Today it was announced that Kenneth Feinberg, the Treasury Department’s special master for compensation, “will slash compensation for the 25 highest-paid employees at seven firms receiving large sums of government aid.” In a free-society, there is no room for a “compensation czar;” the problem will be gone instantly when the aid is eliminated.
In his classic book The State, the German sociologist Franz Oppenheimer taught there are two means to wealth: economics and political. In his inimitable blunt style Murray Rothbard sums up the difference between the two:
There are only two ways for men to acquire wealth. The first method is by producing a good or a service and voluntarily exchanging that good for the product of somebody else. This is the method of exchange, the method of the free market; it’s creative and expands production; it is not a zero-sum game because production expands and both parties to the exchange benefit. Oppenheimer called this method the “economic means” for the acquisition of wealth.
The second method is seizing another person’s property without his consent, i.e., by robbery, exploitation, looting. When you seize someone’s property without his consent, then you are benefiting at his expense, at the expense of the producer; here is truly a zero-sum “game”–not much of a “game,” by the way, from the point of view of the victim. Instead of expanding production, this method of robbery clearly hobbles and restricts production. So in addition to being immoral while peaceful exchange is moral, the method of robbery hobbles production because it is parasitic upon the effort of the producers.
With brilliant astuteness, Oppenheimer called this method of obtaining wealth “the political means.” And then he went on to define the state, or government, as “the organization of the political means,” i.e., the regularization, legitimation, and permanent establishment of the political means for the acquisition of wealth.
In other words, the state is organized theft, organized robbery, organized exploitation. And this essential nature of the state is highlighted by the fact that the state ever rests upon the crucial instrument of taxation.
What good is a theory if it is not applied? I don’t know if Max Keiser has ever read Oppenheimer or Rothbard, but listen to Keiser as he colorfully explains the differences between firms like Google who earn their wealth through production and the banking industry who he explains has obtained its wealth through theft.
Is this mere hyperbole on Keiser’s part? While I can’t say, as Keiser does, that accounting fraud is currently being committed by the banks, I can say that the bonuses being paid would not be paid on a free market. These bonuses are being financed, in part, by direct transfer of taxpayer’s money and by record low interest rates that indirectly transfer resources from productive savers into the hands of banks and debtors. The latter is a direct consequence of Federal Reserve policy.
For many, Keiser’s words create cognitive dissonance; and cognitive dissonance may cause an instant rejection of his message. Cognitive dissonance “is an uncomfortable feeling caused by holding two contradictory ideas simultaneously.” Dissonance, according to psychologist Carol Tavris, “produces mental discomfort, ranging from minor pains to deep anguish; people don’t rest easy until they find a way to reduce it.” After all, aren’t our government officials looking out for our well-being? Surely they are more concerned about the well-being of all Americans than they are concerned about the bankers? If you believe the answer is “yes” to both questions, then Keiser’s message will produce dissonance in you. Yet, the facts suggest Keiser is more right than wrong:
- “An analysis of Mr. Geithner’s calendars…shows that Mr. Geithner had contact with top executives at Citigroup, Goldman Sachs and JPMorgan Chase more than 80 times during his first seven months at Treasury.” Source here.
- “Goldman Sachs posted near record trading profits in the third quarter of 2009. The projected 2009 Goldman Sachs bonus pool will be around $20 billion, a near record amount. Therefore the average pay out per employee could be more than the $661,490.” Source here.
- “As a whole financial firms “accounting for more $350 billion in federal bailout funds, increased these perks and benefits 4 percent on average last year, according to an analysis of corporate disclosures filed in recent months.” Source here.
Without government bailouts, these result would not have been possible—failing firms do not pay bonuses.
None of this is to say that officials like Treasury Secretary Geithner are evil individuals who are consciously trying to undermine the American economy. Instead, perhaps Geithner has his own form of cognitive dissonance as he tries to internally justify his behavior. He may begin with a truth that a healthy banking system is essential to the American economy; and then, he may resolve his dissonance by adding the false premise that JPMorgan, Chase, Citibank, etc. are essential to a healthy banking system.
Nothing could be further from the truth. The financial institutions that are being subsidized took reckless risks. The economy cannot have a sustained recovery until those firms which made bad loans and who can not survive without government assistance are liquidated. Nothing in the conduct of these financial institutions suggests that they have reformed. They will continue to seek the political means to wealth; and like a drug addict who would destroy his family before giving up his habit, they and their government enablers will do the same to America. And when they are through, they will relieve their cognitive dissonance by chanting the big lie—there was nothing else we could have done.