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Bailing Out Failed Ideas

By on March 21st, 2009

The recent AIG bonus debacle has angered many people, but usually for the wrong reasons. While the $165 million in bonuses handed out to its high level employees is nothing to support or be proud of, it is disheartening when Congress and President Obama spend this much time going after $165 million and discussing nothing of the $170 billion+ they’ve already specially loaned to AIG. Now, a special 90% tax has been passed to recall the bonuses which, if signed into law, marks a huge expansion of the federal government’s power to intervene.

Bonuses are an easy item to attack and gain “extra credit” for, but I’d like to think that people could read through the lines a little bit more than this. If the federal government can just tax a company’s bonus payments (after giving them billions of dollars in bailout money), where does it go from there? Can the federal government just waltz in and pass special taxing legislation when a company does something it doesn’t like?

There are quite a few people who tell us that Washington D.C. is “broken”. I don’t necessarily disagree with this, although I’m sure I have different complaints than they do about government. But these same people want the “broken” system to legislate, mandate, and regulate “moral and ethical decisions.” So the bureaucrat in D.C. knows more about the right morals and ethics of business than the people who actually put their time and money into a business? Washington should not be thrown onto a pedestal to regulate ethics when it itself is reeking of foul and corrupt play.

The reasoning behind intervening in AIG in the first place, with the bailouts, is shaky at best. Obama recently said on this topic:

So the problem with AIG was that it owed so much and was tangled up with so many banks and institutions that if you had allowed it to just liquidate, to go into bankruptcy, it could have brought the whole financial system down. So it was the right thing to do to intervene in AIG.

If they got so tangled up with debt exposed to many industries, why in the world do they need a bailout? Why can’t they learn their lesson? Using the “too big to fail” argument, we are told that AIG can’t fail because it would be too painful for the overall economy.

I’m confused.

Obama has said countless times that he wants to change the way Wall Street works. If this is the case, why is he jumping to the plate to continue bailouts, preventing the marketplace from making this very change on its own?

If AIG’s practices got it too interconnected within the financial system, clearly something needed to change with its business. Our financial system is not built on a very stable foundation to begin with, and the market was sending strong signals that things needed to change.

But the Washington bureaucrats just couldn’t dare let this atrocity happen. This way the whole country pays to bailout failed business practices, a failed financial system, and a few irrational individuals who started the madness. Rather than let the people who created the mess fail, go bankrupt, and allow a better operation to come of it, politicians made the decision to keep Wall Street the way it is. Instead, new regulations are proposed to be thrown on Americans nationwide to regulate “ethics and morals” and lord knows what else.

What the government has done throughout the past year especially is try to discourage regulation from the market. Rather than take the signs that the financial system, despite massive central intervention over the past century, is not working, that government sponsored enterprises Fannie Mae and Freddie Mac are not sustainable, and that subprime mortgages obviously aren’t a smart plan for the bank or client, the government actually prevented the short-term failure of all these things. Ignoring the free market’s regulatory power for expanded government regulation will turn out to be the most deadly mistake we take from these rough times.

Those who preach that we need more government intervention do not understand the regulatory powers of the free market. They say that the whole financial system would collapse if the government did not intervene, but do they ever think that we might need to do things in a new and better way? A financial system built on a stable foundation won’t just “collapse”, but an inflationary system manipulated by central powers and government planners will.

The problem with government intervention and socialism is the assumption that government knows the best solution for each and every person, problem, and industry. Through the depths of history no socialist has dared believe that people could enact reasonable solutions through their own errors, trials, and hard work. A government-managed system assumes there is no better way to run an operation, which leads to inefficiency and mismanagement of capital that it didn’t earn in the first place (tax dollars).

Do not believe for a second that one more government regulation or intervention will get us out of this mess or prevent the next one that is sure to come. The market has tried to show us that the way things have been done can’t last, but the government attempts to overrule the power of the invisible hand with bailouts, forceful regulation, and varying treatment to different industries. It isn’t difficult to see that the market is yearning for a new system, but the majority of our politicians would rather take things into their own hands and stick some paint on a building scheduled for demolition.

In a free market it is the consumer and individual who makes the regulations. The government is constantly working to take away that regulatory power and instead place it the hands of a few bureaucrats who promise to protect us from ourselves.

Don’t forget that the market was well on its way to punishing the irresponsible business practices; it was not the government regulatory agencies who made the first move. By simply allowing the market to regulate itself, we would be well on our way to deflating the bubbles, weeding out (not bailing out) failed ideas, and by learning from our mistakes we could once again be on the path toward sound economics, sustainable decisions, and freeing the unyielding regulatory power of the individual.

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American Principles of Foreign Policy

By on March 18th, 2009

Today foreign policy has largely taken a backseat to the economy as the main issue being discussed locally and nationally. But foreign affairs have done anything but settle down over the past several months.

During the Presidential debates between Senators’ Obama and McCain, the main debate on foreign policy was over how to best invade and increase forces in Afghanistan and Pakistan. The two did their best to separate themselves from each other on the issue, but in the Senate they have both voted similarly on key foreign policy legislation. Whether it be the FISA bill in 2008 granting immunity to telecommunication businesses wiretapping phones under federal order, or consistently voting to continue funding the Iraq War over the years. By looking at their voting records we can see that Obama and McCain have largely seen eye to eye on foreign policy.

