Despite ample lip-service for “hope” and “change,” the Obama administration’s cynical response to the escalating drug prohibition-related violence around the Mexican border epitomizes Einstein’s oft-quoted observation.

Since 2008 more than 7,000 people—over 1,000 last January alone, including Mexican civilians, journalists, police, and public officials—have been killed in clashes with warring drug traffickers. Wire-service reports estimate that Mexico’s drug lords employ over 100,000 soldiers—approximately as many as the Mexican army—and that the cartels’ wealth, intimidation, and influence extend to the highest echelons of law enforcement and government. Where do the cartels get their unprecedented wealth and power? By trafficking in illicit drugs—primarily marijuana—over the border into the United States.

The U.S. Office of Drug Control Policy (more commonly known as the drug czar’s office) says more than 60 percent of the profits reaped by Mexican drug lords are derived from the exportation and sale of cannabis to the American market. To anyone who has studied the marijuana issue, this figure should come as no surprise. An estimated 100 million Americans age 12 or older—or about 43 percent of the country—admit to having tried pot, a higher percentage, according to the World Health Organization, than any other country on the planet. Twenty-five million Americans admit (on government surveys, no less) to smoking marijuana during the past year, and 15 million say that they indulge regularly. This high demand, combined with the drug’s artificially inflated black-market value (pot possession has been illegal under federal law since 1937), now makes cannabis America’s top cash crop.

In fact, according to a 2007 analysis by George Mason University professor Jon Gettman, the annual retail value of the U.S. marijuana market is some $113 billion.

How much of this goes directly to Mexican cartels is difficult to quantify, but no doubt the percentage is significant. Government officials estimate that approximately half the marijuana consumed in the United States originates from outside its borders, and they have identified Mexico as far and away America’s largest pot provider. Because Mexican-grown marijuana tends to fetch lower prices on the black market than domestically grown weed (a result attributed largely to lower production costs—the Mexican variety tends to be grown outdoors, while an increasing percentage of American-grown pot is produced hydroponically indoors), it remains consistently popular among U.S. consumers, particularly in a down economy. As a result, U.S. law officials now report that some Mexican cartels are moving to the United States to set up shop permanently. A Congressional Research Service report says low-level cartel members are now establishing clandestine growing operations inside the United States (thus eliminating the need to cross the border), as well as partnering with domestic gangs and other criminal enterprises. A March 23 New York Times story speculated that Mexican drug gangs or their affiliates are now active in some 230 U.S. cities, extending from Tucson, Arizona, to Anchorage, Alaska.

In short, America’s multibillion-dollar demand for pot is fueling the Mexican drug trade and much of the turf battles and carnage associated with it.

Same Old “Solutions”

So what are the administration’s plans to quell the cartels’ growing influence and surging violence? Troublingly, the White House appears intent on recycling the very strategies that gave rise to Mexico’s infamous drug lords in the first place.

In March the administration requested $700 million from Congress to “bolster existing efforts by Washington and Mexican President Felipe Calderón’s administration to fight violent trafficking in drugs . . . into the United States.” These efforts, as described by the Los Angeles Times, include: “vowing to send U.S. money, manpower, and technology to the southwestern border” and “reducing illegal flows (of drugs) in both directions across the border.” The administration also announced that it intends to clamp down on the U.S. demand for illicit drugs by increasing funding for drug treatment and drug courts.

There are three primary problems with this strategy.

First, marijuana production is a lucrative business that attracts criminal entrepreneurs precisely because it is a black-market (and highly sought after) commodity. As long as pot remains federally prohibited its retail price to the consumer will remain artificially high, and its production and distribution will attract criminal enterprises willing to turn to violence (rather than the judicial system) to maintain their slice of the multi-billion-dollar pie.

Second, the United States is already spending more money on illicit-drug law enforcement, drug treatment, and drug courts than at any time in our history. FBI data show that domestic marijuana arrests have increased from under 300,000 annually in 1991 to over 800,000 today. Police seizures of marijuana have also risen dramatically in recent years, as has the amount of taxpayer dollars federal officials have spent on so-called “educational efforts” to discourage the drug’s use. (For example, since the late 1990s Congress has appropriated well over a billion dollars in anti-pot public service announcements alone.) Yet despite these combined efforts to discourage demand, Americans use more pot than anyone else in the world.

Third, law enforcement’s recent attempts to crack down on the cartels’ marijuana distribution rings, particularly new efforts launched by the Calderón administration in Mexico, are driving the unprecedented wave in Mexican violence—not abating it. The New York Times states: “A crackdown begun more than two years ago by President Felipe Calderón, coupled with feuds over turf and control of the organizations, has set off an unprecedented wave of killings in Mexico. . . . Many of the victims were tortured. Beheadings have become common.” Because of this escalating violence, Mexico now ranks behind only Pakistan and Iran as the administration’s top international security concern.

Despite the rising death toll, drug war hawks at the U.S. Drug Enforcement Administration (DEA) remain adamant that the United States’ and Mexico’s “supply side” strategies are in fact successful. “Our view is that the violence we have been seeing is a signpost of the success our very courageous Mexican counterparts are having,” acting DEA administrator Michele Lionhart said recently. “The cartels are acting out like caged animals, because they are caged animals.” President Obama also appears to share this view. After visiting with the Calderón government in April, he told CNN he intended to “beef up” security on the border. When asked whether the administration would consider alternative strategies, such as potentially liberalizing pot’s criminal classification, Homeland Security Secretary Janet Napolitano replied that such an option “is not on the table.”

A New Remedy

By contrast the Calderón administration appears open to the idea of legalizing marijuana—or at least reducing criminal sanctions on the possession of small quantities of drugs—as a way to stem the tide of violence. Last spring Mexican lawmakers made the possession of personal-use quantities of cannabis and other illicit substances a noncriminal offense. And in April Mexico’s ambassador to the United States, Arturo Sarukhan, told CBS’s Face the Nation that legalizing the marijuana trade was a legitimate option for both the Mexican and U.S. governments. “[T]hose who would suggest that some of these measures [legalization] be looked at understand the dynamics of the drug trade,” Sarukhan said.

Former Mexican President Vicente Fox recently echoed Sarukhan’s remarks, as did a commission of former Latin American presidents. “I believe it’s time to open the debate over legalizing drugs,” Fox told CNN in May. “It can’t be that the only way [to try to control illicit drug use] is for the state to use force.”

Writing recently on CNN.com, Harvard economist and Freeman contributor Jeffrey Miron said that ending drug prohibition—on both sides of the border—is the only realistic and viable way to put a permanent stop to the rising power and violence associated with Mexico’s drug traffickers. “Prohibition creates violence because it drives the drug market underground,” he wrote. “This means buyers and sellers cannot resolve their disputes with lawsuits, arbitration or advertising, so they resort to violence instead. . . . The only way to reduce violence, therefore, is to legalize drugs.”

Growing Support

Americans’ support for legalizing the regulated production and sale of cannabis—an option that would not likely rid the world of cartels, but would arguably reduce their primary source of income—is at all an all-time high. In May a national Zogby telephone poll of 3,937 voters by the Republican-leaning O’Leary Report discovered, for the first time ever, that a slight majority (52 percent) of Americans “favor the legalization of marijuana.” A separate Zogby poll reported even stronger support (58 percent) among west-coast voters.

