Tuesday, May 18, 2010

The Fed Audit Goes the Way of the Tea Party

"Once you admit that the individual is merely a means to serve the ends of the higher entity called society or the nation, most of those features of totalitarianism which horrify us follow of necessity."

- F.A. Hayek, The Road to Serfdom (1944)

When Congressman Ron Paul proposed his bill to subject the Federal Reserve System to regular audits, it was no secret what his ultimate objective was. If there was any doubt, his subsequent book, End the Fed, eliminated it. Congressman Paul hoped to educate the public about just what the Federal Reserve does – transfer wealth. With regularly scheduled audits, average Americans would see that new money and credit created by the Fed in the form of loans makes its way quickly and consistently to Wall Street, defense contractors, and government agencies.

Meanwhile, people would slowly begin to catch on that this apparent act of magic was not without a cost; that in fact, they were bearing the cost themselves through the loss of their purchasing power due to inflation of the money supply. This could plausibly start a popular movement to do exactly what Paul has been calling for throughout his political career. The key to the strategy was to educate Americans on the principle at issue with the Federal Reserve.

The principle is each individual's right to keep his own property, which the Fed is completely antagonistic to. The Federal Reserve System is an instrument of theft. Even if managed flawlessly (which it never has been) by its government-appointed central planners, the Fed would still accomplish every one of its goals by taking property from some people and giving it to others. It is no less a wealth redistribution scheme than Medicaid, food stamps, or Social Security. The only difference is a cosmetic one. Instead of clumsily removing dollars from Person A’s bank account and depositing them into Person B’s, as Congress does through taxation and appropriation, the Fed operates with a more graceful subtlety. It allows Person A to keep his dollars while merely creating new ones for Person B.  However, Person B’s new purchasing power has not been created.  It has been stolen from Person A, whose dollars are now worth something less than they were before the new dollars were printed.

It is no mistake that a state-controlled central bank with an exclusive monopoly was one of Karl Marx’s ten planks of the Communist Manifesto. A system in which people are forced to use a state-sponsored currency, manipulated by a central bank to transfer wealth in support of the goals of the state at the expense of the individual is a completely communist, collectivist idea. No matter which monetary policy is pursued, the existence of monetary policy is anti-capitalist and anti-freedom.

Sadly, that central point has been largely obscured due to the varied ideologies of the people that make up the coalition that Congressman Paul has put together.  Instead of an indictment of the ongoing theft that central bank monetary policy represents, the focus has shifted exclusively to the money and credit created during and after the financial crisis of 2008.  The newly proposed one-time audit will show that the funds were directed towards Wall Street banking giants and foreign central banks.  Both then and now, the cries of "but what about average Americans?" can be heard from populists of every political persuasion.  It  is no longer a question of whether or not we should steal, but rather how we should split up the loot.

It is important to remember that even if 100% of the money and credit in question was instead directed to average Americans in danger of mortgage foreclosure, it would still be stealing.  The purchasing power in question would still have been taken from Person A in order to be redistributed to the troubled borrowers.  Moreover, it would be just as economically destructive, as all wealth redistribution by government ultimately is.  The only distinction would be that a different special interest group would be benefitting at the expense of the rights of those victimized to underwrite them.

This dearth of principle is pervasive in political protest movements in America today.  There are no end of demagogues calling up the ghosts of early American heroes of liberty; some even wearing three-cornered hats for effect.  The Tea Party is one example.  Certainly it is laudable that its members oppose "Obamacare," but how many would show up for Tea Party rallies if opposition to Medicare was also part of the platform?  In reality, the lion's share of support for the so-called Tea Party comes from Medicare beneficiaries who object not to government-provided health care, but to the program that they benefit from being cut to fund a program for other people.  They also largely support the forced redistribution of wealth from individuals to military contractors and the government in support of the United States' worldwide military establishment, which they extol as if it weren't also a massive government program.

