GM: Government Managed

If you’re like me, you’re breathing a sigh of relief now that President Obama has reassured us that the federal government “has no interest in running GM.” Whew! I was getting nervous there for a second, but it’s nice to see that President Obama is really a moderate at heart who understands that car companies should be run by the private sector. So we can all relax knowing that the government’s involvement in GM will be strictly limited to firing the CEO, committing taxpayer funds to provide operating capital, dictating the kind of cars that will be built, setting employee salaries, and guaranteeing the company’s warranty service commitments. Surely the retooled GM will be a shining example of what the free market can do (under strict government control, of course).

The President justified the move to nationalize the automakers by saying, "We cannot, we must not, and we will not let our auto industry simply vanish. This industry is, like no other, an emblem of the American spirit; a once and future symbol of America's success.” Now President Obama has managed to rack up a long series of weak rationalizations for his administration’s naked power grabs over the past few months, but this one may be the weakest yet. It’s bad enough to hear politicians spout Keynesian nonsense to justify their wild-eyed spending spree, but at least they have the courtesy to lie to us by calling it “stimulative.” To take taxpayer money just to keep “an emblem” or “a symbol” like GM in business a little while longer is downright insulting. But perhaps that was just the best rationale the President could come up with, since most people understand that the auto industry as a whole will continue to exist for as long as people want to drive cars.

In fact, the auto industry and the economy as a whole would be a lot better off without companies like GM, which managed to lose $3700 on every car it sold last year. An annual loss of $31 billion represents a lot of scarce resources squandered. If the government weren’t dead set against allowing these companies to face up to the consequences of their own poor decisions, they would quickly be out of business and the capital, equipment, and labor currently being wasted could be taken over by more efficient producers.

And it’s not as if the automakers themselves merit a lot of sympathy in this little passion play. As evidenced by their purchasing decisions, American consumers chose not to support GM or Chrysler – at least not to the degree necessary to make up for the firms’ wildly uncompetitive cost structures. And since GM and Chrysler were incapable of earning our money on a voluntary basis in the free market, they turned to Obama so that he could take it from us by force instead. And President Obama has been only too happy to oblige. No president wants to be the guy who allowed the American car companies (finally) to go under – least of all one so beholden to the labor unions. GM and Chrysler understand this, and so they went to Washington with hat in hand. But when you make your deal with the federal devil, you shouldn’t be surprised when you get the short end of the stick, as I’m sure the now-former CEO of GM, Rick Wagoner, can attest.

So now GM and Chrysler will be regulated back to financial health by the same government that is running up annual deficits of two trillion dollars. But, hey, it’s all part and parcel of the new economic model being foisted upon us in this glorious new age of “change” and “hope.” And in the President’s defense, I suppose there is a certain logic regarding the nationalization of GM and Chrysler. After all, once you’ve decided to drive the country down the “road to hell,” I suppose it’s only fitting that you do so in an American car.

Snow on Thursday

In an effort to (finally) deliver on his promise to make government “more transparent,” President Obama is taking questions from you, the studio audience. This Thursday he even plans to deliver pre-recorded “answers” to a few of them, as long as they are deemed to be suitably sycophantic. And just to make sure that nothing of substance is addressed, the White House requires that you “post only questions related to the economy (including topics essential to long term economic growth, such as education, fiscal responsibility, green jobs and energy, health care reform, and home ownership).”

If you’re interested in having your question ignored by the POTUS, log on to the White House blog’s “Open for Questions.” Inquiring minds want to know. I submitted two questions myself:

• "There is no Constitutional authority to subsidize politically-favored industries, no matter what sector. Having sworn to uphold the Constitution, how do you rationalize the blatantly unconstitutional economic programs being put forth?"
• "What plans does your administration have to deal with the hyperinflation that will inevitably follow the monetization of trillions of dollars of debt and out-of-control spending being proposed in the Federal budget?"

While you’re on the site, check out some of the other questions that have been posted (you can vote for your favorite – the larger the vote total, the more likely the President will select that question). There are a lot of good questions posted. Then again, there are also questions like these:

• "America has one of the worst public transportation systems in the world. How will you provide affordable mass transit in America?"
• "With the failing American car industry, do you think we can convert our car plant into wind turbine manufactures and solar producers just like we did in WWII in producing war material to create an American Revolution and restart this economy?"
• "Wouldn't we all be better served if health insurance was government-managed ONLY? The for-profit model we live under today works for the stock-holders first, so of course costs keep climbing. Will your plan fix this?"
• "Would the administration consider creating a "service for mortgage payments" program that allowed citizens to contribute an amount of service hours (e.g. "Serve America" work) in exchange for postponing or forgiving mortgage payments?"
• "Some of us in the education field paid tens of thousands of dollars getting our degrees so that we can enter a field that barely dents the debt accrued from such an endeavor. Will some of the money help people in education with debt?"

