Rex Regnant Sed Non Gubernat

I think at this point it is fair to say that the name “Barack Obama” has become irrevocably synonymous with the phrase “Brownshirts”, and with very good reason.

Riding the euphoric wave of a Prozac addled collectivist saturated puppy-love election season, the teleprompter dependent basketball playing android immediately launched several programs designed to centralize community organization using federal oversight.

One of these initiatives, ‘The Universal Voluntary Public Service Program’, stood out as one of the most unabashedly fascist concepts to come out of any presidential administration since Franklin D. Roosevelt’s forced internment of innocent Japanese American’s. The idea of requiring citizens to “volunteer” for quasi-military or federal service and subsequent statist indoctrination didn’t play too well with the majority of the public, and has, for now, been abandoned.

The problem with governments with aspirations of totalitarianism, however, is that they never actually fully give up on any reach for power. Instead, they shelve one tactic and try out another, until the citizenry starts to nibble the bait.

To be fair, this behavior was going on long before Obama, and his particularly unhinged presidency is only an amalgamation of all those corrupt puppet politicians that came before him. Much of the police state apparatus we see being slowly inserted into our daily lives was constructed in stages. George W. Bush’s implementation of the Patriot Acts, the DHS, and the FISA Bill, for instance, gave Obama an easy framework of tyranny to build on.

Whoever globalists deem suitable to replace Obama in 2012 or 2016 (if we even have the option of rigged elections by then), will certainly carry on where he left off (perhaps Rick Perry can have an insincere prayer circle with his Fusion Center hit squads before heading out to attend another Bilderberg conference).

That said, Obama and the DHS under his administration have had a particularly busy couple of years. While our attentions have been understandably captivated by concerns over the economic collapse which is unfolding right before our very eyes, a new push for the induction of community groups into the fold of the Homeland Security apparatus is taking place.

The key to any successful tyranny, of course, is the inclusion of average and ignorant citizens who become the eyes and ears of the offending bureaucracy. With the unveiling of the White House’s “Counter Extremism Plan” this past month, the process of recruiting citizen spies has been put on the fast track.

Countering “Extremism”?

With a minimum of fanfare, the White House in the first week of August released an eight page white paper entitled ‘Empowering Local Partners To Prevent Violent Extremism In The United States’:

http://www.whitehouse.gov/sites/default/files/empowering_local_partners.pdf

The content is decidedly bland, and typically uninformative, spotted with broad statements and empty proclamations of “patriotism and freedom” (which I found disingenuous and rather offensive). In fact, the whole document could have easily been summarized down to two paragraphs without losing anything of importance. The real issues inherent in the paper do not concern what is said, but what is NOT said…

To begin with, not once does the White House or the DHS ever actually define what they mean specifically by “extremism”. What is extremism? What signs exactly are communities supposed to be watching their neighbors for? The White House release, as well as the very similar DOJ project, ‘Guidance For Building Communities Of Trust’ (BCOT), never outline what they believe extremism is, or how they plan to identify and thwart it.

The assertion made in these public releases is apparently that you and I should simply KNOW already what an extremist is, how he is supposed to behave, and how he stands out in comparison to “non-extremists”.

An analytic NPR piece covering the Local Partners paper attempts to flesh out greater details on the program which is slated to move forward over the course of the next 6 to 12 months:

http://www.npr.org/2011/08/04/138955790/white-house-unveils-counter-extremism-plan

The article falls pretty flat (you can’t expect much depth from NPR), but, certain passages are revealing. On the whole, we are seeing an acceleration of the rhetoric surrounding the now infamous idea of “white Al-Qaeda”.

That is to say, we are being asked to believe that an organization of Middle Eastern CIA assets trained and utilized for terrorist applications is apparently looking to recruit troubled American teens and lonely guys in basement apartments to do their super evil bidding. I know…..it’s diabolical.

The government has gone to great lengths to perpetuate the absurd notion of a widespread Al-Qaeda network infecting every region of the country and comprised of people from all walks of life, of all religions, and of all ethnic persuasions. To their credit, Al-Qaeda is arguably the most inclusive fake terrorist organization in history.

While the above government papers and shill articles refrain from laying out specific attributes of the dreaded extremists they seek to oppose, they have already made these signals quite clear in other documents which were not meant to be so public.

Who can forget the leaked MIAC Report, or the Virginia Fusion Center Report, which categorized Ron Paul supporters, Constitutionalists, Libertarians, anyone who talks about economic collapse, and anyone who owns a Gadsden Flag, as possible extremists or terrorists. The government later stated that the MIAC Report was an “embarrassing mistake”, and that such slip ups would be corrected in the future. The DHS, though, was obviously not embarrassed by the content of the reports.

Otherwise, they never would have shoved them into the hands of state police where they would be quickly applied. Rather, the DHS was embarrassed that such reports were openly exposed.

And what about the post trial statements of the DOJ’s Anne Tompkins, who after railroading Liberty Dollar founder Bernard von NotHaus, stated that even those who create alternative currencies and decoupled markets, though not violent, are still akin to “domestic terrorists”.

This along with other attacks on non-conformist groups from raw food producers to bloggers shows that the government is less concerned with “violent” extremists as it is concerned with anyone who seeks to walk away from the controlled mainstream system.

The Southern Poverty Law Center (SPLC) continues to this day to pigeonhole all traditional conservatives (as opposed to globalist Neo Conservatives) using arbitrary labels and unsupported documentation in a shameless frenzy of false association. I don’t think I have ever heard Mark Potok say the words “Patriot”, or “Constitutionalist”, without using the words “Extremist” or “Racist” in the same sentence.

This is the same organization that feeds “intelligence” on so called extremist groups to fusion centers and local law enforcement. They tell the cops who to profile. They work with the DHS to create the training models which are then utilized by police. You want to know who the White House considers an extremist? If you are reading this article now, then you probably fit their list.

Community Or Collective?

Why is it so important for the DHS and the White House to condition the public to associate “extremist behaviors” (often normal behaviors) of regular Americans with the Al-Qaeda brand name? The excerpts from the NPR article disclose the motivation below:

“When al-Qaida was sending operatives into the U.S., it made sense to rely on federal agencies to catch them at the border or arrest them as plots were discovered. But as terrorists groups have turned to American operatives who are already here, it makes sense to take the fight to the grass-roots level…”

“The White House envisions bringing together a roster of agencies and departments — from the Department of Education to the Labor Department and Energy Department — to provide local officials the tools they need to counter radicalization…”

“The law enforcement trust initiatives will hold round tables that allow community leaders to help cops distinguish, for example, between an innocent cultural behavior and possible criminal activity…”

And there you have it! Using the Counter Extremism program as a catalyst, the White House and the DHS plan to link together and centralize organizations as unrelated as the Department of Education and the Department of Energy, in tandem with community contacts, around a national witch hunt for anyone the government happens to deem undesirable.

This process will be achieved through the NSI (Nationwide SAR Initiative), an effort to create a standardized information hub used for gathering, documenting, processing, analyzing, storing, and sharing terrorism related suspicious activity reports.

We have already seen the beginnings of this monstrosity in the construction of numerous Fusion Centers, which meld together elements of the FBI, CIA, and DOD and effectively militarize local law enforcement.

