intentions don't matter: individual freedom is moral, big government is not

Robert Sirico speaks with great wisdom in the WSJ op/ed published in today’s paper titled:  “The Vatican's Monetary Wisdom: More than 'greed,' fiat money and central-bank policies caused the financial crisis.”  I've copied the full op/ed below the following editorial comments; it is well worth reading.

I am familiar with Sirico because I have gotten to know him through his writings related to his role as president of the Acton Institute, which is one of the handful of think tanks whose mission and work I trust and support.   

This is from the Acton Institute home page:

“The Mission of the Acton Institute is to promote a free and virtuous society characterized by individual liberty and sustained by religious principles.”

The religious component is a very interesting (as well as a relatively unique) aspect of the Acton Institute mission statement's commitment to promoting a free and virtuous society characterized by individual liberty.   Other think tanks promote individual liberty and freedom but without an explicit religious orientation.  Some of my favorites include FEE (Foundation for Economic Education -- which is by far the best!!!!), CATO Institute, Mises Institute, Ayn Rand Institute, etc.  

There is a long history in the Christian tradition of support for socialism, statism and for government solutions to social problems.  The idea that we should help our fellow man has historically been used (erroneously) by various religions to justify government directed welfare systems.  It is one thing to help a man directly, human individual to human individual.   yes, i agree such charitable behavior is morally and ethically justified by Christian tradition.  But, when the process of local human to human compassion is transformed into a process whereby individuals are replaced or intermediated by a central government, then what happens is compassion turns into greed and corruption both for the providers (big government) and for the receivers (welfare recipients and so called underprivileged).

The Acton Institute is a rare institution promoting the ideals of individual liberty and limited government via the explicit use of Christian religious doctrine.   

The Acton Institute full name is "The Acton Institute for the Study of Religion and Liberty".  It is named after the great English historian, Lord John Acton (1834-1902) who is best known for his famous remark: “Power tends to corrupt, and absolute power corrupts absolutely.”  Inspired by his work on the relation between liberty and morality, the Acton Institute seeks to articulate a vision of society that is both free and virtuous, the end of which is human flourishing.

To clarify this relationship, the Institute holds seminars and publishes various books, monographs, periodicals, and articles.

It seems counter intuitive that Christian doctrine would argue that benevolent big government is immoral. 

The assumption underlying this important idea is that IF big government is brought in to solve social problems what is required is that the government must sacrifice the individual liberties of one group for the benefit of some other group.    For example, when government “levels the playing field” (which sounds moral and ethical and good) what it does is really evil because leveling the playing field requires coercive policies aimed at picking winners and losers in society.  What happens when government levels the playing field is that it turns society into an unethical battle of might makes right.   

Liberals say the market is an unethical battle between haves and have nots and thus they argue that government has to make things more fair.  This is nonsense.   Free exchange is by definition moral.

Both sides win.  Government intervention requires brute force to accomplish its goals. 

Of course, the know it all do gooders claim that their well intended ends always justify their tyrannical means.  And very often these tyrannical means are well hidden behind a Democratic process.   Our founding fathers understood that direct Democracy was an extremely flawed form of government because direct Democracy risks turning into a tyranny of the majority.  Adolf Hitler was voted into office by Democratic process after all!!!

Liberals use what appears superficially to be moral Democratic rhetoric to justify what is really tyranny and force.  If liberals can't get their way via direct vote, they justify government fiat to get their way by arguing that if people weren't so selfish they would see the fundamental morality of government policy aimed at improving society by reducing income inequality, reducing poverty, leveling the playing field, creating jobs, etc etc etc. 

Liberals argue that if only we weren’t all so selfish and we willingly went along with the ethical and moral way of life, then we would all be willing to hand over more of our hard earned incomes to the government for the greater good.

This is nonsense.  Government promises to deliver free-lunch outcomes to society are in all practical fact impossible to implement in the real world!!!  There is no such thing as a government provided free lunch.  If the government provides an economic good, e.g. public education or health care, the result will inevitably be a lower quality product at a higher price than a comparable good or service offered by in a competitive market.

I find it ironic that liberals decry private monopolies (because they claim these evil brutes will take advantage of market dominance in order to fleece customers) yet they believe that goverment monopolies are inherently ethical, moral and aimed at promoting public good. 