Predictably, critics of marijuana legalization claim that such a strategy would do little to undermine drug traffickers’ profit margins because cartels would simply supplement their revenues by selling greater quantities of other illicit drugs. Although this scenario sounds plausible in theory, it appears to be far less likely in practice.

As noted, Mexican drug lords derive an estimated 60 to 70 percent of their illicit income from pot sales. (By comparison, only about 28 percent of their profits are derived from the distribution of cocaine, and less than 1 percent comes from trafficking methamphetamine.) It is unrealistic to think that cartels could feasibly replace this void by stepping up their sales of cocaine, methamphetamine or heroin—all of which remain far less popular among U.S. drug consumers anyway. Just how much less? U.S. Department of Health and Human Services survey data show that roughly two million Americans use cocaine, compared to 15 million for pot. Fewer than 600,000 use methamphetamine, and fewer than 155,000 use heroin. In short, this is hardly the sort of demand that would keep Mexico’s drug barons in the lucrative lifestyle to which they’ve become accustomed.

Of course, it’s unrealistic to think that pot legalization would wipe out prohibition-inspired violence altogether. After all, ending alcohol prohibition in America didn’t single-handedly put the Mafia out of business (though it greatly reduced its power and influence). And it’s always possible that Mexico’s drug cartels would continue to engage in violent acts toward one another as competing factions fought over the crumbs of America’s drastically shrunken illicit-drug market.

That said, it’s equally unrealistic, if not more so, to think that continuing our same failed drug war policies will do anything but exponentially increase the catastrophe they’ve spawned, both in Mexico and at home. It’s time to engage in a different strategy. It’s time to seriously consider legalizing marijuana and other drugs.

Does anyone still think the “war on drugs” is a good idea?

That may strike some people as an odd question under the circumstances, so let’s take it from another direction. Have you seen the news stories about the violence on the border being perpetrated by the Mexican whiskey and cigarette cartels?

No? That’s probably because there was no such violence and are no such cartels.

So why are there violent cartels in marijuana, cocaine, and heroin but not in whiskey and cigarettes?

All together now: prohibition.

“Our” Fault?

Of course the politicians blame everything and everyone but themselves for this spreading violence. “Our insatiable demand for illegal drugs fuels the drug trade,” Secretary of State Hillary Clinton said. “Our demand”? Including hers? “Our inability to prevent weapons from being illegally smuggled across the border to arm these criminals causes the deaths of police officers, soldiers and civilians.” Her answer, in addition to sending the Mexican government taxpayer money, is to go after consumers of drugs and manufacturers and dealers of guns she doesn’t like.

Drug users and gun dealers are to blame for drug-cartel violence? That makes no sense. If it did, then drinkers and smokers would be creating violence, too. What’s missing?

Once again in unison: prohibition. Who brought us prohibition? Politicians. Every politician, bureaucrat, and agent who facilitates or enforces prohibition is an accomplice in the violence because he or she helps to create the conditions in which thugs have a comparative advantage in dealing drugs.

For years advocates of free trade in drugs—that is, basic rights to life, liberty, and property for drug consumers, producers, and merchants—have pointed out that prohibition, besides being an immoral invasion of liberty by the state, sets in motion a variety of concrete evils that harm innocent people. (No one has been more consistent and rigorous in this than Thomas Szasz). These evils include the corruption of law enforcement, violent crime, and the expansion of intrusive government. Besides these domestic evils, the U.S. government has alienated farmers in foreign lands by helping to destroy their crops and livelihoods. If that’s not terrorism, nothing is. Crop destruction has been a recruiting tool for guerilla organizations, while black-market profits finance them and others with malign intent.

Few listened to these Cassandras against the anti-drug crusade. Maybe people will listen now.

Government Impotence

While violent gangs that make their money selling drugs in the black market are murdering and kidnapping people, invading homes, and committing other atrocities, the politicians have nothing to say but the same bromides they’ve been repeating for years. Thinking we’re either simpletons or amnesiacs, they expect us to be comforted by their words. (Will they be right?) They promise to defeat the cartels, crack down on drug use, and disrupt the gun trade. It won’t work. It’s never worked. It can’t work. Black-market operators are always steps ahead of the plodding bureaucrats. Break up one gang and another emerges. The drugs keep flowing (there’s plenty of bribe money), and consumers will have what they want when they want it. The profits made possible by the black market are powerful incentives to keep the industry going. Government is impotent. (They can’t even keep drugs out of prisons!)

Yet the gangs could be put out of business overnight. How? By removing the criminal penalties for the production, trade, and consumption of all drugs; by bringing the black market into the open, so disagreements can be resolved through civil channels and a talent for violence is no longer an advantage; by dissolving the extraordinary profits that illegal industries always reap.

Yes, it is that easy.

People will recoil. We can’t do that! No? Then accept as normal the unspeakable violence that is starting to spread from city to city, because that is the alternative to the stubborn refusal to end the “war on drugs,” which is really a war on people. Even full police-state tactics will not be able to control it, though that won’t stop demagogic politicians from giving them a try.

The Drug War Finances Government Careers

I don’t expect the multitude of officials who depend on the drug war for their livelihoods and power to endorse an end to prohibition. They have shown themselves more than willing to accept the violence (against others) as the price of their ambition. The new threat to us is an opportunity for them to amass more power, bigger budgets, and higher salaries.

But the rest of us have no reason to support the complex of government and “private” tax-financed agencies that grow fat prosecuting this war. The worn-out rationalizations can’t stand examination. Prohibition keeps no one from getting any drug he wants at an affordable price. On the contrary, it encourages the creation of cheaper, more potent drugs, just as alcohol prohibition replaced wine and beer with hard liquor. (More bang in a more compact form.) Prohibition doesn’t keep our children safe. It makes drugs into enticing forbidden fruits and pushes the trade into less-visible channels. Drugs aren’t “dangerous,” though people are capable of doing harmful things with them—and many other things. (Jacob Sullum’s Saying Yes is an eye-opening book that I highly recommend.) Addiction is not a disease; it’s a choice.

Everything the drug warriors have said is wrong—and often a conscious lie.

Drugs are to our society what Eurasia and East Asia were to Oceania in Orwell’s 1984: a convenient conjured-up demon to justify expansion of power and the usurping of liberty—in the name of keeping us safe.

What will it take, if not the current violence from Mexico, to make people see through the scam?

Look around. It’s our self-proclaimed protectors from whom need we protection most.

We can assume it fell short since the federal government is ever incompetent and has been tight-lipped about how many miles it has completed.

More people cross this international boundary each year than any other in the world—250 million with government permission, a fraction of that without. (Estimates range from 400,000 to a million.) Patches of the border, particularly urban ones, have been fenced and policed for decades. But this dotted line inconvenienced rather than stopped folks who neglected to secure a bureaucrat’s consent for their trip: Travelers trying to exercise their inalienable right to free movement simply went around the barriers. The feds never like being outfoxed, so they extended the fencing beyond populated areas. This drove migrants into increasingly remote and hostile terrain. There they not only had to survive encounters with America’s Border Patrol but also dehydration and other dangers in the desert. No More Deaths, a group that caches food and water along routes migrants are likely to take, estimates that at least 238 travelers perished in Arizona alone in 2006, with more than 4,000 “men, women, and children [losing] their lives in the deserts of the US-Mexico borderlands” from 1998 to the present.

