The Free Market 10, no. 1 (January 1992)
Now that communism has collapsed, the most powerful socialist force in the world is the coalition between George Bush and the national Democratic Party. The Washington establishment has learned absolutely nothing from the collapse of socialism. It still ignores Ludwig von Mises and the Austrian School by responding to its worldwide collapse with—you guessed it—more socialism.
No one is advocating the complete nationalization of industry and comprehensive central planning. Rather, they push a different kind of socialism. As Mises described it in his 1950 essay, “Middle-of-the-Road Policy Leads to Socialism,” America is becoming more and more socialist because “all the economic activities of all citizens are subject to... control of the government and its agencies.” If carried far enough, Mises forecasted, “the people are reduced to the status of wards, unconditionally bound to obey orders.” Consider some of the handiwork of the Bush-Democrat coalition.
One of the first appointments made by President Bush, was Richard Darman, who left the Kennedy School of Government and his colleague Michael Dukakis to direct the Office of Management and Budget. The cheers of Darman’s colleagues at the Kennedy School—a training ground for those who wish to bureaucratize America—could soon be heard all the way to Washington. During the first two years of the Bush administration, domestic federal spending in real dollars grew 10% per year, the most rapid two-year spending splurge since the Great Depression and ten times faster than during the Reagan administration.
Having eliminated any restraints that had existed on federal spending, the Bush administration was soon faced with a “deficit crisis.” The Washington establishment, which for decades had followed Keynes in insisting that as long as there is unemployment, deficit spending is desirable, then repudiated Keynes and called for a massive tax increase ostensibly to reduce the deficit. Behind closed doors and a series of secret meetings, the Bush administration and the Democrat-controlled Congress conspired to enact the largest tax increase in U.S. history—in the middle of a recession—under the guise of the “Deficit Reduction Act of 1990.”
By hampering the economy and encouraging a wild spending binge by Congress, which found money for such items as more of Jack Kemp’s public housing, the “deficit reduction act” caused the deficit to increase by over $100 billion. Now that the federal deficit is larger than it ever was during the Reagan administration, one hears barely a peep about it in Washington, for the Washington establishment, personified by George Bush, got what it wanted—a massive redistribution of wealth from the taxpayers to the bureaucracy.
While it was eliminating any semblance of fiscal responsibility, the Bush-Democrat coalition in Washington simultaneously got rid of virtually all the Reaganite deregulators and replaced them with the likes of Janet Steiger, the new chairman of the Federal Trade Commission, whose qualifications are that her late husband was a congressional crony of George Bush’s, and she once served as a Postal Commissioner. The FTC now brags about being the kind of “tough cop” it was during the Carter administration when Ralph Nader’s associates ran the agency.
Federal regulatory spending, now exceeding $8 billion annually, has never been higher. Nevertheless, the amount is but a drop in the regulatory-cost bucket; regulation imposes hundreds of billions of dollars of costs on the economy annually for no benefits. As 1991 Nobel Laureate Ronald Coase once wrote, of all the hundreds of published studies on the effects of regulation, “the main lesson to be drawn” is that “regulation is either ineffective or... when it has a noticeable impact, on balance the effect is bad,” and consumers obtain a worse product at a higher price.
A perfect example of this is the Bush administration’s 1990 Clean Air Act Amendment, which is expected to cost businesses and consumers an additional $50 billion per year to nonexistent problems such as acid-rain. The federal government ignored its own $600 million, 10-year study on acid rain, in which all the world’s best scientists concluded that acid rain really wasn’t a problem in the U.S. The only major “beneficiaries” of the act are members of the Washington regulatory establishment, whose power and budgets have been greatly enhanced, and a few large corporations who will face reduced competition from smaller and now overburdened firms.
Another recent example of regulation run-amok is the 1990 “Americans With Disabilities Act,” which purposely ignored the myriad ways in which businesses and their employees and customers cooperate voluntarily to accommodate the handicapped. Instead, it substitute a law that will pile mountains of new, costly, and unproductive regulations on every business in America. By making it more costly to hire the handicapped, this act will harm the handicapped in the workforce, making them pariahs in hiring and promotion battles, while costing businesses and consumers untold billions.
Also in the ashes of the Bush recession is the rule of law. The new “civil rights” act throws out the principle that employers, like other citizens, are to be presumed innocent until proven guilty; the burden of proof will be on them to prove that they do not discriminate by race in their hiring. This act will entrench the racial spoils system in America, and further skew the labor market and increase racial tensions.
One of the very first economic policy initiatives of the Bush administration was raising the minimum wage by 25%, thereby destroying job opportunities for thousands of young people. This set the tone for this extraordinary round of interventionism.
To top it all off, Bush and the Democrats engineered an extension of unemployment benefits for people presently out of work. This seemingly innocuous measure prevents wages from adjusting downward as they must during a recession. And it allows one of the very conditions that defines a recession (unemployment) to continue unabated. It’s a fitting capstone to Bush’s made-in-Washington recession.
