It is conceivable that stocks might have come back
after September 11, just as so many people had hoped. But the meddlers in
DC seemed to be doing everything in their power to make sure that it would
not happen. As a result, the government has compounded the destruction
wrought by the terrorists, and added to the economic miseries of the
moment.
The week following the attack unleashed
an amazing barrage of legislation and proposals that can do nothing but
harm American productivity. This was the last thing the economy needed
even before the attack. Remember that stock prices reflect an estimation
of the future. If the performance this week is any indication, bad times
are on the way. That's exactly what you would expect given the blizzard of
statism coming out of D.C.
We can start with
the $40 billion that Congress authorized for counter-terrorism,
rebuilding, subsidies, and other purposes known and unknown. Nobody
stopped to ask: where does this money come from? The answer is that it is
sucked right out of the private economy.
One
way or another they will get it from us, whether through taxes, debt
payable later, or inflation. For days, there was talk of the need for a
special wartime tax, and the need for all of us to cut back. Say what you
will about this kind of rhetoric, it’s not good for
stocks.
Some people say: it will come from the
surplus. But any spare change lying around Capitol Hill is better used for
more tax cuts, for which this spending package has killed all
hope.
Others say: but this will provide a
stimulus to the economy. In fact, not a day goes by when another
commentator doesn’t claim that all forms of destruction, whether terrorist
attacks or government spending, are actually good for us because they lead
to more aggregate demand. Timothy Noah at Slate was the first to make such
a claim, but Paul Krugman of the New York Times, then Larry Kudlow of
National Review stepped up to the plate to say the
same.
As Frederic Bastiat explained long ago,
this view disregards the alternative uses to which the resources might
have been put had terrorists not destroyed them or had government not
decided that it needed scarce resources more than we do. Government
spending is a drain, not a stimulus, to economic activity. This is true
regardless of whether you think such spending is
justified.
Even now, the government is waging
war against so-called price gougers who are trying their best to reconcile
existing market prices with the new reality. Rather than allow them the
freedom to match demand and supply, the feds are pursuing criminal
prosecutions against people who charge too high a price. Especially
preposterous is the idea that real estate prices in Manhattan ought to be
fixed at the pre-attack level. Because office space is suddenly highly
limited, this makes no sense. It will discourage new
building.
The federal government doesn’t seem
to understand that the enemy is supposed to be terrorism, not
capitalism!
Another disastrous step was the
severe air-travel restrictions that the FAA put in place. It began with
the forced grounding of all planes, a "no-fly zone" for America. It
continued with a series of senseless regulations that will do nothing to
make travel more secure. The hijacking did not reflect a failure at the
level of luggage, pre-screening, curb-side check-in, mail cargo, VFR
flights, or the proximity of cars to the airport. They had nothing to do
with the attack. Yet these were exactly the areas tightened last
week.
Meanwhile, the hijackers used razor
blades and box openers–items that are only effective in a plane without an
armed passenger on board. The FAA has done nothing to make it easier for
airlines to arm themselves against malicious characters. So while the rest
of us face much higher costs of travel, the terrorist is still in a
position of power over the pilot and crew, even right now! The result will
not be increased security but higher fares and hugely increased
inconvenience. The economic consequences of this are
incalculable.
The federal government has also
demanded eavesdropping software on all our internet service providers.
They are no longer permitted to resist. Hence, the very medium that has
fueled a substantial amount of economic growth over the last decade is
being regulated. And this is only the beginning. Now that government has
its big, ugly foot in the door, it is going to demand a huge increase in
power over the internet–all without demonstrating any connection between
the attack and a free market in technology.
The Federal Reserve has opened the monetary spigots like
never before, threatening the very value of the dollar and promising a
total bailout of the banking system in the event of financial meltdown.
The Fed is also demanding that other central banks go along. Pathetically,
the Central Bank of Japan lowered the discount rate from 0.15 to 0.10. No
word on why it didn’t go all the way and eliminate interest all together.
Will we ever learn that printing money is no way to solve an economic
problem?
Many in Congress are calling for higher taxes, national ID
cards that would track our every movement, industrial bailouts, and a
thousand other bad ideas, including and the ability of the president to
take any actions he desires against anyone he personally deems a threat.
And much more is coming. All of these are incompatible with the idea of
freedom, which is the very basis of prosperity. You can’t expect economic
recovery to come from an attack on freedom.
Meanwhile, simple steps that will increase the prospects
for recovery are not being pursued. All types of taxes ought to be
dramatically cut. This will pump more resources into the private economy
where they will actually do some good. Controls on oil production should
be repealed. This will drive down the price of oil and break the back of
the US-created OPEC cartel. Sanctions against foreign countries need to be
repealed, accomplishing two great effects: providing more opportunities
for trade and eliminating a source of resentment felt most heavily in the
Arab world.
Airline security is the most immediate concern. The FAA
should permit pilots and crews to arm themselves. It is an outrage that
this has been generally discouraged and even prohibited up till now, even
for stun guns and other non-lethal weapons.
The answer to all social problems is more freedom, not
less. Every despot since time immemorial has used a crisis to do what he
would like to do anyway. The would-be despots in Washington should not be
allowed to get away with it. The path to prosperity, now and forever, is
the same: leave the market alone.
Llewellyn H. Rockwell,
Jr.
September 27, 2001
* * * * *
Llewellyn H. Rockwell, Jr., is president of the Mises Institute and editor
of LewRockwell.com. Send him email at Rockwell@mises.org. See also his A Tribute to
Trade, which was published in U.S. newspapers and in several languages. See also his Daily Archive.
