Obama’s Grab-Bag Socialism

[Ed Hudgins]

Obama’s Grab-Bag Socialism
by Edward Hudgins

April 4, 2009 – We can understand why President Barack Obama and the Democratic Congress do not want to call their attempts to socialize America’s economy “socialism.” Government efforts to control economies in the past have been disasters. Still, this administration is using a grab-bag approach in its attempt to take control. But it will face the same insurmountable problems as did socialisms of the past, and the American people will suffer.

Consider the three brands of socialism from the past century.

Marx’s Mark

First there was the communism or “scientific socialism” of Marx and Lenin in which the government owned all property and controlled all aspects of the economy.

Without private property rights and market incentives, there was little motivation to do one’s best and no place for true entrepreneurs. The Russians had a saying: “We pretend to work and they pretend to pay us.”

Planners—the dictators of the proletariat—attempted to allocate all the inputs of production—energy, raw materials, industrial equipment—in order to produce the right mix of food, capital goods, infrastructure, and consumer products to make an economically strong “nation” though not necessarily prosperous subjects. How many tons of coal produced by which mines must be shipped in what quantities in how many train cars to which industrial facilities to produce how many tons of steel or megawatts of electricity? Micromanaging an economy through millions of such decisions was an impossible task.

Without market prices to indicate the real supply, demand, and best uses of the factors of production, the planners literally just made up the numbers.

The system was a disaster. It kept millions impoverished and eventually collapsed.

Il Duce’s Direction

Under the second type of socialism, corporatism, pioneered by Benito Mussolini in Italy, much property stayed nominally in private hands. But individuals did not have the right to use their property as they saw fit. The system was not democratic; citizens were only important as members of groups—farmers, merchants, industrial workers—not as individuals.

Appointed ministers with various portfolios in a Grand Council of Fascism would dicker about levels of production, wages, prices, and the like. Decisions of how to “harmonize” all these interests were made by the prime minister—Il Duce. The owners of productive property and enterprises were informed of the will of the state and knew they had to obey or face demonization, intimidation, or worse.

This form of central planning did not work either. Planning by political elites simply produced economic hardships and the elites had to use heavy-handed tactics to quell dissent.

The Commanding Heights

A third type of socialism was taken up in many European countries after World War II. Central planners would restrict themselves to owning and controlling the “commanding heights” of the economy—transportation, finance, raw materials, heavy industry—which they saw as fundamental to economic growth, while leaving most other economic matters to the choices of individuals and smaller enterprises. Welfare state benefits such as health care and unemployment insurance would provide a safety net for all.

Democratic socialism didn’t work well either. Interest groups, especially labor unions, could get their way through massive demonstrations or crippling strikes. The parts of the economy owned and controlled by governments became costly and inefficient. Rather than providing platforms for growth, they were drags on the economy. Job creation and productivity stagnated. By the 1980s Margaret Thatcher was undoing Euro-socialism in Britain, and Continental leaders were borrowing policies from Ronald Reagan.

The Democrats’ New Depths

Today, Obama and the Democrats will not call what they’re doing “socialism.” But they are using a grab-bag approach to taking over the economy. Consider the Obama approach.

Step One: Hook ‘em with money. It started in 2008 with President George W. Bush’s $700 billion Troubled Assets Relief Program (TARP) to bail out banks holding bad home mortgage loans. There were no actual plans for how to use the money or what strings to attach. Government officials initially didn’t take actually voting seats on banks board but they let it be known that Washington would be calling the shots. But the bucks were so big that few troubled banks could resist the handouts.

In December, departing from the specified purpose of TARP, Bush decided to lend $17.4 billion of those funds to General Motors and Chrysler. TARP became a kind of all-purpose slush fund. Obama’s $787 billion stimulus package, signed into law in February, provided even more bait.

Step Two: Reel ‘em in. The 2009 stimulus package imposed new rules on entities taking handouts, including limits on employee pay and bonuses, golden parachutes, and the size of stockholder dividends. It also set new requirements for government representation on banks' boards of directors. Now that the banks are seeing what strings are attached, a number of them actually want to give back their TARP funds to avoid these regulations.

But most revealing were the provisions in the stimulus package for huge federal expenditures for health care entitlements and education. In past decades the federal government has increased its control of local schools and everyone’s medical care through its funding with regulatory strings attached. Now Obama is poised to place these as well as other sectors under tight federal control through this method: pass out huge, irresistible amounts of cash and then, like a Mafia loan shark owed a huge debt by a business owner, demand control.

