Why we don't need a new New NEW Deal - Part 2

(Click here for Part 1.)
Franklin Delano Roosevelt took office in March 1933. He would create hundreds of new interventionist agencies and embark on unprecedented projects, transforming American society on a massive scale. The following is only a representative sample of the alphabet soup of interventions, projects and agencies initiated by the Roosevelt Administration known in the aggregate as the New Deal:
• United States Bank Holiday / Emergency Banking Act: FDR ordered every bank in the country closed on the first week of his term. No one could make deposits or withdrawals, that is, have access to their own property.
• “Relief, Recovery and Reform”: slogan of the early FDR administration
• Tennessee Valley Authority (TVA)
• Works Progress Administration (WPA)
• Wagner Act: Boosted privileges of unions and approved collective bargaining rights.
• Federal Deposit Insurance Corporation (FDIC)
• Federal Housing Administration (FHA)
• Securities and Exchange Commission (SEC)
• Agricultural Adjustment Association (AAA)
• National Recovery Administration (NRA)
• Works Progress Administration (WPA)
• Executive Order 6102, a.k.a. gold confiscation
• Farm Credit Act
• National Industrial Recovery Act / National Recovery Administration
• Public Works Administration
• Civilian Conservation Corps
• Federal Emergency Relief Administration (FERA)
• Reconstruction Finance Corporation
• Civil Works Administration
• Emergency Relief Appropriation Act
• National Labor Relations Act / National Labor Relations Board (the people who tell Boeing they can’t open a new plant in a non-union state.)
• Fair Labor Standards Act
• Fair Employment Practices Commission
• Federal Project Number One (sponsoring artists, artistic works and productions)
• Committee on Economic Security
• Social Security Act

Finally, toward the end of his reign, FDR attempted to implement what he called the
• Second Bill of Rights

Many of these agencies and institutions are with us to this day and are likely to continue for generations. What these acts, agencies and institutions DIDN’T do is end the Depression.
The Depression lasted seven more years beyond Hoover, with a second, ‘double-dip’ recession in 1937-38. It didn’t end definitively, with the return of full employment, until World War II production and mobilizations were well under way. World War II’s destruction and death per se didn’t fix the Depression. It was the return of relatively free-market policies and the END of the most aggressive interventions and the demonization of businessmen which permitted the economy to return to a more rational basis for functioning.

So what would you have done, smarty-pants?
Crises always look a lot simpler from a distance in space and time. But the response of Hoover and Roosevelt to the Crash and Depression were not those of panicked, surprised men with no clue what to do. They were the premeditated strategies of calculating men, carried out in their moment of opportunity. Hoover and FDR were interventionists who didn’t believe in free-market, laissez-faire capitalism and exploited every crisis for the purposes of implementing their own vision of governance, fully formed years earlier.
It’s not that these were bad men; we can assume they sincerely believed, as many of our politicians to this day believe, that it is the appropriate role of the federal government, its hundreds of agencies and tens of thousands of bureaucrats, to micro-manage every aspect of our economic lives ‘for the greater good’. To a degree they can be forgiven for being, as all mortal men are, imperfect and in this case, mistaken.
The same is difficult to say for the politicians who, 80 years later, insist upon leading us down the same path to government expansion, micromanagement and high taxation above and beyond the New Deal (and later, Lyndon Baines Johnson’s Great Society) with the excuse that it’s necessary in order to resolve or prevent the crisis and bring prosperity, security and health care to all. The evidence is overwhelming that regardless of political party, such intervention only amplifies and prolongs the crisis. Politicians and government, even ‘good’ ones, do not create wealth, produce high wages and low prices for workers, high revenue and low costs for businesses, or innovative and environmentally friendly products and services. They can’t guarantee no one will fail and shouldn’t guarantee that anyone succeed at the expense of anyone else. Only the market – entrepreneurs, business people, private firms big and small, investors, speculators, insurers and individual consumers – cooperating voluntarily, acting in their own interest within the rule of law, can accomplish the best production and distribution of wealth possible in an imperfect, physical world (as opposed to celestial paradise).

As a matter of economic principle, it was futile for Hoover or FDR to:
• Attempt to prop up wages. If the total amount of wealth and activity in an economy has diminished for whatever reason (natural disaster, war, contraction of trade due to protectionism – Smoot Hawley – and retaliation by partners, or other destruction of wealth), then someone’s wages will have to fall in real terms. If one politically favored group’s wages are artificially maintained above what they would be under un-coerced voluntary cooperation, then someone else’s wages have to fall proportionately (and unjustly, including to zero – unemployment) to balance the aggregate accounts.
• Attempt to prop up commodity prices for farmers. If corn is too cheap, marginal corn farmers need to grow soybeans or take a higher-paying job in industry. This is how it has always been. When our nation was born, 97% of the population worked the land; now that proportion is reversed, with only 3% in agriculture feeding the entire US and much of the rest of the world. Low prices benefit the consumer and as such are not inherently bad.

The futility of the intervention was brought to light when the Federal Farm Board’s policy of price supports encouraged overproduction of wheat, cotton, wool and other products, resulting in even worse collapsing market prices and devastating losses. At that point Hoover intervened in another direction, to order acreage to be plowed under, taken out of production, and to destroy ‘excessive’ livestock.
• Attempt to prop up prices for the benefit of big industrial producers. If oil or lumber is too cheap, marginal oil/lumber companies have to get into a different business where they have a relative advantage and/or where the consumers are clamoring for the product. No subsidy or privilege is required, let alone justified, to bring the economy back into balance.
• Attempt to ‘protect’ domestic industries from foreign competition via protective tariffs such as the Smoot-Hawley bill. Such actions always hurt domestic consumers and invite retaliation from foreign governments and their favored industries. The Smoot-Hawley bill was arguably the single most important trigger of the October 1929 crash, as investors and economists correctly re-estimated the value of their investments under a reduced-trade market.
• Herd workers into unions that they would not join under conditions of voluntary cooperation. Favoring unions at the expense of free labor is a violation of liberty; it raises wages for some at the expense of others who receive less (or nothing) and undermines the ability of workers to develop as independent entrepreneurs. Independent-minded Americans have always resisted unionization compared to other western nations, for good reason.
• Manipulate money and credit prices / interest rates. Monetary manipulation by private individuals is prosecutable as counterfeiting and/or fraud, and is no less evil or destructive when practiced by government. Forcing interest rates too high chokes economic activity; forcing them too low makes longer production cycles – and with them higher investment returns – appear like mirages in the desert, deceiving investors to make bets that are destined to fail.
• Embark on public works projects for the purpose of ‘putting America back to work’. If a road or bridge needs to be built, let the agency most impacted by it (municipal, country or state government, or private firms) build it. If an electric company sees a business opportunity in building a dam, let them buy the property, indemnify 3rd parties and other stakeholders, carry plenty of insurance, clean up their messes, reimburse anyone they harm, and finance the project with their own investor’s resources (and reap whatever profits the market may bear without having it taxed away). But spending capital for the sake of busy activity does not increase wealth; it sucks wealth away from where it is more desperately needed. The 1930’s Autobahn in Germany was a glamorous showcase, but an economic and social disaster.
• Weaken protection for creditors in bankruptcy proceedings. This is a classic case of attempting to make a balloon smaller by squeezing it at one end; it always bulges out at the other. What person with money to lend wants to risk their capital in an environment in which the government has signaled its willingness to arbitrarily change the terms of any loan contract? Such uncertainty leads to a contraction of credit. How does that help future borrowers/debtors?
• Threaten and demonize innocent people. In different times and places, this has meant Christians, blacks, Jews, merchants, bankers, gypsies, homosexuals, whites, Hutus, the mentally deficient, the culturally undesirable, browns, union workers, strike breakers (‘scabs’), foreigners, rich people, poor people, good people, bad people and ugly people. Corrupt and despotic politicians have employed this base technique for millennia, but it is unworthy of an enlightened leader of a free people today to do so. The only justification for any accusation is specific allegations of criminal wrongdoing targeted at the specific individuals (not groups) who committed them. Investing and/or speculating against the market outcomes desired by a political party or government program does not qualify as justification for group persecution.
• Increase government spending in time of diminished tax revenue.
• Micromanage business.

