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If Liberty Mattered — Once More, a Presidential Candidate’s Press Conference, Part 6


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Fortune: Mr. Candidate, your call for the repeal and abolition of all of the core programs of the welfare state is not one shared by a majority in either major political party in the United States. If, by some chance, you were to be elected to the presidency of the United States, what would you do if you could not reach agreement with a majority of the House of Representatives and the Senate?

In 1995, and in the beginning of this year — 1996, the government was shut down several times, and there was a threat of the government’s defaulting on U.S. bond payments that were coming due. Surely, the government’s bonds cannot go unpaid without running the risk of creating a financial panic. And, surely, the government cannot just close up shop for any prolonged period.

The Candidate: The U.S. government has been propagandizing on behalf of its own bonds for decades by promising prospective borrowers that its securities are backed by the “full faith and confidence of the U.S. government.” This has been double-talk. What the government has actually been saying is that bondholders could feel safe that their money would be paid back with interest because the government has the ability to obtain any amount necessary to meet its financial obligations through its power to tax the general population.

This has been nothing more than the usual ploy of taking from Peter to give to Paul. Only through this method, the government borrows from Mary to give to Paul and then later taxes Peter to pay back Mary — with interest. If Peter no longer wants to be the victim of what the French free-market economist Frederic Bastiat once called “legal plunder,” Paul cannot expect to continue receiving “stolen goods” in the form of an income transfer via the government.

And nor should Mary expect to receive her money back for financing the early stage of the income-redistributive process. If I lend the money that a jewel thief needs to finance a “big caper,” I cannot expect to get the money back if the thief is caught in the act. In fact, in the eyes of the law, I would be an accessory before-the-fact, liable for criminal prosecution, as well. In the case of lending money to the government for purposes of funding the welfare state, ignorance of the moral law against theft is no more an excuse than it is under the civil or criminal law.

If I am elected president of the United States, I will veto any and all bills passed by Congress that involve expenditures not directly and clearly limited to those narrow constitutional duties assigned to the national government to protect the life, liberty, and property of the American citizenry. And I will most assuredly not sign any tax bill to finance the payment of principle and interest to U.S. bondholders. The only concession I would possibly be willing to make is to propose to Congress that all outstanding federal debt should be retired by selling off government-owned land and using the receipts to pay off bondholders.

What would happen if the Congress did not override my veto with the necessary two-thirds majority? There would initially be a panic in the U.S. securities market as bondholders tried to sell many of the government securities they were holding in their investment portfolios. Bond prices would fall, and probably fall significantly. There probably would also be a significant drop in the value of the dollar in the foreign-exchange market, as foreign holders of bonds sold them off and as many of them repatriated their receipts from the bond sales back to their home countries due to the immediate uncertainty in U.S. securities markets.

But as the dust began to settle, financial investors would begin to search out alternative investment opportunities in bond markets seeming to offer a more secure return and a steadier secondary market than the one for U.S. government securities. Their money would soon flow into the substitute private-sector bond market. The demand for private corporate bonds would rise and interest rates on corporate bonds would decline. Private enterprises — and especially those not linked closely to either direct or indirect government spending — would find it less expensive to float new bond issues. Savings in the American economy would shift from financing government spending to funding private-sector capital formation and prospective profitable investments geared towards improving the ability to better satisfy consumer demands for goods and services.

The long-run effects would be a more productive, prosperous American economy since the U.S. government would no longer be diverting the scarce savings and resources of the society into unproductive and wasteful uses. Furthermore, over time, the value of the dollar would rise on the foreign-exchange markets because foreign investors would reverse their withdrawal of funds from the American economy. Why? Because with the government off the backs of the American worker, saver, investor, and entrepreneur, no market in the world would seem such an attractive and profitable place to invest in as the United States of America.

Foreign financial capital flowing back into the U.S. would increase the domestic pool of savings, lower costs of borrowing, and expand the capacity of the American economy to grow even more. Liberating the financial markets and the goods-and-services markets from the expropriating and oppressive hands of the government would assure that America enters the 21st century as the global leader of human freedom and economic opportunity.