This is absolutely upside down logic.  Firstly, government monopolies protected by government fiat have zero incentive to carry out the public good.  Meantime, there is no obvious example in the history of the modern world where a private monopoly successfully took advantage (for any sustained period) whereby it caused a loss of public welfare by reducing supply and hiking prices above the market rate.  if a market player tries to screw the public there a thousands of entrpreneurs who are ready to supply an alternative product or service. 

when the government has a monopoly however on a service like public education or fiat money, then it is very possible, if not inevitable that the service ends up being of inferior quality or of higher price than comparable service provided by the market.  In markets, private firms that screw customers go out of business.  in the case of monopolies operated by the public sector, such as education or postal services, the service can run perennial deficits and yet it is bailed out by tax payer funding.

 

When the government is put in charge of leveling the playing field what happens is that the individuals in charge of actually carrying out this (supposedly) noble charge in the real world are ineluctably corrupted by their activities.  AS Lord Acton observed:  "power tends to corrupt and absolute power corrupts absolutely." 

the very process of picking winners and losers in society (required in government efforts to level the so called playing field in society) opens up even the most righteous individual to the temptation of graft, corruption, money skimming, vice, etc. etc. etc.

The free market is by definition moral.  I understand this is a heavy concept and contrary to what seems to be common sense.  But, the world doesn’t work according to the simple cause and effect logic we were taught in kindergarten.

The world works according to the logic of spontaneous order and unintended consequences.

That means we cannot use government to solve social problems directly because as soon as we use government in an attempt to accomplish noble goals, the implementation of this government plan is compromised (corrupted in the language of Lord Action) by "power." 

Having said all of that, I am not arguing that the market is perfect.  There will always be greed and bad behavior and people getting cheated.  Basic laws emerging out of a common law tradition are necessary in addressing behavior that adversely impacts another individuals right to enjoy their own personal freedom.  IT is not the case that free markets means "anything goes." 

Free markets operate according to the fundamental principle of mutual restraint.  If i do something that impinges on your right to personal liberty, I am doing wrong.  Government ought to be limitted to ensuring individual freedoms are mutually respected and guaranteed.

Too often nowadays, however, government usurps individual freedoms for some greater good.  The result is the very "might makes right" society that modern progressives and liberals claim they want to get rid of with government intervention.

The truth is that government intervention aimed at fixing markets or guaranteeing outcomes leads to an ends justify the means mentality which is amoral.   I don't believe it is possible to inject moral behavior into society using the brute force of government fiat.

When the government tries to fix market failures, it enters into a self reinforcing slippery slope (to hell) whereby government intervention has negative unintended consequences which begs new governemtn interventions which have negative unintended consequences and so on, until we end up on Fredrich Hayeks "road to serfdom."   Hayeks "road to serfdom" echoes the logic of the old proverb:   "The road to hell is paved with good intentions.  This proverb reflects how the world actually works, not how we wish the world worked.  Good intentions cannot deliver positive macro results because man cannot engineer market or social outcomes without also sowing the seeds of negative unintended consequences (worse than the original "problem"). 

The best way to ensure a virtuous society is to ensure the sanctity of private property rights and mutual freedom of exchange.  There is no way to judge objectively that an exchange is “Unfair.”  An exchange occurs when each party believes he/she will be make better.  The world works according to subjective assessments whereby people enter into exchanges to improve their welfare.  it may be the case that an exchange is a bad trade.  but then it is a learning experience.  if the exchange was entered into freely, then it is an ethical exchange.   

There is no way to objectively assess trades and ensure they are “fair” in any objective sense.

Liberals accuse free-market types as impractical dreamers whereas the liberals claim themselves to be the hard headed practical ones trying to solve real problems in the real world.  What liberals don’t understand is that their real world solutions to social problems are IN FACT complete FANTASY assuming that free lunches are possible in the real world.  In the real world, the government cannot deliver free lunch win/win solutions to society.  The only win/win solutions for society come when individuals come together freely in society to exchange goods and services with each other and in the process engage in a never ending division of labor -- which leads to productivity and welfare gains for individuals and society as a whole.  Division of labor requires that incomes be divided unequally!!!!

the only way to ensure income equality is to prevent division of labor, which by definition is a sure way to impoverish society.  Is less income inequality better than more income inequality?  it is impossible to make this statement for two reasons.  number one, there is a natural rate of inequality in society that emerges from the process of division of labor.  It is hard to know what this natural rate of income inequality is supposed to be.

if we see a situation where income inequality is very exagerrated like for example in Brazil or even in the US today, we may be tempted to say -- we must reduce income inequality.  But, we cannot reduce income inequality directly without injecting negative unintended consequences into society that are worse than the income inequality problem we have identified.  What we can assume is that an exagerrated income inequality distribution in society is NOT the result of flaws in the market.  The market leads to income inequality, but it does not lead to the sort of dysfunctional income inequality we see in Brazil.  the source of dysfunctional income inequality MUST be a result of some government regulation or intervention or market distortion or subsidty that facilitates rent seeking opporunties and government supported wealth accumulation of some kind!!!  The only way to reduce income inequality is to reduce government intervention in the economy, not to increase it, which will only make problems worse.  the perfect example of this is high marginal tax rates.  The Laffer curve shows there are diminishing returns beyond some marginal tax rate on income.  if govt raises marginal rates too high, rich people move or have enormous incentive to avoid taxes.  the result is predictably counter productive. 

