Congressional Record — US House of Representatives July 9, 2002

It is now commonplace and politically correct to blame what is referred to as the excesses of capitalism for the economic problems we face, and especially for the Wall Street fraud that dominates the business news. Politicians are having a field day with demagoguing the issue while, of course, failing to address the fraud and deceit found in the budgetary shenanigans of the federal government — for which they are directly responsible. Instead, it gives the Keynesian crowd that runs the show a chance to attack free markets and ignore the issue of sound money.

So once again we hear the chant: "Capitalism has failed; we need more government controls over the entire financial market." No one asks why the billions that have been spent and thousands of pages of regulations that have been written since the last major attack on capitalism in the 1930s didn't prevent the fraud and deception of Enron, WorldCom, and Global Crossings. That failure surely couldn't have come from a dearth of regulations.

What is distinctively absent is any mention that all financial bubbles are saturated with excesses in hype, speculation, debt, greed, fraud, gross errors in investment judgment, carelessness on the part of analysts and investors, huge paper profits, conviction that a new era economy has arrived and, above all else, pie-in-the-sky expectations.

When the bubble is inflating, there are no complaints. When it bursts, the blame game begins. This is especially true in the age of victimization, and is done on a grand scale. It quickly becomes a philosophic, partisan, class, generational, and even a racial issue. While avoiding the real cause, all the finger pointing makes it difficult to resolve the crisis and further undermines the principles upon which freedom and prosperity rest.

Nixon was right — once — when he declared "We're all Keynesians now." All of Washington is in sync in declaring that too much capitalism has brought us to where we are today. The only decision now before the central planners in Washington is whose special interests will continue to benefit from the coming pretense at reform. The various special interests will be lobbying heavily like the Wall Street investors, the corporations, the military-industrial complex, the banks, the workers, the unions, the farmers, the politicians, and everybody else.

But what is not discussed is the actual cause and perpetration of the excesses now unraveling at a frantic pace. This same response occurred in the 1930s in the United States as our policy makers responded to the very similar excesses that developed and collapsed in 1929. Because of the failure to understand the problem then, the depression was prolonged. These mistakes allowed our current problems to develop to a much greater degree. Consider the failure to come to grips with the cause of the 1980s bubble, as Japan's economy continues to linger at no-growth and recession level, with their stock market at approximately one-fourth of its peak 13 years ago. If we're not careful — and so far we've not been — we will make the same errors that will prevent the correction needed before economic growth can be resumed.

In the 1930s, it was quite popular to condemn the greed of capitalism, the gold standard, lack of regulation, and a lack government insurance on bank deposits for the disaster. Businessmen became the scapegoat. Changes were made as a result, and the welfare/warfare state was institutionalized. Easy credit became the holy grail of monetary policy, especially under Alan Greenspan, "the ultimate Maestro." Today, despite the presumed protection from these government programs built into the system, we find ourselves in a bigger mess than ever before. The bubble is bigger, the boom lasted longer, and the gold price has been deliberately undermined as an economic signal. Monetary inflation continues at a rate never seen before in a frantic effort to prop up stock prices and continue the housing bubble, while avoiding the consequences that inevitably come from easy credit. This is all done because we are unwilling to acknowledge that current policy is only setting the stage for a huge drop in the value of the dollar. Everyone fears it, but no one wants to deal with it.

Ignorance, as well as disapproval for the natural restraints placed on market excesses that capitalism and sound markets impose, cause our present leaders to reject capitalism and blame it for all the problems we face. If this fallacy is not corrected and capitalism is even further undermined, the prosperity that the free market generates will be destroyed.

Corruption and fraud in the accounting practices of many companies are coming to light. There are those who would have us believe this is an integral part of free-market capitalism. If we did have free-market capitalism, there would be no guarantees that some fraud wouldn't occur. When it did, it would then be dealt with by local law-enforcement authority and not by the politicians in Congress, who had their chance to "prevent" such problems but chose instead to politicize the issue, while using the opportunity to promote more useless Keynesian regulations.

