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19.12.2003, 18:53

Illusions of Power / Artikel mises.org

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Illusions of Power

 
by
Llewellyn H. Rockwell, Jr.

        

[Posted December 19, 2003]

This talk
was delivered at the  Foundation
for Economic Education in
Irvington-on-Hudson, New York, on December 12, 2003.

<img alt hspace="0" src="http://www.mises.org/images3/atlas.gif" align="right" border="0" width="145" height="324">Critics
accuse libertarians of reveling in government failures. Yes and No. No one is
pleased to see the destruction caused by government policies, whether small
scale, as when a tighter regulation causes business failures, or large scale,
as when wars destroy life for millions.

The kernel of
truth to the claim is this: the failure of government illustrates something
extremely important about the structure of reality that most people are likely
to forget. It comes down to this: statesmen and public officials, no matter
how powerful they may be, cannot finally control social outcomes.

If I might
offer a summary of a point emphasized in all of Mises's works: the structure
of society and world affairs generally is shaped by human actions, stemming
from imaginative human minds working out individual subjective valuations, and
their interactions with the material world, which is governed by laws that are
beyond human control.

What that
means is that you and I cannot on our own, even if we have maximum political
power, control all of human society, and especially not its economic side.
Let's first consider an example from current popular wisdom about the
manufacturing base. Many products that were once made in the US - thinking
here of televisions, pianos, firecrackers, plastics, and bicycles--are now
made in China. This has caused a great deal of alarm--all unwarranted, so far
as sound economics is concerned.

But let's say
we have the ambition to change this social outcome. Anyone is free to build a
bicycle and attempt to market it to willing buyers. Let's say you rent some
property, hire the workers, acquire all the necessary capital, and then put
your bike on sale. In order to cover your costs and make a profit, you find
that you must price your bikes above the going market price. Maybe you can
persuade people that you have a special product that is better than the others.
Or maybe yours will sit on the floor. Or maybe you will have to lower your
price and you will find that your revenue does not cover your costs, and you
have to go out of business.

No matter what
you decide, this much is clear: you are not dictating the outcome. You wanted
to build bikes, but it is the consuming public that decides whether it is in
our interest to do so. There is nothing you have to say about it. You cannot
make people fork over the money. I would venture to suggest that you will
ultimately come to the conclusion that you should be doing other things
besides attempting to keep up with other businesses that have lower labor and
capital costs and hence can make a profit through selling goods at much lower
prices.

But let's say
you decide that you don't want to bow to the realities of the market. Instead
you lobby Congress to tax everyone who buys a bike from overseas. The tax is
high enough that you can continue to charge exorbitant prices for your bikes.
You make a profit. But at what expense? The consumers who buy your bikes have
less income left over for other pursuits, whether consumption, saving, or
investment. The workers you are employing are being kept from other pursuits
as well, and the capital you are consuming is not available for other projects.

Ultimately,
you have skewed the entire economic system in a way that benefits you at
everyone else's expense. Others have found a way to do what you are doing much
more efficiently, but because you lobbied and got your way, society is
prevented from benefiting from others' innovations. And how long must this
distorted system last? That you managed to tax everyone to benefit you does
nothing to change the reality that others can do what you are doing more
cheaply and better. Do workers really want to be employed in an industry that
is something of an artifice? Do consumers really want to pay high prices just
so that you can continue to indulge in your bike-making passion?

Clearly not.
At some point, people will catch on to the racket, and find other ways to go
about acquiring bikes. Maybe they will exploit loopholes in the law that allow
them to import bike parts. An industry of do-it-yourself bike building becomes
a threat to your profits. Or perhaps black markets will take over. Or maybe
people will turn away from bikes altogether and starting trying out new forms
of informal transportation. Skateboards are fitted with handlebars.
Gas-powered scooters develop a peddle-only option. The very definition of a
bike comes into question. Increasingly, enforcement will have to become ever
more onerous.

At some point
in this game, we face a choice. We can continue to impose an ever more absurd
and preposterous system of regulations and protections just so that you can
benefit, or we can bow to reality and let in foreign bikes for consumer
purchase. Let's say your tariff lasts a year or even ten years. What will it
accomplish? In that time, vast resources are wasted. Consumers of all sorts
are exploited. Capital is consumed in economically wasteful ways. People are
pushed around and the police powers of the state grow. It does society no good
at all.

