Security and Government Ineptitude

by Michael S. Rozeff
by Michael S. Rozeff

The ineptitude of the federal government during the current economic difficulties is monumental. After two years of floundering around, it still has not resolved the problem that is threatening its own survival, which is an insolvent banking system. It has not really recognized what the problem is. It has hastily devised solutions to this dimly perceived problem. The solutions it has come up with have then failed to come to grips with the problem.

The Obama administration is continuing the ineptitude of the Bush administration. Trillions of dollars have been and will be thrown at the problem without getting the federal government out of its mess, which is also our mess. Government acts slowly, lacks insight, chooses wrong policies, prolongs problems, and makes problems worse. This is all shown clearly in the current episode. It was shown just as clearly when Katrina hit the Gulf Coast. It was shown in the New Deal, which failed to resolve the Great Depression. It has been shown in American foreign policy for a hundred years. Why else would millions of Americans have wondered why we are in Iraq or why an earlier generation wondered why we were in Vietnam? The inherent ineptitude of government can never be underestimated.

We Americans bear the costs of this ineptitude. We are made to fight in wars that are supposedly for national security but that are unnecessary. We are made to pay in blood and treasure. Every war substitutes investment in bombs and death for investment that would benefit us and our children. Every bailout burdens us with interest payments on perpetual debt while prolonging economic bad times. Even if the government were not now raising the odds of its own demise, we would need to be thinking seriously about what comes afterwards.

One of the basic needs of life is security. I suspect that most of us do not quite realize this in a fully conscious way. We almost automatically see to it that we get a measure of security. When we are young, we perhaps think a lot less about security. We are usually in good health, we can earn money, we can change jobs if we have to, old-age is a long ways off, we have parents to rely on and so on. This problem of security needs to be brought out into the open and discussed, because if people do not believe that they can get security when they have liberty, then they will not want liberty. If people believe that only the government can provide them with security and not they themselves, given liberty, then they will remain attached to government and spurn liberty.

The demand for security arises because of the uncertainties of life. Few of us want to lose our jobs without a backup of some kind. Few of us want to face a medical emergency or accident without some way to get through it. What if a family loses its breadwinner? Few of us want to face old age without the means of sustaining ourselves. Few of us want to be wiped out by fire, flood, or wind, without some means of coming back. Few of us want to go hungry or unsheltered. Most of us want to feel secure against criminal intrusions and enemy attacks.

People want security. That does not mean that people do not want liberty. Liberty and security are two different things. They do not conflict; they work together. People can attempt to get security either in an environment of liberty or in an environment of control over their lives. Either way, they will attempt to get security.

One of the main purposes of government is security. That is how the government advertises itself to us, and it is evident that much of government attempts to provide security. The government solution to the problem of security presents major problems. The biggest problem is that government crowds out alternative solutions. It short-circuits them. They go out of business or are driven into secondary importance. The government takes over. The Social Security program ended many old-age insurance programs that were done in liberty, that is, privately and without government help or interference. The Medicare program is bringing an end to medical care arranged in liberty, between doctor and patient. If a person attempts to shop for a procedure or medicine in order to save money, he will find that hospitals are so bound up in government red tape that they will not accept a lower-cost method. If a man tries to secure his own person by means of firearms, he will find a host of obstacles placed in his path. Government is not a fair competitor. It forces people to participate in its programs of security. Private parties find it much more difficult, and often impossible, to compete against an entity that can extract revenues by force and that can enact regulations and laws that drive the competition out of business. And that is what government does.

Liberty is not some abstraction. It is not to be feared as some jungle in which the greedy get rich and the poor get poorer. Liberty is what we make of it. It is the essential condition under which we are able to secure ourselves. If we do not have liberty, we are forced to rely on security provided by a monopolist called government. How can we possibly be better off when our choices to gain security are foreclosed? The ways and means of securing ourselves permeate our lives. We rely on cooperation. We rely on mutual aid, family, friends, and co-workers. We train ourselves so that we have backup skills. We save for a rainy day. We buy insurance. We pool risks with others. We diversify our activities. We try to build safe homes in workplaces. We protect our children and we teach them to protect us when we are old. We help strangers. But the growth of government is replacing all this and more by its promises of old-age security, medical security, unemployment security, bank account security, and defense security. The growth of government has aborted the growth of mutual aid arranged by ourselves in liberty.

