Meltdown

by Thomas Woods - published by Regnery Publishing, 2009

A Book Review by Father John McCloskey

Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse is a timely new book that does for macroeconomics what Henry Hazlitt did for microeconomics in his classic Economics in One Lesson. Its author, economic historian and best-selling writer Thomas Woods, is a Catholic convert with an undergraduate degree from Harvard and a doctorate in history from Columbia University.

To Woods and other faithful Catholics, it is becoming increasingly evident that the Obama administration is pursuing unprecedented growth in government not only to alleviate the current economic crisis (that Woods claims was caused by the government in the first place) but also as to put into place a hard-left anti-Catholic agenda on matters such as homosexual marriage, abortion, and government control of education and health care. In addition, by seeking to remove the conscience clause for health workers, the Obama administration may effectively shut down Catholic health care facilities and force believing Catholic staff out of secular hospitals.

We can no longer trust in the benevolence or even neutrality of the government. The old nostrum is particularly true here—"Whatever the government can do for you, it can do to you." Do we really want to become like Europe, an increasingly irreligious continent with an imploding population that within decades may be Islamicized? Indeed we seem headed for "The Servile State" that Hilaire Belloc foresaw in the early to mid 1900s, unless we put into place economic policy that realizes the key Catholic principle of subsidiarity and thus protects the person and the family that are linchpins of a healthy society.

Woods observes in the opening chapter that:

Since the fall of 2008, as the stock market plummeted, companies folded, and economic fear and uncertainty began to spread, Americans have been bombarded with a predictable and relentless refrain: the free-market economy has failed. The remedy? According to Barack Obama, the late Bush Administration, Republicans and Democrats in Congress, and the mainstream media, it's more regulation, more government intervention, more spending, more money creation, and more debt. To add insult to injury, the very people who devised the policies that produced the mess are now posing as the wise public servants who will show us the way out.

How better might our current economic collapse be handled? Woods points to the "forgotten" Depression of 1920 -1921, when the government did, well, almost nothing:

'In 1920–21,' says Benjamin Anderson, 'we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again…The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good.' The federal government did not run unbalanced budgets and prime the pump through increased expenditures. Rather, there prevailed the old-fashioned view that government should keep spending and taxation low and reduce the public debt.

This astringently laissez-faire solution reflects Woods' affiliation with the Austrian school of economics, which champions laissez-faire economic practice based largely on the extreme difficulty—amounting to a practical impossibility—of bureaucratic and centralized entities such as governments to successfully devise economic approaches and solutions, since they can never fully penetrate to the multitudinous sources of economic activity in individual human motivations and decisions. Thus the ungainly activities of governmental attempts to correct markets and regulate industries are at best doomed to failure and at worst likely to make things worse.

What is Woods' program to address the current crisis?

He proposes the following measures to escape "the phony, capital consuming kind of prosperity] that comes from artificial credit expansion or Keynesian 'stimulus'…"

1. Let firms go bankrupt. (A firm does not disappear when it declares bankruptcy. Its capital equipment and its assets continue to exist. But they pass out of hands of those who have failed to employ them in ways that best satisfy the public and into the hands of those more likely to do a capable job.)

2. Abolish Fannie and Freddie Mac. (Government engineering promoting home ownerships to those could not afford them has been one of the major causes of the current deep downturn.)

3. Stop the bailouts and cut government spending. (Subsidizing the inefficient corporations only prolongs their death agony and using taxpayers' money to do so is immoral. (Out-of-control spending only produces higher prices, taxes, borrowing and passes on the debt to future generations.)

4. End government manipulation of money. (Is a system that has caused the dollar to lose 95 percent of its value really the best of all possible systems?)

5. Put the Fed on the table. (The Fed is responsible for elevating moral hazard into a permanent feature of banking.)

6. End the monopoly money. (Some people have called for a return to the gold standard to replace fiat money, or even "privatize money." Maintaining a stable currency without a commodity standard is like maintaining morality with shifting Ten Commandments.)

In the seven chapters of his well-documented and footnoted book, Woods explains in detail why he favors the above reforms and more.

We shall see in the years ahead whether the Keynesian nostrums proffered by Bush/Obama for economic recovery "work." History and common sense tell us they won't. Therein lies an opportunity to return to the economic wisdom of the Founding Fathers and the Constitution. As Dr. Woods said recently:

People are ready to listen to reasonable, previously neglected ideas, especially if the people who hold them managed to predict the current crisis – as indeed the economists of the Austrian School did. It's up to us to bring them these ideas.

Mission accomplished in this essential book. Take time to read it and argue with it. Woods is a powerful persuader.

First appeared in Catholic Exchange on July 24, 2009.