In like manner several commentators are singing the praises of the federal government lately, claiming that in the wake of recent natural disasters, federal agencies like the Federal Emergency Management Administration (FEMA) have done a fantastic job.

The Washington Post’s Dana Milbank is typical of the pro-government cheerleaders. “Big Government finally got one right,” writes Milbank of FEMA’s response to Hurricane Irene. Arguing that “the federal government can still do great things,” Milbank reckons that FEMA’s response to Irene should help restore the public’s sagging confidence in government. Yet despite this stellar government performance, wouldn’t you know, FEMA faces budget cuts at the behest of those scornful Tea Partiers in Congress. Thus instead of improving the federal government’s image in the eyes of citizens, FEMA’s newfound brilliance is liable to go unnoticed.

I’ll concede that Hurricane Irene was FEMA’s best showing ever. (We’re all still here, aren’t we?) This sudden outbreak of governmental competence notwithstanding, Milbank’s appraisal of FEMA as a model of salubrious big government is flawed on economic grounds. Resting his newly buttressed faith in big government on a sample size of n=1, Milbank precludes some highly relevant comparisons. Perhaps FEMA functioned well for once, but should we take this as the new normal for FEMA, or the exception to the rule? And even if we can count on a better FEMA, is federal government-centered emergency response the best we could possibly have?

It’s easy to say FEMA was better this time than in its dismal past. The agency’s infamous blundering response to Hurricane Katrina (a truly epic category 5 storm) would be comic if it weren’t so tragic. Bureaucratic ineptitude led to a hesitant response, as federal officials actually halted emergency supplies and workers coming into New Orleans in the days after the storm. FEMA arguably contributed directly to Katrina’s death toll of over 1,800 by blocking or overriding local evacuation efforts. FEMA’s top-heavy D.C. bureaucracy was roundly criticized as, well, a disaster.

In stark contrast, a slew of nonfederal response initiatives, from local government authorities to mega-corporations, brought in all manner of people and supplies quickly and effectively, where they were needed most. As Freeman contributor Steven Horwitz has amply documented, companies like Walmart were far more efficient and proactive than the centralized FEMA bureaucracy in getting relief goods to the people in need.

Horwitz and others have noted that incentive structures facing different organizations explain the difference between successful and bungled relief efforts. Those in decentralized competitive situations, such as retailers like Walmart, have the localized knowledge of what goods are needed and where, as well as profit-and-loss incentives motivating them to act on this knowledge. Folks in centralized bureaucracies, on the other hand, naturally lack intricate knowledge of the local details and tend to be motivated by political concerns in distributing the resources they do have.

The divergent results after Katrina are not surprising. While FEMA bureaucrats were halting relief convoys, misdirecting their own supplies, and hosting phony press conferences to placate the media, Walmart, Home Depot, and others were tracking the storm and massing supplies days in advance. They delegated authority to local store managers, some of whom took drastic steps to get their stores open and supplies flowing immediately.

Politicians’ knee-jerk response to government failure is, naturally, to increase their own budgets. But with bureaucracies facing such systematically bad incentives, increasing their budgets is not guaranteed to improve results. Nonetheless, Milbank frets about as-yet-unspecified potential cuts to FEMA’s budget. To put his worries into perspective let’s look at FEMA’s spending record over the last few years. In 2005—a year of at least three major hurricane strikes in the United States—FEMA spent around $4.8 billion. By 2010, a year with many hurricanes (but none making landfall in the United States), FEMA’s budget had been pumped up to a whopping $10.4 billion, and it was on pace to meet or exceed that number last year.

So FEMA’s budget has doubled since Katrina, and only now do we see basic competence, in relatively quiet disaster years? If FEMA faces another really harsh hurricane season—a repeat of 2005—and drops the ball again, does this mean its budget will again need to be doubled, to $20 billion? I can see the dollar signs in the bureaucrats’ eyes already. Indeed, as Public Choice economics predicts, and former Obama White House chief of staff Rahm Emmanuel conveniently admitted, big-spending bureaucrats like those in FEMA have strong incentives to “never let a crisis go to waste.” They thrive on crises as a primary rationale for larger budgets, even if they played a big hand in making such crises worse to begin with.

In light of this it’s not at all surprising that the number of “major disaster” declarations has been rising over time, even in years when nature is relatively calm. FEMA had already declared 78 disasters by the fall of 2011, 30 more than the mega-storm year of 2005. Because disaster declarations are a prerequisite for unlocking federal disaster funds, it’s not surprising that FEMA finds ways to define disaster down, or that the number of declarations goes up for election years and in politically sensitive swing states (tinyurl.com/5usys7s).

In reality FEMA’s seemingly fantastic response to Irene is likely a product of media hype. The storm had basically fizzled out by the time it hit densely populated areas. Recall that Irene had weakened to a mere tropical storm by the time it reached the Jersey shore, and the main effect on the mid-Atlantic and New England states was torrential rain—not nearly as severe as the massive storm surge and catastrophic flooding from Katrina. Yes, there were power outages and locally severe flooding with Irene, but such are common in the United States. Private businesses and local authorities responded well, as they always do. Milbank offers no compelling reason to believe that a bloated FEMA bureaucracy is essential, or even beneficial, in helping these responses along.

Unfortunately Chait misses two important points. First, Keynes’s argument for why his view of fiscal policy need not mean a larger government ignores the incentives facing the politicians who must implement it. Those incentives would lead to a larger government. Second, Keynes called for the socialization of investment as part of a broader vision of how to prevent the crises that necessitate stimulus spending in the first place. The result of both arguments is larger government. Thus Chait’s claim about Keynes just ain’t so.

