Consumer Credit: the scenic road to serfdom

Recently, I've been rereading F. A. Hakek's The Road to Serfdom, after reading it eons ago in high school. The central premise, based on the author's experience as an economist in Austria in the 1930s, is that collectivism leads to tyranny. When the government has more than a taxation stake in the economy, it becomes interested in the performance of individuals in their own work. Thus, screwing around at work or otherwise limiting productivity doesn't just hurt a single employer, it's a crime against the state.

Today, a significant portion of banks in Western countries are owned by their respective governments. In the UK, Gordon Brown has even mandated, or at least encouraged, that banks continue to lend at 2005 levels. Freddie Mac and Fannie Mae, and thus now the US government, hold 60% of home loans in the United States. Shopping, we were told, is patriotic.

Consumer debt in this kind of environment, one that has existed since the 1930s somewhat, and more so since the late 1980s Savings and Loan Crisis, is nothing less than highly regressive taxation. And consumers who default hurt not only themselves and their lenders, but the state. Capitalism cannot function when banks do not trust their borrowers to pay them back, and going to the government till for redress means that it is the government's job to determine who exactly pays back that loan.

Today, we're doing that by spreading the bad loans around the whole tax base. We're also taking steps to keep questionable companies afloat, and considering others to prop up housing prices. All of these require that people have jobs that they know won't go away, so that it becomes safe to lend them money.  A particularly terrible piece of legislation that's likely to go through next year will make it much easier to form a union, and for that union to have a federal mediator force new terms on the company.  We've nationalized the banks and the Lumbering 3 (soon Lumbering 2?), made highly-unionized extractive industries a national priority, state governments are the major sources of long-term capital, and now we're looking centralize the authority to define the relationship between labor and production.  I may have to bake a Red October pie to celebrate.