Sunday, September 28, 2008

Be Careful What You Fight For

There is one positive consequence of the economic collapse that is occurring, and the futile attempt by the government to stop it with money stolen from its constituents: the American public has woken up. Despite the best efforts of the major media outlets to spin this the way the government would like, it is apparent that mainstream America is mighty angry that they are being fleeced to prop up the financial system. I hope that anger does not fade with the passage of time – at least not until after November 4th. While wholesale changes are unlikely, it would be nice to see a few incumbents packing after this election and replaced by non-Republicrats. It would be an encouraging sign of things to come.

However, as good as it is to finally see some outrage over the destruction of our Republic, there is still a long way to go. Listening closely to the cries of anger, it is apparent that the majority of Americans still haven’t found their way to actually demanding their freedom. While they are angry, it seems that government has successfully channeled their anger in the wrong direction. Generally, Americans are mad at Wall Street, and are blaming this crisis on “greed.” To the extent that they fault government, they are blaming the crisis on “not enough regulation on Wall Street” and even (ugh) “too much laissez faire capitalism.” This of course plays right into the government’s hands, because the answer to “too much laissez faire capitalism” is more government intervention into the marketplace – which was the REAL cause of this problem in the first place.

If anything, the number one clue that it was not free enterprise that caused this debacle is that the government says it was. By now, every American should know to listen carefully to everything that the Bush Administration says and assume that exactly the opposite is true. However, decades of conditioning to mistrust the free market is paying off for the government, at least for the time being. They have turned this into a class war, instead of an ideological one. They have Americans indiscriminately resenting the wealthy, whether they earned their money legitimately or not. They have Americans condemning corporations, whether they achieved their place in the market legitimately or not. While Americans are mad at their government, they have been convinced, for the moment, that government’s failure was not protecting the average American from the evils of capitalism.

Of course, the truth is that this crisis was a failure of socialism, not capitalism. It was the socialist idea that every American was entitled to a house, and that taxpayers must pay for them, that led to the creation of Fannie Mae and Freddie Mac. Those companies guaranteed mortgages to people that would not have received them in a free market. Only the ability of the government to forcibly collect taxes to back those mortgages allowed the lenders to offer them. If there was any doubt that the government was backing Fannie and Freddie with taxpayer money, that doubt was removed when the government took over the companies when their inevitable failure occurred.

Even with the GSE’s in place, it took another socialist institution, the Federal Reserve, to supply the imaginary money needed to lend to all of those “sub-prime” borrowers. Without the imaginary “liquidity” provided by the Fed, the loans could never have been made and the home prices could never have been bid up so far. The Fed merely blew up another bubble, as it has been doing since the day it opened its doors in 1913.

What these interventions into the marketplace do is create artificial demand. Everyone knows that an increase in demand, while supply remains equal (or when the increase in demand outpaces an increase in supply), results in an increase in price levels. However, demand is not merely the desire to purchase a product, but also the ability to do so. If demand were merely the desire to have something, there would be unlimited demand for all products and services, taking most of the challenge out of running a successful business! The Fed and Fannie Mae certainly didn’t increase the number of people who desired to have a house, but it dramatically increased their purchasing power. In fact, the combination of easy money and credit by the Fed and the incentive for lax lending standards represented a massive increase in demand over the entire housing market, with the predictable dramatic increase in home prices. None of this represents free market forces at work. It is textbook socialist central planning and wealth redistribution.

That brings us to the government “solution,” and what Americans should really be mad about. Our government is now going to forcibly extort trillions of dollars from us in a misguided attempt to maintain the artificial conditions it created in the market. It won’t work. They have tried it many times, and it has never worked. The artificial demand drove prices far above their natural level, and natural market forces are now pushing them back down. Borrowers were lent money that they were never going to be able to pay back. What is worse, a large percentage took the artificial equity caused by the rise in price of their homes in home equity loans and spent it. That money is gone, and the borrowers can’t pay it back. Government taking possession of the mortgages isn’t going to change that. Those borrowers are still going to default, and the home prices are eventually going to go where they naturally must go. Economic forces are like forces of nature. In the end they cannot be stopped.

This intervention is practically identical to the interventions attempted during the Roosevelt administration in the 1930’s, which turned a severe 2-year recession into a crushing, 10-year depression. This bailout will have devastatingly similar results. It doesn’t matter whether a CEO gets away with a $10 million dollar bonus or not. What matters is tens of millions of Americans unemployed for a very, very long time. THAT will be the result of government’s attempts to maintain the artificial conditions in the economy that GOVERNMENT created in the first place.

Since the Austrian economists predicted all of this, while the Keynesians did not, it might pay to listen to what the Austrians suggest as a solution to these government-created crises. While their first advice was always not to create the problems in the first place, they certainly were clear about what to do when the inevitable bubble bursts occurred. Not surprisingly, they advised us to do EXACTLY THE OPPOSITE of what the government proposes. The cure for the recession, according to the Austrians, was to EASE regulation on business, especially in the labor market, and allow the quickest, smoothest reallocation of resources (including human resources) that was possible. As government intervention had created the problem, more government intervention was not going to solve it. In fact, any intervention could only make it worse, no matter what form it took. That is because the wealth creating mechanism of capitalism depends upon the participants making their decisions voluntarily, and government intervention represents forcing people to make different choices. This is really what most Americans are demanding from their government right now – for government to force market participants to choose differently than they otherwise would. Be careful what you fight for, Mr. and Mrs. America, you will probably get even more than you asked for.

I do have hope, however. Sooner or later, Americans will figure this out. At least they’re screaming about something now, which is a lot better than the docile slumber they’ve exhibited over the past several decades as we’ve marched toward oblivion. The government would much rather have them keep on sleeping than to have to divert their anger towards scapegoats and imaginary boogeymen. They will succeed in doing just that this time, but their system is nearing its end. The inevitable economic debacle will occur, and hopefully that will be the final straw. Americans have put their faith in government control and central planning of their lives for almost a century, and it has consistently let them down. Perhaps this last calamity will finally make them see the socialist lie for what it is. Then, they will finally stop walking down the road to serfdom.


Friday, September 26, 2008

Response to Senator Mel Martinez of Florida on His Reply to My Letter

I had written letters to my two florida Senators, Mel Martinez and Bill Nelson, as well as my representative Adam Putnam, regarding my opposition to any use of taxpayer money to bail out either Wall Street financiers or distressed homeowners in an (futile) attempt to prevent further economic corrections to occur in the financial markets. I received a response from Senator Martinez, with an attachment containing his remarks to the floor during the congressional hearings on the bailout proposal. I am posting my correspondence with the Senator below. By scrolling down, you will see the communication back and forth, with my original e-mail to him at the bottom. I am awaiting replies from Senator Bill Nelson and Rep. Adam Putnam.

E-mail of 9/25/08 from Tom Mullen to Senator Martinez

Dear Senator Martinez,

I am in receipt of your reply via e-mail to my correspondence of September 23, 2008. I appreciate you taking the time to address my concerns, but again I am not satisfied with the answers that you have given me. Your letter states that you are “working hard to ensure that your tax dollars will not be wasted on any plan that rewards irresponsible or illegal activities by investment bankers on Wall Street.”

Whether or not the irresponsible are rewarded or punished is irrelevant.

Your comments during the Congressional hearing include,

“Congress should consider limiting executive compensation in any package we discuss…Congress will have to engage in active oversight of Treasury as they implement whatever plan we approve. So there should be no blank check. There will be no blank check.”

Senator, I have to assume that you are deliberately trying to obfuscate the issue, or that you have a pitiable lack of understanding about the principles that our country was founded upon. Our Declaration of Independence states that each person is “endowed by their Creator with certain unalienable rights.” These are INDIVIDUAL RIGHTS. They are not subject to revocation by government, not even by majority vote. That is why our founders gave us a constitutional republic, instead of a democracy.