Chait rightly notes that while Keynes argued that deficit spending was necessary as a stimulus during recessions, he also argued that governments should run surpluses in good times to pay off the debt. Chait concludes: “This policy is perfectly compatible with any level of government and does not require higher aggregate levels of debt than maintaining a regular balanced budget.”

Indeed, in theory it is compatible, but the problem is that the theory does not comport with reality. Keynesian ideas have ruled fiscal policy for at least 50 years, fewer than five of which had budget surpluses. During this time the debt has gone up to more than $14 trillion and the size of government has expanded enormously. Surely the economy was not in recession all but those few years. Apparently Keynesian policy is not compatible with any level of government and does seem to necessitate higher levels of aggregate debt.

What Chait overlooks is that regardless of what Keynes believed government should do, what it in fact will do is another matter. As James Buchanan and Richard Wagner argued in their classic critique of Keynesian fiscal policy, Democracy in Deficit, by removing the preexisting moral and institutional constraints on deficit spending as a way to balance the economy, Keynes and the Keynesians unleashed the perverse incentives of the political process into policymaking. The problem with Keynes’s analysis is that he paid no attention to the real incentives facing politicians, who now had the green light to deficit-spend in the name of economic stability.

Buchanan and Wagner argued that vote-seeking politicians will always prefer spending to taxing because the former gets them votes and the latter does not. As long as there are no institutional or moral impediments to this (such as a balanced budget amendment or a deeply held norm against deficit spending, except during wartime), politicians will always take deficits over surpluses, especially when economists such as Keynes have given them theoretical support. The result is that rather than the offsetting surpluses Chait focuses on, politicians continue to deficit-spend even during periods of economic growth because none wish to raise taxes or cut the flow of government benefits to their prospective voters. The result is exactly what Buchanan and Wagner predicted in 1977: large and increasing deficits and debt, and a growing danger of higher levels of inflation to pay it off.

In addition it’s worth observing that government stimulus spending simply does not work. Part of the Keynesian story is that deficit-financed spending will end recessions and generate the growth that will lead to the later surpluses to pay off the deficits. But what if stimulus spending doesn’t generate growth, or even prolongs or deepens recessions? In that case deficits beget deficits, debt begets debt, and government grows out of control. When Chait wrote in May unemployment was about 9 percent three and a half years after the recession started and around two years after it officially ended. As I write this two months afterward unemployment is unchanged. Massive stimulus spending is not just the path to larger government but also to permanently low rates of growth, which will only worsen the deficit and debt.

What Not To Do

In his article Chait also claims that defenders of Hayek cannot tell us what should be done when an economy is stuck in a recession. That’s an unfair charge. First, Hayekians can tell us what not to do: engage in large-scale stimulus spending, for the reasons noted. Second, Hayekians do have positive advice: Government should get out of the way so entrepreneurs and others who have a better idea of what to do can try things and see if they work. Chait claims it’s a cop-out for Hayekians to criticize Keynesian solutions for relying on government without specifying what the alternative is. The Hayekian perspective is that neither Hayekians nor Keynesians know what to do. That’s why we have market competition, which in Hayek’s words is a “discovery procedure” that helps us figure out how to revive a moribund economy.

Finally, Chait overlooks the broader context of Keynes’s fiscal policy recommendations. These were really only stop-gap measures rather than a long-term solution to what Keynes saw as the chronic tendency of capitalist economies to fall into recession. In his view there would never be enough profitable investment opportunities to match the public’s saving. So he proposed a fix for this oversaving/underconsumption problem. That fix was the socialization of investment through the State.

In trying to argue that there’s nothing in Keynes to suggest larger government, Chait is correct, but only if he’s referring to “fiscal policy” in its narrowest sense and ignoring the political incentives discussed above. But Keynes’s fiscal policy analysis was part of a larger story of the instability of capitalism, which requires that government play a more prominent role in allocating money for investment to avoid future recessions. This element of fiscal policy clearly calls for a bigger government.

The claim that Keynesianism doesn’t necessarily imply bigger government and greater debt is shown to be mistaken when we consider the implications of Keynes’s argument for countercyclical fiscal policy, the record of Keynesian policy in the last 50 years, and the broader context of his views on fiscal policy in The General Theory.

That’s right: Despite record federal spending and unprecedented Federal Reserve intervention, the economy remains depressed. Beyond stating the obvious about the nonrecovery Krugman frets about the long-term implications of the stubbornly sour labor market. He also notes that consumers are “still burdened by the debt that they ran up during the housing bubble,” which, to my Hayek-schooled mind, sounds an awful lot like the drawn-out bust phase of a credit-fueled business cycle.

Rather than concluding that deficit spending and printing money are the wrong cures for what ails us, Krugman complains that government is not doing enough. Citing the tea-party Republicans’ “deficit obsession,” Krugman complains that government has been “pulling back [rather than] supporting the economy in its time of need.” He also cites lassitude at the Fed, claiming it’s been “intimidated by the Ron Paul types” into overreacting against potential inflation. Krugman argues the federal government should be doing much more, and its top priority should be creating jobs, not reducing the deficit.

While Krugman avoids the specifics of what such grandiose federal jobs programs would entail, he’s on the record supporting massive New Deal-style public-works spending, which would employ “armies of government workers.” Krugman also favors more monetary stimulus by the Fed to boost spending throughout the economy. In brief Krugman is saying we have not yet begun to fight the Keynesian battle of stimulus on either the monetary or fiscal fronts.

