Personal Responsibility

Recently, Don Watkins, in a blog posting (I can’t find the specific post for some reason, but it was on http://capitalism.aynrand.org/, which is very good), referenced an article arguing that anyone who tries can succeed, at least to some level. This article was written recently and not one hundred years ago. Now, I don’t disagree with its basic sentiment. I especially agree that one should take responsibility for one’s welfare and future. Further, I emphatically agree that we live in a world where it is possible to make our own way, metaphysically speaking. But, as I read the article, I kept wanting to ask the author if he’d been paying any attention to what has been happening in our economy and culture now, and for the last one hundred years.

I know why Dr. Watkins referred to the article. It is rare to find anyone who is willing to say anything good about personal responsibility today. Any such sentiment needs to be encouraged. But, in fact the article is wrong in its application to today’s America. Personal responsibility is not encouraged. Personal success is often disparaged (not by business people, but certainly within the culture). Most important, the government has been actively attacking personal success and making it more difficult for a long time.

I think that it is difficult to succeed today and becoming more so. I think that the article should have had some important provisos. I mean, haven’t we been saying that it matters what the government does? Haven’t we been arguing that man needs to have certain conditions to succeed and that the U.S. government has been moving away from those conditions.

Now, in order to make sense of the issue of personal responsibility in our context certain basic notions have to be made plain. Most important, and thus first, is that if man’s life is the standard of value, the actions by individuals based upon their own understandings and judgment is the only way in which human survival is achieved and prosperity or progress, in any rational sense, occurs. It isn’t the action, or the amount of effort, or the “work” done that is the cause of success, but the use of reason and the resulting ideas, and their correspondence with the real world. Nor does good reasoning guarantee success. A rational man can fail, even in a rational or free environment.

But, we are not living within a rational environment. We are living within an advanced welfare state with millions of regulations, probably a million regulators, and an endless number of imposed government costs of doing business. In business after business, the risk of failing to meet some idiotic government regulation or expense has become greater and greater. Starting a business was always risky. Small businesses have always failed at very high rates.

And then there is the issue of what our personal responsibility is.

Some guy on facebook told me that people on Social Security were deadbeats, and we shouldn’t care what happens to them. But after nearly one hundred years of regulation of the financial sector, the chances that most Americans can save sufficiently for retiring, at nearly any age (not to mention the costs of health care after fifty plus years of government interference in the medical industry), is nearing zero (see my blog post). Many people, if not most, who are dependant upon government retirement money are victims.

Most importantly, the facebook guy had the cause and effect backwards. While it is true that there are some people who duck personal responsibility, at least in America that percentage is a minority. It is also true that some people are misled by the claim that their forced savings by the Social Security tax, for example, does lead to some level of personal protection at retirement. Neither type of group explains the large numbers of people who end up dependent upon Social Security.

What does explain those figures is the consequences of government actions in the economy. Just to point the finger at one element (out of a list of hundreds), look at the disconnection between savings and capital entailed in the policies of the Federal Reserve Board. The Fed thinks that the economy works best with an annual increase of price levels at two percent. This means that in just ten years, a dollar loses well over twenty percent of its purchasing power. At the same time, the Fed has driven interest rates down to very low levels. The interest rate offered by the standard savings account will not allow the saver to keep up with price inflation, especially after income taxes. To try to make ones savings work and grow, people have been forced to become investment professionals. However, the Fed’s policies have resulted in asset booms that have in fact left Americans with considerably less wealth.

The facebook guy is blaming the victim for the consequences of government actions.

Ayn Rand didn’t write about this issue directly. But she was asked about it. One response is on point. She was asked about unemployment insurance. The questioner clearly expected that Miss Rand would condemn the person taking the government money, but she didn’t. She said, “Government controls create unemployment. No matter what happens to your employer, if you are out of work today, why should you protect him and starve? There cannot be individual responsibility for something that is the government’s fault. In any situation where the government creates a hardship that pushes you into a position of martyrdom, you are morally justified to take advantage of whatever money is offered to you, provided you don’t spread the kind of ideas that created the trouble.” (Ayn Rand Answers, p. 124) (Note that Ayn Rand kept her wealth earned from her writing in savings accounts.)

Fundamentally, we are not individually responsible for the consequences of government actions. Nor can we hold other individuals responsible by demanding that they suffer when they are victims. In a society that is attacking the innocent, we are now in a lifeboat context, and the rules of morality apply differently. Condemning the victim, the innocent, is joining the government. It is corrupt. It is evading the cause. It makes finding the correct solution nearly impossible.

