WEBVTT NOTE The Recovery and Statism 1 00:00:00.000 --> 00:00:06.000 I've been asked to talk on the recovery and statism. 2 00:00:06.000 --> 00:00:16.000 This is a difficult topic because there is no recovery, so one wonders how one's supposed to talk about it. 3 00:00:16.000 --> 00:00:28.000 It reminds me of the story of someone who wrote a book on snakes in Ireland, and the book just had one sentence, 4 00:00:28.000 --> 00:00:34.080 When sentenced, there are no snakes in Ireland. 5 00:00:34.080 --> 00:00:41.280 I think, as I say, there's no recovery, if I'm not mistaken, the unemployment rate is 6 00:00:41.280 --> 00:00:52.000 been about 9.5 or over for the past 26 months, and it's extremely unlikely that the policies 7 00:00:52.000 --> 00:01:02.920 of the Obama Administration are going to lead to recovery. What I want to do is first use 8 00:01:02.920 --> 00:01:15.080 an argument that, advanced by Ludwig von Mises, to show that interventionism leads to socialism, 9 00:01:15.080 --> 00:01:22.200 either the kind of socialism in which the government owns all the means of production 10 00:01:22.200 --> 00:01:30.840 society or another type of socialism, fascism, which I think is the one most likely on the 11 00:01:30.840 --> 00:01:36.800 way for us, in which the government doesn't officially own everything but it tells people 12 00:01:36.800 --> 00:01:38.160 what to do. 13 00:01:38.160 --> 00:01:45.000 So even if there are prices and wages, these are really not real prices but they're just 14 00:01:45.000 --> 00:01:50.920 People have, the government has instructions, tells people what to do. 15 00:01:50.920 --> 00:01:57.540 Now the argument Mises gave was this, he said let's take an example, any example we want 16 00:01:57.540 --> 00:02:06.120 of government intervention supposing say the government imposes price controls on milk. 17 00:02:06.120 --> 00:02:13.400 It said it's very unfortunate poor people find it difficult to purchase milk so they'll 18 00:02:13.400 --> 00:02:16.480 How to Impose Price Controls 19 00:02:16.480 --> 00:02:25.480 Now as a result of this, suppliers of milk will withdraw milk from the market, they won't 20 00:02:25.480 --> 00:02:30.120 be able to make a profit, or at least some of them won't, the marginal ones won't at 21 00:02:30.120 --> 00:02:34.440 the lower prices that the government has imposed. 22 00:02:34.440 --> 00:02:37.760 So what would the government do then? 23 00:02:37.760 --> 00:02:43.200 Well Mises says they could have a choice, they can either go back to the free market 24 00:02:43.200 --> 00:02:50.160 and the price control, or they can go on with further interventions. They can say, 25 00:02:51.040 --> 00:02:58.960 well, we'll help out the suppliers who don't find it profitable to bring milk onto the market by 26 00:02:59.760 --> 00:03:09.600 having price controls on their costs. They'll have retailers milk, will purchase a milk from 27 00:03:09.600 --> 00:03:16.600 The problem then recurs because then the suppliers will, the milk will withdraw their price, their supplies, and we won't have, we will again have, we won't have, we won't have, we won't have, we won't have, we won't have, we won't have, we won't have, 28 00:03:39.600 --> 00:03:51.600 Mises says the planners will always have his choice, either go on with more controls over the economy or go back to the free market. 29 00:03:51.600 --> 00:04:00.600 When he developed this argument, first he had in mind the experience of Germany during World War I, 30 00:04:00.600 --> 00:04:07.840 in which price controls were very rapidly imposed on the economy, 31 00:04:07.840 --> 00:04:18.280 especially under Walter Rottenau, who has been the director of the German electrical company, 32 00:04:18.280 --> 00:04:22.000 was one of the people put in charge of the German economy. 33 00:04:22.000 --> 00:04:26.320 He devised plans for total control of the economy. 34 00:04:26.320 --> 00:04:37.320 So Mises thought that by having government intervention, it will lead to total government control very fast. 35 00:04:37.320 --> 00:04:46.320 Now I think we can see if we apply Mises' insight to the policies of the Obama administration, 36 00:04:46.320 --> 00:04:53.320 we can see that we're very likely to have the same process. 37 00:04:53.320 --> 00:04:58.600 not particularly necessarily with price controls but with other kinds of 38 00:04:58.600 --> 00:05:08.120 intervention. What is Obama proposing for the recovery, to help us with the 39 00:05:08.120 --> 00:05:15.600 recovery? One of the most important things he has in mind is continued high 40 00:05:15.600 --> 00:05:33.960 The question then arises, how are deficits to be financed? 