Hostile Takeover: Resisting Centralized Government's Stranglehold on America (4 page)

Merely to stabilize the debt as a share of the economy, we would have to reduce annual deficits to no more than 3 percent of national output. Recall that deficits are currently in the 8 percent range. What happens if we don’t stop the debt? Downgrades will force us to pay higher interest rates when we borrow, which will make our fiscal challenge even worse. Federal interest payments today equal about 1.2 percent of national output, but on our current course they will quadruple to about 4 percent by 2020.
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Many economists define the “point of no return”—the point at which some form of debt default becomes unavoidable—as having been reached when interest payments exceed 10 percent of revenue. Because of our unique position in the global economy, Moody’s grants the U.S. leeway on this metric, generously defining our “point of no return” as occurring when our interest payments exceed 14 percent of our revenue.
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Either way, we’re in trouble. Interest payments currently equal 10.5 percent of revenue, and are expected to exceed 14 percent in the next two or three years.
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The root problem underlying every fact and figure I’ve recited is centralization of power and information in big institutions that lack accountability. The biggest culprit is the tendency of the federal government to centralize authority from the top down. Governments naturally collect responsibilities, grow budgets, and expand their reach. The Founders were keenly aware of this trend, having lived under the arbitrary tyranny of a parliament and of a king who decided from across an ocean—effectively a different world, then—for the people he supposedly governed.

Today, the Constitution seems to have diminished in its relevance to the actions of the legislative and executive branches of government. There are no practical limits on government action. For every problem—real or imagined—there is someone inside or outside demanding a government solution.

FAILED MANAGEMENT

D
ESPITE THE OMINOUS STATISTICS,
S
ENATE
M
AJORITY
L
EADER
H
ARRY
Reid, Democrat of Nevada, has refused to pass a budget resolution—the blueprint that sets the agenda for annual appropriations and program authorizations for the fiscal year—for three years running. The Budget Act requires that Congress pass a budget resolution by April 15 of each year,
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the same day Americans are required to pay their taxes: “On or before April 15 of each year, the Congress
shall
complete action on a concurrent resolution on the budget for the fiscal year beginning on October 1 of such year.”
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This is an abdication of Congress’s first responsibility. Why doesn’t Senator Reid obey the law? Someone should be fired, you say. If the U.S. government were a private company, surely the CEO would fire the entire finance department for failing to come up with an annual budget plan. Of course, the federal government’s chief executive, Barack Obama, is in no position to enforce regular order when it comes to congressional budgeting and deficit spending. The Obama administration’s last budget blueprint actually proposed an additional $2.3 trillion in new spending on top of current red ink.
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There is no hope of adult supervision coming from the current resident at 1600 Pennsylvania Avenue when it comes to questions of fiscal discipline.

Adding insult to injury, the forced removal of We the People from the Russell Building that Thursday in November coincided with the inglorious collapse of the extraconstitutional “supercommittee,” a secretive, extremely powerful conclave of six Democrats and six Republicans that was created to come up with modest spending reductions. This was the legislative solution to public opposition to increasing the government’s authority to borrow still more, to “raise the debt ceiling,” in lieu of actually reducing the amount of deficit spending actually spent. This was the
second
debt-cutting commission created during the Obama administration in the hope of solving a problem that Congress and the White House have been unwilling to solve for years. Given the size of the problem, their agreed goal of $1.2 trillion in savings—or, to put it in terms of our “Uncle Sam’s personal budget,” their goal of a mere $120 a year, for ten years—was just a small haircut in projected new spending.

In the commonsense methodology you and I use to think about our family budgets, this sort of trim isn’t a “cut” at all, but rather a decrease from a hoped-for rate of increase well beyond our means. This practice of calling anything below a rising baseline a “cut,” known as “current services” or “baseline” budgeting, is a fiction that makes it very difficult for taxpayers to even understand the budgeting that comes out of Washington. To put it less delicately, it’s a lie.

