Global stock markets have been plummeting. Where the bottom is, nobody knows. There will be gut-wrenching zigs and hopeful zags along the way; they will be of larger magnitude and--in our digital age of instant response--will occur with greater rapidity than ever before. Perhaps we are near the bottom. Remember, "the darkest hour precedes the dawn," although it will take somebody smarter than me (and future historians) to pinpoint when the bear market ends.
What are stock markets telling us? I think they are signifying that we are broke, that, collectively speaking, the United States of America is bankrupt. How can that be, when so many businesses are profitable and so many Americans are gainfully employed and making ends meet?
I think we are financially bankrupt in at least two ways. There is way too much leverage and way too much debt in the financial system. Leverage and debt are two-edged swords. When used in moderation, they can be constructive; when used to excess, they become destructive. Both the leverage created by financial institutions and debt (and here I include the implied debts of Uncle Sam's massive unfunded liabilities) have soared--leverage into the hundreds of trillions and debt into the tens of trillions of dollars--and the financial system is now tottering under the burden of that dead weight. Sooner or later, this unsustainable mountain of leverage and debt will utterly collapse; whether that collapse is imminent or can be postponed, I know not.
Our real bankruptcy, though, is not financial, but political. George Washington once said, "government is like fire--a handy servant but a dangerous master." Indeed, government (like debt and leverage) is useful when under control and dangerous when out of control. By trying to be all things to all people, Uncle Sam has led our nation into bankruptcy. But let's not place all the blame for our predicament on government and politicians. We are at fault, too. "We, the people" have repeatedly voted for those who have expanded government.
Today, we are living through a gigantic crisis. As you may have read before, the Chinese character for crisis is comprised of the characters that denote danger and opportunity. That is exactly what we face here--great danger and great opportunity.
The danger is that we will demand more and more government programs to take care of us, even though it is Big Government that has bankrupted us.
Bigger government was the policy of Hoover and Roosevelt during the Great Depression. As the economic factors of production (resources, labor, and capital) were diverted from the private sector to the public sector, the depleted private sector inevitably stagnated, producing a vicious cycle: the greater the private-sector stagnation, the greater the apparent need for more government intervention, and since government planning is inherently inefficient, the more sluggish the overall economy remained.
The opportunity we now have is to renounce the errors of our ways. We can forsake our debt addiction--the bad habit of enjoying things today while paying for them later. We can relearn the lesson that capital is an economy's lifeblood, precious and limited in supply, and therefore that it is to be invested wisely in wealth-creating enterprises rather than used to just create more financial paper to generate commissions for financial gamesters.
Most importantly, we can reject the demoralized desire to get something for nothing through the political process. We have made a false idol out of government. Government doesn't create the wealth that raises standards of living; profit-seeking individuals and businesses do. To use a biological analogy, the private economy is the host, and the government a mere leech on that host. We need to understand that it is not within the power of government to create wealth sufficient to guarantee our retirements, to pay for our health care, or to give everyone a house or an income, because in trying to do so, government slowly bleeds the productive economy--the private sector--to death.
So, which will it be? Will Americans seize the opportunity to return to free markets, and return to the ethos of self-responsibility and voluntary charity for those in need? Will we rediscover the value of thrift and deferring present gratification? Will we insist on sound money and renounce counterfeit paper "wealth" that is being vaporized before our eyes? Will we reject the seductive ethos of "something for nothing," reaffirm the sanctity of private property, and get government out of the destructive business of redistributing wealth? Or will we live dangerously, and beg Uncle Sam to do anything--even nationalize everything--as long as he takes care of us?
From what I can see, the American people want more government. Most of us prefer the devil they know--Big Government--to the great unknown--free markets. How ironic and tragic that we would defeat socialism in the Cold War and then voluntarily put the chains of socialism on ourselves.
Dr. Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision & Values at Grove City College.
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