“Those are my principles and if you don’t like them … well, I have others.” – Groucho Marx
American comedian Groucho Marx well captured the fragility and even the existential angst of society’s moral compass in the face of economic hardship. He certainly was an authority on the subject, having delivered some of his most memorable work during and in the aftermath of the 1929 stock market crash and the Great Depression that followed.
Well-equipped with sharp observation skills and self-deprecating wit, Groucho practically invented one-liners that have since become the staple of comedy in the English-speaking world.
Something vastly different from one-liners now appears to dominate the English-speaking world; this is the steady deterioration of the moral compass in each society. We have witnessed epochal events that highlight the abrupt nature of change in these societies: Americans now appear to endorse large-scale government intervention in their economy to the point where “Too big to fail” has become automatic if not official policy response to qualifying corporate crises; the British public are aghast at discovering that their parliamentarians had their hands in the proverbial tills; in Australia, events have taken a rather nasty turn with an increased incidence of attacks on students from Asia and in particular, India (ironically or otherwise, the Asian country with arguably the highest number of English speakers).
The word “principal” in finance is used to signify amounts of money involved; it appears that a careless word play could help translate problems with such principal amounts – as evidenced by the global financial crisis over the past few months – into the very core of society; a reordering of a moral compass that goes to the heart of the working principles in any society.
Prima facie, I would argue that the proximate motivation for these changes, be it in government policy, the actions of individuals or those of parliamentarians, is the deterioration of the economy. There have of course been historical parallels for such abrupt changes in societies that confront deteriorating prospects which are explained later in this article.
Before delving into the details of the above stories, I must perhaps highlight a point of major irritation in the financial media and especially blogs. This is the frequent incidence of errors on the use of “principal” and “principle”. Far too many times, I have been told the following or variants of the same:
- XYZ person has loose principals.
- The bank wrote off its principle loan amount.
- In principal, I agree with these comments.
- Issuer X defaulted on their bond, principle amount of $Y.
For the record, useful definitions of the two words follow:
Principal: adjective First or highest in rank, importance, value, etc; chief, foremost. noun A chief or head of an organization; something of primary importance. law A person who authorizes another (an agent) to represent him or her. finance A capital sum, the main amount of a loan or investment – as distinguished from interest or profit.
Principle: noun A fundamental assumption – The principles of physics dictate that you cannot travel faster than the speed of light. A generally acceptable rule of action or behavior – moral principles.
Communists, thieves and racists
The US government has taken it on itself to rescue sectors and companies in the US economy that are deemed “too big to fail”, which I presume means “politically inexpedient to be seen allowing to fail”. In a recent Wall Street Journal opinion piece entitled “Too Fat to Fail”, Daniel Henninger notes:
So far Mr. Obama has used his personally exciting presidency for initiatives that are spending public money on a scale not seen since ancient Egypt. Besides Obama Motors ($60 billion to $100 billion), there is Obama-Care for health insurance ($1.2 trillion over 10 years), the stimulus ($800 billion), a global-warming offensive called cap and trade that hopes to siphon hundreds of billions of dollars from the economy, and a fiscal year 2010 budget of $3.59 trillion. Out of these mists of federal “investment” they promise five million “green collar jobs”. Only public-sector lifers could believe, or assert, anything so fantastic.
Then there is the never-ending march of the financial-rescue armies – TARP, TALF, PIPP, EESA. The Federal Reserve’s balance sheet stands at some $2 trillion and growing. Last week, Treasury floated the possibility of a single financial regulator for the entire banking system.
All this is the Obama government’s idea of innovation. It is all public sector because all any of them know is public sector.
Over the past few months, I have written a number of articles that highlight the dangers of government intervention into the world economy, essentially a seemingly Luddite harking back to the time before market capitalism took hold of Anglo-Saxon economies. My sentiments were echoed in the wonderful Mises.Org website on June 4, in an article “The Age of Folly” by the redoubtable Llewellyn H Rockwell, Jr that contains the following observations:
They are unavoidable features of the world, ones which the political class is forever attempting to override. The economy had been on a false foundation for some years, and the housing sector in particular had become wildly overbuilt and rested on bad debt. What can politicians do about this? Absolutely nothing. Economic foundations are built by private investment. Government has no resources of its own to build a foundation.