It is a sobering reality that any real understanding of liberty has been completely eradicated in the minds of most Americans today.  Instead, we have become a collection of special interest groups, all competing with each other politically for other people's money.  Our "progressive" education system has rendered most Americans completely incapable of conceiving that there is an alternative to a government-directed economy.  When confronted with the bank bailouts of 2008, the universal, conditioned response was one of outrage that wealthy bankers were getting public funds and average American homeowners were not.  The idea that it was a violation of the rights of those from whom the money was taken never entered into their minds. 

Why would it?  That principle had never been taught to them in school.  It was not voiced in the media.  No politician, conservative, liberal, or otherwise, articulated it at all.  The closest thing to it was the "moral hazard" argument, that rewarding the people who caused the problem would only lead to further problems.  However, this is a sound economic argument made from a collectivist perspective, based upon what might acheive the best aggregate results, rather than one based upon freedom or individual rights.  That the economic analysis happens to be true in the case of the "moral hazard" argument only further obscures the fundamental principle that makes it true.  One might conclude from this argument that central planning and wealth redistribution would be beneficial if the planning and redistribution were done more wisely.  The moral hazard argument correctly points to a negative effect but distracts us from the underlying cause - the violation of individual rights.  It is this underlying cause that is at the root of every societal problem facing America today.

All resistance to government wealth redistribution is a good thing, regardless of whether the motives of every protestor are completely "pure" as defined by political theorists.  The one-time audit of the Fed will be helpful, even if it is motivated in large part by the politics of jealousy rather than principle.  However, it is the job of everyone who believes in and yearns for freedom to point out early, often, and loudly that the central objection to the Fed should be that it steals in the first place, not to how it divides up the take.  Once that distinction is clear in the minds of average Americans, it is a cure for virtually all of our afflictions of government.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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© Thomas Mullen 2010

7 comments:

Anonymous said...

Very insightfull analysis. Great characterization of RP writings. We are watching in real time, a slow motion train crash of the global monetary system that operates at lightning speed. Nobody I know of can stop a Train that has come off its rails and is in the process of crashing! Protect Yourselves.

Claire M said...

Great points about the Fed. As you suggest in your conclusion, though, the perfect may be the enemy of the good. I agree with getting rid of Medicare and other redistributive schemes ... but these things need to be phased gradually rather than cut cold-turkey. Temporary compromise might be the only way to achieve freedom in the long run. After all, if the immediate abolition of slavery had been a precondition for the union of the states, there would be no United States today.

I think Tea Partiers would accept a gradual phaseout of Medicare that would retain benefits for retirees, but would remove benefits from people entering the workforce. I know this option is not right or just; I know that most retirees are taking more out of the system than they put in and they are asking others to foot the bill; I understand the principle involved, but I do think that on some level it is immoral to create a dependency and then cut people off before they have a chance to adapt to the change.

Don't forget either that our federal government has caused prices for medical care to be inflated way beyond what they should be, and it may be some time before free market forces bring down prices-- time that seniors only have in short supply. Should retirees be the ones to suffer and die for the bad policy of past decades? Maybe so, but I am just saying that I think this consideration should factor into the equation.

Trust me, I hate to be the devil's advocate here, but I am concerned about throwing the baby (or as it were the wrinkled old man) out with the bathwater. I think for the most part Tea Partiers are good honest, reasonable people and I think right now they are our best hope for the future.

Claire M said...

[sorry if this is a double post, but the first one doesn't seem to have gone through]

Great points about the Fed. As you suggest in your conclusion, though, the perfect may be the enemy of the good. I agree with getting rid of Medicare and other redistributive schemes ... but these things need to be phased gradually rather than cut cold-turkey. Temporary compromise might be the only way to achieve freedom in the long run. After all, if the immediate abolition of slavery had been a precondition for the union of the states, there would be no United States today.

