January 13, 2013
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September 21, 2010

A Depression May Be Our Best Hope

By Monty Pelerin
Government has become Leviathan, and Leviathan has misbehaved and failed miserably.

Not since the Civil War has the political future been so tenuous. The Constitution is routinely ignored. The federal government is at odds with states over health care, immigration, and other issues. The public's wishes have been regularly ignored by their representatives.

The issue is how to shrink government back to its intended size. All westernized democracies have been on an inexorable march toward Socialism. Is such a trend reversible? How do you roll back Leviathan when it has no intent of allowing such a thing? No government has ever grown anywhere near this powerful and been downsized peacefully. It can be done, but probably not via the ballot box.  

Here is some key information on the current situation.

The economy is the worst since the 1930s:

  • The country suffered two recessions within seven years.
  • The stock market is 20% off from ten years ago.
  • Real weekly wages are below where they were in 1964. Real median wages are down almost 5% since 2000.
  • Unemployment is at unacceptable levels, with no signs of abating.
  • Housing price declines have driven wealth down and foreclosures up.
  • Living standards have contracted as a result of the above and a spending and debt binge that was unsustainable.
  • The poverty rate is at a fifteen-year high. Unemployment benefits and welfare sustain millions of Americans.
  • Personal bankruptcies are at all-time highs.
  • Governments at all levels are insolvent, as are many families.
  • Government is viewed as destroying the middle class to prop up the financiers.
Confidence in big government is gone, at least for much of the population.

Some factors include the following:

  • After a century of impossible promises, government is unable to fund its commitments. The same Ponzi scheme used by Bernie Madoff has failed with Social Security and other commitments.
  • The myth that government can solve all problems is over. Economic and social interventions consistently produce results worse than the original problems.
  • The greatest stimulus in the history of the world has failed and brought a sovereign bankruptcy closer.
  • Keynesianism again has failed. Without Keynesianism, government loses its principal reason to "manage" the economy.
  • Reprehensible behavior by government officials is commonplace. They routinely ignore laws that ordinary citizens must obey. The electorate has adopted a "pox-on-both-their-houses" attitude.
Chuck Rogér in "Sunrise in America" described the upcoming election:

Voters who want to choose their own cars, doctors, schools, and bankers will punish the ruling class for government intrusion. Elected know-it-alls who want to control our dinner menus, electricity usage, and thermostat settings will find themselves unelected. Achievers want to be free to achieve, not forced to bow to collective "equality" in the interest of "fairness." Tyranny is on notice. The purge is coming.

Mr. Rogér is correct. Yet translating voter results into actions is an entirely different matter. Vested interests amongst the parasite class (politicians and dependents) are strong. Parasites will fight reductions in both power and largess. Few voters believe "their goodies" should be cut. Subsequent campaigns are unlikely to be successfully run on "Vote for me and this is what I will take away from you."

A landslide election will not change things. We know that from history -- 1994 and 2008 being two recent examples. Changing parties is akin to voting out the Crips to put in the Bloods. In the words of H.L. Mencken, "A good politician is quite as unthinkable as an honest burglar."

In order to solve the problem, the political parasites must be caged. We must return to the restrictions imposed by the Constitution and Rule of Law. That cannot occur with only a change of faces or parties. The critters that run government must have no room to maneuver. Changes of this magnitude are alien to the public and the politicians. They will not occur via the normal political process.

People will eventually regain control of their government. They always do. Unfortunately, the process of history is slow and sometimes ugly. Multiple generations around the world have never known freedom. China and the Soviet Union are two examples that are just now transitioning toward freedom. Are we to enter some institutional dark ages, where our grandchildren and their grandchildren do not experience freedom? It is possible, because all governments prefer more power for themselves and less liberty for their citizens.

The required change is so great as to be analogous to an addict trying to break his habit. Most addicts have to hit rock-bottom before reality intrudes. In the case of the U.S., we are going to hit rock-bottom when the economy collapses. That is likely to be within the next few years. This world-changing event may (at least temporarily) drive a stake through the heart of big, oppressive welfare-state governments.

There is no guarantee that government will shrink when this happens. Civil unrest is a likely outcome. Statists may attempt to use the crisis to further expand government. Martial law and other restraints are likely. Hitler used a similar situation to rise to power. Parts of the Constitution were emasculated under New Deal policies that "had to be done" to pull us out of the Depression. Of course, we never got out of the Depression until after the end of WWII.

Economic pain and suffering will be great. Yet the economic calamity is unavoidable. It was preordained by years of government interventions. Even the political tsunami likely to occur in November will have no bearing on mathematical and economic laws. As stated by Ludwig von Mises,

There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.

We are coming off the biggest boom in the history of the world. If Mises was correct, and I believe he was, then Keynes was wrong (and I believe he was). Thus far, all the Keynesian dollars expended have had little effect other than to make the country poorer. If Mises was correct, we may have a Depression even greater than the 1930s.

No one wants another Depression, yet one is likely inevitable as a result of decades of economic mismanagement. A depression is not a good thing. Yet in this case, it may be the one event that can prevent a chapter in future history books entitled "The Demise of the Great American Empire." Unless citizens and politicians return to their senses, we will be both impoverished and living under tyranny.

A reaction opposite that of the 1930s is likely. Government is now seen to be the problem. It is no longer viewed as reliable, trustworthy, or a solution. Freedom is deeply ingrained in the American culture, and most of us recognize how much we have already lost. The resurgence of books such as The Road to Serfdom, Atlas Shrugged, and others of their ilk indicate that the public is interested. Historically low poll numbers for all politicians and the rise of the Tea Party movement are further indicators. The economic trauma may provide the catalyst to return to the founders' concept of government.

Totalitarianism needs the military. More than any other segment of society, the military respects and supports the Constitution. If push comes to shove, they are likely to defend the Constitution rather than the government.

The economy is in a Great Recession. Government has reduced itself to little more than an insolvent zombie, staggering around awaiting the coup de grace that will end its misery. The coming economic collapse is that executioner. When collapse happens, efforts to increase government are likely to be resisted strongly. The love of freedom will overcome the decades-long madness. No matter how things evolve, in the history books of the far future, there can be no better title to describe our current situation than "The Myth of Government."

If we must have a Depression, let it begin today. It will be hard and dangerous, but it may be the last chance to get our country back. When it happens, we must all think and behave like our Founding Fathers. To paraphrase Rahm Emanuel, this crisis will be too important to waste.

The "greatest generation" handed us a gift, and we fumbled it by allowing government to run wild. We cannot turn this mess over to future generations. We must take our country back!

Monty Pelerin blogs at at www.economicnoise.com.
on "A Depression May Be Our Best Hope"