Since the summer of 2008, the U.S. Treasury and the Fed have initiated a welter of new spending, lending, and subsidizing programs ostensibly aimed at steming the recession that began early in that year and deepened quickly in its last quarter and in the first quarter of 2009. Among the most notable of these programs have been attempts to prop up the real estate market and the residential construction industry, where the Fed’s easy-money policies in the first half of the present decade induced lenders to make millions of mortgage loans to home buyers who would not have qualified for such loans if traditional underwriting standards had been applied.

During the housing bubble, however, with congressional backers goading Fanny Mae, Freddie Mac, and other lenders, caution was thrown to the wind, and loans were extended to home buyers who had little more than a pulse as a qualification. People who believed that real estate prices would never fall did not worry much about the great volume of dicy credit being extended to house buyers – for the moment everybody seemed to be getting rich effortlessly with little or no risk. However, people who believed that real estate prices would never fall were fools, and when the Fed began to back away from its easy-money policy and interest rates began to rise, real estate prices began to fall, mortgage delinquencies and foreclosures began to rise, and before long the entire house of cards began to collapse: house prices dropped drastically, as did the pyramid of financial derivatives built atop the mountain of mortgage loans, and in quick succession some of the world’s largest banks and other financial-services companies went belly up. Some, including Fannie, Freddie, and AIG, were taken over by the government or the Fed; hundreds of others were bailed out, at least for the time being.

A sensible person, surveying all of this wreakage and pondering how such a debacle might be avoided in the future, certainly would have concluded that the government should cease and desist from artifically spurring the real estate market by subverting traditional underwriting standards for mortgage loans. Those standards include, for example, a substantial down payment, usually 20 percent, and well-documented sources of income sufficient to permit the buyer to service the loan, usually a steady job or substantial assets.

During the crisis since mid-2008, however, the government has not done what a sensible person would have concluded it should do. Indeed, it has done the opposite. Rather than terminating the government policies that had encouraged the foolish behavior of real estate buyers, sellers, and lenders – foolishness that lay at the heart of the artificial boom that went bust during the past two years – the government has undertaken to continue and even to compound the selfsame policies that in large part caused our present economic troubles. For example, Fannie and Freddie, now effectively government owned and operated firms, continue to extend loans as if promising borrowers were superabundant.

Moreover, the Federal Housing Administration, a government agency created in 1934 to insure conventional mortgage loans, has greatly expanded the volume of its business, and according to a recent report in the New York Times, the FHA “is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling.” The Mortgage Bankers Association affirmed on November 19 that “more than one in six F.H.A. borrowers was behind on payments.” The FHA has backed 37 percent of all residential mortage loans made in 2009. Reporter Patrice Hill observes that “these loans are exposing taxpayers to the same kinds of soaring default rates and losses that brought down Fannie Mae and Freddie Mac as well as destroyed many banks and the private market for mortgage loans.”

The government is not resting content, however, with taking over the mortgage-loan business and making a multitude of rotten loans. Hill reports:

The FHA’s predominance was enhanced further this year when Congress lifted the ceiling to more than $729,000 for major urban areas and passed an $8,000 tax credit for first-time homebuyers that can be accelerated for borrowers to use as a down payment on FHA loans and avoid any cash commitment to their home purchases.

While these changes were intended to be temporary and expire by the end of the year, given the fragility of the housing and mortgage markets, Congress is considered likely to extend them this fall.

The significant expansion and liberalization of FHA’s loan programs is enabling Americans to go back to many of the same bad credit practices that analysts say were at the root of the housing crisis, likely feeding further waves of default and foreclosure. But this time it is the taxpayer — not the banks — who could end up holding the bag.

Whitney Tilson, manager of investment firm T2 Partners LLC and author of “More Mortgage Meltdown: 6 Ways to Profit in These Bad Times,” called “cataclysmic” the surging default rates of more than 30 percent on loans insured since 2006 by the FHA. That is not far below the 40 percent rate of default and foreclosure on the notorious subprime loans that ignited the credit crisis.

“The FHA’s portfolio is exploding and the taxpayer is now on the hook for 100 percent of the losses,” he said.

“I find it hard to distinguish between the actions of FHA and the self-denominated subprime lenders,” said Edward Pinto, a former chief credit officer at Fannie Mae who recently testified before a House panel on FHA’s growing default problems. “The results are the same — unsustainable loans that prolong and perpetuate our nightmare of foreclosures.”

Mr. Pinto estimates that 20 percent of the FHA’s entire portfolio of $725 billion mortgages will end up in foreclosure — a rate recently borne out by estimates FHA provided to Congress. He predicts that the agency will require a taxpayer bailout within two to three years.

One reason defaults are soaring is that the agency is attracting nearly all of the business of homebuyers who haven’t saved enough to make down payments, he said. Loans with little or no down payments have high rates of default because the borrowers have little financial stake in losing their homes to foreclosure.

The agency requires a minimal 3.5 percent down payment — far below the 20 percent now required by private lenders. That’s very little “skin in the game,” especially in today’s market where the buyer’s equity can be quickly wiped out, Mr. Pinto said. Home prices have fallen an average of 30 percent nationwide.

Many borrowers have been able to avoid even that minimal level of personal investment in their homes. The government is enabling these buyers to put up no cash at all by allowing them to get advanced payments of the $8,000 homebuyers tax credit through arrangements with nonprofit housing groups and state housing agencies. The tax credit can be used the same way to pay closing costs.

