Tuesday, February 21, 2012

Liberty, Personal Responsibility, MOM and Government "Austerity"

One current view says that European countries, as well as the U.S., need more government spending to remedy all the economic issues of today. A contrary argument says that what is needed is the exact opposite approach--less government involvement. Let's examine each.

Paul Krugman is a liberal columnist for the New York Times. He is of the school that we need much more government spending. In Pain Without Gain, Krugman makes his case:

"Worse yet, European leaders — and quite a few influential players here — are still wedded to the economic doctrine responsible for this disaster. . . .

Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.

Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending. . . .

So what will it take to convince the Pain Caucus, the people on both sides of the Atlantic who insist that we can cut our way to prosperity, that they are wrong?

After all, the usual suspects were quick to pronounce the idea of fiscal stimulus dead for all time after President Obama’s efforts failed to produce a quick fall in unemployment — even though many economists warned in advance that the stimulus was too small. Yet as far as I can tell, austerity is still considered responsible and necessary despite its catastrophic failure in practice.

The point is that we could actually do a lot to help our economies simply by reversing the destructive austerity of the last two years. That’s true even in America, which has avoided full-fledged austerity at the federal level but has seen big spending and employment cuts at the state and local level. Remember all the fuss about whether there were enough “shovel ready” projects to make large-scale stimulus feasible? Well, never mind: all the federal government needs to do to give the economy a big boost is provide aid to lower-level governments, allowing these governments to rehire the hundreds of thousands of schoolteachers they have laid off and restart the building and maintenance projects they have canceled."

Here's my question about Krugman's views. Is he nuts or does he really believe that nonsense? And how would he define government austerity in relation to personal freedoms and responsibilities?

In Krugman's view, austerity means not taking more (MOM) money from individuals to give to politicians to spend on other individuals (OPM), such as hundreds of thousands of additional schoolteachers. In other words, his view of good government is for government to take more money from citizen A in order to give most of it to schoolteacher B, with an interim "handling charge" by government.

But why do I believe Krugman is nuts? Doesn't this all this government "austerity" hurt the economy and the people as well? As a matter of fact, no, it doesn't. What it does harm a great deal, however, is the exercise of free choice about MOM by citizen A.

Since most of us believe in the ideal of individual liberty as the proper path to a better life and a more prosperous economy, the fundamental connection between liberty and personal responsibility must be understood, lest the Krugmans of the world take our liberties from us in the name of "fairness."

Now that we've listened to what Krugman has to say about the evils of government "austerity," let's consider F.A. Hayek's views on liberty and MOM. Contrary to Krugman's liberal dogma, personal liberty and responsibility form the core of Hayek's principled argument for reduced government intrusiveness.

Here's what Hayek said about liberty on page 68 in his 1960 book "The Constitution of Liberty:"

"Not only is liberty a system under which all government action is guided by principles, but it is an ideal that will not be preserved unless it is itself accepted as an overriding principle governing all particular acts of legislation.

Where no such fundamental rule is stubbornly adhered to as an ultimate ideal about which there must be no compromise for the sake of material advantages—as an ideal which, even though it may have to be temporarily infringed during a passing emergency, must form the basis of all permanent arrangements—freedom is almost certain to be destroyed by piecemeal encroachments. For in each particular instance it will be possible to promise concrete and tangible advantages as the result of a curtailment of freedom, while the benefits sacrificed will in their nature always be unknown and uncertain.

If freedom were not treated as the supreme principle, the fact that the promises which a free society has to offer can always be only chances and not certainties, only opportunities and not definite gifts to particular individuals, would inevitably prove a fatal weakness and lead to its slow erosion."

Earlier on page 30 Hayek said this:

"All political theories assume, of course, that most individuals are very ignorant. Those who plead for liberty differ from the rest in that they include among the ignorant themselves as well as the wisest. Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant."

So we have a really simple choice to make; either we choose a society based on (1) freedom and the related personal responsibility that requires or (2) an elitist "government knows best" redistribution approach which results in less individual freedom and greater government dependence.

The knowledge possessed by an elite few is never a match for the cumulative knowledge of the whole society. Of this I'm certain.

I'm also certain that in a free society, when one learns something or discovers something new, the rest of us will relatively soon benefit from that newly discovered knowledge.

I'm also certain that we're all ignorant about most things, but we're all quite capable of learning quickly from others who have gained new knowledge or discovered new things. Hence, increased knowledge by one soon accrues to the benefit of the civilization as a whole.

That's why we shouldn't concern ourselves with income inequality but instead accept it as a way of more quickly spreading prosperity throughout our society as new things are discovered and new knowledge is created. {We'll tackle the income inequality issue down the road but not now.}

For now, just think of Steve Jobs and the example of the Apple iPhone. As is the case with knowledge, in economic terms what begins as the luxury for the few leads to the necessity for the many. But first, someone has to start the innovation entrepreneurial ball rolling, take chances and be allowed to benefit from his actions.

Whenever we take from A to give to B, we're reducing A's freedom to act. And by so doing, we're perhaps slowing our society's advancing knowledge as well as its overall prosperity.

For some reason, the elitist Krugmans of the world can't seem to grasp that simple fact. They don't see, or choose not to see, the unseen or the uncertain related to what A may have done had he been free to do so. They believe wholeheartedly in their elitist government knows best system of redistribution.

One can't possibly know what we all know. Neither can a few know what's best for the whole. And when we take from A to give to B, we'll never know what A would have done had his money not been taken from him by the government.

But we can rest assured that A most likely would have made a much better choice than either the government official or B will make about spending A's money.

To me, the really simple story is that the growth of government spending and continuing interference with liberty and personal responsibility--from the Depression era of the 30s through the Great Society and War on Poverty period of the 60s and including today's stimulus/austerity/debt debacles worldwide--has made us weaker--not stronger. Government has grown more powerful as the people have grown more dependent.

So taking less from A will always be a good thing, even if Krugman calls it "slashing spending" or government austerity.

Less redistribution from private sector individual A to public sector employee B will reduce the intrusive role of government and the amount of government interference in our individual lives.

Allowing more individual choice concerning MOM isn't austerity. Encouraging that choice combined with greater personal responsibility is the absolute right thing to do for one and all, B included.

I'm also certain that A would like that. A whole lot.

Thanks. Bob.

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