Housing in the New America II: The Stage is Set

“Abolition of private property and the application of all rent to public purpose.”

- Karl Marx and Friedrich Engels (1848)[1]

Just after the abominable housing bill of this past July, I wrote an article about the very real prospect of the government getting into the property management business, due to the nationalization of the mortgage industry that effectively occurred when the government seized Fannie Mae and Freddie Mac. The scenario was admittedly conjectured, but unfortunately it seems to be playing out even worse than I could have imagined (and I can imagine pretty bad from our government). An article in the New York Times put one more piece of the puzzle in place.

Keep in mind that the real devastation of this economic crisis has not really occurred yet. We still don’t have double digit unemployment (at least using the government’s numbers), but that is inevitably what is coming. Right now, we have unemployment that is setting records for one-month growth, but we do not have tens of millions of Americans out of work. That makes today’s news all the more disturbing.

If you have any experience with rental properties, as either a landlord or a renter, you know that when a rental property goes into foreclosure, the tenants are routinely evicted. It is much easier to sell a foreclosure property without tenants, among other reasons because choosing tenants is one of the skills that separate successful landlords from unsuccessful ones. Good landlords also usually want to do some renovation to the property, which is at least inconvenient and to some extent virtually impossible with the property already occupied. The justification for the eviction is, of course, that the property now lawfully belongs to someone else (the bank), who never consented to the rental agreement and has every right to refuse to honor it.

Or do they? According to the Charles Duhigg of the Times, Fannie Mae announced today that it would “sign new leases with renters living in foreclosed properties owned by the company.” Of course “owned by the company” is an ironic choice of words, because “the company” is none other than the U.S. government. While my previous article envisioned Section 8 as the possible vehicle for converting large percentages of the (former) middle class into government tenants, this new policy today goes one step farther. Section 8 uses public funds to subsidize rent payments to private owners of rental properties. This policy represents renters making rent payments directly to the U.S. government, for the “privilege” of living in government-owned[2] homes. While the numbers for homes owned outright by Fannie Mae are small at the moment, it is no less a watershed moment.

Of course the policies of Fannie Mae are not binding upon the so-called “private sector” (is there still one?), at least not yet. As the Duhigg reports,

““We’re not in the business of managing rental properties, and we’re not in the business of being a landlord,” said Thomas Kelly, a spokesman for JPMorgan Chase, which owns about two million loans. “Clearly the renter is caught in the middle in cases like this. When a property is in foreclosure, we follow the law.”[3]

It is somewhat amusing that a representative of J.P. Morgan Chase would speak so reverently about the law, as if it were some bastion of property rights and justice. Having been the beneficiary of the lion’s share of the largesse during the financial sector bailouts, this bank should know better than anyone that the law and justice no longer have much to do with each other. If property rights get in the way of some new government theft, a law is simply passed to eliminate the obstacle. Having eschewed the concept of republican government in exchange for “democracy,” there are now no rights that cannot be violated, as long as a sufficient number of votes can be raised among elected representatives. Indeed, our government does not really recognize “rights,” which transcend government. It grants privileges and erroneously refers to them as rights.

I doubt that private sector banks will retain the privilege of evicting tenants from the properties they acquire in foreclosure for very long, once the new presidential administration and Congress take office. Already, the cries for “fairness” are beginning to be heard. As the Times article reports,

“Some lawmakers and housing advocates say such policies are unjust.
“If your loan is owned by Fannie Mae, you get to stay in your home. If your loan is owned by someone else, you’re on the street,” said Mr. Taylor of the National Community Reinvestment Coalition. “These banks need to realize they’re in the property management business now, whether they like it or not.”[4]

Note the use of 21st century coercion-euphemisms. Any statement beginning with “You need to…” is one that could just as well start with “I ORDER you to…” At least the tyrants in centuries past made such statements with swords drawn and pointed at their victims. Today’s authoritarianism with a smile is actually more horrifying.[5]

With all of the travesties of justice taking place during this blackest of years in our history, one might argue that insisting that banks retain the right to put renters out on the street represents confused priorities. Perhaps so. However, one thing is certain. The line was already blurred regarding the right to own property before this, as the government could seize it from you merely for being unable to pay its property taxes. Now that the banks (and soon anyone buying properties in foreclosure) have no say over who lives in the house that they just bought, that line has become a smudge at best. In reality, there really is no such thing as homeownership. Government merely grants the privilege of stewardship over ITS homes. This latest farce merely makes that fact clearer.

So much for the moral considerations on this issue. I seem to have been far less efficient in confronting them than the government, which breezed right on by them. Who says it can’t get things done quickly?

As far as unintended consequences, this latest bit of idiocy is so ripe with them that it is hard to know where to begin. I am not sure who truly manages these properties, now that they are the property of the government but still occupied. Who does the tenant call when the sink starts leaking? If you think you see a program like Medicare or Medicaid coming, you’re not alone. We could always use another network of overpaid providers rendering sub-par service at a cost of hundreds of billions of dollars to taxpayers. Worse yet, as more and more average Americans wind up in government-owned or subsidized homes, the program to pay handymen to do repairs could grow into an institution, just like the aforementioned medical programs. Among other negative consequences, this will tend to push the prices for these repairs through the roof for everyone, just as government-provided medical care and student loans push up the cost of healthcare and tuition for everyone. Let’s hope the government doesn’t start providing beer – we can’t afford bubble prices for that in times like these!

Of course, the glaring weakness in this latest move has to do with the central issue – selling the foreclosed properties. The whole reason behind lenders taking possession of a property when the borrower defaults is to sell that property and recover some of the losses on the loan. This new policy of Fannie Mae’s, which will almost certainly become a law sometime during the next Congressional term, will only prolong the time that these properties are on the market. Far less buyers will be willing to acquire properties if they are forced to take their chances on a tenant that they haven’t personally vetted, and on a property where their options are limited in terms of what they can do with it after they acquire it. This fits the FDR pattern of intervening into the markets and preventing a needed correction perfectly. The market is trying to liquidate these properties and allow them to be sold at more reasonable prices to more viable customers. The government policy will arrest that process, causing the crisis to take longer resolve itself, if it is allowed to resolve itself at all.[6]

It also goes without saying that the landlords who will buy the homes are more likely to be poorer landlords, as they are by definition landlords who care less about who they rent to. This tends to manifest itself in the appearance and upkeep of the properties, affecting property values throughout the entire neighborhood. Add to that the poor service and quality of work that comes with the government or banks providing the property management and you have the recipe for some scary neighborhoods. Collateral damage certainly isn’t just a military term, once our federal government gets rolling.

So where does this all lead us? I said at the beginning that one of the most disturbing aspects of this story was that an idea like this has been born before the real crisis gets rolling. We have had a market crash and ensuing credit crunch, but everyone seems to be in denial over what inevitably comes next – massive unemployment. Once that starts really manifesting itself (probably as early as next summer), the “state of emergency” mindset will kick in with our government and things could really deteriorate quickly. Right now, loan defaulters are being evicted from the property that they borrowed against and are finding homes in the abundant rental market. However, when the vast majority of them are unemployed, they will need the government to help them, too. It is certainly not hard to imagine a scenario where unemployed loan defaulters are evicted from their homes in foreclosure, only to be “placed” into rental properties that the government owns (but cannot sell), or even into another property that the same bank that just seized their home acquired in foreclosure on somebody else!

For those properties owned by the government, the renters would pay the government directly (eventually it may even be a standard payroll deduction). For those properties owned by a private bank, the Section 8 program will provide the rent subsidies, which the government is now obligated to pay the bank/landlords because they forced them to get into the property management business in the first place. Alternatively, the government may just start buying the houses from the bank, in order to “stablilize” the housing market and because it now has an incentive to grow its new program. The government will certainly have an incentive to put people into the houses that it already owns and cannot sell. This program could realistically feed itself until tens of millions of Americans are in government housing.

On the brighter side, at least this will further solidify the close relationship between our banking institutions and the federal government. We could always use more tight collusion between government and big business. There is no sense in repeating the worst mistakes of the past century without throwing in a little more fascism.

However, the fascist model is more the Republican brand of socialism, at least in this century. The Democrats seems to favor the Marxist variety, as evidenced by their increasingly Marxist rhetoric and their choice of a presidential candidate. Make no mistake, government-provided housing is right in their proverbial wheel house, and you can expect them to jump on the “opportunity” next year’s emergency will afford them to hit this one out of the stadium. The Carter years might look like an economic golden age before this is over. Let’s hope that it is apparent to most Americans in four years that the medicine is killing the patient. Medicare may not be around to cover the catastrophic care needed by 2016.

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[1] Mark, Karl and Engels, Friedrich Manifesto of the Communist Party (The Communist Manifesto) 1848. (This is Plank One of the famous Ten Planks of the Communist Manifesto)
[2] I suppose I should be grateful that the patronizing assertion that “the taxpayers” own Fannie Mae was not made in this particular article. That characterization has been an especially insulting aspect of our conversion to socialism. Ownership can only occur when you CHOOSE to own something, and when you have some control over its disposal. Moreover, it should be evident that even in the unlikely event that our government somehow makes money on this travesty, not one dollar will be coming back to taxpayers, nor should we accept it if it did.
[3] Duhigg, Charles “Fannie Mae Lets Renters Stay Despite Foreclosures” New York Times December 14, 2008
[4] Ibid
[5] Sadly, this expression has become ubiquitous in the private sector as well. Americans brought up under the yoke of coercion know no other way to deal with one another.
[6] Of course, this policy would not by any means be the only factor in houses not selling. Neither will it be the only action government will be taking to block the overall correction and make the depression worse.

