The cloudy crystal ball of socialist intellectuals must be, not just cleaned, but consigned to the trash heap.
Most commentators blame corporate greed and poor judgment for the subprime mortgage meltdown and the resulting squeeze in the financial community.
In reality, excessive Federal spending on the socialist welfare-state inaugurated by the New Deal, and the Federal Reserve’s over-expansion of the money supply to fund it, are the proximate causes for today’s financial mess. Without excessive money in the system, neither greed nor imprudence enters the picture.
Today’s mess could not have developed had President Roosevelt not deliberately devalued the dollar and repudiated gold payment clauses for the currency and Federal debt in the 1930s, while centralizing control of the Federal Reserve system in the Federal Reserve Board to facilitate Federal deficit spending.
As I have written frequently over the past couple of years, the Federal Reserve is an example of the inherent weakness of entrusting planning for the entire economy to a small group of intellectuals. See Financial Hurricane Ahead for a partial list of those postings.
Alan Greenspan and Ben Bernanke, the two most recent Federal Reserve Board chairmen, are intelligent and talented men. But no individual, or small group of individuals, can assemble in real time all of the relevant data on economic conditions, process it, and comprehend it in a timely way to manage the entire economy. Picture an ant trying to build the pyramids solo.
As Arnaud de Borchgrave, editor at large of the Washington Times, writes in his November 28 commentary:
“Many saw the disaster coming but kept quiet as the international Ponzi scheme kept belching huge profits. One leading global umpire, then-Fed Chairman Alan Greenspan, didn’t throw any yellow or red flags on the plays, and admitted after retiring he knew about abuses in subprime lending but failed to foresee their paralyzing effects until early 2006.
“Mr. Greenspan, who led the Fed through 18 years and four presidents, still defends his lowering of interest rates from 2001 until 2004 that critics say caused the crisis in the first place.
“The housing bubble was the size of a Macy’s Thanksgiving Day parade balloon when Mr. Greenspan said in Oct. 2004, “there’s a little froth in this market,” but, “we don’t perceive that there’s a national bubble.” Frenetic bank lending led to the Denver Post story of a runaway prisoner who managed to borrow enough to buy three expensive houses while on the lam and then two more while in prison.”
A principal role for the Fed when it was created in 1913 was to react to differing regional banking needs by providing liquidity to local banks to meet seasonal lending needs or financial emergencies. Not until Franklin Roosevelt’s New Deal imposition of socialism in 1934 did anyone imagine that the Fed could, or should, be so foolhardy as to shred the differing regional needs into one massive pot and stir a national economic broth.
One of the cornerstones of liberal-progressive-socialism is a presumption first articulated by the early 19th century French progenitors of socialism. In that presumption, individualism is abhorred, because individual business managers and entrepreneurs are led astray by greed, and “the people” are crushed by the barbarism of capitalist market competition. Only intellectual planners have the knowledge and capacity to regulate the economy. Only the intellectual planners have the breadth of vision to understand the big picture. And only they understand social justice, implementation of which demands collectivist planning by the political state.
This is the paradigm that leads liberals to believe that only the Federal government can improve the living conditions of individuals, that individuals are helpless to deal with their own needs. It’s time for liberal-progressives to get over it and re-enter the real world.