It has also reared its ugly head in the form of the “See Something Say Something” initiative, which calls on citizens to become amateur informants, keeping their eyes open for dastardly warning signals of extremism, like white guys in hoodies, driving cargo vans, and taking pictures with cell phones while writing in notebooks:

The paranoia that the DHS is trying to illicit goes far beyond the absurd, but this is what happens in all countries that devolve into tyranny. The absurd becomes rational, and reason becomes criminal. Some skeptics may deny that these programs will ever be implemented at the community level on a scale that makes them threatening to civil liberties.

I disagree. The danger is already taking shape. Oath Keepers recently came into possession of an FBI Denver Joint Terrorism Task Force handout given to Military Surplus Stores, directing owners to take note of specific purchases like:

• Weatherproofed Ammunition Or Match Containers
  
  


• Meals Ready To Eat
  
  


• Night Vision Devices; Night Flashlights; Gas Masks
  
  


• High Capacity Magazines
  
  


• Bipods Or Tripods For Rifles

http://oathkeepers.org/oath/wp-content/uploads/ColoradoFBISurplusStore.pdf

These are very common purchases, not for terrorists, but for Preppers and Survivalists, who are obviously the targets of the FBI profile, not secret Al-Qaeda agents. The handout goes on to list behaviors such as “making anti-U.S. or radical theological comments (?)” or “insisting on paying in cash”, as signs of terrorism.

It even instructs store owners to subtly interrogate their customers in order to draw a fuller profile. THIS IS CALLED CITIZEN SPYING. Period.

The FBI Denver Handout is a perfect example of the oligarchic quest not for community participation, but for hardcore collectivism. That is to say, corrupt leaderships are not interested in community safety, or the elevation of individuals which make up a neighborhood, town, or city, but the manipulation of these people into mere extensions of the state itself.

A procedure by which individuals are subdued and conscripted as mouthpieces and listening devices; weapons to be used, not to safeguard their community, but to enslave it.

The Counter Extremism Program falsely paints an image of community cooperation with federal agencies as balanced and mutual. It attempts to deflect fears of Orwellian oversight by suggesting the introduction of “Community Advisory Boards”, which would ostensibly wield the power to demand transparency in federal activities. In fact, such advisory boards are the perfect petri dish in which to condition local leaders into furthering the goals of centralization.

As in despotic societies of the past, they go in thinking they are in charge, and come out as brainscrubbed servants of a dishonest regime. In this way, communities are pacified and wielded for state purposes, until those left who refuse to conform become utterly surrounded and fearful, never knowing who is and who is not watching their every move. As explained plainly in the BCOT:

“In addition to engaging communities on a wide range of issues, the Federal Government is using its convening power to help build a network of individuals, groups, civil society organizations, and private sector actors to support community-based efforts to counter violent extremism. Myriad groups with tools and capabilities to counter radicalization to violence often operate in separate spheres of activ­ity and therefore do not know one another.

The Federal Government, with its connections to diverse networks across the country, has a unique ability to draw together the constellation of previously uncon­nected efforts and programs to form a more cohesive enterprise against violent extremism…”

The Sad Life Of The Citizen Spy

Projects for “community policing” like those being introduced by the White House and the myriad sewage swells of alphabet agencies in this country attract a very particular kind of person. Citizen spies tend to be rather uninteresting and unaccomplished people stricken with feelings of repressed inferiority and a complete lack of individual awareness.

Their frantic need for outside acknowledgment, regardless of how superficial, is insatiable. Being unable to achieve anything truly meaningful in their spurious lives and generally shunned by anyone with an iota of self respect, the desire to feel important or accepted leads them to participate in the most vile government sanctioned crimes, if only to belong to the “winning team” or the “greater good”.

Ultimately, citizen spies sacrifice much more than they expect while vying for their fifteen minutes of fame or a firm pat on the head from Big Brother. While naively believing themselves to be superheroes, or pillars of the community for their relentless subversion of free speech and civil dissent, they soon discover that their lifestyle leads to alienation. No one trusts an informant, not even other informants.

In the event that the leadership they serve is overthrown, citizen spies are relegated to the very worst levels of reprisal and hatred. People remember well the transgressions of lying governments, but reserve a special brand of fury for lying neighbors. It is truly the citizen spy that makes totalitarianism possible. Without them, there can be no censorship, there can be no stifling of protest, there can be no disruption of organized resistance, there can be no full spectrum dominance.

In order to maintain control, despots require citizens to police each other. This is the sole purpose of the Counter Extremism Plan. To make us fear, suspect, and subjugate each other, so that elites can sit back, relax, and enjoy the fruits of our self imposed dystopia.

We've truly entered a Bizarro World universe, where up is down, right is left – and the Russians, of all people, are now lecturing us about the virtues of free enterprise.

Yes, it happened at the Davos conference of bigwigs, insiders, and their sycophantic hangers-on, where the elite meet to munch canapés and discuss the way the world works, or, in this case, the way it isn't working. The conference was heavy with the sort of pessimism that doesn't usually accompany a gathering of the rich and pompous, yet instead of the usual self-congratulatory vaunting of their own virtue and "concern" for the world's peasants, these aristocrats of the conference table were less than ebullient about the downward spiral of the global economy – which, you'll remember, yesterday was touted as the savior of us all, but these days is portrayed as the instrument of our collective doom.

While the walkout of Turkish Prime Minister Recep Erdogan grabbed the biggest headlines – he didn't like it when David Ignatius of the Washington Post shushed him in favor of letting former Israeli Prime Minister Shimon Peres drone on uninterrupted – the real shocker was Vladimir Putin's peroration, which sounded more like Ron Paul than the leader of a nation that has intruded the state into the economy and polity in a big way.

Putin likened the economic crisis the world is facing to "the perfect storm, which denotes a situation when nature's forces converge in one point of the ocean and increase their destructive potential many times over." This is very similar to the apocalyptic tone not only of Rep. Paul, but of gold bugs and libertarians outside the Beltway: save your candles, the dark ages are coming!

Yet our leaders were unprepared: in spite of strong indications that the crisis was breaking over our heads, only a prescient minority realized that our chickens were coming home to roost, while the "majority strove to get their share of the pie, be it one dollar or a billion, and did not want to notice the rising wave." As the Remnant looked on, Western elites were oblivious to their onrushing doom:

"I just want to remind you that, just a year ago, American delegates speaking from this rostrum emphasized the U.S. economy's fundamental stability and its cloudless prospects. Today, investment banks, the pride of Wall Street, have virtually ceased to exist. In just 12 months, they have posted losses exceeding the profits they made in the last 25 years. This example alone reflects the real situation better than any criticism.

"The time for enlightenment has come. We must calmly, and without gloating, assess the root causes of this situation and try to peek into the future."

Well, perhaps he was gloating just a little, but who can blame him? After all, the high-and-mighties of the West had recently undergone a spasm of unrestrained hubris, from which we have only just begun to recover. This manic mood was given expression not only by the Bush Doctrine and its attendant military campaigns, but also by a mad triumphalism that predated 9/11 and really started with the fall of the Soviet empire. The "unipolar" delusion distorted our thinking and gave rise to all sorts of grandiose projects that wound up costing us dearly.

