TeeJaw Blog

Why Big Government Is Bad Government

Posted in Economic Theory, Government and Politics by TeeJaw on Sunday, November 6, 2011, 9: 51 PM

Repost from February 11, 2011:

Economics 101 from the Center For Freedom and Prosperity:

For a lesson in how prosperity can be unleashed when government is restricted to doing those things a government ought to do and little of what it ought not do, see The Wisdom That Built Hong Kong’s Prosperity, by Nancy DeWolf Smith in The Wall Street Journal, July 1, 1997. It’s only available by searching the WSJ archives and paying a fee of $4.95 for 90 days of viewing, but of course you can make a copy for your own use also. It’s well worth the fee to read the story of Sir John James Cowperthwaite (1915-2006), financial minister of Hong Kong from 1961-1971. The wisdom that built prosperity was Cowperthwaite’s policy of “positive nonintervention” with the free market.

Cowperthwaite was a man imbued with 18th century enlightenment ideas of laissez faire economics and wholly unversed in the 20th century’s fad for socialism. The British utopian socialists had already put the U.K. on a path to economic ruin and accused Cowperthwaite of “doing nothing.” He countered that while doing nothing is easy, positive nonintervention is constant hard labor — to resist the temptation to “do something” under pressure by unrelenting critics convinced they know how to spend public money better than the public does, and preferably without the public’s permission.

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Market Trader Alessio Rastani to BBC: Eurozone Market Will Crash

Posted in Economic Theory, Government and Politics by TeeJaw on Sunday, October 2, 2011, 10: 40 PM

Jaw dropping prediction:

 

Rastani says you can make money on the recession, and on the crash.  Well, Michael Lewis, in his book The Big Short, tells the story of how some guys made a ton of money in the crash of the sub-prime mortgage bond market.

Somebody was buying the fabulous luxury cars that were being built during the height of the 1930’s depression. Those Packards, Stutz-Bearcats, Cords, Auburns, Bentleys and LaSalles were darn big and nice, and nice and expensive.  It was later, after the depression was over that those luxury auto makers went out of business.

Quote of the Day

Posted in Economic Theory by TeeJaw on Saturday, August 13, 2011, 6: 00 AM

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

This is known as “bad luck.”

— Robert Heinlein

I’m pretty sure I’ve posted this quote before. That’s OK, it’s worth another look.

Iceland Wins The Bank Bailout Scheme — By Default

Posted in Economic Theory, Government and Politics by TeeJaw on Thursday, June 16, 2011, 10: 07 AM

Trying to convince anyone that the bank bailout was a dumb idea, that it would have been better and wiser to have let the stricken banks fail, is a doubtful undertaking. The accepted wisdom is that they were “too big to fail” or “we could not have let those banks collapse.” Reasoned explanations are seldom offered in support of those conclusions, it being assumed no serious person could disagree. John McCain suspended his campaign and ended his presidential prospects for this nonsense. In late September of 2008 the House Republicans resisted, but gave in mere days later on October 3, 2008 under the heavy weight of what they wrongly perceived to be universal public opinion. The country was fed the ridiculous line that the whole financial system was on the brink of collapse and that passing a massive bank bailout was a dire emergency.

A little history is in order. The Emergency Economic Stabilization Act of 2008 was supposed to solve the subprime mortgage “crisis” [never let a good crisis go to waste] and to start banks lending again. Republicans in the House did what their conservative base of voters elected them to do and refused to approve this $700 Billion giveaway on September 29, 2008. The Senate, with presidential hopeful John McCain hogging all the spotlight he could garner, passed a revised version that added an additional $150 Billion to the original $700 Billion and increased the number of pages to 451, more than anyone could possibly read under the fire-drill frenzy that prevailed, and the House easily passed it on October 3, 2008. George W. Bush signed it into law within hours. Thus, the Troubled Asset Relief Program (TARP) was created to stuff $850 Billion dollars of hard-earned taxpayer money down a rat hole where the greedy rats were anxiously waiting. [To be fair some, such as Wells Fargo, were not greedy at all and tried to refuse the money but were forced to take it. Those are the ones who have paid it back.]

