Last night was obviously Snowmaggedon, and I hope everyone is staying safe out there as some of the roads are still nasty. The previous night, Wednesday, we hosted the second Show-Me Institute Saint Louis Book Club meeting of the year. We discussed the classic The Road to Serfdom, by Friedrich Hayek. The central theme of the book is that fascism is a natural outgrowth of socialist central planning. Hayek’s desperate wish was to warn the western nations, especially England and the U.S., not to pursue the path of central planning. Hayek believed that a descent into fascism was more likely than it seemed to his audience: the citizens of non-fascist western nations in 1944.

But all that just makes the book sound like a dated warning against something no one really advocates anymore, right? Well, the book has staying power because of two timeless features which are perhaps separate sides of the same coin: Hayek explains why the price system not only works, but is the best system possible for maximizing individual welfare while also making a strong case for individual liberty and limited government, which Hayek calls (using the connotation of his time), liberalism.

It was a wonderful meeting and a rousing discussion. Book club meetings start at 7 p.m. and usually wrap up about 8:30 or 9 p.m. But Wednesday’s meeting did not end until shortly after 9:30 p.m. — we all had so much to discuss. Here are some of the topics and ideas we discussed:

• Whether a person’s concept of what is possible constrains their action.
• The important distinction between freedom and power: what it is and why it is important that they not be confused.
• This wonderful quote from Adam Smith (introduced roughly by Hayek): “[the regimentation of economic life puts governments in a position where] to support themselves they are obliged to be oppressive and tyrannical.”
• Where Hayek drew the line on the proper role of government and how that might undermine his overall message of liberty.
• Whether market competition is inherently violent (hint: it is not).
• Whether a legal system is necessary for competition, and David Friedman’s “the discipline of constant dealings.”
• The contradiction and ugliness of “competitive socialism.”
• An extended interlude about “Little House on the Prairie.”

The reading for next month is The Machinery of Freedom, by David Friedman, another classic. Friedman is an economics and law professor with a Ph.D. in physics, and the son of free-market titan Milton Friedman. From the Amazon description: “This book argues the case for a society organized by private property, individual rights, and voluntary co-operation, with little or no government.” I am looking forward to some excellent discussion on this one at our March meeting, so please join us if you can (date of meeting to be announced, check here).

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Our discussion started with introductions around the table. Among our 10 attendees, some have been attending book club regularly for years, some have come in the past and had not attended in a while, and one person had never attended. Former Show-Me Institute intern Mary Chism gave a synopsis of the story for the few people who had not read it. Next, I gave a brief summary of the history of intellectuals’ views on the concept of value, from Aristotle’s “value for use”/”value for exchange” dichotomy, to the Labor Theory of Value, to the modern marginalist conception of value, attributable to Alfred Marshall.

We then started addressing the discussion questions I had prepared in advance (with Mary’s help). Leading from those questions, here are some of the topics we discussed:

• Whether anything can be exchanged for anything else
• The how and why of international currency exchange
• Government policy relating to the supply of money and exchange rates
• Whether sweatshop laborers, especially children, are making a free choice to work where they do
• The opportunity cost of reckless behavior
• Risk aversion and diminishing marginal utility of income
• A question from one attendee: “When a participant in a market has more resources, how does that affect that party’s ability to make beneficial exchanges?”

Some topics were discussed on an introductory level and others on a very high level. Many questions were asked and much knowledge shared. In addition to the lively discussion of economics and such, we talked about what our next reading selection should be and when we should meet again. The respective decisions were Hayek’s “The Road to Serfdom” and Wed., Feb. 20. If you are interested in the book or related topics, stop by our office at 7 p.m. on that evening for pizza, soda, and interesting discussion. See ya there!

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If you are not in the happy position of earning at least slightly more than you spend, what portion of your household budget comes from borrowing, or selling the family silver? Is it the seemingly modest 3 percent that spelt M-I-S-E-R-Y for Dickens’ character, who wound up in debtors’ prison? Or is it even worse than that? Say, a mind-boggling 43 percent? In percentage terms, that is the expected shortfall between U.S. government receipts and expenditures in the 2011 federal budget.