41 00:05:33.960 --> 00:05:41.060 One way they can be financed is if people buy bonds from the government, but if that 42 00:05:41.060 --> 00:05:45.060 What happens, there will be a crowding out of investment. 43 00:05:45.060 --> 00:05:53.060 People will be using their money to buy the government bonds and they won't be able to have the money available for investment. 44 00:05:53.060 --> 00:05:56.060 So this isn't going to promote recovery. 45 00:05:56.060 --> 00:06:04.060 Another way, probably more likely in which deficit will be financed, is through inflation. 46 00:06:04.060 --> 00:06:10.060 And inflation will then cause all sorts of problems. 47 00:06:10.060 --> 00:06:24.740 I think in this connection, Murray Rothbard in a very important essay called Money, the State and Modern Mercantilism has, let me give you a quotation from it, he says, 48 00:06:24.740 --> 00:06:35.700 inflation is the health of the state. Here he's modifying a famous statement by Randolph Moore in which he also accepted, war is the health of the state. 49 00:06:35.700 --> 00:06:55.700 Murray Rothbard said, inflation is the health of the state. So, inflation will lead to the government will just be having total control of the money supply, will be just taking over the economy through inflation. 50 00:06:55.700 --> 00:06:56.700 Administration. 51 00:06:56.700 --> 00:07:04.420 This will lead to dislocations of resources, misallocations, and the government will be 52 00:07:04.420 --> 00:07:05.940 making things worse. 53 00:07:05.940 --> 00:07:13.380 So we're clearly not going to get a recovery through deficit financing, deficit increased 54 00:07:13.380 --> 00:07:14.380 deficits. 55 00:07:14.380 --> 00:07:23.180 Now another program the Obama administration has in mind is increased taxation. 56 00:07:23.180 --> 00:07:31.180 He's proposed that the tax cuts on the rich or the people of the Obama administration 57 00:07:31.180 --> 00:07:41.020 considers rich, which is probably anyone who's making more than people in the Obama administration. 58 00:07:41.020 --> 00:07:48.640 Those tax cuts are scheduled to expire and there will be further taxes imposed. 59 00:07:48.640 --> 00:07:57.180 So we'll have extra taxes to pay for Obamacare, I think there's an extra Medicare payroll 60 00:07:57.180 --> 00:08:00.680 tax, so we're going to have increased taxes. 61 00:08:00.680 --> 00:08:09.840 Clearly this isn't going to be a way of increasing prosperity. 62 00:08:09.840 --> 00:08:17.980 So Mises' argument then will confront Obama, what is he going to do when these measures 63 00:08:17.980 --> 00:08:29.980 when he has all these various programs and they don't work, the economy will not be recovering through his programs. 64 00:08:29.980 --> 00:08:41.980 What is he going to do then? Well, he will then have the choice of abandoning the programs or going on with more programs. 65 00:08:41.980 --> 00:08:50.260 It seems very likely that he and his administration will not abandon the programs, but they'll 66 00:08:50.260 --> 00:08:58.820 say we have to have, if the economy isn't recovering, then we need an even bigger stimulus. 67 00:08:58.820 --> 00:09:09.060 We need to spend even more money just as they did before when we had the stimulus that was 68 00:09:09.060 --> 00:09:15.100 Supposed to End the Recession, so they'll be spending even more money, and this, remember 69 00:09:15.100 --> 00:09:22.700 when they had the stimulus before, this led to the government taking shares in various 70 00:09:22.700 --> 00:09:29.700 banks and assuming control of big companies like General Motors, so you would have a big 71 00:09:29.700 --> 00:09:38.280 move toward more government control and intervention, so it's very much a kind of socialism will 72 00:09:38.280 --> 00:09:46.120 will be imposed on us if, as is very likely, these measures, such as deficit financing, 73 00:09:46.120 --> 00:09:54.240 Obamacare, have bad effects, then the government will simply say, well, we have to have a recovery. 74 00:09:54.240 --> 00:09:59.000 We have to have a recovery through a bigger stimulus. 75 00:09:59.000 --> 00:10:06.080 And exactly in the way Mises suggested, the interventionism will lead to more interventionism. 76 00:10:06.080 --> 00:10:13.120 will have very soon full-scale government domination of the economy. 77 00:10:13.120 --> 00:10:23.400 Now one objection you might raise is why don't the people in the Obama administration realize 78 00:10:23.400 --> 00:10:26.840 that these programs are failing? 