Liberty's Greatest Commandment

“Our legislators are not sufficiently apprised of the rightful limits of their powers; that their true office is to declare and enforce only our natural rights and duties, and to take none of them from us. No man has a natural right to commit aggression on the equal rights of another; and this is all from which the laws ought to restrain him.”

– Thomas Jefferson (1816)[1]

The great spiritual movements of history have imparted spiritual truth to those who “had ears to hear.” Inevitably, religions have commandeered those movements and replaced that spiritual truth with authoritarianism. The great spiritual masters (real and legendary), such as Krishna, Paul, Jesus, Mohammad, and Buddha (just to name a few), have all offered their followers the chance to live a better life, to become more than they were, and to set themselves free from the physical bonds that limit their mortal lives and spiritual growth. Too often, those who have come after the masters have replaced their sublime wisdom with a myriad of rules, rituals, and mysticism that ultimately confuses or even contradicts the original message.

As just one example, Jesus was able to condense all of the laws and commandments of the Hebrew Scripture into two simple principles, recognizable at once to most Christians,

“The first is this: 'Hear, O Israel! The Lord our God is one Lord. You shall love the Lord your God with all your heart, with all your soul, with all your mind, and with all your strength. The second is this: 'You shall love your neighbor as yourself.' There is no other commandment greater than these."[2]

This short passage contains all that Jesus thought necessary in instructing his followers on how to live. Indeed, the scribe that asked him which commandment was the greatest is so impressed by what Jesus says, that he replies that following these two precepts “is worth more than all burnt offerings and sacrifices.”[3] Unfortunately, the Catholic Church that evolved from this movement did not adhere to this philosophy, as it became one of the most oppressive in history in the ensuing centuries. While the gospels depict small groups of seekers gathered around an enlightened master, the Catholic Church organized itself into an authoritarian hierarchy, often using the threat of eternal damnation to gather earthly wealth or power. While Jesus instructed his followers to break the rules when the rules stood in the way of virtue,[4] the Christian religions, like so many others, have confused the rules with the intentions behind them, and the dogma for the spiritual truth. In fact, the edifice of ritual built up by the various Christian churches arguably impede their followers from finding God, and one need not look far for examples of those churches violating the second great commandment over and over again. Unfortunately, the Christian churches are in no way unique in this respect.

Liberty, too, has suffered this fate. Like the great religions, Liberty was a movement that once set people free. It was founded by an enlightened group of masters, named Locke, Jefferson, Adams, and Paine. Like the great religions, Liberty also had a central principle – a greatest commandment – that could inform its followers in every aspect of their lives. We have come to know this precept as the Non-Aggression Principle, which is the principle that each individual has the right to do whatever he or she wishes, as long as he or she does not violate the equal rights of others. Today we mistakenly associate this principle exclusively with libertarians or objectivists.[5] However, as the quote from the subtitle of this passage demonstrates, the Non Aggression Principle did not originate with either of these 20th century movements. In fact, not only is the Non Aggression Principle explicit in the writings of Jefferson and Locke, it is actually the definition of Liberty itself.

Like Christianity, Judaism, and the ancient spiritual movements that came before them, Liberty was a great spark of light in its infancy. Never before had men in society proclaimed to the world that all men are created equal, and that they are endowed by their Creator with unalienable rights. Never before had people actually put the Non Aggression Principle into practice, and attempted to limit the laws of society to its standard. Never before had people attempted to truly live together as equals, and come so close to true freedom and justice.

Jesus gave two greatest commandments, because he was instructing his followers in living two different lives. His first commandment applies to the inner life – the spiritual life. His second commandment applies to the outer life – life on earth and among men. While Liberty’s great commandment only explicitly speaks to the latter, it is consistent with not only both of Jesus’ two greatest commandments, but with the spiritual and moral teachings of all spiritual movements. In this way, the Non Aggression Principle transcends religion, as it excludes none and supports the moral teachings of all.

Religious freedom is implicit in the Non Aggression Principle. As the thoughts, prayers, and beliefs of one person can of themselves do no harm to anyone else, following the Non Aggression Principle necessarily grants religious freedom to all. As Jefferson put it,

“The legitimate powers of government extend so such acts only as are injurious to others. But it does me no injury for my neighbor to say there are twenty gods or no God. It neither picks my pocket nor breaks my leg.”[6]

Here Jefferson both succinctly restates the Non Aggression Principle and draws its obvious conclusion about religion: no man’s inner life can harm another, and thus is outside the reach of government. Therefore, the Non Aggression Principle allows everyone to follow the spiritual teachings of any religion he wishes, or no religion at all. His inner life belongs to him and to no one else.

Regarding man’s outer life, the Non Aggression Principle is consistent with Jesus’ second commandment, and with the moral teachings of virtually all religions. It is not a very far reach to say that to “love your neighbor as yourself” is substantively the same as “to grant your neighbor the freedom to do what he pleases, as long as he harms no one else.” Nor is this message much different from those of the great masters of the other religions. Despite the outwardly different (and often antagonistic toward each other) institutions that have grown up around the other great spiritual movements, the great masters behind all of them exhorted us to love our neighbors (even our enemies), to do charitable works, and to respect each other’s property.

Unfortunately, Liberty has follwed the same trend as these movements. Those who came after the great masters have forgotten the true meaning of Liberty, and have instead built up a great, authoritarian hierarchy, complete with its own labyrinthine set of rules and dogma that consistently violates Liberty’s central principle. As the Catholic Church of late antiquity and the Dark Ages routinely violated Christianity’s central axioms, the greatest crimes in history are now committed under the sacred name of Liberty. None are more egregious than the current wars of aggression that purport to be “liberating” their victims, just as the Inquisition purported to be “saving” the victims of its sadistic tortures.

At home, the government of the so-called “land of the free” grows more authoritarian each day, routinely violating Liberty’s great commandment by seizing property to protect privileged financiers, to realize its perverse vision of forced economic equality, to punish victimless “crimes” that the members of a small, wealthy oligarchy find distasteful, and to tighten its control over every aspect of our lives.

As has been the case with religions throughout history, the time has come for the true believers in Liberty to reject the false teachings of the established clergy and resurrect the true message of the founding masters. While our own Sadducees and Pharisees (Republicans and Democrats) would have us believe that our problems are terribly complicated, they are not. They can be solved one and all by applying one simple principle: the principle of Liberty. If we were to return our government to the limits set by Jefferson and Locke, every problem we currently consider paramount would disappear. For example:

Legal tender laws force U.S. citizens to accept U.S. dollars as payment, and forbid contracts to be denominated in gold. Using alternative currencies would not represent aggression against anyone, so according to the Non Aggression Principle those laws would have to be repealed. This would immediately break the hold of the Federal Reserve over the economy, and would quickly end the problem of inflation. Prices would begin falling again, as they did throughout the 19th century. 100 years from now, the general price level would be half what it is today, as it was half what it was in 1800 by 1912. Can you imagine a world in which you could tell your grandchildren, “I used to have to pay twice that much for what you just bought?”

The Non Aggression Principle would forbid Medicare, Medicaid, Social Security, and the rest of the welfare programs, because the money is forcibly taken from taxpayers to fund them. This would solve a myriad of problems. First, it would return $1.5 trillion in savings/capital to the economy, taking the United States from a negative savings rate to an over 11% savings rate. In addition, the artificial demand created by government in the healthcare sector would disappear, allowing prices to fall back to their natural levels. Healthcare would be affordable without insurance, as it would be subject to the same market forces that keep the prices of more necessary products like food and shelter affordable (to the extent that they too are not distorted by government).

The Non Aggression Principle would forbid at least 70% of our military expenditures, as we would have no business stationing troops anywhere but at our own borders. Without our military presence antagonizing the dispossessed overseas, the motivation for terrorism would quickly fade. We would add another $400 billion or so in savings/capital to the economy which is currently being devoured by government. Most importantly, hundreds of thousands of people, including over 4,000 of our own brave men and women, would be alive today to celebrate the holidays with us.

The Non Aggression Principle would forbid laws against drug use, freeing about 2/3 of our prison population. Contrary to government propaganda-induced public opinion, this would not set off a crime wave, as the vast majority of these people have never committed a violent crime. In addition, the funding source for most of our criminal gangs would dry up, making it impossible for them to arm themselves the way they currently do. Like the prohibition of the 1920’s, the Drug War has resulted in a huge black market and criminal industry to supply the outlawed contraband. Without the Drug War, drug dealers and criminal gangs would go the way of the bootlegger. Last but not least, add 41 billion more to the savings/capital column.

Similar to not allowing the government to seize property from one person and give it to another, (as it does in the social programs), the Non Aggression Principle would not allow government to use taxpayer money as collateral for loans, as it does with Fannie Mae mortgage loans and student loan programs. This would eliminate two more huge bubbles caused by government-created artificial demand. We have already seen the housing bubble burst. The next big bubble to burst will be student loans.[7] Only because of government distorting the market with artificial demand – and in violation of the Non Aggression Principle – could tuition prices ever have risen so high. Both students and their parents are now going deep into debt in order to finance college tuition, which students at one time could finance with summer and part time jobs. If government was not allowed to guarantee the loans with taxpayer money (by force), the prices would be limited to what the market could bear.