The most important of these rights, Senator, are property rights – the right to the fruit of one’s labor. In the words of Thomas Jefferson,

“To take from one because it is thought that his own industry and that of his father's has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association--'the guarantee to every one of a free exercise of his industry and the fruits acquired by it.”

As should be quite obvious to you, Jefferson’s words apply directly to the situation before us today. It is not a matter that there be “no blank check.” There should be NO CHECK WHATSOEVER. This is not a question of what is “best for the economy.” The crux of the matter is that THE FEDERAL GOVERNMENT DOES NOT HAVE THE RIGHT to forcibly take money from me and use it to buy up a financial institution’s bad debt, or to provide assistance to a distressed borrower. The federal government does not have the right to seize my property, even if it believes doing so will be better for the majority of its citizens (which this bailout won’t be anyway).

Therefore, Senator, I have one question that I request a direct answer to. Do you recognize my UNALIENABLE right to the fruits of my labor, or do you believe that your elected status allows you to revoke this right? I will await your response.


Tom Mullen

E-mail of 9/25/08 from Senator Martinez to Tom Mullen

Dear Mr. Mullen:

Thank you for contacting me regarding the financial crisis facing our country. I appreciate you contacting me regarding this important issue.

I have heard from thousands of Floridians in recent days who are worried about this financial crisis and are concerned about the actions that Congress and the Administration may take in addressing it. I believe that our country is facing a very serious situation, and I share many Floridians’ concerns about the economic consequences to our country if we fail to act appropriately. We need to enact legislation that enables our economy to continue functioning while imposing new regulations and safeguards to ensure that this situation never occurs again.

The exact form that this legislation will take is not yet decided, but I assure you that I am working hard to ensure that your tax dollars will not be wasted on any plan that rewards irresponsible or illegal activities by investment bankers on Wall Street. There must be accountability in any plan approved, and those who have given rise to this crisis need to be investigated and prosecuted to the full extent of the law for any wrong-doing that occurred.

I am enclosing a copy of remarks I made on the floor of the Senate regarding the current crisis and its origins in the housing market. I believe that this problem is far too complex and serious to be handled in the same ultra-partisan fashion that has unfortunately characterized much of the 110th Congress. I assure you that I am committed to working with all of my colleagues to address this crisis and enact meaningful reforms to protect homeowners and ensure the long-term economic prosperity of our country.

Again, thank you for contacting me regarding this important issue. If I may be of assistance to you in the future, please do not hesitate to contact me.


Mel Martinez
United States Senator

Financial Rescue Plan
Speech to the U.S. Senate
U.S. Senator Mel Martinez
Wednesday, September 24, 2008

This Congress is about to consider the most important legislation affecting our financial markets – certainly for a generation – possibly in our country’s history.

The American people must understand exactly what is at stake as we begin consideration.
What has happened is that the credit markets have quit functioning. Credit cards, car loans, home equity loans, home mortgages, business loans.

Business loans to keep large and small businesses operating have ceased to exist. The financial markets are not functioning putting in jeopardy our entire economy.

Without timely government intervention, the financial system as we know it will no longer exist.
This isn’t a Wall Street versus Main Street argument. This is about every American’s ability to pursue his or her American Dream. Without liquidity in the marketplace, financial transactions come to a halt – and that will create a complete collapse of the financial system.

So the need to act has become clear. Treasury Secretary Paulson has asked for the authority to purchase illiquid assets from financial institutions in an attempt to get the markets functioning again.

But with that authority, comes great responsibility and Congress has an obligation to the US taxpayer to ensure that any program is crafted and carried out with appropriate oversight.
Congress should consider limiting executive compensation in any package we discuss.
Congress will have to engage in active oversight of Treasury as they implement whatever plan we approve. So there should be no blank check. There will be no blank check.

Let me also mention I am pleased to learn of ongoing investigations into the activities of Fannie Mae, Freddie Mac, AIG, and Lehman Brothers. This is the worst financial crisis that our country has encountered in recent history and we owe it to taxpayers to get to the bottom of any wrong doing that occurred.

We need to prosecute any inappropriate behavior on the part of these companies to the fullest extent of the law. If we are going to have to fix this problem, those that created need to be held accountable.

After the dust clears, Congress cannot lose sight of one of the main reasons why we are so heavily encumbered by this crisis – why our financial system is so deeply troubled at this moment in time.

Fannie Mae and Freddie Mac were huge contributors to the problem because of their thin capitalization, ever-expanding portfolios and risky practices.

They fueled and funneled the risky securities that Wall Street bought and sold and made lots of money while ignoring the systemic risk their moves posed to the financial system.

In 2003, when I was HUD secretary, I came before this Congress with Treasury Secretary Snow and warned of the loose regulation of the GSEs and the risk posed by their undercapitalization.
We asked Congress to create a world class regulator to properly provide oversight to these financial entities that had become so large that they had an implied government guarantee and they were deemed too big to fail.

In 2005, Federal Reserve Chairman Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie, “…continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road.”

We are now at the end of that road.

As we go forward, not only will Congress have to determine the future role of these entities, we need to take a very close look at the practices that brought us to this place.
Throughout all of this work, we cannot lose sight of the root cause of this financial debacle – the housing crisis.

Floridians are among the hardest hit in the nation.

Housing prices continue to fall; inventories continue to rise; and a growing number of homeowners are facing their own personal foreclosure crisis.

To find the bottom of the housing crisis, to stabilize prices, we need to act. Congress can approve home buying incentives. Congress can approve a tax credit for down payments. That would at least encourage people to enter the marketplace, would reduce housing inventories, and get the money flowing back into the market.

As Congress debates this package, let’s remember who we work for – the American taxpayer. Our priority should be making decisions that serve their best interest. No blank check. Strict oversight. Accountability. Taxpayer recourse.

It is in every American’s best interest that we act. I look forward to creating the right legislation that averts a financial crisis that will affect every American – a financial crisis perhaps bigger than the Great Depression.

It is a time for responsible leadership. It is not a time for an easy out or a pulpit for populist rhetoric. We need to rise to this moment – for the good of our country.

E-mail of 9/23/08 from Tom Mullen to Senator Martinez

Dear Senator Martinez,

I am writing to urge you to vote against the proposed "bail out" of lenders and borrowers proposed by Sec. Paulson and Chairman Bernanke. Again I find that my property is under attack by the very government that I pay to protect it. There is no moral or practical justification for passing this bill. Economically, it will only serve to postpone the inevitable adjustment in home prices and deleveraging of malinvestment that accompanies all inflationary bubbles.

More importantly, it amounts to armed theft of my property, a crime you are sworn to protect me against, not perpetrate. I have written in the past opposing the seizure of my property for the purposes of redistribution to someone else, and have been frustrated. You have one more chance to earn my consideration of a vote in your next election. Please do not let me down.


Tom Mullen

Sent to:
Senator Bill Nelson of Florida
Senator Mel Martinez of Florida
Representative Adam Putnam of Florida, 12th District


Wednesday, September 24, 2008

Putting Some Lipstick on the Bailout Rip Off Pig

I’m not sure what is worse: having your life savings and future stolen by armed criminals or having to endure the charade of a Congressional debate that attempts to portray the theft as something that is in the best interest of the victims. In case you have become distracted by all of the theater, allow me to state clearly what is happening right now. The federal government has taken the “liberty” of confiscating trillions of dollars from the citizens whose property they have sworn to protect. This has been done for no other reason than to prop up their failed monetary system so that they can continue to siphon off the wealth of the productive members of society – rich, poor, and middle class alike – and direct it to the privileged few who would not prosper in a truly free market. Regardless of the endless minutiae that is thrown at the American public over the next several days, weeks, or months, this is the REALITY of the government’s response to the predictable meltdown of their socialist monetary and financial system.