Today, the lack of change in foreign policy is apparent. The marines currently in Iraq are beginning transfer to Afghanistan, and more troops are planned to be brought into the country this year. The “Iraq withdrawal” plan has turned into nothing but a cover to continue the occupation of 35,000 to 50,000 “residual force” troops beyond 2010. The body count in Pakistan, from U.S. attacks, continues to rise since late January when the Obama Administration began its operation. Despite protests from the Pakistani government, these attacks are expected to continue increasingly in the days ahead.

True debate on foreign policy has been disregarded and ignored for quite some time. Ever since World War 1, the United States has taken a larger military role in world activities. As we have seen with Obama, McCain, and Bush, the principles have remained the same: continue and increase interventions in the Middle East, keep thousands of troops in Iraq for an indefinite period of time, and hardly a thing is mentioned about the countless troops placed worldwide in Europe, Korea, South America, and many other countries.

The core problem with U.S. foreign policy is very similar to the core problems of the federal government’s escalated domestic involvement with the economy. It is a short-term focused approach that does not account for individual responsibility, long-term sustainability, or the effects of blowback tomorrow because of yesterday’s actions.

The principles of domestic and foreign policy that a nation takes are very much intertwined with each other. A government heavily involved in foreign policy will lead to a government much more involved domestically, and visa-versa.

While the effects may not be immediately seen, it can’t be interpreted as a mere coincidence that U.S. entanglement overseas greatly escalated after the Federal Reserve and Internal Revenue Service were created in 1913. The power to print money and tax private property will lead to an expanded, intrusive government domestically, and in the long run that government will not hold back from expanding overseas.

What is it that we stand for? Democracy? Individual liberty, freedom, and right to one’s life are what we have fought for since 1776; not a majority rule through democracy. No matter how worthy or incredible a system may be, not one political, economic, or social system can be spread through force and sanctions without weakening or completely destroying its reputation.

The U.S. has pursued a foreign policy approach resembling that of a bully, rather than a beacon of freedom. How can we say that spending nearly 20 years in Iraq has spread American ideals of life, liberty, and the pursuit of happiness?

Spreading principles cannot work if it is done through force, whether it be with the economy or dealing with a foreign country. Leading by example, proving that freedom works, showing that free individuals can achieve more than use of military force, will bring about much more powerful, effective, and respected solutions of peace and prosperity worldwide.

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Causes of the Great Depression

By on March 16th, 2009

The Great Depression has become one of the most misunderstood events in U.S. history. Many people believe the free market to be culprit that caused the incredible economic downturn, that the government didn’t do enough to stop it, and that it was largely President Hoover’s fault for not intervening enough into the economy. Today, to my best ability, I hope to dismiss these false assumptions.

Herbert Hoover was elected President of the United States in 1928, and from the beginning it was clear he was not a supporter of laissez-faire, nonintervention economic policies. Hoover preferred regulation, government involvement, and over the course of his presidency he greatly expanded the role of the federal government in the economy. During his presidential campaign he spoke of helping the agriculture industry by raising tariffs and discouraging agriculture imports.

Hoover’s intervention began in 1929 with the Mexican Repatriation, leading to the “voluntary and involuntary” migration of approximately half a million Mexicans. The reasons primarily being high unemployment in the U.S. and the incentives welfare created for Mexicans. Rather than look at the root reason for the Mexicans wanting to be here (jobs and welfare), Hoover ignored the cause and instead only dealt with the effect; not too far off from the immigration policies the U.S. has employed with Mexico ever since. The Mexican exodus would last through 1937.

The Repatriation was not too unreasonable compared to the other policies put into action by Hoover. On June 17, 1930, the President signed into the law the Smoot-Hawley Tariff Act. The Act raised tariffs on more than 20,000 goods imported into the U.S. to historically record levels. Prior to the bill’s passing, 1,028 American economists signed a petition urging Congress and President Hoover to not support or pass the act, explaining that it would force consumers to pay higher prices on countless items.

The reasoning behind the bill was that it would encourage people to buy American products, by greatly increasing the prices of imported goods. It was also assumed that it would lead to greater revenue for the federal government. This turned out to be terribly misguided thinking, as it led to slice American imports by 66% and exports by 61%, between 1929 and 1933. Exports declined sharply because many countries increased their own tariffs on American goods in particular, as a result of Smoot-Hawley, leading to a period of reduced trade and economic isolationism and protectionism.

There is a good possibility that the passage of Smoot-Hawley may have played a good sized part in the collapse and decline of the stock market starting in 1929. As the Wall Street Journal explains:

Though many associate the Great Depression with the stock market crash on Oct. 29, 1929, the market actually rallied during the six months following Black Tuesday, while the defeat of Smoot-Hawley appeared likely. The market turned south again in April 1930 as those hopes of defeat gradually dimmed.

The Dow Jones Industrial Average sank a full 8%, from 250 to 230, over just two trading days in June 1930, in direct response to the Senate’s passage of Smoot-Hawley and Hoover’s announcement that he would sign it. Exacerbated by other flawed governmental policies, an international trade war continued to drive the market down until the Dow hit a low of 41 on July 8, 1932, having lost 89% of its value from its September, 1929 high.

The initial and continuing effects of the bill certainly did not help revive the U.S. economy as originally intended. This was not the end of the list of legislation, signed into law by Hoover, heightening government interference in the market.

As a result of the faltering economy, revenue from the corporate tax dropped to $550 million in 1932 from $1.1 billion in 1930, and income tax revenue fell to $370 million from $1 billion over the same period. This made way for a growing budget deficit of more than $2 billion in 1932. In response to the government’s financial problems, Congress enacted the Revenue Act of 1932, which Hoover signed into law on June 6, 1932.

