The Ratchet Effect and the Future of Liberty

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The
so-called ratchet
effect
, described most comprehensively by Robert Higgs, is the
phenomenon of rapid government growth in the face of crises, followed
by a lack of its proportional reduction in the post-crisis stage.
Hitherto investigated primarily through the lens of historical analysis,
it also opens broad — and probably still largely unexplored — opportunities
for praxeological research.

By
reflecting on the past century and the beginnings of the present
one, one immediately notices that creating occasions for "ratcheting
up" the size of the government was a (perhaps unintended) gift
bestowed by some political factions upon other political factions
— the beginnings of wide-scale American twentieth-century statism,
whose pinnacle was the introduction of income tax and the establishment
of the FED, paved the way for the Great Depression and, consequently,
for the New Deal; economic downturns associated with the outbreaks
of World Wars I and II provided public legitimacy for unprecedentedly
deep and mostly irreversible regulations; the bursting of the credit
bubble inflated by the FED prompted the powers that be to make attempts
at fighting the resultant chaos with an even more intensive use
of the same statist means that had originally led to its emergence.

Thus,
we can see that the ratchet effect is a historical fact, a fact
that currently finds yet another corroboration right in front of
our eyes. Should it lead us to the depressing conclusion that we
are helpless against the ever-growing Leviathan? Personally, I would
recommend not losing hope, not only because hope dies last, but
also because, at least in the case under consideration, it has knowledge
on its side. The ratchet effect is a historical observation, not
an apodictic law of praxeology. There have been times in the most
recent history when statism actually shrunk and receded — a fine
example would be the happenings in the countries of the former Soviet
Bloc at the turn of the 80s and 90s. And yet, a pessimist could
claim that these happenings were perfectly consonant with what could
be expected in the period following a protracted crisis spanning
the entire era of real socialism — admittedly, it is true that statism
receded, but not quite to the pre-war level. So the "ratcheting-up"
effect did take place after all.

The
above remark should inspire an optimist to further the elaboration
of the ratchet effect theory on the basis of a meticulous praxeological
analysis: if one can classify as a crisis not only a relative and
temporary downturn taking place within the framework of a given
economic regime, but also the whole period of a regime based on
economically misbegotten foundations, then a completely different
periodization of history becomes possible (and in the long run,
perhaps even a complete reversal of its disturbing tendencies).
The point is to make the public regard any putative post-crisis
stage as an extension of the crisis — which is possible at least
insofar as the feeling of living through a crisis is subjective
(for example, a hermit would not regard shortages of electricity
and gas as indications of a crisis, and, conversely, a citizen of
Lichtenstein would presumably be disturbed by the emergence of welfare
state mechanisms in his everyday environment).

For
instance, if Poles in the early 90s had been generally aware that
it is only the tip of the statist iceberg that had melted away,
they could have pressed for further (and quicker) dismantling of
the post-communist molochs, as well as for a much broader expansion
of the area of free human action. Consequently, the Polish privatization
plan could have been done in a Rothbardian,
rather than a Balcerowicz-esque fashion.

In
other words, as long as the feeling of crisis, as well as the firm
conviction that the cause of crisis is statism, are present in public
opinion, it should be possible to implode every consecutive incarnation
of a statist regime, each of which is more liberal than the previous
one, but not yet liberal enough (i.e., still unacceptably repressive
of human freedom, and hence "crisis-like"). Given the
possibility of the above scenario, there exists a viable way of
shrinking the Leviathan to a minimum, or even eliminating it altogether
(depending on which of these options is acceptable for the general
populace — that is, the implementation of which of them would be
taken as an indication that the crisis of freedom is finally over).
Here we are dealing with the reverse ratchet effect, brought about
by a change in the perception of politico-economic processes — instead
of interpreting them as a series of alternating crises and periods
of normalization, we see in them a cascade of accumulating and ever-growing
slumps (which admittedly shrink over certain narrow time intervals,
but also consistently expand over the long run).

Again,
a pessimist could say that at present nothing indicates that the
second of the abovementioned conditions necessary for the reversal
of statization — that is, the awareness that the cause of crisis
is precisely statism, or, more specifically, monetary socialism
— could be met by contemporary American society. The inauguration
of the President-elect, and hence the inauguration of the notorious
"stimulus plan," based on curing the disease by ingesting
more of the poison responsible for its onset, was greeted with general
applause and tears of joy. They, in Central Europe — the pessimist
might say — got their chance to trigger the reverse ratchet effect
twenty years ago. We, in America, will not get our chance even today.

And
yet, I think that even faced with such gloomy observations, there
is no reason to be defeatist. Appearances notwithstanding, the moment
of breaking the veil of economic delusions seems closer every day.

Firstly,
today we have at our disposal a wonderful area of informational
freedom, in which reliable, logical knowledge does not need accreditation
and need not be afraid of censorship, while its scope, breadth and
speed of dissemination know no limits. This area is the Internet.
We should not downplay it too rashly as something that we have known
for years and that (allegedly) has already become a commonplace
medium. Internet is still a less influential source of information
than TV, radio or print. Moreover, the consolidation of certain
environments and the creation of certain repositories of knowledge
(including those associated with the Austrian school of economics)
is still a relatively new and rapidly expanding phenomenon, even
on the short timescale of the World Wide Web's existence.

Secondly,
the persuasive power of the academic world, including its part that
has long been in the service of statism, is on a continual decrease.
It is the result of the good old law of diminishing marginal utility
— today, higher education is a mass phenomenon, rightly losing its
aura of elitism and intellectual prestige. The more we approach
our own education from a healthy distance, the more distanced we
can become from the influence of various television or press experts,
pundits and talking heads — which is a most positive phenomenon,
indicative of independent thinking. Furthermore, as
some suggest
, we are soon to witness a revolutionary expansion
of distance learning, followed by the ultimate breakdown of the
academic cartel and the nationalized accreditation system, whose
result will be a radical growth of respect for the kind of knowledge
that is uncomfortable for the statists.

Thirdly
and finally, the globally rising aversion to imperialistic and neocolonial
actions, such as the American aggression in Iraq and the Russian
interferences in Georgia and Chechnya, may eventually lead to the
intensification of secessionist tendencies worldwide, including
the regions whose inhabitants have hitherto expressed no such claims.
It should be a welcome phenomenon for all those who contend that
political
and administrative fragmentation
is conducive to free economy,
fair competition and monetary discipline.

To
sum up, despite gloomy appearances, the future should be seen in
bright colors. Although the American crisis will deepen — and it
is hard to forecast how long it will last — it should culminate
with the correct identification of the causes of disease, and then,
perhaps — if enthusiasm luckily meets knowledge — we shall witness
the largest reverse ratchet effect ever recorded in the annals of
history.

February
7, 2009

Jakub
Bozydar Wisniewski [send him mail]
is a philosophy graduate from Cambridge University, currently doing
postgraduate research at the University of Glasgow. His plans for
the nearest future include writing a monograph on the Austrian School
theory of public goods.

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