It can only rob people of their property and thereby divert resources from where they belong to where they ought not to be … By the fall and winter, it became clear that the war on recession was not working and the economy was sinking further. Rather than give up, Bush pushed so hard that he managed to throw us all in the arms of a socialist who knows nothing about economics and has surrounded himself with big shots who affirm him in his ignorance – people like Paul Krugman, who are wedded to antique mythologies about the glories of government power … And so we live through it again.
We see the fools trying this and that with our lives and liberty, promising glorious results around the corner. Well, by now, we’ve been around the corner, the next one and the next one, and it gets worse with each turn. These people are driving us right into the abyss, and let’s be clear that this is not the fault of private investors or savers or foreigners or stock jobbers. It is the fault of the managers of this recession: the government, whoever is or has been in charge, and the Fed that operates on government authority.
As if to echo the fears of what happens when interventionist politicians take charge of the economy, an expense scandal has erupted in the United Kingdom with significant abuses reported by the left-leaning Labour Party that has been in power for the past 12 years. In a series of exposes that began in the Daily Telegraph about a month ago, salacious details of the country’s members of parliament (MPs) claiming excessive personal expenses back from the government (and therefore the taxpayer) have been brought to light.
The aftermath, which has been described as a “challenge to the very foundations of British democracy”, has been the vast number of resignations of MPs as well as (more recently) members of the cabinet. In an extraordinary move, the speaker of parliament was forced to step down after it was shown that members of his team had actively colluded with MPs to abuse the system. The resignation of the speaker was the first since 1695.
Writing in the Financial Times, political columnist Philip Stephens observed the following on May 21:
England likes to think of itself as the mother of parliaments, the cradle of modern democracy. Never mind the minor contributions made by the American constitution or France’s declaration of the rights of man; nothing can compete with the 1,000 years of history that stand behind the House of Commons. The English have long been immodest in this respect. I well recall when France’s then president Francois Mitterrand invited Margaret Thatcher to join the bicentenary celebrations of the French Revolution. With her customary tact, and a selective reading of history, the British prime minister arrived in Paris brushing aside the significance of Bastille Day. The gist of her remarks was that English (and British) democracy did not rest on a single great convulsion such as that of 1789.
It had been built on the much firmer foundations of accumulated wisdom and historical convention … That said, the affair has been a salutary reminder of the manifest flaws of a smug institution. Most obviously, it has revealed a legislature that has never quite admitted that things have changed. This was a world of honorable members whose dignity did not allow for public scrutiny or accountability. Born of the age of deference, it had never really escaped it. So we are at the end of an era. Just as the Profumo scandal of 1963 opened up the establishment to the public gaze, so parliament can never again slam the door of the Westminster club against outside scrutiny.
Mr. Stephens leaves unsaid the notion of what exactly happens at the end of an era (he suggests cosmetic changes such as more power to local governments); the dangers for the UK are of course that the only political parties that have been left untouched by the current scandal are those on the extreme fringe of British politics, namely the racist British National Party (BNP) and the anti-European UK Independence Party (UKIP).
On the subject of racists and the far right, from Down Under we have stories of increased violent attacks on Asian immigrants. The Voice of America reported the following on June 4:
Australian Prime Minister Kevin Rudd has condemned as “senseless acts of violence” a series of race attacks on Indian students in Melbourne. The Indian high commissioner is demanding greater protection for Indians studying in Australia, as state authorities in the southern state of Victoria draw up new laws to crack down on hate crimes. A series of assaults on Indian students in Australia prompted about 3,000 people to take part in a recent rally in Melbourne to demand greater protection from the authorities, who are accused of doing too little to stem the violence. There were ugly clashes between protesters and police.