One could write volumes on government’s violations of the Non Aggression Principle, and the wonders that could be achieved simply by adhering to it. However, solving the problems of inflation, healthcare costs, housing, education, war, terrorism, and recessions is a pretty good start. If you take the time to think it through, you will find that this principle – Liberty – can solve every societal problem we face, no matter how insoluble our politicians try to make them seem. Only our refusal to reason through them allows these problems to persist.

So, as we enter another holiday season, let us look past ritual and custom to the true meaning behind the spiritual movements we follow, and may each of us find our own inner path to salvation. Outwardly, let us revive the true meaning of Liberty. Let us cast the money changers out of our American temple, and put our swords back in their sheaths, both in dealing with our neighbors in other countries and here at home. Let us reject the false teachings of our political priesthood and return to the lessons of Liberty’s great masters, who warned us of the evils that presently afflict us but taught us the secret wisdom that can defeat them all. It is within our ability to make this New Year a rebirth of our American spirit, our freedom, and our prosperity. For this transformation to occur, we merely need to keep one New Year’s resolution: to live by Liberty’s Greatest Commandment, and to demand that our leaders do likewise. Free people need nothing more than this.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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[1] Jefferson, Thomas Letter to Francis Walker Gilmer June 7, 1816
[2] Mark 12:29-31
[3] Mark 12:33
[4] Luke 6:9
[5] Followers of Ayn Rand’s philosophy of Objectivism
[6] Thomas Jefferson, Notes on Virginia, Query XVII 1782
[7] With the unemployment that will accompany the coming depression, it is inevitable that a much larger percentage of these loans will begin defaulting, creating a new leg to the crisis. The positive consequence of this would be the necessary adjustment in tuition prices that would take place if the market were left alone by the government. Unfortunately, government has repeatedly shown that it will do everything in its power to fight these necessary price adjustments, which only serves to prolong the crisis.

Government's Old Shell Game

Most Americans have seen the hilarious skit on Saturday Night Live, where the CEO’s of the Big Three automakers return to Congress with the “turnaround plan” demanded of them as a condition of receiving (stolen) bailout money. In the skit, the CEO’s drive cars manufactured by their respective companies from Detroit to Washington in order to make amends for flying corporate jets en route to their first appeal for our money. Of course, all three cars break down on the way, making the CEO’s late for their appointment with the (looting) Congressmen. The punch line of the skit is that the only plan that the automakers have come up with is to return to Congress every six weeks to ask for more money. To top it off, the GM CEO promises that by the time that they are ready to accept the December payment – provided that car sales rebound – they would actually need even more money.

It is sometimes said that life imitates art. As funny as the Saturday Night Live skit was, real life proved even funnier. The CEO’s did manage to marshal the resources of their Fortune 500 companies (referencing the 2006 list) and come up with three Detroit-manufactured vehicles that could make it to D.C. However, as in the comedy, the CEO’s show up at Congress three weeks after asking for $25 billion and actually ask for more! Rather than outrage, Americans should really take the opportunity to find some humor in this. As the last vestiges of our Republic are destroyed, one can either laugh or cry. Let’s recognize this ridiculous exercise for what it is – a farce – and have ourselves a good, hearty laugh. We deserve it. Then, let’s stop laughing and turn our attention to the real villains in this immorality play: the United States Congress.

As tempting as it is to focus our attention on the pompous CEO’s of these horribly run companies, let’s not forget why they became so horribly run. It seems to be routinely forgotten that it was Congress that created the labor union problem, with its National Labor Relations Act of 1935 and subsequent violations of property rights. This is why the American auto companies can’t afford to compete. It is also forgotten that Congress created Fannie Mae/Freddie Mac and the Federal Reserve (the three entities entirely responsible for the housing bubble), Medicare and Medicaid (the programs entirely responsible for the both the bubble-prices of healthcare and the lion’s share of our $50 trillion in unfunded entitlement liabilities), the Department of Education (the agency entirely responsible for the next bubble – tuition prices), and every other economic problem that the United States faces. It is no less than tragic that Americans still have not figured out that, left to themselves, with a government limited to enforcing contracts and protecting them against violence, they would trade freely with each other indefinitely to their mutual benefit. Instead, Americans still look to this body of criminals to SOLVE problems that said criminals created. How are they continually fooled?

There are a number of answers to that question, but there is one strategy employed by our ruling class that is particularly frustrating. Students of philosophy may call it the Hegelian Dialectic, while political strategists may call it “framing the debate.” For us plain folks, you might just call it the “heads I win tails you lose” strategy. Every time that Congress wishes to commit some new crime, they present it with a ready-made debate, eagerly facilitated by our so-called journalists. In each case, the issue is presented as if there are only two alternatives, both of which advance government’s purpose to our detriment. Any alternatives beneficial to the people are excluded entirely. It’s the oldest manipulation trick in the book, not much more sophisticated than the old shell game where the pea actually isn’t under any of the shells. Unfortunately, we fall for it hook, line, and sinker, every single time.

This latest farce with the auto companies provides a good example, although there are hundreds (maybe thousands) more. When the idea of stealing our money to give to the failing automakers first came up, there was immediately “fierce debate” in the media about whether the automakers “deserved” the money. Some argued that it was the companies’ own fault that they were in the shape that they were in. Others argued that even if given the money, the automakers would still eventually fail. Congress pompously demanded a turnaround plan from the automakers as a condition of their receiving the money. The media provided (and is still providing) the façade of spirited debate about all of these straw man issues. Every angle to come at this problem is argued, except one: Does Congress have the RIGHT to take our money and give it to somebody else?

Once the deafening silence on this issue is acknowledged, the underlying assumption behind all of the rest of the arguments becomes clear. We no longer have any individual rights. In debating whether or not the bailout money would keep the companies from failing, the obvious assumption is that if the bailout would save the companies, then Congress has the right to forcibly steal our money to save them. In debating whether or not the companies themselves had caused their own demise, you must assume that if they did not, then Congress has the right to steal our money to help them. When demanding that the automakers come up with a turnaround plan to ensure that they do not need taxpayer money again in the future, Congress assumes that they have the right to steal our money as long as the automakers present a reasonable plan.

Not one journalist, not one talk show host, not one panelist - no one anywhere – no matter how liberal, conservative, or even libertarian they claim to be, has made the argument that Congress DOES NOT HAVE THE RIGHT to forcibly take money from one person and give it to another. This argument has been excluded from all debate.

There is a very good reason for this. It is that there is no reasonable argument that can be made on these grounds justifying this theft of our property. The Declaration of Independence tells us that governments are instituted to secure our rights. The Declaration also says that those rights are unalienable, meaning that no government – not even a democratically elected government – can take them away. No majority can vote them away. Foremost among these rights is our unalienable right to the fruits of our labor - our property. THIS was the right that the American Revolution was fought over. Read your history. King George wasn’t denying the colonists free speech, or freedom of the press. The colonists didn’t tar and feather censors. They tarred and feathered TAX COLLECTORS. As I’ve said before, it is your property that tyrants covet, not your right to free speech or freedom of religion. This hasn’t changed in two hundred years, nor will it ever change. Government’s job is to protect our property from theft by other people. There is no circumstance that justifies them committing this crime rather than defending us against it.

Therefore, by stealing our money – for any reason – Congress is contradicting the sole reason for its existence. It doesn’t matter if Congress thinks its actions will save jobs (they won’t), if their actions will save the economy (they won’t), or even if they believe the majority of Americans support their bailout. Even if every American citizen alive save ONE was in favor of giving the auto companies this money, Congress WOULD NOT HAVE A RIGHT to give it. To do so is incompatible with liberty.

Seen in this light, it is obvious why it is imperative that the subject of rights does not come up in any discussion of government bailouts. At all costs, Americans must be distracted away from their rights and lured into arguing about something else. Thus, we argue about CEO bonuses, private jets, energy efficient vehicles (and why Detroit doesn’t make them), and a long list of other unimportant details, while ignoring the one and only issue that matters: that this money is the property of each individual American and that government has no right, under any circumstances, to take it from us. Period.

The automaker bailouts are not unique in this regard. This same parlor trick was played on us with the bailouts of the financial companies. Would the executives keep their golden parachutes? If not, then Congress had the right to steal our money. Would the financial system collapse if Congress did not act? If so, then Congress had the right to steal our money. Would 401K’s and other retirement accounts be decimated without the bailout? If so, then Congress had the right to steal our money (did you notice that they were decimated anyway?).

Over many decades, government has employed this simple subterfuge to bait us into abandoning our impregnable position – our rights – and dupe us into arguing the practical merits (or lack thereof) of their crimes. By taking the bait, we disguise the crimes of our government as ineptitude, and relegate ourselves to complaining about poor results rather than recognizing these usurpations for the crimes that they are.

When the banking bailout was proposed, we objected. For one, brief, shining moment, we were Americans again. We told our representatives that they were NOT to take this money. For one glorious day, our government blinked. Then, they told us that some unimaginable doom awaited us if we did not surrender our property to them. We believed them. They told us that our retirement accounts would be devastated if we did not allow them to violate our rights, so we let them take our money. Our retirement accounts were devastated anyway, and we deserved it. By surrendering our own rights, we violated those of our neighbors. The money we let them take was not theirs OR ours to give.

