The Second American Revolution – NOW
2011-07-30 · Guest: Don Boudreaux (Professor of Economics at George Mason University) · 53:32
Debt Ceiling Government Spending and Default
Bob Zadek and Professor Don Boudreaux discuss the ongoing political battle over the debt ceiling and government spending. They argue that the narrative of “default” is a political tool and that the real issue is the unsustainable growth of the administrative state and its interference in the free market.
Topics: Debt Ceiling, Government Spending, Default, 2012 Election, Milton Friedman, Jobs, Crony Capitalism, CAFE Standards, Auto Bailout
Speakers:
- Bob Zadek: Host
- Don Boudreaux: Professor of Economics at George Mason University and blogger at Cafe Hayek
- Barack Obama: President of the United States (archival clip)
The Debt Ceiling and the Definition of Default [00:00]
Bob Zadek: You say you want a revolution. This is Bob Zadek, every Sunday at noon on 910 AM Fox News Radio. Thanks so much for listening. We are the leading Libertarian talk radio show in the Bay Area and around the country. One hour of a solid dose of free markets, free enterprise, personal liberty. Thanks so much for tuning in. If you have a point of view you wish to share, 800-345-5639. Love to hear your views.
You say you want a revolution. That’s what’s going on in America right now. There’s a battle over the deficit, a battle over the budget, a battle over the debt ceiling, a battle over jobs. But these important economic issues are really a placeholder, are really a surrogate for the real battle, which is a fight for the direction of our country, perhaps for the next 100 years. That’s what’s really going on. It has come to the fore because of the necessity of raising the debt ceiling—necessity, I should put in quotes. Should we be raising the debt ceiling? Will there be a default if we do not? What is really at stake? And what is going on in the body politic of America?
To help me sort all of this out, I am oh so delighted to welcome Don Boudreaux. Don Boudreaux is a professor of economics at George Mason University. Don is my very, very, very favorite blogger. His blog, Cafe Hayek, is a must-read. I urge you to subscribe. Don, welcome to the show.
Don Boudreaux: Good to be here.
Bob Zadek: Don, the battle is over default, allegedly over default. Should we increase the debt ceiling? Will we default if we do not increase the debt ceiling? What is at stake? You have blogged that not raising the debt ceiling has almost nothing to do with causing a default in the payment of the debt. I couldn’t agree more. What’s going on with the debt ceiling and default?
Don Boudreaux: Well, let’s start with the word “default.” As it’s used in the context of creditors paying off debtors, it means the either inability or refusal of people who owe money to creditors to pay those creditors. And the way this discussion is going down about Uncle Sam’s current issue now, it’s presented as if the debt ceiling is not raised by August 2nd, that somehow Uncle Sam will be forced, obliged to not pay his creditors. And that’s just untrue.
If you look at Uncle Sam’s cash flow that he gets mostly through taxes withheld and a few other sources, Uncle Sam’s cash flow is more than ample to pay off Uncle Sam’s creditors, the interest on the debt that he had in the past, payments to workers who have already worked, payments to suppliers of military and other government supplies. Uncle Sam has more than enough money to pay these things off. Now, what he doesn’t have enough money to do is to pay off all of his creditors and pay off all of the other things that he’s promised to pay. In order to do that, Uncle Sam has to borrow more money. And now he’s up against the debt limit that he himself, through the Congress, imposed. And so it’s wrong to say that if the debt ceiling isn’t raised, that Uncle Sam must default. That’s not true. Uncle Sam will have to tighten his belt. He’ll have to point to many, many recipients of government largesse and say, “Look, we can no longer borrow money to give you what you expect to get from us. We will no longer be able to subsidize your farms. We will no longer be able to give you your welfare payments. We will no longer be able to give you this and these other goodies that you’ve gotten in the past.” But will Uncle Sam be able to pay off his creditors? Absolutely. More than ample enough cash flow to do that.
The Business Analogy: Prioritizing Creditors [02:41]
Bob Zadek: You know, this is such—I’m a lawyer in my day job. I represent business creditors. My clients and myself lend money to businesses. I’ve been doing it for about 45 years as an attorney and as a business guy. And it’s an everyday occurrence for a business to wake up one morning, or have advance notice, and determine, “Oops, I have a cash flow problem.” And what does the business do if it is well-managed? Well, the first thing it does is—and Don, this is the key word—it prioritizes. Something the government hates to do because it means something goes to the bottom of the list.