Let’s review the figures. Since September 2008 the Fed has more than tripled its balance sheet, printing roughly $2 trillion in new bank reserves, monetizing around $900 billion of U.S. government debt, and lending over $3 trillion to U.S. and foreign banks. As for federal spending—the real growth engine, in Krugman’s mind—it increased by 40 percent (29 percent in real terms) from 2007 to 2011 to a record $3.8 trillion, with half that increase coming in the recession year 2009 alone. “Stimulus” spending by itself has amounted to $666 billion so far, and federal bailouts have racked up at least $150 billion in taxpayer costs. Since 2007 gross public debt has increased from 64 to 103 percent of GDP.

And Krugman’s argument again? Government is not printing and spending enough. This fetish for unlimited spending juxtaposes strangely against a backdrop of perhaps the most fiscally profligate decade of American history, but I’ll give Krugman credit for boldness. However, the figures themselves, shocking as they are, mask the real question: Can more government spending actually encourage productive employment that promotes overall economic welfare?

Stimulus enthusiasts like Krugman are sure it can. And their first big task for the new labor armies is to go forth and fix America’s broken infrastructure. Haven’t you heard? America’s roads, bridges, sewers, airports, and more are in total disrepair—so says the infrastructure lobby. But these folks—an assortment of large construction, manufacturing, and transport companies, and their unions—have been carping about infrastructure being underfunded for the last 30 years. No surprise here: like any special-interest group, they want a continued and enlarged flow of federal funding. Hence my Public Choice nerves twitch at every mention of “crumbling infrastructure.”

But let’s concede that they’re right: that our infrastructure is in a sad state and more federal spending would be a wise investment. Using the infrastructure lobby’s figure of 18,000 new jobs for every $1 billion in government spending, doubling federal infrastructure spending would reduce the unemployment rate to 8.3 percent. And this ignores the matter of timing, as infrastructure projects require years of planning and regulatory hurdle-jumping before they’re “shovel-ready.” Nonetheless, even the most unrealistically generous assumptions about infrastructure spending indicate that if you want to get the economy back to full employment, it’s going to take a lot more than just public works.

But stepping back from labor army fantasies, there’s something absurd about using infrastructure “investment” as a jobs program. To the extent that federal funding of infrastructure is economically advisable, “good government” would require minimum expenditure (read: minimum employment), lest said public works turn into a black hole of rent-seeking—public spending to enrich private interests.

Infrastructure spending is not immune to the institutional inefficiencies that beset all government programs. But questioning the value and efficiency of public works is only half the matter. Call me a conservative stick in the mud, but the little question of how the government is going to pay for all this largess strikes me as relevant these days.

Krugman of course sees no problem here. He is on record favoring larger deficits, seeing historically low interest rates as a go-ahead for even more federal borrowing. Oddly enough, others in the economy, such as Standard & Poor’s, see a quite large problem with continuing government debt growth. It’s called insolvency: If you have too much debt and you can never pay it off, bad consequences ensue. (I wonder if Krugman would advise a family with $325,000 in credit card debt on an income of $50,000 a year to go ahead and open up a new credit card account simply because it came with a 0 percent teaser rate?) While Krugman, with his stale brand of vulgar Keynesianism, appears increasingly oblivious to it, other recent events have revealed in stark fashion what our real economic problem is—excessive government debt, a direct consequence of excessive government spending.

The fixation on ever-bigger government stimulus programs to “fix the economy” reveals the basic fallacy with Krugman and the Keynesians. They view “the economy” and “the government” as distinct entities—as if poor little Johnny Economy would be just fine if only rich, stingy old Uncle Sam would open up his wallet and give Johnny a job! The reality is that the economy is us—the government exists within the U.S. economy, not apart from it. To “support” the economy the government must take resources from the very same economy. This can only confer a net increase in productive activity if government bureaucrats and politicians a) are truly benevolent, suppressing their representation of private interests in favor of “the general welfare” and b) know better than individual entrepreneurs throughout the country how to wisely invest scarce resources.

Since the days of Hume and Smith, economists have rightfully heaped skepticism on such assumptions. Politicians and bureaucrats are neither angelic nor omniscient; simply increasing their ability to print and spend is not a formula for prosperity. The fact that the United States is currently suffering the lingering effects of a complex recession and government debt crisis does not change these lessons, but confirms them. To adapt a phrase from a president who understood this (even if he couldn’t quite enact it): In our present crisis government spending is not the solution to the problem; government spending is the problem.

A friend of mine served on our city’s legislative council for eight years. During that time he often heard—in defense of tax-funded business incentives—“If we don’t do something, nothing will happen.” The same belief holds sway at the national level. Many of our most educated people believe that unless government provides direction and pays the fare, the national train will stop or even slide backward.

That view undergirds a June op-ed piece by Washington Post opinion page editor Fred Hiatt. Discussing U.S. fiscal policy, Hiatt wrote: The “doctrinaire Republican insistence on ever-shrinking government would sap the country’s ability to invest in the research, education [and] infrastructure . . . that a great power needs” (“What’s Happened to America’s Leadership Role?” June 26).

In other words, without government spending, there will be a serious lack of critical investment. So serious, in fact, that America would cease to be a “great power” and force for good around the globe.

Is that so?

In the first place, if massive government spending were required for a nation to emerge as a “great power,” one wonders how America became the wealthiest nation on earth in the late 1800s, after a century of having a small and sharply limited national government.

That aside, let’s look at Hiatt’s assertions one at a time.

First, he apparently embraces the argument that scientific research is a “public good”—something anyone can enjoy whether he helped pay for it or not. This is the so-called free-rider problem. If basic research is a public good, the standard argument goes, government must pay for it.

But Professor Terence Kealey, an author, lecturer, and clinical biochemist at the University of Buckingham in the United Kingdom, has shown that scientific research is not a public good. Indeed, he has found that the most profitable companies do fund pure science, often quite generously and with important wealth-creating results. That’s a sign they don’t fear free riders.