One of those projects was – and is – the encirclement and economic strangulation of Russia: the ill-fated "color revolutions," the deployment of "soft power" in the service of penetrating the former Soviet republics with "civil society" organizations, funded and directed by Western governments, and the challenge to Russian predominance in the "near abroad" of the Caucasus and central Asia, where the U.S. seeks to build bases ostensibly to fight the "war on terrorism" in Afghanistan and Pakistan. That this dagger pointed at the throat of Kremlin leaders will have to be withdrawn, albeit reluctantly and temporarily, is doubtless where the gloating comes in.

So far, Putin's critique is pointed, yet hardly shocking. Well, hang in there, dear reader, because we're just getting to the good part:

"Add to this colossal disproportions that have accumulated over the last few years. This primarily concerns disproportions between the scale of financial operations and the fundamental value of assets, as well as those between the increased burden on international loans and the sources of their collateral."

This realistic perspective is in sharp contrast to the frantic gyrations of our own political and financial leaders, who are wholly invested in maintaining that disproportion in all its gargantuan perversity. Collateral? Real value? Such bothersome impediments to omnipotence have long since been thrown overboard by the Washington-Wall Street crowd. As a top White House aide once told journalist Ron Suskind, guys like him – disdainfully dubbed "the reality-based community" – who "believe that solutions emerge from [their] judicious study of discernible reality" aren't clued in to the new reality:

"That's not the way the world really works anymore. We're an empire now, and when we act, we create our own reality. And while you're studying that reality – judiciously, as you will – we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors… and you, all of you, will be left to just study what we do."

The same hubris that drove the Iraq war and led us to believe we could "transform" the Middle East, as some of the more perfervid neocons insisted, drove our financial leaders over a similarly steep cliff. The empire is now crumbling, along with the economic assumptions that financed it, as Putin points out:

"The entire economic growth system, where one regional center prints money without respite and consumes material wealth, while another regional center manufactures inexpensive goods and saves money printed by other governments, has suffered a major setback."

Whether the Russian leader has been boning up on the works of the Austrian economists and has absorbed or at least understood their critique of central banking as the flaw in the otherwise beneficial ointment of Western-style capitalism, or has independently come to similar conclusions, is open to speculation. Suffice to say that the parallelism is astonishing. For the long period of American economic and imperial expansion, the dollar was the reserve currency of choice, its markets the freest and most profitable in the world. As we enter a perhaps even lengthier period of decline, the leading indicator of our protracted contraction is the end of the dollar-denominated world economy. Whereas the Chinese premier, in his Davos speech, merely called for closer monetary regulation and restraint on the part of his American trading partner, Putin called on the markets to dump the dollar.

Putin accurately describes the bubble of American supremacism and diagnoses its cause. It was "brought about ," he avers, "by excessive expectations. Corporate appetites with regard to constantly growing demand swelled unjustifiably. The race between stock market indices and capitalization began to overshadow rising labor productivity and real-life corporate effectiveness." The industrial West engaged in an orgy of consumption, without producing any more – indeed, while producing much less. Our entire system was and is based on the generation of "unearned wealth, a loan that will have to be repaid by future generations." It all "would have collapsed sooner or later," and "in fact, this is happening right before our eyes."

As America's political leaders rush to reinflate the bubble, Putin would let it pop:

"This means we must assess the real situation and write off all hopeless debts and 'bad' assets. True, this will be an extremely painful and unpleasant process. Far from everyone can accept such measures, fearing for their capitalization, bonuses, or reputation. However, we would 'conserve' and prolong the crisis, unless we clean up our balance sheets."

In short, the malinvestment engaged in during the bubble years must be liquidated. The longer we try to conserve enterprises supposedly "too big to fail," the more painful and prolonged will be the process of economic recovery. This is precisely what libertarians such as Ron Paul and analysts such as Peter Schiff have been saying all along.

Unlike Barack Obama and his advisers, whose faith in government action is near religious, Putin warns against "excessive intervention in economic activity and blind faith in the state's omnipotence." It may be a "natural reaction" to turn to an increased state role in such times as these, yet "instead of streamlining market mechanisms, some are tempted to expand state economic intervention to the greatest possible extent. The concentration of surplus assets in the hands of the state is a negative aspect of anti-crisis measures in virtually every nation."

Oh, but this is my favorite part:

"In the 20th century, the Soviet Union made the state's role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated."

I lived to see an American president red-baited by the Kremlin! That, in itself, is utterly amazing, and proof positive that we have indeed slipped into an alternate universe, a Bizarro World where history runs backward – and in reverse. Sounding more like Barry Goldwater than any Russian leader I ever heard of, Putin took aim at the Obama-commies:

"Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors, and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state."

Those remarks would not be out of place coming out of the mouth of a Republican congressman – and a fairly conservative one – inveighing against the "stimulus" package. Putin goes beyond even this, however, when he warns against the danger of military Keynesianism:

"Unfortunately, we are increasingly hearing the argument that the buildup of military spending could solve today's social and economic problems. The logic is simple enough. Additional military allocations create new jobs.

"At a glance, this sounds like a good way of fighting the crisis and unemployment. This policy might even be quite effective in the short term. But in the longer run, militarization won't solve the problem but will rather quell it temporarily. What it will do is squeeze huge financial and other resources from the economy instead of finding better and wiser uses for them."

Paul Krugman and his media echo chamber happily inform us that it doesn't matter how or where we spend the money, just as long as we "stimulate" the economy with massive injections of monetary steroids. So why not military spending – lots more military spending? After all, this is a point both conservatives and liberal Keynesians can agree on, as Putin surely realizes. I suspect his call for disarmament will be largely ignored, along with his insight that demilitarization will "bring significant economic dividends."

That a Russian leader is now telling Americans that their turn toward statism and militarism is harmful both to themselves and to the world is a turn of events no one of my generation could possibly have imagined, certainly not anyone of libertarian inclinations. It is a sad and telling commentary that no American leader of any stature, aside from the previously mentioned Rep. Paul, has the courage to tell us what we need to hear.

~ Justin Raimondo

http://kingsausage.blogspot.com/

Why Condemn Phelps, When We Ought to Condemn the Laws That Brand Him a Criminal.

by Paul Armentano

Add decorated Olympic swimmer Michael Phelps to the growing list of successful Americans who happens to indulge in marijuana during his down time. The tabloid news story is making international headlines, though it's difficult to understand why.

After all, Mr. Phelps is hardly alone in his herbal inclinations. According to national and federal surveys, nearly one out of two Americans have tried weed, and among those age 18 to 25 – Phelps is 23 – pot smoking is especially popular.

Contrary to the messages promoted by the federal government, marijuana consumers include people from all walks of life, ethnic classes, and socio-economic backgrounds. America’s current President said that he smoked marijuana regularly as a young man. Supreme Court Justice Clarence Thomas, former Vice President Al Gore, former Republican House Speaker Newt Gingrich, California Governor Arnold Schwarzenegger, and legendary astronomer Carl Sagan all have admitted using marijuana at different times during their lives.