Beyond the loosened standards on down payments, the FHA remains willing to make loans to people with low credit ratings, even those with histories of default, foreclosure or bankruptcy. Those with histories of default are far more likely to default again.

Naturally, anything this horrendous in housing-finance policy has a high probability of being backed by Representative Barney Frank and his congressional partners in crime, who continue to conspire with the”affordable housing” coalition as if the present debacle had not plainly revealed the destructive consequences of such policies. At present, 14.4 percent of residential mortgages are delinquent or in foreclosure – an all-time high – and the percentage continues to rise, notwithstanding the government’s commitment of some $50 billion in TARP funds for its Housing Affordability Stability Plan, which seeks to modify and refinance home loans. In this area, as in the labor market, things will probably get much worse before they begin to get better.

To listen to our glorious leaders discuss such matters is to realize that they have no real understanding of what they are dealing with. They see the collapse of an artificially stimulated house-construction industry, and they conclude: the government must subsidize more house construction. They see the collapse of real estate prices, and they conclude: the government must stimulate demand for real estate in order to raise its price. Thus, they demonstrate that they have no comprehension of the structural logic of economic activity. By this expression I mean that, contrary to the way of thinking advocated and formalized in modern macroeconomics, in which an addition to GDP is an addition to GDP, and all such additions are equally apt and good, the sound economist understands that the nation’s economic activity consists of millions of distinct inputs and outputs, and these elements must assume a particular configuration, or structure, if the whole process is to achieve generally beneficial results for its participants.

No one knows (and no one can know) precisely what this structure should be at any particular time, but if people are left alone to exchange their private property rights as they think best, they will make bids and offers that establish market prices for inputs and outputs, and these prices (and the profits and losses associated with them) will set in motion the reallocations of inputs and the alterations of outputs that allow demanders and suppliers to coordinate the changes in their actions that must be made if they are to pursue their objectives successfully. If policy makers ignore or work against this vastly complex, dynamic process of constantly changing prices, input uses, and output production, the result will be a mass of malinvestments and distortions in input use and output production — a veritable economic monstrosity.

When this twisted creation proves incapable of living and breathing and breaks down in agonizing spasms of business losses, bankruptcies, and unemployed labor, the preeminent need is for a restructuring of the economic process: industries and locations mistakenly stimulated by bad policies must shrink; and industries and locations previously starved for inputs must receive them, as investors and workers abandon the enterprises now revealed as losers and seek opportunities elsewhere for more profitable employment of their resources. Cutting short this process of liquidation and redirection by implementing more of the same distortive policies that created the mess in the first place only insures that the restructuring will take longer and be more painful.

To be more specific about the case at hand, the government’s bad monetary policy and bad housing-finance policies earlier in this decade created house prices that were too high and securities based on the returns to mortgage loans (and their derivatives) that were overvalued. To repair this situation, house prices, security valuations, and corporate share prices driven skyward in the government-stimulated frenzy need to come down, in many cases down so far that bankruptcies, unemployment, and substantially reduced wages will occur in the process. Simply piling on more and more of the same distortive policies that generated the crisis in the first place can, at best, only delay the day of reckoning while magnifying the adjustments that ultimately will have to occur. For Fannie, Freddie, and the FHA to pile more bad real estate loans atop the mountain of such bad loans extended between 2002 and 2006 is the height of folly, a virtual apotheosis of a policy of living for today at the expense of our future prosperity.

To repeat unsolicited advice I have given since the beginning of this crisis, I maintain that the best thing the government can do now is to get out of the way: abandon the bad monetary and housing-finance policies conducted in recent years and let the economic process sort itself out through market processes. The claim that without the government’s vast interventions the economy will sink into oblivion is nothing but another fallacy that no sound economist will countenance. This economy and others, when markets were allowed to function without government interference, worked splendidly for a long time before John Maynard Keynes ever achieved his ill-deserved status as the über-architect of macroeconomic salvation. It can work well again if the politicians will stand down – and the people will recognize the wisdom of this laissez-faire course and cease their clamor for salvation via Washington at someone else’s expense.

In a recent commentary titled “Diagnostics and Therapeutics in Political Economy,” I endeavored to show that an analytical understanding of past growth in the government’s size, scope, and power does not permit us to prescribe effective means of stopping or slowing this growth, particularly any simple “silver bullet” remedy, and I specifically disclaimed any personal knowledge of “what is to be done” toward this end. Responses to this commentary, some of them from keenly intelligent friends of mine who insist that diagnostics and therapeutics must be firmly linked, lead me to believe that I did not make myself sufficiently clear.

One respondent wrote, “Higgs must be speaking with tongue in cheek, for a man of his intellect simply must have a few solutions at least.” Well, yes, on one level, I have many “solutions” to propose. The problem comes when we ponder why I’ve just put quotation marks around the word solutions. The reason pertains to the links that connect my understanding of why government has grown with measures that might be taken to stop or slow its ongoing growth.