My point is
that whatever the fate of the so-called manufacturing base, there is nothing
in the long run that can be done to turn it in one direction or another. The
fate of manufacturing is in the hands of consumers at large, and subject to
the laws of economics which no man can repeal. It is the outcome of human
choice.

Now, the Bush
administration has thought otherwise and imposed a huge range of protections
to benefit its supporters and people who the administration hoped would become
its supporters. The result has been to skew the world economy, hobble markets,
delay inevitable transitions, and impose massive social costs.

What this
example shows is that governments are not omnipotent. Many try to be, and no
government is liberal by nature. But there are limits. Governments bump up
against human valuations time and again. Even in the highly rarified event of
a despotic government that rules a population unanimously in support of
despotism, government still bumps up against the structure of the world, which
resists control.

Let us
consider another example. Let us say that government desires a strong dollar.
But it still wants to print dollars and ship them around the world. In this
case, there is nothing that government can do to insure the dollar’s
strength against depreciation. Nothing. This is due to the laws of economics.
All else equal, the value of a currency in terms of goods falls as its
quantity increases. Governments that desire otherwise can only shake their
fist in anger.

The same is
true domestically. The government wants economic recovery before a recession
has fully run its course. It thereby drops interest rates, spends vast amounts
of money to gin up demand, and otherwise encourages as much consumption as
possible. These tactics can result in some short-term gains but it doesn't
work in the long run. These tactics deplete savings and capital and weaken the
foundation for solid future growth.

The issue of
the price of prescription drugs will be a big one in this coming campaign. The
problem is high prices. Popular wisdom has it that this is because of the
greed of the medical industry. The truth is that these high prices are partly
a result of subsidized demand due to Medicare and Medicaid, as well as the
restricted supply due to patent laws. In other words, the political class is
responsible for the high prices. It's true that the pharmaceutical industry is
not complaining. In fact, high prices are precisely what its friends in
government want to bring about.

They may
regret that the poor have to pay the higher prices, but not enough to do
anything substantive about it. Prices would plummet today if patents were
repealed, free trade (including re-importation) allowed, and subsidized demand
ended by the abolition of Medicare and Medicaid. But no one wants to consider
that solution, so Congress creates ever more intrusive programs designed to
control prices, keeping the prices high enough to satisfy the industry but low
enough to reduce the political clamor.

The problem is
that the government can't have it both ways. It cannot reward its friends with
high prices and keep consumers happy at the same time. The current system with
its large subsidies is only creating massive new liabilities in programs that
cannot be funded in perpetuity without massive tax increases that no one is
willing to advocate. Absent tax increases, the only answer is inflation, which
taxes us in other ways.

One way to
think about government is as a rat wandering through a maze with no escape.
There is no magic solution to getting around basic economic laws. All lunches
must be paid for by someone, prices cannot be both high and low at the same
time, and all attempts to coerce generate counter-reactions. In short, there
is no alternative universe in which the fantasies of politicians come true.

But try
telling that to the political class. The last thing they want to hear is that
their power is limited, that their will is not a way. They are prone to
believe that membership in the political class comes with the privilege of
shaping the world to their liking. If you read the social science literature,
you find the same error at work on a nearly universal basis. Very rarely does
anyone come along and say: great theory but it has nothing to do with reality.
You are just playing intellectual games.

Socialism was
really nothing other than an intellectual game. People from the ancient world
to the present conjured up some vision of how they would like the world to
work and then advocated a series of measures of how to achieve it. Mises and
his generation explained that their vision was fundamentally at odds with
reality. In the real world, capital must have price rooted in exchange of
private property in order for it to be employed in its highest-valued capacity.
It solves nothing to say that everyone should own capital collectively. This
was the equivalent of pointing out that the Emperor was wearing no clothes.

In some ways,
what we do as commentators on economic affairs is to follow this model again
and again. The other day, a candidate for president suggested that the answer
to our economic woes was more regulation. He had it all figured out in his
mind. Immediately, free-market economists from all over the world joined
forces to point out that his goal of higher economic productivity could not be
achieved this way. It was an unwelcome message but one necessary to deliver
regardless.

