The Recovery and Statism

0:00I've been asked to talk on the recovery and statism. This is a difficult topic because there is no recovery, so one wonders how one's supposed to talk about it. It reminds me of the story of someone who wrote a book on snakes in Ireland, and the book just had one sentence, When sentenced, there are no snakes in Ireland. I think, as I say, there's no recovery, if I'm not mistaken, the unemployment rate is been about 9.5 or over for the past 26 months, and it's extremely unlikely that the policies of the Obama Administration are going to lead to recovery. What I want to do is first use an argument that, advanced by Ludwig von Mises, to show that interventionism leads to socialism, either the kind of socialism in which the government owns all the means of production society or another type of socialism, fascism, which I think is the one most likely on the way for us, in which the government doesn't officially own everything but it tells people

1:36what to do. So even if there are prices and wages, these are really not real prices but they're just People have, the government has instructions, tells people what to do. Now the argument Mises gave was this, he said let's take an example, any example we want of government intervention supposing say the government imposes price controls on milk. It said it's very unfortunate poor people find it difficult to purchase milk so they'll How to Impose Price Controls Now as a result of this, suppliers of milk will withdraw milk from the market, they won't be able to make a profit, or at least some of them won't, the marginal ones won't at the lower prices that the government has imposed.

2:34So what would the government do then? Well Mises says they could have a choice, they can either go back to the free market and the price control, or they can go on with further interventions. They can say, well, we'll help out the suppliers who don't find it profitable to bring milk onto the market by having price controls on their costs. They'll have retailers milk, will purchase a milk from The problem then recurs because then the suppliers will, the milk will withdraw their price, their supplies, and we won't have, we will again have, we won't have, we won't have, we won't have, we won't have, we won't have, we won't have, we won't have,

3:39Mises says the planners will always have his choice, either go on with more controls over the economy or go back to the free market. When he developed this argument, first he had in mind the experience of Germany during World War I, in which price controls were very rapidly imposed on the economy, especially under Walter Rottenau, who has been the director of the German electrical company, was one of the people put in charge of the German economy. He devised plans for total control of the economy.

4:26So Mises thought that by having government intervention, it will lead to total government control very fast. Now I think we can see if we apply Mises' insight to the policies of the Obama administration, we can see that we're very likely to have the same process. not particularly necessarily with price controls but with other kinds of intervention. What is Obama proposing for the recovery, to help us with the recovery? One of the most important things he has in mind is continued high The question then arises, how are deficits to be financed?

5:33One way they can be financed is if people buy bonds from the government, but if that What happens, there will be a crowding out of investment. People will be using their money to buy the government bonds and they won't be able to have the money available for investment. So this isn't going to promote recovery. Another way, probably more likely in which deficit will be financed, is through inflation. And inflation will then cause all sorts of problems. I think in this connection, Murray Rothbard in a very important essay called Money, the State and Modern Mercantilism has, let me give you a quotation from it, he says, inflation is the health of the state. Here he's modifying a famous statement by Randolph Moore in which he also accepted, war is the health of the state.

6:35Murray Rothbard said, inflation is the health of the state. So, inflation will lead to the government will just be having total control of the money supply, will be just taking over the economy through inflation. Administration. This will lead to dislocations of resources, misallocations, and the government will be making things worse. So we're clearly not going to get a recovery through deficit financing, deficit increased deficits. Now another program the Obama administration has in mind is increased taxation.

7:23He's proposed that the tax cuts on the rich or the people of the Obama administration considers rich, which is probably anyone who's making more than people in the Obama administration. Those tax cuts are scheduled to expire and there will be further taxes imposed. So we'll have extra taxes to pay for Obamacare, I think there's an extra Medicare payroll tax, so we're going to have increased taxes. Clearly this isn't going to be a way of increasing prosperity.

8:09So Mises' argument then will confront Obama, what is he going to do when these measures when he has all these various programs and they don't work, the economy will not be recovering through his programs. What is he going to do then? Well, he will then have the choice of abandoning the programs or going on with more programs. It seems very likely that he and his administration will not abandon the programs, but they'll say we have to have, if the economy isn't recovering, then we need an even bigger stimulus.

