Enslaving the Free Market: The Era of the “Bailout”

In August and September 2008, Lehman Brothers (officially Lehman Brothers Holdings, Inc.) filed for bankruptcy. The firm came to an end as part of an event known as the “subprime mortgage crisis.” Both executive policies and Congressional legislation gave rise to this event, or more precisely, series of events.

The policies and legislation in question encouraged or required financial institutions to give loans and mortgages to customers who were manifestly unable and unfit to repay. This money was lent primarily for the purpose of buying houses. The inevitable and foreseeable result was a wave of defaults and foreclosures: individuals and families unable to pay their monthly amounts.

As the number of defaults and foreclosures increased, the banks and other institutions who’d lent the money and who now were unable to get it back, were left with little or nothing, and went bankrupt. The number of lenders going bankrupt grew, and the size of the institutions going bankrupt grew. The pattern culminated in the bankruptcy of Lehman Brothers.

Lehman Brothers was a major company. It had more than 26,000 employees and over $600 billion in assets.

Naturally, some observers were surprised, shocked, or worried. They assumed that the bankruptcy of a major company would cause trouble for the economy. They were wrong. They had forgotten the economic principle of “creative destruction.”

It is easy to assume that, if a large corporation goes bankrupt, that this will create problems like unemployment, inventory shortages, etc.

This assumption ignores the fact that when a business fails and collapses, it creates opportunities for new businesses which are better, more effective, more efficient, bigger, more profitable, and more adapted to the marketplace. The end of an old business creates space for a new business.

Metaphors may be useful in understanding this concept: One demolishes an old building in order to construct a new, better, larger building; one cuts down some old trees in a forest in order to plant younger and healthier trees.

A bankruptcy can create short term dislocation, like temporary unemployment and a dip in the stock market. In the long run, however, it can create more jobs than it destroyed, and better-paying jobs with better chances for advancement, resulting in a net increase in prosperity. In many scenarios, workers who are laid off eventually find employment at higher wages than the job they lost. The stock market, likewise, will not only recover from a downtick, but eventually go even higher in the wake of bankruptcy.

This principle is associated with a broad variety of economists: Joseph Schumpeter, Karl Marx, Werner Sombart, etc.

Adherence to this principle would have directed that the government, in the wake of the Lehman Brothers collapse, should have refrained from any intervention, and allowed the next two companies in line to go bankrupt as well: Goldman Sachs and Morgan Stanley. Had they gone bankrupt, their workers would have found new jobs at higher wages, the stock market would have recovered from a drop and gone on to new highs, and general prosperity would have increased.

Sadly, various elected and appointed leaders in government forgot this basic principle — or never knew it to begin with.

Congress passed several pieces of legislation, primarily the Troubled Asset Relief Program (TARP) and the Emergency Economic Stabilization Act of 2008. These legislations gave billions of dollars to companies which were in danger of going bankrupt. In addition to Goldman Sachs and Morgan Stanley, other companies soon asked for help, including Citigroup, Chrysler, American Express, and many others. The money given to these businesses came from two sources: either it was confiscated from ordinary American citizens by means of taxes, or it was borrowed, and ordinary American citizens will be required to repay this money by means of taxes.

Instead of allowing these corporations to go bankrupt — and only a few of them would have done so; the others simply asked for the money and got it — the TARP legislation kept them alive, but allowed them to remain inefficient and irresponsible. Had they gone out of business, new and more productive companies would have arisen in their places.

The end result was higher taxes for ordinary people, and debts which will have to be repaid with even more higher taxes.

This colossal misjudgment was made possible by government officials who were ignorant of basic economic principles, or who ignored them, or who forgot them.