As a solution to the economic crisis, Roosevelt’s interventions and the alphabet soup of angencies created to implement them were equally or more futile than those of Hoover. The Social Security Act and system will require its own in-depth discussion. But make no mistake, Bernie Madoff could not have done worse in the long term.

Conclusions
• The Great Depression was a crisis of government intervention, not one of free-market capitalism. Government intervention is the problem; free-market capitalism under the rule of law is the solution.
• The Hoover-Roosevelt administrations constituted a continuum, not a fundamental change of policy direction. Herbert Hoover was not a free-market, laissez-faire capitalist, limited-government president.
• As long as the interventionist philosophy prevails in our nation’s capital and in state capitals, we can expect more economic crises, as bad or worse. It doesn’t matter that the interventions are ‘for the greater good’ or that the people leading the intervention are good, well-intentioned, virtuous, upstanding citizens. An impossible task is still impossible when undertaken by a mortal saint.

It is remarkable that the myth of the ‘success’ of the New Deal lives on to this day. The Depression lasted seven more years beyond Hoover, with a second, deep recession in 1937-38. The depression didn’t end definitively, with the return of full employment, until World War II production and mobilizations were well under way. In other words, a calamitous event in which tens of millions of people worldwide were killed and hundreds of cities, with all of their wealth and assets, were completely destroyed, was by one measure less damaging to the economy – perhaps even beneficial – than the policies of Hoover, FDR and the New Deal.
It is dangerous to hold the thought that war is an antidote to economic depression, just as is it is to consider war and conquest a solution to economic challenges such as securing reliable supplies of materials that your country lacks (from Caesar’s conquests to Hitler’s ‘lebensraum’).

World War II’s destruction and death didn’t fix the Depression. What happened was that many government interventions of the New Deal, including the demonization of businessmen, were abandoned and not reinstated after the war was over. The end of the Hoover-FDR New Deal ended the Depression. It would have ended 10 years sooner if this tragic blunder had never been attempted. Moreover, some of the worst tragedies of the War might have been avoided if not for the worldwide ripple effects of the economic malaise. May we never again be tempted to repeat such a disaster.
That depends on YOU, citizen economist.

Why we don't need a new New NEW Deal - Part 1

The last time the American economy was in such dire straits was over 30 years ago; perhaps 70. Do the lessons of the Great Depression perhaps hold any explanations, let alone solutions? Let’s recall a bit what happened all those years ago (it might even feel familiar):
• From September 1929 to July 1932, the Dow Jones Industrial Average (DJIA) fell from a high of 381 to 43, an 88% decline. In our time, that would be like the Dow falling from 15,000 to 1,800.
• Some of the most dramatic moments occurred in late October 1929, on the 24th (‘Black Thursday’: almost 13 million shares, or approximately 3 times the daily average, traded for a 6-point drop in the DJIA) and the 29th (‘Black Tuesday’: 16+ million shares traded for a 30-point drop).
• The market didn’t recover its pre-crash level for 25 years.
• Chronic unemployment soared from a historical average of 5% to over 15% for almost a decade, peaking at 25% in 1933.
• Industrial production was cut in half.
• Business construction dropped 84%.
• Bank failures spiked from a historic average of 700 per year to 1,350 in 1930, 2,293 in 1931, 1,453 in 1932; 4000 commercial banks failed in 1933.
• The crisis rippled worldwide and contributed to the rise of Hitler and Mussolini in Europe.
• Four years into the Roosevelt presidency, in 1937-38, the economy sank into recession for a second dip.
• Only World War II in the 1940’s resulted in increased production and put an end to high unemployment, at a terrible price; millions of lives lost in the war, all production being channeled into armaments with little left over for consumer goods or comforts. True prosperity would not return until the late 1940’s or later.

The lessons to be learned from this calamity are indeed applicable to our present-day crisis. But the conventional wisdom about the Great Depression – that it was caused by the excesses of free markets that must necessarily lead to crisis by virtue of capitalism’s inherent contradictions, abetted by the laissez-faire policies of a Republican president Herbert Hoover, and that the government-expanding New Deal policies of Democratic president Franklin Delano Roosevelt were the necessary and proper remedy which saved us from a worse fate – is entirely wrong.
The stock market crash of October 1929 was the direct result, not of free-market capitalism, but precisely of government interference in the market, transmitted via the political signal that the Smoot-Hawley Tariff bill, a protectionist monstrosity, would be made law. The market correctly estimated that this bill would substantially constrain international commerce, reducing the current market value of financial and other assets. The search for the right revaluation was a panicked activity; but that panic was rationally justified.
The subsequent government responses to the initial crisis dug the country increasingly deeper into the hole.

A Crisis of Intervention
Remember the Great Depression of the 1920s? Of course you don’t, because it didn’t happen. It might be because President Warren Harding ignored his Secretary of Commerce Hebert Hoover’s advice to intervene in the recession of 1921, and that recession quickly recovered and was forgotten.
Herbert Hoover was no laissez-faire leader. In the early ‘20s, before either was president, Hoover collaborated with Franklin Delano Roosevelt in the American Construction Council, an attempt to turn the construction industry of the entire nation into one giant cartel. He participated in the drafting of the Railway Labor Act of 1926, a major step to collectivizing labor relations. He believed that high wages in an economy cause general prosperity, rather than – the other way around – that prosperity produces higher wages. From this premise much of Hoover’s efforts as president would be targeted at maintaining pre-crash wage rates for those workers who still had jobs. Economic theory states that artificially attractive prices cause shortages. In this case, it lead to a shortage of jobs: unemployment.

After the crash, President Hoover (1929-33) intervened aggressively in the economy. Hoover:
• Summoned the leaders of the largest corporations and business associations to a series of conferences for, in his own words, “the coordination of business and governmental agencies in concerted action.” They acted in large part to maintain existing wage rates and continue expansion. Real wages for employed workers increased for most of Hoover’s term, peaking at 11% above 1929 levels in 1931 and still a ‘healthy’ 8% in 1933 while unemployment simultaneously soared to 25% (in other words, nice work if you can get it; God help you if you can’t).
• Urged public works programs in response to the crisis. The Division of Public Construction of the Department of Commerce was created in December 1929. Hoover urged state governors to follow suit at their level.
• Intervened in different directions at different times in commodity markets. When the Federal Farm Board’s policy of price supports resulted in overproduction of wheat, cotton, wool and other products, thereby collapsing prices and bringing devastating losses, Hoover changed course to order acreage to be plowed under, taken out of production, and to destroy ‘excessive’ livestock.
• Authorized construction of Hoover Dam on the Colorado River, at a cost of $915 million (equivalent of roughly $45 billion of today’s dollars).
• Signed the Smoot-Hawley Tariff into law in 1930.
• Weakened bankruptcy laws in favor of debtors and eroding the property rights of creditors.
• Imposed an immigration ban which effectively reduced legal immigration from Europe by 90% overnight. He deported as many as 20,000 ‘undesirable’ aliens per year.
• Publicly assailed speculators and coerced the New York Stock Exchange to curtail short selling; campaigned against ‘unpatriotic’, ‘traitorous’ hoarders (or put another way, demonized frugal, risk-averse citizens who claimed the right to their property and thereby exposed unsound credit policies and institutions).
• In February 1931, signed the Employment Stabilization Act, creating the Employment Stabilization Board. Unemployment soared to 25% in 1933 and didn’t fall to pre-depression levels until 1940.
• Massively increased government expenditures at a time when revenue to the treasury was falling, resulting in the largest peacetime deficits to date in American history. Federal expenditures rose 30% in 1930 alone, from $4.2 billion to $5.5 billion.
• In 1931, created the President’s Organization on Unemployment Relief, effectively inserting the federal government for the first time into a sphere that had previously been considered the responsibility of private charities and religious organizations.
• In 1931-32, created the Reconstruction Finance Corporation, intended to centrally and comprehensively direct and manage the banking, lending, insurance and finance industries.
• Reduced the hours worked by government employees without reducing their salaries.
• Cancelled oil-drilling permits on publicly-owned land, in an effort to restrict supply and maintain a ‘minimum fair price’ for the petroleum industry.
• In May 1931, closed Federally-owned forest land to new logging, in order to defend timber prices.
• Urged the Federal Reserve to relax its lending and discount standards (in other words, engaged in artificial credit expansion). See: Glass-Steagall Act of 1932.
• Signed the Federal Home Loan Bank Act, creating the Federal Home Loan Bank Board, since 1989 the Office of Thrift Supervision, intended to promote home ownership.