If a little diversion is necessary to distract people when an ordinary crime is being perpetrated, then obviously an extraordinary diversion is needed when you are perpetrating the greatest heist of all time. In this respect, for once, our federal government did not let us down. It began routinely enough, with Chairman “Mao” Bernanke attending a hearing in Congress to answer questions on the details of the heist, including how the loot would be split up, etc. Of course, it was immediately assumed by all in attendance that the bailout was going forward. So, in an attempt to appear to be “fighting for their constituents,” many of the Congressmen began arguing for a clause in the bill that would limit the compensation of CEO’s of companies that made use of the stolen money. The extent to which this was debated was practically insufferable, as the underlying assumption was that the American people are so stupid as to believe that saving tens or hundreds of millions of dollars would make some significant difference when they were being divested of trillions. Still, for decorum’s sake, somebody had to put some lipstick on this bailout, rip-off pig.

There was also some discussion about the clause in the proposed bill that would give the Treasury Department and Federal Reserve unchecked power to spend the money any way they want, without oversight by Congress. Under the pretense of them representing “the people,” many of the Congressmen blustered that unelected officials could not be entrusted with this much money without oversight by the people's representatives. Of course, anyone that has seen The Godfather movies, Goodfellas, or Casino knows that infighting is common inside criminal organizations. What this really represented was a power struggle over how the loot would be split up, or at least who would decide how it will be done. The most laughable part of this is that even if Congress gets oversight into the bill, they have already demonstrated while squandering the other $3 trillion dollars that they stole from us this year that they are going to roll over and agree to whatever the executive branch wants to do anyway, no matter how unconstitutional or even criminal (is there a difference?) the policy may be.

Finally, there was also some discussion about not appropriating the entire $700 billion all at once. Honestly, some of the Congressman seemed genuinely concerned about the calls that they were getting from their constituents. Apparently, significant segments of the population in some districts had not slept through this one, and were letting them know that they weren’t happy about this latest scam. False Prophet of Freedom Charles Schumer suggested that perhaps Treasury could pilfer $150 billion now, and return at a later date to collect the rest. There are always those who lose their nerve in every crew.

At this point, it is probably clear that never was there going to be a debate about WHETHER OR NOT THE MONEY SHOULD BE STOLEN FROM THE PEOPLE AT ALL. By the end of the news coverage of the congressional hearings, the debate had been framed to focus on whether or not to let CEO’s share some of the loot, who would decide how it was divided, and whether or not it would be stolen all at once. Of course, the media outlets for both major parties (Fox for the Republicans and MSNBC for the Democrats) immediately took their cues and tried the best they could to characterize these trivialities as “weighty issues.” However, there was still a feeling of uncertainty in the air about whether or not the syndicate could actually get away with this. Never fear, because the best theater was saved for last.

I have to give some credit to the political professionals that are running John McCain’s campaign. I wouldn’t have given him a chance to win this election six months ago, when it became apparent that he would be the Republican nominee. Somehow, his campaign has managed to convince a significant amount of people that this man, who barely graduated from college, whose mental stability has legitimately been questioned on many occasions, and who literally cannot be trusted to give an unscripted statement within range of a microphone, should be the next president of the United States. His selection of Sarah Palin as running mate seemed to swing momentum to his side at a time when Obama was poised to distance himself in the polls. After more McCain blundering at the podium had revived Obama once again, giving him a six point lead in the latest national polls, the McCain campaign pulled off its greatest coup to date. John McCain was suspending his presidential campaign, and calling on Barack Obama to do the same. There was a danger that the heist wouldn’t come off without their help, and McCain was heading immediately to Washington.

Finally, this was the diversion that the plot needed. The media was energized. Fox’s Carl Cameron appeared onscreen literally out of breath (I hope he was acting) with the scoop on McCain’s startling decision. Now, the debate had really been framed. Should Obama follow McCain’s lead, or was this just a political move? Should the debates go forward? Who actually called who first? McCain or Obama? There was simply no longer time to argue dry, philosophical issues, such as property rights for instance. No, there was now high drama in the presidential campaign charade and a prime time television event that was in jeopardy of being cancelled. The heist was on, and all that was left was to make sure that Stacks didn’t fall asleep in the getaway truck.

While without question a political stunt, and what will probably prove to be a very successful one, there was a little sincerity amidst all of the theater. McCain called for a presidential commission including Republicans and Democrats. It was time to put politics aside. Obama said that this was “no longer a Republican or Democratic problem, but an American problem.” I would only add one word. It is not a Republican or Democratic problem, but an American Oligarchy problem. The oligarchy is in some jeopardy here, with its phony monetary and financial system in danger of collapse, and it is time to put the pretense of being ideologically different aside and work together to save it. I was reminded of Mel Brooks in the classic “Blazing Saddles,” when he said, “We’ve got to protect our phony baloney jobs!” If there was ever a question of whether we are ruled by “Republicrats,” that question has been answered now that the chips are down.

There is some hope, though. For once, Ron Paul was not the only one calling the system into question. Jim DeMint actually said that he was disturbed that free market capitalism was being blamed for the crisis when in actuality it was entirely caused by government. Richard Shelby said that he was opposed to the bailout, as did Jim Bunning, who has been vocally critical of the Federal Reserve. Most importantly, even though the media jumped right in line with the Republicrat spin to frame this debate away from the real question – can the government actually steal this money from the American people – they were nevertheless forced to report that large sections of the American public are ANGRY about this. Unfortunately, they don’t know exactly what to be angry at, and are probably going to be quite easily manipulated to focus that anger in the wrong direction. But they’re pissed, and they are not being quiet about it anymore. One thing is true: the American people have been poorly educated, misinformed, lied to, manipulated, and conditioned to a certain extent, but they are not stupid. They know something smells about this and they are starting to figure out what direction the odor is coming from. Once they rediscover their individual rights – the rights that cannot be bought with fiat money nor voted away in an election – the criminal gang is going to be in grave danger. This may be their last score.


Monday, September 22, 2008

The Failure of Capitalism: Government's Great Lie

Sadly, the historic rip-off of the American public that has just taken place has met with little resistance from the victims. However, lest any inconvenient contrarians or clear thinkers rise up from the masses, the Great Rip-off comes with a Great Lie to justify it. While there have never been a shortage of factions ready to decry the evils of capitalism, it is important during a heist of this proportion that EVERYONE get on board. So, what you have heard from virtually everyone in government and in the media, and even from the Republican Nominee for President of the United States is that the current meltdown in the financial sector is a failure of free market capitalism. This is government’s Great Lie.

To anyone with even a passing familiarity with American history since 1912, this might seem like a bigger whopper than any fish story they’ve ever heard. However, a lie that enormous is necessary when you are literally stealing trillions of dollars from 300 million people who are watching your every move. To pull off a crime like that, you are going to have to convince those people that you are really helping them out.

Despite decades of increasing intervention by government into the economy, the vast majority of people seem ready to accept the past decade as “an experiment” with laissez faire capitalism. Critical of the Bush administration, House majority leader Steny Hoyer told RTTNews,

“With inflation, everybody who had any investment has lost money, 401(k) savings plans, pensions, they've lost money," he said. "That's a stark failure of the economy and this administration's laissez faire, take the referee off the field, let anyone do whatever they want to do and everything will be fine.”[1]

In an article published Saturday morning, AFP reported,

“The top Senate Democrat, Majority Leader Harry Reid, blamed the crisis on Bush's laissez-faire policies, then called on the president to better explain why such a sweeping program was needed as the country prepared for a presidential vote in less than six weeks' time.”[2]

While such rhetoric might be expected from Democratic Party leaders, especially during an election year, there is no substantive rebuttal from the other side. Quite the contrary, as John McCain’s interview with the New York Times makes clear.

