Posted on 09/14/2008 8:09:39 AM PDT by Leisler
The failure of Fannie Mae and Freddie Mac, setting in motion the biggest government bailout/takeover in U.S. history, brings a grim sense of fulfillment to competent economists. After all, what did people expect, that water would flow uphill forever?
This financial mega-mess is the same sort of event as the collapse of the USSR’s centrally planned economy, another economically unworkable Rube Goldberg apparatus that was kept going, more or less badly, for decades before it fell apart completely. Along the way, of course, famous (yet actually unsound) economists assured the world that everything was working out splendidly. As late as 1989, when the pillars were crumbling on all sides of the temple, Nobel Prize winner Paul A. Samuelson informed readers of his widely used textbook, “The Soviet economy is proof that . . . a socialist command economy can function and even thrive.”
In the future, we will see a similar breakdown of the U.S. government’s Social Security system, with its ill-fated pension system and its even more inauspicious Medicare system of financing health care for the elderly. These government schemes are fighting a losing battle against demographic realities, the laws of economics, and the rules of arithmetic. The question is not whether they will fail, but when—and then how the government that can no longer sustain them in their previous Ponzi-scheme form will alter them to salvage what little can be salvaged with minimal damage to the government itself.
Our political economy is rife with such catastrophes in waiting, yet the public always seems startled, and outraged, when the day of reckoning can no longer be deferred, and another apartment collapses in the state’s Hotel of Impossible Promises, loading onto the taxpayers more visibly the burden of sheltering the previous occupants.
Each of these time bombs has at least one element in common: it promises current benefits, often seemingly without cost; but if it must acknowledge a substantial cost, it places that burden somewhere in the distant future, where it will be borne by somebody else. From the standpoint of society in general, every such scheme is a species of eating the seed corn. It satisfies the public’s appetite to consume something for nothing right now, with no thought for the morrow. It represents the height of irresponsibility by permitting people to live higher today than they can truly afford, financing this profligacy by borrowing recklessly and by taxing politically weak and ill-organized people in order to shower benefits on politically strong and well-organized special interests.
Call it democracy in action or utterly corrupt governance; they are the same thing.
The architecture of the Hotel of Impossible Promises is not arcane. All competent economists understand these things. Ludwig von Mises explained as early as 1920 why a centrally planned economy could not work as a rational system of allocating resources. The reasons why Social Security, especially its Medicare component, and many other such government programs contain the seeds of their own destruction have been explained time and again. Are the politicians who construct these structures really such idiots that they cannot understand the logic of what they are doing?
Not at all. But they are not striving to create economically viable institutions that serve the general public interest; they are feathering their own electoral nests in the only way they can in the context of our political institutions. As H. L. Mencken explained back in 1940, the politicians “will all promise every man, woman and child in the country whatever he, she or it wants. They’ll all be roving the land looking for chances to make the rich poor, to remedy the irremediable, to succor the unsuccorable, to unscramble the unscrambleable, to dephlogisticate the undephlogisticable,” because they understand that “votes are collared under democracy, not by talking sense but by talking nonsense.”
And are members of the public so dense that they will fall for such promises? Yes. Moreover, they are greedy, impatient, and immoral, because the present benefits they hope to gain via politics, however unsustainable in the long run, come entirely at the expense of the taxpayers from whom the government extorts its revenues.
“Politics, under democracy,” Mencken wrote more than 80 years ago, “resolves itself into impossible alternatives. Whatever the label on the parties, or the war cries issuing from the demagogues who lead them, the practical choice is between the plutocracy on the one side and a rabble of preposterous impossibilists on the other.” And in a declaration even apter now than it was at the time, he concluded that what democracy “needs beyond everything is a party of liberty.”
The trouble is, however, that now, even more than then, the American people have little interest in liberty. Instead, they want the impossible: home ownership for those who cannot afford homes, credit for those who are not creditworthy, old-age pensions for those who have not saved, health care for those who make no attempt to keep themselves healthy, and college educations for those who lack the wit to finish high school. Moreover, they want it now, and they want somebody else to pay for it.