One of the few of Hoover’s acts which could be qualified as pro-limited government and individual property rights was his income tax rate cut of 1930, from the stratospheric height of 5% to 4% (a cut of 20%) for individuals, and 12% to 11% for corporations. Prior to the 1930’s, the income tax had not taken anything like its modern bite in the daily lives and livelihoods of citizens.
However, in 1932 he reversed course and raised income taxes as well as prior wartime excise taxes and sales taxes on hundreds of consumer goods. The surtax on the highest incomes went from 25% to 63%. When businessmen suggested to Hoover that the tax regimen was detrimental to the general economic health and that the government would do better to cut expenditures by $2 billion, Hoover brushed them aside.

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Read Part 2 of Why we don't need a new New NEW Deal HERE.

Understanding the Financial Crisis of 2008

The Housing market – prices and lending behavior – went irrational in the first half of the first decade of the 2000’s, then crashed in 2008, sending seismic financial shock waves around the world which are still reverberating late in 2013, with stubbornly high unemployment and massive increases in public spending and debt which haven’t improved the situation at all.
Since housing was the spark that set off the fire, let’s take a closer look at that.
Not all housing markets (by geography) experienced the same wild gyrations. As a national average, the rise in purchase prices paid was only 38% from 1999 to 2005, and the ‘collapse’ only 10 percent from 2006 through 2008 (in other words, home prices were still higher in 2008 than in 1999 by 28% – hardly a crisis). But in certain local markets in Nevada, Florida, Arizona and coastal California and a few others, the rise and fall was much more amplified, with prices more than doubling in some places during the boom and falling almost as far or farther in the crash. Most of the rest of the country was not going nuts. In places like Houston and Dallas Texas, for example, there was hardly any extraordinary rise in prices and therefore no traumatic bust. Moreover, housing in general has been more affordable in those markets, taking a substantially smaller share of an owner’s or renter’s income to maintain than in the ‘hot’ markets.
In other words, the housing market surge and collapse was at its root a localized phenomenon, not a general or national one.
So why did prices rise so dramatically in these particular markets? It’s a question of Supply and Demand: mainly for land on the one hand, and for mortgage loans on the other.

The supply of loans (price/interest rate and availability/approval) is principally governed by the lender’s perception of the risk of getting paid back (or not) for the cash advanced to the borrower. In a free market, banks that lend to deadbeats will soon be bank-rupt, unable to recoup the money they’ve advanced (bankers consider that a bad thing). So traditionally these have been very conservative and prudent, wearing their bow ties and green eyeshades, scrutinizing and documenting every potential borrower’s credit history, good character and sources and amounts of income, as well as general economic conditions that may affect the continuance of the same. The higher the perceived risk of lending, the more constrained the supply of lendable funds and the higher the interest rate (credit price) charged. The calculation of risk and supply are made on the basis of general market conditions, the amount of cash that each bank has available, and case-by-case particulars centered around the individual borrower or co-borrowers.
In the 1970’s, the price of housing in Nevada, Florida, Arizona and coastal California were not that much different from the rest of the country, neither in absolute terms nor as a percentage of the owner’s/renter’s income required to maintain a home (which is to say, affordability).
Two contradictory and not fully thought-through political goals kicked off the long march to disaster:
• Wilderness Preservation
• Affordable Housing

Wilderness Preservation
Beginning in the 1970’s, the environmental movement and its political allies promoted increasingly extensive and rigorous land-use restriction laws. These policies were always promoted under the slogans of preserving wilderness, saving farmland, creating open space, ‘smart growth’, rescuing endangered species and/or habitat and other happy, desirable outcomes.
News Flash! Reducing the supply of a good puts upward pressure on its market price! In the markets and geographical regions where such laws were passed, real estate prices began to climb out of previously ‘normal’ ranges. The cost of real estate, and with it, housing, skyrocketed in relation to other regions where the legal environment favored full unfettered private property rights. Housing became less affordable.

Affordable Housing
"Neither by comparison with the recent past nor by comparison with other countries today is most housing in the United States unaffordable. The median-priced home in the United States as a whole is 3.6 times the median income of Americans. For Great Britain, the median-priced home is 5.5 times the median income and in Australia and New Zealand, the ratio of home prices to income is 6.3."
-Thomas Sowell, The Housing Boom and Bust

Nevertheless, the federal government and its appendages have been on a decades-long crusade to make housing in America more ‘affordable’.
The Community Reinvestment Act of 1977 gave the federal government an unprecedented foothold in micromanaging the business practices of lenders, telling them to whom they should lend, how much and on what terms. In the 1990’s the power of this act were amplified, with banks having to establish racial and ethnic quotas, both in their lending and in their hiring practices, and ask permission before merging or opening new branches (permission which might be denied on the political grounds of not having done enough ‘socially responsible’ work or lending in their communities). In 1993 the Department of Housing and Urban Development , or HUD, began suing banks over race-based statistical disparities.
The implicit assumptions seem to have been that a) bureaucrats in Washington (and community activists at ACORN) know better than bankers in Peoria what are the ‘correct’ lending criteria and practices for their local markets, what is the best and soundest ‘socially responsible’ policy for what to do with their depositor’s money, b) that lending is somehow doing someone a favor as opposed to being a mutually beneficial exchange, and c) that unless Washington keeps a close vigil on greedy, racist bankers, they would discriminate unfairly against racial minorities, denying them loans more often than White/European majority applicants.
Point a) is laughable on its face, yet its premise underlies most government economic policy today. Point b) seems to ignore the fact that lenders are in the business of lending and benefit from it, WANT to lend.
Point c) is easily refuted:
• Banker’s favorite color is not white or black, but green. Any banker offended by receiving a monthly loan payment from a brown or yellow person will soon find himself in the red. The natural mechanism of the market is for gaps in supply to be eagerly filled by entrepreneurs, however greedy or racist they may be. Customers missed by one supplier will be eagerly served by another.
• Statistical differences between racial groups are not proof of unfair discrimination against individuals. When controlled for credit ratings, wealth, income, employment history and other factors, no material discrepancies remain.
• Black-owned banks have been shown to turn down black applicants for loans at a higher rate than White-owned banks .
• Chinese and Japanese Americans have suffered discrimination and even internment in the past. But today, Asian applicants in the aggregate are turned down for loans less often than White/European Americans. This fact does not support a theory of white racism among bankers.
So banks were under increasing pressure to make loans to satisfy politicians rather than depositors and borrowers; to loosen lending standards, to NOT scrutinize and document the individual applicant’s creditworthiness, good character and sources and amounts of income but to focus their attention on rectifying the supposed evils of ‘redlining’ and ‘disparate impact’. Thus the non-traditional or ‘subprime’ market grew from 7 percent of all loans in 2001 to 19 percent in 2006.
But how could the banks do this (neglect their lending standards) without cutting their own throats?
The politicians who did the banker no favors by bullying them into making millions of loans that they might not have made, gave them a way out: Flip the loans, and with them the default risk – good, bad or ugly – to someone else.
Over the past 40 years, the privileges and obligations of two government-sponsored companies, Fannie Mae and Freddie Mac , have been significantly beefed up, again for the purpose of promoting ‘Affordable Housing’. These companies have CEOs, stockholders and profit-and-loss statements like private banks and other publicly-traded companies, but they were chartered by the federal government for the purpose of doing ‘good’ in their markets (as opposed to merely raking in obscene profits for their greedy shareholders and CEO’s like Franklin Raines and his $90 million compensation package), in exchange for which they enjoy preferential tax treatment and the implicit guarantee that if anything goes wrong, Uncle Sam (that’s you and me the taxpayer) will pick up the tab.
Since at least 1992, Fan and Fred have been under orders to buy up more and more ‘affordable housing’ mortgages from the originating lender banks. By 2007, Fan and Fred had purchased 40 percent of the sub-prime and/or non-traditional mortgages (a.ka. ‘Liar Loans’, loans made with minimal or no documentation, due diligence, credit checks, character references etc.) originated in the United States, or about one million million dollars worth . The total value of their debt outstanding as of 2010 was over 8 million million dollars; that’s two-thirds the magnitude of the national debt of the United States.
Fannie Mae and Freddie Mac have long enjoyed unwavering support from cheerleaders in positions of significant power in the federal government, among them Barney Frank, Christopher Dodd, Maxine Waters, Joe Baca, Nancy Pelosi, Charles Rangel and Kit Bond, among others.
In any event, the inevitable happened. In 2006, loan default rates, especially in the sub-prime market, reached record levels. In 2007 Countrywide Home Loan’s share price collapsed and it was acquired by Bank of America. BofA itself was one of several targets of the Troubled Asset Relief Program (TARP) to the tune of $45 billion, along with several other financial dominoes that were deemed ‘too big to fail’: Citigroup, $50 billion; AIG, $40 billion; Wells Fargo, $25 billion; J.P. Morgan Chase, $25 billion.
In spite of TARP and multiple rounds of economic ‘stimulus’ spending plans by the Bush and Obama administration (or perhaps because of them), the employment rate and general economic health of the country has sunk to lows not seen in at least 30 years, with hardly an exit in sight.
The natural economic forces of Supply and Demand were derailed in housing markets in America in the early years of the 21st century, leading first to the craze and then inevitably to the crisis. Like all crises of this magnitude, this one was one of government interference in the natural, self-correcting mechanisms of the free market, building one intervention on top of another until it collapsed of its own dead weight.