So a business will say, “Okay, I have a little bit less money than I would ought to have to do everything I want to do. The first thing you do as a business person is you call your banker and you call your major creditors and you say, ‘Look, I got a cash flow problem, but don’t worry. I will take care of you. So banker, I want you to support me because I’m looking out for you and I will make sure you get paid. I’m going to be dealing with other creditors and I want you to be on my side.’” And the banker will say, “We’re in,” because the business is doing the right thing. It’s coming to grips with the fact that it doesn’t have unlimited money.
So once you get your important creditors—in the government case, it is bondholders—once you get your important creditors on board and assure them you will get paid, then they become your ally, not your adversary. But Obama, in making this all into political theater, is turning the bondholders into adversaries instead of into allies. There’s, as Don said, no reason why they’re not going to get paid unless we make a conscious decision not to pay them and a conscious decision not to pay the military. Obama and the Treasury Department have been totally silent on how they are going to prioritize the payment of funds that are required to go out.
Media Narratives and Fiscal Reality [05:29]
Don Boudreaux: Yeah. You know, you make a good point, Bob. When government is the subject of the discussion, only in that case do we get this bizarre backward worldview where it says that, “Boy, if you don’t let this institution that’s in huge debt, if you don’t let it borrow even more, if you don’t allow it to break its promise to keep its debt under a certain limit, if you don’t allow that institution to break that promise, then things are going to be even worse.”
You know, to me, if the government manages, would manage to not raise the debt ceiling and then manage to, as you say, prioritize its payments, pay off all its creditors, nothing better could be welcomed by the credit markets. They’d say, “Boy, look, Uncle Sam’s serious about keeping his fiscal house in order.” But the idea of allowing Uncle Sam to borrow even more money in violation of a commitment that he made in the past to not borrow more than what the current debt ceiling allows, this has been transformed by the political class and the gullible mainstream media that goes along with it as being some kind of indication that Uncle Sam is responsible by trying to raise his debt ceiling. It’s ridiculous.
Bob Zadek: You know, and then to go back to my business analogy, a business person who calls their banker and says, “I have some cash flow problems, I’m on top of it, I will pay you, I will keep you current, I will not be in default to you, and I’m cutting back on country club dues and I’m cutting back on marketing expenses that I think are superfluous and I’m closing up unprofitable divisions.” So the bank will say, “This guy’s on top of his game, we’re on board.” As compared to a business person who calls their banker and says, “Okay, banker, I have a problem, I’m clueless about how I’m going to be able to pay my bills, I’m not cutting back, and by the way, I need more money.” That banker will hang up the phone and call me and say, “Close the son of a gun up,” because he’s irresponsible.
Don Boudreaux: As he should. And Uncle Sam somehow thinks—I mean, why is it that the mainstream media just goes along with this notion that by allowing Uncle Sam to violate his commitment to keep his debt under control, that violating that commitment is the prudent fiscal thing to do? It’s just the opposite. Sticking to that commitment is what would send the signal to the credit markets that, “Look, Uncle Sam is serious.” But of course, you know, the basic morons in the mainstream media, they don’t get it. It’s really infuriating to me how backwards and irresponsible the entire discussion of this debt issue has become.
Bob Zadek: As we go to break, I want to point out one last point. If we do not raise the debt ceiling, there, as Don pointed out, there will not be a default. There will be a strategic, politically motivated non-payment. Strategic, intentional non-payment, but not a default. Politics cannot overrule sound fiscal policy. Bob Zadek, 800-345-5639. Back with Don Boudreaux in 90 seconds.
The Political Theater of the Debt Limit [11:36]
Bob Zadek: The Coasters, “Get a Job.” Welcome back to the Bob Zadek Show. Sundays at noon, 910 AM and on the web live, www.910knew.com. Deficits, jobs, here we are at the 11th hour. We’ll talk about jobs and how the deficit spending affects jobs with Don Boudreaux, economics professor at George Mason University and my favorite blogger at Cafe Hayek. All of you should subscribe to his postings. They are a wonderful morning read. Thank you so much for doing that blogging, Don.
