Wednesday, February 24, 2010

The Paulpocalypse

A longtime Ron Paul watcher wonders if his CPAC victory is the dawn of a new age, or the beginning of the end
Brian Doherty (Reason) February 24, 2010

The straw poll victory of Rep. Ron Paul (R-Texas) at the Conservative Political Action Conference (CPAC) last week, with a plurality of 31 percent, spurred a wide range of reaction and emotions. If you weren’t already a fan of the radically libertarian Republican congressmen, his victory wasn’t the thing to make you start taking him seriously.

Many agreed that Paul’s win, if meaningful, could only bode ill for the Republican Party’s prospects. David A. Harris at TalkingPointsMemo thinks Paul’s ascendance means the GOP is determined to give up on the Jews (since Paul has suggested that certain U.S. foreign policy decisions benefit Israel more than they benefit the U.S.). Earl Ofari Hutchinson at Huffington Post thinks Paul’s win means racism and nativism is on the rise in the GOP, as he fantasizes about non-existent race-based jibes in Paul’s CPAC speech.

In the real world, Paul’s speech was mostly about fiscal probity and saving the U.S. from a debt-driven dollar collapse. Paul applied principles of limited government and restrained spending to a place where most Republicans fear to tread: foreign policy. He stressed the vital importance of the free exchange of ideas, including a long shout-out to Eugene Debs, the socialist leader jailed by Democratic god Woodrow Wilson for saying the wrong things, and freed by Republican President Warren Harding.

Paul talked to the assembled activists of the unity of liberty, including the liberty to eat and smoke what you want. He harkened back to old Republican icons (such as President Dwight D. Eisenhower with his military-industrial complex warnings) to give his constitutionalist libertarian version of conservatism a usable past. His talk was rambly, perhaps not ready for prime time, but united by a bracing vision of a government that did only what its Constitution intended it to do. This makes him radical indeed.

That radicalism makes it unsurprising that the Republican assault on Paul in America’s most prominent print outlets had actually ramped up in the week before the CPAC victory. Coincidence, or a subterranean sign that the forces of respectable Republicanism were feeling the pre-shocks of the CPAC Paulquake? In The Washington Post, former Bush speechwriter (now there’s a pedigree that should give you free rein to lecture conservatives about strategy) Michael Gerson openly called for an old-fashioned purge of Paulites (along with “racists and conspiracy theorists” and “acolytes of…Tom Tancredo and Lyndon LaRouche”—neither of them polled double digits at CPAC). Dorothy Rabinowitz in the Wall Street Journal pre-emptively referred to Paul’s squad of dedicated activists for small government as “assorted other cadres of the obsessed and deranged” in the week prior to the surprise CPAC win.

Those who tend to agree with Paul were delighted by his victory, more excited than Paul was himself. Paul told me earlier this week that “I see [the CPAC win] as making progress, but I wouldn’t overblow it. I try to put it into perspective. I probably get more excited about what’s happening when I go to a college campus and get 1,500 students excited about what I’m doing. If they did a national poll of all Republican voters, I mean obviously I’m not going to be running the show.” (Paul still insists he is “firmly undecided” about another presidential run.)

The standard bastions of the right-wing were not amused by the shenanigans of the crazy kids at CPAC, and many noted that Paul’s victory should not be seen as a sign the Republican Party is his for the grabbing. Former presidential candidate and TV talk show host Mike Huckabee wrote off CPAC—that is, many thousands of the most dedicated and engaged political junkies and activists available to the GOP—as being too libertarian and thus irrelevant to his Republican Party. Neocon intellectual chieftain Bill Kristol thinks Paul’s win means nothing; why, Kristol pointed out on Fox News, the majority of those CPAC kids are under 25! Surely, crazy fads sweeping the young and politically motivated have no significance for a political party's future, right?

The lefties at Daily Kos noted that Fox News, the definers of the GOP as a media brand, were not too thrilled about Paul’s victory and dismissed its importance. The American Conservative recognized that while “Ron Paul people” may have had the plurality at CPAC, the widespread boos that accompanied the announcement of his win shows that he was probably widely reviled by the 69 percent who didn’t pick him.