If we tell someone who can’t find a job because of government interference, say minimum wage laws or restrictions starting a new business, that he isn’t taking personal responsibility, we are doing the liberal’s job. We need to be telling him that he, too, is a victim. If he is to have a future he needs to live within capitalism.

If we then tell someone who wasn’t able to save for retirement and sees the cost of living and their medical expenses rising beyond reach that they didn’t take personal responsibility, we are doing the liberal’s job. We need to be telling him that he, too, is a victim. That if he is to be able to live, and even enjoy his old age, he needs to live within capitalism.

If we then tell someone who is poor and uneducated that they are failing to take personal responsibility, just because they are poor and uneducated, we are doing the liberal’s job. We need to be telling him that if he does not want to remain poor and if he wants an education of any kind, he needs to live within capitalism.

The only other option besides capitalism is a declining economy and ultimately depression and perhaps the collapse of civilization.

Let’s keep the cause and effect clear. Let’s not advocate policies that will further harm the victims. For example, declaring that we must first stop the entitlement programs before we have a functioning economy (meaning one that can create wealth) only means that we are telling people that they will have to suffer without hope. Yes, there will be some suffering in any event. But telling anyone that will have to suffer is only justified if we are moving toward capitalism, which means a free economy. So first we have to liberate the economy. Then we can cut the entitlements. But if we don’t begin with freeing the economy, we will only add suffering without the possibility of a prosperous future.

Austerity versus Growth in Europe

In my last post I discussed the immediate lesson we could learn from the “austerity” programs occurring in Europe today. In this post I want to talk about some of the events in Europe and suggest some future results.

No doubt my readers aren’t really taken in by the emphatic declaration by European socialist politicians that the government planning must include growth, and not just reductions of government spending, otherwise known as “austerity.” All of this is government speak, that is, none of these terms mean what they rationally means when it comes out of the mouth of the European politician or bureaucrats. It reminds me of Clinton’s first term, when someone convinced Bill that investment was a vital element in the economy. For the next year or so every government initiative that Clinton proposed was called an investment. Every action that the European politician wants to take will be called a growth program.

We should know that the Europeans do not know and go out of their way to evade what it is that causes increases in production and wealth. In their minds the cause of all that is good is the government. They do not understand why their economies aren’t performing as they want them to. They don’t understand that all of their laws have cut down economic activity. In the way of what they are calling reforms they have done very little to make actual growth possible. I read somewhere recently that Greek bureaucrats require an overwhelming amount of stuff form someone applying for a business license, including a stool sample. On the episode of “No Reservations” filmed in Lisbon, I leaned that Portuguese agriculture was forced to stop profitable farming in several crops by EU protectionist regulations (protecting the French and Italians). The number of regulations and interference in business in Europe on the EU, country, and state level is many times what it is in the U.S. None of this is being addressed. What has been “reformed” to some small degree in a few countries is a few regulations that made it impossible to fire someone. There is probably more, but minor, and unreported in the general media.

Austerity has been the watchword in Europe recently. Let’s be clear on what that means. It means that the national government’s budget deficit has to be kept below a certain percentage of the country’s GDP, on the order of three percent, according to the recently passed EU law. It doesn’t actually mean that a surplus has to be achieved or that the country’s government debt has to be reduced. It only means that the debt can’t grow at more than a certain rate, which is deemed to be a level that an economy can comfortably service (which probably assumes interest rates kept artificially low). If a country was actually productive, keeping government spending to that level might not pose much of a problem, until the economy wasn’t productive any more. However, for different reasons in each country, with the exception of Germany and the smaller northern euro zone countries, they have been spending much more and driven their debts much higher (Italy’s debt wasn’t that high, but its deficit was, driving interest rates higher). Since their economies are very dependent upon government spending, when the spending slowed the economy began to contract, people’s income dropped, and greater numbers became unemployed. People became unhappy.

Within this context it makes sense to want to see the economy grow. Economic growth would create more jobs and ultimately move the economy to prosperity. Growth basically comes from letting people produce and seek higher income and wealth. That is not what the European politician calling for growth has in mind. He still sees the government as the prime mover. He wants to increase government activity and government spending. He wants to move away from austerity toward what was going on before this mess. He wants to pretend that the mess doesn’t exist. He wants that favorite of all government boondoggles and fountain of spoils, infrastructure projects. But building a bridge is not growth. (BO wants to fix schools and put in wiring for the internet.) So far, the programs that I have heard proposed will not cause economic growth.