Walling off Rights

You might think that would be tragedy enough for anyone. But as former President George W. Bush said when he signed the SFA, “We have a responsibility to enforce our laws. We have a responsibility to secure our borders. We take this responsibility seriously.” Apparently far more seriously than we do corpses or constitutional limits on government. And so the Act “authorize[d] the Department of Homeland Security to increase the use of advanced technology, like cameras and satellites and unmanned aerial vehicles to reinforce our infrastructure at the border.”

Authorizing DHS to grab more power is about as necessary as authorizing sparks to fly upward. Nevertheless, Congress exempted DHS from all federal laws as part of its 2005 REAL ID legislation. All it has to do is claim that a law impedes progress on the wall. Section 102 (c)1 of the REAL ID Act says, “Notwithstanding any other provision of law, the Secretary of Homeland Security shall have the authority to waive, and shall waive, all laws such Secretary, in such Secretary’s sole discretion, determines necessary to ensure expeditious construction of the barriers and roads under this section.”

This immunity extends all the way to judicial review: Judges can’t “order compensatory, declaratory, injunctive, equitable, or any other relief for damage alleged to arise from any such action or decision,” according to Section 102 (c) 2B. So far the unrelieved victims have been mostly Americans whose property the agency has seized or destroyed. Surely even those most opposed to immigration would agree that stopping it does not excuse such tyranny and injustice against citizens.

Environmental Destruction

Among the many regulations DHS is ignoring are environmental ones. But Mother Nature isn’t as easily overridden. There are consequences for flouting the laws of physics, for example. And DHS’s insouciance towards things like gravity and water has already hurt the government’s own property.

On July 12, 2008, a heavy rain near Ajo, Arizona, clogged drains in completed sections of the fence, damming the downpour and flooding Organ Pipe Cactus National Monument, the only area in the United States where the plant grows wild. Park superintendent Lee Baiza told the Associated Press, “[We] had suggested that [DHS] take into consideration everything that can happen with a weather event. . . . We had a concern that this was going to happen.” And this storm wasn’t even a hurricane such as frequently roars through the Gulf and neighboring Texas.

The Rio Grande River separates Texas from Mexico for 1,254 miles before heading north. It waters a huge variety of wildlife, and that abundance draws conservancies to the area. Some are private, such as the Sabal Palm Audubon Center in Brownsville, Texas. Others are government-held lands that the U.S. Fish and Wildlife or National Parks Service manage. Over the decades, these organizations have cooperated with one another and the Mexican government to form a “wildlife corridor” so animals can range freely even if people can’t. The corridor also acts as a sanctuary for rare or endangered species. But DHS seems as hostile to animal life as it does to human life. It is hacking through this territory with a wide corridor of walls running parallel to one another, asphalt roads between, and hundreds of yards of cleared land to the north and south.

Barriers for stopping bipeds stop quadrupeds, too. This imperils animals that wander widely to feed or mate. Audubon Magazine points out that the inbreeding the wall compels will weaken if not exterminate America’s last colony of ocelots. This cat once roamed the Rio Grande and southern Arizona but now counts fewer than 100 members on the Texas side of the border.

A biologist at the University of New Mexico worries about other predators as well. Dr. Joe Cook told the Inter Press Service, “There is no quetion that jaguars . . . in the U.S. and northern Mexico would be significantly affected by the wall. . . . The only hope to preserve large carnivores in the wild is to have large areas of continuous, unfragmented habitat.”

The Mississippi and Central migratory flyways meet at the Rio Grande. Birds that once rested there during thousand-mile journeys will now contend with barren, paved land instead of trees, bushes, nuts, and seeds. Floodlights that turn desert night into day to discover migrants are already disorienting not only birds but bats and butterflies as well.

Financial Destruction

Matching the wall’s environmental disasters are its financial ones. In January 2007 the Congressional Research Service figured that 700 miles would cost about $49 billion, including maintenance. But as usual with the state’s estimates, this one probably isn’t worth the paper it’s printed on, especially if the rest of the barrier is anything like the 14 miles that wind inward from the California coast at San Diego. The first fence there—ten-foot-tall walls of welded steel—went up in 1993. Next came a “secondary” wall, this one 14 feet high, about 103 feet to the north. A chain-link fence runs parallel to that, with “stadium lighting” throwing every ugly detail into sharp relief. This monstrosity was supposed to cost $1 million per mile, but that skyrocketed to $3.8 million. And construction isn’t yet finished, in part because the California Coastal Commission frets about erosion. The bit that remains unfenced meanders through more challenging terrain, with construction estimated to reach $10 million per mile. If the price for the other 700 miles escalates proportionally, we are looking at an outlay of anywhere from $200 to $490 billion.

There are other, more hidden expenses. For example, the Fish & Wildlife Service has spent $100 million of our money over the last three decades to buy and replant land near the Rio Grande. The wall will ruin that investment. It will also end “eco-tourism” and the $125 million that 200,000 visitors annually spend in the hopes of glimpsing an ocelot or a Muscovy duck.

Naturally, while most Americans pay for the fence, a select few profit. DHS hired Boeing to implement its Secure Border Initiative (SBI) in September 2006. The company will install 1,800 towers as a “virtual fence” on our northern and southern borders within three years to “detect and track intruders through the use of cameras, sensors and motion detectors,” as Federal Computer Week puts it—all for only $2.5 billion. Needless to say, Boeing and DHS trumpeted their lucrative deal as a revolutionary, unprecedented, sure-fire solution for the “border problem” the feds have created. But the Washington Post took a more jaundiced view, citing the government’s “series of failures [in] control[ling] U.S. borders.” So did agents on the ground. Rich Pierce, executive vice president of the Border Patrol’s union, told Federal Computer News, “[SBI]—it’s been tried and it’s failed. . . . They’re not going to try anything new. . . . The people in the field know it’s not going to work.”

So did the legislators voting the funds. Rep. Harold Rogers was chairman of the Homeland Security Subcommittee from 2003 until January. According to the June 26, 2006 issue of Government Computer News, he “noted that spending on border security since 1995 has ‘quadrupled from $5.1 billion to over $17.9 billion,’ and the number of agents has jumped from 5,000 to 12,319. ‘However, during this same period, the number of illegal immigrants has jumped from 5 million to an estimated 12 million,’ Rogers said. ‘The policy of more money and no results is no longer in effect. We will not fund programs with false expectations.’” That would explain his subcommittee’s handing $39.9 billion to DHS in FY2009 with Rogers’s “support,” as he proclaimed on his website, despite the agency’s reputation even among the feds as one of their most wasteful and dysfunctional bureaucracies.

Sending Property Owners to Limbo . . .

Knowing that the fence won’t stop immigration, that it merely allows politicians to look as though they’re fixing an issue they’ve ginned up into a crisis, must particularly gall the property owners losing homes and businesses. Most of those victims live in Texas since the feds already own much of the land along the other states’ borders.

The barriers have always been more of a sieve than a fence since they proceed in fits and starts with long gaps between. The new miles of fence will not be much different, according to the Border Patrol: Tom Rudd, the Patrol’s chief in Brownsville, Texas, is “expecting a total of nine miles of fence segments,” according to PBS. “The segments, Rudd says, will act like funnels, pushing migrants into areas where his agents will be waiting to capture them.”