According to the U.S. government, most current marijuana users are gainfully employed. Statistically, most marijuana users are successful academically and financially. A National Bureau of Economic Research study even reported that marijuana use is associated with earning higher wages. Some former and current users, like Virgin tycoon Sir Richard Branson, Progressive Auto Insurance founder Peter Lewis, and New York State Mayor Michael Bloomberg are even multi-millionaires.

Perhaps the public's fascination with this story is because Phelps is recognized as one of the most talented and successful athletes in the entire world. (He holds the record for the most gold medals won by any athlete in history.) But Phelps isn't an anomaly in this regard either. Many top athletes use cannabis off the field – noting that it helps them to relax after the excitement of sports competition and alleviate the pain from nagging injuries. It also won't leave them with a hangover or adversely impact their performance the next day.

A 1997 New York Times investigation estimated that up to 70 percent of pro-basketball players occasionally indulge in the use of pot, and many high-profile football players – most notably Miami Dolphins star running-back Ricky Williams, former Dallas Cowboys all-star Mark Stepnoski, and even Super Bowl XLIII MVP Santonio Holmes – have spoken candidly about their off-field marijuana use. In fact, Phelps isn't even the first gold medalist to admit to smoking cannabis. That honor belongs to Canadian snowboarder and 1998 Winter Olympics gold medal winner Ross Rebagliati, who tested positive for having used cannabis in the days prior to his history-making performance.

Sure, there will be some who will say that this latest chapter in Phelp's life is deserving of criticism because the 14-time gold medalist is sending a poor message to young children. And what message would that be? That you can occasionally smoke marijuana and still be successful in life. Well sorry if the truth hurts.

Fact is, most Americans who use pot do so for the same reasons – and in the same manner – as do those who drink alcohol. According to a recent University of Alberta study, the majority of adults who use cannabis do so recreationally to "enhance relaxation." Researchers concluded: "[M]ost adult marijuana users regulate use to their recreational time and do not use compulsively. Rather, their use is purposively intended to enhance their leisure activities and manage the challenges and demands of living in contemporary modern society. Generally, participants reported using marijuana because it enhanced relaxation and concentration, making a broad range of leisure activities more enjoyable and pleasurable."

No doubt Michael Phelps indulged in the use of marijuana for these very same reasons. He ought not to be condemned for it nor branded a criminal for his actions.

For that matter, neither should anyone else.

http://kingsausage.blogspot.com/

Our rulers are destroying the economy. Not little by little, as they usually do, but in huge swaths. Each great assault on the free market, whether it be denominated a bailout, a stimulus, or some other species of purported salvation, brings us visibly closer to the complete ruin of an economic order that required centuries to build. Awestruck, as if we were observing a tsunami sweep across an island, we can only watch the rulers' devastating actions, for which, strange to say, they expect the public to be grateful―and, truth be told, most people are grateful, and clamor for more of the same. We listen to the kingpins' lunatic ravings as they describe their perceptions of the current situation and solemnly declare their determination to "do something" to restore the prosperity that they themselves have demolished by previously "doing something" of the very same kind.

They gaze out at a financial debacle rooted in various government policies that induced lenders to do business with millions of borrowers who had no realistic prospect of repaying the loans. And what do these überguardians propose? They aim to relieve the unfaithful borrowers of their contractual obligations, to purchase the disappointed lenders' "toxic assets," and to "get credit moving again," so that new loans will be made, again at artificially reduced interest rates to borrowers who have no realistic prospect of repaying them. They are pouring credit madness on credit madness because they have no real understanding of how the economic world actually works and, even if they did understand, they are politically beholden to the owners and managers of failing economic behemoths who profited handsomely from the artificial prosperity of the boom and are now staring into the abyss.

Our forebears have stood in a similar position on previous harrowing occasions, and the sense of utter helplessness we feel now resembles the one they felt then. When the world was rushing toward total war in the late 1930s, every intelligent person could imagine the abattoir toward which the great leaders were dragging their nations, yet no one could pull them back from the appalling destruction into which they seemed hell-bent to plunge.

In 1939, in his poem "In Memory of W. B. Yeats," W. H. Auden wrote:

In the nightmare of the dark
All the dogs of Europe bark,
And the living nations wait,
Each sequestered in its hate;
Intellectual disgrace
Stares from every human face
And the seas of pity lie
Locked and frozen in each eye.

Though everyone foresaw the catastrophe, no one could pull the leaders back from its execution.

I experienced this sense of powerlessness in 2002 as I watched the Bush administration rushing headlong toward its murderous attack on the Iraqis. On September 23 of that year, I gave vent to my feelings in an article called "Helplessly, We Await the Catastrophe Our Rulers Are Creating." "Today," I wrote,

the dogs of war are barking not in Europe, but in the District of Columbia, and again people are looking on helplessly as the tragedy unfolds. We see the disaster being designed and touted, we observe the intellectual disgrace staring from the faces of George W. Bush and his advisers, and we note the seas of pity lying locked and frozen in their eyes. Yet we can do nothing to prevent the makers of this coming calamity from carrying out the devastation.

The calamity that Bush and his government wrought in Iraq has now become a chronic, seemingly permanent condition, a pain that never eases, an emergency destined to continue as far as the eye can see, and nearly everybody has given up hope that anything good will ever come out of it, or even that its daily horrors will ever do anything but continue to erupt episodically in spasms of political madness and haphazard violence.

Iraq, however, is thousands of miles away, and few Americans could keep their attention focused on it for long, in any event. Now that the financial mess and the deepening recession are affecting all Americans and raising fears about the whole country's future economic well-being, Iraq has been relegated to brief articles on page A-23 of the newspaper. The economic crisis had become overwhelmingly the foremost concern, and on this front, good news has been a very scarce commodity for the past year.

In the present situation, the formula our rulers employ to guide their actions is simple: borrow and spend―the more, the better. If reminded that the government cannot accumulate ever more debt without grave repercussions, they always answer that the present emergency is so pressing that concern about the future must be set aside until the present exigencies have been met. It is not clear that they sincerely believe the economic drivel they dispense to the news media. Perhaps they are merely cunning enough to appreciate Rahm Emanuel's admonition, "You never want a serious crisis to go to waste." My sense, however, especially when I ponder the way in which they describe the economic situation and justify their proposals for repairing it, is that they have virtually no sound understanding of basic economics, and no interest in acquiring such an understanding, either. If the top dogs of the power elite are already living their lives in a reprehensible manner, it probably does not contribute to their happiness to dwell on the possibility that, in the process, they may also be contributing to public ruin.

Whether they are fools or charlatans, or both, as I suppose them to be, their actions amount to a genuine tragedy, because their leadership, so long as the people tolerate it, portends only devastation. The people, in the main, are afraid, and they are immoral, so they are happy to seize any momentary advantage or enrichment the government will hand them, regardless of the moral breach this coercive transfer of wealth represents. The rulers understand the people's moral weakness and exploit it at every turn. Their own example of thoroughgoing corruption, of course, only coarsens the entire society's moral character―after all, what sort of people tolerates, much less affirmatively supports, such creeps in high places? In the body politic, however, the masses are the tail, not the dog. The rulers, like tigers who lie in wait near a spring, knowing that their prey will eventually come there to drink, tempt the people to indulge their appetites for ill-gotten gain, and, sure enough, the masses need not be invited twice. It does not occur to the diners that this repast consists of tainted meat, and therefore that in due course they must suffer the consequences of having swallowed toxic fare.

