Old Beliefs Die Hard

It is very difficult coming to the realization that something or someone you truly believe in, have revered and defended for a long time, and have dedicated your life to following is not what you thought it was and might even be the exact opposite of what you appreciated about it.

For me recently, I have had to come to grips with the fact that former Penn State head football coach Joe Paterno was not the hero I revered for a long time.  See, I grew up in Pennsylvania and followed his winning teams every year.  His success was abundant while all along running a squeaky clean program with no recruiting violations and a good graduation rate.  To top it off, we shared an ethnic heritage (Italian) which became a source of personal pride.

Then the Jerry Sandusky child abuse scandal hit.  My world was shattered.  How could Coach Paterno only inform his superiors at the University when he was told that his former assistant coach Jerry Sandusky was caught showering with a young boy in a university locker room?  How could he not blow the whistle loudly to put an end to the carnage and bring a deviant to justice?  I mean, Paterno was the moral bastion of college football.  As an educator, he would never forsake the well-being of youngsters in order to protect a friend and/or his football program.

But, it’s true.  Paterno did not do all that he should have and many more young boys were abused at Penn State facilities by Jerry Sandusky as a result  This realization has negated close to 40 years of hero worship.  Joe Paterno made more than a mistake; he allowed a tragedy to continue.  He was not the moral bastion I naively thought he was.  It was tough and a long process, but he is no longer a hero.

Thus, I can now empathize with folks who need to come to grips with their wrongheaded thinking that government is the great solver of our problems.  Take the so-called “War on Poverty”(1) programs launched under Lyndon Johnson in the 1960s.  Supporters would argue that it was the right thing to do at the right time to eradicate poverty.  However, close to 50 years and $15 trillion later, the poverty rate has barely budged going from about 15 percent to 13 percent.  In fact, poverty was on a steep decline for five years preceding Johnson’s programs.  His “War on Poverty” halted that decline and stabilized the poverty rate in the low teens.  But if you listen to advocates of the federal social safety net, you’ll hear how without federal largess the problem of poverty would be more acute.  They just can’t bring themselves to accept the realization that federal welfare programs are wasteful, debilitating, and ineffective.

Of course, the best example from recent history where government policy has been wasteful, debilitating, and ineffective is the economic policies of the current administration.  The same folks that can’t admit to themselves that the War on Poverty was a failure are now defending the Obama Administration’s policies as if they have been successful in bringing about recovery from the Financial Crisis of 2008.  After trillions have been spent and interest rates kept at rock bottom lows for the last four plus years the unemployment rate has never fallen below eight percent.  In fact, the real unemployment rate (U6 which includes discouraged workers) is 15 percent and on the rise. Most embarrassing for the President is the fact that more people went on Social Security Disability than got jobs in June.

To be sure, there are many more examples of government intrusion gone wrong.  The greatest of which is Roosevelt’s New Deal because it prolonged the Great Depression through the 1930s.

So, with such a track record of failure, why is it that advocates of big government cannot bring themselves to realize that their philosophy is bankrupt and wrongheaded?  One reason is emotional.  They think with their hearts and not their heads.  They are so fixated on helping others and believe they may need the same kind of help someday, that they forsake logic and experience for empathy and generosity (of other peoples’ money of course).

Another reason is socialization.  There are so many Americans who rely on the federal government for one reason or another that it is hard to find many that are willing to bite the hand that feeds them.  Take college professors and the mainstream media (MSM) for instance.  Very, very few are willing to go against the Establishment line for fear of losing grant money, being denied tenure, or losing the interview or even their jobs (remember Helen Thomas?).  These are the societal elites that most Americans get their information from (many times academics appear on the MSM).  It’s no wonder many Americans lack basic economic knowledge.  They have been bombarded through the years with the party line instead of the truth.

At the end of the day, it’s brutal being challenged let alone acknowledging that what you have believed in for a long time is poppycock.  I know – I lost a long-time hero recently.  It is a tough and long process but one that needs to be undertaken by those that cherish big government intrusion in our economy.  It needs to be undertaken so the widespread suffering resulting from big government intrusion in our economy seizes.

