Recently by Gary North: Two Years of Gridlock

I am perceived by many readers as a pessimist. I am not a pessimist. I am an optimist beyond your wildest imagination. I am an eschatological postmillennialist. There are not many of us. I am also a believer in the free market social order — not just in its superiority in theory, but in its inevitable triumph in history. I believe that Leonard E. Read’s book title is correct: Then Truth Will Out.

I am not an optimist with respect to the pathway between here and there. Big Brother lurks in the state-maintained shrubbery of the pathway.

When a pride of lions is waiting patiently in the tall grass for zebras, some zebras are going to get eaten. When we think “bureaucrats,” we should think “lions.” We are zebras.

There will be losses. But the lions are getting old. They don’t run as fast these days. Zebras are multiplying. Think “China.” Think “Russia.” Then think back to Mao and Stalin. If those two concentration camps could collapse without armed resistance or a lost war, don’t tell me about the inevitability of tyranny.

Lincoln Steffens visited the Soviet Union in 1921 and returned to say, “I have been over into the future, and it works.” No, it didn’t. Neither do the mini-despotisms of the various Keynesian utopias. Their employees will not receive those pensions after all.

THE LITERARY DYSTOPIAS

Our thinking regarding the modern police states has been shaped by literary masterpieces. The most famous ones are 1984, written by an anti-Communist socialist, and Animal Farm, also written by him, and Brave New World, written by the socialist’s French instructor at Eton: Aldous Huxley.

There is a far better novel about the police state: That Hideous Strength: A Fairy Tale for Grown-ups. It was published in 1945. C. S. Lewis wrote it. I commend it to you. I re-read it every few years — one of two novels I re-read. (The other is Good Omens.) I first read it in the spring of 1964, beginning about four months after the deaths of Lewis, Huxley, and Kennedy on November 22, 1963. Lewis saw where we were headed in 1945. He also saw how it would end: the scattering of the empire-builders.

The positive utopias of the good society in literature were utopias of centrally planned states. No one has written them in a century. The dystopias are also centrally planned states. They reflect modern men’s declining faith in the healing powers of science as implemented by the state.

The power of science is seen as unstoppable. In the hands of bureaucrats, the tool of science produces a social order without liberty. The state’s controls may be justified as rational and therapeutic, but the system is tyrannical. This is the vision of the dystopias.

In Brave New World, the tool of control is a drug: soma. It keeps the masses docile. In 1984, it is two-way television. There is no privacy. In Animal Farm, it is widespread belief in the good of the whole, which mandates individual sacrifice. The results are the same: an elite maintains control over the masses. There is no way out.

The authors were not free market economists. The free market economist finds it difficult to believe that a system of centralized economic planning could ever gain access to resources sufficient to hold the masses together. The failures of the Soviet Union and Communist China stand as tombstones. They mark the inability of central planning to achieve its goals or the goals of the planning elite. Or, as the saying goes, money talks.

In 1978, Deng Xioping got capitalist religion. He announced the freeing up of agriculture, which has always been the weak link of socialism. In 1979, the Chinese economy started to grow.

In 1980, Moscow hosted the Olympics. From all over the world, Westerners came to see the show. The Soviet leaders saw for the first time how rich the West was, and how poor they were by comparison. They saw with their own eyes — first with amazement, then with horror — what the West had known for 60 years: they all dressed like Russian bureaucrats. They never recovered psychologically. Within a decade, the Soviet economy was broke. Hope had finally departed from the elite. It had departed from the masses decades earlier.

The elite publicly abandoned the system. Money talks.

It still talks.

SOCIALIST ECONOMIC CALCULATION

In 1920, Ludwig von Mises wrote a short essay, “Economic Calculation in the Socialist Commonwealth.”

He argued that socialist economic planning is inherently blind. Without free market prices that are based on private ownership, the government’s central planners have no way of knowing where to allocate scarce resources. This is especially true of capital goods. The planners are forced to copy prices in the non-socialist societies. This was his theory. It turned out to be correct in practice.

