The New Empire of Debt: The Rise and Fall of an Epic Financial Bubble (24 page)

“The apostle of this sly philosophy was Dr. Alvin Hansen of Harvard,” writes John T. Flynn, “When this small book, written by Dr. Hansen’s disciples, appeared, the doctor was promptly brought to Washington and installed in the Federal Reserve Board as the economic philosopher of this new dispensation . . . . Now Roosevelt had a luminous guide through the chaos,” observed Flynn, “The American economic system planned and directed from Washington and an endless flow of funds to spend, supplied by endless borrowing.”
¹⁷

The Social Security system was considered to be a great improvement of the Roosevelt era. It was supposed to provide a cushion of cash for retired people—so they wouldn’t have to eat dog food in their old age. But never was a shiny bell cast by world improvers without a big crack in it somewhere. Economist Martin Feldstein pointed out that if you could count on receiving payments from Social Security, you had less need to save. Fewer savings meant less money for the economy to invest in new industries. Less money invested meant lower productivity and wages. If the government had funded its Social Security system honestly, the missing private savings would have been replaced by public savings in the “Social Security Trust Fund.” Instead, the system was unfunded. There were never any savings in the fund—just liabilities from other parts of the federal government. Social Security reduced the availability of capital and indirectly reduced capital investment. Like other taxes, Social Security made people poorer—by reducing the rate of economic growth.

There was also unemployment compensation to blame. When people could expect money even if they didn’t work, many would choose to be unemployed, creating an obvious drag on the productive economy. All the hundreds of thousands of pettifogging rules, laws, and regulations acted on the economy like Velcro on a fuzz ball.

By the early twenty-first century the total cost of federal regulation of the economy was all but impossible to calculate. In an annual report called “Ten Thousand Commandments” published by both the Cato Institute and the Competitive Enterprise Institute, the author, Clyde Wayne Crews Jr., makes some astounding guesses: “The exact cost of federal regulations can never be known. Federal environmental, safety, health and economic regulations cost hundreds of billions of dollars every year—on top of official federal outlays.” The report continued:

• The 2004
Federal Register
contained 75,676 pages, a 6.2 percent increase from 2003’s 71,269 pages.This was an all-time record.

• In 2004, 4,101 final rules were issued by agencies. This was a slight 1 percent decline from 2003.

• Whereas regulatory agencies issued 4,101 final rules, Congress passed and the President signed into law a comparatively low 299 bills in 2004.

• In the 2004
Unified Agenda,
agencies reported on 4,083 regulations that were at various stages of implementation throughout the 50-plus federal departments, agencies, and commissions, a 4 percent drop from the previous year’s 4,266.

• Of the 4,266 regulations in the regulatory pipeline, 135 were “economically significant” rules that would have at least $100 million in economic impact. Those rules would impose at least $13.5 billion yearly in future off-budget costs.

Bossing people around like this costs a lot of money. How much?

• Based on a broadly constructed compilation of annual regulatory costs by economists Thomas Hopkins and Mark Crain, regulatory costs hit an estimated $877 billion in 2004, an amount equivalent to 38 percent of all FY 2004 outlays.

• Regulatory costs were more than twice the $412 billion budget deficit.

• Regulatory costs of $877 billion were equivalent to 7.6 percent of U.S. gross domestic product, estimated at $10,980 billion for 2003.

• Federal regulatory costs of $877 billion combined with outlays of $2,292 billion brought the federal government’s share of the economy to some 27 percent.

• Regulatory costs also exceed all corporate pretax profits.

• Regulatory costs exceeded 2004 individual income taxes of $765 billion and were far greater than corporate income taxes of $169 billion.

Between them, the Revolution of 1913 and the New Deal prepared the nation for her new role as an empire of debt.

7

MacNamara’s War

A
joke made its way around the Internet following the train bombings in Madrid in March 2004: “In response to the terrorism events in Madrid, the French government announced a change in its alert status . . . from ‘run’ to ‘hide.’ If the threat worsens, the French may be forced to increase their level of security, declaring a move to ‘surrender’ or ‘collaboration’ status as events develop.”

