I happened upon this piece by economist Paul Krugman in the New York Times, predicting that our economy is in the first stages of a long depression. Nobel prize winner or not, this places Krugman behind the curve. People like Thomas Woods and Nouriel Rabini have been hitting this point for some time now. As the standard bearer for Keynsian economics in the 21st century, and a self described “European Style Social Democrat” (Socialist), his proposed solution isn’t all that surprising: more spending.

That’s a sage prescription, more of the same. This has all of the wisdom of an airline pilot who, upon realizing he’s had one too many, resolves to drink himself sober to make his flight time. Even assuming that lowering interest rates and expanding budget deficits to stimulus spend was the correct solution, interest rates are already low and our nation’s debt is unseasonably high. Lest I be accused of being inadequate in my analysis, I will go to great length to spell it out.

You see, the central idea of Keynesian economics is that allocation of resources by the private sector leads to inefficiency, and that to prevent this government must take a strong role in the economy through active monetary and fiscal policies. In reality, just the opposite is true. Individuals in the private sector have to make careful decisions about how make best use of their resources. Allowing these decision making processes to take place millions of times throughout our economy leads to a state of inherent efficiency. When government interferes with this, it diverts resources from individuals making decisions through economic means to bureaucrats making decisions through political means. Government is the source of inefficiency.

It’s easiest to illustrate this point in looking at Keynes’ formula for calculation of Gross National Product:


It is the sum of Consumer Spending plus Private Investment plus Government Spending. The idea is that you can compensate for a decrease in one area through an increase in others. If negative economic conditions cause GNP to fall, you can “stimulate” the economy by growing deficits to increase government spending, raising GNP and spurring private spending and investment. This is fallacious.

Our government has already blown an amount equal to 11% of GDP on stimulus efforts for barely perceptible growth, just .7% growth for each 1% of GDP in spending. Yet despite pumping trillions into the economy, and near zero interest rates, we’re seeing a deflationary dollar as credit is shrinking. The M3 money supply has contracted at an annual rate of 9.6%. from $14.2 trillion to $13.9 trillion. That is the sharpest decline since the great depression, and it’s still falling. 10+% unemployment will soon be a moot point when there’s no longer enough money circulating through the economy to pay those who do have jobs.

Government spending is parasitic. What government gives it must first take away, be it now or later. Every dollar that government confiscates is one less dollar available for consumer spending, and when the government spends it, they crowd out private investment immediately and by a large amount. I defy anyone to provide an example of government spending having a net positive effect upon the economy.

Bottom line, you cannot create prosperity by suggesting we all turn and pick the pocket of the person to our left. Once government is ceded responsibility for economic prosperity, there is no logical stopping point. It will always degenerate into Socialism and central control of the economy; requiring both the conceit inherent in the desire to plan the lives of others, and the force necessary to impose that plan on unwilling subjects.

Reading through the text of the "Dodd-Frank Wall Street Reform and Consumer Protection Act” it is clear that it is “reform” in name only. It might better have been named “The Banker’s and Politician’s Job Security Act of 2010”.

Though the bill is filled with tough sounding language, it lacks specifics other than regulators will have vast additional power over our economy. It is clear that it will not accomplish the stated goal of protecting the consumer, as it places the banks that took the most bailout money in a position of advantage over the rest of the marketplace. They’re doubling down on the same kind of big government protectionism that lead to the current recession, ensuring the power of centralized banking continues to grow.

Obama was busy today at the G20 summit pushing one troubling element of the bill; the Financial Crisis Assessment Fund, Section 1601. It authorizes a newly created “Financial Stability Oversight Council” to "impose risk-based assessments” on banks and financial firms. The administration will levy a tax of 15 basis points on the liabilities of large financial firms, ostensibly to “recover” bailout funds for the taxpayer. Frankly, I’d be amazed if Obama possesses the financial know how to balance his own checkbook.

What the cult of unintended consequences fails to realize is that big business doesn’t pay taxes. This cost will be passed through to the consumer in the form of higher fees, making this a tax on you and I, not on financial institutions. Most people won’t even realize they’re being taxed.

