Who Owes What To Whom?

Lawrence W. Reed is president of the Foundation for Economic Education in Irvington, New York—www.fee.org.This essay has been adapted for CEIL by the author from his essay of the same title in the May 2009 issue of FEE’s journal, “The Freeman.”)

For a society that has fed, clothed, housed, cared for, informed, entertained, and otherwise enriched more people at higher levels than any in the history of the planet, there sure is a lot of groundless guilt in America (and even more in most other Western countries).

Manifestations of that guilt abound. The example that disgusts me the most is the one we often hear from well-meaning philanthropists who adorn their charitable giving with this little chestnut: “I want to give something back.” It always sounds as though they’re apologizing for having been successful.

Translated, that statement means something like this: “I’ve accumulated some wealth over the years. Never mind how I did it, I just feel guilty for having done it. There’s something wrong with my having more than somebody else, but don’t ask me to explain how or why because it’s just a fuzzy, uneasy feeling on my part. Because I have something, I feel obligated to have less of it. It makes me feel good to give it away because doing so expunges me of the sin of having it in the first place. Now I’m a good guy, am I not?”

It was apparent to me how deeply ingrained this mindset has become when I visited the gravesite of John D. Rockefeller at Lakeview Cemetery in Cleveland a couple years ago. The wording on a nearby plaque commemorating the life of this remarkable entrepreneur implied that giving much of his fortune away was as worthy an achievement as building the great international enterprise, Standard Oil, that produced it in the first place. The history books most kids learn from these days go a step further. They routinely criticize people like Rockefeller for the wealth they created and for the profit motive, or self-interest, that played a part in their creating it, while lauding them for relieving themselves of the money.

More than once, philanthropists have bestowed contributions on my organization and explained they were “giving something back.” They meant that by giving to us, they were paying some debt to society at large. It turns out that, with few exceptions, these philanthropists really had not done anything wrong. They made money in their lives, to be sure, but they didn’t steal it. They took risks they didn’t have to. They invested their own funds, or what they first borrowed and later paid back with interest. They created jobs, paid market wages to willing workers, and thereby generated livelihoods for thousands of families. They invented things that didn’t exist before, some of which saved lives and made us healthier. They manufactured products and provided services, for which they asked and received market prices. They had willing and eager customers who came back for more again and again. They had stockholders to whom they had to offer favorable returns. They also had competitors, and had to stay on top of things or lose out to them. They didn’t use force to get where they got; they relied on free exchange and voluntary contract. They paid their bills and debts in full. And every year they donated some of their profits to lots of community charities no law required them to support. Not a one of them that I know ever did any jail time for anything.

So how is it that anybody can add all that up and still feel guilty? I suspect that if they are genuinely guilty of anything, it’s allowing themselves to be intimidated by the losers and the envious of the world–the people who are in the redistribution business either because they don’t know how to create anything or they simply choose the easy way out. They just take what they want, or hire politicians to take it for them.

Or like a few in the clergy who think that wealth is not made but simply “collected,” the redistributionists lay a guilt trip on people until they disgorge their lucre-notwithstanding the Tenth Commandment against coveting. Certainly, people of faith have an obligation to support their church, mosque, or synagogue, but that’s another matter and not at issue here.

Real Giving Back

A person who breaches a contract owes something, but it’s to the specific party on the other side of the deal. Steal someone else’s property and you owe it to the person you stole it from, not society, to give it back. Those obligations are real and they stem from a voluntary agreement in the first instance or from an immoral act of theft in the second. This business of “giving something back” simply because you earned it amounts to manufacturing mystical obligations where none exist in reality. It turns the whole concept of “debt” on its head. To give it “back” means it wasn’t yours in the first place, but the creation of wealth through private initiative and voluntary exchange does not involve the expropriation of anyone’s rightful property.

How can it possibly be otherwise? By what rational measure does a successful person in a free market, who has made good on all his debts and obligations in the traditional sense, owe something further to a nebulous entity called society? If Entrepreneur X earns a billion dollars and Entrepreneur Y earns two billion, would it make sense to say that Y should “give back” twice as much as X? And if so, who should decide to whom he owes it? Clearly, the whole notion of “giving something back” just because you have it is built on intellectual quicksand.

Successful people who earn their wealth through free and peaceful exchange may choose to give some of it away, but they’d be no less moral and no less debt-free if they gave away nothing. It cheapens the powerful charitable impulse that all but a few people possess to suggest that charity is equivalent to debt service or that it should be motivated by any degree of guilt or self-flagellation.

A partial list of those who honestly do have an obligation to give something back would include bank robbers, shoplifters, scam artists, deadbeats, and politicians who “bring home the bacon.” They have good reason to feel guilt, because they’re guilty.

But if you are an exemplar of the free and entrepreneurial society, one who has truly earned and husbanded what you have and have done nothing to injure the lives, property, or rights of others, you are a different breed altogether. When you give, you should do so because of the personal satisfaction you derive from supporting worthy causes, not because you need to salve a guilty conscience.

Of Social Snowflakes…

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University in Canton, NY. He has been a visiting scholar at Bowling Green State University and the Mercatus Center at George Mason University.

