Mises Daily Articles
Hoppeism and the Bailout
The Bush administration's $1.5 billion bailout of
So why did they do it? You could say that they are very bad men and have no moral reservations about looting billions in other people's property in order to reward their friends in the financial industry. Even if that were true, that is certainly not the way Bush and Co. think of themselves. For all their compromises with principle, they believe they are engaged in real-world political and economic management that requires a certain sense of expediency, even if they doubt that what they do is ultimately sound.
It is possible, too,
And yet why is the political class so prone to expediency, and why must the price for that expediency always be paid for by the public? There are many things that are expedient for people in real life to do that we do not do. It might be expedient for us to run up a high credit card debt, beyond that which we could pay, but we are generally deterred. It might be expedient for us to take out second mortgages and buy stocks in a bear market, but we do not because we are concerned about the long-term implications. Why are we so restrained, or at least consider carefully the consequences of dramatic financial decisions, whereas the political class is not? The expediency explanation doesn't address that point.
Another explanation of the Bush administration's behavior might resort to a Public Choice argument: Bailing out
No doubt that self-interested behavior is nefarious in political hands. The Public Choicers argue that this is why we need constitutions: because they impose rules that limit the hands of political crooks.
But what I want to highlight here is how an aspect of the Hoppeian view of the world goes much further to explain something like the Uruguayan bailout (and also the Bush's administration's protectionist policies, big spending, and other such betrayals of its stated principles) than conventional arguments concerning immorality, expediency, Public Choice, or any other alternative.
Again, Public Choice posits self-interest as the explanation for bad policy and prescribes law to restrain such behavior. Let's think about this. There are plenty of socially bad things that are in our self-interest and that are not restrained by law, and yet we do not do them. In fact, if this were really a world where the only thing standing between us and pure self-interest were the police, chaos would be the order of the day, because in the real world, law does very little restraining. There are no policemen patrolling my subdivision on a constant basis. There are no cops at the country club to make sure that people do not rob and loot.
Laws are primarily designed to deter Justice Oliver Wendell Holmes's "bad man," the person who will do only the minimum necessary to avoid the negative material consequences of his behavior. This does not describe most people, who, on the whole, voluntarily refrain from harming others. Were it otherwise, civilization would not be possible.
Why does rampant self-interest not generally lead to destruction unless it is exercised through government? Why is private self-interest generally channeled to the social good, while political self-interest leads to every manner of horror? The Public Choice school, because it does not distinguish clearly between a business firm and the government, and because it does not want to address fundamental questions of property, can't really provide an explanation for why this is so.
Now to the Hoppeian model, which addresses the most fundamental issue of all: the question of ownership rights. In the case of both the office and the home, we have an incentive to maintain the property value of the thing in question precisely because both are owned privately. Along with this incentive comes a clear picture of valuation: because the private markets provide prices that permit calculation, we have a compass to follow as we exercise our self-interest. Private property is the institutional framework that gives us both reason to enhance the value of things owned and the means to show us how to go about doing it.
Now, there is nothing spectacular about this insight alone. Since
What are the consequences of this? It means that the leaders of a democratic nation are roughly in the position of squatters who take over someone else's home for the summer while he is out of town. Assuming that they will not get caught, squatters have every reason to loot and steal and drive down the value of the place as much as possible and leave the mess for the next guy. Yes, it may be wrong. It is a privately and socially harmful thing to do. But in the end, there is no good reason for the squatters not to do this because they have no personal investment in the value of the property they control.
"A democratic caretaker faces no logical obstacle to the redistribution of private property. Rather than involving himself with the preservation and improvement of capital values, he will be concerned primarily with the protection and advancement of his own position… This type of caretaker's legitimacy does not rest on the legitimacy of private property. It rests on the legitimacy of 'social' or 'public' property. Thus, if he takes property from one person and gives it to another, as a caretaker he does not contradict his own ideological foundation. Rather, he affirms the supremacy of the different principle of social ownership. Consequently, under democratic conditions private law--the law of property and contract underlying civil society--disappears as an independent domain of law and is absorbed by an all-encompassing public--government made--law (legislation)…. [B]ecause caretakers do not own the country's capital stock, the counterproductive effects of income and wealth redistribution are of little or no concern. However, the long-term repercussions of redistributive measures are unimportant to them, while the immediate and short effects are not."(pp. 85-86)
The Bush administration is something of a caretaker-squatter in the management of international economics affairs, for example. It does not own the
The strain running through
There are many other reasons why Uruguay was bailed out, of course, but Hoppe's theory addresses the core issue of how it is that the political class is engaged in not only this but a relentless series of betrayals of the public trust, and predictably so. Not being the owners of the things they control, and not having been contracted by owners to act as responsible managers, there are few if any restraints on what they do. In any case, they lack the key restraint that constantly operates in private markets--namely, the will to preserve and enhance the value of resources.
Is there another model of political economy that has more explanatory power? I don't believe so. Whereas Public Choice sees symptoms and explains those quite well,
Thus, even apart from