The Language of Political Deception [12:11]
Bob Zadek: Don, you know, Obama—we have to, you and I have to take a pact in front of our audience. We have to agree, and I know this will not be painful to you, Don, that we will not use the word “revenue” when we are talking about taxes. Revenue suggests something that is earned, not taken. We will use the word “taxes” when we mean taxes. We will not use the word “investment” when we mean government spending. It’s not an investment, it’s an expenditure. And listening to the talk shows on Sunday, Obama, who has to admit he has to reduce benefits for entitlements, his talking points are, “We are going to strengthen Medicare, Social Security, and Medicaid.” They are not strengthening it, they are reducing the benefits. So we’re going to speak true-speak, not political-speak. Do we agree, Don?
Don Boudreaux: Absolutely. It’s a rare commodity.
Bob Zadek: You know, Obama did something—there’s been a fight which I think, based upon morning news, seems to have been resolved. But Obama was fighting desperately to have any decision on raising the debt ceiling be moved out past the 2012 election. And Obama said—and we have a clip that I want to play for him—Obama doesn’t want to talk about this again. And Obama’s position on extending the debt ceiling discussion beyond the 2012 election is as follows. Tim, the clip.
Barack Obama (Clip): Republicans in the House of Representatives just spent precious days trying to pass a plan that a majority of Republicans and Democrats in the Senate had already said they wouldn’t vote for. It’s a plan that wouldn’t solve our fiscal problem, but would force us to relive this crisis in just a few short months. It would hold our economy captive to Washington politics once again.
Bob Zadek: So Obama says, “No, no, let’s not have this discussion again.” I say we should discuss it every darn week between now and forever until we get it right. If Obama’s worldview prevailed, I think he would say, “Let’s not re-elect a president every four years. It’s a messy, ugly debate. Let’s just have a president for life and put that issue behind us.” Why does Obama fear a full-throated public discussion on something as important as this? I say extend it for a week at a time. Talk about nothing else other than this until we get it right.
Now, the increasing the debt ceiling is really, Don, as we said, a phony issue. If we didn’t increase the debt ceiling, all it means is some programs which are appropriated don’t have the money spent, which means in the most direct way we reduce spending, which is everybody’s goal. Isn’t that what would happen?
Don Boudreaux: Yeah, it’s called belt-tightening. That’s what it’s called. It’s not default, it’s called belt-tightening. And Uncle Sam does not have to borrow more in order to become more fiscally prudent. As you pointed out, in the private sector, if you’re having fiscal problems, you don’t go into greater debt, you reduce your spending. And the same is true for the government. The government’s not some magical thing detached from reality. If it’s spending too much and borrowing too much, the only way to restore its fiscal credibility is to spend less and hence to borrow less. And that is what refusal to raise the debt ceiling would bring about. And I think it’s a good thing.
And let me add, I think it’s the height of hypocrisy for Barack Obama—and by the way, also for most other politicians on Capitol Hill, but certainly for Barack Obama—to complain about the US economy being held hostage, as he put it, to Washington politics. These people are about nothing else other than having the economy held hostage to Washington politics. That is what they want. And so for him to complain about that—I mean, I agree, it’s something to complain about, but the idea that he really does not want the economy to be held hostage to politics, it’s absurd. Of course he wants it to be held hostage to politics. That’s how he makes his living.
Milton Friedman and the Problem of Spending Other People’s Money [18:08]
Bob Zadek: You know, Don, there’s an interesting byproduct which you have pointed out in some blogs and the Wall Street Journal pointed out in a wonderful editorial piece on Friday, which is what’s happening now with the threat—which is not a threat, but it’s strategic non-payment—with the threat of a default is that everybody is forced to realize how much money they get from the federal government. And one can say, doesn’t this bring home to everybody how dependent we all have become on checks from the federal government and on federal government largesse? And doesn’t that make us wonder, why does it have to be this way? Why can’t we just live our lives without this sickening dependency on the federal government? And they send out 70 or 90 or 100 million checks a month. What dependency.
