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Blocking the Power of the Free Market

By on April 6th, 2009

It now appears that General Motors might accept bankruptcy as a solution, after all. New CEO Fritz Henderson says, “If it’s required, that’s what we’ll do.” Oh, great. After giving GM and Chrysler $17.4 billion in taxpayer dollars with a likely promise of more, this is an unexpected and somewhat pleasing turn of events.

GM has not done a thing to deserve special treatment. Mr. Henderson admits and suggests that the company needs to restructure, but would prefer it to be done without the usual bankruptcy protection. If the Big Three made bad decisions, paid unions an unsustainable amount, and can’t compete with foreign automakers, then bankruptcy should be encouraged. Smarter, smaller, and more sustainable businesses would emerge in the long run, and have a much better chance at competing with Toyota and Honda.

With the auto bailouts and interventions, the government is greatly strengthening its regulatory power over the consumers. In 1980, roughly 75% of all automobiles bought in the U.S. were built by Detroit. Last year, Detroit’s share fell to 48%. Consumers saw how lackluster Detroit’s vehicles were and decided to purchase better models made primarily by Toyota and Honda. Why does the government not like these decisions?

An often forgotten fact is that Toyota uses more American parts in its vehicles than GM, Ford, or Chrysler. Many of the Big Three use approximately 65% or less American components in their vehicles, while Toyota has models that are made up of 90% American parts. Detroit is no longer the “American auto industry” that many politicians use as an excuse for bailouts. Not only do Toyota and Honda make better cars, they manage to make them with more American components than Detroit could dream of.

What end result is the government hoping for? Are they saying that consumers are wrong in their decisions, and should be buying vehicles from Detroit? Are they saying that despite Detroit’s products being more inefficient, unreliable, and expensive than American-made vehicles from Toyota and Honda, that they still deserve unearned taxpayer dollars?

It should be remembered that new vehicles are not necessity items. People have several automakers to choose from for buying a new vehicle, but there is also the used market that presents a less expensive option. Were Detroit forced to restructure under bankruptcy like any other business, it would not be a disaster. People might buy more American vehicles from Toyota and Honda, they might save more money by purchasing a used vehicle, and they might realize that there are much better options, in terms of pricing and reliability, than Detroit has been able to provide.

Politicians go on and on about saving American jobs, but if they force unproductive, unreliable, mismanaged companies to stay in existence, is that really going to provide long-term stability for workers? Bailouts in the 1980s evidently didn’t solve the problems then and they certainly won’t today.

Most disturbing is the lack of legal grounds of the federal government’s intrusion. Where in the Constitution does it give the government authority to allocate “emergency” funds to the private sector? Where in the Constitution does government have any authority to allocate any amount of funds to the private sector, individuals, or groups? Where in the Constitution does it give authority to the government to fire and replace a CEO of a private business?

The regulation made by consumers through supply and demand will far outlast a government intervention, program, or agency. Consumers clearly showed that they didn’t believe their dollars were best spent buying a vehicle made in Detroit. But because the government can’t resist coming to the rescue, their forcefully extracted taxpayer dollars are being used to give special treatment to corporations who manage to have greater lobbying power than smaller businesses.

It’s as simple as that. Consumers showed that Detroit, AIG, Bear Stearns, Freddie Mac, Fannie Mae, hundreds of banks, and much of the financial establishment were not doing business with the individual in mind. Yet the government will not allow the businesses that were overcome with greed and stupidity in high places to come crashing down as the market consistently urges. Instead, politicians somehow see logic in condemning all the various corporations while funneling billions and trillions of dollars to those same corporations.

Supply and demand, put in the hands of free individuals, is what a strong economy and society is built upon. Government cannot change the course of an economy for good by taxing some and giving to others, attempting to spend, borrow, and print the economy out of a recession, or by assuming that it knows the solutions to the problems of individuals and the economy. This statement from George Washington ought to serve as an example of the best government can be in these matters:

“Our commercial policy should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce, but forcing nothing.”

Impartial Hand. Natural course of things. Forcing nothing. Does this resemble our government’s role in the economy today? Amazingly, some people think it does.

Washington, and many of the Founding Fathers, envisioned a government that largely stayed out of the affairs of the people and economy, and maintained a neutral balance. This neutrality and resistance to intervention is what strengthens the choices of the free men and women of this country; government intervention destroys that balance and ignores the long-term consequences of short-term actions.

The business of bailouts, intervention into private affairs of the economy, and special treatment for a select few do not come close to representing the impartial hand that Washington spoke about.