What Happened to the Party of JFK?

When President John F. Kennedy challenged Americans to “Ask not what your country can do for you; ask what you can do for your country,” it was call to take responsibility for ourselves and help our neighbors; it wasn’t an exhortation to pay more taxes to Washington DC. Kennedy CUT tax rates across the board, and promoted the cuts as energetically as Ronald Reagan would 20 years later, as the best way to increase the prosperity of the nation and the receipts to the treasury. History proved Kennedy right; the decade of the 1960’s was an era of robust economic growth in spite of an expensive and unpopular war (Vietnam) and the ambitious manned Apollo mission to the moon.
JFK is one of the great idols of liberals, but his actual fiscal policies are completely alien to the Democratic party of today, which has lurched toward hard-left socialism. Obama, Reid, Pelosi and their fellow travelers seem hell-bent to raise practically every existing tax as high as they can get away with and then pile new ones like the VAT on top. Nothing should move that they don’t command and control.
What are the results so far? Prolonged stagnation, unemployment sustained at record levels; the Great Recession.
This is America? Time to ask ourselves what we can do to take it back.

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JFK State of the Union Address January 14 1963:
America has enjoyed 22 months of uninterrupted economic recovery. But recovery is not enough. If we are to prevail in the long run, we must expand the long-run strength of our economy. We must move along the path to a higher rate of growth and full employment.
For this would mean tens of billions of dollars more each year in production, profits, wages, and public revenues. It would mean an end to the persistent slack which has kept our unemployment at or above 5 percent for 61 out of the past 62 months--and an end to the growing pressures for such restrictive measures as the 35-hour week, which alone could increase hourly labor costs by as much as 14 percent, start a new wage-price spiral of inflation, and undercut our efforts to compete with other nations.
To achieve these greater gains, one step, above all, is essential--the enactment this year of a substantial reduction and revision in Federal income taxes.
For it is increasingly clear--to those in Government, business, and labor who are responsible for our economy's success--that our obsolete tax system exerts too heavy a drag on private purchasing power, profits, and employment. Designed to check inflation in earlier years, it now checks growth instead. It discourages extra effort and risk. It distorts the use of resources. It invites recurrent recessions, depresses our Federal revenues, and causes chronic budget deficits.
Now, when the inflationary pressures of the war and the post-war years no longer threaten, and the dollar commands new respect-now, when no military crisis strains our resources--now is the time to act. We cannot afford to be timid or slow. For this is the most urgent task confronting the Congress in 1963.
In an early message, I shall propose a permanent reduction in tax rates which will lower liabilities by $13.5 billion. Of this, $11 billion results from reducing individual tax rates, which now range between 20 and 91 percent, to a more sensible range of 14 to 65 percent, with a split in the present first bracket. Two and one-half billion dollars results from reducing corporate tax rates, from 52 percent--which gives the Government today a majority interest in profits-to the permanent pre-Korean level of 47 percent. This is in addition to the more than $2 billion cut in corporate tax liabilities resulting from last year's investment credit and depreciation reform.
To achieve this reduction within the limits of a manageable budgetary deficit, I urge: first, that these cuts be phased over 3 calendar years, beginning in 1963 with a cut of some $6 billion at annual rates; second, that these reductions be coupled with selected structural changes, beginning in 1964, which will broaden the tax base, end unfair or unnecessary preferences, remove or lighten certain hardships, and in the net offset some $3.5 billion of the revenue loss; and third, that budgetary receipts at the outset be increased by $1.5 billion a year, without any change in tax liabilities, by gradually shifting the tax payments of large corporations to a . more current time schedule. This combined program, by increasing the amount of our national income, will in time result in still higher Federal revenues. It is a fiscally responsible program--the surest and the soundest way of achieving in time a balanced budget in a balanced full employment economy.
This net reduction in tax liabilities of $10 billion will increase the purchasing power of American families and business enterprises in every tax bracket, with greatest increase going to our low-income consumers. It will, in addition, encourage the initiative and risk-taking on which our free system depends--induce more investment, production, and capacity use--help provide the 2 million new jobs we need every year--and reinforce the American principle of additional reward for additional effort.
I do not say that a measure for tax reduction and reform is the only way to achieve these goals.
--No doubt a massive increase in Federal spending could also create jobs and growth-but, in today's setting, private consumers, employers, and investors should be given a full opportunity first.
--No doubt a temporary tax cut could provide a spur to our economy--but a long run problem compels a long-run solution.
--No doubt a reduction in either individual or corporation taxes alone would be of great help--but corporations need customers and job seekers need jobs.
--No doubt tax reduction without reform would sound simpler and more attractive to many--but our growth is also hampered by a host of tax inequities and special preferences which have distorted the flow of investment.
--And, finally, there are no doubt some who would prefer to put off a tax cut in the hope that ultimately an end to the cold war would make possible an equivalent cut in expenditures-but that end is not in view and to wait for it would be costly and self-defeating.
In submitting a tax program which will, of course, temporarily increase the deficit but can ultimately end it--and in recognition of the need to control expenditures--I will shortly submit a fiscal 1964 administrative budget which, while allowing for needed rises in defense, space, and fixed interest charges, holds total expenditures for all other purposes below this year's level.
This requires the reduction or postponement of many desirable programs, the absorption of a large part of last year's Federal pay raise through personnel and other economies, the termination of certain installations and projects, and the substitution in several programs of private for public credit. But I am convinced that the enactment this year of tax reduction and tax reform overshadows all other domestic problems in this Congress. For we cannot for long lead the cause of peace and freedom, if we ever cease to set the pace here at home.