My RSS reader this morning brought me this post from Marginal Revolution, which contains a spectacular close-up picture of a snowflake, taken from a book of such pictures. As I hope it does for you, just looking at that photo brought me up short and made me stop in awe, reverence, and wonder. The intricacy, detail, complexity, and sheer beauty of that product of nature cannot be captured in words. And when you stop to consider the uncountable number of snowflakes that fall each year (most of them on my driveway it would seem), all of that awe is upped an order of magnitude.

When I see that snowflake, it engages my reverence for the beauty of the undesigned order of the natural world. Look at the symmetry and detail of that snowflake, and then consider that is the product of undesigned natural processes. I find it an object of awe that natural processes can produce a thing of such detail, complexity and beauty. It is said that only God can make a snowflake. Well for those who understand the science, or who are atheists, we know that you don’t need God to do so. But even to an atheist like myself, the spontaneous order of nature can (and should!) generate the same awe, reverence, and wonder that the contemplation of God generates in those who believe. Unfortunately, whenever my wonder at the beauty of nature is engaged, it is with a tinge of frustration.The frustration I feel is that so many smart and caring people seem unable to see and appreciate the identical processes of undesigned order in the social world. “Social snowflakes” are all around us, yet precious few seem to be able to understand and appreciate them to the degree we do the snowflakes found in nature. And too many people think that these “social snowflakes” require a “Creator.”

That snowflake produces in me the same aesthetic-emotional reaction I have when I begin to think about Leonard Read’s “I, Pencil,” or when I ponder the intricate, detailed, complex, and beautiful processes by which Chilean grapes appear in my grocery store in rural New York in the middle of winter. The pencil and the grapes are “social snowflakes”: they look simple, but when we hold them still and examine them with the analogous level of detail as that photo produces in the snowflake, they turn out to be the products of extraordinarily complex and intricate social processes that were designed by no one. My aesthetic reaction of awe and wonder is a response to what Pete Boettke, in a perfect turn of phrase, recently referred to as “the mystery of the mundane.” What is more mundane than a snowflake? And yet what, it turns out, is more beautiful and complex than a snowflake? And in the way their mundane surface appearances hide processes of production whose awesome complexity was the product of human action but not human design, and should equally be a source of aesthetic and intellectual contemplation, the pencil and grapes are indeed “social snowflakes.”

My fervent wish for the 21st century is that more smart and caring people can begin to see and appreciate “social snowflakes.” People who are so willing to accept the existence and beauty (and benevolence!) of undesigned order in the natural world should be more willing to open themselves to the possibility that there are processes of undesigned order at work in the social world too. These people know that no one can make a snowflake, but seem blind to the fact that much of the innocent blood that was spilled in the last century was because too many people thought they could intelligently design the social world. Not repeating those mistakes will require a renewed aesthetic appreciation of, and deep desire to understand, the awesome beauty and complexity of the undesigned order of “social snowflakes.”

Government Education Reinvents Government

Lawrence W. Reed is president of the Foundation for Economic Education in Irvington, New York—www.fee.org.This essay has been adapted for CEIL by the author from his essay of the same title in the December 1999 issue of FEE’s journal, “The Freeman.”

Perhaps the most important principle one can ever learn about the nature of government is this: It is different from all other institutions in society because it is the only one that can legally employ force. Unfortunately, it is a principle that has been largely erased from the Western memory bank. More than a hundred years of compulsory public education in most Western countries may be largely to blame.

Let’s get something straight before we go any further. To note that government rests on the use of force is not some radical anarchist idea. It is the very definition of the institution and its ultimate distinguishing feature. For much of the last half millennium, political scientists of virtually every stripe accepted the notion as fact. No respectable scholar tried to paper it over and pass government off as some kind of voluntary, benevolent society.

America’s founders understood this principle well and crafted a regime that never purported to eliminate force; they only sought to restrict it to a narrow sphere of life and thereby preserve a large measure of individual liberty. George Washington is often credited with saying (I’ve not been able to verify it), “Government is not reason. It is not eloquence—it is force! Like fire it is a dangerous servant and a fearful master.” In other words, even when government does no more than what Washington wanted it to do, and when it does those few things very well as a “servant” of the people, it’s still dangerous because behind it all is the employment of legalized force.

The Yellow Light

A deeply rooted understanding of this inherent character of government is a pillar of the free society. It’s the yellow caution light that prompts wise and peaceful citizens to deliberate long and hard before accepting an expansion of government duties. It creates a healthy skepticism about seductive schemes to supplant private initiative with public action. It discourages attempts to impose a collective conformity at the expense of the individual.

If you are an advocate of the free society today, you surely have noticed an erosion in the understanding of this principle. It may not be an exaggeration to assert that the erosion has been massive and far more deleterious to our liberty and well-being than all but a few ever imagined.

This point struck me hard recently when I read a letter to the editor of a local newspaper. The letter writer was responding to a previously published commentary by a man who had argued that novelist Ernest Hemingway opposed government funding of the arts because he felt that artists should be independent of political influence. She took issue with the commentator on the grounds that Hemingway “did accept money from benefactors.” Accepting money freely given by patrons, in the mind of the letter writer, was indistinguishable from accepting money from the government.

