It’s an important question that always produces revealing answers and sometimes some fascinating stories. Liberty, keep in mind, is not automatic or guaranteed. Few people who have lived have actually possessed it; most have been serfs, slaves, or “subjects” of one sort or another. It’s not exactly a message that rolls off the tongues of most university professors, government school teachers, or media personalities these days. It takes a lot of work to get the message out. Like the seeds in the New Testament parable about the sower, ideas don’t always fall on fertile ground.

I’ve heard plenty of answers over the years: parents, a book, instinct, an article, a friend. And yes, on occasion, even a teacher or a professor. Maybe I’m unusual (I’ve been accused of much worse!) but for me it was a movie. Here’s my story.

My family never showed much interest in politics or philosophy. I don’t know of anybody on either my mother’s side (English and German) or my father’s side (Scot-Irish) who ran for office, wrote a book, or raised a public fuss of any kind. As far as I know, going back more than a century, my relatives were mostly farmers and small shopkeepers who worked hard, kept quiet, and minded their own business. The only time I can recall my dad making a political statement during my childhood was when the school principal called to tell him he couldn’t take me out of school for a week to visit relatives in Florida. He told the principal, “He’s my son, not yours, and he’s going to Florida. Don’t call here again!” Click.

In the summer of 1965, as I was nearing my 12th birthday, my mother announced one day that she was taking my younger sister and me to a theater in Pittsburgh, 40 miles from our home, to see a new film called The Sound of Music. I knew nothing of it other than that a lot of singing was involved. To my mind, that was a good enough reason to stay home. I went reluctantly—and was enthralled. The music and the scenery were memorable, but it was the plot and message that changed my life. I think it must have been the first time I really had to think about the fact that the freedom I took for granted was not the norm in the world.

The movie quickly became the box office king of 1965. An American movie aimed primarily at an American audience, it loosely told the story of the von Trapps of Austria and how the family escaped Hitler’s grasp. The beauty of the Alpine mountains and the village of Salzburg spurred a pilgrimage of American tourists to Austria that continues to this day. Todd S. Purdum of the New York Times refers to the film as “the last picture show of its kind, a triumph of craftsmanship and the apogee of the studio system that produced the kind of entertainment that dominated mid-20th-century mass culture.”

For me, The Sound of Music was a rude awakening. This wasn’t a school telling me that I couldn’t take a vacation. This was a foreign regime absorbing a peaceful, neighboring country and a father facing orders to abandon his family and serve in its military. Something sparked inside me, and it has stayed lit ever since. I wanted to know more about the history of that period, and I began reading everything I could get my hands on, including William L. Shirer’s classic The Rise and Fall of the Third Reich. Stories of people yearning for freedom and going to great lengths to secure it captivated me. Socialism, communism, fascism, and all the collectivist isms became anathema. They reduced to A pushing B around because A thinks he’s got a good idea.

Then came the “Prague Spring” of early 1968. It wasn’t Austria, but it was right next door. The news of the stirrings of liberty in communist Czechoslovakia dominated the newspapers and television. I cheered as the Czechs boldly rattled their Soviet cage. When Moscow crushed Czech liberties with troops and tanks, I was outraged and eager to say so. Within days, a blurb in the local newspaper mentioned that an organization called Young Americans for Freedom would be holding a rally in Mellon Square in downtown Pittsburgh to protest the invasion. I bought my first bus ticket. We burned a Soviet flag and carried placards calling for the liberation of Czechoslovakia.

In those days, YAF provided its new recruits with a wealth of books, magazines, and articles—most notably for me, F. A. Hayek’s The Road to Serfdom, Henry Grady Weaver’s The Mainspring of Human Progress, Henry Hazlitt’s Economics in One Lesson, and a subscription to The Freeman. The message was simple: If you want to be an effective anticommunist, you had better know something about philosophy and economics.

Reading all that material taught me some critically important things:

• Ideas rule the world. Tyranny rests on bad ideas; freedom depends on good ones, such as personal responsibility and limited government.

• Freedom is never automatic. You have to work at it, endure setbacks and assaults, and resist the temptation to let somebody else fight freedom’s battles for you.

• Government unchecked is freedom’s greatest enemy. Expecting too much from government and too little from ourselves is the surest path to tyranny, even though the government’s promises of welfare and security may sound attractive.

Those ideas, and many of their corollaries, led me to pursue an economics degree at a place that teaches the values of liberty: Grove City College in Pennsylvania. From there I went on to be a teacher myself, first at Northwood University and then as president of the Mackinac Center for Public Policy. Liberty has been a common theme of my political thought through all those years.

If my mother had not insisted on making the trek to Pittsburgh to see The Sound of Music, maybe I would have become a promoter of freedom by some other route. But in hindsight, I have my doubts. It seems more likely that I’d be a photographer or a veterinarian today. Those are respectable and fulfilling professions, to be sure, but they’re not what I chose.

So I owe much of my last 40 years to a couple of hours in front of the big screen. Some say The Sound of Music was corny, but for me it was an epiphany. It’s my favorite film, and it always will be.

Related posts:

1. Thoughts on Freedom ~ Sound Bites and Unsound Decisions
2. Your One-Stop Source for Sound Economics
3. James U. Blanchard III: Champion of Liberty and Sound Money

Where historians and other observers clash is in the interpretation of these great changes. Did they represent improvement to the citizens or did these events set them back? Perhaps no other issue within this realm has generated more intellectual heat than the one concerning the labor of children. Critics of capitalism have successfully cast this matter as an irrefutable indictment of the capitalist system as it was emerging in nineteenth-century Britain.

The many reports of poor working conditions and long hours of difficult toil make harrowing reading, to be sure. William Cooke Taylor wrote at the time about contemporary reformers who, witnessing children at work in factories, thought to themselves, “How much more delightful would have been the gambol of the free limbs on the hillside; the sight of the green mead with its spangles of buttercups and daisies; the song of the bird and the humming of the bee.”

Of those historians who have interpreted child labor in industrial Britain as a crime of capitalism, none have been more prominent than J. L. and Barbara Hammond. Their many works have been widely promoted as “authoritative” on the issue.

The Hammonds divided the factory children into two classes: “parish apprentice children” and “free labour children.” It is a distinction of enormous significance, though one the authors themselves failed utterly to appreciate. Having made the distinction, the Hammonds proceeded to treat the two classes as though no distinction between them existed at all. A deluge of false and misleading conclusions about capitalism and child labor has poured forth for years as a consequence.

“Free labour” children were those who lived at home but worked during the day in factories at the insistence of their parents or guardians. British historian E. P. Thompson, though generally critical of the factory system, nonetheless quite properly conceded that “it is perfectly true that the parents not only needed their children’s earnings, but expected them to work.” Ludwig von Mises, the great Austrian economist, put it well when he noted that the generally deplorable conditions extant for centuries before the Industrial Revolution, and the low levels of productivity that created them, caused families to embrace the new opportunities the factories represented: “It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchen and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation.”

Private factory owners could not forcibly subjugate “free labour” children; they could not compel them to work in conditions their parents found unacceptable. The mass exodus from the continent to increasingly capitalist, industrial Britain in the first half of the nineteenth century strongly suggests that people did indeed find the industrial order an attractive alternative. And there’s no credible evidence suggesting that parents in these early capitalist days were any less caring of their offspring than those of precapitalist times.

