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Government Regulation is a Hidden Tax

Perhaps due to it not being as readily quantifiable as government taxation, debt, welfare, and money creation; regulation has too often been superficially dealt with. In many ways, the largely “hidden tax” of regulation is a bigger threat to liberty, economy, and morality than other weapons of forceful government intervention.

What Is the Problem?

The total number of restrictions in federal regulations has grown from about 835,000 in 1997 to over one million by 2010, and the number of pages published annually in the Code of Federal Regulations, never substantially declined, and in fact has consistently grown. It has been estimated that regulatory compliance and economic impacts cost $1.863 trillion annually. This amounts to US households paying $14,974 annually in regulatory hidden taxes, with households thereby spending more on embedded regulation than on health care, food, transportation, entertainment, apparel and services, and savings.

However, this is just the proverbial tip of the regulatory-burden iceberg. The tangible burdens above are a quite manageable list of the more immediate impacts such as extra money spent by business to comply and government to enforce regulation. However, the intangible burdens are an almost infinite list of the less immediate impacts, such as lower performance throughout the economy in terms of entrepreneurship, innovation, growth, customer service, and jobs. The intangible burdens do not readily lend themselves to quantification like the tangible burdens do, and thus it is harder to understand the magnitude and even the exact nature of the almost infinite potential problems caused-and-effected. This is made harder due to the fact that value is always subjective (and ordinal) to each individual at any one point in time and, thus, there are no objective (or cardinal) opportunity costs and benefits of regulations as a whole that can simply be observed, calculated, and compared using cost benefit analysis (CBA).

Why Is There a Problem?

The most important of these intangible burdens of regulation are the unintended negative consequences on decentralized and dispersed knowledge and incentives. As Frédéric Bastiat pointed out: “In the economy … a law gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause — it is seen. The others unfold in succession — they are not seen.”

Thus, in terms of regulation and other policies: “[I]t almost always happens that when the immediate consequence is favorable, the ultimate consequences are fatal, and the converse.” The unintended consequences of regulation are usually even worse than this, as they usually — unlike in free markets — promote a relatively small group of private interests at the expense of a relatively large group of individuals.

From a Public Choice school perspective, the regulation problem is essentially one of government failure andrent seeking, noting that: “(1) individuals in government (politicians, regulators, voters, etc.) are driven by self-interest, just as individuals in other circumstances are, and (2) they are not omniscient.”

Worse still: “[S]pecial interests are disinclined to seek direct wealth transfers because their machinations would be too obvious. Instead, regulatory approaches that purport to provide public benefits confuse the public and reduce voter opposition to transfers of wealth to special interests.”

From an Austrian school perspective, the regulation problem is essentially one of economic calculation and bureaucracy. Ludwig von Mises explains: “Without market prices for the means of production, government planners cannot engage in economic calculation, and so literally have no idea if they are using society’s resources efficiently. Consequently, socialism [and regulatory interventionism] suffers not only from a problem of incentives, but also from a problem of knowledge.” Mises said regarding the latter that: “A bureau is not a profit-seeking enterprise; it cannot make use of any economic calculation.” And this inevitably leads to regulatory failure as: “… [t]he lack of [profit-and-loss, price and customer-oriented] standards [which] kills ambition, destroys initiative and the incentive to do more than the minimum required.” All of this is, of course, the antithesis of consumer-driven entrepreneurialism.

At perhaps a still deeper level, Murray Rothbard reasoned:

When people are free to act, they will always act in a way that they believe will maximize their utility. … Any exchange that takes place on the free market occurs because of the expected benefit to each party concerned. If we allow ourselves to use the term “society” to depict the pattern of all individual exchanges, then we may say that the free market ‘maximizes’ social utility, since everyone gains in utility.

On the other hand:

Coercive intervention … signifies per se that the individual or individuals coerced would not have done what they are now doing were it not for the intervention. … The coerced individual loses in utility as a result of the intervention, for his action has been changed by its impact. … [I]n intervention, at least one, and sometimes both, of the pair of would-be exchangers lose in utility.

What Is the Solution?

The solution is of course deregulation — as much as possible, as fast as possible. However, both special interests (as emphasized by the Public Choice school) and bad economics (as emphasized by the Austrian school) will need to be overcome.

This combination was colorfully dubbed the “Bootleggers and Baptists” phenomenon. It has been observed that:

[U]nvarnished special interest groups cannot expect politicians to push through [regulation] that simply raises prices on a few products so that the protected group can get rich at the expense of consumers. Like the bootleggers in the early-20th-century South, who benefited from laws that banned the sale of liquor on Sundays, special interests need to justify their efforts to obtain special favors with public interest stories. In the case of Sunday liquor sales, the Baptists, who supported the Sunday ban on moral grounds, provided that public interest support. While the Baptists vocally endorsed the ban on Sunday sales, the bootleggers worked behind the scenes and quietly rewarded the politicians with a portion of their Sunday liquor sale profits.

