The storming of the Bastille, 14 July 1789 during the French Revolution
Wikimedia Commons/Bibilothèque Nationale de France

If you have read any of my posts and detected a somewhat gloomy outlook, I must plead guilty. Right now the fortunes of liberal democracy are being threatened by the increasingly wide acceptance of Leftist world-views. Also, I have repeatedly written about how the continued centralization of economic power in the national government leads inevitably to tyrannical government, a process to which I have referred as traveling down the Road to Serfdom.     

The Road to Serfdom

Almost certainly, much of the political furor we see this year in the United States, as well as in Western Europe, is due to angry electorates perceiving how elites are pushing them down that highway. Most voters may not be sophisticated enough to perceive how economies increasingly dominated by government is depriving them of economic and other freedoms. However, they certainly feel the results of that domination directly. In the United States we have suffered more than eight years of low to nonexistent economic growth. Over the last two years GDP growth has been trending down, as has that perfect coincident economic indicator, the monthly change to the Federal Reserve’s Labor Market Conditions Index (LMCI). This poor growth is directly the result of government’s many intrusions into the economy, which upset a multitude of supply-demand relationships between sellers and buyers of goods. Every time such a balance between supply and demand is upset, either a surplus or a shortage of the good occurs, leading to expenses that reduce economic output. I have written considerably more on this process in the posts:

•  Why Socialism Does Not Work,
• The Complexity of Reality,
• Central Planning for Chaotic Social Systems,  and
• Chaotic Economies and Adam Smith’s Invisible Hand

However, the bad effects of an over-intrusive government are not limited to just the economy. The essence of Friedrich Hayek’s Road to Serfdom is that an accumulation of government economic power ultimately corrupts the government masters of that power. As Lord Acton (whom Hayek was fond of quoting) is often quoted as saying,

Power tends to corrupt and absolute power corrupts absolutely.

What followed that quote from Lord Acton is not as quite well known.

Great men are almost always bad men, even when they exercise influence and not authority; still more when you superadd the tendency of the certainty of corruption by authority.

 In The Road to Serfdom this process of corruption takes an entire chapter, chapter 10 entitled Why the Worst Get On Top, for Hayek to describe.

We can already see the beginning results of this corruption in the Democratic Party. Ever since the presidency of Woodrow Wilson, the first progressive American president to be openly contemptuous of the Constitution, American progressives have chafed under the Constitutional constraints on what they would like to do. Not only that, progressives would like to limit everyone’s freedom of speech, as they proved when they attempted to use the IRS to limit the free speech of conservative groups in an election.  Their corruption has reached a level where they would like to get legal sanctions on scientific skeptics of man-caused global warming. These and other evidences of progressive corruption are covered in more detail in the posts The Corruption of the Democratic Party, Are We No Longer a Nation of Laws?, The Intolerance of Barack Obama and the Democrats, Democrats Want to Imprison Scientific Skeptics?, The Anti-Freedom Bias of Progressives, and Are You Unconvinced Democrats Are Growing More Authoritarian? .

Keynesian Economics As a Power Centralizing Force

Unfortunately, American progressives are propelling us down that road to serfdom, and one way they are doing that is by applying Keynesian economic doctrine to the U.S. economy. The one thought that unifies all Keynesians, from the primal Keynesians of John Maynard Keynes’ time to the present’s New Keynesians, is the idea that the central government must substitute its economic demand for that missing from a free-market whenever anything goes wrong with the economy. A central tenet of Keynesian faith is that when anything breaks in the economy to create recession, the primary cause must be some market failure. This might have been more of an explanation more than a century ago, but as I have written before (see the posts Failures of New Keynesian Economics, and The Long-Term Economic Stagnation the World Faces) , we now have many more explanations from government failures that are more probable.