The socialists rejected this argument for seven decades. But, socialist experiment by experiment, Mises was proven correct. Of course, he argued that economic logic is the basis of economic proof, not historical data. But he was never taken seriously on this point by his critics or even most of his fans. The endless failures of Communist central planning to make anyone rich, including the Communist elite, finally got too much for the Communist elites to tolerate.

This brings me to the central thesis of my article. It is best expressed in three questions.

1. What is the value of suppressing a political deviant? 2. What is the cost? 3. Is the benefit greater than the cost?

Assume that you are Big Brother. You can monitor anyone. You can find out what he owns, what he earns, where he lives, where he works, what credit cards he uses. You have a database on him. Any information that your database lacks can be bought from private database companies.

If you can monitor anyone, you can target anyone. You can bankrupt almost anyone. Just bring a lawsuit against him. His legal bills will bust him. He knows this. He will capitulate. Money talks.

Do you want to set a legal precedent? Target someone with limited financial resources and no connections.

Scholars and journalists who are committed to a defense of individual liberty have collected databases of horror stories on coercive yet legal government invasions of privacy. For every documented story, there are untold numbers of similar stories that never reached the media.

As surely as the zebras know that there are lions out there, so do citizens know that there are bureaucrats out there. Some of these bureaucrats have access to databases.

We all are impressed how fast NCIS agent McGee can find out almost anything on any suspect, just by sitting at his computer and typing. We all know that the bad guys will not get away.

The problem is, in the real world, the bad guys often get away until they finally confess. Think “Bernard Madoff.” Furthermore, the good guys sometimes get nailed for something they never did.

The Madoff case is classic. All that government regulation, so little awareness! The reports got filed on time. The SEC was tipped off to chicanery. Yet nothing was done. Why not?

Mises told us why not. The government does not know how to price anything rationally. It cannot determine which cases are worth pursuing and which are not. There are no official guidelines that provide insight.

Here is the operational rule. Bureaucrats pursue those cases that justify their continuing employment. This goal includes the survival of their bureaucracies.

Civil Service laws protect most Federal employees. Bureaucratic immunity from budget cuts protects the bureaucracies. So, bureaucrats pick the easy targets in the same way that lions pick zebras: the young, the old, and the sick.

I once read an article about a jet fighter ace in the Korean War. He revealed his secret of success. He would rapidly survey a squadron of MIG-15s, looking for a plane that looked a little wobbly. If he spotted one, he knew the pilot was inexperienced. He went after that plane.

This strategy can make you an ace. It will not win wars. The Korean War ended in a cease-fire. It is still officially going on.

THE SPONTANEOUS SOCIAL ORDER

F. A. Hayek’s greatest intellectual contribution was not The Road to Serfdom (1944). It was the article published the next year: “The Use of Knowledge in Society.”

He argued that the amount of decentralized and highly specialized knowledge in society is enormous when compared to the knowledge available to a government committee. This should be obvious to anyone. What was not obvious to Western intellectuals was his conclusion: government planning is unable to match the efficiency of individual planning in a free market society.

This is a variation on Mises’s argument. Hayek emphasized the free market’s system of profit and loss. It elicits information from individuals who would not otherwise provide it or put it to socially positive uses. A planning board cannot get their collective hands on this information, he argued. Mises had emphasized that, even if the committee could get its hands on it, the committee would not know what to do with it. It could not put this information to its highest use.

The question then arises: Can a committee put this information to good use for the committee? Can its members feather their own nests? Can it achieve results that are sufficiently beneficial to the committee and those leaders it serves, so as to make irrelevant the fact that the committee cannot solve the allocation problem for the masses? In short, can the committee find a positive answer to the universal question: “What’s in it for me?”

The results of all but two of the Communist economic schemes in the twentieth century was “no.” The two exceptions were North Korea and Cuba. So far, these two systems remain Communist. But it is looking more and more as though this will end sometime in the next decade. Poverty in those two countries is overwhelming.

The only way for the rulers to keep this information from the masses is control over information. North Korea is better at this than Cuba is. It is also a poorer nation. We are back to the Austrian economists’ analysis of the shortage of reliable information.