Liberals like to call free market types “dreamers” because they say that supporters of freemarkets erroneously assume that free markets can solve any social problem.  This may be true of some free market advocates, but not of the ones who understand the nature of free markets. 

it is true that markets can’t solve social problems.  Markets are inherently “flawed” just like every natural system is flawed.  Just like the earth system has natural disasters, markets have their own version of natural disasters:  inequality, pollution, business cycles, near monopoly, etc.  These are natural features of markets, they are not market failures per se. 

However, it is also true that IF we try to fix so called market failures with coordinated, centralized government solution, the outcome will inevitably be worse than the problem designed to solve in the first place.  Again central banking is a perfect example of the law of unintended consequences.  When government interventions inevitably fail (as they must) the market is trotted out as the convenient whipping boy / scape goat. 

Yes markets are imperfect, but if you try to fix them, they will become sick and potentially even dysfunctional.  I believe "we" must accept market imperfections by developing faith in a few basic principles such as individual liberty and freedom of exchange.  This is where religious may be helpful as a partner in promoting individual freedom.  Faith is a religious concept that applies to markets.

  Ultimately an understanding of and support for free markets requires a deep faith that society is beyond the control of man and that while a society based on individual freedom is not perfect, it is the best we can do.

That doesn’t mean you have to believe in God to believe in markets.  But i do think it helps.  Liberals claim they don't need to believe in god or religion because they have science. 

Modern Science is a false God -- at least the kind of science that claims man can play God on earth in terms of engineering macro social (or environmental) outcomes.  indivuals who claim they don't need God or gods or religion because they have science are engaging in what the Greeks called hubris. 

in fact, the latest break through ideas in thermodynamics "proves" that there are natural systems that man will never be able to model or understand or design or engineer or predict or actively improve!!!!

What an irony.  Science PROVES that man cannot use science to fix or engineer or improve society via objective criteria.
you don't have to believe in God or religion to have faith in markets.  but to believe in God may help one understand the concept of a faith in something above and beyond human control.

free markets are beyond human control and understanding.  that is a fact based in hard science!!

ironic but true.  the best we can do is put faith in human dignity, personal freedom, limited government, free exchange and the sanctity of private property -- and struggle the good struggle as good and bad play out in a future for society as a whole that is radically unpredictable. 

There are natural laws (including the 4th law of thermodynamics) that prove free markets will lead ineluctably to social order IF we establish basic principles of interaction in society including respect for private property and sanctity of individual freedom.  This social order that naturally emerges from simple moral rules will NOT BE PERFECT.  Spontaneous order doesn’t suggest perfect order!!!  There will always be a dynamic interchange between order and disorder related to “creative destruction” process that the famous economist Joseph Schumpeter described in the 1800’s as the underlying process of the market.  This creative destruction process is a NATURAL process that leads to market and social order.  If the disorder aspect of creative destruction is attempted to be eliminated by well intended government intervention what happens is that too much order results which leads to total destruction.  There is a trade off in life that requires a deep faith. 

Faith is required in understanding that episodic and unpredictable disorder and destruction is a necessary and natural part of “life.”  If we try to fix what we identify (erroneously) as market failures, then we short circuit the organic natural processes that lead to sustainable order.  Sustainable order is ugly.  It is imperfect.  It has obvious flaws, such as inequality and pollution and mini booms and busts. 

If we try to engineer what we believe objectively will be a more perfect order including less income inequality for example (via modern economic policy tools), the result may be temporary benefits and increased order in the short term, but in med to long term, there will will inevitably be less order and a worse outcome for what are identified as the groups in society government policy is ostensibly designed to help.   We have seen this happen when the benevolent social welfare state creates dependence dynamics which effectively imprisons generations of so called disadvantaged individuals and families into a permanent welfare culture.    Star Parker (one of my favorite activists for individual freedom) accurately calls the welfare state:  “Uncles Sam’s Plantation.”

Government transfers wealth and it carries out what appear to be economic activities such as building roads, etc.  But these activities are ultimately  uneconomic because they are decided by policy makers outside of market signals.  Whatever the government does in a well meaning attempt to improve the economy or improve upon some market failure is destined to result in a worse overall result for society.  Why is our infrastructure crumbling??  Liberals would argue we need to spend more public funds on infrastructure.  I would argue the infrastructure is crumbling because we put the govt in charge. 

