Why Government Is Necessary for Prosperity
By Staff News & Analysis - September 17, 2010

Our Best Minds Are Failing Us … With America in deep trouble, our economists are AWOL, and our scientists are still off 'financial engineering.' The most terrifying moment in modern economic history occurred two years ago this month. For several long days after the fall of Lehman Brothers on Sept. 15, 2008, the financial system was in danger of total collapse, and the United States seemed on the precipice of another Great Depression in that "Black September." Just as bad, our economists and senior policymakers had barely any idea why this was happening. The assumptions of an entire era had been proved wrong. The "Great Moderation"—the period of post-Cold War prosperity in which capitalism was said to have been tamed and risk mastered—was revealed to be an illusion. Alan Greenspan professed his "shocked disbelief" that the Wall Street institutions he had trusted in were so reckless as to blow themselves up. "The whole intellectual edifice has collapsed," the former Fed chairman told Congress that fall. … "Large swaths of economics are going to have to be rethought on the basis of what happened," Larry Summers (left), the presidential adviser who doubles as a world-renowned economist, told me in an interview shortly after Barack Obama took office. – Newsweek

Dominant Social Theme: Government must provide balance as markets won't.

Free-Market Analysis: This era has proven remarkable. We can actually see how dominant social themes are being built. We have compared this to watching an island form in the ocean out of volcanic material. It is a rare occurrence, but one that has confirmed our perspectives. The players, the rhetoric, the strategies conform to our expectations. It is especially noteworthy that the meme we are following most closely in terms of construction – government is an integral part of free markets – is being promoted out of Time and Newsweek magazines. These two national weeklies are most closely identified with power elite themes in our view in the past. (See Project Mockingbird, etc.)

Now here comes Michael Hirsh, who Newsweek tells us is "the author of the newly published Capital Offense: How Washington's Wise Men Turned America's Future Over to Wall Street." This article is obviously taken from the book. Here's a little background on Hirsh from Wikipedia: "Michael Hirsh is the former Foreign Editor and chief diplomatic correspondent for Newsweek. He is currently a senior editor in the magazine's Washington bureau. … Hirsh was co-winner of the Overseas Press Club award for best magazine reporting from abroad in 2001 for 'prescience in identifying the al Qaeda threat half a year before September 11 and for Newsweek's coverage of the war on terror, which also won a National Magazine Award.' "

We can see from the above bio that Hirsh is a member-in-good-standing with the most elite levels of Anglo-American journalism. It is no surprise then that the article in Newsweek repeats the promotion that we have been tracking these past months. Let us hasten to add that we have no idea whether or not Hirsh is a conscious participant in this putative promotion, but almost every week now we read a new justification for why government is a necessary part of free-markets.

Only a week ago, we found another article of this sort, which we analyzed in "TIME Spreads the Government-Wealth Meme." The article was actually an interview with Anatole Kaletsky, (Editor-at-Large and Principal Economic Commentator of The Times), about a new book of his. We wrote then that we could see clearly that Kaletsky was making an effort to present the government, or at least central banking, as a natural part of the larger conversation. You can see the article here: TIME Spreads the Government Wealth Theme.

But the Kaletsky interview was just one of many attempts to reintegrate government as an unquestionable part of laissez-faire. We've covered a number of attempts of late, and (to prove our point) referred to two more of them in the Kaletsky article as follows:

Two brand new dominant social themes in a very short space of time, or at least that is the way we see it. The state has come under tremendous attack in the 21st century and we believe the powers-that-be are pushing back. (Why wouldn't they?) In aggregate, the themes make a powerful argument that some level (perhaps a high degree) of state involvement in the economy is at least tolerable if not an unmitigated good.

We explored the first meme just the other day. It was, we believed, a sophisticated socioeconomic perspective promulgated by a brilliant young political observer, one Ian Bremmer – who had the perspicacity to focus on the idea that most of the major powers of the world today are practicing something called state capitalism … Bremmer, we decided (whether he knows it or not) is essentially creating a new dominant social theme that justifies Western capitalism not just in previous free-market incarnations but as it is today. The argument he presents, we came to believe, is one that if taken to its logical conclusion implies that instead of criticizing Western capitalism, Westerners ought to devote their energies to combating state capitalism abroad. …

Now the NEW meme (new to us anyway) buttresses what Bremmer is proposing. This suggestion is brought to us from the mainstream libertarian wing of the US sociopolitical dialogue. … [Called the Rahn curve], it postulates that data shows governments are most effective at supporting economic growth and free-markets when they comprise no more than 15 to 25 percent of total GDP.

It may not seem obvious to you, dear reader, but it seems fairly obvious to us. The elite, in a panic, is casting around for ways to buttress the economic authoritarianism that involves Western governance at every level of private enterprise. The fascinating thing is how each effort mentioned above attacks the problem from a different point of view but ends up at approximately the same place.

One can argue that it is all a big coincidence. Or one can speculate that the elite has realized that in the 21st century there are precious few arguments left for command-and-control economies. With the incomprehensible perspectives of John Maynard Keynes becoming less feasible every day, the elite in our view is casting around for any methodology that might logically sustain the state paradigm. And, yes, we do believe it is orchestrated at some level, though we are not in a position to say exactly how.

Nonetheless, there are at least three conclusions we can draw. First of all, the elite apparently believes that Keynes is finished as a credible proponent of governmental activism in the marketplace. Second, the elite has absolutely no idea of what to argue next. Third, the elite obviously feels a need to provide an additional justification for economic authoritarianism partially because arguments for unfettered free-markets have made so much headway in this era of the Internet.

As free-market Austrian arguments increasingly take center-stage, as arguments against the horrible destructiveness of central banking become increasingly convincing, we watch the elite grope for effective countermeasures. This is indeed a testament to how the Anglo-American elite functions, using a variety of idea-intensive narratives to justify its authoritarian structures. This is also why elite promotions are having so much trouble in the 21st century.

The Internet has allowed people to examine the promotions in detail and to do so within the context of manifold viewpoints. We would anticipate additional attempts to reintegrate government oversight with free-markets if we are correct about this developing promotion. If the elite cannot discover a convincing narrative to justify, say, central banking, then it is inevitable that modern systems of finance will come under serious attack.

After Thoughts

Societies need narratives. The Anglo-American elite has been adept at supplying them. But as the truth-telling of the Internet takes hold, these faux-narratives are increasingly failing. We cannot overstate the importance of what is going on – certainly from an investment standpoint – though we note that this unraveling is little understood and less reported.

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