“Beyond a certain limit, military spending constitutes the classic example of parasitic growth.”- Thomas E. Woods, JR.
Thomas E. Woods, Jr.; Rollback: Repealing Big Government Before the Coming Fiscal Collapse; Regnery Publishing, Inc. (2011)
In Rollback, Thomas Woods provides a thoughtful, clearly written wake-up call. The breadth of the topic is a bit ambitious, particularly for such a portable read, but Woods provides numerous, wide-ranging examples that will lead readers to reconsider some of their assumptions and expectations. At times, one might be left a bit confused whether Woods thinks government fiscal collapse is inevitable, or if we still have time to forestall that collapse by ‘repealing big government.’ Either way, however, he leaves no doubt he believes we have large-scale upheaval ahead of us, and that the architecture of much of our federal as well as state government faces a forced and forceful diet.
Woods is a fellow at the Ludwig von Mises Institute. The Mises Institute was founded in 1982 by Lew Rockwell, former chief of staff for Rep. Ron Paul of Texas. The Institute has been a center for academic scholars dedicated to the principles of the “Austrian School” of economics as well as classical liberalism more generally. The Austrian school is so named due to the influence and collaboration of founding members like Friedrich Hayek, Ludwig von Mises, and Carl Menger. In the United States, Murray Rothbard became one of the leading Austrian voices, which rejected much of the mathematical and statistical foundations of mainstream economics and their application in government economic programs. The Austrian school stands out for its dedication to free markets and a sharply curtailed role for government in society, and Woods’s Rollback clearly reflects this perspective.
Woods opens Rollback with two neat quotes, including a long running truth from a Roman senator and historian named Tacitus – “The more corrupt the state, the more numerous the laws.” This idea is fleshed out most explicitly in Rollback’s Chapter 6, “The Myth of Good Government,” where Woods looks carefully at the asserted justifications and politically practical sources of demand for a variety of government programs and extensive regulatory practices. One common thread to those examples is the notion of regulatory capture, where regulation is sought out and developed by the industries being regulated, at the expense of consumers and the common good.
But the fiscal challenges we face arise from a broader set of political influences, including general public laziness and acquiescence in programs based, in Woods’ eyes, on fiscally unsustainable promises. He takes a closer look at Medicare and Social Security, and depicts demographic icebergs likely to sink the ship.
Some fun facts from Rollback’s opening chapter include:
A May 2010 poll found that an incredible 85% of graduating college students planned to move back in with their parents after graduation, facing an average of $23,000 in debt before they even start working.
Many states are ‘going bust;’ seven states likely to see their pension systems fail by 2020, and thirteen more by 2025.
Dozens of cities are contemplating bankruptcy.
Washington D.C. has seen demand for new homes rise faster than another other large American city, and it also has the highest median household income of any of the 25 largest metropolitan areas.
This last item is related to Wood’s opening quote about ‘the more corrupt the state, the more numerous its laws.’ Included along with the 50 states, Washington D.C. has by far the highest income per capita, and it also has by far the largest numbers of lawyers per capita. When you want to get cynical, one way to think about DC is as a factory full of lawyers and lobbyists, who make laws and programs enriching their clients and themselves at the expense of the rest of us.
In Chapter 2, Woods turns to Barack Obama and the “Change We Can Believe In,” finding not much change nor little to believe in, particularly in the new Administration’s health care programs. The chapter’s strongest and most interesting elements, however, deal with the stimulus programs for the weak economy, their pork-barrel origins, and their unseen costs that can actually retard recovery.
From there, Woods broadens his perspective to a general review of the role of government in economic crisis, with particular reference to the origins and solutions developed for our Great Recession in recent years. Woods provides a careful review of housing market finance and the consequences of government programs like Fannie Mae and Freddie Mac, and their interplay with monetary policy of the Federal Reserve.
Woods and others have strong words, in hindsight, for what they assert were artificially low interest rates arising from Fed monetary policy in 2002-2006 as seeding the recent housing crisis. This perspective may be a little too easy, in hindsight, and it can also deflect attention from other worthy sources of investigation into regulator behavior, including the Fed’s outsourcing of capital and other financial regulations to the anointed set of credit rating agencies. This proved a critical point of failure, Fed advertising that it promotes financial stability to the contrary. But to his credit, Woods at least notes the credit rating interaction with capital regulation problem. And those that think the effective repeal of the Glass-Steagall separation of commercial and investment banking in the Gramm-Leach-Bliley Act of 1999 was a central element of our latest meltdown would do well to look at Woods’ argument here. It wasn’t the repeal of Glass-Steagall, for example, that allowed banks to invest so heavily in well-rated but disastrous mortgage-backed securities. They were allowed to do so before the Glass-Steagall repeal, as well.
Woods has harsh words for the financial regulators and their claims to expertise and foresight before our latest crisis. In turn, more and better regulation, the argument goes, is not the solution for our financial system down the road. Fewer public guarantees and government programs could be a better route. Along these lines, Woods cites economist and historian Robert Higgs, who has said of the regulators: Read more
I was overseas during the most intense stage of the 2008 US Presidential Election; thankfully. However, I was not completely spared from this ludicrous ‘politics the American way’ even outside the country- think CNN international, think Wall Street international edition … basically think the inability to escape it all thanks to the globalization of the news, more like Americanization of the global news. The around the clock coverage of elections a la USA was booming in the background, more like foreground, of every single international (Western) hotel and resort, tourist hangout cafes and bars, and airport lounges. And I heard many comments from ‘outsiders’ on the ridiculously long, expensive, and show-like phony distraction called Presidential Election USA. Of course, deservedly, many of those comments were ‘snarly.’ Some were plain witty and truthfully hilarious-muckraking a la Brits. 
