Counsel of Despair?
By Robert Higgs • Tuesday July 31, 2012 2:19 PM PDT • 18 Comments
Over the years, I have heard many people say that the government’s adoption of a laissez-faire stance during a business recession or depression amounts to “do-nothing government”—the unstated assumption always being that it is better for the government to “do something” than to do nothing. Recommending such a hands-off stance is often described as a “counsel of despair.” Moreover, it is frequently added, in a democratic polity, the electorate will not tolerate such a policy.
Implicit in such criticism is the assumption that the government knows how to improve the situation and has an incentive to do so. If only it will take the known remedial action, people’s suffering will be relieved, and the economy will return more quickly to full employment and rapid economic growth. All that blocks such remedial action, it would seem, are outdated ideas about the proper role of government and, perhaps, the opposition of certain selfish special interests. Government need only step on the gas pedal, by means of expansionary fiscal and monetary policies, and the economic engine will accelerate. If the government is already taking such actions, it need only press down harder on the gas pedal.
Adherents of the Austrian school of economics are sometimes singled out as moss-backed exponents of the “liquidationist” position said to have been taken by Treasury Secretary Andrew Mellon after the onset of the Great Depression in the United States. According to Herbert Hoover, Mellon urged him to refrain from involving the government in the situation, in order to “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate…. [I]t will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
Although not so colorful in their policy advice, Austrian economists do recommend that the government stand aside when a business bust occurs. (They also explain how government action, especially its monetary policy, has brought about the preceding, unsustainable boom.) By so doing, the policy-induced structural distortions whose unsustainability brought on the bust in the first place will be corrected. Resources will be reallocated away from enterprises that are losing money and capital value because consumers are unwilling to support their profitable operation, and they will be put to work in other lines, where prospects of successfully satisfying present and future consumer preferences are brighter. Business bankruptcies, unemployed labor and capital, and other dire developments only attest that mistakes have been made. In order to restore sustainable prosperity, these mistakes must be corrected, not papered over.
If the government props up unprofitable firms with bailouts and cheap loans and subsidizes unemployed workers with extended unemployment-insurance benefits and other income supports, it only obstructs and delays the necessary restructuring of the economy’s resource allocation. Although it may appear to be relieving people’s pain—and, indeed, it is doing so for those fortunate enough to receive booty at the public’s expense—it is only ensuring that by falsifying the price and profit signals that tell economic actors how to act most rationally in the society’s long-term benefit, it is preserving an economically irrational allocation of resources and thereby planting a time bomb that will explode later in the form of an even worse bust.
Thus, what seems to be governmental “compassion” is scarcely true compassion, but only a spurious assistance to some at the present expense of others and, ultimately, to the detriment of almost everyone. The true counselors of despair are those who insist that the government act even though the government cannot act constructively and its actions will, at best, only produce short-term improvement in the patient’s symptoms while ensuring that in the long term, he will fall victim to an even more painful malady. If the patent is bleeding, it is scarcely compassionate to attach government leeches so that he loses blood even more rapidly. The true counselors of despair are those who hope against hope—and historical experience—that the government can and will act constructively. Such wishful thinking cries out for deeper study of Austrian economics and economic history, not to mention a more thorough understanding of the sort of people who run governments and of their reasons for exercising government power.
Tags: American History, Austrian School of economics, Bailouts, Budget and Tax Policy, Business, Economics, Employment, Government subsidies, Great Depression, The State, Unemployment 
While it may be true that government intervention into the workings of the economy likely will result in a prolongation or worsening of market corrections, the flipside of government intervention, the benefit of state regulation and of states themselves, is that they serve to mutually check the profit-driven resource destruction of the planet.
The goal of a moral society is not even secondarily the most efficient exploitation of natural resources; nor setting the highest floor of human subsistence–two virtues of capitalism. It is the preservation and the fostering of the innocent, whether in nature or within our family homes, that distinguishes a good government from an amoral, or an immoral one.
So, it isn’t that government intervention is necessarily an evil, per se. It’s more that our government far overreaches the good it might do.
http://whatdirectdemocracymightbe.wordpress.com/of-morality/
Daryl Davis | Jul 31, 2012 | Reply
@Daryl Davis: Your ideas about which “good” or “evil” actions that the state must or must not take to lessen your perceptions about the planet’s destruction are yours. Please do all that you can to persuade others of their truth, but if you cannot do that, please do not convince yourself that you have a right to force me and mine to go along with your opinion at gunpoint, even if you can get 51 percent of the people to agree with you. Education and persuasion are where the solutions to our problems lie, not in the use of force against others.
Jonny H | Jul 31, 2012 | Reply
Close to Mellon, I wouuld have had the gov supervise bankruptsy proceedings on the banks, GM, etc. They are established proceedures, administered by the courts.
richard | Aug 1, 2012 | Reply
@Daryl – You confuse society with government. They are two different things entirely. But, as your writing demonstrates, you are confused about much.
You can keep democracy, direct or otherwise.
Paul | Aug 1, 2012 | Reply
@Paul – I’ll let you know when I need a lesson on economics or political science from you.
And if no form of democracy is your cup of tea, have the stomach to put forth your alternative: monarchy, anarchy, dictatorship?
Whatever the case, I’m sure it will be amusing.
