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From the New Mercantilism to Economic Fascism

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February 1991 saw the release of the latest annual Economic Report of The President. Prepared by the President’s Council of Economic Advisors, the report is meant to provide a detailed summary of where the American economy has been during the past twelve months and to offer various projections as to where the economy is heading for the next twelve months. Both retrospect and prospect are offered in an interpretive framework meant to reflect the economic philosophy of the current administration. And in the context of this economic philosophy, the President’s economic advisors suggest various economic policy changes believed to be in the interests of the nation’s economic well-being.

The President’s advisors insist that “the Administration’s economic policies are designed both to mitigate the current downturn and to strengthen the foundations for a solid recovery and a return to sustained economic growth.” They say that “[tlhe global wave of market-oriented reform . . . shows that the world has learned from America that reliance on free markets is the key to sustainable long-term growth and prosperity. In the U.S. economy,” they say, “free markets fuel and direct the process of economic growth.”

The impression conveyed is that America is a free-market economy. Furthermore, the implication is that the policies advocated by the Bush administration are both compatible with and supportive of a free-market economy. Unfortunately, the conveyed impressions have very little to do with reality.

Also in February, the Cato Institute of Washington, D.C., released a policy analysis by their fiscal policy director, Stephen Moore, entitled “The Profligate President: A Midterm Review of Bush’s Fiscal Policy.”

“Between the time that Reagan left the White House in 1989 and next year (FY 1992),” Mr. Moore points out, “domestic spending will have climbed by $300 billion — from $670 billion to $970 billion. Since 1989, the federal government’s domestic outlays, adjusted for inflation, have grown by an enormous 10 percent per year…. Incredibly, Bush is on the way to being the biggest champion of new domestic spending since Franklin Roosevelt.”

Here are some of the figures for the percentage increases in various governmental programs between 1989 and 1991, as provided by Mr. Moore: NASA, 28 percent; high-energy physics & superconducting collider, 44 percent; drug programs, 73 percent; pollution control and abatement 20 percent; “America the Beautiful,” 73 percent; global change research, 57 percent; energy programs, 18 percent, housing programs, 17 percent; public housing assistance, 24 percent; federal job-training programs, 11 percent; legislative functions, 28 percent.

And if we look at the percentage increases in federal spending by governmental agencies, Mr. Moore informs us, we find the following: Transportation Department, 20 percent, Labor and Health & Human Services Departments, 31 percent; Interior Department, 18 percent; Housing & Urban Development Department and Independent Agencies, 31 percent; Energy Department, 13 percent; Education Department, 21 percent; Commerce and State Departments, 30 percent; Agriculture Department, 12 percent. Only the Defense Department should see a reduction — of 5 percent.

As a result of these increases in government expenditures in the fiscal years 1991 and 1992, the federal government will consume 24 percent of United States gross national product.

Another way of saying this is that almost one out of every four dollars directly spent on goods and services in the U.S. economy will be spent by the federal government. If we were to add in state and local governmental spending, that figure would rise to over 40 percent of the U.S. gross national product.

I used the words “directly spent on goods and services” because these figures hide an important fact. Every one of these dollars creates a spiderweb of indirect dependency upon the government. A multitude of industries and markets supply goods and services to those who are the direct recipients of these governmental dollars. Therefore, what these industries and markets produce and earn are indirectly influenced by how much the government spends — and on what and whom. Thus, the full impact of governmental spending is far greater than that suggested by either the 24 or 40 percent of GNP figures.

In a real and Fundamental sense, practically the entire American economy has been nationalized — if we broaden the term “nationalized” to mean the allocation and use of resources directly or indirectly determined or influenced by government’s spending plans. And in this sense, the United States has a planned economy.

But governmental spending is only the tip of the iceberg. Federal, state and local governmental licensing laws determine who is allowed to enter practically every occupation and profession. The various federal and state regulatory agencies specify what products and services may be offered on the market; they stipulate the work conditions under which these goods may be manufactured; they restrict the materials and methods of production under which the goods may be produced; and they sometimes determine the prices and wages at which resources may be bought and the products sold.

We have been on the road towards a planned economy since Franklin Roosevelt’s New Deal in the 1930s. Convinced by the Great Depression that capitalism had failed, increasing numbers of American intellectuals became attracted to the idea of social engineering. They swarmed into the halls of power after Roosevelt’s inauguration in 1933. Few advocated outright nationalization of private industry. Instead, their model was Mussolini’s fascist Italy.

Under fascism, business enterprises were organized into state-mandated cartels. The cartels, under government supervision, specified what would be produced, how much each cartel member could produce, at what prices they might hire labor and resources, and for what prices they might sell their output on the market. Labor, in turn, was organized into state-mandated trade unions; in partnership with the business cartels, the unions, again supervised by the government, determined work conditions and wages.

It was a planned economy with the outward facade of private ownership. But ownership of property was reduced to a mere title on a legal document. Everyone in the society was a servant of and subservient to the state.

Roosevelt’s centerpiece New Deal programs — the National Recovery Act (NRA) and the Agricultural Adjustment Act (AAA) — were constructed almost like carbon copies of the Italian fascist model. Only the Supreme Court decisions of 1935, declaring the NRA and AAA unconstitutional, saved America from a comprehensive fascist future.

Being defeated in their drive for fascist-style planning, the social engineers retreated into piecemeal planning in the form of a new mercantilism. Regulatory agencies proliferated; public-works projects abounded; fiscal and monetary policy was implemented to influence the direction and form of economic activity in the American economy; economic subsidies and political privileges were provided to increasing numbers of special-interest groups.

And what began under Franklin Roosevelt in the 1930s and 1940s remained in place in the 1950s and 1960s. The Great Society programs initiated in the mid-1960s merely extended and accelerated the growth of state control through the explicit introduction of the welfare-redistributive ethic as a cornerstone of governmental policy.

But the piecemeal policies of the neo-mercantilist, interventionist, welfare state have now cumulatively brought us back to where the process began with the New Deal. The incrementally introduced controls, regulations, spending programs, income-redistributive powers, subsidies, tariffs, monopoly privileges and licensing procedures have so extended the direct and indirect influence of government over the economy that America has acquired a planned economy “through the back door.”

We have stumbled and groped our way back into a fascist-type economic order. Property remains in private hands and individuals do possess degrees of discretion over its use and disposal. But the right of private use and disposal has become so increasingly confined by state controls, and so pervasively influenced by governmental spending and taxing, that it is no longer possible to say that America possesses a free-market economy.

The dilemma we face is that the change has occurred so gradually that most people now honestly believe the claims of the President’s Council of Economic Advisors in the latest Economic Report of the President. The vast majority of our fellow citizens think that America’s mercantilism and fascism constitute a free-market economy. They cannot conceive of a state that limits itself to the protection of life and property — and that leaves men free to decide peacefully what they wish to do with their freedom and property.

Our task, as friends of liberty, is to teach our fellow Americans the difference between freedom and fascism — before it is too late.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).