The Real State of the Union

[Delivered at the Mises Institute’s Supporters’ Summit in Palm Beach Gardens, Florida, February 5, 1994.]

Ludwig von Mises was once asked how we can distinguish a nonsocialist economy from a socialist one. He thought a bit, and then answered: the presence of a stock market. It is this that indicates that the nation’s capital stock, or at least a portion of it, is in private hands.

America’s stock market—inflated as it may be due to central-bank credit expansion—demonstrates that we are not a socialist country. But a realistic assessment of our current predicament would have to conclude that in almost every other area, our government operates on one of socialism’s principal claims.

That claim is this: in the name of equality, fairness, and helping the poor, the central State should loot and obstruct bourgeois property owners and independent producers. Just as the Communists tried to organize the proletariat against the bourgeoisie, so it is in our country. The names have been changed, but the drama remains the same. The bourgeoisie is the middle class. The proletariat is the underclass. The capitalist exploiters are those who “discriminate” against accredited victim groups. The five-year plan is the Economic Report of the president and the libraries of regulations that appear every year. The one-party State is the two-party cartel, both of whom have a stake in the status quo.

As in the USSR, the intellectual classes are in the pay of the ruling elite, or act so as to be worthy of such beneficence. The cultural tone is dictated by our own Pravda and Izvestia, the manipulative, statist media.

So let’s forget the rubbish we’ve heard recently about the wonderful (in the Democratic version) or the pretty good (in the Republican version) state of the union. The union is in crisis, a crisis caused by an explosion in the size and scope of federal power.

Statism has enormous and complex effects on every aspect of national life. It separates work from production, destroys our communities, and politicizes our culture. It shreds our history, wastes our resources, and attacks our families. It feeds off public vice and private envy, promotes crime, and transforms education into indoctrination.

Every day, our markets are less free, our property less secure, our laws more arbitrary, our officials more corrupt, and the ideal of liberty a more distant memory.

Federal regulators are grasping for control over every sector of the economy. Medical care is the most obvious example. Both parties seem to have settled on one or another mandatory national plan for universal access, a euphemism for socialism. This is despite the sorry fiscal record of Medicare and Medicaid, the source of present industry problems.

Every Republican alternative to medical socialism accepts the dominant assumptions of Clinton’s program. They may not go as far as Ira Magaziner would, but Clinton is correct in thinking that the final bill need not. So long as the new health care system is universal and mandatory, it will eventually become totalitarian. And as far as private practice goes, it will be targeted and drafted into the State apparatus.

Another mandatory national plan with universal access is Social Security. That too is in crisis. Demographic trends ensure that the program will eventually go belly-up. The younger generation knows it will never see the promised benefits. Yet there is no serious effort toward reform.

The term “insurance” itself has been corrupted. In the private model of insurance, the underwriter is supposed to make a profit by correctly assessing risk and premiums. The new model of insurance is welfare and redistribution. In the name of insurance, the government routinely practices what was once called insurance fraud.

The family is being nationalized. The administration is pushing for starting school earlier, more federally funded babysitting services, and more after-school programs, so as to keep children in the hands of State-approved therapists. Eventually, every three-, four-, and five-year-old is supposed to enter Head Start.

The danger is not the cost, although it is exorbitant. It is not even its failure rate, which is high. It is that it takes the responsibility for raising children away from parents and gives it to bureaucrats.

The family serves as the primary bulwark between the individual and the State. That’s why the State relentlessly attacks it. This administration sees parents as expendable at best and abusers at worst. If we get a health security card from the Clinton bill, children’s lives will be monitored from birth.

The Department of Education is developing politically correct national standards to be imposed on every school. The new curriculum includes not only environmental and other statist propaganda, but also sexual reeducation.

American history, as taught in the new federally approved classroom, is so dumbed down and left wing as to be a parody of itself. Here it is in a nutshell: America was founded by patriarchal white males who oppressed women and killed Indians; they also enslaved African blacks, broke up their families, and whipped them unmercifully as the slaves built America; Lincoln freed the slaves; women got the vote; labor unions got rights; Roosevelt saved the country from a greed-caused depression; Martin Luther King, Jr. finished freeing the blacks; Reagan unleashed greed and racism; but Clinton is giving rights to blacks, women, gays, unions, the disabled, and the uninsured. That’s about it.

In this type of system, a real education involves first unlearning everything you’ve been taught in the government schools. The National Service program passed by Congress was a deception. Under it, the government agrees to pay for college, provided the recipient of the money gives, as they say, “something back to the community.” In concrete terms, this means the taxpayers fund not only schooling, but also a make-work job.

It would be cheaper for taxpayers if the students never gave anything back to the community, and instead got real jobs. This program will start small, but unless stopped, it will balloon into a full-scale European model.

Old standards of merit are being destroyed and replaced with affirmative-action mandates and quotas. We cannot overestimate the damage this has inflicted on our society. There was a time, for example, when a smart student could get an academic scholarship regardless of his income level. Those days are gone. Scholarship money is reserved for the politically correct.

This form of redistribution can be devastating. While middle-class parents struggle to make ends meet and get their kids through school, others get unjust favors, which in turn increases social division.