Similarly, I have witnessed countless occasions when individuals argued that if government does something and is well intentioned, it couldn’t possibly be coercive; or, that if it’s “democratic,” it’s somehow voluntary. The mere fact that politicians are elected validates almost whatever they do as nothing more than consensual acts between altruistic adults. A much more sober and rational view of the limitations of a democratic republic, preferable though it is to any other form of government, is the one that describes it as two wolves and a lamb voting on what to have for lunch.

So it is that we’ve arrived at the point described by Edgar Freidenberg’s 1964 classic, Coming of Age in America, where “American high school students viewed the government as a benign institution that one should obey because it was working for the benefit of all the people.”1How is it possible for such a sad state of intellectual affairs to befall a nation founded on liberty and a rational view of the state? How did it come to be that millions of people in Western countries like America recoil at the “radical” suggestion that government and legalized force are one and the same?

I can think of no other source of the problem than a century of government (“public”) education. When nearly 90 percent of Americans are schooled for 12 formative years by government employees, most of whom earned their teaching degrees at government universities, why should we expect anything other than an obsequious citizenry that views government as the benevolent vicar of what Rousseau called “the general will”?

The history of American public education is replete with statements by professional government school advocates that reek of state-worship. Judge Archibald Douglas Murphey, founder of the public school system in North Carolina, said that government must educate because “parents know not how to instruct them. . . . The state, in the warmth of her affection and solicitude for their welfare must take charge of those children and place them in school where their minds can be enlightened.”2

A 1914 bulletin of the U. S. Bureau of Education stated, “The public schools exist primarily for the benefit of the State rather than for the benefit of the individual.” And Edward Ross, a prominent sociologist, offered the most chilling description of the role of government in education: “To collect little plastic lumps of human dough from private households and shape them on the social kneading-board.”3

This outcome was predictable from the earliest days of American public education, and it’s no different from anything else the government comes to dominate. He who pays the piper calls the tune. It just isn’t in the interests of the government or those who depend on it to sully their own nests with an honest admission that their handiwork is financed and imposed at gunpoint. As education scholar Joel Spring put it 20 years ago, “A teacher, school administrator, or elected official in charge of schools may believe that his personal values represent the general values of the community; worse, he may think that his values should be adopted by the community.”4The situation doesn’t appear to be any better, and arguably is worse, in most other Western countries.

Such explicit statements notwithstanding, it would be hard and perhaps politically counterproductive to argue that today’s deficient government school system derives from some grand conspiracy. To explain the appalling ignorance of the Western citizenry regarding the essential nature of government, conspiracy theories are not necessary. It’s sufficient simply to observe that few employees of the system will rise above immediate self-interest to even recognize, let alone propagate, the notion that government in general and their jobs in particular rest on legalized force.

What difference does all this make? A lot. I can think of no situation more hostile to liberty than a failure of a free people to tell the difference between government and everything else.


1.     Cited in William F. Rickenbacker, ed., The Twelve-Year Sentence (San Francisco: Fox & Wilkes, 1999 [1974]), p. 140.

2.     Quoted in Murray Rothbard, “Historical Origins,” in ibid., p. 11.

3.     Quoted in Joel Spring, The American School, 1642-1985 (New York: Longman, 1986), p. 155.

4.     Quoted in Joel Spring, Educating the Worker-Citizen (New York: Longman, 1980), p. 14.

Two Who Made a Difference

Lawrence W. Reed is president of the Foundation for Economic Education in Irvington, New York—www.fee.org.This essay has been adapted for CEIL by the author from an essay he published in December 2006 issue of FEE’s journal, “The Freeman.”

In 25 years of traveling to 70 countries I’ve come across some pretty nasty governments and some darn good people. To be fair I should acknowledge that I’ve also encountered some rotten people and a half-decent government or two. The ghastliest of all worlds is when you have rotten people running nasty governments, a combination that is not by any means in short supply.

Indeed, as Nobel laureate and Austrian economist F. A. Hayek famously explained in The Road to Serfdom, the worst tend to rise to the top of all regimes—yet another reason to keep government small in the first place. “The unscrupulous and uninhibited,” wrote Hayek, “are likely to be more successful” in any society in which government dominates life and the economy. That’s precisely the kind of circumstance that elevates power over persuasion, force over cooperation, arrogance over humility.

So I take special note when I encounter instances of good people working around, in spite of, in opposition to, or simply without a helping hand from, government of any kind. Some might say this betrays an unwarranted bias. But in today’s dominant culture as represented by media elites, university bon vivants, and public-school mandarins, it is not government that gets shortchanged. By their thinking, the capacity of government to meet our needs is virtually limitless. It’s private initiative that gets the shaft. It’s the nonpolitician that is deemed unreliably compassionate, incorrigibly greedy, or hopelessly unorganized.

I offer here two stories of very good people I’ve met on opposite corners of the earth. If either story kindles anyone’s faith in what private initiative can accomplish, it’ll make my day as well as my point.

