Credit Crunch?

Rough translation of this article.

Since the major governments of this planet have arrived at the conclusion that a reckless money-printing policy was the way to go for tackling the current economic downturn, unimaginable amounts of fiat currency have been produced and given out to increase bank solvency. Still, politicians and some among the economic aristocracy bemoan the perceived "restrictive" loan policies of these banks. They are bunkering the money and not giving it out into the economy. Thus, we are supposed to be experiencing a credit crunch.

A credit crunch is a risk-aversive mentality among credit institutions which prevents lending to supposedly creditworthy non-bank customers despite an existing demand. One has to wonder why a careful lending mentality would suddenly produce such criticism, given the fact that the recent financial crash was caused by a lack of foresight and care in lending. Cautious lending is a very social behavior, it protects the assets of depositors and secures the future existence of a bank.

Another worrisome undertone of the debate is the entitlement mentality regarding a loan - there is no "right to credit". Credit, derived from the latin "credere", "to believe", is not at all automatic. In a tribal society with a strong social network, lending on good faith may be an option since peer pressure and the threat of ostracism and expulsion from the community may be sufficient to secure payment. However, in modern mass societies, one needs more security (such as capital or company assets) than just a wholehearted promise. It is self-evident that creditors must act prudently when lending out to strangers, even more so since the position of creditors has been considerably weakened through all kinds of debtor-protection legislation.

Considering this, who but a creditor should be allowed to decide which criteria are important to calculate the creditworthiness of a potential debtor? Who should be entrusted with giving away other people's money to third parties by just assuming their collective solvency?

And of course, it's highly questionable whether there is ever "too little" credit. For an addicted gambler, there will always be too little credit. The statement that "there is too little credit" is a classic case of Hayekian pretense of knowledge.

We should also remind ourselves that only that which has been produced and saved before can be lent out later on. This conspicuous fact is somewhat absent in the public consciousness since our decade-long tolerance of an unrestricted fiat monetary system has created the impression that money from the printing press or digital numbers created through the fractional reserve process by banks themselves are actual capital, which, in reality, is the result of deferred consumption. So on second thought, the credit crunch is really a capital crunch which was caused, at least in the US, by people who were living above their means for years and now lack an understanding of the virtue of saving.

Politicians, tenured economists and talking heads criticize the new conservative lending attitude of banks as this is supposed to hinder the recovery of companies which suffer from a severe decline of demand. However, both Austrian economics and empirical evidence suggest that the panacea of increasing the monetary base and the volume of credit will at best initiate a new business cycle with a pre-programmed recession at its end or, at worst, lead to a scenario of which even a few mainstream economists and pundits are now warning - hyperinflation, Zimbabwe-style.

The fact that demand is decreasing has to do with the former artificial boom created by loads of fiat money. In a recession, we see nothing more than a necessary correction of the structure of production, a redimensioning of overcapacities, a market clearing and the elimination of companies which have wrongly assessed customer preferences. What are additional loans supposed to improve in this situation?

Finally, we should consider what another author of this fine magazine had to say about creditworthiness a few days ago. Humanity in the lending business is, according to this gentleman, "anti-social". He continues, "When there were still debtors' prisons, the little guy could be counted on to repay his loans - he was a safe debtor. He feared imprisonment and this made him a reliable caretaker of other people's money. Today, the progressive state is protecting debtors from such a fate, but at their loss, since lenders are not attracted to them anymore." Conclusion: "Legislators have damaged those who they claim to protect, and are thus anti-social to the highest degree". How true!

Constitutions - Unreliable Allies

American state-libertarians really enjoy talking about the Constitution. The Constitution needs to be respected, they say, for it is the founding document of this country and the source of our liberty! Constitutions are seen by these people as a means to shackle the state and protect individual liberty. That's a batshit insane idea.

