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“I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents...” --James Madison

“Any alleged ‘right’ of one man, which necessitates the violation of the rights of another, is not and cannot be a right.” — Ayn Rand

“Dependence begets subservience and venality, suffocates the germ of virtue, and prepares fit tools for the designs of ambition.” --Thomas Jefferson, Notes on Virginia, Query 19, “Manufactures” [1781]

“The whole aim of practical politics is to keep the populace alarmed, and hence clamorous to be led to safety, by menacing it with an endless series of hobgoblins, all of them imaginary.” – H.L. Mencken

“The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning, but without understanding.” — Judge Louis D. Brandeis

8/29/2010: NewsReal Blog: Your Tax Dollars Not At Work — 5 Ways the Stimulus Has Cost Jobs by Sally Meininger

Layoffs are everywhere, in every state, in every industry. From NASA to the Department of Defense, to the Gulf moratorium on drilling, Obama himself is personally responsible for tens of thousands of jobs lost. Going the tried and true method of allowing the marketplace to correct the economy wouldn’t give the savior Obama the limelight he craves. Enter the stimulus bill…and its country cousins. Like any government intrusion, the failure is spectacular when it comes to it effect on the American family.

Oops! (AKA Unintended Consequences)

This is the very least offensive part of the stimulus debacle and yet it has had a profoundly negative affect on American families.

Remember the Cash For Clunker mess? The government required the cars turned in to be disabled. So perfectly serviceable cars were filled with silicate to kill the engines. Which in turn has hurt the used car and parts industry.

A strip mall in Normandy Park, WA has lost jobs because of a stimulus streetscaping project. $3.8 million is being spent, but in the meantime, the businesses have either cut staff or closed down altogether because no one can get to their stores. At least the sidewalks will look pretty in front of the boarded up businesses.

Regulations and Red Tape

The City of San Antonio was awarded $7.3 million for construction of fire stations but the projects have been drowning in red tape, with no idea of when they’ll be built. Before the government ‘helped’, the stations had their own funding and had hired a private contractor. Since the stimulus—with its complicated and expensive federal regulations, including environmental and historical considerations—have put the project on hold while jacking up the cost by over $2 million dollars.

It’s the same story for the weatherization program. Over half a million homes were supposed to be weatherized with stimulus funds. But the same issues of regulations and red tape have made it so only about nine thousand homes have been helped. Looks like all those warm fuzzies Obama was hoping to buy will instead feel like a chill wind this winter.

Bad To the Bone Planning

Who else is sick of the term ‘shovel ready’? Just about the only shoveling that’s been done is installing all those Recovery.gov signs (which are an illegal form of propaganda). The fact is, only 3.3% of the $8 billion dollars slated for shovel ready jobs has gone for highway and bridge projects.

In Nevada, stimulus dollars helped fund a Prison Biomass plant only until they figured out it was too expensive to operate. Despite that, the plant is still receiving stimulus dollars…as it loses money every day.

Then there’s the half million dollars spent for windows on a forestry exhibit in Washington State that was already closed down. I can see clearly now, the common sense is gone.

Outright Fraud

Any time the government doles out money, there’s fraud. The stimulus money is apparently a gift that keeps on giving to the private sector — provided employers lay off their employees. Instead of ‘stimulating’ employers to hire, they can kill two birds with one stone by reducing their workforce (biggest cost in any business) and receive stimulus funds because they ‘had’ to lay off employees. In this economy, they’ll hold onto the money instead of reinvesting it.

In one county, responsible for overseeing $4.7 million, a ‘revolving door scheme’ was implemented, backfilling vacancies by employers who fired employees, knowing they’d be rehired with stimulus funds.

And then there’s all the companies receiving stimulus funds who are already crooked. It’s estimated that half of the companies on the receiving end of the stimulus money have a history of breaking the law or were convicted of defrauding the government. You stay classy, crooked contractors!

A Path to Unionization?

Since the stimulus failed in every way except to allow the crooks to get rich, even more people are unemployed. Could this be by design? Disenfranchised workers are being called to organize in order to ‘support’ each other. It seems more likely a way to put a union infrastructure in place so when the idea of a formal union comes about (and it will), everything is already set up. This is also a convenient way to mobilize votes for the upcoming elections. And if that works out, we’ll get to experience Obama’s next push: Card Check.

Taxpayer Money Is A Terrible Thing To Waste

It’s easy to joke about the absurdity of stimulus funds gone awry, but every dollar was earned by the sweat of someone else’s brow. When you hear of a Kentucky furnace — unused for almost 140 years — getting close to a million dollars cumulative for restoration, you might go huh? All there is to show for the money is a roof and corner stabilization, and admittedly, most of the money was ‘lost’ due to ‘bad stewardship’.

But that’s nothing compared to the quarter million dollar study of the effect of cocaine on monkeys and the sex drive of Japanese quail. Then there’s a million dollar program encouraging people to quit smoking by giving them a free Smart phone, and the six million to restore global Islamist sites.

Aren’t you glad you get up every day to support Obama’s latest boondoggle?

Excerpted from NewsReal Blog

8/26/2010: The New American Corporate State by Warren Meyer

A troika of big government, big business and big labor is attempting to run the country to its own advantage.

Opponents of President Barack Obama and the Nancy Pelosi Congress will often accuse them of being "socialist." I find that this term is unhelpful, as many folks use direct government takeover of industrial enterprises as the litmus test for socialism, and thus will reject this hypothesis about the president. It is more useful to think of this administration as pursuing a European-style corporate state, a form of political economy that allows the state to exert strong control in the economy while maintaining a nominal façade of private ownership.

While the intellectual origins of the corporate state go back much further, the first serious attempt to implement such a system was in 1920s Italy by Benito Mussolini. Under that system, state-sponsored industry cartels programmed every aspect of economic life, from wages and working conditions to prices, production levels and product specifications. Nearly every commercial action required a government license, which would be denied to those who showed insufficient loyalty to the state and its goals.

In the United States President Franklin Delano Roosevelt was almost certainly an admirer of Mussolini's economic system, as he copied many of its salient features into the code authorities and commercial licensing requirements of the National Industrial Recovery Act (which eventually was struck down by the Supreme Court). Prices, wages, production quotas and, in effect, nearly every detail of business practices in an industry were to be set by small groups of government, labor and industry leaders. The president was given the power to unilaterally revoke the right to do business, without any further due process, of any enterprise in America if it refused to conform to this reincarnation of the Medieval guild system.

In their current form, European corporate states tend to be more informal than their predecessors, drawing on mutually supporting networks of labor, industry and government leaders without the explicit structure of Mussolini's cartels or Roosevelt's code authorities. These networks are driven by an implicit deal by each of the three groups to protect their mutual interests and to recognize specific obligations.

In this three-way arrangement, unionized workers in key industries get high wages, guaranteed employment, rich pension systems and government protection from competition from younger and foreign workers. In return, they promise labor peace (barring the occasional strike to demonstrate their power) and tremendous election-day muscle.

Favored businesses (and by these we are talking about the top 20 to 30 largest banks and corporations in a particular country) get protection from competition, both upstart domestic entrepreneurs as well as any foreign rivals. In return, they provide monetary and political support for politicians' pet projects--from recycling to windmills--with the understanding that politicians will give them legislative back doors to recover the costs of these programs from customers or taxpayers.

In return for granting this largess to selected corporations and unions, government officials get to remain in power. Typically this arrangement appeals to parties on both the left and the right, such that the nominal ruling party may change but the core group in power remain the same.

The losers in all of this are ... everyone else. In effect this corporate system is just another age-old, historically time-worn effort to cement the power of a small group of elites. Entrepreneurship and innovation are often impossible, as incumbent businesses can call on tremendous state powers to stifle competitive threats. The unemployment rates of the young and unskilled can be astronomical, even in rich nations like Germany and France, as older unionized workers have worked to calcify labor markets to their own advantage. In the end, consumers and taxpayers pay for the whole system in the form of reduced growth and economic output, higher prices, higher taxes and less mobility for those not already in power.

Does any of this sound familiar? Consider a few random observations from the past year:

--Powerful banks with executives who have served in multiple senior government jobs get bailed out. Others do not.

--Obama and Congress pass the health care bill by demagoguing against insurance and pharmaceutical companies, while simultaneously cutting sweetheart deals with these same companies. The pharmaceutical industry ends up as a major contributor to Harry Reid's re-election, and the insurance industry ends up with a law forcing every American to buy their product or go to jail.

--In return for publicly supporting the administration's green agenda, General Electric ( GE - news - people ) is rewarded with a series of proposed rules tilting regulations to favor key technologies it controls or has a strong position in.

--The administration throws out hundreds of years of contract law and takes a large portion of General Motors from secured creditors and hands it to the United Auto Workers union. Nearly simultaneously, Congress and the administration bring their full power to bear trying to damage the reputation of Toyota ( TM - news - people ), GM's largest foreign competitor.

--While their only hope of financial recovery lies with their strong position in trucks and SUVs, GM proves its loyalty to the administration by backing misguided (and unreachable) fuel economy standards and going all-in on the money-losing Volt electric vehicle program.

--In nearly every city and state in the country, licensing boards proliferate. Though the justification is typically consumer protection, these boards tend to be dominated by current industry incumbents who use the boards to stifle competition. In Louisiana, for example, a group of monks is fighting back against state requirements that they must obtain a funeral home director's license to sell caskets, a license that must be obtained from a board where nine of the 10 sitting members are from the state's largest funeral homes.

Like Europe, the ultimate price for the growing corporate state will be paid by the American consumer (in the form of higher prices, reduced choice, and foregone innovation), and the American taxpayer, who is already facing an enormous bill from the direct subsidy of favored constituents. This corporate-government-labor coalition is ready to come together in the U.S. right now, and only the political energy of the rest of the American citizenry continues to resist it.

Warren Meyer is a small-business owner in Phoenix and the author behind the popular Coyote Blog: Dispatches from Small Business.

8/27/2010: "Moral Hazard" in Politics by Thomas Sowell

One of the things that makes it tough to figure out how much has to be charged for insurance is that people behave differently when they are insured from the way they behave when they are not insured.

In other words, if one person out of 10,000 has his car set on fire, and it costs an average of $10,000 to restore the car to its previous condition, then it might seem as if charging one dollar to all 10,000 people would be enough to cover the cost of paying $10,000 to the one person whose car that will need to be repaired. But the joker in this deal is that people whose cars are insured may not be as cautious as other people are about what kinds of neighborhoods they park their car in.

The same principle applies to government policies. When taxpayer-subsidized government insurance policies protect people against flood damage, more people are willing to live in places where there are greater dangers of flooding. Often these are luxury beach front homes with great views of the ocean. So what if they suffer flood damage once every decade or so, if Uncle Sam is picking up the tab for restoring everything?

Television reporter John Stossel has told how he got government insurance "dirt cheap" to insure a home only a hundred feet from the ocean. Eventually, the ocean moved in and did a lot of damage, but the taxpayer-subsidized insurance covered the costs of fixing it. Four years later, the ocean came in again, and this time it took out the whole house. But the taxpayer-subsidized government insurance paid to replace the whole house.

This was not a unique experience. More than 25,000 properties have received government flood insurance payments more than four times. Over a period of 28 years, more than 4,000 properties received government insurance payments exceeding the total value of the property. If you are located in a dangerous place, repeated damage can easily add up to more than the property is worth, especially if the property is damaged and then later wiped out completely, as John Stossel's ocean-front home was.