My understanding of the process by which government has grown in the United States and many other countries since the late nineteenth century is not easy for me to summarize briefly. It involves (1) a structural-ideological-political process operating in a persistent manner to produce long-term trends, (2) a crisis-ideological-political process operating during a series of discrete episodes of “national emergency,” and (3) interactions between these two processes, which should not be understood as independent of one another, but as identifiable aspects of the single herky-jerky historical evolution ― sometimes regular, sometimes erratic ― of a politico-economic order. One upshot of this complex process might be seen if we were to examine a series of “snapshots” at, say, thirty-year intervals. Each snapshot would show us a society with a different composition of economic activities, production techniques, occupations, demographic attributes, and so forth, a different composition of ideological identifications, understandings, and loyalties, and a different configuration of political leanings, organizations, and institutions reflecting these structural and ideological differences. To oversimplify, we might say that the overall process creates ― usually gradually, but occasionally abruptly ― a changing set of “vested interests” among the population, but in this characterization we would have to interpret the idea of vested interests more broadly than usual, so that it includes not only people’s interests in pecuniary payoffs, but also their interests in ideological outcomes of various sorts. (My views in this area have been developed in a series of personal engagements [as a teacher, consultant in regulatory proceedings, and expert witness in legal proceedings] and in a series of research efforts, the most prominent results of which are reported in my books Crisis and Leviathan, Against Leviathan, Depression, War, and Cold War, and Neither Liberty Nor Safety, to which the reader is referred for a more detailed account of my views on this matter, among others.)

Now, with this rather desperately compressed vision of the complex process by which the government has grown as our background, let us return to my “solutions,” that is, to my proposals for stopping or slowing further growth of government. In doing so, however, we must recognize that political “solutions” that clash strongly with the currently prevailing array of vested interests (broadly construed) probably cannot be implemented. For me to suppose otherwise would be inconsistent, because doing so would be tantamount to rejection of my own interpretation of how those interests came into being in the course of the historical process just outlined. At least within somewhat flexible limits, a society’s socio-economic structure, ideological postures, and political institutions must cohere. At a particular point in time, many conceivable (and in my view desirable) political reforms are not feasible.

At the moment, many people are enamored of the solution that calls for abolition of the Federal Reserve System. I certainly agree that the Fed has played an integral (but not an indispensable) role in the growth of government in the United States since 1913. But once one has demanded “abolish the Fed” and subsequently found that it is still in operation, what does one do?

Various next steps might be suggested, such as sponsoring lecturers who explain how the Fed has adversely affected economic prosperity, peaceful international relations, and liberty. From time to time, I have myself given such lectures to audiences that ranged from ordinary Americans to social scientists to Latin American bankers, and, of course, many other speakers have presented similar lectures. All right, we’ve given our lectures, and the Fed is still operating, so what should we do next? Give more lectures, in an attempt to influence the thinking of more people? Or perhaps mount a political movement aimed at abolition of the Fed?

If one chooses the direct political option, where does one get the financing for it? Who will organize it? Who will lead it? What actions will it take? Will it try to place sympathetic candidates on the ballot for election to Congress? Will it attempt to influence sitting members of Congress by bribing them with campaign contributions or by threatening to recruit constituents to vote against them in the next election? My point is that once we select a specific means of stopping or slowing the government’s growth, an endless series of follow-up questions presents itself, as we encounter one problem after another, each of which must be solved successfully if we are to make headway.

No doubt the greatest obstacle of all to any such effort is that thousands of organizations are currently working, directly or indirectly, to promote further growth of government. A 2005 article in the Washington Post placed the number of registered lobbyists in Washington, D.C., at more than 34,750 and reported that their business was booming, creating “a gold rush on K Street.” Many of them have well-equipped offices, large capable staffs, including legions of lawyers, and established connections with incumbents in Congress, regulatory agencies, and other government offices, not to mention their friends on the courts. They also have millions upon millions of dollars to pour into their efforts to win friends and influence people, including the same mass electorate that an anti-Fed or other anti-government-growth political movement presumably seeks to influence. At this point in the historical process, anti-Fed proponents face a fabulously wealthy, tightly connected, deeply entrenched conglomeration of opponents who would sooner confine you, me, and all our friends and relatives at Guantanamo for nonstop torture than give up the Fed, which has long served, and continues to serve, their interests exceedingly well. So, yes, we can try to mount a political movement to abolish the Fed, but, given what we are up against, what chance of success do we really have? One in a thousand? One in a million?

Given this reality, if I offer as a “solution” to the ongoing growth of government that we abolish the Fed, my proposal solves nothing. It only raises a series of other difficult questions, each one of which leads to another and another and another. No political realist was surprised when, according to an October 30 Bloomberg report, “Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been ‘gutted’ while moving toward a possible vote in the Democratic-controlled House.” If the powers that be are not even willing to permit a vote on a bill with 308 co-sponsors aimed at making the Fed’s decision-making more transparent, does anyone really believe that those same powers would stand idly by while the Fed was abolished?

Nor is abolition of the Fed unique in this regard. One might propose abolition of any number of government departments or agencies - for example, the Department of Education, the Department of Energy, the Food and Drug Administration, the Securities and Exchange Commission, and countless other government bureaus - and find that in each instance one runs up against another fabulously wealthy, tightly connected, deeply entrenched conglomeration of opponents.

One might alternatively propose simply to reduce government spending across the board, without trying to reconfigure the government’s organization chart. The obstacles here, however, are if anything even greater, because thousands of powerful interest groups are currently seeking to increase government spending. Of course, each wants mainly an increase in the portion of government spending that enriches its own members, but the budgetary process has evolved, along with the committee structure of Congress, to facilitate a gigantic logroll, so that each year nearly every predatory interest group of any consequence tacitly agrees to refrain from blocking the other predators if they will refrain from blocking its own raid on the Treasury. Committee chairmen and ranking minority members are paid off as required to achieve this massive predation. Hillary Clinton used to complain about a “vast rightwing conspiracy,” but if one wants to see a genuine mega-conspiracy, one need look no further than the nexus of members of Congress and the thousands of well-organized and well-financed special-interest groups that support these politicians’ perpetual reelection in exchange for their direct or indirect channeling of almost unimaginably huge amounts of the public’s wealth into these special interests’ coffers.