Capitalism should not be condemned, since we haven't had capitalism. A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank. It's not capitalism when the system is plagued with incomprehensible rules regarding mergers, acquisitions, and stock sales, along with wage controls, price controls, protectionism, corporate subsidies, international management of trade, complex and punishing corporate taxes, privileged government contracts to the military-industrial complex, and a foreign policy controlled by corporate interests and overseas investments. Add to this centralized federal mismanagement of farming, education, medicine, insurance, banking and welfare. This is not capitalism!

To condemn free-market capitalism because of anything going on today makes no sense. There is no evidence that capitalism exists today. We are deeply involved in an interventionist-planned economy that allows major benefits to accrue to the politically connected of both political parties. One may condemn the fraud and the current system, but it must be called by its proper names — Keynesian inflationism, interventionism, and corporatism.

What is not discussed is that the current crop of bankruptcies reveals that the blatant distortions and lies emanating from years of speculative orgy were predictable.

First, Congress should be investigating the federal government's fraud and deception in accounting, especially in reporting future obligations such as Social Security, and how the monetary system destroys wealth. Those problems are bigger than anything in the corporate world and are the responsibility of Congress. Besides, it's the standard set by the government and the monetary system it operates that are major contributing causes to all that's wrong on Wall Street today. Where fraud does exist, it's a state rather than a federal matter, and state authorities can enforce these laws without any help from Congress.

Second, we do know why financial bubbles occur, and we know from history that they are routinely associated with speculation, excessive debt, wild promises, greed, lying, and cheating. These problems were described by quite a few observers as the problems were developing throughout the 1990s, but the warnings were ignored for one reason. Everybody was making a killing and no one cared, and those who were reminded of history were reassured by the Fed chairman that "this time" a new economic era had arrived and not to worry. Productivity increases, it was said, could explain it all.

But now we know that's just not so. Speculative bubbles and all that we've been witnessing are a consequence of huge amounts of easy credit, created out of thin air by the Federal Reserve. We've had essentially no savings, which is one of the most significant driving forces in capitalism. The illusion created by low interest rates perpetuates the bubble and all the bad stuff that goes along with it. And that's not a fault of capitalism. We are dealing with a system of inflationism and interventionism that always produces a bubble economy that must end badly.

So far the assessment made by the administration, Congress, and the Fed bodes badly for our economic future. All they offer is more of the same, which can't possibly help. All it will do is drive us closer to national bankruptcy, a sharply lower dollar, and a lower standard of living for most Americans, as well as less freedom for everyone.

This is a bad scenario that need not happen. But preserving our system is impossible if the critics are allowed to blame capitalism and sound monetary policy is rejected. More spending, more debt, more easy credit, more distortion of interest rates, more regulations on everything, and more foreign meddling will soon force us into the very uncomfortable position of deciding the fate of our entire political system.

If we were to choose freedom and capitalism, we would restore our dollar to a commodity or a gold standard. Federal spending would be reduced, income taxes would be lowered, and no taxes would be levied upon savings, dividends, and capital gains. Regulations would be reduced, special-interest subsidies would be stopped, and no protectionist measures would be permitted. Our foreign policy would change, and we would bring our troops home.

We cannot depend on government to restore trust to the markets; only trustworthy people can do that. Actually, the lack of trust in Wall Street executives is healthy because it is deserved and prompts caution. The same lack of trust in politicians, the budgetary process, and the monetary system would serve as a healthy incentive for the reform in government we need.

Markets regulate better than governments can. Depending on government regulations to protect us significantly contributes to the bubble mentality.

These moves would produce the climate for releasing the creative energy necessary to simply serve consumers, which is what capitalism is all about. The system that inevitably breeds the corporate-government cronyism that created our current ongoing disaster would end.

Capitalism didn't give us this crisis of confidence now existing in the corporate world. The lack of free markets and sound money did. Congress does have a role to play, but it's not proactive. Congress's job is to get out of the way.

-Dr. Ron Paul is a Republican member of Congress from Texas and a 2008 US presidential candidate.

