Ideas have consequences. Some ideas are mightier than swords. Deadlier too. As Terry Pratchett warns: “Unfortunately, wild and unstable ideas have a disturbing tendency to move around and take hold.” Some of the wildest and most devastating ideas came from Karl Marx. Twenty years after the fall of the Berlin Wall, those ideas still corrupt American youth. The most vulnerable are students exposed to the influence of anti-capitalist instructors in the fields of economics, philosophy, history, and political science. A multitude of falsehoods thrive in our academic centers where tenured faculty members pass their dogmatic views on to kids who are still thinking mostly with their hearts. They don’t come with horns and pitchforks—some are very nice people, intelligent and full of good intentions, as was a recent Marxist guest speaker at The King’s College.

As millions of people in the former communist countries mourn the victims of practical Marxism, leftists of all flavors are struggling to raise the red banner one more time. Socialist professors and their brainwashed disciples are in the forefront of the fight against American imperialism and economic neo-colonization. Our universities have become hatcheries for anti-globalists trying to persuade the developing nations that breaking their economic links with the West will protect their people from exploitation.

Traditional Marxism has been marginalized but not before it had metastasized. Hoping to catch in their webs as many confused souls as possible, today’s socialists redefine their idol’s ramblings for class struggle to mask it as a fight for race and gender equality. The infiltration of failed ”progressive” ideas diverts civil rights and environmental movements from the real problems of our generation. It is getting so bad that even the president of the United States sees no problem surrounding himself with Maoists.

Those are some of the reasons why, 20 years after the fall of the Iron Curtain, we still cannot celebrate the victory over the “empire of evil.” Yes, socialism is far from dead. We cannot pronounce it dead until it evaporates from those heads where the lies of the omniscience and omnipotence of government still reside. One thing we need to teach our children is that for democracy to really mean freedom and not a dictatorship of special interests, it cannot coexist with pervasive bureaucratic control of our economic affairs.

What caused the Great Depression? Many still believe that it was the greed of the unrestricted market, but the facts tell a different story. Three kinds of government interventions played a major role. One: Countries returned to the gold standard in the mid-1920s but the asymmetry of response to gold flowing between them had a significant deflationary bias. It did not take too long for the flawed international monetary system to affect the economies on both sides of the Atlantic. Two: The Fed, after becoming overconfident in their ability to smooth out the business cycle, decided to pop the speculative bubble by selling $393 million worth of securities between December 1927 and July 1928. This act not only triggered a spectacular crash on Wall Street but also had a disastrous spillover on Main Street. Three: What helped the spread and the protraction of the economic downturn throughout the world in the 1930s was the adoption of protectionist policies by most countries.

What deserves our special attention is the disastrous effect of the policies followed by the Federal Reserve Banking system prior to, and at the early stages of, the Great Depression. The fall in nominal interest rates successfully fooled the monetary authorities into thinking that the economy was overheating as a result of cheap credit. The Fed used its power to let some of the steam out and intentionally lowered money supply, firmly believing that this would not affect output significantly. These policies limited the amount of loans offered to businesses and suppressed investment. As expectations worsened and people panicked about their savings, the country witnessed bank failures on a large scale. The Fed ignored the cries for help and many healthy credit institutions sank due to becoming temporarily illiquid. Mistaken assumptions and perverse actions ruined the credit market. The amazing irresponsibility of the Fed left the economy no chances for quick recovery.

Eighty years after the Great Depression we have very few survivors who remember how unscrupulous politicians exploited the fear to force the private sector to surrender its sovereignty over many economic choices. Very few realize how state control over the economy has opened the door for the Marxist belief in the instability of capitalism. How many history teachers in today’s American public schools teach the real story of the most important event in the 20th century? What is the number of young people who have at least a vague idea of what really happened during the Great Depression? Both numbers are so small that today we accept direct government interventions in various sectors of the economy as normal. We have thrown away so many of our personal freedoms. And we are so convinced that we have traded them for security provided by benevolent government officials that we do not even remember what these freedoms were.

(Note: Read the first and last paragraphs only if you have a sense of humor.)

Elinor Ostrom and Oliver Williamson won this year’s Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel for their significant contributions in the field of institutional economics. I am especially delighted by the recognition of the value of Dr. Williamson’s work on governance structures, as I did my own dissertation research in that area. Perhaps I will soon get some cash from the Royal Swedish Academy of Sciences for showing potential and as an encouragement to complete my book on economic divergence. And I don’t mind sharing.

