STUMPTALK: Big government verses free-market capitalism
By Phil Billington / Chronicle contributor
The 2008 financial meltdown – caused by the Fed as it did in 1929 – has unleashed a fury of central planning mythology. The myth that free-market capitalism is responsible for our current economic crisis is promulgated by people who know practically nothing whatever of rational economic theory or the nature of laissez-faire capitalism. Public schools and the leading universities have failed American students. Their economic education has steeped them entirely in the thoroughly wrong and pernicious doctrines of Marx and Keynes. In claiming to see the existence of laissez faire in the midst of such massive government interference, the very opposite of laissez faire, they are attempting to rewrite reality in order to make it conform to their Marxist preconceptions and view of the world.
But despite the twisted ideologies of the mercantilist republicans and the leftist command-and-control democrats, free-market capitalism has thrived for 200+ years, building the most prosperous and freest society the world has ever known. Capitalism is an expression of freedom. We owe everything to the free market, all material prosperity, all leisure time, our health and longevity, our huge and growing population. Capitalism and capitalism alone has rescued the human race from degrading poverty, rampant sickness, and early death. It is the natural result of a society wherein individual rights are respected, where businesses, families, and every form of association are permitted to flourish in the absence of coercion, theft, and aggression. The state has created nothing. The market has created everything.
No wonder people have a dim perception of market mechanics and instead clamor for more laws giving men with guns permission to order people around. Students absorb the doctrines of Marx more in history, philosophy, sociology, and literature classes than in economics classes. Economics classes offer only a pitiful rebuttal of Marxist doctrines and devote almost all of their time to espousing Keynesianism and other anti-capitalistic doctrines.
The most influential economist of the twentieth century was John Maynard Keynes who swept the world of economics in 1936 with his General Theory of Employment, Interest and Money, his teaching quickly becoming a new, entrenched economic orthodoxy. Lord Keynes was introduced to President Roosevelt in the White House in 1934. Labor Secretary Francis Perkins recorded the meeting. Keynes remarked afterwards to Perkins, “Roosevelt sure doesn’t know much about economics.” He was right. Roosevelt remarked, “Keynes must be a mathematician.” Roosevelt was also right. Keynes had a degree in mathematics, not economics. Yet, Keynesian economics dominated American academia during the Roosevelt and post-war periods.
Keynes dazzled Washington economists by scrawling long equations on the blackboard. However, professor Milton Friedman of the Chicago school of economics later showed Keynesian math was bogus. Nevertheless, Keynes’ absurdities became popular fare in financial magazines and newspaper columns. i.e., “We no longer worry about a depression, because government knows how to cure it – with deficit spending and built-in stabilizers.”
The most powerful anti-capitalist movie of the Roosevelt-era was John Steinbeck’s The Grapes of Wrath: “starving but honest folk watched helplessly as growers doused oranges with kerosene in order to decrease supply and thus raise prices.” Brilliant novel, but the reader needs to return to the real world. It was the Roosevelt New Deal that made the depression worse by ordering the intentional destruction of crops and paying farmers not to grow in order to keep agriculture prices high, while hoards of people fought over scraps of food to avoid starvation.
Apparently nothing has been learned in the last 75 years judging by how much Keynesian-style thinking is spouted on Capitol Hill today. In just the past three months, the Bush regime – with the conspicuous support of Barack Obama – has appropriated the equivalent of half our Gross Domestic Product (GDP) to bail out Wall Street. The Obama economic team yearns for a New Deal II, a massive infrastructure works program, ostensibly to jump-start the economy. It was a disaster for Roosevelt and it won’t work for Obama. When Roosevelt took office in 1933, he introduced an array of work programs. Unemployment slowly dropped from 25 percent to only 14.3 percent by 1937. By 1938, the infrastructure work was complete and all those workers were again out of work. Unemployment shot back up to 19 percent. In 1939, Roosevelt knew his New Deal had failed and turned to war to fix the unemployment problem. Obama has Afghanistan which he pledged to expand.
Deflation is the worry today as it was in 1929. Copying Roosevelt, the Bush-Obama solution is more inflation (throw money at it). Economist Jörg Hϋlsman points out that deflation, though painful, serves and important social function of cleansing the body politic of its inflationary sins. As economist Peter Schiff declares, we desperately need this recession to reallocate resources and let the crummy service economy crumble. The alternative - more government intervention - will be far worse, a decade-long deep depression. Remember only months ago when speaker Nancy Pelosi wanted to open up the Petroleum Reserve spigot to bring down gasoline prices? Instead, Congress let market forces bring prices down. Instead of government intervention why not let housing, tuition and other prices fall under the force of deflation so people can afford to buy homes and send their kids to college?