Why I Am a Ron Paul Libertarian

by Stan Warford

I was born and raised a liberal Democrat. My grandmother, who lived through the Depression, thought that Franklin Roosevelt was the savior of the United States. My father, who was a farmer, explained to me why it was a good policy for the government to pay farmers to not grow crops. For years I thought that gun control laws were necessary to curb violent behavior. At one time I believed that minimum wage laws were compassionate. I used to defend our government in its foreign interventions, especially those based on humanitarian grounds.

But, during the past twelve years, I have rejected many political beliefs taught to me by my family and my schools. I now believe that our country is in serious trouble that only libertarian principles can alleviate.

Furthermore, these problems have a direct effect on your future.

When you graduate, you will look for a job. What if you cannot find one because the economy is in a recession or even a depression?

Your salary will be paid in dollars. What will those dollars be worth after the Federal Reserve decreases their value with its policy of inflation and Wall Street bailouts?

You will begin to save for your retirement. What if you pay into Social Security your whole life but receive no benefits at the end because the system is bankrupt?

And, heaven forbid, what if you must terminate your employment because our country reinstates the draft and sends you off to war as it did with my generation in the 60s?

The Non-aggression Principle

Libertarianism is based on this Non-aggression Principle: It should be legal for anyone to do anything he wants, provided that he does not initiate violence or threaten violence against the person or legitimately owned property of another.

The Non-aggression Principle implies all the common prohibitions against theft, murder, rape, torture, and violence against other individuals except in cases of self-defense of one’s person or property.

But government itself is financed by the compulsory payment of taxes by its citizens. Taxes are not voluntary. If you disagree with the policies of your government you may not withhold your taxes because if you do the government will threaten you with the violence of law enforcement.

It therefore follows that the government that governs best is the government that governs least.

The libertarian philosophy advocates a small government in line with the US Constitution as envisioned by our founding fathers. It is growing in popularity but has a huge uphill battle to wage. Our government is in large part controlled by special interest groups and the leaders of an entrenched two-party system. The maintenance of this system is based on a series of myths that are perpetuated to justify an ever-expanding government that assumes more power year by year, the very antithesis of a government that governs least.

Here are some of those myths.

Myth Number One – That which is immoral should be illegal.

It is true that many actions that are immoral should be illegal – actions such as theft and murder. However, no action by any individual in the privacy of his own home that does not initiate violence against another should be illegal even if it is immoral. Nor should any action between two consenting adults that does not initiate violence against others be illegal even if it is immoral.

We are in the midst of a huge, expensive, failed war on drugs. The war itself produces more harm than the abuse of the illegal drugs. A recent study puts our incarceration rate at 1%, the highest per capita rate of any country in the world. It is estimated that about a half million of these are for nonviolent drug offenses. Alcohol prohibition was responsible for gangland violence in the streets, and drug prohibition is no different. Libertarians call for an end to the drug war.

Myth Number Two – Government regulation is necessary to save us from the failures of laissez faire capitalism.

The prime example of this myth is the belief that laissez faire capitalism caused the Great Depression and that government intervention in the economy ended it. The fact is, however, that the Federal Reserve was founded in 1913, a full 16 years before the fateful stock market crash of 1929. The Fed presided over an expansion of the credit market, which produced the roaring 20’s, the largest economic bubble in history before its collapse.

In recent history, we have seen the dot com bubble and now the real estate mortgage bubble. Both of these bubbles are created by government intervention in the credit market through the Federal Reserve central bank. Libertarians call for an economic policy governed by the principles of the Austrian School of Economics, which includes a minimization of government intervention in the free market.

Myth Number Three – Government intervention in the affairs of foreign countries is necessary for the security of its own citizens.

Ever since the tragic events of September 11, our executive branch has justified its intervention in Iraq and the subsequent erosion of our civil liberties in order to secure our safety. It has even established a policy of preemptive war, whereby it claims the authority to invade another country because that country might aggress against us in the future. Imagine the chaos in the world if every country claimed that authority.

Our intervention in Iraq has made us less safe, not more, because of the unintended consequence called "blowback" by the CIA in its recently declassified report on our policy in Iran. The 9/11 Commission report also describes the blowback phenomenon. Our military intervention, apart from its devastating effects on Iraqi civilians, acts as recruiting tool for extremists. As Benjamin Franklin said, "Any society that would give up a little liberty to gain a little security will deserve neither and lose both."

