Doug Casey: How the U.S. governmentThe Daily Crux: Doug, one of the consequences of the financial crisis has been increased politicization in this country. Whether it's housing prices, unemployment, the debt ceiling, or the stock market, it seems the average American – Democrat or Republican – is now looking to his or her party to "fix" the problems "created" by the other.
will wipe out our debt... and destroy the dollar
will wipe out our debt... and destroy the dollar
As one of the most ardent free-market capitalists we know, can you give us a good dose of reason? Why is it a mistake to look to politics – to government – to solve our problems?
Doug Casey: Looking to politicians to solve our problems is both dangerous and delusional. In point of fact, there are really only two ways you can relate with other people... voluntarily or coercively. But politics is all about coercion. As Mao Tse-tung – who was certainly one of the leading experts on the subject – said, "Political power grows out of the barrel of a gun." You may not realize it, but if you believe in political solutions, what you're really saying is that you believe in coercing your fellow humans.
Almost all the problems we have in the world today were generated by politics... by the state or the instrumentality of government. So looking for political solutions is wrong-headed... the government is the problem, not the solution.
It's not going to do any good replacing the current, terrible group of politicians with another new group of politicians, because politics inevitably draws people that are interested in controlling other people. That's why they want to be politicians. It inevitably draws the kind of people that believe in using coercion to solve problems. Government attracts sociopaths the way an open bar attracts alcoholics.
The institution itself is corrupt. Entirely apart from that, government bureaucracies are now totally out of control. Their primary mandate – their reason for existing – is to grow. They're cancerous, but they can't be easily excised. So I don't see that there's any political solution possible at this point. Unfortunately, the average American now looks to the government as the solution to all his problems. He sees it as a magic cornucopia that can – and should – create jobs and prosperity. The fact is, it can't do these things. The government is actually a gigantic fiction where everybody tries to live at the expense of everybody else.
And supporting the Republicans as opposed to the Democrats is naive. The only real difference between the two parties is that at least the Democrats are intellectually honest. They believe in collectivism, they believe in stealing from the producers and giving it to the non-producers – and they come out and say it. They're very overt about believing in big government and the welfare state. The Republicans, on the other hand, say they don't believe in big government and the welfare state. Of course, this is totally untrue, as shown by the fact that spending has risen as fast or faster under Republican administrations as it has under Democratic administrations. That's why the Republicans are actually more dangerous than the Democrats. They sometimes convince people of good will that they believe in such things as capitalism and free markets. They only give capitalism and free markets a bad name. Crux: Let's talk about some of the specific political "fixes" being proposed by the two parties. Democrats often hold up FDR's "New Deal" as an example of how government can lower unemployment and revive the economy. What's wrong with these ideas? Why would a giant government jobs and spending program be a mistake today? Casey: Well, as we move deeper into the Greater Depression, people are increasingly looking to the last depression for causes and solutions to our problems. FDR is promoted as a great hero who "saved the free market from itself," while Herbert Hoover is said to be a free market ideologue. Both of these notions are utter lies. Completely contrary to popular opinion, there were no significant philosophical differences between Hoover and Roosevelt. Hoover had just been elected to office when the economy experienced the dramatic collapse from '29 to '33. In response, he promoted a wide variety of government intervention. Hoover was a self-described "progressive" who frequently denounced laissez-faire, signed the Smoot-Hawley Tariff, raised the maximum income tax from 25% to 63%, created the RFC, and promoted public-private "partnerships," among other things. Hoover was a disaster, but for the opposite of the reasons most people believe. Roosevelt appeared to succeed partly because he was a skilled PR guy – he was a much better public speaker and had a more sympathetic persona than Hoover did – but mainly because he had the extraordinary good luck to be elected after the depression, and the markets hit a temporary bottom in 1933. Roosevelt was an even more enthusiastic collectivist than Hoover was... But both were destructive of capital and caused the depression to last much longer and be much deeper than it would otherwise have been. Crux: How about the common Republican proposals? They love to talk about small government and cutting taxes. But as you mentioned, the size and cost of the government have increased under both parties for decades. Republicans are obviously not shy about spending on the warfare state, either. And we often hear from members of both parties that the huge military spending of World War II was what finally ended the Great Depression. What do you have to say about these ideas?
Casey: First, the idea that World War II – which was the single greatest disaster of the entire 20th Century – solved the Great Depression is completely ridiculous. The Depression actually lasted from 1929 until 1946.
A good definition of a depression is "a period of time when most people's standard of living drops significantly." So whatever you want to say about World War II, you have to admit it didn't increase anybody's standard of living – rather, the opposite. The Depression didn't end in 1946 because of the immense destruction of the war. It ended because there was an immense amount of genuine savings – which is to say delayed consumption – in the United States. Capital was being built within the U.S. while it was being destroyed elsewhere in the world. So once the war ended, America alone had intact wealth.
That's why things got better... savings, the fact that armies hadn't destroyed everything here and – very importantly – even after the straight jacket FDR put us in, we were still by far the freest country in the world. But now, I'm sure the fools in Washington are going to try to do a repeat of everything that has failed before... And since the government is vastly more powerful now than it was in the 1930s and '40s, it's going to be a much worse and much longer-lasting depression. And yes, Republicans talk about tax cuts, but there is no such thing as cutting taxes unless you also cut government spending. The government is going to extract resources from society one way or another.