David Stockman was a U.S. Congressman and later Director of the Office of Management and Budget. Concerning TARP, he points out that many government officials understood why it was wrong:

Certainly President Eisenhower’s treasury secretary and doughty opponent of Big Government, George Humphrey, would never have conflated the future of capitalism with the stock price of two or even two dozen Wall Street firms. Nor would President Kennedy’s treasury secretary, Douglas Dillon, have done so, even had his own family’s firm been imperiled. President Ford’s treasury secretary and fiery apostle of free market capitalism, Bill Simon, would have crushed any bailout proposal in a thunder of denunciation. Even President Reagan’s man at the Treasury Department, Don Regan, a Wall Street lifer who had built the modern Merrill Lynch, resisted the 1984 bailout of Continental Illinois until the very end.

As David Stockman shows, this was not a “Democrat” issue or a “Republican” issue. It was an issue about the basic principles of economics. A free market must be allowed to find its own way to an equilibrium.

The women and men who promoted TARP were in many cases people of good will: they legitimately wanted to help. But even well-intentioned governmental interventions in a free market economy are harmful.

The economy organically works toward an equilibrium, and at that equilibrium point lies maximal prosperity for all. The blind forces of demand and supply distribute better wages and higher standards of living to everyone in the marketplace, from the smallest to the largest.

Statist intervention in markets can only prevent the economy from achieving the best results for everyone.

The Mint and the Pandemic: Making Coins

When the pandemic struck the world in March 2020, it was clear that it would have significant economic impacts. Exactly what those impacts would be was, however, at that time, not always clear.

One of the less obvious effects was a shortage of circulating coins in the United States. Billions of coins existed, but they were either in businesses which were temporarily closed or permanently closed, or they were in people’s homes, and with millions of people under “lockdown,” those coins weren’t circulating.

The types of transactions which often involve coins were particularly hard-hit: people used more credit cards than cash, made more online purchases, and casual foot traffic in city centers was sparse to non-existent. Buying a newspaper, a cup of coffee, or a candy bar while walking downtown — once an ordinary part of daily life — quickly became rare.

To keep the economy alive, the U.S. Mint ramped up production to replace the coins which were frozen in idle cash registers or in homes. Writing for American Banker magazine, Jon Prior reports:

To help push more coins into circulation, the U.S. Mint last year boosted production to levels not seen since 2017.

The Mint’s two facilities in Denver and Philadelphia churned out 14.8 billion coins for circulation in 2020, up 26% from less than 12 billion the year before, according to data the agency provided to American Banker.

The effort was part of a plan between the government, coin collection companies, retailers and banks to cure a shortage in tills across the U.S. as in-person spending slowed in the early months of the pandemic and online and card transactions soared. The sudden scarcity of change was one of the unseen economic side-effects of the coronavirus pandemic, but that boost in production, combined with increased economic activity in recent months, means that coin circulation is finally returning to normal, industry officials say.

The extra production by the Mint happened at a time when maintaining normal production levels was already a challenge. The increased mintages represent a heroic effort.

In raw numbers, for example, the total number of nickels produced in 2018 was 1256.4 million; in 2019 it was 1094.89 million, but the pandemic in 2020 pushed the mintage to 1623.1 million. The increase in output was shared by both the Denver mint and the Philadelphia mint. Those are the only two mints in the United States which produce circulating coins. Smaller mints in San Francisco and in West Point produce coins only for investing and collecting, but not for retail circulation.

Similar increases were achieved in the production of the dime and quarter.

On the other hand, coins deemed less essential to commerce — the penny, the half-dollar, and the dollar coin — saw production levels in 2020 similar to, or slightly lower than, the previous two years, as resources were directed to the more urgently-needed coins.

Carter’s Accomplishments: The 39th President

Historians are often tempted to devote little time or energy to studying the presidency of Jimmy Carter. If they do pay attention to his one four-year term in office, they routinely dismiss his administration as a failure. But he might merit a second look.

Carter continued at least two agenda items from his predecessor, President Gerald R. Ford, whom Carter defeated in the November 1976 election. Upon taking office in January 1977, Carter embraced both Ford’s affection for deregulation and Ford’s commitment to take an unwavering stance in support of human rights.