Article first published as Old Beliefs Die Hard on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

Rothbard as Prophet – Part 2

As documented in Rothbard’s classic piece America’s Great Depression, the similarities of the 1920s and 2000s did not end with the beginnings of each crisis in 1929 and 2008 respectively.  It gets much scarier than that.  Washington responded in very similar ways to both crises.  As we know, Hoover/Roosevelt policies made the recession of 1929 into a depression and prolonged recover for at least a decade.  Time will only tell how bad Bush/Obama policies will make our current economic depression.

So, just what were the policies of the Hoover/Roosevelt administrations that exacerbated the U.S. economy into the 1930s and resemble the policies of the Bush/Obama administrations today?  For one, a blatant misinformation scheme to make Americans believe that the excesses of laissez-faire capitalism were to blame for the economic downturns was launched.  In both cases, this was used to deflect any culpability of the U.S. government for the crisis.  But, also and more importantly, it was used as the rationale for heavier government intervention in the economy.  It is ridiculous that then and now the American public has fallen for this deception.  We did not in the 1920s and we did not earlier in this decade have a laissez-faire economy in the United States.  As Rothbard points out, just prior to the 1920s America went through the so called Progressive Era.  This era introduced enormous regulations on our economy.  There was price fixing, a full blown agricultural policy and interstate commerce regulation through the Interstate Commerce Commission and other government agencies.  Let’s not forget that the Federal Reserve Bank began operations in 1913 with the expressed mission to prevent economic downturns through currency regulation.

Of course, many regulations and regulatory agencies founded during the Great Depression are still with us today.  Because we are no longer on the gold standard, the Federal Reserve has even more power today than in the 1920s to regulate our money supply.  The bottom line is that laissez-faire means no government interference in the economy, but Washington has had its grubby big hands on our financial system for a long time.  Therefore, Washington’s attempt to blame laissez-faire for economic troubles in this country, ever, is highly disingenuous.

But, the politicians have used this pretense since the Great Depression to step in and “rescue” our economy from the “greedy capitalists.”  After the stock market crash of October 1929, the Federal Reserve pumped $300 million into the reserves of the nation’s banks.  It expanded its balance sheet by purchasing $1 billion of government securities and provided $200 million more to banks at discounted rates.  Sound familiar?  These numbers are nothing compared to what the Fed and treasury have spent on the current crisis ($12 trillion), but they were a lot given the nation’s GDP at the time was $100 billion.  The scary thought is that by the time Hoover left office his attempt to re-inflate the bubble produced a 25 percent unemployment rate.  What will $12 trillion produce?

Additionally, government works projects were used by Hoover/Roosevelt and are about to be used by Obama.  Hoover raised taxes on the rich and Obama has threatened to do the same by allowing Bush’s tax cuts to expire. Fortunately, a major policy difference between then and now is that Washington has not passed (came close with “buy America” clauses in the stimulus bill) protectionist measures in the current crisis.  Nonetheless, the comparisons in policy are startling given they didn’t work the first time.

Beyond the policy similarities, there are at least two chilling coincidences between then and now.  In 1931, almost two years after the crash, the unemployment rate was only 9 percent.  One and a half years after the current crisis began unemployment is 8.9 percent.  But, more ominously, given Hoover’s inflating of the money supply banks didn’t lend and consumers were not spending in 1932.  Naturally, the short term deflation that resulted improved the economy for a while since it began to deflate the credit bubble which the economy needed to recover.  However, it was only a matter of time before all the new money hit the economy and caused havoc.  One year later, the unemployment rate soared to 25 percent.

Again, today, in spite of the Fed’s pumping of new money into the economy, banks have been slow to lend and consumers slow to spend.  Prices have declined over the past 12 months – for the first time since 1955.  You might say the economy is showing signs of improvement – the stock market is up 25 percent in the last two months.  However, since government intervention caused the Great Depression don’t be too hopeful that Washington’s current intervention will have any different outcome this time.

It is amazing that in both crises the same folks who caused the problem were called upon to solve it.  The easy money policies of the Fed have been responsible for both the Great Depression and our current economic crisis.  After the 1929 stock market crash, the Fed’s re-inflating policies did not allow the economy to rid itself of the malinvestments caused by its previous inflating.  The economy sank into a deep depression.  According to Rothbard’s writing, we are headed for a similar if not worst fate.  If only Ben Bernanke had read Rothbard as a part of his study of the Great Depression.