Businessmen suffer from the constant threat of victim-group lawsuits. Pity the businessman in a large city who has a frequent turnover in his staff. The more he must hire, the more he exposes himself to lawsuits.

Denny’s and Shoney’s, for example, were the targets of hate campaigns alleging that their waitresses and managers were turning away paying black customers. This was nonsense, of course, but fearing the cost of litigation, and the cost of worldwide media condemnation, the companies paid millions to a few lawyers and their recruited plaintiffs. There’s a word for this: extortion.

Then there’s the Americans with Disabilities Act. Thousands of complaints have already been registered with the Equal Employment Opportunity Commission, but we haven’t begun to see the damage the ADA will do. Under the ADA, business is required to accommodate so-called disabilities like drunkenness, drug addiction, AIDS, forgetfulness, and dim-wittedness. This has to do with the government’s effective definition of disability: “any physical or mental limitation.”

Notice that a surprising number of new jobs being created in the private sector are in temporary employment. This can be through temporary employment agencies or direct contracting with the individual. In the last 12 months, it may be as high as 28 percent of all new jobs.

Why is that? The mandates on business for full-time employees are just too high, and they can be avoided by hiring temporary employees, who do not have to be paid medical insurance or unemployment insurance, and who do not have tenure through victimology. That is, temps can be easily fired. The businessman is much less likely to face charges of discrimination and be bankrupted by lawsuits.

The temporary industry is a wonderful market innovation, but it is also largely a response to the socialization of the labor pool. So it is not surprising that Congresswoman Pat Schroeder and Labor Secretary Robert Reich hate the temporary employment market. If they follow the pattern of their counterparts in Europe, and her legislation in Congress, they will crush this growing market.

The Environmental Protection Agency is completely out of control. As I speak, it is conducting the so-called National Biological Survey to take a full accounting of every plant, animal, bug, weed, stick, and dirt ball in the country, to make sure all are frozen in place and not “endangered.”

The Senate was barely able to pass a binding resolution forbidding the EPA from intruding on private property without the owner’s knowledge. Now, at least, they have to notify you before they trespass on your land with the hope of finding plants or animals that will enable them to steal it.

There are enough Green laws on the books to destroy the economy overnight if they were all enforced. The Endangered Species Act is only one of many examples. The National Biological Survey will extend it nationwide.

Clinton’s new head of OSHA promises a reign of terror against business. The FDA wants to control the wording of every food label and drive out alternative health remedies. And HUD is sending out spies to mortgage companies and apartment buildings all over the country to check for so-called discrimination. These swarms of roaming testers have a chilling effect, of course.

HUD uses a statistical measure called the Index of Dissimilarity to target areas that are too homogeneous, so coercive therapy can be administrated. This was tried in the 1970s with Chicago’s Gautreaux Demonstration Program. The result was 700,000 people fleeing Chicago altogether.

In international trade, with Nafta, we got a total of 43 new bureaucracies. The bill pretended to be about trade, but instead merely cartelized regulatory agencies across borders. Congress can no longer easily lighten labor and environmental regulations. Any such effort would face a challenge from the Nafta commissions on the environment and labor.

Now we are confronted with the prospect of Gatt, another regulatory bill being promoted as free trade. In April, the US Trade Representative will sign this agreement to create a World Trade Organization. It institutionalizes the environmental agenda, Keynesian fiscal planning, redistributionism, and “full-employment” policies. This is the Keynesian dream come true, but it’s a nightmare for national sovereignty and economic liberty.

Incredibly, the wording of the WTO charter is almost identical to that of the failed International Trade Organization, which the postwar planners tried to foist on the country in 1948. It was killed by Mises’s student and free-market businessman Philip Cortney, with his great book the Economic Munich. Almost single-handedly, Cortney proved the power of ideas. Similarly, we should do everything in our power to expose the WTO.

This is not easy, of course. The ideological climate is intolerant of libertarian ideas. For example, in an age of email, faxes, FedEx, and UPS, hardly anybody is considering privatizing the postal service or repealing its monopoly status. The private sector has achieved miracles in information distribution, but it is not allowed to carry the mail. Meanwhile the government mandates, and controls. Instead of obeying customers, entrepreneurs now have to spend much of their time obeying politicians and social workers.

Even personal liberty is in free fall. In the name of crime control, private gun ownership is under attack as never before. And the administration of the post office raids companies to make sure they are not using FedEx in violation of the law.

Similarly, even after the S&L fiasco, which was created by government deposit insurance, there are no efforts underway to put banking on a sounder footing. Instead, the banking industry is slipping into a mire of victimology.

A bank can no longer conduct mortgage policy based on merit. It must first consider race. Indeed banks are paying millions of dollars in ransom to pressure groups. The old values of saving money and paying bills no longer apply.

We have nearly lost the traditional American principle that liberty is the best organizing force for society. It’s no longer simple, for example, to start a business, so costly and twisted are regulations and taxes. The Clinton administration has announced its intention to drive most gun dealers out of business through higher taxes.

