Monday, December 7, 2009

The Ratchet Effect and the Future of Liberty

The so-called ratchet effect, described most comprehensively by Robert Higgs [1], is the phenomenon of rapid government growth in the face of crises, followed by a lack of its proportional reduction in the post-crisis stage. Hitherto investigated primarily through the lens of historical analysis, it also opens broad – and probably still largely unexplored – opportunities for praxeological research.

By reflecting on the past century and the beginnings of the present one, one immediately notices that creating occasions for “ratcheting up” the size of the government was a (perhaps unintended) gift bestowed by some political factions upon other political factions – the beginnings of wide-scale American twentieth-century statism, whose pinnacle was the introduction of income tax and the establishment of the FED, paved the way for the Great Depression and, consequently, for the New Deal; economic downturns associated with the outbreaks of World Wars I and II provided public legitimacy for unprecedentedly deep and mostly irreversible regulations; the bursting of the credit bubble inflated by the FED prompted the powers that be to make attempts at fighting the resultant chaos with an even more intensive use of the same statist means that had originally led to its emergence.

Thus, we can see that the ratchet effect is a historical fact, a fact that currently finds yet another corroboration right in front of our eyes. Should it lead us to the depressing conclusion that we are helpless against the ever-growing Leviathan? Personally, I would recommend not losing hope, not only because hope dies last, but also because, at least in the case under consideration, it has knowledge on its side. The ratchet effect is a historical observation, not an apodictic law of praxeology. There have been times in the most recent history when statism actually shrunk and receded – a fine example would be the happenings in the countries of the former Soviet Bloc at the turn of the 80s and 90s. And yet, a pessimist could claim that these happenings were perfectly consonant with what could be expected in the period following a protracted crisis spanning the entire era of real socialism – admittedly, it is true that statism receded, but not quite to the pre-war level. So the “ratcheting-up” effect did take place after all.

The above remark should inspire an optimist to further the elaboration of the ratchet effect theory on the basis of a meticulous praxeological analysis: if one can classify as a crisis not only a relative and temporary downturn taking place within the framework of a given economic regime, but also the whole period of a regime based on economically misbegotten foundations, then a completely different periodization of history becomes possible (and in the long run, perhaps even a complete reversal of its disturbing tendencies). The point is to make the public regard any putative post-crisis stage as an extension of the crisis – which is possible at least insofar as the feeling of living through a crisis is subjective (for example, a hermit would not regard shortages of electricity and gas as indications of a crisis, and, conversely, a citizen of Lichtenstein would presumably be disturbed by the emergence of welfare state mechanisms in his everyday environment).

For instance, if Poles in the early 90s had been generally aware that it is only the tip of the statist iceberg that had melted away, they could have pressed for further (and quicker) dismantling of the post-communist molochs, as well as for a much broader expansion of the area of free human action. Consequently, the Polish privatization plan could have been done in a Rothbardian [2], rather than a Balcerowicz-esque fashion.

In other words, as long as the feeling of crisis, as well as the firm conviction that the cause of crisis is statism, are present in public opinion, it should be possible to implode every consecutive incarnation of a statist regime, each of which is more liberal than the previous one, but not yet liberal enough (i.e., still unacceptably repressive of human freedom, and hence “crisis-like”). Given the possibility of the above scenario, there exists a viable way of shrinking the Leviathan to a minimum, or even eliminating it altogether (depending on which of these options is acceptable for the general populace – that is, the implementation of which of them would be taken as an indication that the crisis of freedom is finally over). Here we are dealing with the reverse ratchet effect, brought about by a change in the perception of politico-economic processes – instead of interpreting them as a series of alternating crises and periods of normalization, we see in them a cascade of accumulating and ever-growing slumps (which admittedly shrink over certain narrow time intervals, but also consistently expand over the long run).

Again, a pessimist could say that at present nothing indicates that the second of the abovementioned conditions necessary for the reversal of statization – that is, the awareness that the cause of crisis is precisely statism, or, more specifically, monetary socialism – could be met by contemporary American society. The inauguration of the President-elect, and hence the inauguration of the notorious “stimulus plan”, based on curing the disease by ingesting more of the poison responsible for its onset, was greeted with general applause and tears of joy. They, in Central Europe – the pessimist might say – got their chance to trigger the reverse ratchet effect twenty years ago. We, in America, will not get our chance even today.

And yet, I think that even faced with such gloomy observations, there is no reason to be defeatist. Appearances notwithstanding, the moment of breaking the veil of economic delusions seems closer every day.

Firstly, today we have at our disposal a wonderful area of informational freedom, in which reliable, logical knowledge does not need accreditation and need not be afraid of censorship, while its scope, breadth and speed of dissemination know no limits. This area is the Internet. We should not downplay it too rashly as something that we have known for years and that (allegedly) has already become a commonplace medium. Internet is still a less influential source of information than TV, radio or print. Moreover, the consolidation of certain environments and the creation of certain repositories of knowledge (including those associated with the Austrian school of economics) is still a relatively new and rapidly expanding phenomenon, even on the short timescale of the World Wide Web’s existence.

Secondly, the persuasive power of the academic world, including its part that has long been in the service of statism, is on a continual decrease. It is the result of the good old law of diminishing marginal utility – today, higher education is a mass phenomenon, rightly losing its aura of elitism and intellectual prestige. The more we approach our own education from a healthy distance, the more distanced we can become from the influence of various television or press experts, pundits and talking heads – which is a most positive phenomenon, indicative of independent thinking. Furthermore, as some suggest [3], we are soon to witness a revolutionary expansion of distance learning, followed by the ultimate breakdown of the academic cartel and the nationalized accreditation system, whose result will be a radical growth of respect for the kind of knowledge that is uncomfortable for the statists.

Thirdly and finally, the globally rising aversion to imperialistic and neocolonial actions, such as the American aggression in Iraq and the Russian interferences in Georgia and Chechnya, may eventually lead to the intensification of secessionist tendencies worldwide, including the regions whose inhabitants have hitherto expressed no such claims. It should be a welcome phenomenon for all those who contend that political and administrative fragmentation is conducive to free economy, fair competition and monetary discipline [4].

To sum up, despite gloomy appearances, the future should be seen in bright colors. Although the American crisis will deepen – and it is hard to forecast how long it will last – it should culminate with the correct identification of the causes of disease, and then, perhaps – if enthusiasm luckily meets knowledge – we shall witness the largest reverse ratchet effect ever recorded in the annals of history.


[1] Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government (Oxford University Press, 1987)
[2] Murray N. Rothbard, ‘How and How Not To Desocialize’, Review of Austrian Economics, Vol. 6, No. 1 (1992): 65-77.
[4] Zob. np. Murray N. Rothbard, ‘Nations By Consent: Decomposing the Nation-State’, Journal of Libertarian Studies, Vol. 11, No. 1 (1994): 1-10.

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