Among other things, the Revenue Act increased the top income tax rate to 63% from 25%, doubled the estate tax, increased corporate tax rates nearly 15%, and added new and increased excise taxes on goods such as tires, lubricating oil, refrigerators, chewing gum, soft drinks, electricity, and many other items.

Government looked at its revenue problem in 1932 and seemed to see increased taxes as the only solution. Cutting the increased federal programs and spending, for some reason, did not appear to be a viable option. Rather than even considering the federal government might be unnecessarily involved in areas that it shouldn’t have been, creating new taxes and increasing current ones was seen as the only reasonable solution.

Amazingly, Franklin Roosevelt actually attacked the President on this issue while campaigning, explaining that Hoover had spent money in a “reckless and extravagant” manner that the U.S. had never before seen. John Nance Garner, Roosevelt’s running mate in 1932, said Hoover was “leading the country down the path of socialism.” While these accusations may very well have been true, it is laughable to compare these words coming from Roosevelt and Garner, to the New Deal policies they implemented once in power. The New Deal that the Roosevelt administration pushed and championed was nothing more than a continuation and escalation of the policies pursued by Herbert Hoover, the same ones Roosevelt had blasted while on the campaign trail.

Both Hoover and Roosevelt tried to push economic beliefs and theories that helped prolong and worsen the Great Depression. They both believed the federal government should manipulate the economy, and stimulate it out of a correction through spending, and government involvement. The two presidents subscribed to the same flawed, short-term focused, interventionist, Keynesian belief in economics. The failure of their philosophy is evident in the performance of the economy during the period in which they tried their shenanigans. The country’s unemployment rate in 1939, despite all the efforts from Hoover and Roosevelt, was still higher than it was in 1931.

The free market does not come without its own flaws. Humans are not perfect, but with a free market system it is the individuals making the calls; not an elevated, select few who regulate and control society. In whatever economic model you choose, humans will always be behind the system.

It is not through more laws, regulation, and intervention that we find the right path to a prosperous society. Only by learning freely from our mistakes and failures can we expect to grow stronger, smarter, and more sustainable over the long-term.

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The Expansion of Presidential Power

By on March 14th, 2009

Presidential executive orders have become much more commonplace in government today. Historically, presidents generally used these orders to manage and direct federal agencies through laws already passed and arranged by Congress, and clearly not to create, or vaguely interpret, laws for expanding executive control.

Presidents since George Washington have used executive orders, or “directives”, although for a good period of time they were not officially recorded. For example, George Washington established a national day of Thanksgiving, and ordered subordinates to prepare reports on the various state of affairs in the U.S., etc. James Madison actually criticized Washington’s “Neutrality Proclamation”, which stated that the U.S. would hold neutral, friendly relations toward the countries of Britain and France, for overstepping the bounds of the executive branch! Executive orders were debated pretty heavily and certainly were not everyday events in the young days of our republic.

While some may trust the executive branch to do well with this incredible power, history has shown a different path. On April 5, 1933, Franklin Roosevelt signed Executive Order 6102 into law, effectively confiscating gold from the American people because of the continuing “national emergency in banking”. People were given less than one month to deliver their gold to a Federal Reserve bank or branch.

Seeing how personal freedom, and the right to property, could be stomped on through the order of the president is exactly why it is vital that executive orders aren’t ignored. Even if the majority of the orders go unnoticed or make little, if any, difference in our personal lives; the less attention we pay to these executive decisions, the more at risk our individual liberties and freedoms will be in both the short-term and the long run. Executive Order 9066, signed by Roosevelt on February 19, 1942, led to the relocation and internment of approximately 120,000 Japanese Americans, Germans, and Italians. In total, Roosevelt issued 3,435 Executive Orders throughout his twelve years in office, more than one order every other day.

It is in times of war or “emergency” when the federal government, and executive branch in particular, most expands its power by leaps and bounds. This is what leads to the destruction of individual freedom, one piece at a time, and inevitably will strengthen the central government, and lessen the direct representation of the people. At heart, strong central power, as we are seeing now, is nothing more than a move towards socialism, where a select few try to pound society into a shape that is to their liking.

The Founders never meant to give the executive branch the potential of such massive power. The Constitution was created to limit the federal government arguably as much as possible, because the people had directly seen what tyranny could come from a strong executive leader, King George.

The federal government was meant to deal with as few issues as possible. Issues not specifically delegated to the federal government, or prohibited to the States, were handed over to the power of the States and the people, through the 10th Amendment. The possibilities of corruption, deceit, and plunder greatly increase with a strong central government. Thus, the 1787 Constitutional Convention delegates gave the most power of the three branches making up the federal government (legislative, judicial, executive) to the legislative branch, because it was the branch designed to be closest to the people.

Congress has had a history of neglecting its power and responsibility by giving it up to the executive branch, which has largely contributed to the growth and irresponsibility of the federal government over the past century. This has played a key part in the increasing grip executive orders have clenched over government and society. In short, executive orders are a continuation of the expansion of the federal government’s power. Recently we have seen this power expansion through the “emergency” bailout of the auto industry ordered in December, 2009, by former president George W. Bush. One question: where does the authority for the president to even bailout an industry, let alone through an “emergency” order, come from?

We have not only drifted away from the principles of individual responsibility, free markets, and equal justice that make up a free society; today we are moving in the completely opposite direction by letting the power of the executive branch continue to expand. Remember, it is not the government that is supposed to regulate people, it is the people who are supposed to regulate government. And this regulation is much more easily, effectively, and efficiently achieved on a local scale than nationally.

