INTERMEX POWER

Give Okinawa back to the Okinawans by Doug Bandow

2012-01-31T16:17:00.002-07:00

The U.S. is overextended and overburdened, but Washington policymakers are determined to preserve America’s dominant military presence around the globe. Financial pressure is forcing the administration to finally slow a massive, decade-long increase in military spending, but American garrisons overseas remain inviolate. Former Defense Secretary Robert Gates declared: “The U.S. remains committed to maintaining a robust forward presence in East Asia.”

That means preserving multiple bases in Okinawa, which have burdened island residents since the U.S. defeated imperial Japanese forces there in mid-1945. Nearly seven decades later Washington refuses to take any meaningful steps to lighten the load. Indeed, Administration pressure in 2010 helped force the resignation of Japanese Prime Minister Yukio Hatoyama over the issue.
The American government insists that it is and always will be the senior partner in any alliance. Washington will protect you, but only on its terms. In this case, the U.S. wants bases in Okinawa, and wants them forever. Nearly 30 Okinawans, ranging from elected officials to students, are visiting Washington, D.C. this week to tell Americans about the resulting burden on the people of Okinawa.

Doug Bandow is a senior fellow at the Cato Institute. A former special assistant to Ronald Reagan, he is the author of Foreign Follies: America's New Global Empire (Xulon).

More by Doug Bandow

Okinawa’s travails have a long history. The Ryukyu Islands, of which Okinawa is the largest, were independent throughout most of their history. Only late was the territory conquered by imperial Japan. Okinawans were never fully trusted by Tokyo and suffered horribly in the closing stages of World War II.
The so-called “Typhoon of Steel,” as the American invasion campaign was called, ran from April through June in 1945. Combat was brutal. Estimated civilian casualties ran up to 150,000. The U.S. occupied Japan after the war and turned Okinawa into a veritable colony. Only in 1972, 27 years after the conclusion of the war, was the island turned back to Japan.
However, the U.S. military continues to control much of the island, roughly 20 percent of the land mass. Long fences separate residents from property owned by their ancestors. Air bases crowd civilian neighborhoods. Prime beaches remain under U.S. military control. Thousands of young, aggressive foreign men transform local life—and often not for the good.
Frustrated Okinawans have been asking for relief for years. Anger exploded in 1995 after the rape of a teenage girl and insensitive comments of the U.S. military commander. But nothing changed, despite large demonstrations. Okinawans faced a hostile partnership between the American and Japanese governments.
The U.S. military likes Okinawa because of its central location. Nor does the Pentagon want to pay to relocate the Marine Expeditionary Force. Inconvenience for Okinawans is not a concern in Washington, other than the extent to which it complicates the U.S.-Japan relationship. Gen. Burton Field, commander of U.S. forces in Japan, dismissed the “resistance in Okinawa” with the observation that “the sooner we are able to build a better place for the Marines to operate, the sooner we will put some of this animosity behind us.”
However, the real author of the Okinawans’ distress is Tokyo. The U.S. government negotiates with the national Japanese authorities, not the Okinawan prefectural government. From Washington’s perspective, responsibility to accommodate local preferences lies with Tokyo, not the U.S.
But the Japanese government also favors concentrating bases in Okinawa because of its location—its distance from the rest of Japan. Roughly three-fourths (by area) of U.S. military facilities, with half of American military personnel are located in Japan’s most distant and poorest prefecture, making up just .6 percent of the nation’s territory. Although nearly six of ten Japanese is critical of the resulting burden on Okinawa, none of them wants another U.S. base near their neighborhood.
Proposals abound for tinkering with the American presence. In 2006 after a decade of negotiation the Japanese government agreed to pay to help move some Marines to Guam and relocate Futenma airbase to less populous Henoko elsewhere on the island. The initiative was designed to satisfy no one. Inconvenient to the U.S., expensive to Japan, and unhelpful to Okinawa. In Japan’s 2009 election the opposition Democratic Party of Japan opposed the proposal. After taking office, DPJ Prime Minister Hatoyama declared. “It must never happen that we accept the existing plan.”
The new government’s intentions were good, but it did not expect the Obama administration’s unyielding refusal to reset Washington’s military relationship with one of its closest allies. The DPJ had spoken of creating a more equal partnership, but that is not how America conducts alliances. Nor were Japanese policymakers—and people—ready to challenge the relationship. The first DPJ government collapsed under U.S. pressure.
Yet the Futenma plan appears to be no more viable than the Hatoyama premiership. The Government Accountability Office figures that relocating the Marines to Guam likely will cost more than $29 billion, nearly triple the initial estimate. Congress cut all money for the project this year. Senators Carl Levin (D-Mich.), John McCain (R-Ariz.), and Jim Webb (D-Va.) called the proposal “unrealistic, unworkable and unaffordable.”
Japan also slashed 2012 financial support for the move. Tokyo is inclined to simply kick the can down the road, so to speak. Doing so “worked” after the 1995 rape; protests eventually died down. Large demonstrations erupted again in 2010 but then ebbed.
Japanese leaders hope that doing nothing will work again, at least in the short-term, since Okinawans still have little clout in Tokyo. Prime Minister Naoto Kan last year told island residents that “We have reviewed [moving operations out of Okinawa] from every angle, however, and the current situation would not allow it.”. For years Tokyo has attempted to simultaneously bribe and browbeat local residents into submission.
Civil disobedience is a potential game-changer. In May 2010 17,000 Okinawans created a human chain surrounding Futenma. More recently roughly 200 demonstrators delayed delivery of an environmental impact report on a new runway from the defense ministry to the prefectural government. Using force against protestors would threaten a future Japanese government’s survival and embarrass Washington.
Rather than resist Okinawan demands, the U.S. should voluntarily reduce its military presence on the island. Jeffrey Hornung of the Asia-Pacific Center for Security Studies observed. “Given how much problems this is causing in Okinawa, it’s finally time to rethink things.”
But American military facilities are a symptom, not a cause. The bases exist to support the defense of Japan. The MEF also is available for deployment elsewhere, most obviously in a war on the Korean Peninsula.
It is unreasonable to expect Washington to defend Japan without bases in Japan. But the U.S. should end its security guarantee and then remove, rather than relocate, its military facilities in Okinawa and elsewhere in Japan. Indeed, instead of augmenting its forces elsewhere in East Asia, such as in Australia, Washington should withdraw and demobilize troops and close bases throughout the region. World War II ended 67 years ago. America no longer need guarantee the security of its many prosperous and capable allies.
Japan should endorse this step as the only way to escape its status as an American protectorate. Tokyo has essentially relinquished control over its own territory to comply with U.S. demands. Although the Obama administration frustrated the 2009 DPJ campaign pledge to create a more equal security partnership, Japanese citizens will inevitably raise more questions about the bilateral relationship as they debate security issues.
Prof. Kenneth B. Pyle of the University of Washington argued that “the degree of U.S. domination in the relationship has been so extreme that a recalibration of the alliance was bound to happen, but also because autonomy and self-mastery have always been fundamental goals of modern Japan.”. Even as Prime Minister Hatoyama was beaten by Washington he looked to the future, observing. “Someday, the time will come when Japan’s peace will have to be ensured by the Japanese people themselves.”
That many Japanese still look to America for their defense is hardly surprising. Relying on a friendly superpower for protection frees domestic resources for other purposes. The alliance also eases Tokyo’s diplomatic burden, which otherwise would include reassuring neighbors still obsessed with Imperial Japan’s military depredations.
More curious is Washington’s determination to keep paying for Japan’s defense. The U.S. government is broke, having run deficits exceeding $1 trillion three years running. Unfunded liabilities for Social Security and Medicare alone exceed $100 trillion. A potpourri of other financial obligations account for another $100 trillion. Yet most U.S. policymakers presume the necessity for a permanent, even enhanced American military presence in East Asia.
There are two different rationales for Washington’s paternalistic role. The first is to contain China. Pointing to the People’s Republic of China, Gen. Field declared. “Most of the countries in this region want to see this remain a secure and stable region.”
Exactly how the Marines help contain Beijing is not clear. As Robert Gates observed, U.S. policymakers would have to have their heads examined to participate in another land war in Asia. If a conflict with China improbably developed, Washington would rely on air and naval units.
Moreover, despite persistent fear-mongering about Beijing, the PRC is in no position, and for many years will not be in position, to harm the U.S. Chinese military spending remains far behind that of America. Beijing is working mightily to deter the U.S. from attacking China, not to attack America.
Japan and its neighbors have greater reason to worry, being closer to and weaker than the PRC. However, it is up to them, not Washington, to assess the risk and respond accordingly. They should take whatever steps they deem necessary to ensure that their region remains “secure and stable,” as Gen. Field put it. Just as China is seeking to deter the U.S., they should seek to deter Beijing.
Japan already has constructed a capable military, called a “Self-Defense Force” to get around a constitutional prohibition originally enacted at the insistence of Washington during the American occupation. But Tokyo has never invested resources commensurate with its capabilities; in fact, the government recently announced that it was reducing SDF outlays. If Japan believes itself to be threatened by China, as well as ever-unpredictable North Korea, then Tokyo should do more.
There also is good reason for Japan to work more closely with like-minded states such as the Republic of Korea. This bilateral relationship, like others involving Tokyo, remains tainted by history. But so long as Washington essentially smothers the region with its security blanket, allied states have little incentive to eschew taking domestic political advantage of nationalistic sentiments and work through historic difficulties. Take away the American guarantee, and other states have a much greater incentive to cooperate.
Indeed, in recent years Beijing has exhibited sharp elbows in its relationship with other states over territorial claims. The response has been to exacerbate regional concerns over Chinese behavior and spark increased military spending, and in particular naval procurement programs. That is far better than expecting Washington to build more ships to deploy to the region.
Some policymakers talk more broadly about promoting regional stability, but it’s hard to imagine a contingency requiring deployment of the Okinawa-based MEF. Manpower-rich South Korea doesn’t need a few thousand Marines if the North invades. Even if “something,” whatever that might be, happened in Fiji, the Solomon Islands, Indonesia, Burma, or Cambodia—among the least stable states in the region—it is hard to imagine why the U.S. would consider intervening with ground troops. Not every geopolitical problem warrants an automatic American military response. Then-Air Force Chief of Staff Gen. Ronald Fogelman admitted that the Marines “serve no military function. They don’t need to be in Okinawa to meet any time line in any war plan.”
The second purpose of the U.S.-Japan alliance is to contain Tokyo—or as Maj. Gen. Henry Stackpole famously but inelegantly put it, to maintain “the cap in the bottle” preventing “a rearmed, resurgent Japan.”. It is a claim that even Japanese officials have used on occasion to protect us, since surely you don’t want the Imperial Japanese navy wandering the Pacific again.
But the “stop us before we aggress again” argument has grown thin after decades of peace and democracy. While there are no certainties in life, there is no evidence of resurgent militarism among more than a fanatic few. Deploying even a few peace-keeping troops has proved to be highly controversial for Tokyo. The Japanese should not be treated as if they possess a double dose of original sin.
Moreover, Washington could help ease regional concerns by promoting military transparency and multilateralism. Tokyo should adapt its forces and relationships to defense and deterrence against a superior power. Without a large army, Japan could not occupy anyone even if it wanted to.
But whether Tokyo does more and, if so, precisely what it does, and with whom, should be up to the Japanese people. It is not America’s place to dictate.
Dropping the U.S.-Japan military alliance would not mean abandoning the U.S.-Japan relationship. Economic, family, and cultural ties would remain strong. Moreover, the two countries should cooperate militarily. Shared intelligence, emergency base access, training maneuvers, pre-positioned materiel, and other forms of cooperation would remain appropriate. The U.S. could act as an “off-shore balancer,” ready to aid allied states such as Japan if threatened by a potential hegemon. But Washington no longer would attempt to micro-manage regional disputes of lesser consequence.
Adopting such a stance would be in the interests of the American and Japanese people. And especially in the interest of the Okinawan people. The U.S. should begin transforming its alliance relationships. Now is a good time to do so with Japan.

Obama's State of the Union: Too Little Foreign Policy. by Ted Galen Carpenter

2012-01-31T16:15:00.003-07:00

President Obama’s treatment of international issues in his State of the Union was profoundly unsatisfying. Under the US Constitution, the president’s principal responsibility is to direct the foreign policy of the United States and to protect the country from external enemies. A State of the Union address ought to reflect that priority, but this one fell far short.

Obama did open his speech with a brief discussion of foreign affairs. There was the expected self-congratulatory passage regarding the on-schedule withdrawal of US troops from Iraq at the end of 2011. Likewise, there was the predictable praise of American military personnel for taking out Osama bin Laden and other high-level leaders of al Qaeda. Yet the overall treatment of international policy ultimately made up barely ten minutes of a sixty-five minute speech.

The emphasis on domestic issues highlights a problem in the US political system. American voters tend to elect chief executives based far more on their domestic agendas than on any expertise candidates might have in the arena of foreign policy. Incumbent presidents understand that their re-election prospects, barring a major international crisis, depend primarily on their performance regarding domestic — especially domestic economic — issues. President Obama’s State of the Union address clearly reflected that understanding.
The portion of his address that was devoted to international issues emphasized two themes: thinly-veiled economic nationalism and a sometimes strident insistence on undiminished US global leadership. The first theme ought to trouble other nations, especially China. Although the president gave perfunctory endorsement to free trade agreements, even that segment had more than a tinge of the “fair trade” caveat — with China cited specifically for allegedly unfair practices. Indeed, with one exception (Obama’s declaration that he was unwilling to cede leadership in clean energy to either Germany or China) Beijing was the only offender mentioned by name.

Obama missed an opportunity, in a high-profile setting, to articulate a more sustainable and effective international policy for the United States.

Moreover, a major theme in the speech — arguably the most prominent single theme — was the need to restore American manufacturing and overall economic competitiveness, thereby keeping jobs in the United States or returning jobs to America’s shores. From trade policy to tax policy, and to rebuilding America’s infrastructure, the goal of economic nationalism was paramount. For countries, especially those with export-led economies that are dependent on the US market, there is reason to be nervous about the president’s emphatic endorsement of that orientation.
The second theme — the insistence that US global leadership is undiminished and will remain so — also ought to make Americans uneasy. Obama’s stress on that point seemed to border on shrill. On one occasion, he thundered that analysts who contend that America is in decline, or even that US power has waned, “don’t know what they’re talking about.”
Such an attitude is a classic case of denial. The reality is that the United States faces chronic federal budget deficits of approximately $1.5 trillion per year, with much of the growing debt held by China, an emerging strategic competitor. Washington has proven spectacularly unable to achieve an array of major, high-profile foreign policy goals. Those include making Iraq a model of stability and democracy for the Arab world, winning the war in Afghanistan, and getting either North Korea or Iran (much less both countries) to relinquish nuclear ambitions. The notion that the United States exercises the same degree of global dominance that it did in the immediate post-Cold War decade is delusional. It is more than a little disturbing that the president seemed unwilling to acknowledge an obvious change in fortunes.
Once President Obama returned to a discussion of international affairs in the State of the Union address — following a nearly fifty minute focus on largely domestic matters — his treatment consisted of little more than generalities and sound bites. America, he proclaimed, is the “one indispensible nation” in world affairs — echoing a slogan of national narcissism once voiced by Bill Clinton’s secretary of state, Madeleine Albright.
On those policy issues that did receive some attention in his address, the president’s assessment reflected a persistent, and often vapid, bipartisan consensus. That was clearly true regarding Israel, for example. The president reaffirmed an “ironclad commitment” to Israel, just as US chief executives have done for decades.

Ted Galen Carpenter is a senior fellow at the Cato Institute.

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The bipartisan consensus about Iran was also in evidence. There was no indication of flexibility regarding that country’s nuclear program. The endorsement of ever-tightening economic sanctions against Tehran, accompanied by dark hints that all options remained on the table if sanctions fail, was as prominent as under previous administrations. Indeed, Obama boasted that Iran is now more isolated than ever before. There was the tiniest of olive branches — a statement that Iran was welcome to rejoin the community of nations if it would only abandon its nuclear apostasy, but that option has been, and remains, a non-starter. Those who hoped to see some recognition that the current policy merely deepens a dangerous confrontation with a major Middle Eastern power found no reasons for encouragement.
Perhaps the most disappointing aspect of the president’s all-too-brief, perfunctory treatment of foreign policy was the list of important issues he did not discuss. Relations with the European democracies were virtually ignored. Likewise, such key powers as Russia and India were invisible in the State of the Union address. And except for the complaints about unfair trade practices, the relationship with China was snubbed. There was certainly little indication that Washington and Beijing have important security concerns — and underlying policy disagreements — in East Asia or anywhere else.
As a campaign speech that hit raw nerves among important domestic political constituencies, or as one to inspire the American people to restore the country’s economic greatness, the State of the Union was a winner. But as a speech that reflected the president’s primary role as the steward of US foreign policy, it was shallow, perfunctory, and sterile. Obama missed an opportunity, in a high-profile setting, to articulate a more sustainable and effective international policy for the United States.

Gingrich Grandiosity And Supply-Side Economics by Alan Reynolds

2012-01-31T16:07:00.000-07:00

A Washington Post headline proclaims, "Supply-siders find an ally in Gingrich."

Art Laffer endorsed Newt last month, but that is not news. What accounts for the plural in "supply-siders" is one of Gingrich's policy advisor (a libertarian lawyer) plus two more (an investor and a self-described economist) who are refugees from Herman Cain's campaign. The same article goes on to mention Columbia Business School Dean Glenn Hubbard, whom I would certainly count as a supply-side sympathizer. The article also counts former Congressman Vin Weber in Romney's camp, and Weber was a long-time ally of our mutual friend the late Jack Kemp.

Some supply-siders evidently find an ally in Romney, while others were more inclined to support Cain or Perry in the past and perhaps Gingrich or Santorum today. If it was simply about who can dream up the lowest tax rate, it's hard to beat Ron Paul's comment in a recent debate: "What's wrong with zero?" But zero won't get the bills paid, so cutting one tax to zero (such as the tax on dividends or capital gains) means increasing some other tax to fill the gap. We have to find credible ways of funding the government that will do the least possible damage to the economy. Repeatedly borrowing trillions more just to pay for unsustainable tax giveaways ("to put money in people's pockets") is not what supply-side economics was ever about.

Alan Reynolds a senior fellow with the Cato Institute, is the author of Income and Wealth (Greenwood Press 2006).