So, yes, one might propose, say, a balanced-budget amendment to the Constitution ― indeed, by now this proposal is hoary with age. Political realists understand, however, that getting support for such an amendment is diabolically difficult, and, even if one were to be ratified, the members of Congress would simply install the appropriate smoke and mirrors to conceal their violation of this constitutional restraint, as they installed such circumventions on previous occasions to violate their own rules for spending restraint. Does anyone still recall the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act of 1985?

It appears, then, that among the critical difficulties of restraining the growth of government is the obvious fact that even when restraints are enacted into law, the government will not obey that law. Needless to say at this point, constitutional amendments are not worth the parchment on which they are inscribed. After all, the Constitution still contains the Ninth and Tenth Amendments. With those amendments and three or four bucks, you can get a latté at Starbucks.

I trust that by this point I need not belabor my point at greater length. To recapitulate: “solutions” to the ongoing growth of government are available for a dime a dozen. I have a bag full of them myself, and every one of them is utterly worthless as a means of achieving the ultimate goal. Every genuine solution must be carried through, and any serious solution will require enough people and money to carry out the activities necessary to bring it about. Marshalling people and money may in turn require ideological conversions on a substantial scale, which themselves may require a great many people and a great deal of money, if such conversions are possible at all, given the existing configuration of vested interests (broadly construed).

Moreover, another potent constraint always lurks in the background. Although we need not spend much time at present in dwelling on this issue, the fact remains that if any truly effective measures were approved to rein in the government, the rulers in all likelihood would resort to whatever legal or illegal violence proved necessary to prevent those measures from taking effect. Thus, I am quite sure, for example, that if Ron Paul were ever, by a miracle of miracles, to be elected president, he would not live to take the oath of office. Opponents of the government’s ongoing growth must bear in mind that we are dealing with violent, heavily armed, utterly unscrupulous people who, if pushed to the brink, will stop at nothing to retain their power and privileges.

I welcome anyone’s proposed “solutions” to the ongoing growth of government, and I wish all such proposals success, however much I doubt the likelihood of their success. I do not believe, though, that a substantial prospect of success is necessary to justify one’s efforts in resisting the ongoing growth of what is at bottom a gigantic criminal enterprise. To resist its further growth is simply the decent thing to do, regardless of whether one expects to succeed.

And even those who believe, as I do, that the chances of success in such efforts are extremely small can take heart from the knowledge that ultimately this criminal enterprise will attain such bloated size and scope that its own survival will no longer be possible, and it will implode, as the Soviet Union and other similarly overreaching politico-economic orders have imploded. Governments that grow and grow ultimately find that their predation becomes greater than their prey can support, at which point such predators are doomed. Thus, the present system of government in this country and many others contains the seeds of its own destruction, even if those of us who abhor it cannot stop or slow its continued growth in the near term.

Some of the younger people among us may live long enough to help in picking up the pieces and beginning anew. One hopes that the new beginning will rest on a less coercive, more voluntary basis than the present system. Otherwise, it will be destined only to trace the same predatory rise that the present system has followed and to arrive at the same self-destruction that ultimately awaits our own politico-economic order.

Since the early 1980s, I have been lecturing on the growth of government to a wide variety of audiences. In academic seminars and workshops, professors typically ask questions about my explanatory framework, my evidence, alternative explanations, possible counterexamples, and so forth. But when I speak to a friendly lay audience, the first question is typically something along the lines of, “What can we do to turn this thing around?” Academic people, who are accustomed to discussing all sorts of political and economic developments, many of which are none too savory, usually have the ability to distance themselves from any revulsion they may feel about the matters under discussion and to concentrate on how one might best explain the events in question. In social science, “value freedom” is upheld as a standard for the analyst. Market-friendly nonacademic people, in contrast, are often surprised, and appalled, to discover how much the government has grown and many of the means by which political actors have enlarged it, and their immediate orientation is toward action to reverse what they perceive to be a pernicious development. Thus, they bring normative and programmatic concerns directly to the fore. Like Lenin, they demand to know, “What is to be done?”

Because I am often introduced as an authority on government growth, the lay audiences seem shocked and disappointed when I answer the query about how we can stop further government growth by saying that I don’t know or, worse, by saying that I don’t think we ― which is to say, those of us in the room and all other likeminded people ― can do anything significant to deflect the trend toward larger, more tyrannical government.

I often receive similar reactions when I post commentaries on the Internet. Thus, I recently posted a short essay called “Partisan Politics ― A Fool’s Game for the Masses,” and in response, one man wrote: “Quit whining and figure out something better if you’re so damn smart.” Another wrote: “Okay, Higgs. So what can one do to protect one’s person and family and aid in the country’s survival?” I commonly hear from people who find my description or analysis beside the point unless I have “an answer” or “a solution” to the problem under discussion. Higgs, they conclude, is “not constructive,” and therefore he does not deserve anyone’s time and attention.

Although I would be the last to assert that I have a claim on anyone’s time or attention, I believe that the solution-demanding response to my commentaries (or anyone else’s) betrays a confusion between diagnostics and therapeutics in political economy. The former focuses on finding the causes of a condition or development, the latter on prescribing measures by which the condition can be lessened or eliminated. This distinction is common in the medical profession, where some practitioners specialize in diagnosis and others in various kinds of therapy. In political economy, however, the two activities are often combined. In professional economics journals, countless articles have been published in which the author first lays out his “model,” sometimes presents empirical “tests” of some of its implications, and finally draws “policy conclusions” ― that is, unsolicited advice to government functionaries as to how they should employ their powers.