If the Congress has not accepted my legislative proposal to abolish the Federal Reserve System, I would use all the power and influence of the office of the presidency to persuade the central bank not to place a “floor” below the price of U.S. government securities. If the Federal Reserve were to announce a minimum price at which it would be willing to purchase any government bonds offered for sale, this could easily set in motion a dangerous inflationary process. The Federal Reserve could only offer to buy government securities offered for sale at a floor price by creating the money through which the bonds would be bought. This would not only generate all the usual harmful effects that always arise from inflations, it would also delay the “cleansing” of the financial markets of the burdensome and harmful consequences of an ocean of government debt.

As for “shutting down” the government, in my estimation at least ninety-five percent of what the national government does and spends money on should be shut down. Would lots of businesses that live off the largess of the federal government suffer from this by losing their source of revenue and profits? Yes. And they should. That is how the market works. When the goods and services previously supplied by manufacturers and suppliers are no longer needed or required, the demand for them — and any profitability they have had — should decrease. This serves as the market’s signal that the resources and entrepreneurial talent involved in these sectors of the economy should be redirected into new, alternative productive avenues.

That same French free-market economist to whom I’ve referred — Frederic Bastiat — also pointed out that when thinking about what the government does, it is important to appreciate “what is seen and what is not seen.” When the government starts to spend money on public-works projects, or introduces expenditures for welfare or the arts and sciences, or subsidizes industry and agriculture, what is seen are the men set to work, the buildings erected, the sectors of the economy that expand because of the government demand. What is not seen are all the jobs, industrial growth, research and technology, and construction that would have been brought into existence if the money the government used to stimulate these various activities had not been taxed away or borrowed from the private sector. Those taxed or borrowed sums of money would have been left in the hands of those who had earned them in the private sector, and they would have been used in ways that the citizens of America considered most valuable and useful to improve their private lives and standards of living.

The same distinction between “what is seen and what is not seen” needs to be focused upon when fears are raised about all of these government programs and spending projects being ended and abolished. What is focused upon are the jobs and profits that would be lost when the government dollars that privileged sectors of the economy have been living off is taken away. What is not thought of are all the jobs, enterprises, and investment opportunities that will begin to be created in the private sector when the government no longer seizes the income and wealth of Americans through taxation or borrowing.

Too many jobs, too many businesses, too many investment projects have been brought into existence in various parts of the economy only and precisely because of the government artificially making them profitable and sustainable. These should be thought of and seen as economic waste and massive misdirections of the society’s scarce resources. Our country has been made poorer because of it, in comparison to what America could have been if not for the government’s insatiable appetite for the people’s income and wealth.

I would also like to point out that the Republican Party always claims in its rhetoric to espouse “free enterprise” and “free-market economics” but has shown no willingness in this presidential campaign year to take such a forthright position on the crucial issue of economic freedom versus “big government.” The leaders of the Republican Party began 1996 by “blinking first” when faced with “bad press” over the budget and the charade of a supposed government shutdown. When President Clinton proposed a ninety-cent increase in the minimum wage, The Washington Post quoted then-Senate Republican leader Robert Dole as saying that you just can’t get people to understand that raising the minimum wage would only cause increased unemployment. Instead, the Republican leadership in Congress offered compromises for accepting the increase; if business taxes were lowered — or if the White House would be accommodative in accepting insignificant changes in some welfare programs — the congressional Republicans would go along.

Then, Dole presented his “answer” to the problem of housing for the poor. Rather than government public housing, Dole suggested housing vouchers for the eligible poor, enabling them to purchase rental housing with a combination of a voucher and cash (presumably with all or a portion of that cash still coming from government welfare payments).

But if implemented as a federal policy, rental vouchers would threaten the entire housing and apartment market in the United States. Once government dollars are used to partly or fully pay for private housing accommodations everywhere in the country, it would not be long before increased federal standards and mandates are introduced concerning repair, maintenance, and construction of private apartment complexes and housing facilities, on top of the federal-level and state-level regulations already in place. Next, private owners of apartments would be prevented from choosing not to rent to people using vouchers because this would be considered discriminatory and imposing an unfair stigma of “inferiority” on voucher users. Through antidiscrimination laws and federal regulatory rules, control over private apartment housing would be, in fact, slowly but surely “nationalized” by Washington. And this is proposed as a “market solution” to a social problem by the political party that claims to carry the banner on behalf of free enterprise in America!

This is one more demonstration of the bankruptcy of the Republican Party today as a vehicle for safeguarding and restoring freedom in the United States.

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    Dr. Richard M. Ebeling is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).