In the transportation sector, Carter achieved some milestones of deregulation, as historian Kai Bird writes:

Despite his aversion to political machinations — such as cutting deals with smarmy congressmen — Carter was an effective and extraordinarily productive president. He deregulated the airline industry, making it possible for middle-class Americans to fly.

He was willing to contradict one of his party's major allies: organized labor. The Democratic Party had significant support from labor unions at the time. Carter risked their dissent:

Trade unions opposed his deregulation of airlines, trucking and railroads.

Although deregulation ultimately proved to energize the economy and help working-class families, the move was one factor in Carter’s loss in the November 1980 election. Many union members voted for Carter’s opponent, President Ronald Reagan.

Carter maintained President Ford’s focus on human rights. During the Ford, Carter, and Reagan administrations, this focus must be understood in the context of the Cold War. More and more evidence was coming to light, revealing the ongoing violation of human rights by the Soviet Socialists, spanning decades from the 1930s to the 1980s.

President Ford drew international attention to the question with a document known as the Helsinki Accords. Carter continued Ford’s pattern. A global consensus among many nations emerged, and international sentiment was against the USSR. During Carter’s administration, Kai Bird notes,

The principle of human rights became a cornerstone of America’s foreign policy.

Jimmy Carter was the first president to use his nickname in an official capacity. Rarely, if ever, was he referred to as “James,” but routinely as “Jimmy.” This was a departure from two centuries of precedent.

Gerald Ford was never officially listed as “Jerry,” and John Kennedy was never officially cited as “Jack.” The nicknames were only for the closest friends and family. But Jimmy Carter was known universally by that name.

Some later presidents would follow Carter’s pattern: Bill Clinton was never cited as “William,” and Joe Biden was never listed as “Joseph.”

Although Carter failed to get reelected, and was thereby limited to four years in office, his presidency nonetheless merits attention.

Urban Planning: The Third Way

City planners in the United States and elsewhere have long been subject to the dogma that there are two options for cities. The first option is the automotive city, with rings and spokes of multi-lane limited-access freeways and highways, large multi-lane surface streets as the main arteries, smaller surface streets branching off the larger ones, and many parking spaces. The second option is the walkable city, with generous sidewalks, bike paths, and public transportation like streetcars and subways.

The dichotomy between these two has sometimes become so extreme that when one option is chosen, the other option is not only ignored, but actively discouraged. Planners who choose the automotive option will deliberately omit sidewalks; planners who choose the walkable option will deliberately work to reduce the number of parking spaces and make the driving experience frustrating in other ways.

This binary framework reduces urban planning to “either/or” decisions, simplistic thinking, and in some cases political conflicts.

There is a third way. Most cities in the United States — small, medium, or large — can embrace both of these options simultaneously. A city can be walkable and automotive at the same time. It can have a robust public transportation system and lots of parking at the same time.

There are exceptions: cities whose geographical peculiarities make them less flexible, like San Francisco and parts of New York.

But other cities can take advantage of America’s resources: lots of open land and the ability to generate concrete, steel, and asphalt in large amounts.

An office worker in a city might choose to be the only passenger in her or his SUV driving to work two days a week, bicycle to work another two days per week, and take the streetcar to work on the final day of the work week. City planners can make all of these convenient and equally convenient.

The economics of this arrangement can become self-sustaining: more people will be lured into the city from the suburbs, either for an afternoon shopping trip, or to live in the city permanently. Increased revenue will pay for the infrastructure.

Nixon’s Visit to China: Playing Cold War Communist Powers Against Each Other

The presidency of Richard Nixon, from January 1969 to August 1974, is known for many things. One of them is Nixon’s engagement with China. His visit to China in February 1972 was the first time a U.S. president had set foot in the country. China and the U.S. had no diplomatic communication with each other for over twenty years.

On a surface level, Nixon’s rapprochement with China could be seen as a softening of America's resistance to communism during the Cold War. He was granting diplomatic recognition to a communist regime which was responsible for the deaths of millions of Chinese, and was responsible for the egregious violations of human rights and civil rights.