What – Me Worry about Taxes?

If you think income taxes don’t matter to you because you don’t pay any, think again.
If you are a working person with a modest income who pays little or no federal income tax, how the system is rigged still matters to you, for one simple reason: it hits your employer (or potential employers) directly; the more your ‘rich’ boss has to pay in taxes, the less likely it is (s)he can give you the raise, or even the job in the first place.
Profit, or surplus of revenue over expenses, is what makes investment in the next round possible. Capital investment and innovation is what makes wages, salaries and standards of living rise over time. It is because private property rights and economic freedom have been defended better in the West in general and the United States in particular than around the rest of the globe, that working people here have the highest standard of living that the world has ever seen.
But the more that profit or ‘surplus income’ is taxed away by the government, the less is available for capital investment, to bid up wages and salaries. Inefficiencies inherent to government (an agency that doesn’t register profit and loss based on providing the best product or service that the consumers demand, at the lowest cost) ensure that those dollars don’t go as far to increase wealth for the whole society.
Government and unions have a role to play, but it is a supporting role, not a primary one. Government’s proper role is to act as an impartial referee, to ensure everyone plays by the same rules and to punish and prevent wrongs, from civil fraud to violent crime; but not to pick winners and losers. Unions can be a positive force as the legitimate agency of workers who pool their resources voluntarily to coordinate their negotiations with employers.
But granting special legal privileges (including looking the other way at violence) to particular, politically-connected unions at the expense of taxpayers and other equally worthy workers lacking the same connections, is a violation of the principles of liberty and equality, and a recipe for economic crisis. Unions did not create the prosperity of the United States of America. The countries and industrial sectors that have the most powerful unions also have the most sickly economies. The once-proud and mighty General Motors is on government life support due in part to the abuses of the United Auto Workers. The entire nation of Greece is collapsing under the weight of its public-sector pensions. Europe has very powerful unions…and stagnant economies, with 10%+ unemployment ALL THE TIME, not just during recessions.
Depending on your own personal situation, you may see it as your goal to become a member of a powerful union, or to maintain and expand the privileges that you already have. But choking the host industry or country to death is not a sustainable model for a healthy society.
On the other hand, a low-tax, reasonable regulatory regime that permits people like yourself and the entrepreneurs who employ you to keep the fruits of their honest labor and decisions, and save and invest it in more productivity, leads to higher wages and better working conditions than any union or government program can offer, and is sustainable until the end of time.
Vote OUT the statists, and replace them with citizens who have created jobs with their own money.
Even though half of all Americans don’t pay any federal income taxes, yet 66% believe that the tax burden in America is too high. The consensus in America is that the government should not take more than 20% of anyone’s income, yet we’re way above that already and headed for … Europe. In the Old Continent, whose ways we once repudiated with the Declaration of Independence, they have individual income tax rates that are higher than ours and national sales taxes (value-added taxes, or VATs) on top that average 20%.
And what do our friends have to show for these economic policies? Before the recent downturn, the US created four times as many new jobs every year as the European Union. The average resident in our poorest states is wealthier than the average European. And the shocking double-digit unemployment we’re suffering is just business as usual over there.
Prosperity doesn’t come from taxation. It comes from entrepreneurial capitalism; liberty constrained only by the equal liberty of every other person to life, peace and (private) property.
Yet the Democrats still believe that we (if not all of us then certainly those with enough wealth or income to potentially employ the rest of us) are not taxed enough, and they want to add the glorious VAT to our portfolio of tribute. Where will it end?
In the early 1770’s we petitioned King George III of England for relief and it fell on deaf ears. Now we are getting European taxation with Democratic Party representation. It’s time to change both.

Who could possibly have known that Socialism would fail?

You may have thought that Socialism had been definitively discredited when the greatest experiment ever conducted, the Soviet Union, collapsed with the Berlin Wall in 1989; yet socialist ideas and parties, some of whom don’t dare call themselves by their true name, still live on. Socialism ought to have been discredited when the Berlin Wall went up in the first place in 1961, demonstrating to the world that Socialism is a giant maximum-security prison.

But Ludwig von Mises, the Austrian (later American) economist, demonstrated that Socialism could never fulfill its promise no matter what variation was attempted nor how wise and virtuous the men running it. He did this in 1922.

Think about that for a minute: 1922.  The smoke and mustard gas of WWI was barely clear. The Bolshevik ‘experiment’ in Russia was only 4 years old and Stalin the Butcher of the Soviet Union had not yet risen to power. Nobody had heard of Hitler or Mao or Castro or Kim Jong Il or Idi Amin or Pol Pot. At that time, the Socialist movement was ascendant all over the world, even in the United States; intelligent men and women of goodwill could reasonably believe it held out hope for a better, more prosperous and just world.

But Mises burst the bubble. He demonstrated logically that every wage and price control, every tariff, tax, privilege, prejudice, manipulation and regulation that does NOT derive from government’s legitimate need to prevent and punish murder, robbery, assault, fraud, theft, rape, persecution and conspiracy – every such interference distorts and destroys information necessary for rational economic planning and action. If some collective entity like the state owns or otherwise controls all capital goods, all land, natural resources, factories, machinery, health care services etc. then

·        there is no market for these goods

·        no buying and selling,

·        no bargaining and haggling,

·        no Supply and Demand.

·        If there is no market then there are no prices.  Prices constitute the indispensable information system for signaling the needs and scarcities in an economy, and the cost of available alternatives. There are a hundred different ways to build a building, and dozens of alternative materials and techniques for each component. Which combination is the most economical? Who knows? Without prices, there is no way of knowing. There is no other metric that can adequately substitute for market prices.

·        Economic planning cannot function without these numbers.

That is why Socialism fails every time it is tried: Economic calculation is impossible under Socialism.

And then there’s the bureaucracy. With no markets there is no competition, neither incentive nor reward for better customer service or to provide a higher quality product at a lower price. The entire economy becomes like a giant post office or Department of Motor Vehicles, with self-serving, inner-directed bureaucracies with languages and cultures of their own, foreign to the rest of us, with iron-clad privileges, job security and pensions that do not vary with how well or poorly they serve willing customers.

When you accuse liberals of leading us down the path to Socialism and state bureaucracy with their massive government programs, they scoff and wave you off like you’re some kind of nut case. “We’re not socialists, we’re progressives”, they say. “We only want the best of both systems, the Middle Way.”

But there is no ‘middle way’, in the sense of a happy medium, best of both worlds.  Every forcible intervention in the economy, every wage and price control, every tax and regulation that does NOT derive from government’s legitimate need to prevent and punish murder, robbery, assault, fraud, theft, rape, persecution and conspiracy, every such interference distorts and destroys information necessary for rational economic planning and action and is a step toward socialism and crisis.

Mises had been an Austrian artillery officer on the eastern front during the Great War (1914-19).  Where did he get the time and resources to sit down and carefully think through profound philosophical and theoretical issues?  There was no History Of The Gulags Of The Soviet Union or of the genocides of communist China and Cambodia. Yet Mises saw it all coming. To paraphrase Albert Einstein: ‘there is nothing quite so practical as a good and valid theory.’

So, how come you’ve never heard of Mises? The main answer is that he lost the popularity contest among politicians, even Republicans, to Keyenes. (Remember Richard Nixon?: “We’re all Keynesians now”.) Mises’ vision of limited government and individual liberty does not glorify politicians and their grand projects.

A second reason is that much of Mises’ writing, such as his 900-page magnum opus Human Action, is written in thick, academic prose that is inaccessible to most lay readers.  But there is one work of his that is short (100 pages), covers his complete philosophy, and is written in plain language: Economic Policy: Thoughts for Today and for Tomorrow. This was distilled from a series of lectures that he gave in Buenos Aires, Argentina, in 1959. Now there’s a country that could have profited from his advice, if only they had taken it. 