Those funnels bisect plenty of private property, including homes, farms, businesses, and nature preserves, as well as national parks and even towns. Stunningly, they don’t line the actual border. Some of the wall lies as much as two miles north of it. Landowners whose properties fall within that region face a bizarre limbo, severed from the rest of the country—and from the services their taxes supposedly buy them. Audubon Magazine quotes the Society’s executive director in Texas, Anne Brown, on the fate of its Sabal Palm Center: “From what we’ve heard, we’ll have to close. We can’t figure a way to keep it open, because we’ll be cut off from the rest of the United States. Will we be insured? Will we receive city services? We can’t let Ernie [the caretaker] live here anymore.” The magazine adds, “The sanctuary and its unique plants and wildlife will be taken from the American people, and what survives will be, for all intents and purposes, ceded to Mexico.”

Ordinary owners in Limbo Land also face extraordinary challenges. Pamela Taylor is an elderly émigré from England who married an American soldier 50 years ago, then moved to Brownsville with him. If anyone should welcome the protection the wall allegedly provides, it would be Mrs. Taylor. She once arrived home to find a migrant hiding from the Border Patrol in her living room. But she fears DHS and its fence far more than she does people looking for jobs and better lives. “They said the fence was gonna go right across the street,” she told PBS. “And . . . my son-in-law asked, ‘Well, do you mind, how are we going to get out?’ And the fellow from the Corps of Engineers said, ‘Well, you know, we hadn’t really thought about that. I guess you’re gonna have to follow the border patrol out.’” Obviously, that enormously complicates even the simple errand of buying groceries. And it could be fatal should Mrs. Taylor need a doctor.

PBS asked the Border Patrol’s Rudd about ingress and egress for the Americans caught in this quandary. Rudd said there will be “gates” and that “we’re still lookin’ right now—at different—locking mechanisms of what’s gonna work best in certain areas. . . . [O]ne approach that I’m lookin’ at . . . is—a push-key type, you know, the—the number system, a push pad . . . enforced with a camera—so we can make sure that that number or that combination—doesn’t get compromised . . . basically work with the owner to find out who’s gonna be in that area, what kinda vehicle they’d be driving.” The government hasn’t touched Mrs. Taylor’s property and so isn’t offering even eminent domain’s pittance, but it robs her nonetheless. Her land will be worthless. What buyer wants a hassle every time he needs a quart of milk?

DHS plans to swipe some properties lying directly in the fence’s path in their entirety, particularly when the parcel is small because the owner is poor. Other times, the fence threatens only a portion of the property—but it might as well take the whole piece because once again it’s destroying the land’s value. Leonard and Debbie Loop and their children own a 1,000-acre farm in Brownsville. But the wall will exile 800 acres to Limbo Land.

. . . Unless They’re Rich or Connected

Given that the wall doesn’t follow the border, as well as its frequent stops and starts, its placement is arbitrary at best. Many victims have noticed that while DHS expects them to sacrifice their interests, it is skirting property belonging to wealthy, politically connected neighbors. One victim, Eloisa Tamez, is a 72-year-old woman who still lives on some of the 12,000 acres her ancestors received in a Spanish land grant. She’s been down this road before. The feds stole more than half her holdings in the 1930s to build levees, and they didn’t pay a dime for any of it. The Texas Observer reports that now they want more. But the wall gobbling Ms. Tamez’s home stops short two miles down the road. That just happens to be the edge of Sharyland Plantation, 6,000 acres that billionaire Ray L. Hunt is developing into a luxurious, gated community of million-dollar homes. Hunt, of course, is not only George W. Bush’s buddy but his benefactor, too, since he’s kicking in $35 million toward the presidential library. The wall resumes on the other side of Sharyland.

Under former secretary Michael Chertoff, DHS refused to answer questions from folks like Ms. Tamez. But silence has long been one of the agency’s favorite tactics. It almost always withholds information on the grounds that telling the citizens who pay its bills what it’s doing with their money would jeopardize national security. It will neither confirm nor deny who’s on its notorious Terrorist Watch List, for instance, not even to the victims themselves. And so it goes with the wall. DHS refuses to verify its plans or discuss its rationale for the wall’s route. That leaves many owners grappling with rumors and stomach-churning uncertainty. Others are fairly sure DHS will steal their holdings because it has already ordered them to sign waivers allowing surveyors to measure their property. Those who refuse find themselves facing condemnation of their land.

Chertoff tried to cast cooperating with the agency’s theft as a patriotic duty. Despite abundant evidence to the contrary, he announced in February 2008, “I respect private property. But you cannot make border security and national security an individual choice for each individual landowner. . . . [W]hen people are smuggling drugs and human beings across the border, for an individual landowner to say, ‘I don’t care. I want to make sure that my view of the river is unobstructed,’ is not an acceptable answer.”

Dictatorical and Dishonest

That’s not only arrogant and dictatorial, it’s also profoundly dishonest. Protestors do not mourn vanishing vistas. They are instead defending their homes and businesses, some of which have been handed down through their families for generations. Meanwhile, the U.S. government’s unconstitutional jihads against those drugs and people it doesn’t like forces folks who want to transport either to smuggle them. Politicians have tried to control people’s movements and have failed at this immoral task; nevertheless, they expect the rest of us to cooperate with their new, desperate, criminal measures. Why?

Unfortunately, Leviathan has convinced most Americans that its campaign against “illegal” drugs justifies any and all abuses. So now it excuses its militarization of the Mexican border because of the marijuana crossing it. The feds take the same tack with “illegal” immigration. But they also spin things a bit differently to hide their heartlessness. They bewail the “smuggling of human beings,” conflating immigration with—incredibly enough—slavery.

In a speech on September 9, 2008, at the “Stop Human Trafficking Symposium,” conveniently sponsored by Customs and Border Patrol, Chertoff announced that “the line between so-called voluntary migration and human trafficking is not a very bold line. It is often the case that people who begin the movement across the border in a voluntary way . . . quickly turn into victims when they are held for ransom, or when they are required to work off the cost of the smuggling by paying off the vast majority of their wages to the smuggling organizations.” That may be exploitative, but it isn’t slavery since slaves seldom receive wages and so can’t “work off” any “cost.” And Chertoff ignores the fact that the government’s criminalization of migration gives those few entrepreneurs who do victimize their clients the chokehold they need: A “restaurant owner” who allegedly “trafficked hundreds of adults and children into the United States . . . threatened to turn them in to the authorities as illegal aliens if they tried to escape,” according to the Columbia (Missouri) Daily Tribune.

DHS portrays as vicious criminals guides who conduct people through hostile terrain and help them avoid the Border Patrol. The agency then presents its own ferocious attacks on immigrants, its armed patrols and cameras, its dogs, handcuffs, and holding pens, its hunts through the desert in air-conditioned ATVs for exhausted, fleeing families, as “rescuing” them from “human traffickers.” Odd, isn’t it, that migrants pay these “traffickers” to chaperone them across the border but try to fend off their “rescuers” by throwing rocks. They seldom succeed. Rather, they play right into the government’s hands: it charges them with the “crime” of self-defense, AKA, “assaulting a federal officer.” This inflates the number of “felons” crossing the border so that the feds “save” us from an even bigger menace.

An Unconstitutional Line in the Sand

Whether they’re between states or countries, borders soon cease to be noticed by most people living along them. They marry one another, establish businesses, visit, laugh, cry, agree, disagree, and dream together. So it is along the U.S.-Mexican boundary. The wall will sunder these families and friends as mercilessly as Berlin’s barricade did Germans.

