Thursday, November 13, 2008

What are they thinking ? The current "bailout" legislation.

I said last week that I was done with politics for a while. I meant it. Can’t even watch Morning Joe anymore. But, I was talking about politics as in -- who gets elected. But, political issues are fair game and this one has me riled up. Let me say this about the current newly enacted law, sometimes known as the bailout, which contains TARP, the Troubled Assets Relief Program --

-- it’s horrible. Keep reading.

Note to conservatives. This Act is pure socialism. By definition, it is giving the government ownership of the means of production. You are supposed to be the “socialism doesn’t work” party. It is your president and administration who put forward this terrible law. Your namby-pamby vote against this legislation followed by your capitulation was less than stirring. I happily say all this even though my presidential candidate was for the plan (then again, they both were). Admit that those of you who voted for it made a mistake and you want to do away with it. Apologize because it will look like you wanted it for your president and not the other team's president.

Note to liberals. You don't like to be called socialists, but, theoretically, at least, you are closer to the line than conservatives (who often go down that path too, usually in thetorical disguise). It was your party that primarily supported this terrible bill even though it came from a defeated lame duck Republican president. Undo it. You have this power starting in January. Of course, I say this is vain, because not for a second do I think that Obama or any incoming president is going to work to lessen his party’s grip on power. Throw this monkey off your back and I will be very impressed.

Note to both parties. Socialism isn’t bad just because it is not OUR way of doing things. It is bad because it is anti-freedom, anti-efficient and unfair. It does not work.

The truth is, I find already that folks I personally know who are often fairly partisan on both sides, seem to see this legislation as socialism and way, way past a de minimis exception that some believe is necessary in a modern society.

Blog readers who have suffered through my occasional auto-biographical remarks know that I started life in a very liberal family and bought the all liberal all the time philosophy until the 80s when I realized the world didn’t actually perish after a Republican administration and that maybe not just my own family held the keys to wisdom. Sometimes before my conversion to political independence, I did have more than a little pinko in me. Communism didn’t sound good, but socialism did. Some of my political beliefs were naïve and foolish as they almost unerringly will be when you have allegiance to one party or philosophy and its dogmas. I needed educating. But, even then, I had some core beliefs that haven’t changed. People need to be as free as possible. We should try and be the most militarily powerful country in the world as well as the most educated. Um, that’s about it. Oh, tv series should be canceled after 8 seasons max, but, that is really an article of faith for another post.

So that we can all be arguing on the same page here – I am complaining that the new legislation, sometimes referred to as the "bailout," which gives the secretary of the treasury the power, somewhat unchecked, to buy private financial institutions in the government's name under the guise of buying their troubled assets, is pure socialism.

By socialism I mean the classic definition -- the government owning the means of production (I won’t even get into the spreading the wealth issue, but it is similar). There can be no realistic argument but that this legislation allows is the government to own the means of production. They can dress it up anyway they like, that is what this is. Remember that saying that kept popping up during the election – you can put lipstick on a pig, but . . . .

One of the books I read trying to educate myself was F.A. Hayek’s The Road to Serfdom, which I actually remember reading for the first time sitting in some library or another, although for the life of me, I can’t tell you which one. I do remember being bored and forcing myself to read it though. My initial reaction was that it made some sense, that socialism probably did not work after all, but, I was still emotionally tied to being a proud liberal, and I punched a lot of holes in it as to what I though must be exceptions. After all, I thought, any book that inspired Ronald Reagan could not possibly inspire me. Years later, I bought a paperback copy and suffered through a second reading. I did get a little more out of it and decided he knew some things I didn’t.

I’m not a retro-Reagan believer at all. Although there were some things he did that I liked (firing the striking FAA strikers and building up the military, to name two) I still believe that his administration was the beginning of the great ramping up of ideology and partisanship that found it’s fruition in the current administration. I also wasn’t as charmed as most people with his personality. He really wasn’t that funny to me. But, that might be because I didn’t like his policies. I find that when people are partisan, they often dislike the looks or personalities of their adversaries.