God save the Republic.

Until They Try to Take It

Not that the Constitution matters these days, but it does contain a clause (located in the Bill of Rights, just after the First Amendment and just before the Third) that states, “A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.” To my knowledge, this amendment has never been repealed.

It’s not a terribly complicated statement, really, and one would expect an average grade-school student (or perhaps an above average politician) to understand its clear prohibition against infringing on our right to bear arms. Sadly, this is not the case. Despite the recent Heller decision, which upholds (superficially at least) the individual’s right to bear arms, governments at all levels continue to infringe upon that very right.

The latest attempt is H.R. 45, a gun control bill introduced by Congressman Bobby Rush (D), of the 1st District of Illinois. The 1st district covers the south side of Chicago, a city that has always viewed itself as a leader in gun control laws. Not surprisingly, Chicago has always been a leader in gun crime as well. Evidently people who are willing to commit murder are also willing to break gun control laws in the process.

As is typical these days, the bill invokes the interstate commerce clause to justify regulating gun ownership. The firearms to be controlled include any handgun or semi-automatic firearm with a clip (I’m no gun expert, but that seems to cover everything except shotguns). Some of the provisions of the bill include:

• Only a licensed importer, licensed manufacturer, licensed dealer, or licensed collector may possess a qualifying firearm, unless that person has been issued a firearm license.
• In order to be issued a firearm license, an individual will have to submit an application to the Attorney General. The application will require a passport photo of the applicant; the applicant’s name, address, and date and place of birth; any other name that the applicant has ever used or been known by; a thumbprint; a statement that the individual is not a person prohibited from obtaining a firearm; a certification by the applicant that he will keep any firearm owned safely stored and out of the possession of anyone younger than 18; a certificate attesting to the completion of a written firearms examination, covering firearm storage, the safe handling of firearms; the use of firearms in the home and the risks associated with such use; the legal responsibilities of firearms owners, including Federal, State, and local laws relating to requirements for the possession and storage of firearms, and relating to reporting requirements with respect to firearms; and any other subjects, as the Attorney General determines to be appropriate; and the applicant’s release to the Attorney General of any mental health records the applicant may have.
• A requirement that a completed application be forwarded to the Attorney General not later than 48 hours after the application is submitted to the licensed dealer or office or agency of the Federal Government, as applicable.
• A Federal tracking system, which maintains the following information: the manufacturer of the firearm; the model name or number; the serial number; the date on which the firearm was received by the transferee; the number of the recipient’s firearm license; and the seller’s name and address.
• Universal background check.
• Fines and imprisonment for failure to comply with any of the provisions of the law.

Congressman Rush, of course, has marketed this draconian bill well. He calls it “Blair Holt’s Firearm Licensing and Record of Sale Act of 2009.” Blair Holt was a Chicago-area teenager who heroically sacrificed his own life to protect a girl on a bus when another teen opened fire.

From the news accounts, it’s clear that Blair Holt’s parents are in favor of the bill. I’m certainly not going to criticize them for their stance. As a parent myself, I don’t want to imagine what they’ve had to endure.

Nevertheless, this bill will not make us or our children safer. It will only make it more difficult for law-abiding citizens to protect themselves and their families as they see fit. As much as we might like to believe that twenty-six pages of text written by a Chicago politician can make all the bad things in life go away, that’s just not reality. Prohibiting alcohol did not make alcohol disappear. Prohibiting drugs has not made drugs disappear. Prohibiting guns will not make guns disappear.

Thomas Jefferson once said, “The beauty of the second amendment is that it will not be needed until they try to take it.” Well, they’re trying to take it. And they’re using a young man’s heroic sacrifice to justify yet another attack on our liberty.

Winging It

With the exception of the World Wars, the Great Depression provided the government the single greatest opportunity to expand its control over the lives of average Americans. FDR’s New Deal imposed a raft of policies intended to force the market into behaving according to the dictates of the political class, rather than according to the desires of producers and consumers. In order to drum up popular support for his power grab, Roosevelt demonized the free market at every turn, using terms like “economic royalists” and “money changers” to add some good old-fashioned fire and brimstone to his anti-freedom propaganda.

