Paul Craig Roberts on Glass-Steagall, Free Trade and the Dangers of an Evolving Oligarchy of Private Interests
By Anthony Wile - July 18, 2010

Introduction: Paul Craig Roberts is an economist and a nationally syndicated columnist for Creators Syndicate. He served as an Assistant Secretary of the Treasury in the Reagan Administration earning fame as a co-founder of Reaganomics. He is a former editor and columnist for the Wall Street Journal, Business Week, and Scripps Howard News Service. Roberts has been a critic of both Democratic and Republican administrations. He has written or co-written eight books, contributed chapters to numerous books and has published many articles in journals of scholarship. He has testified before congressional committees on 30 occasions on issues of economic policy. His writings frequently appear on OpEdNews, Antiwar.com, VDARE.com. Lew Rockwell's web site, CounterPunch and the American Free Press.

Daily Bell: This interview will review material that you've gone over in your books and articles, but we hope you will answer the questions nonetheless as some in our audience are not aware of your works or point of view. But let's start at the beginning. Are you a libertarian? Can you briefly describe the belief structure from which you write?

Paul Craig Roberts: I am a libertarian in the sense that I am certain that there must be moral and constitutional limits on power as exercised by both government and private institutions. I am a conservative in the sense that I believe that reform of society must be piecemeal and based on good will. Progress has to be incremental. Reform cannot be achieved by violent revolution in one fell swoop.

Daily Bell: How did you come to your sociopolitical conclusions?

Paul Craig Roberts: During most of my life government power, the power of government bureaucracies, was excessive. The Soviet government was the epitome of unaccountable government power. In the US, government power over business and individuals grew.

Daily Bell: Is that still the case?

Paul Craig Roberts: In recent years there has been a redistribution of power in the US from government to private. The US now resembles an oligarchy of private interests. The most powerful ones are Wall Street, AIPAC, the military/security complex, the oil industry, agri-business, insurance and pharmaceuticals. These private interests control economic and foreign policy, write the legislation that Congress passes and the President signs, and have achieved the monopolization of the US economy by large-scale commercial organizations. As far as I can tell, traditional conservatives scarcely exist in the US today. They have been eliminated by the neoconservatives, essentially militarists committed to US world hegemony.

Daily Bell: That doesn't sound like a very healthy evolution.

Paul Craig Roberts: There's another. The Republican Federalist Society has succeeded in enhancing the powers of the executive over the co-equal branches of government. Many federal judges and Department of Justice appointments are drawn from the membership of the Federalist Society, thus putting in place ideologues to advance executive power. Once executive power becomes dictatorial, we will have lifetime rulers and growing conflict between the executive and private oligarchic interests.

American elections are meaningless as the vast majority of those elected are dependent, or become dependent, on the campaign contributions from the private oligarchic interests. Today government bureaucracies (Child Protective Services and police, for example) have unaccountable power over private individuals, but the power of government over organized private interests has been beaten back. Today the private interests rule the state.

Daily Bell: Can you give us some other examples?

Paul Craig Roberts: The examples are endless. President Obama broke his campaign promises and renewed America's aggression against Afghanistan, because that was what the military/security complex demanded. The health care "reform" was written by the private insurance companies and was designed to provide the insurance companies with 30 million involuntary new customers. Environmental restraints on deep-water drilling were removed at the instruction of the oil industry, resulting, for example, in the extraordinary environmental destruction in the Gulf of Mexico. Wherever one looks, the external costs that private companies are able to impose on others are rising.

This change has occurred more quickly than libertarians have been able to adjust. Historically allied with private interests against government, libertarians have been slow to acknowledge the rise of unaccountable private power.

Daily Bell: It sounds like an ideological rigidity of sorts.

Paul Craig Roberts: In my experience with libertarians, especially during my tenure as Distinguished Scholar at the Cato Institute during the 1990s, I have encountered an ideological inflexibility, dogma if you will, that turns blind eyes to analytical and empirical evidence. Many, most likely most, libertarians regard jobs off-shoring as the beneficial workings of free trade. Those, such as myself, who present the clear facts of the case are demonized as "protectionists," which means that libertarians do not have to examine the facts and encounter the empirical evidence.