Political analyst Patrick Ruffini at The Next Right has a balanced, non-fan’s perspective that I think gets it about right, explaining what the standard bastions of conservatism should both fear and credit Paul and his fans for:
In 2007, the Paulites were an oppositional force trying to submarine the GOP's commitment to the war on terror, thus threatening traditional conservatives. Today, libertarians and conservatives have come together against Obama's endless expansion of the State, with Ron Paul supporters supplying creative organizing tactics and boots on the ground.

….in terms of grassroots organization, Paul supporters are some of the best—if not the best—that we have. The iconography of the tea party movement is heavily libertarian (think the Gadsden Flag) and that's no coincidence. If you broke down the organizers and even those in attendance [at CPAC], you'd find more than your fair share of Ron Paul supporters. This is a categorical shift that's happened in the last year.
Victory in a CPAC straw poll (which belonged to Mitt Romney the past three years, smacked down this time with 22 percent to Paul’s 31) does not mean national leadership, the nomination, or the presidency. But beyond their affection for Paul himself—the most consistently and radically pro-liberty political figure of any significance on the Republican scene—a poll of CPAC attendees reveals encouraging facts about their general political attitudes: 80 percent claimed their “most important goal is to promote individual freedom by reducing the size and scope of government and its intrusion into the lives of its citizens” versus a mere 9 percent whose most important goal was to “promote traditional values” and 7 percent to “guarantee American safety at home and abroad regardless of the cost or the size of government.”

I predicted last September that Ron Paul could well be playing a Goldwater in 1960 role—the first stirrings of a strongly anti-government coalition whose electoral effectiveness won’t become manifest for a while—and the CPAC victory is an encouraging sign in that direction. The usual caveats apply about the unknowability of the future, and the generally predictable pusillanimity when it comes to liberty of both the voters and politicians who have tended to decide the Republican Party’s direction.

Still, it does feel like something is happening, and we don’t know what it is, do we Dr. Paul? I’ve been following Ron Paul’s career since 1988, when my buddies in the University of Florida College Libertarians brought him—then the Libertarian Party’s presidential candidate—to our campus to speak. He drew 100 or so people, copped a front page story in the college paper, and fed into my and my comrade’s youthful sense of a subterranean liveliness in ideas and politics that it was still possible to dredge, at least for a moment, to the surface. Swaying masses in that libertarian direction seemed…well, I suppose it was the goal, but in the same sense that interstellar travel might be seen as the “goal” of reading and thinking about science fiction. Libertarian Party politics seemed at best an entertaining vehicle toward the semi-actualization of some wild, hopeful imaginings.

I was pleasantly surprised when Paul won his way through opposition from both Republicans and Democrats back to his Texas House seat in 1996. I first wrote about him as a profile of an entertaining GOP curiosity for the American Spectator in 1999. His political colleagues were alternately confused or amused by him, often good for a pro forma expression of respect for his steadfast refusal to compromise, but he was clearly the sort of anomaly that would just drive party leaders crazy if he multiplied.

By the time I was writing my book on the history of the libertarian movement, Radicals for Capitalism, which I completed in early 2006, Paul had settled into seeming like just a cute libertarian blip in the world of standard politics. I interviewed him for the book again, but did not give him nearly the play that events since then have proven he deserved. I was one of the first journalists to note his candidacy in January 2007, and followed him on the campaign trail for Reason in late 2007. I watched in amazement as his money bombs exploded and he forged a mass, youth-oriented movement, one that survived his campaign, and saw his oldest hobbyhorse, attacking the Federal Reserve, become almost mainstream.

Still, exciting as that disturbingly exhilarating feeling of having been, just maybe, on top of history can be, Paul’s rise to prominence is also, I confess, unnerving.

Various high-end libertarian luminaries—from Milton Friedman to Murray Rothbard—predicted that the appearance of crises for which libertarians had provided prescriptions and solutions would likely be key to public acceptance of libertarian governing principles. And indeed, in his CPAC talk Paul directly credited what public respect and attention he’s won since his failed presidential campaign to the fact that he predicted the current economic crisis, based on his understanding of Austrian business cycle theory and the dangers of low interest rates in causing boom-bust cycles.