Immediately there were predictions that it would not work. Banks would not start lending again, the subprime mortgage mess would not be fixed, the whole thing was being financed by ever more debt, and any short term gains would be badly offset by long term economic harm. All of that and more has proved true.

Looking at the bank bailout for what it really was makes the case against it. Nationalization of private debt can never lead to anything good. Doing it with even more debt, as here, is worse than ordinary nonsense. It’s nonsense on stilts. The taxpayers that pick up the cost, now and in the future, have their wealth confiscated for folly. The recipients of the bailout escape one of the most important corrective mechanisms of a free market — leaving the ones who acted poorly to suffer the consequences of their own mistakes. Since they cannot be expected to willingly share their profits with us when they succeed they should not believe taxpayers will come to their rescue when they fail. Bailouts beget more bailouts as the players take unreasonable risks believing there will be a safety net to catch them when they fall.

It must be thought that when a bank or a company goes broke something dies and is gone forever, leaving a net loss in the economy. But that’s not at all what happens. The business of the failed enterprise is taken up by others who might run it more wisely and profitably than the old owners did. That new endeavor will create new wealth and new employment for job seekers. This new birth of economic activity and wealth creation is lost when the government confiscates money from those who earned it legitimately and gives to those who squandered their own assets, and will further squandered the loot taken from more productive citizens. Dipping water from one end of a swimming pool and pouring into the other end does not raise the water level. Nor does it remove any impurities.

The beneficiaries of the bailouts are mainly the politicians and bureaucrats who administer vast amounts of public money to be handed out to selected players, make that “cronies”, in the private sector and lesser government entities. These transfers become a sort of money laundering scheme where public money is used to buy votes and favors, with some of the money tracing its way back in the form of political contributions to the political fat cats giving it out.

There is more than money in bailouts for politicians. There is the opportunity to gain control over more segments of the private sector. Control is always a highly sought prize in human nature and can even exceed the drive for money. Money is not desired for its own sake as much as for the control that it bestows on he who controls its flow.

When the U.S. embarked on its foolish bailout of private banks most European nations followed suit with their own bank bailouts, proving that “dumb ideas can proliferate” said Jeff Carter at the Points and Figures blog, a site devoted to “an irreverent look at economics, finance, trading and politics.” That subtitle highly recommends Mr. Carter’s writings.

In Iceland: What We Should Have Done Mr. Carter noted:

Iceland didn’t rescue its banks. It couldn’t afford to do it. So, they went bust. Iceland looked like it was going down a path of permanent financial armageddon. However, Iceland is in better financial shape than the rest of Europe today.

It hasn’t ended yet. Further harm is being inflicted on the U.S. economy by the Federal Reserve and its chairman, Ben Bernanke. We have only recently learned where much of the QE2 money has gone. It has been given to foreign banks. Lord help us.

Further Reading:

Finally,The True Story of the Financial Meltdown Breaks Through

Assigning Blame For The 2007-2008 Economic Meltdown

Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon

The Legacy of Obama’s Keynesian Policies

Posted in Economic Theory, Government and Politics by TeeJaw on Friday, June 3, 2011, 1: 53 PM

From David Harsanyi:

Recessions come and go. Typically we emerge with strong sustained growth. Not this time. Today we learned that employers added the fewest jobs in 8 months. Unemployment jumped back to 9.1 percent – and really, the level is 15.8 percent.

The housing market still stinks, as do other foundations of the economy. The answer from the Democrats has been bailout after bailout, antiquated economic schemes, huge expansion of regulation, calls for higher taxes, attacks on the profit motive, roadblocks to energy production, increasing moral hazard in markets, more crony capitalism, food stamps, dependency, massive new entitlement program, sharing of the prosperity but less new prosperity, the same wars (and more!), but no budget, no spending cuts and little economic hope.

Read the rest of it here, which includes a chart showing how much worse this recession if from all others. In all others the recession ended and robust job growth followed. Happy days are not going to be here again until Obama’s policies are stopped and that won’t happen until Obama’s agenda is stopped. World War II stopped the New Deal policies that were fueling the continuation of the Great Depression. The Obama recession will only be stopped when he is defeated in 2012.