A similar failing has made most libertarians blind to the virtues of countervailing power. Libertarians line up with capital against labor. Libertarians, for example, supported the repeal of the Glass-Steagall Act, thereby setting the stage for the current world financial crisis. For libertarians freedom means no restrictions on capital, and they want labor unions destroyed.

Daily Bell: Libertarians are then naïve in this regard?

Paul Craig Roberts: I am convinced that liberty as epitomized by Anglo-American law and civil liberties has been lost. I make this case in my book, The Tyranny of Good Intentions. Both the US and UK governments have acted lawlessly by taking their countries to war based on deception of their domestic populations and the UN. Both have violated their own laws and international laws in torturing detainees, in spying on their own citizens, and in curtailing the civil liberties that historically have defined the UK and the US. Libertarians regard liberty as a natural right when in fact liberty is a human achievement fought for over hundreds of years by people who believed in liberty. Liberty was hard to gain, and it is easily lost.

Daily Bell: You mentioned one of your books. Can you update our audience on some of your other writing?

Paul Craig Roberts: I regard all of my books as important. In my latest book, How The Economy Was Lost, I explain why off-shoring is not free trade. I also explain why the two necessary conditions set out by David Ricardo for the principle of comparative advantage, the basis for free trade, no longer exist. I further explain that when a country moves the production of goods and services that it consumes offshore, GDP growth and consumer incomes are moved offshore as well. Jobs off-shoring or "globalism" is a way to convert US labor income into executive bonuses and capital gains to shareholders. This is the explanation for the rising income inequality in the US.

Daily Bell: And also for rising unemployment?

Paul Craig Roberts: Since 2008 the lowest interest rates and largest federal budget deficits in US history have been unable to stop the rise in US unemployment, much less to call the unemployed back to work. There are no jobs to which to call workers back. The jobs have been given to the Chinese and Indians.

Daily Bell: Good points. Can you mention some other books?

Paul Craig Roberts: My first book, Alienation and the Soviet Economy, was appreciated by libertarians because it showed that Soviet central planning was a failure, producing outputs worth less than the inputs. However, the deeper message of the book might have passed unnoticed. My book documents speculative excess as a force in history. The Marxist aspirations that gave rise to the Soviet economy were inordinate and did not bear on reality.

Daily Bell: You wrote a famous book about supply side concepts as well.

Paul Craig Roberts: My book, The Supply-Side Revolution, presented supply-side economics as a necessary correction to Keynesian demand management. The Keynesian policy of stimulating consumer demand with easy money while restricting output with high marginal tax rates resulted in stagflation. The supply-side policy, by reversing the policy mix, cured the stagflation. As far as I can tell, few libertarians have understood supply-side economics. Most demonized it as a form of Keynesian tax-cutting.

Daily Bell: It's still a controversial subject.

Paul Craig Roberts: One would have thought that libertarians would welcome lower income taxes as a move toward personal freedom. Historically, the definition of a free person is a person who owns his own labor. Serfs and slaves do not have ownership rights in their labor, and neither do people who pay income taxes. Curiously, libertarians get much more upset over tariffs as infringements on free trade than they do over the income tax's infringement of free persons.

Daily Bell: You raise some intriguing points.

Paul Craig Roberts: Thank you. I trust that these comments will provoke thought among libertarians and help them to reorganize their defense of liberty against the new enemies that now confront freedom.

Daily Bell: It's been an honor to interview you.

After Thoughts

This interview, though brief, is a glimpse of one of the most brilliant conservative minds in the Western world. Paul Craig Roberts's on-point articles and principled insights have set a "gold standard" for those interested in providing conservative commentary to a public that is occasionally receptive and certainly restive.

We are almost too intimidated by Roberts's profundity and perspicacity to wish to attempt an addendum of any sort. But it is our collective job, so we will present some thoughts on the matter, hoping those viewing these efforts will bear in mind they are offered reluctantly and within the knowledge that in no way can they match what has just been presented by the master himself.