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Whenever Newt Gingrich has been asked to explain why he is supposedly more "conservative" than other Republican presidential candidates, Newt has repeatedly replied that he "helped Ronald Reagan and Jack Kemp develop supply-side economics." If that were true, I think I would know about it.
I was jointly responsible (with Jude Wanniski) for bringing the phrase "supply-side" economics into popular parlance in 1976. I helped write the tax chapter in Jack Kemp's book 1978 An American Renaissance. I spent nine years as chief economist with Wanniski's consulting firm Polyconomics. I worked with David Stockman and Larry Kudlow in the first Reagan transition team in 1981.
Kemp arranged for me to meet with Gingrich in 1982, because Jack was worried that Newt had been seduced by OMB Director Dave Stockman's arguments that the Reagan tax cuts must tax a back seat to deficit reduction. Stockman was arguing that deficits would absorb savings, crowd out investment and abort the recovery. That argument (and Alan Greenspan's advice) had already inspired some crippling policy mistakes, such as waiting until mid-1983 to phase-in the tax rate reductions, and keeping the top tax on labor income at 50 percent. Incentives for business investment were also curtailed in a 1982 law, which I believe Newt opposed. Unfortunately, Gingrich also opposed the Kemp-Kasten tax reform in 1986, but all was forgiven in 1990 when he tried to block the counterproductive "read my lips" tax hikes of the first President Bush.
If Gingrich had simply said that he (like many others) supported the original Kemp-Roth tax rate reduction plan and the watered-down version of 1981, that would have been accurate and appropriately unpretentious. To suggest instead that the underlying logic and evidence was "developed by" by Gingrich, rather than by numerous economists allied with Jack Kemp, is simply preposterous. The true story is ably retold in several books, most recently Econoclasts by historian Brian Domintrovic, and earlier in The Seven Fat Years by former Wall Street Journal editor Robert L. Bartley. One looks in vain for any mention of Newt Gingrich in any history of supply-side economics.
The phrase "supply-side" dates back to April 1976 — two years before Gingrich came to Congress. With some effort, I then persuaded former Wall Street Journal editorial writer Jude Wanniski to embrace a label that Nixon economist Herb Stein coined at a conference I attended. Yet several of us had been talking and writing along similar lines since about 1971, including Art Laffer, Nobel Laureate Bob Mundell and former Treasury Underscretary Norm Ture. As conservative radio talk show host Mark Levin rightly put it,

Newt Gingrich.... had nothing to do with the development of supply-side economics.... It pre-dated his election to the House by several years. So he didn't help Ronald Reagan develop supply-side economics. He wasn't even on Ronald Reagan's radar at the time.

With more justification, Gingrich gives himself great credit for "cutting taxes, cutting spending and balancing the budget for four years" as Speaker of the House from 1994 to 1998. Many taxes went way up in 1993, of course, but Gingrich does deserve credit for persuading President Clinton to reduce the top capital gains tax to 20 percent from 28 percent in 1997. Revenues from capital gains soared to $89.1 billion in 1998 and $127.3 billion in 2000. But Newt can't have it both ways. If he takes credit for the revenue windfall from capital gains tax of 20 percent — which contributed mightily to the balanced budget in those years — then Gingrich cannot then turn around and promise a similar fiscal miracle from his proposed capital gains tax of zero.
What about spending? Nondefense spending was cut from 17 percent of GDP in 1993 to 16 percent in 1998, and Gingrich surely deserves credit for that. But defense spending fell from 4.4 percent of GDP to 3.1 percent in the same period, which had more impact on the deficit.
Newt Gingrich's alleged role in the development of supply-side economics sometimes looks like a deliberate distraction from deeper questions about why he claims to be more "conservative" than other candidates. For many years, Gingrich advocated federal legislation making health insurance compulsory, something Romney never did. Gingrich has enthusiastically supported federal subsidies for ethanol and other green energy boondoggles. And he dismissed a thoughtful plan from Paul Ryan (who Kemp greatly admired) to slow the growth of entitlements as "right wing social engineering."
For Newt Gingrich to toss out strikingly bold and obviously unworkable ideas about scrapping many taxes and slashing others is certainly not moderate. But being immoderate is not the same as being conservative. And voicing flippant disregard for budget problems of the magnitude we face is not the same as being any sort of economist, supply-side or otherwise.

Obama's Odd Sense of Fairness. by Richard W. Rahn

2012-01-31T16:04:00.001-07:00

President Obama keeps demanding that the rich pay more because “it is only fair.” In his State of Union address, he said millionaires should pay a minimum of 30 percent of their income in taxes. The 30 percent number seems to have come from divine inspiration rather than an exercise in logic.

In fact, the very rich pay far more in taxes than the relatively low nominal numbers they report on their tax returns. Many very wealthy people obtain most of their income from dividends, capital gains and interest on tax-free state and municipal bonds. The actual tax rate Mitt Romney, Warren Buffet and most other wealthy people pay on dividends, when correctly calculated, is about 52 percent, as reported by the Organization for Economic Cooperation and Development (OECD), which includes the federal and state corporate-level-profits tax burden, plus federal and state taxes on dividends. My Cato colleague, Chris Edwards, who prepared the accompanying chart, notes: “Just about every industrial country provides relief for the double taxation of corporate equity, either by having a lower personal rate on dividends, a personal tax credit for dividends or a lower corporate-level tax. Despite the 2003 dividend tax cut, the overall U.S. rate of dividends... is still the fourth-highest among the 34 high-income nations of the OECD.”

Mr. Obama seems to think it is “fair” to tax the same income multiple times, at a total effective rate of more than 50 percent.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

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Capital gains are taxed at 15 percent but will be subject to a higher rate as a result of revenue provisions in Obamacare. Now the president seems to be proposing that the rate be doubled to 30 percent, given his comments in his State of the Union address. Over the past half-century, the United States has raised and lowered the capital-gains tax rate many times. When rates went up, revenues went down and vice versa, because for the most part, people can choose when to take their capital gains or losses. Virtually all independent economic studies and even a U.S. Treasury study show that a capital-gains tax-rate increase will almost certainly be a big revenue loser and job killer and will depress economic growth. When Mr. Obama was asked about this during his first presidential campaign, he acknowledged that a capital-gains tax increase might lose revenue, but he wanted it anyway because of “fairness.”
So, according to the president, it is “fair” that everyone has to pay higher taxes or have fewer government services in order to make sure that high-income earners pay an increased rate of tax for risking their capital and creating jobs. This is perhaps the best description of “Alice in Wonderland” economics.
As with dividends and capital gains, interest is also subject to multiple levels of taxation, and so the nominal tax rate on it is far lower than the properly measured real rate. Many wealthy people buy state and local government bonds, which are tax free but normally have a lower rate of interest. The reason state and local governments are allowed to issue tax-free bonds is to enable them to have access to low-rate capital for building schools, roads, bridges, etc. To force high-income people to pay higher tax rates, this “tax preference” would need to be abolished, resulting in much higher interest-rate costs for state and local governments, which, in turn, would mean fewer new schools and highway improvements. I expect that many in the president’s political base who want more schools would not view this required tax change as being “fair.”
The federal government admits that hundreds of billions of taxpayer dollars are wasted through fraud and mismanagement. Medicare fraud alone costs tens of billions of dollars each year. Nevertheless, somehow the president thinks it is more “fair” to enact job-destroying tax increases rather than insisting that officials in his own administration clean up the fraud and waste or lose their jobs, as would happen in any private company.
Much of the president’s mental confusion about what is “fair” seems to stem from viewing people as “classes” rather than individuals. The American Constitution is all about protecting individual (not class) liberties and rights. If you think the “rich should pay more,” then you are thinking in class terms. Assume for the moment there are two individuals, each 45 years old with the same IQ, who went to the same college and dental school and are equally skilled dentists in private practice. However, one is married with four children in expensive colleges, and thus chooses to work 60 hours per week. The other dentist has no children and chooses to work just 30 hours per week and thus makes half as much. The president thinks it is “fair” to tax the industrious dentist at a higher tax rate. (Note: the bottom 50 percent of taxpayers pay just 2.3 percent of federal income tax, and the top 1 percent of taxpayers pay 36.7 percent, more than twice their share of earning.)
Those who are mentally mature enough to understand that people change their behavior in response to economic incentives and penalties and who view their fellow citizens as individuals rather than impersonal members of a class will have a very different notion of what “tax fairness” means than those who are not so mentally mature. By the way, did you see the report from the University of Minnesota’s Smart Politics that “President Obama’s 2012 State of the Union address rated at an 8th-grade comprehension level using the Flesch-Kincaid readability test, the third-lowest score of any State of the Union address since 1934”?

Overpaid Federal Workers

2012-01-31T16:02:00.001-07:00

by Chris Edwards

Introduction
Growing Federal Pay Advantage
Job-to-Job Wage Comparisons
Employee Benefits
Conclusions

Introduction

With projections of huge federal deficits for years to come, policymakers should scour the budget looking for places to cut spending. One area to find savings is the generous compensation paid to the federal government's 2.1 million civilian workers.¹ Total wages and benefits paid to executive branch civilians amounted to $230 billion in 2010, indicating that compensation is a major federal expense that can be trimmed.

During the last decade, compensation of federal employees rose much faster than compensation of private-sector employees. As a consequence, the average federal civilian worker now earns twice as much in wages and benefits as the average worker in the U.S. private sector.³ A recent job-to-job comparison found that federal workers earned higher wages than did private-sector workers in four-fifths of the occupations examined.⁴
The federal workforce has become an elite island of secure and high-paid workers, separated from the ocean of average American workers competing in the global economy. It is time for some restraint. Federal wages should be frozen or cut, overly generous federal benefits should be overhauled, and the federal workforce downsized through program terminations and privatization. It is unfair to ask taxpayers to foot an ever-increasing bill for federal workers, especially when private-sector compensation has not kept pace.

Growing Federal Pay Advantage

In 2009, federal civilian workers had an average wage of $81,258, according to data from the U.S. Bureau of Economic Analysis.⁵ By comparison, the average wage of the nation's 101 million private-sector workers was $50,462. Figure 1 shows average federal- and private-sector wages since 2000, and it reveals that the federal pay advantage over private workers has been increasing steadily.

When benefits such as health care and pensions are included, the federal compensation advantage over private workers is even larger, according to the BEA data. In 2009, federal worker compensation averaged $123,049, or double the private-sector average of $61,051. Figure 2 shows that average federal compensation has grown rapidly over the last decade.

An analysis by USA Today revealed particularly fast wage growth at the top end of the federal workforce in recent years.⁶ By 2009, there were 383,000 federal civilian workers with salaries of more than $100,000, 66,000 with salaries of more than $150,000, and 22,000 with salaries of more than $170,000. Between late 2007 and mid-2009, the number of federal workers earning more than $150,000 more than doubled, even as the economy fell into a deep recession during that period.
Rising federal compensation stems from legislated increases in general pay, increases in locality pay, expansions in benefits, and growth in the number of high-paid jobs as bureaucracies become more top-heavy. Compensation growth is also fueled by routine adjustments that move federal workers into higher salary brackets regardless of performance, and by federal jobs that are redefined upward into higher pay ranges.
Politics also plays an important role. Federal workers are a powerful special-interest group, and they are very effective lobbyists. Members of Congress who have large numbers of federal workers in their districts push relentlessly to expand pay and benefits. Another factor is that the George W. Bush administration supported large pay increases for the uniformed military, and that prompted federal unions to demand similarly large increases for civilians.
Some people argue that the federal government has a unique high-end workforce, which deserves to be paid handsomely. But let's consider some ordinary and mundane offices in the U.S. Department of Agriculture. In 2010, the USDA's Office of Communications employed 77 people and paid $9 million in wages and benefits. That works out to $117,000 each for these public relations workers, which is close to the overall federal compensation average.⁷ Or consider that the 62 employees of the USDA's Office of Chief Economist earned an average $177,000 each in wages and benefits in 2010.⁸ It isn't just rocket scientists that are earning high federal compensation, it is also workers in many run-of-the-mill bureaucratic jobs.
More importantly, the federal workforce has always had a heavy contingent of skilled professionals such as lawyers. So that is not new, and thus it cannot explain the dramatically faster growth in federal compensation compared to private compensation shown in Figures 1 and 2. In 2000, the average federal worker earned 66 percent more in total compensation than the average private-sector worker. By 2009, that ratio had risen to 102 percent.⁹
Another way to evaluate federal pay is to compare average compensation in 72 industries tracked by the U.S. Bureau of Economic Analysis.¹⁰ In 2008, federal civilian workers had the seventh-highest average compensation level of the 72 industries. The federal workforce had a higher average compensation level than such high-skill industries as computer systems design, chemical products, and legal services. See these industry data charted here.
In the past, there was a view that because it was a privilege for citizens to serve the public in a federal agency, federal pay should be fairly modest. Unfortunately, that sort of thinking has gone out the window as the federal pay advantage continues to increase.

Job-to-Job Wage Comparisons

Despite the escalation of federal compensation, federal labor unions and some government officials continue to claim that federal workers are underpaid. Indeed, they claim that federal workers suffer from a large "pay gap" with private-sector workers. The government's Federal Salary Council releases an annual memo reporting on the size of the supposed pay gap, which in 2009 was 26 percent.¹¹ The gap is supposed to be determined based on job-to-job comparisons, but the results rest on calculations that are non-transparent and subject to a large amount of statistical modeling.
One reason why the official pay gap results are suspicious is that they don't square with Bureau of Economic Analysis data on overall pay trends. The BEA data show that average federal wages have grown faster than average private wages for many years, yet the official pay gap has remained very large. The official pay gap was 22 percent in 2001 and 26 percent in 2009, thus supposedly indicating that federal workers became a bit worse off relative to private-sector workers during that period.¹² Yet the BEA data show that average federal salaries rose 58 percent between 2000 and 2009, which was much faster than the 30 percent increase in the private sector. Since the BEA data are authoritative, there must be something wrong with the official pay gap methodology.
The other problem with the official pay gap data is that simple job-to-job comparisons show that federal workers are generally overpaid, not underpaid. A recent USA Today analysis of more than 200 occupations revealed that—rather than suffering from a 26 percent pay gap in 2009—federal workers typically have wages 20 percent higher than private-sector workers.¹³ The analysis found that "federal employees earn higher average salaries than private-sector workers in more than 8 out of 10 occupations... accountants, nurses, chemists, surveyors, cooks, clerks, and janitors are among the wide range of jobs that get paid more on average in the federal government than in the private sector."¹⁴ And note that the USA Today analysis did not include benefits, which are very generous in the federal government.

Employee Benefits

Comparisons of federal and private pay often just look at wages and do not consider the superior benefits received by government workers. The Bureau of Economic Analysis provides data showing the average value of federal and private-sector benefit packages.¹⁵ In 2009, federal workers enjoyed average benefits of $41,791, which compared to average benefits in the U.S. private sector of just $10,589. That huge advantage stems both from more federal workers receiving certain types of benefits and from particular federal benefits being more lucrative than those available in the private sector.
Federal workers receive health insurance, retirement health benefits, a pension plan with inflation protection, and a retirement savings plan with a government match. They typically receive generous holiday and vacation schedules, flexible work hours, training options, incentive awards, generous disability benefits, and union protections.
Lily Garcia, a human resources specialist who contributes to the Washington Post, noted: "The primary advantages of working for the federal government are generous benefits, solid pay, and relative job security, a combination that is challenging to find in the private sector, even in the best of times.¹⁶ Garcia summarized the federal benefits package:¹⁷

"Health Care: The Federal Employee Health Benefits Program offers the widest selection of health care plans of any U.S. employer. Federal employees also have access to vision and dental plans, life insurance, flexible spending accounts, and long-term care plans."
"Paid Time Off: Federal employees enjoy liberal amounts of paid time off, including 13 days of sick leave per year, 10 paid federal holidays, and 13 to 26 days of paid vacation, depending on years of service."
"Retirement Benefits: Federal employees have access to retirement benefits through the Civil Service Retirement System or the Federal Employee Retirement System. Under both plans, retired employees receive an annuity, which is complemented by Social Security benefits and participation in the Thrift Savings Plan that offers 401(k)-type investment options."
"Family-Friendly Policies: Another notable benefit of federal employment is family-friendly policies, including flexible work schedules, telecommuting, part-time jobs, and job sharing. Not to mention the fact that federal employees enjoy first priority and subsidies at a number of top-notch day care facilities."

There is another important benefit of federal employment: extremely high job security. U.S. Bureau of Labor Statistics data show that the rate of "layoffs and discharges" in the federal workforce is just one-quarter of the rate in the private sector.¹⁸ Only about 1 in 5,000 federal nondefense workers is fired for poor performance each year.¹⁹
It seems clear that federal wages and benefits have grown to excessive levels in recent years. But we can "market test" that proposition by looking at the worker quit rate—at what rate do workers voluntarily leave the federal government to take other jobs? It turns out that the quit rate in the federal government is only one-quarter the quit rate in the U.S. private sector.²⁰ Federal workers know that they have a gold-plated compensation package and high job security, which is hard to match in the private market, and so they stay put.

Conclusions

It is often assumed that the federal government should have the nation's highest-skilled workers, and that it should pay top dollar to get them. But federal hiring of the very best workers imposes an "opportunity cost" on the economy by drawing talented people away from higher-valued activities in the private sector. Unlike, say, France, where the best university graduates historically have gone into government, the United States has historically prospered because the best and brightest have flocked to places such as Silicon Valley.
Federal pay should be reasonable, and we certainly need competent workers in federal jobs, assuming that they are jobs that are really required. But the government industry shouldn't be one of the highest-paid industries in the nation. Indeed, an advantage of reducing federal pay would be to encourage more turnover in the currently very static federal workforce. That would get more young and energetic people in government, which would be a good thing.
Another way to help solve the federal pay problem would be to privatize federal jobs where possible. For example, a study found that the average annual compensation of federal air traffic controllers was $166,000 in 2005.²¹ Is that too much? Let's find out by privatizing air traffic control—as Canada has done—and let the market decide. Does the government pay postal workers too much? Let's privatize postal services—as Germany has done—and let the market decide.
With regard to immediate policy reforms, Congress should freeze or cut federal wages and then start overhauling federal benefits to reduce costs. It should, for example, phase-out defined-benefit pension plans, as most private-sector employers have. To deal with today's large budget deficits, we need to restrain all areas of spending, and so it is reasonable to cut federal pay packages and better align them with private-sector practices.

$189,000. by Michael D. Tanner

2012-01-31T15:59:00.001-07:00

The president devoted just 189 words to the deficit and our growing national debt, but the fact is that once again this year we will borrow 32 cents out of every dollar we spend. Overall, our national debt now tops $15.2 trillion (with Congress raising the debt ceiling to $16.4 trillion last week). And that doesn’t count the unfunded liabilities of Social Security and Medicare. Throw those in, and our total indebtedness exceeds $120 trillion.

That means that if one counts only the official national debt, every man, woman and child in America owes $48,700. Include the unfunded liabilities of Social Security and Medicare, and every one of us is in debt to the tune of $189,000.

Or look at it another way. One can’t pick up a newspaper these days without reading a story about the debt crisis in Europe. France, for example, just had its credit rating downgraded. Yet, measured as a percentage of GDP (the value of all goods and services produced in a country over a year), our budget deficit is roughly a quarter larger than France’s. In fact, among European countries, only Greece and Ireland have larger deficits this year than we do.

[Y]ou simply cannot tax the rich enough to solve our debt crisis.