Although "moral hazard" is an insurance term, it applies to other government policies besides insurance. International studies show that people in countries with more generous and long-lasting unemployment compensation spend less time looking for jobs. In the United States, where unemployment compensation is less generous than in Western Europe, unemployed Americans spend more hours looking for work than do unemployed Europeans in countries with more generous unemployment compensation.

People change their behavior in other ways when the government pays with the taxpayers' money. After welfare became more readily available in the 1960s, unwed motherhood skyrocketed. The country is still paying the price for that-- of which the money is the least of it. Children raised by single mothers on welfare have far higher rates of crime, welfare and other social pathology.

San Francisco has been one of the most generous cities in the country when it comes to subsidizing the homeless. Should we be surprised that homelessness is a big problem in San Francisco?

Most people are not born homeless. They usually become homeless because of their own behavior, and the friends and family they alienate to the point that those who know them will not help them. People with mental problems may not be able to help their behavior, but the rest of them can.

We hear a lot of talk about "safety nets" from big-government liberals, who act as if there is a certain pre-destined amount of harm that people will suffer, so that it is just a question of the government helping those who are harmed. But we hear very little about "moral hazard" from big-government liberals. We all need safety nets. That is why we "save for a rainy day," instead of living it up to the limit of our income and beyond.

We also hear a lot of talk about "the uninsured," for whose benefit we are to drastically change the whole medical-care system. But income data show that many of those uninsured people have incomes from which they could easily afford insurance. But they can live it up instead, because the government has mandated that hospital emergency rooms treat everyone.

All of this is a large hazard to taxpayers. And it is not very moral.

8/25/2010: Where Are the New Jobs? by John Stossel

“Corporate profits are soaring. Companies are sitting on billions of dollars of cash. And still, they’ve yet to amp up hiring or make major investments.”

So writes The Washington Post about the recession’s stubborn refusal to go away. The statisticians at the National Bureau of Economic Research declared the Great Recession over -- but tell that to people who can’t find jobs. Today, businesses replace equipment and inventory, but they are reluctant to hire new workers. Investment that does occur aims at replacing the use of labor by adopting advanced technology. In a growing economy, that’s a sign of progress. Freed-up workers are then available for new projects. But lately, those new projects aren’t being launched.

The two wings of the establishment offer their usual remedies. Government-oriented types want more tax-financed “stimulus” spending, claiming last year’s nearly trillion-dollar dose wasn’t enough. That’s dubious. As economist Mark Skousen writes, “(P)roduction and investment lead the economy into and out of a recession; retail demand is the most stable component of economic activity.”

Business-oriented types want tax cuts. I’m sympathetic, but cuts should be accompanied by spending cuts, or the deficit will grow even uglier. There’s no free lunch. Deficit spending must be covered by government borrowing, which takes capital that could be used for investment out of the private sector.

Why isn’t the economy recovering? After previous recessions, unemployment didn’t get stuck at close to 10 percent. If left alone, the economy can and does heal itself, as the mistakes of the previous inflationary boom are corrected.

The problem today is that the economy is not being left alone. Instead, it is haunted by uncertainty on a hundred fronts. When rules are unintelligible and unpredictable, when new workers are potential threats because of Labor Department regulations, businesses have little confidence to hire. President Obama’s vaunted legislative record not only left entrepreneurs with the burden of bigger government, it also makes it impossible for them to accurately estimate the new burden.

In at least three big areas -- health insurance, financial regulation and taxes -- no one can know what will happen.

New intrusive rules for health insurance are yet to be written, and those rules will affect hiring, since most health insurance is provided by employers.

Thanks to the new 2,300 page Dodd-Frank finance regulatory act, The Wall Street Journal reports, there will be “no fewer than 243 new formal rule-makings by 11 different federal agencies.” These as-yet unknown rules will govern lending to business and other key financial activity.

The George W. Bush tax cuts might be allowed to expire. But maybe not. Social Security and Medicare are dangerously shaky. Will Congress raise the payroll tax? A “distinguished” deficit commission is meeting. What will it do? Recommend a value-added tax?

Who knows? But few employers will commit to a big investment with those clouds hanging over our heads.

“As much as I might want to hire new salespeople, engineers and marketing staff in an effort to grow, I would be increasing my company’s vulnerability to government,” Michael Fleischer, president of Bogen Communications Inc., wrote in The Wall Street Journal.

Nothing more effectively freezes business in place than what economist and historian Robert Higgs calls “regime uncertainty.”

“(A)ll of these unsettling possibilities and others of substantial significance must give pause to anyone considering a long-term investment, because any one of them has the potential to turn what seems to be a profitable investment into a big loser. In short, investors now face regime uncertainty to an extent that few have experienced in this country -- to find anything comparable, one must go back to the 1930s and 1940s, when the menacing clouds of the New Deal and World War II darkened the economic horizon.”

Uncertainty created by Obama’s legislative “successes” are comparable to the Depression and World War II? This does not bode well for job growth.

Higgs says: “Unless the government acts soon to resolve the looming uncertainties about the half-dozen greatest threats of policy harm to business, investors will remain for the most part on the sideline ... consuming wealth that might otherwise have been invested.”

8/25/2010: Who Cares About Our Future? by Walter E. Williams

My column titled “What Handouts to Cut?” created a number of angry responses, and for the first time in my life, I had some, not much, sympathy for political cowardice. Most letters were from senior citizens angered by my suggestion that they were receiving handouts and those handouts be cut.

Federal tax receipts for 2009 totaled $2.1 trillion. The largest items in the federal budget were Social Security ($710 billion), national defense ($689 billion), Medicare ($456 billion) and Medicaid ($327 billion). The primary recipients of federal spending are seniors. Some of the letters argued that it’s unfair to characterize what seniors are getting as handouts because they worked all their lives and paid into Social Security and Medicare.

Jagadeesh Gokhale, senior economic adviser, Federal Reserve Bank of Cleveland; and Laurence J. Kotlikoff, professor of Economics at Boston University document the looming Social Security and Medicare crises in “Is War Between Generations Inevitable?”. They report that “A male reaching 65 years of age today (in 2000, the year of their study) can expect to receive $71,000 more in government ‘transfer’ benefits (of all kinds at both the federal and state levels, but mainly from Social Security and Medicare) than he will pay in taxes (of all kinds at both the federal and state levels) before he dies. A 65-year-old female can expect a net gain of more than twice that amount; she can expect $163,000 more in benefits than she will pay in taxes.”

The picture is not so rosy for people who entered the labor force in 2000. They will pay far more in taxes than they will receive from transfer programs. Expansion of elderly handouts, such as prescription drugs, will make things worse. “For example: A 20-year-old female can expect to pay $92,000 more in taxes than she will receive in transfer benefits over her lifetime. The future looks more than three times as bleak for her male cohort, who can expect to pay $312,000 more in taxes than he will ever receive in benefits.”

Why is Social Security a better deal for today’s seniors? Just look at what they paid in. From 1937 to 1949, the maximum annual Social Security tax was $60. It remained under $200 until 1956. After 1956, Old Age, Survivors and Disability Insurance was added and in 1966, Medicare was added. It wasn’t until 1969 that maximum Social Security taxes exceeded $2,000. Today, the maximum annual Social Security tax is $13,000 and the maximum annual benefit is $25,000.

As with any Ponzi scheme, the people who get on board early make out. This is pointed out by Geoffrey Kollmann and Dawn Nuschler of the Congressional Research Service in their report “Social Security Reform” (October 2002) They say, “Until recent years, Social Security recipients received more, often far more, than the value of the Social Security taxes they paid. ... For example, for workers who earned average wages and retired in 1980 at age 65, it took 2.8 years to recover the value of the retirement portion of the combined employee and employer shares of their Social Security taxes plus interest. For their counterparts who retired at age 65 in 2002, it will take 16.9 years. For those retiring in 2020, it will take 20.9 years.” My question is: How can anyone who draws out every penny he’s put into Social Security in a few years say that he’s not living at the expense of another?

In my opinion, it takes a special form of callousness and disregard for the welfare of future generations of Americans for today’s senior citizens to fight against reform. Nobody’s talking about abolition of federal senior programs. We must accept that serious mistakes were made and we must take compassionate corrective action. But what the heck! As I said in my “What Handouts to Cut?” column, “Both today’s politicians and seniors will be dead so why should they make sacrifices now to prevent an economic calamity decades off into the future?”

8/24/2010: Medical Care Facts and Fables by Thomas Sowell

There is so much political spin, and so many numbers games being played, when it comes to medical care, that we have to go back to square one and the simplest common sense, in order to get some rational idea of what government-run medical care means. In particular, we need to examine the claim that the government can “bring down the cost of medical care.”

The most basic fact is that it is cheaper to remain sick than to get medical treatment. What is cheapest of all is to die instead of getting life-saving medications and treatment, which can be very expensive.

Despite these facts, most of us tend to take a somewhat more parochial view of the situation when it is we ourselves who are sick or who face a potentially fatal illness. But what if that decision is taken out of your hands under ObamaCare and is being made for you by a bureaucrat in Washington?

We won’t know what that leads to until the time comes. As Nancy Pelosi said, we will find out what is in the bill after it has passed. But even now, after ObamaCare has been passed, not many people want to read its 2,400 pages. Even if you did, you would still not know what it would be like in practice, after more than 150 boards and commissions issue their specific regulations.

Fortunately-- in fact, very fortunately-- you don’t have to slog through 2,400 pages of legalistic jargon or turn to a fortune teller to divine the future. A new book, “The Truth About ObamaCare” by Sally Pipes of the Pacific Research Institute lays out the facts in the plainest English.

While she can’t tell you the future, she can tell you enough about government-run medical systems in other countries that it will not take a rocket scientist to figure out what is in store for us if ObamaCare doesn’t get repealed before it takes full effect in 2014. It is not a pretty picture.

We hear a lot about how wonderful it is that the Canadians or the British or the Swedes get free medical treatment because the government runs the system. But we don’t hear much about the quality of that medical care.

We don’t hear about more than 4,000 expectant mothers who gave birth inside a hospital, but not in the maternity ward, in Britain in just one year. They had their babies in hallways, bathrooms and even elevators.

British newspapers have for years carried stories about the neglect of patients under the National Health Service, of which this is just one. When nurses don’t get around to taking a pregnant woman to the maternity ward in time, the baby doesn’t wait.

But the American media don’t tell you about such things when they are gushing over the wonders of “universal health care” that will “bring down the cost of medical care.”

Instead, the media spin is that various countries with government-run medical systems have life expectancies that are as long as ours, or longer. That is very clever as media spin, if you don’t bother to stop and think about it.

Author Sally Pipes did bother to stop and think about it in her book, “The Truth About ObamaCare.” She points out that medical care is just one of the factors in life expectancy.

She cites a study by Professors Ohsfeldt and Schneider at the University of Iowa, which shows that, if you leave out people who are victims of homicide or who die in automobile accidents, Americans live longer than people in any other Western country.

Doctors do not prevent homicides or car crashes. In the things that doctors can affect, such as the survival rates of cancer patients, the United States leads the world.

Americans get the latest pharmaceutical drugs, sometimes years before those drugs are available to people in Britain or in other countries where the government runs the medical system. Why? Because the latest drugs cost more and it is cheaper to let people die.

The media have often said that we have higher infant mortality rates than other countries with government medical care systems. But we count every baby that dies and other countries do not. If the media don’t tell you that, so much the better for ObamaCare.