Artificially easy credit, rapid monetary growth, subsidized homeownership for people who cannot make the mortgage payments, exclusive privileges granted to dishonest bond-rating agencies, explicit and implicit government guarantees of bank accounts, bonds, and other financial assets―these policies and others that tend in the same direction have created our present economic difficulties. To suppose, and to act on the supposition, that precisely these same kinds of policies will repair the day is supreme folly. To augment these mistakes by expending a trillion borrowed dollars in new government outlays for whatever suits the grasping members of a totally corrupt Congress only compounds the folly on a cosmic scale. Yet, no struggling firm or family wants to fail, and each prefers to survive the day without having to make painful adjustments, even if doing so requires supping disgracefully at the state's filthy trough.

The entire spectacle is painful to behold. The good that the people and their leaders expect to come of these foolish measures can provide, at most, only temporary relief. Not far down the road, the devil is waiting to collect his due.

- Robert Higgs is senior fellow in political economy at the Independent Institute and editor of The Independent Review. He is also a columnist for LewRockwell.com. His most recent book is Neither Liberty Nor Safety: Fear, Ideology, and the Growth of Government. He is also the author of Depression, War, and Cold War: Studies in Political Economy, Resurgence of the Warfare State: The Crisis Since 9/11 and Against Leviathan: Government Power and a Free Society.

Belt-tightening is required by all, including government.


By PETER SCHIFF

As recession fears cause the nation to embrace greater state control of the economy and unimaginable federal deficits, one searches in vain for debate worthy of the moment. Where there should be an historic clash of ideas, there is only blind resignation and an amorphous queasiness that we are simply sweeping the slouching beast under the rug.

With faith in the free markets now taking a back seat to fear and expediency, nearly the entire political spectrum agrees that the federal government must spend whatever amount is necessary to stabilize the housing market, bail out financial firms, liquefy the credit markets, create jobs and make the recession as shallow and brief as possible. The few who maintain free-market views have been largely marginalized.

Taking the theories of economist John Maynard Keynes as gospel, our most highly respected contemporary economists imagine a complex world in which economics at the personal, corporate and municipal levels are governed by laws far different from those in effect at the national level.

Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended.

On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can't be repaid. However, this is precisely what we are planning on a national level.

I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.

As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.

Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.

If we look at government market interventions through this pragmatic lens, what can we expect from the coming avalanche of federal activism?

By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come, thereby diminishing the value of all that Americans have saved and acquired. For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.

The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it's called a recession, and it's not fun, easy or quick. But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.

Mr. Schiff is president of Euro Pacific Capital and author of "The Little Book of Bull Moves in Bear Markets" (Wiley, 2008).

The news media are in the process of creating a great new historical myth. This is the myth that our present financial crisis is the result of economic freedom and laissez-faire capitalism.

The attempt to place the blame on laissez faire is readily confirmed by a Google search under the terms “crisis + laissez faire.” On the first page of the results that come up, or in the web entries to which those results refer, statements of the following kind appear:

“The mortgage crisis is laissez-faire gone wrong.”

“Sarkozy [Nicolas Sarkozy, the President of France] said `laissez-faire’ economics, `self-regulation’ and the view that `the all-powerful market’ always knows best are finished.”

“`America’s laissez-faire ideology, as practiced during the subprime crisis, was as simplistic as it was dangerous,’ chipped in Peer Steinbrück, the German finance minister.”

“Paulson brings laissez-faire approach on financial crisis….”

“It’s au revoir to the days of laissez faire.”[1]

Recent articles in The New York Times provide further confirmation. Thus one article declares, “The United States has a culture that celebrates laissez-faire capitalism as the economic ideal….”[2]Another article tells us, “For 30 years, the nation’s political system has been tilted in favor of business deregulation and against new rules.”[3]In a third article, a pair of reporters assert, “Since 1997, Mr. Brown [the British Prime Minister] has been a powerful voice behind the Labor Party’s embrace of an American-style economic philosophy that was light on regulation. The laissez-faire approach encouraged the country’s banks to expand internationally and chase returns in areas far afield of their core mission of attracting deposits.”[4] Thus even Great Britain is described as having a “laissez-faire approach.”

The mentality displayed in these statements is so completely and utterly at odds with the actual meaning of laissez faire that it would be capable of describing the economic policy of the old Soviet Union as one of laissez faire in its last decades. By its logic, that is how it would have to describe the policy of Brezhnev and his successors of allowing workers on collective farms to cultivate plots of land of up to one acre in size on their own account and sell the produce in farmers’ markets in Soviet cities. According to the logic of the media, that too would be “laissez faire”—at least compared to the time of Stalin.

Laissez-faire capitalism has a definite meaning, which is totally ignored, contradicted, and downright defiled by such statements as those quoted above. Laissez-faire capitalism is a politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual’s rights against the initiation of physical force. This protection applies to the initiation of physical force by other private individuals, by foreign governments, and, most importantly, by the individual’s own government. This last is accomplished by such means as a written constitution, a system of division of powers and checks and balances, an explicit bill of rights, and eternal vigilance on the part of a citizenry with the right to keep and bear arms. Under laissez-faire capitalism, the state consists essentially just of a police force, law courts, and a national defense establishment, which deter and combat those who initiate the use of physical force. And nothing more.

The utter absurdity of statements claiming that the present political-economic environment of the United States in some sense represents laissez-faire capitalism becomes as glaringly obvious as anything can be when one keeps in mind the extremely limited role of government under laissez-faire and then considers the following facts about the present-day United States.

1) Government spending in the United States currently equals more than forty percent of national income, i.e., the sum of all wages and salaries and profits and interest earned in the country. This is without counting any of the massive off-budget spending such as that on account of the government enterprises Fannie Mae and Freddie Mac. Nor does it count any of the recent spending on assorted “bailouts.” What this means is that substantially more than forty dollars of every one hundred dollars of output are appropriated by the government against the will of the individual citizens who produce that output. The money and the goods involved are turned over to the government only because the individual citizens wish to stay out of jail. Their freedom to dispose of their own incomes and output is thus violated on a colossal scale. In contrast, under laissez-faire capitalism, government spending would be on such a modest scale that a mere revenue tariff might be sufficient to support it. The corporate and individual income taxes, inheritance and capital gains taxes, and social security and Medicare taxes would not exist.

2) There are presently fifteen federal cabinet departments, nine of which exist for the very purpose of respectively interfering with housing, transportation, healthcare, education, energy, mining, agriculture, labor, and commerce, and virtually all of which nowadays routinely ride roughshod over one or more important aspects of the economic freedom of the individual. Under laissez faire capitalism, eleven of the fifteen cabinet departments would cease to exist and only the departments of justice, defense, state, and treasury would remain. Within those departments, moreover, further reductions would be made, such as the abolition of the IRS in the Treasury Department and the Antitrust Division in the Department of Justice.

3) The economic interference of today’s cabinet departments is reinforced and amplified by more than one hundred federal agencies and commissions, the most well-known of which include, besides the IRS, the FRB and FDIC, the FBI and CIA, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA. Under laissez-faire capitalism, all such agencies and commissions would be done away with, with the exception of the FBI, which would be reduced to the legitimate functions of counterespionage and combating crimes against person or property that take place across state lines.