The debt figures paint an even grimmer picture. If one includes all the unfunded liabilities of pension and health-care systems, Greece’s total debt equals 875% of its GDP. France, the next-most insolvent country in Europe, owes 570% of GDP. The United States, however, now owes 885% of GDP, more than any other industrialized country.
We have been able to avoid disaster so far only because, as the world’s preferential currency, other countries have been willing to lend us money cheaply. But that is not going to continue forever. And if our creditors begin to hike interest rates, we will be facing the same economic consequences facing so much of Europe today.
The president, when he deigns to mention the issue at all, suggests that this problem could be solved if only the rich pay their “fair share.” Of course some might suggest that the rich already pay their fair share, since the much-reviled 1% earn 16% of all income in this country, but pay 36.7% of all federal income taxes. More important, however, in this context, you simply cannot tax the rich enough to solve our debt crisis.

Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

More by Michael D. Tanner

Take the much-discussed Buffett Rule that the president focused so much attention on during the State of the Union address. Whatever one thinks of how investment income should be taxed compared to wage income, the president’s proposal would raise less than $37 billion per year. That amounts to less than 3% of this year’s deficit. In fact, if we were to confiscate — not just tax, but confiscate — every penny owned by every millionaire and billionaire in America, it would pay barely one-tenth of our government’s total indebtedness.
That is because the debt is only a symptom of the underlying disease — a government that is growing ever larger, more intrusive and more costly. We tend to think of Europe as the home of big government. Indeed, on average, European governments consume roughly 49% of their country’s GDP. That means that roughly half of everything produced in that country is consumed by government.
However, we are not that far behind. Today, our federal government alone consumes roughly 25% of GDP. State and local governments take another 10% to 15% of GDP. And, the Congressional Budget Office projects that the federal government is currently on course to grow to 43% of GDP by mid-century. Add in state and local spending, and we will have a bigger government then than any European country except Ireland has today. One only has to look to the chronically high unemployment rates and slow economic growth in most of Europe to see what a government that size would mean for us.
Yet, as we hurtle towards a Greek-style calamity, the president offered us a laundry list of new government spending — for health care, student loans, green energy, job training, hiring veterans, more teachers and so forth. That may have made for a good campaign tactic, but it bares little resemblance to economic reality.
That reality is very simple. We’re broke. Mr. President, are you paying attention?

Hassling the Innocent Is TSA's Specialty. by Gene Healy

2012-01-31T15:57:00.004-07:00

"Rand Paul has got to be on the 'Top 10 People TSA Would Be Smart to Leave Alone' list," National Review's Jonah Goldberg tweeted when news broke of the senator's run-in with the Transportation Security Administration at Nashville International Airport last week.

Kentucky's junior senator missed his flight when he refused a pat-down after a body scanner showed an "anomaly" on his knee.

Someone with a conspiratorial mind-set might suspect a little payback for the grilling Paul gave TSA Administrator John Pistole last summer over the agency's policy of giving the "freedom fondle" to innocent 6-year-old girls. But that assumes the TSA has enough on the ball to carry out even a minor conspiracy.
What Paul experienced was just the routine, pointless indignity that is the agency's stock in trade. While the terrorist threat has diminished radically, the Obama administration is busy expanding the agency's reach onto highways, sporting events and train stations.

Gene Healy is a vice president at the Cato Institute and the author of The Cult of the Presidency: America's Dangerous Devotion to Executive Power.

More by Gene Healy

Much has been made of the bizarre martial metaphors President Obama employed in his State of the Union last week, where he urged Americans to adopt the spirit of "unit cohesion" animating SEAL Team 6: "All that mattered that day was the mission. No one thought about politics. No one thought about themselves."
Yes, why can't America function as a highly trained military unit that obeys Obama's every command without questioning it?
What made the martial rhetoric even odder was that Obama's speech began with an admission that the country is, in fact, quite safe: "For the first time in two decades, Osama bin Laden is not a threat to this country. Most of al Qaeda's top lieutenants have been defeated."
The safety we enjoy owes very little to TSA's competence and a great deal to our adversary's incompetence. Terrorism expert and Cato Institute senior fellow John Mueller notes "the rather impressive inability of the terrorists [in post-9/11 cases] to create and set off a bomb."
Indeed, "the only method by which Islamic terrorists have managed to kill anyone at all in the United States since 9/11 has been through the firing of guns — in the Little Rock and Fort Hood cases."
Even as the threat recedes, Obama's Department of Homeland Security — of which TSA is a part — is expanding the use of paramilitary checkpoints at home. In Leesburg, Fla., earlier this month, federal agents armed with semiautomatic weapons checked IDs in a training exercise at a local Social Security Administration office.
TSA VIPR teams — for Visible Intermodal Prevention and Response — conducted over 9,300 random searches in 2011, on cruise ships, at NASCAR races, on buses, and at train stations.
The Los Angeles Times described one such search at the Charlotte, N.C, Amtrak station in January, in which "three federal air marshals in bulletproof vests and two officers trained to spot suspicious behavior watched closely as Seiko, a German shepherd, nosed [a fiftysomething lawyer's] trousers for chemical traces of a bomb."
"TSA officials say they have no proof that the roving [VIPR] teams have foiled any terrorist plots or thwarted any major threat to public safety," the L.A. Times noted. Still, TSA wants funding for a dozen more VIPR teams.
Contemplating "mission creep" in Obama's TSA suggests a different martial metaphor than those employed by our newly militaristic president last Tuesday. In his book "Wartime," Paul Fussell, a veteran of the Pacific theater in World War II, devotes a whole chapter to "petty harassment" by those in power — which soldiers summed up with a salty term: "chickens—t."
"Frequent, unnecessary inspections," "insistence on the letter rather than the spirit of ordinances" — it "can be recognized instantly," Fussell writes, because it never has anything to do with winning the war."

Blame the U.S. for the Housing Bubble, Not China. by David Boaz

2012-01-31T15:56:00.003-07:00

In his New York Times Magazine column, Adam Davidson cited David Boaz of the Cato Institute as an economist who believes that easy money from China exacerbated the housing bubble in the U.S. In fact, Boaz places the blame much closer to home. His clarification is below.

Adam Davidson's citation of me as someone who believes "that all that easy money from China helped make the housing bubble much bigger and last longer, which created a far bigger crisis when the bubble finally burst" took me by surprise. It would be fine without that little prepositional phrase "from China." Easy money, yes. Housing bubble, yes. Pain when bubbles burst, absolutely. But is China to blame? I'd be inclined to point the finger closer to home.

This was a crisis caused by regulation, subsidization, and cheap money. Christopher Hitchens had a point when he wrote, "There are many causes of the subprime and derivative horror show that has destroyed our trust in the idea of credit, but one way of defining it would be to say that everybody was promised everything, and almost everybody fell for the populist bait."

David Boaz is the executive vice president of the Cato Institute and has played a key role in the development of the Cato Institute and the libertarian movement.

More by David Boaz

There was substantial agreement in Washington for years that home ownership was a good thing and that more home ownership would be even better. Thus Congress and regulators encouraged Fannie, Freddie, and mortgage lenders to extend credit to under-qualified borrowers. To generate more mortgage lending to low and moderate income people, the federal government loosened down-payment standards, pressured lenders to increase their percentages of "affordable" loans, and implicitly guaranteed Fannie and Freddie's dramatic expansion.
All that hard work paid off: The share of mortgages classified as non-prime soared, and the quality of those loans declined. Fannie and Freddie's debt was implicitly backed by the U.S. Treasury — despite many warnings — and they were able to expand their debt and engage in risky transactions. As Lawrence Summers wrote, "Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe."
Federal Reserve credit expansion, especially in 2001 — 2005, helped to make all this lending possible. "Everybody was promised everything" — cheap money, easy lending, and rising home prices. All that money and all those buyers pushed housing prices up sharply. But all good things — at least all good things based on unsustainable policies — must come to an end. When housing prices started to fall, many borrowers ran into trouble. Financial companies threatened to fall like dominos, and an ever-expanding series of bailouts began issuing from the Treasury department.
But what about China? China was eager to buy our debt, both Treasury bonds and Fannie and Freddie's debt. But it was Congress that ran the deficits, and the Fed that kept interest rates artificially low. We don't need to go to Beijing to find the villains in this piece.
So should we get tough on China? Adam Davidson has a point when he says that, "candidates always talk tough. Presidents opt for a gentle, nudging approach. They know that China, alone, gets to decide." I'd put it a little differently. Presidents usually realize that a trade war between the world's two largest economies is a very bad idea. China's currency is probably artificially low. But economists disagree on just how low. And if we don't know what it "ought" to be, how can we know what to do in response?
The real point of economic activity is not to create jobs but to add value, to create wealth and prosperity and a higher standard of living. Judged by that standard, we should probably be thanking China. If China is keeping its currency artificially low, it is hurting people who hold Chinese currency and subsidizing those of us who buy Chinese products. As the economist Mark J. Perry writes, "In the best of all possible worlds for the United States, China would use its labor and capital to manufacture consumer products like clothing, footwear, furniture, electronics, and appliances and send $300 billion worth of these products to U.S. consumers for free every year as a gift or a form of foreign aid to the American people. In addition, the Chinese would produce and send to America another $100 billion worth of raw materials, parts, industrial supplies, inputs, and natural resources at no charge, as a gift to American manufacturers every year."
They don't do that, of course. But if they're selling us products at a discount, American consumers are benefiting.
Our economy could use plenty of reforms — lower, flatter, simpler taxes; a more stable monetary policy or even a move toward free markets in money; reduced regulatory burdens; the de-monopolization of services from education to mail delivery; and less government spending. In all those cases, the problem and the solution are right here in the USA.

Freedom and Federalism Mises Daily: Friday, January 27, 2012 by Thomas J. DiLorenzo

2012-01-31T11:13:00.001-07:00

Americans — and much of the rest of the world — have been deprived of one of the most important means of establishing and maintaining a free society, namely, federalism or states' rights. It is not just an accident that states' rights have either been relegated to the memory hole, or denigrated as a tool of racists and other miscreants. The Jeffersonian states'-rights tradition was — and is — the key to understanding why Thomas Jefferson believed that the best government is that which governs least, and that a limited constitutional government was indeed possible.

What Are "States' Rights"?

The idea of states' rights is most closely associated with the political philosophy of Thomas Jefferson and his political heirs. Jefferson himself never entertained the idea that "states have rights," as some of the less educated critics of the idea have claimed. Of course "states" don't have rights. The essence of Jefferson's idea is that if the people are to be the masters rather than the servants of their own government, then they must have some vehicle with which to control that government. That vehicle, in the Jeffersonian tradition, is political communities organized at the state and local level. That is how the people were to monitor, control, discipline, and even abolish, if need be, their own government.
It was Jefferson, after all, who wrote in the Declaration of Independence that government's just powers arise only from the consent of the people, and that whenever the government becomes abusive of the peoples' rights to life, liberty, and the pursuit of happiness it is the peoples' duty to abolish that government and replace it with another one. And how were the people to achieve this? They were to achieve it just as they did when they adopted the Constitution, through political conventions organized by the states. The states, after all, were considered to be independent nations just as England and France were independent nations. The Declaration of Independence referred to them specifically as "free and independent," independent enough to raise taxes and wage war, just like any other state.
That is why the political heirs of Thomas Jefferson, mid-19th-century Southern Democrats, held statewide political conventions (and popular votes) to decide whether or not they would continue to remain in then voluntary union of the Founding Fathers. Article 7 of the US Constitution explained that the states could join (or not join) the union according to votes taken at state political conventions by representatives of the people (not state legislatures) and, in keeping with the words of the Declaration, they also had a right to vote to secede from the government and create a new one.
Jefferson was not only the author of America's Declaration of Secession from the British Empire; he championed the idea of state nullification of unconstitutional federal laws with his Kentucky Resolutions of 1798, and also believed that the Tenth Amendment to the Constitution was the cornerstone of the entire document. He was a "strict constructionist" who believed that every effort should be made to force the central government to possess only those powers delegated to it in Article 1, Section 8. Delegated to it by the states, that is. All others are reserved to the states, respectively, and to the people under the Tenth Amendment.
States' rights or federalism never meant that state politicians were somehow more moral, wise, or less corrupt than national politicians. The idea was always that

it is easier for the people to keep an eye on and control politicians the closer they are to them, and
a decentralized system of government consisting of numerous states provided American citizens with an escape hatch from tyrannical governments.

If Massachusetts created a state theocracy, for example, those who did not want to live under the thumb of Puritan theocrats could escape to Virginia or some other state. The idea of states' rights was never meant by the Jeffersonians to create a "laboratory of experimentation" with government interventionism, as modern political scientists have said. That would be treating people as so many experimental rats in a cage, and that is not how Jefferson liked to think of himself.
Secession or the threat of secession was always intended as a possible means of maintaining both the American union and constitutional government. The idea was that the central government would likely only propose constitutional laws if it understood that unconstitutional laws could lead to secession or nullification. Nullification and the threat thereof were intended to have the same effect. That is why the great British historian of liberty, Lord Acton, wrote the following letter to General Robert E. Lee on November 4, 1866, seventeen months after Lee's surrender at Appomattox:

I saw in States' rights the only availing check upon the absolutism of the sovereign will, and secession filled me with hope, not as the destruction but as the redemption of Democracy. The institutions of your Republic [i.e., the Confederate Constitution] have not exercised on the old world the salutary and liberating influence which ought to have belonged to them, by reason of those defects and abuses of principle which the Confederate Constitution was expressly an wisely calculated to remedy. I believed that the example of that great Reform would have blessed all the races of mankind by establishing true freedom purged of the native dangers and disorders of Republics. Therefore I deemed that you were fighting the battles of our liberty, our progress, and our civilization; and I mourn for the stake which was lost at Richmond more deeply than I rejoice over that which was saved at Waterloo.

What Lord Acton is saying here is that he considered it to be a disaster for the entire world that the right of secession was abolished by the war. The 20th century would become the century of consolidated, monopolistic government in Russia, Germany, the United States, and elsewhere, and it was a disaster for humanity. Had the rights of secession and nullification remained in place, and had slavery been abolished peacefully as it had been everywhere else in the world, America would have been a counterexample of decentralized, limited government for the rest of the world.
General Lee understood this. In his December 15, 1866, response to Lord Acton he wrote,

While I have considered the preservation of the constitutional power of the General Government to be the foundation of our peace and safety at home and abroad, I yet believe that the maintenance of the rights and authority reserved to the states and to the people, not only are essential to the adjustment and balance of the general system, but the safeguard to the continuance of a free government. I consider it as the chief source of stability to our political system, whereas the consolidation of the states into one vast republic, sure to be aggressive abroad and despotic at home, will be the certain precursor of that ruin which has overwhelmed all those that have preceded it. (emphasis added)

This is all a part of America's lost history. The advocates of centralization who were the victors in the War to Prevent Southern Independence rewrote the history of America, as the victors in war always do. This is why I am offering a new four-week online course under the Auspices of the Mises Academy entitled Freedom and Federalism: The Libertarian States' Rights Tradition. Classes will meet beginning on Thursday, February 2. The purpose of the course is to introduce students to the libertarian or classical-liberal states'-rights tradition, and to impart to them an understanding of how such historical figures as Thomas Jefferson and Lord Acton believed that that tradition was the key to controlling "the sovereign will" and preventing democracies from turning into despotisms and tyrannies.

Worship of the Mob Mises Daily: Monday, January 30, 2012 by Ben O'Neill

2012-01-31T11:04:00.001-07:00

"Democrats never regard existing democracy as their preferred political system."

Several months ago, I was visiting some friends in Sydney and was invited to the house of a friend-of-a-friend for some late night drinks and a chat. My host and his friends were left-wing bohemian types and had been informed by my friend that I am a "free-market anarchist," or something like that. They found this notion intriguing, and so they quizzed me on what that means, and this naturally led into a discussion of the merits of a free market versus a democracy.

The discussion was a cordial one, and went as most of these discussions do when one is chatting with people who have never previously been exposed to consistent libertarian philosophy. My host and his friends raised most of the standard objections to the free market and to the idea of a stateless private-law society, and I explained why I regard each of those objections as erroneous.[1] Though the attending group appeared to find my arguments on these individual points thought provoking, they remained unconvinced. The main sticking point to the discussion was a pervasive concern that the free market does not allow for democratic state action — that "the people" should have the right to collectively determine "the rules of the game" by voting their preferred politicians into power, and that their determinations should legitimately bind the members of the society they are in.

The Sanction of the Victims

This discussion would have been fairly routine — much like countless similar discussions I have had on these issues before — except for one interesting peculiarity. As I argued for the virtues of noncoercion as a governing principle for society, and my host and his friends rallied in favor of unlimited democracy, every one of them happened to be concurrently occupying themselves by snorting lines of cocaine through their rolled-up monopoly-issued fiat currency. (They graciously offered me some, but my recreational drug of choice is alcohol, so I declined.) This gave the discussion an interesting tinge that illustrates an important aspect of people's love affair with mob rule: "Does it bother any of you," I asked them, "that under your own preferred political system you're all considered criminals? What you're doing right now is considered a crime, and you could be fined or even go to prison for it."

"To attain genuine enforceable rights, people need to reject the moral legitimacy of government interference in their lives."

The answer was no; it didn't bother them. It doesn't really bother anyone who accepts mob rule as a desirable form of social organization. The reason is that democrats never regard existing democracy as their preferred political system — they regard it only as a transitory state to a democratic utopia in which the elected leaders will agree totally with their own values and social-political views. Mises has observed that "the critics of the capitalistic order always seem to believe that the socialistic system of their dreams will do precisely what they think correct."[2] Hence, when people talk about the importance of democracy, it is never democracy as it has ever actually functioned, with the politicians that have actually been elected, and the policies that have actually been implemented. It is always democracy as people imagine it will operate once they succeed in electing "the right people" — by which they mean, people who agree almost completely with their own views, and who are consistent and incorruptible in their implementation of the resulting policies. This is what allows an intelligent group of people to espouse mob rule as a desirable principle, even as they simultaneously commit acts that brand them as criminals worthy of imprisonment under the very social system they maintain.
Ayn Rand referred to this phenomenon[3] as the "sanction of the victim" — a person can occupy himself snorting lines of cocaine in his own home, while simultaneously accepting the view that it is morally proper for those in his society to use violence against him if they catch him doing it. The reason for this is a mistaken view in the desirability and moral legitimacy of mob rule as a governing principle for society. With this in mind, let us examine the real nature of this much-lauded democracy.

Unlimited Democracy Is a Form of Socialism

Democracy, of the unlimited kind lauded today,[3] is a form of socialism, in the sense that it arrogates ultimate power over all decisions to the government. Implicit in the notion of people's present love affair with mob rule is the assumption that government, through the collective "will of the people," should have the prerogatives of ownership of all resources in society, should it choose to exercise these. The democrat brooks no limitation on the legitimate powers of government and hence gives total ownership over all of society to this institution. The only limitation in his mind is the limitation of democracy itself — that the rulers in control of the government apparatus must guard against being displaced by another set of rulers, at the behest of the demands of the mob.
The socialistic nature of democracy is true regardless of the size of governments elected under a democratic order or their particular policies. It is true even when a democratic government chooses policies that are relatively liberal and purportedly support the ownership of private property. For such property ownership is regarded as conditional. Supporters of the system of democracy assert their right to forcibly interfere in the lives of others whenever they have sufficient support from the mob to do so, or are otherwise capable of capturing political power. By supporting the existence of a democratic order they implicitly sanction an arrogation of ultimate ownership of all society to the government, whether decisions over particular resources are exercised by government or not.