8:58We need to spend even more money just as they did before when we had the stimulus that was Supposed to End the Recession, so they'll be spending even more money, and this, remember when they had the stimulus before, this led to the government taking shares in various banks and assuming control of big companies like General Motors, so you would have a big move toward more government control and intervention, so it's very much a kind of socialism will will be imposed on us if, as is very likely, these measures, such as deficit financing, Obamacare, have bad effects, then the government will simply say, well, we have to have a recovery.

9:54We have to have a recovery through a bigger stimulus. And exactly in the way Mises suggested, the interventionism will lead to more interventionism. will have very soon full-scale government domination of the economy. Now one objection you might raise is why don't the people in the Obama administration realize that these programs are failing? Why don't they just say, look, these things don't work, even if it goes against our preconceptions, The Theory confronts the world as a whole, confronts experiences as a whole. Very rarely, If ever, we'll find a case where you can isolate a single phenomenon and say, my theory is predicted such and such, this didn't happen, therefore my theory is false.

11:14You can always come up with supplementary assumptions and say, well, my theory would have worked, but it was just something else that went wrong. So it isn't that there's some problem with my theory, it was just something intervened. Bob Murphy gave a very good example in his talk yesterday where he said that the people favored the stimulus said that the banks were involved in some sort of credit crunch. Turned out the statistics didn't support that. So then they say, well, if we didn't have the stimulus, things would have just been even worse than they were before. So even though the credit in fact increased, contrary to the prediction of the theory, things would have just been worse counterfactually.

12:08You can always come up with a good counterfactual or some way of preventing your theory from being refuted. My favorite story along these lines is there was a man who was visiting a psychiatrist And he said to the doctor, doctor, I'm dead. And the psychiatrist said it was a puzzle for a while. And then finally he said to him, well, dead men don't bleed, do they? And the man said, no, of course not. So the psychiatrist took out a pin and pricked the patient in his finger. And a drop of blood came out. And the patient looked at it. And he said, well, dead men do bleed.

12:57So you see, you can always, people who are committed enough to a certain theory can always come up with some way of preventing the theory from, refusing to recognize that the theory has been refuted. They can just say some kind of supplementary hypothesis has gone wrong, but the theory is actually correct. Now, I want to now turn to another author who has an insight, another one of the great libertarian authors who has an insight that I think can help us understand the problems of the Obama administration.

13:46Education, and here I have in mind John T. Flynn in his book The Road Ahead. Now Flynn points out when there is a situation in which there is extensive government spending, very often there will be a problem for the government in that there is a great deal of There's a lot of controversy on what programs people should spend the money, the government should spend the money on, if there's proposals say for public works, for building projects in various parts of the country, there'll be all sorts of groups who want the projects built in their area, some people will oppose them, so the government will have a lot of difficulty in generating support for its public works.

14:38programs. And one way around this, Flynn suggested, is if the government can start a war scare, or even better, an actual war, then it can unify the country around the supposed danger from the enemy, and then it will have no difficulty, or much less difficulty, in getting the government spending going. And I think we can use this insight to explain another aspect of the Obama administration that at first sight seems puzzling. During his campaign for the presidency, Obama seemed very critical of the Bush administration's policies in Iraq.

15:28In the Iraq war, he seemed to be suggesting that, he didn't say he wanted to end the war immediately, but he seemed to be suggesting that going into Iraq had been a mistake. And many people were hopeful, who were critical of Bush's foreign policy, were hopeful that if Obama were elected, even though he was unlikely to be very good domestically, domestically, at least he would be better in foreign policy, would be less interventionist. Now it hasn't proved to be the case that things didn't happen this way. He's intensified the war in Afghanistan. And I'd like to suggest one explanation of this, I don't think it's the only factor involved, but one explanation for this is that wars are a means for which So the government can spend a great deal of money and just what he has in mind in his supposed recovery program is for the government to spend a lot of money.

16:32So this is a way in which the government can gain more control over the economy, a way in which the recovery program will lead to more statism. because it would be a situation where the government is using a great deal of money to promote war. Now, of course, this war is very characteristic of fascist economies. And I think, as I said before, I think this is the way, unfortunately, we're heading. Now, I should say one very well-known philosopher, I won't mention who he is, wrote me, sent me a number of emails saying, isn't the Mises Institute ridiculous because we're having, we have various articles suggesting they're fascist elements in the Obama program.