A truly impartial government, focused on providing equal justice for all individuals, gives greater ability for the laws of supply and demand to chisel at the risks, mistakes, successes, and opportunities created by a free people, economy, and society.

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The Irony and Foolishness of Antitrust Laws

By on April 4th, 2009

Antitrust laws have gone increasingly unquestioned since they were created in 1890 by the Sherman Antitrust Act. It is said that “monopoly power” leads to restrictive trade, higher prices, and decreased competition. While this statement certainly has truth, very few people understand it and the issue most definitely is not solved through the antitrust laws or created by the free market.

Oppressive monopolies will never be created by consumers and free individuals. If a “monopoly” were to appear in a free society because people liked the product, low price, and high quality, why should that be considered illegal? If a business grows in size because people voluntarily buy its product, there is nothing in the least oppressive about it. Today, though, the government is on the hunt for companies who are too big and represent a danger to consumers.

In 1914, through the Federal Trade Commission Act, the Federal Trade Commission (FTC) was established. Its mission in a nutshell is to engage in “consumer protection” by patrolling for and breaking up anti-competitive monopolies. Sounds nice, doesn’t it? Unfortunately, the logic still doesn’t make sense.

In a free market economy people are given the freedom to use their money in the ways they see best. In nearly every case, this involves finding the best product for the lowest price. When companies like Wrigley’s, YouTube, Google, and countless others have a strong and growing market share, it is because people find their services and products the best value.

What the FTC assumes is that there are cases when a business will gain huge control over a market and use that to crush competition. The question you have to ask is, How did that business become that large in the first place? In a free market it would occur voluntarily from consumers, and its success would remain dependent on the people who got them there to begin with. If its customers were to back out and the company failed to change its practices, the business would not last. In a true, voluntary free market system it is the regulatory power of the individual, not a government agency, that controls the fate of a business.

“Consumer protection” is not something the government can empower through an agency. The one role the government has in protecting the consumer is protecting the consumer’s right to make its his own decisions without the hand of government influencing the decision through force. When the government starts making the regulatory decisions, the power of individual decisions (which a free market is built upon) becomes greatly diminished, skewed, and loses much of its influence.

A recent example of the FTC’s intrusion is its dealings with Whole Foods’ $565 million buyout of Wild Oats over the course of 2007 and 2008. The FTC charged that because of the buyout, Whole Foods would suddenly be able to dramatically increase prices, destroy competition, and essentially control the organic food retail market. There are several faults with the FTC’s theories.

For one thing, Whole Foods and Wild Oats, while some of the larger national organic food chains, do not have near that much influence over the organic food industry. The theory assumes that Whole Foods and Wild Oats purchase all the organic produce in the country, therefore controlling the supply. This in itself is ludicrous. Whole Foods’ revenue over the past year has totaled approximately $8 billion, while the sales of the organic food industry reached approximately $25 billion last year.

Secondly, Whole Foods brought on a good deal of debt to achieve the buyout. Raising prices beyond what consumers are willing to pay would lead to the company’s bankruptcy rather quickly. There is nothing forcing people to shop at Whole Foods, yet the FTC again makes this assumption.

Third, and most obviously, there are many stores where organic food is widely available as the industry quickly increases in size. The FTC made its attacks based on the strange idea that Whole Foods and Wild Oats controlled the organic food industry. There is no reasoning or statistic basis for these arguments, yet because it was the bidding of the FTC, the legal battles waged on for about one year.

What’s especially ironic here is that while this battle was being waged in the name of “consumer protection”, billions of dollars was being handed out to Fannie Mae and Freddie Mac, two government-created corporations who you could say do have near monopolistic power over areas of mortgages. Don’t forget Bear Stearns, AIG, the auto businesses, and all the banks who were given billions of taxpayer dollars. Where was the FTC fighting for “consumer protection”?

When the government says that a company is “too big to fail,” doesn’t that mean it has a monopoly status? Since when does the government decide which companies can and can’t fail, all while funding the FTC to investigate, accuse, and battle individual businesses?

Anti-competitive businesses, which is the FTC’s stated purpose to prevent, are not created and do not succeed with a free market system. But they most certainly are created with a government-influenced economy where the government grants special favors to businesses, punishes others, and decides what companies succeed and fail. A free market, in which people can make their own decisions, will not and does not create harmful monopolies. Harmful monopolies can only be created with help from the government in one form or another.

With the escalation of unnecessary and abusive antitrust laws, government-supported and government-created corporations, and government bailouts, one thing is becoming much more clear. A business is no longer created for the benefit and liking of the customer, it is built for the approval and bidding of the government.