More dauntingly, Murray Rothbard reminds us that, in many ways, the history of humanity can be seen as a race between bigger government versus freer markets:

Always man — led by the producers — has tried to advance the conquest of his natural environment. And always men — other men — have tried to extend political power in order to seize the fruits of this conquest over nature. … In the more abundant periods, e.g., after the Industrial Revolution, [freer markets took] a large spurt ahead of political power [including over regulation], which ha[d] not yet had a chance to catch up. The stagnant periods are those in which [such] power has at last come to extend its control over the newer areas of [freer markets].

It will not be easy to slow, stop, and reverse the century-plus growth of the regulatory state in the US and around the world. The crucial job of pursuing deregulation cannot just be left to politicians from the top down. It will need to come more from as many voters and seceders as possible from the bottom up and every direction in between.

Article originally posted at Mises.org.

Private Enterprise versus Free Enterprise

by Logan Albright– Mises Daily:

The United States Export-Import Bank is scheduled to expire at the end of June 2015, and the elected representatives of both parties are tripping over themselves to reauthorize it, citing the importance of exports and strong private enterprise to the American economy.

“I’m a very strong supporter of the Ex-Im Bank, because it is a tool for us to be competitive in order to support our businesses exporting,” said Hillary Clinton. “[F]ailure to reauthorize Ex-Im would amount to unilateral disarmament and cost tens of thousands of American jobs,” commented Harry Reid. It would seem that Democrats are eager to claim the mantle traditionally applied to Republicans of “The Party of Business.” But there is a difference between being pro-business and being pro-markets.

In his book, Reassessing the Presidency: The Rise of the Executive State and the Decline of Freedom, libertarian attorney and historian John V. Denson observes, “Many businessmen and bankers believe in private enterprise but do not believe in free enterprise” (emphasis in the original).

It’s an important distinction to make. Free enterprise is the laissez-faire, free-market ideal, with the peaceful interactions between individuals being wholly unregulated by government. Under free enterprise, anyone can trade with anyone else on mutually agreeable terms. Since all interactions are voluntary, all traders necessarily benefit, and both wealth and welfare are free to increase without the imposition of artificial limits.

Private enterprise, in contrast, means merely that business and the means of production are held in private hands, although the government may make any number of demands on how these individuals go about their business. The fascist governments of Europe in the past century maintained a system of private enterprise, while simultaneously exercising near complete control over business operations. Similarly, the Roosevelt economy during World War II was marked by extensive private enterprise serving at the pleasure of government.

This is not to say that private enterprise is bad — it isn’t — but merely that it is insufficient for economic liberty, and prone to be corrupted by the political process. At first glance, one would think that business owners would favor free enterprise. After all, who wants to be pushed around by the government? But in fact, we see just the opposite. James Buchanan, founder of the Public Choice school of economics, was famous for exposing the incentives for private companies to attempt to manipulate government into playing favorites in the marketplace. A free enterprise system benefits everyone who is willing to be productive. Government controls on business, on the other hand, benefit the few at the expense of the many, which means the few who benefit have every incentive to lobby for, and support such a system. Thus, we see everywhere lip service being paid to free enterprise, but an actual promotion of private, unfree enterprise.

The U.S. Ex-Im Bank is a perfect example of this. Founded as part of FDR’s New Deal eighty years ago, the Bank has been providing taxpayer-backed loans to private companies. We are told by supposedly pro-business politicians that the program is needed to stimulate exports, even though competition unhindered by corporate cronyism has always proved a superior economic stimulant. Especially egregious is the fact that most of the money the Bank hands out goes to huge corporations that certainly do not need the government’s help to export their goods.

While defenders of the Bank like to claim most of the Bank’s activity is devoted to helping small business, in fact, 97 percent of the Bank’s loan guarantees go to just ten corporations, with the top two being Boeing and General Electric — hardly mom and pop enterprises that need handouts to keep running. While these companies are not owned by the government, the fact that they are private entities does not justify this kind of interventionism, which stifles competition and creates perverse incentives.

If it is reauthorized, the Ex-Im Bank is estimated to cost taxpayers $2 billion over the next decade. It wastes millions on self-promotion and PR, and, due to specific mandates handed down from the Obama administration, it disproportionately rewards political interests, such as the green energy boondoggle known as Solyndra and foreign companies mired in corruption like Abengoa. It would be hard to imagine a less free market approach toward supporting business. Meanwhile, government guarantees of loans to companies that could not secure them on the open market ensures that the money will be poorly invested, serving special interests rather than sound economics.

This sort of protectionism is perhaps the most seductive and insidious example of the lure of private enterprise at the expense of free enterprise. Despite being thoroughly debunked as effective or wise by virtually all credible economists, protectionist policies have been among the most entrenched and difficult to dismantle. The Ex-Im Bank remains a drop in the bucket compared to other protectionist policies, such as the mammoth farm subsidies Congress cheerfully votes for every few years. But even this relatively small program has proven remarkably hard to kill. Part of the reason for this is that Republicans and Democrats alike can vote for protectionist measures while simultaneously claiming to be “pro-business.” The distinction between supporting business freedom and supporting business directly through government action is rarely made.