Libertarians call for a foreign policy of nonintervention in general and an immediate withdrawal of our troops from Iraq in particular.

Myth Number Four – Non-interventionism is the same as isolationism.

Isolationists want to isolate the country from interaction with the rest of the world. To that end, they are for national economic self-sufficiency and protectionist tariffs. Isolationists use trade wars and economic sanctions as foreign policy tools to isolate other countries from the world economy.

Libertarian non-interventionists, on the other hand, support international trade, low tariffs, cultural exchange, and diplomatic contact. They view trade as so beneficial that they refuse to withhold it even from despotic states. A positive example is our continuing trade with Communist China, which serves to open that country to the liberal ideals of the west and is beneficial both to us and to them in spite of their tarnished record on human rights. A negative example is our continuing economic boycott of Cuba, a policy that has failed to remove its leader of a half century.

Myth Number Five – If the government does not solve a social problem, the social problem will not be solved.

This myth is used to justify government provision of social services such as health care, education, and retirement. The myth is based on the conflation of negative rights with positive rights.

Negative rights are rights of prohibition against other people from initiating violence against you. Negative rights are enshrined in the phrase from the Declaration of Independence that all people have the right to "life, liberty, and the pursuit of happiness."

Positive rights force other individuals to provide you with a service. Positive rights are claims that you have a right to a job with a living wage, a right to affordable health care, a right to an education, and a right to a comfortable retirement. Government uses the fiction of positive rights to expand its power in the provision of these services.

Libertarians object to the use of government to provide social services on two grounds, one ethical and one practical.

Because tax collection is not voluntary, people who receive social services from the government do so through a forced exchange of tax dollars. The receipt of such services thus violates the Non-aggression Principle and is unethical.

The practical objection is the observation that no government agency exercising monopoly power can provide a service with better quality or lower price than the free market can under the discipline of the profit motive. We would have better schools and better health care without government interference in these markets.

Libertarians call for a government whose sole function is limited to the Constitutional guarantee of the negative rights of life, liberty, and the pursuit of happiness.

Myth Number Six – Libertarianism is idealistic and does not work in practice.

Libertarians are often accused of having a naïve faith in the free market, and having ideas about the way society ought to be governed that are not practical. As with most myths, the truth is precisely the opposite, as can be demonstrated by public choice theory. Public choice scholars analyze the structure of government from an economic and political perspective to explain why certain policies come into being.

Government programs are not effective because the incentive system does not reward bureaucrats for good service or punish them for bad service. The Los Angeles Unified School District is impossible to reform because they do not go out of business when they provide poor service as a private company would. Nor does FEMA.

Politicians cannot be expected to be good stewards of other people’s money obtained through the force of taxation. They are motivated by the same self-interest that motivates all people. Because of the professionalization of the political class, their interest is in winning elections, a process that is only possible by courting special interests.

It is the height of naïveté to place your faith in a governmental system that can only work if its politicians and bureaucrats are saints and angels.

Conclusion

The libertarian philosophy is the ultimate philosophy of tolerance. It is a philosophy of live and let live, of not initiating violence against any other individual, of liberty for all, of peace, and of prosperity.

That is why I am a Ron Paul libertarian.

This is based on a talk delivered at the Forum for Political Understanding, Pepperdine University, on April 7, 2008.

April 10, 2008

Stan Warford [send him mail] is a professor of computer science at Pepperdine University.

by Ron Paul

These past few weeks have provided an unfortunate opportunity to discuss inflation. The dollar index has reached new all-time lows. The total money supply, M3, as calculated by private sources, is growing at a disturbing 17% rate. The Fed is pumping dollars into the economy at an alarming rate. Just recently the Fed announced new loan auctions totaling $100 billion. That is new money created from thin air. If these money auctions, combined with the bailout of Bear Stearns, continue to be the trend, we are in for some economic stormy weather. The explanation lies in understanding the basics of money, and why it is dangerous to give government and big banks control over it.