79 00:10:26.840 --> 00:10:34.600 Why don't they just say, look, these things don't work, even if it goes against our preconceptions, 80 00:10:34.600 --> 00:11:00.680 The Theory confronts the world as a whole, confronts experiences as a whole. Very rarely, 81 00:11:00.680 --> 00:11:07.160 If ever, we'll find a case where you can isolate a single phenomenon and say, 82 00:11:07.160 --> 00:11:14.360 my theory is predicted such and such, this didn't happen, therefore my theory is false. 83 00:11:14.360 --> 00:11:20.400 You can always come up with supplementary assumptions and say, well, my theory would 84 00:11:20.400 --> 00:11:24.360 have worked, but it was just something else that went wrong. 85 00:11:24.360 --> 00:11:29.720 So it isn't that there's some problem with my theory, it was just something intervened. 86 00:11:29.720 --> 00:11:37.480 Bob Murphy gave a very good example in his talk yesterday where he said that the people 87 00:11:37.480 --> 00:11:45.920 favored the stimulus said that the banks were involved in some sort of credit crunch. 88 00:11:45.920 --> 00:11:48.120 Turned out the statistics didn't support that. 89 00:11:48.120 --> 00:11:54.420 So then they say, well, if we didn't have the stimulus, things would have just been 90 00:11:54.420 --> 00:11:57.220 even worse than they were before. 91 00:11:57.220 --> 00:12:05.860 So even though the credit in fact increased, contrary to the prediction of the theory, 92 00:12:05.860 --> 00:12:08.980 things would have just been worse counterfactually. 93 00:12:08.980 --> 00:12:15.860 You can always come up with a good counterfactual or some way of preventing your theory from 94 00:12:15.860 --> 00:12:17.820 being refuted. 95 00:12:17.820 --> 00:12:25.980 My favorite story along these lines is there was a man who was visiting a psychiatrist 96 00:12:25.980 --> 00:12:30.180 And he said to the doctor, doctor, I'm dead. 97 00:12:30.180 --> 00:12:33.740 And the psychiatrist said it was a puzzle for a while. 98 00:12:33.740 --> 00:12:39.460 And then finally he said to him, well, dead men don't bleed, do they? 99 00:12:39.460 --> 00:12:41.980 And the man said, no, of course not. 100 00:12:41.980 --> 00:12:49.860 So the psychiatrist took out a pin and pricked the patient in his finger. 101 00:12:49.860 --> 00:12:51.820 And a drop of blood came out. 102 00:12:51.820 --> 00:12:53.580 And the patient looked at it. 103 00:12:53.580 --> 00:12:57.580 And he said, well, dead men do bleed. 104 00:12:57.580 --> 00:13:18.580 So you see, you can always, people who are committed enough to a certain theory can always come up with some way of preventing the theory from, refusing to recognize that the theory has been refuted. 105 00:13:18.580 --> 00:13:29.580 They can just say some kind of supplementary hypothesis has gone wrong, but the theory is actually correct. 106 00:13:29.580 --> 00:13:35.580 Now, I want to now turn to another author who has an insight, 107 00:13:35.580 --> 00:13:46.580 another one of the great libertarian authors who has an insight that I think can help us understand the problems of the Obama administration. 108 00:13:46.580 --> 00:13:56.380 Education, and here I have in mind John T. Flynn in his book The Road Ahead. 109 00:13:56.380 --> 00:14:04.860 Now Flynn points out when there is a situation in which there is extensive government spending, 110 00:14:04.860 --> 00:14:08.360 very often there will be a problem for the government in that there is a great deal of 111 00:14:08.360 --> 00:14:38.360 There's a lot of controversy on what programs people should spend the money, the government should spend the money on, if there's proposals say for public works, for building projects in various parts of the country, there'll be all sorts of groups who want the projects built in their area, some people will oppose them, so the government will have a lot of difficulty in generating support for its public works. 112 00:14:38.360 --> 00:15:05.860 programs. And one way around this, Flynn suggested, is if the government can start a war scare, or even better, an actual war, then it can unify the country around the supposed danger from the enemy, and then it will have no difficulty, or much less difficulty, in getting the government spending going. 113 00:15:05.860 --> 00:15:16.860 And I think we can use this insight to explain another aspect of the Obama administration that at first sight seems puzzling. 114 00:15:16.860 --> 00:15:28.860 During his campaign for the presidency, Obama seemed very critical of the Bush administration's policies in Iraq. 115 00:15:28.860 --> 00:15:40.860 In the Iraq war, he seemed to be suggesting that, he didn't say he wanted to end the war immediately, but he seemed to be suggesting that going into Iraq had been a mistake. 