We have another chance. We can call them again and order them not to give this money to the automakers. Yes, I said ORDER them. Rights are not something that you request of your government. They are something that you DEMAND be respected. Our government is about to once again violate our unalienable right to the fruits of our labor. We must order them not to do so. Do not let them derail you with spurious arguments about what might happen if they don’t steal your money. Stick to your guns and keep bringing the argument back to the only issue that matters: this money belongs to you and they don’t have the right to take it. Make no threats of violence or harassment, but accept no compromise or offer to “agree to disagree” either. Hold their feet to the fire and remind them that this government is YOUR servant. You will be surprised how much power you actually wield.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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The Misguided Outcry for "Perp Walks"

It is bad enough to hear the lie that capitalism caused our economic crisis repeated ad nauseum by both the dishonest and the clueless. It is even worse to hear some of the “solutions” proposed by the incoming presidential administration and other hardcore Keynesians; now that most people are convinced that “laissez faire” is to blame for our troubles (as if the outgoing regime wasn’t as Keynesian as Keynes himself). Worst of all, since the so-called “experts” have been so wrong, even blow-dried talk show hosts feel empowered to render their completely uninformed opinions. None have been more annoying than the latest outcry over the lack of “perp walks” during the sub-prime meltdown and subsequent economic disaster.

The argument, if one could call it that, is that although the government has failed in the past to regulate properly to avoid economic crises, they have at least prosecuted the greedy perpetrators who supposedly caused them. For example, during the accounting scandals of the early 2000’s, Ken Lay, John Rigas, and Bernie Ebbers were just a few of the executives who were prosecuted and sentenced to particularly harsh jail terms for their roles in the demises of their respective companies. The SEC even took the bizarre step of prosecuting Arthur Anderson – not its executives, but the corporation itself – proving that even imaginary entities were not beyond the long, destructive arm of the federal government. Supposedly, these headline-making witch hunts “send a message” to the rest of the high finance class that it’s time to clean up its act. It also seems to make financial talk show hosts (who seem to learn nothing about economics no matter how long they remain on their jobs) feel much better about things, no matter how little these prosecutions have to do with the economic problems said hosts pretend to report on. Of course, ratings never suffer when the wealthy are marched off to the prisoner's dock.

During this crisis, however, there have been no such prosecutions for the “fraud” everyone keeps talking about as if it actually played a major role in the mortgage meltdown. Don’t get me wrong, I’m sure that there was fraud committed, and the perpetrators should be prosecuted. However, both the media and most of the public continue to demonstrate their complete lack of a sense of proportion when they point to fraud related to tens or even hundreds of millions of dollars while we are experiencing a crisis involving TRILLIONS of dollars. We can burn all of the witches we want, but it won’t get us any closer to solving this crisis. As our socialism bubble continues to deflate, we must confront the systemic problems that caused it or they will finish devouring what is left of our once powerful economy.

It is a little too easy to simply dismiss the lack of prosecutions as the Bush administration refusing to go after its friends during their waning days in office. No matter how friendly they may have been to Wall Street (at our expense) over the past eight years, they have not hesitated to turn on their friends at the first sign of trouble, as the above-mentioned prosecutions demonstrate. Ken Lay in particular seemed to be a close personal friend of President Bush, but when the heat came, Mr. Lay found that door firmly closed. No, close ties to Wall Street are not the reason for the lack of prosecutions for fraud in this crisis.

As I’ve said before, this latest crisis was not caused by fraud or even greed, it was caused by theft. To understand this, one must acknowledge all of the parties in the transactions in question. Whether it is out of ignorance or by design, our politicians and media[1] consistently fail to acknowledge one of the parties. It is hard to give them the benefit of the doubt, because this omission is crucial to promoting their great lie, the failure of free markets.

For example, when talking about sub-prime loans, the only parties acknowledged are the borrower and the lender. Supposedly, the “predatory lenders” misled the borrowers about the terms of the loans, duping them into taking more risk than they should have. At the same time, many borrowers were irresponsible or even dishonest in taking on more debt than they could afford. Even those lenders that did not perpetrate some kind of crime in misleading the borrowers were at least grossly irresponsible because of their “lax lending standards.” So, the case is made that these two parties, acting freely as economic agents in a supposedly laissez faire environment, made bad decisions causing enormous losses that could have been prevented with more regulation. Thus, it is more regulation that is needed to prevent a similar catastrophe from occurring again.

The obvious question that one would ask is why anyone needs to be protected from the consequences of their own actions. If the lenders or borrowers take too much risk, they may lose their money. However, it is their money to lose, and if they lose it, what harm could this do to anyone else?

The answer lies in the true nature of the transactions in question. The argument above assumes there were two parties to each loan, when in fact there were three. However, unlike the borrower and the lender, the third party – the taxpayer - WAS NOT acting freely. The third party was forced to put up his or her money as collateral, without which not one sub-prime loan would have occurred. Moreover, the mortgage-backed securities that are playing such a pervasive role in the collapse of the financial system also would not have been sold had the purchasers not been assured that the government was backing the loans. This was nothing resembling a failure of free markets. It was an easily predictable consequence of government distorting the financial system and the economy by intervention into the markets. As is always ultimately the case, its intervention boils down to armed theft of property. Regardless of the fraud that may have been committed by lenders or borrowers, it was this crime by government that is responsible for the crisis.

Obviously, this is the reason that we haven’t seen “perp walks.” It is unlikely that our federal government is ever going to indict itself for any of its crimes, no matter who is president or what party has a majority in Congress. As for the private sector, the truth of the matter is that most of the conduct by the lenders actually amounted to them doing exactly what the government told them to do. They relaxed their lending standards because government pressured them to give loans to people that they wouldn’t have otherwise lent to, using money stolen from us to remove the onerous risk. Had the lenders been more responsible, they faced charges of discrimination against minorities or other disingenuous “fairness policies” designed to help our government achieve its age-old socialist dream of forced equality. In fact, as I’ve said before here, even the executives at Fannie Mae began to come forward and express concern about the risk that the GSE’s were taking on. What was the answer from our government? The GSE's were told that they weren’t doing enough; they should be “helping” more people. Government stole money from us to cover bets that even their own people were telling them were losers.

Therefore, if there are going to be any perp walks, it should be members of the federal government themselves that should be doing the walking. While we are making arrests, let’s not let the guilty from past presidential administrations escape justice. As I’ve previously argued, it was really the Clinton administration that sowed the seeds of this crisis. It was Clinton that raised the GSE’s to such prominence and pushed through legislation making it a crime to deny a mortgage. Even using the government’s faulty reasoning[2] that a lack of regulation is to blame, it was Clinton that signed the bill repealing the Glass Steagall Act and paving the way for the government-enabled speculation that followed.

Ironically, as bad as the Bush administration has been in so many other ways, it was actually their failure to reverse these Clinton policies that represents their most significant contribution to the mortgage crisis. Most importantly, neither Clinton, nor Bush, nor the majority of the members of Congress can deny their guilt in the central crime that has been perpetrated. They all had a hand in government theft of property. For these perp walks, the federal marshals won’t have to fly to Chicago or New York to make the arrests. They need only walk down the street.

[1] I still observe the quaint practice of referring to them as if they were separate entities.
[2] The Glass Steagall Act is another of those FDR regulatory schemes that is only perceived as necessary because of risks that ultimately exist because of government’s improper involvement in the economy.

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The Bill Clinton Myth Finally Debunked

Whether you are watching the stock market, the headlines, or merely your 401K account balance, there is not much that is positive to draw from the economic collapse that is just getting underway in the United States. With each new negative earnings report, bankruptcy, and ominous unemployment report, it gets a little harder to see the silver lining around this enormous black cloud. Some have argued that the collapse of the present system will provide an opportunity to remake America as a free country again. They may be right, but that is a bet with long odds that wouldn’t pay for years, possibly decades. However, there is one positive consequence of the economic debacle that we can point to right now. The Bill Clinton Myth has finally been debunked.

Most people are familiar with the Bill Clinton Myth, but are unaware that it is not historically accurate. It’s a wonderful story, if you are a Democrat or even just a government-worshipper in general. For those who practice that religion, the Bill Clinton years serve as a Golden Age to talk about, to write about, and even to pray about, hoping for its return. However, this myth does not even offer the benefits of its more interesting ancient predecessors. In fact, while the ancient myths of gods and monsters contained spiritual and philosophical truth underneath their obviously fictional plotlines, the Bill Clinton Myth contains no truth at all. Perhaps “myth” is the wrong word, because it gives good myths a bad name.

The Bill Clinton Myth goes something like this. After “mismanagement” of the economy by President George H.W. Bush, which resulted in the recession that coincided with the 1992 election, Clinton took office and “managed the economy” wisely during his eight year presidency. Clinton’s “centrist policies” were just what the economy needed at a time of technological revolution, and his wise stewardship resulted in not only unprecedented growth and low unemployment for the economy, but balanced budgets and even surpluses for the federal government. By the time Clinton left office, the United States was more powerful economically than it had been at any time in its history.

