Social Theory: July 2009 Archives

Looks like the world is going crazy. Yesterday, the Chairman of the Federal Reserve, Ben Bernanke, gave a testimony to the US Senate panel on Fed policy. 

I often write about the importance of free markets and the dangers of big government. There seems to be a lot of confusion these days about the meaning of those two concepts, especially when seen through the prism of traditional political left/right divisions.

Yesterday, a friend of mine pointed out that the current crisis was created under George W. Bush. If free markets and small government are really the solution, how come a "right-wing" president who "reduced taxes" brought us into this mess?

That's a great question, and president Bush is a perfect example of all the misconceptions people have about economic policy and the right-left division in US politics. How so? Let's look at the numbers.

Bush may have reduced (some) taxes, but federal spending during his two terms went up 19.7% and 25.3% respectively, not including defense spending. If you include spending on security and other adventures, the growth is almost 50%.

"Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion....To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end.... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression."

Karl Marx once wrote that every historical occurnce happens twice: first as a tragedy, second as a farce. Above is an excerpt from an essay published by F.A. Hayek in 1933, at the height of the Great Depression. It is based on an essay he published in German in 1928. Not much has changed.

"But certainly for the present age, which prefers the sign to the thing signified, the copy to the original, fancy to reality, the appearance to the essence, this change, inasmuch as it does away with illusion, is an absolute annihilation, or at least a reckless profanation; for in these days illusion only is sacred, truth profane. Nay, sacredness is held to be enhanced in proportion as truth decreases and illusion increases, so that the highest degree of illusion comes to be the highest degree of sacredness. "

Ludwig Andreas Feuerbach, The Essence of Christianity, 1841.

The global financial crisis rekindled the debate about the advantages of central planning as opposed to free markets. Various "experts", including leading American economists, are using the crisis to promote their political agendas and call for increased regulation on, and government intervention in the market , both nationally, and globally through institutions such as the UN and the IMF. I am now working on a longer post regarding the dangers these ideas pose to individual freedom and global stability. In the mean time, it's important to note that such ideas are not new, and have been found wanting by the test of time.