But is life and death something to play spin games about?

8/21/2010: Check out the latest in Richard Rider’s California Breaking Bad

8/21/2010: from the September 2010 issue of Liberty Magazine

Dave Orlowski can swim 2.4 miles. He can bike 112 miles. He can run 26.2 miles. In fact, the 54-year-old athlete can do all of these one right after the other — several times a year. He completed six Ironman triathlons last year, has done three so far this year and hopes to compete in yet another one, in Austria on July 4. But this is something the guy won’t do: he won’t work for the Milwaukee Police Department.

That’s because the former homicide detective has been declared “permanently and totally incapacitated for duty.” As an injured ex-cop, Orlowski has been paid nearly $500,000 in tax-free pension checks by the city since 1999. He is currently receiving $53,063 a year from the city Employees’ Retirement System, plus full health benefits.

8/19/2010: Obama and the Socialist Bourgeoisie

“I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I travelled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.” —Benjamin Franklin

If there is one generalization that can be accurately asserted about Barack Hussein Obama and generations of Marxists before him, it is that they are and always have been, universally, hypocrites. They preach classist sermons to the masses, the foundational fodder upon which their failed socialist regimes are constructed, all while living lavish lifestyles characterized by elitism and overly conspicuous consumption.

This generalization holds not just for Western socialists, but also for their Soviet-era mentors, of which I am a first-hand witness.

In 1987, I stepped off an Aeroflot Tu-124 at Moscow’s Sheremetyevo Airport, grateful that the “aircraft” had made it all the way to our destination. My moment of gratitude was abruptly interrupted at the bottom of the aircraft steps by two pallid gents in off-the-rack suits who were accompanied by two humorless uniformed Militsiya regulars.

Apparently, my reputation had preceded me.

The suited fellows, representatives of the Soviet Committee for State Security, offered not so much as a simple “welcome.” Rather, they insisted that I turn over my credentials and possessions, and accompany them for an “interview.” We left the airport and drove to an aging gray building in central Moscow directly across from the Kremlin.

Once inside the building, my hosts informed me that I was a “guest” of the state, and would remain so until such time they determined I could leave. I was taken to a third-floor room, rather sparse in its furnishings, where I remained for three days. Though the accommodations were not up to Bedouin tent standards, the room did have a window with a splendid view of two entrances into the Kremlin.

Through that window by night shined the ominous Red Star atop Spasskaya Tower. By day, I could observe all the movement into and out of the Kremlin.

There was a sea of ubiquitous Soviet state-made autos making their way through the plaza in front of the Kremlin -- Volgas, Ladas and Moskvichs, most of which were as old as (and in no better operating condition) than the Tu-124 on which I had arrived. What I recall most was how that sea of decrepit autos parted with regularity to allow unhindered passage of shiny ZIL-117 curtained limousines carting members of the Soviet Politicheskoye Byuro on their way to elegant meals in stylish places that no common Soviet citizen could enter.

Surely the great vision of human liberation from capitalism envisioned by Karl Marx and Friedrich Engels did not include limousine liberals?

Shortly after the Demo’s 2008 “October Surprise,” that politically fortuitous collapse of the U.S. securities markets that Obama rode into office, I recall one of his earliest condemnations of corporate execs “flying around the nation on private jets” while their companies were sinking into bankruptcy.

At the time, Obama had just stepped off the most expensive luxury jet in the world, Air Force One, which costs far more to operate and maintain for every minute of flight than the largest of corporate jets cost for hours, or even days, of flight. Just like his socialist mentors, Obama acknowledged not even a hint of the hypocrisy.

Since then, he has logged many, many more hours on Air Force One, in transit to more luxurious vacation destinations and elite political confabs than any nouveau riche lucky lottery winner has in first class seats to Vegas -- and all while our nation is sinking into bankruptcy.

Obama is just the latest of the Socialist Bourgeoisie political aristocracy to occupy the White House, the first being Franklin Delano Roosevelt, who did more to undermine liberty and free enterprise than any president -- until Obama. (I suspect Rahm Emanuel plagiarized Obama’s rule number one, “Never allow a crisis to go to waste,” from FDR.)

According to Marxist doctrine, manifest in Obama’s classist rhetoric, the bourgeoisie are defined as the dominant ruling-class who control the means of production in a capitalist economy and abuse the proletariat to produce their wealth.

However, what Marx didn’t have was the benefit of observing a mature free enterprise system in operation under a constitutional democratic republic from which strong and healthy middle class economies arise. So strong is the middle class in the U.S. and other industrialized nations, that modern Socialists now use the term “bourgeoisie” to pejoratively depict middle class consumerism.

What Marx unwittingly defined is the nature of Socialist government barons like Obama and his czars, where the dominant ruling class are those in political power who regulate the means of economic production through regulation and taxation in order to reduce the ranks of the middle class and thereby increase the proletariat masses, those to whom the ruling political class can discriminately transfer wealth in return for re-election ... until the wealth runs out.

Unfortunately for the proletariat, this transfer of wealth is not sustainable, and the only equality achieved is impoverishment of everyone except the Socialist Bourgeoisie -- trickle-up poverty.

That was precisely the result of socialism in the USSR and every other nation where politburos have centralized control over the economy leading to bankrupted nations, all the while, living themselves like the tyrant kings and potentates they ostensibly decry.

And so it is with the Obamas who, along with their Kobe beef-eating entourage, are preparing for their eighth vacation this year -- this one to exclusive Martha’s Vineyard for the next 10 days. Maybe this time the family dog Bo will be able to travel on the same plane as his masters and not have to settle for a separate taxpayer-provided Gulfstream 3, as was the case when the Obama’s vacationed in fashionable Bar Harbor, Maine, in July.

As free enterprise bends to the point of breaking under the weight of ever more oppressive taxation and regulation, and statism proceeds to bankrupt the nation, Obama and his Socialist Bourgeoisie are hobnobbing around with the rich and famous. According to his deputy press secretary, “There will be hiking, time at the beach, time at the ice cream store -- all the sort of things you do when you’re at Martha’s Vineyard. You enjoy the people and the good food.” And of course, there will be golf at Mink Meadows in Vineyard Haven.

As millions of parents struggle to provide the most basic needs for their children, Barack is eating cake.

While I don’t know what October Surprise the Demos have up their collective sleeve for this fall’s election cycle, I am gravely concerned that, given Obama’s arrogant vacation schedule, it will be more devastating than the mischief they arranged in 2008. However, I remain altogether confident that American Patriots, like our forebears, will defend our Essential Liberty and persevere through whatever trials and foibles arise.

Semper Vigilo, Fortis, Paratus et Fidelis!

Mark Alexander

Publisher, The Patriot Post

8/18/2010: Will Republicans Save Us? by Walter E. Williams

Democrat control of the White House, House of Representatives and the Senate has produced an unprecedented level of political brazenness and contempt for the limitations placed on the federal government by the U.S. Constitution. As such, it has raised a level of constitutional interest and anger against Washington’s interference in our lives that has been dormant for far too long.

Part of this heightened interest and anger is seen in the strength of the tea party movement around the nation. Another is the angry reception that many congressmen receive when they return to their districts and at town hall meetings. According to the most recent Gallup poll, only 20 percent of Americans approve of the job Congress is doing, but that’s up from a March 2010 low of 16 percent.

The smart money suggests that there will be a Republican takeover of the House of Representatives and possibly the Senate. The question is what can liberty-minded Americans expect from a Republican majority? Maybe a good starting point for an answer might be to examine how Republicans have handled their majority in the past.

Democrat President Lyndon Johnson’s term of office saw massive increases in federal spending. When Johnson was elected into office in 1964, federal spending was $118 billion. When he left office in 1968, federal spending was $178 billion, a 66 percent increase. Worse than the massive increase in federal spending, his administration and Democratically controlled Congress saddled us with two programs that have helped fuel today’s fiscal disaster -- Medicare and Medicaid.

The 1994 elections gave Republican control of both the House and Senate. They held a majority for a decade. The 2000 election of George W. Bush as president gave Republicans what the Democrats have now, total control of the legislative and executive branches of government. When Bush came to office, federal spending was $1.788 trillion. When he left office, federal spending was $2.982 trillion. That’s a 60 percent increase in federal spending, closely matching the profligacy of Lyndon Johnson’s presidency.

During the Republican control, the nation was saddled with massive federal interference in education through No Child Left Behind. Prescription drug handouts became a part of the Republican-controlled Congress’ legacy. And it was during this interval that Congress accelerated its interference, assisted by the Federal Reserve Bank, in the housing market in the name of homeownership that produced much of the financial meltdown that the nation suffered in 2008.

During the last two years, Democrats have amassed unprecedented growth of federal government power in the forms of bailouts, corporate takeovers, favors to their political allies and nationalization of our health care system. My question is how likely is it for Republicans to behave differently if they gain control? Their past behavior doesn’t make one confident that they will behave much differently, but I could be wrong.

If Republicans win the House of Representatives, there are measures they should take in their first month of office, and that is to undo most of what the Democratically controlled Congress has done. If they don’t win a veto-proof Senate, they can’t undo Obamacare but the House alone can refuse to fund any part of it. There are numerous blocking tactics that a Republican-controlled House can take against those hell-bent on trampling on our Constitution. The question is whether they will have guts and principle to do it. After all, many Americans, including those who are Republicans, have a stake in big government control, special privileges and handouts.

Ultimately, we Americans must act to ensure that our liberty does not depend on personalities in Washington. Our founders tried to do that with our Constitution. Thomas Jefferson offered us a solution when he said, “The spirit of resistance to government is so valuable on certain occasions, that I wish it to be always kept alive. It will often be exercised when wrong, but better so than not to be exercised at all. I like a little rebellion now and then.”

“There is no warrant in logic or morals for trying to place the authority of religion behind measures of social and economic collectivism. Indeed, there is a much stronger case for arguing that the sense of individual responsibility — which is a key indispensable factor in making it possible for the individual to distinguish between right and wrong — is best assured under a system in which the human being is mainly committed to his own care and required to make his own decisions.”
—William Henry Chamberlin

8/18/2010: How Dr. Keynes Will Kill The Patient by Michael Pento

The morbidly obese patient needs to eat less and shed excess debt. But the Washington Keynesians keep prescribing plates of public spending pasta.

A morbidly obese gentleman labored into Dr. Hayek’s office suffering from severe chest pain. The patient also complained that he was unable to consume his usual 10,000-calorie-per-day diet and was feeling so sick that his appetite actually cut his consumption down to just 9,000 calories. He continued to explain that his love for food was strong and that his standard of living had been reduced because of his reduced intake of pasta and meatballs.

After having a thorough look at the patient, the good doctor could not find anything wrong outside of the patient’s extreme portliness. So he subsequently rendered him the troubling diagnosis. The doctor explained that the patient’s heart pain stemmed from the strain being placed on it by his 500-pound body. Dr. Hayek’s prescription was both obvious and simple. The patient was told to dramatically alter his diet and placed on a moderate exercise program, with the goal of having him lose 250 pounds as quickly and safely as possible. Dr. Hayek was aware that it would be a painful and difficult process, but it was the only way to get the patient’s body weight down to a viable and sustainable level.