It is no longer the customers who control the fate of a business, but the government. It is no longer the individuals who have the supreme regulatory power, but the government. It is no longer the shareholders’ responsibility to control a business, but the government. It is no longer the people who rule the government, but the government who rules the people.

Truth, though, is never-ending and in the long run is the one thing that is sure to be victorious. Governments, tyrants, and central planners use everything in their power to destroy the laws of truth, freedom, and responsibility. But history has shown that it is those very laws of truth, freedom, and responsibility that lead to the inevitable destruction of deceitful principles, manipulation, and fraud, no matter if it is brought about by individual people or entire governments.

Therefore, it is these laws of truth, freedom, and responsibility, that will bring us back to our senses:

It is the customers who control the marketplace, not the government. It is the shareholders who make business decisions, not the government. A business is created to serve the people, not the government. Businesses answer to customers, not the government.

It is the people who know the best for themselves. Not the government.

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What Happened to No Taxation Without Representation?

By on April 1st, 2009

It was in the 1750s when taxation without representation began gaining political steam in the American colonies. The colonists were frustrated by the fact that King George and a powerful British Parliament were able and willing to lay taxes on people who did not have any direct representation of the government. What’s important is that it was not a certain tax that got people riled up, it was the principle that a powerful few can dictate laws to people who have no say in the matter. The Boston Tea Party was not simply about rebellion to the small tax on tea, it was a statement and effort against taxation without representation.

I bring this up because this is my first year paying taxes. I work a part time job for a self-employed online bookseller. Every time I am paid, an automatic amount is siphoned out for the federal income tax, Medicare, and Social Security. Recently I got to thinking about it. Do I have any say in this matter? How have I at all been represented for these taxes I’m required to pay?

Being a teen, it is hard enough getting a “legal” job. Thanks to state and federal law it is next to impossible to legally work before you are sixteen, due to minimum wage controls and child labor laws. The government will prevent two consenting parties from entering into a labor agreement, simply because one of the people is under sixteen or won’t be paid $9 an hour.

I am not saying I support the idea of seven year olds working in coalmines. Forceful or fraudulent contracts certainly must be punished, and the right to unionize is essential for all workers. But the laws, restrictions, and minimums that are put in place for the “working class” end up decreasing efficiency and take away or heavily limit job opportunities. I can say this from personal experience. The intentions of labor laws aren’t bad, but have grown far too complicated, unnecessary, and end up doing more long-term harm than good.

These are the thoughts going through my mind as I file my personal information with the IRS, an agency originally started to benefit the lower classes by taxing the wealthy. I cannot vote, I have not had any opportunity to represent myself with public policies, yet the government takes roughly 12% out of my paycheck. It does not matter that legally I cannot even drink, smoke, or vote; any money I make, the government will forcefully take a portion. As long as there is money to be had, the heavy hand of state comes crashing in.

The programs that I am forced to contribute to are laughable in their own right. The principles behind Social Security assume when government takes privately earned wealth, gives it to some bureaucrats, who then redistribute it fifty years later, that it will do more good than if people made their own choices about where they spend, save, or invest their money. I’ve already invested approximately $8,000 of the money I have earned over the course of my life (a good amount for someone my age), yet the government somehow has it in its head that it can make smarter decisions than me or anyone else. I do not need the government to take money from me in order to make my retirement easier. It is not their responsibility or business to make a decision that should purely be mine, plain and simple.

The chief purpose of government is no longer to protect natural rights; the tax system alone is enough to prove that. We are assumed guilty until proven innocent, our privacy is embarrassingly invaded, and no longer do we have the right to the fruits of our labor. In my case, I don’t even have the chance to vote for the person who wants to take away my money.

Don’t forget what Benjamin Franklin said regarding taxes:

“It would be thought a hard Government that should tax its People one tenth Part of their Time, to be employed in its Service.”

Over the past century lawmakers of the U.S. have become more concerned with tinkering around the edges than with actually analyzing the principles. We have given in to the flawed idea that government can force us to pay into various agencies and require citizens to have a number to keep them within those programs (Social Security numbers). It is becoming increasingly clear that government is gradually taking over the primary right to private property.

The early people of the Thirteen Colonies would not have made it very far if their only aim of the Boston Tea Party was to abolish the tax on tea. The greatest accomplishments in history are fulfilled by revolutionizing principles and the way people think. The colonists were sick of taxation without representation, and they went the full mile to eliminate that idea.

The way I see it, whether the income tax is at 1% or 95% is meaningless in the long run. The principle of government intrusion and power over property is there regardless of the rate at which it is enforced. Ever since the early 20th century, the U.S. has been built upon illusionist, tyrannical, invasive principles of taxation and power.