116 00:15:40.860 --> 00:15:52.860 And many people were hopeful, who were critical of Bush's foreign policy, were hopeful that if Obama were elected, even though he was unlikely to be very good domestically, 117 00:15:52.860 --> 00:16:00.580 domestically, at least he would be better in foreign policy, would be less interventionist. 118 00:16:00.580 --> 00:16:07.660 Now it hasn't proved to be the case that things didn't happen this way. He's intensified 119 00:16:07.660 --> 00:16:13.860 the war in Afghanistan. And I'd like to suggest one explanation of this, I don't think it's 120 00:16:13.860 --> 00:16:22.140 the only factor involved, but one explanation for this is that wars are a means for which 121 00:16:22.140 --> 00:16:32.640 So the government can spend a great deal of money and just what he has in mind in his supposed recovery program is for the government to spend a lot of money. 122 00:16:32.640 --> 00:16:48.640 So this is a way in which the government can gain more control over the economy, a way in which the recovery program will lead to more statism. 123 00:16:48.640 --> 00:16:55.320 because it would be a situation where the government is using a great deal of money to promote war. 124 00:16:55.320 --> 00:17:03.280 Now, of course, this war is very characteristic of fascist economies. 125 00:17:03.280 --> 00:17:09.400 And I think, as I said before, I think this is the way, unfortunately, we're heading. 126 00:17:09.400 --> 00:17:17.360 Now, I should say one very well-known philosopher, I won't mention who he is, 127 00:17:17.360 --> 00:17:24.280 wrote me, sent me a number of emails saying, isn't the Mises Institute ridiculous because 128 00:17:24.280 --> 00:17:31.280 we're having, we have various articles suggesting they're fascist elements in the Obama program. 129 00:17:31.960 --> 00:17:38.960 He said, the fascists are people who wear funny uniforms and go around putting people 130 00:17:39.200 --> 00:17:46.200 in concentration camps. Clearly, it's ridiculous to call the Obama administration fascist. 131 00:17:47.360 --> 00:18:01.520 I want to now turn to another one of the great classical liberal libertarian thinkers who 132 00:18:01.520 --> 00:18:10.800 I think has an insight that can help us here and we'll be able to see how this economic 133 00:18:10.800 --> 00:18:20.300 control of the kind practiced by the Obama administration does lead to totalitarian tendencies. 134 00:18:20.300 --> 00:18:27.560 And here I have in mind the famous argument given by Friedrich Hayek in his 1944 book, 135 00:18:27.560 --> 00:18:37.760 The Road to Serfdom. Now, Hayek pointed out that if you have a government plan in effect, 136 00:18:37.760 --> 00:18:45.660 The plan, very often or almost always, will be something that requires years to complete. 137 00:18:45.660 --> 00:18:52.760 You had, say, in the Soviet economy, you had a five-year plan or you had a four-year plan 138 00:18:52.760 --> 00:18:56.040 under the Hermann Göring and the Nazis. 139 00:18:56.040 --> 00:19:01.420 You don't have the two-weeks plan or the one-week plan. 140 00:19:01.420 --> 00:19:05.220 These are all very long-term plans. 141 00:19:05.220 --> 00:19:11.820 And the people who put them into effect won't want their plans to be overturned, say if 142 00:19:11.820 --> 00:19:16.100 they lose an election, they won't want their plans to be overturned. 143 00:19:16.100 --> 00:19:26.680 So Hayek suggested that there was an incentive for the planners, people who favor control, 144 00:19:26.680 --> 00:19:31.540 to interfere with opposition to their plans. 145 00:19:31.540 --> 00:19:37.100 They would prevent people from opposing them because the plan necessitated this. 146 00:19:37.100 --> 00:19:50.060 Now if we apply this insight to the current situation, I want to call attention to a proposal 147 00:19:50.060 --> 00:20:00.500 by Cass Sunstein that very much fits in with the analysis that Hayek gives in The Road to 148 00:20:00.500 --> 00:20:14.500 Sunstein is a very eminent legal academic. He's a professor at Harvard Law School who's now on leave with the Obama administration. 149 00:20:14.500 --> 00:20:26.500 He's head of something called the Office of Information, sounds rather Orwellian. Sunstein and Obama are very good friends. 150 00:20:26.500 --> 00:20:33.620 They knew each other because Sunstein used to teach at University of Chicago Law School 151 00:20:33.620 --> 00:20:40.660 and Obama also taught there for a while so they became very good friends. 152 00:20:40.660 --> 00:20:51.860 Now Sunstein has wrote in a paper with another legal academic, another professor at Harvard, 153 00:20:51.860 --> 00:20:59.620 Adrian Vermeule, and also he's extended a similar proposal in a short book called Rumor. 154 00:20:59.620 --> 00:21:03.780 He's had a very dangerous proposal. 155 00:21:03.780 --> 00:21:11.300 What he says is that conspiratorial thinking is very dangerous. 