“Never waste a good crisis.” – Hillary Clinton

“Never allow a crisis to go to waste.” – White House Chief of Staff Rahm Emanuel

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The Federal Reserve and the Manipulation of Credit

By on March 10th, 2009

The issue of credit is so intertwined with our current economic system, it is critical that it be researched, discussed, and brought to the light of the public.

What is credit? Webster defines it as the “reliance on the truth or reality of something”. Simple enough. The Federal Reserve controls the supply and creation of money and credit in the United States. Credit creation is defined as the “collective abilities of lenders to make money available to borrowers”. The Federal Reserve, through its monopoly power over interest rates, is able to control the flow of credit. When interest rates are lowered, banks can borrow funds from the Fed at cheaper levels in order to lend it more easily to its customers.

The manipulation of interest rates is an important topic to understand today’s economic climate. For better or worse, the concentrated group of bankers that is the Federal Reserve dictates all monetary and credit policies. Over the past decade the Fed has kept interest rates at particularly artificial low levels in order to boost and stimulate the economy. But, lowering interest rates doesn’t just “stimulate” the economy. It cheapens money for banks to borrow. When the Fed lowers rates to levels that the market wouldn’t normally allow, it builds up a manipulated situation of wealth and credit, which then creates an artificial, short-sighted opportunity for people. While this may create a fantastic situation for the economy in the short-term, the bubble always bursts.

The subprime mortgage escalation that we saw over the past decade would not have been possible were it not for the Fed’s control over interest rates and therefore control of credit. Ordinarily, banks would not have had the capital to continue lending ridiculous loans to people who certainly could not afford them. However, when interest rates are kept low, the artificial creation of credit allowed banks to continue the unsustainable process much longer than the regulatory forces of the market would naturally allow. So, while the printing of money out of thin air is what causes the monetary inflation problems; it is the Fed’s control and manipulation of credit that allows banks to go down the road of unsustainable, irresponsible business decisions without immediately feeling the effects as they would in a free market.

The federal government’s role in this cannot be downsized, either. Primarily through Fannie Mae and Freddie Mac, the government supported the subprime loans and loans in general to people who normally couldn’t afford a loan. While this may be a worthy cause, intervening in the markets will not come without its consequences, usually over the long-term. Whether it comes from the government or a central bank, it is not possible to make the market more “fair” or level out the playing field, so to speak, with interventionist policies. Through cheap credit and government backed loans we have gotten to where we are today.

Just as money can’t be printed out of thin air without having substantial negative effects on the currency, neither can credit be artificially created without it coming back to bite the very hand that fed it. Today, the same path is being followed. The Fed has announced a new program “aimed at boosting the availability of credit to consumers and small businesses.” It seems that the Fed is either unable or unwilling to learn from its past mistakes that brought us here in the first place.

The Fed’s new program will “spur consumer lending” by loaning up to $200 billion, hopefully enough to dupe people into thinking they can once again afford things they thought they couldn’t before. Common sense will tell us that creating more cheap credit will not solve a problem created by cheap credit in the first place.

The problem with the government and Federal Reserve is shortsightedness. The short-term spending and performance of the economy is all they seem to pay any attention to. Therefore, the fed and the Fed (that is my cheap attempt at a pun) do what is in their power to get the economy stimulated for the next quarter, or focus on the next week’s unemployment numbers, rather than stepping back and look at what makes a sustainable economy.

Short-term spending is not what creates a prosperous and sustainable economy. We should be able to know this by now after everything we’ve gone through, but the constant federal and central interventions discourage people from looking at the larger scheme of events. We’re lead to believe that it’s okay for us to go deeply into debt and buy loans that we can’t afford, because the government is “backing” those loans. After the government and Fed’s relentless pursuit to prevent businesses and homeowners from failing, I have a hard time believing that people are going to come away from this crisis understanding the principles and benefits of individual responsibility and hard work.

Saving and investing are what sound economies are based upon, not spending. Rather than constantly spending money in the short-term on items that really are unnecessary and even irrelevant to our personal lives, as the government and Fed encourage, it is through wise saving and investing at one’s own discretion that funds are built up for children to go to school, for houses to be built, and have a sustainable lifestyle that will benefit the economy for years rather than quarters.

While saving and investing may not create an immediately noticeable effect, they will do far more in creating a sustainable, truly prosperous economy over the long run. Focusing on the short-term results and disregarding the long-term aspects of decisions played a major role in the messes that both individuals and governments around the world find themselves in today.

Credit cannot be created nor cheapened by a central bank sustainably over the long-term, as hard as it may try. True and sustainable credit is built from a strong reputation built on the foundations of living within one’s means, saving, investing, and at the heart of it, having a long-term focus. The laws and abilities of the free market are what promote these key qualities for the prosperity of both people, and nations. Federal and central control, manipulation, and intervention promote the opposite: a spending economy, a short-term focus, and living beyond one’s means in order to achieve greater wealth in the short-term, as unsustainable as it may be.

Let us solve our current problems not from more of the same, but a return to the principles of personal savings, hard work, and individual responsibility.

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Subsidies and the Destruction of Small Farms

By on March 8th, 2009

Since the Great Depression, the federal government has taken an increased stake in the farming industry. The Agricultural Adjustment Act, enacted in 1933, is considered to be the first modern farming bill. The Act provided subsidies to farmers who left some of their fields undeveloped in an effort to reduce the crop surplus and therefore raise crop prices, helping farmers. Yes, the federal government actually created an agency to raise food prices by destroying crops and livestock in the U.S.

