The End of Collectivism 103 THE COLLAPSE OF SOCIALISM

In 1988, we were living through the most significant and exciting event of the twentieth century: nothing less than the collapse of socialism.

Before the rise of the new idea of socialism in the mid and late nineteenth century, the great struggle of social and political philosophy was crystal-clear. On one side was the exciting and liberating idea of classical liberalism, emerging since the seventeenth century: of free trade and free markets, individual liberty, separation of Church and State, minimal government, and international peace. This was the movement that ushered in and championed the Industrial Revolution, which, for the first time in human history, created an economy geared to the desires of and abundance for the great mass of consumers.

On the other side were the forces of Tory statism, of the Old Order of Throne and Altar, of feudalism, absolutism, and mercantilism, of special privileges and cartels granted by Big Government, of war, and impoverishment for the mass of their subjects.

In the field of ideas, and in action and in institutions, the classical liberals were rapidly on the way to winning this battle. The world had come to realize that freedom, and the growth of industry and standards of living for all, must go hand in hand.

Then, in the nineteenth century, the onward march of freedom and classical liberalism was derailed by the growth of a new idea: socialism. Rather than rejecting industrialism and the welfare of the masses of people as the Tories had done, socialists professed that they could and would do far better by the masses and bring about “genuine freedom” by creating a State more coercive and totalitarian than the Tories had ever contemplated. Through “scientific” central planning, socialism could and would usher in a world of freedom and superabundance for all.

The twentieth century put this triumphant idealism into practice, and so our century became the Age of Socialism. Half the world became fully and consistently socialist, and the other half came fairly close to that ideal. And now, after decades of calling themselves the wave of the future, and deriding all their opponents as hopelessly “reactionary” (i.e., not in tune with modern thinking), “paleolithic,” and “Neanderthal,” socialism, throughout the world, has been rapidly packing it in. For that is what glasnost and perestroika amount to.

Ludwig von Mises, at the dawn of the Socialist Century, warned, in a famous article, that socialism simply could not work: that it could not run an industrial economy, and could not even satisfy the goals of the central planners themselves, much less of the mass of consumers in whose name they speak. For decades Mises was derided, and discredited, and various mathematical models were worked out in alleged “refutation” of his lucid and elegant demonstration.

And now, in the leading socialist countries throughout the world: in Soviet Russia, in Hungary, in China, in Yugoslavia, governments are rushing to abandon socialism. Decentralization, markets, profit and loss tests, allowing inefficient firms to go bankrupt, all are being adopted. And why are the socialist countries willing to go through this enormous and truly revolutionary upheaval? Because they agree that Mises was right, after all, that socialism doesn’t work, and that only desocialized free markets can run a modern economy.

Some are even willing to give up some political power, allow greater criticism, secret ballots and elections, and even, as in Soviet Estonia, to allow a one-and-one half party system, because they are implicitly conceding that Mises was right: that you can’t have economic freedom and private property without intellectual and political freedom, that you can’t have perestroika without glasnost.

It is truly inspiring to see how freedom exerts its own “domino effect.” Country after socialist country has been trying to top each other to see how far and how fast each one can go down the road of freedom and desocialization.

But much of this gripping drama has been concealed from the American public because, for the last 40 years, our opinion-molders have told us that the only enemy is Communism. Our leaders have shifted the focus away from socialism itself to a variant that is different only because it is more militant and consistent.

This has enabled modern liberals, who share many of the same statist ideas, to separate competing groups of socialists from the horrors of socialism in action. Thus, Trotskyites, Social Democrats, democratic socialists, or whatever, are able to pass themselves off as anti-Communist good guys, while the blame for the Gulag or Cambodian genocide is removed from socialism itself.

Now it is clear that none of this will wash. The enemy of freedom, of prosperity, of truly rational economics is socialism period, and not only one specific group of socialists.

As even the “socialist bloc” begins to throw in the towel, there are virtually no Russians or Chinese or Hungarians or Yugoslavs left who have any use for socialism. The only genuine socialists these days are intellectuals in the West who are enjoying a comfortable and even luxurious living within the supposed bastions of capitalism.

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First published in October 1988.

104

THE FREEDOM REVOLUTION

It is truly sobering these days to turn from a contemplation of American politics to world affairs. Among the hot issues in the United States has been the piteous complaint about the “martyrdom” of Jim Wright, Tony Coelho, and John Tower to the insidious advance of “excessive” ethics. If we tighten up ethics and crack down on graft and conflict of interest, the cry goes, how will we attract good people into government? The short answer, of course, is that we will indeed attract fewer crooks and grafters, but one wonders why this is something to complain about.

And then in the midst of this petty argle-bargle at home comes truly amazing, wrenching, and soul-stirring news from abroad. For we are privileged to be living in the midst of a “revolutionary moment” in world history. History usually proceeds at a glacial pace, so glacial that often no institutional or political changes seem to be occurring at all. And then, wham! A piling up of a large number of other minor grievances and tensions reaches a certain point, and there is an explosion of radical social change. Changes begin to occur at so rapid a pace that old markets quickly dissolve. Social and political life shifts with blinding speed from stagnation to escalation and volatility. This is what it must have been like living through the French Revolution.