First of all, the source of one's liberty is not a constitution, but the fact that the dominant powers in one's territory have so far refrained from infringing upon it. It is successful defense (in whatever way) against the spread of the state or any oppressing groups, not "the Constitution" that enables you to live with more choices than a poor serf in North Korea. One might argue that since the Constitution gives a resemblance of legitimacy to the state and, in the case of the United States, has a strong libertarian bent, institutionalized violence needs to adhere to some extent to these principles. That may be temporarily true, but as soon as a state is given power to interpret your Constitution, it will gradually dismantle its original message and replace it with whatever is in fashion. Just look at the Second Amendment mess.

Essentially, constitutions are words printed on paper. They keep a state from becoming tyrannical as much as a written contract keeps one of the signatories from breaching it, even much less so if you consider that while contract signatories tend to be of somewhat equal legal status, the state is in any case above you, either financially or militarily or legally or according to public approval or, most likely, by all of those criteria. Words on paper mean nothing to men with guns, determined to enforce authority. Your "guaranteed rights" are a claim based on the notion that the state works just as it was intended or promised to work, as a guarantor of certain claims called "rights", but it has no answer as to what happens when the state abandons this role and becomes an aggressive exploiter instead. All it does is convey a false sense of security, a last resort justification along the lines of "If policemen with submachine guns ever break into my house, I'll still have the Constitution!" And please don't pretend that "it couldn't happen here" because Mr. Jefferson had some good ideas 250 years ago.

Even worse, constitutionalism has long abandoned its function as a limit to state power. Today's constitutions are full of entitlement mentality, guaranteeing everything to everyone and making sure that legally, no effort can ever change the founding principles of social democracy. Take a look at the German constitution's section of "unalterable, foundational rights". That's as liberty-oriented as a congregation of postmillenial bigots:

Article 2, (1):
Every person shall have the right to free development of his personality insofar as he does not violate the rights of others or offend against the constitutional order or the moral law.

Now, what is "the moral law"? Sounds like an ambiguous clause, doesn't it? Right there, in article 2 of your list of "guaranteed rights", it says that you cannot break "the moral law". Didn't I mention postmillenialism?

Article 3, (3):
No person shall be favoured or disfavoured because of sex, parentage, race, language, homeland and origin, faith, or religious or political opinions. No person shall be disfavoured because of disability.

That's your affirmative action paragraph right there. You thought AA was unconstitutional? Not in progressive Europe!

Article 5, (1):
Every person shall have the right freely to express and disseminate his opinions in speech, writing and pictures [...]
(2):
These rights shall find their limits in the provisions of general laws, in provisions for the protection of young persons, and in the right to personal honour.

Do I have to say anything more?

Article 7, (1):
The entire school system shall be under the supervision of the state.
(4):
The right to establish private schools shall be guaranteed. Private schools that serve as alternatives to state schools shall require the approval of the state and shall be subject to the laws of the Länder.

Yay, a completely state-run school system with no homeschooling options! What a beautiful "right" !

Article 14, (2):
Property entails obligations. Its use shall also serve the public good.

That sounds like straight out of an Ayn Rand novel.

Love your freedom more than your constitution, or else you're most likely bound to lose it.

Undead ideologies (and how to combat them)

It's hard to believe sometimes. Just 18 years ago, one half of the planet was suffering under socialist gridlock. Finally, the pressure became intolerable and the masses flooded the streets, demanding liberty. Those bureaucrats and apparatchiks who would mercilessly beat down riots a couple of years ago were now stuck; nobody had confidence in their empty promises anymore, the vast majority didn't care about obeying orders. This proved the crucial point that government solely rests on the good faith of its subjects.

The Soviet Empire imploded pretty soon after that. Maybe it was this unexpected vanishing of their ideological adversaries that left liberty-oriented people worldwide in a shock at the wrong time. All the rhetoric about how the USSR would outperform free markets, about a thriving socialist commonwealth, happy people everywhere, suddenly clashed with reality. Poverty-ridden peasants in a run-down environment with feces spilling out of the sewers (sorry for being that graphic here) were on the TV screens of middle-class people in the free world. Soon after, gulags and all the other cruelties of Comrade Stalin and his fellow revolutionaries ascended from the Soviet archives. Word of socialist tyranny was spread around everywhere.

