Organized Crime

In chapter 5 of F.A. Hayek’s 1944 classic, The Road to Serfdom, the Nobel laureate warned that the state need not directly control all or even most of the means of production to exert totalitarian control over the economic life of a nation. He cited the example of Germany where, as of 1928, “the central and local authorities directly control 53 percent” of the German economy. In addition to this, wrote Hayek, private industry in Germany was so heavily regulated that the state indirectly controlled “almost the whole economic life of the nation.” It was through such totalitarian controls that Germany traveled down “the road to serfdom.” As Hayek further stated, “there is, then scarcely an individual end which is not dependent for its achievement on the action of the state, and the ‘social scale of values’ which guides the state’s action must embrace practically all individual ends.” In other words, government regulation was so pervasive that the pursuit of profit, driven by consumer preferences, was mostly replaced by the whims of regulatory bureaucrats.

It may sound shocking to some, but modern-day America compares favorably to the fascist Germany of the 1930s with regard to the degree to which the state interferes with and controls economic activity. First of all, government expenditures at all levels of government account for about 40 percent of national income. It differs by a few percentage points year by year, but it has been in the 40 percent range in recent years. This doesn’t count all of the off-budget government agencies that exist at the federal, state, and local levels of government, as James Bennett and I discussed in our book, Underground Government: The Off-Budget Public Sector. If this is included, government expenditures as a percentage of national income would be at least 45–50 percent, which is not so far from the 53 percent in Nazi Germany that Hayek alluded to.

As for regulation, there are nine cabinet-level departments at the federal level that regulate, control, and regiment housing, transportation, healthcare, education, energy, mining, agriculture, labor, and commerce in general. On top of dozens of federal regulatory agencies the state governments also supply a mountain of regulation. The state of Alabama’s Web site, for instance, lists regulatory agencies and commissions that regulate: retirement, geology, public health, education, conservation, natural resources, industrial relations, agriculture, senior citizens, tourism, travel, veterans, environmental management, forensic science, business development, rehabilitation, banking, insurance, labor, transportation, youth services, children’s affairs, film making, ports, disabilities, arts, real estate, oil and gas, forests, ethics, surface mining, alcoholic beverages, auctioneers, and “faith-based initiatives.” And Alabama is a relatively conservative state; most other states probably have much longer lists of regulatory functions.

Because of the inevitable failures of all governmental planning in a democracy, Hayek wrote that “the conviction [will grow] that if efficient planning is to be done, the direction must be ‘taken out of politics’ and placed in the hands of experts—permanent officials or independent autonomous bodies.” Moreover, the “cry for an economic dictator is a characteristic stage in the movement toward [central] planning of an entire economy. This indeed describes many of the above-mentioned regulatory functions but is especially descriptive of the central planning “czars” who now populate the executive branch of the federal government. As of 2010 these included political appointees who are given “czar” status for the following categories: Afghanistan, AIDS, auto recovery, borders, California water, cars, Middle East, Persion Gulf, Pakistan, South Asia, climate, domestic violence, drugs, economics, energy, environment, faith-based initiatives, government performance, Great Lakes, green jobs, Guantanamo base closure, health, information, intelligence, science, stimulus legislation, pay, regulation, Sudan, TARP, technology, terrorism, urban affairs, weapons, weapons of mass destruction, war, oil, manufacturing, cybersecurity, safe schools, and Iran.

It would be very difficult indeed to argue against the proposition that the U.S. economy today is even more heavily controlled, regulated and regimented by the state than Nazi Germany was at the time Hayek was writing The Road to Serfdom. Americans have traveled many miles down the road to serfdom by deluding themselves that the god of democracy will somehow save them from statist slavery. As Hayek warned, “there is no justification for the belief that, so long as power is conferred by democratic procedure, it cannot be arbitrary . . .”