What Franklin Roosevelt understood about economics and the free market probably could have fit on a postage stamp, and most of that would have been wrong. Nevertheless, he expanded the programs initiated by Hoover in a wild, flailing attempt to direct economic forces he didn’t understand. Basically, he was just “winging it.” Take his attempt to control the price of gold, for example. FDR would dictate the price of gold on any given day based on nothing more than a whim. Henry Morgenthau, FDR’s Secretary of the Treasury, recounted that one day Roosevelt decided the price of gold should be increased by exactly 21 cents. Why 21 cents? Because FDR believed that 21 was a lucky number (it is seven times three, after all). Morgenthau would later write, "If anybody knew how we really set the gold price through a combination of lucky numbers, etc., I think they would be frightened."

It seems that little has changed since the days of FDR. Watching Congress and the Obama administration mishandle the current economic crisis gives the impression that they’re still just “winging it.” The same anti-market propaganda is being used to demonize the private sector and to justify a wholesale restructuring of the economy, without any apparent concern for petty little things like liberty or prosperity. Indeed, it seems that the only real difference between Obama and FDR is that Obama’s lucky numbers are always followed by twelve zeroes.

The AIG fiasco offers a great illustration of just how poorly equipped the Feds are to micro-manage the private sector. The market had clearly indicated that AIG was poorly run and should go out of business. Not willing to accept that judgment, the Feds decided to overrule it and impose their own politically-driven outcome – four separate times. Now that AIG has used a fraction of the money it was given to pay its executives $218 million in bonuses, the taxpayers are starting to fire up their torches and sharpen their pitchforks.

As far as President Obama is concerned, this is all to the good. The more public outrage he can stoke, the more support he’ll have as he pushes to increase restrictions on economic liberty across the board. Fed Chairman Bernanke is already out there making the rounds, calling on the federal government to control how much money some people should be allowed to make here in the land of the free. By and large, the public seems to think that’s a great idea.

A few cracks are starting to appear in the facade, however. Despite the administration’s considerable success at distracting the public’s attention from Washington’s role in the debacle by fueling antipathy toward Wall Street firms, some individuals have managed to peer behind the curtain and are beginning to ask some rather uncomfortable questions. It has been revealed that President Obama and Senator Chris Dodd each received around $104,000 in contributions from AIG. And Dodd has had to do some serious backpedaling over the embarrassing fact that it was he who made payment of AIG executive bonuses the law of the land.

White House Press Secretary Robert Gibbs, however, assures us that despite having lined his pockets with AIG money, President Obama is shocked and outraged over the AIG bonuses. Not only that, but he’s also really, really, truly, cross-his-heart-and-hope-to-die angry over what took place to bring us to this point. Personally, I’m not sure this is the best approach to take. There’s always the risk that someone will realize that it was Obama who brought us to this point by taking our money and bestowing it upon a politically-connected corporation that had done nothing to deserve it. Then what will he do? Oh, right – he’ll just keep winging it.

Inflation and the War Machine

A few weeks ago I drove down to Houston to attend the Mises Circle. It’s an annual seminar put on by the Mises Institute, and the topic this year was inflation. It was a really good event, and the audio and video is available on Mises.org for anyone who’s interested.

One of the speakers was Thomas Woods, a libertarian historian with a solid understanding of Austrian economics. Prior to giving his main presentation (drawing from his new book, Meltdown), he spoke briefly about an earlier book that he had edited, called We Who Dared to Say No to War, a collection of anti-war writings from throughout American history. Woods made the point that if you’re an opponent of war and the war machine, then you’re not going to get anywhere unless you go after the money machine. After Woods concluded his presentation, historian Robert Higgs expanded on the connection between the Fed, inflation, and war.

There’s no need for me to expound upon the obvious costs of war in human terms, but there are some interesting economic concepts that are perhaps less obvious. I’ll try to limit myself to these areas.

Two main points should be kept in mind when one considers the economics of war as an enterprise. The first is that war is only profitable to certain special interests that are tied to the government in some way – basically the military-industrial complex Eisenhower warned of. To society as a whole, however, war is not profitable in any way, shape, or form – despite any propaganda to the contrary. War is nothing but the destruction of life, liberty, and property, and it’s the ultimate broken window fallacy to think that war is good for the economy overall. It’s not.

The second key thing to remember when talking about war – particularly the large scale, modern wars with which we are most familiar - is that it requires the government to seize an enormous amount of resources from the productive economy very quickly. Government has two basic tools at its disposal to accomplish this – taxation and inflation.