I refer, of course, to the accelerating, revolutionary implosion of socialism-communism throughout the world. That is, to the freedom revolution. Political positions of leading actors change radically, almost from month to month. In Poland, General Jaruzelski, only a few years ago the hated symbol of repression, threatens to resign unless his colleagues in the communist government accede to free elections and to the pact with Solidarity. On the other hand, in China, Deng Hsiao-ping, the architect of market reform ten years ago, became the mass murderer of unarmed Chinese people because he refuses to add personal and political freedom to economic reform, to add glasnost to this perestroika.

Every day there is news that inspires and amazes. In Poland, the sweep by Solidarity of every contested race, and the defeat of unopposed Communist leaders by the simple, democratic device—unfortunately unavailable here—of crossing their names off the ballot. In Russia, they publish Solzhenitsyn, and a member of the elected Congress of Deputies gets on nationwide TV and denounces the KGB in the harshest possible terms—to a standing ovation. The KGB leader humbly promises to shape up.

In the Baltic states, not only are all groups, from top Communists down-calling for independence from Soviet Russia, but also the Estonians come out for a free market, strictly limited government, and private property rights. In Hungary, numerous political parties spring up, most of them angrily rejecting the very concept of socialism.

In the “socialist bloc” covering virtually half the world, there are no socialists left. What all groups are trying to do is to dismantle socialism and government controls as rapidly as possible; even the ruling elites certainly in Poland and Hungary—are trying to desocialize with as little pain to themselves as possible. In Hungary, for example, the ruling nomenklatura is trying to arrange desocialization so that they will emerge as among the leading capitalists on the old principle of “if you can’t beat ‘em, join ‘em.”

We are also seeing the complete vindication of the point that Hayek shook the world with in The Road to Serfdom. Writing during World War II when socialism seemed inevitable everywhere, Hayek warned that, in the long run, political and economic freedom go hand in hand. In particular, that “democratic socialism” is a contradiction in terms. A socialist economy will inevitably be dictatorial.

It is clear now to everyone that political and economic freedom are inseparable. The Chinese tragedy has come about because the ruling elite thought that they could enjoy the benefits of economic freedom while depriving its citizens of freedom of speech or press or political assembly. The terrible massacre of June 4th at Tiananmen Square stemmed from the desire by Deng and his associates to flout that contradiction, to have their cake and eat it too.

The unarmed Chinese masses in Beijing met their fate because they made the great mistake of trusting their government. They kept repeating again and again: “The People’s Army cannot fire on the people.” They ached for freedom, but they still remained seduced by the Communist congame that the “government is the people.” Every Chinese has now had the terrible lesson of the blood of thousands of brave young innocents engraved in their hearts: “The government is never the people,” even if it calls itself “the people’s government.”

It has been reported that when the tanks of the butchers of the notorious 27th Army entered Tiananmen Square and crushed the Statue of Liberty, that a hundred unarmed students locked arms, faced the tanks, and sang the “Internationale” as the tanks sprayed them with bullets, and, as they fell, they were succeeded by another hundred who did the same thing, and met the same fate.

Western leftists, however, cannot take any comfort from the contents of the song. For the “Internationale” is a stirring call for the oppressed masses to rise up against the tyrants of the ruling elite. The famous first stanza, which is all the students were undoubtedly able to sing, holds a crucial warning for the Chinese or for any other Communist elite that refuses to get out of the way of the freedom movement now shaking the socialist world:

Arise, ye prisoners of starvation!

Arise, ye wretched of the earth,

For justice thunders condemnation,

A better world’s in birth.

No more tradition’s chains shall bind us,

Arise, ye slaves; no more in thrall!

The earth shall rise on new foundations,

We have been naught, we shall be all.

Who can doubt, any more, that “justice thunders condemnation” of Deng and Mao and Pol Pot and Stalin and all the rest? And that the “new foundations” and “the better world in birth” is freedom?

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First published in August 1989.

105

HOW TO DESOCIALIZE?

Everyone in Soviet Russia and Eastern Europe wants to desocialize. They are convinced that socialism doesn’t work, and are anxious to get, as quickly as possible, to a society of private property and a market economy. As Mieczyslaw Wilczek, Poland’s leading private entrepreneur, and Communist minister of industry before the recent elections, put it: “There haven’t been Communists in Poland for a long time. Nobody wants to hear about Marx and Lenin any more.”

In addition to coming out solidly for private ownership and denouncing unions, Wilczek attacked the concept of equality. He notes that some people are angry because he recently urged people to get rich. “And what was I to propose? That they get poorer perhaps?” And he was rejected by the Polish voters for being too attached to the Communist Party!

East Europeans are eager for models and for the West to instruct them on how to speed up the process. How do they de-socialize? Unfortunately, innumerable conservative institutions and scholars have studied East European Communism in the past 40 years, but precious few have pondered how to put desocialization into effect. Lots of discussion of game theory and throw weights, but little for East European desocializers to latch onto.