Let us deal specifically with issues of free trade and Glass-Steagall. Regarding both of these subjects, we plead guilty to the libertarian zeal that Roberts identifies above with such devastating effect. We have written in numerous articles, especially, that the emphasis on rebuilding a firewall between banking and commercial/merchant banking so that the latter may not take advantage of the former's customers gives the misleading impression that government can regulate the marketplace. In other words, if only the RIGHT regulations were implemented, the difficult issues would be resolved and the world would be a better place.

With all due respect (we do not believe it to be an inordinate amount), the argument that government CAN legislate correct as well as incorrect regulations only perpetuates the idea that governments are occasionally competent. But in our view, this misreads such elemental economic laws as marginal utility, which is the dividing line between classical and neo-classical economics and the reason that Keynesianism and econometrics ultimately fail. Why is that? Because fundamentally, government cannot foretell the future.

A trend projected by government is bound to become undone before it is realized. This is the basic truth, often misunderstood, around which Austrian economics is built. Human action, the profound sacrament of Austrian economics and one of the most resonant presentations of modern philosophy, tells us that people will not sit idly by in the face of drought, famine, illness, etc. People will DO something. And thus it is that no catastrophic trend shall continue to its logical conclusion and no tree shall touch the sky.

People's propensity for taking human action is the reason that Thomas Malthus's dismal predictions proved wrong. It is the reason that Marx's predictions failed; it is the reason the USSR toppled and why centralization of governance and planning is always doomed to failure. Having isolated a trend, those who predict it in any sort of numerical or statistical way, are inevitably doomed to failure. One can make some general observations to be sure (we do it all the time) but to try to create by regulatory fiat what natural law has not already developed is likely a futile exercise.

We are not inclined to cede ground to government on these principled grounds. We have the advantage, of course, of being a minor adornment in the splendid brilliance of the blogosphere. We don't have to make policy, only comment on it. We don't have to try to put our ideas into action on anything but an individual basis. From Paul Craig Roberts's point of view, then, we are hopelessly naïve if not jejeune.

Roberts sees his role, obviously, as one of principled realism. He presents his arguments within the context of the world as it is, while we have gaily if not carelessly assumed the prerogatives of perfectionism. We argue, therefore, from the logic of an ideal world, and, within this ideal, it is evident to us that trade – free trade – ought to be pursued by individuals in pursuit of individual self-interest.

Within this admittedly proscribed perspective, there is no room for tariffs, trade negotiations, managed trade, protectionism, etc. As we see it, if people were free to do business as they pleased, then they would do so in a way that promoted their individual and, therefore, their aggregate self interest. If counter-parties were trying to take advantage of such trading, it would be immediately evident and obvious. Then trade would diminish and go elsewhere until such behavior was rectified. But this would take place on an informal, ad-hoc basis, as business ordinarily does. There would be no great fuss about it, no blasts of windy rhetoric, no legislative or military preemptions.

It can be seen in these two examples that we find ourselves on the other side of the table from Paul Craig Roberts, not because we want to be but because this is where we have chosen to take our seat. The Daily Bell is a modest blog about the problems caused by power-elite promotions and how free-market thinking might provide a palliative. Having breakfasted with idealists, you could say, we dine with zealots.

Yes, it is likely one of the more unattractive qualities of our reprobate characters … we are interested in the way things MIGHT be. Paul Craig Roberts is a practical genius, interested in building a more friendly free-market government today. It is the reason he served in lofty positions in the most powerful government in the world during one of its most successful regimes. We remain gravity-bound, firmly anchored to our ink-stained wretchedness on an inhospitable planet that has little notion of perfectibility and less ambition as regards its realization. Roberts is the realist. We have never felt endangered by accusations of practicality.

A final note: Above, we have attempted to present some thoughts on free trade and banking from a principled free-market perspective. We could write another entire "after thought" on Paul Craig Roberts's brilliant observations regarding the dangers of the creation of an 'Oligarchy of Private Interests.' We have identified the danger similarly, only our preferred nomenclature is "power elite." Also, while the danger is private, the mechanism utilized by the power elite is resolutely public. What is evident and obvious is that the elite seeks to control the levers of PUBLIC power in order to operate under color of law for private gain. This process is called MERCANTILISM and has nothing to do with the legitimacy or value of the private sector, which is considerable. The problem may lie with the private sector, but the problem would not exist without the availability of the public one. No government, no problem – within this context at least.

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