Despite Paul’s cheery statement in the CPAC speech that he thinks the country could be a lot better off a year from now, the Paulite vision, if taken seriously, is pretty...scary. It’s not scary because he’s scary, or because his ideas in application are inherently scary, but because he predicts very scary results from decades of government mistakes, overreach, and hubris. So much inflation, so much fiscal mismanagement, so much debt, so much imperial overreach, will, Paul regularly predicts, lead to a total collapse in the value of the dollar—a prospect that will have very dire effects for nearly all of us, nationally and internationally.

Despite his CPAC optimism, Paul told me earlier this week that “if we came to our senses,” avoiding collapse is “not difficult at all. You just allow a correction to occur, let bankruptcies and liquidation of debt happen, then we go back to work and produce and build a sound money and within a year or so everyone will be doing quite well.”

But he then admits that he doesn’t see the political possibility of that kind of hard, frugal sense coming to bear before it all comes down. More likely we’ll see “the catastrophic event that will come in the next several years because we are on the verge of it now. We can’t sustain this kind of deficit financing through the Federal Reserve.” A sovereign debt crisis awaits for the United States. As Paul notes (and as I tried to explain to Glenn Beck’s audience the other week), this does not mean the end of our ability to meet the economic needs of humans on Earth through production and trade. Not the end of the world per se; still, the collapse of the reigning system of money by which we exchange our title to wealth will be ugly and harm anyone who has tried to save in anything denominated in dollars.

So there’s a very good reason anyone with any skin in the game of the status quo—politician, commentator, or citizen—has to find it very difficult to take Paul seriously. That so many citizens and activists in the Tea Party movement are taking him seriously is scaring the establishment for good reason. Paul doesn’t just represent an opposition politician, he represents an absolute denial that “the system” makes any sense, has any justice, or is sustainable. It is this radical oppositionism that makes it so easy for standard issue pundits to just write his fans off as nuts and a bit scary.

Newsweek started to get at this important aspect of the Paul phenomenon, noting that “tea-partiers, Paulites, etc.─seem less interested in finding practical solutions to Washington's endemic problems than in tearing down Washington itself. As the 2010 elections approach, this nihilistic feeling will only grow stronger.”

That’s because the radical solutions that the Paul worldview demands—an end to overseas military adventurism, ending government’s ability to manipulate paper currency, severe cuts in spending on all the myriad income-shifting promises Washington has made the past 80 years—don’t register as “practical solutions” to (for lack of a better word) the establishment. They seem like nihilism, though they are actually a belief in the American Constitution.

Any standard Republican or movement conservative really can’t take Paul seriously without massive cognitive dissonance. You mean, we really really have to obey the Constitution, we really can’t keep borrowing and inflating forever? Signs like the CPAC vote of a significant number of politically active youngsters believing in Ron Paul are indeed a sign of an apocalypse of sorts for the world that most politicians and pundits know. If Ron Paul is right, then everything they know is wrong.

Senior Editor Brian Doherty is author of This is Burning Man (BenBella), Radicals for Capitalism (PublicAffairs) and Gun Control on Trial (Cato Institute).

Saturday, February 6, 2010

The End Game

Eleven months ago I embarked on reading Murray Rothbard’s 900-page magnum opus, Man, Economy, and State (1962). In obedience to “Rothbard’s law,” I continued to focus my attention on a subject where I lack strength. Despite being an economics major in college I never felt I had adequately learned it. Finishing Rothbard’s treatise (this week) has revamped and redeemed my education in the field. For anyone, including the layman, desiring to understand economics all the way from a primitive, Robinson Crusoe situation to the complex workings of capital and time/interest structures, this is quite literally “the only book you’ll ever need.”

The first eleven chapters of the book develop the workings of the free market from a praxeological perspective. The twelfth and final chapter introduces the “real world” of government interventions, and the far-reaching distortions that result in the marketplace. The greatest source of market distortion is the central bank (in our case, the Federal Reserve). As Rothbard’s forerunners Ludwig von Mises and F.A. Hayek explained, central bank credit expansion and its attendant artifically low interest rates cause malinvestments which lead to unsustainable booms and inevitable busts. A by-product of the credit expansion and the stimulus used to fight the subsequent downturn is monetary inflation (price inflation comes later). Below are excerpts from the final pages, apropos to the current situation confronting the United States and the rest of the world.