The Founding Fathers understood government’s essence, its cruelty and callousness, far better than do modern Americans. That’s why their Constitution never empowers politicians to regulate anyone’s movement into or out of the country (except for slaves, fittingly enough: What else are we when we beg a bureaucrat, “Please, may I enter?”). Article 1, Section 9 bars Congress from “prohibit[ing]” the “Migration or Importation” of “such Persons as any of the States now existing shall think proper to admit” until 1808. If we dismiss the doctrine of enumerated powers, this implies that Congress may prohibit all the migrating and importing it likes thereafter. And if we also dismiss the literary and historical context that limits Article 1, Section 9 to slaves, it appears the feds may indeed control anyone’s immigration after 1808—but only in those states existing at the Constitution’s adoption. None of those border Mexico, and mighty few do Canada. DHS needs to relocate its wall down the Atlantic coast.

Nor does the Constitution deputize the central government to “protect” the country’s borders, much less build walls “funneling” migrants through deadly desert where cops lurk to kidnap them. Immigration ought never to have been federalized in the first place; government had no business arrogating an “interest” in it during the 1870s, then tightening its vise each decade since. Immigration is an issue of property rights—not the DHS’s infernal abrogation of them, but a decision by the folks Michael Chertoff so despises, “each individual landowner,” as to whether migrants may cross his property.

Despite its utter lack of constitutional authority, DHS will probably continue militarizing our borders. Its current secretary, Janet Napolitano, opposed a physical wall when she was governor of Arizona. As she told AP, “You show me a 50-foot wall and I’ll show you a 51-foot ladder at the border.” Heavily implied is her support for more border agents as well as more high-tech surveillance. Napolitano is as implacable an enemy of freedom of movement as her predecessor Chertoff was, even if her methods differ.

Meanwhile, America has another border to the north, which Boeing’s contract covers as well. Landowners there should be very worried, given the abuses their southern brothers have suffered.

Indeed, all of us should worry, if not panic, when we remember that the walls keeping others out also keep us in.

Despite this track record, despite the mildness of the three recessions in the last 25 years, you might think from reading the papers and listening to people talk that the economy was balanced on a knife edge, ready to fall any minute into an abyss of failure.

There is always a massive threat to our economic security. Not something mildly troubling. Not something that is merely annoying. No, there’s always an enormous threat to our very wellbeing, a force that threatens to overturn decades of progress and plunge us back into the economic stone age. To hear the worriers talk, you’d think we’re at risk of returning to the Middle Ages, or to pre-New Deal America circa 1929, a world of abject poverty and mass unemployment.

There are two types of threats that show up in the media. The first is the foreign threat. In the last 25 years one nation after another has been identified as threatening our standard of living and economic system.

First it was Japan. It was stealing all our automobile jobs, maybe all the other good-paying jobs too. Then Japan went into a nosedive of recession followed by stagnation. When it became clear that Japan wasn’t getting up off the canvas, it had to be replaced by a different foreign villain.

With NAFTA up for consideration in the early nineties, the choice was easy. Canada. Oops. Canadians don’t scare people. So when NAFTA was in the news, the Canadians wouldn’t do. Had to be the Mexicans.

We were told that the Mexicans, because they had lower wages than Americans, would suck jobs south like a magnet draws iron filings. Soon, all manufacturing jobs would be gone and we would be left doing one another’s laundry.

NAFTA passed and nothing happened. The threat of Mexico was completely forgotten and placed in the Hall of Shameful Economic Ignorance next to the Japanese threat.

Next up: China! The Chinese are really scary. America runs big trade deficits with China. Just like Japan. People forgot that those big trade deficits with Japan hadn’t hurt America at all and that Japan’s economy was floundering. China with its billion people was going to steal our jobs and turn the American economy into a giant laundry or cosmetic counter or fast-food restaurant. China was definitely a threat.

In the middle of the Chinese worry, a new one joined it, creating a two-headed monster. First, the Chinese were destroying all the manufacturing jobs. But the new threat was outsourcing. Outsourcing was going to destroy every job that paid more than a pittance. The economists naively argued that trade creates wealth and that the manufacturing jobs would be replaced by new jobs in sectors where we were even better than manufacturing. Well, now look what was happening, according to the worriers. The high-tech, knowledge jobs that were supposed to be the last refuge for American workers as manufacturing disappeared were being stolen by Indians.

What a combination! China and India. Almost two billion people. Never mind that a lot of the jobs the Indians were “stealing” weren’t high-tech at all. They were call-center jobs. But even the call-center jobs were part of the service sector, part of what we were supposed to be good at once we gave away all our manufacturing jobs. India and China could steal our meager 130 million jobs in a few months.

The outsourcing hubbub reached its peak in the election of 2004. Once the election was over and the economy kept growing, the issue fell out of news. The tech sector, it turned out, was doing just fine. Tech-sector jobs were actually growing American web designers and network installers and database whizzes still made more than their Indian counterparts, but somehow, not all the American jobs went to India. The whole thing turned out to be a molehill rather than a mountain.

When Americans stop worrying about foreign threats, they turn inward and worry about domestic ones.

The usual worry is that a very successful American company is ruining the economy. For a while, it was Microsoft. (Actually it used to be IBM,but that goes back 30 years.) Then when Microsoft got fat and happy and looked less dangerous as the Internet vied with the desktop for computing power, Google started to scare everybody. Google is running everything! It’s got the search engine most people use. Soon it’s going to own all the books, and the next thing you know, it’ll have all the e-mail, and so on and so on. For a brief moment, AOL-Time Warner was going to rule the world and control all the news and soon we’d all be captive to one megacorporation controlling what we read and saw and knew. But the AOL-Time Warner scare just didn’t have the legs.

The Wal-Mart Threat

People are still worried about Google. But the new threat is Wal-Mart. It’s pulling down wages all across America. How is it that by creating a demand for low-skilled workers Wal-Mart is lowering wages? Never could figure that one out. People forget that when low-skilled workers worked at mom and pop general stores on Main Street, we had low wages and high prices. Now we have low wages and low prices. I know which is better for America and its poor.

To hear the worriers tell it, soon we’ll all be working at Wal-Mart making lousy wages with no benefits, selling low-priced foreign goods to one another.

It’s always something. Something to scare people who do not understand how trade really works, how markets work, or how wealth gets created and spread. You’d think that the abysmal track record of the worriers would dent their credibility. But it doesn’t seem to.

People are just as worried about Wal-Mart as they were about Japan. As my colleague Don Boudreaux likes to point out, economists will always have work to do explaining how the economy really works.

Today should be a day of celebration for students, book lovers, and all who are interested in reflecting on the economic development of Mexico. Mexico’s Economic Problems by Ludwig von Mises, which Bettina Greaves found in 1997 among Mises’s papers, is truly a treasure.^[1] Although there are obvious differences, it calls to mind musicologist Alberto Gentili’s rediscovery in the 1920s of the complete works of Antonio Vivaldi, more than 200 years after the composer’s death. We economic historians are more fortunate than musicians and music lovers were, since Mises’s text has reappeared only 25 years after his death.

The monograph by Mises on the Mexican economy is outstanding in many respects. One particularly important aspect is that it is relevant to more than just the economic situation he found when he visited in 1942. Mises was concerned with the long-run historical context; or as one says nowadays, he focused on fundamental structural change. He was interested in uncovering the fallacies on which the principal positions and policies of Mexico’s former socialist regime, as well as all socialist regimes, were based.

