Government: A Successful Failure

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The disposition
of politicians is to react to perceived problems rather than to
solve them. Our present economic plight is a case in point. A constant
clamoring is heard daily from politicians, bureaucrats, and their
business beneficiaries pleading for the government to do something,
even anything, before economic conditions worsen. Without a clue
as to what has caused today's malaise, politicians move into panic
mode and sign on to "solutions" which can lead only to
greater economic hardships ahead.

We are reminded
of Ludwig von Mises' observation that the history of government
intervention is the repetitive saga of how governments step into
a crisis that they have themselves created earlier by misguided
policies. The unfortunate cycle of interventions always results
in producing opposite or worse results from those the interventionists
intended.

That is precisely
what is occurring now. The primary problems financial markets are
encountering today, both domestic and worldwide, are insolvent and
over-leveraged banks and businesses. And what has been our government's
reaction to these problems? It pours billions of taxpayer dollars
into failing banks and over-leveraged firms through massive loan
bailouts and guarantees. To sustain this government wealth transfer
orgy politicians and their allies instill public fear, claiming
that for the government "to do nothing" will lead to systemic
failures resulting in far more dire consequences upon taxpayers
later.

What is ignored
throughout all this political posturing has been the core cause
of today's financial difficulties. The singular cause has been
the manipulation of interest rates and expansion of fiat money by
the Federal Reserve Bank. The central bank's artificial lowering
of interest rates and inflationary monetization of debt has brought
forth extensive mal-investments in banking and industry as well
as significant economic distortion in relative prices. Virtually
every financial problem being realized today, from declining productive
activity to forced liquidation of over-extended debts, can be causally
connected to the earlier monetary and credit manipulations of the
Federal Reserve Bank. The central bank's actions, which first kindled
an artificial boom, now have given us its inevitable economic bust.

As government's
failed edicts continue to worsen today's economic plight, politicians
demand even more intervention, claiming that government has failed
to do enough! The partisan political response has been to pass a
massive "stimulus bill," a spending and entitlement boondoggle
amounting to almost $900 billion dollars, infested with wasteful
government projects. Faced with political blindness or ignorance
as to the cause of today's financial crisis, the government's latest
reactionary edict only assures a further undermining of the economy
while imposing a massive new burden of government upon taxpayers.

The tragedy
is that so many people believe government will be successful.
This false hope that economic problems can be remedied by more "emergency"
government edicts will prove futile. Such naïve beliefs deny
the fundamental economic axiom of cause and effect. To believe that
government's bailing out of failing firms today, vastly expanding
its accumulated public debt, consuming unprecedented quantities
of taxpayer wealth with boondoggle projects, and debasing our currency
by monetizing debt will lead to a prosperous economic future is
a chimera of the first order.

Is there any
solution to today's economic problems? Of course, but it won't happen.
The restoration of future economic prosperity requires that past
mal-investments be corrected, that over-extended debt burdens be
reduced with greater savings, and perhaps most essential of all,
the burden of government (both from taxation and edicts) on productive
activity be lifted. But what we all know and are witnessing today
is that government continues to pursue policies that are precisely
the opposite of these essential remedies.

Bailouts and
taxpayer-financed loans are being dispensed to failed banks thus
delaying any recovery in the banking system. Additional government
loans to failing firms, such as GM and Chrysler, are consuming ever-greater
quantities of taxpayer wealth. Meanwhile, what remains of viable
industry is being steadily undermined by new government edicts and
future tax burdens to pay for the bailouts and loans made to the
losers of today!

While the face
of the future can never be seen clearly, a review of current trends
is discouraging. What can be seen today is unprecedented wealth
destruction by government spending, taxation, and borrowing which
will inexorably cause a lower material standard of living for our
economy. Without an awakening to the central bank's role which has
caused today's economic crisis, and addressing that harmful issue,
there is little reason for future optimism.

So, is government
a successful failure? Only in the same sense as a street mugger
before getting apprehended! Government will survive only until its
exorbitant spending, confiscatory taxing, regulatory edicts, and
inflationary policies ultimately drag the economy into a devastating
social and economic quagmire. Thereafter the financial collapse
of government itself is assured. As is the destiny of all welfare
states, in pursuit of that great fiction where everyone believes
they can live off of everyone else through the political process,
they will fail. At such a time politically plundering welfare states
will finally be forced to resort to that old socialist line, u201CIt's
free, but we ain't got none!u201D Sadly, that time may be getting
closer than we care to admit.

February
18, 2009

Robert
Anderson [send him mail]
taught economics at Hillsdale Collage and was executive secretary
of FEE.

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