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The Dangers of Paternalism

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Americans have long been taught to view the federal government as a parent. While the government is sometimes abusive to American child-adults (e.g., IRS, DEA, torture, Waco, etc.), Americans know that that’s a trait that is common to many parents. What matters in life under a paternalistic regime is people’s unwavering faith in the government to watch over them and take care of them, just as parents do with their children.

This is the idea behind such paternalistic welfare-state programs as Social Security, Medicare, Medicaid, unemployment compensation, food stamps, corporate subsidies, and education grants. The parent — the federal government — takes care of the child-adult and ensures that no harm will befall him.

In return, the child-adult can be counted on to support the government in times of crisis or trouble, without asking too many questions as to the causes or consequences of the crises. Not only is the child ordinarily too frightened to challenge a parent who has life-or-death power over him, there is also a tremendous amount of loyalty and devotion that arises from this type of co-dependent relationship.

The co-dependency between the child-adult and his paternalistic government encourages the child-adult to feel that everything is okay because the government — his parent — is in charge of things. A good example of this phenomenon occurs here in the United States with respect to the banking system.

As I indicated in blog entries last month (July 14 and July 25), Americans have been taught to believe that the federal government is insuring the money they keep in banks. As most everyone knows, the federal agency responsible for this “insurance” is the FDIC. As I indicated in those blog entries, as long as it’s just a few banks that fail, no problem. The FDIC simply takes its “insurance” reserves and pays off the depositors.

But as I asked in last month’s blog entries, what happens if there is an industry-wide banking collapse? What then? The average American child-adult would rather not think about that. After all, what child wants to think about the frightening possibility that his parents are going to be unable to take care of him or that they’ve misled him.

Anyway, what are the chances of that happening? Everyone knows that the federal government has more than enough money to take care of all its obligations, right? Iraq. Afghanistan. Georgia. Overseas military bases and hundreds more here in the U.S. An ever-growing welfare system and warfare system. Wars on terrorism, drugs, immigrants, and poverty. Social Security, Medicare, Medicaid, grants, and subsidies. And on and on.

What’s the problem, right? Well, consider this report issued this morning on MSNBC.com that indicates that the FDIC “insurance” fund is nearly broke and that the FDIC might have to “borrow” money from the Treasury (which gets its money from some place) to cover future losses of depositors’ money:

“Those [9 bank] failures have depleted the insurance fund, which now stands at $45 billion — less than the FDIC is supposed to have on hand, according to Daniel Alpert, an investment banker at Westwood Capital. ‘You’re talking about roughly $45 billion of reserves insuring $4.5 trillion of deposits,’ he said. ‘And you’re in an environment right now where non-current loans, delinquent loans are increasing at a faster pace than banks putting aside reserves. That’s not a good thing.’”

Now, MSNBC goes out of its way to alleviate concerns among people, reminding them that the FDIC provides them with “insurance” that protects up to $100,000 in deposits, an amount that has steadily increased over the years.

But I repeat the question I asked in last month’s blog posts on this subject: What if there is an industry-wide banking collapse? Where does the federal government get the money to pay off all the depositors in all the banks? It’s a question that no co-dependent child-adult living in a paternalistic welfare-warfare state wishes to ask, much less think about it. That’s the job of the government. That’s the job of the parent.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.