Lie or not, the supercommittee failed anyway. It could not even agree to noncut cuts. It could not even agree to reduce the rate of increase in expenditures of taxpayer monies that we do not have. Their inability to come up with even a nominal $1.2 trillion “cut” from an artificially bloated ten-year baseline was a new low, and the likelihood of any movement toward a balanced budget was put off yet again. That Monday, November 21, 2011, just four days after 250 American taxpayers were kicked out of the Russell Senate Office Building for committing serial acts of good citizenship and fiscal responsibility, the supercommittee members released this helpful statement:

After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline. Despite our inability to bridge the committee’s significant differences, we end this process united in our belief that the nation’s fiscal crisis must be addressed and that we cannot leave it for the next generation to solve. . . .

Most importantly, we want to thank the American people for sharing thoughts and ideas and for providing support and good will as we worked to accomplish this difficult task.
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Say what?

TAKE IT OVER

W
ELCOME TO BUSINESS AS USUAL IN OUR NATION’S CAPITAL: BEREFT
of new ideas, poorly managed, failing to perform its most basic functions, and utterly contemptuous of anyone from outside the Beltway establishment who is armed with facts, better ideas, and a belief that America can and must do better. Every time Washington fails, wagons are circled and almost everyone colludes around the pretense that nothing’s really wrong:
Everything is fine if we just let the process work its will—and by all means, we welcome your input.

So it was on November 17, 2011, when the twelve commissioners of the Tea Party Debt Commission were literally thrown out of Congress for having the audacity to bring specific ideas to balance the budget to a “boardroom” in desperate need of new ideas. This is the classic behavior of entrenched management circling the wagons against any entreaty that might undermine the status quo.

The Hostile Takeover of the U.S. Senate by the American people was now in full tilt.

CHAPTER 2
W
HAT
C
ZARS
D
ON’T
K
NOW

I don’t sit around just talking to experts because this is a college seminar. We talk to these folks because they potentially have the best answer so I know whose ass to kick.

—Barack Obama

H
OW IS IT POSSIBLE THAT MILLIONS AND MILLIONS OF PEOPLE LOCATED
in disparate places—each individual in possession of a unique perspective, particular goals, wants, and needs, and a personal knowledge of their community and circumstances—can come together in voluntary cooperation to create something far greater and more valued than any one individual could have achieved alone?

It’s a great question. It is a particularly humbling question for a so-called public policy expert to ask, because just by asking it I have to admit that I don’t know a lot of what is happening in the world at any moment in time. The question itself
acknowledges
that at any moment in time there are many things in an infinite sea of facts, data points, and bits of knowledge that you and I can’t possibly know.

This humility—knowing that there is much you don’t know—is one of the foundational principles of a political philosophy based on individual freedom. It’s the bottom-up approach. But for a simple, timeless set of rules that protect life, liberty, and property, we should all be left alone to pursue our own interests as we define them, because we know best what is good for ourselves and our families. That’s very personal knowledge, not known by anyone else. Only freedom lets us use, in voluntary cooperation with others, what we alone know. Freedom works to best meet everyone’s goals in a world of uncertainty, trade-offs, and scarcity. Adam Smith wrote of this dynamic in 1776 in
The Wealth of Nations
, describing how it is that freely acting people can lead to an unintended coordination of individual interests:

Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society. . . . [H]e intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention.
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The freedom-based, bottom-up approach does not depend on centralized direction, or the good intentions of a central director.

The opposite political philosophy, the top-down approach, requires that someone be “in charge.” Without adult supervision, things may not progress, and may even collapse into chaos. Someone needs to direct things.
Someone needs to dictate.
The top-down approach implicitly assumes, but seldom says explicitly, that certain people—those smarter than you and me—know certainly, and can act to improve things based on a better set of data, a more comprehensive set of facts, and a superior wisdom to do better than free individuals could do for themselves. Those special people just need the authoritative power of government behind them to succeed.

There is a certain arrogance to this top-down approach that presumes to know better. This presumption is what Nobel laureate economist Friedrich Hayek called “the pretense of knowledge.”