As one Hungarian recently put it, “There are many books in the West about the difficulties of seizing power, but no one talks about how to give up power.” The problem is that one of the axioms of conservatism has been that once a country goes Communist, the process is irreversible, and the country enters a black hole, never to be recovered. But what if, as has indeed happened, the citizens, even the ruling elite, are sick of communism and socialism because they clearly don’t work?

So how can communist governments and their opposition desocialize? Some steps are obvious: legalize all black markets, including currency (and make each currency freely convertible at market rates), remove all price and production controls, drastically cut taxes, etc. But what to do about State enterprises and agencies, which are, after all, the bulk of activity in communist countries?

The easy answer—sell them, either on contract or at auction—won’t work here. For where will the money come from to buy virtually all enterprises from the government? And how can we ever say that the government deserves to collect virtually all the money in the realm by such a process. Telling individual managers to set their own prices is also not good enough; for the crucial step, acknowledged in Eastern Europe, is to transform State property into private property. So, some people and groups will have to be given that property? Who, and why?

As Professor Paul Craig Roberts stated recently in a fascinating speech in Moscow to the USSR Academy of Sciences, there is only one way to convey government property into private hands. Ironically enough, by far the best path is to follow the old Marxist slogan: “All land to the peasants (including agricultural workers) and “all factories to the workers! . . . Returning” the State property to descendants of those expropriated in 1917 would be impracticable, since few of them exist or can be identified, and certainly the industries could be returned to no one, since they (in contrast to the land) were created by the Communist regime.

But there is one big political and economic problem: what to do with the existing ruling elite, the nomenklatura? As the Polish Kostek Gebert recently put the choice” “You either kill them off, or you buy them off.” Admittedly, killing off the old despotic ruling elites would be emotionally satisfying, but it is clear that the people on the spot, in Poland and Hungary, and soon in Russia, prefer the more peaceful buying them off to pursuing justice at the price of a bloody civil war. And it is also clear that this is precisely what the nomenklatura want. They want free markets and private ownership, but they of course want to make sure that the transition period assures them of coming out very handsomely in at least the initial distribution of capital. They want to start capitalism as affluent private entrepreneurs.

Interestingly, Paul Craig Roberts, whom no one could ever accuse of being soft on communism or socialism, also recommends the more peaceful course: “Historically in these transformations ruling classes have had to be accommodated or overthrown. I would recommend that the Communist Party be accommodated.” In practice what this means is that “ownership of the state factories should be divided between the ruling class and the factory workers, and stock certificates issued.” His solution makes a great deal of sense.

Alternatively, Roberts says that a national lottery could determine the ownership of the means of production, since whoever initial owners may be, an economy of private property will be far more efficient, and “resources will eventually find their way into the most efficient and productive hands.” But the trouble here is that Roberts ignores the hunger for justice among most people, and particularly among victims of communism. A lottery distribution would be so flagrantly unjust that the ensuing private property system might never recover from this initial blow. Furthermore, it does make a great deal of difference to everyone where they come out in such a lottery; most people in the real world cannot afford and do not wish to take such an Olympian view.

In any case, Roberts has performed an important service in helping launch the discussion. It is about time that Western economists start tackling the crucial question of desocialization. Perhaps they might thereby help to advance one of the most welcome and exciting developments of the twentieth century.

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First published in September 1989.

106

A RADICAL PRESCRIPTION FOR THE SOCIALIST BLOC

It is generally agreed, both inside and outside Eastern Europe, that the only cure for their intensifying and grinding poverty is to abandon socialism and central planning, and to adopt private property rights and a free-market economy. But a critical problem is that Western conventional wisdom counsels going slowly, “phasing-in” freedom, rather than taking the always-reviled path of radical and comprehensive social change.

Gradualism, and piecemeal change, is always held up as the sober, practical, responsible, and compassionate path of reform, avoiding the sudden shocks, painful dislocations, and unemployment brought on by radical change.

In this, as in so many areas, however, the conventional wisdom is wrong. It is becoming ever clearer to East Europeans that the only practical and realistic path, the only path toward reform that truly works and works quickly, is the total abolition of socialism and statism across the board.

For one thing, as we have seen in the Soviet Union, gradual reform provides a convenient excuse to the vested interests, monopolists, and inefficient sluggards who are the beneficiaries of socialism, to change nothing at all. Combine this resistance with the standard bureaucratic inertia endemic under socialism, and meaningful change is reduced to mere rhetoric and lip service.

But more fundamentally, since the market economy is an intricate, interconnected latticework, a seamless web, keeping some controls and not others creates more dislocations, and perpetuates them indefinitely.

A striking case is the Soviet Union. The reformers wish to abolish all price controls, but they worry that this course, amidst an already inflationary environment, would greatly aggravate inflation. Unfortunately, the East Europeans, in their eagerness to absorb procapitalist literature, have imbibed Western economic fallacies that focus on price increases as “inflation” rather than on the monetary expansion which causes the increased prices.

In Soviet Russia and in Poland, the governments have been pouring an enormous number of rubles and zlotys into circulation, which has increased price levels. In both countries, severe price controls have disguised the price inflation, and have also created massive shortages of goods. As in most other examples of price control, the authorities then tried to assuage consumers by imposing especially severe price controls on consumer necessities, such as soap, meat, citrus fruit, or fuel. As an inevitable result, these valued items end up in particularly short supply.