One of the principal points in Mises’s essay was his vote of confidence for Mexico because of the capabilities of its people and the progress of the country. As he put it: “It is beyond doubt that the Mexicans are endowed with the spirit of workmanship. The achievements of the autochthonous [indigenous] craftsmen and artisans meet with the admiration of all experts. The workers in the already existing industrial plants and in the mines are not less efficient than those of other countries.” And the same may be said with respect to their entrepreneurial and other skills.

Thus the problem of Mexico’s development was not capital scarcity, geography (which Mises judged favorably), climate, or geology, even though the soil “in the greater part of the country is dry and barren.” Development depends on the application of “an appropriate economic policy”; that is, a “wise” economic policy aimed at the “establishment of a durable system resulting in a continuous improvement of the nation’s well-being.”

Unfortunately, this was not the case in Mexico when Mises wrote this paper. Nor has it been the case since, especially not from 1970 to 1982, even if one considers the several forms such a “wise” policy may take.

Attack on Easy Money

Only five or six years after the publication of Keynes’s General Theory, Mises took a well-aimed shot at the economic policies that stemmed from the noted English author’s ideas. According to Mises, the “easy money” policies of the interwar years, policies that tended to generate inflation, had been based on the doctrines of Lord Keynes, doctrines that Mises called “fallacious.” To Mises, the Keynesian dictum that “in the long run we are all dead” was no more than a new version of the cruel-hearted motto attributed to Madame de Pompadour, “After us, the deluge.” Thus, every strategy that “is indifferent about the tomorrow strives after ephemeral success and carelessly sacrifices the future.” Such strategies must not be considered “progressive, but parasitic.” Growth may be sustained only by having fundamental policies favorable to the stability of money and exchange.

Mises said in this study, not without cause, that the monetary history of Mexico, like that of many other countries, has been “a record of failures and disasters.” He hit the bull’s-eye when he said that “Monetary troubles are never the inextricable outcome of conditions beyond the control of a country’s government. They are always the result of a deliberate policy,” which, only too often, has been “the result of erroneous monetary doctrines.” Thus, with a nod to the then-current financial authorities in Mexico, Mises pointed to the need to return to a firm path toward stability.

But stability is not a goal in and of itself. “Monetary stability” must be recognized as a means, “an indispensable requirement for the formation of capital.” Moreover, the consequences of applying an “easy money” inflationary policy are, and have been, economic depressions with millions unemployed and social unrest. “Easy money” policies “result for a short time in the creation of an artificial boom, but must later end in a slump and in depression.”

Few of the wise observations, prescriptions, clairvoyant remarks, and even prophetic visions in Mises’s text appear obsolete, not even his proposals concerning exchange. Nevertheless, one must remember that this manuscript was written years before Bretton Woods and more than a decade before the celebrated article by Milton Friedman, “Fixed vs. Flexible Exchange Rates” (1953). It should not be surprising that Mises showed himself in 1942 to be an advocate of the gold standard. However, one should look at the matter from the perspective of history. Basically, what Mises wanted was not something radically different from what Domingo Cavallo introduced in Argentina, fixed exchange with a monetary policy subject to discipline.^[2]

At a time when public deficits have come to be considered virtuous, Mises insisted on the advantages of fiscal health. He explained clearly that excessive public spending contributes neither to disposable income for the masses nor to the supply of social capital. If the public budget is in disequilibrium, this must be financed either by issuing central bank credit or by using internal debt. If central bank credit is used to finance the public debt, it is doubly pernicious because, in addition to leading to inflation with all its harmful consequences, it affects the balance of payments and hinders the maintenance of exchange stability. If internal debt is used to finance the public debt, wealth is simply withdrawn from the private sector and transferred to the public sector. Public spending proposals assume, also, that the government will spend resources better than individuals will. But is this by any means certain? Withdrawing purchasing power from the private sector not only reduces the total resources entrepreneurs will have available to invest, but it may also reduce the income and consumption of the needy.

It is possible, even likely, that in his Mexican travels under the guidance of Montes de Oca, Mises became acquainted with the Mexican historian Daniel Cosio Villegas. Mises’s opinions concerning the apparent and abundant “natural wealth of Mexico and the chances of its future prosperity” were contrary to the views then commonly held. But they were remarkably similar, particularly in emphasis and approach, to those expressed by Cosio Villegas in his essay “The Legendary Wealth of Mexico.” Mises’s sharp observations were, and still are, particularly applicable to the agricultural capabilities of Mexico. To Mises the natural supply and quality of the land were not insuperable obstacles. Rather, he looked on agricultural policy, which was rooted in the heart of the revolutionary ideology, as the obstacle to the country’s progress.

Mises cited figures to illustrate what he called the harmful effects “of the agrarian reform of the revolution.” The crops of corn and wheat had been much less in 1937 than in 1907 and those of beans less than in 1897. Mises saw clearly, as did Manuel Gómez Morín and a few other illustrious intellects, that in Mexico, as in any other country, the agricultural sector could not make progress without a clear definition and absolute respect for the rights of property. The plain fact was that those rights were not well defined in the arrangement made for common land. Therefore, land was not only not cultivated with the devotion required, but investments necessary for the development of the land were not made either.

The right to property is the necessary condition for all modern productive activity. Therefore, Mises argued strenuously in 1942 against the desire of many to look to the Soviet system of agricultural collectives as the example for Mexico to follow. Granting that, however, Mises did not object to, and he even looked with favor on, other forms of collective activity even with the active participation of the state. For instance, he mentioned cooperatives that could be formed to acquire farm equipment, seed, and fertilizers, and to cover other expenses. Such cooperatives could also arrange for leasing machinery, selling farm produce, and obtaining credits for members. The government could also help with institutions to promote technological education and agricultural research. Nevertheless, every individual farmer should be “the master on his own farm.”^[3]

The Demographic Problem

Surely Mises was one of the first visionaries to recognize the demographic problem from which Mexico has long suffered. Mexico, he noted, is “a comparatively overpopulated country,” with the surplus population living in rural areas. The potential productivity of the country was insufficient to assure a decent standard of living for these excess people. Therefore, the only viable solution was for industries to be developed to absorb that excess population. But truly productive industries could develop only in response to definite commercial opportunities.

In 1942, Mises called for something that was then strictly taboo, something that could not be undertaken in Mexico until more than four decades later: an “open door” trade policy. If the dismantling of our ancient protectionist structure in recent times provoked no few laments and rending of garments, imagine the reaction to the Austrian economist’s proposal in the 1940s, in the midst of the great World War. Contrary to archaic mercantilist doctrines, Mises looked on imports as something desirable; he considered the opening of trade as the indispensable means for obtaining the best possible allocation of resources. “The advantage derived from foreign trade lies entirely in importing, not in exporting,” he said. According to Mises, only by competitive industry emerging in an open environment can manufactured products be produced at prices that permit living standards in the country to rise while at the same time generating exports to pay for the nation’s indispensable imports. The problem, he lamented, is that many Mexican patriots were “entangled in the neo-mercantilist fallacies” then in vogue—and I would say still in vogue among many groups.

The whole process of industrialization based on protectionism is damaging in three ways. First, protection inhibits the agricultural sector from exporting. Second, it raises the prices of manufactured consumers goods, which could otherwise be acquired by the rural inhabitants. And third, because of its high costs, industrialization based on protectionism prevents the manufactured products from penetrating international markets. It is true that, given such industrialization, many people would find employment in the protected industries. But what they would gain as employees others in other sectors of the economy would lose through the high cost of the manufactured articles. In this way any possibility of raising “the standard of living of the average Mexican” would be lost. Therefore, Mises concluded, industrialization by means of protection would lead the nation down a “blind alley” since it would perpetuate the low living standards of the people.