Don Boudreaux: I agree. And let me make two points. It’s appropriate to point out that today is the 99th anniversary of the birth of the great late Milton Friedman, who spent the final years of his life, final few decades of his life in the Bay Area. Friedman was arguably one of the top two or three economists of all time, certainly of the 20th century. And Friedman, no one did more than Friedman to point out to the general public and to fellow economists how appalling it is to have some people spend other people’s money. And Friedman famously argued that when you spend other people’s money, you never do it prudently, you never do it wisely. And that’s what we have increasingly in Washington. We have a group of people spending other people’s money and more and more of it. We should not be surprised that when Person A spends Person B’s money, or when Jones spends Smith’s money, that Jones is not going to spend Smith’s money as wisely as Smith would spend Smith’s money. And so that’s why we have these fiscal problems. And it’s just really a shame that Friedman’s not alive today because his wisdom and his eloquence would be sorely missed in these kinds of debates. But unfortunately, we try to carry on with what resources we have, such as yourself, pointing out the lunacy of it all and the hypocrisy and the double-speak of it all in Washington.
Government Employees and the “Default” Narrative [19:39]
Don Boudreaux: And the second thing I want to say is, I live in the DC area, I live in the DC suburbs, and for the past couple of weeks, I hear these serious supposed news reports on the radio and on the local TV news going on to government employees about how if the government cannot pay all its bills, then they would be in default to their employees. Well, I’m sorry, unless you’ve already worked and the government owes you money, the government does not owe you a job in the future. And so refusal to continue employing you is not a default. But that’s how it’s presented. Let’s face it, the vast majority of employees in the DC area, they should lose their jobs because they’re doing work that is at best non-productive, more realistically speaking, is anti-productive, it’s destructive. And so in so far as this debate, as you say, causes people across the country to come to realize just how much government is involved in our daily lives, let’s hope that that realization causes at least enough people to put genuine pressure on Uncle Sam to trim back his activities. I have no delusions that this is going to result in some Libertarian laissez-faire utopia, but I do have some hope that it will cause, for the first time in my life—and I’m 53 years old—for the first time in my life, even compared to the Reagan Revolution, a genuinely significant push to reduce the role of government in Americans’ lives because people, anyone who has his or her eyes open, should see that what’s going on is the result directly of the irresponsibility of having strangers spend other people’s money. It’s a very bad recipe.
The Libertarian Consistency [21:31]
Bob Zadek: You know, this morning on “Meet the Press,” Tom Brokaw was on the panel, David Gregory’s panel, and Tom Brokaw, who gave a very impressive list of mistakes in the past that we are now paying for—he rattled off the increase in prescription drug benefits, the growth in Medicare, growth in Medicaid, growth in all of these programs—and Brokaw’s theme was, and he was correct but he misses a point, Brokaw said, “Look, both parties are at fault. Neither party got it right.” What Brokaw didn’t mention because of a narrow worldview is that one party always got it right, which is the Libertarian Party. So there is a substantial group of people in this country who have always gotten it right, and only now is the country discovering they got it right. As Democrats and Republicans both admit they have made profound and serious economic policy errors, one party has made none. Not because they weren’t in power, but because everything they published, everything they believed in, has proven to be exactly right. And that is the story yet to be fully told.
Don Boudreaux: Well, you know, it’s unfortunate that the Libertarian or laissez-faire or classical liberal, call it what you will, message has fallen so out of favor in America, really over the past century, because it’s only that message is the—that’s the message that I think most people lead their private lives by. We don’t tell our kids to go out and take from their neighbors just because they think their neighbors are wealthier than them. We don’t tell our kids to go about envying other people. We don’t tell our kids to go about telling other people how to live, what to eat, what not to eat. Right? And yet somehow when government gets involved, we think, “Oh yeah, that’s what government should do.” I mean, we—you know, most Americans would be embarrassed if their children tried to do that and would punish—if my son tried to do that, man, I’d whip him. And you know, I don’t even believe in corporal punishment. I’d be appalled. But somehow when government does it, we think it’s this mystical, magical institution that’s different from ordinary individuals, and we excuse it and we let it do things that we would never tolerate in our own selves, in our children, in our friends, in our neighbors.
