How Governments are Purchasing Submission with Interventions, Money, and Fear

Monthly Market Commentary: January 1, 2022

Friedrich von Hayek who maintained that, “[Socialistic] economic planning, regulation, and intervention pave the way to totalitarianism by building a power structure that will inevitably be seized by the most power-hungry and unscrupulous.” Looking at current leaders in our Western democracies, it seems to me that Hayek forgot to add to seizing power by “the most power-hungry and unscrupulous,” also the “most incompetent.”

George Leef who writes regularly for the National Review’s states, that “The tentacles of federal power over the states, localities, and private institutions have been reaching further and further. He quotes Philip Hamburger, a professor at Columbia Law School who wrote Purchasing Submission: Conditions, Power, and Freedom in 2021. Hamburger explores federally mandated “conditions” - that is to say, requirements imposed by the United States government on people and organizations in exchange for funding or other privileges. Such conditions include, for instance, requiring states to set a minimum drinking age of 21 to receive highway funding; requiring university research involving human subjects to be approved by institutional review boards; and prohibiting organizations that have 501(c)(3) tax status from political campaigning. According to Hamburger, these conditions violate constitutional rights, with little to no recourse for Americans. Furthermore, Hamburger argues that, “to a greater and greater extent, federal bureaucrats use their money, benefits, and sheer power to force state and local governments as well as non-governmental entities to submit to them.” According to him, the vast administrative state - the “fourth branch” of government - is inconsistent with the Framers’ concept of good governance. He also points out that federal agencies often use their already constitutionally dubious power as leverage to expand their power into blatantly unconstitutional domains. “They do so by threats, letting regulated parties know that if they should challenge agency actions, they’ll face retribution. It’s sheer extortion. They usually get away with it.”

In an essay entitled “Fear: The Foundation of Every Government’s Power", Robert Higgs, a retired Senior Fellow in Political Economy, and the Founding Editor of The Independent Review, writes: “The people who have the effrontery to rule us, who call themselves our government, understand this basic fact of human nature. They exploit it, and they cultivate it. Whether they compose a warfare state or a welfare state, they depend on it to secure popular submission, compliance with official dictates, and, on some occasions, affirmative cooperation with the state’s enterprises and adventures. Without popular fear, no government could endure more than twenty-four hours.”

I am bringing up the “fear factor” because it seems to me that governments around the world have in concert with the health care industry and the media used COVID-19 to spread fear among the populations.

Bertrand Russell (1872 – 1970) wrote in 1943 An Outline of Intellectual Rubbish (what a great title) that, “Neither a man nor a crowd nor a nation can be trusted to act humanely or to think sanely under the influence of a great fear.”

It is with Russell’s words in mind that we need to look at asset markets around the world. A fair observation would be that most investors seem to be fearful of missing out on further price gains. At the same time, some investors are also fearful of further price declines for assets that have been declining in value. This two-faced fear factor in asset markets argues for an increase in volatility in 2022, which would create some exciting buying as well as selling opportunities. However, don’t forget that, “The more the state ‘plans’ the more difficult planning becomes for the individual” - that is for us investors, as Hayek suggested.

I wish all my readers a healthy and satisfying New Year.

Please remember and consider another two important observations by Friedrich von Hayek:
“Nobody with open eyes can any longer doubt that the danger to personal freedom comes chiefly from the left” and “Social justice rests on the hate towards those that enjoy a comfortable position, namely, upon envy.”

With kind regards
Yours sincerely
Marc Faber

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