The situation, however, was much different for “parish apprentice” children. Close examination reveals that the critics were focusing on these children when they spoke of the “evils” of capitalism’s Industrial Revolution. These youngsters, it turns out, were under the direct authority and supervision not of their parents in a free labor market, but of government officials. Most were orphans; a few were victims of negligent parents or parents whose health or lack of skills kept them from earning sufficient income to care for a family. All were in the custody of “parish authorities.” As the Hammonds themselves wrote, “[T]he first mills were placed on streams, and the necessary labour was provided by the importation of cartloads of pauper children from the workhouses of the big towns. . . . To the parish authorities, encumbered with great masses of unwanted children, the new cotton mills in Lancashire, Derby, and Notts were a godsend.”

Though consigned to the control of a government authority, these children are routinely held up as victims of capitalist greed. But as historian Robert Hessen writes, those very children “were sent into virtual slavery by a government body; they were deserted or orphaned pauper children who were legally under the custody of the poor-law officials in the parish, and who were bound by these officials into long terms of unpaid apprenticeship in return for bare subsistence.” Indeed, the first act in Britain that applied to factory children was passed to protect these very parish apprentices, not “free labour” children.

Though it is inaccurate to judge capitalism guilty of the sins of parish apprenticeship, it would also be inaccurate to assume that free labor children worked under ideal conditions in the early days of the Industrial Revolution. By today’s standards their situation was clearly bad. Such capitalist achievements as air conditioning and high levels of productivity would in time substantially ameliorate working conditions, however. The evidence in favor of capitalism is thus compellingly suggestive: From 1750 to 1850, when the population of Great Britain nearly tripled, the virtually exclusive choice of those flocking to the country for jobs was to work for private capitalists.

Conditions of employment and sanitation were best, as the Factory Commission of 1833 documented, in the larger and newer factories. The owners of these larger establishments, which were more easily and frequently subject to visitation and scrutiny by inspectors, increasingly chose to dismiss children from employment rather than be subjected to elaborate, arbitrary, and ever-changing rules on how they might run a factory employing youths. The result of legislative intervention was that these dismissed children, most of whom needed to work in order to survive, were forced to seek jobs in smaller, older, and more out-of-the-way places where sanitation, lighting, and safety were markedly inferior. Those who could not find new jobs were reduced to the status of their counterparts a hundred years before—that is, to irregular and grueling agricultural labor or, in the words of Mises, “to infest the country as vagabonds, beggars, tramps, robbers, and prostitutes.”

Child labor was relieved of its worst attributes not by legislative fiat but by the progressive march of an ever more productive capitalist system. Child labor was virtually eliminated when, for the first time in history, the productivity of parents in free labor markets rose to the point where it was no longer economically necessary for children to work to survive. The emancipators and benefactors of children were not legislators or factory inspectors but factory owners and financiers. Their efforts and investments in machinery led to a rise in real wages, to a growing abundance of goods at lower prices, and to an incomparable improvement in the general standard of living.

This column was adapted from an article first written in 1976.

Related posts:

1. Child Labor and the British Industrial Revolution
2. Book Review: Child Labor And The Industrial Revolution by Clark Nardinelli
3. Book Review: The Industrial Revolution and Free Trade Edited by Burton W. Folsom, Jr.

Twenty years ago this fall, just days after the Berlin Wall had come crashing down, I visited with friends in Warsaw and Krakow to celebrate. The Velvet Revolution was underway in neighboring Czechoslovakia. Hungary had opened its doors to the West a few weeks before. Romania’s megalomaniac, Nicolai Ceauşescu, would be gone by Christmas. But Poland had led the way.

It was on June 4, 1989, as Chinese government tanks crushed a mass uprising in Tiananmen Square, that Poland electrified the world by holding the first free elections in communist Europe. Anticommunist (and in many cases, also antisocialist) activists stunned even fellow Poles by their showing. They won 99 of 100 seats in the Senate and every single one of the 161 seats in the lower house of Parliament that the regime allowed to be contested. These results assured that the momentum for liberty across the Soviet empire would mushroom until it toppled dictators and parties from East Berlin to Ulan Bator.

Poland’s communist leader Gen. Wojciech Jaruzelski had struck an agreement with Lech Walesa’s banned Solidarity organization early in the year to legalize suppressed political groups and schedule elections for June 4. He had little choice. Poland, he declared, had become “ungovernable.” I knew exactly what he meant because I had witnessed it myself in November 1986 while living for ten days with underground elements of both Solidarity and a youth group called Freedom and Peace.

The Torchbearers

The history of Poland from the imposition of martial law and the crushing of Solidarity in December 1981 to the glorious elections of 1989 is not the saga of a pessimistic, defeatist, or compliant people. Rather, it is a remarkable testament to the human will to be free. While the constellation of strong leaders in Britain, the United States, and the Vatican (Thatcher, Reagan, and John Paul II) helped the process of communist disintegration immensely, those very same leaders rightfully and repeatedly credited the defiant spirit of the Poles. “The people of Poland,” declared Reagan, “are giving us an imperishable example of courage and devotion to the values of freedom in the face of relentless opposition . . . . The torch of liberty is hot. It warms those who hold it high. It burns those who try to extinguish it.”

One of the intellectual giants of Polish liberty, Leszek Kolakowski, died this past July at the age of 81. Kolakowski labeled Marxism “the greatest fantasy of our century” and regarded totalitarian brutality as the inevitable outcome of the concentration of power. He told the New York Times in 2004, “This ideology was supposed to mold the thinking of people, but at a certain moment it became so weak and so ridiculous that nobody believed in it, neither the ruled nor the rulers.”

I learned during my 1986 visit that five years after the regime’s harsh crackdown, Poles were dodging and weaving around the Jaruzelski regime in ways that almost defied imagination. Shortages of basic foodstuffs, double-digit inflation, and a powerful secret police did not deter them from creating thriving black markets and flourishing private institutions, from radio to theaters to publishing houses and schools. Solidarity’s Wiktor Kulerski had sketched the outlines of Polish resistance a few years before when he wrote, “This movement should create a situation in which authorities will control empty stores, but not the market; the employment of workers, but not their livelihood; the official media, but not the circulation of information; printing plants, but not the publishing movement; the mail and telephones, but not communications; and the school system, but not education.”

Thirty-eight million Poles were thumbing their noses at the State. They knew from painful experience that, as dissident Stefan Kisielewski put it (and was arrested and beaten for saying), “Socialism is stupidism.” They had had enough of it.

Lloyd’s of Warsaw

At a dinner party hosted secretly for me by several underground printers in Krakow, I was dazzled by the scope of what my hosts called “independent publishing ventures.” They had translated and printed “subversive” works by Alexander Solzhenitsyn, George Orwell, and even Murray Rothbard and Ayn Rand.

“Where do you get the paper to print all this stuff?” I inquired. A young Pole named Pawel answered, “We get it from two places: We smuggle it in from the West and we steal it from communists.” Pawel explained that workers in government printing houses who were sympathetic to the resistance often spirited paper to the underground. When the coast was really clear, they even printed the illegal stuff on the government’s own printing presses. When the government mounted a campaign to confiscate the cars of their distributors, the underground printers formed their own insurance company (they called it “Lloyd’s of Warsaw” ) to cover the costs of the confiscation of their cars, paper, and materials.

I asked those printers who entertained me that evening how I could help. It turned out that they had a specific request already planned for me. If I could raise $5,000 and channel it to their émigré allies in Paris, they would eventually get the money and be able to translate into Polish and print several thousand copies of Milton and Rose Friedman’s classic Free To Choose. Among my most prized possessions is a copy of that book, inscribed by activist Wojciech Modelski with these words: “Thank you, Larry! Without your help it was not be [sic] possible to publish this book.”