Bob Zadek: And Don, as we go to break, one other parting thought on the analogy between parenting and government is that you would never, I suspect, want to build dependency of your children upon you. You want your children to understand they will be in the world without you and all you can do is give them the tools to survive, but you cannot keep them alive. They have to do it on their own. Yet government builds this sick, unhealthy, bad for all of us dependency by giving out so much money so that nobody can exist beyond government. And it’s that dependency that perpetuates this sick system. Bob Zadek, back in 90 seconds. I’m talking with Don Boudreaux, 800-345-5639. The Second American Revolution is happening before our eyes. Be right back.
Can Government Create Jobs? [27:42]
Bob Zadek: Welcome back to the Bob Zadek Show. I’m your host, Bob Zadek, every Sunday at noon on 910 AM. Libertarian talk radio in the Bay Area and around the country. We are proudly the show of ideas, not attitude. Listen to us on the web at www.910knew.com. Thanks so much for listening today. Today’s show is about jobs, the economy, the deficit, the debt ceiling. What’s going on in Washington? Are we staring into the abyss, or is this the dawning of the—not Age of Aquarius, but the Second American Revolution? To help me and you understand this issue, I’m delighted to welcome again Don Boudreaux. Don is a professor of economics at George Mason University and writes, in my opinion, the leading Libertarian blog in the country, Cafe Hayek. Don, thanks so much for staying with me.
Don Boudreaux: My pleasure, Bob.
Bob Zadek: Don, of course, the issue of the economy and deficits and stimulus, the real issue, the issue where Obama is perhaps most vulnerable, and it is an economic issue, is the relationship between government policy and jobs. Jobs, of course, is a big issue. Unemployment remains above 9% and no indication that it’s going to be going down. And there’s been a lot of pressure on the government to, quote—and I find this to be an impossible concept to fathom—for the government to, quote, “create jobs.” Now, in some instances, Don, the government can create jobs. They could double the number of jobs by cutting the minimum wage in half. Then twice as many people will be employed the next minute. The government could, quote, “create jobs” by hiring 10,000 men to dig a hole and another 10,000 men to fill in that hole. They will have created 20,000 jobs if that’s the goal in and of itself. On top of that, we have former Governor Granholm from Michigan who says it’s the government’s primary—she said this morning on TV—that the people want the government to focus on jobs, not on default. So to me, government doesn’t create jobs. They simply—they could, but that would be wasteful. All the government can do is create an environment where businesses can create jobs. So Don, the relationship between fiscal policy and jobs?
Don Boudreaux: Look, I mean, it is a myth and it is a widely believed myth, as you point out, that government spending and government monetary policy creates jobs. I don’t believe it. Entrepreneurs create jobs, and they create jobs the freer they are. And the jobs that they create are worth more. The wages that workers get paid are worth more the freer the economy, because ultimately what matters is how much you can—how much you as a worker can purchase with what you own. You could have all the—you can have tons of job offers and you can have the opportunity to work for, you know, 80 hours a week, but if the economy you live in doesn’t have anything on the shelves of the supermarkets and the department stores and the auto showrooms and in the medical hospitals, then you’re going to be pretty poor.
Entrepreneurs create jobs when they are free. You’re right, government can, quote, “create jobs,” end quote, by reducing regulation. But to call that government creating jobs, that’s just like saying government has stopped destroying jobs. And then the idea of government hiring people to, you know, dig holes, hiring people to go off and fight in a war, yeah, in a sense that employs those people, but it’s not employing them to produce anything directly, at least, that they or other consumers can purchase to make their lives better.
Debunking the Great Depression Myths [31:23]
Don Boudreaux: The Great Depression—one of the great myths that still pervades our common psyche today is that the New Deal got us out of the Great Depression. The New Deal did not get us out of the Great Depression. Unemployment was still about 15% in 1940. And it wasn’t even World War II that got us out of the Great Depression. Unemployment fell, of course, but that’s because you had a whole bunch of people conscripted into the military and you had this huge boom in military buildup. We didn’t get out of the Great Depression, as far as I can tell, until 1946. And what happened in late 1946? The government, rather surprisingly, thank goodness, the government rolled back its operation. It deregulated in ways that people were not expecting. Roosevelt was dead, and so this—who had become basically an open socialist in office in his last few years—he was gone, and so we returned to a freer market economy in 1946. And it was that greater freedom that inspired investors and business people to again get active and creative in starting up new industries and new firms, and that led to the postwar boom. It had nothing to do with government spending. It had nothing to do with World War II. It had everything to do with entrepreneurial creativity that was made possible by economic freedom.