If the governments went cold turkey and abolished all the controls, there would indeed be a large one-shot rise in most prices, particularly in consumer goods suffering most from the scarcity imposed by controls. But this would only be a one-shot increase, and not of the continuing and accelerating kind characteristic of monetary expansion. And, furthermore, what consolation is it for a consumer to have the price of an item be cheap if he or she can’t find it? Better to have a bar of soap cost ten rubles and be available than to cost two rubles and never appear. And, of course, the market price—say of ten rubles—is not at all arbitrary, but is determined by the demands of the consumers themselves.

Total decontrol eliminates dislocations and restrictions at one fell swoop, and gives the free market the scope to release people’s energies, increase production enormously, and direct resources away from misallocations and toward the satisfaction of consumers. It should never be forgotten that the “miracle” of West German recovery from the economic depths after World War II occurred because Ludwig Erhard and the West Germans dismantled the entire structure of price and wage controls at once and overnight, on the glorious day of July 7, 1949.

In addition, the East European countries are starved for capital to develop their economy, and capital will only be supplied, whether by domestic savers or by foreign investors, when: (1) there is a genuine stock market, a market in shares of ownership titles to assets; and (2) the currency is genuinely convertible into hard currencies. Part of the immediate West German reform was to make the mark convertible into hard currencies.

If all price controls should be removed immediately, and currencies made convertible and a full-fledged stock market established, what then should be done about the massive state-owned sector in the socialist bloc? A vital question, since the overwhelming bulk of capital assets in the socialist countries are state-owned.

Many East Europeans now realize that it is hopeless to try to induce state enterprises to be efficient, or to pay attention to prices, costs, or profits. It is becoming clearer to everyone that Ludwig von Mises was right: only genuinely private firms, private owners of the means of production, can be truly responsive to profit-and-loss incentives. And moreover, the only genuine price system, reflecting costs and profit opportunities, arises from actual markets—from buying and selling by private owners of property.

Obviously, then, all state firms and operations should be privatized immediately—the sooner the better. But, unfortunately, many East Europeans committed to privatization are reluctant to push for this remedy because they complain that people don’t have the money to purchase the mountain of capital assets, and that it seems almost impossible for the state to price such assets correctly.

Unfortunately, these free-marketeers are not thinking radically enough. Not only may private citizens under socialism not have the money to buy state assets, but there is a serious question about what the state is supposed to do with all the money, as well as the moral question of why the state deserves to amass this money from its long-suffering subjects.

The proper way to privatize is, once again, a radical one: allowing their present users to “homestead” these assets, for example, by granting prorata negotiable shares of ownership to workers in the various firms. After this one mighty stroke of universal privatization, prices of ownership shares on the market will fluctuate in accordance with the productivity and the success of the assets and the firms in question.

Critics of homesteading typically denounce such an idea as a “giveaway” of “windfall gains” to the recipients. But in fact, the homesteaders have already created or taken these resources and lifted them into production, and any ensuing gains (or losses) will be the result of their own productive and entrepreneurial actions.

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First published in March 1990.

107

A SOCIALIST STOCK MARKET?

Even in the days before perestroika, socialism was never a monolith. Within the Communist countries, the spectrum of socialism ranged from the quasi-market, quasi-syndicalist system of Yugoslavia to the centralized totalitarianism of neighboring Albania. One time I asked Professor von Mises, the great expert on the economics of socialism, at what point on this spectrum of statism would he designate a country as “socialist” or not. At that time, I wasn’t sure that any definite criterion existed to make that sort of clear-cut judgment.

And so I was pleasantly surprised at the clarity and decisiveness of Mises’s answer. “A stock market,” he answered promptly.

A stock market is crucial to the existence of capitalism and private property. For it means that there is a functioning market in the exchange of private titles to the means of production. There can be no genuine private ownership of capital without a stock market: there can be no true socialism if such a market is allowed to exist.

And so it is particularly thrilling to see that in the headlong flight from central planning and socialism, several of the Communist countries are actually introducing, or preparing to introduce, a stock market. A prospect that would have been unthinkable only a few years ago! The process is already in its early stages in Communist China. And the Soviet Union is beginning to talk about introducing a stock market.

Stock markets already exist in several cities in China. So far, however, they are pitiful fledglings. Although the Communist leadership now allows the expansion of private firms and permits them to issue stock, only a few companies have issued stock and they are, so far, much more like bonds. Stock dividends are fixed very much like interest on bonds, and, more importantly, there is no free pricing system in these stock markets; instead, there is rigid price-fixing of the shares by the central government.

Even so these tiny stock markets are expanding, as state enterprises in China are selling off chunks of their shares to the public, while thousands of cooperatives are selling shares of ownership to their workers. Harry Harding of the Brookings Institution comments that “the idea is to have enough public ownership so that they can say it’s still socialist,” while at the same time they “make the enterprises accountable to someone other than the state bureaucracy.” Despite great reluctance, China and other Communist countries are anxious to induce productive savings from their citizens, and channel savings from jewelry and art, into capital investment.

