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August 01, 2010
Our Patrick Henry Moment Is Here
Obama's election was supposed to transform America, at least in his mind.
This country's first socialist president strode into office confident that he would remake this country. Fortunately for the country, the timing of his election was twenty, if not fifty, years too late. Socialism has failed in its pure form wherever it has been tried. Now it has failed in its modified form. While much of the world realizes this, President Obama is either ignorant or has more sinister plans for the country.
This country's first socialist president strode into office confident that he would remake this country. Fortunately for the country, the timing of his election was twenty, if not fifty, years too late. Socialism has failed in its pure form wherever it has been tried. Now it has failed in its modified form. While much of the world realizes this, President Obama is either ignorant or has more sinister plans for the country.
In
the 1920s, Ludwig von Mises demonstrated via economic reasoning why
socialism could not work. His argument was that without market prices,
there was no way to properly allocate resources. About ten years later,
Friedrich Hayek supported Mises' conclusion from a different angle. He
approached it as a "knowledge problem" and argued that no central
authority, regardless of how intelligent, could possess enough
information to make proper and efficient decisions for tens of millions
of people and businesses.
History validated the theory of
the two Austrian economists. Russia, China, Eastern Europe, Cuba, and
North Korea produced inevitable the misery, poverty, and brutality. The
two countries that continue the system are amongst the poorest countries
in the world, held together only by totalitarian rule and outside
economic support.
With the recognition that socialism did
not work, "do-gooders" changed their efforts to a system that would be
part capitalism and part socialism. They believed that capitalism could
be used for resource allocation while the "caring nature" of socialism
could ensure equitable distribution of wealth. President Clinton
expressed interest in what was then referred to as a "third-way."
Western Europe had adopted this approach decades earlier.
Interestingly, Mises argued
that a "third way" could not work, either. In the 1940s, Mises
demonstrated that one intervention begets additional interventions. A
so-called mixed system is nothing more than capitalism with
interventionism imposed. Mises showed that any such system eventually
degenerates into full-fledged socialism. In a collection of essays
entitled "Planning for Freedom," Mises concluded:
There is no other alternative to totalitarian slavery than liberty. There is no other planning for freedom and general welfare than to let the market system work. There is no other means to attain full employment, rising real wage rates and a high standard of living for the common man than private initiative and free enterprise.
The
countries of Western Europe have, as Mises predicted, deteriorated into
social welfare states likely never imagined or intended at their
inceptions. As full-blown socialism approached, these countries became insolvent.
Soon all will be forced to either dismantle their welfare states or
incur sovereign defaults. The U.S., while never formally adopting either
socialism or the mixed system, drifted into the mixed system by
gradually adopting many socialist programs. As a result, the U.S. faces
the same future of insolvency as its European counterparts.
In
terms of history, the mixed system dates back only to Bismarck in the
1880s. It was initiated in a few countries in the first quarter of the
twentieth century. Its widespread acceptance occurred after World War
II, when several countries chose not to return to the decentralized
economies that existed prior to the war. England was the prime example.
Industries nationalized for the war effort remained nationalized after
the war. England rapidly devolved into a third-rate economy as a result.
Prime Minister Thatcher reversed the decline by re-privatizing most of
these industries.
It took only about fifty to seventy
years for the mixed systems to fail. That is literally a moment in terms
of history. Many people are still reluctant to admit that socialism is a
failure despite the theoretical warnings and the actual failures
themselves. With socialists, it is never the system and always the
people that are the cause of failure. "If only we had better leaders." As Hayek and Mises pointed out, it has nothing to do with leadership. There is a fatal flaw in the concept.
As
a result of attempting to extend the socialist myth, governments and
their populations are now burdened with debt, much of which will never
be paid. We are on the verge of a worldwide depression that will hit as
governments run out of resources. It is likely that politicians will
continue to play the game of "extend and pretend." But we have reached
Ms. Thatcher's end-point: "The problem with socialism is that you run
out of other people's money."
How ironic that President Obama's first major achievement was ObamaCare. In May, Greece was ordered to privatize its health care system. This month, it was reported that England was going to overhaul their health care system.
England was frequently referenced as a model of affordable, efficient
health care by ObamaCare advocates. Apparently, the English government
and its people view it differently.
These instances are
not one-time events. Nor will they be limited to health care. The
welfare states of Europe will soon be dismantled in part or whole. So
too will the entitlement programs in the U.S. The laws of economics and
physics are immutable. They are above legislation. Countries do not have
the resources necessary to honor their commitments, period!
Our
Founding Fathers, without using the term socialism, designed a
Constitution to protect against such incoherent schemes. Over time, the
Constitution was vitiated by "living document" interpretations,
penumbras, and other nonsense. Now, the U.S. stands on the precipice of
failure just as Western Europe. It is insolvent, and there are no other
alternatives than to default or dismantle.
The world is
at a very dangerous inflection point. We are about to enter a
depression. Politicians are not going to back away from socialism
willingly. They and large numbers of other beneficiaries will do
whatever they can to retain the status quo. Despite the unequivocal
failure of the modern welfare state, it is unlikely to disappear
quietly. The status quo is always difficult to change. It becomes
especially so in desperate economic times and for people who believe
they are entitled to be taken care of by others.
The
welfare state is headed for the dustbin of history. That is certain
because it is no longer sustainable. The critical question is what will
replace it. As Mises pointed out, there are only two alternatives:
freedom or totalitarianism. There is no middle ground. There is no
political compromise that can bridge this gap.
Regardless
of which side of the issue you are on, the battle will be bitter and
likely last a decade or more. Economically, everyone will be hurt,
including many of the "well-off." Whether our moral and ethical code is
strong enough to get through this together is moot. We are not like our
ancestors in the sense of their strong commitment to community,
responsibility, forbearance, and integrity. We are the pampered
generation, entitled to gratification now and willing to cut corners to
get it.
In many ways, this problem is more serious than
that faced by our Founding Fathers. After all, King George had little
control over their lives or fortunes. Yet these principled men risked
both rather than accept even a little bit of tyranny. Theirs was a fight
of principle; ours is one of survival. The fight is made more important
when it is coupled with a depression. We know what monsters rose to
power during the last depression and their effect on the world.
We
will either get liberty or totalitarianism. There is no middle ground.
For me, the choice is clear and was stated by Patrick Henry more than
two centuries ago: "Give me liberty or give me death."
I
am willing to sacrifice just as much as our Founding Fathers did so
that my grandchildren and their grandchildren can live in the same
country I grew up in. I hope enough others feel the same.
Monty Pelerin blogs at www.economicnoise.com.