Unions, Minimum Wage, and Occupational Licensing [32:53]
Bob Zadek: And you know, the concept of government creating jobs, government and their—and the Democratic administration’s ally, the union, they do more—since jobs are measured by number of jobs—they do more to destroy jobs by artificially inflating wages. That’s what unions do. The only purpose of trade unions in America today is to force wages above market rates to non-market rates. That’s all unions do. Any other purpose of unions has gone by the wayside. And so you have government with the minimum wage, with Davis-Bacon, and with states’ mini Davis-Bacon statutes, all artificially increasing wages. Well, imagine how car sales—what would happen to car sales if the government decreed every car has to be sold for twice its market price? How many cars would be sold? Government would eliminate the purchase of cars by artificially increasing the cost. Well, that’s what government does with wages.
Don Boudreaux: Yes. Yes, you’re exactly—that’s a really good analogy, Bob. And you know, there would be a few people who benefited. If government passed that law with respect to cars, I bet a bunch of Mercedes and Lexus dealers would be pleased, because if you have to spend $40,000 to buy a new car, you’re going to buy a Mercedes or Lexus, you’re not going to buy a Toyota Corolla or a Chevy Malibu. And so the handful of people who are helped by labor unions, they’re not the poor struggling workers that labor unions like to present themselves as championing. They are the already highly skilled, higher-paid workers who get paid even more because of the labor union restrictions.
Bob Zadek: And so you have—there was a bit of a movement, the Al Sharpton gang, who was complaining that Obama was not doing more for high black unemployment. And indeed, Obama could help black unemployment by reducing the minimum wage, by reducing the monopoly that unions have on jobs so that it’s easier to get a job, and employment would go through the roof. Lower the price simply to the market price and you end up with more jobs. Just like with housing. When government—with the housing market, where government is interfering in the housing market by interfering with foreclosures, houses can’t reach their true value and therefore there’s no housing boomlet yet. Government just can’t keep their hands off the free market to let prices, whether it’s wages or prices for commodities, reach their true level and let the chips fall as they may. So the number of jobs is—to a substantial degree, the lack of jobs is a function not of the free market failure, it’s a function of the free market being not allowed to operate. The free market would create so many jobs it would make your head spin, but government stands in the way.
Don Boudreaux: Yep. I couldn’t agree more. And the minimum wage, Davis-Bacon, other regulations that—occupational licensing—these things are job killers. I would add also, although not directly, but I think in a very real if indirect way, the monopoly in K-12 education. It so damages young people’s abilities to learn. The public school monopolies, of course dominated today by the evil teachers’ unions, they don’t educate young kids. And so when these kids graduate from high school, their skill set is way below what it should be, and so the few jobs that those kids are eligible for don’t pay what the jobs would pay were the typical high school American graduate better skilled and better educated.
Milton Friedman: Ending the Draft and School Choice [38:08]
Bob Zadek: And of course, there was no issue that Milton Friedman—you mentioned his name earlier—cared about more than opening up the educational system to the free market. Milton Friedman was the creator, perhaps, of the concept of school vouchers, which is just another way of saying free choice in schools. Also, Don, you mentioned World War II and conscription. It must be mentioned that Milton Friedman, more than any other economist, more than any other American, was instrumental in getting rid of the draft in America. Something which he doesn’t get enough credit for.
Don Boudreaux: Yeah, that’s a good point. Because most people think, “Well, free market people, you’re a bunch of conservatives.” And Milton Friedman was very adamant—Milton Friedman never called himself a conservative. He denied it, in fact. He said, “I am not a conservative. I am a liberal in the classic sense, in the way that term was first used.” Milton Friedman was in favor of drug legalization. Milton Friedman was a tireless and passionate opponent of military conscription. And you know, no one would identify that as a conservative position. You’re right, no single individual in America is more responsible than Milton Friedman for getting rid of the military draft. And for that alone, the man deserves a place in heaven. He was just a champion. And he was doing that when it was not popular. He was doing it because he understood—and not just because the draft is an economically unfortunate institution, but because it is a morally offensive institution. Milton Friedman believed it was slavery, and slavery it is indeed to take someone’s life for two, three, or four years against their will. Milton Friedman opposed it chiefly on those grounds. And to this day, every American owes him a debt of gratitude for that service.