A nation will not succeed or fail because it’s tax rate is high or low, it is the principles upon which it is built that will lead to its everlasting success or painful demise. Ever since the U.S. veered off the path of personal liberty, Constitutionally limited government, and empowered responsibility, it has been riding on principles lacking in reason, morality, and natural legality. No country, government, or society has ever succeeded on principles neglecting freedom and individual liberty. It will not be a tax, enemy, or person who runs a country into the ground, it will come at heart simply because of a flawed principle.

It is time for the U.S. to return to the principles of a free nation. Cutting a tax, enacting a law, or creating a new regulation is not going to change the destiny, or lack thereof, of the U.S.

Solid principles alone control the will and fate of any country and people. Freedom does not come from government. No matter how many times it is ignored, stomped on, and abused, it does not matter. Freedom alone is the only principle that naturally destroys government power, elitism, and abuse, while masterfully strengthening individual creativity, responsibility, and sustainability.

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Bubbles Do Not Just “Happen”

By on March 29th, 2009

In the midst of the constant economic meddling we have grown accustomed to, it astonishes me when mainstream “economic experts” such as Ben Bernanke, Tim Geithner, and Nobel Prize winner Paul Krugman simply say that “bubbles happen.” It is commonplace, they say, for bubbles to appear and the role of government and central powers is to step in to prevent its popping. Essentially they are saying that the market created the problem, but it is too dangerous to let the market to correct itself; therefore new regulations and interventions must come into play to solve the problem.

The first flaw with this theory is that bubbles are not just created by accident. It is not the natural course of a strong economy to be either constantly on the upswing of a boom or the downswing of a bust. It is not the natural course of a currency to depreciate over time. It is not the natural course of prices to consistently increase. Yet over the past several decades, it seems that the economy is always on the verge of “overheating”, “deflating”, “slowing”, nearly any term you can think of.

It’s become a mainstream belief that too much economic growth and productivity is a bad thing, and will lead to a terrible recession. The Fed raises interest rates to slow growth, but subsequently lowers rates dramatically when the economy begins to slow down to make sure it doesn’t halt too much.

Through the laws of supply and demand, which people generally seem to think they understand, prices should go down over the long run, not up. In recent history, ever since the Fed came into existence and the gold standard was diminished, general prices are increasing due to the rapid expansion of the money supply. It is vital to realize that it is not prices that should go up, and the currency that should go down, but rather the currency that appreciates value and the prices that fall.

Even in the 19th century, probably the closest thing to a real free market in recorded history, the government’s intervention managed to create numerous financial panics. The U.S. had two central banks during the century that, along with various acts by Congress, played a large role in cheapening credit to artificial levels and encouraging unsustainable speculation. During the Civil War period the U.S. adopted both a fiat monetary system and income tax, which contributed to the 1873 panic. Escalated government intervention, central planning, and behind-the-scenes manipulation have been the natural trends of all countries throughout history, and they have never worked.

Bubbles are not created by voluntary, personal exchange that you have in a free market. Today, bubbles are created when interest rates and credit are constantly manipulated (by the Federal Reserve) beyond or below their natural levels, causing malinvestment and artificial wealth and opportunity. This provides short-term relief and optimism to the economy at the expense of the creation of a larger, irrational, unsustainable bubble that is fueled by the easy credit. Activating the printing presses and creating cheap credit appear to be some of the easiest illusions for government and central planners to work under in order to expand their power and presence within the economy.

Ever since we lost the last connection to gold in 1971, the U.S. has been on a path of self destruction by ignoring sound monetary policies that a lasting economy is built upon. We have followed the flawed Keynesian economics’ belief that you can devalue the currency and pile up debt with little consideration of the longer-term consequences.

The Fed injects money into the economy at low rates that would not be acceptable with a free market monetary system. This manipulation devalues the dollar, pressures the middle class (due to decreased purchasing power of the currency), and promotes irresponsible and unsustainable behavior such as excessive speculation, overvaluing assets, and discouraging wise saving practices. This is the reality that we will have to face sooner rather than later. No amount of government control and central intervention can sustain failed ideas and principles.

It is not the principles of the savings, production, and individual responsibility that create massive bubbles; rather, it is the Keynesian ideals of currency inflation, debt and borrowing, and interventionism that create messes like the one we face today.

Bubbles do not come out of nowhere, but they are pushed along by money and credit created out of thin air by an elite few. An economy built on corporatism, central planning, and government control is forever destined to suffer the perils of an unstable, manipulated, inflated foundation. The only lasting cures for these economic ills are the principles of hard work, savings and investment, with the freedom and responsibility of private property.