If you think that Fannie and Freddie’s bust is a big deal, just wait until Medicare comes crashing down. Then, the wailing and gnashing of teeth will be truly unbearable. As that day rapidly approaches, however, you’ll notice that the politicians are doing utterly nothing to forestall it.
Tiger ping!
Great read!
See. It is not so hard to understand and it doesn’t even require conjuring tricks.
Fannie and Freddie as small change compared to Social Security or even Medicare.
Now, we'll see if McCain-Palin can forge a party of liberty that can convince the populace of the need for blood, tears, and sweat in achieving the blessings of liberty.
The author is
Robert Higgs is Senior Fellow in Political Economy for The Independent Institute and Editor of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation.
I am hoping that I can save enough money and have enough resources to deal with what is coming ahead.
If you read that and still think there is some fat cat somewhere who deserves to be strung up, then it’s a lot less clear than I thought it was.
There’s another fiscal time bomb ticking away that often goes unmentioned. It’s the underfunded pension plans for state and local government employees. These will soon begin to eat budgets, yet almost no one is talking about this.
The board members of Fannie Mae and Freddie Mac should be thrown against a brick wall and shot or find themselves magically beheaded on TV by our friends in the reformed domestic Taliban. Instead they will get a golden parachute, migrate to other boardrooms and live a life of ease and travel while their victims watch their dreams being raped,looted and pillaged by well-tailored vermin.
Soon people who perpetuate such a scheme and those buying into it believe their comfortable illusion, immediate benefit, but deferred cost. Actually, cost deferred long into the future is easily morphed into the perception of no cost. Such a selectively truncated perception of reality is actually no different from a utopia, the world which cannot exist in the real world.
Being smart and intelligent does not guarantee that a person would do a good job. With smarts and intelligence, a person could develop a strong temptation to cheat the reality, or cheat death. Perpetual motion is one great example. Socialism is another.
Without thorough mechanism of verification and fact-checking, people have been always doing it since the dawn of history. Especially, in the field dealing with complex phenomena where there are also many unknowns.
The government, union workers retires have, or will, move out to Florida, Texas. So we'll see the northern states go the way of Detroit, Buffalo but state wise.
And what ever pension money is extracted will be spent in Texas, the south. Of course these people will run for local office, and cause the spending to be replicated, much like human virus.
I was out in a rural county in Colorado ten years ago. The locals were getting property taxed out by retired California teachers that were demanding town services like they had back in California.
Good citizens drive out bad, be it gang bangers, or Democrats.
You're kidding right????
Please tell me you're not so naive that you really believe things will change with Palin playing second fiddle to political oppurtunist and good old boy John McCain? Rail against Obambi all you wish, but don't for a minute think with McCain we won't get more of the same "compassionate conservative" crap we've had for the last eight years.
As a New Yorker I sometimes joke that my educational taxes are educating the future work force of Texas and North Carolina.
Sadly you are right. McCain will bring amnesty, gays in the military, embrionic stem cell research and worse. With Palin, he was throwing some crumbs to conservatives, while he’s busy campaigning to Log Cabin Republicans, LULAC and other questionable groups behind our back.
Yes they are...When they chose to stick their collective fingers in the wind...instead of LEAD! When they chose to play "how can I get re-elected politics"...instead of doing the RIGHT THING FOR OUR COUNTRY!!
Yes, of course there are MILLIONS of sheeple clamoring for the things you mention...but it takes leaders to direct them to the truth about life.
Term limits would be a good start...IMO.
Rant off....: )
It's not well known but it was English fiscal insovlency which forced Charles I to seat a recalcitrant Parliament setting in motion what became The English Civil War of the 1640's and that it was French fiscal insovlency that forced Louis XVI to seat The Estates General, for the first time in over one hundred years, setting in motion what became The French Revolution.
(Strangely, I like your idea. If they want to earn the big bucks, their risks should be to themselves and not just to the American public.)
Better to take their intellect, work ethic and like East Germans fleeing west, vote with their feet and move to more family friendly, lower cost, low tax rapeing states.
Of course this leaves a ever spiraling downward cadres of louts, sloths, poor performers to each and his own, gum up and rip off what ever they can. (I hear the new booming industry is copper mining house pipes. A grand a day for two men and a pickup)
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