First, money is not wealth, in and of itself. You cannot create more wealth simply by creating more money. Wall Street bankers cry out for more liquidity, but what is really needed is more value behind the dollar. But the value, unfortunately, isn't there.

You see, the Fed creates new money and uses it to purchase securities from banks. Flush with funds, these banks seek to put this money to use. During the Fed's expansionary period, much of this money went to home loans. Through a combination of federal government inducements to lend to risky borrowers, and the Fed's supply of easy money, the housing bubble took shape. Fannie Mae and Freddie Mac were encouraged to purchase and securitize mortgages, while investors, buoyed by implicit government backing, rushed to provide funding. Money that could have been invested in more productive, less risky sectors of the economy was thereby malinvested in subprime mortgage loans.

The implicit guarantee from the Fed is quickly becoming explicit, as those institutions deemed "too big to fail" are bailed out at taxpayer expense. Wall Street made a killing during the housing bubble, reaping record profits. Now that the bubble has burst, these same firms are trying to dump their losses on the taxpayers. This approach requires more money creation, and therefore debasement of all dollars in circulation.

The Federal Reserve, a quasi-government entity, should not be creating money or determining interest rates, as this causes malinvestment and excessive debt to accumulate. Centrally planned, government-manipulated economies always fail eventually. The collapse of communism and the failure of socialism should have made this apparent. Even the most educated, well-intentioned central planners cannot plan the market better than the market itself. Those that understand economics best, understand this reality.

In free markets, both success and failure are options. If government interventions prevent businesses, like Bear Stearns, from failing, then it is not truly a free market. As painful as it might be for Wall Street, banks, even big ones, must be allowed to fail.

The end game for this policy of monetary inflation is that the money in your bank account loses purchasing power. So, by keeping failing banks afloat, the Fed punishes those who have lived frugally and saved. The power to create money is a power that should never be granted to government. As we can plainly see today, the Fed has abused this power, and taxpayers are paying the price.