Like the Populist Myth of the 19th Century, this one is a great story. Also like the Populist Myth of the 19th Century, none of it is true. While even some Republicans begrudgingly credit Clinton with the mythical budget surpluses or the equally mythical prosperity in the 1990’s, they do themselves a disservice in regard to their quest to discredit every Democrat who ever (or will ever) lived. As we have now learned, the facts are that there were no federal government surpluses, the lion’s share of the prosperity was no more than a Federal Reserve-created bubble (the dot com bubble), and what real economic growth there was occurred despite Clinton’s policies, not because of them.

It might be necessary to go back and read that last sentence again. It is heresy, as surely as Galileo’s heliocentrism was to the Roman Inquisition. However, it is also just as undeniable as heliocentrism, regardless of the fact that it may shatter the world view of the government-worship cult (including, but not limited to, the Democratic sub-cult). Let us look at these “heresies” one at a time.

First, there were no federal surpluses. As this writer clearly explains, the appearance of a surplus was merely the result of the increased tax revenue from the dot com bubble allowing the Clinton administration to borrow more money from Social Security. Thus, while the public debt went down in the last four years of the Clinton presidency, the intergovernmental debt (mostly to Social Security) went up by an even greater amount, resulting in an increase in the overall national debt in each of those years. While the writer of this article could be quite correctly accused of a conservative bias, his argument here is based upon easily verifiable facts out of the published federal government budgets for those years. In other words, whatever else he might think about Democrats, he is stating facts here that are not in dispute. Only spin and distraction keeps the great majority of people from simply looking up the budgets from 1997- 2001 and seeing the deficits for themselves.

Second, there is the technological revolution and its resulting prosperity. Certainly, there were astounding developments in technology in the late 1980’s and throughout the 1990’s. One could look at this decade as a mild version of the technological revolution that occurred at the turn of the 20th century, although the breakthroughs, mostly in computing, were not as paradigm-shifting as the invention of the steam engine or the automobile, much less the telephone or the computer itself. However, there were vast increases in productivity due to the “new economy,” and a whole industry that did not before exist was born that employs people in higher paying jobs and has revolutionized communication, commerce, and efficiencies.

All of this happened during Bill Clinton’s presidency (although its roots go back at least as far as the Reagan years, possibly even Carter), but what, SPECIFICALLY, did he do to cause it? Nothing. Microsoft, Oracle, Apple, and the rest of the REAL new companies that emerged during this technological revolution were children of the free market. Gates, Ellison, Jobs and the rest were all creative entrepreneurs who took enormous risks based on their superior vision of where breakthroughs in technology could take commerce. Anyone old enough to remember knows that government had very little understanding of the tech sector, and frequently complained that it had not yet come up with regulations that would address the new types of products or methods of conducting business that the tech sector presented. In other words, much of the reason for the explosive growth was the ABSENCE OF GOVERNMENT INVOLVEMENT, despite government’s wishes to the contrary. For a short time, until the lumbering machinations of government caught up, a free market in technology existed that allowed for spectacular innovation and growth.

The most significant action undertaken by the Clinton administration regarding the REAL technological revolution was its anti-trust case against Microsoft. Here, Clinton’s true contempt for free markets and property rights came shining through. The basis for this action was rooted in the century-old (at least) antagonism toward natural monopolies, which benefit customers, as I’ve discussed here, as opposed to government-created monopolies that harm customers. This particular anti-trust case had an even more bizarre twist, as it was based upon the ludicrous assertion that Microsoft had some responsibility to build opportunity for its competitors into its own product. Thus, government tried to “ensure competition” by using its coercive power to cripple the leader, rather than protect the property rights of all. Only through the government looking glass could such preposterous reasoning be called “free markets.”

However, that is certainly not the whole story behind the 1990’s. There was another side to the tech revolution – the dot com bubble. This side of the story is not characterized by Microsoft or Apple, which are viable companies to this day. This side of the story is characterized by Pets.com, online supermarkets, and other hare-brained schemes that only got capitalized due to the reckless monetary policy pursued by the bubble-maestro himself, Alan Greenspan. To be fair, Clinton may not deserve much blame for this bubble. Most politicians demonstrate little understanding of monetary policy, beyond their belief that lower interest rates raises stock prices and higher stock prices equals votes. At one point, he actually made a speech wherein he claimed that the business cycle had been eliminated,[1] which seems to indicate that his understanding was as limited as that of most other presidents. In any case, the dot com bubble can either be a minus for Clinton, if you attribute the activities of the Federal Reserve to the corresponding presidential administration, or merely the Fed doing what the Fed does (inflate and distort the economy), regardless of who happens to be in office.

Finally, in addition to the false credit that Clinton receives for his imaginary role in the perceived prosperity of the 1990’s, he seems to have somehow escaped all blame for his very real hand in the problems we are facing now. Remember, it was Clinton who appointed FDR II (Franklin Delano Raines) as CEO of Fannie Mae, and then pressured the GSE to significantly increase its loans to riskier sub-prime borrowers. In fact, the Clinton administration bragged about the fact that it had not only had a hand in the first black CEO of a Fortune 500 company,[2] but also that it had made home ownership possible for millions of Americans that otherwise could not have obtained mortgages. Of course, it is poetic justice that Raines is now the subject of over 100 civil lawsuits and a huge percentage of those mortgages are defaulting. As is always the case, government’s results when interfering in markets are exactly the opposite of its intentions.

So, contrary to the Clinton Myth, the facts behind the Clinton presidency reveal that it had nothing to do with what real prosperity there was in the 1990’s, was as clueless and impotent as most other administrations in taking any action while the Federal Reserve blew up an enormous bubble on its watch, and sowed the seeds for the mortgage crisis that started the present economic cataclysm. Economically, the Clinton presidency was an unmitigated disaster, and hopefully it is clear to all but the most fervent government worshippers that his “stewardship of the economy” is a myth.

Lest this be seen as a partisan attack, let me clear the air. There have been two presidents credited with prosperity that seemed to coincide with their years in office during the past 40 years. One was Reagan, a Republican, and the other, Clinton, a Democrat. In both cases, they were falsely credited with prosperity that was mostly an illusion caused by the Federal Reserve, and their policies otherwise failed miserably.[3] These were not so much personal failures on the part of either of these men, but rather failures of a false ideology. They both represented failures of the ideology that government has a role in the economic interactions between people beyond enforcing contracts and preventing violence or fraud. Until we cease demanding that government “do something about the economy” and recognize that government CAUSES all of our economic problems, we are going to keep getting the same results, whether a Democrat or a Republican occupies the White House.

Now that the Clinton Myth has been exposed as a fraud, it is time to reject the entire government religion as a whole. Centuries ago, most peoples of the earth ceased sacrificing animals to bring rain, better crops, or good fortune hunting. At some point, they realized that there was no cause-effect relationship between killing a goat and the end of a drought. It is time that we likewise recognize that no politician has ever had any more to do with prosperity than those unfortunate goats had to do with the weather.[4] Once the superstition of this religion is rejected, it is clear that only free markets, individual effort, and creativity can create wealth and prosperity.

[1] I recall him making this ludicrous statement, but have not been able to reference it. Perhaps someone can provide the citation in a comment.
[2] The focus by both the Clinton administration and the media on Raines, a political hack who took over a Government Sponsored Entity, was a disservice in that it distracted attention from REAL black executives, like Kenneth Chenault, and Richard Nanula, who had risen to their positions based upon their talent and hard work.
[3] To be fair, Reagan’s rhetoric was admirable. He talked constantly about lower taxes, smaller government, and more personal liberty. However, he failed to implement this ideology to any significant degree, possibly because of a Democratic Congress. More importantly, he ran huge deficits due to defense spending and the growth of entitlement programs on his watch that constituted bigger government rather than smaller.
[4] Actually, the government religion is far more harmful than the ancient religious cults. When the ancients sacrificed a goat, they neither benefitted nor harmed anyone (other than the goat). When government tries to “create prosperity,” it harms everyone in society.

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Obama and the Ghost of FDR

President-elect Barack Obama has not even taken office yet, and already the entire world seems to be celebrating the death of the last vestiges of capitalism. With the Democrats in control of both the executive and legislative branches of government, calls for a “new New Deal” are as commonplace today as the expression “it’s a free country” once was (you don’t seem to hear that much anymore. I wonder why?). It is not as if the “Change” Obama proposes to bring will be that radical. The United States has not practiced free market capitalism since at least before the last Great Depression, despite the ludicrous claims that capitalism is to blame for the next one. However, Obama will have to come up with something original if he is to leave an imprint upon history comparable to that of the original New Dealer. Not only did FDR turn the Hoover-created depression into the ten-year Great Depression, he has now actually reached from beyond the grave to take down the world’s largest automaker. Even apocryphal stories of the holy Obama walking on water pale in comparison to that.

It is nothing less than astounding that GM can fail so spectacularly as a direct consequence of the policies of the first FDR, while the entire world not only ignores the fact that the New Deal caused it, but actually demands another New Deal as the solution. Not even O. Henry gave us irony like this.

There is actually very little debate about what has caused the destruction of the American auto industry. Occasionally, a weak attempt is made to imply that the Big Three should not have concentrated on trucks and SUV’s while foreign competitors were making more energy-efficient vehicles. However, it is very easily demonstrated that the U.S. automakers had no choice but to concentrate on vehicles that had the necessary margins to cover their huge labor costs, both for current and retired workers. Decades of concessions to powerful labor unions have driven their costs so high that they are simply unable to make an automobile that competes with foreign imports.