With the financial crisis now looming and then the idea proposed that the government should directly interject itself in the economy in terms of buying and selling companies, picking winners and losers, etc., I thought I heard Hayek whirling in his grave (1992) and went to the shelf and picked it up again for the third time. Not only did re-reading it seem to confirm my views that this new law is just a big mistake, but, I realized that the previous readings of his work had long sunk in; that is, his book was very instrumental in forming my thinking and I claim no originality. I’m liking it more the third time around.

Conservatives who read it will hopefully remember the best part of their political philosophy. Liberals reading it will hopefully see that Hayek (not even an American) has no interest in the petty partisan politics that both parties care about these days in America, and, that if already not anti-socialistic, will become so. That's my plan, anyway. Hayek doesn’t call any names. Actually, he is nice even to the German culture (not Hitler, anti-semitism or Nazis) and he wrote this during WWII. All I’m trying to say, sports fans, is that being against socialism should not be a partisan belief.

I don’t do book reports (usually, don’t hold me to it), so, you’ll have to read Hayek yourself if you are interested. And, unfortunately, although he was a clear writer he was not a particularly exciting one. I will not try to give a one paragraph summary of the book (I think I’ve tried that before here and was unsatisfied). That would do the same justice as one can do to the Grand Canyon by verbally describing it to someone for a few seconds. Instead, I will throw a few quotes at you from the book that which, at least, will be like trying to describe the Grand Canyon with a few photographs. Not enough, but at least something:

“[T]he socialism of which we speak is not a party matter, and the questions which we are discussing have little to do with the questions at dispute between political parties. It does not affect our problem that some groups may want less socialism that others, that some want socialism mainly in the interest of one group and others in that of another. The important point is that, if we take the people whose views influence developments, they are now in the democracies in some measure all socialists. If it is no longer fashionable to emphasize that “we are all socialists now,” this is so merely because the fact is too obvious. Scarcely anybody doubts that we must move toward socialism, and most people are merely trying to deflect this movement in the interest of a particular class or group.”

Sound familiar? Isn’t that what the argument is about right now even if we are past the point where we call it socialism (we substitute things like Keynesian economics, pragmatism, necessity, etc.) Who gets the use of our tax dollars, or, the tax dollars that goes into paying back the trillion or so dollars we need to borrow to do this? Main Street or Wall Street? Rich people or poor people? Supply side economics, which I have never bought into, can be as socialistic as welfare. Socialism is now so ingrained in our heads that we do not recognize that it is what it is. The fact that our founders (some who were repulsed at even the idea of a national bank) would have been absolutely dumbfounded by this approach probably isn’t important, as, we are dumbfounded by many things they did, starting with slavery and maybe ending with state religions.

Probably, we have been whirring down this socialistic slide since 1913 when the income tax was finally and permanently instituted. It seems to me that this legislation is a real gathering of speed down that slide.

Paying off the debts of those who took mortgages that they didn’t know if they could repay, or, banks which invested badly is a terrible idea. Not only because it is grossly unfair to those who aren’t getting paid for their lack of sound investment, but because, ultimately, it doesn’t work. Leave aside that we just added another trillion to our debt that we can’t pay back.

Back to Hayek:
“Though in the short run the price we have to pay for variety and freedom of choice may sometimes be high, in the long run even material progress will depend on this very variety, because we can never predict from which of the many forms in which a good or service can be provided something better may develop.”

We can never predict. That is the key here. Whenever I hear that so and so is very smart and that’s why they’ll be able to figure this out, I laugh (or feel like crying). As Hayek points out, no one, no one, no one, is so smart as to be able to do this. This collective wisdom is a bedrock principle of our country.

