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PBR: The Old System under a New Guise

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This past week, President Obama forced the CEO of General Motors to resign. The real significance of this may be lost on most people. Some might say, “Well, if General Motors is not doing well, the CEO should be replaced.” The major difficulty with this is that this is a special power of the GM Board of Directors, not the President of the United States. Effectively, this makes President Obama the Board of Directors of General Motors, and any other company he wants to control, and makes the Board a mere figurehead. Slowly but surely, this is moving us to a fascist form of government. In fascism, the companies still exist, but the government tells them what to do. This was similar to Mercantilism, which was the predominant economic system in Europe from about the 1600s until 1800, more or less. Mercantilism was the system of economics that Adam Smith wrote against in his famous An Inquiry into the Nature and Causes of the Wealth of Nations, which most people shorten to the cryptic Wealth of Nations. Smith was trying to show that government control of business impoverishes nations. Instead, he posited “a system of natural liberty,” which allowed people to follow their natural pursuits, take on the risk of doing so, and allow the market, that is, the countless decisions of people, to decide the outcome. It was the realization of the truth that Smith expressed in his work that subsequently brought prosperity to countless nations.

Now we are returning to the old system, under a new guise. Secretary of the Treasury Timothy Geithner recently asked Congress to grant him unprecedented power to shut down any company that, in his opinion, is dangerous to the overall economy. Note that there are no specifics to this power—it would be at his discretion. For those who have read my blog entries “The Economics of Politics,” you can see that all of this is a grab for what politicians live for—power, and power alone. Politics attracts those kinds of people. When asked by a Congresswoman where in the Constitution he went to get justification for this type of power, Geithner expressed incoherent babbling. It did not seem ever to cross his mind that he needed Constitutional justification for such an assumption of power. Again, this is typical of fascism. A crisis is, if not created, then hyped, panic flamed up, and people in this panic are willing to trade their freedom for security. Only too late will they realize that the situation was not as bad as the self-interested government officials portrayed it. The power will have been granted, and only a miracle will pry it away from the hands of the government. Once taken, government almost always keeps a power.

Getting back to General Motors, its problems go all the way back to government-imposed protective tariffs, which are a remnant of Mercantilism. Corporations seek to be protected from foreign competition so they do not have to work to keep up. The government, bowing to pressure and false economic theories, puts tariffs and quotas on imports to raise their prices higher than those of the domestic product; in this case, cars. The car makers then can do whatever they want because consumers face a choice of either us or nothing. In the 1970s, when we began allowing imports, the American car companies were caught, and almost went out of business. They finally got their act together when a new wave of government regulation on cars was imposed, thus raising the cost of domestic cars. To boot, the latest situation is that the Federal government is dictating to the car companies what types of cars to make, all in an effort to be “green.” The problem is that the market does not want these cars, so the company is forced to spend millions on cars they cannot sell. Then the government says, “Oh, it would be terrible if the companies failed; so many would be put out of work. So we have to bail them out again, and since we are ponying up the money, we now have a controlling interest in them, we can call the shots, we can tell the company what to produce, we can fire the executives, and when the company comes in with a loss, we blame the company again, bail them out again . . . .” And the circle continues. Remember, this government is the same one that has brought us the Post Office, the Department of Motor Vehicles and the public school system. All those who believe that the government can bring us out of a recession should remember that it was the government that caused it in the first place. Remember the housing bubble?

What a racket!

Read more from Dr. Luckey at “Catholic Truths on Economics.”

William Luckey Dr. William R. Luckey is Professor of Political Science and Economics at Christendom College and has expertise in Political Philosophy, Business and Economics, and Theology. He is an Adjunct Scholar of the Mises Institute and of the Acton Institute for the Study of Religion and Liberty.


  • I agree with you that the Obama administration is doing the auto companies a disservice by calling the shots, especially forcing them to craft a turn-around plan that is focused on satisfying the auto task force instead of being market-focused. For example, forcing them out of the SUV business will simply leave that segment of the market exclusively to a whole host of imported SUVs.

    However, I disagree with you regarding the role of tariffs in the demise of the auto companies. If anything, the lack of tariffs on imports is the problem. By granting free access to our market to ever more foreign manufacturers, while either getting no access to their markets in return or getting access to markets emaciated by overpopulation, we are simply painting the domestic auto companies into an ever-shrinking corner, driving down their sales volumes.