On a deeper level, however, Nixon’s China policy was a clever way to play two communist nations against each other. From 1949, when the communists took over China, the Soviet Socialists had an alliance with China. Mao had a comfortable working relationship with Stalin.

But after Stalin died in 1953, China’s alliance with the Soviet Socialists began to deteriorate. Nixon saw this as an opportunity. When Nixon was in China, the Soviets worried that a close relationship between America and China would leave the USSR out. So Nixon visited Moscow in May 1972. At that point, the Chinese worried that America would develop a good connection to the Soviets.

Nixon was able to play the two communist nations against each other. Nixon’s successor, President Gerald Ford, recalls:

Our new ties with the Soviets were possible, I believed, only because the Soviet leaders were becoming concerned about developments within the People’s Republic of China. Both Mao Tse-tung and Chou En-lai were making increasingly antagonistic speeches toward the Kremlin. Nixon sensed that the Chinese leaders feared and distrusted the Soviets. Their long-standing border dispute was a festering sore. Mao had never forgiven the Soviets for mistreating him in the 1950s, and he was concerned about Soviet intentions in the Pacific. Skillfully, Nixon moved to take advantage of the split.

U.S. diplomat Richard Haass sees Nixon’s policy as a kind of balance. Nixon’s goal, according to Haass, was to make China and the USSR feel equally jealous of each other’s relationship with America:

The purpose of the policy developed by Richard M. Nixon and Henry Kissinger was to use China as a counterweight to the Soviet Union and shape China’s foreign policy, not its internal nature.

The timing of Nixon’s visits to China and to the USSR must be understood in the context of the Vietnam War. It was not until 1973 that the final peace documents were signed, and that the U.S. began withdrawing its troops from Vietnam.

Both China and the USSR supported North Vietnam to varying degrees during the war. China’s support for North Vietnam was continued but reduced after 1968, when China began to reserve more soldiers and equipment for anticipated direct combat between the USSR and China.

In cementing China’s split from the Soviet Union, the United States gained leverage that contributed to the Cold War ending when and how it did.

Although China was interested in empire-building in southeast Asia, in the late 1960s and early 1970s, China was not as aggressive in the South China Sea region as it became after 1990 and especially after 2000.

China’s ability to pose a military and economic threat to the nations of the South China Sea regions was limited in the 1960s and 1970s. Nixon’s rapprochement with China cannot be seen as opening the door to the Chinese expansionism that the following decades would see. At the time of Nixon’s visit, lacked the military power and economic power needed to take control of the South China Sea.

A Threat to Tolerance: The Terror and Intimidation of “Wokeness” and Its “Cancel Culture”

Tolerance is clearly expressed in the founding documents of the United States. Without the freedom of speech and the freedom of the press, the United States would be a different country, with a different culture and society. When Evelyn Beatrice Hall wrote that “I disapprove of what you say, but I will defend to the death your right to say it,” she was thinking of the French author Voltaire, but her words apply more accurately to the United States than to France during the Enlightenment Era.

If tolerance is central to America, then intolerance is a poison to it. Henry Olsen, writing in The Washington Post in July 2020, cites contemporary examples of such narrowmindedness:

The intellectually intolerant mob claimed two high-profile victims Tuesday with the resignations of New York Times editor Bari Weiss and New York Magazine journalist Andrew Sullivan. These are just two examples of the deadly virus spreading through our public life.

The current version of bigotry is often called ‘woke’ or ‘wokeness,’ and at some point in the past may have arisen from a sincere desire for justice. Today it still garners support from people of goodwill who mistakenly assume that this social trend is still a quest for justice, when it is in reality a terrorized weapon of intimidation.

“Today’s ‘cancel culture,’” writes Henry Olson, “stems from a noble goal — ending racial discrimination.” But it is now wielded against people who express themselves on a wide range of topics: it is wielded against them for merely disagreeing with those who generate this version of political correctness.

It has transmogrified into something sinister and inimical to freedom. Battling racism is good and necessary; trying to suppress voices that one disagrees with is not.

