Conservatism Is Not What We Need

If you are going to listen to Washington politicians at all, it is always best to listen to the party that is currently out of power. After each election, it is the job of the losers to try to attack the winners in any way they can. Often, they inadvertently advocate genuine principles of liberty in the process.

During the 8-year nightmare that was the Bush administration, it was the Democrats that stumbled upon these principles in their efforts to regain the throne. It was they who pointed out that the government should not be spying on its own citizens, that the president was assuming un-delegated powers through executive order, and that it was neither morally justified nor prudent to invade a third world nation that had committed no acts of aggression against the United States and lacked any reasonable means to do so. Their hysterical mouthpiece, Keith Olbermann, even went so far as to cite a long-forgotten document, the U.S. Constitution.

Of course, it is now abundantly clear that these arguments were made simply out of expediency. With the Democrats in power, it is now the Republicans’ turn to “fight City Hall,” and they have rolled out their usual rhetoric about small government, free markets, and traditional family values. Moreover, they, too, have rolled out the U.S. Constitution and waived it around in opposition to the Democrats' plans to “spread the wealth around.”

Let’s take note that the Republicans are now correct in opposing the main tenets of the Democratic agenda, including expansion of government involvement in health care, “Cap and Trade,” and other wealth redistribution schemes. Amidst all of the usual noise coming from Washington and its media pundit class, it is only the Republicans that are making any sense at all.

Unfortunately, this is shaping up to produce familiar results. There is a growing movement for “change” that promises to “throw the bums out” in the next two elections. However, those who are part of this movement do not stop to consider what the Republicans' true agenda will be once they regain power. As they have for over 100 years now, Americans are dashing to the other side in their perennial political game of “pickle in the middle.” They still haven’t learned that the pickle never wins.

The Republicans are having remarkable success in painting President Obama’s agenda as socialist and their “conservatism” as its antithesis. Most average Americans who identify themselves as conservatives accept this argument. If socialism redistributes wealth through the force of government, then conservatism, being its opposite, must oppose such redistribution of wealth. If socialism means that the economy will be centrally planned by government “experts,” then conservatism, being its opposite, must leave those decisions with private citizens. If socialism results in big government, conservatism, being its opposite, must result in small government. These are the assumptions that inform the political decisions of most conservative American voters.

There is only one problem. None of them are true.

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Symbolism Abounds at the Winter Olympics

Perhaps there are those who will say it is a stretch, but for me the medal presentations last Monday night (Feb. 15) for the men’s moguls competition at the winter Olympics were steeped in symbolism. Most of the media attention was focused on the fact that Alexandre Bilodeau was the first Canadian to win Olympic gold on Canadian soil. He also knocked off the heavily-favored former gold medalist, Dale Begg-Smith, who had turned in one of his best performances. However, the fact that Begg-Smith and Bilodeau finished ahead of American bronze medalist Bryon Smith contained a hidden message that I doubt most Americans caught.

Consider Begg-Smith’s story. As a teenager in Canada, he was not only a skiing phenomenon but a tech entrepreneur. His coaches told him that he was spending too much time on his business and not enough on skiing. Perhaps his coaches were simply skiing purists that insisted on a total commitment to the sport. On the other hand, perhaps they suffered from that epidemic philosophical disease that promotes contempt for all entrepreneurs and vilifies all who seek to profit from voluntary exchange – in other words to accumulate wealth by producing far more for their fellow human beings than they consume themselves.  In any case, Begg-Smith and his brother/partner Jason decided to exercise their rights and vote with their feet. They moved to Australia where they could ski on their own terms and pursue their business interests as they saw fit.

It was symbolically appropriate that this man finished ahead of the American, because his life embodied a principle that Americans have forgotten. When the opportunities that he deserved were not made available to him where he was, he voted with his feet. He left his country and emigrated to one where he was free to pursue his happiness in the way that he wished to. This did not cost him victory on the ski slopes. In 2006, he took the gold medal in men’s moguls in Italy, having also become a millionaire from his internet business. Like most of the early Americans, he wasn’t deterred from leaving the country that stifled him by false platitudes about “patriotism.” He was proud of rather than ashamed of his desire to seek his fortune. Like our American ancestors, he was justly rewarded with victory on both fronts.

However, Begg-Smith finished second to an athlete who inadvertently embodied an even more American principle. While most Americans probably think first of government health care when they think of Canada, Alexandre Bilodeau didn’t just come from Canada. He came from Quebec – the French-speaking province that has smoldered for decades with the most American of all ideals: secession. Yes, the Parti Québécois espouses some of the precepts of social democracy that are ultimately hostile to true liberty, but the movement nevertheless recognizes one core American principle that most Americans have forgotten. The state exists solely to serve the individuals who comprise it, and the loyalty of those constituents ends where the state ceases to govern with their consent. Certainly, none of these ideas entered the mind of the talented young man who earned that gold medal, but that didn’t diminish the symbolic significance of a Quebec native besting an American.

Let me take a moment to congratulate Bryon Wilson. He skied magnificently and the difference between him, Begg-Smith, and Bilodeau (literally milliseconds) is too infinitesimal to have any real significance. All three athletes should be deservedly proud of the fact that they have achieved greatness in their discipline. However, I hope that somehow the allegoric message of this competition will burn itself into the hearts of every American. The two athletes that finished ahead of the American represented ideas that Americans have forgotten:

1. Let no nonsense about (false) patriotism keep you from pursuing your happiness.

2. To seek your fortune through trade is to seek to benefit your fellow man more than most other people do by large orders of magnitude. There is no nobler aspiration.