The Agriculture Adjustment Act greatly helped large farmers through the subsidies. Smaller farmers were run out of business and hired by the larger landowners, while customers took on higher prices. Even though this initial legislation proved to be very unpopular with the people of the U.S., today the federal government is still heavily involved with farm subsidies, encouraging larger farms, and disregarding the laws of the free market.

Over the past several years ethanol subsidies have come into the public eye. The federal government has been pumping billions of dollars into ethanol for years, and all we’ve had to show for it are record high corn prices worldwide, a ballooned and inefficient corn production, and yet ethanol still has made no headway as a viable energy alternative. Corn is connected to countless key food products, whether it be cattle feed or a primary food staple, but this has been totally disregarded in an effort to promote an unsustainable, inefficient, and costly energy source. The government subsidizes this irresponsible ethanol program while heavily limiting foreign, and possibly more viable, ethanol sources from being imported into the country.

Recently a new bill has popped into view and generated some buzz with the farm community. H.R. 875, The Food Safety Modernization Act of 2009, was introduced on February 4, 2009. The bill aims to create a Food Safety Administration (FSA) within the Department of Health and Human Services. The bill is quite complex, but I’ll do my best to break it down a bit here.

The FSA would be responsible for creating a national food safety system and enforcing it on “food establishments” through all the stages of food production. To ensure that the new safety systems are being followed, the FSA would create and implement a national system of “regular unannounced inspections of food establishments”. The FSA would design new regulations in order to have “minimum standards related to fertilizer use, nutrients, hygiene, packaging, temperature controls, animal encroachment, and water” in “growing, harvesting, sorting, and storage operations.”

What’s especially vague in the bill is the definition of the “food production facilities” who would be subject to the new agency and regulations. From the bill: The term ‘food production facility’ means any farm, ranch, orchard, vineyard, aquaculture facility, or confined animal-feeding operation. The FSA would have the authority and ability to regulate state farms and commerce, areas previously largely out of reach of the federal government. Essentially all local, state, and inter-state food operations would be placed under the jurisdiction of the federal government, through the FSA. One thing that is clear about the bill is that it would greatly expand the regulatory powers of the federal government to unheard of levels in U.S. farming history.

You would think that the principles of the free market and individual responsibility would be respected a little bit more than this. The FSA would be able to enforce laws and bans that previously the FDA has not been able to, such as banning the sale of raw milk. Enacting national standards for all farms, large and small, would be disastrous for local farms. Local, smaller farms do not have the resources to go through such a regulated, bureaucratic, biased system. Just as the initial farm subsidies in the Great Depression eliminated many smaller farmers to the advantage of the larger ones, the FSA would create such a legal hoopla of new laws and regulations that it would be next to impossible for smaller farms to continue operations.

Whether it be through subsidies or increased regulations, these interventionist policies from the federal government always benefit the larger farms and their often unsustainable farming practices. Larger farms generally have a difficult time operating and surviving without using harmful pesticides and farming techniques that hurt the environment and decrease food quality. The FDA’s regulations and restrictions, as well as the subsidies from the federal government, promote larger farms, the unsustainable and inefficient farming practices they employ, while bogging down the local farmers who are often growing healthier food with more sustainable and environmentally-friendly farming methods.

I see farm subsidies as an attack on smaller, local farms. As the farms get larger, supported by subsidies and regulations that stifle the competition, the focus of the people drifts away from the local level. When this is done artificially through the support of the federal government, you get what we have today: large farms with unsustainable farming techniques, heavily processed food, and a system that would most likely be worthless were it not for harmful pesticides and preservatives. I would not argue against this nearly as much if it was a decision reached freely by the people through the free market. Food is one of the necessities of life, and when the government starts interfering with it and manipulating farms in favor of the larger businesses, the economy as a whole will be built on an artificial, unsustainable basis.

The consumer should be the most powerful regulator in a society, but that has been taken away first and foremost with the intervention in food industries. If we can’t make our own decisions about what we eat, can we seriously expect to make decisions about anything else in our personal lives? The federal government is not the regulator we need. Rather, we should be empowering people to make their own decisions through their local economy, community, and government. Local farms are the heart of local economies; discourage them and you build the foundation for nationalization, greater federal intervention into all industries, and a people who are no longer able to make their own decisions.

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Think Localization, Not Nationalization

By on March 6th, 2009

The main arguments against capitalism, that I’ve heard, include that it’s an unfair system primarily about greed and taking advantage of your fellow man. Arguments for government intervention and social planning can sound attractive. “Free” education, “free” health care; as the laundry list of “free” items stack up, it sometimes sounds too good to pass up.

The primary problems that I see with government intervention and central planning on all levels is that it assumes that those select few individuals know what’s best for the people, the economy, etc. Capitalism is the only system that “admits”, so to speak, that there is room for improvement outside the control of the government and central planners. Human nature to increase efficiency, get lower prices, and create sustainable living styles cannot be outdone by an interventionist government system.

What we’re going to realize is that a nationalized, subsidized, and fiat money economy is not sustainable. We’ve experienced and tinkered with it for nearly a century, and while the short-term results haven’t been too bad, it simply cannot last. With an inflationary monetary system like we’ve had since 1971, saving is discouraged because it makes no sense to hold dollars when they’re losing value every month. This is the largest fundamental problem with our economy today. It seems that we always have to be spending, that is at the heart of the bailouts and stimulus packages over the past year. Never has it been suggested that people save money and make their own decisions with their money. Whether it be banks or auto businesses, the U.S. has lost the core capitalist principle of individual responsibility and instead has gone the route of letting no one fail.