Writing for the Cato Institute in 1997 Kealey pointed to research showing that while the benefits of pure science are often “captured” by rival firms, those firms still must employ excellent (and highly paid) scientists to take advantage of new developments. In other words, there is no free ride in R&D.

Furthermore, government-funded research pales in comparison to private research in terms of commercially useful industrial technology, which is what makes us richer. Government-funded research, meanwhile, is largely unproductive. Kealey also noted that in countries with low tax burdens, companies use their own funds to pay for basic science. But in countries with high tax burdens, companies seek government grants, meaning “pure science” becomes purely political.

Kealey concluded: “Scientists may love government money and politicians may love the power its expenditure confers upon them, but society is impoverished by the transaction.”

“Education” and Government

Hiatt also believes quality education requires government funding. But this is mistaken as well.

In the first place, public schools have never been about “education” per se. They were created, and continue, to be institutions designed to “mold” children into “good citizens.” They are not selling a good or service on the open market. They are peddling a State-endorsed frame of reference.

Recently in my home state of Indiana, government school teachers had a public confrontation with the governor, Mitch Daniels, over tax-funded charter schools and a tax-funded voucher system. The lockstep protest among teachers (at least those speaking for their fellow teachers at the statehouse) hardly showed any real independence of thought. It did show, however, that education policy has fully entered the realm of interest-group politics.

The idea that only government can provide schooling is demolished by the work of James Tooley, a professor of education policy at the University of Newcastle. He found that in the poorest slums of Africa, private schools are operating successfully, providing real education at affordable prices or without charge for the poorest kids. (See Tooley’s May 2006 Freeman article, “Backing the Wrong Horse: How Private Schools Are Good for the Poor.”)

Unfortunately, the United Nations entered this picture and pushed a system of universal “free” (tax-funded) schools in those same areas. This cost some private schools enrollment, at least until many parents found the government schools lacking and returned their children to the private schools. As in America, Tooley also found private schools in Africa educate children far below the cost of government schools.

Infrastructure

Finally, Hiatt also names infrastructure spending as an area in need of more, not less, government funding. Yet as Peter Van Doren and Chris Edwards of the Cato Institute pointed out in 2008, countries on every continent have been busy selling off inefficient State-owned assets, including airports, seaports, and even highways, to private concerns. Greece, now on the brink of bankruptcy, may provide the best example of a state that followed the road of more and more government spending on what might otherwise be private infrastructure. The result has been exceptional waste, inefficiency, and a populist and trade union stranglehold on the nation. As Greek economist John Sfakianakis wrote recently in the Financial Times, “The Greek political landscape is ingrained with vested interests, endemic kleptocracy and bribery. Since the days of Andreas Papendreou, an economist and father of the current prime minister, our politics has been predicated on the expansion of the public sector, patronage and borrowing.”

In his classic book, Our Enemy, the State, Albert Jay Nock wrote in 1935: Whatever “the state has accomplished outside its own field has been done poorly and expensively. . . . No complaint is more common, and none better founded, than the complaint against officialism’s inefficiency and extravagance.”

Many people believe only a large and growing State can ensure America’s greatness. But they misunderstand greatness. A growing government sector necessarily weakens civil society, where individuals make (and pay for) their own choices and market forces guide the use of capital to its most productive uses.

Far from being the key to national greatness, an ever-expanding government sector will only push more economic decisions into the political realm. It will also undermine the commitment to the individual freedom and personal responsibility that made America unique, prosperous, and great in the first place.

In his May 9 column, “Ron Paul’s Land of Second-Rate Values,” he went after Rep. Paul for his endorsement of drug legalization in the Republican presidential debate. “Dotty uncle,” he fumed, alleging that Paul has “contempt for the vulnerable and suffering.” Paul holds “second-rate values,” he added.

It’s hard not to see something like that reasoning at work in Richard Cohen’s March 28 Washington Post column urging support for military intervention in Libya.

For Cohen anti-interventionism is a reflection of “cold indifference.” He seems oblivious to the dubious motives of empire-builders, to the propagandistic framing of the facts in the mainstream media, to the destruction for which NATO forces are responsible, to the questionable commitments of the rebels NATO is supporting, and to the resentment—with uncertain but perhaps deadly consequences—birthed in Libya and throughout the Middle East at the sight of more Western planes and troops killing and maiming Arabs. It is apparently possible to dismiss all of these concerns.

Contrary to the implicit message of Cohen’s column, action doesn’t always beat inaction. Not doing something can frequently make more sense than doing something—especially where war is concerned.

I’m not a pacifist—I certainly think it can be reasonable to use force to defend yourself or others from unjust attack. But I’m convinced there’s good reason to be very skeptical about wars made by States.

Let’s not kid ourselves: Politicians persistently initiate wars and carry them on for bad reasons: to secure glory and public acclaim, to steal resources, to benefit cronies, to demonstrate military might, to keep would-be allies from defecting. While wars are sold to the public as necessary to right wrongs, the motives ordinary people are offered through the government’s preferred media outlets are rarely those that drive war leaders themselves.

The practical effects of warfare, both domestically and abroad, are rarely positive. The victors extend their power, dominating and manipulating with greater impunity. The winners’ violence breeds ill will and resentment, potentially encouraging more wars, guerilla struggles, and terrorism. And governments use their engagement in warfare to excuse domestic repression and higher taxes and to promote conformity and uncritical loyalty.

Wars are almost always funded using taxation, so that people who do not support violent action are nonetheless compelled against their wills to provide the money needed to make it possible. Even to those who don’t oppose all taxation, it should be at least deeply troubling that people are forced to pay the costs of killing others and destroying their possessions.