Lay people and professionals alike, however, need to appreciate two critical points. First, in social and economic affairs, one man’s problem may be another man’s solution. The growth of government belongs to this category. Many people are pleased when the government grows, whereas others are outraged. Still others, of course, have no concern one way or the other, so long as their personal ox is not being gored deeply. In short, the normative evaluation of a socioeconomic condition or development may vary greatly among the people involved in it.

Second, even if everyone agrees that a certain condition constitutes a problem, it still may have no generally acceptable solution. Because of the diversity of beliefs, values, and interests in the populace, whatever is done to create a “public good” ― that is, a condition that, if established at all, applies equally to everyone ― will displease some people. For example, everyone may value “national security” in the abstract, but if in its pursuit some people want the government to go to war against country X, whereas others want the government to steer clear of war with country X, then some people are bound to be dissatisfied, no matter what the government does. Issues of this kind have no generally acceptable solution, owing to uncertainties about the “production function” for certain public goods. One might imagine, of course, that one side persuades the other to change its beliefs, values, or preferences, but unless unanimous agreement is achieved ― an extremely unlikely eventuality ― a certain number of problems whose solutions are contentious will necessarily always remain.

Since the Great Depression, the American public has generally approved of an active, interventionist federal government. In a perceived crisis, most people want the government to “do something.” Of course, most politicians and government functionaries, for perfectly understandable self-serving reasons, are quite pleased to respond to such public demands for action ― after all, taking such action promises to butter their bread more thickly. Franklin D. Roosevelt enthusiastically supported an approach whereby the government would “take a method and try it; if it fails, admit it frankly and try another. But above all, try something.” Likewise, more recently, despite the great confusion that prevailed about the current recession’s causes and about the best means of moderating or reversing it, Barack Obama, soon after taking office, declared, “The time for talk is over. The time for action is now.” In both instances the president was presuming that successful therapy can be administered without a sound diagnosis. This presumption is foolish, however, if one’s interest lies not in mollifying a bewildered electorate, but in implementing a genuine remedy for the perceived problem.

Furthermore, in dealing with a “problem” such as the relentless growth of government, we must recognize that unlike the automobile mechanic who undertakes to repair a sputtering engine, we are attempting to alter the workings of a socio-economic process that has hundreds of millions of moving parts, each one with a mind of its own! It is hubristic ― a Hayekian “fatal conceit” ― to suppose that anyone can control this process in fine detail. The “man of system,” Adam Smith sagely observed, “is apt to be very wise in his own conceit.”

He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.

I am not a “man of system” in the Smithian sense. For me to propose a “magic bullet” to stop the growth of government, as an oncologist might prescribe a certain drug to cure a particular type of cancer, would be ridiculous. Just as one may know a great deal about the origin and development of a particular type of tumor without knowing how to cure it, one may know a great deal about the growth of government without knowing how to stop it. Indeed, curing a cancer is a much simpler task.

Yet, one thing we do know: Many Americans now believe many things about their government that are false, and they expect much from the government that the rulers cannot provide. The public at large embraces myths about what the government can do, what it actually does, and how it goes about doing it. Only people enamored of such myths can support, for example, a gigantically expensive health-care “reform” at a time when the present value of the government’s promised future Social Security and Medicare benefits alone amounts to several times the current GDP. (I am disregarding here the interested parties who expect to reap short-run pillage from an intrinsically doomed system.) Until more people come to a more realistic, fact-based understanding of the government and the economy, little hope exists of tearing them away from their quasi-religious attachment to a government they view with misplaced reverence and unrealistic hopes. Lacking a true religious faith yet craving one, many Americans have turned to the state as a substitute god, endowed with the divine omnipotence required to shower the public with something for nothing in every department – free health care, free retirement security, free protection from hazardous consumer products and workplace accidents, free protection from the Islamic maniacs the U.S. government stirs up with its misadventures in the Muslim world, and so forth. If you take the government to be Santa Claus, you naturally want every day to be Christmas; and the bigger the Santa, the bigger his sack of goodies. This prevailing ideology constitutes probably the most critical obstacle to reductions in the government’s size, scope, and power. Getting rid of this ideology will be diabolically difficult, if possible at all.

Analysts of the political economy, such as yours truly, may have some capacity to open people’s eyes with regard to the government’s true nature and its actual operation. Such diagnostic work is a full-time job, however, so consumers of this analysis should not be surprised if a diagnostician cannot prescribe a sure-fire cure whenever he identifies, describes, or analyzes a problem. Moreover, consumers of opinion and analysis in political economy would be well served by developing a healthy skepticism toward all those who propose a simple cure for the growth of government ― flat tax, term limits, constitutional amendment, abolition of the Fed, you name it. The doctor with a panacea just might be a quack.

Despite all of the smiley faces that journalists for the mainstream news media continue to paste on their reports about recent economic developments, the official unemployment rate now verges on 10 percent, and various economic indicators signal a discouraging prospect for the near-term future. Republican partisans, willing to grasp and exploit any passing news that seems to discredit the ruling Democrats, trumpet the conclusion that “the stimulus has failed.” I don’t dispute that it has failed and that it will continue to do so, but my reasons for this judgment have nothing to do with partisanship, inasmuch as I loathe both parties equally — indeed, I don’t regard them as two parties at all, but only as two wings of a predatory one-party state. In any event, though, there’s trouble in River City, and the politicians have naturally decided that “something must be done,” lest the peasants grow dangerously restive.