It can steal your resources directly through declared taxes, or indirectly by borrowing – which takes capital out of the market and burdens the next generation with debt – or inflating the currency, which is actually even worse. It all amounts to taxation, either overt or disguised.
The only solution is to cut government spending radically. And I don't mean by $2 trillion or $3 trillion dollars over 10 years, which is what they're talking about now. I'm talking about cutting government spending 50% or 75% – with an axe rather than a scalpel – and doing it now. That means, among other things, that Social Security has to be recognized as the Ponzi scheme that it is. Medicare and Medicaid have to be abolished. The military has to be cut by at least 50% – probably much more. And all the troops have to be brought home from the 100-plus countries where they're stationed. Most agencies – like the SEC, FDA, DEA, HUD, ATF, EPA, and OSHA – should be abolished, along with the Federal Reserve. The result would be a free society and an economic boom. Of course, it would be a painful readjustment for many people now slopping at the public trough. But if you don't do it, Americans are going to wake up to find their children and grandchildren working for the Chinese as maids and houseboys. Crux: So there are no political solutions to our problems... And the two parties have more negative traits in common than not. Are there any reasons to vote in national elections at all? Would you vote for someone like Ron Paul? Casey: Well, to be blunt, most voters aren't very bright. Watch the Jerry Springer show or "Jersey Shore" if you want to see the average voter. Are they actually stupid? Let me define the word. It doesn't necessarily mean of low intelligence – a better definition here might be "an unwitting tendency toward self-destruction," or "showing an inability to relate cause and effect."
They don't understand that by voting against Tweedledee, they're just feeding power to Tweedledum. And he's just the same. I can certainly think of much better things to do with my time than allocate a full day to hanging around government offices to register and vote. As to Ron Paul, I support him as an educational, not a political, effort. And I support him as a human being. We're probably in 95% agreement philosophically. There are a few other decent guys out there, like Gary Johnson. But they're suffering from the same type of media blackout that Ron Paul is. I'm sad to say that even if Ron is elected, it's unlikely to do any good. The situation is almost beyond redemption. If Ron Paul did the radical things that need to be done – like the things I just mentioned, and I would add defaulting on the national debt to that list – average Americans, 50% of whom are net recipients of goods from the government, would go wild. But before that could even happen, Ron would likely get a visit from the heads of the DOD, NSA, CIA, FBI, and a half-dozen other lesser-known Praetorian-type agencies, telling him, "No, you're not going to do that. We're in charge here. And just because you've been elected to office doesn't mean you're going to upset the current order of things." The situation is completely out of control at this point. I think it's beyond redemption. Crux: So we're completely screwed? Casey: Well, the situation is hopeless, but it's not serious... Nobody gets out of here alive. We've lived through some very good times. The U.S. had a good, long party. But now, the party's over.
The U.S. government is spending $1.5 trillion a year more than it takes in. And as the economy comes out of the eye of the hurricane and goes back into the storm over the next year or so, that deficit is going to go to $2 trillion. Then, when interest rates inevitably begin rising from 2% to well over 10%, it's going to add trillions more dollars to the annual deficit and the national debt.
I suspect they may intend to wipe out U.S. government debt by destroying the dollar. Now that's good for the U.S. government in a way. But it will be very bad for the people who own dollars. And unfortunately, it's the prudent, hardworking people who try to save money that are going to be wiped out.
So the situation is gloomy from an economic point of view, from a political point of view, and also from a military point of view. Because when the going gets tough, the government always looks for somebody else to blame, preferably foreigners. Another problem with the U.S. right now is that we have this gigantic, completely unsustainable military. Apart from the fact it's bankrupting us, it's like having a gigantic hammer. Everything starts to look like a nail.
So of course they're going to use the military. Perversely, it's one of the few things that actually still works in this country. And they idiotically think a war can somehow bring about prosperity. So I think things are going to get much worse before they get better.
Crux: Do you see any positives on the horizon?
Casey: I really don't mean to scare folks by saying these gloomy things. Yes, things are very grim, but there is also good news... And it's very good news. I see the Greater Depression as being, in the long run, just a stumbling block in the ascent of man for two primary reasons.
One, there will always be a good number of individuals who produce more than they consume and save the difference. They'll do it because it's to their advantage, regardless of disincentives from the government. They want to increase their standard of living in the future. That will continue. Number two, technology is continuing to compound upon itself faster than ever. There are more scientists and engineers alive today than have lived in all of history combined. This is actually the mainspring of human progress. It means we can employ our capital more and more productively. Magic things will happen.
Who knows, maybe Ray Kurzweil is right... and the Singularity is right around the corner. You can't rule that out. So my advice is to take the necessary steps to protect yourself now, so you can ride out the storm in safety until it passes... And so you'll be in a position to buy at the bottom in the years ahead. Crux: Thanks so much for talking with us Doug. Casey: My pleasure. Thanks for having me.