Elites versus Individuals

Written in March 2010

Politically, the U.S. has become divided between those who think that elite people should control the government and the economy and those who believe that individuals are best able to make their own decisions about how to live their lives and best provide for their own welfare. The founders of our country and the Libertarian Party both have faith in individuals' abilities to make their own decisions. In fact, the founders of our country explicitly stated that "all Men are created equal" and "are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness--That to secure these Rights, Governments are instituted among men, deriving their just powers from the Consent of the Governed"  It is clear from these quotes taken from our nation's Declaration of Independence that our nation's founders believed that all sovereignty lay with the individual and that governments only obtained powers granted with the consent of the governed--not that governments should be run by some hereditary or self-appointed superior class who then had the right to tell individuals how to live their lives. Based upon confidence in individuals to properly order their affairs and engage in free markets, until recently our nation has prospered greatly, and has provided a beacon of light demonstrating to the world as a whole the power of the individual when he or she is allowed the freedom to live his life, participate in free markets and order his or her affairs as he or she wishes. 

    Unfortunately, in the last 100 years or so, there have been challenges to the sovereignty of the individual in the form of elitist philosophies and individuals who claim that they can better direct peoples' affairs than individuals can themselves. Primary among these philosophies is the philosophy of socialism--which maintains that governments should own or control the "means of production." This philosophy assumes that various central planners can better allocate resources to maximize people's welfare than people can themselves. The brilliant Nobel Prize winning economist, Freidrich Hayak, in his 1944 book titled , "The Road to Serfdom" pointed out that various governments used central planning philosophies to justify their operations and controls.over people's lives. He pointed out that central planners played an important role in all the "ism's" of the time that had repressed individuals and extinguished their rights in the name of moving toward an improved society. Those "ism's" included communism, fascism, and the Germans' national socialism (naziism). In all cases, Hayak pointed out that the central planners were unable to allocate resources as effectively in achieving the goals of maximizing individual's welfare and economic efficiency, as  the free market was able to do. Of course, Adam Smith had pointed out in the late 1770's in his book, The Wealth of Nations, what the founders of our country knew well, which was that people and countries would be most productive and well off if they let the "invisible hand" of free market economic transactions guide their decisions. Since central planners were   unable to guide their economies as well as free markets could do, often they engaged in repressive behavior in an attempt to make people act as they wished or to produce the outcomes that the central planners wanted. Unfortunately, Hayak pointed out that, the often ideologically driven, central planners tended to resort to oppressive actions to achieve their goals. He noted that it was not accidental that the most immoral and goal oriented individuals tended to rise to the top in such systems as they were most willing to repress other people in an attempt to achieve their ends. In their system, their end justified any means, including the use of brutality against anyone or   anything that threatened their objectives. (In order to collectivize agriculture, Stalin starved millions of Russian Kulak farmers in the Ukraine; to repress potential dissent, Mao executed millions of teachers and landlords and starved many of his people when his Communists took over China and he launched his "Great Leap Forward;" and Hitler mercilessly executed millions of Jews, disabled people, and others in Nazi Germany in his search for Aryan supremacy). In order to further public compliance with their goals, the central planners in the various ism's  all tended to try to control the media, publicity, and education, so no dissenting views and opinions could obstruct their single-minded pursuit of their goals of crating a "superior" society.

     Echoes of the central planners rhetoric of earlier years can still be heard emanating from the mouths of dictators in socialist states--such as in Venezuela, where Hugo Chavez has trampled on individual rights, private property ownership, and individuals in an attempt to create his Bolivarian "Socialist Revolution." Unfortunately, Venezuela is not the only state where individual rights have been repressed in the name of "improving" society. Other Latin American countries have used similar rhetoric and, unfortunately, some politicians in the U.S. are seeking nearly unlimited government power over large segments of the economy to achieve their "beneficial" social ends as well. 

    Not content with nationalizing much of the U.S. auto industry and making many major banks de facto wards of the state dependent upon the "too-big-to fail" grace of the national regulatory authorities, the U.S. central planners in the current administration are also are trying to take over or control the energy and utility industries in a questionable attempt to reduce carbon dioxide emissions--even though the earth has had much higher levels of those emissions in the past and carbon dioxide is not a pollutant, per se, but rather, is an essential plant food.  They also have tried to effectively nationalize our health care industry, which is 17 percent of our economy and leads the world in quality.. They do so even though most Obama appointments have little or no experience in business--only 8 percent of current Presidential appointments came to the administration from business as opposed to usually about 50% (and a previous low of over 30% in the Carter administration).

    Personally, I have had experience with ivy-league trained lawyers when I worked in Washington, and I came away convinced that no one should join a regulatory agency unless they had had at least 5 years experience in the real world. Ivy league lawyers think their degree makes them superior to all other people and that any law they write will immediately have the desired effect. Furthermore, they seem to think that all businesses have a safe in the back room where they store money and can immediately withdraw the money to pay for the cost of new regulations or subsidize new customers. They have no idea how hard it is to earn the money needed to operate the business or of how the extra costs imposed by government regulations and taxes can jeopardize  business. Thus, I am not surprised that an administration headed by a President with an ivy-league law degree and staffed by many people with similar degrees, who deem themselves to be "elite" central planners, has managed to demoralize U.S. businessmen, depress the economy, and hinder a potential recovery from one of the most serious recessions we have had in recent years. 