But our patient rebelled against such an onerous austerity program. After all, that was exactly what he did not want to hear. Our sedentary patient had grown very fond of his high-calorie and high-fat diet and didn’t think now was a good time to change his lifestyle. In his opinion, the doctor’s prescription was just too simplistic. He thought there just had to be a more acceptable way to feel better without having to exercise and reduce his caloric intake. So he waddled out of Dr. Hayek’s office as fast as he could while yelling, “I’m going to get a second opinion.”

So the morbidly obese gentleman then stumbled into Dr. Keynes office complaining about the same acute chest pain. After a cursory examination, the quack doctor rendered his diagnosis. Dr. Keynes did not agree that the patient’s coronary troubles stemmed from the fact that his humongous frame was causing undo strain on his heart. He concluded that the patient actually suffered from a temporary lack of hunger and that he wasn’t eating enough. Yes, it was his temporarily suppressed appetite due to his chest pain that was the problem. After contemplating the situation further, Dr. Keynes argued that the stress of cutting weight at the present time would certainly prove detrimental to the man’s already weak heart. Therefore, the prescription was to instead pile on the pounds as quickly as possible. Now he did concede that, at some point in the distant future, it may be a good idea to shed a few pounds. But for now the most important thing to do would be to eat more. The only flaw in Dr. Keynes’ plan was that the patient died while trying to re-leverage his body weight to an even further degree.

The Hubris of Government

In reality, government’s meddling with the private sector is much worse than indicated in this allegory. Consumers are trying their best to de-leverage. So the patient in our story actually is trying to lose weight. Even though he would prefer to boost his consumption, he has become aware that it is now necessary to defer consumption (meaning to save) and to pay down debt. The private sector is in the process of selling off assets and paying down debt. But the government is preventing any such de-leveraging from occurring. According to the Flow of Funds Report, during Q1 of 2010, households reduced debt at a 2.4% annual rate ($330 billion). Meanwhile, the Federal government was busy piling on debt at an 18.5% annual rate ($1.44 trillion). Every dollar of government debt is a promise to tax the private sector in the future with interest. Therefore, all public debt is ultimately the responsibility of American consumers.

And here’s where the arrogance in Washington really kicks in. Scores of millions of American consumers have made a decision; they have decided on an individual basis, that what is best for them at the current time is to reduce their debt burden. But a few hundred individuals in government believe they know better than the collective wisdom of the entire free market. They have the power to confiscate our savings by leveraging up the public sector. In essence, they are preventing the healing process of de-leveraging from taking place by increasing government borrowing and spending.

It should be stressed that modern-day Keynesians do not argue for simply slowing down the rate of de-leveraging. They clearly seek to--at least in the short term--significantly increase the amount of debt in an effort to boost the aggregate demand in the economy. Then, once the mythical recovery takes hold from government spending, printing and borrowing, they concede it may be time to bring deficits under control. The only problem with this theory is that there is now a significant risk of suffering through a U.S. dollar and bond market crisis in the very near future. As a consequence, just as Dr. Keynes killed our patient, Keynesian economics will likewise kill our economy.

Michael Pento is a senior economist at Euro Pacific Capital.

8/17/2010: Obama has already brought ‘change’ to America by Thomas Sowell

One of the few campaign promises that President Obama has kept was this: “We are going to change the United States of America!”

As in many other cases, those who were thrilled by the thought of “change” seldom seemed to consider whether it would be a change for the better or for the worse. True believers in the Obama cult assumed that it had to be a change for the better.

Now it is slowly dawning on more people that it is a change for the worse-- runaway government spending, under the banners of “stimulus” and “jobs,” is not stimulating anything except political pay-offs to special interests. As for jobs, the percentage of the population with jobs keeps on declining, even as the administration points to all the jobs it is creating.

It is of course not pointing to all the other jobs that it is destroying, whether by taking money out of the private sector or by loading so many mandates on employers that labor is made artificially too expensive for many employers to do much hiring.

But the most dangerous and most lasting damage that this administration has done to this nation has been in the international jungle, where it is alienating our long-time allies, dismantling our credibility by reneging on our commitments to putting up a missile shield in Eastern Europe and-- above all-- doing nothing meaningful to stop the leading terror-sponsoring nation in the world, Iran, from getting nuclear weapons.

We could deter the Soviet Union with our own nuclear weapons, but no one can deter suicidal fanatics, whether they are international terrorists of the sort that caused 9/11 or suicidal fanatics in charge of the government of Iran, who have long been supplying international networks of suicidal fanatics.

Threatening to launch nuclear retaliation against the people of Iran will not deter them. They have already shown how little they care about the people of Iran and how much they care about their fanatical beliefs and hate-filled agendas.

How much does our own administration in Washington care about the American people and their national security? This is not a question you would usually have to ask about any administration of either party. But this is not like any other administration, and Barack Obama is unlike any other President of the United States in having come from a background of decades of associations and alliances with people who resent this country and its people.

Against that background, the Obama administration’s undermining of our long-standing international alliances with Britain and Israel, among others, while seeking to reach accommodations with nations hostile to this country, raises painful questions and even more painful possibilities for the future.

Gratuitous affronts to both Britain and Israel began early in the Obama administration, including a clear downgrading of state visits from their national leaders. These affronts were pitched at a level unlikely to be noticed by the general public but unmistakable to anyone familiar with international relations, including both our allies and our enemies. But most of the pro-Obama media said little to alert the public.

It is not only in our foreign relations that the administration’s commitment to the national security of the United States is open to serious question. Domestically, as well, the same serious and painful questions arise.

After spending hundreds of billions of dollars on political pork barrel projects from coast to coast-- some frivolous beyond belief-- its only major cut in federal spending has been its move to cut $100 billion from the Defense Department’s budget.

If there was ever a time when we needed a larger standing army, as distinguished from relying on National Guard troops, taken suddenly from civilian life and sent on multiple tours of combat duty, this is that time. We need a bigger and constantly modernizing military, not a bargain basement military, trimmed down to leave more money for pork barrel spending.

Sometimes small things can give you a better clue than large things. A recent editorial in Investor’s Business Daily pointed out that hundreds of captured illegal aliens from terrorist-sponsoring nations were released on their own recognizance within the United States. Are these the actions of an administration that is serious about the national security of the American people?

Examiner Columnist Thomas Sowell is a senior fellow at the Hover Institution and is nationally syndicated by Creators Syndicate.

8/16/2010: I am quite prepared to concede that public peace is a great good, yet I do not want to forget that every nation that has ended in tyranny has come to that end by way of good order. It certainly does not follow from this that people should scorn public peace, but neither should they be satisfied with that and nothing more. A nation that asks nothing of government but the maintenance of order is already a slave in the depths of its heart; it is a slave of its well-being, ready for the man who will put it in chains. — Alexis de Tocqueville, Democracy in America [1835-1840]

08/13/2010: Putting Government First by Patrick J. Buchanan

Where a man’s purse is, there his heart will be also.

If you would know where the heart of the Obama party is today, consider. In the dog days of August, with temperatures in D.C. rising above 100, Nancy Pelosi called the House back to Washington to enact legislation that could not wait until September.

Purpose: Vote $26 billion to prevent layoffs of state, municipal and county employees whose own governments had decided they had to be let go if they were to meet their constitutional duty to balance their books.

Workers their own governments thought expendable, Congress decided were so essential, it borrowed another 26 thousand million dollars from China to keep them on state and local payrolls.

A nation whose national debt is approaching the size of its gross national product, that goes abroad to borrow money to keep non-essential workers on government payroll is a nation on the way down and out.

And anyone who thinks this Obama party is ever going to cull the armies of tens of millions of government workers or scores of millions of government beneficiaries to put America’s house in order is deluding himself.

As long as this Congress and White House remain in power, a U.S. default on its national debt is inevitable. The only question is when.

Nor is this the first time the Obama administration has rushed to save workers whom their own state, city and county governments were prepared to let go. Among the reasons the $800 billion stimulus failed is that so little of it was directed to firing up the locomotive of the economy, the private sector, and so much of it was spent to ensure that government workers did not have to share in the national sacrifice.

Why Pelosi & Co felt compelled to return to D.C., to ensure that state and local government payrolls were not pared, is not hard to understand.

Which party does the American Federation of Teachers; the National Education Association; and the American Federation of State, Municipal and County Employees usually contribute to, work for, vote for? At which of the two party conventions are teachers and government employees hugely over-represented?

Consider, too, the states deepest in debt and facing the largest cuts in employee ranks, pay and benefits: California, Illinois, New York.

In these states, public employees earn at least $10,000 per year more in pay and benefits than the average America worker, who is bailing them out.

Hence, we have a situation where private sector workers in Middle America are being taxed, their children being driven ever deeper into debt to China, so government employees who have greater job security than they do, and earn more in pay and benefits than they will ever earn, can stay in Fat City.

And folks wonder why so many Americans detest government.

In the same week Congress came back to prevent AFSCME from taking a haircut, the Wall Street Journal reported that, in 2009, only three of 52 metro areas with over 1 million in population saw “net earnings and the broader measure of personal income both rise.”

Are you surprised to learn Washington, D.C., was among the three?

That same day, USA Today had a startling report on how, during the last decade, U.S. Government workers, like Wall Street bankers, left their fellow Americans in the dust.

“Federal workers have been awarded bigger average pay and benefit increases than private employees for nine years in a row. The compensation gap between federal and private workers has doubled in the past decade.

“Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation. ... The Federal compensation advantage has grown from $30,415 in 2000 to $61,998 last year.”

Remarkable. U.S. government workers, who enjoy the greatest job security of any Americans, now earn twice as much in pay and benefits as the average American. This is not the D.C. some of us grew up in.

Nor is this all Obama’s doing. For most of the fat years of the federal work force came while Washington was being run by a Congress of Big-Government Conservatives and a White House of Bush-Cheney Republicans.

No wonder the tea party is targeting both parties.

Nevertheless, it is impossible to believe that the Obamaites, who intervened twice and massively with bailouts to prevent minor layoffs of local and state government employees, have the stomach to do the major surgery needed to cut the federal monolith down to size.

For the vast majority of the tens of millions of government workers vote Democratic, as do the vast majority of the scores of millions of beneficiaries of federal, state and local programs.

What Pelosi & Co. were saying with that $26 billion bailout this week is, “We are going to protect our own.”

Which is why either Obama, Pelosi, Reid & Co. go, or we are gone.

8/12/2010: From the Daily Reckoning
Gimme Government Shelter by Joel Bowman
Why Seeking Refuge in Government Debt Won’t Save You

Reporting from Lake Livingston, Texas...

Nassim Nicholas Taleb says “every single human being” should bet these assets will decline...

Jim Grant says these “certificates of confiscation” represent a “surefire way to lose one’s invested money”...

And Dr. Marc Faber, not known for mincing words, says they are “for idiots”...

Our question this morning, therefore, is why would anyone hold US Treasuries?

The obvious answer - keeping in mind that an easy conclusion does not necessarily make for a correct one - can be observed in the “flight to safety” argument. Fears of a deepening global crisis have spurred investors to seek shelter in the perceived safekeeping of US government debt.

“Treasuries have rallied amid speculation the global economic recovery is faltering,” reported Bloomberg yesterday, “driving yields on two- year notes to a record low of 0.4892 percent today.”

The trough in two-years, the newswire continued, came a day after the Federal Reserve “reversed plans to exit from monetary stimulus and decided to keep its bond holdings level to support an economic recovery it described as weaker than anticipated.”

Huh?... So yields are at record lows because the Fed is buying bonds from the Treasury? Isn’t that a little bit like loaning a $20 bill from your left pocket to your right?