In the assessment of John Nye, one of the most brilliant young members of the International Society for New Institutional Economics and a future Nobel laureate if I have ever met one, Williamson is responsible for promoting “Ronald Coase’s insights into the economics of the firm by making the theory of transactions costs a central part of the literature in mainstream economics.” Williamson draws our attention to certain cases that challenge the puristic neoclassical models of market competition and increases our appreciation for the role of specific institutional frameworks (rules) in channeling investment.

Dr. Ostrom’s work presents an even bigger challenge to some of the former orthodoxies in economics education and in our understanding of economic behavior. Most economics students learn their stuff through abstract mathematical models, assuming a level of technology and formal rules, ignoring societal norms of proper behavior. As a result they grow up to develop theories and give policy advice that fail to jump-start the economies throughout the Third World. Justifiably, the prominent growth-theorist Paul Romer notes that Ostrom’s most valuable contribution is in making “the rules that humans follow the object of scientific inquiry.”

I am very optimistic for the future of our field and the ideas of liberty for, as John Nye points out, this year’s Nobel winners “show how firms, communities and organizations come to solve these problems absent government regulation and how the choices they make can be disrupted or worsened by bad state policy or sustained by good rules that promote stable property rights and reliable contracts.” Finally, to make it easy for the Swedes to select the next Nobel winner, here is what institutional economics has helped me discover so far: The Industrial Revolution started in England, spread to the United States, and gave the West its amazing prosperity as a result of the growth-enhancing rules legitimized by pro-capitalist social attitudes embedded in decentralized structures. But if economists presume to be wise enough to advise the poor how to catch up with us, they should try to be very flexible and do so on a case-by-case basis after a careful historical investigation of the local institutional constraints.

My distinguished colleague Paul Krugman has obviously decided to turn all mainstream economics textbook analyses upside down. Starting with a preconceived conclusion, he demonstrates willingness to grab at any odd argument in an effort to justify the policies of waste that have exploded under the current administration. The latest concept that Krugman tries to revolutionize is the “crowding out” effect of government spending—redirecting resources from potential productive private uses to unproductive or destructive public uses.

Krugman’s fractured fairy tale begins with an antiquated Keynesian formula: GDP (the largely useless concept of national output) = C (individual consumption) + I (private investment) + G (government purchases). Today’s GDP is falling with the fall of C and I while “monetary policy—the usual line of defense against recession—is hard up against the zero-interest-rate bound.” Thus the solution becomes self-evident.

Enters the Colossus: Big Government promises to revive the economy by increasing its purchases—as much as is necessary to bring the nation’s output to its full employment level. Krugman starts with a truism derived from the above formula (higher G means higher GDP, if we keep C and I unchanged) and the correct observation that expectations are a more important determinant in private investment than interest rates. Unfortunately, he then jumps to the naïve conclusion that, just by boosting the GDP figure, the current fiscal expansion will create enough business and consumer confidence to produce the next economic boom.

But here is the catch—what we produce and how we produce it is just as, if not more, important than how much we produce. If we believe that the government is able to utilize our resources through planning better than we do it through the market, it is theoretically possible for Obama’s stimulus to also increase private spending and investment—a veritable “crowding in” effect. In which case Krugman deserves a second Nobel Prize in economics. If, on the other hand, most of us are not blind to the abysmal record of government mismanagement of the economy during the last century, the current policy can only stimulate uncertainty, inflation, and another round of market collapses.

Economist Paul Krugman claims that, “the worst thing we can do for future generations is not to run sufficiently large deficits right now.” Obviously, under the current very unusual economic conditions, it no longer makes sense to view the sharp increase in our national indebtedness as a bad thing. How did such nonsense invade the science of economics? It all began with the prophet of state-run capitalism some 80 years ago and it continues to this day with brilliant mathematicians and hardworking econometricians manipulating their neat macroeconomic models, explaining everything except real life.

John Maynard Keynes, having lost his fortune on the stock market, had an axe to grind with the investor class. He claimed that their actions were driven by “animal spirits” rather than long-term strategies for sustainable business expansion. Wild speculation leads to bubbles, the eventual bursting of which triggers a downward spiral of declining private consumption and investment, trapping the economy indefinitely at a depression equilibrium with unemployment way above its “natural rate.” Since low interest rates are not enough to incentivize the private agents to spend, the government has to do it for them in order to end the recession.

How fortunate for the average Joe that he, unlike Krugman, has not been blinded by years of high-level economics training. Most people are able to see that politicians who spend much more than what they have received as tax revenue unavoidably place a huge burden on tomorrow’s economy. The accumulated debt must be serviced and, unless we find enough fools to continue to invest their savings in a government that has become insolvent, we will have to turn to contractionary fiscal policies.