"Virtually every adult person contravenes the ubiquitous regulations of democratic government."

Any private property or personal autonomy allowed under democracy exists only with the permission of the government, and under the constant threat of the whims of the mob, rather than existing as a recognized enforceable moral right against the government. The ideal of democracy dictates that a person's private rights are always subject to being overruled by the government, and so it is actually the government that is the implicit owner of all the resources (and people) in its territory. Such a society is implicitly socialist in character, unless and until people reject the legitimacy of government power over their resources, a view which requires the rejection of mob rule as a governing principle.
The fact that most democratic governments ban the possession, trade, and consumption of cocaine — and treat those who engage in these activities as criminals — is just one minor corollary to the implicit assumption that democratic government owns you. Those in control of the government don't need to worry too much if you disagree with their "public policies," so long as you concede the legitimacy of their power to impose these policies on you. It is not enough to dislike or disagree with their specific programs — to attain genuine enforceable rights, people need to reject the moral legitimacy of government interference in their lives.

Do Not Consent to Be Ruled

Those who support democracy tend to conflate the issue of the method of selection of rulers with the preliminary question of whether political power is legitimate in the first place. Hence, it needs to be clearly understood that objection to democratic rule does not mean that one prefers dictatorship — it means than one does not consent to have others initiate force against them, regardless of the method of selection of those with the power to do this. Indeed, one may quite rightly prefer democracy to dictatorship while still regarding both of these systems as inferior to a society without political rulers.
If you are inclined to believe that democracy will function justly when "the right people" are elected, then bear in mind that each political party is elected precisely because its candidates are regarded as the best people available by the majority at the time. Look around you at the people who are elected, and look at the actions of these people. This is your democracy, and the destruction and domination occurring under its imprimatur are the natural consequences of the view that the desires of the mob should override the rights of the individual.
When chatting about this issue with my hosts over late-night drinks, I was one-too-many beers away from sobriety to put the case well. But if I had mustered the presence of mind to do so, I would have told them that instead of concerning themselves with how their rulers should be chosen, they have another choice available to them: reject the idea that you require rulers at all!

Most people don't spend their Friday nights snorting lines of cocaine. But virtually every adult person contravenes the ubiquitous regulations of democratic government at many times in their life. And regardless of their actions, everyone living under unlimited democracy is treated as the property of the government, with rights that are disposable at the whims of the mob. Under democracy, everyone is subject to the rule of any group that can acquire large numbers and become adept at capturing political power.
People still have not absorbed the lesson of democracy that should have been learned when Socrates was condemned to death by his fellow Athenians for his impiety.[5] Might is not right: whether expressed through raw physical power or through the voting booth, it is illegitimate and undesirable for people to aggress against their fellow human beings. Rejecting the rule of the mob is an important step towards peace and prosperity.

Economics from the Ground Up Mises Daily: Tuesday, January 31, 2012 by Murray N. Rothbard

2012-01-31T11:01:00.001-07:00

One of the unhappy casualties of World War I, it seems, was the old-fashioned treatise on economic "principles." Before World War I, the standard method, both of presenting and advancing economic thought, was to write a disquisition setting forth one's vision of the corpus of economic science. A work of this kind had many virtues wholly missing from the modern world. On the one hand, the intelligent layman, with little or no previous acquaintance with economics, could read it. On the other hand, the author did not limit himself, textbook-fashion, to choppy and oversimplified compilations of currently fashionable doctrine. For better or worse, he carved out of economic theory an architectonic — an edifice. Sometimes the edifice was an original and noble one, sometimes it was faulty; but at least there was an edifice, for beginners to see, for colleagues to adopt or criticize. Hyperrefinements of detail were generally omitted as impediments to viewing economic science as a whole, and they were consigned to the journals. The university student, too, learned his economics from the treatise on its "principles"; it was not assumed that special works were needed with chapter lengths fitting course requirements and devoid of original doctrine. These works, then, were read by students, intelligent laymen, and leading economists, all of whom profited from them.

Their spirit is best illustrated by a prefatory passage from one of the last of the species:

I have tried in this book to state the principles of economics in such form that they shall be comprehensible to an educated and intelligent person who has not before made any systematic study of the subject. Though designed in this sense for beginners, the book does not gloss over difficulties or avoid severe reasoning. No one can understand economic phenomena or prepare himself to deal with economic problems who is unwilling to follow trains of reasoning which call for sustained attention. I have done my best to be clear, and to state with care the grounds on which my conclusions rest, as well as the conclusions themselves, but have made no vain pretense of simplifying all things.[1]

Since the brilliant burst that gave us the works of Wicksteed (1910), Taussig (1911), and Fetter (1915), this type of treatise has disappeared from economic thought, and economics has become appallingly fragmented, dissociated to such a degree that there hardly is an economics any more; instead, we find myriad bits and pieces of uncoordinated analysis. Economics has, first, been fragmented into "applied" fields — "urban land economics," "agricultural economics," "labor economics," "public finance economics," etc., each division largely heedless of the others. More grievous still has been the disintegration of what has been confined to the category of "economic theory." Utility theory, monopoly theory, international trade theory, etc., down to linear programming and games theory — each moves in its sharply isolated compartment, with its own hyperrefined literature. Recently, growing awareness of this fragmentation has led to vague "interdisciplinary" admixtures with all the other "social sciences." Confusion has been worse confounded, with resulting invasive forays of numerous other disciplines into economics, rather than the diffusion of economics elsewhere. At any rate, it is somewhat foolhardy to attempt to integrate economics with everything else before economics has itself been made whole. Only then will the proper place of economics among the other disciplines become manifest.
I think it fair to say that, with only a single exception (Ludwig von Mises's Human Action), not one general treatise on economic principles has appeared since World War I. Perhaps the closest approach was Frank H. Knight's Risk, Uncertainty, and Profit, and that was published far back in 1921. Since then, there has been no book of remotely as broad a scope.
The only place where we can find economics treated with any degree of breadth is in the elementary textbooks. These textbooks, however, are sorry substitutes for a genuine Principles. Since they must, by their nature, present only currently received doctrine, their work is uninteresting to the established economist. Furthermore, since they may only boil down the existing literature, they must of necessity present to the student a hodgepodge of fragmented chapters, each with little or no relation to the other.
Many economists see no loss in all this; in fact, they herald these developments as signs of the enormous progress the science has made on all fronts. Knowledge has grown so vast that no man can encompass it all. Yet economists should at least be responsible for knowing economics — the essentials of the body of their discipline. Certainly, then, these essentials could have been presented by this time. The plain fact is that economics is fragmented precisely because it is no longer regarded as an edifice; since it is considered a congeries of isolated splinters, it is treated as such.
Perhaps the key to this change is that formerly economics was regarded as a logical structure. Fundamentally, whatever the differences of degree, or even of proclaimed methodology, economics was considered a deductive science using verbal logic. Grounded on a few axioms, the edifice of economic thought was deduced step by step. Even when the analysis was primitive or the announced methodology far more inductive, this was the essence of economics during the 19th century. Hence, the treatise on economic "principles" — for if economics proceeds by deductive logic grounded on a few simple and evident axioms, then the corpus of economics can be presented as an interrelated whole to the intelligent layman with no loss of ultimate rigor. The layman is taken step by step from simple and evident truths to more complex and less evident ones.
The "Austrian" economists best perceived this method and used it most fully and cogently. They were the classic employers, in short, of the "praxeologic" method. In the present day, however, the prevailing epistemology has thrown over praxeology for methods at once too empirical and too "theoretical." Empiricism has disintegrated economics to such an extent that no one thinks to look for a complete edifice; and, paradoxically, it has falsified economics by making economists eager to introduce admittedly false and short-cut assumptions in order to make their theories more readily "testable." Alfred Marshall's distrust of "long chains of deduction," as well as the whole Cambridge impetus toward such short cuts, has contributed a great deal to this breakdown. On the other hand, verbal logic in economic theory has been replaced by mathematics, seemingly more precise and basking in the reflected glory of the physical sciences. The dominant econometric wing of mathematical economists also looks for empirical verifications and thereby compounds the errors of both methods. Even on the level of pure theoretical integration, mathematics is completely inappropriate for any sciences of human action. Mathematics has, in fact, contributed to the compartmentalization of economics — to specialized monographs featuring a hyperrefined maze of matrices, equations, and geometric diagrams. But the really important thing is not that nonmathematicians cannot understand them; the crucial point is that mathematics cannot contribute to economic knowledge. In fact, the recent conquest of mathematical economics by econometrics is a sign of recognition that pure mathematical theory in economics is sterile.
This book, then, is an attempt to fill part of the enormous gap of 40 years' time. Since the last treatise on economic "principles," economics has proceeded a long way in many areas, and its methodology has been immeasurably improved and strengthened by those continuing to work in the praxeological tradition. Furthermore, there are still great gaps in the praxeological corpus, since so few economists have worked at shaping it. Hence, the attempt in this book to develop the edifice of economic science in the manner of the old-fashioned works on its "principles" — slowly and logically to build on the basic axioms an integrated and coherent edifice of economic truth. Hyperrefinements have been shunned as much as possible. In short, Professor Taussig's quoted statement of intention has been mine also, with the addition that I have felt it necessary to include, at pertinent points, refutation of some of the main opposing doctrines. This was especially needed because economic fallacy prevails far more widely than in Taussig's time.
I have indicated briefly that there has been one general treatise since World War I. Professor Paul Samuelson has written rhapsodically of the joy of being under 30 at the time of publication of Keynes's General Theory. I can say the same for the publication of Ludwig von Mises's Human Action in 1949. For here at last was economics whole once more, once again an edifice. Not only that — here was a structure of economics with many of the components newly contributed by Professor Mises himself. There is no space here to present or expound Mises's great contributions to economic science. That will have to be done elsewhere. Suffice it to say that from now on, little constructive work can be done in economics unless it starts from Human Action.
Human Action is a general treatise, but not an old-style Principles. Instead, it assumes considerable previous economic knowledge and includes within its spacious confines numerous philosophic and historical insights. In one sense, the present work attempts to isolate the economic, fill in the interstices, and spell out the detailed implications, as I see them, of the Misesian structure. It must not be thought, however, that Professor Mises is in any way responsible for these pages. Indeed, he may well differ strongly with many sections of this volume. Yet it is my hope that this work may succeed in adding a few bricks to the noble structure of economic science that has reached its most modern and developed form in the pages of Human Action.
The present work deduces the entire corpus of economics from a few simple and apodictically true axioms: the Fundamental Axiom of action — that men employ means to achieve ends, and two subsidiary postulates: that there is a variety of human and natural resources, and that leisure is a consumers' good. Chapter 1 begins with the action axiom and deduces its immediate implications; and these conclusions are applied to "Crusoe economics" — that much maligned but highly useful analysis that sets individual man starkly against Nature and analyzes his resulting actions. Chapter 2 introduces other men and, consequently, social relations. Various types of interpersonal relations are analyzed, and the economics of direct exchange (barter) is set forth. Exchange cannot be adequately analyzed until property rights are fully defined — so chapter 2 analyzes property in a free society. Chapter 2, in fact, marks the beginning of the body of the book — an analysis of the economics of voluntary exchange. Chapter 2 discusses the free market of barter, and the subsequent chapters treat the economics of indirect — or monetary — exchange. Thus, analytically, the book deals fully with the economics of the free market, from its property relations to the economics of money.
Chapter 3 introduces money and traces the patterns of indirect exchange on the market. Chapter 4 treats the economics of consumption and the pricing of consumers' goods. Chapters 5– 9 analyze production on the free market. One of the features of this consumption and production theory is the resurrection of Professor Frank A. Fetter's brilliant and completely neglected theory of rent — i.e., the concept of rent as the hire price of a unit service. Capitalization then becomes the process of determining the present values of the expected future rents of a good. The Fetter-Mises pure time-preference theory of interest is synthesized with the Fetter rent theory, with the Austrian theory of the structure of production, and with separation of original from produced factors of production. One "radical" feature of our analysis of production is a complete break with the currently fashionable "short-run" theory of the firm, substituting for this a general theory of marginal value productivity and capitalization. It is a "general equilibrium" analysis in the dynamic Austrian sense, and not in the static, currently popular Walrasian sense.
Chapter 10 expounds a completely new theory of monopoly — that monopoly can be meaningfully defined only as a grant of privilege by the State, and that a monopoly price can be attained only from such a grant. In short, there can be no monopoly or monopoly price on the free market. The theory of monopolistic competition is also discussed. And chapter 11 sets forth the theory of money on the free market, along with an extensive discussion of the Keynesian theories.
Having completed the theory of the purely free market, I then turn, in the final chapter, to applying praxeological analysis to a systematic discussion of various forms and degrees of coercive intervention and their consequences. The effects of coercive intervention can be studied only after fully analyzing the construct of a purely free market. Chapter 12 presents a typology of intervention, discusses its direct and indirect consequences and the effects on utility, and sets forth a necessarily brief analysis of the various major types of intervention, including price control, monopoly grants, taxation, inflation, and government enterprise and expenditures. The chapter and the book conclude with a brief summary assessment of the free market, as contrasted to interventionist and other coercive systems.
For this revised edition, I have decided to keep the original text and footnotes intact, and to confine any changes to this revised preface. Professor Mises died in 1973, and the following year, as luck would have it, the Austrian School of economics that Mises had kept alive in an almost underground existence burst forward into a spectacular revival. It is no accident that this revival coincided with the virtual collapse of the previously dominant Keynesian paradigm. Keynesians had promised to steer the economy easily away from the recurring pitfalls of inflationary boom, and recession and unemployment; instead, they would insure permanent and stable prosperity, bringing us full employment without inflation. And yet, after three decades of Keynesian planning, we faced a new phenomenon that cannot even exist, much less be explained, in the Keynesian paradigm: inflation combined with recession and high unemployment. This unwelcome specter first appeared in the inflationary recession of 1973–74, and has been repeated since, the last time being the recession of 1990–?.
The Austrian revival of 1974 was also spurred by F.A. Hayek's receiving the Nobel Prize for economics that year, the first free-market and nonmathematical economist to be accorded that honor. The economics profession's obsession with the Nobel reawakened interest in Hayek and in the Austrian School. But this award to Hayek itself can be no coincidence, since it reflects disillusion by economists in Keynesian macro-models.
Since 1974, the number of Austrians, books and articles by Austrians, and interest in the school, has greatly multiplied. It is a reflection of the difference in the quality of academia in the two countries that, even though there are proportionately fewer Austrian School economists in Britain than in the United States, Austrian economics is accorded a great deal more respect in Britain. In British textbooks and surveys of thought, Austrian economics, while not often winning agreement, is treated objectively and fairly as a respectable wing of economic thought. In the United States, on the contrary, while there are a large number of sympathizers as well as adherents in the profession, Austrians are still marginalized, unheeded, and unread by the bulk of economists.
Intellectual curiosity has a habit of breaking through, however, especially among college and graduate students. As a result, the Austrian School has flourished over the last two decades, despite severe institutional obstacles.
In fact, the number of Austrians has grown so large, and the discussion so broad, that differences of opinion and branches of thought have arisen, in some cases developing into genuine clashes of thought. Yet they have all been conflated and jammed together by non-Austrians and even by some within the school, giving rise to a great deal of intellectual confusion, lack of clarity, and outright error. The good side of these developing disputes is that each side has clarified and sharpened its underlying premises and world-view. It has indeed become evident in recent years that there are three very different and clashing paradigms within Austrian economics: the original Misesian or praxeological paradigm, to which the present author adheres; the Hayekian paradigm, stressing "knowledge" and "discovery" rather than the praxeological "action" and "choice," and whose leading exponent now is Professor Israel Kirzner; and the nihilistic view of the late Ludwig Lachmann, an institutionalist antitheory approach taken from the English "subjectivist"-Keynesian G.L.S. Shackle. Fortunately, there is now a scholarly journal, The Review of Austrian Economics, where the reader can keep apprised of ongoing developments in Austrian economics, as well as other publications, conferences, and instructional courses of the Ludwig von Mises Institute. The Mises Institute, founded on the centenary of his birth, keeps alive the spirit of Mises as well as the paradigm that he has bequeathed to scholarship and to the world. For the latest on the three Austrian paradigms, the reader is referred to the Mises Institute working paper by the present author, "The Present State of Austrian Economics" (November, 1992).
My overriding intellectual debt, of course, is to Ludwig von Mises. But apart from that, I can never fully express my personal debt. His wisdom, kindness, enthusiasm, good humor, and unflagging encouragement of even the slightest signs of productivity among his students were a lifelong inspiration to those who knew him. He was one of the great teachers of economics, as well as one of the great economists, and I am grateful to have had the opportunity of studying for many years at his Seminar in Advanced Economic Theory at New York University.

I can also never fully express my gratitude to Llewellyn H. Rockwell, Jr., who, at a low point in Misesian economics, with no endowment, no large pledges of support, and armed only with an idea, founded and dedicated his life to the Ludwig von Mises Institute. Lew has done a remarkable job of building and expanding the Institute, and of devoting himself to the Misesian paradigm. In addition, Lew has been a close and valued friend and intellectual colleague for many years. It is obvious that, without his efforts, this new edition would never have seen the light of day.
Finally, I must at least try to convey how grateful I am to another long-time colleague, Burton S. Blumert, of the Mises Institute and head of the Center for Libertarian Studies, Burlingame, California. Self-effacing and indispensable, Burt is always there — with wit, wisdom, kindness, and friendship.
It is impossible to list all the friends and acquaintances who, over the many years, have taught and inspired me in the area of Austrian economics, or in the wider arena of political economy, and in the nature of coercion of freedom. I am grateful to them all. None of them, of course, are responsible for any errors herein.

The Concept of a Perfect System of Government Mises Daily: Monday, January 30, 2012 by Ludwig von Mises

2012-01-31T10:58:00.005-07:00

The "social engineer" is the reformer who is prepared to "liquidate" all those who do not fit into his plan for the arrangement of human affairs. Yet historians and sometimes even victims whom he puts to death are not averse to finding some extenuating circumstances for his massacres or planned massacres by pointing out that he was ultimately motivated by a noble ambition: he wanted to establish the perfect state of mankind. They assign to him a place in the long line of the designers of utopian schemes.