Well, no, it isn’t...because the left pocket also has a printing press, and it’s not afraid to use it, as Ben Bernanke reiterated yesterday. In the midst of this high-level shell game, therefore, what enduring value will a dollar bill have? And if the dollar’s value is suspect, how much more so for those pieces of paper that promise to repay dollars in the future?

Treasuries might be a great trade. But the “Gimme Gvt. Shelter” logic appears a tad funky, especially when taking into consideration the fact that government bodies are nothing if not wealth destroyers and that, historically, their preferred method of destruction is to inflate away the value of their respective currencies.

In 1970, a year after the Rolling Stones released the greatest rock ‘n’ roll track of all time, you might have picked up a front-row ticket to see the British invaders for around $20. Adjusted for “official” inflation, that same ticket (or any other $20 item) would today set you back $112.35. That’s a 461.8% jump in price. (Adjusted for unofficial inflation - i.e. actual prices - a front-row Stones ticket would cost something like $350). Some safekeeping!

Nevertheless, the case is as it is...at least for now. All the same, one is given to wonder just how long the government can continue to churn out record deficits in tandem with vastly expansionist monetary policy before the consequences show up in consumer prices? Could inflation (or, more precisely, the effects of inflation) be, as Mick Jaggar crooned, “just a shot away?”

Debunking Deflation by Puru Saxena

Now that almost every Wall Street economist is looking for the arrival of a Great Deflation, we think investors should begin looking the other way. Keep an eye out for inflation, we say.

You will recall that during the bottom of the previous bear-market, most of the pundits were shunning ‘risky assets’ (stocks and commodities) and they were advocating a heavy exposure to cash and fixed income assets. Back then, the vast majority of strategists and their devotees were erroneously fretting about deflation. According to these folks, deflation was a done deal due to the following reasons:

a. Contraction in private-sector debt - When the credit crisis arrived in the summer of 2008 and asset prices collapsed later that year, over- leveraged consumers and businesses started paying off their debt. After all, this act of deleveraging was a logical reaction to the devastation caused by the most vicious bear-market since the 1930s. So, when private-sector debt began to shrink, the proponents of deflation (deflationists) announced the death of inflation. “How could the global economy inflate when the private-sector was tightening its belt?” was their battle cry.

Decline in Commercial Bank Lending

Although the deflationists had a point, their assessment was flawed because they totally ignored the borrowing capabilities of the governments. While it is true that from peak to trough, private-sector debt in the US contracted by roughly US$800 billion, this debt reduction was overwhelmed by the US government’s debt accumulation efforts.

As the chart below shows, over the past two years US federal debt has surged by a whopping US$3 trillion, thereby more than offsetting the deflationary impact of private-sector deleveraging. If you have any doubts whatsoever, you will want to note that total debt in the US is now at a record high!

Increasing Government Debt

b. Excess capacity - The lack of aggregate demand and the excess capacity prevalent within the economy is another factor often cited by the deflationists. Let us explain:

You will recall that in the aftermath of the Lehman Brothers bust, the credit markets froze and the global economy came to a screeching halt. Suddenly, worldwide consumption contracted and the world was left with idle factories, empty buildings and unwanted inventories. Thus, the deflationists argued that with such a lack of aggregate demand and so much spare capacity, we could never experience inflation.

Once again, the deflationists failed to understand that over-capacity has been a constant feature in our economic landscape and price increases (which they erroneously describe as inflation) have very little to do with capacity utilization.

It is interesting to observe that over the past 42 years, the US economy has never operated at full capacity. Moreover, it is notable that even during the highly inflationary 1970s and the most recent inflationary boom (2003-2007), the US economy operated well below maximum capacity. In case you are wondering, the same holds true for the global economy. Therefore, the idea that inflation cannot occur in the face of excess capacity is ill-conceived and absurd.

All the popular deflation myths aside, the reality is that inflation is an increase in the supply of money and debt within an economy. Furthermore, the price increases often described as inflation are simply consequences of monetary inflation - a euphemism for the dilution of the money stock.

Look. Whenever any central bank creates new money and whenever any entity (individual, business or government) takes on more debt, the outcome is inflation. As Milton Friedman once said, “Inflation is always and everywhere a monetary phenomenon.”

Today, under our fiat-money system, governments are willing borrowers and central banks are more than eager lenders (money creators). Under these circumstances, a contraction in the supply of money and debt (deflation) is out of the question. Conversely, given the short- sightedness of the politicians and their perpetual urge to “kick the can down the road,” the real risk facing the economy is extreme inflation or even hyperinflation.

Given our grim outlook on inflation, we continue to favor hard assets and the fast-growing developing economies in Asia. If our assessment is correct, our preferred sectors (energy, precious metals and industrials) and our favorite stock markets (China, India and Vietnam) are likely to generate superior long-term returns.

Regards, Puru Saxena, for The Daily Reckoning

8/12/2010 Are all rich people now liberals? by James Ledbetter

The liberals are getting richer? A shibboleth of the contemporary left holds that the cash tsunami flowing in and around the American political system has eliminated all meaningful distinction between the two major parties. Call it the Tweedle-Dee-and-Tweedle-Dem thesis—the kind of analysis that drives sane people to vote for Ralph Nader (or to stay in grad school).

In his recent book Fortunes of Change: The Rise of the Liberal Rich and the Remaking of America, David Callahan takes aim at this notion, using reams of data to make two ambitious arguments: first, that America’s rich now tilt politically left in their opinions and campaign contributions, and second, despite the surge in corporate funding of Democrats, the Democrats pursue far more liberal economic and business policies than Republicans.

Callahan fully documents that the Democratic Party is much more dominated by huge donations and corporate influence than ever in its history. In the 2008 election cycle, for example, all five of the largest West Coast technology firms whose employees made political donations—Microsoft, Google, Cisco, Oracle, and Hewlett-Packard—gave to Democrats over Republicans by a factor of 3-to-1 or even 4-to-1.

Callahan’s book is brimming with mini-profiles of freshly minted billionaires, from Silicon Valley stars to Greenwich hedge fund machers, who love nothing more than to throw bags of money at Democratic candidates and liberal causes. And he convincingly explains why today’s megawealthy moguls orbit the opposite political planets of their Mad Men-era industrial counterparts. The 21st-century titan has made his fortune not in shabby trades like oil, timber, or wage-slave manufacturing, but rather in sparkling, knowledge-economy fields like law, finance, technology, and entertainment (This part of Callahan’s book was excerpted in Sunday’s Washington Post). Hence he (it’s still mostly he) has seen the value of what only government is likely to provide: a well-educated work force; meritocratic immigration policy; speedy infrastructure; and thriving capital markets. The odds are very high that he attended at least university in a liberal-left coastal city, where he learned the good graces of racial and sexual tolerance.

When today’s multimillionaire looks, then, at the public policy arena, he does not carp about high taxes or the encroachment of undeserving classes. The rise of Barack Obama—the super-competent, empathic meritocrat—only fueled the simmering flirtation between today’s rich guys and American liberals.

From that sympathy, Callahan argues, comes the political paradox: The rise in wealthy funding of the American liberalism has not caused a wholesale kowtowing to a corporate agenda. Quite the opposite, says Callahan: “The paradoxical truth of recent years is that the Democratic Party has moved to the left even as its take from financiers has soared.”

Alas, the evidence Callahan offers for this provocative thesis proves primarily that he has spent too much time reading the Almanac of American Politics. That is, his definition of relative leftism relies almost entirely on the ratings produced by various interest groups—such as Americans for Democratic Action and the Natural Resource Defense Council—who score Members of Congress based on their votes on a roster of issues.

That methodology is OK as far as it goes, but it barely goes from Capitol Hill to Union Station. You needn’t peer very deeply into government’s haze to know that when Congress and the Executive Branch want to deliver the goods to corporate America—including specific industries—they do so in cooperative ways that are poorly captured by the tallies of the League of Conservation Voters.

Consider the following, from the last few years alone:

* Barack Obama now presides over a trillion-dollar-a-year military budget, the largest in the history of mankind, and as a percentage of American GDP, the largest since the mid-90s.

* The deregulation of the finance industry that culminated with the repeal of Glass-Steagall was a bipartisan effort, with Republicans writing the script and Democrats providing the votes.

* When the Bush administration tacked tariffs on steel imports to placate the pathetic American steel industry, the only complaint from Democrats was that the tariffs weren’t high enough.

* Two free-trade agreements opposed by labor unions (Chile and Singapore) both passed in 2003 with substantial help from Democrats.

* Democrats joined Republicans in never making a priority of ratifying the Kyoto Protocol.

* Democrats were fully responsible for the failure to pass cap-and-trade legislation during this Congress.

* The massive bailouts of Wall Street and Detroit were carried out against public opinion, and very much with the support of corporations, banks, and Democrats in Washington.

* The card-check effort for labor unions, not long ago the scariest economic mask the right could force onto Democrats’ faces, has completely evaporated.

I could go on, but the point is clear: Anyone who looks at the last decade and fails to see how moneyed Democrats deliver on the corporate agenda must be myopic. Perhaps today’s limousine liberal cares more about whether his ride is a state-of-the-art hybrid than about the size of the engine—but that’s only because he’s already expensed the rest of the car. If, as Callahan notes, centrist groups like the Democratic Leadership Council no longer have much clout, it’s because they accomplished their major goals—notably the elimination of welfare—and became unnecessary.

And nor should we read too much into the 2008 election. It featured a Republican candidate who was unattractive on many levels, especially his economic ignorance. With Obama alienation currently shared by the left and right, I suspect that the long-term beneficiaries of the demographic forces Callahan describes will be socially moderate Republicans whom Democrats love to support. Callahan notes at one point the overwhelmingly Democratic registration in places like New York City—he says 6-to-1—but seems strangely uninterested in the fact that New York has not elected a Democratic mayor since 1989—by far the greatest GOP domination in New York’s nearly 350 years of voting for mayors. When money dominates the political system, the palatable Bloombergian billionaire becomes its master.

The real message of Callahan’s book is not that the rich have become liberal. It’s that American liberalism itself no longer feels the need to espouse an economic agenda that is decidedly different from that espoused by conservatives. Economics has been surgically removed from the realm of politics and transplanted into a technocratic robot that is run by the Federal Reserve and its acolytes. At least for the time being, most liberal politicians don’t seem to miss it.

James Ledbetter covers business and finance for Slate. Research assistance by Rachel Louise Ensign. Like Slate on Facebook. Follow us on Twitter.

8/11/2010: What Handouts To Cut by Walter E. Williams

Because of failure to heed the limitations of the U.S. Constitution, which has produced runaway federal spending, our nation sits on the precipice of disaster. Former Senator Alan Simpson of Wyoming and Erskine Bowles, White House chief of staff under President Bill Clinton, co-chairmen of President Obama’s debt and deficit commission, in a Washington Post article “Obama’s Debt Commission Warns of Fiscal ‘Cancer’” (July 12, 2010) said that “(A)t present, federal revenue is fully consumed by three programs: Social Security, Medicare and Medicaid. The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans -- the whole rest of the discretionary budget is being financed by China and other countries.”

The commission added the current budget trend is a disaster “that will destroy the country from within” unless checked by tough action in Washington. The tough action required is spending cuts in programs, including the so-called nondiscretionary, eating most of the federal revenues.

