Doomed to Collapse?

In his latest column Ron Paul warns of dire consequences if we do not get back on a sustainable economic course in this country.

Economic Freedom or Socialist Intervention?

by Ron Paul

The freedom to fail is an essential part of freedom. Government-provided financial security necessitates relinquishing the very essence of freedom. Last week, the big 3 American automakers came back to Capitol Hill with their hands out to the government. Congress spent this past week debating how much money to give them and what strings should be attached. Though the bailout plan for the auto industry has suffered what I would call a temporary setback in the Senate, other avenues for public funding are being explored through the Federal Reserve and the Treasury Department. I am afraid the American auto industry will soon learn that having billions rain down from Washington will not be the blessing one might expect.

The government, after it subsidizes an industry, tends to become a very demanding benefactor. Politicians may not have any real idea about how to build a car, run a bank, educate a child, heal the sick or build a road, but they are quite adept at using carrots and sticks to manipulate and threaten those who do. Most of the federal control over education, roads, healthcare, and now banking and soon auto manufacturing, is done through money, mandates and conditions. The bailout proposal we were considering would force automobile manufacturers to submit their business plans for the approval of a new federal “car czar.” This bureaucrat would have the authority to approve the automakers’ restructuring plan, monitor implementation of the plan, and even stop certain transactions he determines are inconsistent with the companies’ long-term viability.

One could argue that if billions of taxpayer dollars are going to flow into a failing industry, then representatives of those taxpayers have “bought” a say in how that industry is run – which is precisely why bailouts are such a bad idea for both the industry and the taxpayers. The federal government has neither the competence nor the Constitutional authority to tell private companies, such as automakers, how to run their businesses. I would have thought that failed experiments with central planning and government control of business that caused so much harm in the last century would have taught my colleagues the folly of making businesses obey politicians and bureaucrats instead of heeding the wishes of consumers, employees, and stockholders. But the auto industry is in danger of learning for themselves one of the oldest lessons in politics: he who pays the fiddler calls the tune.

It is not the job of government to sustain business. The government should get out of the way, and instead examine excessive regulations, tax policy and red tape that have been hostile to manufacturing in this country. We should get back on a sustainable economic course in this country, or we are doomed to collapse, as the Soviets did, under the crushing burden of big government and a strangled economy that can no longer pay for it.


  • There are 77 million baby boomers now rang-
    ing from age 41 to age 59. All are hoping to collect
    tens of thousands of dollars in pension and health-
    care benefits from the next generation. These
    claimants aren’t going away. In three years, the
    oldest boomers will be eligible for early Social
    Security benefits. In six years, the boomer van-
    guard will start collecting Medicare. Our nation
    has done nothing to prepare for this onslaught of
    obligation. Instead, it has continued to focus on
    a completely meaningless fiscal metric—“the”
    federal deficit—censored and studiously ignored
    long-term fiscal analyses that are scientifically
    coherent, and dramatically expanded the benefit
    levels being explicitly or implicitly promised to
    the baby boomers.
    Countries can and do go bankrupt. The United
    States, with its $65.9 trillion fiscal gap, seems
    clearly headed down that path. The country needs
    to stop shooting itself in the foot. It needs to adopt
    generational accounting as its standard method
    of budgeting and fiscal analysis, and it needs to
    adopt fundamental tax, Social Security, and
    healthcare reforms that will redeem our children’s

  • Sean

    I was watching this guy Dan Mitchell critisize Keynesian economics.. Here are some things that he doesn’t understand or failed to talk about. First of all, the reason that the economy is bad is because the federal reserve has been taking money out of the economy through interest called the federal fund. What the government is doing is replacing the money that was taken out in the first place. Second, he says that the government can’t put money into the economy without taking money from the economy. That is totally incorrect. The government creates the money through treasury bills which adds to the deficit and never gets paid back through the process of rollover bonds… Third, the man said that an increase of money would not increase spending and that the money would be better off sitting idle. Well the money wouldn’t exist, so it couldn’t be sitting idle. And if you understood capitalism, than you would know that a shortage in money results to less demand and a shortage in trade. So when there is more money, there is more trade and more demand. That is where inflation comes from as stated previously… Fourth, the man contridicts himself when he says that the money sitting idle is better for the economy bc it is lent out by the bank. He then says that a stimulus is worthless bc people put their money in the bank instead of spending it. So wouldn’t that grow the economy using his words?.. Another thing, he says that government spending increased during President Truman’s years in office leading to a declining growth in the economy and an increase in unemployment. What Dan didn’t mention, was that there was a stunting growth in money supply during this time. Money stocks fell by 33%, a continuous annual rate of 10 percent. Banks couldn’t afford to loan money because people kept trying to withdraw accounts. So banks liquidated assets for close to nothing to remain open. This messed up corporate and government bonds dangerously reducing prices.. The reason that this all occured was because the Federal Reserve sat back and didn’t pump money into the financial system. The reason the Federal Reserve sat around and did nothing is bc the New York Bank tried to set policies that they couldn’t agree on.. Thats a lil history lesson for u.. Another thing, this man is comparing FDR’s stimulus plan to ours. The only thing is FDR did raise taxes to pay for the stimulus, so money was redistributed like he was talking about earlier, but this is not at all the same practice and a totally different theory as current day stimulus plans. He talks about this again with General Ford. They never increased money supply, they just redistributed it, so all of this is totally irrelevant.. Then this guy talks about President Bush’s spending which again is not relevant because Bush’s spending went towards protection, not growth. You can’t have economic growth when spending goes towards protection vice versa.. Last thing he speaks about is the failing economy of Japan. This shows his lack of understanding because the problem was completly the opposite. Japan had such a high trade surplus, that they had an abundance of money causing too much demand and high inflation. Of course making credit more available and increasing government spending hurt the economy. They needed to reduce the amount of money, not increase it. Just like the Federal Reserve decreases money supply when there is inflation by raising interest… That was the whole video. I did not hear one word of proof, just very very poor arguments…

  • Sean

    “one of the silver linings in this huge grey cloud is that we’re seeing some improvement and greater balance in our current account deficits.” Ben Bernanke was talking about having a greater balance in spending. We stunned our growth so much that commodities can get ahead on production and bring down the price of goods deflating the dollar.. This is identical to the idea of giving people a month off their house payments to get out of debt.