“I'm a Teddy Roosevelt Republican. Teddy Roosevelt was the first one that took on the big trusts, first time we began to have regulatory agencies. He said, unfettered capitalism leads to corruption. I've always agreed with that.”[3]

If the Great Lie is that this crisis represents a failure of capitalism, then there are a lot of little lies that help support it. Congressman Hoyer’s characterization of laissez faire capitalism as letting “anyone do whatever they want to do and everything will be fine” is just such a supporting lie. It is a variation of the attack on freedom itself as if it places no limit on anyone’s actions. In both cases, the limit is harming another individual. Laissez faire capitalism does not allow contracts to be broken, nor does it allow force or fraud to be initiated in forming them. While these limits are vital to true laissez faire capitalism, Congressman Hoyer would have us believe they are prohibited by it. Take note of Hoyer’s choice of words as well. It is apparent that even in the absence of any wrongdoing, Hoyer has an aversion to people doing “whatever they want to do.” This betrays the true nature of the statist.

The real substance of the Great Lie, though, is based upon the characterization of the American economy in any recent decade as “capitalism.” It isn’t. In fact, even our government and media establishment acknowledge that the U.S. economy is a “mixed economy,” supposedly combining the benefits of free market capitalism with the benefits of socialist central planning. The Lie says that it has been too much “unfettered capitalism” that has caused the problems that we are presently experiencing, rather than too much socialist central planning. How can it be determined which aspect of our economy is to blame?

In reality, there can be no such thing as a “mixed economy.” What we are really witnessing is the inevitable failure of that idea. It is doomed from the start, because the moment that ANY central planning is introduced, capitalism ceases to exist entirely. Once government control is introduced anywhere, it must eventually be introduced everywhere, resulting in all of the destructive consequences associated with the failures of socialism throughout history. The truth of the matter is that there is no “capitalism” in our mixed economy at all.

The proof? Let us consider what capitalism is, and whether its definition applies to the U.S. economy. Merriam-Webster defines capitalism as,

“an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.”[4]

Of the three elements in this dictionary definition, private ownership of capital, voluntary exchange, and competition, it is the second that is fundamental to the other two. Why? First, as long as there is voluntary exchange of property, there will be private ownership of capital. There is no way for government to acquire property in a “voluntary exchange.” Even a revenue generating enterprise started by government has to be funded into existence by tax money, and taxes are collected under the threat of force. Therefore, in a system where all of the transactions are voluntary, all property, including capital goods, remain privately owned.

Second, when all transactions are voluntary, most buyers and sellers are going to try to act in their best interests. Sellers will constantly try to convince buyers to purchase their products or services, rather than those of others. Likewise, buyers are going to try to find the best products at the lowest prices, motivating sellers to maximize their quality and minimize their price so that their products will be chosen over those of other sellers. Therefore, voluntary exchange naturally results in competition. It is competition that motivates innovation and improvement in efficiencies, and lowers the cost of production. Thus, it is free choice that ultimately drives the wealth-creating mechanism of capitalism. Without free choice, there is no capitalism.

Investments in the U.S. economy can hardly be described as being determined by private decision when government actively steers the investment decisions of capitalists. It does so either by outright subsidization of investments it favors, or by providing tax breaks to companies that make those investments. It is ironic that government often characterizes this second method as positive action to stimulate growth. After taxing all business activity to the brink of insolvency, it then gives back a small portion of the booty to investors willing to do its bidding. By doing so it wins political support, and at the same time distorts the economy, creating new problems to solve with future interventions. Thus, the government protects the job security of its incumbents and creates the need for more government all in one fell swoop.

Neither are prices really determined by competition in a free market in the U.S. economy. Prices are routinely fixed by government intervention, such as the prices of agricultural produce by government farm subsidies or the price of healthcare by massive government subsidization through entitlement programs. The price of labor is distorted by minimum wages and massive regulation that makes employing people infinitely more expensive than it otherwise would be. Interest rates, or the price of borrowing money, are set by the central bank, which is the most harmful price fixing of all (we will look more closely at this momentarily). While some prices are set by market forces, a large percentage is affected in one way or another by government.

Similarly, the distribution of goods in the U.S. is sometimes determined by competition in a free market, but that is only after government has taken over 12 percent of all goods and services produced in the economy and redistributed them through massive welfare programs, destroying the possibility of any real, voluntary savings. For those goods that are distributed in part as a result of competition, it can hardly be described as occurring in a “free market” when employers cannot really decide for themselves who to hire, employees cannot accept any wage they wish to, massive regulation protects large companies from smaller competitors, and even imports and exports are subject to over 20,000 pages of regulation in “free trade agreements” like NAFTA.

Most harmful of all is the supreme intervention into the economy by the central bank, which not only artificially sets the interest rates that ultimately determine the cost of investment, but artificially controls the volume and purchasing power of the money supply itself. While truly free markets are characterized by a steady decrease in general price levels over time, the artificial inflation of the currency by the central bank reverses this process. While the business cycle is relatively mild in a free market, the bubble-bust cycle caused by central banking ranges from painful to castastrophic.

Thus, the economic problems facing America today are not caused by capitalism, because it doesn’t really exist in the U.S. economy. Capitalism results in a natural, economic equilibrium. Central planning disrupts this equilibrium. In fact, not only are our economic problems caused exclusively by government intervention into the marketplace, rather than capitalism, these problems are the INEVITABLE RESULT of government intervention.

Why? Central planning, by definition, precludes free choice, and therefore capitalism, but does not change human nature. Human beings will still attempt to make choices in their rational self interest. This is one of the reasons for all of the unforeseen consequences of central economic planning. When government forces buyers and sellers to make choices other than those they would make otherwise, those economic agents seek another way to pursue their rational self interest. As these alternative decisions naturally run counter to the government’s desired result, more force is needed to prohibit those choices by economic agents, or to force other economic agents to address the consequences of its intervention. That in turn causes further unforeseen results, requiring further use of force by government. Once government intervenes in the market, it is inevitable that it will have to continue to intervene until it controls every aspect of economic activity. This has been the trend in the U.S. economy for the past 100 years.

In addition, government intervention cannot change economic realities, such as the cost of production. Only innovation can do that, and innovation cannot be created by government decree. Therefore, when government intervenes into the economy, all of the economic forces that were acting upon the market before the intervention continue to act upon it. For example, as Von Mises pointed out, if the government sets a price ceiling for milk, the smaller, marginal producers of milk can no longer afford to continue producing it, and may decide to produce cheese or butter instead. By intending to make milk more available to the poor, government has actually caused a decrease in supply. It then has to fix the prices of factors of production that are necessary to produce milk, causing the same pressure on marginal suppliers in that market and a decrease in supply of those factors of production. The cycle continues to repeat until the government either ceases to intervene in the market completely or nationalizes the entire industry.[5] At that point, even private ownership of capital no longer exists.

Thus, there are some conclusions that can be drawn. One is that there is really no such thing as a “mixed economy.” Economic forces do not allow it. Allowing some economic agents to choose freely in some circumstances does not produce the same results as when all economic agents are allowed to choose freely in all circumstances. Economic events are too interrelated. If the government subsidizes ethanol production, it decreases the supply of corn for food, and drives up food prices. When it imposes a minimum wage, it causes workers that would otherwise have jobs to be unemployed. That in turn decreases supply and drives up the prices of consumer goods. Economic agents making free choices under these circumstances necessarily choose differently than they would if conditions were different. There is no such thing as controlling part of a free market. Therefore, our mixed economy really is no such thing. If the choices of all agents are not free, there is no capitalism. The economy that results simply doesn’t fit the definition.

Another conclusion that can be drawn is that attempting to achieve a mixed economy inevitably leads to complete socialism. As we have seen, the first government intervention into the economy necessitates further interventions, which in turn necessitate further interventions still. The cycle continues until government controls all of the distribution and eventually must take control of all of the capital, as there are no longer private firms that are willing or even able to continue producing under the distorted economic conditions. For those who would argue on behalf of complete control of capital and distribution by government, the plain facts of history are against them. Socialism in its purest form has consistently resulted in mass shortages, famine, starvation, and eventual death for tens of millions of people.