Private enterprise is a subset of free enterprise; All free enterprise is private, but not all private enterprise is free. The failure to bear this distinction in mind is what leads to public support of indefensible programs like the Ex-Im Bank. The support of private enterprise at the expense of free markets results merely in corporatism, where business becomes an extension of government instead of the agents of competition and choice.

Article originally posted at Mises.org.

There’s No Political Freedom Without Economic Freedom

by Patrick Barron – Mises Daily:

Can we have political liberty without first having economic freedom? Is the form of government predetermined by the form of economic organization? At first blush the opposite would seem to be self-evident, i.e., that our form of government determines all else, including our economic structure. But Mises advises otherwise. In Human Action (page 283 of the Mises Institute’s scholars’ edition), Mises explains (my emphasis):

“Freedom, as people enjoyed it in the democratic countries of Western civilization in the years of the old liberalism’s triumph, was not a product of constitutions, bills of rights, laws, and statutes. Those documents aimed only at safeguarding liberty and freedom, firmly established by the operation of the market economy, against encroachments on the part of officeholders.”

Likewise, in The Law by Frédéric Bastiat (page 49 of the Mises Institute edition),
Frédéric Bastiat has this to say (my emphasis again):

“Political economy precedes politics: the former has to discover whether human interests are harmonious or antagonistic, a fact which must be settled before the latter can determine the prerogatives of Government.”

Economic Freedom Is the Foundation of All Freedom

These insights counsel us that attempts to pass laws — or even constitutional amendments — to ensure our political liberty will be wasted as long as our economic freedom continues to be usurped by government. In other words, limited government will fade in the face of the modern regulatory state, and no laws can protect us from its deprivations. Economics not only trumps politics, it determines its very form.

The root cause of economic interventions is the mistaken belief that government can improve our lives by making economic decisions for us. As I explained in an earlier essay, by their very nature, economic interventions by government are coercive in nature. Voluntary cooperation in the marketplace, on the other hand, requires only access to an honest criminal justice system to enforce contracts and protect property rights.

Government mandates require government coercion for their enforcement, including, for example, the mandate that everyone contribute to the government’s Social Security and Medicare programs. Although the public requires no government mandate to buy any of the wide ranging retirement savings and health insurance products available on the free market, government must force us to participate in its Social Security and Medicare schemes.

Absent the mandates, few would participate, because many understand that these programs are fatally flawed transfer taxes — Ponzi schemes of sorts — posing as retirement savings and healthcare plans. There are no real profit-producing assets from which to pay the plans’ distributions, merely the promise by government that it will continue to force others to pay you in the future as it forces you to pay others in the present.

These programs must be maintained by the police power of the state, and what may appear to be widespread acceptance of the Social Security and Medicare mandates is really the vociferous support of those receiving benefits. Meanwhile, the taxpayers who understand the reality of the program continue to pay to stay out of jail.

Economic Regulation Requires Coercion

The more government meddles in the economic sphere — which should require no regulation at all, since it is completely voluntary — the more police power is necessary to force us to comply. All government agencies possess huge enforcement mechanisms that not only can confiscate our property but take away our freedom. The Occupational Safety and Health Administration (OSHA) is little more than a government-supported extortion racket, finding nebulous health and safety violations in the workplace that apparently do not concern the actual workers themselves, who haven’t been chained to their machines for quite some time now.

The Environmental Protection Agency (EPA) shuts down businesses and threatens entire industries for violations of arbitrarily established environmental standards that are of little concern to the people affected. Smokestack emissions and the like are local environmental issues for which one would expect a wide variety of standards across the nation. Undoubtedly the people employed by the giant steel mills of Gary, Indiana tolerate smokestack emissions that Beverly Hills residents would find unacceptable. These arbitrary EPA standards are depriving Americans of the opportunity to work at higher paying jobs: their freedom to tolerate more pollution in order to enjoy a higher standard of living has been usurped by government.

Speaking of jobs, just try practicing some profession that requires a government issued license, even if the parties using your service do not care whether you have one or not. Better yet, employ someone who is willing to work at a wage rate below the proscribed minimum or who is willing to work without healthcare or family leave benefits. The police power of the state will descend upon you, even though there is no dispute between you and your employee. Want to reclaim discarded furniture, refurbish it, and sell it out of your house? Better not try to do that without a business license and a store front in an area that is properly zoned. Do you want to hire “an able bodied man” to do some heavy lifting at your place of business? Uh, oh! The discrimination police will put you in your place, which may be a jail cell if you cannot pay their fine.