Another motive propelling China, Soviet Russia, and other Communist countries into establishing stock markets is the desire to attract foreign investors. But it is obvious to all, including the Communist leaders, that to attract foreign funds, the ruble and other Communist currencies must be removed from their current absurd controls and overvaluations, and become freely convertible into dollars and other Western currencies. It will take the Communist governments quite a while to bite this bullet, but they are definitely moving in this direction.

As might be expected, the most radical advance toward free stock markets in the Communist countries has been in Hungary. A tiny stock market has been open in Budapest for some time, but on January 1, 1989, Hungary began to allow foreigners to invest in Hungarian stocks, even permitting foreigners to own up to 100 percent of a number of Hungarian firms, public and private. At first, these shares will be traded in the current tiny market, but within six months, Budapest is scheduled to open a functioning daily international stock exchange—the first in Eastern Europe since World War II.

This first real stock exchange will have from ten to twenty companies listed at its opening, and will, unfortunately, also come with all the attendant trappings of an American stock exchange—including insider trading rules and a Hungarian type of Securities and Exchange Commission. Learning too well from the West!

Particularly enthusiastic about the new development is Szigmond Jarai, deputy director of the Budapest Bank and chairman of the government committee supervising the establishment of the daily stock exchange. Jarai declared that “the stock market is the heart of an effective economy. . . . We need to reduce our bureaucracy and free up entrepreneurs,” he added, sounding, as the New York Times commented, “more like a Wall Street free-market enthusiast than an official of a Communist government.”

More freedom is coming soon. The Hungarian Parliament is considering a tax reform that would allow foreign equity investors to pay no Hungarian tax on either dividends or capital gains, and laws are being prepared allowing both Hungarians and foreign joint ventures to operate as stockbrokers. In addition, the way forward has been paved by the fact that Hungary already has in place the only bond market in Eastern Europe, as well as a system of bankruptcy laws so that insolvent firms can be forced out of business.

There is, of course, a long way to go, even in Hungary. But plans are in the works to privatize large sectors of the Hungarian economy within the next two years, and there are increasing mutterings about making the Hungarian forint convertible into Western currencies. Even in benighted Poland, there are bills now in Parliament to allow private commercial banking, and to eliminate exchange controls over the Polish zloty. Not only is socialism cracking all over the world, but, using Mises’s criterion, we might be able to throw our hats in the air very soon and proclaim that Hungary is no longer socialist.

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Previously unpublished.

108

THE GLORIOUS POSTWAR WORLD

Every war in American history has been the occasion for a Great Leap Forward in the power of the State, a leap which, at best, could only be partly rolled back after the war.

A conflict as seemingly minor as the War of 1812 took the Jacksonians three decades to wash out of American life; and freedom was never able to recover fully from the Civil War and the two World Wars. After the two world wars in particular, statists had a seemingly irresistible argument: America should use the wonder and the glory, the united martial spirit, the singleness of national purpose, to wage wars at home against a battery of domestic ills.

There are always problems aplenty at home against which to mobilize the national will: depression, poverty, injustice, what have you. And that mobilization necessarily means collectivism in action: increased federal power under the commander-in-chief.

After the full-fledged War Collectivism of the first World War, a collectivism that joined Big Business, Big Labor, statist intellectuals, and technocrats under the aegis of Big Government, the youthful planners of that collectivism: the Bernard Baruchs, Herbert Hoovers, and Franklin Roosevelts, spent the rest of their lengthy lives striving to recapture those delightful days, and to fasten them permanently upon peace-time America. The institutions and the rhetoric of wartime collectivism were recaptured during the Hoover and Roosevelt New Deals to “combat” the Great Depression, often with the same institutions and the same people running them.

Thus, Eugene Meyer’s War Finance Corporation lending federal money to corporations, which had lingered on during the peacetime 1920s, was renamed the Reconstruction Finance Corporation and enlarged by Hoover in 1932, with the same Eugene Meyer happily running the show, starting from the self-same offices in Washington, D.C. And then, World War II brought back the collectivist planning of World War I. Baruch’s War Industries Board was reconstituted as the War Production Board of World War II, and was resurrected once more under General Electric’s Charles E. Wilson during the Korean conflict.

The War Labor Board, designed to privilege unions, set wages, and arbitrate disputes, inspired the National Labor Board in the early Roosevelt New Deal, to be succeeded by the National Labor Relations Board under the Wagner Act and to be supplemented by a reprised War Labor Board during World War II.

Particularly dangerous for an acceleration of statism are successful wars; while Korea and Vietnam led to an intensification of State power, they did not generate the lifelong nostalgia, the eagerness to recapture the glory days, of a successful war. No American war has been quite as successful as the Gulf War, particularly if we take the kill ratio of enemy to American, or that kill ratio per day.

We would therefore expect a supercharged atmosphere of bringing the war home to domestic life. In a world where television seems to speed up public responses, that postwar domestic mobilization has already begun. This spirit of domestic war, appropriately enough, was launched by President Bush in his victory address before Congress on March 6, 1991:

In the war just ended, there were clearcut objectives, timetables and, above all, an overriding imperative to achieve results. We must bring that same sense of self-discipline, that same sense of urgency, to the way we meet challenges here at home.