The solution to all of our problems is simple: FREEDOM. While that may sound like a bland platitude, it is nevertheless 100% true, for all issues, without compromise. As Thomas Jefferson said,

“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.”[6]

This “Non-Aggression Principle” is often associated strictly with libertarians or objectivists, but as you can see it did not originate with either. It was a central tenet of the founding fathers, because this principle is THE VERY DEFINITION OF FREEDOM ITSELF.

While it is possible to garner wide support for this principle on many social issues, such as gay marriage, somehow the great majority of people cannot seem to apply it to economics. Despite the fact that economic freedom is the most vital to our survival, as it is the means of sustaining our existence, there are even some libertarians that would apply different rules to economic policy than to the other “civil liberties.” It is vital to recognize that not only is this principle equally applicable to economics, BUT THAT IT IS IN REGARD TO ECONOMIC POLICY THAT IT IS MOST IMPORTANT. It is the only principle that prohibits government intervention and central planning. It is the principle upon which a truly free market is built.

The move toward a truly free market cannot occur without painful side effects. When resources are misallocated on a mass scale, especially human resources, reallocating them means losses, unemployment, and economic suffering in the short term. This would have been the result of government choosing not to intervene in the market to bail out Fannie, Freddie, Bear Stearns, and AIG, to buy up the bad debt of other debt holders, and to guaranty the assets in the money market. However, that economic suffering has not been avoided by government intervention, but merely postponed. In fact, the longer that government intervention succeeds in postponing the inevitable reallocation that must occur, the more resources become misallocated and the more painful the correction will be. At present, we are facing the largest correction in economic history, and government has postponed it longer than a correction has ever been postponed before. Make no mistake. The reallocation is inevitable, and we will experience it either voluntarily or involuntarily.

However, before considering how to survive the painful consequences of this correction, we must first decide that a free market is what we want. This will never happen until the vast majority of Americans recognize the Great Lie for what it is. Doing so immediately might bring political pressure to bear on our government to reverse its present policy while the Great Rip-off can still be undone. This is unlikely to happen anytime soon. It is much more likely that the trend toward socialism will continue until it reaches the conclusion that socialism has reached throughout history: economic collapse. We are closer to that end than most people think.

At that point, Americans will have a choice. They can continue to believe the Great Lie and allow government to try to solve the problem, or they can choose to see the truth and demand their freedom. Historically, the government solution to an economic collapse has been totalitarianism. The fact that the least economically free nations of history were also the most totalitarian is no coincidence. In order to avoid this, Americans must cease to apply special rules to economics and realize that there is no freedom at all without economic freedom. The economics of freedom is laissez faire capitalism. The Great Lie says that laissez faire capitalism doesn’t work. This is merely the application to economics of an even greater lie - government’s most insidious, Greatest Lie of All: that freedom itself doesn’t work. When Americans finally recognize and reject this fallacy, they will once again find themselves on the road to prosperity and peace.

[1] House Majority Leader Slams Bush For Economic Policies RTTNews
[2] “Top Democrats skeptical of Bush bailout package” AFP September 20, 2008
[3] Transcript of an interview with Senator John McCain by John Harwood of The New York Times and CNBC, as provided by CNBC and published in the New York Times on September 21, 2008
[5] Von Mises, Ludwig Middle-of-the-Road Policy Leads to Socialism from Two Essays by Ludwig von Mises (Auburn, Ala.: The Mises Institute, 1991, pp. 42-68).
[6] Jefferson, Thomas Letter to Francis Walker Gilmer June 7, 1816


Tuesday, September 16, 2008

The Populist Myth of the 19th Century

Spending too much time talking with people that share your views can skew your perception of public opinion. Once you are close to any subject, there are certain conclusions that you accept as self evident because their validity has been proven over and over again. As time goes by, and you have discussions with people that are equally convinced of the validity of those conclusions, it is easy to begin assuming that everyone recognizes them. It is only by talking with people outside your group that you realize that, however valid your beliefs may be, the vast majority of people are either ignorant of them or remain unconvinced. This is undeniably true for me regarding the 19th century.

Despite irrefutable evidence to the contrary, there is a popular view of that period that I call The Populist Myth of the 19th Century. Before dismissing its relevance, consider the fact that this myth has been and remains the driving force behind most public policy from the turn of the 20th century to the present day. Belief in this myth has been behind the gravest errors made by government, not only in domestic policy, but in foreign policy as well. The great wars of the 20th century may well have been avoided and the defeat of poverty might be within our grasp had this Myth not gained acceptance with the great majority of people. These are extraordinary claims, to be sure. However, not only are they provable with diligent research, they can be proven theoretically as well. However, before getting to the proof, let us first define our terms. What is the Populist Myth of the 19th Century? It goes something like this.

After the United States won its independence from Great Britain, it established a system of government that placed priority of individual rights over all others. As a natural result of its system of laws, an economic system of unprecedented free trade, or laissez faire capitalism, naturally emerged. As a result, the Industrial Revolution came to America and flourished even more so than it had in Great Britain. Unencumbered by government control, America became a great wealth-producing engine and hotbed of innovation that resulted in a reshaping of the way human beings lived their lives and made great fortunes for captains of industry that lead the way in this period of explosive progress.

However, the price of this unencumbered freedom was oppression of the working and poorer classes by these same captains of industry. Unrestricted by government regulation, large corporations were free to drive down the price of labor, cut their costs by skimping on safety and other protections in the work environment, and increase their vast fortunes at the expense of misery for the working class, which was reduced to virtual slavery. Eventually, even the children of working class families were sent into the factories to help families on the brink of starvation try to earn enough to survive.

By the turn of the 20th century, it was apparent that reform was needed to save the working class from the victimization inherent in laissez faire capitalism. The social reform movement began, establishing social programs for those left behind, imposing tighter regulation on business, giving a fair chance to workers to unionize, and preventing the natural inclination towards monopoly that was also apparently inherent in capitalism. The fight for the common man had begun, with its champions Woodrow Wilson, Teddy Roosevelt, Franklin Roosevelt, and other bright lights of the 20th century. That fight goes on to this day, championed by the “liberal” or “progressive” parties in politics, with the goal of someday achieving the economic equality that a free society desires.

This is a compelling story. It appeals to the natural instinct in humans to pull for the underdog and fight against injustice. The basic tenets of this myth have inspired great works of literature and iconic films over the past century. It remains the core belief of most celebrities in America, an assumption of the media when looking for compelling news or attempting to appear “on your side” to the average reader/viewer, and most importantly, a fundamental assumption of government in making the laws which determine what we can and cannot do. There is only one problem. None of it is true.

Certainly, the general “solutions” alluded to occurred, but the problems did not exist. This may seem ridiculous to most 21st century Americans. EVERYBODY knows that working conditions were poor in the 19th century, workers were economically oppressed, that unrestricted capitalism naturally results in monopolies, and that, however distasteful it might seem, some government control of the economy is necessary or most of society’s wealth ends up in the hands of the wealthy few at the expense of the starving masses. Let us take a look at the fallacies of the Myth one at a time.

First, the quality of life of the working class did not deteriorate as the industrial revolution progressed, it rose dramatically. Pictures of what we would consider today squalid living conditions and relative poverty are extremely misleading when viewed in a vacuum. When one considers the quality of life for the working classes – the peasants of the old world – for all of history before the Industrial Revolution, it is apparent that the quality of life during the 19th century was much better. More importantly, IT WAS CONSTANTLY IMPROVING. This was the natural result of innovations like mass production. A simple understanding of supply and demand dictates that when the supply of goods and services is increased, their prices go down. The supply of goods and services, especially manufactured goods, exploded in the 19th century. Products that had previously been only available to the rich were now available to everyone, and their prices had dropped low enough that even those on an average income could afford them. For the first time in history, the primary market for the output of society’s production was the common people themselves, rather than the rich.