Hasn't Paulson already proven this just a few weeks into his powers? Just prior to the crisis he pronounce Fannie and Freddie sound. After declaring the need for 700 billion for one reason, he now claims that the facts have changed and that he needs it for something else. What has really happened is much simpler; he predicted wrong. Not because he is stupid or uneducated or anything else you want to throw at him. It's because you can't predict. George Soros can't predict. Even Warren Buffet can't. Buffer wrote recently in an op-ed: "Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now." To be fair, he said other things more positive about the market eventually, but the above is the important part for my purposes.

If we bail out GM, then we are not bailing out the small company which is trying to compete with GM. We are not bailing out the American employee of even the foreign automakers who have plants here and actually provide jobs. If we give money to all automakers, then we are unfairly using our national resources in their favor and hurting the airline industry and the farmers, even the great wheat conglomerates, and every other group which is not so benefited.

What would happen if we let our fundamentally inferior car manufacturers fall. Would they disappear? Possibly. Or, would they just file for bankruptcy and re-structure, for which our law already provide? Or, would they be forced to do things differently, become more efficient? Would other companies with new ideas come in and buy them out at a good price? Why should we let Hank Paulson, and no one doubts his sincerity, make these decisions? Or whomever Obama puts in power afterwards? Those “geniuses,” as they will necessarily be described, are no more capable of this than you or I are. Why do you think so many fail at investing? No one can really reliably predict these things. The best investors will tell you that they lose more than they win unless it is a very bullish market or they buy short in a very bearish one. They have just learned techniques to hedge against their mistakes and to cut their losses.

I haven’t talked to many people about this, just a few, but they seem to agree on one thing, whatever their political beliefs. That some economic pain, maybe a great deal, is necessary to fix this so that it happens less frequently in the future and with less pain. This is just a basic tenet of life. You have to learn to do things better by making mistakes and taking the consequences. Unfortunately, we have seen the opposite becoming a basic tenet of American life, including child raising - you can’t punish your child because somehow, it’s not right. What have we learned by all this? You better be one of the in-group and you will get the benefits that go along with power. The government will decide which companies live and which fail. If I was a financial institution, I'd almost want to fail.

More Hayek:
“The cry for an economic dictator is a characteristic stage in the movement toward planning" [which leads to economic failure and totalitarianism]. Quoting yet another economist, he went on: “‘It is now several years since of the most acute of foreign students of England, the late Elie Halevy, suggested that, ‘if you take a composite photographs of [a list of promoters of totalitarian government], I think you would find this common feature—you would find them all agreeing to say: “We are living in economic chaos and we cannot get out of it except under some kind of dictatorial leadership.”’”

Isn’t that what we have met with in Paulson? And, again, I’m not suggesting that he is totalitarian in outlook or wants anything but the best for our country. Nice man. But, we all know what the road to hell is paved with -- neither Paulson nor anyone else in government should decide who succeeds and who fails. And

“The idea that there is no limit to the powers of the legislator is in part a result of popular sovereignty and democratic government . . . It may well be that Hitler has obtained his unlimited powers in a strictly constitutional manner and that whatever he does is therefore legal in the juridical sense. But who would suggest for that reason that the Rule of Law still prevails in Germany?”

One of the basic premises of Hayek’s work is that socialism presents a psychological problem. We are slowly conditioned to hand over our freedom to the government one step at a time. It is strange that many people who would be so furious if the government intruded into their bedroom or their business (more than it already has) have no problem with the government picking winners and losers.

Are we going to continue to even try to be a nation of laws or one where our class status determines our success?”:

“The important question is whether the individual can foresee the action of the state and make use of this knowledge as a datum in forming his own plans, with the result that the state cannot control the use made of its machinery and that the individual knows precisely how far he will be protected against interference from others, or whether the state is in a position to frustrate individual efforts.”

It is not that Hayek suggests at all that we shouldn’t have laws. Far from it. We need laws for many reasons, predominantly though, to make sure that we can freely live our lives without unfair interference from others. But, he does suggest that the laws should simply provide that basic framework so that we can do what we want to do without unduly interfering with others. In fact, he believes in regulations necessary to prevent fraud and other unfair competition. But, the laws should help us compete economically, not hinder us.

