Mark W. Hendrickson
Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Value, and Forbes.com.
The Wall Street Journal’s Peggy Noonan Repeats Leftwing Propaganda about Capitalism
Peggy Noonan’s weekly column in last Saturday’s Wall Street Journal was entitled, “Socialism Gets a Second Life.” It was about the rising popularity of Bernie Sanders, the self-avowed “democratic socialist,” and what explained his popularity among younger voters.
It all made sense until near the end of the article, where Noonan wrote: “Do you know what’s old if you’re 25? The free-market capitalist system that drove us into a ditch.”
Whoa, time out! What “free-market capitalist system” are you referring to, Ms. Noonan? You’ll get no argument from me about the “ditch” part. Indeed, we have suffered through a multi-year economic funk that has left many young Americans on the outside looking in. But to write that it was a “free-market capitalist system” that produced these justly lamented conditions is an egregious error.
Our current economic system is anything but “free-market capitalist.” Under the last two presidents, annual federal spending ballooned from $1.86 trillion in George W. Bush’s first year in office to $3.75 trillion in his last year — enough to raise the national debt from $5.7 trillion to $19 trillion today.
The housing and financial crisis of 2007 and 2008 resulted from political interference with free markets. (A few lowlights: the Federal Reserve held interest rates artificially low; the administrations of Presidents Bill Clinton and G. W. Bush used regulatory pressure to induce financial institutions to issue mortgages without verifying creditworthiness; Fannie Mae and Freddie Mac issued loads of risky mortgage-backed securities that went bad.)
Since then, we have not embraced freer markets, but instead have increased government intervention and made markets less free.
The unjust TARP bailout was followed by President Barack Obama’s non-stimulating “stimulus” federal borrowing and spending of additional hundreds of billions of dollars. The Fed essentially suspended the market prices — interest rates — that coordinate present with future production with its prolonged zero-interest rate policy. Key industries have been brought further under the control of the federal government — health care via Obamacare; energy via EPA throttling of coal, Interior Department resistance to drilling for oil on public lands, subsidies for green boondoggles, etc.; the financial industry by Dodd-Frank’s unaccountable Consumer Financial Protection Bureau; the home mortgage industry via the nationalization of Fannie and Freddie; the semi-nationalization of the college loan market.
Government regulation continues to increase and now costs Americans nearly $2 trillion per year. The highest taxes in the world on corporate profits drive some companies offshore and contribute to a pervasive anti-business climate that has brought us to the worrisome condition of businesses closing at a faster rate than they are opening, thereby reducing job opportunities. “Free markets”? Not even close.
It’s bad enough that progressives resort to Orwellian Newspeak — calling an economy bludgeoned and weakened by massive government intervention “free markets” — as a technique for unfairly discrediting markets and providing false rationalizations for more government control, but when The Wall Street Journal editorial crew lets them get away with it and, even worse, lends credibility to the lie, it’s no wonder that kids don’t know better than to latch on to Bernie Sanders’ utopian socialist nonsense. (Indeed, as TheBlaze recently reported, many Sanders supporters can’t begin to define socialism, but that’s no excuse for our side not defending free-market capitalism from mischaracterizations.)
We have an uphill challenge ahead of us, but we need to explain to young people that the economy has struggled because President Obama has repeatedly attacked markets and waged economic warfare against the middle class that would have made Karl Marx proud, and that electing Bernie Sanders or Hillary Clinton would be to partake of more of that economically poisonous brew. If it’s change that young people crave, then try free-market capitalism. That’s the approach we haven’t tried for too long a time.
Hillary, Guns, and a Divided America: Two Different Worldviews
Leigh Munsil, political editor of TheBlaze, reported over the weekend that Hillary Clinton played the gun control card while campaigning in Ames, Iowa, on Saturday.
Clinton’s pitch was oh-so-cleverly planned: She assured conservative Iowans that any actions on gun control would “certainly be done consistent with the Constitution and the rights of gun owners.” Then she scored points with liberals by slandering opponents of government gun control by shamelessly charging that “one of their highest priorities [is] lowering the age from 14 to let more children be able to legally have guns.”
As an added emotional touch, Clinton was accompanied by the sympathetic figure of former U.S. Rep. Gabby Giffords, who was tragically wounded in a 2011 shooting spree, and Giffords’ husband, Mike Kelly, who characterized opposition to gun control as a plot by a “powerful corporate lobby” (evil corporations being the left’s omnipresent bugaboo).
