The View From 1776

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See Yellen’s Missing Jobs, an editorial of The New York Sun, March 31, 2014.

Keynesian macroeconomic policies pursued by the Federal Reserve’s Open Market Committee are the present-day embodiment of ideas crystalized into socialist theory during the first decades of the 19th century.  The earliest systematic work was done by Henri de Saint-Simon.

In Saint-Simon’s socialism, one part of the new ruling group was to be the scientists who, in theory, understand the principles of history and the dynamics of society.  The other was to be professional managers and bureaucrats.  One of the most important tasks of the highest-level administrative councils was to foresee future trends and thus to allocate the state’s financial resources to the most productive future manufacturing and commercial uses.  We see that presumption in Obama’s dogged funding of “green” energy projects and his efforts to kill coal mining and to stall drilling for vastly more energy-efficient petroleum and natural gas.

Beginning in the late 19th century, “progressive” politicians and academics became dissatisfied with the state of American society and looked longingly toward the giant strides of Bismarck’s German Empire in education, chemistry, physics, and medicine.  Progressives attributed Germany’s rapid progress both to its strong collectivized leadership by Bismarck, and to the dominance of the German Socialist party, which was the largest and most influential in Europe.

Liberal-progressivism in this country was an amalgam of socialistic disdain for individualistic capitalism and confidence in the science and engineering that had transformed the United States after the Civil War.  Progressives believed that businesses and government ought to be run by professional managers, a view leading to the foundation of the Harvard Business School in 1908 by the newly-secular Harvard University to train such professional managers for the coming socialist society.

This faith in technocrats remains a prominent feature of liberal-progressivism in the United States.  Liberal-progressives, impervious to real-world experience, remain convinced that government planners always can do a better job for society with class-based programs and regulations than private individuals can do in managing their own lives. 

Note that fiscal policies are expressed in government’s taxes and so-called stimulus spending, usually of borrowed money.  Monetary policy affecting interest rates and the money supply is under the Federal Reserve’s purview.

The Federal Reserve Board today, as well as the officers and staffs of the Fed’s twelve regional banks, are almost entirely from academic, theoretical backgrounds, without practical experience in the business or financial worlds.  Fed technocrats maintain steadfast faith in their theoretical doctrine and believe firmly that gaining effective control over the entire economy is just a matter of fine-tuning their computer models.

It’s no surprise, therefore, that today’s Keynesian macroeconomics theories, in both fiscal and monetary policy, reprise the failed practices of the 1930s Depression era New Dealers, who had placed similar reliance upon the presumed intellectual superiority and foresight of academic theorists.  During the Depression, Harvard economist Alvin Hansen (Keynes’s chief promoter in the United States) and independent analysts like Stuart Chase (who coined the term New Deal) declared that private business never again would be able to regain the level of production reached in 1929.  The private business economy having permanently stagnated, declared Hansen, unemployment would remain at cripplingly high levels unless the Federal government undertook a permanent role to employ those out of work and to fund new technology and industry.

In monetary policy the Fed’s major move during the Depression was creation of the Federal Open Market Committee to control interest rates and the money supply among banks.  The Fed, between 1914 and 1927, had flooded the banking system with a five-fold increase in lendable reserves, leading to an artificially induced expansion of productive capacity funded excessively with debt.  In 1928 and 1929 the Fed recognized the inflationary effect of its money supply expansion and reversed course.  Rapid contraction of business ensued, and the stock market notoriously crashed in 1929.

This pattern was essentially the same as that of the housing market bubble that burst in 2007 and 2008, for exactly the same reason: the Fed’s loose money policies had encouraged and supported debt-financed over-expansion of business.

President Roosevelt took office in 1933 avowing his faith in state-planning and declaring that the old system of government based on Jeffersonian individualism had failed.  There were, of course, only two varieties of socialistic state-planning in existence at that time — Fascist Italy and Soviet Russia.  Liberal analysts of the day made it clear that what the new President had in mind was former Democratic Presidential candidate Al Smith’s prescription that “the Constitution should be wrapped up and put away on the shelf for the duration.”

The New Deal tried dozens of academically-designed programs intended to end the Depression, none of which worked.  As we entered World War II in 1941, the Depression was still with us, after eight years of Franklin Roosevelt’s tinkering. Economic conditions in 1937 and 1938 were worse than in 1933 when Roosevelt took office.  President Roosevelt, in his budget message of January 3, 1940, acknowledged that in the 1930’s, “…fiscal policy was exceedingly simple in theory and extraordinarily disastrous in practice.”

For the past five years, Federal Reserve monetary policy has blindly followed the same expansionary Keynesian macroeconomic policies, with the same lack of effectiveness.

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With respect to narcissism, columnist Michael Barone echoes my recent posting.

Read Obama Mistakenly Believes Others See World As He Does

With respect to gnosticism, the other radical left deformation of reality, I outlined the problem in The Liberal Jihad - The Hundred-Year War Against the Constitution:

Eric Voegelin addressed the persistence of gnosticism in Science, Politics & Gnosticism, based on his 1958 University of Heidelberg lecture. He wrote:

“The more we come to know about the gnosis of antiquity, the more it becomes certain that modern movements of thought, such as progressivism, positivism, Hegelianism, and Marxism, are variants of gnosticism… The death of God is the cardinal issue of gnosis, both ancient and modern. From Hegel to Nietzsche it is the great theme of gnostic speculation, and Protestant theology has been plagued by it ever since Hegel’s time. In recent years, it has been taken up by American theologians who are faced with the pressing phenomena of urbanization and alienation.”

Conditions became even worse after 1958. In the 1970s, President Johnson’s socialistic Great Society of welfare entitlements led to student anarchism, anti-Vietnam War hysteria, riots, burning, and looting in cities. Many Christian churches effectively abandoned Christianity. Many urban ministers became supporters of paganism within the walls of their churches, opting for the flower-child spirituality of drugs and sexual promiscuity. Christianity was degraded into a feel-good association in which moral standards were rejected as offensive to people’s sensitivities.

Professor Voegelin continued:

“[In the gnostic world view], The world is no longer the well-ordered, the cosmos in which Hellenic man felt at home; nor is it the Judeo-Christian world that God created and found good. Gnostic man no longer wishes to perceive in admiration the intrinsic order of the cosmos. For him the world has become a prison from which he wants to escape… the aim always is destruction of the old world and passage to the new. The instrument of salvation is gnosis itself— knowledge.”

Foreseeing the effect of American liberalism’s gnosis, Voegelin concluded:

“Self-salvation through knowledge has its own magic, and this magic is not harmless. The structure of the order of being will not change because one finds it defective and runs away from it. The attempt at world destruction will not destroy the world, but will only increase the disorder in society.”

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