3. You have a right to choose not to vote with your feet, but instead to alter or abolish any government that fails to secure your rights or becomes destructive of that end.  In other words, you have a right to secede.

Should Americans rediscover these simple, uniquely American values, who could set bounds to the heights to which they could ascend?

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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© Thomas Mullen 2010

What Do Oranges, Furnaces, and Your IRA Have in Common?

On Friday, an average American spent the entire day with the federal government without ever leaving his home. No, there was no knock on his door by some plain-clothes Gestapo. Neither was he treated to one of those infamous “no-knock raids” where a small army of thugs with various acronyms spelled out on their backs burst into the homes of the innocent and terrorize whomever happens to cross their paths. Nothing so dramatic happened that day. However, the long arm of the federal government made itself equally palpable nonetheless.

The first thing that he tried to do that day seemed innocuous enough. Being a native of Western New York and now living in Florida, he attempted to schedule a pick-up to ship some freshly-picked Florida oranges to a friend back home. He had purchased the oranges from a local orchard a day earlier, putting aside about two dozen for his friend in the wintry north. Anyone who has eaten oranges fresh from the tree here in Florida can tell you what a difference there is in freshness and taste from those purchased in grocery stores in the north when they are several days or weeks older. There is also a significant difference in price, especially this time of year. Oranges in Florida cost about $.40 per orange, while those same oranges cost about $1.50 each when purchased in Western New York.

For all of these reasons, our average American decided to do something nice and send a couple of dozen freshly picked oranges up north. That’s when he had his first encounter with the federal government. It turns out that what he was attempting to do was extremely dangerous and therefore prohibited by USDA regulations.  According to the USDA website,

Under current federal regulations, all shipments of fresh citrus are prohibited from leaving Florida unless they meet certain requirements, including:

• Inspection of the grove within 30 days of harvest;

• Treatment of the fresh fruit with a special decontaminant;

• Issuance of a federal limited permit that must accompany the fruit. The limited permit confirms that the inspection and treatment have been carried out; and

• Clear marking on the packages to indicate the fruit is prohibited from being delivered to other citrus-producing states.

The reason given for these regulations is that they are “designed to prevent the spread of citrus canker to other citrus-producing states while preserving Florida’s fresh fruit citrus market.” Surely the reader is familiar with citrus canker - that pandemic scourge that rivals swine flu in its danger to all of humanity if not for the federal government and its regulations.

There are a few consequences of this legislation that the government would have us believe are purely coincidental. The first is that the federal government is now authorized to collect a tax, which is all the fee for the “limited license” really is. The second is that citrus growers are effectively insulated by law from any out-of-state competition. Ironically, the federal government supposedly derives its authority to impose such a regulation from the commerce clause of the Constitution – which was written to prevent protectionism by the states!

The effect of these regulations is that consumers everywhere – in citrus producing and non-citrus producing states – pay higher prices for oranges. For those states without citrus growers, the licensing costs and higher costs due to limited shipping options are passed on to consumers. This is what explains Western New Yorkers paying $1.50 per orange. Even in citrus producing states, consumers pay a higher price than they otherwise would if their in-state growers had to compete with out-of-state growers freely shipping their products into the market. Of course, the government and its “progressive” supporters would have us believe that these are merely necessary costs of public safety. It couldn’t be that large, corporate citrus producers had anything to do with lobbying for and perhaps even writing these regulations, could it? Surely, the additional profits and insulation from competition are purely coincidental, aren’t they?

Having resigned himself that he could not ship the oranges himself without the federal license, which was not cost-effective for two dozen oranges, our subject acquiesced to send the oranges directly from an orchard licensed to ship out of state (at a premium price) and moved on to his next order of business. He needed a furnace for one of his rental properties. Being a small businessman who owned or managed approximately 100 properties, it was his responsibility to repair or replace any home appliances that ceased functioning. As a furnace is a significant cost for a small business, he consulted a well-known internet resource to see if he could get a deal on purchase and installation. He found several vendors advertising low-cost installations for home furnaces.

The cost of the home furnace that he selected was about $800. The cost to have a licensed HVAC contractor install the appliance was approximately $1,700 (remember this is New York), for a grand total of $2,500. The vendor on the internet worked for one of the established HVAC contractors that sell and install these appliances. He was offering to sell the furnace at the advertised price of $800 and install it for $300. This represented a savings of $1,400 – significant for a small property management company. When the small businessman offered to accept the offer and pay by credit card, the internet vendor educated him on what was going on. The transaction would have to be executed in cash, because it would be in violation of federal regulations. Not wishing to run afoul of the law, the small businessman declined and acquiesced to pay the $2,500.

It should be remembered that the vendor was not offering to sell stolen goods. He was selling the actual furnace at the same price that the HVAC contractor was selling it at. The internet vendor was merely offering to do the installation labor at what amounted to a real market cost of about $300. Why can the HVAC contractor charge $1,700 to send the exact same technician to install the exact same furnace? Only because it belongs to a cartel that is created by federal regulation and licensing requirements. Again, the reason given is public safety. We can’t have just anyone installing HVAC equipment or we would all be blown up within a week. It couldn't be that large, corporate manufacturers and HVAC contractors associations lobby the government to pass these competition-stifling regulations, could it?