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Legality and Morality in Foreign Policy

By on March 24th, 2009

It seems to have become a mainstream acceptance that the U.S. has the responsibility to keep its military overseas. It’s the role of the world superpower, they say, to maintain a military presence and spread order through the world. It’d be nice if this were true, but no superpower has lived long enough to show the success of this theory.

The very principle of maintaining an empire, presence, or force outside of your own borders is not one that you’d expect to be followed by a country founded on individual and state sovereignty. Our current principle is worse than this, however. We say that because we’re large we have the responsibility or right to spread our force around the world. This has been the policy followed through history by tyrants, emperors, and kings, not free individuals.

Whether force is spread through trade or military decisions is irrelevant in the long run. When a government uses force to shut down free trade, as many countries (starting with the U.S.) did in the Great Depression, the effects will often be as painful as military force. Individuals suffer, the economy weakens, and freedom is reduced. Sanctions and other trade control methods do not harm the governments they are intended for, but the people within those externally manipulated countries.

The Constitution gives the U.S. no authority to mingle in the affairs of other nations, and certainly not ongoing military occupations and nation building. Today, approximately one quarter of the U.S. military is overseas in more than 150 countries, racking up a bill to the tune of hundreds of billions of dollars every year. It is a weak argument that having all of those American troops constantly in foreign countries adds to the safety and security of our nation.

Ever since World War 1, when the U.S. took a much more forceful role in world affairs, we have had nothing but trouble. The U.S. took it upon itself to lead the charge of an interventionist foreign policy after World War II, which brought about the terrible atrocities of the Vietnam War and an ongoing war in many Middle Eastern countries. It was after WWII that Congress ceased to follow its constitutional duty to control and maintain the decisions of war, and the U.S. has not won a foreign conflict ever since.

Recently, the U.S. has had the problem of getting deeply involved in conflicts that it simply can’t contain or control. Through the CIA we helped arm the mujahideen “freedom fighters” to battle against the Soviets in the 1980s, which backfired largely in the form of two men who we supported and trained, Saddam Hussein and Osama bin Laden. Those who are our friends one day turn against us years later, in cowardly but deadly fashion.

As Congress has either neglected or forgotten its duty when it comes to military spending, the executive branch has grabbed much of the power of war and military might. Mixing executive power and war is extremely dangerous, and will more often than not lead to the work of tyranny, unpopular and unnecessary wars and entanglements, and a larger disconnect and misrepresentation of the people.

U.S. foreign policy today has become a philosophy aimed not at protecting our own country, but using military force for the benefit of a select few who certainly do not have the interests of the American people in mind. We keep thousands of troops in countries that have not committed any harm to the U.S., have not threatened national security, and represent the furthest thing from a danger to the U.S. War is a terrible thing, but the more it gets into the hands of the executive branch and the more that Congress ignores its responsibility, the higher the likelihood of corruption, influence of special interests, and needless death of American troops and innocent civilians is.

A foreign policy of a nation keen on spreading freedom must support the ideals of non-interventionism and free trade; protect and strengthen our troops by having them defend their own country, and maintain a policy of true free trade with all nations decided by the people, not their governments. People talk about global society and how we’re all one family, then it’s time to act like it. Enough of this nonsense that we need governments or the U.N. to spread these ideals. We are all humans and a few empowered officials cannot spread principles or beliefs through forceful actions, a lasting change will only come from change in the minds of man.

It is time to recognize the fallacies of an interventionist foreign policy. A playground bully seems to best represent our current foreign policy principles: because I am the biggest one, you and your friends must obey my commands or face the consequences of my force. It is ludicrous that because we are the biggest and most successful nation we have the right, duty, or responsibility to use our military for a use other than national defense and the protection of individual liberty and freedom.

This does not make us any friends. It’s come to the point where we bribe, sanction, and occupy nearly every country in the world for one reason or another to our liking.

What message does this current belief send the world?

Let’s say that China passes the U.S. in economic size in thirty or forty years, as has been projected by many economists and investment firms. Does this automatically give them the right to come into our borders, overthrow our government, train our police, control our trade, install new leaders, and give us a new system of government? There is no justification for this belief. Just as a man who is seven feet tall does not have extra duties or rights than a man who is six feet tall, neither does a superpower have the right or duty to intervene in the affairs of all nations smaller than itself.

It is time that we abandon the foreign policy followed in the medieval ages and return to the principles of the Founding Fathers, freedom, and peace. It is neither sustainable or practical to assume that military force can accomplish more long-term change than strong minds and the peaceful exchange of ideas, goods, and discussion between people and their respective nations.

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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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