No truly limited government can perform these police functions, so expecting a limited government in a world where such regulations are common falls into the category of a cognitive dissonance. In laymen’s terms, we are just kidding ourselves that we are a truly free people with a government that is subservient to our wishes and exists primarily to protect our life, liberty, and property. Keep this in mind the next time you hear that some new economic regulations have been proposed or implemented. Concomitant with these regulations comes an ever more powerful and coercive government.

Article originally posted at Mises.org.

Vaccine Controversy Shows Why We Need Markets, Not Mandates

by Ron Paul – Ron Paul Institute for Peace and Prosperity:

If I were still a practicing ob-gyn and one of my patients said she was not going to vaccinate her child, I might try to persuade her to change her mind. But, if I were unsuccessful, I would respect her decision. I certainly would not lobby the government to pass a law mandating that children be vaccinated even if the children’s parents object. Sadly, the recent panic over the outbreak of measles has led many Americans, including some self-styled libertarians, to call for giving government new powers to force all children to be vaccinated.

Those who are willing to make an “exception” to the principle that parents should make health care decisions for their children should ask themselves when in history has a “limited” infringement on individual liberty stayed limited. By ceding the principle that individuals have the right to make their own health care decisions, supporters of mandatory vaccines are opening the door for future infringements on health freedom.

If government can mandate that children receive vaccines, then why shouldn’t the government mandate that adults receive certain types of vaccines? And if it is the law that individuals must be vaccinated, then why shouldn’t police officers be empowered to physically force resisters to receive a vaccine? If the fear of infections from the unvaccinated justifies mandatory vaccine laws, then why shouldn’t police offices fine or arrest people who don’t wash their hands or cover their noses or mouths when they cough or sneeze in public? Why not force people to eat right and take vitamins in order to lower their risk of contracting an infectious disease? These proposals may seem outlandish, but they are no different in principle from the proposal that government force children to be vaccinated.

By giving vaccine companies a captive market, mandates encourage these companies to use their political influence to expand the amount of vaccine mandates. An example of how vaccine mandates may have led politics to override sound science is from my home state of Texas. In 2007, the then-Texas governor signed an executive order forcing eleven and twelve year old girls to receive the human papilloma virus (HPV) vaccine, even though most young girls are not at risk of HPV. The Texas legislature passed legislation undoing the order following a massive public outcry, fueled by revelations that the governor’s former chief of staff was a top lobbyist for the company that manufactured the HPV vaccine.

The same principles that protect the right to refuse vaccines also protect the right of individuals to refuse to associate with the unvaccinated. Private property owners have the right to forbid those who reject vaccines from entering their property. This right extends to private businesses concerned that unvaccinated individuals could pose a risk to their employees and customers. Consistent application of the principles of private property, freedom of association, and individual responsibility is the best way to address concerns that those who refuse vaccines could infect others with disease.

Giving the government the power to override parental decisions regarding vaccines will inevitably lead to further restrictions on liberties. After all, if government can override parental or personal health care decisions, then what area of our lives is off-limits to government interference? Concerns about infection from the unvaccinated can be addressed by consistent application of the principles of private property and freedom of association. Instead of justifying new government intrusion into our lives, the vaccine debate provides more evidence of the need to restore respect for private property and individual liberty.

Article originally posted at The Ron Paul Institute for Peace and Prosperity.

The Ills of Compulsory Schooling Continued

submitted by jwithrow.

Journal of a Wayward Philosopher
The Ills of Compulsory Schooling Continued

January 30, 2015
Hot Springs, VA

The S&P opened at $2,019 today. Gold is down to $1,263 per ounce. Oil is still floating around $44 per barrel. Bitcoin is up slightly at $230 per BTC, and the 10-year Treasury rate opened at 1.70% today.

Yesterday we discussed the majesty that is childhood and we opined that compulsory schooling severely curtails the childhood experience and sets children up to struggle in adulthood. Today we will expand upon this and try to present a positive alternative.

First we must ask a question: why do we send our children to school?

Is it because we went to school when we were a child? Is it because we don’t have time to watch them during the day? Is it because we think they won’t learn unless they go to school? Is it because we think they must go to school in order to get into college? Is it because we think they need to go to school to learn social skills? Do we know?

Let’s glance back in time a little bit to the formative years of the modern school system:

“Ninety-nine [students] out of a hundred are automata, careful to walk in prescribed paths, careful to follow the prescribed custom. This is not an accident but the result of substantial education, which, scientifically defined, is the subsumption of the individual.” – William Torrey Harris, United States Commissioner of Education from 1889-1906

“Fitche laid it down that education should aim at destroying free will, so that, after pupils have left school, they shall be incapable, throughout the rest of their lives, of thinking or acting otherwise than as their schoolmasters would have wished.” – Bertrand Russel, British philosopher

“Children who know how to think for themselves spoil the harmony of the collective society…” – John Dewey, “father of modern education”

Eww. The school’s history textbooks left those little tidbits out.

We are on the record saying the public school system fails but that’s not entirely true. The public school system certainly fails to foster critical thinking and self-reference but that’s by design. The public school system has actually been wildly successful when judged by its original mission.