However, the incorrect Keynesian diagnosis of our economic problems is not what I wish to explore here. Instead, I want to discuss the use of these Keynesian ideas by progressives to accumulate ever more economic power in the state. By persuading us that we can get a better economy only by ceding more economic power to the government, they gain the tighter control over society they crave. Gaining the ability to allocate scarce assets, they can redistribute goods in welfare programs, make survival of producers of carbon based fuels very difficult, and redirect assets to companies and projects attempting to replace fossil fuels with “green energy.”  All the while they proclaim they will create many more new jobs and produce wealth for all.

Unfortunately for us, government reallocation of resources will not necessarily be for the goods most people will want or need the most. Any modern economy is a finely grained mechanism where supply-demand balances are determined at the level of individual producers and consumers. When the government does a large scale reallocation of economic resources, it starves some suppliers of goods (say fossil fuels) and thereby starves their consumers. It also causes some workers for the unfavored suppliers to be laid off, creating unemployment. On the other side of this imbalance, the suppliers of some goods get more investment than they can efficiently use, causing expensive surpluses needing warehousing. Or as in the American Recovery and Reinvestment Act of 2009, a Keynesian stimulus, much of the stimulus money was devoted to keeping employees of state governments from being laid off. Was this truly the best economic use of scarce assets? The fact that government did the allocation and not Adam Smith’s Invisible Hand makes such a proposition extremely dubious.

The eventual recovery from the Great Recession is almost universally regarded as the worst since the Great Depression of the 1930s. Averaging a little over two percent growth per year, the GDP is currently trending downward. The red line in the plot below is a linear fit to the data, showing a two year linear down-trend.

Even a large number of Keynesians acknowledge this fact. What they do with that acknowledgement however is both amusing and alarming, as they claim this secular stagnation can only be overcome with more government allocation of goods and services! The basic idea of secular stagnation, invented by the Keynesian economist Alvin Hansen in the 1930s, is that market failures destroy any opportunity for profitable corporate investments. This leads to a stable economic equilibrium with little or no growth. The Keynesians then say government demand must replace low private demand to create new growth. To heed this siren call would guarantee that we remain in an ever-deepening secular stagnation.

One of the least remarked-upon aspects of giving more economic power to the state is how such an accumulation of power inevitably leads to an authoritarian government. The Austrian economist Friedrich Hayek witnessed the rise of fascist power in the 1920s and 1930s at first hand, and recorded his observations in the classic book The Road to Serfdom. In chapter 10 entitled “Why the Worst Get On Top”, Hayek writes

What is called economic power, while it can be an instrument of coercion, is, in the hands of private individuals, never exclusive or complete power, never power over the whole life of a person. But centralized as an instrument of political power it creates a degree of dependence scarcely distinguishable from slavery.

Once a government gets control of the allocation of economic goods, the individual loses all freedom of choice in any activity that requires some economic good. Either the government approves of the good’s use, or the individual is effectively forbidden the activity.

This phenomenon of growing state economic power is not limited to just the United States, but can be seen in both Europe and Japan as well. (It never disappeared from Russia and China!) One of the ways in which states exercise economic power is through the monetary policy of their central banks. For about a decade now (a decade and a half for Japan!), the United States, Europe, and Japan have sought to stimulate economic growth to little or no avail with an expansive monetary policy. They did this by setting both real short-term and long-term interest rates to zero (Zero Interest Rate Policy or ZIRP). To lower short-term rates they could use standard central bank market operations, and to lower long-term rates they used Quantitative Easing (QE) where they bought up long-term assets such as government bonds and mortgage-backed securities. In all cases, such monetary policies have failed utterly to stimulate growth.