Whether it is called ‘wokeness’ or ‘political correctness,’ it is in any case truly intolerant. It is an attempt to police thought, speech, and the written word.

It seeks to do the one thing that America has always sworn not to do: enforce uniformity of thought. Indeed, this principle, enshrined in the First Amendment, is so central to American national identity that it is one of the five quotes inscribed in the Jefferson Memorial: “I have sworn upon the altar of God eternal hostility against every form of tyranny over the mind of man.”

The victims of this “cancel culture” — in this case, an editor and a journalist, but there are many more cases — are excluded in the name of inclusiveness, a delicious linguistic contradiction. They are hounded by narrowmindedness in the name of broadmindedness. The “woke” individuals demand that these victims receive no tolerance, because in “woke” thought, it is only by denying them tolerance that the institutions can be truly tolerant.

Weiss’s resignation letter describes numerous examples of her colleagues judging her guilty of “wrongthink” and trying to pressure superiors to fire or suppress her. She explains that “some coworkers insist I need to be rooted out if this company is to be a truly ‘inclusive’ one, while others post ax emojis next to my name.” Others, she wrote, called her a racist and a Nazi, or criticized her on Twitter without reprimand. She notes that this behavior, tolerated by the paper through its editors, constitutes “unlawful discrimination, hostile work environment, and constructive discharge.”

Sullivan’s reason for departure is less clear — though he said it is “self-evident.” He had publicly supported Weiss, writing: “The mob bullied and harassed a young woman for thoughtcrimes. And her editors stood by and watched.”

In other words, both Weiss and Sullivan — like so many others — seem to have left their jobs because they were targeted for refusing to conform to its ideas of right thinking.

The founding texts of the United States — The Declaration of Independence, The Constitution, and The Bill of Rights — create a framework of liberty in which each individual human being is acknowledged a sovereign and autonomous agent who can think, speak, and write as she or he pleases. This intellectual foundation is detailed in the writings of Thomas Paine and John Locke.

But freedom and individualism are not valuable to those who promote political correctness and wokeness.

The mob even sacrifices people whose only crime is familial connection on its altar.

In an update of Orwell’s famous novel, individuals are pressured to confess to “thoughtcrimes” in media campaigns which amount to show trials. A “show trial” is staged: its outcome is predetermined, and it is a cautionary example to others. So it is with the “cancel culture” of wokeness: there is no chance to be judged innocent, and the purpose of the attacks is to intimidate others into silence.

Such tactics work best when they force people to confess to seek repentance for the crimes they may or may not have committed.

Whether or not the individuals persecuted by wokeness are guilty or innocent does not matter to those who are “woke” — wokeness is the process of terrorizing the masses by making an example of a few isolated individuals. Whether or not the individuals did what they are accused of doing, and whether or not what they are accused of doing is right or wrong, doesn’t matter. The public understands the message clearly: do as you are told, or suffer.

The woke inquisition uses the same tactic, forcing those caught in its maw to renounce prior statements they find objectionable. NFL quarterback Drew Brees surrendered to the roar while noted leftists such as J.K. Rowling and Noam Chomsky are being pilloried for their defense of free speech.

“Wokeness” and “political correctness” are nothing new. They go back centuries and millennia. They’ve been called “chauvinism” and “bullying,” or “bigotry” and “intolerance.”

The reader need simply ask: Are human beings free to speak and write? If so, then the dignity and value of each human life is recognized and honored.

Are people subject to intimidation and fear for what they’ve said and written? If the answer is “yes,” then decency is threatened.

Desegregating Little Rock: Eisenhower Promotes Justice

During WW2, General Dwight “Ike” Eisenhower established himself as a serious advocate of civil rights. During the Battle of the Bulge in late 1944 and early 1945, Eisenhower defied directives coming from the Department of War: the Secretary of War, Henry Stimson, appointed by President Franklin Roosevelt, ordered that U.S. soldiers be segregated into Black and White units, and that Black soldiers were not eligible for combat duty, for the extra pay that came with it, or for the promotions that often resulted from it.