One point should be stressed: the depression phase is actually the recovery phase. Most people would be happy to keep the boom period, where the inflationary gains are visible and the losses hidden and obscure. This boom euphoria is heightened by the capital consumption that inflation promotes through illusory accounting profits. The stages that people complain about are the crisis and depression. But the latter periods, it should be clear, do not cause the trouble. The trouble occurs during the boom, when malinvestments and distortions take place; the crisis-depression phase is the curative period, after people have been forced to recognize the malinvestments that have occurred. The depression period, therefore, is the necessary recovery period; it is the time when bad investments are liquidated and mistaken entrepreneurs leave the market—the time when “consumer sovereignty” and the free market reassert themselves and establish once again an economy that benefits every participant to the maximum degree. The depression period ends when the free-market equilibrium has been restored and expansionary distortion eliminated.

It should be clear that any governmental interference with the depression process can only prolong it, thus making things worse from almost everyone’s point of view. Since the depression process is the recovery process, any halting or slowing down of the process impedes the advent of recovery. The depression readjustments must work themselves out before recovery can be complete. The more these readjustments are delayed, the longer the depression will have to last, and the longer complete recovery is postponed. For example, if the government keeps wage rates up, it brings about permanent unemployment. If it keeps prices up, it brings about unsold surplus. And if it spurs credit expansion again, then new malinvestment and later depressions are spawned…

With the establishment of fiat money by a State or by a World State, it would seem that all limitations on credit expansion, or on any inflation, are eliminated. The central bank can issue limitless amounts of nominal units of paper, unchecked by any necessity of digging a commodity out of the ground. They may be supplied to banks to bolster their credit at the pleasure of the government. No problems of internal or external drain exist. And if there existed a World State, or a co-operating cartel of States, with a world bank and world paper money, and gold and silver money were outlawed, could not the World State then expand the money supply at will with no foreign exchange or foreign trade difficulties, permanently redistributing wealth from the market’s choice to its own favorites, from voluntary producers to the ruling castes?

Many economists and most other people assume that the State could accomplish this goal. Actually, it could not, for there is an ultimate limit on inflation, a very wide one, to be sure, but a terrible limit that will in the end conquer any inflation. Paradoxically, this is the phenomenon of runaway inflation, or hyperinflation

When the government and the banking system begin inflating, the public will usually aid them unwittingly in this task. The public, not cognizant of the true nature of the process, believes that the rise in prices is transient and that prices will soon return to “normal.” As we have noted above, people will therefore hoard more money, i.e., keep a greater proportion of their income in the form of cash balances. The social demand for money, in short, increases. As a result, prices tend to increase less than proportionately to the increase in the quantity of money. The government obtains more real resources from the public than it had expected, since the public’s demand for these resources has declined.

Eventually, the public begins to realize what is taking place. It seems that the government is attempting to use inflation as a permanent form of taxation. But the public has a weapon to combat this depredation. Once people realize that the government will continue to inflate, and therefore that prices will continue to rise, they will step up their purchases of goods. For they will realize that they are gaining by buying now, instead of waiting until a future date when the value of the monetary unit will be lower and prices higher. In other words, the social demand for money falls, and prices now begin to rise more rapidly than the increase in the supply of money. When this happens, the confiscation by the government, or the “taxation” effect of inflation, will be lower than the government had expected, for the increased money will be reduced in purchasing power by the greater rise in prices. This stage of the inflation is the beginning of hyperinflation, of the runaway boom

The most famous runaway inflation was the German experience of 1923. It is particularly instructive because it took place in one of the world’s most advanced industrial countries. The chaotic events of the German hyperinflation and other accelerated booms, however, are only a pale shadow of what would happen under a World State inflation. For Germany was able to recover and return to a full monetary market economy quickly, since it could institute a new currency based on exchanges with other pre-existing moneys (gold or foreign paper). As we have seen, however, Mises’ regression theorem shows that no money can be established on the market except as it can be exchanged for a previously existing money (which in turn must have ultimately related back to a commodity in barter). If a World State outlaws gold and silver and establishes a unitary fiat money, which it proceeds to inflate until a runaway boom destroys it, there will be no pre-existing money on the market. The task of reconstruction will then be enormously more difficult.
And what then? Could the result be found in Revelation 13:11-17?