Economist Ludwig von Mises and his protégé Hayek developed their critique of top-down government planning based on their understanding of market interaction as a process between people choosing in real time. They understood the world to be driven by purposeful humans—folks who in the very act of living and working set out to accomplish things with every waking moment. But all this purpose yields results that are never predetermined, not by a design. This is not a world of perfect knowledge but of knowledge gained as life actually happens in the real world. Everyday life is a world of uncertainty, where the outcome of future decisions cannot be known for sure; instead they are guided by past experiences, traditions, informed risk-taking, and the knowledge that emerges from this push and pull, conveyed by institutions such as money and prices.

How is the coordination of individual plans even possible in such a complex world? The feedback mechanism is success or failure and profit or loss based on the choices made. This process, this feedback loop of new information, corrects itself untold times a day. This is how real people in their everyday acts of living, planning, failing, regrouping, pursuing, and dreaming solve the ubiquitous “knowledge problem.” We don’t know what we don’t know, but the process of figuring things out—the market process—coordinates our efforts with those of others. “The evolution of markets has delivered us into a world too complex for any individual intelligence to comprehend in detail,” wrote Don Lavoie in his important critique of top-down economics,
Rivalry and Central Planning.
Understanding this necessitates “our reliance on the greater social intelligence embodied in market processes.”
2

Can you know what the best outcome is without undergoing the process that reveals individual preferences, corrects mistakes, rewards risk, and punishes bad behavior? This is perhaps the most important question economists and policymakers can ask, and too many experts in Washington, D.C., fail to ask it before they act.

Whenever faced with a public policy proposal, a potential “fix” to a very real problem facing our society that involves more government—more spending with money we don’t have or more government control over the decisions you and I make—I always ask myself two simple questions. First, do those elected officials and government employees involved in developing and implementing proposed new laws face the proper incentives to get the job done? In other words, do they have your best interests at heart, or their own? Second, even if they do have your best interests in mind, do they have the knowledge to outsmart the market? Do they know better what to do? Virtually every policy architect who has ever proposed a grandiose macroeconomic scheme involving a new and better government redesign of some or all of the private economy has simply ignored the question. From Karl Marx to John Maynard Keynes to Paul Krugman to Ben Bernanke, it’s the same. They feel no need to answer the question, because they assume they know.

Any bureaucrat or committee chairman who wants to adjust economic outcomes to correct real or perceived market failures has to first come to terms with the very real possibility that a disruption of the market’s corrective processes—millions and millions of individuals learning and acting on new information—might lead to an unintended, more catastrophic government failure.

THE KNOWLEDGE PROBLEM

W
HAT DO WOULD-BE PLANNERS KNOW?
H
OW DO THEY KNOW IT?
These questions defined the work of Mises, whose research into the nature of economic coordination was no doubt spurred by the rising popularity of central planning in Europe after World War I. Until 1934, he had been a well-respected scholar in Vienna, Austria. The so-called Austrian School of economics is named after the geographical origins of its best thinkers: Carl Menger, Eugen von Böhm-Bawerk, Ludwig von Mises, and Friedrich Hayek.

Mises moved to Switzerland with the rise of the National Socialist Party in Germany. After the Anschluss, the occupation of Austria by Adolf Hitler, Mises joined many other Jews and fled Europe for the United States. There he took up a position at New York University. Perhaps because of his own personal knowledge and experiences with practical outcomes of the theoretical constructs of socialism, Mises’s initial work was on the nature of money, and its necessary role in facilitating economic calculation in a market economy. This led directly to a fundamental critique of socialism, one that is now acknowledged even by his fiercest critics to have been irreparably devastating to Karl Marx’s original vision. Mises predicted that even the best-intended policies under government ownership of the means of production would lead to economic calamity because there would be no rational basis for sorting things out, for the allocating of scarce resources. He recognized that the relevant information was not already “given” to government planners and that no one mind or group of minds could possibly possess all the knowledge necessary to plan a complex economic system. Instead, monetary calculation and prices are the indispensable “guide amid the bewildering throng of economic possibilities.”
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Mises understood socialism in terms of its original Marxian aspiration: complete elimination of the monetary economy. Marx wished to replace
production for exchange
, which was directed by the blind forces of the market, with consciously directed
production for direct use
. It simply does not work. Mises argued,

