn-St. Germain and the Depository Institutions Deregulatory Act) neither of which would have been necessary in the first place had the government not first interfered in 1966 to limit the rates thrifts could pay on savings accounts.
And that’s the point, really. The government picked a winner; in this case, the commercial banks, by limiting the rates thrifts and commercial banks could pay on savings accounts. In all truth, commercial banks weren’t paying tremendous rates of return on savings accounts. Their competitors in the thrift industry were. Of course, you couldn’t merely address the problem by simply limiting thrifts. The government decided to limit thrifts by lowering their rates to a threshold within the range of the existing rates paid out by commercial banks.
Enter deregulation, which would never have been necessary without regulation in the first place. The government recognized that thrifts fulfilled a valid role in the overall economy: helping consumers save to buy a car or a house, both of which are quite stimulative to the overall economy. However, deregulation did not merely accomplish the re-empowerment of thrifts to meet their original mission. As a direct result of the way the deregulation was written, thrifts became something of a piggy bank to their owners, who utilized the thrifts to invest in real estate as a tax shelter and as an investment opportunity with extraordinary potential rates of return. Congress legislatively incentivized moral hazard.
When the government recognized that its tax revenues were being adversely impacted, it passed the Tax Reform Act of 1986 to cut off the loophole which enabled real estate investment to offset tax liabilities. This had the net effect of incentivizing a market dump of real estate, which drove values down and put regular mortgage owners underwater as the amount they owed on their mortgages exceed the value and equity of their homes.
Ultimately, people write off their losses in business and in investments, and so the Tax Reform Act of 1986 was counterproductive. All it accomplished was the hosing of ordinary homeowners. Corporatists found ever more innovative ways to avoid taxes, and ordinary Americans watched as hundreds of billions of dollars went to bail out thrifts which failed in the aftermath of deregulation and the Tax Reform Act of 1986. In the case of Neil Bush, whose involvement in Silverado Savings and Loan led to his being fined a significant amount of money for restitution, his father’s friends and associates paid his fine for him. Justice, indeed. Profits were privatized, and losses were socialized. This is the corporatist way.
Those individuals who had seen their 401(k)s yield large returns over the boom period suddenly watched as their gains vanished. A 401(k) renders one particularly vulnerable to market fluctuations, given that regulations obligate one to stay in the market and take the loss. Tax penalties for early withdrawal and liquidation are significant enough to deter most people from getting out of the market. Not so with regular or professional investors, many of whom benefit from being relatively unencumbered in their ability to shift their investments to limit losses. They are also gifted with an advantageous perspective which enables them to see changes coming and to understand the effect of proposed legislation.
The truth of the matter is that the gains of the 1980s were largely due to rampant fraud, enabled by deregulation and a hands off approach by regulators to fraud and malfeasance. Government monetary policy created vast amounts of liquidity within the marketplace, liquidity which had to go somewhere. It went into real estate, and investors and financiers innovated to deal with the market conditions by created exotic new financial devices which spread risk rather than quarantining it. These securities would later go on to proliferate a decade and a half later, and they would accomplish the same socializing of risk and loss.
The government’s spending on weapons systems and defense equipment in particular had a distorting effect on growth in the economy. Anyone can accomplish economic growth by spending themselves into a hole and expanding liquidity. Ronald Reagan took the already ludicrous deficits of Jimmy Carter and nearly quadrupled them. What is the point of growth if the amount of debt underlying the growth renders a victory Pyrrhic? There wasn’t much about the 80s in terms of economic growth that was not directly due to government expansion, government spending, and the expansion of the monetary supply. Average Americans lost purchasing power, home equity, and value in their retirement accounts. They were saddled with huge debts in the future which would require a tax increase under George H.W. Bush.
In the meantime, Jeb Bush found his mortgage on a South Miami office building retired by the Savings and Loan bailout. Others like Jeb found the government’s generosity to be quite beneficial as well. They were too connected to fail. In the name of saving the economy from collapse, government incentivized behaviors which were guaranteed to generate repeat failure.
