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Congressional Record — US House of
Representatives July 9, 2002
It is now commonplace and politically correct to blame
what is referred to as the excesses of capitalism for the economic problems
we face, and especially for the Wall Street fraud that dominates the business
news. Politicians are having a field day with demagoguing
the issue while, of course, failing to address the fraud and deceit found in
the budgetary shenanigans of the federal government — for which they
are directly responsible. Instead, it gives the Keynesian crowd that runs the
show a chance to attack free markets and ignore the issue of sound money.
So once again we hear the chant: "Capitalism
has failed; we need more government controls over the entire financial
market." No one asks why the billions that have been spent and thousands
of pages of regulations that have been written since the last major attack on
capitalism in the 1930s didn't prevent the fraud and deception of Enron,
WorldCom, and Global Crossings. That failure surely couldn't have come from a
dearth of regulations.
What is distinctively absent is any mention that
all financial bubbles are saturated with excesses in hype, speculation, debt,
greed, fraud, gross errors in investment judgment, carelessness on the part
of analysts and investors, huge paper profits, conviction that a new era
economy has arrived and, above all else, pie-in-the-sky expectations.
When the bubble is inflating, there are no
complaints. When it bursts, the blame game begins. This is especially true in
the age of victimization, and is done on a grand scale. It quickly becomes a
philosophic, partisan, class, generational, and even a racial issue. While
avoiding the real cause, all the finger pointing makes it difficult to
resolve the crisis and further undermines the principles upon which freedom
and prosperity rest.
Nixon was right — once — when he
declared "We're all Keynesians now." All of Washington is in sync
in declaring that too much capitalism has brought us to where we are today.
The only decision now before the central planners in Washington is whose
special interests will continue to benefit from the coming pretense at
reform. The various special interests will be lobbying heavily like the Wall
Street investors, the corporations, the military-industrial complex, the
banks, the workers, the unions, the farmers, the politicians, and everybody
else.
"The only decision now before the central planners in Washington is
whose special interests will continue to benefit from the coming pretense at
reform."
But what is not discussed is the actual cause and
perpetration of the excesses now unraveling at a frantic pace. This same
response occurred in the 1930s in the United States as our policy makers
responded to the very similar excesses that developed and collapsed in 1929.
Because of the failure to understand the problem then, the depression was
prolonged. These mistakes allowed our current problems to develop to a much
greater degree. Consider the failure to come to grips with the cause of the
1980s bubble, as Japan's economy continues to linger at no-growth and
recession level, with their stock market at approximately one-fourth of its
peak 13 years ago. If we're not careful — and so far we've not been
— we will make the same errors that will prevent the correction needed
before economic growth can be resumed.
In the 1930s, it was quite popular to condemn the
greed of capitalism, the gold standard, lack of regulation, and a lack government insurance on bank deposits for the
disaster. Businessmen became the scapegoat. Changes were made as a result,
and the welfare/warfare state was institutionalized. Easy credit became the
holy grail of monetary policy, especially under Alan Greenspan, "the
ultimate Maestro." Today, despite the presumed protection from these
government programs built into the system, we find ourselves in a bigger mess
than ever before. The bubble is bigger, the boom lasted longer, and the gold
price has been deliberately undermined as an economic signal. Monetary
inflation continues at a rate never seen before in a frantic effort to prop
up stock prices and continue the housing bubble, while avoiding the
consequences that inevitably come from easy credit. This is all done because
we are unwilling to acknowledge that current policy is only setting the stage
for a huge drop in the value of the dollar. Everyone fears it, but no one
wants to deal with it.
Ignorance, as well as disapproval for the natural
restraints placed on market excesses that capitalism and sound markets
impose, cause our present leaders to reject capitalism and blame it for all
the problems we face. If this fallacy is not corrected and capitalism is even
further undermined, the prosperity that the free market generates will be
destroyed.
Corruption and fraud in the accounting practices
of many companies are coming to light. There are those who would have us
believe this is an integral part of free-market capitalism. If we did have
free-market capitalism, there would be no guarantees that some fraud wouldn't
occur. When it did, it would then be dealt with by local law-enforcement
authority and not by the politicians in Congress, who had their chance to
"prevent" such problems but chose instead to politicize the issue,
while using the opportunity to promote more useless Keynesian regulations.