And it’s absolutely vital to remember, despite the propaganda offered by war apologists, that modern warfare is typically prosecuted using unjust means. Noncombatants are routinely maimed, killed, and dispossessed by all-too-indiscriminate techniques employed by modern military forces. Aerial bombardment has an especially dismal record of destroying noncombatants’ lives and possessions, though it’s hardly the only source of harm to noncombatants. Preventable harm to them is a predictable outcome of initiating war.

The American founders generally recognized that war was dreadful. They also recognized that presidents might be entirely too quick to ignore war’s dreadfulness while seeking military glory. That’s why they imposed rigid constitutional restraints on acts of war undertaken by the U.S. government. While the president is empowered to direct the operations of the armed forces once a war is under way, only Congress is empowered to commit those armed forces to war. And Congress’s exclusive control over the government’s purse means that it is responsible for overseeing the direction of a war with an eye to its justice and prudence even after it has been declared.

Cohen compares skeptics about war in Libya to governments that declined in the late 1930s to admit Jewish refugees from Europe as the awfulness of anti-Semitic violence in Nazi Germany became increasingly clear, accusing both of apathy. But the comparison is inapposite. The governments that refused entry to refugees clearly acted unjustly by obstructing would-be immigrants’ freedom of movement. But while imposing restraints on movement across State borders can reasonably be criticized on multiple grounds, it is bizarre to suppose that people who oppose war can simply be dismissed as apathetic.

For Cohen, apparently, the notion that congressional approval is necessary to commit U.S. military forces to war is worthy of implicit mockery. (He treats the notion that “the United States had no business interfering in Libya—that it needed . . . permission from Congress” as simply a rationalization for indifference.) Perhaps he has secretly embraced Lysander Spooner’s conviction that the Constitution is “of no authority,” but nothing else he says suggests that he’s a closet anarchist. In any event, his glancing dismissal of the Constitution’s requirement that Congress declare war seems like the product not of critical questioning of the foundations of the American State, but rather of lack of concern with the features of warfare that make the congressional brake on presidential war-making so potentially important.

The mandate to intervene in Libya flows simply from the need to save lives, Cohen seems to suppose. He appears to uncritically accept the administration’s framing of the situation in Libya—assuming against the evidence that Col. Muammar al-Qaddafi in fact intended to kill anyone and everyone in Benghazi, ignoring the lives likely to be lost as a direct result of NATO military action, attributing rather purer motives and long-term goals to the anti-Qaddafi rebels, and so expecting more respect for life on their part than I think the facts warrant.

Cohen maintains that the message the Libya intervention should send to any dictator is this: “Your people are not yours to kill.” He’s right of course that they’re not. But Libyans are not NATO’s to kill either. And they don’t belong to rebel commanders any more than they belong to Qaddafi. Similarly no other American belongs to Richard Cohen or John Boehner or Barack Obama, so no one can justly commit anyone else to fight in or pay for a war without her or his consent.

Perhaps—I offer no opinion here since I think alliances and implications are too unclear for anyone to speak with great confidence—a contemporary equivalent of the Abraham Lincoln Brigade ought to be on the ground in Libya opposing tyranny and violence. But, contra Cohen, there is always reason to oppose governments when they intervene militarily outside the borders they claim, and further reason to do so when they fail even to follow their own procedures (presuming, as is true in the United States, that those procedures are designed to impede the hasty and ill-considered rush to war). War is hell, and impassioned calls to “do something” don’t change that fact.

Proponents of the megastate like Krugman simply cannot acknowledge that the coercive, redistributive policies they love have adverse consequences. As we will see, his proposed “shared prosperity” will further undermine the prosperity we still have, reduce incentives for individual effort, and create new opportunities for political rent-seeking. If you would like to see America become more like Greece, Krugman’s ideas are a perfect recipe.

Let’s look first at what Krugman gets right, though.

One of the greatest conceits of modern liberalism is that more education (formal education, especially of the sort run and funded by government) is always good because it gives people “higher skills,” thus making the United States “more competitive.” To his credit Krugman joins a growing number of critics who argue that such education doesn’t necessarily produce good results. President Obama keeps saying the nation must make more “investments” in education to increase employment and keep up with other countries. Not so, says Krugman.

But why has Krugman broken ranks? In the last few months evidence has strengthened the contrarian case by showing that a large and increasing percentage of college degree holders end up having to take jobs that don’t call for any advanced academic preparation and that many college students coast through with little or no gain in human capital. Those are among the reasons why I long ago concluded that America has oversold higher education, principally by heavily subsidizing it.

Krugman, however, points to a different reason for his turn. He contends that technology and “globalization” are eliminating the middle-class jobs college-educated people used to take, thus “hollowing out” the middle class. As a result, he argues, we can’t rely on education for social mobility.

Exhibit A is Krugman’s discovery that technology is having an impact on the legal profession. Computers, he reports, are increasingly used in legal research, scanning cases and documents for possible relevance much faster than people can. He says that this shows how technology “is actually reducing the demand for highly educated workers.”

It’s perfectly true that technology is changing the legal profession. Decades ago, lawyers had to manually hunt for relevant cases and other documents, then read them. Beginning more than 20 years ago, that laborious work was made easier with the advent of computerized research engines that would almost instantly compile lists of cases. Now computers can apparently even do some of the preliminary analysis.

Krugman’s conclusion that this is reducing the demand for educated workers does not follow, however. Just because technology has made a part of lawyers’ work faster does not mean there will be fewer lawyers—any more than the technological improvements that have made writing and editing easier and faster than in the days of typewriters and erasers has reduced the number of writers and editors.