What did our average American businessman do next to garner the attention of the federal government? Nothing. Frustrated and having spent an inordinate amount of time on two seemingly simple activities, he decided to call it a day. However, the fact that he was sitting in his home doing nothing does not necessarily mean that he was free from federal intrusion. While reading some personal e-mails, one popped into his inbox from his financial advisor. It concerned his IRA.

A few years earlier, he had decided to take a portion of his retirement savings out of his traditional 401K and put it into an IRA with a company that specialized in foreign stocks. His strategy was to protect his savings from the ongoing depreciation of the U.S. dollar and the structural weakness of the U.S. economy in general, which was and is based almost purely on consumption and borrowing. The firm with which he opened his account invested his retirement money in foreign companies with strong balance sheets that were paying dividends. Overall, the investment strategy was sound and relatively conservative. In any case, it was his money to do with as he saw fit. Or so he thought.

It seems that since “the crisis,” the federal government had taken an interest in him in this respect as well – as always for his “protection.” His broker informed him that a “Client Profile” that he had been required by federal law to fill out upon opening his account had to be filled out again. However, since the company that he opened the IRA with specialized in foreign stocks, he now had to mark “Speculation” on his risk profile. The company had to have this signed affidavit on file in order to legally continue to manage his account. This was all designed to protect him from unscrupulous fund managers who might buy foreign stocks with his retirement money without telling him how risky said foreign investments might be.

Absurdity abounds in this regulation. The stocks in our subject’s portfolio all had strong balance sheets (modest debt-to-equity ratios) and were paying dividends. To invest in these, according to our government, is “speculation.” However, to invest in U.S. Treasury bonds – the bonds of an enterprise that is currently losing $1.6 trillion per year, has over $12 trillion in debt, and over $60 trillion in unfunded liabilities – would qualify as “low risk.” However, there is more to this story than pure government incompetence.

Consider the effects of a regulation such as this. There is some percentage of people who wisely got out of U.S. stocks and U.S. dollar-denominated assets in general over the past several years. However, after the misinformed propaganda campaign by our government against speculators as the cause of the recent financial and economic crises, there are a number of reasons that those people might not want to be labeled as “speculators” themselves. They might erroneously perceive speculation as unpatriotic or even evil, given what they have heard. The less gullible might fear more onerous federal actions against them once they are officially identified as speculators. In any case, this regulation is going to cause some people to close their accounts with companies that deal in foreign stocks or at least shift their assets back to U.S. stocks.

This is going to have the effect of raising the price of those U.S. stocks that these “speculators” decide to buy. That price increase does not represent real market forces at work, because without the regulation, the investors would have left their money in the foreign companies. Again, this is supposedly the unintended consequence of a regulation that is nevertheless necessary to protect the public. Who just happens to benefit? As usual, it is the large corporations whose stock prices will appreciate and who also just happen to fund the campaigns of the people who passed the regulation in the first place. Doesn’t anyone see a pattern here?

None of these regulations actually benefit the public. The citrus and furnace consumers pay exorbitantly higher prices and are certainly no safer from danger because the corporate cartel member filled out a government form and paid a licensing fee. How many people have to die from FDA-approved drugs (or from the unavailability of unapproved drugs) before this is sufficiently clear to average Americans? In the case of the foreign stock investor, he is actually harmed by the regulation if as a result of it he takes his money out of safe, foreign investments in viable companies and puts it into shaky U.S. corporations or soon-to-be-downgraded U.S. Treasury debt.

Progressives supposedly support these regulations in order to protect average Americans from the large corporations that they vilify at every opportunity. As we have seen ever since their hero, FDR, instituted this fascist regulatory structure in the 1930’s, they achieve exactly the opposite result. With each new set of regulations, large corporations grow richer, more influential, and more insulated from competition – all at the expense of the “little guy” that the regulations supposedly protect. To quote another progressive hero from the 1960’s, “When will they ever learn?”

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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© Thomas Mullen 2010

The Who Sing to the Obama Faithful

I must admit that as soon as I heard that The Who would be the halftime entertainment at the Super Bowl, the timeliness of what would likely be their last song immediately crossed my mind. However, that didn’t lessen the impact of seeing the aging rockers belt out their classic, “Won’t Get Fooled Again,” although this time with more significance for America than at any time since the song was written. The enthusiastic crowd - thousands of whom undoubtedly sport Obama/Biden bumper stickers on their vehicles - joined Townshend and Daltrey in thunderous unison each time the line “We don’t get fooled again” was sung. Ironically, the extent to which the song indicts Obama was probably lost on all, save the venerable old Englishmen themselves, who hail from a bygone era when the left was actually anti-establishment.

Certainly, there has not (yet) been “fighting in the street” here in America, but most of the Obama faithful do believe that the “change” he has promised represents a “new revolution,” whilst opponents certainly object to the “new constitution.” I’m not sure why, since as Jay Leno quipped a few years back, we’re not using the old one anyway. In any case, as Townshend says to begin the second verse, “the change it had to come.” What we are changing from and what we are changing into are questions that Townshend leaves to us to answer.

Fittingly, the word “change” is used five times during the song. However, the real message of the song is summed up in the last verse.

“There’s nothing in the street
Looks any different to me
And the slogans are replaced, bye the bye.
And the parting on the left
Is now parting on the right,
And the beards have all grown longer overnight.”