My favorite story from that visit, though, involves a very brave couple, Zbigniew and Sofia Romaszewski. They had only lately been released from prison for running an underground radio station. “How did you know when you were broadcasting if people were listening?” I asked. Sofia answered, “We could only broadcast eight to ten minutes at a time before going to another place to stay ahead of the police. One night we asked people to blink their lights if they believed in freedom for Poland. We then went to the window and for hours, all of Warsaw was blinking.”

Zbigniew Romaszewski won election to the Polish parliament in those June 1989 elections, and he serves in its Senate today. Jan Rokita, a leader of Freedom and Peace and my chief escort until I was arrested, strip-searched and deported, was elected to the lower House in 1989 and served there until retiring in 2007. Among the liberty-loving organizations in Poland today is the Polish-American Foundation for Economic Research and Education, which regularly reprints articles from this magazine.

To all those millions of Polish freedom-fighters who ushered communism into the dustbin of history twenty years ago, thank you for your courage, your perseverance, your vision, and your example.

Related posts:

1. A Tribute to a Polish Hero
2. The Polish Underground
3. Private Enterprise in Poland

Never mind the federal government’s own indispensable role as an enabler in the crisis, from its reckless monetary policy to its jawboning banks into making dubious mortgage loans. Never mind the long-term danger of its assumption of colossal new obligations and the moral hazard in the message its intervention sends. My response to my friend was of a more narrow focus. “Thank God we have the private sector to bail out the federal government not just last week, but every week!” I exclaimed.

Think about it. Taxes on the private sector pay a majority of the federal government’s bills. For most of the rest, the government borrows by selling its debt obligations, mostly to private-sector entities–including banks, insurance companies, and individuals.

The federal government is the world’s biggest taxer and the world’s biggest debtor. If those of us in the private sector didn’t pay our taxes or didn’t buy Washington’s paper, the feds would have gone belly-up decades ago. We’ve rescued Washington to the tune of tens of trillions of dollars over the years. A big difference between Washington’s bailing out the private sector and the private sector’s bailing out Washington is that the private sector has to work, invest, employ people, and produce goods to come up with the cash. It can’t create it out of thin air like Ben Bernanke can.

Our friends in Washington have blessed us with future burdens almost too astronomical to comprehend.  In the name of taking care of us in our old age, we are saddled with no less than $6 trillion in Social Security payouts over the next 75 years–for which there are no presently earmarked funding streams. According to Brian Riedl of the Heritage Foundation, the unfunded obligations for the new federal prescription drug program, enacted under President Bush, total another $8 trillion.

On and on it goes. The private sector has an awful lot of bailing out to do in the coming decades. I shudder to think how deeply we taxpayers will have to dig in the not-too-distant future to pay the bills of our benevolent, compassionate, and forward-thinking government.

Since Barack Obama took office in January 2009, the federal government has spent a full billion dollars every single hour. Before his term is half over, federal spending will have doubled in just a decade. The deficit in one year’s budget is now as large as the entire budget in George W. Bush’s first year as president, 2001–and I thought not very long ago that the spending spree he and the Republicans gave us would be tough to beat! The flood of red ink is now adding to the national debt to the tune of about $4 billion every day. At well over $11 trillion, that debt amounts to $37,000 for every living American.

Too Big to Succeed?

We’re told by the wise planners in Washington that certain private firms are “too big to fail.” So we’re handing big chunks of them over to the government.

The question we all should be asking ourselves is this: Are we trusting our economy and our lives to a government that is too big to succeed?

Once upon a time in America, most citizens expected government to keep the peace and otherwise leave them alone. We built a vibrant, self-reliant, entrepreneurial culture with strong families and solid values. We respected property and largely kept the spirit of the Eighth and Tenth Commandments against coveting and stealing. We understood that government didn’t have anything to give anybody except what it first took from somebody and that a government big enough to give us everything we want would be big enough to take away everything we’ve got. We practiced fiscal discipline in our personal lives and expected nothing less from the people in the government we elected, or we threw them out.

But somewhere along the way we lost our moral compass. And just like the Roman Republic that rose on integrity and collapsed in turpitude, we thought the “bread and circuses” the government could provide us would buy us comfort and security.

We gave the government the responsibility to educate our children, though government can never be counted on to teach well the main ingredients of a free society–liberty and character–or just about anything else, for that matter. We asked the government to give us health care, welfare, pensions, college education, and farm subsidies, and now our politicians are bankrupting the country to pay the bills. This welfare state of ours has become one big circle of 305 million people, each with his hand in the next fellow’s pocket.

This is a government whose reach even before the financial crisis scarcely left an aspect of American life untouched, from the cradle to the grave and the volume of our toilet-bowl water in between. As a portion of our personal income, its tax and regulatory burden consumes at least five times what it did just a century ago. But to the majority on the Potomac, government is nowhere yet big enough. This is madness writ large.

Stick to the Knitting

Remember In Search of Excellence, the 1982 best-selling management book by Tom Peters and Robert Waterman? One of its salient points is that an organization gets off track when it no longer “sticks to the knitting.” When it allows its mission to blur and stretch far beyond its founding design, when it becomes distracted by endless and dubious new responsibilities, its core competency evaporates. It will fail to do what it is supposed to do, because it’s doing too much of what it’s not supposed to do.

It may come as a surprise to those who see aspirin made in Washington as the cure for every ailment, but the federal government is not God. It can’t even be a good Santa Claus. It’s no Mother Teresa either, because on those occasions when it does some good it usually costs an arm and a leg and sends a big part of the bill to generations yet unborn. The fact is, the bigger government gets, the more it starts to look like Moe, Larry, and Curly.

Accentuating the madness of the present day, the cover of Newsweek declared last March, “We are all socialists now.” Pardon me, but I’m not about to sign on to a proven flop.

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1. World in the Grip of an Idea: 33. Conclusion: Loosening the Grip of the Idea
2. Corporate Mergers: Method or Madness?
3. Gender Madness on Columbia’s Campus

These are the times that try men’s souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly: it is dearness only that gives everything its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as freedom should not be highly rated. –Thomas Paine

So began the first of 16 pamphlets under the title “The American Crisis,” by patriot Thomas Paine. These very words were read aloud to General George Washington’s forlorn and bedraggled men on Christmas 1776, the night before the Battle of Trenton.

Consider the backdrop: For the six months since the Declaration of Independence, Americans had been in almost constant retreat. To a disinterested observer, the American cause must have seemed hopelessly quixotic. To many patriots as well, it appeared all but lost. But Paine’s stirring words helped give the troops the morale boost they needed. The next day they accomplished the impossible, capturing nearly the entire force arrayed against them. Desertions plummeted and reenlistments soared.

Lovers of liberty need a little Paine today in the face of all the pain around us. It seems at times that the world has gone mad. Companies that lose billions are being bailed out by a government that loses trillions. The same federal Leviathan that outlaws competition in first-class mail delivery but still can’t deliver letters at a profit now supposedly knows how to run auto companies, banks, and insurance firms. Debt, deficits, bureaucracy, regulation, government spending—the depressing stuff already in frightful superabundance pre-financial crisis—now threaten our diminishing liberties more than ever before. The cover of the March 15 issue of Newsweek proclaimed, “We Are All Socialists Now.”

No Sunshine Soldiers

Maybe we have good reason to feel like those dispirited troops on Christmas Day in 1776, but we should learn from what they did just a day later. We can either be summer soldiers and sunshine patriots, or we can let the very principles we profess be our rallying cry for the battles ahead.

Eternal optimist though I am, I admit that pessimism really tugs at me when I read the morning papers. At every speech I give these days, there’s a sizable portion of the crowd that seems ready to crawl under a rock and let the world go to a statist hell in a hand basket.

