On the morning of September 2, 1715, Philippe d’Orleans prepared for an impossible task.
King Louis XIV had just died the day before after a painful struggle with gangrene, leaving his five-year old great grandson to inherit the throne.
Philippe had been appointed regent the week prior, meaning that he would rule France until the boy king came of age and could take the throne.
But Philippe knew the situation in France was grim.
Louis XIV’s lavish spending and penchant for endless warfare had left the kingdom completely bankrupt; the French national debt was so large that its interest payments alone exceeded the government’s annual tax revenue.
Taxes were already high, stifling economic development. Inflation was rising. Food was in short supply. Corruption was rampant. Social divisions were raging.
And most of all people, were angry. The King that had ruled over them for seven decades had ruined their lives, and there was hardly a single household in France that hadn’t lost a loved one to one of Louis XIV’s wars.
They hated him for it. Most French peasants celebrated his death, and some spat at his coffin as the funeral procession passed.
Philippe wasted no time, and he began making widespread reforms immediately.
He started with dramatic cuts in government spending, including pruning the new King’s personal budget to almost nothing. He vastly reduced the size of the French army, and he scaled back public welfare.
He also eliminated many taxes, cut the ones that remained, and greatly simplified the process of paying them.
Philippe fired thousands of government bureaucrats who were getting rich by clogging up the system, and he took steps to stamp out corruption.
He sought peace with France’s former adversaries, traded with everyone, and established new relations with rising powers (like the Russian Empire).
He reversed Louis XIV’s policies of censorship, and he advocated for national unity and tolerance.
It wasn’t just empty words; Philippe released prisoners from the Bastille who had been arrested of political crimes. And he even set a personal example by graciously smiling when he was occasionally lampooned in the press– something that would have been unthinkable only a few years before.
Philippe’s reforms were far from perfect, and there were a number of terrible ideas (like the ill-fated Mississippi Company bubble of 1720).
But overall the reforms worked. And he didn’t even need do anything complicated. Rather, his primary strategy was to remove as much government as possible, avoid conflict, and let freedom prevail.
Sadly, though, the prosperity didn’t last. Philippe died in 1723, just a few months after the boy king was crowned Louis XV.
At first the new ministers kept up Philippe’s policies. But in time, France returned to the old ways of corruption, intolerance, persecution, and war… all of which ultimately resulted in a bloody revolution in 1789.
Philippe’s story does show, however, that it’s possible to fix even the worst economic and public finance disasters, as long as the government gets out of the way and stops making the problem worse.
It would be nice to see that approach today in the West, and especially the US. But leadership can’t seem to stop making things worse.
First off, they’re addicted to deficits; even though the US national debt rocketed past $30 TRILLION this year, the government still hasn’t found the motivation to balance the budget and live within its means.
The White House’s most recent budget proposal for next year shows a deficit of “only” $1.8 trillion. And they’re actually bragging about this like it’s a major accomplishment.
And it was only a few months ago that the most senior officials in the federal government, including the Speaker of the House and the President himself, insisted that their multi-trillion dollar ‘Build Back Better’ bill would “cost nothing”.
They even went on TV multiple times to make this ridiculous assertion, almost as if they wanted to leave no doubt of their economic illiteracy.
They clearly have zero understanding of the problems; they blame inflation, for example on “corporate greed”, and have decided to ‘fix’ inflation by having powerful government agencies harass the private sector.
They actually believe they’re fixing high oil prices by depleting the Strategic Petroleum Reserve, as if dipping into your emergency savings is a credible alternative to new production.
And they see every problem as an opportunity to create more regulations.
So, contrary to Philippe d’Orleans, they clearly have no intention of getting out of the way. Quite the opposite– they’re taking a bad situation and making it much worse. And it’s time to get rational about this.
For starters, inflation will likely continue to rise.
After all, we cannot expect them to fix a problem that (a) they do not understand, and (b) they keep making worse.
And most likely it’s only a matter of time before inflation, along with global supply chain madness, pushes much of the world into recession.
They’re not going to be able to fix that either. They don’t have the tools.
They’re already $30 trillion in debt with a $1.8 trillion deficit in their supposedly ‘scaled-back’ budget. Fighting a recession would mean the government dumps trillions more into the economy– money they clearly don’t have.
The Federal Reserve, meanwhile, has few options. Interest rates are already near zero, so they don’t have much room to fight a recession by cutting rates. Besides, any interest rate cut would only risk making inflation worse.
It’s not a great situation. But it is fixable; Philippe d’Orleans showed what could happen if you get out of the way and let freedom prevail. It’s not rocket science:
Stop creating disincentives to work, produce, and trade. Stop creating fanatical regulations. Stop dismantling capitalism in the name of social justice. Stop fomenting conflict. Stop trying to invent new taxes.
Just stop. And let people live their lives.
But it’s doubtful they’ll ever take this approach. And that’s why it’s so critical to have a Plan B.