According to the Census, around 80 percent of Americans 65 and older own their own homes compared to 43 percent under 35. Twenty-three million households, or 37 percent of all homeowners, own their homes free and clear, and most of these are seniors aged 65 and older. According to the Federal Reserve Board’s 2007 “Survey of Consumer Finances,” the median net worth of people 65 and over is $232,000, those under 35 years have a net worth of $12,000 and for those 35-44, it’s $87,000.

For good reason, older people have accumulated more wealth than younger people; the primary reason is that they’ve had more time to do it. There is no logical case that can be made for using the tax system to force Americans with less wealth to subsidize those with more wealth. But it’s not clear who is subsidizing whom. Consider an elderly widow, say 70 years old, with a modest retirement income of $18,000 living in a $300,000 house that’s fully paid for. She might receive local property tax forgiveness, medical and prescription drug subsidies and other federal, state and local subsidies based upon her age and income.

When subsidies are provided for this lady, whom are we truly benefiting? It’s not the lady but her heirs. Conceivably, the lady could make a deal with a financial institution to pay her property taxes, allow her to live in the house for the rest of her life and give her a lump sum cash settlement so that she can live without the handouts. Upon her death, the house becomes the property of the financial institution, not her heirs. Giving the widow handouts allows her to bequeath to her heirs her assets, a $300,000 house. If her children want to inherit the house, they, rather than taxpayers, ought to take care of their mother.

We can start getting the federal spending under control by ending subsidies to people with high net worth that can be ready turned into cash such as a home or business. While seniors might say that they support reduced government spending, they, like other handout recipients, believe they have a right, through government, to live at the expense of others. What’s more, they have considerable clout -- they vote in large numbers. Only 50 percent of young people vote, but up to 70 percent of seniors vote.

Political guts have always been in short supply and politicians fear senior retaliation at the polls. Moreover, it’s a practical matter for seniors and politicians. The true economic calamity won’t hit the country until 2030 or 2040. By that time, both today’s politicians and seniors will be dead so why should they make sacrifices now to prevent an economic calamity decades off into the future? Seniors might protest my cynicism but they can easily prove me wrong by waging an effective campaign to end handouts based on superannuation.

8/10/2010: from the Daily Reckoning
Rat-Infested Recovery by Eric Fry
The aftermath of Paulson’s failed bailouts

Inviting a little bit of government policy to interact with private enterprise is like inviting a little family of rats to interact with a bakery. Before long, you’ve got more rat droppings than chocolate sprinkles atop your cupcakes. And that’s just the beginning...

Every day, the rats are more numerous, more rotund...and more brazen. Every day, fewer baked goods make it from the oven to the display case. Eventually, the baker is in business to feed the rats...and there is nothing he can really do about it.

Feeding rats is expensive.

It costs money to support a rat-friendly environment. It costs money to finance bailouts, stimulus packages, liquidity injections, quantitative easings, health care reforms, financial reforms, emergency lending facilities. It costs real money that comes from real people...in some way, shape or form.

To maintain a rat-friendly environment, you’ve got to raise taxes or print dollars...or both.

Two years ago, most investors cheered the staggeringly expensive bailout schemes of then-Treasury Secretary, Henry Paulson. Hank simply reached into his bag of tricks, pulled out a few trillion dollars of bailouts and guarantees and scattered them like pixie dust over lower Manhattan.

Within a few months, the stock market was rallying and the economy was showing signs of life. The crisis was averted and Hank’s rescue mission did not seem to cost anything at all. But now we know that this rescue mission cost us everything...or almost everything.

Paulson’s bailouts destroyed the nation’s balance sheet, while also taking a hatchet to the legal precedents that had nourished American capitalism for more than 200 years. Without one single ounce of Constitutional authority, and without a demi-second of public debate between elected representatives, Paulson dispensed trillions of dollars worth of federal funds and guarantees to a handful of privileged and/or connected corporations. As such, Paulson did not change any longstanding laws or legal precedents, he simply invalidated them. After Paulson, what rules counted? What rules didn’t? No one knew? No one knows even now.

And now, nearly two years after Paulson’s hyper-active, Constitution- warping activities, what do we, the non-Wall Street portion of the American populace, have to show for the trillions he spent or authorized? An economic recovery?

Hardly.

The Paulson bailouts failed miserably. They double-failed. Paulson spent trillions to buy a feeble one-year economic rebound...while also saddling the nation with debts that will last decades. Even the Home Shopping Network offers better deals than that.

If a friend told you that he had cashed out his IRA and mortgaged his house to throw himself a birthday party, you’d think your friend was an idiot. But when the Treasury Secretary does something similar with the nation’s balance sheet we think he is...well...an idiot.

Last week’s economic data illustrate that the “Paulson non-recovery” is in full swing. Last Friday, we learned that the US economy shed 131,000 jobs during July. This grim report corroborated equally grim reports on consumer spending, personal income, pending home sales and factory orders.

Personal incomes fell last month for the first time since September. Meanwhile, the savings rate soared to 6.4% - the highest level in a year, as Americans reacquainted themselves with the ancient virtue of thrift.

When folks stop buying things they cannot truly afford, strange things happen. One of those strange things is that consumer spending dries up. Last month, therefore, consumer spending stagnated, while pending home sales tumbled. The National Association of Realtors’ index of pending home resales in July dropped to its lowest level since data began in 2001.

Maybe governments can’t buy economic growth after all.

8/10/2010: from the Daily Reckoning
The “Road to Serfdom” by Dan Amoss

The stock market still has further to fall to catch up with the slowing economy. US GDP will keep decelerating - likely approaching a zero percent growth rate by 2011 - for the following reasons:

1. The long-term trend back towards consumer frugality and higher savings rates remains in full force. This will dampen consumer spending.

2. A double dip in housing prices is likely, because subsidies are ending and the backlog of foreclosure resolutions is about to accelerate.

3. The impact of the Obama administration’s stimulus plan is fading, and is not leading to any real “multiplier” effects because most of it went to plug holes in state government budgets.

4. European and Chinese GDP are slowing for well-publicized reasons.

5. Those who create jobs in the US fear rising tax rates in 2011, rising energy prices from cap-and-trade legislation, the pro-Wall Street “financial reform” bill, and a laundry list of other anti- business policies.

In short, if the status quo remains in place, the US economy will be lucky if it experiences a fate similar to post-bubble Japan. The US government is pursuing the same misguided strategy that has failed for twenty years to revive Japan’s economy. This strategy consists of squandering taxpayer dollars on failed financial institutions, and prop up unaffordable federal and state spending programs.

One key difference: Japan’s competitive export-oriented manufacturing base was strong enough to prop up the Japanese welfare state (until now, at least). The US manufacturing base is certainly powerful and efficient, but it’s nowhere near profitable enough to support both itself and the ever-growing US welfare state.

What policymakers seem not to understand is that each dollar that funds so-called “stimulus” programs must be extracted from the private sector. And they wonder why the private sector is not recovering! A far more effective stimulus plan - as long as the bond market remains unworried about deficits - would have been to slash government spending and slash taxes even faster. While that would also have been fiscally irresponsible, at least we’d be seeing “multiplier” effects on GDP by now.

Big companies remain defensive for many reasons. The July 1 issue of The Economist ran a story on the growth in corporate savings. Capital spending at most big companies is running at a slower rate than depreciation, resulting in rising free cash flows (but at the expense of a deteriorating asset base):

Business investment is as low as it has ever been as a share of GDP. Firms run the risk that their stock of capital is too depleted to meet even sluggish growth in demand. The likeliest outcome is a hesitant recovery in business spending as firms balance the risks of inadequate investment and insufficient cash.

Some businesses aren’t reinvesting because they dramatically overbuilt during the boom; some aren’t investing because their customers are broke; still others aren’t investing due to hostile government policies. These reasons for caution are all entirely rational. But corporate austerity is a worrisome trend for an economy that is struggling mightily to produce job growth.

To judge from this extremely cautious behavior, corporate leaders seem to fear that the US economy is heading towards Friedrich Hayek’s proverbial “road to serfdom.”

This road is now taking the global economy down one of two paths:

1. Painful austerity plans and deflation that salvage what’s left of today’s currency system by promoting savings and encouraging new capital formation;

OR

2. Endless stimulus injections into economies with the promise of austerity “once the economy recovers.” Unfortunately, most Western economies are now thoroughly addicted to government spending. Each fiscal and monetary injection into zombie banks will likely have to be larger in order to offset the withdrawal symptoms of losing the last stimulus plan. Entrepreneurs figure this game out and gradually withdraw from participating in the economy in a healthy, productive manner. This loss of entrepreneur confidence in the system will ultimately accelerate the demise of all paper currencies.

The second path one is more likely in my view, because it’s more politically popular - especially once the European “pro-austerity” camp discovers just how addicted their economies are to the welfare state. Hopefully, a critical mass of people who value freedom over the illusion of economic security can move to wean us off today’s frighteningly powerful roles for governments and central banks. But based on the decisions we’ve seen in recent years - decisions driven mostly by political considerations - I’m not holding out much hope at this point.

Threats from Washington, DC, include everything from raising tax rates, to bailing out cronies at zombie corporations, to debasing the dollar, to implementing an energy policy that will have the effect of dramatically raising prices and worsening the US dependence on oil imports. Case in point: The answer to the BP oil spill is to take away the right for Gulf Coast oil workers to work on statistically safe drilling projects for the next six months, and then put them on BP- funded welfare checks.

No price was too high to bail out the financial terrorists at the “too big to fail” banks. There’s not much desire for the current Congress and the Fed to end embarrassingly large subsidies and guarantees for the big banks.

Bottom line: This environment is dangerous for the stock market. When governments are spending money they don’t have, while corporations are not spending money they do have, the resulting economic “growth” is usually a fraud. Sustainable bull markets require healthy risk appetites among those with capital to invest.

8/9/2010: Health, or Share the Wealth? by Steve Murphy
from the September 2010 Issue of Liberty Magazine

President Obama’s health care experiment is less about healing the sick than about redistributing money.

With the passage of the Obama health care bill, the United States can be divided into three distinct health insurance groups. Group 1 consists of retirees on Medicare. Group 2 consists of working people with private health insurance to cover them until they retire. Group 3 consists of the 32 million people who previously did not have health insurance. The first group includes people who, in addition to paying income taxes, have paid into Medicare during their working lives for the benefits they are now receiving. The second group include people who, also in addition to paying income taxes, pay for their current health insurance as well as payroll deductions for their future Medicare benefits. Most people in the third group pay little or no income taxes and will now receive health insurance at little or no cost.

To the proponents of ObamaCare this is social justice, and its principal achievement. But the greater achievement, by far, is the financing. As Margaret Thatcher once pointed out, socialists eventually run out of other people’s money. The problem is that “eventually” is now.

The money that Group 1 people have put into the Medicare Trust Fund has been spent — long since. Congress has been spending Medicare surpluses for many years. Consequently, Group 2 payments (which are supposed to be invested to pay the Medicare benefits of Group 2 people when they retire) are being used to pay Group 1 benefits now. Under ObamaCare, Group 2 people will be paying more — evidently paying for themselves after they finish paying for Group 1 people. That Group 1 people will be getting less (via $500 billion in Medicare “savings”) is the only solace of the Group 2 people.

CBO projections have been used to claim that we can afford ObamaCare — that it will fix Medicare and reduce the deficit to boot. How credible are government estimates?