There are those that argue that “unregulated capitalism” caused American manufacturing jobs to migrate overseas, where manufacturing labor was cheaper. However, this fallacy refutes itself. If “market forces” truly were in play, how did U.S. labor costs get so high? Did “greedy capitalists” simply abandon their profit ambitions and decide to pay their employees more than they could afford to? Surely, this would have required not merely irresponsibility but utter foolishness from the same crowd that MADE GM the largest automaker in the world. What caused this decades-long failure of basic business sense?

Of course, everyone knows the answers to these questions, but want to pretend that they don’t. The reason that manufacturers, especially the automakers, continually promised labor unions more than they could afford to pay was because government FORCED them to do so. It really is that simple. Under the euphemism “collective bargaining,” the government made it illegal for a manufacturer to refuse a demand from a union. An illusion of choice was sustained by merely requiring the employer to “make a reasonable counter-offer,” but the courts were there to see that “reasonable” meant that if the union asked for the moon and the stars, the employer would have to at least agree to a few planets. In the end, the employer could not choose freely as far as what to pay their employees or what benefits to offer. Without free choices, market forces are suspended.

To make this as plain as it can possibly made, this game is played like this: The union demands compensation beyond what the business model will support. The employer replies that they are unable to agree if they wish to stay in business. The government says, “Just give it to them or we’ll shoot.” Another “victory for the workers,” is won and the inevitable end draws nearer.

The entire union concession/cost escalation dynamic goes back to the National Labor Relations Act of 1935 and other New Deal legislation. It was these fundamental departures from capitalism that sowed the seeds of the eventual destruction of American manufacturing. What is honestly horrifying is that Americans can observe this government coercion of industry and seriously refer to it as “unregulated capitalism,” or to the series of concessions made by manufacturers at gunpoint as “market forces.” We are truly through the looking glass where a bull is stumbling through the china shop and the storekeeper is reprimanding the broken glass.

While it might seem unfair to blame a man that has been dead for over six decades for the failure of a company in 2008, one must consider the dominance that America enjoyed in the manufacturing sector to begin with. At one time, American manufacturers flooded the world with high-quality, low-cost goods, while still paying wages many times higher than their competitors overseas. There was no sector where America was more dominant than automobile manufacturing, an industry that America literally invented. It would not be brought to bankruptcy overnight. Year after year, decade after decade, the companies grew a little less profitable as government forced them to raise their labor costs IN OPPOSITION to market forces. It was not until decades later that those costs rose beyond the point where the companies could remain competitive.

However, the length of time it took for the disease to run its course does not change the nature of the virus that caused it. Indeed, the same reasoning could be applied not only to the entire manufacturing sector, but to other sectors of the American economy as well. The collapse we are experiencing is the result of an entire economy that has been rendered profoundly unproductive by systemic problems that all relate to government intervention into markets. We have still not found a cure for cancer or the New Deal. To be fair, the poisons we use to try to kill cancer before the they kill the patient are far less deadly and have a much higher rate of success than the medicine we are about to apply to our current economic crisis. The survival rates for many cancers continually improve. The survival rate for American businesses might not be significant enough to measure.

So, Obama will have to be creative to achieve staying power comparable to FDR’s. While Obama’s stated economic policies are terribly destructive, there is not much left of the American productive structure to destroy. More than likely, his interventionist and redistributive policies will merely apply the coup de grace to an economy that at this point merely retains the superficial façade of its former capitalist glory. In order to truly emerge from the shadow of the Ghost of FDR, Obama will have to find a completely new, original way to rend the fabric of our once-free society. One can only dread what that might be.

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Our Last Emperor

Within hours of his historic victory, the official story of Barack Obama’s presidency began to be written by the corporate media machine. The general consensus of all of the coverage is that Obama is inheriting huge problems in the economy and foreign policy of the United States, and that he alone will have to solve them. Associated Press writer Jennifer Loven’s article of this morning, carried the headline, “Great Expectations: Obama will have to deliver.” The New York Times featured an article called “For Obama, A Towering Economic To Do List.” Perhaps most ominously, an article from Bloomberg contained this passage,

“The Democratic president-elect has much more on his agenda, amounting to what may be the broadest overhaul of the U.S. economy since Franklin D. Roosevelt's New Deal. Beyond job creation and big investments in public works, Obama intends to shift the tax burden back toward the wealthy, roll back a quarter-century of deregulation, extend health-care coverage to all Americans and reassess the U.S. government's pursuit of free- trade deals.”

Fate has not been kind to Barack Obama. His task is not monumentally difficult – it is impossible. An entire nation and, to some extent, an entire world, is looking to this relatively young man to bring back to life an American Empire that is beyond resuscitation. We are presently witnessing the spectacular failure of an ideology that has dominated the world for the past century. Like his predecessor, Obama brings terribly bad (although superficially different) ideas to the White House. Like his predecessor, Obama will make a bad situation a lot worse, albeit with different tools out of the same toolbox. However, the end of the Empire that will occur on his watch is inescapable, no matter who occupies the White House. The Empire is ending because, like all empires, it is unsustainable.

Make no mistake, Obama’s policies will make things much worse. For an economy that has never really recovered from the original New Deal, the policies described in the Bloomberg passage alone should be enough to put America’s “mixed economy” out of its misery. Following the example of past American emperors, particularly from the (in past decades) more socialist Democratic party, Obama may do damage in one term that another president might take two to do. Nevertheless, this collapse is not going to be remotely his fault, although he may take much of the blame.

As I’ve written here, we are experiencing the deflation of the mother of all bubbles, the socialism bubble. America’s problems are not the result of the mistakes of specific leaders or of the failures of specific policies. America’s problems are systemic. They are the result of building the edifice of our society and economy around the idea of central planning and an all-powerful federal government. The media ludicrously portrays the welfare state, the worldwide military force, the central economic planning via the Federal Reserve and alphabet soup regulatory agencies, etc. as failing because they have been poorly managed. Sometimes they have. The Bush Administration jumps to mind. However, it is crucial to realize that there is no way to successfully manage them. They are part and parcel of an ideology that is doomed to fail regardless of the skill of its execution. When America has prospered in past decades, it has been in spite of these institutions, not because they have been managed well. Until Americans realize this, the “change” they seek will never come.

The real tragedy is that neither the majority of Americans nor Obama himself understand this. So, all look to Obama to take some action, although most really can’t say what it is. Each time I hear Obama or one of his followers dutifully mouth his one word slogan, “Change,” I am haunted by Charlotte Iserbyt’s insightful question/retort, “From what, to what?” I have occasionally asked an Obama supporter this question. Despite long, uncomfortable silences on each occasion, I have yet to hear a reply. They do not know what they mean. They just want government to make their lives better. They do not realize that government, by its very nature, does not have the power to do so.

Not long ago, I stumbled upon Mel Gibson’s Apocalypto while channel surfing just before going to sleep. It is not a movie for the faint of heart. It depicts life at the end of the Mayan empire, complete with human sacrifice in state-of-the-art digital clarity. I was struck by the words of the sacrificer to the maniacally cheering crowd. He mentions a short list of afflictions of the people – poor crops, disease, drought – and then goes on to say,

“They say this strife has made us weak. That we have become empty. They say that we rot. I say we are strong. Great people of the banner of the sun, I say we are strong. We are a people of destiny. Destined to be the masters of time. Destined to be nearest to the gods…”

He then goes on to brutally murder two captives in order to appease the gods and renew the land.

On Tuesday night, I was reminded of this scene while watching Barack Obama’s victory speech in Chicago. The similarities were more striking than one might at first think. As in the film, tens of thousands were gathered to implore their government to save them. As in the film, Senator Obama reviewed the list of problems afflicting his people (two wars, the financial crisis, healthcare costs, etc.). As in the film, President-elect Obama’s proposed solutions will do nothing to relieve the suffering of his people. As in the film, the tens of thousands gathered erupted into wild applause and adulation at each meaningless pronouncement. I am not sure what I found more horrifying: the sight of thousands of people cheering a brutal murder, or the sight of the citizens of the so-called “land of the free” worshipping their government. Each is an outward indication of systemic societal flaws within.

Perhaps President Obama’s legacy will find some luck. The great majority of Americans still believe that FDR resolved the Great Depression, when in fact he caused it. Perhaps Obama will get some credit for the eventual recovery in America, even though it will happen in spite of his policies rather than because of them. Unfortunately for him, it would be better if Americans finally saw their present form of government clearly for what it is.

After the end of the Empire, there will still be a United States of America, just as there is still an Italy, France, Spain, and England. However, this moment in American history is different. In the past, the productivity of the American economy has eventually been able to overcome the disastrous policies of an FDR or an LBJ. That is no longer the case. The accumulated effects of government intervention and government-created systemic problems that have been built into the American economy have finally destroyed that productivity. The parasite has killed the host. This crisis is going to force some substantive change, whether for better or for worse.

The real question confronting America is what will come next. None of the empires of the past were succeeded by freer societies for their people. Will America take a different path? No nation in history has achieved the liberty of its people that the United States did during its freest, most prosperous period. It is possible that this spirit of liberty is not completely extinct. Following the reign of this our last emperor, we will have the opportunity to truly remake the United States. Instead of repeating the mistakes of history, we can make history once again. After the fall of our empire, we will have the opportunity to restore our republic and reclaim our freedom. That is the real change that we need.