Detractors of capitalism often point to periods of decline in average wages as “proof” of the inherent oppression of the worker in laissez faire capitalism. This argument demonstrates either an attempt at deliberate distortion or a pitiable lack of understanding of basic economics. While wages sometimes did go down, prices declined at a much faster rate, resulting in a dramatic rise in “real wages” for the average working class American. Money is only the medium of exchange, and its nominal value is irrelevant without considering its corresponding purchasing power. If one had the power to cut all wages by 10%, but also to cut all prices by 50%, one would have the power of making everyone much, much richer. That is exactly what laissez faire capitalism did during the 19th century. It not only made the captains of industry richer, it made the working class richer. This trend was still continuing when the social reform movement started. Had it not been interrupted, one can only imagine how much better off the working class might be today.

There is also the myth that laissez faire capitalism naturally results in monopolies for large corporations, which then use their advantage in the market to raise prices for consumers and drive down wages, resulting in a general impoverishment of the working class. Again, the most basic understanding of economics (or even simple logic) refutes this claim easily. First, one must consider that there are two kinds of monopolies. One certainly can result from laissez faire capitalism. The other kind is a government created monopoly. The first kind of monopoly actually benefits society, while the second harms it.

Monopolies occur naturally in a laissez faire system only one way: when one company is able to deliver better products at lower prices than any of its competitors. Contrary to the Myth, this type of monopolist cannot then use its advantage to drive up prices and drive down wages. It must continue to keep its quality higher and prices below that of its competitors, or its monopoly status will cease to exist. Similarly, it is also competing with other firms for quality labor. If it offers lower pay or poorer working conditions than its competitors, its labor force will naturally migrate to the higher pay and better conditions of the competitors. While it might be argued that neither of these can happen once the monopolist’s competition has been eliminated, competition is NEVER eliminated. If there are no active firms competing at the moment, the possibility of investors entering the market is always present, and new firms enter the market the minute that a monopolist shows signs of vulnerability in its domination of a particular industry. Thus, the possibility of competition hangs over the head of the natural monopolist like an economic sword of Damocles.

A government-imposed monopoly, on the other hand, suffers from none of these pressures. Since no other firms are ALLOWED to compete, the monopolist is free to set prices wherever it sees fit. For any workers that desire to work in that particular industry, they must accept the wages offered by the monopolist or not work in that industry at all. It is within the government-imposed monopoly that all of the evils associated with monopolies exist.

Government-imposed monopolies can occur in two ways. One is where the government simply passes a law saying that a particular firm will be the sole provider of a particular good or service. This was common in the 20th century for public utilities. The flawed logic that inspired these policies was rooted in the Myth. It was thought that for basic necessities, which everyone was entitled to, businesses should not be allowed to profit from providing them. Therefore, government would allow one company to sell those services to the public, with strict control over their prices. The obvious failure of this logic resulted in the deregulation movement later in the 20th century. Detractors of this will point to power shortages and blackouts such as those experienced in California earlier in this decade. However, analysis of those crises consistently reveals that they were caused by those government controls left in place after deregulation, rather than the deregulation itself. For example, in California, the mass blackouts of 2001 were the result of price ceilings left in place in the supply chain. A free market makes no compromises.

The other, more common type of government monopoly results from excessive regulation. This is the unforeseen result of copious regulations imposed on industry in trying to solve the imaginary problems of the Myth. When it becomes so expensive to comply with regulation that only the largest firms can operate in a given industry, you have a trend toward government-created monopoly. More often than an outright monopoly by one firm, a few large firms emerge and do compete with each other, but they are insulated from new competition by the cost-prohibitive aspect of complying with regulations. While competition amongst themselves brings some of the forces of capitalism to bear, a status quo emerges in how the industry does business and what the limits on price and wages are. The economic sword of Damocles does not hang over the heads of these protected firms, other than to the extent that they compete with each other. Only a new competitor can shake the industry up, and government has insured that new competition is unlikely.

John D. Rockefeller’s Standard Oil was an example of a natural monopoly. It resulted in oil being delivered to the market at higher quality and lower prices than any other company could compete with. Standard Oil’s monopoly was maintained by CONTINUING to deliver that high quality and those low prices. Rockefeller was later a major player in creating the Federal Reserve and other government interventions into the economy, which are harmful to the market. However, he attained his vast wealth and eventual monopoly in oil by benefitting customers, not harming them.

In contrast, the government-created monopolies in the public utilities sector resulted in poorer service and higher prices for consumers. This is the reason that deregulation was eventually pursued. Immediately upon introducing competition and a FREER MARKET, supply and quality rose, while prices fell dramatically. Only in cases where government controls were left in place did adverse results occur, as previously noted.

One more aspect of the Myth that immediately comes to mind is the specter of child labor. The Myth says that child labor was a natural result of the Industrial Revolution, and that only government intervention ended it. Again, a compelling story, but completely untrue. As Andrew Bernstein insightfully points out in his book, The Capitalist Manifesto, the Industrial Revolution didn’t create the practice of child labor, IT ENDED IT. Child labor had been a fact of life for the working class throughout history. Indeed, one of the reasons (and there were many) for the migration of people away from the country and into the factory jobs in the city was the fact that the jobs their children would do in the factories were far easier than the back-breaking work they did on the farm. After less than a century of industrialization, real wages rose to the point that most families did not have to send their children to work at all. Thus, government did not end the practice of child labor, laissez faire capitalism did. This is a verifiable fact of history.[1]

This is only a brief and incomplete critique of the Myth. It has many other components, each of which can be shown to be equally false. The Myth is based upon a core misunderstanding of capitalism. Today, capitalism is wrongly characterized as a system that gives an advantage to the rich, or to employers. It is no such thing. Capitalism is the system of freedom, where every transaction between buyer and seller is undertaken by mutual, voluntary consent. In this system, all participants make the best decision that they can based upon their rational self interest. Sellers attempt to sell at the highest price that their goods or services will fetch on the market, while buyers attempt to buy at the lowest prices that they can. Buyers seek the highest quality for their dollar, while sellers seek to provide higher quality for the same money in order to win business away from their competitors. The sum total of all of these voluntary transactions results in the economy becoming a wealth-generating engine. The secret is the ability of all participants to choose freely. By acting in their rational self interest they benefit both themselves and society as a whole. Without this free choice, the wealth-creating mechanism breaks down.

Many might argue that “buyer and seller” immediately excludes “worker,” but that is a tragic misunderstanding as well. In a capitalist system, labor is a market like everything else. “Workers” are really SELLERS. They are selling their services to employers. They compete with each other for the best jobs, and employers compete with each other for the best employees. When not disrupted by government, all of the benefits that accompany the free market for other goods and services occur in the labor market as well. Detractors of capitalism attempt to portray workers as servants that must be protected from their oppressive masters. They are no such thing. They are sellers that require no more protection from their customers than a car dealer requires protection from its customer shopping for the best car at the lowest price. By offering higher quality work, workers can demand higher prices for their services. They are free to accept an offer of employment or turn it down, or to leave their present employment for a better offer. In a truly free market, workers are empowered as the owners of the original means of production that they are.

There is even a benefit to the worker of this free buying and selling relationship when it results in lower wages. Remember that in a laissez faire capitalist system, the workers are also the chief market of the mass supply of goods that results. Thus, if the market lowers the price of labor, the corresponding price of consumer goods also falls. Therefore, even if the worker is earning less money, his purchasing power increases. His real wages go up. He becomes wealthier. Just as wages never rise nearly as rapidly as the general price level of consumer goods in an inflationary pattern (making workers poorer over time), wages never fall as quickly as the decrease in the general price level that is the result of natural economic growth (making workers wealthier over time). That real wages went up during the 19th century is a verifiable fact, and is not in dispute.