Medicare was enacted in 1966 at a cost of $3 billion. The House Ways and Means Committee projected that it would cost $12 billion a year by 1990, a conservative, inflation- adjusted estimate. The actual 1990 Medicare cost was $107 billion. It reached $244 billion by 2003. Today it is up to $500 billion and rising fast. This is why Congress has spent decades trying to control Medicare costs. The result of its diligent efforts: according to the latest Medicare Trustees Report, Medicare is expected to run out of money in 2017. The celebration of ObamaCare’s social justice and the delusion that it will bend the cost curve down is likely to be short-lived.

The Trustees Report went on to say that the “Trust Fund could be brought into actuarial balance over the next 75 years by changes equivalent to an immediate 134% increase in the payroll tax (from a rate of 2.9% to 6.78%), or an immediate 53% reduction in program outlays, or some combination of the two.” That is, Medicare can be fixed over a 75-year period by increasing payroll deductions of Group 2 people by 134% or decreasing the benefits of Group 1 people by 53%.

ObamaCare was sold, in no small part, by blaming capitalism for the health care crisis and praising government regulation as the remedy. In particular, private insurance companies were demonized for making ever-increasing profits while charging customers ever-increasing premiums. It turns out that their profits have been quite meager — an industry average of 2.2% annually.

Furthermore, if they operated like the government, all of them would be out of business and their CEO’s would be in jail. Medicare charges its enrollees too little and uses the payments of working non beneficiaries to make up the difference. It is a Ponzi scheme that has created an enormous liability ($38 trillion at last count). If Medicare had to operate as a legitimate private insurance company, it would have to come up with an extra $1 trillion annually just to pay the interest on this debt.

Not only does the Obama health care bill fail to deal with this fraudulent practice, but it continues to ignore the well known payer-to-beneficiary demographic that perpetuates and exacerbates the liability. I refer to the fact that the size of Group 1 is increasing at a much higher rate than the size of Group 2 (e.g., 116% and only 22% by 2040, respectively). It is doomed to failure because, as economist Walter Williams has pointed out, it doesn’t satisfy “the first order condition of a Ponzi scheme, namely expanding the pool of suckers.”

Yet the Obama administration focus is locked on Group 3, apparently hoping the Medicare bomb set to go off in 2017 will be replaced by a giant wad of cash — for, incredibly, it plans to pay for Group 3 costs (insurance subsidies, premiums, and benefits) with $500 billion in Medicare savings (a.k.a., $500 billion in Medicare cuts). To finance ObamaCare, Group 2 people will continue to pay the benefits, at higher and higher rates, of Group 1 people, while $500 billion that Group 1 people were expecting will be used to finance Group 3 people. That is, Group 1 people who have paid income taxes and both health insurance and Medicare premiums during their entire working lives will have their Medicare benefits cut in order to finance Group 3 people who have paid little or no income taxes, health insurance, or Medicare premiums. That Group 2 people will be paying even more is the only solace of the Group 1 people.

Medicare was a $3 billion experiment designed for all working Americans and their families. But thanks to incompetent, deceitful politicians and government accountants who failed miserably to estimate the true cost, it will be unable to meet its obligations in 2017, only seven years from now. And when I say “out of money,” I have already figured in the money from both Group 1 and Group 2.

ObamaCare, however, is a $2.6 trillion (full ten-year cost) experiment designed to share the health care wealth of Groups 1 and 2 with Group 3. And its cost estimates are even shakier than those of Medicare. For example, Congress and the administration blatantly omitted from their calculations the $290 billion cost of the so-called Doctor Fix bill. If the Obama administration moves on to immigration reform, we could quickly see 12 million formerly illegal aliens added to Group 3.

When it comes to estimating costs, government has a long and consistent record of stupendous inaccuracy. Add to this the unintended and mysterious, but probably very expensive consequences of an indecipherable 2,700-page bill, and Group 2 and 3 ObamaCare could go broke before Medicare. Alas, irony isn’t covered in the bill — not even in the special deals sections.

To many, social justice is the crowning achievement of ObamaCare. My own money is on the financing. Medicare financing has been abysmal, even criminal, but its goal was not to transfer wealth from one class to another. Its incompetent management has led to a staggering $38 trillion in unfunded liabilities over the next 75 years — although, to be fair, some experts believe that the $500 billion in “savings” prophesied by the administration over the first ten years of ObamaCare can be used to extend Medicare’s solvency.

In contrast, ObamaCare will reconfigure one-sixth of our economy, and will do so in the midst of war and recession. Its feasibility depends on taking $500 billion in mythical savings from Group 1 (thereby snuffing out the possibility of salvaging Medicare) and $500 billion from Group 2 (in higher taxes and insurance costs) to pay for Group 3 (and bigger government). The health care adventure is so immense and intrusive that if the estimates are off — just by a small percentage — the economy could be ruined for decades.

But even if, by some miracle, the estimates are accurate and the $2.6 trillion program turns out to be an efficient, well- run entitlement for Group 3, the real achievement lies in the concoction of a financial scheme that would please both Karl Marx and Bernie Madoff.

“ObamaCare was sold by blaming capitalism for the health care crisis, and praising government regulation as the remedy.”

“If private insurance companies operated like the government, their CEO’s would be in jail.”

8/9/2010: Doctors Are Government Employees
So why expect good service?
by Theodore Levy

Doctors speak frequently among themselves about problems in medicine: decreased collections; inability to spend more time with patients; difficulty getting consults from specialists, especially for Medicare/Medicaid patients; enormous time wasted with patients who aren’t really sick (sometimes they’re old and lonely; sometimes they’re unemployed with nothing else to do — visits to the doctor for the poor are often a family affair, with three generations crowding the waiting area); the incredible wasted resources in the emergency department. (Due to federal EMTALA laws, no one needing emergency care can be turned away from an ER.)

But there’s one thing doctors never talk about, even though it easily explains the problems patients have in getting good treatment and doctors have in providing it:

Doctors are government employees.

I’m not talking about only the doctors that work in the Veterans’ Administration or the hospitals run by the Bureau of Indian Affairs. I’m not talking about the training centers known as county hospitals, where students learning the practice get to make mistakes on poor people prior to actually going out in the real world.

I’m talking about all doctors — because the government contributes about 50 percent of all health care dollars to physician pay. And another 40 percent is contributed by third-party payers that are themselves highly regulated by government and routinely follow the government’s lead in pricing.

People in the United States don’t need to have it explained to them why FedEx and UPS do a better job than the U.S. Postal Service. They know why they stand in long lines when they use USPS and face surly unpleasant employees behind the counter. It’s a government monopoly. For years, the post office I frequent had a number dispenser, like at a deli. You’d wait for your number to be called. I would typically walk in, pull the number, say, for example, 57, and find they were currently calling 13. Recently, this technique was discontinued. I asked the postal employee why, and he explained studies showed the system made people feel they were waiting too long, so the Postal Service got rid of the number dispensers — not to speed things up… just to make it harder to know how long you had to wait.

People in the United States don’t need to be told why their garbage pickup is not always as dependable as their dry cleaning pickup. They know one is paid for out of taxes while the other is paid for out of pocket, that one is a monopoly you have no choice but to use while the other is a service you can take or leave, or change. They know the dry cleaning company will never berate them if they don’t pre-sort their clothes properly before pickup.

But the fact is, many post office employees are not happy either. Like doctors, they feel hampered by regulation; like doctors, they often find themselves drowning in paperwork. Every one of them sees inefficiencies they have to live with because the system doesn’t provide easy ways to correct or eliminate them.

Why should medicine be different? Because doctors are smart? Not smart enough, it seems, to avoid a field thoroughly transmogrified by government regulations. Because health is important? So is sanitation and communication. Epidemiology tells us improvements in the former account for a significant increase in longevity in the last century, and communication is so important we have essentially eliminated much of the post office’s work by a technological fix the government doesn’t control: email.

If doctors and patients want better health care, there’s an easy way to achieve it. Doctors have to start working only for patients, and patients have to start paying doctors for their services.

Granted, it’s not quite as simple as that sounds. Here are two quick difficulties:

+ Doctors are trapped in a system that likely over-trains them. This lowers supply and maintains a high physician income. That could change over time as people refuse the high fees, but only to the detriment of doctors already out of training.

+ Doctors have to operate on patients in hospitals or surgical centers, and both are highly regulated by state and federal governments, making efficient and cost-effective service more challenging.

But the first step is clear: Don’t expect good quality service from a government employee. And don’t expect, if you are a government employee, to be able to provide good quality service.

Government “Services”

8/6/2010: Gov’t. Employment Ranges From 38% in D.C. to 12% in Ohio
Federal, state, or local government employs 17% of U.S. workers nationally
by Lymari Morales

WASHINGTON, D.C. -- Seventeen percent of U.S. workers say they work for federal, state, or local government, ranging from 38% in Washington, D.C., to 12% in Ohio. More than a quarter of workers in Washington, D.C., Alaska, Virginia, and Maryland work for government, as do upwards of 15% in the vast majority of states.

The findings reflect interviews with 98,755 adults, employed full-time or part-time, conducted Jan. 2-June 30, 2010, as part of Gallup Daily tracking. Gallup asks employed Americans first if they work for the government, then whether they work for federal, state, or local government.

The five states with the highest percentage of government workers also have the highest percentage of federal workers, which is much of what sets them apart from the rest of the nation…

[Read the entire article]

8/2/2010: The Soak-the-Rich Catch-22 by Arthur Laffer

Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.

President John F. Kennedy, Economic Report of the President,
January 1963

If only more of today’s leaders thought like JFK. Sadly, in the debate over whether to extend the 2001 and 2003 tax cuts, and if so whether the cuts should be extended to those people who are in the highest tax bracket, there is a false presumption that higher tax rates on the top 1% of income earners will raise tax revenues.

Anyone who is familiar with the historical data available from the IRS knows full well that raising income tax rates on the top 1% of income earners will most likely reduce the direct tax receipts from the now higher taxed income—even without considering the secondary tax revenue effects, all of which will be negative. And who on Earth wants higher tax rates on anyone if it means larger deficits?

Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35% from 50%, the highest capital gains tax rate to 15% from about 50%, and the highest dividend tax rate to 15% from 70%. President Clinton cut the highest marginal tax rate on long-term capital gains from the sale of owner-occupied homes to 0% for almost all home owners. We’ve also cut just about every other income tax rate as well.

During this era of ubiquitous tax cuts, income tax receipts from the top 1% of income earners rose to 3.3% of GDP in 2007 (the latest year for which we have data) from 1.5% of GDP in 1978. Income tax receipts from the bottom 95% of income earners fell to 3.2% of GDP from 5.4% of GDP over the same time period. (See the nearby chart).

These results shouldn’t be surprising. The highest tax bracket income earners, when compared with those people in lower tax brackets, are far more capable of changing their taxable income by hiring lawyers, accountants, deferred income specialists and the like. They can change the location, timing, composition and volume of income to avoid taxation.

Just look at Sen. John Kerry’s recent yacht brouhaha if you don’t believe me. He bought and housed his $7 million yacht in Rhode Island instead of Massachusetts, where he is the senior senator and champion of higher taxes on the rich, avoiding some $437,500 in state sales tax and an annual excise tax of about $70,000.

Howard Metzenbaum, the former Ohio senator and liberal supporter of the death tax, chose to change his official residence to Florida just before he died because Florida does not have an estate tax while Ohio does. Goodness knows what creative devices former House Ways and Means Chairman Charlie Rangel has used to avoid paying taxes.