Seeing what needed to be done, Eisenhower desegregated and integrated his troops. The result was victory.

Eight years later, General Eisenhower became President Eisenhower. During his campaign, he expressed his intentions to desegregate and integrate various aspects of American life. His opponents in the election, nominated by the Democratic Party, argued for segregationist policies.

Once elected, Ike proceeded both resolutely and cautiously. He was resolute in that he would not be deterred from his goal of integration; he was cautious in that he knew that his actions could cause angry backlash from the Democrats, as historian Kasey Pipes writes:

As early as 1953, Eisenhower had written in his diary of the possibility that a “conflict of the police powers of the state and of the nation would set back the cause of progress in race relations for a long, long time.” Almost alone among political leaders of the time, Ike feared that a Little Rock-type eruption could happen. This premonition guided his every move. Thus, from the beginning of his presidency, he moved carefully and cautiously. He wanted to bring about change on civil rights, but he wanted to do so in a way that did not “inflame passions” as he often said. This explains why even after the Little Rock crisis began he moved deliberately. He wanted to exhaust every possible option before resorting to force. Still, when he did try everything else with no success, he didn’t hesitate to use military action to enforce the order of the federal court.

Ike was not dramatic. He was committed to doing the right thing, and his commitment was unshakeable, but also unemotional. Ike was driven by duty, not by passion.

The Democratic Party had made Orval Faubus the governor of Arkansas in 1954. Faubus used his powers to continue his party’s segregationist policies. Ike’s communication with Faubus in 1957 exemplify his tendency to avoid inflammatory rhetoric while maintaining his determined stance:

Eisenhower replied to Faubus on September 5 with a brief and elliptical message: “The Federal Constitution will be upheld by me by every legal means at my command.” Eisenhower intended this to sound like a thinly veiled threat.

After exhausting any chances of persuading Faubus to comply with the Supreme Court’s Brown v. Board of Education decision — a decision made under the watchful eye of Chief Justice Earl Warren, who was an Eisenhower appointee — Ike knew that he needed to ignore Faubus and take his own actions.

To comply with the Supreme Court’s decision, Faubus should have allowed the integration of Little Rock Central High School. But he didn’t. It was Eisenhower’s job to see to it that Black students had access to education in that school.

In September 1957, Eisenhower ordered the legendary 101st Airborne Division, an elite military unit, into Little Rock. The 101st made sure that African American students had access to Central High School and that they were safe. Eisenhower had made it happen: desegregation was advancing.

Black leaders praised Ike’s decision. Martin Luther King Jr. wired the president, thanking him for his support of “Christian traditions of fair play and brotherhood.”

Ike was pragmatic. He avoided drama and passion. He preferred to get things done with as few words as possible, and certainly without inflammatory rhetoric. He also wanted to achieve goals with a minimum of collateral damage. He achieved integration, desegregation, and advancements in civil rights, and hoped to do so with as little trauma and destruction as possible.

While successful and popular, Ike’s calm approach was occasionally criticized, as Kasey Pipes explains:

Eisenhower favored gradual reform while many in the civil rights movement urged dramatic change. He often told his staff that “more than laws” had to be changed in order for America to truly be a just society. Indeed, no less a source than Dr. Martin Luther King believed Ike was sincere in wanting to help the cause of civil rights. But King faulted Ike’s “conservatism” which was “fixed and rigid” and prevented him from moving more quickly and more dramatically to enact civil rights. At Little Rock, the president did not hesitate to defend the order of the federal court. Even still, his preferred approach was to let the local and state authorities find a solution. When it became obvious that Governor Orval Faubus had no intention of solving the problem, Ike solved it for him.

Although MLK didn’t always agree with Ike’s tone, the two of them nonetheless successfully collaborated. MLK and Eisenhower worked together, along with Vice President Richard Nixon, to promote the Civil Rights Act of 1957 and to ensure its passage through Congress.

This was followed by a similar process to obtain passage of the Civil Rights Act of 1960.