One of the many conceits Americans permitted themselves in their imperial position was that they bravely faced up to the world’s terrorist menace, whereas others—most notably, the French—cowered in fear. But they mistook vanity for courage.

At about the same time, the editor of the
International Herald Tribune
received a letter in which the writer referred to a big problem in the presidential campaign of Democratic hopeful John Kerry. The poor man was worried about looking “too French,” which would be a sign of “weakness” in the eyes of the lumpen voters.

We stopped still in our tracks. We held our breath. Anyone who had ever been in the same room with a history book couldn’t help but know that French history is drenched in blood. When it came to butchering each other, what the French didn’t know about it probably wasn’t worth knowing. There were the wars with the Romans and with the English, and religious wars, wars between princes and between kingdoms, wars for no apparent reason whatsoever. Weakness? Cowardice? A group of Norman French fighters no bigger than a small-town police force invaded and captured all of England. Bonaparte took on all of Europe and almost beat them.

General Marbot records an incident in Napoleon’s campaign against Russia in which a group of French soldiers was cut off from the main force, but was visible from the Emperor’s command post. Realizing that they could not expect reinforcements, the brigade sent a message to Bonaparte: “We, who are about to die, salute you.” They fought to the last man.

Then, there was the Battle of Camerone. Napoleon’s nephew sent troops to Mexico in the 1860s. In the action surrounding the siege of Puebla, a group of 60 French foreign legionnaires was cut off and confronted by an army of 2,000 Mexicans. The Mexican commander asked for surrender. Instead, the French vowed to fight to the death. Trapped in an inn, the soldiers had nothing to eat or drink. Then, the Mexicans set the place on fire.

“In spite of the heat and smoke,” explains a report on the Internet,“the legionnaires resisted, but many of them were killed or injured. By five PM on April 30, 1863, only 12 men could still fight with 2nd Lieutenant Maudet. At this time, the Mexican colonel gathered his soldiers and told them what a disgrace it would be if they were unable to defeat such a small number of men.The Mexicans were about to give the general assault through the holes opened in the walls of the courtyard . . . [they] once again asked Lieutenant Maudet to surrender. Once again, Maudet scornfully refused.”

The final charge was given. Soon, only five men were left around Maudet; Corporal Maine, legionnaires Catteau, Wensel, Constantin, and Leonard. Each had only one bullet left. In a corner of the courtyard, their backs against the wall, still facing the enemy, they fixed bayonets.When the signal was given, they opened fire and fought with their bayonets. Lieutenant Maudet and two legionnaires fell, mortally wounded. Maine and his two remaining companions were about to be slaughtered when a Mexican officer saved them. He shouted:

“Surrender!”

“We will, only if you promise to allow us to carry and care for our injured men and if you leave us our guns.”

“Nothing can be refused to men like you,” answered the officer.
¹

More recently, there was the Battle of Dien Bien Phu (May 7, 1954). Writer Graham Greene visited the French just before the shooting started. He found them well supplied—with 48,000 bottles of wine.

The French had a number of advantages similar to the advantages Americans would bring to bear in Vietnam 10 years later. They controlled the air. Using airpower, they brought in 15,000 soldiers and provisions to a remote airfield west of Hanoi.The idea was to install themselves there, disrupt General Giap’s supplies, block his move into Laos, and bring him to a pitched battle in which superior French firepower would be decisive.

“A defeat can be borne from a victory,” began the
Figaro’s
50-year look back on May 7, 2004. “In order to understand Dien Bien Phu, you have to remember Na-San. This battle, won by the French Army, explains the other . . . and brought the whole thing to disaster. Eighteen months separated them. General Giap, commander of the Vietminh forces, used these 18 months to learn from his defeat. The French high commander, on the other hand, became more sure of himself than ever.”
²

At Na-San, the French established a base on a plateau. Giap attacked. The French were able to hold their ground while the Vietminh staggered away. In a single night, Giap lost 3,000 men. If the French were going to destroy themselves in Southeast Asia, they had to find a better way. They found it at Dien Bien Phu.The broad outlines of the battle were as follows: French parachutists took control of the airfield followed by 15,000 troops under Colonel Christian de Castries. The French dug trenches and set up bases, to which they gave women’s names. Dien Bien Phu was not on a plateau, but in a depression, surrounded by hills covered in jungle.