It is hard to believe that these words were written in the early 1970’s, as well as they describe the Obama campaign and presidency. Certainly, the slogans have been replaced. Obama started his presidential campaign as an anti-war candidate. Upon receiving the Democratic nomination for president, he subtly changed his stance from being anti-war to arguing that America was merely “in the wrong war.” Now, as he escalates the war in Afghanistan, expands that war into Pakistan, and revives his predecessor’s antagonism towards Iran, we find that even Iraq is not such a wrong war that we will not be leaving thirty to fifty thousand troops there after our combat mission officially ends. Haven’t we heard this strategy before?

Regarding “parting on the left now parting on the right,” the neo-conservatives that Obama was supposedly the antithesis of during his campaign couldn’t be cheering his war-mongering any more enthusiastically. While there is obligatory criticism by Republicans towards some of his tactical decisions or supposed hesitation in making them, they do not fail to dutifully commend the emperor for his overall strategic plan: more war, more debt, and – just as in every year of the Bush administration – the largest total DOD budget in American history (counting the actual on-budget Defense budget, the appropriations for the active wars, and the Homeland Security expenditures on the war formerly known as “The War on Terror”).

Domestically, those who hoped that “Change” meant an end to or at least a decrease in corporate welfare have been disappointed as well. In a classic bait-and-switch, it turns out that his signature health care “reform” plan is nothing more than a gift-wrapped half trillion dollars per year presented to corporate health insurance giants, courtesy of American taxpayers who will now have no choice but to buy their insurance. It is hard to imagine how any self-respecting progressive can “smile and grin” at this change, but so far they still do. The hypnotized may never lie, but they also seem completely unable to tell when they are being robbed blind.

Of course, President Obama did at least do something about the Bush administration’s practices of spying on its own citizens, tapping their phones, and reading their e-mails (to keep them safe). He sent a team of lawyers to court to defend all of these abominable practices, hoping to solidify his legal sanction to do exactly the same thing. This shouldn’t have surprised anyone, since while still in the U.S. Senate, Obama voted to grant immunity to telephone companies who complied with the Bush administrations invasions. Perhaps they were expecting Obama himself to “change” on this issue once he became president.

Finally, Obama had promised to go through every one of President Bush’s executive orders and overturn any that “trampled upon liberty.” Having completed his review, the only executive orders overturned or considered relate to stem cell research, oil drilling on federal land, and Bush’s “gag order” on international aid organizations regarding abortion. Conspicuously absent from the list are the infamous orders wherein Bush granted his office vast new powers during a state of emergency, which the hysterical Keith Olbermann quite justifiably wet himself over during several of his anti-Bush diatribes.

To summarize, let us review what liberals/progressives said they hated about the Bush administration. Unless memory fails, it was his immoral and unfunded wars, his preferential treatment of Wall Street and large corporations at the expense of Main Street, his illegal spying on and wiretapping of American citizens in the name of security, and his assumption of dictatorial powers via executive orders and a rubber-stamp Republican Congress. For all of those who voted for Obama to protest and end these atrocities, the last lines of “Won’t Get Fooled Again” couldn’t be more appropriate.

“Meet the new boss. Same as the old boss.”

Indeed he is. We have been fooled again, and if we simply put the neo-conservative Republicans back into office, it won’t be much different the next time, either. Isn’t it time we stopped doing the same thing over and over again and expecting a different result?

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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© Thomas Mullen 2010

The True State of the Union: We Have No Rights Whatsoever

It has been almost a week since President Obama gave his first State of the Union address, and it has been analyzed from the left, right, center, front, and back. Of course, the speech is really about the performance of the federal government, particularly its wonderful accomplishments under the leadership of the sitting president. This is not peculiar to the Obama presidency. As far back as Jefferson, presidents have used the Constitutionally-mandated stump speech to do a little self-promotion, although what they promote has certainly changed quite dramatically.

However, if the speech is supposed to reflect the accomplishments of the federal government, then we should expect that it will contain specifics about how that government has fulfilled its purpose, which is, as we all know, to secure our rights. At least that’s what our founding document tells us. Therefore, if a president is going to do a little bragging about what a great job he has done, it would be logical to assume that we would hear particulars about the way in which he has secured our rights. Logic, however, has little to do with the machinations of leviathan.

In fairness, President Obama did begin his speech with a few remarks about the actual state of our country - a state of economic devastation and unending war. The fact that both of these afflictions have been caused wholly by our federal government is something that seems to have gone right by him, although he is not unique in that respect, either. Having reminded us about how bad things are, he dutifully lays as much blame as possible on the president that preceded him (another time-honored tradition when succeeding a president of the opposing party). He then moves right into trumpeting his accomplishments.

The president explains how he hit the ground running after taking over during the financial crisis, which began during the last year of the Bush administration. He takes pride in the fact that he supported the bank bailouts over the wishes of the American people, because when he ran for president, he “promised he wouldn’t just do what was popular,” he would do “what was necessary.” I don’t remember that particular campaign promise, although I do remember him promising to “preserve, protect, and defend the Constitution of the United States” or something to that effect. I suppose you can’t expect him to keep them all.

President Obama justifies his first initiative as president as follows:

“And if we had allowed the meltdown of the financial system, unemployment might be double what it is today. More businesses would certainly have closed. More homes would have surely been lost.”

Perhaps the president is correct on this. Perhaps he is not. However, there is one consideration that seems wholly missing from his thought process. Do the people whose money was taken to “stabilize the financial system” have any rights? By what authority was their money confiscated, even if it were for “the good of all?” Majority vote?