Now it is certainly folly to excuse in this way the mass murders of such sadistic gangsters as Stalin and Hitler. But there is no doubt that many of the most bloody "liquidators" were guided by the ideas that inspired from time immemorial the attempts of philosophers to meditate on a perfect constitution. Having once hatched out the design of such an ideal order, the author is in search of the man who would establish it by suppressing the opposition of all those who disagree. In this vein, Plato was anxious to find a tyrant who would use his power for the realization of the Platonic ideal state. The question whether other people would like or dislike what he himself had in store for them never occurred to Plato. It was an understood thing for him that the king who turned philosopher or the philosopher who became king was alone entitled to act and that all other people had, without a will of their own, to submit to his orders. Seen from the point of view of the philosopher who is firmly convinced of his own infallibility, all dissenters appear merely as stubborn rebels resisting what will benefit them.
The experience provided by history, especially by that of the last 200 years, has not shaken this belief in salvation by tyranny and the liquidation of dissenters. Many of our contemporaries are firmly convinced that what is needed to render all human affairs perfectly satisfactory is brutal suppression of all "bad" people, i.e., of those with whom they disagree. They dream of a perfect system of government that — as they think — would have already long since been realized if these "bad" men, guided by stupidity and selfishness, had not hindered its establishment.
A modern, allegedly scientific school of reformers rejects these violent measures and puts the blame for all that is found wanting in human conditions upon the alleged failure of what is called "political science." The natural sciences, they say, have advanced considerably in the last centuries, and technology provides us almost monthly with new instruments that render life more agreeable. But "political progress has been nil." The reason is that "political science stood still."[1] Political science ought to adopt the methods of the natural sciences; it should no longer waste its time in mere speculations, but should study the "facts." For, as in the natural sciences, the "facts are needed before the theory." [2]
One can hardly misconstrue more lamentably every aspect of human conditions. Restricting our criticism to the epistemological problems involved, we have to say: What is today called "political science" is that branch of history that deals with the history of political institutions and with the history of political thought as manifested in the writings of authors who disserted about political institutions and sketched plans for their alteration. It is history, and can as such, as has been pointed out above, never provide any "facts" in the sense in which this term is used in the experimental natural sciences. There is no need to urge the political scientists to assemble all facts from the remote past and from recent history, falsely labeled "present experience."[3] Actually they do all that can be done in this regard. And it is nonsensical to tell them that conclusions derived from this material ought "to be tested by experiments."[4] It is supererogatory to repeat that the sciences of human action cannot make any experiments.
It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization that would place a theoretical science by the side of the purely historical discipline of political science. All we can say today is that no living man knows how such a science could be constructed. But even if such a new branch of praxeology were to emerge one day, it would be of no use for the treatment of the problem philosophers and statesmen were and are anxious to solve.
That every human action has to be judged and is judged by its fruits or results is an old truism. It is a principle with regard to which the Gospels agree with the often badly misunderstood teachings of the utilitarian philosophy. But the crux is that people widely differ from one another in their appraisal of the results. What some consider as good or best is often passionately rejected by others as entirely bad. The utopians did not bother to tell us what arrangement of affairs of state would best satisfy their fellow citizens. They merely expounded what conditions of the rest of mankind would be most satisfactory to themselves. Neither to them nor to their adepts who tried to realize their schemes did it ever occur that there is a fundamental difference between these two things. The Soviet dictators and their retinue think that all is good in Russia as long as they themselves are satisfied.
But even if for the sake of argument we put aside this issue, we have to emphasize that the concept of the perfect system of government is fallacious and self-contradictory.
What elevates man above all other animals is the cognition that peaceful cooperation under the principle of the division of labor is a better method to preserve life and to remove felt uneasiness than indulging in pitiless biological competition for a share in the scarce means of subsistence provided by nature. Guided by this insight, man alone among all living beings consciously aims at substituting social cooperation for what philosophers have called the state of nature or helium omnium contra omnes or the law of the jungle. However, in order to preserve peace, it is, as human beings are, indispensable to be ready to repel by violence any aggression, be it on the part of domestic gangsters or on the part of external foes. Thus, peaceful human cooperation, the prerequisite of prosperity and civilization, cannot exist without a social apparatus of coercion and compulsion, i.e., without a government. The evils of violence, robbery, and murder can be prevented only by an institution that itself, whenever needed, resorts to the very methods of acting for the prevention of which it is established. There emerges a distinction between illegal employment of violence and the legitimate recourse to it. In cognizance of this fact some people have called government an evil, although admitting that it is a necessary evil. However, what is required to attain an end sought and considered as beneficial is not an evil in the moral connotation of this term, but a means, the price to be paid for it. Yet the fact remains that actions that are deemed highly objectionable and criminal when perpetrated by "unauthorized" individuals are approved when committed by the "authorities."
Government as such is not only not an evil, but the most necessary and beneficial institution, as without it no lasting social cooperation and no civilization could be developed and preserved. It is a means to cope with an inherent imperfection of many, perhaps of the majority of all people. If all men were able to realize that the alternative to peaceful social cooperation is the renunciation of all that distinguishes Homo sapiens from the beasts of prey, and if all had the moral strength always to act accordingly, there would not be any need for the establishment of a social apparatus of coercion and oppression. Not the state is an evil, but the shortcomings of the human mind and character that imperatively require the operation of a police power. Government and state can never be perfect because they owe their raison d'être to the imperfection of man and can attain their end, the elimination of man's innate impulse to violence, only by recourse to violence, the very thing they are called upon to prevent.
It is a double-edged makeshift to entrust an individual or a group of individuals with the authority to resort to violence. The enticement implied is too tempting for a human being. The men who are to protect the community against violent aggression easily turn into the most dangerous aggressors. They transgress their mandate. They misuse their power for the oppression of those whom they were expected to defend against oppression. The main political problem is how to prevent the police power from becoming tyrannical. This is the meaning of all the struggles for liberty. The essential characteristic of Western civilization that distinguishes it from the arrested and petrified civilizations of the East was and is its concern for freedom from the state. The history of the West, from the age of the Greek πολις down to the present-day resistance to socialism, is essentially the history of the fight for liberty against the encroachments of the officeholders.
A shallow-minded school of social philosophers, the anarchists, chose to ignore the matter by suggesting a stateless organization of mankind. They simply passed over the fact that men are not angels. They were too dull to realize that in the short run an individual or a group of individuals can certainly further their own interests at the expense of their own and all other peoples' long-run interests. A society that is not prepared to thwart the attacks of such asocial and short-sighted aggressors is helpless and at the mercy of its least intelligent and most brutal members. While Plato founded his Utopia on the hope that a small group of perfectly wise and morally impeccable philosophers will be available for the supreme conduct of affairs, anarchists implied that all men without any exception will be endowed with perfect wisdom and moral impeccability. They failed to conceive that no system of social cooperation can remove the dilemma between a man's or a group's interests in the short run and those in the long run.
Man's atavistic propensity to beat into submission all other people manifests itself clearly in the popularity enjoyed by the socialist scheme. Socialism is totalitarian. The autocrat or the board of autocrats alone is called upon to act. All other men will be deprived of any discretion to choose and to aim at the ends chosen; opponents will be liquidated. In approving of this plan, every socialist tacitly implies that the dictators, those entrusted with production management and all government functions, will precisely comply with his own ideas about what is desirable and what undesirable. In deifying the state — if he is an orthodox Marxian, he calls it society — and in assigning to it unlimited power, he deifies himself and aims at the violent suppression of all those with whom he disagrees. The socialist does not see any problem in the conduct of political affairs because he cares only for his own satisfaction and does not take into account the possibility that a socialist government would proceed in a way he does not like.
The "political scientists" are free from the illusions and self-deception that mar the judgment of anarchists and socialists. But busy with the study of the immense historical material, they become preoccupied with detail, with the numberless instances of petty jealousy, envy, personal ambition, and covetousness displayed by the actors on the political scene. They ascribe the failure of all political systems heretofore tried to the moral and intellectual weakness of man. As they see it, these systems failed because their satisfactory functioning would have required men of moral and intellectual qualities only exceptionally present in reality. Starting from this doctrine, they tried to draft plans for a political order that could function automatically, as it were, and would not be embroiled by the ineptitude and vices of men. The ideal constitution ought to safeguard a blemishless conduct of public affairs in spite of the rulers' and the people's corruption and inefficiency. Those searching for such a legal system did not indulge in the illusions of the utopian authors who assumed that all men or at least a minority of superior men are blameless and efficient. They gloried in their realistic approach to the problem. But they never raised the question how men tainted by all the shortcomings inherent in the human character could be induced to submit voluntarily to an order that would prevent them from giving vent to their whims and fancies.
However, the main deficiency of this allegedly realistic approach to the problem is not this alone. It is to be seen in the illusion that government, an institution whose essential function is the employment of violence, could be operated according to the principles of morality that condemn peremptorily the recourse to violence. Government is beating into submission, imprisoning, and killing. People may be prone to forget it because the law-abiding citizen meekly submits to the orders of the authorities so as to avoid punishment. But the jurists are more realistic and call a law to which no sanction is attached an imperfect law. The authority of man-made law is entirely due to the weapons of the constables who enforce obedience to its provisions. Nothing of what is to be said about the necessity of governmental action and the benefits derived from it can remove or mitigate the suffering of those who are languishing in prisons. No reform can render perfectly satisfactory the operation of an institution the essential activity of which consists in inflicting pain.

Responsibility for the failure to discover a perfect system of government does not rest with the alleged backwardness of what is called political science. If men were perfect, there would not be any need for government. With imperfect men no system of government could function satisfactorily.
The eminence of man consists in his power to choose ends and to resort to means for the attainment of the ends chosen; the activities of government aim at restricting this discretion of the individuals. Every man aims at avoiding what causes him pain; the activities of government ultimately consist in the infliction of pain. All great achievements of mankind were the product of a spontaneous effort on the part of individuals; government substitutes coercion for voluntary action. It is true, government is indispensable because men are not faultless. But designed to cope with some aspects of human imperfection, it can never be perfect.

Currency Wars Mises Daily: Tuesday, January 31, 2012 by Doug French

2012-01-31T10:57:00.001-07:00

The talk is all about jobs, jobs, jobs in Washington and on the campaign trail as the unemployment rate continues to be elevated and long-term unemployment is higher than ever. Since getting government out of the way isn't an option, late last year congressional leaders decided to turn up the volume while crying that American workers are being damaged by China's undervalued currency — the renminbi (or yuan).
Bipartisan support was summoned to declare China a currency manipulator, triggering retaliatory tariffs on Chinese imports in hopes that China would allow the renminbi to rise against the dollar.
Scott Paul, who heads the Alliance for American Manufacturing, told American Public Media, "If we were able to revalue the yuan, it would make our exports substantially more competitive, not only in China but also globally."

But the Obama administration declined to finger China as a manipulator, causing a frustrated Mr. Paul to lament, "I'm disappointed that President Obama has now formally refused six times to cite China for its currency manipulation, a practice which has contributed to the loss of hundreds of thousands of American manufacturing jobs."
During the debates and on the campaign trail Republican presidential contender Mitt Romney has said repeatedly he would cite China for manipulating its currency the first day he takes office.
Reasonable people tend to tune out the Washington noise — rightly believing most of it is meaningless grandstanding. But the continued hectoring in China's direction is likely not so harmless. Combined with the Federal Reserve's stated policy to keep interest rates at virtually zero until the end of 2014, these are the sounds of Currency War III (CWIII) in its initial stages.
The big picture is that governments inevitably reduce the value of their currencies to their intrinsic value. But in the meantime, politicians are looking for votes, and governments look for advantage over competing governments. It is not just rockets and bombs that are fired; war is raged on the economic front, with currency manipulation as the primary weapon. It is this brutal economic warfare that is the subject of James Rickards's outstanding new book, Currency Wars: The Making of the Next Global Crisis.
Fans of financial TV will recognize Rickards as a fast-talking, straight-shooting pundit on banking and the macro economy who actually talks seriously about the world returning to some form of gold standard. In fact, in Currency Wars, he lays out a plan to return to gold and sees it as the only way the financial world can avoid collapsing into total economic chaos.
But before he gets there, Rickards gets the reader's pulse surging with the warning of a complete collapse in the book's preface, telling readers that Fed chair Ben Bernanke "is engaged in the greatest gamble in the history of finance."
Bernanke's attempt to print America's way out of its economic jam is in essence the declaration of a currency war on the entire world. Mainstream economists are oblivious to the real-world gun battle, resting comfortably amongst their equations and graphs.
But while academics may choose to go about their business unperturbed, the average person shouldn't believe they have that luxury; as Rickards writes, "the new currency war is the most meaningful struggle in the world today — the one struggle that determines the outcome of all others."
Before chronicling CWI and CWII, Rickards tells of participating in a war-games exercise at the Applied Physics Lab located between DC and Baltimore. There were no simulated missile launches or ground assaults in this mock battle; the only weapons used were financial — currencies, stocks, bonds, and derivatives.
Almost all the participants had military and think-tank backgrounds, with the only Wall Street types being the author and a couple of guys he recruited.
When the Russian team floated the idea for a gold-backed currency, threatening the dollar's status, one of Rickards's teammates, described by the author as "our Harvard guy," couldn't grasp the implications of the Russian move. "Gold is irrelevant to trade and international monetary policy," sniffed the Ivy Leaguer. "It's just a dumb idea and a waste of time."
Despite it being a war-games exercise, the administrative cell even declared Russia's gold move "illegal." Rickards reminded the participants that it was not so long ago that the world had gold-backed currencies and the move was then reconsidered and deemed merely "ill-advised."
When the Drudge Report featured Vladimir Putin calling for a gold-backed alternative to the dollar the following morning, Rickards and his guys were vindicated, but the academics remained unconvinced of gold's relevance.
The author explains that while currency wars are fought on the world stage, they begin with a domestic economy lacking in growth, with high unemployment, a weak banking sector, and worsening public finances. With economic growth stymied, time and time again, countries look to depreciate their currencies to promote export growth and investment.
Many historians mistakenly describe much of the period from 1870 to 1914 as a deflationary dark age. Rickards doesn't fall into that trap. He explains that this period of the classical gold standard was marked by gently falling prices leading to increased productivity, raised living standards, and the first glimpses of globalization.
The classical gold standard, besides being self-equilibrating, operated like a club, with members strictly adhering to the unwritten but well-understood rules. Free-market forces prevailed; government interventions were minimal; exchange rates were stable; and there was no US central bank to mess up monetary matters.

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This monetary tranquility was jarred with the creation of the Federal Reserve in 1913. In Currency Wars, Rickards leans to the standard story that the Panic of 1907 gave rise to the Fed's creation, but, as Murray Rothbard explained in his History of Money and Banking in the United States: The Colonial Era to World War II,the Federal Reserve Act was just a part of the wave of legislation brought about by the Progressive movement.
Big business was tired of competing and continually innovating to stay ahead of falling prices. Business would much rather use the power of government to establish and maintain cartels in an effort to ensure high profits. The plan was "to transform the economy from roughly laissez-faire to centralized and coordinated statism," wrote Rothbard.
And while Rickards is right in noting that America has a long history of hating central banks, a movement by the Washington and financial elites to form what was to become the Federal Reserve System was actually started with the Indianapolis Monetary Convention in 1896. The 1907 panic added fuel to the fire, but much of the political groundwork was already laid.
What Rickards calls Currency War I began with the German hyperinflation in 1921 and ended with France breaking with gold in 1936 at the same time England was devaluing the pound sterling. In between were continuous monetary fireworks.
Austrian-leaning moviegoers who've seen Woody Allen's Oscar-nominated Midnight in Paris and wonder how or why an amazing collection of literary and creative US expatriates ended up in Paris in the mid-1920s won't be surprised to learn that there is an economic answer. Rickards explains that the French franc collapsed in 1923 allowing Ernest Hemingway, Scott and Zelda Fitzgerald, and Gertrude Stein to afford comfortable lifestyles in Paris converting their dollars from home.
The classic gold standard was long gone, replaced by a deeply flawed gold-exchange standard that allowed centrals banks to inflate, causing the boom of the 1920s and therefore the required correction of the 1930s exacerbated by government policy. FDR started his term in office by closing banks and then confiscating the people's gold. The language of FDR's order is chilling, giving citizens until May 1, 1933, to deliver to the Federal Reserve System "all gold coin, gold bullion and gold certificates now owned by them" with the threat of a $10,000 fine or ten years in prison.
Citizens received $20.67 per ounce from the government, only to watch their new president move the price up to $35 an ounce over three months — a 70 percent devaluation.
Rickards places Currency War II from 1967 to 1987. In between CWI and CWII was the Bretton Woods era, described by the author as a period of "currency stability, low inflation, low unemployment, high growth and rising income."
But as Henry Hazlitt and Jacques Rueff predicted, the phony gold-standard scheme created by John Maynard Keynes unraveled, setting the stage for CWII.
CWII began with a number of crises in the British sterling, and then a flight from the dollar into gold, with French president Charles de Gaulle calling for a return to the gold standard. The French president "helpfully offered to send the French navy to the United States to ferry the gold back to France."
This all led up to Richard Nixon preempting Hoss and Little Joe on August 15, 1971, telling the nation he was closing the gold window. The president blamed international speculators for having to interrupt America's favorite TV program, but money printing and budget deficits were to blame. Nixon also instituted a 10 percent surtax on all imports, effectively devaluing the dollar in the trade arena.
The devaluation was to spur employment, but within two years the United States was mired in recession. The United States suffered three recessions from 1973 to 1981, while purchasing power dropped by half from 1977 to 1981. Suddenly, "stagflation" was on the tip of everyone's tongue.
Paul Volcker took over as Fed chairman and quickly hiked interest rates, looking to stop the price inflation. The price of gold collapsed along with the inflation rate, and the dollar strengthened. According to Rickards, both Volcker and Ronald Reagan should be given credit for the dollar's turnaround.
But dollar strength finally got in the way of export jobs and the Plaza Accord of September 1985 was an attempt to drive down the greenback's value primarily against the yen and the mark. And it worked, from 1985 to 1988; the dollar fell 40 percent against the French franc, was cut in half against the yen, and fell 20 percent against the mark.
However, the devaluation did little for the US economy, and by 1987 monetary authorities met in Paris at the Louvre. The Louvre Accord was hatched to stop the dollar's fall. The Bank of Japan's willingness to expand its money supply to depreciate the yen would fuel one of the biggest stock-market bubbles of all time, with the Nikkei stock average roaring from around 10,000 in 1985 to a peak of 38,957.44 on December 29, 1989. More than two decades hence, that market still hasn't recovered.
Currency War III has just begun, and the author contends that, in addition to national issuers of currency, participants also include the IMF, the World Bank, the United Nations, hedge funds, global corporations, and private family offices of the super rich. After 40 years of massive money printing and explosion of derivatives, CWIII will be fought on a massive scale, with a real risk of a collapse of the entire monetary system.
So how's this currency war to end all currency wars going to turn out? The author paints a scary picture, using complexity theory and behavioral economics. Although the framework is different, the results follow Ludwig von Mises's outline of the three stages of inflation.
In Mises's stage one, government prints all the money it can, because prices don't rise nearly as much as money supply. In stage two, the demand for money falls, which intensifies price inflation. Finally, in stage three, prices go up faster than money supply. A shortage of money develops, and people urge government to print more; when the government does this, prices and money supply spiral upwards.
Rickards develops hypothetical thresholds wherein the dollar is repudiated. Up to an uncertain number, people can begin to repudiate the dollar to no effect on prices or the dollar's value. But once a critical threshold is passed, the collapse is triggered — as Hemingway once wrote about how bankruptcy happens — first slowly, then all at once.
A small change in preferences among just a few people could lead to a collapse, because the financial framework is a weakly constructed Keynesian contraption of fiat money and government deficits. Any one of thousands of events could trigger the collapse, and, as the author notes, the last straw will not be known until after the fact.