A man named Nicholas Winton is the centerpiece of the first story. He was a young London stockbroker as war clouds gathered across Europe in 1938-39. A friend convinced him to forgo a Christmas vacation in Switzerland and come to Czechoslovakia instead. Near Prague in December 1938 he was shocked to see Jewish refugees freezing in makeshift camps. Most had been driven from their homes by Nazi occupation of the Sudetenland , the part of Czechoslovakia handed over to Hitler at Munich the previous September.

Winton could have resumed his Swiss vacation, stepping back into the comfortable life he left behind. What could a lone foreigner do to assist so many trapped families? Despite the talk of “peace in our time,” Winton knew that Europe was sliding toward war and time was running out for these desperate people. The next steps he took ultimately saved 669 children from death in Nazi camps.

Victims of a socialist government’s persecution being helped by a stockbroker. Sort of makes mincemeat of Marx’s “class consciousness,” doesn’t it?

The parents were anxious to get their children to safety, even though it would mean sending them off alone. Getting the children to a country that would accept them seemed an impossible challenge. Nicholas Winton didn’t waste a minute. He wrote to governments around the world, pleading for an open door, only to be rejected by every one but two: Sweden and Great Britain . He assembled a small group of volunteers to assist with the effort. Even his mother pitched in.

With 5,000 children on his list, Winton searched for foster homes across Britain. British newspapers published his advertisements to highlight the urgent need for foster parents. When enough homes could be found for a group of children, he submitted the necessary paperwork to the Home Office and assisted his team of volunteers in organizing the rail and ship transportation needed to get the children to Britain . He took the lead in raising the funds to pay for the operation.

The first 20 of “Winton’s children” left Prague on March 14, 1939. Hitler’s troops devoured all of Czechoslovakia the very next day, but Winton’s team kept working, sometimes forging documents to slip the children past the Germans. By the time World War II broke out on September 1 the rescue effort had taken 669 children out of the country in eight separate groups by rail. The last batch of 250 would have been the largest of all, but war prompted the Nazis to stop all departures. Sadly, none of those children lived to see the Allied victory less than six years later. Pitifully few of the parents did either.

Why did Nicholas Winton take on a challenge ignored by almost everyone else? My colleague Ben Stafford and I asked him that very question at his home in Maidenhead, England in July 2006. He was then 97, but looked and spoke with the vigor of someone years younger. “Because it was the thing to do and I thought I could help,” he told us. Today, the “Winton children” plus their children and grandchildren number about 5,000 people. You can learn more about Winton at www.mackinac.org/7872. (Sir Nicholas turned 100 years of age last May.)

I do not have a name for the person who figures at the center of my second story. I met him in war-ravaged Cambodia in August 1989.

In advance of my trip to Southeast Asia, considerable local press attention focused on area doctors who donated medical supplies for me to take to a hospital in the Cambodian capital, Phnom Penh. A woman from a local church who saw the news stories called and explained that a few years before, her church had helped Cambodian families who had escaped from the Khmer Rouge communists and resettled in my town of Midland, Michigan. The families had moved on to other locations in the United States but stayed in touch with the woman who called me and other friends they had made in Midland.

The caller said she had told her Cambodian friends about my pending visit. Each family asked if I would take letters with cash enclosed to their desperately poor relatives in Cambodia . I said yes. Three of the families were in Phnom Penh and easy to find, but one was many miles away in Battambang. That would involve a train ride, some personal risk, and a lot of time it turned out I didn’t have. If I couldn’t locate any of the families, I was to give the cash to any needy Cambodian I could find.

When I realized I wasn’t going to make it to Battambang, I approached a man in tattered clothes in the hotel lobby. I had seen him there a few times before. He always smiled and said hello, and spoke enough English to carry on some short conversations. I told him I had an envelope with a letter and $200 in it, intended for a family in Battambang. I asked him if he could get it to them. “Keep $50 of it if you find them,” I instructed. We said goodbye. I assumed I would never hear anything of what had become of either him or the money.

Several months later I got an excited call from the woman who had originally called me about taking those letters. She said she had just received a letter from the Cambodians in Virginia whose family in Battambang that envelope was intended for. A line in the letter read, “Thank you for the two hundred dollars!”

That poor man found his way to Battambang all right. And he not only didn’t keep the $50 I offered, he somehow found a way to pay for the $10 train ride himself. I doubt that he applied for a federal grant.

The next time somebody tells me we can put our faith in politicians who spend other people’s money, I will tell them about what these two people did with their own.

The Greatest Payoff in World History — And Just the Beginning

By Ken Schoolland and Mats Walus

Ken Schoolland is a Hawaii Pacific University professor of economics, the author of award winning novel, The Adventures of Jonathan Gullible, and is on the Board of Directors of the International Society for Individual Liberty. Mats Walus is a member, of the International Society for Individual Liberty.