Doctor expert on PPACA reviews 'Pull the Plug on Obamacare'

"I have read thousands of pages of commentary on ObamaCare and done dozens of public presentation on it , but this small booklet can be read in an hour or two and is the best, clearest, easiest reading, most accurate distillation of the law I have so far encountered. It should be read by every American who wants to prevent American health care from the drastic deterioration to which ObamaCare dooms us if not repealed."
Read the full review at Amazon.com.

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More Health care reform resources on the Obamacare page.

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Socialism, its Variants and its Results

Socialism is the highest order of civilizational evolution; an economic and social system in which everyone gives according to his/her ability and receives according to his/her need; where fairness and justice reign and human needs are given their due priority over profits, and parasitic capitalist exploiters are stomped out along with racism, sexism, homophobia, distinctions of class and environmental destruction.

Right?

Astute readers many note a tone of sarcasm. But if that definition of socialism is obviously absurd, then aren’t we getting into a straw man argument? After all, no one in America believes that stuff anymore, right?

Few politicians in America call themselves socialists, but it’s hard to find a point of fundamental philosophical disagreement between the socialist parties of Europe (who at least aren’t squeemish about proclaiming their name) and the Democrat party of 2013. Moreover, the tactics and actions of the Democrat party in general and the Obama-Reid-Pelosi administration in particular can leave little doubt as to their philosphical foundations.

But why are they wrong? And why are we right-wing nut jobs so adamant about Capitalism, the scourge of the Earth?

The Flavors

There are, of course, other alternative social models to Capitalism, such as absolute monarchy, theocracy, anarchy, or feudalism, such as the landowner-serf/slave relationships practiced in the middle ages in Europe and through the 19^th century in Russia and the southern United States. But none of those models pose a serious ideological challenge to Capitalism in our day.  The debate which remains is between Capitalism and one or another form of socialism.

Under the general umbrella, there have been many variations of socialism proposed and/or attempted.  Here are a just few terms which are commonly used as synonyms or which describe variants of socialism:

·        Collectivism: emphasizes the aggregate social group over the individual, the sharing of goods, the general rather than personal ownership of the means of production.

·        Statism: emphasizes the direction of human affairs by the state; typically the federal or national government.

·        Planned Economy: This is a term intended to promote socialism as a rational and therefore superior system in contrast to the unplanned ‘anarchy of capitalist production’.  An important question that arises is, whose plans?  Yours or the state’s?  Are individuals, families, churches and other voluntary associations to be permitted to make and carry out their own plans for their lives and activities, without coercion and in voluntary cooperation with their peers, or is it only the Master Plan of the nation, the central committee, the Federal Planning Administration or the Supreme Beloved All Wise Leader (may he reign for one thousand years!) that counts? Who plans and who obeys?  What is the penalty for disobedience?  Moreover, is this a superior social system? Can it actually work?

·        Interventionism: Indicates that Capitalism and liberty are permitted to a point, but the political party in power attempts, through taxes, regulations, privileges and prohibitions, to engineer the economy so as to achieve the outcomes it favors. Protective tariffs for favored domestic industries and currency and credit manipulation fall under this category. So do subsidies for ethanol, wind and solar power technologies combined with taxes on petroleum-based products.

·        Keynesianism: John Maynard Keynes is perhaps the most influential economist of the 20^th (and now the 21^st) century.  His General Theory of Employment, Interest and Money (1936) provided the academic endorsement for the New Deal policies of president Franklin Delano Roosevelt during the Great Depression. While not advocating socialism outright (he was no fan of Marx), his theory calls for an active management role for government in allocating resources and deficit spending, presumably to better cope with recessions and unemployment.

·        Mafiaism: A more vicious form of Interventionism, characterized by privileges, prejudices and swift, violent justice for those who get out of line. Very little pretense of virtue or appeal to transcendent principles are made. Markets and private property are tolerated as long as they don’t threaten the powerful and well-connected, but the threat of nationalization of the enterprise or imprisonment, enslavement or murder of private business owners is ever-present. This form of socialism describes Russia, China and Venezuela as it is practiced today, among others.

·        Fascism and/or National Socialism: A variation of dictatorial socialism in which business firms retain a façade of private ownership while taking all their orders and directives from the government, frequently the supreme leader.  The most notable examples of this form were the National Socialist Worker’s Party, or Nazis, in Germany under Hitler from 1933-1945, and Benito Mussolini’s Partito Nazionale Fascista in Italy of 1922-1943. The Nazi movement was characterized by expansionist aggression against neighboring countries, fueling World War II, and the mass genocide of Poles, gypsies, and Jews.

·        Theocratic Fascism: Think Iran under the mullahs since 1979. Economic activity is severely controlled by the state, which derives its legitimacy from religious doctrine.

·        Communism: a political movement or party that pursues its absolute socialist objectives ruthlessly and dictatorially, without regard to democratic principles, human rights or concepts of checks and balances of political power such as those embodied in the US Constitution. The Soviet Union of 1918 – 1989, The People’s Republic of China under Mao Zedong from 1949 to 1976, North Korea (the ‘Democratic People's Republic of Korea’) from 1948 to the present, Cambodia under Pol Pot and the Kmer Rouge (1975-79) and Cuba under Fidel Castro from 1959 to the present, are prominent examples of communist regimes. These regimes have been characterized by mass genocide against their own citizens; millions upon millions of people found to be enemies of the regime, ideologically not sufficiently committed, or simply inconveniently in the way of the regime’s objectives.

·        Democratic Socialism:  Modern-day Western Europe, characterized by parliamentary democratic institutions, powerful trade and public-sector unions and governments which directly command 50% or more of the national product. Double-digit unemployment rates and out-of-control public debt threaten the integrity of this society.

·        Progressivism: Most liberal socialists in the United States deny that they are socialists and prefer the term ‘Progressive’. After all, who could be against ‘progress’ and for stodgy, reactionary and/or racist conservatism?  But the political term ‘progressive’ has a specific, historical meaning which most people who call themselves by the term don’t understand, which they would be shocked to learn, which is completely at odds with American constitutional principles and traditions and destructive to capitalist economics. 

Karl Marx didn’t invent Socialism, but he was its most significant champion in the 19th century. He is credited with inventing the term ‘capitalism’, which he meant as an insult, but which is perfectly acceptable to those of us who defend it.

Marx believed that advanced capitalist societies like Great Britain and the United States suffered from fundamental contradictions that would result in them evolving naturally to their historical destiny of the socialist worker’s paradise. However, all of the countries that went hardcore communist in the 20^th century were backward, feudal nations like Russia, China, North Korea, Cuba, Cambodia and Vietnam.  Not one of these nations had an advanced, capitalist industrial base before convulsing into communism. That’s just one way in which Marx was wrong.  But the worst error turns out to be his judgment of the nature of the communist society itself. Instead of being the worker’s paradise that he envisioned, all of these countries became hellholes of violence, mass murder/genocide, ideological oppression, physical deprivation and starvation. Hundreds of millions of people died in atrocious conditions in the purges, prison camps, firing squads and deteriorating housing, nutrition and medicine of the communist ‘paradise’.

In spite of all this, the appeal of the ‘fair and just’ society where the wise and benevolent government ensures that no one goes hungry or is without medicine, lives on. Socialists attempting to distance themselves from the genocides of the communist regimes may claim that those don’t represent true socialism; that true socialism is something else, democratic, compassionate, humanitarian. But the historical record is brutal and unforgiving: those nations that took socialism the farthest suffered the worst oppressions known in human history. No wonder so many present-day socialists prefer to call themselves ‘progressives’ while pursuing essentially the same goals by essentially the same methods.