Capitalism should not be condemned, since we
haven't had capitalism. A system of capitalism presumes sound money, not fiat
money manipulated by a central bank. Capitalism cherishes voluntary contracts
and interest rates that are determined by savings, not credit creation by a
central bank. It's not capitalism when the system is plagued with
incomprehensible rules regarding mergers, acquisitions, and stock sales,
along with wage controls, price controls, protectionism, corporate subsidies,
international management of trade, complex and punishing corporate taxes,
privileged government contracts to the military-industrial complex, and a
foreign policy controlled by corporate interests and overseas investments.
Add to this centralized federal mismanagement of farming, education,
medicine, insurance, banking and welfare. This is not capitalism!
To condemn free-market capitalism because of
anything going on today makes no sense. There is no evidence that capitalism
exists today. We are deeply involved in an interventionist-planned economy
that allows major benefits to accrue to the politically connected of both political
parties. One may condemn the fraud and the current system, but it must be
called by its proper names — Keynesian inflationism, interventionism,
and corporatism.
What is not discussed is that the current crop of
bankruptcies reveals that the blatant distortions and lies emanating from
years of speculative orgy were predictable.
First, Congress should be investigating the
federal government's fraud and deception in accounting, especially in
reporting future obligations such as Social Security, and how the monetary
system destroys wealth. Those problems are bigger than anything in the
corporate world and are the responsibility of Congress. Besides, it's the
standard set by the government and the monetary system it operates that are
major contributing causes to all that's wrong on Wall Street today. Where
fraud does exist, it's a state rather than a federal matter, and state
authorities can enforce these laws without any help from Congress.
"We are unwilling to acknowledge that
current policy is only setting the stage for a huge drop in the value of the
dollar. Everyone fears it, but no one wants to deal with it."
– Ron Paul, 2002
Second, we do know why financial bubbles occur,
and we know from history that they are routinely associated with speculation,
excessive debt, wild promises, greed, lying, and cheating. These problems
were described by quite a few observers as the problems were developing
throughout the 1990s, but the warnings were ignored for one reason. Everybody
was making a killing and no one cared, and those who were reminded of history
were reassured by the Fed chairman that "this time" a new economic
era had arrived and not to worry. Productivity increases, it was said, could
explain it all.
But now we know that's just not so. Speculative
bubbles and all that we've been witnessing are a consequence of huge amounts
of easy credit, created out of thin air by the Federal Reserve. We've had
essentially no savings, which is one of the most significant driving forces
in capitalism. The illusion created by low interest rates perpetuates the
bubble and all the bad stuff that goes along with it. And that's not a fault
of capitalism. We are dealing with a system of inflationism and
interventionism that always produces a bubble economy that must end badly.
So far the assessment made by the administration,
Congress, and the Fed bodes badly for our economic future. All they offer is
more of the same, which can't possibly help. All it will do is drive us
closer to national bankruptcy, a sharply lower dollar, and a lower standard
of living for most Americans, as well as less freedom for everyone.
This is a bad scenario that need not happen. But
preserving our system is impossible if the critics are allowed to blame
capitalism and sound monetary policy is rejected. More spending, more debt,
more easy credit, more distortion of interest rates, more regulations on
everything, and more foreign meddling will soon force us into the very
uncomfortable position of deciding the fate of our entire political system.
"To condemn free-market capitalism because
of anything going on today makes no sense."
If we were to choose freedom and capitalism, we
would restore our dollar to a commodity or a gold standard. Federal spending
would be reduced, income taxes would be lowered, and no taxes would be levied
upon savings, dividends, and capital gains. Regulations would be reduced,
special-interest subsidies would be stopped, and no protectionist measures
would be permitted. Our foreign policy would change, and we would bring our troops
home.
We cannot depend on government to restore trust
to the markets; only trustworthy people can do that. Actually, the lack of
trust in Wall Street executives is healthy because it is deserved and prompts
caution. The same lack of trust in politicians, the budgetary process, and
the monetary system would serve as a healthy incentive for the reform in
government we need.
Markets regulate better than governments can.
Depending on government regulations to protect us significantly contributes
to the bubble mentality.
These moves would produce the climate for
releasing the creative energy necessary to simply serve consumers, which is
what capitalism is all about. The system that inevitably breeds the corporate-government
cronyism that created our current ongoing disaster would end.
Capitalism didn't give us this crisis of
confidence now existing in the corporate world. The lack of free markets and
sound money did. Congress does have a role to play, but it's not proactive.
Congress's job is to get out of the way.
Ron Paul
www.house.gov/paul
Published with the authorization of Dr. Paul.
Copyright Dr. Ron Paul
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