But then I ask myself, what good purpose could a defeatist attitude possibly promote? Will it make me work harder for the causes I know are right? Is there anything about liberty that an election or events in Congress disproves? If I exude a pessimistic demeanor, will it help attract newcomers to the ideas I believe in? Is this the first time in history that believers in liberty have lost some battles? If we simply throw in the towel, will that enhance the prospects for future victories? Is our cause so menial as to justify deserting it because of some bad news or some new challenges? Do we turn back just because the hill we have to climb got a little steeper?

Readers of this magazine should know the answers to those questions.

This is not the time to abandon time-honored principles. I can’t speak for you but someday I want to go to my reward and be able to look back and say, “I never gave up. I never became part of the problem I tried to solve. I never gave the other side the luxury of winning anything without a rigorous, intellectual contest. I never missed an opportunity to do my best for what I believed in, and it never mattered what the odds or the obstacles were.”

A Tradition of Courage

Remember that we stand on the shoulders of many people who came before us and who persevered through far darker times. The American patriots who shed their blood and suffered through unspeakable hardships as they took on the world’s most powerful nation in 1776 are certainly among them. But I am also thinking of the brave men and women behind the Iron Curtain who resisted the greatest tyranny of the modern age, and won. I think of those like Hayek and Mises who kept the flame of liberty flickering in the 1930s and ’40s. I think of the heroes like Wilberforce and Clarkson who fought to end slavery and literally changed the conscience and character of a nation in the face of the most daunting of disadvantages. And I think of the Scots who, 456 years before the Declaration of Independence, put their lives on the line to repel English invaders with these thrilling words: “It is not for honor or glory or wealth that we fight, but for freedom alone, which no good man gives up except with his life.”

As I think about what some of those great men and women faced, the obstacles before us today seem rather puny. We just need to gird our loins. We have to get a lot smarter and better at reaching more fellow citizens with a compelling alternative to the dead hand of the corrupt and incompetent State. We need to put confident smiles on our faces and sally forth.

Time to Rally

We should not squander a second feeling bad for ourselves. This is a moment when our true character, the stuff we’re really made of, will show itself. If we retreat, that would tell me we were never really worthy of the battle in the first place. But if we resolve to let these tough times build character and rally our dispirited friends to new levels of dedication, we will look back on this occasion someday with pride at how we handled it. Have you called a friend yet today to explain to him or her why liberty should be a top priority?

Nobody ever promised that liberty would be easy to attain or easy to keep. The world has always been full of greedy thieves and thugs, narcissistic power seekers, snake-oil charlatans, unprincipled ne’er-do-wells, and arrogant busybodies. Sometimes they’re nattily dressed in custom-tailored, pin-stripe suits and give good speeches; sometimes they’re bedecked in jewel-studded robes and give lousy speeches; on yet other occasions they wear well-worn street clothes and don’t bother with a speech at all as they hold you up. It doesn’t matter how they’re dressed or what they say. No true friend of liberty should just roll over and play dead for any of them.

Wipe that frown off your face and get to work. Liberty’s future depends on you.

Related posts:

1. Give Thought How You Give
2. Let Us Give Thanks
3. Perspective: Give Thanks for Freedom

That’s the theory behind a growing movement spearheaded by think tanks from coast to coast and in Canada. It’s called “transparency.”

Back in the 1980s this notion was the subject of an episode (“Open Government”) of the British television sitcom Yes Minister. The following exchange among three bureaucrats illustrates just how difficult this whole business can be.

A: “What’s wrong with open government? I mean, shouldn’t the public know more about what’s going on?”

B (with a look of disgust): “Are you serious?”

A: “Well, ah, yes, sir. I mean, it is the minister’s policy after all.”

B: “But it’s a contradiction in terms. You can be open, or you can have government.”

A: “But, but, surely the citizens of a democracy have a right to know.”

C: “No. They have a right to be ignorant. Knowledge only means complicity and guilt. Ignorance has a certain (pause) dignity. You don’t just give people what they want if it’s not good for them! Do you give brandy to an alcoholic?”

B: “If people don’t know what you’re doing, then they don’t know what you’re doing wrong.”

A: “I’m sorry, but I am the PM’s private secretary and if that’s what he wants, then . . .”

C: “You’ll definitely not be serving your minister by helping him make a fool of himself. Look at the ministers we’ve had. Every one of them would have been a laughingstock in three months had it not been for the most rigid and impenetrable secrecy about what they were doing!”

As governments at all levels have mushroomed in recent decades, shining light on their activities presents no small challenge. One of the earliest transparency initiatives, I’m proud to say, came out of the organization I headed for 20 years, the Mackinac Center for Public Policy in Michigan. In September 2001, Mackinac launched the website “MichiganVotes.org” (MVO)—a one-stop shop for finding out what the state legislature is up to. The site’s database now contains more than 16,000 bills, 15,000 roll-call votes, 12,000 amendments and 3,400 laws—all described in pithy, plain English and easily searchable.

What’s in the Sausage is on the Website

More than 30 years ago, then-California state senator H. L. Richardson penned a memorable little book with the revealing title What Makes You Think We Read the Bills? In Michigan the Mackinac Center started reading all the bills in 2001, hasn’t stopped since, and has trained site managers and editors to do the same thing for think tanks in nine other states. It has also posted on the web every collective-bargaining contract from every one of the state’s public school districts. It pushed many of those districts and some municipalities into posting their check registers online so people can see how and where their tax dollars are spent. While it’s debatable whether all this has yet made very many Michigan governments better or smaller, it has certainly made them more accountable—and controversial, too. Thousands of public comments on the MVO site suggest that citizens are increasingly unhappy with the sausage their political meat grinders are turning out.

Michigan governments aren’t the only ones coming under new scrutiny. The Texas Public Policy Foundation launched its superb transparency portal, TexasBudgetSource.com, about a year ago. It houses all the budget and spending information of state and local governments within the Lone Star State. More than just an online warehouse for this vital data, it also includes original analysis and commentary to illustrate trends in state spending. The Foundation estimates that the transparency efforts it has helped the state put in place have led to changes that are on track to save Texas taxpayers more than $8 million by the end of this year.

In Illinois, a state rocked by high-level government corruption and secrecy, the Illinois Policy Institute (IPI) is coming to the rescue. CEO John Tillman says, “By creating a culture of transparency, it will no longer be necessary to learn what the government is doing through a wiretap, as we did with (impeached) Gov. Rod Blagojevich. Online transparency is the first step to cleaning up Illinois once and for all.” IPI has recruited and trained 120 volunteers to promote transparency in their school districts, village boards, city councils, county boards, park districts, and every government body operating off tax dollars. It has tracked dozens of “transparency wins,” which it lists on its special website, OpenIllinois.org, and it is collecting pledges from elected officials to support putting all government spending online in a searchable database.

The Evergreen Freedom Foundation in Washington state publishes the “Hey, Big Spender!” index that keeps track of all increased taxes and fees proposed or cosponsored by every legislator. The Foundation ranks legislators and compares their records with each other, which has some at the top of the big-spender list squirming and squealing in embarrassment.

The Sam Adams Alliance, based in Chicago, sponsors the government transparency website SunshineReview.com. In its first year of operation this wiki-style project generated more than a million page views. Nearly all 3,140 counties in the United States have been evaluated against a ten-point transparency checklist on the site, which is becoming a standard that government transparency projects are measured against.