At the turn of the 20th century, even the proponents of the social reform movement recognized that capitalism was making the working class wealthier and eliminating poverty. They did not start the reform movement because capitalism was not helping the lower classes, they started it because they did not feel the improvements were occurring fast enough. This fact, too, has faded from memory, but a little research will bear it out. With all of the achievements of the century behind them, and the marvelous innovations that mankind had accomplished, they felt that there was no reason that anyone should ever want for anything again. Within 50 short years, the telephone, the moving picture, the automobile, and most of the rest of what we think of as the modern world had been invented, mostly in America. Surely, they thought, poverty could be eliminated as well. They attempted to use the power of government to ACCELERATE the progress that laissez faire had resulted in.

However, there was a fundamental flaw in their thinking. They failed to understand the mechanism that made all of that wealth creation and innovation possible. The mechanism relies on the choices between buyers and sellers being VOLUNTARY. Once the introduction of force is introduced, the process is disrupted. Detractors of capitalism consistently fail to recognize or are able to ignore the reality of what “social reform” is. It is GOVERNMENT USING THE THREAT OF VIOLENCE TO SEIZE AND REDISTRIBUTE PROPERTY, AND TO FORCE BUYERS AND SELLERS TO MAKE CHOICES THAT THEY OTHERWISE WOULDN’T MAKE. However they try to euphemize it, THIS is the alternative to laissez faire capitalism that they offer. Most non-economists probably do not realize this when they advocate for most government economic policies. They would probably find them morally repugnant if they understood them properly. However, this is the REALITY of even the “mixed economy.”

This use of force is not without consequences, however. By disrupting the voluntary nature of the transactions, capitalism’s wealth-creating mechanism breaks down. The more property is stolen for welfare programs, the less capital is left to expand production. The more government intervention there is, the less wealth is created. Productivity and innovation cannot be forced. That is the reason that free people are more productive than slaves. It is the reason that communism has failed wherever it has been practiced. Russia had a larger population and more natural resources than the United States, but tens of millions of their people died amidst those vast resources because they were practicing an economic system that did not allow the wealth-creating mechanism of capitalism to function. The same can be said of China, Viet Nam, and every other country that practiced communism. As they have moved toward a free market economy, they have become more and more prosperous. As America has moved toward a less free market economy, it has declined.

Today, the United States practices a “mixed economy” because of the persistent belief in the Myth. Refusal to recognize the plain facts of history, that the working class was becoming richer under laissez faire, rather than poorer, is the only reason that laissez faire is not still the economic system of the United States. It is also the reason for the socialist movement throughout the world, which directly led to the World Wars and the ensuing Cold War. Despite the fact that both economic systems have been taken to their logical extremes, and socialism produced mass starvation while capitalism produced mass prosperity, America continues to try to mix socialism with capitalism. After a century of “government reform” of capitalism, the gap between rich and poor is far wider than it was under laissez faire capitalism, the quality of life of the working class is declining, and a much greater concentration of wealth in the hands of the very few is occurring. Everything that the social reformers set out to do has not only failed, but resulted in the exact opposite of what their intention was. It is not a matter that the reform was not done skillfully or completely enough. It is a matter of the “reform” being the use of coercion to force people to make choices against their will. It is morally repugnant, and it does not work.

Politicians are naturally disposed to believe and promote the Myth. It gives them a reason to do a whole lot more than they would be allowed to do otherwise. Promoters of the Myth cite their “heroes” of the 20th century. Only by believing the Myth can you admire the policies of Woodrow Wilson, Teddy Roosevelt, or FDR. These men were great destroyers of prosperity and violators of individual rights, not heroes. They attacked capitalism under the pretense of solving the imaginary problems of the Myth. When crises occur in our “mixed economy,” politicians consistently blame the capitalist aspect of our society rather than the socialist aspect, and suggest more socialism as a solution. “Coincidentally,” this results in more power for the politician.

The Myth is pervading our current presidential election campaigns. McCain claims Teddy Roosevelt as his hero. Obama has invoked FDR. Both agree that more regulation is needed to solve the current financial crisis. Popular acceptance of the Myth allows them to frame the debate where only less freedom can solve our problems. It is up to the American people to choose. The proof that the Myth is false is everywhere, even in public records maintained by the government itself. However, there will never be a large movement to truly solve our problems until Americans learn accurate history and stop believing in the Myth. Once they do, they will see that the great experiment has been completed, and the results are indisputable. Only laissez faire capitalism – the economics of freedom – can restore America’s prosperity. It is the only moral and practical choice.

[1] Bernstein, Andrew The Capitalist Manifesto: The Historic, Economic, and Philosophic Case for Laissez Faire. University Press of America 2005


Saturday, September 13, 2008

Paulson Says, "He's Not in This Stove"

Pretty soon we’re going to need a ramrod with a wet sponge to swab down the barrel of Treasury Secretary Henry Paulson’s bazooka. In another emergency meeting on Friday, this time to discuss what to do about the (again) bankrupt Lehman Brothers, Paulson, Federal Reserve President Timothy Geithner, SEC Chairman Christopher Cox, and what Fed spokeswoman Michelle Smith would only name as "senior representatives of major financial institutions" met at Geithner’s offices at the New York Fed. As reported by Martin Crutsinger, AP Economics Writer, “the Wall Street Journal reported on its website that this group included Morgan Stanley chief executive John Mack and Merrill Lynch chief executive John Thain among others.”

So, another investment bank goes bankrupt and again we have the U.S. government, its private banking monopolist, and the investment bank’s two chief competitors getting together to figure out what to do. It is refreshing that at least there is no longer any pretence that the U.S. financial sector is a free market, rather than a cartel. Of course, history shows that tight collusion between government and large corporations is the best thing for a society that wants to remain free, open, and prosperous. Just ask the Italians. However, this is not the best news. Crutsinger goes on to say,

“Earlier in the day a person familiar with Paulson's thinking said that the treasury secretary was opposed to the use of any government money to bail Lehman Brothers out of its financial difficulties.”

If you’ve been paying attention for the past few months, your reaction should be something on the order of “here it comes.” Of course, this is merely “a person familiar with Paulson’s thinking” (which should qualify him or her for a purple heart) telling us that no bailout is coming. The real news will not come until sometime after Paulson holds a press conference and tells us that the U.S. government absolutely, positively will not bail out Lehman Brothers. At this point, those press conferences are starting to sound like Bugs Bunny telling the Irish cop “he’s not in this stove.” By now, we should all be saying, “Oooohhhh! So you’re hiding Rocky in the stove, are you?” As long as he remains this consistent, his communication to the American public has become quite effective. Just assume that he is about to do exactly the opposite of what he says.

Considering that Paulson and Bernanke are both Bush appointees, it is fair to characterize this “strategy” as a Republican strategy. This is significant because it points to one identifiable difference between the two major parties. Neither wants to cut government spending and both are equally socialist. However, the Republicans wish to keep tax cuts in place, while the Democrats want to raise taxes. While the Republican strategy might seem perversely illogical at first glance, it is not. They are simply going to run deficits and steal your money through inflation. They are going to talk about free markets and capitalism and give you fascist socialism.

On the other hand, if you paid attention to the primary races and have read Barack Obama’s platform, it has become clear that the Democrats really make no secret that they are going to give you the closest thing to communism that they feel like they can get away with. They will steal your money through direct taxation.[1] Perhaps that makes them more honest. I knew I’d finally find something nice to say about them.

So, the Republicans will say, “I’m not going to steal your money,” and then steal your money, while the Democrats will come right out and say, “I’m going to steal your money,” and then steal your money. Well, at least Americans can’t complain that they don’t have any choices. Of course, we may wake up in four years wondering where the last vestiges of our freedom have gone. However, with the government in the housing business, the mortgage business, the healthcare business, and perhaps even dabbling in energy, at least we will have a good idea about where to look. Just don’t bother to come out and ask your government, because you already know what they’ll say.

It’s not in this stove…

[1] Of course, inflation will not end with Democratic rule, as the Fed really does whatever it wants. However, the Democrats have at least proven that it is incidental to their agenda. If they had it all their way, they’d just take all of your money directly through taxation.