Another day, another pound of flesh. What are you going to do about it?

These United States represent the first and only society in the history of the world founded on the principles of self governance and freedom of association.

The economic corollary of that freedom was implied by the founders and came to fruition in the development of our capitalist system of enterprise. We became the wealthiest and most prosperous nation in history, because we have also been the most capitalist nation in history.

If they're intellectually honest, even the most die hard socialist must agree that capitalism is exceedingly good at one thing. No economic system has ever been more successful at continuously raising the standard of living, even if it did not do so uniformly. That not everyone in this country shares an identical standard of living can hardly be a mark against capitalism. People are free to choose their line of work, free to sell their efforts at a price of their own choosing, and free to purchase goods and services they deem to be of the best value. As a result America has a degree of economic mobility and standard of living that are the envy of the developed world.

As society becomes wealthier, the cost of consumer goods continue to fall through capitalist innovation. The triumph of capitalism isn’t that it can provide a captain of industry with a Bugatti Veyron, but that it can provide an affordable substitute with equal transportation utility to the entry level worker. The quality and technological capability of the goods and services available to the poor have come to bear closer and closer resemblance to those of the rich.

Take wine. Bill Gates could decide he wants to have a 2003 single-vineyard Côte-Rôties with dinner for around $800 dollars a bottle. At a respectable 94 of 100 points of the Wine Spectator scale, he’d likely enjoy it. While the janitor who cleans his office at night, could stop down at the local Trader Joe’s and pick up a bottle of Charles Shaw Chardonnay (voted the best California Chard of 2007) for $3 a bottle. Sure the goods purchased by the rich may be of better quality than those purchases by the poor, but they're also significantly more expensive, and the quality is such that cost to benefit ratios heavily favor the lower priced good.

In other words, capitalist patterns of trade and production benefit the poor more than they do the rich. Go tell all of your leftist friends, just to watch them have a fit.

“Capitalism is a social system based upon recognition of the rights of the individual, to include property rights; in which all property is privately owned, and in which the individual is free to use their property without outside interference.”

Simply put, Capitalism is what people do when they're left alone. Because big government never leaves people alone, it is the natural enemy of capitalism.

The term “Capitalism” is actually a misnomer. It began as a Marxist slur against the idea of an unfettered free market. It described a system under which all factor payments, and therefore all wealth, would accrue to the owners of capital or the so called “Capitalists”.

Much the same way that African Americans have made the most dreaded of all racial epithets their own word, and taken its power, many proponents of the free market have chosen to make “Capitalism” their own.

I am one of them, proud to call myself capitalist.

But some people don't agree with me, preferring to specify a free market, or “Laissez Faire” system. Lassez Faire is a term that originated in the 17th century, during the reign of France's King Louis the 14th. A series of successful wars left the nation in a dire financial crisis. Louis turned to his closest adviser, a man named Colbert, who correctly believed the best way to achieve higher tax revenues would be through greater national prosperity.

Unfortunately for France he also incorrectly believed that prosperity could be achieved through central direction by the state. Colbert set about imposing regulations upon every level of production, and down to the most minute detail. They were such an utter failure, commerce came to a halt and poverty grew enormously. A frustrated Colbert asked a group of merchants what else he might do to aid their success.

One man spoke up, shouting “Lassez nous faire!”, leave us alone.

Government can't fix the problem, because government IS the problem. If in that comparatively simple economy government control could only succeed at doing harm, what havoc must it wreak upon our modern information based economy?

Despite Keynesian economics having been proven wrong time and time again, politicians still doggedly cling to its suppositions for one reason only...it argues for their ever increasing power.

Now a team of economists from the International Monetary Fund, hardly a proponent of free markets, has released a report detailing the inefficiency of the economic stimulus in the United States:

A one percent increase in government purchases (as a share of GDP) increases GDP by a maximum of 0.7 percent and then fades out rapidly. This means that government spending crowds out other components of GDP (investment, consumption, net exports) immediately and by a large amount.