The president next goes on to extol the virtues of the first policy that was wholly his own. He says that his administration “extended or increased unemployment benefits for more than 18 million Americans; made health insurance 65 percent cheaper for families who get their coverage through COBRA; and passed 25 different tax cuts... As a result, millions of Americans had more to spend on gas and food and other necessities, all of which helped businesses keep more workers. And we haven't raised income taxes by a single dime on a single person. Not a single dime.”

This seems to be a mixed message. The part about extending unemployment benefits and making health insurance cheaper seems like more wealth redistribution. However, he also mentions tax cuts that saved jobs and let people keep more of their own money. One might have been led to believe that he actually secured the right to property here, at least for some of his constituents. Then came the punch line.

“The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act. That's right -– the Recovery Act, also known as the stimulus bill. Economists on the left and the right say this bill has helped save jobs and avert disaster. But you don't have to take their word for it. Talk to the small business in Phoenix that will triple its workforce because of the Recovery Act. Talk to the window manufacturer in Philadelphia who said he used to be skeptical about the Recovery Act, until he had to add two more work shifts just because of the business it created. Talk to the single teacher raising two kids who was told by her principal in the last week of school that because of the Recovery Act, she wouldn't be laid off after all.”

It is ironic that one of the examples that the president cites is a window manufacturer. Those few lucid economists who are not among those “on the left and the right” who agree wholeheartedly with the stimulus bill certainly would have been unable to avoid recalling Frederic Bastiat’s “broken window fallacy.” It is the absurd reasoning that Bastiat exposes in his famous essay, “What is Seen and What is Not Seen,” that underlies the entire “stimulus” strategy. Occasionally, this has been pointed out in public debates over these programs. However, there is one question that has not even been asked by President Obama’s most vitriolic Republican opponents. Do the people who were forced to fund the Recovery Act have rights?

President Obama implies that his wonderful largesse was accomplished without taxing anyone, but this is absurd. It may be true that he has not had a tax increase passed in the Congress, but the funding for the Recovery Act can only come from one place. For the portion that was borrowed by the U.S. government from other nations, that money will eventually have to be paid back. The government only has one official source of revenue – taxation. The fact that those who will pay the taxes to underwrite the Recovery Act may not be born yet (although I don’t personally believe that Washington has that much time left) doesn’t change the fact that they will be forced to pay it back.

There is also an “unofficial” source of revenue for the government, and that is inflation. For the portion of the Recovery Act debt that the Federal Reserve merely monetizes, it is no less taxation than is an appropriation from the Treasury. It is merely a more insidious form of taxation, one that does not look its victim in the eye, but rather steals from him silently through depreciation of a currency that he is forced to use by the government. Whether by official or unofficial means, there are individuals whose money will be confiscated by the government so that others may keep their jobs. Again, I ask, do those individuals have rights?

It should not go without mention exactly who these people are whose jobs have been saved by the Recovery Act. According to the president, “there are about two million Americans working right now who would otherwise be unemployed. Two hundred thousand work in construction and clean energy; 300,000 are teachers and other education workers. Tens of thousands are cops, firefighters, correctional officers, first responders. And we're on track to add another one and a half million jobs to this total by the end of the year.”

Is there anyone among these two million that are not government employees? Perhaps the construction workers, although I’d bet they are working solely on government contracts. In any case, they are all on the receiving end of the taxation, necessitating that others must be taken from in order for them to receive.

The whole concept of the government “saving or creating jobs” is one whose injustice seems to elude everyone. That is probably because a century of “progressive” ideas has completely befuddled us about what a job really is. A job is a contract between a buyer and a seller. The employee is the seller, who sells his services to an employer for a mutually agreed upon price – his wages. This contract is one that both parties enter into voluntarily. The employer purchases the services because he is willing and able to do so. The employee sells for precisely the same reasons. Each has a right not to enter into the agreement, or to terminate it anytime he wishes.

However, when the government “saves or creates jobs,” it completely overrides the voluntary nature of this arrangement. If an employer is no longer willing or able to continue to purchase the services of an employee, the government has only one means at its disposal to change that outcome: brute force. It uses this force to confiscate the property of other people and thereby force them to purchase the services of the employee, since the employer is no longer willing or able to do so himself. The government claims it has saved a job, but it certainly has not secured any rights. In fact, it has acted counter to its purpose. It has destroyed the rights that it exists to protect.

It is the same evil at work in the president’s call for “health care reform.” As part of his plans to “improve the system,” the government will not only annihilate the right of property but liberty as well. While taxing some in order to pay the doctor bills of others, the federal government will ensure that no one can even conscientiously object. Every American will be required to purchase insurance from one of the government’s pet corporations, regardless of whether they want to or not. This amounts to a mandatory fee paid to the government merely for the privilege of being alive. Once the right to property is destroyed, the rights to liberty and even to life are destroyed with them.

Without repeating the analysis for every program that the president described, they all rest upon the same logic. There is some mysterious entity called “society” whose needs outweigh the rights of every individual that comprises it. In fact, it is apparent from the president’s speech (and those of most of his predecessors) that the federal government recognizes no rights of any individual whatsoever. Sadly, there are not many among the citizenry who think any differently. So long as representatives have been democratically elected, their power knows no bounds and recognizes no rights.

