"Dancing on the Titanic"

Sydney M. Williams

Thought of the Day

“Dancing on the Titanic”

October 24, 2011

“You can run, but you cannot hide.” I first heard that old saying almost forty years ago from an old friend, the actor Brian Dennehey. Reality ultimately triumphs over wishful thinking.

It is not uncommon to ignore unpleasant truths. Blanche DuBois, Tennessee Williams iconic character in A Streetcar Named Desire, imagined herself a southern belle, yet disappointment with a homosexual husband (and his suicide) sent her, an aging and fading beauty, into the arms of multiple men. As it relates to German citizens in the 1930s the question of reality versus fiction has been discussed ad nauseum. Why did so many ordinary people choose to ignore and excuse the persistent disappearance of their Jewish neighbors, and why were so many willing to accept a Socialist state that gradually dispensed with their individual freedoms? Thomas Paine answered those questions in his pamphlet, “Common Sense”: “It is natural for man to indulge in the illusion of hope. We are apt to shut our eyes against a painful truth, and listen to the song of that siren till she transforms us into beasts.” Psychiatrists refer to this phenomenon as delusional.

This tendency to ignore reality despite – to stay with the Titanic metaphor – the iceberg dead ahead can be seen in both Europe and the United States today. Like ostriches, Europeans with heads in the sand fail to acknowledge the reality of a bankrupt Greece and the failure of the Euro. Seventy-nine cents on the dollar does not adequately discount the value of Greece’s debt. A single currency without full fiscal and political integration is impossible. Despite persistent last minute meetings, the unwillingness to give up national sovereignty will doom the experiment to failure .

Likewise, in the United States, promises to constituents, whether by government or by unions, are beyond the ability of the guarantor to keep. Promises were made, perhaps in good faith, but were based on unrealistic expectations and faulty math . For example, Michael Lewis writes in Boomerang of California spending $6 billion on fewer than 30,000 prison guards, while investing $4.7 billion in higher education for 670,000 students – a case of misplaced priorities and an obvious case of robbing the future to pay for today. The strikes in Greece and the Occupy Wall Street movement reflect the frustration people have in seeing dreams dashed, because reality has exposed the fraud of the promises. Greece is bankrupt; in the U.S. we have witnessed a few municipal bankruptcies. We can expect more strikes and bankruptcies. A University of Vienna employee told me last week of his recent encounter with reality. Historically, professors had been able to retire at 70 percent of their three best years. That is being changed to 40 percent of an average of their past ten years – a lower percentage of a lower base. In the West, we are experiencing the end of an era when all things seemed possible. Optimism will return, but it will have to be based on a more realistic version of markets and economies. No longer will we be able to hide behind promises based on faith, not reason.

Meredith Whitney has been ridiculed in the U.S. Press and by politicians for her call a year ago suggesting the pending bankruptcy of 100 municipal entities; yet the fault may be only that she was early, not wrong. The municipal market is a $3.7 trillion market. Thus far, in the present cycle, there have been four municipalities that have filed for bankruptcy – Jefferson County, Alabama; Harrisburg, Pennsylvania; Vallejo, California, and Central Falls, Rhode Island . Kicking the bucket down the road has proven to have been the most appealing course of action for politicians whose desire for reelection exceeds the more difficult one of doing what is right for their community. But the bucket is getting heavier and the road is coming to an end. Operating in one’s self interest is a legitimate aspect of free capital markets, but it does no good for society when it is practiced by those hired to serve the public – politicians; yet that is too often the case.

The current situation has been compared to the world-wide depression of the 1930s; so it was appropriate that this pending collision between fact and fiction was a subject discussed at a round-table I was fortunate to attend last week in Vienna. The symposium was sponsored by the Liberty Fund, Inc. (www.libertyfund.org), an organization based in Indianapolis dedicated to encouraging the study of the ideal of a society of free and responsible individuals. The conference was put on in conjunction with the Hayek Institute of Vienna (www.hayek-institut.at/). Friedrich Hayek, along with his mentor and teacher Ludwig von Mises, was the founder of the Austrian School of Economics. Simply put, it is their belief that economic freedom is prerequisite for all other freedoms, and that the interference of government to promote or to retard events can have unintended consequences. The School had its roots in the 19th century, but gained prominence in the 1920s and 1930s when much of the world turned to Socialism in response to the devastating consequences of World War I reparations, hyperinflation in Germany and an ensuing global depression.

Like inflation, Socialism is insidious, sneaking in on “little cat’s feet.” The early promises of Lenin and Stalin, and Hitler and Mussolini were as populist progressives. They needed someone to blame for the uncomfortable (and “unfair”) conditions in which they found themselves. With the aristocracy gone, they turned, not unlike those occupying Wall Street, to the monied classes, a euphemism, at that time, for the Jewish people. Around the world, “socially responsible” politicians have hopped aboard this train hoping it will lead, at least in the U.S., to reelection in 2012. The quickness with which they joined the “blame game” is disconcerting and makes the message of personal freedom, the focus of the Liberty Fund, more imperative than ever.

The search for someone to blame for one’s ills is endemic to the human condition. In Travels with Charlie, John Steinbeck wrote of how 1950s Americans found it easy to blame the Soviets for all our woes. Growing up in New Hampshire, when our neighbor’s cows weren’t milking it was somehow the fault of the “Russkies.” The Jewish people have been blamed for financial disruptions for centuries, thus the anti-Semitic signs carried by even a small number of ‘Occupy Wall Streeters’ are chilling reminders of a past some of us remember and all should never forget. Others want a redistribution of wealth, which implies a redistribution of power from the electorate to the state. There is no society in which equality of outcomes is a given. What protesters should demand is an equal access to opportunities – the promise of a democratic state. Over the decades the attractions of Socialism seduced both those on the left and the right. John Reed, a Harvard educated journalist and poet, along with thousands of other prominent Americans like Walter Lippmann, in the early 1930s fell for the lure of Soviet Communism. Anne Morrow Lindberg and Joseph Kennedy found their sympathies lying with Hitler’s Nazis in the late 1930s. The author, Sinclair Lewis in the 1930s, was worried enough to write of his fear that ordinary Americans might unwittingly accept a version of Nazi Socialism. In 1935, he wrote It Can’t Happen Here, which of course was why it could. When people become afraid they often become xenophobic; they look for someone to blame. When government endorses such behavior, risks accelerate.

The world is dynamic. No perfect system has been devised. Yet democracy, as Winston Churchill once said, remains the best governing system that man has yet devised. However, implicit in democracy is the fact that people must accept responsibility and they must recognize our unequal talents. Some are smarter; others are more athletic or better looking. Still others work harder, or have greater aspirations. But the yearning for freedom is universal. There is a need for a state to ensure that, via a basic education, opportunity remains a universal right and that equality under the law is preserved. The state provides protection from those who would do us harm. It must help the indigent, the elderly and those incapable of looking after themselves. It provides structure and aids in commerce. But government cannot guaranty equality of outcomes without depriving us of our individual rights, including the right to succeed or to fail. A people who become overly reliant on “Big Brother” are doomed to a poorer future – a fact the Greeks and the “occupiers of Wall Street” should consider.

In the meantime, governments in Europe and in America seem to be assuming that the iceberg in front of us is nothing more than a mirage, and that our luck will hold one more time. In times of distress, many look to government for sustenance, but that path is indeed a slippery slope. None of this is unknown to markets, as they have been flat to down for more than ten years. Nevertheless, prudence would suggest we know the location of the nearest lifeboat. And somebody, please turn down the music.