Virtually every member organization of the State Policy Network, the trade association of state-focused “free market” think tanks, is now leading or encouraging important new initiatives to pry government open. With the support of Gov. Mark Sanford, the South Carolina Policy Council has scored notable victories in getting the legislature to record the votes its members cast. The North Dakota Policy Council uses transparency arguments to advance tax reduction from its legislature in Bismarck.

A Lousy Record, Eh?

Transparency is becoming a cause célèbre in Canada too. The Fraser Institute produces powerful studies that inform people about the limits of the public sector. Its “Government Failure” series has exposed hundreds of instances of cost overruns, inaccurate reporting of financial information, unnecessary spending, improper program management, and violations of their own regulatory guidelines by governments themselves.

Fraser estimates “conservatively” that repeated government failure at the federal level alone cost Canadians over $100 billion in recent years. Says Niels Veldhuis, Fraser’s director of fiscal studies, “Armed with a more realistic understanding of the motivations of politicians and bureaucrats, the rent-seeking nature of interest groups, and the institutional constraints of government bureaucracies, readers are less likely to fall for what economist Harold Demsetz characterized as the ‘Nirvana fallacy.’ That is, they are less likely to compare market results with wildly idealistic outcomes that governments actually almost never produce.”

Private think tanks are serving the public interest by offering information citizens need to know. But that raises the questions, “Do citizens want to know?” and “Will they hold their leaders accountable for misbehavior?” Time will tell, but this much is clear now: You can’t act on information you don’t know.

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For a society that has fed, clothed, housed, cared for, informed, entertained, and otherwise enriched more people at higher levels than any in the history of the planet, there sure is a lot of groundless guilt in America.

Manifestations of that guilt abound. The example that peeves me the most is the one we often hear from well-meaning philanthropists who adorn their charitable giving with this little chestnut: “I want to give something back.” It always sounds as though they’re apologizing for having been successful.

Translated, that statement means something like this: “I’ve accumulated some wealth over the years. Never mind how I did it, I just feel guilty for having done it. There’s something wrong with my having more than somebody else, but don’t ask me to explain how or why because it’s just a fuzzy, uneasy feeling on my part. Because I have something, I feel obligated to have less of it. It makes me feel good to give it away because doing so expunges me of the sin of having it in the first place. Now I’m a good guy, am I not?”

It was apparent to me how deeply ingrained this mindset has become when I visited the gravesite of John D. Rockefeller at Lakeview Cemetery in Cleveland a couple years ago. The wording on a nearby plaque commemorating the life of this remarkable entrepreneur implied that giving much of his fortune away was as worthy an achievement as building the great international enterprise, Standard Oil, that produced it in the first place. The history books most kids learn from these days go a step further. They routinely criticize people like Rockefeller for the wealth they created and for the profit motive, or self-interest, that played a part in their creating it, while lauding them for relieving themselves of the money.

More than once, philanthropists have bestowed contributions on my organization and explained they were “giving something back.” They meant that by giving to us, they were paying some debt to society at large. It turns out that, with few exceptions, these philanthropists really had not done anything wrong. They made money in their lives, to be sure, but they didn’t steal it. They took risks they didn’t have to. They invested their own funds, or what they first borrowed and later paid back with interest. They created jobs, paid market wages to willing workers, and thereby generated livelihoods for thousands of families. They invented things that didn’t exist before, some of which saved lives and made us healthier. They manufactured products and provided services, for which they asked and received market prices. They had willing and eager customers who came back for more again and again. They had stockholders to whom they had to offer favorable returns. They also had competitors, and had to stay on top of things or lose out to them. They didn’t use force to get where they got; they relied on free exchange and voluntary contract. They paid their bills and debts in full. And every year they donated some of their profits to lots of community charities no law required them to support. Not a one of them that I know ever did any jail time for anything.

So how is it that anybody can add all that up and still feel guilty? I suspect that if they are genuinely guilty of anything, it’s allowing themselves to be intimidated by the losers and the envious of the world-the people who are in the redistribution business either because they don’t know how to create anything or they simply choose the easy way out. They just take what they want, or hire politicians to take it for them.

Or like a few in the clergy who think that wealth is not made but simply “collected,” the redistributionists lay a guilt trip on people until they disgorge their lucre-notwithstanding the Tenth Commandment against coveting. Certainly, people of faith have an obligation to support their church, mosque, or synagogue, but that’s another matter and not at issue here.

Real Giving Back

A person who breaches a contract owes something, but it’s to the specific party on the other side of the deal. Steal someone else’s property and you owe it to the person you stole it from, not society, to give it back. Those obligations are real and they stem from a voluntary agreement in the first instance or from an immoral act of theft in the second. This business of “giving something back” simply because you earned it amounts to manufacturing mystical obligations where none exist in reality. It turns the whole concept of “debt” on its head. To give it “back” means it wasn’t yours in the first place, but the creation of wealth through private initiative and voluntary exchange does not involve the expropriation of anyone’s rightful property.

How can it possibly be otherwise? By what rational measure does a successful person in a free market, who has made good on all his debts and obligations in the traditional sense, owe something further to a nebulous entity called society? If Entrepreneur X earns a billion dollars and Entrepreneur Y earns two billion, would it make sense to say that Y should “give back” twice as much as X? And if so, who should decide to whom he owes it? Clearly, the whole notion of “giving something back” just because you have it is built on intellectual quicksand.

Successful people who earn their wealth through free and peaceful exchange may choose to give some of it away, but they’d be no less moral and no less debt-free if they gave away nothing. It cheapens the powerful charitable impulse that all but a few people possess to suggest that charity is equivalent to debt service or that it should be motivated by any degree of guilt or self-flagellation.

A partial list of those who honestly do have an obligation to give something back would include bank robbers, shoplifters, scam artists, deadbeats, and politicians who “bring home the bacon.” They have good reason to feel guilt, because they’re guilty.

But if you are an exemplar of the free and entrepreneurial society, one who has truly earned and husbanded what you have and have done nothing to injure the lives, property, or rights of others, you are a different breed altogether. When you give, you should do so because of the personal satisfaction you derive from supporting worthy causes, not because you need to salve a guilty conscience.

Related posts:

1. Ideas and Consequences ~ Who Owes What to Whom?

That article was tantamount to heresy among those who devoutly believe in anthropogenic (manmade) global warming. A physics professor responded, “Heberling’s commentary is the latest in a long list of junk-science commentaries about climate change. Heberling, who is not a scientist, but rather the president of a small business school, repeats several old and misleading ideas.”

Of course, Al Gore, the Nobel laureate who has made global warming his cause, is not a scientist. He has a B.A. in government. For the record, I have a B.S. from Cornell University, where I took courses in physics, chemistry, geology, and meteorology. However, this makes little difference because my sin was to downplay the severity of global warming, and too many people and organizations are tied financially to the “crisis.”

As MIT atmospheric physicist Richard Lindzen puts it, “Ambiguous scientific statements about climate are hyped by those with a vested interest in alarm, thus raising the political stakes for policymakers who provide funds for more science to feed more alarm to increase the political stakes. Indeed, the success of climate alarmism can be counted in the increased federal spending on climate research from a few hundred million dollars pre-1990 to $1.7 billion today.”

The Government Accountability Office says that for over 15 years the federal government has funded programs to study the earth’s climate and to reduce emissions of carbon dioxide and other greenhouse gases linked to climate change. A review of the number of government agencies and the amount of government money devoted to “climate change” is staggering. Nine of the 15 cabinet-level departments receive significant funding for climate-change activities. A 2007 White House press release boasted, “The President has devoted $37 billion to climate-change-related activities since 2001.” The U.S. Global Change Research Program, which has 13 federal agency participants, has made the largest scientific investment in climate change research at $20 billion over a 13-year period. The federal organizations with the largest budgets devoted to climate-change activities include NASA, the National Science Foundation, the Department of Energy, and the National Oceanic and Atmospheric Administration.