    Pete Murphy
    Author, “Five Short Blasts”

  • While the control of industry by the government is an historical means and end of fascist parties, I would say there ends the similarity on an immediate level. It may be more appropos to describe it as socialist. For instance, Fascism has nationalism and ethnic unity as one of its explicit ends, and socialism has internationalism and a superficial sort of diversity instead. Clearly the Obama regime is moving us toward the latter.

    Which is, of course, not to disagree with Kuehnelt-Leddihn that socialism and fascism spring from the same root.

  • Ken

    From his photo I’d gauge that Bill Luckey and I are about the same age. And that means we have faint memories but memories none the less of those post WWII times when big steel and big labor duked it out over wages AND benefits and big auto got pulled into the mess that “kind of” ended with President Eisenhower inserting the U.S. government into the “mediation” that gave labor what it wanted and launched us into escalating wage demands.

    I think Pete Murphy ignores the mighty investment by foreign auto makers, especially the Japanese, that was required and welcomed in the U.S.. Detroit needed and was aided in making better products by the competition from abroad. But no one should be delusional as to at least one Japanese car makers strategic plan in setting up U.S. production. NO UNIONS. It’s no secret that if forced to unionize their factories and mills, Toyota would get out of Dodge quickly. Pete also seems to ignore those assembly plants for BMW, Mercedes Benz et al that dot the southeast landscape. Those aren’t burger flipping jobs. But I will concede that the local Chambers of Commerces have given away the farm in enticing these companies to their corn and tobacco fields.

    The hidden culprit in ALL of our business enterprises is REGULATION. Last year I was asked by several clients to help them find HS&E [health, safety, environment] people due to increased OSHA and EPA demands. In the process of looking I found several colleges — really trade schools with ivy — that had cobbled together a major course of study that would graduate the perfect candidate to protect us from one another, at least in the workplace, by collecting data and filing forms that the government required of business. A chemical plant on the Ohio River files its 3000 forms electronically. Caterpiller hires the top 20 of each class graduating with the HS&E certificate from a not to be named Missouri campus — at least they did up to last fall. I’d wager its about even with the number of engineers they hire. Get my point?

    Where I live it’s not unusual to see large numbers of bicycling enthusiasts peddling expensive bikes down the byway dressed to the nines in the latest colorful garb and protective head gear. At red lights they power through the intersection; along narrow roads they ride side by side and not in a single line;
    and at spots where there’s merging traffic they demand right-of-way and seldom use the hand signals Mr. Luckey and I learned while still on the three wheeler.

    It’s no surprise that fascism raises its ugly head from time to time. I’m thinking that just about the time some Transportation Secretary mandates protective head gear for automobile occupants, the public will wake up, realize that there is only one Messiah and he’s not in D.C., and demand an end to the notion that life can be without risk.

    But that’s not a sure thing.

  • BAW

    I don’t know where that paragraph about cyclists comes from; it seems to have nothing to do with the rest of the post.

  • I don’t see a paragraph about cyclists.

  • Ken

    Mr. Luckey has responded to BAW’s comment without reading the entries above it. That is one of the problems with “new media” and these instantaneous cyber conversations. They do have the feel of a lagging time delay remote broadcast where asked questions linger and sometimes the questioner will even ask twice; the responder answering in the middle of the confusion, or maybe even to a question not asked of him.

    For BAW: the cyclist story is a kind of parable. The cyclists represent those of us who bond together to exercise or work and outfit ourselves appropriately — think college or advanced degree. Their sojourn on the byway is life or work wherein they huddle with others and can be ignorant or disrespectful of rules of the road on their selfish trek to success. The helmet specifically is the extra protection they wear that allows them — in their fantasy — to act as described above and not meet some calamity. That might include a lost portfolio because they chose to believe that one could get legitimate 8% returns while banks were lending at 5%. (Going off-road down bumpy mountainsides would describe those who signed up to get 15% or more. It also describes those in Congress who prodded a lending industry to succumb to its inner devil and took a fraction of their action in the process.)

    So the helmet is also the government or a shark lawyer who will shakedown or prophylactically regulate someone else to insure the rider emerges from his outing without harm and bolster the myth that life is without risk.

    Sorry to be so oblique.

    Re: fascism v. socialism I agree with Curmudgeon.