Bob Zadek: And I am delighted to end this segment of the show paying tribute to Milton Friedman, who was born 99 years ago today. This is Bob Zadek, talking with Don Boudreaux. I’ll be back in 90 seconds. 800-345-5639. Jobs, the economy, the deficit, the debt ceiling, Washington, the 2012 election, and more when we come back.
Pro-Business vs. Free Markets: The Case of GE and the Auto Bailout [41:54]
Bob Zadek: Welcome back to the Bob Zadek Show. Thank you, Tim, for that Bob Dylan intro. Takes me back to the ’60s, my favorite period. Thanks so much for listening, everyone. This is Bob Zadek, host of the Bob Zadek Show. We’re here every Sunday at noon at 910 AM and on the web at www.910knew.com. 800-345-5639 is the way you share a point of view with us. Today I am talking with Don Boudreaux, professor of economics at George Mason University and blogger under the moniker Cafe Hayek, my favorite blog. Don, thanks so much for joining us.
You know, this morning on one of the shows, I think it was “Meet the Press,” Jennifer Granholm, who was the former two-term governor of Michigan, presided over one of the largest tax increases in any state’s history while she was governor. She, in attempting to deflect blame that she was the cause of Michigan’s unemployment problems, she complained that because of what happened with the GM bailout and the Chrysler bailout, she complained that there was a loss of jobs because of those failures and because of the problems of the government not creating enough jobs. And she suggested that the loss of jobs were jobs that left Michigan to go overseas. Of course, she totally misses the point, probably on purpose, that her jobs were lost to Tennessee, Alabama, and states in the South that had right-to-work laws. And so the number of jobs that the auto industry lost would have lost was de minimis. What she meant to say was they were trying to save union jobs, not jobs, because all they did was they created more union jobs at the expense of non-union jobs. It’s amazing what these people get away with on network television.
Don Boudreaux: You know, I mean, your mentioning that causes me to think, I have never in my life—and maybe I missed it—but I have never in my life actually seen or heard a politician accept blame for anything, except with the exception of blaming themselves for being a poor campaigner. They never say, “Oh yeah, you know, I made a mistake. I pursued this policy and it caused the economy to tank,” or “I pursued this policy and I realize now that it reduced Americans’ freedom rather than enhanced Americans’ freedom.” They always blame other people. And that’s why they have so much gall when they, these politicians, like to point their fingers at businessmen.
Crony Capitalism and CAFE Standards [45:51]
Don Boudreaux: Now look, I think business people too often, very often, too often, they get in bed with politicians to seek their own favors, and I oppose that. Free market economics and laissez-faire is not pro-business, it’s pro-consumer, it’s pro-freedom. But politicians are just world champions at avoiding blame. They’re champions at pointing fingers at others. And Ms. Granholm, of course, she’s right up there in that. The idea that if you live in a state—if taxes rise in a state, regulations are increased to a burdensome level as they also were under Granholm, and then you complain about the loss of jobs and the loss of economic vitality in your state, you are either just unbelievably dumb or you’re a liar, or perhaps both. And this is just an appalling effort to deny responsibility for your own actions. And she was a big-government, high-tax governor. She got her way in the legislature, got her way in Ann Arbor, and we see the result in Michigan. Now, I should say she certainly wasn’t the only one. Michigan has had a long history of going down the tubes of bad policies, but she continued it and she was a champion of it. And for her to blame other people for Michigan’s failures is just irritating beyond words.
Bob Zadek: What I have learned, Don, is you mentioned the phrase “pro-business.” I say pro-business is a deceptive concept, and here’s what I mean, Don. Business and free markets are basically unrelated concepts. You take Jeffrey Immelt at General Electric. General Electric is a government agent disguised as a business. It is so in-bed with the political process and so dependent on the political process for its profitability and survival that General Electric and others like it would fear the free market. They do not benefit from the free market.