The report shows government stimulus investments yields an ROI of -30%, sending ripples throughout the economy that stifle private enterprise. Even the most optimistic reading completely invalidates Obama's economic strategy to date.

He'd better get Joe Biden out to more photo ops with green energy manufacturers.

Any reasonably well informed person could tell you that the National Debt is currently in excess of $13 trillion, and that is more than the Gross Domestic Product of the United States. But that's really only a fraction of the story.

In creating massive government and its endless spending programs, lawmakers have left the United States taxpayer on the hook for a massive amount of as yet unfunded liabilities. Because once enacted, entitlement programs almost never go away, they will eventually have to be paid. So they could themselves really be described as debt.

Of course there's the $13+ trillion of the official National Debt figures, more than enough to consume an entire year of our GDP and nearly every last U.S. Dollar in circulation. Then, according to Federal Reserve's figures, there's another $2.5 trillion or so in state and local debt, which the Federal government has pledged to pay.

One large unfunded liability is current pension payments owed to retired government workers, in programs which have been horribly mismanaged by labor unions. They are an influential lobby pushing Democrats for a bailout. If it happens would be as much as $3 trillion.

But we're not even on to the big ticket items yet. Add in Social Security and Medicare with a combined unfunded liability of $106 trillion, a few other odds and ends, and our government is at least $131 trillion dollars in the red. That's just about ten times the published National Debt figure. So why the two sets of books?

Because big government, tax and spend Keynsian economics is a dismal and utter failure. At its current size and rate of revenue collection, the Federal government is unsustainable. Because the current crop of Washington insiders isn't about to let go of their power by shrinking the size of government in a meaningful way, they'll have no choice but to try to raise more revenue. If they sold off every piece of government owned land, assuming there was a buyer who would pay market value for it, they might net $50 trillion. That's peanuts at the current rate of spending growth.

Higher taxes are coming, higher income tax, a VAT Tax, surtaxes on any group unlucky enough to find itself outside the mainstream; they're going to put the Laffer curve to the test as never before...unless we stop it.

This is the first in a series of Saturday morning screenings of a series of films produced by John Sutherland for Harding College in the 1940's and 50's. Released theatrically through Metro Goldwin Mayer around the nation, these films undertook to explain aspects of America's capitalist economic system to the public.

Sometimes I feel like asking your average liberal where wages and prices come from is likely to elicit the same kind of response as asking my six year old where babies come from. In this film "Why Play Leapfrog?" from 1949, we see that prices are largely a function of labor costs, and driving up the cost of labor raises the cost of living for us all.

Keep your eye out for the lesson/happy ending, then pass the moral on to your union labor friends.

18June2010
In a free market system profits are passed on to shareholders, and losses are absorbed by the same.

The Federal Reserve creates a system where profits go to shareholders, and losses are partially absorbed by expanding the money supply. It is a a protectionist pact between government and a world banking cartel. Government gains centralized control of the economy, bankers gain the ability to expand credit infinitely, while protecting profits and socializing losses.

The "Elastic" inflation created by fractional reserve banking is what protects their profits; and it's also what fuels the business cycle, causing booms to go higher, and crashes lower. Early on the conspirators saw that if their plan was going to work, they had to steer the United States away from a commodities based currency.

The easiest way to explain a commodities based currency is to give a real world example of how one comes into existence. Anyone who's ever watched a prison movie can tell you that in the absence of what we traditionally think of as currency, anything of value can be pressed into service; case in point?

Cigarettes.

In prison, cigarettes are often used as currency. Those who don't smoke will still attempt to gain access to them, for their value to someone who does. They're small, uniform, easily stored, hidden and traded; all aspects of effective currency. As a commodity in constant demand, they make a perfect medium of exchange.