I’ve heard many times that we’ve had an economy of greed over the past several years. In many ways this is correct, but blaming it on capitalism is not. I believe that our paper money system controlled by the Federal Reserve has encouraged more greed than anything else. When you have a deceitful central bank with an unsound currency, I don’t think there’s a snowball’s chance in hell of that not stimulating greed. Central banks do not hold the citizens’ interest, that is the first thing to remember. With the Fed, we have a central bank who doesn’t even give out the names of the many banks it has loaned trillions of dollars to in a matter of months. With these special, unbalanced interests, it will not impact the economy in a good way. Couple this with a paper money currency enforced by the government which leads to higher prices and a stretched middle class, and you’ve got a recipe for greed and reckless spending to take off. I am not saying that the Fed is the only entity or factor to blame, but merely that it has contributed more than anything else to this unbalanced and unfair economy.

When the greed argument is used to blame capitalism, this often is aimed at “lack of regulation” on Wall Street. With the amount of bickering about too little regulation, you’d think we had a system of anarchy ten years ago. People forget about Enron and the Sarbanes-Oxley Act that came of that scandal. People forget that The Securities and Exchange Commission (SEC) was established in 1934 to prevent corporate abuse on reporting information. Laws and regulations have stacked up for 70+ years, yet bad and stupid things still happen in the world of business. Only now, when something goes wrong, the whole country accepts more regulations and the belief that more money poured into government intervention will suddenly make everything better.

Instead of shareholders being responsible for the business and its accounting practices, the SEC stepped in and essentially led people to believe that it has everything under control. It discourages investors from performing their own research and due diligence. Rather than the SEC, FDIC, and lord knows what other regulatory agencies try to take the place of personal research and responsibility, the destiny of a business must lie with the shareholders and consumers. As we can see from the past hundred years or so, when the government tries to take the place of the invisible hand of supply and demand, it does not solve the problems. It’s foolish to think that the government and central planners can perform a task in a more efficient, smart, and sustainable manner than the individuals of this country.

As the federal government and Federal Reserve have pulled in more responsibility for themselves, taking it from the people, we have embarked on the road to nationalization, big business, and big government. We’ve tried our hand at nationalized education, which has been a horrendous excuse for a public program. Ever since the 1970s the federal government has gotten much more involved with the health care industry and put more control into the drug companies, taking away from the pivotal patient/doctor relationship. In a broader sense, we are quickly moving toward nationalizing industries, both with government and through the government’s favoring of larger corporations.

What I see this as is an attack on localization. I find it silly to believe that we can solve our problems by putting them up on a larger scale, by “modernizing” industries which has always led to the destruction of smaller businesses at the hands of government intervention, and many other ways through government involvement. By discouraging local and community involvement, we have lost the key to what makes an economy great. Strong growth doesn’t mean a thing on its own in the short-term. Rather, it is strong, sustainable, honest growth that capitalism aims to create. I think the easiest, most efficient, and most sustainable way to achieve this is through local economies and community involvement. Whether it be with politics, economics, or business, it is the personal interaction that makes a strong system.

When we nearly force businesses and politics to be done at a national level, it tears away the personal touch that is so essential to a prosperous society. Individual responsibility is much more easily accomplished through a local economy, rather than through a government and corporate-controlled national economy, which is increasingly evident what we have in place today. With politics, it is much simpler and beneficial to bring about change on a local or state level than on the national scale. I think the same goes for a business and economy too. With a strong, involved community, next to nothing is impossible.

The Founding Fathers shared this ideal as they were writing the Constitution and envisioning America. They made it very clear in the Bill of Rights with the 10th Amendment; that issues not given to the federal government or prohibited to the states were to be put in the power of the states or the people:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The federal government was not created to solve every social, economic, and even political problem. The federal government was initially created to be as little involved as possible compared to the states, but today the opposite seems to be true. Rather than give more power to the people and states to make their own decisions and take their own responsibility, that power has been given, like never before, to the federal government. In other words, localization is near being destroyed due to nationalization and a huge federal government overstepping its bounds.

The sooner we realize that individuals, local communities, and states can solve their own problems far better than the federal government, the sooner we will be on the road to recovery, and a prosperous, sustainable economy and society.

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The Pain of Two Corrections

By on March 2nd, 2009

Today, for the first time since May 1, 1997, the Dow closed below 7,000, down 4.24% to 6763.29. It has been nearly twelve years since the market has seen these levels, and that was when the tech boom was going full throttle, well before the 2000 correction.

Did we even have a complete correction in 2000? With a central bank making the calls of monetary policy, I’ve realized that we cannot know whether the correction was actually sufficient enough to clear out all the malinvestment and bad management decisions. Think about it: interest rates were sharply lowered, credit was injected into the economy, and before too long the economy was back on its feet again (thanks in part to the new housing bubble). Just because the recession may have been weakened by the Federal Reserve’s intervention, it doesn’t mean that it wouldn’t have negative consequences later on. In a true free market where the market would control money and credit, this would be much easier to analyze. We do not have that convenience though, because we have to live with and analyze the actions of the select, unelected few who call the shots.