4) To complete this catalog of government interference and its trampling of any vestige of laissez faire, as of the end of 2007, the last full year for which data are available, the Federal Register contained fully seventy-three thousand pages of detailed government regulations. This is an increase of more than ten thousand pages since 1978, the very years during which our system, according to one of The New York Times articles quoted above, has been “tilted in favor of business deregulation and against new rules.” Under laissez-faire capitalism, there would be no Federal Register. The activities of the remaining government departments and their subdivisions would be controlled exclusively by duly enacted legislation, not the rule-making of unelected government officials.

5) And, of course, to all of this must be added the further massive apparatus of laws, departments, agencies, and regulations at the state and local level. Under laissez-faire capitalism, these too for the most part would be completely abolished and what remained would reflect the same kind of radical reductions in the size and scope of government activity as those carried out on the federal level.

What this brief account has shown is that the politico-economic system of the United States today is so far removed from laissez-faire capitalism that it is closer to the system of a police state than to laissez-faire capitalism. The ability of the media to ignore all of the massive government interference that exists today and to characterize our present economic system as one of laissez-faire and economic freedom marks it as, if not profoundly dishonest, then as nothing less than delusional.

Government Intervention Actually Responsible for the Crisis

Beyond all this is the further fact that the actual responsibility for our financial crisis lies precisely with massive government intervention, above all the intervention of the Federal Reserve System in attempting to create capital out of thin air, in the belief that the mere creation of money and its being made available in the loan market is a substitute for capital created by producing and saving. This is a policy it has pursued since its founding, but with exceptional vigor since 2001, in its efforts to overcome the collapse of the stock market bubble whose creation it had previously inspired.

The Federal Reserve and other portions of the government pursue the policy of money and credit creation in everything they do that encourages and protects private banks in the attempt to cheat reality by making it appear that one can keep one’s money and lend it out too, both at the same time. This duplicity occurs when individuals or business firms deposit cash in banks, which they can continue to use to make purchases and pay bills by means of writing checks rather than using currency. To the extent that the banks are then enabled and encouraged to lend out the funds that have been deposited in this way (usually by the creation of new and additional checking deposits rather than the lending of currency), they are engaged in the creation of new and additional money. The depositors continue to have their money and borrowers now have the bulk of the funds deposited. In recent years, the Federal Reserve has so encouraged this process, that checking deposits have been created equal to fifty times the actual cash reserves of the banks, a situation more than ripe for implosion.

All of this new and additional money entering the loan market is fundamentally fictitious capital, in that it does not represent new and additional capital goods in the economic system, but rather a mere transfer of parts of the existing supply of capital goods into different hands, for use in different, less efficient and often flagrantly wasteful ways. The present housing crisis is perhaps the most glaring example of this in all of history.

Perhaps as much as a trillion and a half dollars or more of new and additional checkbook-money capital was channeled into the housing market as the result of the artificially low interest rates caused by the presence of an even larger overall amount of new and additional money in the loan market. Because of the long-term nature of its financing, housing is especially susceptible to the effect of lower interest rates, which can serve sharply to reduce monthly mortgage payments and in this way correspondingly increase the demand for housing and for the mortgage loans needed to finance it.

Over a period of years, the result was a huge increase in the production and purchase of new homes, rapidly rising home prices, and a further spiraling increase in the production and purchase of new homes in the expectation of a continuing rise in their prices.

To gauge the scale of its responsibility, in the period of time just since 2001, the Federal Reserve caused an increase in the supply of checkbook-money capital of more than 70 percent of the cumulative total amount it had created in the whole of the previous 88 years of its existence—that is, almost 2 trillion dollars.[5]This was the increase in the amount by which the checking deposits of the banks exceeded the banks’ reserves of actual money, that is, the money they have available to pay depositors who want cash. The Federal Reserve caused this increase in illusory capital by means of creating whatever new and additional bank reserves as were necessary to achieve a Federal Funds interest rate—that is, the rate of interest paid by banks on the lending and borrowing of reserves—that was far below the rate of interest dictated by the market. For the three years 2001-2004, the Federal Reserve drove the Federal Funds Rate below 2 percent and from July of 2003 to June of 2004, drove it even further down, to approximately 1 percent.

The Federal Reserve also made it possible for banks to operate with a far lower percentage of reserves than ever before. Whereas in a free market, banks would hold gold reserves equal to their checking deposits, or at the very least to a substantial proportion of their checking deposits,[6]the Federal Reserve in recent years contrived to make it possible for them to operate with irredeemable fiat money reserves of less than 2 percent.

The Federal Reserve drove down the Federal Funds Rate and brought about the vast increase in the supply of illusory capital for the purpose of driving down all market interest rates. The additional illusory capital could find borrowers only at lower interest rates. The Federal Reserve’s goal was to bring about interest rates so low that they could not compensate even for the rise in prices. It deliberately sought to achieve a negative real rate of interest on capital, that is, a rate below the rate at which prices rise. This means that a lender, after receiving the interest due him for a year, has less purchasing power than he had the year before, when he had only his principal.

In doing this, the Federal Reserve’s ultimate purpose was to stimulate both investment and consumer spending. It wanted the cost of obtaining capital to be minimal so that it would be invested on the greatest possible scale and for people to regard the holding of money as a losing proposition, which would stimulate them to spend it faster. More spending, ever more spending was its concern, in the belief that that is what is required to avoid large-scale unemployment.

As matters have turned out, the Federal Reserve got its wish for a negative real rate of interest, but to an extent far beyond what it wished. It wished for a negative real rate of return of perhaps 1 to 2 percent. What it achieved in the housing market was a negative real rate of return measured by the loss of a major portion of the capital invested. In the words of The New York Times, “In the year since the crisis began, the world’s financial institutions have written down around $500 billion worth of mortgage-backed securities. Unless something is done to stem the rapid decline of housing values, these institutions are likely to write down an additional $1 trillion to $1.5 trillion.”[7]

This vast loss of capital in the housing debacle is what is responsible for the inability of banks to make loans to many businesses to which they normally could and would lend. The reason they cannot now do so is that the funds and the real wealth that have been lost no longer exist and thus cannot be lent to anyone. The Federal Reserve’s policy of credit expansion based on the creation of new and additional checkbook money has thus served to give capital to unworthy borrowers who never should have had it in the first place and to deprive other, far more credit worthy borrowers of the capital they need to stay in businesses. Its policy has been one of redistribution and destruction.

The capital it has caused to be malinvested and lost in housing is capital that is now unavailable for such firms as Wickes Furniture, Linens ‘N Things, Levitz Furniture, Mervyns, and innumerable others, who have had to go bankrupt because they could not obtain the loans they needed to stay in business. And, of course, among the foremost victims have been major banks themselves. The losses they have suffered have wiped out their capital and put them out of business. And the list of casualties will certainly grow.