What compulsory education really does is prepare our children for an institutionalized life of subordination. We send our children to school not so they can flower into beautiful individuals capable of accessing their infinite potential but rather to mold them into obedient worker bees that will willingly assimilate into the status-quo as maintained by the establishment (governments/central banks/Wall Street/multi-nationals/Big-Agra/Big-Pharma/Big-Insurance/Big-Science/mega non-profits). This is why the public school system exists. As we’ve mentioned many times, this is not an indictment of teachers and local school employees – most of them work diligently to improve their school. But how do you reform an institution that already wildly succeeds at doing what it was created to do?

In school our children learn to hide their true self by putting on a mask and conforming to whatever is popular. They learn to follow arbitrary rules and to unquestioningly obey the “authorities”. They learn to uncritically memorize whatever information is presented to them and to regurgitate that information back in a way that is pleasing to the teacher. They learn that their job is to sit quietly and listen to the teacher without interrupting; anything else requires explicit permission. They learn that grades are the sole measurement of success thus they are conditioned to constantly seek external confirmation. They learn that life is a series of hoops to be struggled through because their educational curriculum consists of a tiered system whereby students advance to the next “grade” year after year. Children are constantly told that getting good grades is necessary to get into a good college so it is implied that the purpose of life is to successfully navigate the current system in order to make it to the next system.

So after they have successfully navigated the public school system for twelve consecutive years our children are told to mindlessly rush off to whatever college will accept them. The school system has taught them absolutely nothing about money and finance but nevertheless our children are told to take on massive student loans to pay for the next step. Some public school guidance offices will even walk children through the student loan application process. “Don’t worry”, they are told, “you won’t have to start making payments until a few years after you graduate.”

So they get to college and most students view it in the same light – as a series of hoops to jump through to get to the next level. Now the goal is to maintain a good G.P.A. so they can get a good job. A few frat parties later they find themselves completing college and going to university sponsored job fairs.

What comes next? The 8-5, new suits, public transportation, parking passes, a promotion, a new car, a mortgage, a promotion, marriage, children, a new mini-van, a promotion, a home equity line to renovate the kitchen and the next thing you know our children are middle aged, stuck in a mindless career, deep in debt, and stressed to the max. They have spent the vast majority of their time working a desk job to pay for their car, their house, their vacations, and their weekend entertainment because that is what they were conditioned to do. Sure, there are plenty of people who have found fulfillment following this path but there are far more who have not.

Suppose we changed the script? What if our children were provided the time and freedom to discover and pursue their passion at a young age? What if they were not herded into school for twelve years but instead spent that time learning about themselves and the world around them? What if they developed useful skills instead of mindless dogma?

What if they then deemed college to be a waste of time and money and instead crafted a superior higher-education curriculum. The possibilities for this are endless!

Maybe they spend one year traveling the world to learn about other cultures first hand. Maybe they find a compelling opportunity during their travels and set up an international business or charity dedicated to meeting real needs and demand. Maybe they come back and seek out an internship with a master in a field they are passionate about. Maybe they skip the internship and start their own business in their chosen field. Maybe they set out to build multiple microbusinesses designed to provide diverse income streams. Maybe they decide to pursue a specialized career and seek out additional education in that field. Maybe they decide to purchase an old neglected farm and spend their days healing the land and producing superior food products.

The point is this script would allow our children to make mindful decisions about how to spend their time free from modern society’s incessant dogma aimed at guilting people into feeling the need to fit in. This script would also allow for much greater flexibility if our children decided to change careers or lifestyles at a later time – which would be extremely common. The notion of working one job for forty years and then retiring is an unnatural New Deal relic that will soon be extinct. This model is simply not viable in any capacity; the economics just do not work.

Life is not a series of rigid systems to struggle through until retirement; it is a robust opportunity for temporal exploration and spiritual growth. It would be a shame to waste such an opportunity.

More to come,

Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the “Great Reset” and the paradigm shift underway please read “The Individual is Rising” which is available at http://www.theindividualisrising.com/. The book is also available on Amazon in both paperback and Kindle editions.

The Emerging Cultural Shift

submitted by jwithrow.

Journal of a Wayward Philosopher
The Emerging Cultural Shift

January 23, 2015
Hot Springs, VA

The S&P opened at $2,056 today. Gold is still at $1,296 per ounce. Oil is back down to $46 per barrel. Bitcoin is hanging around $233 per BTC, and the 10-year Treasury rate opened at 1.82% today.

Yesterday we examined the cultural shift towards top-down authoritarianism that occurred in America during the 20th century. We also observed a promising new cultural shift beginning to emerge; this time away from politics and towards non-coercion and free markets.

Mind you, the emerging cultural shift is still quiet and small so few people are aware of it at this time. It is also non-uniform in nature which is somewhat foreign to our way of thinking about culture in modern times. We are accustomed to thinking along the lines of hard-coded doctrine that must be accepted, believed, and adhered to. Everyone must agree on the specific bullet points handed down to them: If you are “conservative” then you must agree on these issues; if you are “liberal” then you must agree on these other issues; if you are “green” then you must agree on these issues, and so forth.