Although Mises argued for opening up trade gradually, he predicted that there was no need to fear that, by removing tariff barriers, “any plant will be forced to discontinue production. Some plants, it is true, will have to rearrange their lines of production in order to obtain a higher degree of specialization.” But, to the great surprise of many, the visiting Austrian recommended opening up trade unilaterally—removing commercial barriers even though other countries maintained protective policies without offering commercial reciprocity.

Mises’s expectations about opening the country up to trade were absolutely correct, as they were in other instances. Although the Mexican opening was not gradual and the policy adopted was unilateral in the beginning, practically no failures that could be attributed to that fact were reported.

Mises explained how the opening up of trade, with all its benefits, cannot yield its full benefits without a coherent and a compatible wage policy. Today those who think real wages can be determined by decree or by employer-employee negotiations still organize in battalions. But those who are serious know the painful consequences of such a wage policy; it directly diminishes the competitiveness of enterprises and employment, and indirectly affects inflation and economic growth. As Mises expressed it:

There is but one means to raise Mexican wage rates: industrial expansion. Every new plant improves the standard of living of the Mexican masses by creating an additional demand for labor. But industry cannot allow higher wages than such as safeguard the conduct of business. If trade unions are anxious to enforce higher wages, they prevent the establishment of new plants and the expansion of existing plants. They succeed, it is true, in raising wage rates for a comparatively small group of workers; but they force, on the other hand, hundreds of thousands to remain in agricultural occupations, in which their income is extremely low, i.e., much lower than it would be if they could find industrial jobs.

Mises was absolutely clairvoyant in suggesting in 1942 that private initiative should participate in the production of petroleum, the management of the railroads, and the generation of electricity. He was also right in insisting that unless investment and production have confidence, they cannot thrive and thus cannot contribute to economic progress.

Railroads, Electricity, and Petroleum

More than half a century after Mises’s visit, his recommendation with respect to the railroads is becoming a reality. In the case of investment in the field of electricity, there are now indications that private capital will be permitted greater participation in the future. As for the production of petroleum, we are still far from a decision; some isolated voices suggest only occasionally, rather timidly, that the matter be reconsidered.

Further, Mises was several decades ahead in predicting what would happen in Mexico between 1970 and 1976 with respect to cooperativism. In that six-year period the management of cooperatives in some sectors, like that of fishing, was entirely given up. The results had been very disappointing; they fulfilled to the letter what Mises had written years before. “No serious economist believes that a cooperative society could successfully compete with private enterprises. The experiments have resulted in complete failure.” This, he said, applied especially in the field of industrial production.

One of the themes emphasized in Mises’s essay is the importance of maintaining the confidence of investors in order to improve the country’s material welfare. In Mexico’s Economic Problems there are more than ten references to this. On this point Mises was absolutely positive: “What Mexico needs most is capital, either foreign or domestic. The repudiation of the national debt and the expropriation of foreign investments deter the foreign capitalist. The methods of taxation prevent the accumulation of domestic capital.”

The investor, domestic or foreign, fears every attack on property rights, lack of public safety, and arbitrariness. Strictly speaking, when we consider the situation, confiscatory taxation is aggression against the right of property. According to Mises, very high taxes “paralyze the spirit of entrepreneurship.” Therefore, he recommended that Mexico distance itself from a “suicidal” tax policy of this kind. Taxes should never discourage saving or the accumulation of capital. In this same vein, personal and entrepreneurial income that is invested should be taxed at a lower rate.

Mises’s essay is enlightening and clear; it refutes fallacies, destroys myths, is analytical, and advisory. When it was first written and made available in Mexico, it had practically no effect; in fact it was forgotten. Why? I venture a few theories.

First, his views were in opposition in many regards to the most widely accepted ideas of the time and the years to follow. Moreover, there was resistance from the powerful groups that were surely disturbed, or would have been disturbed, by this text. International experience reveals that one of the great obstacles to undertaking reforms is special-interest groups. And Mises’s paper touched directly on many of them, especially syndicalism, the agrarian reform bureaucracy, the administrators of public enterprises that would be dismantled, the industrial beneficiaries of protectionist measures, the clientele of subsidized organizations, and even the teachers who were preaching in the schools and universities “the religion of étatism.” In this connection, Chapter XI of Mises’s essay, “Education,” is recommended.

However, as Keynes said, the ideas of economists and social philosophers are more powerful than generally believed. There is a tendency to exaggerate the power of special interests as compared with the gradual penetration of ideas. And something that Keynes did not say, but which I firmly believe, is that in the long run, correct ideas will succeed in asserting themselves over the fallacies and the economic deceits.

Notes

1. Translated into Spanish as Problemas Económicos de México, Ayer y Hoy by Daniel Sotelo Kucharik and Ana María de Sotelo (Mexico: Instituto Cultural Ludwig von Mises, 1998). Publication of the original English-language version is scheduled by Liberty Fund of Indianapolis in Volume 4 of Mises’s Lost Papers.
2. Domingo Cavallo, formerly associated with Argentina’s central bank, became foreign minister and then minister of economic affairs under President Carlos Saúl Menem. He was instrumental in stopping the inflation, establishing a currency board and stabilizing the exchange rate of the Argentine peso at one U.S. dollar.
3. Editor’s Note: Mises wrote in his 1943 manuscript that “The economic backwardness of a part of Mexico’s agricultural population justifies intervention on the part of the government. It is all right for the government to advise the peons how to establish and to run co-operatives. Even small subsidies for newly formed co-operatives may be advocated. But it would be a mistake to subsidize them permanently or to grant them tax privileges. It does no good to mask the failure of any institution by such measures. Mexico is not rich enough to indulge in the luxury of waste.”

It was too good to last. For several weeks Washington stayed aloof from the economic problems recently besetting Southeast Asia. Officials who normally intervene at the drop of a stock market were surprisingly restrained, seemingly allowing countries like Indonesia and Thailand to bear the consequences of their own economic mistakes.

But then Washington announced its backing for a $33 billion bailout of Indonesia led by the International Monetary Fund (IMF). The United States will indirectly provide much of those funds through its support for the IMF and allied institutions. The administration also unilaterally committed $3 billion in backup credit through the Exchange Stabilization Fund. Explained Treasury Secretary Robert Rubin: “Financial stability around the world is critical to the national security and economic interests of the United States.”

Well, yes, but the financial stability of every nation around the globe? The United States bailed out Mexico three years ago; the reason, explained the administration, was that Mexico was unique. Its economy was intimately tied to that of America—the two nations had only recently inked the NAFTA trade accord—and refugees might flood across the border if prosperity was not restored. America’s southern neighbor could not be allowed to fail.

The argument was never convincing—the slump in an economy a tenth the size of America’s in no way threatened U.S. prosperity—but at least the contention had some surface plausibility. And there was only one Mexico. No other developing state could make a similar claim to U.S. aid.

Then along came Indonesia. Jakarta has been liberalizing, but its economy remains bedeviled by inefficient monopolies, insolvent banks, harmful trade barriers, wasteful food subsidies, and political favoritism. Being a relative, or married to a relative, of President Suharto is the surest way to wealth. “The Suharto crowd,” notes Holman Jenkins of the Wall Street Journal, “has laid its hand on every good thing the country has to offer, making themselves impossibly rich and, also, just impossible.” Indeed, Indonesia is a prime example of what National Review’s Richard Brookhiser was referring to when he observed that “Asian capitalism, to the degree that it is different from plain old capitalism, is weaker, bleeding money to the politically connected, cushioning the powerful from their business blunders.”