The Entrepreneurial Cycle: From Scarcity to Abundance

We have been told over and over again that the world is running out of natural resources due to our short-sighted greed and overuse. This idea is nothing new; it has been preached not only in our own lives but for decades and even centuries on. Yet with every generation, the capitalist entrepreneurial cycle has proved these scares wrong.  Whether it is food, clothing, shelter, minerals, energy, clean air, medicine, beer or university faculty parking spaces, the same pattern emerges under the free market:

·        Scarcity leads to

·        Rising market prices, which signal

·        Entrepreneurial opportunity; there’s money to be made (‘there’s gold in them thar hills!’).

·        Investors and speculators advance their own savings to fund research and development to invent new ways to extract and produce more, to drill deeper under the ocean floor using only one tower where five had been required before, to design new industrial processes, to genetically engineer seeds that multiply crop yields, to discover new and better drugs etc.

·        Many entrepreneurs fail, at their own expense (not yours and mine; not bailed out by the taxpayers)

·        …but others succeed, and the result is profits for them and

·        Abundant products and services at lower cost than ever for us; even cheaper and more plentiful than before the initial ‘crisis’[1].

In the final analysis, physical assets like minerals, oil, gas, water, food and a host of others are only as good, as useful and as available as the PEOPLE who design the processes to mine, extract, cultivate, harvest, refine, market and distribute them. It is human ingenuity that takes icky gunk that oozes out of the ground and sickens your cows, and transforms it into energy – black gold. It is the entrepreneurial drive operating in a free market that responds to every shortage of anything by producing more than ever, at the lowest real prices ever. In the short run, physical resources are of course finite; but in the long term, they are virtually unlimited, only constrained by human imagination, ingenuity, freedom and hard work. That is the difference between economics and physics.

That is why right now we have approximately 13 years known reserves of oil, whereas 13 years ago we had…13 years of known reserves then, and 13 years before that the known reserves were good for …about 13 years. The line keeps being pushed back by advancing knowledge, technological innovation and the entrepreneurial response to price signals in the market.

The fact is, it costs money to know how much oil (or any other resource) is available in reserve, because prospecting, locating and mapping  deposits costs money. Its not worth it to anyone to know more than about 13 years, but if the period drops to 12 or 11, it starts to pay to know, and the companies that are in the business of knowing will renew their exploration efforts.

The concept of ‘known reserves’ cannot be divorced from market prices. At $50 a barrel, there may be X trillion barrels of known reserves. But at $150 per barrel, the known reserves, that is, the quantity of the resource known to be profitably extractable at that price may be 3X trillion or even 30X trillion. Moreover, after the investment is made to extract the more difficult-to-reach deposits, the tendency is for costs and ultimate consumer prices to fall once again. The market always finds a way to find more. Natural resources get cheaper and more abundant with every generation.

The only force capable of stopping this virtuous cycle is… force.  Controlling who may or may not engage in certain businesses or activities; interfering with the functioning of the market; controlling wages and/or prices so that signals and information about the true relative abundance and scarcity do not get transmitted accurately; denying permits to explore for and/or extract available natural resources; awarding contracts and employment positions based on political favoritism, nepotism or ethnicity rather than objective competence and qualifications; forcing taxpayers to prop up firms that have failed; expropriating profits lawfully gained by firms that succeeded; failing to enforce the rule of law consistently and fairly – these are the actions and reactions that can impede entrepreneurial capitalism from solving the universal problem of scarcity. Unfortunately, those actions are most often committed by the agency that should be defending individual liberty: government.

The world is full of wretchedly poor nations sitting on top of abundant natural resources. Russia, Venezuela and Mexico are examples of countries whose economic policies have stifled liberty, private property and the rule of law, and thus have kept their people poor in spite of huge reserves of oil and other commodities. Meanwhile, countries with few or no natural resources at all – think Switzerland, Japan, Hong Kong, Singapore – crush the economic competition.

Capitalism, properly understood as a framework of individual liberty and responsibility, free markets, free trade and free people with neither privilege nor prejudice, is the economic system that has provided and will provide the greatest material abundance and prosperity to the greatest number of people of all nations and classes, whether measured relatively or absolutely. Capitalism is the solution.

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[1] This entrepreneurial capitalist cycle is described in detail by Julian Simon in his classic book The Ultimate Resource 2.

Capitalism = Private Property, Voluntary Cooperation

Capitalism is a system of private property and voluntary cooperation; of free markets, free trade and free people operating under the rule of law. As long as each person respects the equal liberty of every other person, and therefore does not murder, assault, rob, steal, defraud, rape, persecute or conspire against others, (s)he is left alone to pursue his/her own happiness; to do what (s)he will with what is his/hers. Capitalism occurs when government is confined to the protection of the life, liberty and property of its citizens and otherwise does not attempt to influence outcomes, dispense favors or enforce prejudices.
The great economic advancements that occurred in England in the late 18th and early 19th centuries and were carried forward in the United States in the 19th and 20th , were the result of government permitting it to happen, not interfering, not doing what most governments to this day still do, which is to stomp on and crush any force or individual that competes with their power and status.
Despite all attempts to defile, criticize, distort, defame, impugn, accuse, blame, indict and otherwise say nasty things about how, like, totally evil it is, capitalism has proven over and over again to be the most effective system ever invented for solving the central economic problem; the human dilemma of scarcity.

Court challenges could tear down major pieces of ObamaCare

President Obama’s healthcare law is under attack in the courts even as the administration sprints toward full implementation.
Despite surviving a stiff challenge at the Supreme Court last year, some of the law’s biggest provisions remain at risk from legal challenges.

Read the full article by Sam Baker at TheHill.com.

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More Health care reform resources on the Obamacare page.

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Confronting Pelosi’s Obamacare Propaganda Toolkit

Nancy Pelosi, Democratic congresswoman and House Minority Leader, has published a 78-page ‘toolkit’ to help supporters of Obamacare sell it to the public. Colleagues and fellow travelers are exhorted to focus especially on the elderly, young people and women.
Maybe they should focus especially on… Democrats. It is the rank and file of the United Union of Roofers, Waterproofers and Allied Workers International and the SEIU United Healthcare Workers of New York who are getting murdered by the real-world effects of the law, losing plans that were working before and petitioning for redress (and in the case of the not-so right-wing Roofers, outright Repeal).
The fact is that the more that people including Democrats learn about the law, the less they like it. Many sincere citizens thought they were just doing the right thing by their fellow man, especially the poor, by supporting universal healthcare, and they assumed there would be no cost to themselves, as promised by Obama. But they are waking up to the fact that Medicaid is the model for Obamacare, that Medicaid has been exposed as statistically no more beneficial than no insurance at all, and that everyone, themselves included, is now to be herded into a Medicaid-type plan designed by the Department of Health and Human Services (HHS) and enforced via increasingly frequent encounters with that most beloved and trusted of agencies, the IRS. Seeing what is coming, alarmed citizens are having second thoughts; Democratic Senators are voting with Republicans to repeal parts of the law (like the medical device tax) when they aren’t outright stampeding for the exits leaking “train wreck!”.
Among the talking points are “If you like your doctor, you can choose to keep your doctor”. Notice the weasel-word difference – the legalistic plausible deniability – from the original promise? Yes, you can choose, but if your doctor chooses otherwise (such as to retire early, as 80% of physicians are contemplating) because of the burdens put on him/her by the law, or if he or she is no longer in practice as before because the law has forced him/her out of business and into an employee role in a corporation, your ‘choice’ will have no meaning.
As it happens, this author published in February a 100-page toolkit (I called it a pamphlet, but in the spirit of bipartisanship and compromise, ‘toolkit’ will do) to help citizens including Republicans to refute the arguments of Obamacare’s hucksters, to wit:
• The PPACA was sold under false premises, such as that there were 50 million Americans without health care and that America lags behind other more enlightened nations.
• It is destructive: of liberty, of the privacy and sanctity of the patient-family-physician trust relationship, of public finance, of your ability to keep the plan or the doctor that you like, of the economy and employment, and just about anything else it touches.
• It cannot and will not work, because it contradicts fundamental laws of economics, liberty and constitutional government.
• And we have plenty of positive alternatives previously proposed by Sally Pipes, Betsy McCaughey, John C. Goodman, Michael F. Cannon, Milton Friedman and many others, even if the Republican Party hasn’t been particularly articulate.
Of course it’s doubtful how effective such pamphlets written by mere citizens (without non-profit status) can be in the face of a publicly-funded propaganda machine backed by almost unlimited resources (how many more times bigger than the Pentagon’s is the HHS budget again?). After all, all the opponents of Obamacare have on their side are facts, logic, history, economic science and the Constitution, without pandering to mascots. Pelosi and her fellow travellers have at least three trump cards in their hand: unbeatable organization, the irresistable emotional tug of the sob story, and the (they hope) enduring belief on the part of a large swath of the voting population, that there really is a Santa Claus, and his name is Uncle Sam.