America already has a surplus of lawyers, but that isn’t because of technology. It is because government subsidizes students who want to go to law school, and some law schools practice deception with regard to the employment and earnings prospects for their graduates.

Technological improvements certainly can lead to the elimination of some jobs in the legal profession (and others), but they simultaneously open up new jobs for educated workers elsewhere.

Krugman’s other argument is that globalization is going to wipe out some middle-class jobs because it is now possible to offshore work formerly done by American workers. He gives no examples or evidence of the magnitude of this phenomenon, but let’s assume that he is correct. Do we need to worry and insist on government action?

No, we don’t. The number of middle-class jobs is not fixed, dictating that if some are done by robots or foreigners or computers, the number remaining must be lower. You might think an economics professor and international trade specialist with a Nobel Prize to his name would know that people have been wringing their hands over the supposed harms of free trade in goods and services for centuries, but despite the apocalyptic predictions, the dynamism of the economy always produces new jobs to replace those that are lost.

In sum there is very little support for Krugman’s claim that the middle class is being hollowed out, but that doesn’t keep him from leaping to the conclusion that we need more government intervention.

He first declares that labor needs more “bargaining power.” That’s vague language, but what Krugman undoubtedly means is that the government should enact pro-union legislation. Make that more pro-union legislation, since existing law (unchanged since 1959) is already highly pro-union. Bargaining power has not been taken from unions over the last 30 years. Rather, many old, unionized companies have had to face increasing competition. They have shed workers and some have gone out of existence. Simultaneously, many new firms have come into existence, and their workers have often shown so little interest in unionization that union organizers have given up.

Furthermore, can Krugman believe that unions automatically and costlessly raise worker earnings? They can’t. As economist W. H. Hutt showed in his book The Strike-Threat System, even if unions can temporarily exploit invested capital (as was the case in the auto industry), in the long run investors will put their money elsewhere.

Finally, Krugman writes that government must “guarantee the essentials, above all health care, to every citizen.” Even if it were true that technology and global competition were hollowing out the middle class, why should government assume this role? Back in the 1960s the federal government began a “War on Poverty” that entailed giving “the essentials” to the poor. Rather than conquering poverty, the policies exacerbated it, as recipients of government benefits reduced their own efforts at improving their circumstances and interest groups learned how to game the system. Krugman’s coercively shared prosperity ideas would give America more of that.

Instead of resorting to federal handouts and union threats to increase the middle class, I suggest we abolish the many governmental barriers to entrepreneurship and entry into occupations so that more Americans can succeed on their own.

Brooks does identify some real problems: for instance, that competition between the two major parties has become “fratricidal” and theatrical, and that it is creating massive budget deficits that, left unchecked, will prove catastrophic. But his diagnosis of the problem and his proposed solutions are fraught with fallacies.

He thinks that a revived patriotism will “lift people out of their partisan cliques,” yet the current partisan tribalism seems not to be lacking in patriotism. As is often the case, much hangs on how one understands the terms.

What makes a country great? One way to answer this involves claiming that there is something special about the ethnic makeup of the people who comprise it. For Mussolini there was something great, something special, about being Italian; his allies in Germany and Japan had similar theories about their respective nationalities. But that approach won’t quite work for America since it comprises people of many ethnicities.

Another way to understand national greatness is in terms of institutions and operating principles. But institutions and principles can change. What would make a country great on this model would be to have great institutions grounded in great principles. The Declaration of Independence is an example of this approach: Begin with a set of principles (moral equality of all persons, the natural right to live and be free, power only justified by consent) and then appeal to it when creating institutions (limited government of enumerated powers, republican structure with a democratic franchise, church-state separation, citizen militia, free trade). On this model America is great inasmuch as its institutions reflect its principles. A nation that claims to be dedicated to the principles outlined in the Declaration fails to be great when it invades foreign lands, abuses its citizens’ liberties, or forbids the free movement of people and goods.

Brooks’s exhortations reveal a lack of clarity about different senses of greatness, which comes out most clearly in his repeated use of false dichotomies. He asks, for example, “Do you really love your tax deduction more than America’s future greatness?” This alternative presupposes that it is only through higher taxes that a nation can become great. This in turn assumes that national greatness is only measured by things done by the government. What might these be? Scholarly, artistic, and technological greatness might well be better fostered by individuals having more money and freedom.

“Are you really unwilling,” he asks, “to sacrifice your Social Security cost-of-living adjustment at a time when soldiers and Marines are sacrificing their lives for their country in Afghanistan?” It’s not clear that solving other countries’ problems is how we measure our own greatness. In any event, this question also reveals a confusion: equating national greatness with government spending. Instead of asking whether Social Security payouts should rise with inflation, we might ask whether we would be better off as a nation of financially independent and responsible people who didn’t look to the political system for retirement income. Instead of wondering how high taxes have to be to fund overseas military campaigns, we might ask whether those campaigns need to be undertaken by the government (as opposed to either being undertaken by privateers or not at all). One way to measure American greatness might be the extent to which we exemplify peace and prosperity. The best way to achieve those ends would be to limit (or even better, eliminate) coercive interference with other people’s lives.

Lost Preeminence

Brooks laments a lost preeminence, but it isn’t clear what he means by that. He might be referring to a late-1940s preeminence, when America, having helped destroy the Nazis and their Japanese allies, led the way in rebuilding those nations and helping them become prosperous liberal democracies. But today’s “nation-building” looks very different. Unlike World War II, which actually ended, the current wars of nation-building seem perpetual, which suggests that a different course of action might have better results.