For those who embrace big government and centralized planning, the global-warming crisis has been a godsend. Under the mantra “preventing global warming,” government has greatly expanded into our daily lives. Mandates have superseded consumer choice in the areas of energy, transportation, and appliances. For example, when compared to the traditional light bulb, the new government-mandated compact fluorescent light bulb is far more expensive, loaded with mercury, and takes time to illuminate. To compensate for this delay, consumers leave the lights on. How does this help the environment or curtail global warming?

And the Horse You Rode In On

Given the billions of federal dollars at stake, it is not surprising that there would be resistance to any free flow of ideas that might question the crisis. If we don’t have a crisis, then we won’t need the government to ride in on a white horse throwing billions around to save us. It therefore becomes imperative to squelch or marginalize dissent. Name-calling, shooting the messenger, and the use of such show-stopper statements as “We have consensus” and “The debate is over” usually do the trick.

In the name-calling category, we find the following epithets: “climate-change denier,” “flat-earth advocates,” and “tools or stooges of Big Oil.”

Jeff Kueter of the Marshall Institute says that scientists who challenge global warming “are quickly labeled as having received money from the petroleum industry. The media consider their findings and their opinions to somehow be tainted because they’ve got a financial relationship.” Why is there never any suspicion in the other direction, when a researcher has a financial relationship with the government and its agenda for more regulations, more mandates, a carbon tax, and the nationalization of the energy sector? Why don’t the media ever call such a researcher a “tool of big government”?

What about the consensus we hear so much about? Gregg Easterbrook expresses the mainstream sentiment: “The consensus of the scientific community has shifted from skepticism to near-unanimous acceptance.”

The late author Michael Crichton had this response:

I regard consensus science as an extremely pernicious development that ought to be stopped cold in its tracks. Historically, the claim of consensus has been the first refuge of scoundrels; it is a way to avoid debate by claiming that the matter is already settled. Whenever you hear the consensus of scientists agrees on something or other, reach for your wallet, because you’re being had. Let’s be clear: the work of science has nothing whatever to do with consensus. Consensus is the business of politics. Science, on the contrary, requires only one investigator who happens to be right, which means that he or she has results that are verifiable by reference to the real world. In science consensus is irrelevant. What is relevant is reproducible results. The greatest scientists in history are great precisely because they broke with the consensus. There is no such thing as consensus science. If it’s consensus, it isn’t science. If it’s science, it isn’t consensus. Period.

One of the biggest tragedies of consensus science is the chilling effect it has on those who fall outside of this consensus. “Scientists who dissent from the alarmism have seen their grant funds disappear,” Lindzen says. “It’s my belief that many scientists have been cowed not merely by money but by fear. Alarm rather than genuine curiosity, it appears, is essential to maintaining funding. And only the most senior scientists today can stand up against this alarmist gale and defy the iron triangle of climate scientists, advocates and policy makers.”

Threat Level Whatever

The problem with public policy based on alarmism is that it’s hard to sustain. There are three reasons for this. The first is overselling the crisis. The general public has become numb and cynical about the endless barrage of ills all tied to global warming. (Even the disappearance of the Loch Ness Monster has been attributed to it.)

The second reason is clear and convincing evidence to the contrary. This is what did in the last climate-change crisis. A New York Times headline on May 21, 1975 blared: “Scientists Ponder Why World’s Climate is Changing: A Major Cooling Widely Considered to be Inevitable.” But it was hard to continue the hype about global cooling when it got hot outside. While the current global warming debate may be over, Mother Nature is, unfortunately, not cooperating. Contrary to the infallible computer climate-model predictions (which I call high-tech crystal balls), global temperatures peaked ten years ago, in 1998. There was no appreciable temperature increase for the next eight years. However, for the last two years the temperatures have actually fallen. The past two winters have been brutally cold. This painful realization may help to explain the sense of urgency in Congress to pass climate-change legislation–right now! Rep. Henry Waxman said at the opening of the 2009 congressional hearings on global warming that he plans to move “quickly and decisively” to push through climate legislation before Memorial Day (Or does he mean before it gets even colder?)

The final reason is that the alarmist crisis gets run over by a real crisis. With the financial turmoil, the housing crisis, the stock-market crash, and rising unemployment, it is hard to get excited about global warming. In the January Pew Public Survey Poll, global warming came in 20th out of 20 on the list of Top Priorities for America. The top five were: the economy, jobs, terrorism, Social Security, and education.

The global-warming crisis was tailor-made to simultaneously advance the agendas of the environmentalists, big government, and those who vilify the oil industry and business in general. There is far too much at stake to have this crisis die peacefully. As a result, there will be extensive efforts to keep it alive. For starters, the phrase “global warming” is being used less frequently (if at all). It’s been replaced with the nebulous, but error-free, “climate change.” Given that the earth’s climate has been changing for millions of years, “climate change” covers all bases (both warming and cooling). The problem with this approach, however, is that the public won’t buy it. It is hard to get excited about the dangers of “climate change.”

Be prepared for more talk about “energy security” and “energy efficiency.” This will lead to more government-mandated products and less consumer choice. There will still be a push for a carbon tax–or a cap-and-trade scheme, President Obama’s preferred policy. However, without the global-warming hysteria, this will be a harder sell.

Carbon dioxide will continue to be demonized as a “greenhouse gas.” Even though it is harmless to humans and is needed by all plant life, it will be called a toxic pollutant by the media, militant environmentalists, and politicians. Yet carbon dioxide makes up less than 4 percent of all greenhouse gases. Water vapor accounts for 95 percent.

Shut Off the Alarmists

What’s to be done? First, we should abandon all efforts and discussions related to cap-and-trade, carbon offsets, carbon footprints, and carbon taxes, which would never go away if implemented and won’t measurably change the temperature.

Second, we should stop government from funding climate change science. As John Tierney of the New York Times writes: “[Government] officials running the agencies have their own agendas . . . which can be [met] by supporting research demonstrating that there’s a terrible problem for the agency to solve.” Climatologist Patrick Michaels states, “[N]o one ever received a major research grant by stating that his or her particular issue might not be a problem after all.”

Third, we should demand that lobbyists for expanded government power disclose their financial backers.

Finally, we need to accept that climate change, both global warming and global cooling, will continue. Ironically, of the two we should wish for warming. Mankind has prospered in warming periods because agricultural production increased at higher latitudes and elevations. The opposite was true with global cooling. I’ll take global warming over another Ice Age. My request to Washington: Please don’t pass legislation to make Michigan any colder than it already is.

Related posts:

1. Higher CO2, More Global Warming, and Less Extinction?
2. Climate Confusion: How Global Warming Hysteria Leads to Bad Science, Pandering Politicians, and Misguided Policies that Hurt the Poor
3. Global Warming and the Layman

Jefferson was right on both counts, which is why we should be grateful for good people who push back when government pushes where it shouldn’t. Liberty would surely be a lost cause without them.

One such person is Harry Teasley of Tampa, Florida. I’ve come to know Harry as man who generously commits everything—reputation, intellect, energy, time, and resources—to the idea that government must retreat so that liberty may advance. Not even age (he’s 71) seems to slow him down.