Socialism, to put it mildly, had failed epically, and everybody knew it.

Not even two decades later, socialism appears to be as fit as a fiddle. While politicians in the US still feel a need to employ liberty-related rhetorics ("the ownership society" etc) to sell their collectivist concepts, goold ol' Europe is increasingly lusting for the total state, both in practice and in speech. In an odd and alarming way, it reminds me of the time between World War I and II, when fascist-authoritarian statists would battle state socialists on their quest for power.

But why, I often ask myself? We had fascism in various colors, it failed. We had socialism in various colors and it failed as well. Shouldn't we move on, then, just maybe?

The reason why we still have to deal with a false dichotomy between fascism (better known today as neoliberalism or neoconservatism, the fusion of state and Big Capital) and socialism (the expropriation of capitalists by the state) is the lack of libertarian courage, especially in Europe, to present solutions which do not include state action. More generally spoken, libertarians lack attention at all. Libertarians had a once-in-a-lifetime opportunity to step into the spotlight and show the way. After all, libertarian theory is one of the most sophisticated and straightforward doctrines out there. But did they?

Fortunately, in some cases, it was done for them by others. I'm thinking especially about (and please don't hate me for saying this) Larry Hunter's Contract with America. Even though conservatives are scorned as impure renegades among a number of libertarians, we owe them a favor for pushing liberty, at least in a rhetorical way, when the time was right.

Some claim this actually hurt the cause of liberty since it watered down its original meaning. While that may be true, it caused , in my opinion, a more important thing to happen, it laid the foundation for a more advanced libertarian philosophy among the general public. How do you think was Ron Paul able to rally so much support with so little backing in the mass media? He simply reaped the fruits of a decade of conservative inconsistency: while people did desire liberty, they realized that Republicans, though they liked to talk about it, wouldn't support the idea in office. Paul appeared to be a guy who would, having a pretty much pro-liberty voting record and resembling the philosophy of individual responsibility in his own life.

If Ron Paul tried to communicate his radical classical-liberal philosophy with the average European audience, he wouldn't find too many listerners I'm afraid. A mass-movement as it has formed in the US could hardly be reproduced. After literally a hundred years of fascism, socialism, social democracy and big government conservatism, people have been alienated from liberty. An approach would have to begin softly, it should believably champion improvements of the situation for the poor, the unemployed and those who live on state welfare, and it would most likely require a popular national figure. Tough job.

The US are a number of steps ahead in the process. After getting people warmed up for liberty in the 90s, now they are being moved to the streets to demand it loud and clear, just as the inhabitants of the Soviet Union did. And as the American Empire crumbles, the next step would be the formation of local landowners' associations (as is already happening in so called Gated Communities) to create alternative forms of organizing society on a small scale until the state, with increasingly shrinking resources and compliance, simply becomes a minor nuisance like bad weather.

But what do we do about all those expensive and worrisome leviathanic projects in the meantime? As for centralized Europe, I can't really say. US citizens should try to fend them off by electing trustworthy people into local offices. "Electing the good guys" is easily said, but it's a lot easier within your community than on a state or national level. As an example of how that would work out, a number of cities and communities have refused to engage in the surveillance activities prescribed by the Patriot Act. Remember, central planners may command a lot, but enforcement is an utterly different topic.

Thus, my three-stage plan for liberty is:

1. Get people excited for it - show them specific examples where more liberty and less state may be beneficial, and try to avoid too much radicalism. You don't want to scare them off.
2. As soon as a general tendency in favor of liberty is recognizable (e.g. in the rhetorics of politicians, rants of your fellow citizens), shift up gears. Make the case for uncompromised classical-liberal statehood. Totally discredit the idea of "more government", energize people even more.
3. When government has lost its glamor, replace it. Make government services dispensable. Openly compete in core fields like security, "public goods" provision like energy production (with cooperatively financed renewable energy, for example) or social security (neighborhood trust funds, or whatever comes to mind).

Be creative. It will be rewarded.