The experience
of Iraq has provided myriad examples of the same. The US wants to pump oil. It
wants to start factories, stores, and commerce generally. But it refuses to
put private owners in charge. As a result, all its military muscle has
amounted to very little at great expense. It is a classic example of how
governments fail when they try to fight against forces they cannot control.
Factories in Iraq that have gone into operation have done so without support
of the occupying government.

And think of
the war generally. At the outset, the visionaries in the Bush administration
imagined that Iraq was really a very simple problem to solve. It only needed
to be decapitated and the magic dust of the US presence would otherwise create
an orderly and prosperous society that would be a model for the region. The
reality hit. Crime was unleashed. Feuding political factions clamored for
control. Production stopped. Society flew into chaos. This was not because of
the absence of the political leadership. It was because of the presence of
foreign martial law in a country that was seething in resentment against the
US.

Time and again,
we have seen evidence that the Iraq war only accomplished the opposite of its
aims. Its purpose was to find weapons, punish terrorism, and bring
order to the region. Instead it has fueled terrorism and brought new levels of
disorder to the region. Not having done that, the war is then re-defined in
terms that reflect whatever government has done: namely to toss out and
capture Saddam,

In this sense,
the war was like any other government program: bringing about the opposite of
its stated intentions and doing so at greater expense. Thus do we see the
intersection between foreign and domestic policy. Government is famously
ham-handed at home and similarly incompetent abroad. No matter how much
government claims that it is master of the universe, it constantly confronts
forces beyond its control.

In all the
talk of the calamity of this war, never forget the broader picture: what an
incredible opportunity was squandered after the end of the Cold War. The US
had emerged as the universally acknowledged ideological victor in that
forty-year struggle. That the Cold War was not actually an ideological
struggle so much as a classic standoff between two empires is irrelevant for
understanding the implications of this fact: totalitarian communism collapsed
while the free economic system of the market remained standing in total
triumph. The world was ready for a new period of genuine liberalism, and
looking to the US. On the verge of an amazing period of technological advance,
we were perfectly situated to lead the way.

There had
never been a time in US history when George Washington's foreign policy made
more sense. A beacon of liberty. Trade with all, belligerence toward none.
Commercial engagement with everyone, political engagement with as few as
possible. The hand of friendship. Good will. This was the prescription for
peace and freedom. It was within our grasp. Our children might have grown up
in a world without major political violence. A world of peace and plenty. It
could have been.

But it was not
to be, mainly because George W.'s father decided that he wanted to go down in
the history books for doing something big and important. What else but war?
The US was now the world's only superpower and itching for some fight
somewhere. It's a bit like a playground filled with wimps and one boy with a
black belt in karate who never absorbed the lesson in how and where to use his
fighting skills. And then there was this oil-drilling dispute between Iraq and
Kuwait, and Bush decided to intervene. Twelve years later, the US is still
there, causing unrelenting havoc for those poor people.

Here at home
we are given constant examples of the huge gulf that separates government's
perceptions of itself versus the reality. The Bush administration wanted to
give the steel industry a boost. The administration established tariffs, which
amounts to a tax on all consumers of steel. American manufacturers faced a
choice of paying the tax to buy imported steel or paying the higher prices for
domestic steel. Those who could do neither had to cut back production and
hiring in other areas. Other consumers had to pay higher prices, which
diverted income from other pursuits.

As for the
steel industry itself, the tariffs did nothing to help it achieve greater
efficiency, which is the only way to deal with more efficient competitors.
They only ended up subsidizing inefficiency. Even then, it wasn't enough.
During the period of tariffs, the industry dramatically consolidated in order
to become more efficient in other ways.

Once faced
with the prospect of trade wars, the ultimate cost of protectionism, the Bush
administration pulled back and repealed the new tariffs, thereby landing the
industry in exactly the same predicament it was in before the tariffs were
past. As for commercial society as a whole, it paid dramatically higher steel
costs, and faced sporadic shortages, for absolutely no reason.