President Obama declared on the CBS “60 Minutes” television show, “I did not run for office to be helping out a bunch of fat cat bankers on Wall Street.” Really, Mr. President? Then why did you accept $38 million in campaign contributions from those “fat cats” in the industry?[1]

All the major Democratic and Republican presidential contenders supported the Toxic Asset Relief Program (TARP) as passed by Congress in September of 2008. Soon after passage, the package was miraculously transformed from $700 billion in mortgage relief for homeowners to a banker bailout program. This was only the tip of the iceberg. The spending surged to $1.5 trillion under President Obama with estimates of bailout guarantees ranging up to $8 trillion, twice the inflation adjusted cost of World War II.

The Iron Triangle: Special Interests, Politicians, & the Bureaucratic Payoff

The 2008 campaign season was also marked by the largest ever flood of money into politics, nearly half a billion dollars from the finance, insurance, and real estate industry alone. Money from this industry was the most from any sector of the economy and was distributed in roughly equal proportions to Democrats and Republicans.

The 161 companies receiving $305 billion in the original TARP bailout funds made campaign contributions and lobbying expenses totaling $114,000,000 to all candidates. That works out to more than $2600 of bailout funds for each $1 of political expenses in the 2007-2008 electoral season.

4 Most of these contributors are banks and investment houses. They know that there is no better investment anywhere in the world than a well-placed politician.

Bankruptcy vs. Bailout

So what’s the problem with a bailout? Wasn’t it necessary to rescue the financial system from collapse? Despite the hype, this was not the message from the World Economic Forum, a Swiss think tank.

The World Economic Forum ranked the United States as number one in the world for financial strength, the same month that Congress passed the TARP. In September 2008 the U.S. was listed as top of the world for the “strength of their financial markets, and the depth and breadth of access to capital and financial services. This wide-ranging index takes into account the quality of each country’s financial laws and regulations, its business environment, and the likelihood of a financial crisis…” [5]

Why such diverging views about a potential crisis in America? The World Economic Forum was expecting that financial troubles would be handled by well-established laws and regulations. Financial assets don’t disappear. Instead, bankruptcy proceedings transfer assets from incompetent owners and managers to competent owners and managers.

But the World Economic Forum didn’t count on Congress intervening to trash the bankruptcy laws in order to rescue their benefactors with massive taxpayer bailouts. Of course any incompetent owners and managers can be made to look good with a handout of $10-$40 billion. And, in the case of the Federal Reserve Board, there’s nothing that a trillion newly printed dollars can’t patch up…at least temporarily.[6]

The Revolving Door

This bailout was also manipulated by the “Revolving Door” of Washington. This is the constant movement of personnel back and forth across financial, political, and bureaucratic lines.

For instance, President Bill Clinton’s Secretary of the Treasury, Robert Rubin, had previously been the CEO of Goldman Sachs. As Secretary of the Treasury in 1995, Rubin engineered a bailout of the Mexican government that rescued substantial Goldman Sachs investments. President George Bush’s Secretary of the Treasury, Henry Paulson, had previously been the CEO of Goldman Sachs. As Secretary of the Treasury in 2008, Paulson engineered a bailout of AIG and Morgan Stanley that rescued substantial Goldman Sachs investments.[7]

President Barack Obama’s Director of the National Economic Council is Larry Summers. The Honolulu Star-Bulletin detailed speaking fees from Goldman Sachs, Citigroup, and others under the headline: “Firms that got bailouts paid Summers millions.”[8]

TARP companies that were the most foolhardy in taking on risk paid their CEO’s incomes that exceeded the average of all companies in America, of all banks in America, and even exceeded the average of all financial institutions in America. The pay for CEO’s of these TARP companies was well above the industry average both before and during the financial crisis.

Goldman Sachs, for instance, reported a doubling of compensation to its employees in 2009. Compensation to its 21,847 employees averaged $743,112 each.9 Is this the behavior of a company that has just barely survived a reckless disaster? Or is this the behavior of a company that has just scored a bountiful coup?

Moral Hazard

Success and failure are both essential to a thriving free market. Success must be rewarded as a signal to do ever more. Failure must be penalized as a warning to give it up and to try something else. But what happens when these signals are reversed—when success is penalized by taxes that are used to reward failure? Then failure is encouraged to do ever more and success is told to give it up. This is a prescription for certain economic collapse.

The causes of the current crisis have not been rectified. Most of the same people are still in charge and have not suffered for their blunders. TARP company revenues and compensation continue to rise, Congress remains unscathed and ever more strident, presidential powers are massively increased, government agencies are all intact and scheduled for expansion of regulatory authority, and Ben Bernanke, Chairman of the Federal Reserve Board, has been reappointed and is soon to be reconfirmed.

This is the essence of moral hazard. Moral hazard exists when governments intervene in markets to socialize losses. Thus, reckless risk taking is encouraged rather than punished. So the risk takers chuckle, take their bonuses, pay off their political enablers, and do it all over again on a bigger scale the next time around.

The U.S. government bailed out the savings and loan industry in the 1980’s, Long Term Capital Management in the 1990’s, and Fannie Mae, Freddie Mac, GM, Chrysler, AIG, and a host of others in 2008. Each time officials swore that the lessons had been learned and it couldn’t happen again.