  • daniel

    GM should have been allowed to go under in the last days and minutes of the Bush era. However that’s not reality. Since the previous administration forced the taxpayers into becoming shareholders at GM and a host of other NGO’s because they are too big to fail, I think it is appropriate for Obama to act in the best interests of the creditors (US taxpayers)to send a message to the GM organization and others, change or die. My view of the too big to fail doctrine is they are probably too big to exist if they cannot accept the notion that business is risk and loss is one possible outcome of taking a risk.

  • Tracy Jue

    I noticed most of the comments don’t described the Government as improving GM economically but rather creating a nice safe and regulated environment. I think the government should offer GM (board of directors) an incentive to improve their to come up with a plan or two change their direction. The government has great organizations for assistance and regulation support but not running a corporation.

  • Neal Lang

    “However, I disagree with you regarding the role of tariffs in the demise of the auto companies. If anything, the lack of tariffs on imports is the problem. By granting free access to our market to ever more foreign manufacturers, while either getting no access to their markets in return or getting access to markets emaciated by overpopulation, we are simply painting the domestic auto companies into an ever-shrinking corner, driving down their sales volumes.”

    What country has “free access” to the US auto market? Obviously not those who have built plants in the US.

    In his mid-19th Century book “The Law”, Frédéric Bastiat stated that “Slavery and Tariffs Are Plunder”:

    “What are these two issues? They are slavery and tariffs. These are the only two issues where, contrary to the general spirit of the republic of the United States, law has assumed the character of a plunderer.

    “Slavery is a violation, by law, of liberty. The protective tariff is a violation, by law, of property.

    “It is a most remarkable fact that this double legal crime — a sorrowful inheritance from the Old World — should be the only issue which can, and perhaps will, lead to the ruin of the Union. It is indeed impossible to imagine, at the very heart of a society, a more astounding fact than this: The law has come to be an instrument of injustice. And if this fact brings terrible consequences to the United States — where the proper purpose of the law has been perverted only in the instances of slavery and tariffs — what must be the consequences in Europe, where the perversion of the law is a principle; a system?”

    We fought a Civil War to remove one form of “legal plunder”. When will we get rid of the other “legal plunder” – tariffs?

    And what is “legal plunder”? According “The Law” it is:

    “Legal Plunder Has Many Names

    “Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism.

    “Now, since under this definition socialism is a body of doctrine, what attack can be made against it other than a war of doctrine? If you find this socialistic doctrine to be false, absurd, and evil, then refute it. And the more false, the more absurd, and the more evil it is, the easier it will be to refute. Above all, if you wish to be strong, begin by rooting out every particle of socialism that may have crept into your legislation. This will be no light task.”

    Hmmm! Old Frédéric Bastiat might have been on to something!

  • Neal Lang

    How do we deal with the “Legal Plunder” which is Socialism?

    Again, “The Law” informs us:

    “Socialism Is Legal Plunder

    “Mr. de Montalembert has been accused of desiring to fight socialism by the use of brute force. He ought to be exonerated from this accusation, for he has plainly said: “The war that we must fight against socialism must be in harmony with law, honor, and justice.”

    “But why does not Mr. de Montalembert see that he has placed himself in a vicious circle? You would use the law to oppose socialism? But it is upon the law that socialism itself relies. Socialists desire to practice legal plunder, not illegal plunder. Socialists, like all other monopolists, desire to make the law their own weapon. And when once the law is on the side of socialism, how can it be used against socialism? For when plunder is abetted by the law, it does not fear your courts, your gendarmes, and your prisons. Rather, it may call upon them for help.

    “To prevent this, you would exclude socialism from entering into the making of laws? You would prevent socialists from entering the Legislative Palace? You shall not succeed, I predict, so long as legal plunder continues to be the main business of the legislature. It is illogical — in fact, absurd — to assume otherwise.

    “The Choice Before Us

    “This question of legal plunder must be settled once and for all, and there are only three ways to settle it:

    1. The few plunder the many.
    2. Everybody plunders everybody.
    3. Nobody plunders anybody.

    “We must make our choice among limited plunder, universal plunder, and no plunder. The law can follow only one of these three.

    “Limited legal plunder: This system prevailed when the right to vote was restricted. One would turn back to this system to prevent the invasion of socialism.

    “Universal legal plunder: We have been threatened with this system since the franchise was made universal. The newly enfranchised majority has decided to formulate law on the same principle of legal plunder that was used by their predecessors when the vote was limited.

