The real crisis

Most families have sobered up, but the politicians are still on a bender

By Steven Miller
  • Tuesday, May 12, 2009

The news stories and the pundits today speak routinely of "crisis." Nearly always their topic is some facet of the worldwide financial meltdown.

Remarkably, however, an even larger crisis faces the people of the U.S. and Nevada, and it, in many ways, is the cause of the world's financial pratfall. Yet, it is rarely acknowledged, if at all.

The reason, no doubt, is that the issue goes to the very heart of our present system of governance, and beyond that, to our personal intelligence and moral capacity. As such, the issue is flattering to no one — encouraging all kinds of avoidance.

Nevertheless, the magnitude of economic shock has breached this resistance for many people — at least enough to drive home the lesson that, collectively speaking, we have been living in a fool's paradise. As voters, we've been seriously inattentive to what our politicians were doing. And during these many years of negligence, those politicians have been up to no good.

What has made this clear to millions of Americans has been federal behavior in the context of last year's market meltdowns. Citizens woke up to discover that virtually everyone in Washington, D.C., had become proponents of Moral Hazard.

Moral hazard, of course, is the prospect that moral behavior will be discouraged — i.e., placed at hazard — if those who engage in irresponsible behavior are protected from the consequences of such behavior, or perhaps even rewarded for it. And yet, this has been the very essence of the federal response to the financial turmoil.

Recklessly bad decision-making by the Federal Reserve, the U.S. Treasury and major banks and financial institutions have all been rewarded with huge payoffs.

For the Fed it's been acquiescence before Ben Bernanke's lust to drop unlimited sums of printing-press money from helicopters. For the Treasury it's been $700 billion in unmonitored walking-around TARP money. And for both agencies it's been

Congressional assent as our self-appointed financial czars have begun exercising vast new and thuggish powers over the rest of us.

For the supposedly "too-big-to-fail" financial giants it's been mountains of taxpayer money: Fannie Mae and Freddie Mac get $400 billion; Citigroup gets $280 billion; American International Group (A.I.G.) gets $180 billion; Bank of America gets $142 billion, etc., etc.

People recognize the profound amorality in our own government's behavior and don't like it a bit. However, most citizens are too busy to chart the extent to which moral hazard — systemic indifference to morality — has penetrated American government at all levels and become, in many respects, its basic operating principle.

Naturally, "indifference to morality" is never explicitly requested. What we hear incessantly instead are artfully crafted sound bites about the presumed moral necessity of government-coerced "help" for someone — someone, of course, who appears much more sympathetic, politically, than does the actual political-influence-buyer who's elbowing his way onto the public teat. Thus, for example, Americans were told the bailouts were necessary, not for the reckless Wall Street firms that actually were getting the billions, but for "Main Street," which supposedly would implode if the firms that had sold bad mortgage securities all over the world were not given dump-truck loads of public money.

Unfortunately, this is merely the latest and largest iteration of the template through which the destruction of American limited government has been, and continues to be, accomplished.

In the 1830s, Tennessee congressman Davy Crockett, visiting constituents, was snubbed by a farmer. According to a later biography of Crockett, the congressman asked what the matter was:

"Well Colonel," said the farmer, "you gave a vote last winter which shows that either you have not capacity to understand the Constitution or that you are wanting in the honesty and firmness to be guided by it. You voted for a bill to appropriate $20,000 to some sufferers by fire in Georgetown."

"Certainly nobody will complain that a great and rich country like ours should give $20,000 to relieve its suffering women and children, particularly with a full and overflowing treasury," replied Crockett.

"It is not the amount, Colonel, it is the principle," was the response. "The power of collecting and disbursing money at pleasure is the most dangerous power that can be entrusted to man. ... You will very easily perceive what a wide door this would open for fraud and corruption and favoritism, on the one hand, and for robbing the people on the other. The people have delegated to Congress, by the Constitution, the power to do certain things. To do these, it is authorized to collect and pay moneys, and for nothing else. Everything beyond this is usurpation, and a violation of the Constitution.

"You have violated the Constitution in what I consider a vital point. It is a precedent fraught with danger to the country, for when Congress once begins to stretch its power beyond the limits of the Constitution, there is no limit to it, and no security for the people."

Crockett took the lesson to heart, but few others did. The casual disbursement of taxpayers' money — a great and dangerous power for Congress to seize — accelerated. Today, the Constitution's limitations on government spending power are ruptured, and almost every politician calculates how he can disburse other people's money for his personal benefit.

This is how moral hazard became the animating principle of American government.

Steven Miller is vice president for policy at the Nevada Policy Research Institute.

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