Thursday, September 11, 2008

The Hypocrisy of Civil Discourse

“…nor suffer yourselves to be wheedled out of your liberty by any pretences of politeness, delicacy, or decency. These, as they are often used, are but three different names for hypocrisy, chicanery, and cowardice.”

John Adams (1765)[1]

There is a politeness, a delicacy, a decency - perhaps what might today be called a “political correctness” - that is nothing more than the hypocrisy, chicanery, and cowardice that Adams warned of. It is both mistakenly practiced by the innocent and maliciously utilized by the guilty. It is an evil falsehood masquerading as a noble truth. It is a rotten vice disguised as an exalted virtue. It is one more device of the tyrant used to persuade the people to enslave themselves. Like so many of the mantras repeated ad nauseum by our political machine, it is universally accepted as wisdom when in fact it is the most ludicrous logical fallacy.

It is the erroneous axiom that all opinions should be respected.

Already the reader is experiencing a conditioned repulsion similar to that felt by the religious fanatic when confronted with what he believes to be some great heresy. From the time we are old enough to understand (perhaps before), we are taught that it is the ultimate ignorance, arrogance, or stubbornness not to respect all opinions. Our minds are enriched and our reasoning powers sharpened by considering different perspectives. It is only the fascist or the despot that does not grant to all people that they are “entitled to their opinion.” Often polite adversaries will conclude that they “agree to disagree.” Other costumes that this fraud may don are “civil discourse,” “spirited debate,” and “diverse perspectives.” In the well-mannered company of yuppie pseudo-intellectuals, it is at the very least impolite and may even approach grotesqueness to deny anyone the right to their opinion, no matter what that opinion may be.

Having been raised Cheektowaga, N.Y., I am grateful that I have been provided with no more manners than the bare minimum that I need to survive. Therefore, I will speak the unspeakable and let the reader either confront the truth or retreat in horror. As a warning to the politically correct, what follows is not suitable for the overly accommodating or the timidly polite.

There are some opinions to which you are not entitled.

You are not entitled to the opinion that you may use the threat of violence (government) to prevent me from doing what I please, provided that I harm no one else.

You are not entitled to the opinion that the government may use my tax money and risk my life to prosecute wars of aggression.

You are not entitled to the opinion that you may extort the fruits of my labor in order to provide yourself or someone else with healthcare, retirement benefits, or other stolen property.

You are not entitled to the opinion that you may use the threat of violence to prevent voluntary exchanges of property between free individuals (a.k.a. “economic policy”).

You are not entitled to the opinion that the coercive power of government can be used for anything other than the protection of my life, liberty, and property.

To put the above statements more succinctly, you are not entitled to the opinion that you have the right to make me a slave, whether fully or by some degree. THIS is the underlying assumption supporting all of these opinions.

I suppose that you could answer this entire argument with the sickeningly passive-aggressive refrain, “we will just have to agree to disagree.” I do not agree to disagree. You are either ignorant of our relationship or trying to obfuscate it, so let me make it perfectly clear. If you hold one of the aforementioned opinions, you have openly declared a state of war to exist between us. You have become an aggressor and have given me every right to defend myself by whatever means necessary in order to prevent the crimes which you have stated that you intend to perpetrate against me. You have made a threat of violence which I have no reason to believe that you will not carry out if I do not take immediate action to prevent it.

There are only two reasons why I respond with words at all, instead of action. One, I have a genuine wish to resolve differences peacefully, if they can be resolved in such a manner. I do not wish for nor condone violence, nor do I condone any violent rebellions against our American government. However, these principles do not eliminate my own instinct for self-preservation, nor will they prevent me from defending myself. Two, since the triumph of democracy over republicanism has given tyrannical power to your majority; it has occurred to me that the odds are too great against me in defending my rights against your acts of aggression, however justifiably. Therefore, I may have to capitulate to your tyranny until such time as I have a more reasonable hope of success in defending myself.

However, let there be no mistake about what our relationship is. You are the criminal and I am the victim. You are openly engaged in acts of armed theft, violence, and enslavement against me. I will no longer allow you to hide behind quaint sophistries to characterize this relationship as a mere “difference of opinion.” Do not insult my intelligence by misrepresenting your declaration of war as “civil discourse” or “spirited debate.” Perpetrate your crimes if you feel you must, but at least have the decency to acknowledge them. Be warned of the risks that accompany your actions.

[1] Adams, John A Dissertation on the Canon and Feudal Law 1765


Monday, September 8, 2008

Life in the Post-5/7 America

We have spent the past seven years in a “post-9/11 world.” We started hearing this insidious slogan not long after the terrorist attacks occurred. To translate the slogan for anyone who has not realized what it means, it means this: Whatever was left of your personal liberty before the 9/11 attacks is no longer a privilege your government can afford to grant you (and make no mistake, your government considers liberty a privilege, not a right). It seems that personal liberty is something that was nice in the Old America, but is just impractical in a “post-9/11 world.”

Of course, the struggle for economic freedom was lost decades ago with the onset of public and corporate welfare, the abolition of the gold standard, and the emergence of the American Empire. However, as with the other “civil liberties,” some traces of the economic freedom of America’s former Republic have survived several decades into America’s post-WWII social democracy. Those last traces are about to disappear as well. The following is one way it could happen.

Why May 7th? There is no compelling reason for the exact day. However, it is the Thursday of the first full week after the next president’s first 100 days in office are completed. It may be just a coincidence, but cataclysms never seem to happen during those 100 days. Perhaps world market movers don’t do much until they get a feel for the new administration. Perhaps it is some kind of statist magic, left over from government sorcerers like Merlin or Morgan Le Fay. In any case, even the terrorists respected the first 100 days of George Bush’s administration before launching their attacks. So, I am going with the odds to say that the economic day of reckoning will not manifest itself until May 7, 2009 – the new “Black Thursday.”

Even if the American economy is already dead for all intents and purposes, an historic crash of the stock markets will officially signal the dawn of the new era. When it does, all pretense of the “possible moral hazard” accompanying massive government interventions into the marketplace will be dropped. We will be in a “post-5/7 economy,”[1] much like our “post-9/11 world,” and the last vestiges of your economic freedom will be lost, just as your personal liberty was lost after 9/11. Forgotten in debates regarding whether these interventions will be good or bad for “the economy” is the fact that each one amounts to stealing from someone – legal plunder because it is committed by government. Each new intervention, “unavoidable” because of the latest threat to the U.S./world economy, will cause three more problems for the government to solve with further interventions. Pointing out that the original problem was caused by a previous government intervention will be pointless. Free markets were a nice idea in the 20th century, but government control of the marketplace will be needed in a post-5/7 world.[2]

Despite the fact that government already treats the right to the fruits of your labor as a granted privilege, the small percentage Americans have been allowed to keep will seem relatively large compared to what they will be allowed after the big event. At that point, there will be a continual state of economic emergency that requires “Americans and Europeans to do more, not less,” as Barack Obama recently said in Berlin. There will be Housing in the New America and Universal Healthcare to be paid for, tens of millions of unemployed Americans to feed and clothe, and the “challenges of the 21st century (all created by government)” to meet.

Perhaps at that point it will occur to someone, somewhere, that none of this is necessary. Without the parasitic influence of a few thousand people, the other 300 million would naturally trade with each other to their mutual benefit, and would have little to fear from people thousands of miles away whom they would never think to bother themselves. It really is that easy. Americans can make a decision for freedom anytime they wish to, and rid themselves of the parasites once and for all. Hopefully, there will come a time when they will be easier to convince in the post-9/11, post-5/7 world.

[1] Whatever the actual date of the crash, simply insert it into the new government slogan and it works just as well.

[2] While it would be impossible in a Republic to enslave people with such nonsense as a market crash or a terrorist attack creating “a new world” where natural rights no longer exist, it is relatively easy in a Democracy, where only 51% of the people have to believe it for the scheme to work. This is just one reason why no politician refers to America as anything other than “a Democracy” anymore. Be suspicious of anyone who speaks likewise.