This was not capitalism. In capitalism, if you overextend yourself, you fail. You do not pass go, nor do you collect $200. You fail. You go into bankruptcy, you absorb the loss, and you start over again. No one else bails you out in the name of economic stability. Indeed, without government regulation creating the need for financial market innovations which spread risk, no one would need to bail out individuals or companies in the name of economic stability. If you commit fraud, you go to jail and face the burden of civil restitution.
What is remarkable about these and other episodes in our history is that individuals routinely point to them as indicators of capitalism’s innate flaws. The truth of the matter is this: market forces were working fine in the late 60s when the government moved in to limit the rates thrifts could pay on their savings accounts. Customers were choosing the savings accounts which paid the highest rate of return, there was competition, and all was well. The problem arose when commercial banks didn’t want to compete with thrifts where rates on savings accounts were concerned. Rather than just acknowledge defeat and remove themselves from the market, the commercial banks went and did what all corporatists inevitably do: they lobbied Congress for an outcome.
In short, they went to Congress for protection from competition. This is mercantilist rather than capitalist. In capitalism, privately owned entities compete, and based on the way in which their offerings fit the needs of consumers, they succeed or they fail. There is no court of appeal to the verdict rendered by consumers.
Companies will not compete unless they are forced by market necessity to do so. If they have any alternative whatsoever, they will seek to avoid market competition in order to rig the outcome in their own favor to detriment of consumer choice. Scarcity is what results in such an environment. Tell me, how many of us are going to the banks and getting a rate of return on our savings accounts which exceeds annual inflation? Banks do not compete in America in a meaningful way because they are not required to do so.
What corporatism enables is corruption on a grand scale. People and businesses expect to be protected from the natural results of their own bad behavior. This is the simplest and most direct legacy of corporatism. When crises arise out of the overreach of corporations, or out of the reciprocal decisions of consumers who purchase goods and services with credit and thereby live beyond their means, each side turns to the government for deus ex machina. In some respects, this is only appropriate. After all, the government’s legislation or regulatory policies are usually the matrix from which such crises originate.
What we must heed are the warnings of Adam Smith, who noted the peculiar phenomenon of English fishing boats during his own time. The fishing boats had been subsidized by the English Parliament, and as a result, their owners had begun commissioning the construction of huge fishing ships. You see, the subsidies were alloted according to tonnage. As Smith wryly noted, the ships were built to catch the subsidies rather than the fish.
In our time, subsidies are of particular importance. Subsidies and antitrust exemptions have built Major League Baseball. In the case of George Steinbrenner and the Yankees, some $800 million in subsidies and guarantees built a new stadium for the Yankees. Part of the incentive for the city of New York was the promise of 1,000 permanent new jobs. When all was said and done, however, the number of permanent jobs was considerably lower than initial estimates: 10.
While you know George Steinbrenner as the owner of the New York Yankees, baseball’s winningest and most storied franchise, you may likely be unaware that George is also in the shipbuilding industry. He bought a boatyard down in Tampa, secured a Navy contract to deliver ships, and collected over $450 million of your money in the process. He never delivered a single completed ship. The naval procurement officer who inspected Steinbrenner’s boatyard deemed it unfit and inadequate for the construction of boats. No concern for Steinbrenner: “When you buy a shipyard, you hire one welder, one fitter, one painter, and 12 lawyers.” The Navy spent $450 million of your money, and it has two rusted hulls sitting in harbor to show for the expenditure. The very policies that govern the awarding of contracts should have disqualified Steinbrenner from even bidding, as he didn’t own the required software to design and build the boats, and the procurement officer deemed his shipyard unfit for the task at hand. However, George had John Murtha working the angles for him, and as a result, the Navy paid $450 million of taxpayer money for two rusted hulls.
It isn’t that George is a particularly savvy businessman. Before the naval contract to build those two ships, George was hemorrhaging money from his shipyard. The only business he had that was making money was the Yankees, a franchise within a league exempted from competition by rules that are the very antithesis of capitalism. The only way George could succeed in business is if he were exempted from from the market force of competition. Tell me, under what system other than a closed, non-competitive, and non-capitalist system is it efficient to pay a player over $220 million?