After summarizing some of his current domestic agenda, proposals for “reform and renewal” including “civil rights,” highways, aviation, transportation, and a “crime package,” and hailing the past year’s “historic” Clean Air Act, his “landmark” Americans with Disabilities Act, and his Child Care Act as portents for the future, the president gave Congress a deadline: “If our forces could win the ground war in 100 hours, then surely the Congress can pass this legislation in 100 days.”

The president then noted that in his State of the Union address, five weeks before, he had posed this question to Congress: “If we can selflessly confront evil for the sake of good in a land so far away, then surely we can make this land all that it should be.” By their victory, the president told us, our troops “transformed a nation at home.” The president concluded that “there is much that we must do at home and abroad.” And we will do it.

Hold on to your hats, and to your wallets and purses, Mr. and Ms. America, here we go again!

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First published in May 1991.

109

THE REVOLUTION COMES HOME

The election of 1994 was an unprecedented and smashing electoral expression of the popular revolution that had been building up for many months: a massive repudiation of President Clinton, the Clintonian Democratic Party, their persons and all of their works. It was a fitting followup to the string of revolutions against government and socialism in the former states and satellites of the Soviet Union. The anti-government revolution has come home at last. An intense and widescale loathing of President Clinton as a person fused with an ideological hatred of Washington D.C., the federal Leviathan, and centralized statism, to create a powerful and combustible combination in American politics. So massive was the repudiation that it even changed many state governments away from the Democrats and the Democratic ideology of government intervention in the lives and properties of Americans. Formerly effective attempts to alter the meaning of the elections by Clinton and media spin artists (e.g., that it was “anti-incumbent”) were swept away as laughable by the patent facts of the electoral revolution.

After Leon Trotsky was sent into exile by Stalin, he wrote a bitter book famously entitled The Revolution Betrayed. In the case of the Bolshevik Revolution, it took about 15 years for Stalin’s alleged betrayal of the Leninist Revolution to take place. (Actually, despite the fascination of Western intellectuals with the Stalin-Trotsky schism, it was far more an intra-Bolshevik personal and factional squabble than any sort of ideological betrayal.)

In the case of the magnificent free-market revolution of November 1994, however, the betrayal began to occur almost immediately. Indeed it was inevitable, being built into the structure of current American politics.

The basic problem is the lavishly over-praised “duopoly” two-party system, cemented in place by a combination of the single-district, winner-take-all procedure for legislatures, and the socialized ballot, adopted as a “progressive reform” in the 1890s. This reform permits the government to impose onerous restrictions on the public’s access to the ballot, to the expression of its electoral will. Before the adoption of the socialized, or what used to be called “the Australian,” ballot, voting was secret but was achieved by dropping a card supplied by one of the candidates into the box. There was no “ballot” to worry about.

Because of the two-party system, the only way that the electorate of 1994 could express its revolutionary desire to throw out the hated Democrats was to vote Republican. Unfortunately, the controlling elites of the Republican Party have long had views very similar to those of the Democrats, thus depriving the American public of any genuine philosophical choice.

The ideology common to the ruling elites of both parties is Welfarist, Corporatist Statism; whether it’s called corporate “liberalism” or “conservatism” is largely a question of nuance and esthetics. Essentially, the corporate and media elites have long been engaging in a shell game in which the American public are the suckers. When the public is fed up with one party, the elites offer up an alleged alternative that only turns out to be more of the same.

All is not hopeless however. The inner-tension with the system comes from the very fact that the public has been led to think there is a genuine choice, and that there are strong ideological differences between the two parties. As result, the rank-and-file, both among the voting public and among the respective party activists, tend to have clashing ideologies and to pour forth severely contrasting rhetoric.

The rank-and-file, as well as party militants, tend to believe the rhetoric and to take it seriously. And while the American public, especially the conservatives, tend to be satisfied with the rhetoric of their political leaders and not to bother with the reality of their deeds, they are also more likely now to turn their attention to what is really going on, with the American public rising up angry against the ever-burgeoning Leviathan State fastened upon them by Washington, D.C.

By this time, conservatives at the grass-roots have caught on to Robert Dole, who is now well-known for his accommodationist devotion to ever higher taxes and spending. The real danger is Newt Gingrich, who has cultivated a firebrand rhetoric that has seduced the conservative masses into placing trust in Newt to lead their revolution.

Even rhetorically, Newt Gingrich is all too reminiscent of the erratic Clinton, blowing hot and cold, changing from day to day, one day calling for a revolution (what David Broder of the Washington Post recently called “the bad Newt”), alternating with pledges of “cooperation” with his alleged arch-enemy in the White House (“the good Newt”). The much-contested Gingrich “contract,” for example, far from an expression of rollback of Big Government, is either trivial or phony. Let us go down some of the crucial aspects of the anti-central government revolution, and see how the Republican elites, including Gingrich, shape up.