by Justin Raimondo

It was shocking, hearing CIA director Michael Hayden tell Tim Russert on Sunday morning that we're wide open to another 9/11-style terrorist attack. Al-Qaeda, he said, is turning to operatives who "look Western" and "wouldn't attract your attention if they were going through the customs line at Dulles with you." These new recruits, he averred, "would be able to come into this country … without attracting the kind of attention that others might." Let's see if I understand this correctly: all one has to do in order to get into the U.S. is to "look Western" and not stand out too much in the line at Dulles. Seven years after 9/11, we're still just as vulnerable as ever to another devastating blow such as the one Osama bin Laden delivered on that fateful September morning. I've often joked that the sheer force of the explosions in New York and Washington tore a hole in the space-time continuum and hurtled us into a Bizarro World alternate universe, where up is down and the laws of reason and logic are similarly inverted. Nothing else explains our present course, our crazed foreign policy, and our utter helplessness in the face of a very real threat to the continental United States. Four years after the 9/11 Commission issued its recommendations of preventive measures to be taken, the report molders on the shelf, its laundry list of urgent action items not even close to being implemented. One key passage from the report: "The U.S. border security system should be integrated into a larger network of screening points that includes our transportation system and access to vital facilities, such as nuclear reactors. The president should direct the Department of Homeland Security to lead the effort to design a comprehensive screening system, addressing common problems and setting common standards with system-wide goals in mind. Extending those standards among other governments could dramatically strengthen America and the world's collective ability to intercept individuals who pose catastrophic threats." Our borders are more porous than ever, and not the slightest effort has been made to repair this rather large chink in America's armor. The commission's recommendation that we institute "a biometric entry-exit screening system, including a single system for speeding qualified travelers," has been completely ignored. As the commissioners pointed out, "No one can hide his or her debt by acquiring a credit card with a slightly different name. Yet today, a terrorist can defeat the link to electronic records by tossing away an old passport and slightly altering the name in the new one." That hasn't changed. Indeed, very little has changed. Instead of building a biometric barrier to terrorism, the Transportation Security Administration is busy strip-searching little old ladies from Kansas and devising new ways to deal with passengers who have body piercings. The Department of Homeland Security is a mess – instead of streamlining the bureaucracy it has merely added on another layer of inefficiency. Homeland Security has never passed a government audit. No, not even once. Pre-Order this Book Homeland Security funding, instead of going to defend the most likely terrorist targets, is sent to states like Wyoming, which, as Michael O'Hanlon, a senior fellow at the Brookings Institution, noted, gets "5 to 10 times as many homeland security dollars per capita as many high-risk states." It's small wonder these funds are distributed according to a predictable political formula instead of addressing the real security needs of a nation at war with a deadly enemy. Yet such vindication of my libertarian views on the nature and purpose of government does nothing to reassure me – or to lessen the very real (and increasing) danger. The United States has chosen to fight an offensive war, but this has boomeranged, and badly. The Iraq war not only diverts us from our task of rooting out al-Qaeda, it also empowers and enables the terrorists in their efforts to wreak havoc on the American mainland. Bin Laden's legions are more numerous and better strategically placed than they were before 9/11: they're not only in Afghanistan, they've also infiltrated "liberated" Iraq and entered Pakistan. In the latter location they've carved out a safe haven, where they continue to plot their war against America – while Gen. Pervez Musharraf, our chosen strongman, and the recipient of billions in U.S. aid, gets weak in the knees in the face of bin Laden's tribal protectors. Furthermore – and more importantly – we're losing the ideological battle against the jihadists, whose view of the U.S. as the main enemy of Islam is seemingly confirmed by U.S. government actions since 9/11. America's standing across the Middle East has plummeted. Our Israeli-centric Middle Eastern policy continues to outrage even our allies in the region, making it harder to gain the cooperation of Arab governments and security services to pursue the task we should have accomplished – or, at least, attempted – in the immediate aftermath of 9/11: rounding up the leadership of this terrorist cabal and eliminating them once and for all. The Bush administration's response to the 9/11 terrorist attacks on New York and Washington was predicated on the principle that the best defense is a good offense – with the result that we are now bogged down in both Afghanistan and Iraq with our soft underbelly exposed to the enemy. They invaded Iraq because it was "doable," as Paul Wolfowitz so memorably put it. Yet, as we spend $12 billion per month in Iraq, the biometric system the 9/11 Commission called for, and Congress agreed was necessary, is apparently not doable, at least by our government. Also not doable: the traditional low-tech approach to border security. Two years ago, the GAO pointed out that investigators had "successfully entered the United States using fictitious driver's licenses and other bogus documentation through nine land ports of entry on the northern and southern borders" between February and May 2005. Counterfeit identification? Our intrepid Customs and Border Patrol officers didn't notice the fakes, and, in too many cases, didn't even bother to check identification documents. I wonder what happened to the border guards who messed up so badly. Ten to one they're still working for the same government agencies, albeit with a stern wrist-slapping note appended to their official records. The TSA makes us take off our shoes at every airport but doesn't bother inspecting cargo in planes for explosives. Our president is telling us that the central theater of the war on terrorism is in Iraq – while, in America, our ports are wide open to a nuclear device masquerading as a shipment of coconuts. We were attacked on 9/11, and the administration, instead of fighting back, essentially surrendered – or, at least, gave up entirely the concept of defending the continental United States from another horrific assault. Instead, they went charging around the world on a wild goose chase that has exhausted our resources and the patience of the American people. What's scary is that these are the folks charged with defending us – a realization that would imbue Pollyanna with a sense of impending doom. Yes, we are at war with the network of groups and individuals who planned and executed the 9/11 terrorist attacks – not with the Mahdi Army, the Iranians, the Syrians, and/or anyone who looks cross-eyed at the Israelis. As we bray and posture, asserting our right to preemptively attack any nation on earth, glorying in our role as the global hegemon, the reality is that we are for all intents and purposes utterly defenseless. What this means is that another terrorist attack on the scale of 9/11 – or worse – is practically inevitable. Which is what our very own government officials, both here and in Britain, have been telling us since 2001. It's called covering your ass – and it's the only job governments everywhere are very good at.