Rickards explores four potential outcomes for the dollar: multiple reserve currencies, special drawing rights, gold, and chaos. For those interested in how much the price of gold would have to be, under various gold-coverage ratios to different monetary aggregates, this part of the book is especially interesting, reminding me of what Murray Rothbard used to say to those claiming there wasn't enough gold in the world to have a gold standard. "You could have a gold standard with a single ounce," he said. It's not about the amount; it's about price.
Rickards comes to a price of $7,500 an ounce, far above today's price. But as the author points out, the change in the value of the dollar "has already occurred in substance. It simply has not been recognized by markets, central banks or economists."
Inevitably, chaos is the most likely outcome of the latest currency war, and while the author sketches out possible scenarios for how it might play out, no one really knows. Suffice it to say, it won't be pretty. Unfortunately, a currency war is neither a spectator sport nor a game. We all have to participate, and do our best to survive.

What the Bible Teaches About Capitalism

2012-01-31T10:08:00.002-07:00

As the Ten Commandments instruct, envy is corrosive to the individual and to those societies that embrace it.

By ARYEH SPERO

Who would have expected that in a Republican primary campaign the single biggest complaint among candidates would be that the front-runner has taken capitalism too far? As if his success and achievement were evidence of something unethical and immoral? President Obama and other redistributionists must be rejoicing that their assumptions about rugged capitalism and the 1% have been given such legitimacy.
More than any other nation, the United States was founded on broad themes of morality rooted in a specific religious perspective. We call this the Judeo-Christian ethos, and within it resides a ringing endorsement of capitalism as a moral endeavor.

Regarding mankind, no theme is more salient in the Bible than the morality of personal responsibility, for it is through this that man cultivates the inner development leading to his own growth, good citizenship and happiness. The entitlement/welfare state is a paradigm that undermines that noble goal.
The Bible's proclamation that "Six days shall ye work" is its recognition that on a day-to-day basis work is the engine that brings about man's inner state of personal responsibility. Work develops the qualities of accountability and urgency, including the need for comity with others as a means for the accomplishment of tasks. With work, he becomes imbued with the knowledge that he is to be productive and that his well-being is not an entitlement. And work keeps him away from the idleness that Proverbs warns leads inevitably to actions and attitudes injurious to himself and those around him.

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Getty Images Yet capitalism is not content with people only being laborers and holders of jobs, indistinguishable members of the masses punching in and out of mammoth factories or functioning as service employees in government agencies. Nor is the Bible. Unlike socialism, mired as it is in the static reproduction of things already invented, capitalism is dynamic and energetic. It cheerfully fosters and encourages creativity, unspoken possibilities, and dreams of the individual. Because the Hebrew Bible sees us not simply as "workers" and members of the masses but, rather, as individuals, it heralds that characteristic which endows us with individuality: our creativity.
At the opening bell, Genesis announces: "Man is created in the image of God"—in other words, like Him, with individuality and creative intelligence. Unlike animals, the human being is not only a hunter and gatherer but a creative dreamer with the potential of unlocking all the hidden treasures implanted by God in our universe. The mechanism of capitalism, as manifest through investment and reasoned speculation, helps facilitate our partnership with God by bringing to the surface that which the Almighty embedded in nature for our eventual extraction and activation.
Capitalism makes possible entrepreneurship, which is the realization of an idea birthed in human creativity. Whereas statism demands that citizens think small and bow to a top-down conformity, capitalism, as has been practiced in the U.S., maximizes human potential. It provides a home for aspiration, referred to in the Bible as "the spirit of life."
The Bible speaks positively of payment and profit: "For why else should a man so labor but to receive reward?" Thus do laborers get paid wages for their hours of work and investors receive profit for their investment and risk.
The Bible is not a business-school manual. While it is comfortable with wealth creation and the need for speculation in economic markets, it has nothing to say about financial instruments and models such as private equity, hedge funds or other forms of monetary capitalization. What it does demand is honesty, fair weights and measures, respect for a borrower's collateral, timely payments of wages, resisting usury, and empathy for those injured by life's misfortunes and charity.
It also demands transparency and honesty regarding one's intentions. The command, "Thou shalt not place a stumbling block in front of the blind man" also means that you should not act deceitfully or obscure the truth from those whose choice depends upon the information you give them. There's nothing to indicate that Mitt Romney breached this biblical code of ethics, and his wealth and success should not be seen as automatic causes for suspicion.
No country has achieved such broad-based prosperity as has America, or invented as many useful things, or seen as many people achieve personal promise. This is not an accident. It is the direct result of centuries lived by the free-market ethos embodied in the Judeo-Christian outlook.
Furthermore, only a prosperous nation can protect itself from outside threats, for without prosperity the funds to support a robust military are unavailable. Having radically enlarged the welfare state and hoping to further expand it, President Obama is attempting to justify his cuts to our military by asserting that defense needs must give way to domestic programs.
Both history and the Bible show the way that leads. Countries that were once economic powerhouses atrophied and declined, like England after World War II, once they began adopting socialism. Even King Solomon's thriving kingdom crashed once his son decided to impose onerous taxes.
At the end of Genesis, we hear how after years of famine the people in Egypt gave all their property to the government in return for the promise of food. The architect of this plan was Joseph, son of Jacob, who had risen to become the pharaoh's top official, thus: "Joseph exchanged all the land of Egypt for pharaoh and the land became pharaoh's." The result was that Egyptians became indentured to the ruler and state, and Joseph's descendants ended up enslaved to the state.
Many on the religious left criticize capitalism because all do not end up monetarily equal—or, as Churchill quipped, "all equally miserable." But the Bible's prescription of equality means equality under the law, as in Deuteronomy's saying that "Judges and officers . . . shall judge the people with a just judgment: Do not . . . favor one over the other." Nowhere does the Bible refer to a utopian equality that is contrary to human nature and has never been achieved.
The motive of capitalism's detractors is a quest for their own power and an envy of those who have more money. But envy is a cardinal sin and something that ought not to be.
God begins the Ten Commandments with "I am the Lord your God" and concludes with "Thou shalt not envy your neighbor, not for his wife, nor his house, nor for any of his holdings." Envy is corrosive to the individual and to those societies that embrace it. Nations that throw over capitalism for socialism have made an immoral choice.
Rabbi Spero has led congregations in Ohio and New York and is president of Caucus for America.

The Magnetic Mr. Obama

2012-01-31T10:06:00.002-07:00

Will our "polarizing" president attract more voters than he repels?

By JAMES TARANTO

Barack Obama is, according to the headline of a Pete Wehner post at Commentary, "The Most Polarizing President Ever." Over at the Washington Post, Chris Cilizza and Aaron Blake's headline disagrees with Wehner only on what part of speech "ever" is: "Obama: The Most Polarizing President. Ever." (We couldn't find the interjectional ever in a dictionary, but we gather it is more emphatic than the old adverbial form.)
Wehner notes that "one of the core claims" of Obama's 2008 campaign was that he would "heal the nation's political breach . . . elevate the national debate . . . do away with what he called the '50 plus one' style of governing . . . 'turn the page' on the 'old politics' of division and anger . . . end a politics that 'breeds division and conflict and cynicism' . . . help us to 'rediscover our bonds to each other and … get out of this constant petty bickering that's come to characterize our politics' . . . 'cast off the worn-out ideas and politics of the past.' "

Wehner argues that Obama has failed to deliver on these promises. Gee, ya think?
Cilizza and Blake look at the same Gallup poll findings and try to let Obama off the hook:

What do those numbers tell us? Put simply: that the country is hardening along more and more strict partisan lines.

While it's easy to look at the numbers cited above and conclude that Obama has failed at his mission of bringing the country together, a deeper dig into the numbers in the Gallup poll suggests that the idea of erasing the partisan gap is simply impossible, as political polarization is rising rapidly.

In this telling, which is not unpersuasive, Obama is more a creature of his time than a creator of it. He didn't polarize the country, and it is beyond his capacity to lessen its polarization significantly. Yet even if we stipulate that his promise was impossible to fulfill, that doesn't absolve him of responsibility for his failure to fulfill it. He made either a promise he knew would be impossible to keep, which would be dishonest, or one he naively believed he had the ability to keep, which would be foolish. (Somehow this argument reminds us of the trilemma, C.S. Lewis's argument for the divinity of Jesus. It does not lead us to a similar conclusion about Obama.)
Cilizza and Blake define polarization as follows: "We are simply living in an era in which Democrats dislike a Republican president (and Republicans dislike a Democratic one) even before the commander in chief has taken a single official action." But the metaphor of polarization, in which the parties are magnetic fields, is actually a good deal more complicated than that. Magnetic fields, after all, affect different substances differently.
For one thing, magnetism is both an attractive and a repulsive force. Cilizza and Blake emphasize the latter, but polarization requires both. One Gallup chart ranks presidents from Eisenhower to Obama on polarization during their third year in office. Obama is at the very top, with a 68-point "party gap." The three least polarized presidents were Jimmy Carter in 1979, Lyndon Johnson in 1965 and Ike in 1955. Carter was very unpopular (24% approval among Republicans, 46% among Democrats), Ike was very popular (91% and 57%), and LBJ's popularity was middling (34% and 68%).
In a polarized electorate, then, partisans not only are more likely to disapprove of a president of the other party but also to approve of one from their own party. Cilizza and Blake note that "out of the ten most partisan years in terms of presidential job approval in Gallup data, seven--yes, seven--have come since 2004. [George W.] Bush had a run between 2004 and 2007 in which the partisan disparity of his job approval was at 70 points or higher." What they don't note is that polarization declined significantly in 2008 (to a 61-point gap), when even Republicans had started to turn against Bush.
Why would the electorate be more polarized today than in past decades? Because there are far more, and sharper, ideological disputes than there used to be, and because both parties have become increasingly ideological. The Gallup data begin in the 1950s, a moment of broad though temporary stability. The big political disputes over the New Deal and internationalism versus isolationism were largely settled. A reckoning on civil rights, though long overdue, had only gotten under way. And today's most polarizing "social issues," like abortion and gay rights, were practically unheard of.

Podcast

James Taranto on political polarization.

By the 1970s and '80s the country had become more ideologically polarized. But partisan identification took a while to catch up. So, for example, Reagan was less "polarizing" than Bush fils or Obama because he had the support of the "Reagan Democrats," who still identified with the donks even though they were closer to the GOP in ideology. A lot of Reagan Democrats (or their descendants) are now Republicans. Similarly, the socially liberal "Rockefeller Republicans" of yesterday are the socially liberal Democrats of today.
"The realization of that hyper-partisan reality has been slow in coming for Obama," write Cilizza and Blake. "But in recent months, he seems to have turned a rhetorical corner--taking the fight to Republicans (and Republicans in Congress, particularly) and all but daring them to call his bluff."
That's a highly implausible account. After all, during the first half of his term, when Obama had big Democratic majorities in Congress, he and they governed in a hyperpartisan way. Their two biggest legislative initiatives, the "stimulus" and ObamaCare, were enacted with a grand total of three GOP votes.
The trouble with all this talk of "polarization" is that it ignores the large share of voters who are neither Democrats nor Republicans. Just as magnetic fields have no significant effect on copper or aluminum, many voters are unmoved by the push and pull of ideological polarization. These voters--broadly speaking, those who describe themselves as independents--increasingly decide our elections.

Obama isn't a lame duck, at least not yet.

It is to them that Obama meant to appeal with his impossible promises to transcend partisan division. According to exit polls, independents made up 29% of the electorate in 2008, and Obama carried their votes, 52% to 44%, very close to his overall margin over John McCain. Obama's airy promises of postpartisanship no doubt helped him win over independents, but our guess is that an even bigger factor was the sense from the preceding few years that Republicans were incapable of governing competently.
Obama has had low approval ratings among independents for most of his presidency. That, not "polarization," is the reason he is in danger of defeat this year. The way for a Republican to beat him is to run a campaign centered on competence, not ideology.
Going for Brokaw
"NBC asked GOP presidential candidate Mitt Romney on Saturday to pull a campaign advertisement made up almost entirely of a 1997 'Nightly News' report on Newt Gingrich's ethics committee reprimand," the Associated Press reports:

The footage was used without permission and the extensive use of the broadcast "inaccurately suggests that NBC News and Mr. Brokaw have consented to the use of this material and agree with the political position espoused by the videos," NBC's vice president of media law, David N. Sternlicht, wrote Romney's campaign manager, Matt Rhoades.

"Aside from the obvious copyright issues, this use of the voice of Mr. Brokaw and the NBC News name exploits him and the journalistic credibility of NBC News," the letter said. The network asked for the campaign to stop running the ad immediately and revise any other videos or commercials to remove at [sic] NBC material. . . .

NBC spokeswoman Lauren Kapp said a similar request went to other campaigns that "have inappropriately" used material from "Nightly News," ''Meet the Press," ''Today" and MSNBC. Kapp said she was not aware of such uses by other campaigns.

Seems as though Kapp manages to contradict herself in that paragraph, but whatever. The Romney campaign has thus far refused to pull the ad, arguing that it falls under the fair use provisions of copyright law. Jennifer Rubin of the Washington Post, a Romney supporter, agrees, calls NBC's legal claim "frivolous," and accuses the network of "trying to silence core First Amendment speech."
That strikes us as overwrought. We'd say the primary purpose of NBC's request to the Romney campaign is expressive, not repressive. The network is trying to distance itself from the perception that it is biased against Gingrich. It's likely the ad will end its run tomorrow anyway, after the Florida primary, having either served its purpose (if Romney wins) or proved ineffective (if Gingrich wins).
An amusing sidelight is noted by the Miami Herald's Marc Caputo in a blog post:

But perhaps NBC should send the letter to its own South Florida affiliate [actually an owned-and-operated station] as well. Shortly after this post, Fort Lauderdale real estate agent Tweeted this observation: "@TomBrokaw Against your express wishes, NBC Miami is running your Romney ad right now. Demand that NBC stop running it if you are serious."

So NBC is in high-dudgeon about the use of its material. But it'll keep airing ads like this because money talks louder than self-important puffery about TV journalistic standards

It turns out, however, that it's not money but government regulation that's doing the talking. Politico's Josh Gerstein reports that "broadcasters are legally required to run any ads candidates present--as is":

It's also worth noting that if a pro-Romney super PAC presented the same ad, NBC could have refused it, since the federal rules apply only to candidates, not freestanding political organizations.

That leads us to a mischievous question. Many newspapers--The Wall Street Journal being a notable exception--have editorialized strongly against the 2010 Supreme Court decision Citizens United v. FEC, which vindicated First Amendment rights of independent organizations. Do their corporate parents have policies against accepting any advertisements that would be illegal if that view prevailed?
Is the ACLU a Racist Organization?
Two weeks ago, when Juan Williams asked Newt Gingrich to reply to charges that his characterization of Barack Obama as the "food stamp president" were racially insensitive, this column applauded Gingrich's answer. We did not, however, take exception to Williams's question, which struck us as a reasonable one.
We do, however, think Williams goes off the rails in a commentary for the Hill:

The language of GOP racial politics is heavy on euphemisms that allow the speaker to deny any responsibility for the racial content of his message. The code words in this game are "entitlement society"--as used by Mitt Romney--and "poor work ethic" and "food stamp president"--as used by Newt Gingrich. References to a lack of respect for the "Founding Fathers" and the "Constitution" also make certain ears perk up by demonizing anyone supposedly threatening core "old-fashioned American values."

Really? Accusing someone of not respecting "the 'Constitution' " is a racial code word? If that were true, the American Civil Liberties Union would be the biggest racist organization around.
Putting Everything in Perspective

"I want to cut his nuts out."--Jesse Jackson on Barack Obama, quoted by the Chicago Tribune, July 10, 2008
"The ultimate insult."--Jesse Jackson on Arizona Gov. Jan Brewer's pointing her finger at Barack Obama, quoted by the Chicago Sun-Times, Jan. 28, 2012

Three Papers in One!
"It is time to end the ability of a single senator, or group of senators, to block the confirmation process by threatening a filibuster, which can be overcome only by the vote of 60 senators," the New York Times editorialized yesterday:

We agree with President Obama's call in the State of the Union address for the Senate to change its rules and require votes on judicial and executive nominees within 90 days.

This is a major change of position for us, and we came to it reluctantly.

In calling this "a major change of position," the Times gives the impression that it has long supported the filibuster. But a Times editorial of Jan. 1, 1995 was headlined "Time to Retire the Filibuster." It called for abolishing the process altogether, for legislation as well as nominations.
The paper's "major change" yesterday was a change from its last major change of position, which it explained in a March 29, 2005, editorial titled "Walking in the Opposition's Shoes":

A decade ago, this page expressed support for tactics that would have gone even further than the "nuclear option" in eliminating the power of the filibuster. At the time, we had vivid memories of the difficulty that Senate Republicans had given much of Bill Clinton's early agenda. But we were still wrong. To see the filibuster fully, it's obviously a good idea to have to live on both sides of it. We hope acknowledging our own error may remind some wavering Republican senators that someday they, too, will be on the other side and in need of all the protections the Senate rules can provide.

Yet amid its zigging and zagging, the Times has been consistent, in that its view on the filibuster has always been in line with the immediate interests of the Democratic Party. Its claims both in 2005 and today to have undertaken a thoughtful reconsideration of the matter look rather hypocritical.
Andrew Rosenthal, the Times's editorial page editor, seems aware of this problem. Yesterday he tweeted a link to the new editorial with this comment: "It risks fringe rightwingers getting named by a GOP president, but filibustering nominees must end." This seems to imply a promise to stick to the current antifilibuster position if, a year or two from now, President Romney's nominees are being held up by a Democratic minority's unwillingness to bring them to the Senate floor.
We'll believe that when we see it.
Two Stories in One!

"List of Pardons Included Many Tied to Power"--headline, New York Times news story, Jan. 28
"Many of those pardoned [by outgoing Gov. Haley Barbour of Mississippi] appear to have no special connections."--12th paragraph, same story

Dept. of Unfortunate Metaphors
"Speaker Gingrich is not afraid of bold ideas and I also know Speaker Gingrich is running for president and going through this sausage grinder and I know what the sausage grinder is all about."--Herman Cain endorsing Newt Gingrich, quoted by ABCNews.com, Jan. 28
Appeal to Authority
"The Associated Press reported last week that Fidel Castro . . . argued that the 'selection of a Republican candidate for the presidency of this globalized and expansive empire is--and I mean this seriously--the greatest competition of idiocy and ignorance that has ever been.' When Marxists are complaining that your party's candidates are disconnected from today's global realities, it's generally not a good sign."--Thomas Friedman, New York Times, Jan. 29
Metpahor Alert
"Our problem isn't that the sources of prosperity have dried up in a long drought; our problem is that we don't know how to swim. It is raining soup, and we are stuck holding a fork."--Walter Russell Mead, The-American-Interest.com, Jan. 29

Why Gingrich's Tax Plan Beats Romney's

2012-01-31T10:04:00.001-07:00

Newt's flat tax would do a lot more to attract capital, spur growth and reduce compliance costs.