No single man can ever master all the possibilities of production, innumerable as they are, as to be in a position to make straightaway evident judgments of value without the aid of some system of computation. The distribution among a number of individuals of administrative control over economic goods in a community of men who take part in the labor of producing them, and who are economically interested in them, entails a kind of intellectual division of labor, which would not be possible without some system of calculating production and without economy.
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Central planners cannot know which production projects are economically possible and which are not precisely because such knowledge is not merely data to be gathered and crunched.

Mises’s critics at the time failed to appreciate the fundamental nature of the Austrian’s critique, not just of Marx’s wholesale vision, but for piecemeal government planning. Most economists incline toward more government planning, intervention, and fine-tuning, because they view prices and knowledge as objective data points that exist independent of the process of the market, understanding the whole problem of economic organization as merely a technical one. With the right inputs and outputs, they believe, an economy can still be rationally directed toward a preferred state of equilibrium.

POLITICAL PRETENSE

S
OUNDS FAMILIAR, DOESN’T IT?
Y
OU LIKELY HEAR THIS PRETENSE OF
knowing better whenever a politician opens his or her mouth and starts fixing problems. No politician in my lifetime better personifies the hubris of knowing better than Barack Obama. His administration, in all its various attempts to “fix” the economy, has sought to replace the corrective forces of the market process with a better plan, or a new direction that better masters “all the possibilities of production, innumerable as they are.”
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Consider Obama’s confidence in his administration’s “green jobs” agenda, circa May 2010:

The true engine of economic growth will always be companies like Solyndra, will always be America’s businesses. But that doesn’t mean the government can just sit on the sidelines. Government still has the responsibility to help create the conditions in which students can gain an education so they can work at Solyndra, and entrepreneurs can get financing so they can start a company, and new industries can take hold. . . . Around the world, from China to Germany, our competitors are waging a historic effort to lead in developing new energy technologies. There are factories like this being built in China, factories like this being built in Germany. Nobody is playing for second place. These countries recognize that the nation that leads the clean energy economy is likely to lead the global economy. And if we fail to recognize that same imperative, we risk falling behind. Fifteen years ago, the United States produced 40 percent of the world’s solar panels—40 percent. That was just 15 years ago. By 2008, our share had fallen to just over 5 percent. I don’t know about you, but I’m not prepared to cede American leadership in this industry, because I’m not prepared to cede America’s leadership in the global economy. So that’s why we’ve placed a big emphasis on clean energy. It’s the right thing to do for our environment, it’s the right thing to do for our national security, but it’s also the right thing to do for our economy. And we can see the positive impacts right here at Solyndra. Less than a year ago, we were standing on what was an empty lot. But through the Recovery Act, this company received a loan to expand its operations. This new factory is the result of those loans.
6

This particular solar panel manufacturer filed for bankruptcy just a few months after Obama spoke at the newly constructed, government-financed facility. The dubious entanglements between the Obama administration, Obama’s political patrons, and the financial investors in the project rightly generated a public outcry over who exactly helped procure a $535 million government outlay of taxpayer dollars in the new president’s very first legislative initiative, the 2009 stimulus package. The scandalous facts in this instance make Solyndra an easy target for critics of the Obama administration. But the more fundamental point is the underlying audacity of a president who is so confident that he knows better—certain of “the right thing to do”—than the entirety of all the actors playing in global markets. He’s second-guessing billions of people, innumerable competing firms, every type of energy production that is a viable substitute for solar power, and other command and control governments. That’s an awful lot for a politician and a few bureaucrats to know about. This is more than pretense. The arrogance of big government is, as Hayek put it, a “fatal conceit.”

According to Jonathan Rothwell, a senior research analyst at the Brookings Institution, at the time that the administration was making its initial investments in green energy, “
there just wasn’t much known
about the size of the green economy. It was hard to come up with precise numbers.”
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