Assuming the rate at which cigarettes come into the system is a constant, the value of a cigarette should remain the same over time. If the ration of cigarettes were to suddenly jump - say the rations increased from a pack a week to two packs a week - each cigarette would now be worth roughly half its previous value. That's inflation. Too much currency chasing a finite supply of goods, and we can see that high prices are a symptom of inflation, not the cause. But if the prisoners smoke cigarettes faster than they are issued, the remaining cigarettes increase in value. That's deflation.

Traditionally the United States had a commodities based currency as well, only instead of using cigarettes, we used gold. When you think about it this made a lot of sense, for one thing gold is always in demand for its intrinsic beauty, people want to wear it on their fingers, and around their necks. It also has all of the characteristics of an ideal currency. It's divisible, portable, durable, and has the added bonus of a high value by unit of weight.

So initially the currency of the United States was gold and silver coin, and even when we began to issue a paper currency it was backed by gold bullion held at Fort Knox Kentucky. It was on a “Gold Standard”. One dollar was standardized as worth one twentieth of one ounce of gold, and could theoretically be exchanged for it at any bank.

But when the Federal Reserve was created, it was quickly realized that the value of a dollar could not be tied to any fixed amount of gold, if the money supply was to be made elastic. This prompted the transition for the United States currency from a commodities based currency, to a Fiat currency. Currency with no intrinsic value, but value based solely on the fact that the state says it has value.

It's lead to massive inflation since going off the gold standard. Those goods and services that could be purchased in 1913 for one dollar now cost more than 60 dollars to purchase.

How long until our money is worth nothing?

17June2010
With members of the American left calling for a more dictator like president, I'm inclined to view this newly indoctrinated crop of Obama Youths a little more seriously.

People have always asked me, after the war, what I think are chances are for making a change in the Middle East. I've always said that it all depends on the children. The children love U.S. Soldiers, their look, and their sense of purpose. If those kid's are growing up more friendly toward the west because of how we treated them, then perhaps we could change the face of the middle east.

Well the community organizer in chief and his agents have learned the same lesson all too well. They're breeding an entire generation of minority youth that view Obama as their only chance for a better life, the embodiment of their dreams, something more than a man.

They worship him.

A leader intent on enforcing his agenda to reshape the face of this nation, backed by followers who revere him with an almost religious fervor, who might well die for the man. Can you imagine a more dangerous situation?

17June2010
“It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” - Henry Ford

There is a sad truth to Fords words, both in that the mass of people don't understand monetary policy, and that if they did the horror of what they'd learned would spur them to violence. One can understand why government officials wouldn't want it taught in schools; for it is in the best interest of government, if not the people, that such knowledge never become common.

“Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundreds of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance.”

That description of the events of the night of November 22nd, 1910 was written by a young financial journalist, B.C. Forbes, who later founded Forbes magazine. These men represented fully one quarter of the world’s wealth at the time, and traveled under assumed names to protect their identities. They boarded a train in Hoboken, New Jersey, in complete secrecy. They were bound for the mysterious Jekyll Island Club; an exclusive resort for millionaires off the coast of Georgia.

In attendance were Senator Nelson Aldrich (chair of the senate finance committee), A.P. Andrews (Assistant Secretary of the Department of the Treasury), Paul Warburg (representing Kuhn, Loeb & Co.), Frank A. Venderlip (president of the National City Bank of New York), Henry P Davidson (senior partner of J. P. Morgan Company), Charles D. Norton (president of the First National Bank of New York), and Benjamin Strong (representing J. P. Morgan).

What went on for the next week was a series of meetings between agents of government, and the worlds most powerful banks, that would lead to creation of a Federal Reserve and institution of the Income Tax in 1913; putting control of our entire economy into the hands of a few elites.

The census workers have been around, and any day now they’ll predictably estimate that despite rising incomes overall, about one eighth of Americans still somehow live in poverty.

This will begin a great wave of public outcry, fed by mainstream media, culminating in progressive politicians of every branch and level of government making impassioned speeches about America’s need to double down on social welfare spending.

Hopefully someone will point out that despite ever increasing entitlement spending, the poverty rate has remained basically unchanged for the last 40 years.

It’s a bit like a ballet…or roller derby.