Let’s back off the emotional manipulation and political theater and try to take a sober look at the gun control issue. At his town hall meeting about guns last month, President Barack Obama stated that, when it comes to guns, “People occupy different realities.”
This doesn’t happen often, but I agree with the president 100 percent.
There does happen to be one gun-related point on which Republicans and Democrats are united: We all yearn for the end of murders and mass murders (whether by guns or other means). When it comes to gun ownership, though, we are divided by two fundamentally different worldviews.
Investor’s Business Daily recently published a survey that attempted to quantify the differences between Republicans and Democrats on the gun issue. Does increased gun ownership lead to more crime? More than two-thirds of Democrats think it does, while 80 percent of Republicans think that increased gun ownership actually reduces crime. Similarly, “72 percent of Democrats believe that stricter gun control laws would significantly cut crime [but] only 14 percent of Republicans” do.
These starkly divergent beliefs result from Americans differing politically about ideology, philosophically about idealism, and psychologically in terms of what we fixate upon.
In terms of political ideology, Democrats by and large are liberals and progressives who believe in the efficacy of government. To them, government is the great power, the benevolent force, the necessary agent for improving society. By contrast, most Republicans and conservatives share our Founding Fathers’ distrust of government power, as summarized in the 9th and 10th Amendments.
Knowing that there has been a perennial battle throughout human history between individual rights and liberty on the one hand and government power on the other, our Founders adopted the Bill of Rights, including specifically the right to bear arms, and then gave us the 9th and 10th Amendments as the capstone to their vision, making it clear that anywhere there was a doubt, the presumption was to be in favor of individual rights over government power.
In terms of idealism, the progressive worldview includes a quixotic quest for a risk-free world. Whether it’s suing somebody because they don’t think it’s fair that their own stupidity, mistakes, or poor judgment should result in any injury to themselves, or their desire for cradle-to-grave security in the form of Big Government taking care of their every need, the left believes that government can engineer a world in which injury and death can be minimized through government provision of a safe, risk-free world.
Conservatives, by contrast, reject such notions as impossibly unrealistic, understand that a government given too much power to “take care of us” is a threat to liberty, and recognize that the hazards of this world require us to remain mentally alert, adopt prudent precautions, and accept responsibility for our own welfare.
In terms of psychology, we have a classic divide between those who see the glass as half empty and half full. Republicans see the benefits of guns. Interestingly, in 2013 President Obama commissioned the Center for Disease Control to study the impact of guns in America, and the CDC’s findings were the opposite of what the anti-gun Obama was hoping for.
“Self-defense can be an important crime deterrent,” said the report.
Guns are an effective and often used crime deterrent. . . . Studies that directly assessed the effect of actual defensive uses of guns (i.e., incidents in which a gun was “used” by the crime victim in the sense of attacking or threatening an offender) have found consistently lower injury rates among gun-using crime victims compared with victims who used other self-protective strategies.
The CDC study confirmed earlier studies estimating that guns deter criminal aggression anywhere from half a million to 3 million times per year — a huge number compared to fewer than 11,000-13,000 murders by firearms per year.
I’ve presented some arguments in defense of gun ownership in the past, but facts, data, and reason rarely change somebody’s mindset about guns. Americans are divided by ideology, idealism, and psychology, and that isn’t going to change.
Antonin Scalia, George Washington, the Constitution on Our Future
As those of us who still revere George Washington remember him on his birthday (the actual date — February 22 — not the wan counterpart known as Presidents’ Day). I am struck by a strong link between the recently departed Justice Antonin Scalia and the Father of our country. Both men did their utmost to preserve the integrity of our precious Constitution.
In his Farewell Address, which has been read in the U.S. Senate every year since 1896, he eloquently states that officials in each branch of the government — legislative, executive, and judicial — should
. . . confine themselves within their respective constitutional spheres, avoiding any exercise of the powers of one department to encroach upon another . . .
because such encroachments lead to “a real despotism.”
It was this type of encroachment that Justice Scalia lamented in his opinion last summer in the Obergefell decision that legalized homosexual marriage when he referred to the Supreme Court’s decision as a judicial putsch.
Contrary to what some progressives assert, Scalia’s attempt to honor and uphold the original intent of the Constitution was not designed to tie us to the past.
Scalia would concur with Washington (again, in the Farewell Address):
The basis of our political systems is the right of the people to make and to alter their constitutions of government.
