The American Form of Government and the Paulson Plan

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I have difficulty briefly describing America’s form of national government.

According to the CIA, the U.S.A., which is the Federal government, is a constitutional federal republic with a strong democratic tradition (representative democracy). On paper, this is correct.

But these terms do not describe our national government. If they did we’d see, which we do not, the government establishing justice, promoting the general welfare and securing the blessings of liberty to the sovereign people and its posterity. The government would obey the U.S. Constitution, which it does not.

What terms do capture the central thrust of America’s government over the course of many decades? The U.S.A. has (in alphabetic order) elements of authoritarianism, fascism, kleptocracy, meritocracy, plutocracy, socialism, and totalitarianism. These co-exist with its being a constitutional federal republic with representative democracy.

Enormous fog surrounds perception of our federal government. For example, many people think it has independent resources, when it actually spends what it takes from us or borrows.

The confusing fact that the federal government is authoritarian, fascist, kleptocratic, meritocratic, plutocratic, etc. all at once helps it survive, despite the enormous harm it inflicts upon the people it supposedly serves. The confusion adds to the fog.

The fact that no one of these facets predominates helps it survive. The fact that the various elements of the government wax and wane in strength and vary with party, leadership, and circumstance add to the fog and help account for the durability of this institution.

No one is able to describe the beast with complete accuracy in just a few words. No one can make a charge stick without seeming extremist. The government is a kleptocracy, but at the same time it is not just that. It is also a republic, and many people support republics. It is authoritarian, but it is not just that. It is also open to people of merit, and that is laudable to many. Yet it is not simply a meritocracy, for it also shows strong signs of rule by plutocrats. Fascist describes some aspects of the national government, but not others. Its socialism is of a sort that differs from the socialism of direct government ownership of the means of production. The fog is rather dense.

And so the critics of this government are often left in the difficult position of lacking a cogent and accurate description of the tyranny and coercion that are imposed on us against our wills. It is far easier for us to describe the results of this government. The word bad and its many synonyms like atrocious, unacceptable, and a bummer will serve.

One thing is for sure. Whatever bad thing this government is, it is becoming more and more so as time passes. This is due to the reality of power dynamics as explained here and here.

We need to choose one or two words to describe the federal government. I’d say that the bad thing that is occurring is an increase in authoritarianism or tyranny. More and more, we are ruled by others. The existence of a malleable Constitution is a critical factor explaining why the government grows more and more tyrannical.

Most governments, and certainly most modern governments that we live under, have power and authority made legal by a Constitution, and that power and authority tend inevitably to augment. Anti-Federalist #17 recognized this and predicted the predominance of the Federal government over those of the individual States:

Besides, it is a truth confirmed by the unerring experience of ages, that every man, and every body of men, invested with power, are ever disposed to increase it, and to acquire a superiority over everything that stands in their way. This disposition, which is implanted in human nature, will operate in the Federal legislature to lessen and ultimately to subvert the State authority, and having such advantages, will most certainly succeed, if the Federal government succeeds at all.

It doesn’t take a conspiracy to make the government grow. It doesn’t take a far-seeing and evil cabal. It doesn’t take a flow of new officeholders who support the conspiracy and seek greater government power and eventual totalitarianism as a conscious goal. Like any crime, it requires only motive, means, and opportunity. The motive is always there: the disposition of those who gain office to use power. The means are always ready at hand in the official powers of the government.

The people in government who augment its powers need only be ordinary. They need only think that what they are doing is necessary for the republic’s survival, or their own, or that of some part of the system, or because it is a good thing to do. They need only be swept along by events and the crowd, unthinkingly, or perhaps by some shallow and mistaken idea they picked up long ago. Evil is mundane.

The opportunity presents itself or can be made to present itself quite easily. One important visible sequence by which the opportunity occurs is through (a) government passing a bad law, that (b) causes dislocation, giving rise to (c) alarm, crisis, and a demand for rectification, that (d) is then fulfilled by further bad law issuing from government.

The Paulson Plan is an example. This is a lengthy plan to augment the government’s control over capital markets and capital market institutions. It would expand the Fed’s powers by an order of magnitude at least. This plan is at once authoritarian, fascist, and kleptocratic.

Some version of this plan will probably pass in the next Congress. No matter whether it does or does not, the direction is the same: toward an economy controlled by the federal government in conjunction with titular private ownership of the means of production, that is, toward fascism.

The Paulson Plan and the recent actions of the Federal Reserve Board spring from a banking crisis. That was enough to ring alarm bells from all sides. This crisis sprang from the declines in housing prices and the accompanying defaults on subprime mortgages that accompanied them. These problems have deep and multiple roots in policies of the federal government. (It will take a separate article to document these.)

This crisis will be resolved by new capital being infused into the banking system. A slow or depressed economy for a number of years will accompany the process.

The Paulson Plan or one like it will not resolve the problem, and it’s not designed to. But it also will not prevent future crises, because nothing will have been done to change the basic policies of the federal government that caused these crises in the first place. The main result of the Paulson Plan will be increased government power over capital markets and their institutions.

Certain large players will be cartelized under the enhanced regulatory umbrella. They will be under the government’s thumb. In subsequent crises, the government will move further toward capital controls and find it easier to do so.

To be totalitarian, a State needs to control investment, that is, the allocation of capital. Controlling the direction of finance is a means to control investment. That is the ultimate stopping point of government control over capital markets.

Like travelers at large airports, Americans long ago faced two conveyors. One sign read Freedom and the other read Slavery. They chose the sign reading Slavery. They rationalized their decision as expedient or temporary or necessary or that the sign was wrong. But they still stepped onto the totalitarian conveyor. Once on it, they discovered it rode along smoothly with no visible problems. They liked the ride, and a barrier prevented them from jumping onto the opposite-moving conveyor labeled Freedom. They’ve never got off.

Billy Wilder said it best in Double Indemnity. "They’ve committed a murder and it’s not like taking a trolley ride together where they can get off at different stops. They’re stuck with each other and they’ve got to ride all the way to the end of the line and it’s a one-way trip and the last stop is the cemetery."

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York.

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