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Thursday, July 18

America is becoming a police state. What's the solution?

We could try blaming it all on this guy

To get the solution first define the problem correctly. The rationale for the police state isn't based on big government, or capitalist or socialist economic theories. The rationale is entirely dependent on collectivism. So if you're seeing signs of a police state everywhere you look in the United States the first question to ask is whether the society has become collectivist. Yes it has, and profoundly so, but the collectivism wasn't created by Marxism or socialism or fascism. It was created by the social science of economics. To be precise it was created by Americans' acceptance of economic theories as the ruling principle in their society.

Explaining how all this happened would be a long story for readers unfamiliar with a 300 year-old argument called the Paradox of Thrift and efforts by the U.S. government and Federal Reserve to reverse engineer the paradox; this in the attempt to perpetually stave off a repeat of the Great Depression. But to skip over much history and theorizing, after the Great Depression Americans became willing to give up considerable control of their personal financial matters in exchange for a government promise that the country would never again experience a devastating depression. To fulfill this promise the Federal Reserve was tasked with designing and implementing monetary policies that steered the economy past the shoals of runaway depression and runaway inflation.

Sounded good on paper and for a time it was good in actual practice, considering what Americans wanted. Then, times changed. After the currency "dollar peg" ended in 1973, the Federal Reserve and U.S. Treasury had to engage in increasingly complicated monetary maneuvers to maintain U.S. dollar hegemony in a world of floating currency exchange rates -- maneuvers that often ran counter to U.S. fiscal policy and the personal finances of Americans.

The upshot was that little by little, over a period of decades, Americans were exchanging more and more control of their financial matters to support more and more complex maneuvers to stave off another great depression. Yet nobody had bothered to read the fine print in this exchange. In tiny letters at the bottom of the compact between Government and the People it reads:

'Once the science of economics starts calling the shots, economists in the federal government and Federal Reserve quite naturally have to think in terms of statistical aggregates when analyzing and arriving at decisions. Have a nice day.'

In other words the economists have to think like collectivists and so does everyone in government who deals with them.

It all makes sense in a highly abstract way -- and it will make more sense once you study the Paradox of Thrift, which was thought up or at least formalized by Bernard de Mandeville (pictured above). That blasted paradox, which Mandeville seems to have conceived as a political satire, has been denounced as a fallacy by several economists. But fallacy or no, it takes its enduring power from an underlying truth: What is good for the individual is not necessarily good for a collective of individuals.

How things progressed from that simple observation to American collectivism is a mind-bending tale. But the punch line is that it's not possible to confine economic thinking to only one area in a society when monetary policy is enforced by government fiat. This is because of the pervasive effect of monetary matters on just about all aspects of life in the USA -- and for that matter, life in most modern societies.

So that was the path by which collectivism gradually came to dominate American society, despite all the lip service to individualism.

Yet all this happened on little cat feet because the only Americans who discussed collectivism outside political science were pinkos and anti-pinkos. The anti-pinkos associated collectivism with communism and socialism, not with economics. And pinkos denounced the Federal Reserve as a bastion of greedy capitalist bankers; none of them ever said, 'That's a bunch of collectivists over there at the Fed.'

But it's not only the Fed that thinks in collectivist terms. Politically conservative Supply Siders and liberal Keynesians think the same when they get down to brass tacks. Both believe that the USA will see a new Ice Age if Americans have control of their own money by hoarding it in savings accounts. For the good of the economy, the American collective must not sit on mountains of cash (or gold) in the manner of Scrooge McDuck. It must purchase consumer goods and invest in the financial markets, even if this means taking on considerable debt. And if the collective doesn't want to do this it must be 'encouraged' by Fed and government fiscal policies to use its money in a way that benefits the collective.

Leaving aside the merits or demerits of this view from the standpoint of economic theory, you can see that through the back door of monetary policy the concept of "public good" came to supersede individual rights in the USA

As to why that's been so hard to see -- try this experiment: Every time you read the term "the economy" in a news report, cross it out and write "the collective." And every time you hear "the economy" mentioned on the nightly news, say, "the collective."

Do that for a week and you won't need to ask how American collectivism has stayed hidden in plain sight.

That's enough for today. I'll return with Part 2 of this post, which I'll title "From the Economy to a Police State." In the meantime here's the link to Wikipedia's article on the Paradox of Thrift, which also gives a little history about how the paradox got applied in modern times. And here's the link to Wikipedia's article on Bernard de Mandeville. Don't be fooled by his Paradox. Mandeville was a brilliant and prolific thinker and writer on philosophy and political economics. His ideas influenced Adam Smith and Friedrich Hayek. And John Maynard Keynes, who dusted off the Paradox of Thrift to support his miracle cure for perpetually staving off another Great Depression. American government officials might not have grasped Keynes's finer points but they liked the "perpetual" part. And here we are today.

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