Those who learn economics from historical experience rather than textbook fables will not miss the fact that the cost of one generation’s follies is paid for later by a combination of higher taxes (depressing household consumption, slowing down the process of capital accumulation in the private sector, and causing another recession) and lower spending (compromising the nation’s defenses and the administration of justice as well as inflicting unbearable pain on those who have gradually been tempted to become overly dependent on government largesse).

Established in 1953 by President Eisenhower, the United States Department of Health, Education, and Welfare has since been showered in the tender mercies of several administrations. This mega-agency got stuffed with taxpayers’ money the way my wife stuffs our suitcases before our trips to Bulgaria. With more than a hundred thousand paper-pushers affecting the life of every single citizen, it was the second largest bureaucratic empire in human history, and the American people quickly found a new meaning for the HEW acronym: How to Encourage Waste.

The existence of the department was justified by the perceived inadequacy of the market economy to supply enough services with positive spillover effects. It also came to oversee what the political elite saw as a new social role of government—to provide a collective safety net for those of our distressed neighbors whom we refuse to help individually. Under President Carter, the HEW monstrosity was reorganized into ED (Department of Education) and HHS (Department of Health and Human Services).

In theory, HEW should have provided a more efficient use of society’s resources in meeting certain needs. The Bush administration became a big benefactor of ED and HHS. The No Child Left Behind and the Medicare prescription drug plan were sold to the masses as acts of compassion. President Obama and his soldiers from the “grassroots” all the way to Congress believe that we should let the federal government take even more responsibility in healing our sick, educating our children, and feeding our hungry.

But why is it so hard to sell the idea of socialized medicine to some people? What possibly could be wrong with mandatory public schooling from age zero? Don’t we like free stuff? And if we value freedom as much as we claim, surely we should be supporting the political efforts to guarantee us the new freedom from necessity! The answer is simple: Some people consider incentives in addition to intentions. When we put aside all propaganda, the fact remains that bureaucratic growth depends on inefficiency and failure of previous programs as much as market growth depends on good stewardship.

José Manuel Barroso, a 53-year-old former Portuguese prime minister, was re-elected president of the European Union Commission last week. The success of this center-right leader was no surprise. An overwhelming majority of the Europeans voted in local, national, and supranational elections during the last few months for candidates sharing a core of classical liberal ideas.

Last year’s financial earthquake rocked economies on both sides of the Atlantic. But the response of the electorates was strikingly different. In America, the Republican base was disappointed with the lack of principled conservative leadership on domestic issues. The independents were unimpressed by the Republican alternative to an inexperienced but charismatic senator from the left. Democrats voted in record numbers energized by the eloquence of their leader. As a result, the United States elected a government dedicated to taking us a few steps closer to Plato’s Utopia.

At a time when the formerly “laissez-faire” Americans turned to Big Government for help, Europeans made a shocking turn to the right. Sick of political scandals and bureaucratic corruption, tired of high taxes and unemployment, it seems that most citizens of United Europe came to the conclusion during 2009 that they had paid too high a price for the leftist promises of economic safety.

In the most extreme example, the socialist (aka communist) prime minister of Bulgaria introduced a 10 percent flat tax and opened discussions about eliminating the single-payer system of healthcare and the idea of school vouchers. But even that was not enough—the Bulgarian Socialist Party lost the parliamentary elections in the summer by a huge margin to a new right-of-center political formation promising (à la Reagan) more pro-market reforms and lower government spending as a response to the economic crisis.

President Barroso’s life journey has taken him from the socialist camp all the way to appreciating the opportunities of free-market capitalism. (Marvin Olasky and I also have walked on that path). Is Barroso’s re-appointment as head of the EU’s executive government an indication that the Old World has learned a valuable lesson? It could be just a temporary change in sentiment for the European voter but it gives hope that the trend of liberalizing the European economies will continue.

“Capitalism depends on covetousness and rewards greed.”

This is the most often repeated argument against economic freedom. When swallowed, it might turn anyone’s admiration for the prosperity of the West into deep suspicion and even religious hatred. Is there any merit in that idea? To answer the question, I’d like to talk briefly about sex.

In many cultures, from antiquity to this very day, sex has been treated as a gift from the gods. It has been used as a part of worship ceremonies throughout the world. Reaching a state of ecstasy in copulation with professional temple prostitutes or kidnapped virgins has been the preferred way to go beyond one’s mortality and have communion with the divine. Today, as millions abandon traditional religions in favor of egocentric philosophies, men and women are easily tempted to worship themselves through casual sex. The extent of corruption is obvious from the filth pouring day and night from the TV box.