You've got the modern liberty movement for whom big government policies and entitlement spending are anathema; facing off against the radical progressive coalition of the left, which seeks transformation of ours into a system of Democratic Socialism.

Add to that a tough mid term re-election cycle for Democrats in November, and that congress must act to reauthorize the Temporary Assistance for Needy Families (TANF) block grant by September 30th, or risk a lapse in funding; and things are fixing to get ugly in Washington.

Of course one of the difficulties in combating poverty in this nation is the lack of an objective definition. Government attempted to define it during the Johnson administration, when the “War on Poverty” was announced as part of the failed experiment that was The Great Society. An analyst at the Social Security Administration took the Agriculture Department's cost estimate for a basic diet and multiplied it by three, and that figure has been adjusted annually for inflation to arrive at the federal poverty guideline; in 2008 it was $21,834 for a family of four with two minor children.

By that measure, despite steadily increasing entitlement spending, the official poverty rate hasn’t gone down since its introduction. In 1969 is was 12.1%, and in 2007 in was 12.5%. If entitlement spending enabled class mobility you could expect that income disparity would decrease over time as people improved their situations, instead it has grown.

The figure is also misleading in that the federal poverty guidelines only count pre-tax cash income, while ignoring other forms of support. The American Enterprise Institute reports that spending by poor households from all sources is routinely double their reported income. The average person living below the poverty in America lives in a home 30% larger than that of the average middle class European, and the odds are that in that home they have a color television with cable or satellite and a DVD player. Most have air conditioning, and at least one automobile parked in the drive. The idea that the poor have not benefited from the overall increase in the U.S. standard of living is a lie.

Please take note that from 1989 to 2007, about three-quarters of the increase in the poverty population occurred among Hispanics -- mostly immigrants and their offspring, while the poverty rate fell for blacks over the same period. But you won’t hear progressives talk about that, because it suggests that America doesn't have a poverty problem at all, but an immigration problem. Counting illegal immigrants in the census is artificially inflating the poverty rate, and it is a fact that tougher immigration laws could cause poverty rates to fall sharply.

But those pushing the left's Marxist agenda need poverty to stay high or even rise.

To that end the Obama administration has introduced a proposal for a "supplemental poverty measure" in 2011, that would tie the poverty threshold to what the poorest third of Americans spend on food, housing, clothes and utilities. This will produce a much higher poverty line than is currently in effect, and essentially installs a permanent poverty rate. Every Americans income could double overnight, but the poverty rates wouldn’t budge, government would just double welfare payments. It’s all a ploy to promote the administration’s policies of income redistribution by portraying poverty as stubbornly increasing. In 2008, the traditional poverty rate was 13.2 percent; under the new formula the rate might jump up to 17 percent.

That’s not poverty, that's low relative income. The administration is selling the idea that people are poor if they're a given distance from the top, even if all of their needs are met, they suffer some kind of psychological deprivation by being far outside the mainstream.

I'm not buying.

You have to wonder which came first, the chicken or the egg?

03June2010


I love new stuff.

I can't help it, maybe it's the futurist in me. I'm attracted to new gadgets, the hottest apps, the latest trends. I'm always trying to know and understand what's next.

But I confess that there's just some trends that I can't wrap my head around; case in point, the state of men's fashion.

Oh, I've tried. I've seen the young CEO's and corporate hotshots, decked out in the latest slob wear, like they just stepped out of an Abercrombie and Fitch. I have embraced the casualization of America, and inhabited the workplace in jeans and wrinkled Polo's.

Then I see a photograph like this.

It dates back to the Great Depression. It portrays a man, down on his luck, out of work and reduced to sleeping on a park bench. Yet all I can see is his suit coat, wool trousers with a neat cuff and a sharp crease, and good lord the hat!

I've done myself a great disservice. I own too many t-shirts, and too damn many white socks. I've sacrificed the ability to project value, to visibly demonstrate character under pressure, for comfort. These are serious times which call for men of serious purpose.

I need to do some shopping.