The Debt Limit: America's Hostage Crisis






The answer is a strange one.  As it turns out, in our Jeffersonian fear of aggregations of power in the private sector, we created a much worse one in the public sector.

I have written on this theme before, but one of the straw men that folks like to put up in arguing against libertarians is that we believe that businesses and corporations always do the right thing, and then they go dredge up any one of a million anecdotes that show bad behavior by private actors.

Let's get this out of the way -- corporations do bad, stupid things all the time.  Their organizations can get fat, slow, arrogant, and senescent.  I read a horrible example just the other day, when Chase Bank seized a customer's money and had him thrown in jail for trying to cash a perfectly valid check.

Libertarians don't have any more trust for the managers of Chase Bank than they do for members of Congress.  What they do trust, though, are the accountability mechanisms that act on Chase Bank.  If it commits fraud, it can be prosecuted; if it abuses an innocent man, it can be sued; if it keeps making bad decisions and abusing customers, it can go out of business.

Impatient, though, when these natural correction mechanisms don't operate fast enough or get the exact outcomes we might prefer, we increasingly have given the government more and more power over the private sector.  In some cases, we have wholesale shifted entire industries from the private to the public domain.  Frustrated that people don't save enough for retirement?  The government will take over the retirement savings business via Social Security.  Tired of greedy banks demanding good credit ratings and large down payments for a mortgage?  The government can step in and guarantee mortgages with much more relaxed requirements.

We did this because we had the sense that government was inherently more accountable to us than these private companies over whom we had no apparent control.  But this turned out to be a mirage.  We have far more power as consumers than we give ourselves credit for -- just remember what happened to Circuit City and Borders Books -- and we have far less power over our modern government than we think we do.

Politicians have learned to gerrymander districts to virtually guarantee their own reelection and thus avoid accountability.  Even when political races are competitive, the choice is typically between two candidates who support the expansion of government power, though in different ways.   We might have wanted coffee or milk but all we get is a choice between Coke or Pepsi.

More frightening is the fact that Congress has really abdicated much of its power and its Constitutional role in government, delegating its legislative power to nameless, un-elected bureaucrats who write rules and regulations.  This vast, unaccountable organization seldom changes no matter who we elect to office, putting their own employment and power ahead of ideology.

The USA Today had a fascinating (if depressing) report this week, which revealed that few if any of these 2,000,000 hidden Federal rulers ever lose their job, no matter how poorly or ineffectively or callously they serve the public.  You may think Wal-Mart to be unaccountable, but I can gaurantee that a bad customer service employee there is going to be fired a lot faster than at the Post Office or DMV.

So in a quest to fight private accumulations of power, we have created the mother-of-all too big to fail institutions.  Remember, in the private sector, the ultimate check on the indifferent exercise of market power is extinction.  Companies that screw up bad enough and long enough will be put out of business -- unless, of course, they have friends in government who bail them out and short circuit the verdict of the market.

Today, we have made the government the ultimate too big to fail institution.  We have transferred so many private activities to it, and have inserted a necessary government approval step into so many other activities, that the government can now fend off nearly any attack on its power with a threat of shut down.

That is what we are seeing today.  They don't want any employees laid off, they don't want any special payments for their political friends reduced, and they don't want to reduce the size or scope of their control.  So we are being held hostage until we pay trillions of dollars in new taxes, or at least agree to taking on trillions in new debt.

That is why nobody is happy with the choices in Washington today.  Either we have to endure the painful exercise of the Fed's power to muck up markets with a shut down, or we have to pay another installment of blackmail, knowing there will be more, probably larger, installments in the future.

However we resolve the near term crisis, this should be a wake up call that it's time to start moving government activities back to the private sector.  Health care would be a great place to start.  Because as much as I may hate fighting the bureaucracy at Aetna to get my kidney transplant, I sure don't want it to depend on John Boehner and Harry Reid.