I think Tea Partiers would accept a gradual phaseout of Medicare that would retain benefits for retirees, but would remove benefits from people entering the workforce. I know this option is not right or just; I know that most retirees are taking more out of the system than they put in and they are asking others to foot the bill; I understand the principle involved, but I do think that on some level it is immoral to create a dependency and then cut people off before they have a chance to adapt to the change.

Don't forget either that our federal government has caused prices for medical care to be inflated way beyond what they should be, and it may be some time before free market forces bring down prices-- time that seniors only have in short supply. Should retirees be the ones to suffer and die for the bad policy of past decades? Maybe so, but I am just saying that I think this consideration should factor into the equation.

Trust me, I hate to be the devil's advocate here, but I am concerned about throwing the baby (or as it were the wrinkled old man) out with the bathwater. I think for the most part Tea Partiers are good honest, reasonable people and I think right now they are our best hope for the future.

Anonymous said...

The media's blather about "The Fed plans to hold interest rates low for the forseeable future" is almost criminal negligence:
1. The Fed would like to hold rates paid to savers by the banks which own it at zero forever (these banks are still charging the same customers 30% APR on their credit cards;meanwhile they are getting unlimited money at almost no cost with which they are taking over the nation's productive enterprises in ever-increasingly monopolistic or near monopolistic fashion.
2.Mullens disserves seniors who have been paying Social Security taxes and Medicare taxes for many years when he talks about "free Medicare." Congressmen, who never fail to give themselves raises, are trying to cut physician reimbursement 20%, and when seniors can find a doctor, they have substantial co-pays for each service received on top of very substantial annual premiums.

Jim Getten said...

Tom, As I read your excellent article, Rand Paul, Ron's son has taken his place in the emerging new leadership of America. I believe we are at a tipping point in America's history and we will decide as a nation once and for all whether we will live in a Republic that operates on free market capitalist principles or a western European-style socialist democracy that will eventually go the way of Greece.
I have a sense that our legal immigrants that have lived under these social conditions will come to the front lines and defend the system that built America. As in the 1800's, those that seek a better life for themselves and their families will provide the leadership locally and nationally that will return America to her conservative roots.

PTT said...

Great job. I wrote my own views and linked to your blog here: http://photontorpedotube.blogspot.com/2010/05/great-summary-of-how-fed-steals-from-us.html .

liberranter said...

It is a sobering reality that any real understanding of liberty has been completely eradicated in the minds of most Americans today. Instead, we have become a collection of special interest groups, all competing with each other politically for other people's money. Our "progressive" education system has rendered most Americans completely incapable of conceiving that there is an alternative to a government-directed economy. When confronted with the bank bailouts of 2008, the universal, conditioned response was one of outrage that wealthy bankers were getting public funds and average American homeowners were not. The idea that it was a violation of the rights of those from whom the money was taken never entered into their minds.

Perfectly stated, Tom. This explains why the Tea Party movement, when viewed as a whole and as a collection of people and subgroups with disparate political and economic ideologies and moral codes, can be said to have no overriding principles at all. Only when the truth behind your statement quoted above is accepted and taken to heart by a majority, across the political spectrum, will the kleptomaniac tide be reversed and true reforms begin.

@Claire:

You make a very sensible proposal concerning the phaseout of medicare/social security. I've believed for a long time that this is the only practical way this will work. However, in order for ANY reasonable hope of economic recovery, there must not only be an end to the welfare state (with attendant halts to extra-constitutional government spending at all levels) and the introduction of a stable currency (gold, preferably). There must also be complete abolition of any regulation of voluntary and peaceful commercial activity. It is, among other things, the suffocating regulatory environment at all levels of government today that is creating desert conditions for entrepreneurship. Without entrepreneurship, there is simply no hope for an economic recovery and thus no hope for convincing the younger generations (or even large numbers of us latter-generation Baby Boomers) that there are viable MARKET alternatives to the failed statist retirement and medical care systems.