Don Boudreaux: Absolutely. And the list of those is long. General Electric, Archer Daniels Midland, Martin Marietta, Boeing even to some extent. The list is very long of these so-called businesses that suckle at the teat of government. And so naturally, the leaders of these firms, they’re pro-government. And it’s unfortunately misleading to the typical person who says, “Oh, well, this business executive, even he or she thinks that government should do X, Y, or Z.” Well, of course he or she thinks government should do X, Y, or Z, because that person is the one who’s getting most of the benefit. Free markets are about giving consumers maximum freedom to pursue their lives as they see fit. And part of that is to allow entrepreneurs and businesses to respond to those consumer demands. But the free market is not at all about protecting businesses from competition. Tariffs, regulations, in a lot of cases even high taxes, are really just means of protecting powerful businesses from the competition of smaller businesses or other businesses that want to compete for their consumer base.
Bob Zadek: And there’s no better example of that than the sickening display when Obama gets in front of the cameras and announces doubling the CAFE standards, the fuel mileage standards for cars, and you have these three automobile CEO puppets nodding and saying, “Yes, we love it, we love it, we love it.” Well, what choice do they have? Government owns one of them, or a substantial portion, is a creditor of another one. And so they are so dependent upon the government and the government has saved their jobs, they don’t dare protest a policy that is bad for the automobile buying public, bad for the manufacturers, stifles competition, and there they are nodding like puppets. They might as well be working for the US Department of Commerce. They are just arms of the federal government. So whenever listeners of my show know this, whenever we talk about free markets, we are not saying that’s business. No, free markets is entrepreneurship, is small business, that’s what the free market is. But there’s been such a sickening, incestuous relationship between government, between tax breaks and loopholes, so that most large businesses, GE being the most ugly example, are simply instrumentalities of the federal government. Like the states are becoming, they are not independent free market enterprises.
Don Boudreaux: Yeah, that’s right. That’s said very beautifully, Bob. I guess the way I would say it in my own version would be, I want to take the “crony” out of “crony capitalism.” Exactly right. The problem with that is crony capitalism isn’t even capitalism, it’s just cronyism. And so I want to get rid of cronyism and replace cronyism with capitalism, which is maximum freedom for consumers to spend their money as they see fit, maximum freedom for entrepreneurs to compete for those consumer dollars, but with no expectation and no hope of being protected by government if you fail to compete successfully for consumer dollars. General Electric is a monument to cronyism.
Bob Zadek: Totally. And in fact, in a little-known fact, when General Motors needed to sell this piece of garbage car called the Volt, who do you think bought half of the production of Obama’s auto company? It was Jeffrey Immelt at GE who bought half of the Volt production. Not only that, but then he gets a tax break from the owner of General Motors, which is the government, for doing so. So the government, which owns General Motors, pays Immelt through GE to buy government-manufactured cars and then pays for them by a tax break. You can’t get any more incestuous than that.
Don Boudreaux: And didn’t GE actually get itself a lot of government subsidies? So if so, it probably spent some of the cash it got from Uncle Sam to buy the Volt and then got a tax credit on top of it.
The Second American Revolution [51:00]
Bob Zadek: So General Electric might as well be the TVA, some government entity. This is Bob Zadek. I’ve been talking with Don Boudreaux for the past hour. We are talking about deficits, the debt ceiling. What do we have to look forward to next week? Let us hope the Republicans stay firm. Let us hope the Republicans, if they are going to increase the debt ceiling, which Don and I think should not be done, but if they increase the debt ceiling, it should be with hard reductions in government spending. That and only that will create jobs. Paul Krugman and his Keynesian approach simply will not and does not work. The government cannot create jobs and will not create jobs. So far, it seems like this week, and Don, if I’m not being too optimistic, portends for maybe a sea change in how Americans see their economic relationship to their government. We can hope so.
Don Boudreaux: Let’s hope it does. Yes, I agree.
Bob Zadek: I think this is the finishing up of the American Revolution, the finishing up of the conference which the founders started in 1787 in a closed-door four-month session in Philadelphia. This is the ending, this is the final chapter, and perhaps we will become more allied with Locke than with Sarkozy. Let us hope so. Bob Zadek, thanks so much for joining me. I’ll be back next Sunday. Thanks again, Don, for joining me for the hour. Always a pleasure to have you.
Don Boudreaux: My pleasure.