Revisionist history and the free market

After listening to so many free market advocates criticize everything the government does (no matter what it does) they all start to sound like a broken record. To begin with, the free market will not solve all of our economic problems.

One such expert on revisionist history is Jim Puplava, the creator of an outstanding website, and host of an informative weekly podcast. However, his economic views tend to favor whatever is best for Jim Puplava, and not the country as a whole. For example, he sees no difference between Hoover and FDR; that their economic policies were the same, and only lengthened the Great Depression. Most amazing of all, he gives the credit for our economic recovery to World War II.

Note to Jim Puplava: war is not good for the economy. Military spending is completely non-productive, and the money could have been better spent to create jobs without getting millions of people killed. Further, he criticizes FDR for campaigning in 1940 on a pledge to keep America out of World War II, and then breaking his promise. Well, was that really his fault? After the Japanese bombed Pearl Harbor, we were pretty much committed to entering the war, weren’t we?

The simple fact is that FDR was one of our greatest presidents because he brought America out of the depression, and won World War II. Bad presidents don’t get elected four times, and we don’t put bad presidents on our coinage. Further, war hasn’t helped our economy lately, has it? I mean, unless you happen to be Halliburton or one of the other defense contractors. Bush gave us two wars, and all they did was increase the deficit spending with no end in sight.

The other commentator who has the same blind spot is Peter Schiff, president of Euro Pacific Capital. You may have seen him, as he endlessly promotes himself, his books, his radio and TV appearances, and so on. His brokerage firm charges very high commissions, but he made a lot of money for his clients from 2001-2007. Then in 2008 his clients lost half of their money just like everyone else. That has never stopped him from trumpeting the fact that he saw the economic mess coming, even if his investments crumbled like the rest of the global stock markets.

Schiff is another government-hater, although his predisposition may be genetic. His father decided that the income tax was illegal, refused to pay it, and wrote books encouraging others to do the same. As you might expect the elder Schiff has spent a great deal of time in the slammer. The government got so tired of his nonsense that he was finally sentenced to 12 years in prison, even though he was 78 years old at the time.

So Peter Schiff hates everything about the government, and thinks anyone who works in the public sector is incompetent. Needless to say, he is opposed to any government bailouts, and thinks everything will work out if companies are allowed to fail. That may work in the ivory tower of Austrian economics, but in the real world it will get you killed.

First of all, the expansion of debt has gone much too far. Allowing large companies to fail would result in a disaster that would make the Great Depression look like a cakewalk. We saw this with the collapse of Lehman Brothers. The government followed the free market dogma last September, and the result was a run on the money markets, and brought the entire economic system to the brink of collapse. That means no credit for anyone. No commercial paper for businesses, so they can’t meet their payrolls, so millions of people are thrown out of work. Those millions of people can’t pay their bills, so millions of businesses fail. This is how a temporary matter of illiquidity results in insolvency, and then bankruptcy for otherwise healthy businesses. Then the effects ripple throughout the economy. So much for the healing effects of free market capitalism.

One final note about government programs. From listening to Puplava and Schiff, you’d think Social Security and Medicare were the worst atrocities ever committed by America. It doesn’t matter to them that Social Security lifted tens of millions of people out of poverty. It doesn’t matter to Puplava and Schiff that without Medicare and other similar programs, virtually everyone in this country would die broke. Because unless you are super rich, or you suddenly die of a heart attack, you can look forward to enormous medical bills at the end of your life. One day in a semi-private hospital room costs $3,500, and that doesn’t count the cost of medical care.

Let the free market have its way and medical insurance won’t become less expensive through market efficiency: it will disappear. Try buying a medical insurance policy on your own today and see what it costs. In hard times, employers will be the first to drop medical insurance because workers will be so desperate for jobs that they’ll be willing to give up fringe benefits. Make no mistake about it: in the absence of these expensive government programs that the free marketers hate so much, no one can afford a serious illness and if you live long enough, medical expenses will bankrupt you.

So we have to keep bailing out AIG, Citigroup, Bank of America, and all the rest, because the alternative is even worse. But these companies need to be temporarily nationalized, the shareholders wiped out, and the companies broken up or liquidated. The much smaller companies that can be profitable can then be privatized. Further, much to the dismay of Puplava and Schiff, we need government regulation. Lots of it! There’s a reason we had Glass-Steagall. Banks should not be allowed to lever themselves 30-1 like hedge funds. If they win, they keep the profits, and if they lose, the taxpayers pay for the bailouts. That game is over. We need a new SEC, or a successor organization with some teeth, and it should be run by prosecutors, not executives from the financial industry that it is supposed to be regulating. We’ve seen what happens when the financial industry is allowed to self-regulate. Schiff and Puplava notwithstanding, the mess we’re in now explains why we need a strong government.