In short, the highest bracket income earners—even left-wing liberals—are far more sensitive to tax rates than are other income earners.

When President Kennedy cut the highest income tax rate to 70% from 91%, revenues also rose. Income tax receipts from the top 1% of income earners rose to 1.9% of GDP in 1968 from 1.3% in 1960. Even when Presidents Harding and Coolidge cut tax rates in the 1920s, tax receipts from the rich rose. Between 1921 and 1928 the highest marginal personal income tax rate was lowered to 25% from 73% and tax receipts from the top 1% of income earners went to 1.1% of GDP from 0.6% of GDP.

Or perhaps you’d like to see how the rich paid less in taxes under the bipartisan tax rate increases of Presidents Johnson, Nixon, Ford and Carter? Between 1968 and 1981 the top 1% of income earners reduced their total income tax payments to 1.5% of GDP from 1.9% of GDP.

And then there’s the Hoover/Roosevelt Great Depression. The Great Depression was precipitated by President Hoover in early 1930, when he signed into law the largest ever U.S. tax increase on traded products—the Smoot-Hawley Tariff. President Hoover then thought it would be clever to try to tax America into prosperity. Using many of the same arguments that Barack Obama, Nancy Pelosi and Harry Reid are using today, President Hoover raised the highest personal income tax rate to 63% from 24% on Jan. 1, 1932. He raised many other taxes as well.

President Roosevelt then debauched the dollar with the 1933 Bank Holiday Act and his soak-the-rich tax increase on Jan. 1, 1936. He raised the highest personal income tax rate to 79% from 63% along with a whole host of other corporate and personal tax rates as well. The U.S. economy went into a double dip depression, with unemployment rates rising again to 20% in 1938. Over the course of the Great Depression, the government raised the top marginal personal income tax rate to 83% from 24%.

Is it any wonder that the Great Depression was as long and deep as it was? Whoever heard of a country taxing itself into prosperity? Not only did taxes as a share of GDP fall, but GDP fell as well. It was a double whammy. Tax receipts from the top 1% of income earners stayed flat as a share of GDP, going to 1% in 1940 from 1.1% in 1928, but at what cost?

We all know that there are lots of factors influencing tax revenues from the rich, but the number one factor has to be the statutory tax rates government tells the rich they have to pay. Not only do the direct income tax consequences of higher tax rates on those in the highest brackets lead to higher deficits, the indirect effects magnify the tax revenue losses many fold.

As a result of higher tax rates on those people in the highest tax brackets, there will be less employment, output, sales, profits and capital gains—all leading to lower payrolls and lower total tax receipts. There will also be higher unemployment, poverty and lower incomes, all of which require more government spending. It’s a Catch-22.

Higher tax rates on the rich create the very poverty and unemployment that is used to justify their presence. It is a vicious cycle that well-trained economists should know to avoid.

Mr. Laffer is the chairman of Laffer Associates and co-author of “Return to Prosperity: How America Can Regain Its Economic Superpower Status” (Threshold, 2010).

8/1/2010: Voters want supersized government to crash diet
by Michael Barone

Let’s put government on a diet. That’s what voters seem to be saying in response to the Obama Democrats’ vast expansion of the size and scope of government.

Evidence comes from pollster Scott Rasmussen. He asked likely voters -- his usual sample, which tilts more Republican than all adults -- whether increased government spending is good or bad for the economy.

The results were unambiguous. Good for the country? 28 percent. Bad for the country? 52 percent.

He got similar results when he asked whether increasing the federal debt is good or bad for the economy. Likely voters believe it’s bad for the economy by a 56 percent to 17 percent margin.

There is some dissent, from the voters Rasmussen labels the Political Class. These are voters who trust the judgment of America’s political leaders over that of the American people, who do not believe the federal government has become a special interest group and who don’t believe government and big business work together in ways that hurt consumers and investors.

In other words, they’re the people the New York Times’ David Brooks refers to as “the educated class.” Or those voters in Cambridge and Brookline who stuck with the Democratic nominee in the special Senate election last January.

Two-thirds of Rasmussen’s Political Class voters believe that increased government spending would be good for the economy. These voters resemble those “practical men, who,” in John Maynard Keynes’ words, “believe themselves quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

The defunct economist in this case is Keynes himself, who argued in the 1930s for the government to hire some men to dig holes and others to fill them up. Political Class voters, who wouldn’t dream of digging holes themselves, still think this is a good idea. Most Americans don’t.

Further evidence comes from a poll conducted by Magellan Data and Mapping Strategies in the always key state of Ohio, where unemployment is well above the national average and job growth has been minimal for a decade.

Registered voters were asked to choose responses to Ohio state government’s $8 billion budget deficit. Only 16 percent favored increasing taxes, while 27 percent wanted to cut government services and a whopping 50 percent favored reducing the compensation packages of government workers.

Critics might complain that that third alternative is a false choice, in that salary and benefit cuts would not eliminate the deficit by themselves. But even when voters were given a second choice among the three alternatives, only 16 percent more favored increasing taxes. Which is another way of saying two-thirds of Ohio voters are dead set against tax increases.

These responses suggest a vivid awareness of the fact that while some 8 million private sector jobs have been lost in the recession, the number of public sector jobs has remained almost completely steady. The Obama Democrats’ stimulus package, which directed one-third of its money to state and local governments, in effect insulated the public sector from the economic hurricane that has swept through the private sector.

It’s time, Ohio voters seem to be saying, for government workers to share the pain the people who pay their salaries have been suffering.

Rasmussen’s likely voters have similar views. By a 69 percent to 15 percent margin, they believe cutting taxes is a better way to create jobs than more government spending. By a 65 percent to 23 percent margin, they believe that decisions made by business owners seeking to grow their businesses will do more to create jobs than decisions by government officials.

Over the last 18 months, Americans have watched as government takes months or years to create public works jobs, and over the last three months, we have watched government’s plodding response to the BP Gulf oil spill.

Government has grown vastly more expensive but has not acted with the speed and suppleness that it did under Franklin Roosevelt in the 1930s. The parasite is growing while the host has been losing weight.

In the meantime, Democrats are preparing to let the Bush tax cuts on high earners -- on investors and job creators -- expire. They want more revenue to feed the government beast.

Most voters take a different view. They want to put government on a diet. To slim it down, make it more lithe and limber, and stop it from choking off the recovery of the private sector economy.

Michael Barone, The Examiner’s senior political analyst, can be contacted at mbarone@washingtonexaminer.com. His columns appear Wednesday and Sunday, and his stories and blog posts appear on ExaminerPolitics.com.

Read more at the Washington Examiner

8/2/2010: Bad Regulation Drives Out Good by Sheldon Richman
Published: 10 April 2009

In 1969 economist Harold Demsetz identified an important flaw in much public policy analysis, the “Nirvana Fallacy.” We would do well to keep it in mind as we think about solutions to the current economic problems. Demsetz described the fallacy thus:

“The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing ‘imperfect’ institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements.”

A common form of the fallacy is rejection of the imperfect free (or freer) market in favor of (presumably) omniscient, omnipotent, and omnibenevolent government regulation. A “flawed” but achievable arrangement is set against an (alleged) ideal, though it is left unestablished whether the ideal can in fact exist. The problem with this form of analysis should be obvious. If the ideal is not available, then the comparison is invalid and yields no practical information. If the rejected arrangement were compared to other achievable—that is, imperfect—alternatives, it might well be judged superior.

A recent example of the Nirvana Fallacy comes from Sen. Charles Schumer of New York. Earlier this week Schumer, appearing on MSNBC’s “Morning Joe,” explained how Congress and the Obama administration will prevent a recurrence of our financial troubles. Schumer said:

You’re gonna find a different system of regulation. The real problem—and this is government’s fault… when the financial world changed, the system of regulation didn’t… That will change. There will be a strong, quiet, hopefully more unified federal regulator… And he’s gonna be tough–or she. But they’re gonna be quiet. So like when Bear Stearns began to run into trouble, they’re gonna call the heads of Bear Stearns in and say, “All right fellas, you’re getting rid of those two hedge funds; you’re gonna raise more capital—even if means you have lower profitability. We’re not gonna tell anyone you’re doing this, but you do it or we’re gonna take sanctions against you.” …You need a tough, strong regulator, unified—no holes in the system… who… sees the problem ahead of time, so they have complete transparency, they know exactly what’s going on… and they come in and say ‘straighten up even if your… profitability is lower and your stock has to go down.

We should be grateful to Schumer for providing such a detailed answer because it affords an excellent opportunity to see how the Nirvana Fallacy underpins the regulatory approach to economic problems.

We see at once that Schumer is engaged in question begging, a key feature of the fallacy. He assumes what he must demonstrate—namely, that a regulator would have the characteristics he supposes. Several problems plague Schumer’s objective, but I’ll focus on one: the knowledge problem, which stems from that fact that the most critical economic knowledge is not readily obtainable statistical data. (The other problems involve incentives and mission creep.) Reread Schumer’s description with my emphasis:

So like when Bear Stearns began to run into trouble, they’re gonna call the heads of Bear Stearns in…. You need a tough, strong regulator, unified—no holes in the system— … who … sees the problem ahead of time, so they have complete transparency, they know exactly what’s going on.

Now ask yourself what Schumer apparently has not asked himself: How will the regulators “know exactly what’s going on”? Spotting Bear Stearns’s specific hedge-fund problems “ahead of time” (!) would have required insights and hunches that only entrepreneurs with money at risk could be expected to have—and even those might not have been enough. Fortune-telling is not a widely distributed skill. It’s not a matter of toughness or access to Bear’s books. At the very least, it’s a matter of entrepreneurship (not to mention luck), which is profit-driven. Bureaucratic regulators bring no such talent to their jobs. More likely, they’d enforcing formal (possibly outdated and irrelevant) rules, looking for a repeat of the last problem, while missing the next one entirely. As Nassim Nicholas Taleb might say, it’s the next black swan, not the last one, that bites you.

Schumer apparently assumes these insurmountable obstacles away. Worse, he shows no awareness of them. As a result, he perpetuates misconceptions that give people a false sense security about regulation, thereby making them more vulnerable to risk than otherwise. Bernard Madoff’s Ponzi pigeons thought they were protected by the SEC. Would they have been better or worse off without that “protection”?

Schumer’s fallacy is actually worse than the standard Nirvana Fallacy. He doesn’t compare his unrealizable regulatory vision to the free market but rather to the corporatist economy, replete with government bailouts, moral hazard, easy credit, and all the other ways of disabling market forces that lured big financial firms into trouble in the first place.

The closest we can get to what Schumer says he wants is through the discipline—that is, the regulation—imposed by the unfettered market. That includes bankruptcy’s Sword of Damocles and the freedom of traders to sell short, that is, to profit by betting that a company’s stock is overvalued and acting to communicate that information to the market early. Predictably, the government is planning to restrict short-selling. Bad regulation drives out good.

Sheldon Richman is the editor of The Freeman and “In brief.” He is a contributor to The Concise Encyclopedia of Economics.

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Other Information about Dale F. Ogden

Dale F. Ogden for Governor
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www.dalefogden.org

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Dale F. Ogden, Libertarian, for
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Dale F. Ogden, Libertarian, for
California State Senate, 2004

Dale F. Ogden, Libertarian, for
California Insurance Commissioner, 2002

Dale F. Ogden, Libertarian, for
California State Assembly, 2000

Dale F. Ogden, Libertarian, for
California Insurance Commissioner, 1998