The populations in Europe are apparently supporting these “pro-growth,” socialist politicians. France just elected one. Greece will at least come close to pushing out the politicians who voted in austerity. The Greek alternative is someone who wants to renege on the country’s sworn commitments. Spain is trying, but failing to reign in its spending and the population is angry about the results of that attempt. And in a recent German state election, a couple of socialist parties opposed to austerity won a solid election against the person leading Europe away from government spending, the German PM. Even one of the most emphatic pro-austerity governments in northern Europe, the Netherlands, has announced that it isn’t able to keep its spending below the required cap. They are going to have new elections soon and may become an over-spender.

We are faced with the amazing scenario in which the leading, European, social welfare, big party politicians are trying to keep their countries from going into bankruptcy, which is to say that they are at least paying attention, and the voting public is rejecting them and voting in complete, not just partial, idiots. Who would have expected the politicians to show some responsibility?

Why isn’t it working? Why can’t the politicians convince the public to go along with the “austerity?” There are two reasons. First, the public has been taught for years, by their parents, their schools, their churches, and their politicians that the government is the fount of all that is good and that private enterprise is evil. They believe that the government can just make things up and provide them with the long life of leisure and pleasure that they have been promised. They just don’t understand why things should change now.

One wonderful example of that is the apparent conflicting poll results in Greece. According to polls taken after the last election and the realization that no government could be formed from the relative strength of the parties, the Greek public wants to put into power a person who will reject all of the agreements connected to the bailout that result in “austerity” (the polls have fluctuated as to who is leading). On the other hand, the Greeks by a large majority want to keep the euro, which they would have to give up if they elect the guy they seem to like.

Then, you ask, why do the Greeks want to stay in the euro zone? Again there are two answers, a bad one and a better one. The bad reason is that the Greek prosperity of the last decade began with their entrance to the euro zone. Having the same currency as the Germans, the Greeks were able to borrow to support the government’s crazy spending at very low rates. Their wages climbed to become thirty percent higher than German wages. They think the euro lays golden eggs!

The second, better reason for wanting the euro is that the common currency does facilitate trade. If governments behaved at all sensibly, a common currency in open trading blocs is an excellent idea. The problem in Europe is that each country insisted on having certain protections. It isn’t actually a free market but a highly controlled one. Really, the common market, the EU, is an illusion.

Getting back to the initial discussion, the second reason why the voters want to reject the “austerity” candidates is that “austerity” as a government program is a failure. It is a failure because all it is doing is collapsing their economies. As I have implied above and in my last post, their economies have insufficient capacity for the readjustment of prices and wages and to move assets into productive endeavors. In short, their economies are not capitalistic but controlled.

We have seen the European politicians struggling for an extended period of time to cope with their problem. We have seen several announcements that they have taken major steps and that things would be better only to see the exact same problem continue: concern by lenders that they aren’t going to be paid back. Hundreds of billions of euros have been given or committed to several different countries. The European Central Bank injected nearly one trillion euros into the banking system in loans at 1% interest which resulted in almost no new commercial lending and about five months of better terms for loans in Spain and Italy. The collapse of inter-bank lending, which was supposedly the justification for the loans, has continued to be a problem. Interest rates controlled by the European Central Bank continue to be near 1% and yet the entire bloc is heading into recession, including Germany. Nothing that has been done has dented their problems. Covered them over for a short period of time, perhaps, but done nothing to move the European Community toward growth and prosperity.

The voters do not understand the importance of capitalism, but they do see that with “austerity” their prospects are very poor. Jobs of all kinds are disappearing, wealth is leaving the country when it can, and no one has the leeway to do anything about it. There appears to be a fatalism about their daily lives. They foresee nothing good happening in the foreseeable future. Unfortunately, that is what happens when you give government all the power.

So we see that Europe seems to be faced with the alternative of severe recession with “austerity” with no real way out and going back to the government spending that got them into trouble in the first place. Surely, this problem will be blamed on capitalism and politicians who want to have greater control will be successful. Ignorance of capitalism will lead to contraction, probably bankruptcy, and further reduction of freedom. The effects of decades of social welfare state policies will become obvious.

I am not one for disaster scenarios. When people write about upcoming collapse of our economy I tend to yawn. Yet very bad things are happening. Greece is in a depression, although no one else is willing to say so. Spain isn’t that far away from a depression and they haven’t even gotten to the bottom yet. Neither of those countries are particularly large and so far they have had friends who have been able to keep them afloat. Then we must realize that Italy and France are tittering. Italy has set a course that will keep it going for a while, but France has just rejected “austerity” and has already begun new commitments for ongoing spending. Their choice seems to have been made. It isn’t good. I suggest we all reread The Ominous Parallels by Leonard Peikoff to get an idea of what could happen.