Remember the Exxon Mobil executive’s reply to Senator Jay Rockefeller’s taunt: “Do you believe in shared sacrifice?” The oil executive replied curtly, “No Senator, I believe in shared prosperity.”

Assigning Blame for the 2007-2008 Economic Meltdown

Posted in Economic Theory, Government and Politics by TeeJaw on Saturday, May 28, 2011, 8: 57 AM

In a nutshell, here’s what happened. Some politicians, almost all of them Democrats, decided that banks were not making enough home loans to poor people. Banks were demanding what banks have always demanded of borrowers — proof that the borrowers will have the ability to make the payments on the loan. So how to get the banks to make loans to borrowers who can’t make that showing? A judicious combination of stick and carrot. One piece of the stick involved accusations of racism, that old standby that Democrats use anytime someone is reluctant to go along with what they want. Another piece were threats of investigations by Janet Reno’s Justice Department and refusals of approval for bank mergers. The carrot became cozy relationships between regulators and the private sector banks fostered by Christopher Dodd in the Senate and Barney Frank in the House. The biggest carrot was the relationship between regulators and members of Congress and Fannie Mae and the Federal Reserve. The Fed pumped up the money supply, and Fannie Mae took over the junk paper the private sector banks were generating with sub-prime loans.

So you’re a bank and the government wants you to loan money to borrowers you know can never repay the loan. But the government says if you don’t you’ll be sorry, and besides you don’t need to worry, we have this thing called Fannie Mae that will purchase those junk loans from you and package them up into mortgage-backed securities and sell them to sucker investors.

Lots of details are left out of that, but hey I said it was a nutshell. That’s the gist of it. My nutshell explanation is contrary to the conventional wisdom which lays all of the blame on greedy Wall Street tycoons. There are greedy Wall Street tycoons, but that’s nothing new. There always have been and always will be. It must be understood, however, that like the Mafia, they cannot conduct their nefarious activities without government complicity and assistance. Just as the mere presence of organized crime in a big city tells you for sure that the local police department is corrupt, the mere happening of something like the sub-prime banking crisis tells you without the slightest doubt that there are some rotten apples in the government lending a hand in exchange for some huge payoffs from the greedy tycoons. These payoffs are not in the form of easy to trace and prove suitcases of cash; they are more likely lucrative jobs for friends and relatives, campaign contributions, and other perks that have the appearance of legitimacy making them plausibly defendable.

Now there is a book that fills in the details left out of that simple but not simplistic nutshell. Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon exposes how government regulators and members of Congress (think Democrats. Republicans and the Bush Administration were raising alarms) who were supposed to protect the country from financial harm were actually complicit in the actions that led to the economic and banking meltdown.

John Taylor, professor of economics at Stanford University and senior fellow at Stanford’s Hoover Institution, reviews the book in the Washington Post:

“In ‘Reckless Endangerment,’Gretchen Morgenson and Joshua Rosner argue that cozy connections between government and the financial industry were the primary cause of the financial crisis. In a series of clearly written narratives with many names, dates and figures, they show that government officials took actions that benefited well-connected individuals, who in turn helped the government officials. This mutual support system thwarted good economic policies and encouraged reckless ones. It thereby brought on the crisis, sending the economy into a tailspin.”

The conventional wisdom is pushed back in this book. Good thing, maybe it won’t take 75 years to correct the record as it did with the Great Depression. In that case we lived with the false notion that the New Deal saved the country from the worst of the depression and WW II finally ended it. Several decades ago the idea that the 1929 Wall Street crash caused the depression was put to rest, revealing the true cause to have been the tight money policies of the Federal Reserve, the Hoover Administration’s tax increases, the Smoot-Hawley tariff, and the collapse of foreign trade that resulted as other countries adopted retaliatory tariffs of their own. But only now are economists beginning to understand that the New Deal made the depression much worse than it would otherwise have been, in fact turned what would have been a recession into a depression. And WW II ended the depression only in the sense that it stopped the New Deal.