Step Three: Make ‘em dance. Consider events in recent weeks. Obama apparently didn’t like GM CEO Rick Wagoner. Or at least we know that auto union boss Ron Gettelfinger didn’t like Wagoner and that the Democrats and unions are strong political allies. So the word went out from Washington that GM had to dump Wagoner as a condition to get more handouts, and that’s what happened.

Citigroup, which has been a principal recipient of bank bailout funds, has recently nominated four new board members at the insistence of the Obama administration. Treasury Secretary Tim Geithner warns of more such moves to come.

In Atlas Shrugged, Ayn Rand portrays a country ruled by pull-peddling politicians and government “advisors” who intimidate entrepreneurs into following their whims. Something similar appears to be happening today as the Obama administration seeks to gain control of the economy, not just through the democratic process of passing laws, as bad as those laws might be, but through political intimidation.

Step Four: Club ‘em if needed. Consider the outrage faced by AIG, which received $182 billion from the Feds, for giving out $165 million in contractually obligated bonuses for its top employees. The emotionally volatile and politically pandering Rep. Barney Frank demanded the names of those who received the bonuses be made public even as AIG employees were receiving death threats.

Congress at first considered placing a 90 percent tax on those bonuses, never mind the Constitution’s ban on “any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contact.” And never mind that it was the Obama administration and its strong supporter Sen. Chris Dodd who specifically exempted such bonuses from federal control.

The Obama administration and Democrats in Congress are taking lessons from Mussolini. Let’s remember that Democrats also have proposed censoring talk radio and eliminating the need for secret ballots in elections to determine whether workplaces unionize. Here we see the government’s the iron fist on display.

The Past’s Revenge

To the extent that Obama and the Democrats succeed in reaching their political goals, they will face the same problems as did socialists in the past.

Like the Soviets, they will want to micromanage the economy, and it won’t work. For example, in light of the AIG bonuses, Barney Frank has introduced a “Pay for Performance Act” that would control all employee salaries at companies that have received government bailout funds. Does he think he can succeed in setting “fair” wages that don’t destroy market incentives where Lenin, Stalin, and Khrushchev failed?

Watch for a revival in years to come of the Democrats’ 1980s “comparable worth” proposals to set “fair” wages nationwide, a feminist version of Marx’s labor theory of value.

Interest group political battles are unavoidable in mixed economies, with disputes usually settled by deals between politicians—some more and some less pro-freedom. Now both Congress and the White House are in the hands of the more anti-freedom Democratic Party, which represents and is the mouth piece for groups seeking special privileges and handouts. Further, people from all walks of life now shuffle to Washington for a piece of the pie. Obama, who claims to want to “transcend” our differences, is likely to face the need to “harmonize” all these interests. Il Duce must be chuckling in his grave.

The Obama administration seems to think that today’s “commanding heights” of the economy are banks, education, health care, and “green” industries and products. Does it think the results of a government takeover of whole sectors will be any different than they were in Europe? Is it intentionally ignoring the fact that the more the federal government has intervened in health care the higher the costs have gone? And does it recognize that the more it has removed control of education from the hands of parents, the more difficult it has become for them to hold school administrators accountable for poor results?

Obama and the Democratic Congress have their own unique ways of seizing economic decision-making from individual Americans and putting it in government hands. But history shows us that when political power rather than individual production and free exchange determine who gets what, the results are wealth destruction and social conflict.

Knowing our enemies is the first step to stopping them. Let’s hope history can give our fellow citizens a wake-up call and give us insights we can use to protect our fragile freedom.

-----

Ed Hudgins directs advocacy and is a senior scholar at The Atlas Society, the Center for Objectivism in Washington, D.C.

For further reading:

*Ayn Rand, “The New Fascism: Rule by Consensus.” In Capitalism: The Unknown Ideal, Ayn Rand, editor.

*Edward Hudgins, “France Labors at Folly.” March 29, 2006.

[Alfonso Jones]

Thanks for writing and posting this.

Bill P

[Ed Hudgins]

You're welcome, Bill! Let's hope that the American people see where The One is taking us before it's too late.

[galtgulch]

You're welcome, Bill! Let's hope that the American people see where The One is taking us before it's too late.

Edward,

I appreciate your post as well.

I am afraid that merely hoping that the American people will see where Obama is taking us will not do the job.

By the time they realize where he is taking us, it will already be too late.

