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The Fraud of Government Intervention

The Fraud of Government Intervention

By Robert Tracinski - December 31, 2008

The top story of 2008 is undoubtedly the revival of the left. After nearly two decades on the defensive following the collapse of the Soviet empire--the definitive example of the failure of socialism--advocates of a government-controlled economy are trying to make a comeback.

How brazen has this leftist revival become? It has gotten so far out of hand that some on the left are openly defending central planning. Yes, comrades, you read that right.

I occasionally poke around the Internet to see the response to my articles, and I recently came across a reply to my December 11 article warning about the return of the Old Left, complete with central planning for the financial and auto industries. Over at MyDD, a prominent clearing house for "netroots" Democratic Party activists, Charles Lemos responded by complaining that "Central planning is the latest conservative epithet in the wake of president-elect Obama's bold and sweeping proposals for revitalizing the increasingly moribund American economy." He then goes on to declare that, "As liberals, as progressives it is imperative that we fight for planning. It's time we rehabilitate the concept of long-term planning."

Can anyone really be saying this in the 21st century? If so, it is because they have failed 20th-Century History 101. For those in need of a quick refresher, the satirical website The People's Cube has posted a helpful overview of the product line once offered by the East Bloc's centrally planned auto industry. My favorite line is an old joke about the Yugo: "Every car came with a rear defroster to keep your hands warm as you pushed it."

But central planning has not just been discredited by a mass of empirical evidence. It has been thoroughly refuted in theory, too. Legions of pro-free-market economists, particularly the Austrian school's Ludwig von Mises, have thoroughly demonstrated that the government's so-called planning is actually an attack on planning.

Planning is what is already done in a free economy by millions of private individuals. Every economic decision they make is a plan about how to allocate the only money and effort they have a right to dispose of: their own. And these plans are made with full access to the only kind of information that is really relevant: the context of their own lives and values.

Government planning, by contrast, consists of smashing all of these private plans and replacing them with inferior plans made by inferior men.

Planning for its future solvency, for example, Bank of America decided not to lend money to a defunct window and door manufacturer--but then along comes Illinois Governor Rod Blagojevich, right before his arrest, to demand that the bank extend such a loan anyway. Other banks decided, reasonably enough, that the best way to survive an economic downturn is to make only conservative investments--but along comes their uninvited new business partner, Treasury Secretary Hank Paulson, who declares that he expects them to open a floodgate of new lending.

And how about you? You may have decided, for example, that you will get better value for your money by spending it on a Toyota rather than a Pontiac--but then along come George Bush and Barack Obama to decree that your money really ought to go to General Motors after all.

This is the world of central planning, which consists of forcibly substituting the plans of government officials for the far more sensible plans that private individuals make about their own lives and money.

And we haven't seen the worst of it, at least not yet. Much bigger and deadlier lessons will spring to mind for those who were paying attention in 20th-Century History 101. Remember Trofim Lysenko? He's the crackpot scientist who got Stalin's ear and set himself up as the central planner of Soviet agriculture, single-handedly wiping out Soviet wheat production. Or what about the hucksters who convinced Mao that it was possible for peasants to manufacturer steel in small backyard furnaces, helping to turn the Great Leap Forward into a great leap backward?

If you think that these central planning catastrophes are limited to the most doctrinaire Marxist dictatorships, consider that Bernie Madoff's $50 billion Ponzi scheme is minuscule compared to the multi-trillion-dollar Ponzi scheme that is Social Security. And if the economic downturn exposed the fact that Madoff's scheme wasn't backed by any real assets--what do you think a sudden decrease in payroll tax revenues is going to do to Social Security?

Certainly the plans of private individuals can go awry. Just ask the former homeowners who over-extended themselves by taking out adjustable rate mortgages, or the investment banks who over-extended themselves by financing those mortgages. But private mistakes are corrected by the workings of the market. People who can't afford their houses will have to sell them to those who can; failing banks get bought out by healthy banks; unprofitable automakers go bankrupt and their bones are picked clean by manufacturers who can make a profit.

But notice that the whole point of the government's planning in the current crisis is to prevent all of these corrective mechanisms. The government is intervening, not to make the economy healthier and more efficient, but to keep the overextended borrowers in their homes, to keep insolvent banks afloat, and to pump money into failing automakers so that they can keep losing money for another year or two.

That leads us to the deeper reason for the comprehensive failure of government planning. By its very nature, government planning always sacrifices economic calculations to political calculations.

The purpose of government planning is not to maximize the creation of wealth, but rather to maximize the satisfaction of political pressure groups. Hence the auto bailout, the purpose of which is not to make GM profitable but rather to prop up the UAW--the only organization whose destruction is guaranteed if the Detroit automakers file for bankruptcy.

The clearest example of this principle is the attempt to use the auto bailout to force Detroit to stop fighting global warming restrictions and to manufacture underpowered "green" cars. In another interesting response to my article, Todd Myers of the Washington Policy Center--a state-level pro-free-market think tank--observes the irony of Washington, DC, spending billions to save the automakers just as the state of Washington plans to spend billions on a public-transit scheme designed to discourage people from driving cars. "The logic of these activities," Myers concludes, "is that we need to spend $25 billion to save an industry that we are spending $22 billion locally to kill." And this is just a small sampling of what is being proposed on the federal level by means of "cap-and-trade" energy rationing designed to make automobiles too expensive to drive.

The absurdity of George Bush's public proclamations about the financial crisis is that he still considers himself a "free-market guy" who is destroying capitalism in order to save it. But the reasoning behind the auto bailout is even more perverse. Washington wants to save the auto industry so that the global warming lobby can conspire to destroy it.

Given a century of factual and theoretical refutation, continued advocacy of government planning is a transparent fraud. It is an attempt to cover up the fact that what the planners really have to offer us is not planning but chaos--an economy held hostage to the contradictory, ever-shifting whims of government officials and political pressure groups. Isn't that the predominant character of the current bailout frenzy, as the Treasury, the Fed, the president, Congress, and the president-elect careen from one stimulus plan to another? Haven't the past three months given the impression, not of planning, but of spur-of-the-moment improvisation?

The modern left is already based on two big frauds. They call themselves "liberals," even as they oppose liberty--in the economic realm and, increasingly, in the intellectual realm. And they describe themselves as "progressives," even as they seek to reverse two centuries of progress made by capitalism. So it should be no surprise to find advocates of "long-range planning" who systematically oppose the genuine economic plans made by private individuals.

Robert Tracinski is editor of The Tracinski Letter and a contributor to RealClearMarkets.

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