17:31He said, the fascists are people who wear funny uniforms and go around putting people in concentration camps. Clearly, it's ridiculous to call the Obama administration fascist. I want to now turn to another one of the great classical liberal libertarian thinkers who I think has an insight that can help us here and we'll be able to see how this economic control of the kind practiced by the Obama administration does lead to totalitarian tendencies.

18:20And here I have in mind the famous argument given by Friedrich Hayek in his 1944 book, The Road to Serfdom. Now, Hayek pointed out that if you have a government plan in effect, The plan, very often or almost always, will be something that requires years to complete. You had, say, in the Soviet economy, you had a five-year plan or you had a four-year plan under the Hermann Göring and the Nazis. You don't have the two-weeks plan or the one-week plan. These are all very long-term plans. And the people who put them into effect won't want their plans to be overturned, say if they lose an election, they won't want their plans to be overturned.

19:16So Hayek suggested that there was an incentive for the planners, people who favor control, to interfere with opposition to their plans. They would prevent people from opposing them because the plan necessitated this. Now if we apply this insight to the current situation, I want to call attention to a proposal by Cass Sunstein that very much fits in with the analysis that Hayek gives in The Road to Sunstein is a very eminent legal academic. He's a professor at Harvard Law School who's now on leave with the Obama administration.

20:14He's head of something called the Office of Information, sounds rather Orwellian. Sunstein and Obama are very good friends. They knew each other because Sunstein used to teach at University of Chicago Law School and Obama also taught there for a while so they became very good friends. Now Sunstein has wrote in a paper with another legal academic, another professor at Harvard, Adrian Vermeule, and also he's extended a similar proposal in a short book called Rumor.

20:59He's had a very dangerous proposal. What he says is that conspiratorial thinking is very dangerous. Sometimes people have the idea that the government is conspiring against us. This is a very harmful idea because people have these very bad ideas. This will interfere with the democratic process. We don't want people getting the wrong ideas. So what he suggested is that the government should infiltrate various groups on the internet, Supposing, say, they find groups on the internet who are espousing conspiracy theories of a kind they don't like, what they should do is get people to go on these blogs and try to shift the discussion in a different direction, try to show what's wrong with these conspiracy theories and in this way interfere with free speech by, say, well, people really, you know, they shouldn't have these dangerous ideas like the kind I'm giving in these lectures.

22:18We should, government, people should go on and they won't, of course, admit on the blog they're government agents, but they should do this. Another proposal he has is that the government should hire supposed independent experts and get them to give statements supporting government policy, again, without disclosing that the government is supporting them. So the government would act as the kind of a propaganda ministry to aid its proposals.

23:03Now in this book, very short book, Rumor, he said it's very dangerous that people can just start false rumors about things and this can interfere with people's, hurt people's reputation, so we need to have some kind of laws to prevent this. He doesn't specify exactly what he has in mind, but one gets a strong impression that the First Amendment doesn't rank very high on his list of priorities. Now I should say he is not just some unusual He's a very influential academic with strange theories. He's a very influential member of the administration.

23:52So I think here we see just what Hayek has suggested, that there's a tendency for the people, if you have a government taking control of economy, There's a tendency for suppression of dissent and I think we can see this in another thing also that the policies of the Obama administration, as you know, have aroused a great deal of opposition and there's been a tendency, a very strong tendency, by supporters of the administration to say that people who oppose them are extremists, They're kooks of various kinds. They're dangerous people. They don't recognize really the right of dissent.

24:50They suggest that if you really oppose the very socialistic measures of the Obama administration, even to characterize them in this way shows that there's something wrong with you. There's something, you're an extremist, so I think by the government doing this, by the Obama administration doing this, this is itself a way of suppressing speech. They're trying to characterize people who oppose them as extremists. So I think if you combine what I've suggested where you have interventionism leading to a type of government control of economy, You have war as a means of the government getting support for its spending policies and efforts to suppress dissent.

25:48Those who see us heading in a fascist or socialist direction have a very good case, unfortunately. And I think if we're to stop this, it's essential that we support programs that are designed to educate people, such as those advanced by the Mises Institute. So I think we need to get out the message and inform people about how dangerous the proposals of the Obama administration really are. Thanks very much. Thank you very much.