. . . if, in the opinion of the people, the distribution or modification of the constitutional powers be in any particular wrong, let it be corrected by an amendment in the way which the Constitution designates. But let there be no change by usurpation; for though this, in one instance, may be the instrument of good, it is the customary weapon by which free governments are destroyed. The precedent must always greatly overbalance in permanent evil any partial or transient benefit, which the use can at any time yield.
Washington’s warning here is clear and his wisdom is timeless: Beware of cutting constitutional corners for the sake of expediency. Yes, an expanded, Constitution-busting exercise of power may indeed benefit you today, but the expansion of state power leads to a permanent diminution of liberty that will haunt you in the long run.
This vital point about constitutional integrity is either too subtle for the left to grasp, or they are so intoxicated by their zeal to get what they want that they either fail to believe that the expanded power of government will ever be used in a way of which they disapprove, or they are willing to roll the dice about the future in exchange for getting something they want today.
Indeed, here we see one of the fundamental differences between conservatives and libertarians on the right and progressives/liberals on the left: The left focuses on what they want, and the right (which includes Scalia and Washington) focuses on how. The difference is crucial.
Progressives are so convinced of the rightness of their positions, that they believe the end justifies the means. In their view, why should a document written in the 18th century get in the way of what progressive-thinking people in the 21st century want? To progressives like President Barack Obama, the Constitution is a nuisance to be swept aside. To constitutionalists, like Washington and Scalia, the Constitution is sacred and a protection.
The progressive philosophy that regards the constitution as a “living, breathing document” in practice makes our constitution a dead letter. If any branch of government can ignore, bypass, disobey, or nullify any constitutional stipulation today — even if the action is favored by millions of Americans — what is to keep government officials from ignoring, say, the First Amendment tomorrow?
Justice Scalia’s dissent in Obergefell last summer vividly warns us about how close we are to losing our rights and liberties to what Washington called “usurpation” of the constitutional order. From the point of view of Washington and Scalia, Obergefell sets an ominous precedent: It establishes the undemocratic, unconstitutional doctrine that vital points of law are being enacted, not by the people’s elected representatives in Congress, as the Constitution stipulates, but by as few as five unelected judges who have no compunctions about usurping the Constitution.
Whoever succeeds Justice Scalia, then, given the current 4-4 ideological split on the Court, may bear the awful burden of going down in history as the one who either put the nail in the coffin of our country’s original constitutional vision — that we are a nation of laws, not men, and with a limited government that cannot abrogate “unalienable” individual rights — or who will take the side of Scalia and Washington and slow our slide down the slippery slope to tyranny.
Republican senators will be subjected to enormous pressures to approve the person whom President Obama nominates. It is quite possible that some of them will lose bids for reelection if they don’t. The rest of us have to hope that those GOP senators understand that our entire constitutional order is at stake, and that they have the nobility of character and love of country that would lead them to put the Constitution ahead of their own personal career goals.
In addition to the fundamental issue of preserving some remnant of constitutional order, Sen. Rand Paul offers a second compelling reason for Republican senators not to approve an Obama appointee: In light of Obama’s arrogations of executive power that are constitutionally dubious, it would constitute what Sen. Paul called a “conflict of interest” — indeed, it would make a mockery of justice — to allow Obama to appoint the justice who likely would be the deciding vote in cases in which Obama essentially occupies the seat of the defendant (a point about which progressives are oblivious, and so, in their usual supercilious fashion, they are ridiculing Rand Paul. As stated before, the left wants what it wants, and it is not particularly concerned about constitutional integrity in its efforts to get it.)
Let us hope and pray that the wise and caring advice imparted by the George Washington in his Farewell Address goes to the heart of every U.S. senator this February 22. Antonin Scalia did an outstanding job of upholding Washington’s standards and the integrity of our Constitution. Whether his successor does the same or not will make a huge difference in the future direction of our Republic.
Financial Regulation and the Conceit of the Do-Gooders
Last week, Richard Cordray, the director of the Consumer Financial Protection Bureau (the incarnation of the Dodd-Frank law) made the news. He is leading a regulatory push to lower the price of payday loans.
The Wall Street Journal quoted him as saying:
I personally believe banks and credit unions can be low-cost providers of small-dollar loans. I think that . . . there would and should be an ability for them to offer decent products.