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More Health care reform resources on the Obamacare page.

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The Obamacare Insurance Exchange Train Is Already Coming Off The Rails

An Obamacare train wreck isn’t a distant possibility. It’s actively happening. Delays, wasteful spending, and cost overruns have already popped up. And it’s becoming increasingly likely that the exchanges won’t be ready by October 1, when they’re supposed to open for enrollment. Mass confusion and excessive costs will result.

Read the full article by Sally Pipes at The Pacific Research Institute.

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More Health care reform resources on the Obamacare page.

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Sharing the Necessary Expenses of Government

Government is a necessary function of society that must be paid for, and that burden must be shared equitably. We can imagine that in a just world, the greater share of the burden of supporting the public treasury would fall to those earning or owning the greatest share of wealth. We can imagine a world in which the richest – say, the top 1% of income earners – would pay a substantial chunk of the pot, say, 40%. The top 10% could pay 71%. And contemplating the bottom half of the population ranked by income, they should get relief and only have to contribute 3% of the total.
We can stop ‘imagining’. This in fact IS the current distribution of tax revenue contribution by income earning percentiles in the US.
But can’t we make the rich pay more? We have a budget deficit and a national debt, right? The government needs more money!
When the federal government is consuming 25% percent of GDP and suppressing economic activity and growth through inappropriate policies, the problem is not that the government doesn’t have enough money. Moreover, even if it were so, there are limits to how far taxes may be raised on anyone, rich or poor.
Higher tax rates do not guarantee the result of high tax revenue. This has been illustrated by the Laffer Curve, named for Arthur Laffer, the economist who proposed it:. In one version, the X axis represents the tax rate and the Y axis represents how much revenue results from that tax rate. The graph shows a curve rising from X=0, Y=0 to some height on the Y axis before settling back to X=100, Y=0. Which is to say, there are two tax rates that are virtually guaranteed to result in zero revenue to the treasury: 0% on the one hand, but also 100% on the other. At a 100% tax rate, the activity being taxed ceases altogether or goes underground to the ‘black’ market, out of reach of the legitimate tax authorities (aside: how legitimate is the IRS these days?). Somewhere in between these two extremes is an optimal rate that results in maximum revenue. Raising rates above that level results in less revenue, not more. We may argue as to where that point is – it may be 50, it may be 90, or it may be 10 – but it can scarcely be denied that it exists.
That is why the tax rate reductions of George W Bush, Ronald Reagan and John F Kennedy were successful: not only did they liberate entrepreneurs and the market, but the lower rates resulted in increased rather than decreased revenue to the Treasury.
Of course, revenue is only one side of the fiscal ledger, and tells us nothing about the virtue or folly of what the money is being used for. Congress (or your state legislature or city council) is always capable of spending as much or more money as comes in, and not always (some might say rarely even) on just the necessary and appropriate expenses of government. But if the purpose of the tax code is to raise the maximum possible revenue to the treasury, the rates must be optimized, which is very different from being raised as high as your favored politicians can make them go.

How Does Prosperity Happen?

Your ‘progressive’ politician – mayor, congressman, senator, governor, Liberator,  Generalisimo, Beloved Leader – would have you believe that whatever wealth you have, you owe to Him, his programs and policies (with a cut for his allies in the media and academia). Through increasingly expansive and expensive social programs – welfare, public pensions, union privileges, labor regulation, health care, protective tarrifs, bailouts for ‘too-big-to-fail’ institutions, subsidies, giveaways, pork, earmarks, ‘cash for clunkers’ etc. – he strives to transform that vague belief into a reality, to lock in your dependency, your vote and your submission to His authority.  But as the examples of Greece, Spain, France, Venezuela, California and other basket-case nations around the world demonstrate, all the privileges, pensions, bread and circuses doled out by Santa Claus politicians do not sustain themselves; they have to be supported by other people who still produce stuff. Suppress the productive sector of an economy and the house of cards crashes to the ground.

Politicians don’t create wealth; entrepreneurs do.

In the real world in which we live, the only constants are change and uncertainty. There are floods, wildfires, tornadoes, earthquakes, hurricanes, AIDS, volcanoes, swine flu and a million other unpredictable disasters. Even in the absence of natural disasters, economic activity such as farming or manufacturing products for sale frequently require long time cycles from initial groundbreaking until harvest and/or final sale to consumers. These extended time spans would leave people starving if they didn’t have some food and other resources saved up or provided to them in the interim. For this reason, it would be extremely beneficial to most of us if some people were able and willing to assume for themselves a greater share of the existing risk, to store up food, shelter, Miller Lite and other goods, and in so doing provide for the sustenance and reduce the level of uncertainty for others.

Fortunately, such people do exist. They’re called entrepreneurs. They’re called investors. They’re called businessmen/businesswomen, speculators, and insurance companies; in a word, the rich.

In other words, the class (if class is the right word) of people most vilified by the political Left as evil, greedy exploiters, are in fact the most indispensable material benefactors of their fellow human beings.

Too often we discuss entrepreneurs, investors, speculators or insurance companies in emotional terms. To some, these people are heroes to be put on a pedestal. To others, they are like disease-carrying vermin; parasites that reap obscene profits, destroy the environment and crush the rest of us with their monopoly power. But emotions aside, in the science of economics there is a critically important objective role for a class of people who assume a greater share of risk in exchange for a correspondingly higher share of net gains – profits – when their forecasts, projects and decisions turn out correct, and a (negative) share that corresponds with the greater part of the losses when they turn out wrong. Unsuccessful entrepreneurs become the employees of successful ones. Successful entrepreneurs bid up the wages of employees with each round of capital accumulation and investment. Those higher wages afford more opportunities for employees to try their own hand at entrepreneurship and investment.

Employees do not directly enjoy the profits of the entrepreneur or investor, but neither do we directly risk the losses. The money that employees get paid does not come from the future profits that their work in the present makes possible (because by definition those future profits haven’t been cashed in yet), but rather with the savings from the prior round of the investment cycle. The entrepreneur has to wait months, years, or even decades for profits (or losses) that are uncertain, while the employee receives his paycheck every week or month, virtually guaranteed. Put another way, the employee’s risk of not being paid for giving his labor to the entrepreneur is measured in days or weeks, while the entrepreneur’s risk of not seeing a return on investment is measured in months or years.

Entrepreneurs may be big headline-grabbers like the founders of Google, Facebook, Apple, Microsoft and Standard Oil. But the vast majority are small, family-owned businesses; dry cleaners, local niche booksellers, auto repair shops, hardware stores, franchise restaurants. These are the people who make the economy work, provide vital products and services, and account for the lion’s share of job growth.

We are all entrepreneurs to one degree or another. Every time we make a commitment to a certain course of action instead of another without a guarantee, betting on the outcome, we are acting as risk-taking entrepreneurs.  Students act as entrepreneurs when they choose a major in college, betting on the future prospects of a career in a certain field to which they are personally suited.

To quote Rich Karlgaard of Forbes Magazine: “Entrepreneurs are not just a cute little sub sector of the American economy. They are the whole game”