What's Ron Paul's Beef with the Federal Reserve?

[LENGTH WARNING]

My, it has been quite a while, hasn't it.



A friend posed the following question:

...And I am truly trying to wrap my brain around the Federal Reserve information I want so much to understand, but I can't get any 'good' out of it, only criminal mischief. And I never trusted Ron Paul, but a lot of people I know are ready to put him in the White House. Why do I mistrust him? Can you tell me, because I don't know exactly why, BUT I KNOW...

I'll try to give something like an answer; hopefully, it'll be coherent.

Ron Paul (like his son, Rand) is intensely devoted to libertarianism. I don't know if you're familiar with that particular ism. Basically, the underlying idea of libertarianism is that the only frame of reference for analyzing society is that of the individual. Collective behavior of any kind is inherently suspected. Culture, history, sociology, psychology--forget it. There's only the individual & the only question worth asking is whether any social program, idea or phenomenon increases individual freedom. For a number of libertarians, this dovetails neatly with the writings of Ayn Rand, the creator of a "philosophy" called objectivism. Rand posited in Atlas Shrugged that the smartest, most individualistic people in society are carrying a vast majority of sheeplike wastrels on their backs, giving more to society through the results of their hard work & taxes than they receive from the masses of shirkers. Her hero, John Galt, and other producers decide to withhold their labor in protest, thereby bringing society to its knees. You can see that same sense of indispensibility & entitlement among today's hedge fund managers & bond traders as they howl along with Rick Santelli on MSNBC about how they're paying the mortgages of all those lazy people who sit around expecting handouts, blah blah.

You can see how this almost hysterical exaltation of the individual is a very attractive notion. After all, we're products of the most extremely individualistic culture on earth. But the problem is that by essentially ruling out every other way of looking at society except the individual & his/her freedom, libertarians exclude the vast majority of evidence available to our sense organs (not to mention research libraries). That denial of context leads to weird positions such as Rand Paul's statement that he would have voted against the Civil Rights Acts of 1964 & 1965 as encroachments on the individual rights of segregationists (OK, in Rand's case there's clearly something else at work here. He certainly doesn't consider infringements on the individual rights of black people caused by discrimination, for example). To be fair, some libertarians are very good on first amendment rights issues (after all, individual rights is their sole obsession), but on everything else, you get this weird prezel logic based on denial of everything beyond the individual & his or her rights. In their denial of the importance of power differentials in society, libertarians, whether intentionally or not, open the door to Social Darwinism.

The libertarian obsession with the individual leads to economic ideas hostile to government & to collective activity of any kind. Thus libertarians like Ron Paul find congenial economic theories that rationalize the elimination of government action & programs. Paul is an adherent of what's known as the Austrian School of economics, an approach that's rejected by mainstream economists, both liberal & conservative. Essentially, the Austrian School argues for laissez-faire economics with government involvement in & oversight of the economy reduced to the barest minimum. Austrian School adherents also argue that mathematical modeling, statistics & testing are basically useless in the study of economics & argue instead for the use of logical deduction based on first principles instead. And ouija boards (just kidding).

One of the heroes of economic libertarians, Friedrich Hayek, was a member of the Austrian School. Hayek argued that Britain was going to become another Soviet Union due to the creation of its National Health Service. (Hayek is often cited for saying that the bigger the government, the greater the encroachment on human freedom. What exactly is meant by "big" & "small" in this context has always confused me. Does this mean that the US, for example, is less free than Chile under Augusto Pinochet?) Needless to say, Hayek's prediction didn't work out very well, but that hasn't dulled the ardor of his adherents. (After all, who needs evidence when you've got first principles?)