By ARTHUR B. LAFFER

If we judge both leading contenders in the Republican primary, Newt Gingrich and Mitt Romney, by what they've done in life and by what they propose to do if elected, either one could be an excellent president. But when it comes to the election's core issue—restoring a healthy economy—the key is a good tax plan and the ability to implement it.

Mr. Gingrich has a significantly better plan than does Mr. Romney, and he has twice before been instrumental in implementing a successful tax plan on a national level—once when he served in Congress as a Reagan supporter in the 1980s and again when he was President Clinton's partner as speaker of the House of Representatives in the 1990s. During both of these periods the economy prospered incredibly—in good part because of Mr. Gingrich.
Jobs and wealth are created by those who are taxed, not by those who do the taxing. Government, by its very nature, doesn't create resources but redistributes resources. To minimize the damages taxes cause the economy, the best way for government to raise revenue is a broad-based, low-rate flat tax that provides people and businesses with the fewest incentives to avoid or otherwise not report taxable income, and the least number of places where they can escape taxation. On these counts it doesn't get any better than Mr. Gingrich's optional 15% flat tax for individuals and his 12.5% flat tax for business. Each of these taxes has been tried and tested and found to be enormously successful.
Hong Kong, where there has been a 15% flat income tax on individuals since 1947, is truly a shining city on the hill and one of the most prosperous cities in history. Ireland's 12.5% flat business income tax propelled the Emerald Isle out of two and a half centuries of poverty. Mr. Romney's tax proposals—including eliminating the death tax, reducing the corporate tax rate to 25%, and extending the current tax rates on personal income, interest, dividends and capital gains—would be an improvement over those of President Obama, but they don't have the boldness or internal integrity of Mr. Gingrich's personal and business flat taxes.
Imagine what would happen to international capital flows if the U.S. went from the second highest business tax country in the world to one of the lowest. Low taxes along with all of America's other great attributes would precipitate a flood of new investment in this country as well as a quick repatriation of American funds held abroad. We would create more jobs than you could shake a stick at. And those jobs would be productive jobs, not make-work jobs like so many of Mr. Obama's stimulus jobs.

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Chad Crowe Tax codes, in order to work well, require widespread voluntary compliance from taxpayers. And for taxpayers to voluntarily comply with a tax code they have to believe that it is both fair and efficient.
Fairness in taxation means that people and businesses in like circumstances have similar tax burdens. A flat tax, whether on business or individuals, achieves fairness in spades. A person who makes 10 times as much as another person should pay 10 times more in taxes. It is also patently obvious that it is unfair to tax some people's income twice, three times or more after it has been earned, as is the case with the death tax.
The current administration's notion of fairness—taxing high-income earners at high rates and not taxing other income earners at all—is totally unfair. It is also anathema to prosperity and ultimately leads to the situation we have in our nation today.
In 2012, those least capable of navigating complex government-created economic environments find themselves in their worst economic circumstances in generations. And the reason minority, lesser-educated and younger members of our society are struggling so greatly is not because we have too few redistributionist, class-warfare policies but because we have too many. Overtaxing people who work and overpaying people not to work has its consequences.
On a bipartisan basis, government has enacted the very policies that have created the current extremely uneven distribution of income. And then in turn they have used the very desperation they created as their rationale for even more antibusiness and antirich policies. As my friend Jack Kemp used to say, "You can't love jobs and hate job creators." Economic growth achieved through a flat tax in conjunction with a pro-growth safety net is the only way to raise incomes of those on the bottom rungs of our economic ladder.
When it comes to economic efficiency, nothing holds a candle to a low-rate, simple flat tax. As I explained in a op-ed on this page last spring ("The 30-Cent Tax Premium," April 18), for every dollar of net income tax collected by the Internal Revenue Service, there is an additional 30¢ paid out of pocket by the taxpayers to maintain compliance with the tax code. Such inefficiency is outrageous. Mr. Gingrich's flat taxes would go a lot further toward reducing these additional expenses than would Mr. Romney's proposals.
Mr. Gingrich's tax proposal is not revenue-neutral, nor should it be. If there's one truism in fiscal policy, it's this: Wasteful spending will always rise to the level of revenues. Whether you're in Greece, Washington, D.C., or California, overspending is a prosperity killer of the first order. Mr. Gingrich's flat tax proposals—along with his proposed balanced budget amendment—would put a quick stop to overspending and return America to fiscal soundness. No other candidate comes close to doing this.
Mr. Laffer, chairman of Laffer Associates, is co-author with Stephen Moore of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010)

U.S. Stocks Erase Gains; Dollar, Treasuries Reverse Drop on Economic Data

2012-01-31T10:00:00.002-07:00

U.S. Stocks Erase Gains; Dollar, Treasuries Reverse Drop on Economic Data

By Michael P. Regan -

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Thomas M. Kay of Morgan Securities LLC works on the floor of the New York Stock Exchange. Photographer: Jin Lee/Bloomberg

U.S. stocks erased early gains,while the dollar and Treasuries reversed declines, as reportsshowed American consumer confidence trailed estimates andbusiness activity cooled in January.

The Standard & Poor’s 500 Index fell less than 0.1 percentto 1,312.58 at 10:09 a.m. in New York after climbing as much as0.6 percent earlier. The Dollar Index (DXY) was little changed at79.148 after tumbling as much as 0.5 percent. The euro slipped0.2 percent to $1.3116, reversing a 0.5 percent increase. Ten-year Treasury yields lost one basis point to 1.83 percent.
Confidence among U.S. consumers unexpectedly dropped inJanuary as gasoline prices picked up and more Americans saidjobs were hard to get. The Conference Board’s confidence indexfell to 61.1 from a revised 64.8 reading in the prior month. Themedian forecast of economists surveyed by Bloomberg News calledfor a rise to 68. The figure was lower than the most pessimisticprojection.
The Institute for Supply Management-Chicago Inc. said todayits business barometer declined to 60.2 from 62.2 in December.Readings above 50 signal growth. Economists forecast the gaugewould rise to 63, according to the median of 57 estimates in aBloomberg survey.

How Social Security Really Began: Echoes

2012-01-31T09:57:00.002-07:00

How Social Security Really Began: Echoes

Ida May Fuller displays her first increased benefit check, Oct. 3, 1950.Source: Social Security Administration

By Kristin Aguilera

Ida May Fuller displays her first increased benefit check, Oct. 3, 1950. Source: Social Security Administration

History is filled with examples of people who achieved fame not because of a major accomplishment, but simply because they were the first to do something. Such is the case of Ida May Fuller, a resident of rural Vermont who became the first beneficiary of a recurring Social Security payment on Jan. 31, 1940.

Fuller was born on Sept. 6, 1874, and attended school in Rutland, Vermont, as a classmate of future President Calvin Coolidge. Known to her family and friends as “Aunt Ida,” she never married or had children, and she lived alone most of her adult life. After working for decades as a teacher and legal secretary, and contributing to Social Security for almost three years, she filed her retirement claim in November 1939.
The check she received two months later for $22.54 (roughly $350 in today's dollars) bears the historic number 00-000-001.
Fuller lived to be 100 and died on the 35th anniversary of receiving her first check, on Jan. 31, 1975. In her three years of contributing to the program, the accumulated taxes on her salary were $24.75. She collected $22,888.92 in benefits.
Although Fuller’s check and all the Social Security payments to follow were the direct result of the legislation known as the "crown jewel" of President Franklin D. Roosevelt’s New Deal program, it was actually his distant cousin, Theodore Roosevelt, who introduced the U.S. to the notion of social insurance.
In Theodore Roosevelt’s 1912 address to the convention of the Progressive Party, he stated, "We pledge ourselves to work unceasingly in state and nation for… the protection of home life against the hazards of sickness, irregular employment, and old age through the adoption of a system of social insurance."
The idea of social insurance wasn't an American invention, however. First adopted in Germany in 1889, it was already operating in 34 countries by the time the U.S. enacted Social Security.
In the years between Roosevelt's speech in 1912 and the signing of the Social Security Act in 1935, many disparate ideas were proposed for ensuring Americans' economic security as the Great Depression took hold. Some of the more famous proponents of these plans were California doctor Francis E. Townsend (who advocated for federal government pensions), Senator Huey Long (who wanted the government to confiscate and redistribute money from the wealthy), and novelist Upton Sinclair (whose 12-point plan for California included the issuance of scrip currency, a barter system and a state pension plan).
One of the major problems FDR saw in these and other radical calls to action was the undermining of the American capitalist system. Thus, when he introduced Social Security at the depths of the Depression, he was careful to cast it as a fundamentally conservative system in which workers would contribute to their future security in the form of taxes paid while they were employed.
"We can never insure 100 percent of the population against 100 percent of the hazards and vicissitudes of life," Roosevelt said on signing the act, "but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age."
Americans generally reacted favorably to the new system. But the act did receive opposition, particularly within the business community. Many business owners opposed the employer contribution mandated by the new law, and argued that increasing taxes would slow growth and exacerbate the country's unemployment problem. Another major concern, then as now, was the program’s mounting financial burden. And many believed it to be unconstitutional, although the Supreme Court upheld the program in 1937.
The Social Security Act may not have fully achieved Theodore Roosevelt’s grand vision, but it did establish several lasting programs. In addition to what we refer to today as Social Security, the law also included features such as the first national unemployment compensation program, grants to states for medical and welfare programs, and aid to dependent children. (Many of the other benefits we now associate with Social Security, including disability coverage and medical benefits, weren't established until later decades.)
The merits and shortcomings of Social Security have been hotly debated since its inception, prompting several revisions and restructurings over the years. For better or worse, the program has had an enormous impact on three generations of Americans, including people like Ida May Fuller and the more than 50 million Americans who collect benefits today.

How to Listen for Racism on the Campaign Trail: Jeffrey Goldberg

2012-01-31T09:54:00.001-07:00

Here are some things you couldlearn about black Americans from the recent statements andinsinuations of Republican presidential candidates,Republican congressmen and Republican-friendly radiopersonalities:
Black people have lost the desire to perform a day’swork. Black people rely on food stamps provided to them bywhite taxpayers. Black people, including Barack andMichelle Obama, believe that the U.S. owes them somethingbecause they are black. Black children should work asjanitors in their high schools as a way to keep them frombecoming pimps. And the pathologies afflicting blackAmericans are caused partly by the Democratic Party, whichhas created in them a dependency on government notdissimilar to the forced dependency of slaves on theirowners.

Judging by these claims, all of which have actuallybeen put forward recently, here is a modest prediction:This presidential election will be one of the most race-soaked in recent history. It is already more race-soakedthan the 2008 election, which, of course, marked the firsttime that a black man became a major-party candidate.
I don’t know why this is. Perhaps because Senator John McCain, the Republican contender in 2008, generally andadmirably refused to race-bait. But the Republicancandidates in today’s contest aren’t so meticulous aboutavoiding the temptation to dog-whistle their way to thenomination.

A Dark Art

Dog-whistling -- the use of coded, ambiguous languageto appeal to the prejudices of certain subsets of voters --is one of the darkest political arts. In this race, Newt Gingrich is streets ahead of his nearest competitor in itsuse. In addition to his comments about black childrenworking as janitors, he has repeatedly referred to Obama asthe country’s “food-stamp president.”
Food stamps have been fixed in the minds of many whitevoters as a government subsidy misused by blacks at leastsince 1976, when Ronald Reagan complained of “strappingyoung bucks” who used public assistance to buy “T-bonesteaks.” (It is distressing to remember, in light ofReagan’s subsequent beatification, that he was to racialdog-whistling what Pat Buchanan has been to Jew-baiting; itwas Reagan who also introduced the “welfare queen” intopublic discourse.)
The genius of dog-whistling is its deniability. Itwould be difficult for a figure such as Rush Limbaugh torun for public office, given his record of fairlystraightforward race-baiting. (Limbaugh, who in the wordsof Harvard Law School’s Randall Kennedy is an “excellententrepreneur of racial resentment,” has been on a tearlately. He has accused Obama -- who he says “talks honky”around white people -- and the first lady of abusing publicfunds as payback for the ill-treatment afforded theirancestors.)
But “food-stamp president” is just indirect enoughthat Gingrich is protected from detrimental blowback, atleast during the largely white Republican primaries.
Kennedy, who studies the role of race in nationalelections, told me last week of a rule he uses to measurewhether a candidate’s appeal to prejudice will succeed: Ifit takes more than two sentences for a critic to explainwhy a dog-whistle is a dog-whistle, the whistler wins.Gingrich seems to understand this, and so, despitecriticism from blacks, has made the term “food-stamppresident” a staple of his stump speeches.

New Realization

Kennedy offers the theory that this campaign’s dog-whistling may be prompted by a realization by right-leaningprovocateurs that voters have become inured to charges ofracism. I suspect another phenomenon has hastened thisrealization: A handful of black Republicans have abetteddog-whistling by making their own bombastic statementsabout the degraded moral health of the black community, theputative foreignness of the Obamas and the DemocraticParty’s plantation-like qualities.
The former presidential candidate Herman Cain, wholast week endorsed Gingrich, told me in an interview lastyear that Obama was more “international” than American. Healso said that, unlike Obama, he rejects the label“African-American” because he feels “more of an affinityfor America than I do for Africa.”
Representative Allen West of Florida, one of two blackRepublican House members, recently called the DemocraticParty a “21st-century plantation” and compared himself toHarriet Tubman. In August, he said, “Today in the blackcommunity, we see individuals who are either wedded to asubsistence check or an employment check. Democrat physicalenslavement has now become liberal economic enslavement,which is just as horrible.”
How far in intent is West’s message from this one,recently delivered by Rick Santorum in Sioux City, Iowa: “Idon’t want to make black people’s lives better by givingthem somebody else’s money; I want to give them theopportunity to go out and earn the money.” (Santorum laterdenied that he said the word “black,” arguing that what heactually said was “blah.” The denial is not credible.)
The writer Gary Younge has noted that in WoodburyCounty, which includes Sioux City, nine times more whitesuse food stamps than blacks do. But it doesn’t matter:Santorum wasn’t driven from the race for making such ablatant appeal to white resentment -- instead, he won theIowa caucus.

An Odd Video

Recently, I watched an educational children’s videoproduced by a company part-owned by Mike Huckabee, theformer Arkansas governor and presidential candidate (andcurrent Fox News host). The video series, called “Learn OurHistory,” is meant as a corrective to a left-winginterpretation of the American story.
In one episode, a group of children are transported toWashington, in the late 1970s, a time when, we are told,“people are out of work and some of their morals are justgone.” The group, walking down a cartoon version of astreet from “The Wire,” is confronted by a black mugger ina tank-top emblazoned with the word “Disco.” (Yes,“Disco.”) The mugger says to the time-travelers, “Gimme yomoney!”
I asked Huckabee why the video advanced thisparticular stereotype. We had been speaking about therationale for the video series, and he had just finishedtelling me that the project was meant to encourage moralleadership. Then he told me he had nothing to do withwriting the show’s scripts, but it was his impression thatthe mugger wasn’t meant to be black. In any case, we weretalking about a cartoon, he said, and cartoons traffic in“caricature.”
This is something cartoons share with many of today’sleading Republicans.

Salman Rushdie Falls Victim to Indian Intolerance: Pankaj Mishra

2012-01-31T09:52:00.001-07:00

Illustration by Maxwell Holyoke-Hirsch

By Pankaj Mishra

About Pankaj Mishra

Pankaj Mishra is the author of "Temptations of the West: How to be Modern in India, Pakistan, Tibet and Beyond," "The Romantics: A Novel" and "An End to Suffering: The Buddha in the World."
More about Pankaj Mishra

In 1984, criticizing George Orwellfor having advocated political quietism to writers, Salman Rushdie asserted that “we are all irradiated by history, we areradioactive with history and politics.” He added: “Politics andliterature… do mix, are inextricably mixed, and that… mixturehas consequences.”

I was reminded of this unimpeachable truth last week, whenthe controversy over “The Satanic Verses” returned to thecountry of its origin. Back in 1988, the Indian government,responding to protests by a few self-appointed Muslim leaders,prohibited the importation of Rushdie’s novel, setting off aseries of appalling events that culminated in the death sentencepronounced by Iran’s supreme leader against the British-Indianwriter.
Earlier this month, the head of a Muslim theological schoolprotested against Rushdie’s planned visit to a literary festivalin Jaipur, the capital city of the state of Rajasthan. Thegovernment of Rajasthan not only declined to guarantee Rushdie’ssecurity; it may even have helped to circulate a false storyabout a threat to his life -- one that persuaded Rushdie tocancel his visit.
The festival opened under a cloud of relentless and mostlysensationalist media coverage and quickly descended into chaos.Two writers, who chose to express their anger over Rushdie’sabsence with public readings from “The Satanic Verses,” weretold to desist by the festival’s organizers, who believed --wrongly, it turns out -- that reading from a banned book wasillegal, and feared that the police would shut down thefestival.

Warning of Violence

Amid rumors of impending arrest, the writers were advisedto leave Jaipur. Rushdie accused the Rajasthan police of lyingto him -- a charge they denied. Finally, the organizers, warningof violence by a few Muslim protesters at the festival site,canceled a planned conversation with Rushdie through video link.
What exactly happened is still not clear. The organizersmay have panicked, and stumbled into self-censorship. TheRajasthan police might have had good reason to warn Rushdieagainst visiting the festival. And the handful of Muslimdemonstrators at the festival site might have remainednonviolent if the organizers had allowed Rushdie to speakthrough video link.
Some things, however, seemed dismally predictable:competing television channels ravenous for stories about two oftheir favorite subjects -- celebrities and Muslim extremists --and eager to oblige publicity-seeking “representatives” ofvarious “offended” communities; opportunistic politicians, whohave sighted a few uncommitted votes in the upcoming electionsin the neighboring state of Uttar Pradesh; and an ethicallyrudderless government, which repeatedly fails to uphold aprinciple essential to democracy: the freedom of artisticexpression.
In recent years, Indian authorities seem to have abdicatedtheir constitutional duties in the face of extremist assaults onwriters and artists. India’s most famous painter, M.F. Husain,was hounded out of the country by the xenophobic Hindu groupShiv Sena; he spent his last years in exile. The writerArundhati Roy was harassed by charges of sedition for voicing avery commonplace and unobjectionable opinion: that Kashmir is adisputed territory.
Still, a broad notion of the rise of intolerance in Indiaonly partly illuminates the recent episodes of the “SatanicVerses” controversy. In 1989, Rushdie could explain it in thefollowing terms:
“’Battle lines are being drawn in India today,’ one of mycharacters remarks. ‘Secular versus religious, the light versusthe dark. Better you choose which side you are on.’ Now that thebattle has spread to Britain, I only hope it will not be lost bydefault. It is time for us to choose.”