On a global scale the U.S. taxpayer has paid directly or indirectly through the Federal Reserve Board and the International Monetary Fund for the rescue of Mexico, Russia, Brazil, Korea, Thailand, Indonesia, and a multitude of other countries. The numbers mounted over the years from $4 billion, $23 billion, $40 billion, and now trillions of dollars. What’s next?

Make no mistake about it, with such perverse incentives the disaster will be greater each time—until Atlas shrugs.

“Never expect the people who caused a problem to solve it.” –Albert Einstein


  • Finance, insurance, real estate campaign contributions 2007-08 by presidential candidate, http://www.OpenSecrets.org; Glassman, James, “The Hazard of Moral Hazard,” Commentary, 9/09, p. 28-32
  • “How Our Spending Stacks Up,” Time, 12-22-08
  • Campaign contributions by category 2007-08 to all Democrats and Republican candidates http://www.OpenSecrets.org
  • 4) Ebeling, Richard, “Bank Bailouts are the Payback for Bankrolling Politicians,” American Institute for Economic Research, 2-23-09, http://www.aier.org/research/commentaries/1186-bank-bailouts-are-the-payback-for-bankrolling-politicians
  • 5) “Financial Development Index,” The Economist, 9/18/08
  • 6) Monetary base of the Federal Reserve Board. 1959-2009.
  • 7) Sorkin, Andrew Ross, Too Big to Fail, Viking Press, pre-release excerpted in Vogue, 11/09, p. 181
  • 8) “Firms that got bailed out had paid Summers millions,” The Honolulu Star-Bulletin, 4-5-09
  • 9) “3 banks prepared to pay record $29.7B in bonuses,” The Wall Street Journal, 10-14-09

What Is Real Compassion?

Lawrence W. Reed is president of the Foundation for Economic Education in Irvington, New York—www.fee.org.This essay has been adapted for CEIL by the author from an essay he published in 1997.

In every election campaign, we hear the word “compassion” at least a thousand times. Big government programs are evidence of compassion; cutting back government is a sign of cold-hearted meanness. By their misuse of the term for partisan advantage, politicians have thoroughly muddied up the real meaning of the word.

As Marvin Olasky pointed out in The Tragedy of American Compassion, the original definition of compassion as noted in The Oxford English Dictionary is “suffering together with another, participation in suffering.”  The emphasis, as the word itself shows — “com,” which means with, and “passion,” from the Latin term “pati,” meaning to suffer — is on personal involvement with the needy, suffering with them, not just giving to them.

But today most people use the term to mean little more than, as Olasky put it, “the feeling, or emotion, when a person is moved by the suffering or distress of another, and by the desire to relieve it.”  There is a world of difference between those two definitions: One demands personal action, the other simply a “feeling” that usually is accompanied by a call for someone else —namely, government — to deal with the problem. One describes Mother Teresa or the Red Cross, the other describes the typical buck-passing, bleeding-heart social activist with a picket sign in his hand.

The fact is that government “compassion” is not the same as personal and private compassion.  When we expect the government to substitute for what we ourselves ought to do, we expect the impossible and end up with the intolerable.  We don’t really solve problems, we just manage them expensively into perpetuity and create a bunch of new ones along the way.

From 1965, the beginning of the so-called War on Poverty, to the mid-1990s, total welfare spending in the United States was $5.4 trillion. In 1965, total government welfare spending was just over 1 percent of gross domestic product (GDP), but 30 years later it had ballooned to 5.1 percent of GDP annually — higher than the record set during the Great Depression. Until welfare reforms that emphasized work began to kick in the late ‘90s, the poverty rate had hardly changed from where it was in 1965.  For decades, millions lived lives of demoralizing dependency, families were rewarded for breaking up, and the number of children born out of wedlock soared to the stratosphere—terrible facts brought about, in large part, by “compassionate” government programs.

A person’s willingness to spend government funds on aid programs is not evidence that the person is himself compassionate. Professor William B. Irvine of Wright State University in Dayton, Ohio, explains: “It would be absurd to take a person’s willingness to increase defense spending as evidence that the person is himself brave, or to take a person’s willingness to spend government money on athletic programs as evidence that the person is himself physically fit.”  In the same way as it is possible for a “couch potato” to favor government funding of athletic teams, it is possible for a person who lacks compassion to favor various government aid programs and, conversely, it is possible for a compassionate person to oppose these programs.

It is a mistake to use a person’s political beliefs as the litmus test of his compassion. Professor Irvine says that if you want to determine how compassionate an individual is, you are wasting your time if you ask for whom he voted; instead, you should ask what charitable contributions he has made and whether he has done any volunteer work lately. You might also inquire into how he responds to the needs of his relatives, friends, and neighbors.

True compassion is a bulwark of strong families and communities, of liberty and self-reliance, while the false compassion of the second usage is fraught with great danger and dubious results.  True compassion is people helping people out of a genuine sense of caring. It is not asking your congressman or parliamentarian to do it for you. True compassion comes from your heart, not from government treasuries. True compassion is a deeply personal thing, not a check from a distant bureaucracy.

