ALPINE, UT | 31 March 2008 | Recently, Democratic Party Presidential Candidate Barack Obama shared in detail his perspective on the historical relationship between government regulation and free enterprise. In this speech, he responded to recent market developments and economic crises by outlining his principles for “modernizing the regulatory framework for our financial markets.”

This [economic] loss has not happened by accident. It’s because of decisions made in boardrooms, on trading floors and in Washington. Under Republican and Democratic Administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices. We let the special interests put their thumbs on the economic scales. The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both.

What is amazing about this statement is that it acknowledges the cause of market distortion as being the result of certain interests using the force of government to gain an unearned advantage. It also identifies the failures of some businesses to be truly productive instead of attempting to counterfeit profits - but here the nature of the socialist mentality begins to reveal itself. Obama points to the failures of government administrations to “guard against” or to prevent, the failures of certain business practices that were by their very nature doomed to fail - as if it were the role of government to prevent mistakes so that no one would have to suffer the consequences.

This mentality has always desired to prevent undesirable outcomes by curtailing freedom. Rather than trust the self-corrective nature of natural law and its consequences, the socialist mentality seeks to predict the results of what is presumed to be “bad choices” and prevent it. The idea that a lumbering bureaucracy can outwit and outmaneuver the endless creativity of entrepreneurs and criminals alike is beyond idealistic. It is a fatally flawed optimism that in the end creates the very scenario it claims to avoid. By always playing catch-up with free market innovation, it is doomed to be late to respond (as the historical record shows).

Ironically, such post-mortem regulatory actions have sweeping effects beyond their original intent - giving birth to a new environment for enterprising minds to take advantage of the constraints the government has just created to crush competitors and corner a market, or earn their profits from the government treasury, where previously they would have had to stand on their own merit. Before long, a new wave of regulatory action (or revision) will be called for to deal with the consequences of the old actions - though few will realize it as such, instead blaming the creativity of the “greedy” and crying for new countermeasures.

In Obama’s speech, he accurately identifies the lagging reactions of government regulation to modern developments in the economy, but rather than recognizing the irrationality and futility of the attempt to micromanage the choices of a free market, he simply calls for a “modernization” of regulation - as if all that were needed were for someone in government to wake up and get with the times. If that were sufficient for anything other than getting new politicians elected, there would be no need for the current clamor for regulation reform, unless you really believe that no one before Obama has ever considered such a plan.

Obama’s proposals for dealing with the current mortgage crisis reveal the same mentality. In an attempt to spare people the consequences of their actions, he proposes government interventions to buy loans, reduce rates, and insure against further failure. Such a policy ignores the self-corrective nature of experience pain and failure. Since the government is seen as an entity that is above the consequences of natural law, it is hoped that the only thing that matters is that people get instant relief from their bad ideas - never mind the fact that those ideas will never be corrected. As Herbert Spencer so eloquently said, “The ultimate result of shielding men from the effects of folly is to fill the world with fools”.

Lost in this lopsided debate is the fact that there are consequences to violating principles, and in time, those who do will reap the rewards. A business built on unsound investment practices will fail. A financial services company that deceives its clients will lose their trust along with their money (and here the government’s proper role of enforcing contracts by punishing fraud is called for). A “modern” innovation in financial markets that produces no true value, or is built upon deception cannot sustain itself, and will fail - and in its failure will educate investors who will avoid such a scheme in the future (the very core of self-correcting markets).

Obama reveals more about his economic ideology in the following quote:

But the American experiment has worked in large part because we have guided the market’s invisible hand with a higher principle. Our free market was never meant to be a free license to take whatever you can get, however you can get it. That is why we have put in place rules of the road to make competition fair, and open, and honest. We have done this not to stifle - but rather to advance prosperity and liberty. As I said at NASDAQ last September: the core of our economic success is the fundamental truth that each American does better when all Americans do better; that the well being of American business, its capital markets, and the American people are aligned.

Embedded within this statement is the heart of the modern socialist mentality - one that lauds the benefits of capitalism and freedom while condemning it for having its heart in the wrong place, and proposes the curtailing of freedom for the “greater good”. His claim that the American experiment in freedom succeeded only because it was leashed by a higher moral law would be more accurately stated thus - that the American experiment in freedom succeeded despite the parasitic and tyrannical burdens placed upon it by those who would sacrifice others for themselves in the name of the “public”.

Obama is right in saying that rules are needed to protect competition - but not in the name of “fairness” (which is an open invitation to manipulation and pull). Such protection is moral when it is used against force and deception, not to “even the playing field” (the cry of the unearned). He would be correct in claiming such rules were not meant to stifle prosperity if those rules had not overstepped the moral bounds of protecting individual rights by seeking to favor one special interest group or another. Unfortunately, the current regulatory situation is a tangled pile of past mistakes that will take more than another layer of regulations to relieve our economy.

The last statement in this quote reveals the inverted reality of socialism. In its appeal to the heart, it ignores objective reality in favor of a truism. Our collective success is not guaranteed by “all Americans doing better”. There is in truth no way to promote the success of “all Americans” - all attempts to do so have always favored one group over another, and fueled the struggle for special interests to curry favor with the government du jour. There exists only individual Americans, and their success is first and only individual. Only when individual Americans are successful can you step back and make the general observation that Americans as a group are “doing better” - and only then because what you are witnessing is the aggregate success of free individuals.

Conclusion

Speeches such as this one have been used by tyrants throughout human history to appeal to the desire within each citizen to prosper by promising prosperity for all through policies that named “the public” as the beneficiary. Is it any wonder that such policies have repeatedly required “modernizing”? Instead, have we not witnessed a long string of prospective leaders promising to improve upon what their predecessors failed to deliver? When the laws that govern society are inspired and constrained by the moral principles of natural law, they do not require reinvention. It has always been immoral to deceive, and no new regulatory policy is required to make it more so. The politicians who promise you “brand new ideas and policies” are rationally and ideologically bankrupt, just like last year’s model. If that wasn’t so, you wouldn’t feel such a compelling need to upgrade every four years…

Action Steps:

1. What is meant by Obama’s references to “shared prosperity”? How do you define prosperity? Can it be shared, or must it be individual before it can be attributed to any group?
2. Read “Putting America back to work” by Ronald Reagan (available in the F.C. Primer)
3. Read “Atlas Shrugged” by Ayn Rand - identify the elements in the story that illustrate the distrust of free markets and a desire to force certain outcomes through government intervention
4. Research the effects of government regulation and intervention on America’s economic history—the creation of the Federal Reserve, the New Deal, modern deregulation of utilities, etc.

MRFC PRINCIPLES: (4, 9, 10, 11, 12)

SOURCES

Renewing the American Economy - Senator Barack Obama (at Cooper Union)

March 27, 2008 http://www.barackobama.com/2008/03/27/in_major_speech_obama_calls_fo.php

Barack Obama economic plan Fact Sheet http://my.barackobama.com/page/-/HQpress/Fact%20Sheet%20NY%20Economic%20Speech%20FINAL.pdf