To run a really successful tyranny, the leaders must have increasing wealth as well as more reliable data. They need wealth to hire the programmers, the data collectors, and the police. Computer costs keep falling, but they fall much faster in the private sector (microcomputers) than the government sector (mainframes).

The government’s computer systems are not integrated. Not even the Internal Revenue Service has a seamless system. (The two greatest lies in computer marketing are these: “seamless transfer of data” and “user-friendly.”)

Yes, governments have access to ever-growing quantities of data. But the public has far greater access to low-cost information that it uses to increase the overall complexity of society. The task of monitoring what is going on becomes ever-more utopian. The government is always falling behind, for the reasons Hayek described. The greater the complexity of society, the less able the State is to monitor it, assess it, and use the data to control it.

SOCIETY VS. THE STATE

Society is not the State. Society is a complex social order which is based on voluntary exchange. The State is an institution that imposes coercion. The State’s budget constitutes a large section of every modern society, but the inefficiency of the State is legendary. The State cannot get much accomplished. Why not? Because its employees are rewarded for following the book. They are not rewarded for innovation. Mises made this point clear in his 1944 book, Bureaucracy. The State’s system of funding is different from the free market’s system.

The free market rewards successful forecasting to meet the demands of customers. It is future-oriented: meeting future customers’ demand. Society advances through innovation and capital formation. It advances because of a system of profit and loss. Successful innovators get very rich. Unsuccessful ones lose control over resources.

The successful bureaucrat advances up the chain of command by not making a big mistake. The essence of bureaucracy is risk-avoidance. It is slow. It is self-consciously slow. It is defensive. It is always looking up regulations. Its answer to every request is “no.” Why? Because you can retreat from “no” to “yes” if you have to, and no one gets upset. You cannot avoid trouble by moving from “yes” to “no.”

One implication of all this should be obvious, but it isn’t: the State is rapidly falling behind in its ability to control the economy. That was Mises’s insight in 1920. Libertarians and free market conservatives believe this in general, but they do not believe it specifically. They give the State more credit for its ability to extend its power than they should.

Think of Geithner and Bernanke. They are frantically trying to restore the rate of economic growth. Nothing is working. The economy is clearly broken. The banking system is in retrenchment mode. Bankers know their banks’ balance sheets are held together with phony numbers. They refuse to lend.

On October 25, Mervyn King, the Governor of the Bank of England, gave a speech in which he admitted the following: “Of the many ways of organising banking, the worst is the one we have today” (p. 18). Thanks, Merv, for putting it so well! Now please forward a copy to Ben.

What is true of the government’s ability to control the economy is equally true of its ability to control political resistance. The Tea Party is creating a threat to the Old Boy Network. It is the handwriting on the wall. Voters are beginning to rebel. They are not playing by the traditional rules.

The ability of the Establishment to maintain its power is dependent on its being able to buy off the voters and co-opt the newly elected representatives. The failure of the economy reduces the Establishment’s ability to hold onto power.

The police State is going bankrupt. It has issued more promises to voters and more promises to pay investors in Treasury debt than it can possibly fulfill. When it goes belly-up, as the USSR did, and as Red China did, the Keynesian system will be exposed as the little man behind the curtain — with a badge, a gun, and a printing press.

A determined herd of zebras can outrun any pride of lions. Eventually, lions will be too weak to run.

Zebras don’t need to kick lions to death. They merely need to run fast.

CONCLUSION

The police State is doomed. It cannot possibly keep up with the constant innovation of society. It cannot gain access to enough resources to maintain control. It wastes the resources it commandeers.

The free market is winning. The attempts of the Federal Reserve and Congress to delay the readjustment of capital pricing goes on, but these attempts are not bringing the promised recovery.

The voters are growing restless. They have been promised miracles by the politicians. These promises are visibly disintegrating. We are seeing a loss of faith.

The key to government control is voluntary compliance. Without self-government, the civil government cannot exercise control. Self-government relies on widespread trust far more than widespread fear.

Widespread trust is fading. Widespread fear will fade with it.

The little men behind the various curtains are getting exposed on YouTube. There is nothing they can do about this.

Familiarity breeds contempt. It can’t happen fast enough for me.

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2010 Gary North