156 00:21:11.300 --> 00:21:17.760 Sometimes people have the idea that the government is conspiring against us. 157 00:21:17.760 --> 00:21:23.000 This is a very harmful idea because people have these very bad ideas. 158 00:21:23.000 --> 00:21:26.120 This will interfere with the democratic process. 159 00:21:26.120 --> 00:21:29.320 We don't want people getting the wrong ideas. 160 00:21:29.320 --> 00:21:42.200 So what he suggested is that the government should infiltrate various groups on the internet, 161 00:21:42.200 --> 00:21:51.200 Supposing, say, they find groups on the internet who are espousing conspiracy theories of a kind they don't like, 162 00:21:51.200 --> 00:22:02.200 what they should do is get people to go on these blogs and try to shift the discussion in a different direction, 163 00:22:02.200 --> 00:22:10.200 try to show what's wrong with these conspiracy theories and in this way interfere with free speech 164 00:22:10.200 --> 00:22:15.400 by, say, well, people really, you know, they shouldn't have these dangerous ideas like 165 00:22:15.400 --> 00:22:18.080 the kind I'm giving in these lectures. 166 00:22:18.080 --> 00:22:26.600 We should, government, people should go on and they won't, of course, admit on the blog 167 00:22:26.600 --> 00:22:30.520 they're government agents, but they should do this. 168 00:22:30.520 --> 00:22:40.900 Another proposal he has is that the government should hire supposed independent experts and 169 00:22:40.900 --> 00:22:49.040 get them to give statements supporting government policy, again, without disclosing that the 170 00:22:49.040 --> 00:22:51.180 government is supporting them. 171 00:22:51.180 --> 00:23:03.100 So the government would act as the kind of a propaganda ministry to aid its proposals. 172 00:23:03.100 --> 00:23:11.500 Now in this book, very short book, Rumor, he said it's very dangerous that people can 173 00:23:11.500 --> 00:23:20.020 just start false rumors about things and this can interfere with people's, hurt people's 174 00:23:20.020 --> 00:23:25.900 reputation, so we need to have some kind of laws to prevent this. He doesn't specify 175 00:23:25.900 --> 00:23:35.260 exactly what he has in mind, but one gets a strong impression that the First Amendment 176 00:23:35.260 --> 00:23:43.180 doesn't rank very high on his list of priorities. Now I should say he is not just some unusual 177 00:23:43.180 --> 00:23:52.180 He's a very influential academic with strange theories. He's a very influential member of the administration. 178 00:23:52.180 --> 00:24:10.180 So I think here we see just what Hayek has suggested, that there's a tendency for the people, if you have a government taking control of economy, 179 00:24:10.180 --> 00:24:40.140 There's a tendency for suppression of dissent and I think we can see this in another thing also that the policies of the Obama administration, as you know, have aroused a great deal of opposition and there's been a tendency, a very strong tendency, by supporters of the administration to say that people who oppose them are extremists, 180 00:24:40.180 --> 00:24:50.020 They're kooks of various kinds. They're dangerous people. They don't recognize really the right of dissent. 181 00:24:50.020 --> 00:24:58.420 They suggest that if you really oppose the very socialistic measures of the Obama administration, 182 00:24:58.420 --> 00:25:07.220 even to characterize them in this way shows that there's something wrong with you. 183 00:25:07.220 --> 00:25:16.500 There's something, you're an extremist, so I think by the government doing this, by the Obama administration doing this, 184 00:25:16.500 --> 00:25:25.820 this is itself a way of suppressing speech. They're trying to characterize people who oppose them as extremists. 185 00:25:25.820 --> 00:25:36.340 So I think if you combine what I've suggested where you have interventionism leading to a type of government control of economy, 186 00:25:36.340 --> 00:25:48.180 You have war as a means of the government getting support for its spending policies and efforts to suppress dissent. 187 00:25:48.180 --> 00:26:00.260 Those who see us heading in a fascist or socialist direction have a very good case, unfortunately. 188 00:26:00.260 --> 00:26:14.960 And I think if we're to stop this, it's essential that we support programs that are designed to educate people, such as those advanced by the Mises Institute. 189 00:26:14.960 --> 00:26:26.900 So I think we need to get out the message and inform people about how dangerous the proposals of the Obama administration really are. 190 00:26:26.900 --> 00:26:27.900 Thanks very much. 191 00:26:30.260 --> 00:26:32.260 Thank you very much.