Faced with
failure on every front, the Bush administration did the right thing and
repealed the tariffs. Not that it was honest about the failure. Instead it
claimed its policy worked so well that it could now repeal it. This is like a
physician prescribing poison and then changing his mind. He can't but try to
put the best spin on it, I suppose.

But what a beautiful example of the powerlessness of government this is! The
Bush administration wanted to save American industry and only ended up vastly
raising the costs of doing all forms of business. More cutbacks are inevitable
as steel production shifts to other countries and the US finds its comparative
advantage elsewhere.

Much
legislative energy is poured into helping some groups gain favorable treatment
in the workplace. I'm thinking here of the usual litany of victim groups as
identified according to race, ability, sex, national origin, religion, and the
like. Have these laws actually helped the group in question? The results are
mixed at best. If you send people out into the workforce with a high price
attached to their heads - and the prospect of a lawsuit is a very high price
indeed - you only make employers less likely to hire them.

I don’t
doubt that some people have been helped by these laws, but they are not the
people most in need of help. Today, the disabled, blacks, women, and religious
minorities go in search of jobs with a major problem: employers fear them on
the margin, and, on the margin, are less likely to hire them relative to
others, provided they can get away with it. It is the least qualified among
them who pay the highest price. A good test case is disability: it is a
documented fact that unemployment among the truly disabled is higher today
than it was when the Americans with Disabilities Act was passed.

Because
libertarians know in advance that government policies are destructive, we tend
to focus our editorial energy on pointing to its destructive effects. But in
our zeal to draw attention to issues others ignore, let us not forget the
bigger picture. There are always limits to what the government can do, and the
government's destruction is always accompanied by examples of great creativity
on the part of the market.

Even as
government dominates the headlines, private entrepreneurs are busy every day
working to improve products and services that improve our lives. They do it
without taxing us or regulating us, or making us suffer through tedious
elections or political debates. They make their products and offer them to us
in a way that pleases the consuming public the most. We can choose whether we
want them or not.

Consider the
success of Wal-Mart. If government had set out to create a volume discounter
that made a world of material goods and groceries available to the multitude
in all countries, it might have tried for a thousand years and not created
anything resembling this company. Even the military has relented and now
routinely points its employees not to its on-base stores but to Wal-Mart,
Office Depot, and others for the best prices.

Foreign
development aid is another example. It took decades to get the message across,
but today finance ministers in the developing world understand that they have
far more to gain through integration into the world economy than from
development aid and all the restrictive policies that come with it. Today, as
Sudha Shenoy points out, the largest resistance to new trade deals comes from
the developing world, not because they don't want trade but because they
desire trade without the labor and environmental controls the US demands.

The same is
true in the area of communications. In the last century, governments aspired
to control them all: the phones, the mails, the media. Today, we see that
government, in practice, controls very little of the communications industry,
despite every attempt to hobble private enterprise.

In that same
vein, a major issue for everyone these days are computer viruses and spam,
which threaten to make our chief mode of communication less reliable. Congress
passes ineffectual legislation against spam and viruses, while private
enterprise has given us dozens of means of winning the battle.

Private
enterprise creates; government destroys. That is the great economic lesson of
our times and all times.

Of course there is one way in which government never fails. It can loot. It
can gain footholds into society's command centers. It can punish enemies. It
can even indoctrinate people in its preferred vision of the world through
propaganda.

This is the
best way to understand the public school system. It doesn't work to educate
but it does work to transfer vast sums from the private to the public sector.
And here too, we see the power of private enterprise: booster clubs in public
schools represent a de facto source of privatization, and the clubs and groups
connected to them are the only really successful things going on in public
school.

We’ll hear
much in the coming months about all the wonderful reforms politicians are
going to bring us. This is the time when politicians vie for our allegiance by
telling all about their ideas and vision for the future. As usual, they will
parse their words in ways to maximize the numbers of people who are persuaded
and minimize the amount of trouble they get into for inadvertently telling
people something they don't want to hear.

As an aside,
whoever came up with this idea of a mass democracy just wasn't thinking things
through very clearly. Nothing runs well by majority vote, to say nothing of
the fact that a truly free society shouldn't be"run" at all; it
works on its own without would-be masters-and-commanders grasping at the helm.