How can any individual know in advance what the law provides when Paulson is so empowered to buy any business he thinks necessary to save the economy and litigants must prove that he abused his power, was arbitrary and capricious or acted unlawfully. These are extremely hard standards to meet. True, the government already has tremendous power to take property under the takings clause of the constitution (eminent domain) so long as the property owner is compensated, but, the owner can always litigate the matter before it is taken. Here, the secretary is given the power to take, and, the litigation will come after a de facto seizure. Judicial power to limit the taking ahead of a judicial determination is virtually nill.

As Hayek takes pains to make clear, he is not saying that socialism will always lead to totalitarianism, but it is the surest path there. He is saying that over time it produces a psychological change in citizens who get used to giving up liberty to the government for convenience or security. Those who employ it will eventually get unintended results they will not like very much. In a title (drum roll) it is the Road to Serfdom.

We’ve already gone too far along this road. Time to go back home.


  1. Anonymous3:01 PM

    I totally agree with this...not even my usual minor complaints when I'm in general agreement with your posts. "Serfdom" is totally on point. It should be read in conjunction with Arendt (origins of Totalitarianism) The socialist tendency has more in common with the rise of t'tarianism than the proponents os socialism would like to think. Also, just finished reading (agaim) Rise of the west which extols the virtues of the (generally) unfettered narket. And the importance of individula liberty.
    It does seem we are being sold out by both of our current political movements....we will once again learn the hard way.

  2. Good lord, Don. I'm not used to such praise. I think I might just fain . . . .

  3. Anonymous10:49 PM

    GFY smartass

  4. Anonymous10:50 PM

    Sometimes even you hot one out of the park.

  5. Hey David, Not that I can even think (it's 2am, what am I doing up? Homework for my teacher relicensure). But socialism or not, I definitely want to have that same health plan that Congress and the Prez have!

  6. We'd all like that package. But, I don't want it if it isn't feasible for the country or destroys our health care system. Please don't take Sicko as reality. I would like to take it away from congress. They should not be in charge of their own salaries and benefits.

  7. Anonymous1:45 PM

    Anyone can poke holes in ideology. Comparing theory to reality is the old apples to oranges thing. Regardless of what school of economics you come from, certain key industries support the whole structure, like dominoes. We cannot let too many major banks fail, nor can let the big 3 automakers collapse, even if they deserve it. In the words of the great philosopher Clintus Maximus Eastwoodius, "Deservin's got nothing to do with it." Bailouts will not be fair, they won't necessarily go to the people who deserve it, but they are on rare occasions, necessary. I don't care what you call it, in theory. Perfect world, competent politicians make sure the money isn't lavished on the cronies, stooges, and pigs who got us into this mess in the first place, but we know it is not a perfect world.

  8. Not my point, Confucius. I didn't say do nothing. I said, don't let government control the means of production. And, as Hayek would point out, it always starts with people saying, we don't want to do this, but we had to do something, and always starts with good intentions. Which is exactly what the proponents in congress are saying.


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About Me

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I started this blog in September, 2006. Mostly, it is where I can talk about things that interest me, which I otherwise don't get to do all that much, about some remarkable people who should not be forgotten, philosophy and theories (like Don Foster's on who wrote A Visit From St. Nicholas and my own on whether Santa is mostly derived from a Norse god) and analysis of issues that concern me. Often it is about books. I try to quote accurately and to say when I am paraphrasing (more and more). Sometimes I blow the first name of even very famous people, often entertainers. I'm much better at history, but once in a while I see I have written something I later learned was not true. Sometimes I fix them, sometimes not. My worst mistake was writing that Beethoven went blind, when he actually went deaf. Feel free to point out an error. I either leave in the mistake, or, if I clean it up, the comment pointing it out. From time to time I do clean up grammar in old posts as, over time I have become more conventional in my grammar, and I very often write these when I am falling asleep and just make dumb mistakes. It be nice to have an editor, but . . . .