Taxes have historically gone up in wartime. The problem with taxation, though, is that there’s a limit to how much the government can drain from people directly in the form of taxes. We can see an example of this today, though not necessarily (or at least not exclusively) in the context of war. Taking his cue from President Bush’s free-spending ways, President Obama is now piling on additional trillions in new spending to bail out, rescue, take over, and interfere with various sectors of the economy, thus ensuring that the nation’s economic pain will be deepened and protracted. And even though “the top two percent” of earners will be duly soaked through ever-higher rates of taxation (with the rest of us to follow shortly), not even President Obama suggests that the federal government can raise enough money from taxes to cover it all. He knows that there’s no way we could come up with the money directly, nor any way that we would stand for it. So he’s going to have to print the money he needs.

The same holds true with war. If each American citizen were to receive a bill for the proportional amount of each of the overseas military adventures our government has led over the years, enthusiasm for those adventures would drop precipitously. It might even force our government to heed George Washington’s farewell advice, and avoid entangling alliances. And since there’s no way they’re going to do that, they resort to inflation.

The definition of inflation is an increase in the money supply, and since the government controls the supply of money through the Fed, it follows that government is wholly responsible for inflation. The reason that inflation is the preferred means to finance wars is that its effects are neither uniform nor immediate. The first people to get the newly created money get to buy goods and services at the pre-inflation prices. In the case of war, that’s the government and its selected beneficiaries in the military-industrial complex. The effect on prices in general doesn’t occur until much later, and by that time the government has already bought the guns and tanks and bombs it wanted. It’s the suckers down the line like you and me who find that our money just doesn’t go as far as it used to.

I think this issue is important to understand, particularly for those who come from the left. The so-called Progressives, who often define themselves as being anti-war to varying degrees, would do well to realize that war is only profitable to a few groups who are tied to the government, and even then, it is only profitable to the degree to which those groups can avoid absorbing the costs of war themselves. Inflation allows government to impose the real cost of war on the people indirectly. The cheaper government can make war appear, the more war it can afford. And there’s nothing like a war to increase the scope of government control over a society, so we should always be wary of the government’s incentive to wage war, particularly when combined with an ability to finance it through the central bank’s inflation.

This is why if you really want to constrain the war-making power of the state, you have to constrain the state’s control of the money supply and its ability to inflate. That means opposing the central bank and the fiat monetary system. That’s no small feat, and it requires people to dig into the details of some pretty dry topics like monetary policy.

But beyond the sheer dullness of the whole thing, I think the really sticky part for most people will come from the fact that if we restrict the state’s ability to create money and finance wars, we also restrict the state’s ability to create money to finance other things, like socialized medicine, agricultural and corporate subsidies, bank bailouts, government housing plans, and just about everything else that the federal government has exceeded its constitutional authority to do.

That’s why we libertarians always refer to the “welfare-warfare state” – we understand that these are just two sides of the same coin, and you can’t get rid of one without getting rid of the other. At the risk of over-generalizing, liberals are generally supportive of the welfare state and oppose the warfare state. Conservatives support the warfare state, but object to the welfare state. Since these two areas are really inseparable, the question each camp has to ask is, “What’s it worth?” Are the things they want the government to provide worth accepting the things they hate? Another way of asking this would be, “In order to get rid of the thing you hate, would you be willing to let go of the thing you want?” Personally, I’m more than happy to get rid of both the welfare state and the warfare state, and I think that we would all enjoy a much more peaceful and prosperous society if we did.

And to get back to the original nexus between the war machine and the money machine, this is probably a good moment to remind libertarians to be mindful about how we discuss these economic issues, particularly when talking to people who come more from the left, because there’s always a tendency to mistake the libertarian position on free-market economics with a defense of the status quo. And part of that is a tendency to look at the military-industrial complex as an element of the free market, when in actuality it’s just a form of corporatism or “participatory fascism,” as Robert Higgs describes it.

We always need to clarify that our defense of free-market principles is actually a radical departure from the status quo and a fundamental transformation of the economic system we have today. But the changes we advocate are always in the direction of greater individual liberty, rather than greater state control, which is usually what the left sees as the only alternative to a corporate/fascist system. We should also recognize that many Progressives do have some valid criticisms and we should acknowledge those, while at the same time explaining how their preferred “solution” of more government control will actually exacerbate the very problems that they seek to address, and make everyone materially worse off.

One way to do that is to remind people that without the gun of government behind it, the worst thing a corporation can do is try to sell you something – something that you’re free to refuse if you don’t like it. And no matter what people may think of Wal-Mart, Wal-Mart didn’t kill 100 million people during the last century. Governments did. For that reason alone we should be very skeptical about increasing the role of government in our lives.