The second large problem we have with government security is that government is inept in providing security. The banking crisis has made it clear that we have insecure currency. Anyone who holds wealth in dollars faces this insecurity, and this is a source of demand for gold and silver. One’s money is not safe in banks or out of banks. If the government cannot provide a sound currency, doesn’t that demonstrate clearly the ineptitude of government? How hard is it to provide a sound currency? Not very hard at all. One need only provide a medium of exchange that either demonstrates its own worth or that is convertible and backed by something that people accept as having worth. And yet the most powerful government on earth has produced a currency that is now worth less than 5 percent of what it was worth in 1933.

The third large problem with government security is that it is mostly a mirage. We the people are the only ones who can possibly provide our own security. The government can issue guarantees all day long and make it seem that our money or our money-market funds or our homes or our future health are now secure and insured, but it can’t back these promises up without getting the money from us. Its promises far, far exceed its capacity to tax us. The government promises us defense from enemies abroad but proceeds to involve us in all manner of costly foreign wars, the one leading to the next indefinitely. We are living under multiple illusions that we have gained security that we haven’t gained at all. Then, by relying on these false promises, we do not prepare as we should on our own.

The government is so inept that it cannot even save itself expeditiously. It spends trillions to save itself and still does not solve the problem that threatens its own survival: bank insolvency.

A few years ago, the largest banks and many large regional banks in the U.S. extended a large volume of loans that have since gone bad. The same thing happened to many banks overseas. The result is that the values of their liabilities and capital exceed the value of their assets. They owe more than they own. This means that they are insolvent. As long as they can keep up the cash payments they must make, they can stave off bankruptcy.

The banking system is undermined by this insolvency. So is the American economy, because we do not have a backup credit system in place. Lacking the liberty to produce other means of credit, we have all been forced into the current central-banking system. We have been forced into a system of securing our bank deposits by federal insurance that is a mirage.

When and if this credit system totally collapses, the dollar collapses and with it the government collapses. I do not think this is going to happen, despite the government’s ineptitude. I think what will happen is that, after wasting some more trillions and dragging the economy down further while weakening both the dollar and the government, the government will finally get around to nationalizing the banks in order to overcome the problem of their bad loans. It has been doing this piecemeal already. That process will continue and grow.

The government will be inept even in nationalizing the banks. It will drag that out endlessly and keep the economy mired in recession, weakening itself, us, the dollar, and business prospects. The presentation of Treasury Secretary Geithner a few days ago showed that the government still has not faced up to the problem of bad bank loans and still does not know what to do about them. The government will continue its inept improvisations.

Andy Kessler, writing in the Wall Street Journal, proposed a nationalization plan that would last one day. The government would seize the large banks that are insolvent and strip out their toxic assets. It would hold them in a government portfolio. It would then re-capitalize the banks with taxpayer money. It would distribute the shares to Americans who paid income taxes. A new board of directors would be formed and fire the old management. These clean banks would then be operable. Over time, whatever proceeds were realized by the bad loans would belong to the government. I mention this plan only to contrast it with the actual ineptitude of the government. The government already could have done this long ago for less money than it has already spent and wasted.

I am not complaining about ineptitude itself. There will always be some degree of ineptitude in human dealings. That is not my point. Being the anarchist and panarchist that I am, I prefer a vastly different form of handling the problems of security, a form that allows me the liberty to choose from a broader menu of options and not be forced into the government’s cattle car. My point is that, given that we want security, we are making a mistake in having government as we know it provide it to us.

There are three reasons. The government’s degree of ineptitude is unacceptably large. Its higher degree of ineptitude as compared with arrangements made in liberty is a fact beyond doubt. The government prevents us from exercising other options in liberty. This is not right in and of itself, and not right because it damages our well-being. Last, the government’s promises of security are a mirage.

That said, those of you who wish to maintain your association with this government or some other like it have my best wishes. This land is large enough for all of us, those who prefer this government and those who do not. Those of us who do not will increasingly be pressing the rest to let us go our own ways in peace. The more we are pressed, the more likely we will devise ways to demand and get liberty in a peaceful and above-board manner that is morally justified. If Indian nations were able to negotiate peace treaties, maybe anarchist or libertarian nations will find ways to do the same. If Rosa Parks could gain a seat on the bus, then maybe we can gain the exercise of our inherent right to contract with a doctor and hospital outside of Medicare or other federal laws.

February 13, 2009

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

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