Libertarian ping! Click here to get added or here to be removed or just reply to this post!
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)
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.
Excellent article. If we create socialized medicine it will make the problems with Social Security and Medicare pale by comparison.
No doubt it’s a market phenomena but “bailing” out any corporation typically involves distorting the market with taxpayer monies. We really don’t need to save many of these failing corporations. Fannie/Freddie may be too large to allow to fail but the principle is still the same.
Maybe, but it's guaranteed that we will get lots and lots of "comprehensive bipartisan reform." And you know exactly what that means. McCain's handlers threw conservatives a few scraps just so they would be too busy to notice that the real meat is being parceled out to liberals.
It's not the company the Fed is worried about, it's all the other companies that are still in business. The fed is trying to keep their assets from approaching a value of zero. Take a look at this FR thread as explaination.
Sorry, I blame Congress. They have the POWER to STOP spending. Seveal statespeople is all it takes. What we have in there now are LOSERS.
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.”
I prefer the “Liberal Locust Syndrome”
I understand that but they are really just representing the constituencies who demand that government do for them. I’d vote Coburn as my senator if I could. I’d vote for anyone else who said “no” to spending on stuff that isn’t in the Constitutional mandate of the government.
Too many people vote for the people who bring home the bacon or provide subsidies using tax payer or debt payments/IOUs.
When enough people decide that they will vote for the limited government, fiscally smart types then things will change.
I'm afraid it's not money that you should be saving. I'm hedging my own bets, that's for sure!
I am just piling up cash. Yes, there is an inflation issue but those with cash can make some moves to secure other assets and do well.
Oh no. It is clear enough. It is just wrong.
When a bunch of guys and galz make collectively $100B's in bonuses over two decades pushing toxic paper into various portfolios and it turns out that the underlying debt cannot be repaid, I don't need to follow the pea under the derivatives shell to figure out who the crooks are. It is the oldest question in under the sun.
Cui bono?
Those are the fat cats that need to be strung up.
My only question is, why are you trying to defend them and what is the basis for the defense? I will take the former as self-evident, but you can defend yourself if you want. As to the latter, that they didn't know what they were doing when the stuck the public with the fallout is laughable. Michael Milken -remember him because he started it all - wrote papers at Wharton describing exactly how to do it, and that is what he did. He went to jail for other things, but not the chief fraud he perpetrated - making the FED bail the banks out for excessive debt expansion. So don't try this innocent they didn't know what they were doing nonsense.
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