Yet despite this bad experience of many years, both Europe and Japan are doubling-down by instituting both QE and a Negative Interest Rate Policy (NIRP). NIRP in particular is an insanity that will destroy both savings and the banking system. Japan, just barely avoiding a recession, has also instituted a classic Keynesian spending program. Recently, the Wall Street Journal in a post entitled Japan’s Shinzo Abe Fires Stimulus Gun, Again reported Japan has approved a new government stimulus program that will spend ¥7.5 trillion, worth about $73 billion. Over several years it will spend approximately ¥28 trillion on infrastructure projects, such as upgrading ports, upgrading food-processing facilities, and providing for more child-care facilities for working parents. This is one of the larger programs Japan has started over the years, as shown in the Wall Street Journal produced chart below.

Talk about a bull in a china shop! If japan’s economy truly needed such new facilities, a free market would have allocated assets for those needs. Japan would have done much better by giving their tax-payers a ¥7.5 trillion tax cut, allowing individuals to choose how the assets are allocated. Why Japan would expect to do any better with this stimulus than with the previous ones defies one’s imagination!

The Ideology of “Orderism”

Another way of looking at recent Leftist ideological developments is provided by the German journalist Jochen Bittner in the New York Times post, The New Ideology of the New Cold War. In it Bittner describes the rise around the world of an ideology he  calls “orderism”. It’s basic premise is that liberal democracy has delivered instability, inequality, and chaos. As orderism’s foremost practitioner, Bittner cites the Russian Federation President, Vladimir Putin.

According to orderism, liberal democracy has generated a secular religion of  “globalization (or, in the European Union’s case, Europeanization).” Bittner goes on to write

Orderism prioritizes stability over democracy and offers an alternative to the moral abyss of laissez-faire societies. Russia stands as a model for this new social contract. This contract is built on patriotism, traditional gender roles, Orthodox Christianity, military strength and, at the top, a benevolent czar who will promise only as much as he can deliver (provided the public gives him sufficient support, he can deliver a lot). 

In short, what Bittner is painting is a new face for fascism, which being a form of socialism, could prove attractive to many on the left, both overseas as well as here in the United States. Bittner sees orderism challenging liberal democracy in a number of countries, including Turkey (especially after the aborted coup), Poland, and the Philippines. Given the outright revolt against the political elites in the United States, this new political ideology might well be attractive to those who desire an alternative to free-market capitalism and to globalization, perhaps with the military strength, christianity, and traditional gender roles edited out.

What particularly engages Bittner is how compatible orderism is to many in the West. Of this he writes,

What is striking, though, is how compatible orderism is with the attitudes of many voters in the United States and Europe. Donald J. Trump’s campaign boils down to a promise of tough order. And the decision of British voters to leave the European Union, catalyzed by the promise of the U.K. Independence Party and others of an orderly, independent England, was nothing but an attempt to stop the frightening and discomfiting effects of globalization. 

Bittner might well be warning about orderism from a left-of-center point of view. However, there is no denying that the rise of the ISIS threat in both Europe and the U.S., and reactions against free-trade have both given enhanced arguments against liberal democracy. When added to arguments of inequality of income distribution, the mixture could become explosive.

U.S. Progressives Should Have Second Thoughts

Most American progressives, or Americans who at least think of themselves as progressives, are fine, decent people who want nothing but good fortune for their fellow citizens. Yet the continued centralization of economic power (e.g. with the Dodd-Frank Act, and the rise of the administrative state) really threatens us with same fate as fine, decent Germans and Italians when they voted in the fascists. In addition, history has shown that any centralization of economic power, whether for Keynesian purposes or fascist, is ultimately counterproductive.

In addition, the progressive politicians voted into office over the decades have shown absolutely no fiscal discipline. As a result we are faced with a financial catastrophe of the first order, as we rapidly are approaching the time when interest on the national debt plus the mandatory spending of the entitlements will require every single penny of federal revenues.

All of these considerations, together with the evidence of advanced political corruption of the Democratic Party cited earlier, should combine to suggest to progressives that they should have second thoughts about their political faith. At the top of this essay is a rendition of the storming of the Bastille during the French Revolution. The question is: what modern day Bastille is currently being assaulted? And will the guillotines be brought out afterwards?

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