    The administration has bailed out its friends who have provided large amounts of funding to its political campaigns (think labor unions and Wall Street Bankers and Investment Banks), while raising the national debt enormously and imposing potentially huge taxes upon everyone else. They justify their support of the Wall Streeters and Big Bankers by saying they are the "best and the brightest" and need to be paid tens of millions of dollars to retain their positions. That is poppycock. They just think they are the best and the brightest because many of them have ivy league degrees and belong to the proper clubs. Because they self-congratuate each other, they seem to think that they know the future and how to make rules that will control other people's lives, but they are wrong. After they pass a bone-headed law they often wring their hands and say that it did not have the desired effect because of " the law of unintended consequences." That is their way of covering up the fact that they made a mistake and couldn't predict the future adequately. .

    In my past jobs I have met many people on Wall Street and in major banks and I know that I did better on the SAT and Graduate Record Exams than almost all of them, but I didn't go to an ivy league school because I didn't have the money or an affirmative action scholarship. However, when I went to graduate school, I was one of the best students in my class. When I shared an office as a Teaching Assistant, Don Kohn, one of the best students two classes behind me and presently Vice Chairman of the Federal Reserve System had the desk right behind mine. When I played tennis while working on my dissertation, Bill Ford, later President of the Federal Reserve Bank of Atlanta, and one of the best students in the class before me, was my regular doubles tennis partner. Both of those people should be included among the "best and the brightest" based on their past positions. I have known them well, and I had much the same courses and academic success as they did. However, I know from my own experience that I do not know the future and I am quite sure that they do not know it either. Over the years, and after trading in the futures market, I am quite sure that my mother was right about the future when she used to say "God only knows." 

    I also know that people who do well on their SAT exams and have the money to attend an ivy league school tend to get an inflated opinion of themselves. When my oldest daughter taught at Princeton while working on her doctoral degree, of more than 300 students she had in her classes, she gave only one D and one F-- even though some were affirmative action students who did not have to meet the same standards as other students for admission to Princeton. She even had to give a make up final with no penalty after Christmas to a student who didn't want to take the final before Christmas. Because students pay such high tuition and generally have to have high test scores to get in, they are able to get through the ivy league schools without risking low grades. This was confirmed by my second daughter who received a Master's degree in Epidemiology with excellent grades from Harvard and said that it was far harder to obtain A's at Texas Tech. That explains why a majority of  ivy league graduates graduate with honors and have such high opinions of themselves. Personally, I know that I did not give A's out very generously in my classes at Tech, less than 7% in the last undergraduate class I taught--but my A students were top-flight Tech students. Those who received A's in my class should deservedly have a high opinion of themselves. However, ivy league students who received A's in a class may not even be in the top half of their class, so their high opinion of themselves may be unwarranted. Unfortunately, that does not keep them from thinking that they are among the nation's elite and therefore have the right to join the government and pass laws and regulations to try to make other people behave as they wish. They constitute the core of our present central planners, especially in the White House and Congress, and I fear that we must learn all over again that free markets with competition can allocate resources to fulfill peoples' wants and needs far better than any central planner can do.

    Elitist central planners who try to achieve social welfare goals may often take actions that make others worse off. For instance, by deeming some banks too big to fail, they may encourage people to put their money in those banks rather than in non-favored banks and, by so doing, deprive better-run banks of the funds they need to make good loans to good businesses. In addition, by deeming some institutions as being too big to fail, they may allow the favored  institutions to take more risk without penalty and thus increase the probability that they will fail and will need to be bailed out at the expense of the taxpayers--as has recently happened. Furthermore, if government guarantees that it will pay for all of someone's medical bills, that person will have less incentive to watch their weight, quit smoking or drinking to excess, or control their diabetes, as they may expect government to fix all their future health problems. In the process, they may live an unhealthier life and, as a result, not only suffer some personal pain or inconvenience, but also may burden taxpayers with additional medical costs. When my son was in Medical school, he observed what the doctors called "salami slicers," who were people on Medicaid who did not have to pay for their hospital care and thus did not bother to take the pills or make the lifestyle changes needed to control their diabetes adequately. Instead, they merely returned to the hospital, when their diabetes worsened and caused gangrene in a partially amputated limb, to have another slice of their diseased limb removed. Since they did not have to pay the bill, they had less incentive to care for themselves adequately.  These examples indicate that by substituting government responsibility for individuals' or businesses' welfare, markets are distorted and outcomes are often worse than when people and businesses must pay the full price for the consequences of their own actions and risk taking. In the case of banking, it also shows that prudent banks and individuals may lose, along with taxpayers in general, when "too big to fail" or other favored (think Fannie Mae and Freddie Mac in the mortgage markets) institutions are allowed to engage in excessive risk-taking without incurring a market penalty and thereby drain funds away from more prudent institutions while levying potentially substantial costs on future taxpayers.

Email Chip with any questions., Chippete@aol.com

Richard Peterson Campaign, Richard Peterson treasurer