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The Crusade Against Greed: Government's Scapegoat

Despite the fact that this economic crisis is unfolding exactly the way that the Austrian economists predicted it would, along with the impending police state that Hayek predicted over 60 years ago, the American people show absolutely no sign of figuring out the CAUSE of this crisis. The most discouraging aspect of the whole debacle is the propensity of the American people to take the government bait by blaming this financial and economic collapse on “greed.” This plays right into the government’s hands.

As platitudes go, those warning against greed are the ones that people should be most suspicious of. Anyone that seems overly interested in making you feel guilty about accumulating too much property probably has an interest in acquiring what you leave behind. If nothing else, the fact that both Republicans and Democrats are vilifying greed should make people think twice about whether they may be burning the wrong witch when they seek to blame greed for our present troubles.

Webster’s defines greed as “a selfish and excessive desire for more of something (as money) than is needed.”[1] Any student of economics should be suspicious of this vice. While “selfish and excessive” certainly conjures up distasteful emotions, those are little more than prejudicial adjectives accompanying the real substance of the definition: desire for more of something than is needed. Does this mean that anyone with a savings account is greedy?

While one could counter that some savings are actually “needed,” a moment’s reflection should have one questioning what the real motivation for vilifying greed might be. Who do we find denouncing greed the most vehemently? The rich and powerful. Does this bother anyone besides me?

Let me be clear. Greed had nothing to do with causing this financial crisis, no matter how many times you are told that it did by the media and politicians looking for votes. In economics, the goal of every market participant is to acquire “more than is needed.” If the truth be told, acquiring more than is needed is what Jefferson really meant when he talked about the “Pursuit of Happiness.” Property – the fruits of your labor – is the means by which you sustain your existence and provide opportunity for intellectual and spiritual enrichment. Those who must work every waking hour just to provide the basic necessities of life have time for neither quiet meditation nor for reading Dostoevsky. By acquiring more than you need, you create leisure time to pursue your other interests and enable yourself to provide for your children or to give to charity. In this life on earth, acquiring more than you need is the means to happiness and security for yourself and those that you love. It is also your unalienable right, as our founders repeatedly told us.

The whole point of participating in a free market is to acquire as much property as you possibly can. Not only is there nothing wrong with this, it is actually vital to the health of the market. With every participant acting in their rational self interest to maximize their wealth, the minds of all participants are leveraged and society as a whole reaps enormous benefits.

One of the key mistakes that critics of free market capitalism make is failing to understand that there is only one way to acquire great value in that system: to offer great value in return. Listening to the proponents of socialism, one might be led to believe that one can only gain at another’s expense. This is not true. In a laissez faire capitalist system, economic agents trade to their mutual benefit. Every exchange is perceived by both parties to be an EQUAL exchange, or it does not occur. That is the nature of VOLUNTARY exchange. No one deliberately causes themselves harm. While they may not always trade wisely, more often than not they do, and in every case they make an exchange that they believe is in their best interests. One can only consume great wealth by producing great wealth.[2]

Thus, it should be clear that there is no such thing as acquiring “too much” in a free market. Only by supplying enormous value can any economic agent acquire enormous value. Acquiring property in a voluntary trade by offering equal value in return is the essence of “earning.” In a free market, all transactions are voluntary. Therefore, all wealth must be earned.

A second reason for wrongly perceiving a threat from greed in a free market is the failure to acknowledge the role played by risk. There is always some amount of wealth that can be acquired with very little risk. However, in order to achieve greater amounts of wealth, economic agents must accept greater amounts of risk. Risk acts as a counterbalance to what is commonly referred to as greed. If an economic agent seeks to acquire value far beyond the value he is offering in return, he can only do so by taking inordinate risk, and will virtually always fail. While the attempt to acquire value with this type of speculation might not be admirable, others certainly have no right to forcefully stop him from doing so. The risk is his, as are the gains or losses he realizes as a result. In a free market, there is no moral or economic justification for attacking “the speculator.”

That brings us to our present crisis and its real cause. It was not greed – the desire to accumulate more than one needs – that caused the crisis. What caused the crisis was government removing the risk of lending to sub-prime borrowers by guaranteeing mortgages through Fannie Mae and Freddie Mac. With no fear of losing their investment, lenders had no reason not to take inordinate risk in lending to sub-prime borrowers. In fact, Fannie Mae CEO Daniel Mudd told the New York Times that he was actually pressured by the government to continue increasing the risk that Fannie was exposed to. According to Times reporter Charles Duhigg,

“Capitol Hill bore down on Mr. Mudd as well. The same year he took the top position, regulators sharply increased Fannie’s affordable-housing goals. Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority homebuyers.”[3]

Whatever the true intentions behind creating these government-sponsored enterprises (GSE’s), they violated moral and economic law with predictable – and predicted – results. This intervention into the market and suspension of market forces was the direct cause of the sub-prime crisis, not greed.

This was more than just a bone-headed mistake by government. It was a crime. Governments are instituted to secure individual rights, including property rights. Instead of protecting the property of its citizens, government stole it to guaranty sub-prime loans. Now that its ill-advised program has failed, government is looking for a scapegoat. Enter “the greedy financier,” and the real culprit walks.

None of this is meant to absolve the lenders, who knowingly made loans to people who could not pay them back. However, the guilt should be shared equally between the lenders, the borrowers, and the government. It was not greed that they were guilty of, it was stealing. They stole money from the taxpayers to make the loans possible. All three parties benefitted by passing risk onto taxpayers without their consent. The problem was not the desire for too much wealth. It was the desire for wealth that they did not earn.

This is an important distinction, because we will soon be subject to a government “solution” to this supposed problem of excessive greed. Blaming greed for the crisis plays right into the government’s hands, as it allows government to respond with measures that will limit the amount of money that can be earned, even legitimately. Already we are hearing calls for more regulation. This amounts to a further violation of our rights and will continue the destruction of our markets. On the other hand, if we recognize the true cause of the crisis, we can demand less regulation and an end to government intervention into the marketplace, which is what our markets actually need. One cannot prescribe the medicine until one has accurately diagnosed the disease. Don’t let the government off the hook by buying into their crusade against greed. Instead of free markets, let’s punish the truly guilty for once.

[1] http://www.merriam-webster.com/dictionary/greed
[2] It should be noted that this applies to truly free markets. In the U.S. mixed economy, government privilege allows some to accumulate great wealth because of that privilege, rather than any great value they offer the marketplace in return. Of course, the solution to this is to eliminate government privilege, not restrict the market further.
[3] Duhigg, Charles “The Reckoning: Pressured to Take More Risk, Fannie Reached Tipping Point” The New York Times Oct. 4, 2008 http://www.nytimes.com/2008/10/05/business/05fannie.html?pagewanted=1&sq=mudd&st=cse&scp=1

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China Saying Goodbye to US Market

I am not sure if this announcement will receive the attention it deserves, but it is probably the most significant piece of news of this entire turbulent month. China today announced that it will “seek to expand its massive internal market to counter the global economic slowdown that has reduced international demand for Chinese goods.”As reported by Associated Press writer Gillian Wong, China has decided to shift the focus of its economic planning away from exports and toward domestic consumption. This is the beginning of the end for the U.S. dollar and what is left of the U.S. economy.

Fans of Peter Schiff (and I am certainly one of them) are familiar with the central tenet of his thesis: that it is a misconception to believe that China is dependent on U.S. consumption to fuel their export economy. For years, Schiff has been arguing, with few in the mainstream media agreeing, that China would be better off without the U.S. According to Schiff, they would simply consume their own products instead of sending them to America in exchange for increasingly worthless U.S. dollars. In fact, China has suffered its own inflation as a result of pegging its currency to the U.S. dollar. If they unpegged their currency, it would naturally float to its true value on the open market, making it much stronger and the U.S. dollar much weaker. This seems to be what they have finally decided to do.

The official release from the Xinhua News Agency goes on to say, "We should step up efforts to boost domestic demand, particularly domestic consumption, and keep the economy, the financial sector and the capital market stable.”

It is important to remember the definition of demand. Demand is not only the desire for goods or services, but also the purchasing power necessary to acquire them. There is certainly never a shortage of desire for goods and services anywhere. The Chinese people haven’t failed to buy their own products because they didn’t want them. They have failed to buy them because they did not have the purchasing power they needed to buy them. Now, the Chinese government is saying that they are going to try to give them that purchasing power.

However, the Chinese government is also saying that they wish to maintain stability in their financial and capital markets. This means that they must avoid what has been the U.S. method of boosting consumption, namely pumping cheap money and credit into the economy, compliments of the Federal Reserve. However, without new money, what will give the Chinese people more purchasing power?

The answer, obviously, is an increase in the purchasing power of the money that they already have. This will be the inevitable result of unpegging the strong Chinese Renminbi Yuan from the weak U.S. dollar. The Yuan will quickly float to its natural high value, allowing the Chinese people to purchase themselves those products that they used to export to the U.S. This will also mean that U.S. consumers will have to either do without those products, or pay the much higher prices of their counterparts that are made in the U.S. The higher prices of U.S. made products may go even higher due to the decreased overall supply, depending upon how that decreased supply balances against decreased U.S. demand (purchasing power).