Capitalism would have provided competition; competition that would render franchises who resorted to such ludicrous strategies irrelevant from a business standpoint. Fans, the consumers within professional sport, could vote their dollars for other alternative leagues. But we’ll never have that, because people like George Steinbrenner are determined to extinguish the soul of capitalism by eliminating even the remotest possibility of competition that might force them to innovate or die. The status quo must be maintained.
The annals of American industrial history are littered with such examples. It’s corrupt, it’s counterproductive, it’s inefficient, and it is detrimental to our national interest to tolerate the proliferation of such economic realities. Corporatism must be utterly destroyed in order to reclaim American greatness. If we don’t roll back those regulations and regulatory structures which obstruct free market forces in order to benefit a small select group within our society, we will be writing our nation’s death warrant.
Let us consider what Adam Smith, generally considered to be the father of capitalism, had to say on the matter of monopolies:
“The monopolists, by keeping the market constantly
under-stocked, by never fully supplying the effectual
demand, sell their commodities much above the
natural price, and raise their emoluments,
whether they consist in wages or profit, greatly above
their natural rate. (p. 61)
The natural rate is defined by Smith as “"the lowest which the sellers can commonly afford to take, and at the same time continue their business."
The problem goes well beyond that of anti-trust laws and the monopolies they deal with; it also goes into the ability of the few to convince the many that the narrow interest is the same as the general interest, which Smith also notes in his Wealth of Nations:
“The superiority which the industry of the towns has everywhere in Europe over that of the country, is not altogether owing to corporations and corporation laws. It is supported by many other regulations. The high duties upon foreign manufactures, and upon all goods imported by alien merchants, all tend to the same purpose. Corporation laws enable the inhabitants of towns to raise their prices, without fearing to be undersold by the free competition of their own countrymen. Those other regulations secure them equally against that of foreigners. The enhancement of price occasioned by both is everywhere finally paid by the landlords, farmers, and laborers, of the country, who have seldom opposed the establishment of such monopolies. They have commonly neither inclination nor fitness to enter into combinations; and the clamor and sophistry of merchants and manufacturers easily persuade them, that the private interest of a part, and of a subordinate part, of the society, is the general interest of the whole.”
-Chapter X, Part II Inequalities Occasioned by the Policy of Europe.
As Bastiat put it in his work What is Free Trade?:
“Theorists hence go on to found a system upon these individual interests, and say: Wants are riches: Labor is riches: the obstacle to well-being is well-being: To multiply obstacles is to give food to industry.”
-Chapter II Obstacles to Wealth and the Causes of Wealth.
As I pointed out in the introduction, one of the matters that capitalism has more or less managed to settle is the false notion that labor by itself constitutes wealth. If this were the case, India and China would have no need of our markets or our investment. One of the other obvious epiphanies of capitalism is that wants or scarcities constitute wealth in some sense. Yet the corporatist argues that by erecting protectionist barriers, and exempting this industry or endeavor from competition, a country can achieve wealth in the form of higher scarcity which enables domestic endeavors to drive prices and profits higher. Nowhere is corporatism more in conflict with capitalism than in this argument.
Scarcity is not something that any representative government ought to try and bring about, either by limiting imports or by enabling a reduced competition which drives prices higher, thereby limiting the amount that one can purchase. Yet the chief goal of corporatism in appropriating or influencing government policy for its own purposes is to accomplish some form of scarcity which enables the corporatist to do just this sort of thing.
Corporatism seeks this sort of collusion in every aspect of its interaction with government and bureaucracy. It seeks to erect barriers to competition which might erode the corporatists’ ability to manipulate and control price without regard to real market forces. Whereas capitalism depends upon the complete ownership of companies by private parties, without any government involvement or collusion whatsoever, corporatism is quick to appropriate the government as a backstop for its overreach and excess, and to utilize the