Maybe we should be thankful that the administration has admitted, for once, what taxes do to thriving enterprises. Yet a columnist who is supposed to favor tax cuts recently suggested a nationwide confiscation of handguns, a position well-received at the White House. I speak of Bill Buckley.

Then there are the FBI, the US Marshals, and the Bureau of Alcohol, Tobacco, and Firearms. They killed 86 religious dissenters in Waco, Texas. The survivors are now on trial for defending their lives and property. And the media is rooting for their conviction.

There’s also the exploding debt, Washington’s phony budgeting, the sorry state of education, foreign aid, domestic aid, tax-funded condom ads, and foreign adventurism.

But what about the good economic news we’ve been hearing recently? Inflation is down and economic growth is up. Yet Mises taught us to look behind these numbers. The growth is almost entirely fueled by low interest rates.

There would be nothing wrong with that if these rates were based on increased savings and a longer-term outlook by the public. But savings remain historically low and the public is increasingly short-term oriented. Given these conditions, we should have much higher interest rates than we do.

One of the many hallmarks of the Austrian School is warning about the damage that artificially low interest rates do to the capital structure. They cause the capital goods sector (residential housing, for example) to over-extend itself, an extension which is reflected in the official data.

We are on the upswing in a government-manufactured business cycle. The inevitable result of a Fed-induced boom is a market-driven recession. That doesn’t mean that people shouldn’t be buying homes. Market signals suggest they should. It means the punch has been spiked and will eventually run out. And the after-effects are worse than a steady state of sobriety.

But what economic school will be prepared to explain this when the downturn comes? How can we turn our next economic crisis into an opportunity for the advancement of freedom? And is there anything that can be done before a collapse to improve our lot, and lessen the arrogance of the central State?

That brings me to the role of the Mises Institute. The truth about what is being done to our economy and society is being suppressed by a kept media and a political class that benefits from allowing only marginal criticism of the status quo. Part of the Institute’s efforts are therefore devoted to public education.

We are anxious to use every forum available to us to explain sound economics, identify its enemies, incite anger against the State, and urge that something be done. We don’t attempt to persuade politicians or lobby for legislation. That has proven a dead end in many cases.

Instead, we strike when we see the opportunity. Through public education, we battled last year against new administration appointees, against the trends of race quotas for banking, against trade bureaucracies, and against the spending trends in Washington. We’ve learned that when the trumpet sounds a certain tone, the troops will swing into action. But our work in public affairs is only the beginning. We also attempt to address the underlying problem of our country’s economic ignorance, bolstered by the academic establishment for at least 40 years.

Within the academy, statism is newly in vogue. The media have again beatified John Maynard Keynes just as volume two of his hagiographic biography appears. The New York Times praises “Socialism’s Noble Aims.” All reports from the meetings of the American Economic Association said it was overrun with socialists and would-be central planners. The eighties’ enthusiasm for tax cuts was completely unrepresented.

A recent dispatch from the Associated Press names the economic guru of our age: John Kenneth Galbraith. “At age 85,” the AP reports, “he’s back in vogue.” There’s no denying the truth of that statement. In the early 1980s, we thought we had gotten rid of him. When socialism collapsed in Eastern Europe, we hoped he would become an object of ridicule. If there were justice in this world, he would have.

Galbraith should do penance for his lifetime advocacy of State power, price controls, budget deficits, inflation, and central economic controls. Instead of listing among his greatest achievements his stint as Franklin Roosevelt’s price control czar, he should be redfaced about it. He should, in fact, be out on the street with a sign reading: “Will work for food.”

The public figure he admires most, Galbraith says, is Franklin D. Roosevelt, and he comments about himself and other economists: “We didn’t make up our minds on an issue until we knew what Roosevelt wanted.”

Imagine: “We didn’t make up our minds on an issue until we knew what Roosevelt wanted.” That’s a Harvard professor describing his profession as being in the business of serving the State.

Times have not changed. Most economists are political weather vanes. Whichever way the wind is blowing in Washington, they go in that direction, although they are particularly excited about moving to the left, because it gives them status and power.

Today economists ask, what does Clinton want? You only have to look at the transcripts of Clinton’s economic summit. One by one, on bended knee, economists told the incoming president what he wanted to hear. And the students who learn under them are indoctrinated into the reigning ideological regime.

The Austrian School is different, however, and always has been. Carl Menger fought the statist and nihilistic trends of his time when he founded the Austrian School on the view that economics is about acting individuals. His colleagues and students did, too.

Ludwig von Mises, the father of the modern Austrian School, battled his whole life against statism and for economic truth. Though he sometimes won acclaim for his brilliance, he faced unremitting hostility and opposition to his writings. But it didn’t stop him. This prophet of socialism’s collapse was a Rock of Gibraltar, as his students are in our time.

The Institute that carries on his work desires a society where the central government is neither seen nor heard. When that day comes, we can all live as Americans were supposed to live: secure in our property and freedom, and with optimism for the future. That is why we are so grateful for your support—spiritual, intellectual, and material. You enable us to carry on. Ludwig von Mises never gave up the fight, and neither will the Institute privileged to be named in his memory.