According to revised numbers released last week, the Barack Obama administration expects its annual revenues for fiscal 2011 to come in at $2.173 trillion, versus annual expenditures of $3.818 trillion. That leaves a deficit of $1.645 trillion. As a result, our government will have to borrow (or find other ways to paper over) 43 cents out of every dollar that it intends to spend.

The Obama administration has more than tripled the national deficit since the last full year of the George W. Bush administration. In doing so, it has achieved a remarkable feat: It has made the gap between federal receipts and outlays even wider than it was at the height of World War II.

U.S. spending during the war increased by a factor of eight, rising from $8.5 billion in 1940 to $70.6 billion in 1945. The huge increase in federal expenditures happened for many reasons. Among other things, it supported the 12 million men and women serving in the U.S. armed forces at the peak of the war. It also supported a hundredfold increase in annual production of military airplanes, on the way to annual production of more than 96,000 fighters, bombers, and transport aircraft in 1944.

To raise additional revenues during the war, the government came up with the ingenious device of a withholding tax on payroll checks. Federal tax receipts rose from $8.2 billion in 1940 to $41.5 billion in 1945 — a fivefold increase. That left an annual deficit in 1945 of $29.1 billion, or 41 percent, on total expenditures of $70.6 billion.

Thus, during the greatest war in human history, the United States — supplying not just its own forces, but those of Britain and Russia — had a budget deficit two percentage points below the gap that now looms for fiscal 2011.

When a nation is at war against a deadly enemy, many people accept that the government will demand sacrifices on the part of citizens. During World War II, this included not just increased taxes, but rationing, price controls, conscription, and other limitations on individual freedom. As Nobel laureate economist F.A. Hayek wrote in The Road to Serfdom, “The only exception to the rule that a free society must not be subjected to a single purpose is war and other temporary disasters when subordination of almost everything to the immediate and pressing need is the price at which we preserve our freedom in the long run.”

Does the Obama administration live up to Hayek’s test? I believe not. The all-encompassing unity of national purpose of which Hayek spoke disappears under all but the gravest and most immediate peril.

Federal spending will reach an estimated 25.3 percent of gross domestic product in fiscal 2011, up almost five percentage points since 2008. To what end? Far from kick starting the economy, the government’s heavy reliance on deficit spending has only served to expand an already bloated public sector and to constrict the private sector. This is, indeed, the road to serfdom.

Andrew B. Wilson is senior editor at the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.

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If you think I’m exaggerating about the call in this piece for pure economic central planning, enjoy these snippets (emphasis added):

Imagine if incentives were given to entrepreneurs in Missouri to renew an industry that previously was key to our state: manufacturing shoes. These new companies would provide jobs, ones that are conveniently commensurate with the skill levels of many workers. These companies would also re-establish the proper balance between the manufacturing and service sectors of our economy. It is true that stimulating manufacturing in our country will mean higher prices, but given a choice between a full-employment economy or Wal-Mart prices for everyone, I suggest that we put people to work.

Or how about:

Ultimately the government will have to be the “employer of last resort” in finding jobs for the 14.5 million Americans out of work. However, whenever possible, we should allocate new job opportunities to start-up businesses. Government contracts are key to helping small businesses create jobs.

Fortunately, there was a book written about 70 years ago that demolishes all this bunk beautifully. I am willing to bet the author of the op-ed has never read it. Although some have been criticized for citing The Road to Serfdom by economist F.A. Hayek too broadly, there is no doubt it applies perfectly here. We can have an economy determined by markets or arranged by planners. It is amazing to me that there are serious people out there who still pine for the planners.

P.S. — The comments in the Beacon article are just as bad as the op-ed.

P.P.S. — The guy I linked to who criticized Tea Partiers, Glenn Beck, etc., for referencing the book without understanding it does not really understand it himself.

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