So, then the question becomes, what are we going to do? We don’t want to live through the same thing here. Obviously, in order to avoid it people will have to learn what capitalism is, in some detail. I think that many people are willing to listen. ARI has several good programs and books that do that. Let’s help them. The more voices explaining capitalism the better.

The Immediate Important Lesson From Europe

We can learn many lessons from what is happening in Europe and what will be happening over the next decade or two. We will see in very explicit detail that democracy is at root a destructive system as it attempts to consume very productive asset it can get its hands on. We shall see that borrowing to spend and consume is inherently a dead-end. We shall see again that government controls do not stop destructive behavior and that few know what good behavior is then. Etc.

But we are now witnessing something that I didn’t expect. We are seeing how not to achieve a turn around in an economy. “Austerity” is a failed program.

Okay, first let’s consider what “austerity” is. It is not actually austerity. The term was first picked up from the context of an over-indebted person. If he wanted to get out of his situation, without going back on his word to pay those people who lent him money, he had to reduce his spending and pay off his debts. Then he would be financially healthy and could begin building wealth.

So, the idea went, governments could reduce their spending, too. Except they failed to remember two different aspects of the individual’s context: first, that the individual had to continue to work, i.e., produce. Production is still the key. Second, they failed to remember that the individual had to spend less than his income. Governments regard “austerity” as merely spending less than they were or perhaps spending less than they were planning, although still increasing their spending. I haven’t seen any of the European governments talking about a budget surplus and paying off their debt.

But, the most important lesson to be learned is the first: Production is the key. What I mean is that just spending less in those countries has no positive effect on the economy, only less of a negative effect. What has a positive effect is the creation of goods and services, i.e., production. Those countries aren’t producing more. Actually, since they have grown the government so much, less spending translates immediately into less purchases and a constriction of business. Business has been forced to depend upon government spending. When that spending disappears, businesses do less business, are less profitable and tend to fail. That is what we are seeing across Europe, especially in the countries with the worst situations.

Those economies haven’t gotten to where they are because of the government spending by itself. The major cause of the poor performance of those economies is government controls. Controls limit what businessmen can do and their ability to produce. Government controls are the lid on man’s productive capacity.

As long as the government controls the economy, and the European Union has a staggering level of controls, those economies are going to suffer. In fact, what we see today is the simultaneous reduction of government spending with the increase in numbers and degree of control. We see tighter and tighter restrictions being placed on business and finance, further weakening their ability to produce while the governments are trying to at least slow the rate of their indebtedness. It won’t work.

This is a lesson for us all. We need to realize that as bad as the debt situation is, and as bad as it can get, and that by itself debt can destroy our economy, that it is not the primary issue and should not be our primary target. At least it shouldn’t be.

We must also recognize that if we only talk about debt and the need to reduce spending as our immediate objective we will not succeed in moving any society towards our viewpoint. They see what “austerity” achieves. No one should want any part of that, including us.

No, our focus should be on production. Our campaign should be to unleash the productive abilities of the United States, to reverse governmental economic controls. to free our businessmen. Freedom. That should be our program.

I do not want for a minute for you to think that I am the originator of this insight. As in most all of my understanding of the world, I learned this from Ayn Rand. She did not write about this issue, but she was asked about it more than once in public forums. It is to our benefit that we can read today what she said in response to those questions in Ayn Rand Answers, pages 46-50. Also look at her answer regarding unemployment benefits on page 124. She isn’t in favor of government spending or any activity that isn’t directly protecting individual rights. She wants to stop inappropriate government spending. But she recognizes that what must be done first is to free the economy. Without that first step, and giving it the time to begin producing (probably shorter than we might think), we will see our economy contract just as the European economies are.

My position in this article isn’t new, but I hadn’t realized until recently that the European “austerity” program was exactly that being proposed by my critics. These are the people who argue that the US government spending had to be stopped as soon as possible. The immediate target of these proponents of “austerity” was Social Security and unemployment benefits. I responded that what would happen is just a lot of misery and the destruction of legitimate business, which is just what is happening in Europe, especially Greece and Spain. If “austerity” were begun in the US today, the results might not be as bad. But no good would be achieved as long as government controls were kept in place.

The only direct, economic destructive element of government spending is that it soaks up savings, which is needed for business investment. But the economy can find capital when it has potential profits in sight. We would learn that finding capital would not be an issue. Today, the drag on the US economy isn’t a lack of capital. Banks will tell you that they have plenty to lend. Businesses have plenty of money to invest if they chose. (I am not really conflating fiat money with capital.) Companies could find capital today if they were confident in the future. With all of the proposed additional controls and the fear of BO’s plans for our future, they are wise to avoid the crazy risk inherent in our political situation. And thus the economy stalls. It isn’t the deficit they are afraid of, but government force.