America was founded upon exactly the opposite idea. The reason that the U.S Constitution guarantees every American “a Republican form of government,” rather than a democratic one, is precisely because its framers believed that individual rights cannot be voted away. We cannot vote ourselves a right to other people’s property, not even to save millions of jobs (although it is really not possible to do so anyway). We cannot vote away another’s liberty, not even to lower health care costs for those who cannot afford it (although this will not work either). This was the central principle upon which our nation was founded – that we are endowed by our creator with unalienable rights. A pure democracy does not recognize these rights.

Progressives promote the idea that “taxation without representation” was the chief injustice that led to the American Revolution. This is convenient to their agenda, because they go on to justify any tax levied by a democratically-elected body on the grounds that those being taxed were represented in that body.

Of course, this begs the question, "Why did the founders specifically instruct Benjamin Franklin not to under any circumstances accept an offer of representation for the colonies in the British parliament?” Perhaps we should be so wise. Secession anyone?

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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© Thomas Mullen 2010

Central Banking Doesn't Work - Just Ask the Fed!

It is still a tiny minority who understand that central banking is a collectivist institution that is completely hostile to liberty. It is, by definition, an instrument of theft that purports to stabilize economic conditions for the collective by controlling the supply of money and credit. The fact that its only means to do so is to steal from savers to finance well-connected borrowers is a seldom-mentioned detail. That people only use the central bank’s currency because they are forced to do so by legal tender laws is spoken of even less. In this late stage of the Age of Government, the rights to liberty and property are expendable as our rulers “get the work of the American people done.”

Hopefully, the question of whether there should be a Federal Reserve will be on the table soon. However, once one concedes the existence of the Fed, there is a further question to ask: Can it do what it purports to do?

According to the Federal Reserve’s website, its mission is as follows:

Today, the Federal Reserve's duties fall into four general areas:

• conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates

• supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers

• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

• providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system[1]

Of these four stated goals, the first is the most expansive in its scope. Let us leave it until last. The second, to ensure the soundness of the banking system, seems to have been answered by history. Since the Fed’s launch in 1914, the nation has suffered banking crises in every generation that have dwarfed the Panic of 1907 or any of its predecessors. In addressing the Great Depression, the Savings and Loan Crisis, and the 2008 Meltdown, the Federal Reserve’s only answer has been, “Without the Fed, it would have been much worse.” History is not on the Fed’s side. Only a general ignorance of the facts allows the Fed to keep fooling most of the people most of the time.

Refuting the third stated goal is so easy it’s almost embarrassing. For those not trying to regain their seats after falling on the floor laughing, I need only to point out 30-1 leveraging, $60 trillion (or more?) in derivatives [2], or the subprime mortgage disaster. I believe that to go any farther would be, to borrow a football analogy, "piling on."

In fact, Alan Greesnpan's now famous (or infamous) mea culpa on the "flaw" in his beliefs about the self-regulating nature of financial markets effectively amounts to the Fed admitting that it has failed in goals two and three. If the "Maestro" himself doesn't speak for the Federal Reserve, then who does?

Regarding that fourth goal, one is tempted to give this one to the Fed. The important objection would be of the "should they" rather than of the "can they" variety. The fact that the Fed provides these services with an exclusive monopoly and claims only that it will play a “major role," rather than a positive one, makes this the least significant of the four.

That leaves the first goal, which is stable prices, full employment, and moderate long term interest rates. There can be no doubt that the promises of stable prices and full employment in particular are now the principle justifications for the existence of the Federal Reserve. Almost exclusively, when the subject of the Fed comes up, these two goals are discussed. Even the Fed chairmen themselves, when testifying before Congress, often state these two goals exclusively in describing the Fed's overall mission.

It should not be forgotten that until the late 1970's, full employment was not part of the Fed's mandate. Even using the logic of central banking proponents, these two goals are mutually exclusive of one another. Since the only means the Fed has at its disposal to try to achieve full employment is expansion of the supply of money and credit, which puts upward pressure on prices, the Fed must balance these two goals to try to find the optimum level of money and credit where everyone is employed but prices remain stable.

Ironically, the best source of information on the Fed's performance in terms of its principle goal for the first sixty years of its existence (price stability) is the Fed itself. Among the collections of historical data on the Federal Reserve of Minneapolis website, there can be found a table documenting price inflation rates for every year since 1800 (Appendix A of this article). There, one can see for oneself whether or not the Fed provided price stability during any period in its existence.

The first fact that jumps off of the page is the stark difference in the trends before and after the creation of the Fed. For the period from 1800-1913, the general price level (a statistic that Austrian economists object to) was cut almost in half. In other words, products that on average cost $100.00 in 1800 would only cost $58.10 in 1913 (Appendix A). While there were some years where prices rose, prices generally fell overall during the entire 19th century.

This would probably be a startling revelation to most modern Americans. There isn't an American alive whose parents or grandparents haven't remarked at current price levels and gone on to say, "When I was your age, I only paid a dime for that." As unbelievable as it might seem, that conversation would have been exactly the opposite in 1890. Grandpa would instead be saying, "When I was your age, I had to pay a lot more for that." Today, Americans resign themselves to constantly rising prices as a fact of life. However, that is a phenomenon that has only occurred since the creation of the Fed.

In contrast to the century preceding the Fed, the century following has seen exactly the opposite result. Those same products whose average price had fallen from $100.00 in 1800 to $58.10 in 1913 rose to $1,265.14 in 2008. That is an increase of over 2,000%!