Taxes. Forget the piddling and minor cuts in capital-gains taxes, the increase of the child deduction, etc. The crucial point is that Gingrich and the other leaders are committed to the disastrous Bush-Clinton-bipartisan (a dread word that itself signifies duopoly and sellout of principle) concept of never reducing total government revenue, so that any tax cuts anywhere must be compensated by tax increases (or “fee” increases) somewhere else. In particular, until drastic cuts in the monstrous income tax are at least proposed, let alone passed, by the Republican elites, the leadership’s alleged embrace of small government will continue to be a fraud and a hoax.

Repeal the Brady Bill and gun control in general. Not a word by the leadership or in the “contract.”

Repeal of affirmative action. Not a word.

Deregulation, i.e., repeal of OSHA, the Americans With Disabilities Act, the Clean Air Act, etc. Not a word.

Immigration control. On opposition to floods of illegal immigrants, immigration in general, or welfare for immigrants, not a word.

Abolition of foreign aid. Not only not a word, but the entire Republican leadership, including Gingrich, is deeply committed to an American foreign policy of global intervention, economic and military.

Withdrawal from the UN, IMF, World Bank, etc. Ditto, since the entire leadership is committed to a continuation of the global interventionist foreign policy both parties have pursued since World War II.

Gatt and WTO. In this crucial drive toward managed world trade, with the public, insofar as they know anything about it, solidly against it, Gingrich, Dole, and the entire Republican Establishment are fervently for it, and heedless of the public’s opposition. The exception is Jesse Helms, who has begun to rediscover his Old Right roots.

Government spending. No real cuts advocated by the elites; instead, the contract pledges increased military spending in a world where the Soviet threat has disappeared. Again the public’s desire for a foreign policy strictly in the national interest is thwarted.

Abolition of the Federal Reserve. Ha!

Abolition of the Department of Education, Energy, etc. Ha!

Instead, the Republican elite serve up hoaxes such as the Balanced Budget Amendment, and increasing Executive power over Congress with the line-item veto. There will be no real devolution of power to the states, or restoring the 10th amendment.

So why isn’t the situation hopeless? Because of angry antigovernment fervor at the grass roots. Because a lot of the new Republican Congressmen were not thought to have a chance of winning, and therefore were not stifled in their political cradles by the party elites. A lot of these freshmen backbenchers reflect the Hard Right sentiments of their constituency.

If the public is alert and keeps up the pressure on the weak-kneed and unprincipled party elites, they might be drummed into and kept in line. Furthermore, the revolution is a polarized reaction to the advent of Clinton and the Clintonian movement. What the professionally “bipartisan” elite wants above all is almost identical major parties.

The elites dumped Bush for Clinton in ’92 because they thought that Clinton was a safe and centrist “New Democrat.” Instead, Bill, and especially Hillary, turned out to be Hard Left ideologues who pushed the entire political conflict in America many leagues leftward, too far for the centrist Social Democrats who want the political dialogue confined to such “moderate” Democrats as Al From and Al Gore in perpetual dialogue with “moderate” Republicans like George Bush and Bob Dole. Clinton’s sharp move leftward upset the applecart and created a gap within which an antigovernment populism could develop and flourish.

Clinton’s move leftward polarized American political opinion, and generated a massive reaction in the opposite direction. Genuine libertarians and conservatives must keep up and intensify the pressure from below on the Republican leadership, give heart to the backbenchers, and threaten to walk out and sit home should the leadership follow its instincts and betray Republican principles to the Democrats.

The peoples’ revolution is not a one-shot proposition; it is an ongoing process, of which the grand sweep of November 1994 was a notable instance. The new populist revolution is multi-pronged, and necessarily takes place both inside and outside the machinery of elections.

Note the war for whatever is left of the soul of Slick Willie since the election. The Republocrat elites are pleading with Clinton to move toward the center and fuse a coalition with “moderate” Republicans. The main hope for liberty and small government paradoxically, is for Clinton to follow Hillary and the ideologues and go Left instead, appealing to his core constituency, and polarizing and mobilizing a still more intense and massive populist reaction against his rule. If that happens, Clinton will be left with Jesse Jackson and ACT-UP, while anti-tax, anti-regulation, antigovernment populism rises up and topples his rule.

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First published in January 1985.

110

THE TROUBLE WITH THE QUICK FIX

If conservatives and free-market economists are supposed to have one dominant virtue, it is a thoughtful awareness of the indirect and not just the immediate consequences of a public policy. In the spirit of Henry Hazlitt’s “Broken Window Fallacy,” they are supposed to bring a “look before we leap” attitude into political life.

Instead, in recent years, friends and colleagues who should know better have been increasingly running after some Quick Fix or some flashy gimmick that will magically solve our problems and bring no ill consequences in its wake. Unfortunately, they seem to have forgotten the basic Misesian Law of Government: that government actions, even and perhaps especially Quick Fixes, are apt to get us into a worse mess than we are in already.

The basic flaw of the Quick Fix is to focus on one aspect of a problem, often the most politically catchy part, to the neglect of other important issues. Thus, the school voucher scheme focuses on the horrors of the public school to the neglect of such broader and more important questions as tax-supported education and government control of all schools, public and private; opposition to welfare concentrates on taxpayers paying people to be idle, to the neglect of the broader question of taxpayer subsidy period, whether recipients are idle or not.