Thirty minutes with Harry and anyone familiar with the famed Myers-Briggs personality profile test would likely guess that Harry is an “INTJ”—one of an estimated 2 percent of the American population. As fits the description, Harry is a keen observer of the world who places a premium on evidence, logic, and facts. His thinking is deliberate, systematic, strategic, and long-range. He abhors incompetence and does not suffer gladly the many fools, charlatans, and gullible fuzzy heads who feast off the production of others or opine on anything that strikes their fancy. An engineer by training and a natural leader, he is self-confident, intuitive, and decisive.

Like his thinking, his desk is organized and clutter-free. He knows what he believes in and is not timid about standing up for it. Many people who have been on the other side of arguments with Harry have scars to prove it.

A January 10, 1995 article by Tim W. Ferguson in the Wall Street Journal acquainted a national audience with how Harry had just “stared down” the Tampa mayor and his allies in the local business community. At issue was a proposal to build a publicly subsidized hotel near a $140 million convention center. It had already secured huge subsidies before Harry arrived in Tampa in 1991. The hotel would likely cost the taxpayers more than the convention center itself and would compete directly against private taxpaying hotels. To Harry the matter was not about economic development. It was instead a moral and philosophical matter that “had to be fought on the high ground of what is the appropriate role of government.”

“I always come back to first principles and debate from first principles,” Harry told Ferguson. “It protects against cracks in the armament.” He organized and inspired opposition to the hotel, commissioned a voter survey that revealed strong public antipathy to the subsidy, blew apart the arguments of the mayor’s consultant’s report on the project, bought full-page ads in the local paper, and turned out a big crowd at a crucial city council meeting in October 1994. Under the pressure the council rejected the hotel subsidy by a 4-3 vote.

Harry Teasley was no stranger to controversy. Before that dust-up in Tampa, he had spent more than three decades as an executive with Coca-Cola in Atlanta, in a series of positions and locations that brought him into conflict with overzealous government regulators and fact-deficient environmental activists. When Maine outlawed the aseptic packaging more popularly known as drink boxes, he proved the boxes conserved resources instead of squandering them. Maine repealed its ill-advised ban. While he was president of Coca-Cola Foods, maker of Minute Maid orange juice, the company stood practically alone in opposing the extension of tariffs on orange solids from Brazil. He also successfully fought a committee (appointed by seven Northeast governors) that wanted to veto the preferences and expertise of producers, packaging engineers, and consumers by regulating the specs of every package sold in those seven states.

Harry warned against the policies that produced today’s mortgage market crisis long before the bubble broke. In 2000, when a bank on whose board he served sought to secure subsidies for a housing project the bank stood to profit from, Harry resigned. In his letter to the bank’s CEO, he wrote: ” I believe in that set of ideas and concepts that goes under the rubric of classical liberalism [emphasis Harry’s] to include . . . the following: freedom in all its guises, personal liberty and its mirror image of individual responsibility, private property, economic freedom, free markets and free trade, rule of law, voluntary contracts and association, and limited government.

“While I realize that our country has strayed far from the concepts articulated by the Founders and that we are awash in a sea of statism and socialism, nevertheless whenever I encounter government intrusions that are contrary to my beliefs, I try to act in arenas open to me. The granting of subsidies or the redistribution of wealth to special interests, in order to support activities that would not exist if individuals or institutions had to spend their own money, is such an area.”

Since last summer the federal government has granted trillions in bailouts to a growing list of supplicants lining up at the public trough. I can’t help but ask, “Where are the Harry Teasleys? Who has the courage and the moral scruples to keep their hands in their own pockets?”

Harry’s principles didn’t come from an economics professor. As a student at Georgia Tech in the 1950s, he took an economics course for which the text was an early edition of Paul Samuelson’s awful but widely used apologia for central planning. But during rigorous courses in English and engineering, his logical mind found solace in critical thinking, deductive reasoning, and the importance of research rooted in dispassionate, agenda-less evidence. When a professor claimed in a math class that smart government planners using computers could effectively manage a nation’s agricultural needs, Harry challenged him. “How could any handful of officials possibly know how to account for endless variables from the weather to consumer tastes?” he demanded to know. He wasn’t satisfied with the presumptuous prof’s superficial reply.

Thirty years later, in the late 1980s, Harry Teasley formally met the body of thought we know as free-market, classical-liberal economics. The Foundation for Economic Education played an important role in his introduction. He worked from a reading list compiled by FEE’s founder Leonard Read and a long-time FEE supporter, Harry Langenberg of St. Louis. In quick succession, Harry devoured The Freeman and the works of Frederic Bastiat, Ludwig von Mises, Murray Rothbard, F. A. Hayek and others. An organized mind had connected with the logic of real economics in a seamless and natural marriage. From that point on, the principled crusades against the regulators and the subsidy-seekers were inevitabilities waiting to happen.

Today, Harry Teasley is retired only as a professional business executive. He is otherwise engaged constantly in thinking, writing pithy letters to the editor, and supporting liberty through his time, advice and philanthropy. It was people like him that I’m convinced Jefferson had in mind when he urged, “Enlighten the people generally, and tyranny and oppressions of body and mind will vanish like evil spirits at the dawn of day.”

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Practical men who believe themselves to be quite exempt from any intellectual influences are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

—John Maynard Keynes, 1936.

Unless they have taken a course in economics most people probably have never heard the name John Maynard Keynes. To his contemporaries this English economist, statesman, and general all-around charismatic intellectual was a household name. And to generations of economics students after World War II, he was a hero.

He was the man who invented macroeconomics, the man who revealed to the world how to avoid another Great Depression, the man who made it respectable for governments to target unemployment and to worry about balancing the economy, not the budget. He taught us that it is unnecessary to worry about the long run because “in the long run we are all dead.” He taught us that government leadership was necessary to safeguard us from the possible and likely instabilities of the market system. Capitalism was ok. It was the best system we had to ensure economic growth peacefully and democratically. But it needed to be bolstered by enlightened governmental intervention at crucial moments. Most of this came packaged in his book The General Theory of Employment, Interest, and Money, published in 1936. It became the basis of the new conventional wisdom.

Teaching a New Generation Old Tricks

To be sure, Keynesian ideas were around before Keynes—but they were mostly associated with quacks and crackpots. Economists before Keynes dismissed the idea that governments could “create jobs” by simply putting people to work on “public works” using money created by the central bank (inflation). After all, if resources were employed in public works they would be unavailable for anything else. Society would have to forgo the alternative product of these resources—that was their opportunity cost. Governments could not simply “create” jobs where none existed before. They could only redistribute jobs away from the private sector into the public sector. And there was no reason to presume that the latter jobs were more valuable to society than the former. An understanding of economic history and of the market process suggested the opposite—namely, that private market decisions in pursuit of profit would tend to produce the most valuable jobs for the most people.

Keynes secured acceptance for his ideas because of who he was, when he was, and what he was. He was a very powerful personality (to say the least) who came to prominence at the time of the worst economic depression the world had ever faced. He was also the head of the most prestigious university economics department (Cambridge) in the world. He was uniquely placed to take these hitherto dismissed ideas and not only make them respectable but present them as the new revealed truth.

Keynes packaged these ideas in convoluted intellectual garb but he asked some legitimate, penetrating, hard-to-answer questions about how the market works. He suggested that the “dark forces of time and ignorance” made it implausible to suppose that private, mortal entrepreneurs could be relied on to anticipate the future demand for goods and services in any detail. This being the case, Keynes asked, how can we rely on the market to put to work the savings of millions of private individuals? Savings is the sacrifice of present consumption spending for the option to consume in the future. But what guarantee is there that increased saving today could and would be translated into increased consumption tomorrow? After all, increased saving today means less consumption today, and this is likely to discourage entrepreneurs from producing for the future. This is why we need the government to undergird the economy and prevent it from falling into a downward spiral due to the pessimism that could arise from underconsumption (however caused). In a modern monetary economy, private savings do not automatically get translated into private investment. Thus private investment needs to be supplemented and nudged by government investment—and if necessary, it would seem, also by government consumption.

