Government: A Successful Failure

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