Any discussion of the housing debacle would be incomplete if it did not include mention of the systematic consumption of home equity encouraged for several years by the media and an ignorant economics profession. Consistent with the teachings of Keynesianism that consumer spending is the foundation of prosperity, they regarded the rise in home prices as a powerful means for stimulating such spending. In increasing homeowners’ equity, they held, it enabled homeowners to borrow money to finance additional consumption and thus keep the economy operating at a high level. As matters have turned out, such consumption has served to saddle many homeowners with mortgages that are now greater than the value of their homes, which would not have been the case had those mortgages not been enlarged to finance additional consumption. This consumption is the cause of a further loss of capital over and above the capital lost in malinvestment.

A discussion of the housing debacle would also not be complete if it did not mention the role of government guarantees of many mortgage loans. If the government guarantees the principal and interest on a loan, there is no reason why a lender should care about the qualifications of a borrower. He will not lose by making the loan, however bad it may turn out to be.

A substantial number of mortgage loans carried such guarantees. For example, a New York Times article describes the Department of Housing and Urban Development as “an agency that greased the mortgage wheel for first-time buyers by insuring billions of dollars in loans.” The article describes how HUD progressively reduced its lending standards: “families no longer had to prove they had five years of stable income; three years sufficed...lenders were allowed to hire their own appraisers rather than rely on a government-selected panel...lenders no longer had to interview most government-insured borrowers face to face or maintain physical branch offices,” because the government’s approval for granting mortgage insurance had become automatic.

The Times’ article goes on to describe how “Lenders,” such as Countrywide Financial, which was among the largest and most prominent, “sprang up to serve those whose poor credit history made them ineligible for lower-interest `prime’ loans.” It notes the fact that “Countrywide signed a government pledge to use `proactive creative efforts’ to extend homeownership to minorities and low-income Americans.”[8]“Proactive creative efforts” is a good description of what lenders did in offering such bizarre types of mortgages as those requiring the payment of “interest only,” and then allowing the avoidance even of the payment of interest by adding it to the amount of outstanding principal. (Such mortgages suited the needs of homebuyers whose reason for buying was to be able to sell as soon as home prices rose sufficiently further.)

Just as vast numbers of houses were purchased based on an unfounded belief in an endless rise in their prices, so too vast numbers of complex financial derivatives were sold based on an unfounded belief that the Federal Reserve System actually had the power it claimed to have of making depressions impossible, a power which the media and most of the economics profession repeatedly affirmed.

Derivatives have received such a bad press that it is necessary to point out that the insurance policy on a home is a derivative. And many of the derivatives that were sold and which are now creating problems of insolvency and bankruptcy, namely, “credit default swaps (CDSs),” were insurance policies in one form or another. Their flaw was that unlike ordinary homeowners’ insurance, they did not have a sufficient list of exclusions.

Homeowners’ policies make exclusions for such things as damage caused by war and, in many cases, depending on the special risks of the local area, earthquakes and hurricanes. In the same way, the more complex derivatives should have made an exclusion for losses resulting from financial collapse brought on by Federal-Reserve-sponsored massive credit expansion. (If it is impossible actually to write such an exclusion, because many of the losses may occur before the nature of the cause becomes evident, then such derivatives should not be written and the market will no longer write them because of the unacceptable risks they entail.) But decades of brainwashing by the government, the media, and the educational system had convinced almost everyone that such collapse was no longer possible.

Belief in the impossibility of depressions played the same role in the creation and sale of “collateralized debt obligations (CDOs).” Here disparate home mortgages were bundled together and securities were issued against them. In many cases, large buyers bundled together collections of such securities and issued further securities against those securities. As more and more homeowners have defaulted on their loans, the result has been that no one is able directly to judge the value of these securities. To do so, it will be necessary to disentangle them down to the level of the underlying individual mortgages. Such tangles of securities could never have been sold in a market not overwhelmed by the propaganda that depressions are impossible under the government’s management of the financial system.

Finally, a discussion of the housing debacle would not be complete if it did not include mention of forms of virtual extortion that served to encourage loans to unworthy borrowers. Thus, the online encyclopedia Wikipedia writes:





The Community Reinvestment Act [CRA]...is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods... CRA regulations give community groups the right to comment or protest about banks'on-compliance with CRA. Such comments could help or hinder banks' planned expansions.
The meaning of these words is that the Community Reinvestment Act gives the power to “community groups,” to determine in an important respect the financial success or failure of a bank. Only if they are satisfied that the bank is making sufficient loans to borrowers to whom it would otherwise choose not to lend, will it be permitted to succeed. The most prominent such community group is ACORN.
Part and parcel of the environment that has made an act such as the CRA possible, is threats of slander against banks for being “racist” if they choose not to make loans to people who are poor credit risks and also happen to belong to this or that minority group. The threats of slander go hand in glove with intimidation from various government agencies that exercise discretionary power over the banks and are in a position to harm them if they do not comply with the agencies’ wishes. The same points apply to mortgage lenders other than banks.

What this extensive analysis of the actual causes of our financial crisis has shown is that it is government intervention, not a free market or laissez-faire capitalism, that is responsible in every essential respect.

The Laissez-Faire Myth and the Marxism of the Media

The myth that laissez faire exists in the present-day United States and is responsible for our current economic crisis is promulgated by people who know practically nothing whatever of sound, rational economic theory or the actual nature of laissez-faire capitalism. They espouse it despite, or rather because of, their education at the leading colleges and universities of the country, When it comes to matters of economics, their education has steeped them entirely in the thoroughly wrong and pernicious doctrines of Marx and Keynes. In claiming to see the existence of laissez faire in the midst of such massive government interference as to constitute the very opposite of laissez faire, they are attempting to rewrite reality in order to make it conform with their Marxist preconceptions and view of the world.

They absorb the doctrines of Marx more in history, philosophy, sociology, and literature classes than in economics classes. The economics classes, while usually not Marxist themselves, offer only highly insufficient rebuttal of the Marxist doctrines and devote almost all of their time to espousing Keynesianism and other, less well-known anti-capitalistic doctrines, such as the doctrine of pure and perfect competition.

Very few of the professors and their students have read so much as a single page of the writings of Ludwig von Mises, who is the preeminent theorist of capitalism and knowledge of whose writings is essential to its understanding. Almost all of them are thus essentially ignorant of sound economics.

When I refer to the educational system and the media as Marxist, I do not intend to imply that its members favor any kind of forcible overthrow of the United States government or are necessarily even advocates of socialism. What I mean is that they are Marxists insofar as they accept Marx’s views concerning the nature and operation of laissez-faire capitalism.

They accept the Marxian doctrine that in the absence of government intervention, the self-interest, the profit motive—the “unbridled greed”—of businessmen and capitalists would serve to drive wage rates to minimum subsistence while it extended the hours of work to the maximum humanly endurable, imposed horrifying working conditions, and drove small children to work in factories and mines. They point to the miserably low standard of living and terrible conditions of wage earners in the early years of capitalism, especially in Great Britain, and believe that that proves their case. They go on to argue that only government intervention in the form of pro-union and minimum-wage legislation, maximum-hours laws, the legal prohibition of child labor, and government mandates concerning working conditions, served to improve the wage earner’s lot. They believe that repeal of this legislation would bring about a return to the miserable economic conditions of the early nineteenth century.