If the Vietminh brought up heavy artillery, the French goose would be cooked. But neither de Castries nor the French high command thought Giap could do it.The surprise began on March 13, 1954. Giap’s artillery threw off its camouflage and opened fire in the afternoon.A shell hit the French every six seconds, off and on, for the next 56 days. Then, Giap sent in waves of infantry. Camp “Gabrielle” was taken by the Vietminh and then retaken by the Legionnaires, before being abandoned to the enemy. “Beatrice” was lost after its commander was killed.“Anne-Marie” went down next.

The French held. But the Vietminh noose was getting tighter. On March 26, a plane managed to get off the ground with a cargo of wounded men. It was the last one. After that, the French lost control of the airfields.The only way to get supplies was to drop them from the sky; often they fell into the hands of the enemy. The French were cut off and doomed. Still, they held out hoping a diplomatic solution could be found. It did not come.

The weather turned against the French, says the
Figaro.
They fought in a blast furnace. Then came the rains and they were up to their knees in mud. Doctors operated standing up in it. On May 6, Giap ordered a general assault. “Dominique” and “Eliane” were quickly overrun. On May 7, the order was given to blow up the munitions. Colonel Piroth committed suicide. By 5:30 PM, a cease-fire was sounded, though “Isabelle” held out until 1:00 AM the following day.

After the 56-day siege, French General de Castries radioed his superior in Hanoi, sounding Napoleonic:“I’m blowing up the installations.The ammunition dumps are already exploding. Au revoir.”

“Well then,” came the reply, “au revoir, mon vieux.”
³

Thousands of French were captured. From the evidence, the Vietminh were not particularly mean to them, but indifferent. The victors had little to eat themselves, and hardly any medicine. The French, many of them wounded, died quickly. They were forced to march 500 to 600 kilometers; many didn’t make it. Only about 3,900 of them ever returned to France. Still, the French should cheer. It was a small price to pay to “put an end to illusions,” as the
Figaro
described it a half-century later.
⁴

General Giap should have been so lucky. Like many colonies,Vietnam had flourished under French administration. There were bars, brothels, and sidewalk cafés in Hanoi.There were elegant hotels and well-dressed women, dignified beach houses near the ocean, and splendid plantation homes in the hills. People could do pretty much as they pleased. France was bringing civilization to the indigenous peoples of Indochina. A fat lot of thanks they got for it. Ho Chi Minh learned French and went to Paris. Scarcely a year or two had passed, and he was printing up leaflets urging his countrymen to kick the French out.

Nguyen Sinh Cung, who would later change his name to Ho Chi Minh, was born on May 19, 1890. He was good at his studies, but he seemed to have an itch for world improvement from the get-go.The urge grew stronger, according to biographer William J. Duiker, when young Ho went to school. He had won a scholarship to the French-run National Academy in Hue. Coming in from the country, he was teased by other students, who thought he was a bumpkin. On one occasion when he lost his temper and slugged a fellow student, a teacher advised him to “channel his energy to more useful purposes such as the study of world affairs.”
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Ooh la la! If only the teacher had suggested an anger management program instead, maybe the French would still be running the place. The Vietnamese never had it so good, before or after. Ho should have left well enough alone. But Vietnam’s history in the twentieth century is a history of people who should have left well enough alone. Old Ho couldn’t keep his hands to himself. Then, after Ho took over at the end of World War II, the French should have left well enough alone.And when they washed up, the Americans should have left well enough alone.Time after time, the history of world improvement yields the same lesson:
Leave well enough alone.
And time after time, the world improvers ignore it; they always know better.