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  • Sean

    Without the Federal Reserve there would be skyrocketing inflation because our economy grows faster than industries can produce goods. Thats why the price of steal, gas, electricity etc. has more than doubled in the past 30 years. It cost more to retool and structure to the mass growing population. The value of the dollar and all value adjust its price to commodities(necessities). The rising price of steal makes cars and construction more expensive. Since buildings and cars are the only things of true value, the price of everything else goes up to pay for these things. This is why minumum wage raises, to adjust to the new price of homes, businesses, and cars and everything else. Thats where inflation comes from..
    What the Federal Reserve does is keeps our unemployment to a certain level so there isn’t excess spending devaluing of the dollar growing the economy faster than the amount of goods can handle. Population is always a threat. We need more investors to produce commodities. We can lower taxes and stress the importance and value of a commodity open market.
    This is a true state of monopoly. This is what people warned us of. We need more producers to handle production of the growth of our economy in the 21st century. Most people don’t understand time, which is said to be mans worst enemy. We will reach pop. 1 BILLION by the year 2100, how can Exxon handle the gas for three times the amount of consumers as today? Time really does fly, they did it for the past 100 years, and they are going to do it for another hundred years continuously raising the price to pay for new production. This is our threat, not some non-profit organization that helps keep a balance from growing faster than we can handle.

    • Sean

      You can check out scientific journals about population threat to go into more detail.

  • david

    mobsters. business and government alike. all mobsters. we everyday schmucks will pay the price.

  • Sean

    The fed and treasury tried to rework a better path of non socialism by sticking to the books and just pumping back more money into the banks. It was the government and oversight committee who demanded the treasury to become socialists and stop what they were doing to buy up illiquid assets. And giving a loan to a corporation doesn’t make us socialists. That was the reason the Fed was set up in the first place, to help give loans to corporations in dire needs.

  • Sean

    Without the Fed, the country would grow to fast and there would be too much demand for not enough supply of goods. The Fed takes money away from banks to control a balance between inflation and unemployment. What we really need is to focus on reducing cost-push inflation (rising costs of monopoly owned commodities). Because these commodities are monopoly controlled, the industries cannot grow as fast as the growth of our economy and resulting to greater demand with less supply (inflation). Changing our currency is not going to fix the cause of the problem. Even if we change our money to something backed by gold, we will still have to create money just as fast to keep up with a growing economy. This will lead to higher demands for commodity with the exact same high inflation risks only without an organization to manage and prevent heavier reprocutions.. Our population doubles every 50 years and the economy grows at around 3% a year, so our money supply is going to have to grow 3% a year wheather if it’s backed by gold, god, or nothing. We need to control rising prices of commodity if we want to control inflation.. Then we wouldn’t need a Federal Reserve.

  • Dave

    Welcome to the United Socialistic States of America, where in the USSA economy buys you! We are definitely treading a very delicate path, and as we have seen in the government, that as time passes complaicency does not allow for change. Expect to see that after this recession is over, that rather than the government fostering new industries by tax breaks and free market competition, that the government buys companies to ensure they deliver on key technology. The destruction of the free market will just be open to more corruption and more errosion of the middle and lower class. What start ups will be picked? The ones with rich venture capitalists with ties to Washington.

    For a great article on the failings of the Fed and why we need change, read this MSN article.

    • Matthew Stone

      Thought-provoking article… So are you arguing we need ‘A Fed’ and not just ‘The Recent Fed’? It cites movement by other Central Banks as a boon to the respective economy, as well as a “failure to use its power” rather than ‘they played too active a role in messing with the economy’.

      In short, the article states the current failure is “We’re left with a Federal Reserve that defines its mission very narrowly; it doesn’t even want to use the powers it has.” This could be construed as very pro-market.

      What are the changes, or direction, that you think should be instituted?



  • Sean

    I just feel that the reason Chevy is comming out with an electric car is apart of how the free-market works. Competition is a way to compete and make products better with new innovations. So I look at this bailout as part of the system and a way for them to knock up the competition a bit to keep the free-market evolution going. Every business owner takes loans and risks. I feel they should have the same oppertunity and I believe their years of experience gives them a good enough credit score.. What would we really have to pay? 50 dollars a person?? That’s a small risk compared to 7 thousand dollars a person and the lost lives of 4,000 respectively the bravest men in the world for corporate profit.. After saying all this, I am glad that it didn’t pass in the senate bc the car industry doesn’t need to be regulated and I predict and hope that President Bush wont enforce a czar.

  • ZaK

    debt is money, money is debt, how can we solve inflation with more inflation? why do we continue to create money out of thin air?
    here is a relevent video i found that actually features ron paul.

  • Sean

    I can’t believe we could let Chevy fail right before they come out with the Chevy Volt electric car. They are the only ones trying to progress our country away from being slaves to oil tycoons. We shouldn’t pro long expectation any further. It’s just like the government to use ideology before common sense.