The emerging cultural shift does not fit into that top-down paradigm – it is more holographic in nature. The shift is comprised of many different ideas, views, and philosophies that sometimes overlap in certain places and other times overlap in different places. The hologram is held together by one underlying sentiment: non-coercion. The individuals who make up this emerging shift share the understanding that it is neither right nor necessary to force your ideas upon others. The old “Do unto others…” philosophy is making a comeback. With this mindset firmly in place, individuals are free to come together in those places where they overlap and they are free to diverge in those places where they do not overlap.

Everyone wins.

R. Buckminster Fuller once said: “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”

Guess what? The emerging cultural shift renders the current paradigm based on politics obsolete. Politics is nothing but a tool used by one group to force other groups to conform against their will. This is a win-lose model; politically connected groups win and all others lose. Politics is the almighty dragon within a top-down societal model; it is the shunned cockroach within a decentralized holographic model.

To some the holographic model sounds unrealistic. They just can’t fathom a community without a leader or a November without an election. They are like the Israelites in the book of Samuel who asked for a king to rule over them – they just couldn’t envision a better way. And who’s to blame them? For most of recorded human history people have identified with hierarchal institutional structures.

But the highest ‘entity’ in society is not the institution, it is the individual. All humans operate individually; there is no getting around that fact. Humans can choose to cooperate with one another but that is always an individual choice. All individuals are endowed with an indomitable will and they are left with the decision to either use their will or to subvert it. Institutions specialize in convincing individuals to subvert their own will for the benefit of the institution.

The emerging cultural shift is gaining steam for two reasons: ethics and economics.

Most of us are taught some variation of “love your neighbor as yourself” in our youth but we can very clearly see that this ideal is at odds with our authoritarian societal model. Political institutions litter the face of the Earth and they each subject individuals to all manner of taxes, regulations, mandates, restrictions, licenses, tags, identifying documents and they back these edicts with the threat of force and imprisonment. Sometimes these political institutions compete with each other and resort to violence as a resolution. Other times these institutions collude with each other to further enrich the ruling class at the expense of the public. It’s very difficult to expect individuals in society to exhibit a sound code of ethics when political aggression rules the day.

Further, most of us fundamentally understand we must produce before we can consume; there is no such thing as a free lunch as the old cliché goes. We also understand that if we consume less than we produce in the present then we have a surplus. That surplus can either be saved for future consumption, invested to increase future production, or it can be given to a neighbor in need. Each of these surplus scenarios is a win for both the individual and for society.

Our authoritarian society makes it extremely difficult for individuals to create a surplus, however, because it skims roughly 50% of individual production off the top via taxation. We are taxed on all income earned, all investment gains, all real estate owned, all vehicles owned, all gas purchased for those vehicles, all food and goods purchased, and any inheritance received. The political institutions then destroy all of the surplus skimmed from individual production on warfare, welfare, political favors, and unsustainable public works projects. This is why government buildings are always and everywhere the most prestigious buildings in existence – they are built with stolen money! To add insult to injury, the most powerful of our political institutions have not been content with their portion of the skim so they have borrowed massively against the production of future generations to enhance their spree of warfare, welfare, political favors, and public works. Such economic activity destroys capital and creates a net deficit which is a tremendous loss for both individuals and for society.

Free, innovative, entrepreneurial commerce creates an economic surplus while political intervention, aggression, and redistribution creates an economic deficit. Surpluses enrich while deficits impoverish. Factor in the ethical implications and the choice is clear, is it not?

More to come,

Joe Withrow
Wayward Philosopher

How the Fed Grows Government

by Hunter Hastings – Mises Daily
Article originally published in the January 2015 issue of BankNotes

We are told that elections are important, but the most powerful state institution, the central bank, is totally out of reach of the voter.

Ludwig von Mises viewed democracy as a utilitarian concept. It was the form of political organization that allowed the majority to change the government without violent revolution. In Socialism, Mises writes “This it achieves by making the organs of the state legally dependent on the will of the majority of the moment.” He identified this form of political process as an essential enabler of capitalism and market exchange.

Mises extended this concept of utilitarian democracy to citizens’ control of the budget of the state, which they achieve by voting for the level of taxation that they deem to be appropriate. Otherwise, “if it is unnecessary to adjust the amount of expenditure to the means available, there is no limit to the spending of the great god State.” (Planning for Freedom, p. 90).

Today, this utilitarian function of democracy, and the concept of citizens’ limitations on government mission and government spending, has been taken away by the state via the creation and subsequent actions of central banks. The state carefully created a central bank that is independent of the voters and unaffected by the choices citizens express via the institutions of democracy. In the case of the US Federal Reserve, for example, the Board of Governors state that the Federal Reserve System “is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.”