More than a dozen people were arrested … In the past year, about 70 attacks on young Indians in Melbourne have been reported and there are claims by community groups that the vast majority have been racially motivated … Victoria Police Chief Simon Overland insists that students, in general, have become “easy targets” for opportunistic criminals. “It’s partly violence against Indian students,” he said. “It’s escalating robberies and we have used the term ‘soft-target robberies’. Now, the Indian students have taken that as referring directly to them; it’s not. What we have seen is that robberies are now happening more directed against people in the street, directed against people who are wandering around with laptop computers, mobile phones, iPods, cash. And, if they’re alone, they’re vulnerable.” … The attacks have caused diplomatic friction between Canberra and New Delhi.
Australia is no stranger to the rise of the far right during times of economic strife. The recession of the early 1990s (starting in 1989) pushed to the fore one Pauline Hanson and the politics of the One Nation party. She was briefly notorious in the mid-1990s for capitalizing on the fears of Australians for their jobs; and indeed her first speech to the Australian House of Representatives contained the following “gem”:
Immigration and multiculturalism are issues that this government is trying to address, but for far too long ordinary Australians have been kept out of any debate by the major parties. I and most Australians want our immigration policy radically reviewed and that of multiculturalism abolished. I believe we are in danger of being swamped by Asians. Between 1984 and 1995, 40% of all migrants coming into this country were of Asian origin. They have their own culture and religion, form ghettos and do not assimilate. Of course, I will be called racist but, if I can invite whom I want into my home, then I should have the right to have a say in who comes into my country. A truly multicultural country can never be strong or united …
We have seen this film before
I started this article by pointing out that social degradation and economic declines go hand-in-hand. The worst such example in modern history was most certainly Nazi Germany, where the rise of Adolf Hitler was predicated on a nasty bout of inflation, unemployment and social unrest that followed World War I.
The Wikipedia entry for the rise of the Third Reich makes the following observations:The Third Reich arose in the wake of the national shame, embarrassment, anger and resentment which resulted from the Treaty of Versailles. Versailles, a harsh treaty offered to the vanquished Germans after a brutal war, provided for:
- Germany’s acceptance of and admission to sole responsibility for causing World War I.
- The permanent forfeiture of various German territories and the demilitarization of other German territory.
- The payment by Germany of heavy reparations, in money and in kind, such payments being justified in the Allied view by the War Guilt clause.
- Unilateral German disarmament and severe military restrictions.
Other conditions fostering the rise of the Third Reich include nationalism and Pan-Germanism, civil unrest attributed to Marxist groups, the worldwide economic depression of the 1930s (spurred by the stock market crash in the US), the reaction against the counter-traditionalism and liberalism of the Weimar period, and the rise of communism in Germany, as reflected by the growth of the KPD, the Communist Party of Germany.
Many voters, seeking an outlet for their frustrations and an expression for their repudiation of parliamentary democracy which seemed incapable of keeping a government in power for more than a few months, began turning their support towards the far right and far left of the political spectrum, opting for extremist political parties such as the Nazi Party. The Nazis offered promises of strong authoritarian government in lieu of effete parliamentary republicanism, civil peace, radical changes to economic policy (including elimination of unemployment), restored national pride (principally through the repudiation of Versailles) and racial cleansing, implemented in part by active suppression of Jews and Marxists, all under the banner of national unity and solidarity in lieu of the partisan divisiveness of democracy and the class divisiveness of Marxism.
Reading this bit of history and comparing it to the events of the three countries we mention above, it is clear that some of the trends are in place, namely:
1. The rise of communism, as evidenced by the nationalization of capitalist enterprises such as banks , insurance companies and even automotive companies in the US.
2. Loss of public confidence in the instruments of government such as the UK parliament.
3. A rise in efforts towards ethnic cleansing or at least racially inspired violence as shown in the case of Australia.The English-speaking world should certainly thank its lucky stars that not all of the above events have occurred in the same country, for surely that country would be on the road to becoming a menace to its neighbors and perhaps even to the world at large; but taken as a whole, the trend appears unmistakably negative.