Let me then
offer to you my own top ten list of political lies you are told, all designed
to make you believe that government should have more power than it already
has, so that it can create more of the disasters we are accustomed to:

10. My new
program will generate jobs. Truth: only the market generates jobs on net.

9. My
education program will reform schools so that they leave no child behind.
Truth: the public schools do not work for the same reason no government
program can work. They exist outside the market economy.

8. My program
will save industry x. Truth: industry must be part of the market or else it is
not really industry at all.

7. I won't
raise your taxes but I will pass lots of new programs: Truth: all programs
must be paid for.

6. As president, I will pursue a humble foreign policy. Truth: nothing in the
office of the president encourages humility.

5. This war is
humanitarian and winnable. Truth: war is nothing but a government program on a
massively destructive scale, and just as error prone.

4. My reform
will bring market-based competition. Be on the lookout for this lie, which
market partisans are likely to believe. There is only one kind of genuine
market, and it is rooted in private property and nothing else.

3. We will
secure the nation. Truth: government cannot provide security better than
markets, any more than it can provide food or houses better than the market.

2. Government
is compassionate. Truth: men who seek power over the lives of others are the
coldest, cruelest humans of all.

1. You can't
love your country and hate your government. Truth: A person who loves his
country loves liberty first.

One hundred
years from now, the great story of the latter part of the 20th century and the
first part of the 21st century will be the vast improvements in life wrought
by technology. Consider the web, the cell phone, the PDA, the affordable
laptop computer, advances in medicine, and the spread of prosperity to all
corners of the globe. What has government had to do with this? The answer is:
nothing contributory. It has worked only to impede progress, and we can only
be thankful that it hasn't succeeded.

Through all of
human history, governments have caused frightening levels of bloodshed and
horror, but in the end, what has prevailed is not power but the market economy.
Even today governments can only play catch-up. This is because of the reasons
that Mises outlined. Government cannot control the human mind, so it cannot,
in the long run, control the choices people make. It cannot control economic
forces, which are a far more powerful and permanent feature of the world than
any government anyway.

Governments
have a propensity to overreach in so many areas of life that their exercise of
power itself leads to their own undoing. The overreach can take many forms:
financial, economic, social, and military. In this way, and with enough
passion for liberty burning in the hearts of the citizenry, governments can be
responsible for their own undoing. It comes about as a result of
overestimating the capacity of power and underestimating its limits.

I believe this
is happening in our time. It may not be obvious when taking the broad view,
but when you look at the status of a huge range of government programs and
institutions, what you see is a government that is at once enormously powerful
and rich, but also fragile and teetering on the brink of bankruptcy. Events of
the last year indicate just how far the government has slipped in its ability
to manage the economy, society, culture, and world order. Despite the exalted
status of the state today, the vast and sprawling empire called the US
government may in fact be less healthy than it ever has been.

A few months
back, we had a special speaker come to Auburn, probably the most famous man
who has visited us since the Country and Western star Alan Jackson was in town.
He was Mikhail Gorbachev, a very interesting figure in the history of nations.
He came to power with the reputation of a reformer and instituted many reforms
that were designed not to give more liberty to the people, but to stop the
unraveling of an empire before it was too late. But it was too late. All his
talk of perestroika and glasnost couldn't fool the people, who had become
convinced that the Soviet machine was something of a hoax.

The empire
unraveled not because of him, but despite his efforts to save it. When it came
time to make the critical decision of whether to try to hold the empire
together by more and more force, or not, history had already made the choice
for him. The empire dissolved in the blink of an eye. Not too many months
later, he was out of a job, not because he was recalled in some formal process,
but because the forces of history had run him over.

Democratic
governments are not immune from the forces of history that overthrew Soviet
tyranny. All governments overreach and no government is permanent. So let us
fear government but not exaggerate its powers. It can cause enormous damage
and it must always be fought. But in this struggle, we are on the right side
of history. The power of human choice, aided by the logic of economics and the
laws that operate without any bureaucrat's permission, are our source of hope
for the future.

_______________________________



Llewellyn H. Rockwell, Jr. [rockwell@mises.org] is
president of the Ludwig von Mises Institute in Auburn, Alabama, and editor of
LewRockwell.com.

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