Keynes vs. Hayek Duke It Out

Posted in Economic Theory by TeeJaw on Thursday, April 28, 2011, 1: 42 PM

Keynes: Government should just spend, spend, spend and we’ll all be rich and prosperous.

Hayek: Government has no money to spend without taking it away from someone else. It’s like dipping water out of one end of a swimming pool and pouring it into the other end. Prosperity only comes from economic growth that produces new wealth rather than just redistributing existing wealth. In fact, such redistribution schemes are inefficient in moving wealth from one group to another group because by undermining incentives to produce new wealth, there is less and less available for redistribution. Finally, redistribution of wealth according to government schemes is legalized theft and is immoral.

Of course, those are my words, they are not quotes from Keynes of Hayek, nor from the video:

If Hayek’s approach of lassiz faire economics and free markets is superior to Keynesian government spending, why is it that politicians seem to always prefer Keynes? Because Keynesian spending allows politicians to look like they are doing something and Hayek’s approach has them mostly doing nothing except making sure free markets remain free. Telling a politician that the best thing he or she can do for the economy is to leave it be is not something they want to hear. That’s the temptation of socialism, it gives politicians a reason for constant tinkering even though most of what they are doing is destructive. Capitalism and free markets largely operate on their own. Politicians do not favor anything they can’t claim credit for.

Some Economists Sing the Praises of a VAT — But Not the Smart Ones

Posted in Economic Theory, Government and Politics by TeeJaw on Monday, March 7, 2011, 10: 58 AM

In the last couple of posts I have referred to “smart economists” in order to distinguish between economists in general and smart ones*.  Some are either not very smart or have very poor judgement.  A slew of economists, not the smart ones, have gone to Capitol Hill of late to sing the praises of a VAT, or Value Added Tax.  They like it because they say it is “efficient.”  On that they are correct. It is the most efficient way to move more and more money out of private hands and into government hands.  A leviathan government would then be a permanent and unstoppable barrier to economic growth.  These economists seem to ignore a basic principle of economics which is that whenever some change is made other changes will occur and not all of them will be good or can be predicted.

These economists seem to think that a VAT would be good because it would replace the income tax.  They have to ignore a lot of reality to believe it.  The VAT has not replaced the income tax anywhere it has been implemented in the world.  It is always an additional tax and an additional burden on economic growth.  No state that has added a sales tax has repealed its income tax or vice versa.  Most states have sales tax and almost as many have an income tax.  They exist together.

These economists refer to a VAT as a consumption tax.  That is misleading.  It’s a tax on the value added at every stage of production.  It is a tax that is built into the final price of goods, but paid along the way by every tradesmen in the chain.  The end purchaser bears the final burden but sometimes isn’t even aware of how much it is.  That’s why it’s a hidden tax, unlike a true sales tax that is a percentage added to the subtotal to reach to total sales price, and levied only at the final point of sale.

Europe’s problems with economic growth can be measured from the time they adopted VATs.

Fortunately, the idea has not yet gained much popularity with the politicians on capitol hill.  But it will. It’s just too enticing for them.  All the money that rolls out of the private sector into government with a VAT is just too good for the greedy hands of politicians to pass up for much longer.  Smart economists would not be trying to speed that up because it will be an economic disaster if it ever happens.

*You might ask who are these “smart” economists I’m talking about? Fair Question. Here’s partial list: Adam Smith, Frederic Bastiat, Jagdish Bhagwati, Henry George, Daniel Griswold, Douglas Irwin, Fritz Machlup, Martin Wolf, Milton Friedman, Thomas Sowell, Walter E. Williams, Robert Higgs, John Taylor, Donald Boudreaux, Deepak Lal, Hernando de Soto, Michael Munger, Thomas J. DiLorenzo, and Henry Hazlitt. The list is not complete of course. James Buchanan and Gordon Bullock are geniuses. I forgot Gary Becker. Richard Epstein is a law professor who writes brilliantly on economic issues. There are lots of other smart economists I don’t even know about, and I listed these in no particular order. A few are long dead, most remain among the living. I’d put up a list of dumb ones but it would be too long. Let Paul Krugman represent them all. [Krugman isn’t dumb. He’s nuts.]