I bring this up because we obviously do still have market forces at work. Despite regulation, intervention, and manipulation on the part of the government and Federal Reserve, the underlying powers of the market do not disappear for good. Today the stock market has been sent to levels prior to the correction of 2000, and I can’t help but speculate that part of this is because investors are starting to understand more deeply the consequences of credit manipulation from the Fed, as well as an inflationary monetary system.

Over time, we as a nation have subscribed to the Keynesian belief in economics that you must spend and inflate your way out of economic hardships. This is the root of our largest problems today. Some of the key principles of capitalism are saving and investment, but over the past century we have gotten the mindset that it is the government’s responsibility to manage and influence the economy. It is this belief in inflation and debt financing that has caused us to get so overwhelmed by a correction that is beyond the hands of government and central planners.

What if, by lowering interest rates to artificial lows in 2000, Greenspan prevented, or rather delayed, areas of the market that didn’t fully correct? What if providing such cheap money was one of the primary reasons for the largest and most irresponsible bubbles this nation has ever seen? A small group of central planners, if they worked 24/7, could not get close to controlling the marketplace in a more efficient and responsible manner than a capitalist free market. With the key influence of money and credit out of the hands of the consumers and investors, I find it very hard to believe when people blame our problems today on the “free market”.

No matter what political, economic, or social systems are in place, the forces of the free market are always at work. This is why every nation that has tried its way with a fiat monetary system has not lived to see its lasting success. No piece of paper guaranteed by a government and central bank can take the place of gold and silver, the only items consistently and universally accepted as currency in all of human history.

Every attempt at government and central planning is an effort to go against human nature. Capitalism is not about “greed” as many have made it out to be. Capitalism is the only economic system that supports, rather than discourages, the profit motive. Capitalism is a consumer driven economy, which leads to lower prices and higher quality products. In a true free market capitalist society the regulation of the market, not the government, is unleashed in full force. The ability of free choice and individual responsibility will outweigh any government bureaucracy’s ability to regulate.

The government and Federal Reserve do their best to limit individual responsibility and ability. Over the past year we have been forced to bailout massive corporations and essentially the whole government-managed banking industry. If these were such pressing matters, why not leave it up to the people to decide whether or not these corporations were “too important to fail” and deserved money of which they had earned not one penny? If it was such a pressing matter, there was nothing stopping people from sitting down and writing a check for the Treasury to distribute to its banking buddies.

We have lost the ability to make our own decisions with our money. Talk about taxation without representation: over the past year, the Treasury Secretary and Federal Reserve Chairman (formerly Hank Paulson, now Tim Geithner and Ben Bernanke), two unelected officials, have handed out trillions of taxpayer dollars. This past December, former president George W. Bush ordered an “emergency” bailout of the auto industry. Rather than let these mismanaged auto businesses fail, reorganize, and come back as a stronger entities, the taxpayers are being forced to pay the bill for stupid mistakes made by the businesses. In other words, if we decide to not buy their crappy vehicles, we’re forced to bail them out with our taxpayer dollars.

The regulatory abilities of the free market are starting to rev their engines. The monetary dictatorship of the Federal Reserve cannot manipulate credit and destroy the value of the currency without serious repercussions. Bailing out failed and irresponsible business decisions won’t eliminate the problems of mismanagement and malinvestment. Nationalizing industries will not lessen the pain felt by the consumer during this economic crisis, nor will increased regulations.

Countless times our officials have gone with short-term solutions that ignore the laws and history of economics. They go for the route of more government intervention and involvement in the economy. Many people today can’t comprehend a system where the government wasn’t responsible for getting the economy out of a recession. Somehow people fail to see that this is not a problem caused by lack of spending, but lack of saving. It’s pretty simple: Congress encouraged businesses to hand out irresponsible mortgages that they knew people couldn’t afford, people took these irresponsible mortgages they knew they couldn’t afford, and both sides of the party went deeply into debt. But rather than take the signals of the recession that we need to cut back on spending and increase our savings, the government has gone on a spending rampage in the past year, the likes of which the world has never seen. Not to mention that this is money we do not have, which only means it will come through more borrowing and inflation of the dollar.

The free market has been put off and suppressed for a good amount of time now. However, like I said, its forces can and will never completely disappear. Human nature, common sense, and the yearning for individual responsibility will eventually outwit and overpower all regulatory and deceitful agencies keen on destroying those very principles and natural laws. History shows there are no exceptions.

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Ignorance of the Federal Reserve System

By on March 1st, 2009

The Federal Reserve is, without a doubt, one of the most difficult entities to understand and grasp today. Legally we do not have the right to know what goes on behind the closed doors of the Fed. Yet, we place in them the overwhelming power, control, and ability of a monopoly over money and credit. Regardless of your personal opinions on the Fed, you would have to agree that it makes no sense to give this much concentrated power to just a few people without any oversight from Congress whatsoever.

I cannot pretend to understand everything about the Federal Reserve; far from it. One may wonder if such a complex system was purposefully put into place to confuse and discourage people from fully understanding the system. When Woodrow Wilson signed the Federal Reserve Act into law in 1913, the U.S. was still on a gold standard. The currency was backed by a physical commodity, rather than a plain faith-based system like we have today.

The Founding Fathers greatly understood the dangers of paper, or fiat, money systems. They dealt with it firsthand during the Revolutionary War with the Continental Dollar. The Continental Dollar was established by the Continental Congress in 1775, and it was nothing more than worthless paper and collapsed in a matter of years after runaway inflation. This was the primary reason why these words were put in Article 1, Section 10 of the Constitution of the United States:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; [...]