Whence cometh a good deal of talk about “more stimulus,” although administration spokespersons such as Larry Summers are quick to distance themselves from this phraseology, if not from the substance it denotes. So, what exactly do our glorious rulers have in mind? According to the Wall Street Journal,

Obama administration economists said they would like the enhanced unemployment-insurance program to extend beyond its Dec. 31 expiration date. They also want to maintain a program that offers tax credits to pay 65% of the cost of health insurance policies under the COBRA program, which allows laid-off workers to purchase the health plans they had through their previous employer.

White House officials said they also are examining whether to extend a soon-to-expire tax credit for first-time homebuyers, but that provision faces a stiffer headwind.

If these ideas are the best ones that the administration’s economic geniuses can come up with, the economy is heading for even rougher waters.

To understand why, recall that lesson one in public-policy economics is this: if you want less of something, tax it; if you want more of something, subsidize it. Extending the term of unemployment-insurance benefits and offering tax credits to cover 65 percent of the cost of maintaining health-insurance coverage for the jobless in effect subsize unemployment: these measures lower the cost of remaining unemployed by reducing the employment benefits the unemployed forgo. Hence, unemployed people will search for new jobs less actively, and they will be more likely to turn down a job offer that does not provide the same compensation they received in their previous jobs.

Thus, these measures will keep the unemployment rate higher than it otherwise would have been, magnifying and prolonging the recession. Political realists might also note that the continuation of high unemployment will increase the demand for government rescues of various sorts. In this way, the government gets, as it were, just what it (which is to say, the taxpayers) pays for, namely, continued excuses for its bulked-up spending (i.e., vote buying). So, before you accuse administration officials of contemplating the adoption of crazy policies, consider that these politicians may actually be crazy like a fox.

Extension of the tax-credit for first-time homebuyers is a looney idea for somewhat different reasons. To understand this measure’s perniciousness, recall that our present economic difficulties spring in large part from the de facto subsidies that various public policies created during the earlier years of this decade for home purchases by people who, absent those subsidies, could not afford to repay the requisite mortgage loans. Now, while the economy is still deep in the quicksand of millions of mortgages in delinquency or default, with many others likely to be in such trouble soon, the government is considering the extension of a measure that – strange to say – again tempts people who cannot afford the mortgage payments on a home purchase to go ahead and purchase it nevertheless. By such “caring” policies, the government lures people who cannot swim into waters much too deep for them to stand in, with predictable results looming not far in the future.

Again, however, the government may simply be seeking to keep the economy in trouble as long as it can do so, because as long as the troubles continue, the demand for the government’s salvation will remain at its present elevated level. Think of the policies the administration is now contemplating as parts of a perpetual-motion machine for government spending and the willful distortion of market pricing and resource allocation. And who can possibly object, unless it be a taxpayer or someone with an interest in the creation of wealth in this country? In politics, of course, such old-fashioned naysayers count for practically nothing.

According to the entry for me at Wikipedia, which I hope is reliable, I am a libertarian anarchist. Why would any person who fits that description work for the government at all, not to speak of working without pay? Well, my story is straightforward.

Some time ago I received in the mail from the U.S. Census Bureau a form to be filled out, to wit, the 2007 Survey of Business Owners and Self-Employed Persons questionnaire. I naturally threw it in the trash.

A few weeks later, I received another questionnaire whose cover letter read in part as follows:

We have not received your response to the 2007 Survey of Business Owners and Self-Employed Persons (SBO) questionnaire, Form SBO-1, which was mailed to you several weeks ago. These data are essential to business and government decision making. We need information about your business to provide reliable data for your industry and geographic area.

We remind you again that your response to this survey is mandatory under Title 13 of the United States Code. Applicable provisions of the law are shown on the back of this letter.

I hastened to read the back of the letter, where I found the following:

Mandatory Provisions of Law Pertaining to Economic Censuses — Section 224 as amended by Section 3571 of Title 18 United States Code.

Whoever, being the owner, official, agent, person in charge, or assistant to the person in charge, of any company, business, institution, establishment, religious body, or organization of any nature whatsoever, neglects or refuses, when requested by the Secretary or other authorized officer or employee of the Department of Commerce or bureau or agency thereof, to answer completely and correctly to the best of his knowledge all questions relating to his company, business, institution, establishment, religious body, or other orgnization, or to records or statistics in his official custody, contained on any census or other schedule, or questionnaire prepared and submitted to him under the authority of this title, shall be fined not more than $5,000; and if he willfully gives a false answer to any such questions, he shall be fined not more than $10,000.

I thought about throwing the second form in the trash, as I had thrown the first one. Then I thought about telling the U.S. Bureau of the Census to go to hell. Then I thought about the large, threatened fines, and I filled out the form. I spent about 15 minutes doing so. My rate of pay for having done so works out to exactly zero dollars per hour, which is somewhat less than I usually charge for my services.

Well, big deal, you may be thinking. But I invite you to pause and consider afresh what this little episode in my life illustrates.

First, so far as I can tell from reading the U.S. Constitution, the government has no Constitutional authority to demand that I answer these questions about my business. Perhaps, if I am mistaken, someone can direct me to the relevant clause of the document.