Without addressing the subject of which result is "better for society," inflation or deflation, the data speak directly to the question of "price stability." From 1800-1913, the average annual fluctuation in price was 3.4%. From 1914-2008, the average annual fluctuation in price was 4.5%, a 33% increase over the previous period. In fact, the numbers for the Fed would be far worse if the same methods used to calculate the price inflation rate were used for the entire period from 1914-2008. In the 1990’s, several changes were made to the methodology used to calculate the Consumer Price Index. They all have the effect of lowering the price inflation rate given a particular set of price data.

Regarding the goal of "full employment," the Fed's results are also poor. Similar to that of the CPI, the methodology for calculating the unemployment rate was also changed in the 1990's. These changes in methodology, which include no longer counting "discouraged workers," lower the unemployment rate from what it would be for the same data if calculated using the old methodology. Despite this handicap, the Fed still fails to achieve positive results. The average annual unemployment rate in the U.S. between 1948 and 1978 was 5.1% (see Appendix B). Even without compensating for the changes in methodology during the 1990’s, the average annual unemployment rate in the U.S. between 1979 and 2009 was 6.1%. So, unemployment was almost 20% higher during the period that the Fed actively tried to manage it than it was during the prior 30 years.

Once you undo the methodological changes in calculating price inflation and unemployment that were put in place in the 1990’s, the Fed’s results on price stability and unemployment get much uglier. Nevertheless, even after the Fed fudges its own numbers it still comes out a failure. Everyone can remember the ne’er-do-well from school that cheated on tests and still couldn’t pass. Would we want that kid managing the entire economy?

The arguments that the Fed makes to justify its existence are fraught with false assumptions. One is that “stable prices” are a good thing. Remember, the industrial revolution occurred amidst steadily falling prices. It was this period of steady deflation (gasp!) that saw the common people become the prime market for society’s output - for the first time in human history. It was this period that saw the United States transform itself in a matter of decades from an indebted hodgepodge of former colonies to a world economic power. The natural result of economic progress and increased productivity is falling prices. That is what raises the standard of living for the great majority of society.

However, the most absurd assumption underlying the arguments for the Fed is one common to all collectivist arguments: that there is some strange entity called “society” whose needs outweigh the rights of every individual that comprises it. Every citizen surrenders his right to liberty to legal tender laws because being forced to use the Fed’s worthless notes as currency supposedly benefits “society.” He surrenders his right to property in letting the Fed steal his savings through inflation for the same reason. In the end, however, the Fed fails to achieve its “societal” goals of full employment and stable prices, so he gives up his rights for nothing. Isn’t time he took them back? There is a way: End the Fed.

Appendix A - Price Inflation Rates 1800-2008 (Federal Reserve Bank of Minneapolis)
 
Appendix B - Unemployment Rate (Monthly) 1948-2009 (Bureau of Labor Statistics)

[1] http://www.federalreserve.gov/aboutthefed/mission.htm

[2] http://www.newsweek.com/id/164591

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 Government Bubble Heads for a Blow-Off Top

I have a friend that tends to express his ideas about everything in the jargon of a securities trader. Of course, this is probably because he has been a very successful trader, both in bull and bear markets, for many years. “Every trend in history, even liberty, can be charted like a stock,” he has often observed. I tend to agree.

As any trader will tell you, bull markets do not go straight up and bear markets do not go straight down. Rather, they tend to meander in the direction that they are headed. During a long-term bull market, a trend will have major pull-backs and long periods of consolidation. It is the experienced trader that knows how to “buy low and sell high,” taking advantage of the back and forth action of a stock or a sector on its journey. However, even wiser is the investor that can spot the trend at the beginning and keep buying lows without having to attempt to time the market and sell at all. The legendary Jim Rogers has often said that he is “the world’s worst short-term trader.” He would rather buy something that he can own forever than buy with the intention of having to sell.

Gold has been the most spectacular bull market over the past decade. Like all trends, it had periods of dramatic rise, followed by sharp pullbacks that gave back a portion of the gains, and then long periods of consolidation. Once a consolidation was over, another dramatic rise in price followed. The first run began at the beginning of the decade, with gold selling under $300 per ounce. It ran up to over $700 per ounce in 2006 before pulling back sharply under $600. The price then consolidated there for an entire year before the next leg up began. That second leg ran all of the way over $1,000 per ounce before pulling back to the low $700’s. Again, there was a long consolidation before this latest run, which will take gold we know not where.

All of the movements in the price have explainable reasons. When the fundamentals are stronger than the actual price of the security or commodity, investors begin buying. Once the price starts to move up, traders begin wading in to make profits on the movement of the price, both up and down. At any given time, there are those who are long and those who are short. Contrary to the nonsense you hear from government officials and their kept economists, short sellers play a vital role in keeping the market healthy. When a stock, commodity, or sector beings to fall in price, short sellers help stabilize that price because they have to buy the stock that they sold short to cover their short sales.

You will often hear the wisest of investors say that a trend is about to reverse when there is no longer any disagreement about it. When everyone is positive on a stock or a bull market, it is about to go down. When everyone is negative, it is about to make a run up. When all of society agreed that the NASDAQ would never go down – when every conversation in every coffee shop, supermarket, or dinner party revolved around the wonderful opportunities in technology stocks, wise investors knew it was time to get out.

