The 19th-century French economist Frederic Bastiat once wrote that the state is the great fiction through which everyone attempts to live at the expense of everyone else. As the recent domestic troubles in Greece show, however, this fiction cannot last. Reality will assert itself eventually, and the longer that process takes the more painful it will be.
Given that the United States is in every bit as much financial trouble as Greece (if not more), how painful do you think our return to reality will be? For far too long our government has pretended that consumption is the cause, rather than the consequence, of wealth. To this mistaken end, the Fed has engineered the destruction of the dollar and has accelerated that process at an alarming rate over the last decade. The great fiction that prosperity comes from the printing press now passes as common sense among politicians, journalists, and Keynesian economists. Because this particular fiction has endured for so long, the inevitable return to reality may be very painful indeed.
And though Bastiat’s original observation still holds true, it seems that the modern American state has decided to kick it up a notch. These days the state is not only the great fiction through which everyone attempts to live at the expense of everyone else (see Obamacare and Social Security), but it is also the great fiction through which everyone attempts to live a consequence-free existence.
Perhaps you’re a homeowner who took on a mortgage you can’t really afford. No problem. The government will simply foist the cost of your error onto the bank that loaned you the money so that you can avoid foreclosure and keep the house you shouldn’t have bought in the first place. Why should you have to suffer the consequences of your bad decision?
Or perhaps you’re the bank officer who loaned the money to the homeowner who couldn’t afford the mortgage. No problem. The government will simply make the taxpayer responsible for the losses so that you can shore up your balance sheets and continue to loan money recklessly. Why should you have to suffer the consequences of your bad loans?
Do you work for an automobile manufacturer that sold cars for less money than it cost to produce them? No problem. The government will simply take over your company, hand over a controlling interest to its union friends, and foist the losses onto the taxpayer so that you can continue to make the cars nobody wants. Why should you have to suffer the consequences of your own business model?
Are you a city councilman who invested your town’s money with an unsound financial firm? No problem. The government will simply take money from people living in other cities and give it to you instead. Why should you have to suffer the consequences of your own foolish investments?
It could be that you’re one of the dozens of governors who oversaw huge increases in spending during the bubble and now have no way to cover your bloated state budget. No problem. The government will simply tax people in all fifty states and then funnel some of the money back to you so that you can avoid having to tighten the public belt. Why should you have to suffer the consequences of your own reckless spending?
Did you choose not to buy health insurance and now have major medical issues? No problem. The government will simply make your neighbor pay for your health care instead. Why should you have to suffer the consequences of the risks you assumed?
Did you run a financial services firm that over-invested in risky derivatives? No problem. The government will simply declare you to be “too big to fail” and transfer wealth from Main Street so that the friends of Paulson and Geithner won’t have to close up shop. Why should you have to suffer the losses and give up that vacation home in the Hamptons?
These are all real-world examples illustrating the great fiction of our time – that the government can or should shield individuals from the consequences of their own actions. Although the government may have the power to shift the consequences – good or bad – from one group to another, it cannot eliminate them entirely. At some point, we will all have to face them.
The sooner we do, the less painful our return to reality will be.
Given that the United States is in every bit as much financial trouble as Greece (if not more), how painful do you think our return to reality will be? For far too long our government has pretended that consumption is the cause, rather than the consequence, of wealth. To this mistaken end, the Fed has engineered the destruction of the dollar and has accelerated that process at an alarming rate over the last decade. The great fiction that prosperity comes from the printing press now passes as common sense among politicians, journalists, and Keynesian economists. Because this particular fiction has endured for so long, the inevitable return to reality may be very painful indeed.
And though Bastiat’s original observation still holds true, it seems that the modern American state has decided to kick it up a notch. These days the state is not only the great fiction through which everyone attempts to live at the expense of everyone else (see Obamacare and Social Security), but it is also the great fiction through which everyone attempts to live a consequence-free existence.
Perhaps you’re a homeowner who took on a mortgage you can’t really afford. No problem. The government will simply foist the cost of your error onto the bank that loaned you the money so that you can avoid foreclosure and keep the house you shouldn’t have bought in the first place. Why should you have to suffer the consequences of your bad decision?
Or perhaps you’re the bank officer who loaned the money to the homeowner who couldn’t afford the mortgage. No problem. The government will simply make the taxpayer responsible for the losses so that you can shore up your balance sheets and continue to loan money recklessly. Why should you have to suffer the consequences of your bad loans?
Do you work for an automobile manufacturer that sold cars for less money than it cost to produce them? No problem. The government will simply take over your company, hand over a controlling interest to its union friends, and foist the losses onto the taxpayer so that you can continue to make the cars nobody wants. Why should you have to suffer the consequences of your own business model?
Are you a city councilman who invested your town’s money with an unsound financial firm? No problem. The government will simply take money from people living in other cities and give it to you instead. Why should you have to suffer the consequences of your own foolish investments?
It could be that you’re one of the dozens of governors who oversaw huge increases in spending during the bubble and now have no way to cover your bloated state budget. No problem. The government will simply tax people in all fifty states and then funnel some of the money back to you so that you can avoid having to tighten the public belt. Why should you have to suffer the consequences of your own reckless spending?
Did you choose not to buy health insurance and now have major medical issues? No problem. The government will simply make your neighbor pay for your health care instead. Why should you have to suffer the consequences of the risks you assumed?
Did you run a financial services firm that over-invested in risky derivatives? No problem. The government will simply declare you to be “too big to fail” and transfer wealth from Main Street so that the friends of Paulson and Geithner won’t have to close up shop. Why should you have to suffer the losses and give up that vacation home in the Hamptons?
These are all real-world examples illustrating the great fiction of our time – that the government can or should shield individuals from the consequences of their own actions. Although the government may have the power to shift the consequences – good or bad – from one group to another, it cannot eliminate them entirely. At some point, we will all have to face them.
The sooner we do, the less painful our return to reality will be.
2 comments:
I think Bastiat is spot-on.
For me, though, one of the worse thing about government is that if someone attempts and ultimately fails to use government to plunder somebody else, the aggressors then get to claim to be the victim of the ones they were attempting to plunder.
That is a very good insight, my friend. Well said.
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