“A sacred lie”

Doug French of the Mises Institute reviews a book

New president Barack Obama’s $3.55 trillion budget serves notice that if you thought government couldn’t get any bigger or more intrusive, think again. The budget “represents real and dramatic change,” according to the President. But really the Obama plan is just more of the same, with the federal government expanding its role in education, foreign policy, energy policy, health care, and environmental policy.

“The eyes of all people in all nations are once again upon us — watching to see what we do with this moment; waiting for us to lead,” Obama told the assembled and adoring senators and congressmen. “Those of us gathered here tonight have been called to govern in extraordinary times.” The new president believes government can fix the economy and anything else it sets its collective mind to, after all, “we aren’t quitters,” repeated the president.

But as Paul Cleveland explains, what Obama believes is a lie — a sacred lie. “The first, and biggest lie, is the notion that the institution of government is capable of successfully and adequately addressing all human problems,” Cleveland writes in his book Unmasking the Sacred Lies. “The truth is that such collectivism hampers human progress because it opens the door for many flagrant abuses of people and their property rights.”


The environment is big on the Obama agenda and Cleveland’s chapter on environmental policy shows why green is the perfect issue to expand governmental power. A generally prosperous people cares about the environment, so it votes for green candidates. Since the issue attracts votes, it attracts money, and ultimately “if carbon dioxide is classified as a pollutant, then every breath we take can be regulated by government.” That sums it up perfectly.

All of these laws put on the books to further policies for political ends, Cleveland explains, really amount to lawlessness. And lawlessness ultimately leads to a decline in civilization. The author would like to turn this trend around and have America return to a “nation founded upon the belief in natural law,” with people having rights — to life, to the freedom to act, and to property.

The real trouble, as professor Cleveland points out, is that the vast majority of people have accepted big government as the solver of all problems, thus Obama’s overwhelming election victory. Education is what is needed to fix this problem. It won’t happen overnight, but if more young people read sound, well-written books like professor Cleveland’s, the nation will ultimately return to its roots.

There are very few “respectable” politicians in India. Till sometime back, I had included Arun Shourie of the BJP, and Jairam Ramesh of the Congress in the list. I dropped Shourie because of his opposition to the nuke deal. And, while I have not been paying attention to what Ramesh has been doing, this interview means the list is now (nearly) barren.

Swagato Ganguly, writing in the Times of India says that if India is to progress, the Left has to be kept out of power-

Market bashers are having a field day in the current atmosphere of economic downturn, barely concealing we-told-you-so smirks on their faces. For those on the Indian left, the joys of power without responsibility are many. After handcuffing the UPA government to its economic policies through most of the UPA’s tenure the CPM, in its recently released election manifesto, is lambasting the UPA for increasing the “rich-poor divide”.

In doing so, the CPM has unwittingly revealed an important truth. The Indian left isn’t an egalitarian force working to reduce social and economic disparities across Indian society, even if it projects itself as such. In practice policies pushed by it widen the gulf between privileged and less privileged. The converse is also true. Market-friendly reforms can cut down on disparities by growing the middle class and encouraging a shift from agriculture to industry. The next government will need to push forward on sectors such as infrastructure, retail, education, agriculture, labour laws and FDI policies if it hopes to renew the economy. What’s needed in the Indian context are more market-oriented reforms, not less.

It speaks volumes about the triumph of left-wing discourse that reforms and market-oriented policies are automatically taken to have pro-rich and anti-poor implications by Indian political parties, no matter which part of the political spectrum they inhabit. For any party to stand up and say that market-oriented capitalism can deliver the goods better than statist socialism would be tantamount to political heresy. That’s why most reforms in India have to be undertaken by stealth, as their opponents charge. That’s also why they grind to a halt during good times when, arguably, they would deliver the least short-term pain while boosting significantly the long-term prospects of the economy.