Of course, this is not some sort of market magic or voodoo. It is simple cause and effect. When there are few sellers in a market and many buyers, the price is going to be inflated far beyond its value. From an opposite standpoint, when short sellers are forced out of the market in a “short squeeze,” there is now nothing to stop the price from falling precipitously once it starts to fall. With no short sellers covering their shorts, the price falls like a stone. Thus, at the end of long bull market, a bubble usually develops, characterized by a final, parabolic “blow off top,” followed by an equally dramatic drop in price.

The past 100 years has been a bull market for government. While the seeds of the run were sown in the mid-19th century, the bull market in government really began at the turn of the 20th century. The first signs of the bull could be spotted as early as the (Teddy) Roosevelt administration, but the real advances came under Woodrow Wilson. The income tax, the Federal Reserve, and the 17th Amendment were advances in government that made gold’s move from $275 to $700 look tame.

There was then a period of consolidation during the so-called Roaring Twenties. It was not so much a pull-back of government as a slow-down in the pace of its growth. Under three Republican presidents, the government bull market consolidated as Americans convinced themselves that they had restored a free market (because the Republicans said they did, despite their actual support of big government fundamentals).

The next big move came during the Great Depression. While the stock market and the real economy went south, government went on another tear as FDR fully instituted the modern welfare state, the fascist regulatory structure, and took America to war. After 16 years of absolute misery, even the most enthusiastic government bull must have thought it was time for a pullback. It was brief, but it came.

Americans again elected a Republican president in the 1950’s and convinced themselves that they had restored the American system and rejected the big government philosophy of FDR and his liberals. However, this, too, was only another consolidation. In actuality, it was Eisenhower that paved the way for LBJ’s Great Society by creating the Department of Health, Education, and Welfare (now the Department of Health and Human Services). The 1950’s are fondly remembered as a period of (mostly) peace and prosperity for America. It was only another consolidation period for government’s century-long bull run.

The next great move came during the 1960’s, when LBJ again lead a tremendous run up for government. Medicare and Medicaid, the other two entitlement monsters that will eventually combine with Social Security to bankrupt the United States, were born during this fabulous period for big government. The move ran right through a two-term Republican presidency (counting Ford’s mop-up after Nixon’s resignation) and into the Carter administration.

Most bull markets have two legs. Some have three, but usually no more than that. It seemed like that axiom would hold true for government as Ronald Reagan gave his first inaugural address. “In this crisis,” he told us, “government is not the solution to our problems – government is the problem.” It was the greatest inaugural speech of the 20th century. The government bull market was over. Or so we thought.

We now know that government didn’t get smaller during the Reagan years, but much bigger. However, there was at least a feeling of negativity about government during the Reagan-Bush years that even forced Bill Clinton to pass himself off as a free-market friendly centrist. It was another consolidation period, with a seemingly impossible fourth leg to follow.

We are in the midst of that fourth leg now, as government makes a more precipitous run up than at any time in history. In a few short years, the government will have nationalized the banking, auto, and health care industries. There are no more government bears to be found anywhere, either among Republican or Democratic politicians or (let’s face it) among 99% of the citizenry. Outside of a tiny constituency of libertarians, paleo-conservatives, and anarchists, there are absolutely no non-believers in government left. The rise is accelerating too fast for any protest or community organizing to stop. It’s a short squeeze as the government bull stampedes.

While this might be a terrifying period for anyone remotely interested in living his own life, there is much reason to be hopeful. As most bull markets eventually do, government is experiencing a blow-off top. The curve has bent straight up, with nary a short to be found in any political party or in any bowling alley or church social. Americans have convinced themselves that government either “should” or “must” do something about absolutely everything. We should expect the run to pick up speed, as government invades every aspect of our lives. Never before – not even in the most barbarous ages – has government made such enormous claims upon the life, liberty, or property of its subjects. Medieval serfs were taxed less. Ancient slaves were freer. Not even the brutal Romans killed with such efficiency and on such a scale.

For all of these reasons, it is about to end. With almost uncontested faith in government, its role has expanded so far beyond what it is actually able to deliver that soon we will see a fall that will make the real estate meltdown look like a mild pullback. Having rode the last leg of the move and squeezed out the last of the shorts, government is about to remind everyone that it not only should not be providing what it is attempting to provide, but that it cannot provide it.

At the moment that the whole world has accepted that government will centrally plan all of the economy, take care of its citizens from cradle to grave, and rule a worldwide military empire –all with money that comes from nowhere - at that very moment the age of government will end. The end is going to come fast, too, just like the end of the bull markets in technology stocks and real estate. Ben Bernanke will still be telling government bulls that there is nothing to worry about long past the moment when his time is up. That’s how fast it’s going to be.  As in any market, the moment when every bear is gone is the moment that the bull run is over.

This will not be a pleasant experience. No correction ever is. Fortunes will be lost (albeit mostly fortunes dishonestly made), but innocent people will be hurt, too. All of society will come to the realization that government really can’t provide anything, beyond the brute force that is only justified in self defense. It may take a generation to repair the damage. It’s going to be rough.

However, we should remember one thing. When a bubble deflates, the capital that is not destroyed seeks another refuge. When the NASDAQ melted down and the U.S. dollar began to implode, the smart money fled to gold. It will be no different during the bursting of the government bubble. With a precipitous fall in government, there is an equally dramatic rise in its opposite – liberty.

Americans will have to forego the ill-gotten gains provided by government and do with less while they rebuild. That is unavoidable. While the NASDAQ bubble actually started on a real foundation, the fundamentals of the government bubble were never real. It was all an illusion and it is five minutes from ending.

It’s going to be great.

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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© Thomas Mullen 2010