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Christiane Amanpour Thinks a $61 Billion Cut Out of a $3.83 Trillion Budget Will “Stick a Fork in the Recovery”

Posted in Economic Theory, Government and Politics by TeeJaw on Monday, March 7, 2011, 10: 19 AM

That’s what she said on ABC’s This Week yesterday. She also buys the Mark Zandi theory that says a $61 Billion cut will result in 700,000 jobs being lost. None of that is even close to true, of course. It also indicates that both Amanpour and Zandi are not just biased in their reporting. They are just plain dumb. They say what they say in the face of $800 Billion of stimulus spending which was a complete failure. It didn’t create many permanent jobs, in fact if anything stuck a fork in the recovery it was that.

A $61 Billion cut out of a $3.86 Trillion budget amounts to a 1.6% cut in proposed spending. If you were expecting net take-home pay in your paycheck of $3,830 and found out it was going to be $61 less, how bad would that be? Would that stick a fork in your lifestyle?

Also, see The One Chart You Need to See shows that spending this year will exceed revenue by $1.3 Trillion. $61 Billion is 4.6% of that. So what is being asked is to reduce the deficit this year from $1.3 Trillion to $1.239 Trillion. And Amanpour has the gall to suggest this will “Stick a fork in the recovery.” The woman is mad insane with her partisanship.

This short video puts it in further perspective:

Like other facts that liberals either cannot grasp or choose to ignore, every dollar the government spends has to come from the private sector. That means the private sector will not have that dollar to spend on private goods and services which in turn creates jobs to supply those goods and services. If the federal budget is cut by $61 Billion it simply means the private sector will be able to spend that $61 Billion on private goods and services thus creating private sector jobs.

Stick a fork in the recovery? How does anyone sit on the couch on a Sunday morning and listen to idiots such as Christiane Amanpour? Well, fewer and fewer are.

Amanpour and Zandi need to watch this economics 101 video that I posted one month ago so they can understand how reduced government spending is what allows jobs to be created:

Four Reasons Big Government is Bad Government

UPDATE:  The federal government posted its largest monthly deficit in history in February at $223 billion, according to preliminary numbers the Congressional Budget Office released Monday morning.  The Bush deficit for all of 2007 was $161 Billion.  But Christiane Amanpour (and the Democrats as well) think we can’t cut  a measly $61 Billion out of an annual budget of $3.8 Trillion.  Where does the money come from to cover these deficits?  Two sources:  borrowing, which your children will have to repay, or by inflation which is the cruelest tax of all as it makes whatever money you have worth less.

We Would Be Better Off If The Government Didn’t Keep Statistics On The Balance of Trade

Posted in Economic Theory by TeeJaw on Monday, March 7, 2011, 8: 42 AM

We’d be better off because the “balance of trade” doesn’t matter, smart economists don’t care a whit about it, and if there were no statistics on it fools who like to talk about it would be saved from looking foolish. Whenever someone talks about trade “deficits” or “surpluses” you immediately know one of two things about that person. Either he is unschooled in economics or he’s a fool.

Here is what Adam Smith said in his magnum opus, An Inquiry Into the Nature and Causes of The Wealth of Nations (1776) at Book IV, Chapter 3, paragraphs 30-32:

IV.3.30
In the foregoing Part of this Chapter I have endeavoured to shew,*93 even upon the principles of the commercial system, how unnecessary it is to lay extraordinary restraints upon the importation of goods from those countries with which the balance of trade is supposed to be disadvantageous.

IV.3.31
Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded.[emphasis added] When two places trade with one another, this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses and the other gains in proportion to its declension from the exact equilibrium. Both suppositions are false. A trade which is forced by means of bounties and monopolies may be and commonly is disadvantageous to the country in whose favour it is meant to be established, as I shall endeavour to show hereafter.*94 But that trade which, without force or constraint, is naturally and regularly carried on between any two places is always advantageous, though not always equally so, to both.

IV.3.32
By advantage or gain, I understand not the increase of the quantity of gold and silver, but that of the exchangeable value of the annual produce of the land and labour of the country, or the increase of the annual revenue of its inhabitants.