We are reminded from time to time how ordinary people know more about their favorite sports team or the names of the judges on American Idol than they know their own Congressman or the name of the current Supreme Court Justice.

We are distressed to know how little most people know about basic economics or worse how our government is supposed to work. They watch the officials take the oath of office and are satisfied that the Constitution is being followed.

As hard as it is to imagine, my worst nightmare is that Obam does intend to turn this country into a socialist state. I think he intends to be subtle. I heard Peter Schiff say that it may take until the dollar collapse before they will do the right thing. I think they will just grab even more power rather than give it up.

That is why I think we cannot afford to be patient or to give Obam time to see what he intends to do.

If we do that we will wake up one day and find we are in Obam's utopia.

The efforts of all the Objectivist and Libertarian and other freedom loving groups should enlighten the populace on the handful of ideas they need to know to support our pro freedom movement.

www.campaignforliberty.com 6Apr 1PM 138319

gulch

[Ed Hudgins]

Galtgulch -

You're right. Most Americans probably look at Obama as another moderate Democrat a la Clinton who will change things for what they see as the better around the edges but not fundamentally change the American system. That's exactly what Obama and the Dems want them to think.

That's also why we need to do more than just call Obama a "socialist" even though that's what he is though he denies it. Most people don't really know what socialism is. And the word doesn't invoke the adverse negative reaction that it used to.

That's why we must make real to people what socialism is: show them how it will limit their freedom to run their own lives; put them at the mercy of ignorant and oafish bureaucrats and morally- and emotionally-unstable politicians; reduce living standards; and change the basic ethos of America, robbing each individual of the pride of personal responsibility and independence.

A tough task ahead.

[Alfonso Jones]

Galtgulch -

You're right. Most Americans probably look at Obama as another moderate Democrat a la Clinton who will change things for what they see as the better around the edges but not fundamentally change the American system. That's exactly what Obama and the Dems want them to think.

That's also why we need to do more than just call Obama a "socialist" even though that's what he is though he denies it. Most people don't really know what socialism is. And the word doesn't invoke the adverse negative reaction that it used to.

That's why we must make real to people what socialism is: show them how it will limit their freedom to run their own lives; put them at the mercy of ignorant and oafish bureaucrats and morally- and emotionally-unstable politicians; reduce living standards; and change the basic ethos of America, robbing each individual of the pride of personal responsibility and independence.

A tough task ahead.

I'm finding that pointing out that Obama is opposed to freedom, and is driving the government making choices for individuals in an increasing number of venues, is one of the most telling arguments against Obama for many people.

"Socialism" may not stick as a label with the old understanding (though it was certainly dodged during the campaign!) . . . but not being free to purchase YOUR choice of products does, and not being able to spend your money the way you choose does. As does being required to fund incompetent businesses...

Bill P

[galtgulch]

Edward et al,

I mentioned Peter Schiff who was on Morning Joe with Mike Barnacle and the question was: "Will they ever do the right thing?" Joe commented that although Schiff's solution made sense, that it didn't make political sense as there was no way the govt was going to shrink itself, drastically reduce its spending, stop printing money, and not respond to the pleas of those out of work who sought for the politicians to do something.

Mike Barnacle wondered that they will never do it and when Schiff said they will have to ultimately, Barnacle asked when?

Schiff responded that as long as they put off doing the right thing the problems will only get worse, more people will become unemployed, more inflation will manifest itself with rising pricesl, therefore to his way of thinking the govt will be forced into finally stopping their interventions.

I paraphrased him above. I think he is wrong in his conclusion, but certainly correct in his superficial analysis. I call it superficial because he is only approaching the problems from an economic and not a philosophical standpoint. He has read enough Austrian economics to know the errors if not the evil of govt interventions, and the necessity to allow the market to correct itself.

I can imagine that we all breath a sigh of relief in four or eight years when Obama slinks off the world stage leaving a country in far worse condition than it is now as a result of his policies. Things will surely be so bad that the next election or the one after that will see a clash of monumental proportion between those seeking the presidency.

It is conceivable that if Obam can maintain his popularity and succeeds in displacing the blame to others, he might seek to repeal the Amendment limiting his presidency to eight years.

In the meantime I see the Campaign For Liberty growing to become a force to be reckoned with in the millions if not tens of millions. I appreciate your posting here at OL and see that as preaching to the choir. I am hoping that you will contact the people in the upper echelons of the Campaign For Liberty and post articles there where they might be read by the activists within the C4L pro freedom movement.