Or perhaps Brooks is referring to a time when American preeminence was measured in contrast to the privations of the old Soviet Union. In that case, let’s review the lessons of that contrast: Our former adversaries in the communist world were impoverished because tyranny doesn’t work as well as freedom. Besides the soul-crushing dehumanization of a system that doesn’t recognize fundamental liberties, the centrally planned socialist economic system turned out to be incapable of generating an abundance of goods and services. So if Brooks wants to see American preeminence regained, he might do better to promote liberalization of the world’s economic systems, which, again, is best done by example.

Brooks’s general rhetorical approach is to frame the debate between “liberals” and “conservatives” as a stubbornness game in which both sides must yield in order to bring about “a governing philosophy that believes in targeted federal efforts to arouse growth, social mobility and responsibility.” As it happens, the free-enterprise system does precisely these things, but most politicians can’t understand that this requires not action on their part, but inaction. They must stop interfering with people’s lives, not look for new ways to do it; protect liberty not abridge it. Brooks fallaciously conflates subsidies with tax reductions, but this implies that people are not the owners of their property. If the government takes money from Peter and gives it to Paul, that’s a subsidy to Paul. But if the government takes less money from Peter, that’s not a subsidy to Peter, since it’s Peter’s property to begin with. Brooks’s calls to end subsidies are correct, but the word doesn’t mean what he thinks it does.

In a way, then, Brooks is right: America has lost some of its greatness and needs to take steps to regain it.

But the problem isn’t people who want to bring the troops home or keep more of their money. Indeed, bringing the troops home would make it easier for people to keep more of their money. So would ending drug prohibition. So would allowing free trade and free human migration. National greatness, American-style, does not consist of the storied pomp of ancient lands, but rather of the opportunities illuminated by the lamp of liberty.

Free banking is better than central banking because only in a free market can the optimal prices and quantities of goods be determined. Those goods include the money supply, and prices include the rate of interest.

There is no scientific way to know in advance the right price of goods. With ever-changing populations, technology, and preferences, markets are turbulent, and fluctuating human desires and costs cannot be accurately predicted.

The quantity of money in the economy is like that of other goods. The optimal amount can only be discovered by the dynamics of supply and demand. The impact of money on prices depends not just on the amount of money but also on its velocity—that is, how fast the money turns over. The Fed cannot control this since it cannot control the amount people want to hold, or the demand. Also, even if the Fed could determine the best amount of money for today, the impact of its moves takes months to play out, so the central bankers would need to be able to accurately predict the state of the economy months into the future.

The Fed also fails because of political pressure. Although the Fed is supposed to be independent, in practice, when the economy is depressed, there is strong political pressure to “do something,” specifically to “stimulate” by expanding the money supply. Since Congress created the Fed and can alter it, it is impossible for the Fed to be purely independent of politics.

The Federal Reserve was set up to provide price stability, yet the United States suffered high inflation during the 1970s and continuous inflation since World War II. The Fed was also supposed to provide economic stability, but since World War II there have been severe recessions in 1973, 1980, 1990, and 2007–2009. The Fed was supposed to ensure stability in the financial system, but it failed to prevent the Crash of 2008 and the Great Recession that followed. But the challenge is to explain why free banking would be better.

Suppose gold once again became a global currency. It would be the real money, and the U.S. dollar would be defined as a particular weight of gold. A $20 gold coin had about an ounce of gold before 1933.

Under free banking most transactions would not occur with gold, but rather with more convenient money substitutes. Banks would issue paper bank notes inscribed with their bank names. Anyone holding bank notes could exchange them for gold. For example, if $1,000 was equivalent to an ounce of gold, then anyone could go to a bank and convert $1,000 in paper bills to one ounce of gold coins. Likewise one could withdraw $1,000 of deposits in gold coins.

Competition among banks, as well as convertibility into gold, would result in price stability, since the banks would only be able to issue as many bank notes as the public was willing to hold. If there were more bank notes than that, they would come back to the bank to be exchanged for gold. But the money supply would also be flexible, since if there were a greater demand to hold money, the amount of bank notes or bank deposits would increase.

The Structure of Capital Goods

Free banking mitigates the boom-bust cycle. There is a structure to capital goods similar to a stack of pancakes. At the bottom of the stack are rapidly circulating capital goods such as inventory close to the consumer-goods level. As we go up the stack, the capital goods turn over more slowly. At the top are long-duration investments such as real-estate development. Goods become more sensitive to interest rates as you move up the stack. Lower interest rates make the stack steeper, as there is more investment in long-term investments.

In a free market the “natural rate” of interest depends on the preference for goods sooner rather than later, or “time preference.” Interest is the premium paid to shift purchases from the future, for which one would have to save enough to pay cash, to the present day by borrowing.

The Fed lowers the rate of interest by creating fiat money out of nothing. As a result, businesspeople borrow more for capital goods high on the stack, such as real estate. Prices rise fastest and soonest where the money is being injected into the economy with loans. Thus real-estate prices escalate, creating a bubble like those that occurred before 1973, 1980, 1990, and 2007; indeed a similar bubble occurred during the 1920s before the Great Depression.

Every boom preceding a bust has been fueled by artificially cheap credit. With free banking the interest rate would not be manipulated down. The natural rate of interest would raise the carrying cost of borrowed funds, reducing if not preventing the financial fever.

Further Reforms

Free banking is not a panacea: There need to be other reforms to achieve sustainable economic growth. Punitive taxes, subsidies, and arbitrary restrictions all distort the economy, stifle enterprise, and create turbulence. But even without such other reforms, the case for replacing central banking with free banking is strong, resting on three facts:

1. The optimal money supply and interest rates are unknowable in advance, and can only be discovered by market dynamics.

2. Political pressure makes the Fed expand the money supply and reduce interest rates when the economy is depressed, and this fuels an unsustainable boom that results in the next bust.