Blasphemy from Chicago and Austria

The Keynesian message is appealing and intuitive, and it has sold very well. In fact, it testifies to the power of ideas in history. In the postwar period first the academic economists, then the other social scientists, and then the public at large became converts. From the time of John Kennedy onwards American economic policy became self-consciously Keynesian. But there were pockets of strenuous resistance to the new creed—most notably at the University of Chicago (the economists of the Chicago School) and also among many individual economists around the world—notably those trained in the Austrian school of economics. The most prominent Austrians of that period were Ludwig von Mises (then at New York University) and Friedrich Hayek (at the London School of Economics and later at the University of Chicago). The most famous Chicago economist in this context was Milton Friedman—perhaps America’s most well-known economist ever. It was Friedman’s relentless work (together with his students and colleagues) that paved the way for a sober reconsideration of the new Keynesian orthodoxy and its subsequent overthrow.

My own personal odyssey coincided with that broader cultural shift. I arrived at the University of Chicago in September 1972 to pursue my Ph.D. in economics as an informed and enthusiastic Keynesian. This despite studying in South Africa under Ludwig Lachmann, an adherent to the Austrian School, and in spite of a detailed knowledge of Milton Friedman’s monetary theory. Between 1972 and 1976, while I was immersed in a detailed and rigorous examination of market economics, the American economy was being put to the test. Friedman had long been preaching against Keynesian macroeconomic policies (tax, inflate, and spend) and in his presidential address to the American Economic Association (1968) had warned that such policies would lead ultimately to simultaneous inflation and unemployment. By the mid-to-late 1970s this is exactly what happened—a new American word, stagflation, was coined to describe it. High levels of both inflation and unemployment emerged, seemingly impervious to the stimulatory actions of government economic policy.

In fact, people now began to suspect what Friedman (and Mises and Hayek and countless others) had been saying for years—that government policy was responsible for the mess, that government policy, far from being the solution, was itself the problem—could be true. People began to suspect that the pre-Keynesian economists were right in thinking that the market was not inherently unstable (as Keynes has asserted) and that government intervention to improve on market outcomes actually succeeded in destabilizing the market much further. By the end of the 1970s people were ready for a change. It was in this climate of opinion that Ronald Reagan and Margaret Thatcher were elected. When I left Chicago in 1976 I was convinced that Keynesian economics was a fraud, and I have never seen reason to change my mind. I naively thought that my own passage from illusion to enlightenment was characteristic of the public in general and that Keynesianism (at least in its naive form) had been put to bed forever. I had thought that we now understood that inflation and unemployment were not alternatives and that any temporary stimulus achieved by money inflation would be short-lived and would itself cause a boom-bust cycle. The Keynesians had scrambled to put together an even more convoluted version of the story, but I had thought their efforts were basically seen as unsuccessful—at very least by the majority of trained economists.

Don’t Call it a Comeback

Clearly not. The current financial crisis has fueled a frenzied recycling of discredited Keynesian ideas. We are hearing again of the need for “public works,” of the need to “stimulate” the economy. The Federal Reserve is frantically inflating the supply of money. We are laying the groundwork for a disaster reminiscent of the 1970s—if not worse.

To understand this we need to look at some of the details of the current crisis. The conventional wisdom blames our plight on an over-reliance on the free market, on “too much deregulation.” The truth is exactly the opposite. The current debacle is the result of multiple overreaching government regulations and interventions. At the very base of the problem is the Federal Reserve, which has attempted to fine-tune the economy and guide it delicately through ups and downs. The Fed has always been reluctant to be the party pooper that brings any boom to an end. Thus the “natural” end of the dot-com boom was postponed by a reluctance of the Fed to allow interest rates to rise, thus allowing the supply of money to expand to fuel the necessary credit for continued expansion into ever more risky and unsustainable business ventures. When the bust came it came with more pain than necessary. The related housing bubble that followed played out along similar lines.

But the matter is more complicated than simply too much credit for overexpanding sectors of the economy. The housing crisis is the result of a systematic, hardheaded social policy aimed at increasing the number of homeowners in America. Using the politically charged notion that minorities were suffering from discrimination in the mortgage industry (a notion that has been discredited; see, for example, Stan Liebowitz, “A Study that Deserves No Credit,” Wall Street Journal, September 1, 1993, http://tinyurl.com/8bsjb3 [pdf]), some Democratic politicians made it their mission to rewrite the standards for mortgage approvals and ensure they became the reigning procedures for the industry. In this they were assisted by the quasi-government mortgage-packaging institutions, Fannie Mae, Freddie Mac, and Ginnie Mae. The result was a massive expansion of the production of new houses, an increase in housing prices, and an increase in the proportion of Americans owning their own homes.

The rise in housing prices in turn encouraged creative speculation in financial securitization based on mortgages. It also encouraged speculation in home ownership whereby, with very little or no money down, people could buy multiple homes and profit from the run-up in prices. When housing prices finally started to fall—an inevitable outcome—many people found themselves owing more than the houses were worth and simply walked away from them. Others found themselves facing mortgage payments they could not afford—because of the systematic dumbing-down of mortgage standards. (For a comprehensive, penetrating examination, see Stan Liebowitz, “Anatomy of a Trainwreck: Causes of the Mortgage Meltdown,” http://tinyurl.com/3m4bzv [pdf].)

In short, we have had a distortion of the economic structure toward the production of items whose value did not justify their production in the first place. This is a structure that cannot be sustained. Resources are “misemployed” and need to be redeployed—a process that is necessarily painful. (The same story characterizes the travails of the auto industry over a much longer period.)

Pay Now or Pay More Later

Against this background one can see that attempts to solve the crisis by simply providing more liquidity or “stimulating” the economy won’t work. In fact they will make things worse by creating the illusion that the distorted production structure can be preserved. We have a choice: pay now or pay more later. The Obama administration came into office talking about a nearly $800 billion program, in addition to the $700 billion already available for bailouts and mortgage cleanup, to stimulate consumption.  This presumably was in anticipation of a precipitous fall in consumption spending—reminiscent of the Great Depression of the 1930s—that was expected to result from massive capital losses produced by the financial and housing price meltdowns. As bad as things are now, we are as yet nowhere near the situation of the Great Depression, and one hopes we never will be.

This massive expansion of money is occurring at a time of great uncertainty. So the money is not circulating through the economy very rapidly (as people are reluctant to lend and even to borrow). The time will come, however, in the not-too-distant future when this excess liquidity will inevitably result in general price inflation and all the negative side effects that this always brings.

The stimulus package and the other varied and unpredictable government initiatives that we have witnessed recently—like the “bailout” of Citigroup and AIG—are unlikely to do any good at all, except for those who are directly subsidized by these actions at the taxpayers’ expense. We know from the logic of basic economics and from history that such initiatives are unlikely to work. And we know that, at very best, they will postpone the necessary reallocation of resources that must take place before the economy can recover. Most likely they will seriously exacerbate the misallocation of resources and make the recovery ultimately more difficult.

What is most alarming to me personally is the enthusiastic recycling—indeed apparent wholesale resuscitation—of discredited Keynesian ideas. The false prophet of the public purse is back.

Related posts:

1. A Microeconomist’s Protest
2. Ideas and Consequences: Businessmen and the War of Ideas
3. Recycling Labor