It might be argued that the correct approach to cutting spending would include some advanced warning. Perhaps people should be given a year or two to get their lives in order in preparation for changes in government spending. Yet, that still doesn’t address the underlying problem. If there isn’t sufficient economic activity, sufficient investment, sufficient production, sufficient productive jobs, advanced warning would provide no benefit. There are no economic alternatives to prepare with. Advanced warning only is beneficial if the person affected has alternatives to what he is currently relying upon.

At this point the response that I receive is that I am evading the moral issue of the theft of the property of those who are paying the taxes (either direct or indirect from the borrowing and inflation). It is wrong, I am told, for the theft to continue. It should be stopped immediately.

Aside from the fact that Ayn Rand did not advance this point when she had the chance, and aside from the fact that I am not disagreeing with either the immorality of the taxes or the spending, and aside from the fact that I vehemently argue that the spending and borrowing has to stop, and aside from the fact that I recognize the moral hazard from the dependency upon government spending, I reject the argument that the morality requires us to act without considering the immediate consequences and how very bad ones can be avoided.

I would argue that Objectivist morality is fundamentally a morality of consequences, that is, of causes and effects, of ends and means. If implementing a moral decision means the destruction of those who are the intended beneficiaries, the innocent and the productive in this case, then there is something wrong with the reasoning. And destruction of the productive and innocent is definitely a result of “austerity.” It isn’t just the person receiving the government handout who is suffering but the entire economy, the productive and innocent. Real, honest businesses are going under. People who made rational decisions within the context of their country are loosing all they possess. It is these people who a morality of self-interest and the social-economic system of capitalism is suppose to protect. It is they who should flourish. “Austerity” is destroying their lives as thoroughly as socialism itself. Therefore, “austerity” is the wrong approach.

While government spending upon anything but the protection of individual rights is automatically a violation of rights and a move toward the destruction of those rights, the spending itself isn’t a major catastrophe, in the sense of the immediate, economic consequences. Just as with a household, it isn’t the spending per se, it is the spending in relation to the income, which means the economy’s production. If the spending is higher than the production allows (not even considering the savings necessary to increase production), then there will be problems. That is true for either a household or a business or a government. It is worse when the overspending is for unproductive consumption, which is always true of governmental spending. “Infrastructure” is consumption. Something constructed by the government might sit there for a while, like a bridge, but it is not paying its own way and replacing itself, as a business investment would, is consumption.

Of course, governmental spending is often accompanied by restrictions on the population because the government wants to keep its monopoly, i.e., only the government can build roads, etc. If there was competition, the incompetence of the government would be clearly demonstrated. Look at the U.S. Post Office.

No, government spending isn’t the cause of a country’s economy failing to grow.

On the other hand, the best any of the commentators that I have read have made only the slight suggestions that regulation has any effect on production and prosperity. It is recognized that regulation has a cost in time and money, but not on an economy’s ability to produce and grow. This is a complete blind spot. I attribute this lack of knowledge to the general rationalist trend found in economics and business schools. Looking at how things actually work is not an acceptable practice. At least at one point in time efficiency studies were all the rage. If there are still such studies they most likely don’t question government mandated business practices. They just treat regulations as acts of nature.

However, the point is that government regulation is treated as just a part of life and is not questioned and its consequences are not considered. This last point is true in a wider scale than you probably realize. Few look to see if the supposed good consequence of government regulation actually happened. No follow up studies are done to evaluate the success of the regulation. Those consequences are assumed and bragged about but never proved or evaluated. Recently, I received an email from Ending Big Government, the website set up by Yaron Brook and Don Watkins in connection with their new book, Free Market Revolution: How Ayn Rand’s Ideas Can End Big Government. This email was entitled “Story about Stories” in which people who were impacted by government regulations explained what was happening (See here). This is a great idea. The consequences of regulations have to be concretized for people. They have to see in detail that regulation is destructive in order to understand that it has to be stopped. For example, people don’t know how extensive, intrusive, expensive, and anti-productive the FDA regulation is. These details need to be made public. The media won’t do it. The Republicans won’t do it. Who will?

So, let me suggest that you continue to watch Europe attempt to practice “austerity” and how they go into recessions. I think that Spain is already in a depression, or will be soon. Greece certainly is. Think about the consequences as the government just spending less. Think about why their economies can’t seem to grow. What is stopping them?

Next week I hope to finish up a post that will be more specific about Europe and the backlash against “austerity.” I think that we will see another lesson there as well.