    “No legal plunder: This is the principle of justice, peace, order, stability, harmony, and logic. Until the day of my death, I shall proclaim this principle with all the force of my lungs (which alas! is all too inadequate). [2]

    “The Proper Function of the Law

    “And, in all sincerity, can anything more than the absence of plunder be required of the law? Can the law — which necessarily requires the use of force — rationally be used for anything except protecting the rights of everyone? I defy anyone to extend it beyond this purpose without perverting it and, consequently, turning might against right. This is the most fatal and most illogical social perversion that can possibly be imagined. It must be admitted that the true solution — so long searched for in the area of social relationships — is contained in these simple words: Law is organized justice.

    “Now this must be said: When justice is organized by law — that is, by force — this excludes the idea of using law (force) to organize any human activity whatever, whether it be labor, charity, agriculture, commerce, industry, education, art, or religion. The organizing by law of any one of these would inevitably destroy the essential organization — justice. For truly, how can we imagine force being used against the liberty of citizens without it also being used against justice, and thus acting against its proper purpose?

    “The Seductive Lure of Socialism

    “Here I encounter the most popular fallacy of our times. It is not considered sufficient that the law should be just; it must be philanthropic. Nor is it sufficient that the law should guarantee to every citizen the free and inoffensive use of his faculties for physical, intellectual, and moral self-improvement. Instead, it is demanded that the law should directly extend welfare, education, and morality throughout the nation.

    “This is the seductive lure of socialism. And I repeat again: These two uses of the law are in direct contradiction to each other. We must choose between them. A citizen cannot at the same time be free and not free.”

    There was a time in the US when school children studied the Declaration of Independence, the Constitution, and Frédéric Bastiat’s “The Law”. Of course, this was before the philosophy of John Dewey took over the public education system of our country.

  • Neal Lang

    “The doctrine that places the moving force of Society in the legislators and Government results in imposing crushing responsibilities on them in matters where they ought to have none. If there is suffering, the fault is the Government’s; if there is poverty, the fault is the Government’s – Is it not the general and sole motor of society? If the motor is not good, it must be discarded and replaced by another.” Frédéric Bastiat (1801 – 1850) at:


    Dear Sir,

    I don’t know exactly the theme you are treating.
    But I remember the favorable position you took on behava of the War in Irak the 2002. You started to confirm that O.N.U. was weak and Bush did well to decide the war in place of Unite Nations who were failling. Director Siroki of the Acton Institute sustened the war.
    But after all the disastress due to that war I never hear him again write about it.
    So I am very reserved to what your Institute write about the politic ussues.
    It seems that to you it depends to whom you deal for sustain or non sustain. Which means that the politic analyse you do someome has to be carreful to spouse your comments.



  • Rev. Bindanda;

    I do not know to what you are referring. I write about economics, not fireign policy, whichj is out of my speciality.

  • SteveD

    I am inclined to agree that what we are seeing is not socialism, but fascism — and in a form very similar to the democratic fascism of modern France, aka dirigisme. NEarly all French corporations have some degree of State ownership, either directly or through the national banking system. The State ownership, no matter how small the stake, confers upon the State what the French call the “golden share” — even a minority stake has at least veto control over any and all actions brought before the Bd. of Directors.

    The grim reality is that the US automakers are burdened by a combination of constraints not shared by foreign firms. Most foreign firms operate in economies where health benefits are not expected from employers, and certainly not for retirees. Most foreign firms operate in labor environments where either BOTH unions and manufacturers are covered by antitrust/anticartel rules, or neither are. Finally, most foreign firms operate in home markets that are protected by tariffs or “non-tariff constraints on trade.”

    Chrysler is once again being sold to a foreign company, this time FIAT, which means that Chrysler will have an Italian “golden share” as well as a US “golden share.” The mechanics of this deal will be very interesting — how will the interests of US and Italian gov’ts, as well as FIAT stockholders, Cerberus (the US owners), and the UAW be worked out. I expect a bigger fiasco than the “merger of equals” Daimler buyout proved to be for all concerned.

    The best hope for GM would be a carefully supervised bankruptcy reorganization (Chapter 11 or 13), under which GM’s pension commitments would be federalized (as has happened for many railroad, steel, and airline workers), and it would be able to selectively rehire workers without having to deal with the UAW. Unfortunately, the Obama Administration and Democratic Congress are silently but firmly insistent that ANY auto maker bailout/restructuring must leave the UAW and its minions fully protected, no matter the impact on the taxpayers, stockholders, or the thousands of small business owners who make up the dealer and supplier base for the no-longer-Big-Three.