Thus, the Suharto government has no one to blame but itself for its problems. The collapse of Indonesia’s currency and stock market forced the regime to inaugurate serious economic reform. The resulting “structural reforms are more important than the size of the [aid] package,” observed Indonesian business analyst Pablo Zuanic.

Notably, the changes were necessitated by Indonesia’s problems, not purchased by the promise of Western loans. Jakarta acted because it had to act.

Unfortunately, the bailout package will reduce the Suharto government’s incentive to reform by relieving the pain of financial failure. Warns economist Mari Pangestu, “There are still some untouchables among banks and their customers, and you can’t do anything with the untouchables.” The regime certainly won’t do anything about them—particularly the boondoggle aerospace and auto programs—unless forced to do so. When the government shut down 16 insolvent banks, Bambang Trihatmodjo, a son of President Suharto, warned threateningly: “I see it as an effort to sully our family name in order to indirectly topple my father, so that father won’t be chosen as president again” later this year.

Yet today Indonesia is likely to do only the minimum necessary to receive aid. For a time it maneuvered to avoid any conditionality, attempting to arrange loans from Malaysia and Singapore rather than the IMF. Although that strategy failed, were Jakarta simply left to its own devices, it would have to adopt all of the reforms necessary to recondition its economy and reassure foreign investors, who tend to be more careful with their own cash than are international aid bureaucrats with tax monies from industrialized states.

Now that Washington has intervened to prop up a country with only a small economic connection to America (Indonesia, the Philippines, and Thailand collectively account for less than three percent of U.S. exports), what nation cannot expect help? One administration official told the New York Times: “We can’t step into every economic mess.” But what standard says yes to Indonesia and no to other nations suffering severe financial distress? On a single day last fall the Wall Street Journal ran articles with the following headlines: “South Korea Economy Feels the Pressure,” “Russia’s Finances Worsen, Imperiling Large IMF Loan,” “Mexico Expects to Withstand Turmoil,” and “After a Bad Week, Brazilians Wonder What Comes Next.” Shortly thereafter Seoul requested an even bigger bailout than that received by Indonesia. Estimates of bad bank loans in Southeast Asia range upwards of $73 billion, or 15 percent of outstanding credit. Economists forecast lower growth throughout Latin America. How stable will the U.S. economy be if Washington continually underwrites economic failure around the globe?

Moreover, the administration’s proclivity to bail out the profligate creates a danger of what economists call “moral hazard.” The expectation of a subsidy encourages people to behave irresponsibly, as did many owners of federally insured savings and loans. International aid has similar effects. Warns economist Allan Meltzer, “banks and financial institutions can now act safe in the knowledge that the IMF will provide a safety net to protect them from some, or even most, of their losses.”

Of course, if U.S. taxpayers are lucky, Indonesia and South Korea won’t need their money, and if they do, like Mexico they will repay their loans. But even such a best case won’t be costless, since credit isn’t free. When Washington channels billions of dollars to a foreign kleptocracy like that in Indonesia, it diverts resources from other uses, such as investment by entrepreneurs in America. We will never know how much we have lost in order to promote “stability” in other nations.

The only other argument for American bailout is to maintain Washington’s international clout. Weirdly, some Southeast Asians acted like a woman scorned after the United States failed to jump in at the first sign of economic trouble. “Americans musn’t forget that the Asia-Pacific region is their largest trading partner,” argued Karim Raslan, a Malaysian political analyst. “You do not neglect a part of the world which is your largest trading partner.”

Of course, the fact that American investment and trade has flooded the region suggests that the United States is not being neglectful. But if the United States has to bail out every improvident nation to demonstrate “leadership,” then that leadership isn’t worth very much. After all, if spending 50 years defending most of the globe, funding every international aid organization, and promoting free international trade doesn’t demonstrate American concern, nothing will. In fact, the Southeast Asians were just jealous that—at least until the Indonesian aid package—they hadn’t benefited from the same subsidies as had Mexico.

And a loss of influence could be beneficial. Some Southeast Asians have been muttering that Washington’s supposed lack of interest will spill over into the security field. Says Juwono Sudharsono, deputy governor of Indonesia’s National Defence Institute: “There’s a sense that it’s going to be a much more Asia-centric picture in the security field.” Which, given the collapse of hegemonic communism and the rise of allied powers like South Korea and Japan, makes sense. Washington no longer need defend everyone from everyone.

Unfortunately, Uncle Sam is addicted to wasting taxpayers’ money. Economy-minded legislators should block further bailouts of individual nations. Lawmakers also need to terminate the executive’s ability to misuse the Exchange Stabilization Fund, originally created in 1934 to support the value of the dollar, in cases like this. Otherwise Washington will find more irresponsible foreign debtors to bail out.

This is an interesting and excellent collection of essays related to privatization. Although a third of the chapters appeared elsewhere in different versions, the editors deserve credit for including those and commissioning the others. This eclectic group of contributions is dominated by the topic of property rights: half the twelve chapters focus on this issue —in Latin America, Mexico, Brazil, China, and post-communist countries.

The book might just as well have been titled Prerequisites for Privatization, rather than The Process of Privatization, for that is the emphasis of the readings on property rights. Only the chapters on New Zealand, the Czech Republic, and Mexico, and one on the specialized topic of spontaneous privatization in post-communist countries, can truly be said to discuss the process of privatization. The New Zealand case is an upbeat explanation, step by step, of why and how it was possible to carry out such wide-ranging economic reform in a democracy, contrary to expectations based on interest group politics. The chapter authors identify ten principles which guided successful economic restructuring there: (1) choose good people to carry out the process; (2) make quantum leaps; (3) do it fast; (4) build and maintain momentum; (5) be consistent and credible, because it builds confidence; (6) keep the public informed as to what to expect and when; (7) don’t sell the public short; (8) maintain political composure to maintain public confidence; (9) get the fundamentals right; (10) stick to your guns.

The chapter on the process in Mexico provides a thoughtful and timely analysis of the privatization program carried out under President Salinas, the subsequent peso devaluation, and the resulting economic crisis and public disaffection with economic reform and privatization throughout Latin America. The author argues persuasively that the fatal flaw in the process was that privatization was carried out for financial reasons and not to reform and restructure a closed economy. This confirms my oft-stated observation about Mexico, Argentina, and other countries that the first thing that has to be privatized is the private sector. That is, existing private firms have no interest in a competitive economy where they would lose their cozy relationships with state-owned enterprises, and therefore they are as big an obstacle to effective reform as are unions. It would have been interesting had a comparable chapter on Argentina been included, as that nation seems to be suffering similar problems despite its wholesale privatization program.

Robert Poole, Jr., one of the early pioneers in privatization, presents a good worldwide overview of privatization and its role in economic development. The chapter on China is an absorbing description of the recent economic history of that nation. The chapter by Megginson, et al., is a condensation of their well known, important, and exhaustive study of the firm-level effects of privatization; in summary, there are significant increases in profits, productivity, capital investment, dividends, and—surprise—employment.

There is little structure to the volume; the chapters don’t follow any obvious sequence and the writing styles range from academic to journalistic to political. In other words, the sum of the parts is greater than the whole, but each of the parts is well worth reading, in any order.