Second, the government’s stated rationale for collecting the information is lame. No great purpose is to be served. On a FAQ sheet included with the questionnaire, one finds a section headed “Why does the government take this survey?” But this section’s text merely states that the Census Bureau is required by law to take the survey every five years and describes the variables that are surveyed and the way in which these data will be combined with other data the government collects. The section does not give a substantive reason for collecting the data in the first place, seemingly assuming that if a certain kind of information might be of interest to the government or someone else, that interest suffices to justify the information’s forced collection at the expense of those who possess the information.

Another section of the FAQ sheet tells us “Who uses the survey data.” Users are said to include the Small Business Administration, local government commissions, government agencies at all levels, “a national women-owned business trade association” not identified by name, consultants and researchers, and individual businesses. In truth, however, information about my business is in all cases, literally as well as figuratively, none of their business. If these people want information about my business, why can’t they make me an offer for it? After all, it’s my property.

Well, as Al Capone is supposed to have said, you can get a lot more done with a kind word and a gun, than with a kind word alone. And everything the government gets done — including its extraction from me of information about my business — it gets done by threatening people with violence.

Oh, Higgs, you might be saying, you’re just overwrought and hyperventilating. But am I really? Suppose that I had very strong feelings about the privacy of my personal affairs, so I simply refused to provide the information requested. Eventually, subject to the vagaries of the government’s escalating enforcement actions, I might be issued a summons, which of course, I, having the strong feelings that I have about the matter, would ignore. Hence, in due course, police officers would be sent to arrest me for having ignored the summons. And I, having the strong feelings that I have about the matter, would naturally resist the arrest. Wherupon the police officers might shoot me dead if they felt inclined to do so, rather than simply beating me savagely and hauling my broken body off to jail.

And for what would the police have battered or killed me in this case? Precisely for having refused to fill out a bullshit form to provide information about my business that no one had a just right to demand of me in the first place. Obviously there’s no real justice at work here, but where’s the logic in the use of such brutally dispropotionate sanctions in response to such a petty act of noncompliance?

The logic — the same logic that leads the government to attach similar criminal sanctions to a indefinitely great number of petty infractions of its idiotic rules — is that the government wants you and me to obey its dictates slavishly regardless of their importance. It seeks not simple compliance where compliance might be required to accomplish an important public purpose. Instead it seeks immediate, unquestioning, universal compliance — including compliance with dictates so trivial that they ought never to have been the subject of government action in the first place — in order to put us in our place.

And that place is with our faces constantly under the government’s boot.

We live in a police state, a tyranny of genuinely grotesque dimensions, but because it has developed gradually over more than a century, we have gradually grown accustomed to its outrages and to its moronic and insulting requirements, each accompanied by criminal sanctions that amount to death threats, should we continue to resist. It is not a pleasant feeling to live immersed in a sea of death threats, surrounded by a variety of armed government thugs prepared to dish out beatings, tasings, and death whenever anyone, for whatever reason, resists the government’s orders. That we Americans have resigned ourselves to living in such an environment and, in many cases, continue to refer to this police state as a free country speaks volumes about our ability to follow Winston Smith’s example, in George Orwell’s Nineteen Eighty-Four, of loving Big Brother. .

Thousands of Americans have just staged a demonstration in Washington, D.C., to express their displeasure with the growth of government in general and the Obama administration’s health-insurance proposals in particular. Such demonstrations are a tradition in this country. The First Amendment, which people usually associate with freedom of speech, religion, and the press, also stipulates that Congress shall make no law abridging “the right of the people peacefully to assemble, and to petition the Government for a redress of grievances.” The Founders knew that people would sometimes desire to complain publicly against government policies that affected them adversely. After all, their own revolution had begun amid many such protests against the British government.

So, in this country, people have a constitutionally guaranteed right to demonstrate and petition for redress of grievances, and they often exercise this right. Although the government sometimes tries to control when and how people demonstrate, especially when such protests might prove too visibly embarrassing to the emperor or to one of the two gangs that purport to be competing political parties in what is actually a one-party state, most of the time the rulers seem to appreciate that such demonstrations pose no genuine threat to their control of the state and that the wise course is to allow the peasants to blow off steam. Later, they can be told how fortunate they are to live in a country where the government permits freedom of speech, as if such speech in itself would feed the baby.

I have considerable experience as a demonstrator. In the late 1960s and early 1970s, I marched and otherwise participated in many protests against the U.S. war in Vietnam. Although I managed to get through all these experiences without getting my head scarred by a police night stick – an achievement of which many of my fellow demonstrators cannot boast – I did learn a fair number of lessons in what we might call “applied political science.”

Lesson number one is that the cops do not believe in your First Amendment rights, or any other rights of yours, for that matter. If they find it convenient for their own purposes, which often seem to include nothing more than throwing their weight around, they will yell at you, shove you, threaten you with night sticks, dogs, and horses, whack you with their clubs, and lob tear gas into your ranks. It’s all in a day’s work for those who have sworn “to serve and protect.” Best you remember, however, that the phrase is short for “serve and protect the state,” not for “serve you and protect your rights to life, liberty, and property.” Protecting your right to demonstrate peacefully against state policies is not part of the cops’ job description.