Ron Paul did recommend Ayn Rand's novels in his best seller The Revolution: A Manifesto and I have been encouraging that Ron Paul supporters read her essays as well. I also have listed links to Objectivist sites and Austrian economics sites but they do scroll out of sight. It would help the cause to have the 139K plus exposed to Ayn Rand's philosophy.

www.campaignforliberty.com 6Apr 5PM 139493

gulch

Edited April 6, 2009 by galtgulch

[Ed Hudgins]

First, an addendum to my piece. I mention that "Now that the banks are seeing what strings are attached [to bailout bucks], a number of them actually want to give back their TARP funds to avoid these regulations."

Now we see this:

"Obama Wants to Control the Banks

There's a reason he refuses to accept repayment of TARP money."

http://online.wsj.com/article/SB123879833094588163.html

Once they have power they don't want to give it away.

----

Second, galtgulch, et al., we're indeed trying to reach out with our message. In fact I noticed that my "Grab-Bag Socialism" piece is posted on the Daily Paul:

http://www.dailypaul.com/node/88777

I addressed the Students for Liberty event in DC in Feb. and the Campaign for Liberty folks at CPAC passed out copies of The New Individualist.

And we're getting in other venues as well. We really are in a campaign for liberty!

[Alfonso Jones]

First, an addendum to my piece. I mention that "Now that the banks are seeing what strings are attached [to bailout bucks], a number of them actually want to give back their TARP funds to avoid these regulations."

Now we see this:

"Obama Wants to Control the Banks

There's a reason he refuses to accept repayment of TARP money."

http://online.wsj.com/article/SB123879833094588163.html

Once they have power they don't want to give it away.

----

Second, galtgulch, et al., we're indeed trying to reach out with our message. In fact I noticed that my "Grab-Bag Socialism" piece is posted on the Daily Paul:

http://www.dailypaul.com/node/88777

I addressed the Students for Liberty event in DC in Feb. and the Campaign for Liberty folks at CPAC passed out copies of The New Individualist.

And we're getting in other venues as well. We really are in a campaign for liberty!

I thank you and others for speaking out. We must all name what we are seeing for what it is . . . an amazingly large and bold power grab. Seizing, for starters, control of the financial community and the automotive supply chains. Later, . . .

Freedom is at risk.

Bill P

[Rich Engle]

I always say every election is the worst one, but this time it was definitely horrorshow quality.

And there was no question that housecleaning would occur. Dubya's handlers, even, were disgusted with his emerging psychosis.

But this, this is Orwellian nightmare stuff. Arguably, the guy could be identified as the Antichrist, by attributes alone, if you're into that kind of thought.

This is going to start as socialism, but it will end fascist as shit. Need I bring up functional examples?

rde

And his ears are weird and he has GI Joe hair and his wife is a bitch.

[Chris Grieb]

Rich; Let's leave out Obama's ears, hair and wife. The issues and time are too important.

[Alfonso Jones]

Rich; Let's leave out Obama's ears, hair and wife. The issues and time are too important.

You beat me to it, Chris. (I was having dinner...)

There are a multitude of issues of substance regarding Obama. He is a statist. He obviously deliberately misrepresented himself - recall all his protestations that he was "not a socialist."

He has obviously never outgrown/forsaken his early Saul Alinsky, Rev. Wright upbringing and is bringing those sensibilities into his presidency.

There are just too many things of substance. Ridicule is a legitimate tool. But it ought not be based on matters such as physical characteristics, etc... Do it on matters of substance.

Make fun of his "I'll never X" followed by "I'm doing X." Make fun of his "tax cuts for 95%" which has turned into "tax cuts for nobody." Etc.

Regards,

Bill P

[galtgulch]

Second, galtgulch, et al., we're indeed trying to reach out with our message. In fact I noticed that my "Grab-Bag Socialism" piece is posted on the Daily Paul:

http://www.dailypaul.com/node/88777

I addressed the Students for Liberty event in DC in Feb. and the Campaign for Liberty folks at CPAC passed out copies of The New Individualist.

And we're getting in other venues as well. We really are in a campaign for liberty!

Ed,

Your piece was posted on the daily paul site because I copied it and pasted it there. It scrolled off so I replied to it with another pump for the Atlas Society and it scrolled off again so I pumped it one more time when I got home from work today. It is encouraging that the numbers of members keeps going up, now 140043, but it remains to be seen just where their minds are on the crucial issues and how open to reason they are where we differ. 7Apr 8PM 140099

gulch

Edited April 8, 2009 by galtgulch