Recessions End — If Only Politicians Will Allow Them To

Posted in Economic Theory, Government and Politics by TeeJaw on Tuesday, February 15, 2011, 11: 11 AM

The Heritage Foundation has posted F.A. Hayek’s top ten do’s and don’t in a recession.

Here’s my attempt to condense them into one sentence:

Recessions in a complex free market are normal and constitute a necessary and wonderful self-correcting mechanism to restore equilibrium if, and only if, central planners restrain their urge to interfere with these natural processes by imposing cures which are invariably worse than the disease and lead to further disease in the economy.

You still need to read them all, one sentence can’t do justice to it.

The current recession ended, we are told, in June of…was it 2009 or 2010? I forget. That may be technically true by the definition given to what is a recession by the so-called experts. But if you are still unemployed, or you have seen your cost of fuel and food increase dramatically while your income stayed the same or went down, the so-called end of this recession may not mean much to you. That is what the rule of experts gets you.

While on the subject of recessions, Here are a some ideas once considered blasphemous but increasingly becoming accepted as historical fact:

  • FDR’s New Deal did not save the country from the Great Depression. It turned what might have been a severe recession into a depression and prolonged it beyond the point where it would have ended on its own.
  • It is not correct to say World War II ended the Great Depression. It is more correct to say World War II ended the New Deal which together with war time production allowed the Great Depression to end. Even without war time production, the Great Depression would have ended almost as quickly once the New Deal was stopped in its tracks.
  • The government under both Hoover and Roosevelt created the Great Depression by enacting the Smoot Hawley tariff, the Federal Reserve imposed a tight money policy, and taxes were raised dramatically. If there had been no New Deal, and none of the government actions mentioned above, there would have been a recession but not a depression.

A key quote from F.A. Hayek which once understood makes it clear: “The purpose of economics is to teach men how little they actually know about what they imagine they can design.”

The lessons of history are poorly learned.  The problems in the healthcare and health insurance could have been easily cured by repealing state and federal legislation that was causing the trouble, but instead Obamacare was enacted.  Like the New Deal and the Obama Stimulus it’s a cure worse than the disease that will lead to further disease.

What is needed is greater respect for positive non-intervention.

The Dumbest Thing Ever Said by Hillary Clinton — About the Drug War

Posted in crime, Culture, Economic Theory, Government and Politics by TeeJaw on Thursday, February 10, 2011, 3: 44 PM

The smartest woman in the world, you know.

Space Exploration For Profit — It’s Real, It Can’t Be Stopped, And It’s A Good Thing

Posted in Culture, Economic Theory, Government and Politics by TeeJaw on Wednesday, February 9, 2011, 12: 34 PM

But then there’s this: U.S. Isn’t Pushing Private Space Effort Hard Enough, Group Says

She’s In Love With Friedrich Hayek

Posted in Economic Theory by TeeJaw on Monday, December 20, 2010, 8: 40 PM

A favorite quote from Hayek:

The task of economics is to show us how little we know about what we imagine we can design

— The Fatal Conceit

What Capitalism and the Industrial Revolution Have Wrought in 200 Countries in 200 years

Posted in Economic Theory, History by TeeJaw on Saturday, December 4, 2010, 10: 02 AM
Vodpod videos no longer available.

No Clarity, No Investment, No Expansion, and No Jobs

Posted in Economic Theory, Government and Politics by TeeJaw on Wednesday, November 17, 2010, 9: 07 AM

“Though this video is a joke, it’s message is not. Washington’s rhetoric and policies have been creating a damaging environment of uncertainty for businesses. When businesses lack clarity, they can’t plan ahead — choking expansion, investment and job creation.”

Summer of Recovery More Like Summer of Failure

Posted in Economic Theory, Government and Politics by TeeJaw on Monday, September 6, 2010, 10: 33 PM

Socialism, crony capitalism, uncertainty about what government might do next, looming tax increases that will be automatic on January 1st, government spending out of control, government take over of health care, Obama the vacation president, etc., etc. What could possibly go wrong?

Will Tax Increases Reduce The Debt — Or Make It Even Larger?