They view the profits and interest of businessmen and capitalists as unearned, undeserved gains, wrung from wage earners—the alleged true producers—by the equivalent of physical force, and hence regard the wage earners as being in the position of virtual slaves (“wage slaves”) and the capitalist “exploiters” as being in the position of virtual slave owners. Closely connected with this, they regard taxing the businessmen and capitalists and using the proceeds for the benefit of wage earners, in such forms as social security, socialized medicine, public education, and public housing, as a policy that serves merely to return to the wage earners some portion of the loot allegedly stolen from them in the process of “exploitation.”

In full agreement with Marx and his doctrine that under laissez-faire capitalism the capitalists expropriate all of the wage earner’s production above what is necessary for minimum subsistence, they assume that the government’s intervention harms no one but the immoral businessmen and capitalists, never the wage earners. Thus not only the taxes to pay for social programs but also the higher wages imposed by pro-union and minimum-wage legislation are assumed simply to come out of profits, with no negative effect whatever on wage earners, such as unemployment. Likewise for the effect of government-imposed shorter hours, improved working conditions, and the abolition of child labor: the resulting higher costs are assumed simply to come out of the capitalists’ “surplus value,” never out of the standard of living of wage earners themselves.

This is the mindset of the whole of the left and in particular of the members of the educational system and media. It is a view of the profit motive and the pursuit of material self-interest as inherently lethal if not forcibly countered and rigidly controlled by government intervention. As stated, it is a view that sees the role of businessmen and capitalists as comparable to that of slave owners, despite the fact that businessmen and capitalists do not and cannot employ guns, whips, or chains to find and keep their workers but only the offer of better wages and conditions than those workers can find elsewhere.

Not surprisingly, the educational system and media share the view of Marx that laissez-faire capitalism is an “anarchy of production,” in which the businessmen and capitalists run about like chickens without heads. In their view, rationality, order, and planning emanate from the government, not from the participants in the market.

As I say, this, and more like it, is the intellectual framework of the great majority of today’s professors and of several generations of their predecessors. It is equally the intellectual framework of their students, who have dutifully absorbed their misguided teachings and some of whom have gone on to become the reporters and editors of such publications as The New York Times, The Washington Post, Newsweek, Time, and the overwhelming majority of all other newspapers and news magazines. It is the intellectual framework of their students who are now the commentators and editors of practically all of the major television networks, such as CBS, NBC, ABC, and CNN.[9] And it is this intellectual framework within which the media now attempts to understand and report on our financial crisis.

In their view, laissez-faire capitalism and economic freedom are a formula for injustice and chaos, while government is the voice and agent of justice and rationality in economic affairs. So firmly do they hold this belief, that when they see what they think is evidence of large-scale injustice and chaos in the economic system, such as has existed in the present financial crisis, they automatically presume that it is the result of the pursuit of self-interest and the economic freedom that makes that pursuit possible. Given this fundamental attitude, the principle that guides contemporary journalists so-called is that their job is to find the businessmen and capitalists who are responsible for the evil and the government officials who set them free to commit it, and, finally, to identify and support the policies of government intervention and control that will allegedly eliminate the evil and prevent its recurrence in the future.

Their fear and hatred of economic freedom and laissez-faire capitalism, and their need to be able to denounce it as the cause of all economic evil, is so great that they pretend to themselves and to their audiences that it exists in today’s world, in which it clearly does not exist even remotely. By making the claim that laissez faire exists and is what is responsible for the problem, they are able to turn the full force of their hatred for actual economic freedom and laissez-faire capitalism against each and every sliver of economic freedom that somehow manages to exist and which they decide to target. That sliver, they project, is part and parcel of the starvation of the workers in the inhuman exploitation of labor that, in their ignorance, they take for granted is imposed by capitalists under laissez faire. Their brainwashed audience, as much the product of the contemporary educational system as they themselves, then quickly follows suit and obliges their efforts to arouse hatred.

The result is summed up in words such as these, which appeared in one of the same New York Times articles I quoted earlier: “`We now have a collective anger, disgust, over our whole financial system and it’s obvious we’re going to get a regulatory backlash…’” [with] “a spillover effect to other industries because voters have the perception that ‘big companies are animals and they need to be put in their cages.’”[10]

In this way the enemies of capitalism and economic freedom are able to proceed in their campaign of economic destruction and devastation. They use the accusation of “laissez faire” as a kind of ratchet for increasing the government’s power. For example, in the early 1930s they accused President Hoover of following a policy of laissez faire, even as he intervened in the economic system to prevent the fall in wage rates that was essential to stop a reduced demand for labor from resulting in mass unemployment. On the basis of the mass unemployment that then resulted from Hoover’s intervention, which they succeeded in portraying as “laissez faire,” they deceived the country into supporting the further massive interventions of the New Deal.

Today, they continue to play the same game. Always it is laissez faire that they denounce, and whose alleged failures they claim need to be overcome with yet more government regulations and controls. Today, the massive interventions not only of the New Deal, but also of the Fair Deal, the New Frontier, the Great Society, and of all the administrations since, have been added to the very major interventions that existed even in the 1920s and to which Hoover very substantially added. And yet we still allegedly have laissez faire. It seems that so long as anyone manages to move or even breathe without being under the control of the government, laissez faire allegedly continues to exist, which serves to make necessary yet still more government controls.

The logical stopping point of this process is that one day everyone will end up being shackled to a wall, or at the very least being compelled to do something comparable to living in a zip code that matches his social security number. Then the government will know who everyone is, where he is, and that he can do nothing whatever without its approval and permission. And then the world will be safe from anyone attempting to do anything that benefits him and thereby allegedly harms others. At that point, the world will enjoy all the prosperity that comes from total paralysis.


*Copyright © 2008, by George Reisman. George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. His web site is http://www.capitalism.net/. A pdf replica of his book can be downloaded to the reader’s hard drive simply by clicking on the book’s title Capitalism: A Treatise on Economics and then saving the file when it appears on the screen.

[1] See http://www.volunteertv.com/international/headlines/29762874.html.

[2] Steve Lohr, “Intervention Is Bold, but Has a Basis in History,” October 14, 2008, p. A14.

[3] Jackie Calmes, “Both Sides of the Aisle See More Regulation,” October 14, 2008, p. A15.

[4] Landon Thomas Jr. and Julia Werdigier, “Britain Takes a Different Route to Rescue Its Banks,” October 9, 2007, p. B7.

[5]I arrive at these figures by calculating total checking deposits in January of 2001 and in August of 2008 as the sum of those contained in M1, the “sweep” accounts compiled by the Federal Reserve Bank of St. Louis, and money market mutual fund deposits, both retail and institutional. From these respective totals I subtract total bank reserves as of the same dates. I then subtract the result for 2001 from that for 2008 and divide the difference by the sum calculated for 2001.

[6]If the creation of checkbook money in excess of currency holdings is in fact an attempt at cheating, as I described it earlier, then it follows that a free market would actually require a 100 percent reserve.

[7] Joe Nocera, “Shouldn’t We Rescue Housing?, October 18, 2008, p. B1.

[8] David Streitfeld and Gretchen Morgenson, “The Reckoning, Building Flawed American Dreams,” October 19, 2008, p. A26.

[9] For a comprehensive refutation of all aspects of this intellectual framework, see George Reisman, Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996), chapters 11, 14, and passim.

[10] Jackie Calmes, loc. cit.