The gold standard was not put in the most important document of the U.S. by accident or coincidence. The gold standard was and still is necessary for the same reasons: it holds the powers-that-be back from the incredible power of wildly expanding the money supply (monetary inflation that leads to a worthless currency and a wiped out middle class), gold and silver have been accepted as currencies worldwide for thousands of years, whereas fiat money systems have been tried countless times throughout history and failed every time.

In short, after the Fed was created, the gold standard was attacked bit by bit through 1971. Franklin Roosevelt issued executive orders confiscating many forms of privately owned gold, greatly expanded the Federal Reserve’s scope and power over money and the economy, and devalued the relation of gold to the dollar from $21.67 to $35.00 per ounce. All of these acts were in the name of stopping the Great Depression, but they only led to handing more secrecy and sheer power to central planners.

The gold standard was phased out over the next 30 years, and the power given to the Federal Reserve continued at a consistent pace. Legal tender laws were enacted, making Federal Reserve Notes the only legal currency in the U.S. In 1971, the dollar became a complete fiat monetary currency and lost all ties with gold. This is the system that we have today.

What’s interesting is seeing what’s happened with the dollar through all of these changes. Let’s start with the 100 years before the creation of the Federal Reserve (these are inflation numbers as reported by the Historical Statistics of the United States and Statistical Abstracts of the United States):

Between 1813 and 1913, the purchasing power of $1.00 actually increased to $1.76.

From 1913 to 2007, the purchasing power of $1.00 decreased to $0.05.

Do you think that these facts are merely coincidence? Let’s break these statistics down a little more.

From 1913 to 1971, when we had the Federal Reserve and at least some connection to a gold standard, the purchasing power of $1.00 decreased to $0.25.

From 1971 to 2007, with a fiat monetary system under the Federal Reserve, the purchasing power of $1.00 decreased to $0.19.

This means the purchasing power of the dollar actually decreased more than twice as quickly under a fiat monetary system, than with the minimal gold standard the U.S. had between 1913 and 1971. The Federal Reserve has managed to delay corrections by artificially lowering interest rates, but all of this comes at a price. How big? We can’t say. Tinkering with interest rates and credit cannot solve a crisis, and this will be a difficult lesson we’ll have to learn due to the incompetence of a select few who secretly control every aspect of money and credit in this nation.

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The Frustration of Taxes

By on February 8th, 2009

Over the past couple weeks in my school we’ve had the nice opportunity to have a small class on personal accounting, budgets, banking, taxes, etc. Everyone made a rough budget estimate for necessities they would have to provide for themselves once they were out on their own in the real world. Basics like rent, food, utilities, clothes, and so forth were all covered.

Then our guest teacher (who is a local accountant) got into taxes. And goodness gracious, that really made an impact on all the students. Now, I am lucky enough to go to a very small private school where the students are well informed on current events and have a very realistic and balanced approach to life. I think for all of us in the class, though, taxes for that one instant didn’t make any sense at all. The IRS never made sense to me, but this really hit it home. Now, for the people reading this, I’m sure it isn’t anything new. I’ve had more experience and exposure to taxes than most of my friends, but still this class managed to smack us all in the face with reality a little bit. The amount set aside for taxes in our de facto budget outdid any of the other categories.

I’ve said it before and I’ll say it again, basic common sense is something that is lacking right now, especially when it comes to government, but even with individuals and businesses as well. This will be the first year that I have to file taxes, and even though what I pay (roughly 12%) is a relatively small amount, it doesn’t keep me from already getting frustrated in this system we’re forced to tolerate and comply with. Most of my taxes go to Social Security, a flawed government program that will most likely be bankrupt within 15-20 years. (That and probably many other areas of our government.) Just the rules that people come up with for this sort of stuff is pretty funny. Everyone in the class started cracking up when our teacher started to explain 401(k)’s, because none of us could see how such absurd rules and regulations could be justified. And our teacher was explaining it in all seriousness; the whole philosophy of taxes and the rules that come with them are what really got to the students. Taxes make saving and investing so much more difficult than they should be; any exchange of money is basically penalized. Basic common sense says this is not a system the Founding Fathers would have appreciated.

I think young people, both teens and young adults, are picking up on the ideas that it would be nice to just live their own lives without so much intrusion from the government. I’ve been constantly discussing politics and policies from the perspective of Austrian economics for more than a year, and the ideas simply make sense to them. Education is the number one way to spread the ideas of liberty, personal responsibility, and a non-intrusive government. I think all of us in the class started to realize that the IRS gives the notion that the government owns your labor and your property. This is not a good way to motivate young people to go out and get a job. Heck, it’s already hard enough to get a consistent job with the strict labor laws in the U.S. Now that we get a chance to go out and get a real job, we have a relatively massive tax burden to deal with.

When you analyze the IRS and Federal Reserve, both of which were created in 1913, you start to realize that this country is a lot less free than politicians would have you believe. The way I see it, the U.S. is becoming hostage to a huge national debt, over regulation, and central power. I honestly don’t think the young people of this country will want to sit back as they start to feel the accelerated impacts from these socialist, centrist policies. There is no way in hell that our current policies are paving the way for a more prosperous future. Debt, inflation, regulation have all been tried countless times throughout history in many different shapes and forms, and they never work. Logic says they can’t and won’t work, and as much as politicians in Washington might hope they can, the market cannot be suppressed forever. Luckily, more and more people are picking up on this across the country and starting to ask questions. The movement for liberty, responsibility, and a simple return to the Constitution can only go up from here.

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