In response to the gross sexual perversions of many pagan cultures, certain Christian leaders have spread the equally perverse idea that sex is evil. But who came up with the idea of sex? Yes, it was God Himself. He invented sex so we can “multiply” and fulfill His plan to “fill the earth.” And, as Eric Metaxas explains, “because he thinks so highly of it, he has very high standards for how it should be used—and how it should not be used.” If you are righteously appalled by the commodization of sex or by the trafficking of poor young girls from Eastern Europe to the brothels of the West, please don’t go blaming the gift of sex itself. Or the Giver.

To go back to the false idea above: No, capitalism will not crumble if people obey the Tenth Commandment. They will still want to create a better place for themselves and their children. Economies will still grow, though we shall surely continue to subdue the earth in a more sustainable way. Also, compared to government policies, the invisible hand is much less likely to reward greed (or stupidity). The current financial crisis and the bailouts are but the most recent proofs. Economic freedom is a gift, which we have inherited from the previous generations. What we do with it, good or evil, is up to us.

Today is special for my people: 65 years ago, 9/9/1944, the Red Army occupied Bulgaria.

This is Bulgaria in a nutshell:

• There are about 50 states in today’s Europe; Bulgaria is the oldest of them all.
• The first Bulgarian kingdom was established in early seventh century.
• During the eighth century, Bulgarian troops end the Arab siege of Constantinople and save Western civilization from an Islamic invasion.
• In the ninth century, Christianity becomes the official religion under King Boris I. Cyril and Methodius write an alphabet, which the Bulgarian king uses to translate the Holy Bible and open universities. As a result, the Bulgarian church is the only one at the time to worship in its own language (others are only allowed to use Hebrew, Greek, and Latin).
• For a while there are only three European superpowers: the Roman/Byzantine Empire, the Holy Roman/Frankish Empire, and the Bulgarian Empire.
• The Roman Empire conquers Bulgaria in early 11th century and rules it for two centuries.
• In the early 13th century, the newly established second Bulgarian kingdom defeats the invading crusaders who have looted Constantinople instead of liberating Israel.
• The Ottoman Turks conquer the fragmented Bulgarian empire in late 14th century and rule the Balkans for 500 years.
• On March 3, 1878, Russia defeats Turkey, and the third Bulgarian kingdom appears on the map.
• The 20th century is full of warfare in which the Bulgarian army wins almost all battles, while Bulgarian politicians loose almost all wars. And now Bulgaria only borders its former territories.
• During WWII, FDR sells Bulgaria to Stalin. As a result, the country is devastated by socialism—spiritually as well as economically.

Today, Bulgaria is once again a free country and a member of NATO and the European Union. Please pray that the Word of the Cross will reach once again the hearts of the Bulgarian people.

Once upon a time, economists thought of themselves as moral philosophers. We have come a long way since Adam Smith. We’ve worked hard to turn ours into a truly respectable, hard, mathematical, value-free, “positive” science. Once we were jealous of the successes of natural sciences in revealing the mysteries of God’s creation. Now we know how to apply their tools to the study of production, exchange, and consumption. Humility is no longer a virtue in our ranks.

Today, many of us believe that we have figured out how the economy works. That gives us confidence to propose ways to fix markets should they malfunction. We advise policymakers on how to manage our economic lives in so many ways. We have become engineers of full employment, social progress, and fair distribution of wealth. Alas, we sometimes forget that we do not study planets, rocks, or subatomic particles. We deal with human behavior. Humans have the deficiency to think on their own. As a result they often frustrate our attempts to build them heaven on earth.

One lesson we learned the hard way back at the height of Keynesian theory and policy is that money is not neutral. Deficit spending creates winners and losers. Outcomes of free market competition are also uneven. Some participants succeed, some fail—but these are mostly based on merit, i.e., how well they serve consumers. On the other hand, producing winners and losers through regulations and monetary and fiscal interventions brings much more social tension. Sometimes outcomes are pre-determined by political allegiances. Mostly they come with all the randomness of the unintended consequences of messing with a system that we will never fully understand.

At the very least it would be unwise to focus on a few real or perceived benefits today while trying hard not to think about who will pay the bill tomorrow. Perhaps a future government will have the political courage to deflate the fiscal bubble before it bursts and takes us all down. Perhaps the Fed will be able to reverse its easy-money policy on time to prevent America from going down the road of Zimbabwe. We simply do not know enough to predict if and how the economy will react to the current anti-crisis or future anti-inflation measures in the short run. The long-run legacy of the current and previous administrations’ poor stewardship of our national resources, however, will very likely have the usual outcome of increasing the burden on the working poor.