The ET (either today, or the day before) carried a reprint of this Newsweek article by Robert Samuelson-

Joseph Schumpeter, one of the 20th century’s eminent economists, believed that capitalism sowed the seeds of its own destruction. Its chief virtue was long term—the ability to raise wealth and living standards. But short-term politics would fixate on its flaws—instability, unemployment, inequality. Capitalist prosperity also created an oppositional class of “intellectuals” who would nurture popular discontents and disparage values (self-enrichment, risk-taking) necessary for economic success.

Almost everything about Schumpeter’s diagnosis rings true with the glaring exception of his conclusion. American capitalism has flourished despite being subjected to repeated restrictions by disgruntled legislators. Consider the transformation. In 1889, there was no antitrust law (1890), no corporate income tax (1909), no Securities and Exchange Commission (1934) and no Environmental Protection Agency (1970).


If companies need to be rescued from “the market,” then why shouldn’t Washington permanently run the market? That is a dangerous mindset. It justifies punitive taxes, widespread corporate mandates, selective subsidies and more meddling in companies’ everyday operations. Older and politically powerful industries may benefit at the expense of the new. Innovation and investment may be funneled into fashionable, though economically dubious, projects (think ethanol).

His facts are right, but his arguments are wrong. Read the article to know what I mean. It also pays to revisit his 1992 article on Joseph “creative destruction” Schumpeter

“[C]apitalism … creates, educates and subsidizes a vested interest in social unrest,” Schumpeter wrote. Popular discontent and intellectual hostility would, he thought, doom capitalism and lead to socialism.

Of course, this prophecy remains unfulfilled. Quite the opposite has happened. By socialism, Schumpeter meant governmental control of production, and societies that adopted that system-from the former Soviet Union to China-are now repudiating it. Though personally opposed to socialism, Schumpeter assumed that socialist societies could prosper because giant economic organizations (whether public or private) would gradually master the process of innovation. The entrepreneur would vanish. On this, he was wrong.

Still, his basic insight survives: capitalist economic success, because it is incomplete and interrupted, breeds its own backlash. The sour public reaction to the present slow economic recovery only highlights a longstanding trend. The growth of Big Government-here, in Europe and in most advanced market societies-has aimed to placate popular discontent without undermining capitalism’s ability to raise living standards.

Were he alive, Schumpeter would surely be wondering whether these two desirable goals are incompatible. What we know is that the rise of Big Government-the expansion of welfare spending and regulation-has roughly coincided with a slowdown in economic growth. The trends are clear. Between 1960 and 1989, government spending in the United States rose from 27 to 36 percent of output; in Germany, the increase was from 32 to 46 percent. Meanwhile, economic growth in industrial countries slowed in the 1980s to about half the rate of the 1960s.

Samuelson ends the article with “[Schumpeter] is typically rated as the century’s second most important economist, behind Keynes.” Then you are reminded of the forgotten Ludwig von Mises, who Peter Boettke refers to as “greatest economic mind of the 20th century.” But remember that Keynes told politicians what they wanted to hear – that they could increase the size of government, and government spending without worrying about “old-fashioned” economic ideas. “That” is why he is the “century’s most important economist”. And “that” is why Mises won’t be recognized – he said that the government had no role to play in the economy. Which politician, and which bureaucrat, and which “intellectual” would be happy to hear that “they” are irrelevant?

As for the ordinary man on the street, you can make him believe anything. His position is not dissimilar to that of a monkey that is part of a road-side show. The primate will jump, roll over, and do any trick that its trainer makes it perform. The same is the case with the man on the street, with the politicians, bureaucrats, and “thought leaders” in control, telling him what to think, and what to do. The sad part is, he thinks that he’s in charge.

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  • raveler  On March 28, 2009 at 5:59 am

    Obama is a self proclaimed pragmatist, this explains his lunacy where it pertains to government expansion and spending; he is bereft both reason and logic. This blog remains informative with resounding relevant themes. (see my bolg, The Immorality of Government Spending) http://www.raveler.wordpress.com

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