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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.
I’m not high on McCain either....and originally planned to vote third party this time....but the fact is....Obama is such an empty suit he’s dangerous.
We have no choice.
That’s why I said, “We’ll see...”, my overly-agitated friend.
The root problem is, that this setup was doomed from the beginning. The federal government had an implied relationship with Fannie and Freddie, that if they failed they would be covered. By the taxpayer. As usual, its a hell of a lot funner to gamble with someone else’s money. This has been coming for a long time.
There are a few fat cats laughing all the way to the banks...the ones that are still open.
There was a depression on, trade was slow and how do people think the Nazi state paid for all those weapons, highways, productive men just marching around, day care, health care, ect?
$20 says, "No!".
I’m with you. But ya gotta hope.
There aren't any fat cats who are enjoying this.
No more corporate (or quasi-corporate) welfare. If organizations can’t make rational economic decisions they should be allowed to fail and die.
As a practical matter, however, I'll stick with McCain/Palin and a few remaining scintillae of hope.
I believe that it was Madison that pointed out that the Constitution does not give the Federal Government the power to give other people's money to someone that it feels sorry for. Now it's the very underpinning of political power.
I hope I'm young enough when that happens. I'd like to have the strength to be part of the mob that chops the heads off of politicians that refused to privatize pension programs.
There are many people who are talking about the unfunded pension plans. Look here for some of them.
Some of us have been ATTEMPTING to curtail this MADNESS for many years.
Unfortunately, not many others felt it was – or would become – a serious problem. I can’t count how many LAUGHED at us during that period. Most of them have STOPPED LAUGHING!
Trust me, it is NOW A SERIOUS PROBLEM, one the feds may not be able to print their way out of.
This is what happens when man – or SOME MEN – play god with the immutable laws of nature and economics. History teaches that they do so at great peril – and they ALWAYS fail. Insanity is doing the same things over and over while expecting a different result.
What saddens me most is that Newt either squandered or let slip HIS chance to get a grip on it. And, no, I’m NOT picking on Newt. WE’RE ALL GUILTY!!
In this 2 minute clip, he seems to be trying to tell us that he took a shot at it:
http://www.youtube.com/watch?v=lIo8FJJMps8
Oh, yes, my friend, "politicians" are to blame, but, no more so than the other side of the equation, "the American people." The current mess could not have teetered so long, in relative equilibrium, without like amounts of responsibility (or blame, if you prefer) being heaped on each side of the scale.
That’s not actually what’s going on here. No one is out there demanding a subsidy after decades of mismanagement like the car companies did or like the airlines do every few years. This is a market phenomenon that just needs to work itself through.
They don’t even need to privatize them. Just get rid of the programs and leave it up to people whether or not they want to save. I guess it amounts to a similar result. Privatizing just sounds like the government is being proactive in achieving some goal whereas just getting rid of the programs doesn’t really require the government to do much.
Anyway I’ll be standing right next to you when the day comes to rid the world of these political scum.
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