Independent from Voters, But Not from Politicians

Importantly, the central bank is independent of the citizens in this way, but, in practice, not independent of politicians. Alan Greenspan, former chairman of the Federal Reserve, is quoted as asserting, “I never said the central bank is independent,” alluding to similar statements in two books he has written, and pointing to one-sided political pressure significantly limiting the FOMC’s range of discretion.

This institutionally independent, but politically directed central bank spearheads a process that enables largely unlimited government spending. It expands credit and enables fiat money, which is produced without practical limitation. Fiat money enables government to issue debt, which, at least so far, also has been pursued without restraint. The unlimited government debt enables unrestrained growth in government spending. The citizenry has no power to change this through any voting mechanism.

Thus, the state is set free from having to collect tax revenue before it can spend, and as Mises explained, in such a case, there is no limitation on government at all:

The government has but one source of revenue — taxes. No taxation is legal without parliamentary consent. But if the government has other sources of income it can free itself from this control.

In other words, when faced with the possibility of voter reprisals, members of Congress are reluctant to raise taxes. But if government spending no longer necessitates taxes, government becomes much more free to spend.

Without restraints on government spending, there are no restraints on government’s mission, or on the growth in the bureaucracy that administers the spending. The result is a continuous increase in regulations, and a continuous expansion of state power.

Has The Central Bank Limited Itself?

In the one hundred years since the creation of the Federal Reserve in 1913, US federal government spending has grown from $15.9 billion to a budgeted $3,778 billion in 2014 (a number we now refer to as $3.8 trillion to make the numerator seem less egregious). Spending as a percentage of GDP has advanced from 7.5 percent to 41.6 percent over the same period. A comparison of regulation growth is more difficult, but over 80,000 pages are published in the Federal Register annually today, versus less than 5,000 annually in 1936.

The evidence, therefore, is that voting makes no difference to this lava flow of spending and regulation. Whatever the will of the majority of the moment, government spending and government power will continue to expand, with consequent reduction in the economic growth that is the primary goal of the society that is being governed.

John Locke opined that, when governments “act contrary to the end for which they were constituted,” they are at a “state of war” with the citizens, and resistance is lawful. (Two Treatises of Government, p. 74). The theory and practice of unhampered markets and individual liberty are particularly relevant at election time.

Hunter Hastings is a member of the Mises Institute, a business consultant, and an adjunct faculty member at Hult International Business School

Please see the January 2015 issue of BankNotes for this article and others like it.

The First American Socialists

submitted by jwithrow.

Journal of a Wayward Philosopher
The First American Socialists

November 25, 2014
Hot Springs, VA

The S&P is hanging around $2,070 today. Gold is checking in at $1,196. Oil is floating around $76 per barrel in anticipation of OPEC’s big meeting on Thursday. Bitcoin is still at $380 per BTC, and the 10-year Treasury rate is 2.30% today.

All remains quiet in the financial markets as we turn our attention to the wonderful holiday season upcoming. Thanksgiving is a day of family, food, and fellowship in honor of the legendary first American Thanksgiving celebrated back in the 17th century.

Most Americans are familiar with this story of the Pilgrims and the Indians sitting down together for the first Thanksgiving, but did you know the Pilgrims were the first American socialists? The Pilgrims’ original financing contract stated that all colonists would get their food, clothing, and provisions from the colony’s “common stock and goods” and any profits would go into the “common stock” for the first seven years. The agreement required each person to submit his production to the common stock and the governor was to distribute provisions out to each family according to need. There was to be no private property for at least seven years.

The Pilgrims landed in America on December 21, 1620 and the first winter wiped out half of the population. The following harvests of 1621 and 1622 were miniscule. Governor William Bradford documented the problems stating that the hardest working men found it unjust that they received no more food than the weakest workers, the young men resented working without compensation, and the wives resented doing household chores for other men who were not their husband. How dare them!

The Pilgrims wised up in 1623 and abandoned the socialist model. Governor Bradford documented the transition stating that families became very industrious once they were required to grow their own food with women and children taking on significantly more responsibilities for the family unit. Three times the amount of corn was planted once socialism was abandoned and the colonists actually exported a substantial surplus in 1624. The Pilgrims thereafter purchased back all of the colony’s stock and completed the transition to private property and free markets.

How fortunate we are that the Pilgrim’s experiment with socialism was largely forgotten over time!

What if Woodrow Wilson understood the Pilgrim’s story? There would be no Federal Reserve System, no
income tax, and no centrally planned war-time economy!

Imagine if Franklin Delano Roosevelt had been familiar with the story. Why, Americans would have gotten no New Deal! There would be no Public Works Administration, Resettlement Administration, Rural Electrification Administration, National Youth Administration, Forest Service and Civilian Conservation Corps, Tennessee Valley Authority, Agriculture Adjustment Administration, Federal Crop Insurance Corporation, Farm Security Administration, Federal Housing Administration, Homeowners Loan Corporation, Federal Deposit Insurance Corporation, or Works Progress Administration. There would be no food stamps, no Social Security, and probably no labor unions. Americans would have to settle for the old deal where they had to work hard, make their own decisions, provide for their own financial security, and save with gold coins instead of paper bills. Who wants to do that?