The next time you hear someone use the word “compassion,” ask him if he really knows what he’s talking about.

Where Are the Omelets?

Lawrence W. Reed is president of the Foundation for Economic Education in Irvington, New York—www.fee.org. This essay has been adapted by the author from the original version that appeared in FEE’s journal, The Freeman, in October 1999.

On ne saurait faire une omelette sans casser des oeufs.” Translation: “One can’t expect to make an omelet without breaking eggs.”

With those words in 1790, Maximilian Robespierre welcomed the horrific French Revolution that had begun the year before. A consummate statist who worked tirelessly to plan the lives of others, he would become the architect of the Revolution’s bloodiest phase—the Reign of Terror of 1793–94. Robespierre and his guillotine broke eggs by the thousands in a vain effort to impose a utopian society based on the seductive slogan “liberté, égalité, fraternité.”

But, alas, Robespierre never made a single omelet. Nor did any of the other thugs who held power in the decade after 1789. They left France in moral, political, and economic ruin, and ripe for the dictatorship of Napoleon Bonaparte.

As with Robespierre, no omelets came from the egg-breaking efforts of Lenin, Mao, Pol Pot, Adolf Hitler, and Benito Mussolini either.

The French experience is one example in a disturbingly familiar pattern. Call them what you will—leftists, utopian socialists, radical interventionists, collectivists, or statists—history is littered with their presumptuous plans for rearranging society to fit their vision of “the common good,” plans that always fail as they kill or impoverish other people in the process. If socialism ever earns a final epitaph, it will be this: “Here lies a contrivance engineered by know-it-alls and busybodies who broke eggs with abandon but never, ever created an omelet.”

Every collectivist experiment of the twentieth century was heralded as the Promised Land by statist philosophers. “I have seen the future and it works,” the intellectual Lincoln Steffens said after a visit to Stalin’s Soviet Union. In The New Yorker in 1984, John Kenneth Galbraith argued that the Soviet Union was making great economic progress in part because the socialist system made “full use” of its manpower, in contrast to the less efficient capitalist West. But an 846-page authoritative study published in 1997, The Black Book of Communism, estimated that the communist ideology claimed 20 million lives in the “workers’ paradise.” Similarly, The Black Book documented the death tolls in other communist lands: 45 to 72 million in China, between 1.3 million and 2.3 million in Cambodia, 2 million in North Korea, 1.7 million in Africa, 1.5 million in Afghanistan, 1 million in Vietnam, 1 million in Eastern Europe, and 150,000 in Latin America.

Additionally, all of those murderous regimes were economic basket cases; they squandered resources on the police and military, built vast and incompetent bureaucracies, and produced almost nothing for which there was a market beyond their borders. They didn’t make “full use” of anything except police power. In every single communist country the world over, the story has been the same: lots of broken eggs, no omelets. No exceptions.

Nobel laureate economist F. A. Hayek explained this inevitable outcome in his seminal work, The Road to Serfdom, in 1944. All efforts to displace individual plans with central planning, he warned us, must end in disaster and dictatorship. No lofty vision can vindicate the use of the brute force necessary to attain it. “The principle that the end justifies the means,” wrote Hayek, “is in individualist ethics regarded as the denial of all morals. In collectivist ethics it becomes necessarily the supreme rule.”

The worst crimes of the worst statists are often minimized or dismissed by their less radical intellectual brethren as the “excesses” of men and women who otherwise had good intentions. These apologists reject the iron fist and claim that the State can achieve their egalitarian and collectivist goals with a velvet glove.

But whether it is the Swedish “middle way,” Yugoslavian “worker socialism,” or British Fabianism, the result has been the same: broken eggs, but no omelets.

Have you ever noticed how statists are constantly “reforming” their own handiwork? Education reform. Health-care reform. Welfare reform. Tax reform. The very fact that they’re always busy “reforming” is an implicit admission that they didn’t get it right the first 500 times.

The list is endless: Canadian health care, European welfarism, Argentine Peronism, African postcolonial socialism, Cuban communism, on and on ad infinitum. Nowhere in the world has the statist impulse produced an omelet. Everywhere it yields the same: eggs beaten, fried, and scrambled. People worse off than before, impoverished and looking elsewhere for answers and escape. Economies ruined. Freedoms extinguished.

It is a telling conclusion that statists have no successful model to point to, no omelet they can hold up as the pièce de résistance of their cuisine. Not so for those of us who believe in freedom. Indeed, economists James Gwartney, Robert Lawson, and Walter Block in their survey, Economic Freedom of the World: 1975–1995, conclude that “No country with a persistently high economic freedom rating during the two decades failed to achieve a high level of income. In contrast, no country with a persistently low rating was able to achieve even middle income status. . . . The countries with the largest increases in economic freedom during the period achieved impressive growth rates.”

Perhaps no one explained the lesson of all this better than the French economist and statesman Frederic Bastiat more than 150 years ago:

“And now that the legislators and do-gooders have so futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all systems, and try liberty.”

Growing Up Means Resisting Statist Impulse

Adapted from the October 2006 edition of The Freeman, published by the Foundation for Economic Education (FEE)—www.fee.org. The author is president of FEE.