3. Government insurance, guarantees, the expectation of bailouts, and other subsidies induce excessive risk-taking, making financial crashes worse.

Cowen states that if the Fed were to shut down, the new base money would be Treasury bills. (Base money currently consists of money in circulation, bank vault cash, and commercial bank reserves on account at the Fed.) But folks don’t buy groceries with Treasury bills. The best transition base money would be the current amount of Federal Reserve notes, whose supply would be frozen, as suggested by Professor George Selgin. Then new-money expansion would be the money substitutes issued by the banks, convertible into base money. Eventually, with the abolition of legal-tender laws, world financial markets would converge on a common global currency, gold.

The case for free banking is similar to the case for healthy living. It is better to prevent economic illness than to have to treat it.

One example of media complicity is a Thanksgiving Day column in which Debra Saunders called the enhanced pat-downs “freedom fondles.” Reason editor Matt Welch assembled two sets of links for the Hit & Run blog cataloguing favorable media statements about the new techniques. We have been advised by the Los Angeles Times to “shut up and be scanned.” The Santa Fe New Mexican tells us we should “stand, or bend over, on principle and suffer attendant indignities,” while the Rochester Post-Bulletin tells us to “grin and bear it.” The Louisville Courier-Journal asks, “At what point did Americans turn into a nation of crybabies?”

What’s particularly stunning is how often these defenses of TSA procedures came from the (so-called) liberal press, such as the New York Times or the Nation. Actress Whoopi Goldberg and her left-leaning colleagues on ABC’s The View agreed that those protesting the invasive techniques by slowing down the process at airports are equivalent to terrorists. It is striking how quickly the left adopts “America: love it or leave it” and forgets that dissent is the highest form of patriotism when their guys are in power. Would these people be bending over backward to excuse the TSA if a Republican were in the White House? We don’t think so.

Beyond the media treatments, the idea that we should trade off a little liberty to get more security presents a false choice. The TSA does not provide security. It provides what security experts like Bruce Schneier call “security theater.” As one of us (Carden) wrote recently, the TSA agent with his hand in your pants is not there for your safety. He is there to give you the illusion of safety. The TSA dog-and-pony show is just the government’s very expensive way of saying, “We’re doing something about this.”

If we were serious about security, we would do three things. First, we would eliminate the TSA. It makes flying less convenient and gives people an incentive to drive. Per passenger mile, driving is far more dangerous than flying. The evidence suggests that more people will die on the roads than would have died in terrorist attacks on planes because they are discouraged from flying by the TSA and its new, more invasive procedures.

Second, we should give the airlines responsibility for security. The discovery process of genuine market competition among airlines would determine the degree of security passengers are comfortable with, while also avoiding techniques they find invasive. What profit-seeking firm would want to alienate its customers by taking nearly nude photos or touching “their junk”?

It’s the airlines that stand to lose physical capital and reputation, so they have every reason to get it right. They will certainly be more responsive to fliers’ needs than a monopoly would.

This second point is the response to the claim that we are corporate shills looking to advance a privatization agenda. While there might be some cost savings from privatization, this might also do more harm than good since a “privatized” TSA would do a lot of the same invasive things, only the State would be able to shift blame to the private sector. As a monopoly, a “privatized” TSA would still lack the ability to respond to customers’ desired tradeoffs. What we need is not “privatization” but “de-monopolization.”

Finally, we would get serious about using decision markets for terrorism detection. This idea met with fierce resistance when first introduced—politicians and pundits said no one should “profit from terrorism.” These critics missed the point, though. As economist Robin Hanson has written, decision markets are a very high-efficiency way to obtain information, even when the payouts are small.

Hanson points out that a crucial failing of international intelligence gathering is that information is incomplete and/or flawed. Ironically (and tragically), the political outcry over the Policy Analysis Market (PAM; summarized on Hanson’s website) demonstrated precisely why such a market is necessary. In the face of incomplete and incorrect information and in the presence of important cognitive biases, sources of reliable and unbiased information are indispensable—especially when so many lives are on the line.

The PAM started as a Defense Advanced Research Projects Agency (DARPA) project to allow people to purchase very small contracts that would pay out in the event of a given combination of outcomes. The project drew fundamentally on the insights of F. A. Hayek and James Buchanan, who argued that the process of exchange itself reveals crucial information and generates order. In the early trials of the project, traders were asked to predict different combinations of events that might result from adopting a particular policy.

The Need for Information

As an aside, the furor over the Policy Analysis Market and the ratcheted-up procedures by the TSA are especially interesting in light of the controversy over WikiLeaks. Some have denounced WikiLeaks and its founder, Julian Assange, for endangering American lives, and we remain agnostic on this until the fury has settled. Even if WikiLeaks is morally culpable for endangering innocent people through its leaked documents, we would be willing to bet that those who were instrumental in canceling the PAM in 2003, thereby thwarting the open flow of information, are responsible for more casualties by several orders of magnitude. As a rule, more information is better than less.

Bruce Schneier and others argue that the best way to fight terrorism is to identify terrorists rather than scanning grandmothers or treating someone’s urostomy bag as if it were a possible explosive device. One of the best ways to do this would be to develop a terrorism prediction market like the one proposed by Hanson.

The TSA should be abolished and serious, competitive alternatives should be explored. As Carden argued on Forbes.com, “Full Frontal Nudity Will Not Make Us Safer: Abolish the TSA” (emphasis added). The problem with government-run airport security is that it eliminates the market’s search process that would otherwise allow people to discover the most effective and customer-friendly security methods.