And we have mainly free-market economists to thank for the disastrous “Tax Reform Act” of 1986, which, in a Jacobin pursuit of equality and “fairness,” closed the tax “loopholes” so successfully as to crush the housing market. In addition, and totally neglected, tax reform helped hasten the current Clinton health monstrosity by virtually eliminating deductions of uninsured medical payments from one’s income tax, thereby creating the Problem of the Medically Uninsured.

The current Quick Fix craze of free-market economists was the late, unlamented Balanced Budget Amendment (BBA). It seems that every couple of years there is a Silly Season in Congress when this amendment pops up. Not only that; each successive incarnation of the BBA is worse than its predecessor. Pursuing an hysterical desire to pass any amendment, the limit on increasing taxes is progressively weakened. In the latest Simon amendment, a mere majority of Congress could “solve the problem of deficits” by increasing taxes.

The unwisely narrow focus of the BBA is, of course, on “the deficit,” as if the deficit is the root of all fiscal evil and must be stamped out by Any Means Necessary. But the broader and more important problem of Big Government is not the deficit; it is not even, as Milton Friedman has long emphasized, total government spending; it is government action period, which fiscally means all three interlocking items: deficits, government spending, and taxation. Big Government is a swollen, ever-expanding and parasitic entity crushing the productive economy, the “private sector”; and the focus must be on rolling back, as much and as “drastically” as possible, all three of these facets of the government budget.

Looking at the BBA, then, the first obviously unfortunate consequence of focusing solely on the deficit is that it might well, and indeed would lead to drastic increases in taxation, and would do nothing about curbing government spending. The one fiscal thing worse than a deficit is higher taxes; imposing a BBA and raising taxes in order to combat deficits is akin to curing a patient of bronchitis by shooting him in the chest.

There are many other things terribly wrong with a BBA. It can be overridden at any time by only a three-fifths vote of Congress; it ignores the fact that an increasing number of spending items can be and are simply placed “off budget” and would therefore not be subject to any limits; and it ignores the off-budget federal government spending of mandates on states or private firms, which can be conveniently chalked up to their budgets but not to the federal government.

Moreover, the BBA is a total hoax; for it would not balance the budget at all. Ever since the mid-1970s, the federal budget process has focused not on the actual budget for any given year, but on estimated budgets over the next several years. The BBA would mandate a balance, not of the actual federal budget, but of Congressional estimates of next year’s budget. And as any fool knows, it is all too easy to estimate anything you want, and to manipulate assumptions to get the desired result. Traditionally, government has always underestimated the expense of its future actions, and overestimated its revenue.

Thus a BBA would not only increase the crippling tax burden on the American people; it would also perpetrate a cruel hoax on a public that want deficits ended and who would embrace an amendment that only gives the appearance, and not the reality, of ending the deficit. In short, a BBA would aid Big Government by relaxing public opposition to its expansion—which might, after all, be the point of the whole thing.

There is a final, and totally neglected point that was emphasized by the leading opponent of the BBA, the much-maligned Old Mr. Pork Barrel, Senator Robert Byrd (D-WV). Pork Barreler or not, Senator Byrd was eloquent in stressing a vital constitutional issue: that Congress must retain its one vital power, the power of the purse. A BBA would take that power away from Congress, which for all its sins is at least accountable to the voting public, and put it into the hands of federal judges, an unelected, unaccountable, and unremovable body of oligarchs who have long been engaging in runaway expansion of their own power.

As Senator Byrd put it in his opposition to the BBA, “The power of the purse belongs to the people. . . . It is vested in the branch that represents the people, elected by the people. Judges are not elected by the people.”

And speaking of Quick Fixes, there is a veritable nightmare coming down the pike. Libertarians have long pushed privatization of government activities, but, as all too often happens, even a good thing like privatization has suffered from becoming a fetish, a cherished object of an ideological movement, to the neglect of broader and more important considerations. Thus, we have seen in the former Soviet Union that a lot depends on the extent and the form of “privatization”; for example should we really cheer when the Communist managerial elite of the old steel, copper, etc. monopolies, suddenly become the “private” owners of these uneconomic complexes?

Coming closer to home, we now find that our beloved Internal Revenue Service, backed by the Clinton administration, would like to engage in some privatization. It turns out it would be more efficient for the Treasury Department to contract out, to privatize, its collection of back taxes by bringing in private collection agencies to do the job. Hey, do we really want to make income tax collection more efficient by privatizing some or all of the tax agencies?

Do we really want our lives and records combed through, our door broken down, by the peremptory orders of IBM or McDonald’s “tax police”? Anyone who knows history will know that the most hated institution in pre-modern Europe was that of the “tax farmers.” The king used to get a lot of money quickly and save himself the costs of a giant bureaucracy by selling the right, or privilege, to collect taxes to some private firm, or “tax farmer.” Can you imagine how intensely and bitterly the tax farmers, who lacked the cloak of sovereignty or legitimacy, were hated by the people?

There are those who believe that the worse the despotism the better, in order to provoke a revolutionary backlash among the public. Well, privatizing tax collection might just do it.

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First published in May 1994.