A few months ago, I walked into a restaurant in Naples, Florida, and said, “A nonsmoking table for two, please.” The greeter replied, “No problem. All restaurants in Florida are nonsmoking by law. Follow me.”

For a brief moment as we walked to our table, I thought to myself: “Good. No chance of even a whiff of a cigarette. I like that!”

And then I felt shame. I had fallen victim to the statist impulse. For 40 years, I thought I was a passionate, uncompromising believer in the free society. Yet for a few seconds, I took pleasure in government trampling on the liberties of consenting adults in a private setting.

This incident troubled me enough to think about it a long while. I wanted to know why my first instinct was to abandon principles for a little convenience. And if a committed freedom-lover like me can be so easily tugged in the wrong direction, what does that say for ever getting nonbelievers to eschew similar or more egregious temptations?

At first, I thought about the harm that many doctors believe secondhand smoke can do. Perhaps it wasn’t wrong for government to protect nonsmokers if what we have here is a case of one person imposing a harmful externality on an unwilling other. Then I quickly realized two things: no one compelled me to enter the place, and the restaurant belonged to neither the government nor me. The plain fact is that in a genuinely free society, a private owner who wants to allow some people in his establishment to smoke has as much right to permit it as you or I have to go elsewhere. It’s not as though people aren’t aware of the risks involved. Moreover, no one has a right to compel another citizen to provide him with a smoke-free restaurant.

Besides, I can think of a lot of risky behaviors in which many adults freely engage but which I would never call upon government to ban: sky diving and bungee jumping being just two of them. Statistics show that merely attending or teaching in certain inner city government schools is pretty risky too — and maybe more so than occasionally inhaling somebody’s smoke.

The statist impulse is a preference for deploying the force of the state to achieve some benefit — real or imagined, for one’s self or others — over voluntary alternatives such as persuasion, education or free choice. If people saw the options in such stark terms, or if they realized the slippery slope they’re on when they endorse government intervention, support for resolving matters through force would likely diminish. The problem is, they frequently fail to equate intervention with force. But that is precisely what’s involved, is it not? The state government in Florida did not request that restaurants forbid smoking; it ordered them to under threat of fines and imprisonment.

I tried this reasoning on some of my friends. Except for the diehard libertarians, here were some typical attitudes and how they were expressed:

Delusion: “It’s not really ‘force’ if a majority of citizens support it.”

Paternalism: “In this instance, force was a positive thing because it was for your own good.”

Dependency: “If government won’t do it, who will?”

Myopia: “You’re making a mountain out of a molehill. How can banning smoking in restaurants possibly be a threat to liberty? If it is, it’s so minor that it doesn’t matter.”

Impatience: “I don’t want to wait until my favorite restaurant gets around to banning it on its own.”

Power lust: “Restaurants that won’t keep smoke out have to be told to do it.”

Self-absorption: “I just don’t care. I hate smoke and I don’t want to chance smelling it even if a restaurant owner puts the smokers in their own section.”

On a larger scale, every one of these arguments can be employed — indeed, they are invariably employed — to justify shackling a people with intolerable limitations on their liberties. If there’s one thing we must learn from the history of regimes, it is that you give them an inch and sooner or later, by appealing to popular weaknesses, they will take a mile. The trick is getting people to understand that liberty is more often eaten away one small bite at a time than in one big gulp, and that it’s wiser to resist liberty’s erosion in small things than it is to concede and hope that bigger battles won’t have to be fought later.

Delusion, paternalism, dependency, myopia, impatience, power lust and self-absorption: All are reasons people succumb to the statist impulse. As I pondered this, it occurred to me that they are also vestiges of infantile thinking. As children or adolescents, our understanding of how the world works is half-baked at best. We expect others to provide for us and don’t much care how they get what they give us. And we want it immediately.

We consider ourselves “adults” when we learn there are boundaries beyond which our behavior should not tread; when we think of the long run and all people instead of just ourselves and the here and now; when we make every effort to be as independent as our physical and mental abilities allow; when we leave others alone unless they threaten us; and when we patiently satisfy our desires through peaceful means rather than with a club. We consider ourselves “adults” when we embrace personal responsibility; we revert to infantile behavior when we shun it.

Yet survey the landscape of political debate in the West these days and you find no end to the demands to utilize the force of the state to “do something.” Tax the other guy because he has more than me. Give me a tariff so I can be relieved of my foreign competition. Subsidize my college education. Take that property so I can put a hotel on it. Fix this or that problem for me, and fix it now! Make my life easier by making somebody else pay. Tell that guy who owns a restaurant that he can’t serve people who want to smoke.

I wonder if Western countries have become a giant nursery, full of screaming babies who see the state as their loving nanny. It makes me want to say, “Grow up!”

Societies rise or fall depending on how civil its citizens are. The more they respect each other and associate freely, the safer and more prosperous they are. The more they rely on force — legal or not — the more pliant they are in the hands of demagogues and tyrants. So resisting the statist impulse is no trivial issue.

In my mind, resisting that impulse is nothing less than the adult thing to do.