However it plays out, it will mean a huge shift in standard of living, with the Chinese enjoying a higher standard, while the U.S. suffers probably the biggest decrease in standard of living in its history.

Make no mistake. The Chinese will have to suffer through an adjustment period as their export economy reallocates resources to sell their products domestically. Their equity markets have reflected this, both over the past year and during the recent crash. However, once the markets bottom and the Chinese complete the adjustment period to a domestic consumption model, Chinese equities will skyrocket as their economy realizes unprecedented growth, this time on much more solid footing as they sell their products to their own citizens in exchange for a currency with REAL purchasing power. As Jim Rogers has said since he moved to Singapore last year, “Moving to Asia in 2007 will be like moving to New York in 1907 or to London in 1807.”

A paragraph near the end of the article aptly reflects the opposite directions that China and the United States are heading in.

“State media reports ahead of the meeting said the committee would review an amendment to give 750 million rural dwellers more freedom to lease or transfer their land, but the final statement did not mention the issue.”

One country is moving toward less regulation and freer markets, and has the most prosperous century in its history ahead of it. The other is moving toward more regulation and increasing government control. For the former, the explosion in prosperity will eventually result in a political revolution that will transform it into the free society it deserves to be. For the latter, only a reawakening of liberty can save it from the fate of all great republics that devolved into empire.

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The Bursting of the Socialism Bubble

In the midst of what “debate” there has been about the eventual bailout of the financial sector, it is clear that even most of those opposed to the bailout do not understand what is happening. The unfortunate aspect of some of the commentary is that there is a faction arguing that without the bailout, the stock market will not crash. Thus, the debate is shifted to “which course of action can best protect stock market values?” They cannot be protected. The government argues that the credit squeeze could result in unemployment, while the other side argues that unemployment will not necessarily result if the bailout is not passed. Another position blames the crisis on too little regulation. All of these positions are wrong. There will be a painful adjustment in the stock market and massive unemployment, whether the government bails out the financials or not. The only question is how long it will last. That is reality when any bubble deflates.

The most unfortunate result of all of this misunderstanding would be for the American people to reverse their position and support the bailout just because there are severe market losses if it does not pass. Their initial instinct was correct, whether for the right reasons or not. The losses that these companies suffered due to massive malinvestment are real, and that must eventually be reflected in the value of their stocks.

Similarly, it will be unfortunate if the American people are convinced that more regulation is needed to prevent this from happening again. More regulation will not prevent a problem that was in part caused by too much regulation.

We have heard about the “tech bubble,” the “housing bubble,” and even the “dollar bubble.” All of these are real. The dollar bubble is about to burst, with global catastrophic consequences, but even that is not the biggest bubble that is out there. The biggest bubble, which has been building literally for the past century, is what I will call “the socialism bubble.”

What is the socialism bubble? Let’s define “bubble” first. The term “bubble” is used in economics to describe a large misallocation of resources (malinvestment). Anyone with even a passing familiarity with economics knows the basics: the central bank artificially infuses money and credit into the economy, that money flows toward projects that appear to be profitable under the artificially created conditions, but aren’t, and those projects ultimately fail, causing the bursting of the bubble. The worst part of the bursting of a bubble is that the greatest misallocation of resources has been human resources, and those people now have to find new jobs. They have to be reemployed elsewhere, in more profitable ventures, just like the capital goods that were misallocated to the projects. That is why unemployment accompanies recessions.

Like any other bubble, the socialism bubble is also a misallocation of resources. It has just taken longer to form and is much huger in scope. The principles behind it are the same, however. It represents government intervening into the economy to create artificial conditions that misallocate resources. Under these artificial conditions, the entire economy appears to be profitable, but isn’t. When the inevitable bubble bursts, all of the resources, including human resources, that were misallocated, become unemployed. We are about to experience the massive correction following this socialism bubble.

How did it happen? One must look back to before it started to understand it completely. It started at the turn of the last century. The United States of the 19th century had the closest thing to laissez faire capitalism ever achieved in history, arguably followed next by Great Britain. The defining principle of laissez faire capitalism is VOLUNTARY EXCHANGE. With everyone acting in their rational self interest, the minds of all participants were leveraged by the system to consistently produce optimal results.

In the laissez faire marketplace of the 19th century, wages generally declined over time. A pitiable lack of understanding of economics caused social reformers to condemn the free market for this.[1] They ignored the fact that the general price level fell faster than wages, making workers richer in real terms. They attempted to improve on the results that laissez faire capitalism had produced with government policy.

However, there is only one alternative to voluntary exchange: INVOLUNTARY EXCHANGE. Government economic policies FORCE economic agents to make choices that they otherwise would not make. No matter how one tries to euphemize socialism, that is what it is. By attacking voluntary exchange, socialism attacks the mechanism that creates wealth. That is the true root of the problem.

One way in which this manifests itself is in the cost of production. Government cannot come to a company that makes automobiles and force them to pay their employees more, provide them healthcare or pensions, pile one regulation on top of the next in terms of how the company operates its business, and then expect the company’s cost of making that automobile not to rise. As the cost of production rises, the company must find a way to keep the cost of producing their product below the market retail price. They might decide to manufacture SUV’s, which have larger margins, even though a spike in gasoline prices could put them out of business. See General Motors. The truth is that none of the American auto manufacturers are able to produce an automobile that is competitive in the market. Government will come up with a host of villains to blame for this, but look at the balance sheets of the Big Three and you will see why they are not viable. Concessions to labor unions (mandated by government) have made it too expensive for them to operate.

Similar government intervention is behind virtually all of America’s loss of manufacturing infrastructure. It is simply not economically viable to manufacture anything in the United States anymore. This is not a natural result of free markets. As previously noted, wages and other costs of production fell under the laissez faire system. Falling prices are a natural result of economic growth and innovation. Only the artificial conditions created by government intervention – the use of force to coerce economic agents – have made it more expensive to make things in America.

The cost of production is not the only pressure that socialism has put on the American economy. The welfare programs currently consume 11% of GDP. Keynesians would say that this is ok, because the recipients spend that money and increase demand. Hopefully, the coming calamity will discredit this economic school of charlatans once and for all. Wealth is created by production, not consumption. This redistribution destroys voluntary savings and ultimately capital. It also eliminates the other conditions that accompany a period of voluntary savings that facilitate natural expansion of the productive structure.

In any case, increasing socialism has put artificial pressures on the American economy for almost a century, and those pressures have accumulated to make America profoundly less productive. Like the communist countries, we have lived in a dream world in which government could use coercion to change economic reality. We have pretended that a business venture can spend more than it takes in and continue to survive. For a time, the free market aspects of America’s “mixed economy” allowed her to overcome these negative pressures, but that time has passed. Economic reality is about to assert itself in devastating fashion.

For at least two decades now, America has been producing far less than she consumes. All things being equal, this would not have gone on for long. However, all things have not been equal. The United States has a central bank, and the privilege of printing the world’s reserve currency. This is why the socialism bubble has been become so enormous.

Instead of a drop in consumption and a rise in unemployment[2] as its manufacturing sector migrated overseas, America went right on consuming, and those employees found new jobs in the “service economy.” With the Federal Reserve providing an unlimited supply of fiat currency, and with the ability to ultimately export that inflation overseas by importing foreign goods in exchange for U.S. dollars, America has been able to maintain the same standard of living as it enjoyed in its productive days. As long as foreigners accepted U.S. dollars, the dream world could persist. The bubble continued to inflate.

The ominous part of this is that today a large percentage of the American labor force is now misallocated by this bubble. There are tens of millions of American workers that are employed in ventures that will cease to exist once the socialism bubble bursts. We have seen the beginning of this with the failures of large retailers and restaurant chains, but that is only the tip of the iceberg. Worse yet, unlike previous recessions, there are no manufacturing jobs for these displaced workers to redeploy to. The productive structure must be rebuilt, and that doesn’t happen overnight.

Therefore, Americans must realize that a stock market crash[3] and mass unemployment are inevitable, whether government intervenes or not. The only question now is how long those undesirable conditions will last. There is no “solution,” government or otherwise, that will allow us to avoid this correction. If the government does not intervene, the stock markets will crash faster and the layoffs will begin sooner, but the total period of adjustment will be far shorter. If the government intervenes, no matter how they do it (including by allowing the Federal Reserve to massively inflate the currency), the adjustment period will be stretched out, with continued new malinvestment even as liquidation of current malinvestment occurs. That was the story of the Great Depression.

The only course of action that can speed up the recovery is a return to the laissez faire capitalism that made America great in the first place. This would include eliminating unnecessary regulation, abolishing the central bank and restoring sound money, eliminating minimum wages and other artificial price controls, capping and eventually phasing out the entitlement programs, eliminating other massive government spending like military welfare for other countries and unnecessary war, and restoring protections of property rights. In other words, Freedom. Don’t you think it’s time we tried it again?

[1] The lack of understanding of “real wages” was certainly not the only misconception of the social reformers, but it was a major misconception and representative of others.
[2] The European mixed economies have already experienced this adjustment, debased their currencies, regrouped under the European Union and an new currency, and are presently pursuing the same failed ideology to destroy this new economy as well.
[3] It is conceivable that the Federal Reserve could inflate the currency so much that the stock market remains at $11,000. However, if $11,000 only buys 10 loaves of bread at that point, it would still represent the same devaluation as a crash.

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