Posted in Economic Theory, Government and Politics by TeeJaw on Thursday, September 2, 2010, 1: 03 PM

On March 10, 2000, roughly seven months before the Presidential election and even longer before it would be known whether Al Gore or George Bush were to be the next President, Peter Robinson interviewed Milton Friedman on his internet video production Uncommon Knowledge. Robinson asked Milton Friedman to offer advice to the next President by answering five questions:

How can the President keep the economy growing?
What should the next President do about the federal surplus? [There actually was a surplus then]
How should the next President attempt to fix Social Security?
How can the next President improve education?
What should be done about health care?

Milton Friedman answered each question. His answer to what to do about the surplus is instructive for its insight into what should now be done about the massive government debt that has replaced the surplus of ten years ago. Obama wants new taxes and increases in existing taxes. Conservatives want the Bush tax cuts made permanent, and other taxes to be cut, such as the corporate tax rate which is the second highest in the free world. What would Milton Friedman say? Here is what he said then:

Peter Robinson: Now let me ask you, I want to back up to this question of, cut taxes versus pay down the debt. So what you’re saying is, cut taxes, because Congress will never be able to resist the temptation to spend it. Paying down the debt may be a good idea, but it’ll never happen.

But let me ask you as an economic matter, if Congress could find the willpower to pay down the debt, should it? In other words, what would be better at this point purely on an economic analysis: paying down the debt or cutting taxes?

Milton Friedman: Well, let me talk about paying down the debt, because that ties in with your Social Security problem. They’re not really paying down the debt. They’re converting funded debt to unfunded debt, because of the coming problem in Social Security.

Let’s look at it this way: they pay down the debt. They buy up government bonds. What do they do with those government bonds? They put them over here in a box labeled: trust fund for Social Security. Now you come to the period when current receipts from wage tax are too sparse to pay benefits.

Peter Robinson: Right, into the Social Security fund.

Milton Friedman: So they take these bonds out and sell them again to the public. How else are they going to pay for it? So what you are doing is simply changing the form of the debt, but you’re not really reducing the debt–

Peter Robinson: Because these obligations are going to be there no matter–

Milton Friedman: And their present value is a debt. And that debt is all recorded in this fake trust fund, which is pure paper artifice; has no real role.

Peter Robinson: But if you cut taxes, what does that do to help the government meet its unfunded obligations.

Milton Friedman: It doesn’t do a thing, but let’s go back. To meet the unfunded obligations, you really need a change in Social Security. All the rest of this talking about paying down the debt as a way of solving the Social Security problem–

Peter Robinson: Is nonsense?

Milton Friedman: –is an evasion. In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with. That’s what history tells us, I think. So my view has always been: cut taxes on any occasion, for any reason, in any way, that’s politically feasible. That’s the only way to keep down the size of government.

Friedman’s answers to the remaining questions can be found here.

One of the new taxes Obama would love to saddle us with is the Value Added Tax (VAT). Here are Dan Mitchell’s thoughts on what a VAT would do to the United States:

What Can Brown Do For You Today?

Posted in Economic Theory, Government and Politics by TeeJaw on Monday, August 23, 2010, 9: 51 AM

Back in 1776 Adam Smith warned us about this sort of thing:

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Crony Capitalism in Louisiana Casket Industry

Posted in Culture, Economic Theory, Government and Politics by TeeJaw on Thursday, August 12, 2010, 1: 41 PM

A previous post, A Despised Tax Collected By Wretches, described a hideous example crony capitalism in Wyoming. The video below follows the story in Louisiana of a similar alliance between a private industry and government to protect that industry from competition. As Adam Smith warned us in 1776 that businessmen will always seek an alliance with government to stifle and impair their competition and the honest statesman must guard against it.

These comments are taken from the YouTube site where the video below appears:

Under Louisiana law, it is a crime for anyone but a licensed funeral director to sell “funeral merchandise,” which includes caskets. To sell caskets legally, the monks of Saint Joseph Abbey would have to abandon their calling for one full year to apprentice at a licensed funeral home, learn unnecessary skills and take a funeral industry test. They would also have to convert their monastery into a “funeral establishment” by, among other things, installing equipment for embalming human remains.

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