Lesson number two is that the people in the demonstrations are there for all sorts of reasons, despite what one might suppose from their announced issue(s) as signified by signs, banners, and group statements. I often bemoaned the lack of seriousness in many of the antiwar demonstrators with whom I marched. A great many of the younger ones seemed to be there mainly because demonstrating against the war was, literally, a sexy thing for a college student to do: at the demonstration, one might meet someone suitable for a not-very-subsequent sexual liaison – in plain language, participating in a demonstration served as a reasonably promising avenue to getting laid. Beyond this quite understandable motivation, however, people had all sorts of other reasons for participating. Some fancied themselves radicals out to overthrow the government. Others were worried that children, grandchildren, or other relatives and friends might be drafted, shipped to Vietnam, and killed. Some of us actually cared about the countless hundreds of thousands of Asians being slaughtered by U.S. forces for no good reason. Although we were all against the war in some way, our ways varied widely. The participants in most demonstrations, including the recent one in Washington, no doubt have this same heterogeneous quality. In a protest, however, the enemy of my enemy is my friend.

Lesson number three is that the mainstream media are in league with the government when they report on demonstrations. For example, they will minimize any violence the police use against the demonstrators and exaggerate any violence the demonstrators perpetrate. I recall one protest in particular, where our group included tens of thousands of marchers passing through the streets of downtown Seattle. The police, as usual, were out in force, lining the streets and salivating for a chance to crack some heads. Present also were the undercover agents with their cameras; for some reason, the authorities always wanted lots of photos of us dangerous protestors – college students, hippies, grandmothers, little kids in their mother’s arms, and so forth, all obviously dangerous subversives. At this particular protest, the organizers took great pains to instruct everybody about scrupulously avoiding any kind of violence, because we all knew that the media would use it to discredit everything about the event. So we maintained absolute order, or so I thought as I made my way through the streets somewhere in the middle of the long parade. No violence whatsoever did I see. Hooray! The next morning, however, the banner headline in the Seattle Times read, “Violence Mars Antiwar Demonstration.” Someone, it seems, had broken ranks and smashed a shop window, an occurrence so inconsequential that even I, positioned right in the middle of the affair, had not noticed it. This incident illustrates well what passes for journalistic impartiality and balance in this country. Rest assured that if you are bucking the system, the system’s guardians in the news media will smack you down by stigmatizing you as some sort of dangerous hooligan or totally out-of-touch wingnut. They’ll also minimize your group’s numbers, again seeking to marginalize and trivialize your efforts.

Lesson number four is that the powers that be don’t give a damn about your demonstrations or the reasons that have impelled you to participate in them, except to the extent that your actions create bad press for them and their policies. The minute they conclude that your demonstrations actually imperil their personal grip on power, they will cease to be so accommodating of your First Amendment rights. They might even cook up something called COINTELPRO, whereby they employ every political dirty trick in the book against you, up to and including murder. (If you suppose I’m exaggerating, I suggest you do some research on COINTELPRO and other such government schemes to violate the people’s civil rights systematically.) Nowadays, the USA PATRIOT Act lends itself splendidly to broad-gauge surveillance and disruption of peaceniks and other troublemakers.

After the Vietnam War ended, I stopped participating in public demonstrations, not because I thought the government no longer deserved protest and petition for redress of grievances, but because I lost all faith in the efficacy of the demonstrations. I was gaining a sounder appreciation of how the state operates, and as my understanding deepened, I found myself unable to suppose that the people who constitute the state have any interest in doing what might loosely be called “the right thing.” As for those of us outside the precincts of the state and its supporting coalition of special-interest groups, the state wants us to buckle under to its dictates, shell out the taxes, fees, and fines it demands from us, and shut up. As long as we faithfully comply with the first two requirements, it is willing to cut us some slack on the third, but only up to the point at which our expressions of grievance might actually weaken its iron grip on power. So, when I see demonstrations like the one that just took place in Washington, I sympathize with the people who’ve gone to the trouble of protesting against the government’s abuses, but I find myself wondering, Do these poor souls really think they’ll accomplish something by this protest?

What is the right word to describe the U.S. government’s current and proposed fiscal condition: fantastic, unbelievable, surreal? The Obama administration now expects a budget deficit in fiscal year 2009 of $1,750 billion, or more than 12 percent of GDP. Total federal spending this year is expected to be $3,940 billion, or 27 percent of GDP. President Barack Obama promises that the deficit will be brought down to $1,170 billion in fiscal year 2010. Don’t bank on it.

Did anyone, even two or three years ago, expect this situation to develop? We need to go back only ten years, to fiscal year 1999, to reach a time when the government’s total outlays were smaller than this year’s deficit. Ay, mamacita, what’s going on here?

To get some perspective on how totally crazy the government has gone in its almost incredible overreaction to the financial and economic developments of the past year, consider that during World War II, which was paid for mainly by borrowing, the government ran deficits during the fiscal years 1941-46 that added about $191 billion to the national debt by the end of this period. Since 1947, when price controls no longer distorted the price indexes, the GDP deflator has increased about 8 times and the consumer price index almost 10 times. To be conservative for present purposes, let’s use the CPI to adjust the purchasing power of the dollar. We may conclude then that in present dollars, the deficits the government incurred to fight the greatest war in history, for the six years in total, amounted to about $1,910 billion, or only 9 percent more than the deficit expected in the current fiscal year – a wartime year, to be sure, but the present wars are certainly not large ones by historical standards.

Maybe it would be better if the government scrapped its present budget entirely, and provoked the Japanese to bomb Pearl Harbor again. Then we could fight World War II over. Yes, yes, many people would have to die, but the Pentagon could compensate these unfortunates by awarding each of them a posthumous Silver Star, and in a strictly financial sense, this plan would be much cheaper than what the government is doing now. The largest deficit of the war, incurred in fiscal year 1943, was, in today’s dollar’s, about $546 billion, or less than a third of the deficit the Obama regime (building on the Bush regime’s proligacy, to be sure) will run this year.