Daryl Davis | Aug 1, 2012 | Reply
Paul: Society is government and government is society. If you read even a little bit of Non-Rovian history (as noted by Suskind quoting Karl Rove, that he and his Republican/Conservative kindred create their own set of facts/history) you will learn this.
Tom | Aug 1, 2012 | Reply
The very concept of government represents history’s most tragic example of mass psychosis, of belief in the imaginary.
Vanmind | Aug 2, 2012 | Reply
Jonny H: Absolute voluntarism is a very worthy ideal. But the world is not kind to the idealists. If I had my choice, I would live on a planet where all of us were equally respectful of one another’s space as well.
Yet part of that principle does involve not destroying the environment for others. You seem to be myopic beyond the swing of your own two arms.
If you believe that self-defense of space is a legitimate justification for the use of force–the “force” of combined ballots in this case–then I find no validity in your admonition.
Voluntarism works great in abstract theory, and not at all in the real world, where many prey upon such peaceable types. How did the Tibetans fare against the Chinese, for example?
Violence in defense of values is proof of their worth.
http://whatdirectdemocracymightbe.wordpress.com/51-2/
Daryl Davis | Aug 2, 2012 | Reply
@Daryl & Tom:
Society is characterized by voluntary association and government, to quote George Washington, is force.
These are basic concepts that either of you can look up at
http://www.merriam-webster.com/ .
Daryl wrote, “Violence in defense of values is proof of their worth.” – By your reasoning (for lack of a better word), then the violence of the Nazis or Soviets or Hells Angels is proof that their values had/have worth.
Paul | Aug 3, 2012 | Reply
Paul: I see we’re never even going to agree on initial terms. Society is characterized by crime, incivility, and dependency as well. Spare me your purist definitions.
And I did not say that violence is proof of worthy values. I said that violence proves that values have worth–that they aren’t abstract, purist theories that yield to reality and fail those who hold them–like the Tibetans.
Values, to be worth a damn, have to protect the innocent.
Don’t bother replying if it’ll be more of the snarky libertarian nonsense.
Daryl Davis | Aug 3, 2012 | Reply
“Snarky” – HA!
All I read from that was: “I shy away from debate and uncomfortable truths.
clark | Aug 4, 2012 | Reply
I remember a Daily Reckoning article written by Bill Bonner several years ago with a memorable line that went something like, “Most politicians would rather admit to performing an act of bestiality with a horse than have to admit to doing nothing.” Way too true, and on balance it has been to the detriment of the country.
Robert | Aug 6, 2012 | Reply
Tom: It is you who seem to be constructing your own history. Government is not society and never has been. The claim that government is society naturally implies that everything society did government did. So government forced itself to pass the Fugative Slave Laws, and then repeal them, it ran every business, and then spent millions on the legal challenges over whether it could run the steel business. It protested itself and beat itself for protesting. Seriously do you not read what you write?
And BTW it’s extremely unlikely that a supporter of this website would believe Karl Rove on anything.
Michael Price | Aug 6, 2012 | Reply
@Daryl
No volunteerism did not fail the Tibetans, theocracy did. Violence does not prove that “have worth–that they aren’t abstract, purist theories that yield to reality and fail those who hold them”. Nazi ideals yielded to reality and failed those who held them and all the violence in the world couldn’t avoid that.
Claiming the world is “not kind” to idealists raises the question; “Is it any kinder to pragmatists?”. The answer is no. Time and time again those who abandon moral principles for advantage come a cropper. The world consists of little more than a collection of the disastrous results of policies that supposedly recognized reality by abandoning ideals. One day people will wake up and say “Hey, being immoral doesn’t actually work”. Your kind will be the last to do so.
Michael Price | Aug 6, 2012 | Reply
@Tom: I don’t really know what exactly you meant by “Your kind...,” but I put in the months and made the commitment to devise a new American constitution based SOLELY on morality–on optimizing it now and increasing it in the future.
http://whatdirectdemocracymightbe.wordpress.com/constitution-of-the-united-states-direct-democracy/
I wasn’t implying that the Tibetans were a voluntary society, only that they were a peaceable one–one that made too few concessions to the darker realities around them. Instead, the people VOLUNTARILY followed religion.
I’ve gone round and round with libertarians and their theories about the potential for societies to be all voluntary in the real world. And not once did I hear a convincing one.
http://whatdirectdemocracymightbe.wordpress.com/2012/08/04/direct-democracy-vs-libertarianism-reason-vs-logic/
You also failed to grasp my other point, distorting it instead into a claim that the Nazis’ violence proved the worth of their values. I think you’re smart enough to know that I wasn’t saying that the more violent the values, the more worthy they are.
But a society that fails in a REAL defense of its own innocents is at best a saintly, martyred society. In my opinion, bringing children into such a vulnerable place is itself immoral. Thus, a relatively-defenseless, voluntary society, in order to remain moral, would have to die out.
Daryl Davis | Aug 7, 2012 | Reply
Daryl: I believe you misunderstand what resources are. All the components of a “resource”, other than knowledge, existed 200 years ago, 20,000 years ago and even 2,000,000 years ago. The critical component, “knowledge”, was created (discovered) by humans. Therefore, all “resources” were created by humans seeking to benefit (profit) from their creation.
You also seem to conflate government with society (or the country) as others have pointed out. Government is part (but only a small part) of the society and the country.
Ed Jucevic | Aug 11, 2012 | Reply