Society will always be poorer net net when the government takes over some economic activity, no matter whether this is provision of education, infrastructure, health care, postal service, central banking, etc. etc. etc.   It is total myth that public education fueled the rise of US economic supremacy.  US greatness occurred despite public education and despite Eisenhower’s highway system, not because of these well intended big government boondoggles.    I can say boondoggles with the benefit of hindsight since we have seen the total failure of govt to sustain quality education and infrastructure after claiming early victory and success.

Central banking is the most insidious and evil of benevolent government’s interventions in the market.  Remember the Fed was established to eradicate business cycles, but it was only after the Fed was established that we had the biggest boom and biggest bust in the history of the world economy, thanks to the Fed flooding the US and world economy with “easy money.”  Sound familiar???  

Sirico hits the nail on the head with this op/ed.  Highly recommended.

OCTOBER 27, 2011

The Vatican's Monetary Wisdom

More than 'greed,' fiat money and central-bank policies caused the financial crisis.

By ROBERT A. SIRICO

On Monday, the Vatican released an 18-page document titled "Toward Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority." Since then, it has been celebrated by advocates of bigger government the world over.

What's ignored is that the document—released to stimulate debate, not offer official doctrine—embraces a sound economic theory concerning the cause of the world financial crisis: the breakdown of the postwar Bretton Woods monetary system and the unleashing of fiat currencies and central-bank printing presses.

Let's look at a representative passage, while keeping in mind several important markers: 1971 was the year that the Nixon administration killed the gold standard, and along with it Bretton Woods and hard currencies; in the early 1980s, financial deregulation in many countries removed the last major barriers to virtually unlimited amounts of credit; and the 1990s was the decade when the drive to suppress interest rates became the common policy of central banks around the world.

Since the 1990s, we have seen that money and credit instruments worldwide have grown more rapidly than revenue, even adjusting for current prices. From this came the formation of pockets of excessive liquidity and speculative bubbles which later turned into a series of solvency and confidence crises that have spread and followed one another over the years.

A first crisis took place in the 1970s until the early 1980s and was related to the sudden sharp rises in oil prices. Subsequently, there was a series of crises in the developing world, for example, the first crisis in Mexico in the 1980s and those in Brazil, Russia and Korea, and then again in Mexico in the 1990s as well as in Thailand and Argentina.

The speculative bubble in real estate and the recent financial crisis have the very same origin in the excessive amount of money and the plethora of financial instruments globally.

Under the gold standard, there was a check on the whim of financial masters. The Vatican seems to understand this.

This is sophisticated economic analysis. People are occupying Wall Street, blaming capitalism, speculation and greed, but rare is the analysis that traces all these problems back to the structural change in money that was brought about in the early 1970s.

We went from a hard-money regime, in which there were restrictions on the power of central banks and financial institutions to create money and credit, to one where money became purely paper. There were no restrictions remaining on the power of governments to finance unlimited debt. Banks could create credit seemingly without limit. Central banks became the real power in the world economy.

None of this was true under a gold standard. That system limits the expansion of credit by an indelible physical fact. There was a limit, a check, a rule that went beyond the whim of financial masters and politicians. The Vatican seems to understand this.

But discerning the disease and finding the cure are very different undertakings, and here the document falls short. It imagines a new world central bank and political authority that will rule without "any partial vision or particular good" but rather seek "the common good." Its decisions should "be made in the interest of all, not only to the advantage of some groups, whether they are formed by private lobbies or national governments."

Somehow, with an intelligence never before discovered in government bureaucracies, these proposed global authorities would create "socio-economic, political and legal conditions essential for the existence of markets that are efficient and efficacious."

Contrary to what is being said, this document presumes the existence and continuation of "free and stable markets." The problem is that the Vatican imagines that a "world central bank" and a "global public authority" can do this with more competence than national governments that have a checkered history in this regard.

It was centralization that caused this mess in the first place. Central banks created paper money, easy and limitless credit, and the moral hazard that accompanies them. Why should we believe that more centralization is the solution when experience suggests precisely the opposite?

Many people who favor free markets worry about the implications of the Vatican document. And there is no question that it will be used around the world to stir up political mischief. It will also be used to convince the Catholic faithful that big-government solutions are morally justified. But let's not forget that there are really two parts to the document: the diagnosis and the prescription. We should embrace the former and eschew the latter.

Fr. Sirico is president of the Acton Institute in Grand Rapids, Mich.