This statement is both sad and scary. It’s sad because of the economic ignorance it manifests. It’s scary because this economically ignorant man wields awesome powers, yet lacks the wisdom to use those powers helpfully, and he remains essentially unaccountable to anyone who just might have a better grasp of economic reality than he does.
We all are entitled to our opinions. And when he says, “I personally believe…” and “I think,” Mr. Cordray is making it plain that he is dwelling in the realm of opinion. In his opinion, (which, alas, carries more weight than yours and mine, due to the regulatory power he wields) financial institutions can afford to continue supplying small, short-term loans at lower prices than they currently charge. Apparently, he knows better what banks can do profitably than the banks themselves do. Cordray also injects a normative concern: Lenders “should” be able to offer “decent products” — implying that the products they offer now lack decency.
Let’s address the decency issue first.
What gives Mr. Cordray the right to arbitrarily decide what fees (interest rates, application fees, or whatever) are “decent”? He thinks lending institutions should charge less. What would he think if some government bureaucrat presumed to tell him the price at which he could sell his house or automobile? Cordray rightly would tell the bureaucrat to buzz off because he has a right to sell his own property for whatever he thinks it is worth and whatever someone else is willing to pay for it. In short, he would stand up for his property rights. It is no different for moneylenders. They decide what price to ask for the use of their property. It is a peculiar notion of justice that individuals should be free to charge what they want for their property rights, but businesses shouldn’t.
This brings us to the underlying economics. Nobody compels a person to take out a payday loan from a particular lender. If the would-be borrower thinks that a lender’s fees are too high, he or she is free to seek out more favorable terms from another lender. The fact that borrowers haven’t borrowed from another lender indicates that the borrowers weren’t able to find a better deal elsewhere; thus, they are getting the best deal available to them.
Mr. Cordray, of course, wishes that they could get cheaper loans.
Why doesn’t he start his own business and do what he thinks should be done himself? Ah, that’s right — he’s too busy saving the world from his lofty perch in Washington. But why don’t other lenders come along and offer lower interest rates on loans? After all, there are always enterprising individuals searching for ways to make a buck.
The economic fact of the matter is that if the current lenders were making large profits from the small-loan business, then some other lender or lenders would enter that market to get a piece of that juicy action. The fact that they don’t enter a market they are free to enter indicates that the current lenders are charging a market rate for their services — low enough to entice customers, high enough to make it worthwhile to the lender, but not so high as to attract lower-cost providers into the market. That is the way competitive markets work, Mr. Cordray.
Cordray apparently wants to impose a price ceiling on how much payday lenders can charge. If he crams prices below the market price, a shortage will develop. Demand for such loans will rise at the same time that the supply of such loans will diminish. That may prove beneficial in the short run for those individuals lucky enough to get the loan they need, but it could be devastating to those who can no longer get such loans. In fact, those unfortunate individuals will have no other choice but to turn to black markets to get the funds they desperately need. In those black markets, prices will not only be higher, but the consequences of failing to repay could be much grimmer (think broken kneecaps and other unpleasantness).
I will say one thing for Mr. Cordray: The ignorance and conceit that leads him to presume to lecture lenders on how to operate their businesses and to pass moral judgment on people whose businesses he really doesn’t understand are not his unique faults. The whole progressive movement is riddled with them.
In fact, Cordray’s conceit is at least matched, if not greatly exceeded, by Hillary Clinton. The Democratic presidential wannabe has proposed a plan to give federal regulators the power to “break up any financial institution that is too large and risky to be managed effectively.” That probably sounds reassuring to voters who shudder at the recollection of the financial panic of 2008, but stop and think for a minute: What makes Hillary wiser and more perceptive than the country’s financial experts? Where are the bright lines that will let her detect when a bank has gotten “too large” or “too risky”?
Does anyone seriously believe that Hillary Clinton (or any other politician) knows better than financial professionals with decades of experience how banks can be “managed effectively”? (Maybe that’s why major Wall Street firms pay her millions of dollars for an hour or two of her time — so she can give advice and solve their managerial problems for them. What do you think?)
No, the basic problem here is economic ignorance. Highly educated, intelligent people like Richard Cordray and Hillary Clinton may think they are smart enough to manage markets, but as the disastrous 20th-century experiments in political control of economic activity proved, there is no government in the world that can process essential economic information and coordinate economic activity with anywhere near the efficiency and effectiveness of free markets and the pricing mechanism. Hands off, do-gooders! Your blundering interventions will only make things worse, regardless of your intentions. *