Of course there is a big difference in scale between the first American socialists and the newer variety. The Pilgrims’ experiment was limited to a small colony so when the model failed the damage was limited to the tiny colonial economy. The ill-effects of the newer forays into socialism modeled after Wilson and FDR’s examples are not contained within a tiny economy – they run rampant through a massive modern economy consisting of hundreds of millions of people.

We never seem to learn the lesson today, either. The Pilgrims abandoned the socialist model when the results clearly indicated failure. Today we implement a new public policy when the results indicate failure. We are always just one public policy fix away.

As we discussed last week in our journal entry examining macroeconomic trends, the sustainability of Pax Americana based on socialist programs is likely coming to an end. Will a transition back to free markets and private property be the solution?

More to come,

Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the “Great Reset” and regaining individual sovereignty please read “The Individual is Rising” which is available at http://www.theindividualisrising.com/. The book is also available on Amazon in both paperback and Kindle editions.

What We Forgot About Free Market Capitalism Part 1

submitted by jwithrow.

One of the most important elements of free market capitalism is the price system. The capitalist price system provides information on supply and demand in the marketplace and individuals make business and investment decisions based on this information.

The economic system that America now employs is not free market capitalism and there are legions of regulations in place that distort the market pricing system every step of the way.

The most insidious price distortion is the suppression of interest rates.

Interest rates are simply the price of money. Like everything else in the market economy, interest rates are self-regulated by the forces of supply and demand. If there is a high quantity of capital in the system available for lending then interest rates will naturally be low. Low interest rates will entice borrowers to engage in long term financing – purchasing homes, expanding businesses, etc. Interest rates will then naturally rise as the capital available for lending diminishes. High interest rates are not attractive to borrowers so individuals and businesses will focus more on short term projects. This will lead to increased capital formation within the system which will gradually trigger falling interest rates.

But what happens when a central bank suppresses interest rates and keeps them near zero for an extended period of time? Well, this destroys the entire pricing system and distorts the entire market system.

Artificially suppressed interest rates send a false signal – which is exactly why they were suppressed in the first place. Artificially suppressed rates still entice borrowers to take engage in long term financing but this is a Keynesian trap. The problem is that there is not sufficient capital formation in the economy to warrant the low interest rates and thus there is not a true demand for all of the long term projects undertaken.

This is called mal-investment.

“If you build it, they will come” is a great catch phrase in the movies but it’s just not how the real world works.

Despite what the economics textbook says, there is no such thing as a ‘mixed economic system’. There is simply no room for the suppression of interest rates or the distortion of prices in a capitalist system.

There are only two choices:

Free markets
Central planning

Free market capitalism presumes an honest and functional price system that is not manipulated by a central bank.

Oh, we should probably mention how interest rates are suppressed.

The Federal Reserve creates currency units out of thin air and uses them to buy long term Treasury bonds at low rates. What could possibly go wrong?

By the way, you can read more on this topic here, here, and here.

The Beauty of Language

submitted by jwithrow.

Language is the means of communicating thoughts and ideas.

Thoughts and ideas have the power to shape the world.

Therefore, language has the power to shape the world.

Language is both powerful and beautiful; it is the means to meaning and truth. It is language that has changed the world over and over again. Without language, the Bible is meaningless. The Torah is meaningless. The Qur’an is meaningless. The Mahayana Sutras are meaningless. The Upanishads are meaningless. The Magna Carta is meaningless. The Declaration of Independence is meaningless.

Language is constructed of words and words are the expression of thoughts.

Thoughts are powerful entities; they are not abstractions. There is a very specific electrical reaction that takes place when you create a thought within your mind and this electrical reaction creates energy in some capacity. We cannot explain this electrical reaction as we do not know how it works. But we do know that it takes place. So it follows then that thoughts are energy in some capacity. And the laws of physics state that energy cannot be created nor destroyed rather it can only change forms. So it follows further then that the process of thinking is the process of transforming existing energy into your own unique thoughts. Your own unique thoughts become energy in a new form and the thought energy exists until it is transformed once again. And a powerful way to harness that thought energy is to convert it into language – either verbal or written.

We say all of that to say this: our observations suggest that language is used very carelessly in our culture today. If you understand the power of language then you understand the responsibility that you have to use words in a meaningful way. You understand that language should not be used to harm or mislead another. And you understand that language can be used to change your stars.

The most important language comes from that tiny voice in your head. Make sure that little voice in your head is constantly using language that uplifts and inspires you. Your world will also be uplifting and inspiring if it does.

It’s a funny thing; the events in your life mirror your thoughts. Master your thoughts and you will master your world. And in order to master your thoughts you have to master your control of language.