Paul is also extremely hostile to the Federal Reserve, which he wants to eliminate (Paul Ryan, another libertarian, shares this view). Another big institution, and therefore threatening to human freedom. Have I told you how oppressed I feel when I hear that the Fed has lowered interest rates? The irony is that the Federal Reserve was set up in 1913 in response to the extreme concentration of economic power, lack of regulation of banking activities, and the absence of a central bank to bolster the economy in the case of a crisis, all of which was exposed in the aftermath of the Panic of 1907. The Fed provided the latter, but it was far too weak to deal with the other two problems, as was illustrated by the Great Depression. Now, you may be wondering, in the aftermath of the deepest economic crisis since the Great Depression, with extreme concentrations of economic power in a highly unregulated financial system, why Ron Paul wants to do away with the institution that provides the bulwark for that system. Why, you might ask, does he not instead focus his efforts on strengthening regulation of the financial sector (creating an institution that would provide training & advancement to successively higher levels of regulatory complexity & responsibility, a la the training program at the State Department, for example, and working to make the salaries of regulators comparable to those of their counterparts at banks, thereby removing the incentive of regulators to go to work for the firms they regulate)? Why, in short, does Paul not work to prevent a recurrence of the crisis we’ve just experienced, rather than weaken one of the institutions responsible for minimizing the damage when such crises occur? That question applies to the GOP in Congress, almost across the board. It’s one of the questions of the age.

Dangerous Simplicity

Lisa McGirr & Kim Philips-Fein are two historians who've studied the new right. McGirr focuses on the grassroots movement (Orange County, CA, specifically) while Philips-Fein explores the big business-led development of the infrastructure enabling the right to gain power. Together, they provide a useful framework for interpreting the ongoing meltdown of the new right.

If one starts from a traditional, often fundamentalist Christian point of view, and accepts the premise that the US is perfect, any problems we face must be due to a sinister external force. The government is an easy target, especially since it embraced in the late 20th century a bureaucratic-technical approach to modernity, rather than emphasizing traditional church-based values.

Add to that the traditional conservative position that government is an inherent threat to individual liberty, and the western mythology of the rugged individual (contra the reality that the prosperity enjoyed by most Orange County conservatives was dependent on massive government spending in the form of defense manufacturing and the infrastructure required to support it) & it was easy for conservatives to feel that government programs aimed at amelioration of poverty represented confiscation of the fruits of their hard work and potentially a threat to their freedom (freedom largely being defined economically; the more fundamentalist among them were less concerned about freedom when moral concerns were involved). This is not to say, by the way, that there were/are no reasonable bases for concern about government threats to individual liberties; rather, the point here is that the threats perceived by modern conservatives have been generally imaginary (fluoridated water,gun rights, the Soviet Union as an imminent threat to the U.S. at the very moment the former was unraveling, etc.).

The inherent contraditions in these positions, as noted above, are pretty easy to see. Conservatives were generally hostile to the civil rights movement and many, including William F. Buckley Jr., infamously argued that efforts to expand rights to African Americans constituted government intrusion into individual rights of free association. Nor have many conservatives, despite their traditional zealotry about government encroachments on liberty, been similarly concerned about the potential for similar threats to individual rights by corporate power. The obviously selective choices of objects for conservative outrage lead many outside the movement to conclude that the stated motives for opposition are but smokescreens for racism, defense of socioeconomic privilege, and various other bigotries and fears.

It's kind of striking that movement conservatives depend on a manufactured sense of grievance and paranoia, and increasingly, a rejection of evidence & logic to maintain group cohesion & a sense of identity. Even after they got Reagan & then Dubya elected, the right continued to peddle conspiracy theories and nurture a sense of grievance. Now, after undeniable political dominance for 6 of the last 8 years (and really, considering the haplessness and complicity of many Democrats, it’s been more like 40 years), virtually every aspect of every policy enacted by conservatives stands revealed (to those willing to look honestly) as a total failure of massive proportions. Yet lacking a more sophisticated intellectual framework for interpreting the results, many on the right continue to resort to a belligerent form of denial. Hence the hysterical screeching, wild accusations and even occasional shootings we observe on cable TV and elsewhere. A simplistic template is inadequate for efforts to understand the complexities of the world we live in.