Blurry Lines

The battle lines have become more blurred since Rushdiewrote this; the ideological choices no longer seem so simple ineither the U.K. or India. The pressing issues for most ofIndia (IPOPIND)’s 200 million Muslims is not the clash between secular andreligious identities, or indeed, as Rushdie himself pointed outin an interview last week, the alleged injury caused to theirsensibilities by “The Satanic Verses”: They are poverty,prejudice, discrimination, and, most importantly, anti-Muslimviolence and injustice.
For instance, Narendra Modi, the Hindu nationalist hard-liner who was allegedly complicit in the killing of almost 2,000Muslims in the state of Gujarat in 2002, not only remains awildly popular chief minister; he now aims, plausibly, to occupythe highest political office in the country.
Successive commissions appointed by the government haverecommended affirmative action for India’s economicallydepressed Muslim minority. One such proposed measure is beingtouted by political parties aiming for Muslim votes. Butpoliticians, fearful of a Hindu backlash, would rather resort tosymbolic politics -- banning this or that book, keeping Rushdieout of India -- than take concrete measures to ameliorate thelot of a demoralized community.
And they can always find a few Muslims who are satisfiedwith temporary boosts to their communal self-esteem, which inthe previous two decades has been continuously battered by aresurgent Hindu nationalism and a general ideological climate inwhich terrorist violence is routinely identified with Islam.
Hari Kunzru, one of the four writers who read from “TheSatanic Verses” in Jaipur, is more than aware of this near-criminalizing of Muslim identity in large parts of the world. Onhis website, he explains that he “had no interest in causinggratuitous offense. I apologise unreservedly to anyone who feelsI have disrespected his or her faith.”

‘Islam-Bashing’

Responding to one of the more egregious spokesmen forIndian Muslims, Kunzru writes, “I refute absolutely theaccusation of Asaduddin Owaisi, the Hyderabadi MP who hasaccused me of ‘Islam-bashing under the guise of liberalism.’ Istand on my public record as a defender of the human rights ofMuslims, notably my work for Moazzam Begg and other BritishMuslims detained without trial in Guantanamo Bay.”
Kunzru directly addresses those Muslims who “feel that thenotion of ‘freedom of speech’ is just a tool of secular Westerninterests, a license to insult them.” Freedom of speech, heasserts, “is the sole guarantee of their right to be heard inour complex and plural global culture. It is the only way ofasserting our common life across borders of race, class andreligion.”
Reaching out to Indian critics of Rushdie, Kunzru seems totake an impeccably liberal position. Yet many Western liberals,convinced of Islam’s incompatibility with the modern world andthe necessity of Muslim assimilation to secular lifestyles, areprone to regard Kunzru as an appeaser of reactionary Muslimpoliticians and clerics.
At the same time, Kunzru is unlikely to persuade the manyIndian Muslims who are convinced that an abstract notion of freespeech, which doesn’t take into account severe imbalances ofpolitical and socio-economic power, cannot help them transcendthe very real barriers of race, class and religion.
In this sense, the kulturkampf inaugurated during thepublication of “The Satanic Verses” remains radioactive withhistory and politics. As Rushdie himself argued in 1984, in whatnow seems an innocent time: “Works of art, even works ofentertainment, do not come into being in a social and politicalvacuum; and ... the way they operate in a society cannot beseparated from politics, from history. For every text, acontext.”
The events of the past week remind us that while a textmay remain the same, the political and social settings in whichit operates keep changing with bewildering frequency. Almost 25years after the controversy first erupted over “The SatanicVerses,” it seems to have lost none of its power to seed whatRushdie called “the unceasing storm, the continual quarrel, thedialectic of history.”

Buffett Rule Fixes a Non-Existent Problem: Douglas Holtz-Eakin

2012-01-31T09:48:00.003-07:00

Although Warren Buffett may be astellar investor, his entry into the world of federal tax policyhas brought forth nothing but bad ideas based on flawedinformation and misleading demagoguery. Let’s review the record.

In his State of the Union address last week, PresidentBarack Obama called for enactment of the so-called Buffett rule,saying it wasn’t fair that a rich person pays a lower tax ratethan Buffett’s secretary. In a bald act of political theater,Obama invited Buffett’s secretary to sit in one of the guestseats in the gallery near first lady Michelle Obama during thespeech.
Last year, the president proposed that no household makingmore than $1 million a year pay a smaller share of its income intaxes than middle-class families. In support of this rule, hecalled for these earners to pay a minimum effective tax rate ofat least 30 percent.
The trouble with the Buffett rule is that it is an exampleof the dangers of making policy based on anecdote, instead offacts. As the Congressional Research Service documents, theaverage effective tax rate among millionaires is already about30 percent. The president is trying to solve a problem thatdoesn’t exist.

Taxation Objectives

Of course, it is true that not every millionaire has aneffective tax rate of 30 percent. But what does that tell us?Tax policy reflects a balance among the objectives of economicgrowth, ease of compliance, cost of administration, socialpolicy and -- yes -- fairness. Because millionaires can legallyreduce their tax liability below some perceived “fair” level,it implies that they are contributing to some or all of theseother objectives. Obama may succeed in his single-minded,fairness-only approach to income taxation, although I think hewill come to regret it.
Let’s think for a second about the other consequences ofinstituting the Buffett rule. Taken at face value, it could meananother alternative minimum tax. An early version of the AMT wasborn in 1969 to make sure that 155 high-income Americans didn’tuse loopholes to avoid paying taxes. Today, it stands as aperennial threat to the middle class because it was neverindexed to inflation. Each year Congress struggles to devise a“patch” to protect the middle class from being hit by the AMT,which deprives millions of taxpayers from taking deductions fordependent children and local real-estate taxes.
Maybe Obama envisions it as part of a reform of the AMT. Ifso, imposing the Buffett rule would mean an overhaul not worthundertaking. Why spend the political capital and energy fixingthe AMT when the entire code is a mess?
That brings me to the primary cost of the Buffett rule: Itgets in the way of real and needed tax reform. The veryexistence of the AMT is striking evidence of a broken system.The U.S. should be able to raise the revenue needed to pay forgovernment operations with a code that promotes the needed mixof growth, fairness and other objectives. Tax reform would meanraising the desired revenue with a broader base and the lowestrates possible. The Buffett rule (as would every tax-policyproposal in Obama’s speech) goes in the wrong direction: anarrowing base (millionaires) and a desire for higher rates.
Of course, the biggest misconception about the Buffett ruleis that it would help balance the budget. Not really. A roughstatic estimate -- meaning no assumptions about growth orchanges in behavior -- suggests that the additional revenuewould amount to about $35 billion a year. This works out to lessthan 3 percent of the $1.3 trillion annual federal budgetdeficit.

Boosting Growth

Compare this with a tax reform that broadens the base andlowers rates. Some studies indicate this might raise the U.S.’saverage growth by roughly 0.3 percentage point annually. Thatincrease in growth might boost federal revenue by $80 billion to$100 billion. Put differently, adopting the Buffett rule,instead of a fundamental tax reform, would deprive thegovernment of a net $45 billion to $65 billion a year.
Fairness in public policy is important, but the Buffettrule gets it wrong. With spending racing out of control, thereare many better places to look for fairness. One place to startis to reduce the entitlement benefits of the affluent. In an erawhen a debt crisis could cripple the economy and bequeath alower standard of living to the next generation, it is a moralimperative to undertake tax and entitlement reform.
Perhaps Buffett could have that conversation with hissecretary.
(Douglas Holtz-Eakin, who was chief economist for the Council of Economic Advisers to Presdient George W. Bush from2001 to 2002 and the director of the Congressional BudgetOffice from 2003 to 2005, is the president of the AmericanAction Forum, a public-policy institute. The opinionsexpressed are his own.)

What Krugman Didn't Say About the U.K.'s Austerity Plan: The Ticker

2012-01-31T09:47:00.001-07:00

By Mark Whitehouse

In his latest New York Times column, economist Paul Krugman rightly notes that the economic troubles of Britain, which has been implementing austerity measures, serve to undermine the conservative idea that slashing government spending will somehow bring about a confidence-driven economic boom.
That doesn't, however, mean the U.K.'s austerity plan is a failure.

True, the U.K. economy shrank in the fourth quarter of 2011, and by at least one measure -- change in real gross domestic product since the recession began -- Britain is in worse shape than it was in the wake of the Great Depression.
But by another measure -- the cost of insuring sovereign debt against default -- Britain is doing a lot better than other European nations that didn’t implement similarly ambitious deficit-reducing measures. The cost of insuring U.K. government debt currently stands at about 80 basis points (meaning 80,000 pounds a year to insure 10 million pounds of UK government debt for five years). By contrast, the same insurance on Italian and French debt costs 400 basis points and 165 basis points, respectively.
During the darkest days of the financial crisis in 2009, before the U.K. started acting on its austerity plans, the picture was very different. Insurance on Italian debt cost only slightly more than that on U.K. debt, and insurance on French debt cost a lot less.
In other words, markets have lost much more faith in the creditworthiness of Italy and France than they have in Britain's. That means Britain doesn't have to pay as much interest on its current debts, giving it a much better chance of getting those debts under control and avoiding the kind of market-enforced austerity that much of continental Europe now faces.
Britain's relative success in the credit markets isn't necessarily an argument against a combination in the U.S. of short-term stimulus with longer-term plans to get debt and deficits under control. Nor does it mean that austerity is the sole answer to Europe's troubles. We can never know what would have happened if Britain had embarked on a stimulus program instead of opting for austerity. But it's certainly possible that it would be even worse off than it is.

Fed’s New Wordplay to Yield Negligible Results: Caroline Baum

2012-01-31T09:45:00.001-07:00

A forecast is a forecast. In manycases, it’s not worth the paper it’s printed on.
Some forecasts are more important than others, which is notto say they’re more accurate, just that they matter more. TheFederal Reserve’s forecasts belong in this category.
Unlike the average Wall Street prognosticator, the Fed hasthe unique ability to make its forecast become reality throughits manipulation of the federal funds rate (the overnight rateat which banks lend to one another) and control of the monetarybase (ARDIMTBA). That’s why the central bank’s forecasts, and what’srequired to achieve them, matter.

Starting with the Jan. 24-25 meeting, we will learn for thefirst time what funds rate is associated with the Fed’sprojections for inflation, unemployment and real gross-domestic-product growth in the current year, the next few calendar yearsand “over the longer run,” according to minutes of the Dec. 13meeting released this week.
“Over the longer run” can only mean the rate that willkeep the economy growing at its non-inflationary potential inperpetuity, otherwise known as the neutral funds rate. It willbe an interesting academic exercise to see what neutral rate theFed expects to yield real GDP growth of 2.4 percent to 2.7percent; an unemployment rate of 5.2 percent to 6 percent; andinflation of 1.7 percent to 2 percent -- the central bank’scurrent long-term targets. How this will affect investment andspending decisions in the short run remains to be seen.

Unintended Consequences

The argument in favor of greater transparency on theexpected interest-rate path is that it provides greater clarityand certainty for business investment.
It could have the opposite effect. If the Fed projects slowgrowth, elevated unemployment (USURTOT), benign inflation and a funds rateof zero to 0.25 percent through 2014, businesses might be lulledinto inaction. Why invest now? What’s the rush? My widgetsaren’t flying off the shelf, and everything I read saysconsumers don’t have the wherewithal to spend.
Transparency is better than the alternative. Still, one canenvision potential landmines down the road.
For starters, forecasting is an art, not a science. Whathappens when the Fed is forced to reverse its accommodativepolicy quickly because inflation isn’t behaving as it’s supposedto (even with food, energy and half of the consumer-price indexexcluded), inflation expectations (FED5YEAR) lose their mooring, the U.S.economy gathers steam, or signs of froth appear in some assetmarket, the product of years of near-zero interest rates?Goodbye, certainty; hello, volatility.
Second, even in the normal course of the business cycle,projecting a higher funds rate may have untoward consequences.
“It’s a tricky situation going forward, when the timecomes to start normalizing policy and the Fed revealsprojections of a rising funds rate,” says Dana Saporta, a U.S.economist at Credit Suisse in New York. “We could get anoutsized, undesirable market response: one of the risks ofenhanced transparency.”
Would other short-term rates adjust instantaneously? Whatabout long-term rates?
“The markets are looking at the same data as the Fed,”says Scott Sumner, a professor of economics at BentleyUniversity in Waltham, Massachusetts.
In other words, the Fed will be behind the curve.
Finally, the Fed is opening itself up to increasedpolitical pressure. Some members of Congress may not see theneed for higher interest rates, telegraphed by the Fed, at atime when unemployment is unacceptably high.
That said, it’s “a tiny baby step forward and better thanwhat the Fed did in August,” which was to make an unconditionalpledge to hold the funds rate near zero at least until mid-2013,Sumner says. Under the new procedure, which is “not a veryprecise or effective tool,” the promise about the funds rate isat least “contingent on an outcome for the economy.”

Window Dressing

The biggest problem with the Fed’s elevation ofcommunication to the level of policy tool is that it’s a poorsubstitute for the real thing. Just because short-term rates areclose to zero doesn’t mean the Fed is out of bullets.
As I wrote in a column two months ago, the Fed has apowerful tool in the printing press. If policy makers determinethat more stimulus is warranted, and I’m not saying it is, theyshould crank up the presses. Everything else is window dressing-- and some of it more effective than mere talk.
Want banks to lend? Stop paying them 0.25 percent intereston the $1.5 trillion they’re holding on deposit at the Fed inthe form of excess reserves (ARDIERNA). Better yet, charge them a fee forholding those deposits.
David Beckworth, an economist at Texas State University inSan Marco, compared the new strategy to a ship’s captainfocusing on the rudder instead of the destination. (“Fullemployment” and “price stability” are both fuzzy.) Both heand Sumner advocate targeting nominal GDP. The decline in NGDPin 2008 and 2009, the biggest since the Great Depression, was asign that monetary policy was too tight.
Monetary policy can only affect nominal aggregates, Sumnerexplained in a recent online interview with EconTalk’s Russ Roberts. “Real outcomes” depend on things such as structuralfactors, government policy and productivity, he said.
When the economy experiences a deep contraction, thepresumption is that for any given increase in nominal income,the split between growth and inflation will favor the former.
For the moment, the Fed seems content to tinker around theedges.
“Why did the Fed put all this effort into this maybe-it-adds-something policy” when it could do something that reallymakes a difference? Beckworth asks.
Answer: Transparency is good. Talk is cheap. It won’t domuch harm. The unintended consequences can be dealt with later.

Farmers Making $100 Billion Don’t Need Subsidies to Grow

2012-01-31T09:43:00.000-07:00

Illustration by Bloomberg View

By the Editors

Imagine an industry on a roll. Itsincome surpassed the $100 billion mark last year for the firsttime. On top of these riches, those in the business got anadditional $25 billion or so in federal handouts.
The 1 percenters of Wall Street? Not even close. Thebeneficiaries are America’s farmers, or to be more accurate, thewealthy owners of very big farms.

Considering how flush the farming industry is these days,thanks to surging commodity prices, Congress should have noqualms about eliminating the most egregious agriculture policiesand using the savings to chip away at the budget deficit.
Every five years, Congress writes a new farm bill -- thenext one must be adopted in 2013 -- which means that Congressmight start drafting new legislation soon.
A lot of the political horse-trading in this cycle involvesthe worst of the giveaways -- the roughly $5 billion in directpayments -- that go to a small slice of the largestagribusinesses, most of which produce a handful of commoditycrops such as corn, wheat and soybeans. The owners receive thesesubsidies regardless of need or the health of the farmingindustry.

Promised Savings

What’s notable now is that the farming industry has givenup on preserving this particular subsidy bonanza. Earlier thismonth, the American Farm Bureau Federation said it would dropits opposition to direct payments. But in exchange, theagriculture lobby and its defenders in Congress are angling fora broadening of subsidized crop insurance instead of the morelimited coverage offered now. The danger is that the promisedsavings from the end of the direct-payments program will bediverted into yet another revenue stream for well-off farmers.
Direct payments were themselves “reforms” adopted in 1996in an effort to wean farmers from traditional price supportsthat dated to 1930s-era New Deal programs. The payments weresupposed to decline and be phased out over a five-year period.But subsidies in Washington are like well-tended crops: With thebenefit of lobbying from farming interests, they persisted andgrew.
President Barack Obama last year proposed ending directpayments, arguing that more than half the benefits go torecipients with annual incomes of more than $100,000. (The U.S.Department of Agriculture reported that 20 percent of all directpayments went to just 1 percent of farming businesses.)The proposal was included in a package of $23 billion inagricultural program cuts that Congress’s so-calledsupercommittee was considering as part of its mandate to reducethe federal budget deficit. Although the committee disbanded inNovember without reaching an agreement, the push to end directpayments has bipartisan support: Republican Senator Tom Coburnof Oklahoma sponsored legislation that would have made richfarmers ineligible for the program.
With direct payments at risk, the agriculture industry lastyear began pressing for more federal support for crop insurance.It’s already one of the fastest-growing benefits for theagriculture industry, with subsidies for insurance premiumsrising to more than $7 billion in 2011 from a little more than a$1 billion in 2000.
Crop insurance normally pays a claim if a farmer’s revenuefalls to between 75 percent and 85 percent of a historicalaverage, whether as a result of weather, floods or fallingprices. Facing the loss of direct payments, the industry wantedto bump this up by an additional 10 to 15 percentage points.This would mean a payout to farmers even in years when revenuefell only modestly.

Misguided Incentives

The result would have set up incentives more perverse thanthose already in place: Farmers, understandably, would try toraise their historical average by planting more crops. In turn,they would need more insurance and still bigger governmentsubsidies. In other words, as crop prices went up, insurancecosts would rise and so would the cost to taxpayers. And sincecrop prices are so high today, farmers could collect hugepayoffs if prices were to return to levels seen before thefinancial crisis touched off the commodities boom.
To blunt criticism, the farming industry has floated adifferent plan it says would only provide insurance payouts incase of larger losses. The most troubling aspect of thisproposal? Farmers might bear even less of the cost, which canonly mean that the government would pay more. Congress shouldresist these proposals.
Direct payments and crop insurance aren’t the only farmhandouts that should be eliminated or scaled back. A $7 billionloan program, in effect, ensures minimum prices for crops.Farmers borrow from the government, pledging their crops ascollateral. If prices are high, a farmer can repay the loan withcash left over from selling the crop. If prices are low, afarmer can repay the loan at the lower value and keep the cropto sell later when prices are higher. The heads-we-win, tails-you-lose structure of this program has to end.
The loan program is paired with a $4 billion counter-cyclical payment system adopted in 2002 that rewards farmersbased on historical production. If prices fall, a farmer can geta payment, even if there is no financial need. It is all tooreminiscent of the old price-support regimen that directpayments were supposed to replace.
Eliminating agricultural subsidies altogether isn’trealistic, given how much sway the industry has in Washington.Spending on research and development is crucial, as are programsto encourage people to take up farming. But whatever Congressdecides in the next farm bill, it should resist swapping onefarming gravy train for another.

Why Gingrich Is Right About Food Stamps

2012-01-31T09:41:00.002-07:00

By Ramesh Ponnuru

Ramesh Ponnuru

Newt Gingrich, as is his wont, hasstarted a controversy. President Barack Obama, Gingrich hassaid, is the “best food-stamp president in American history.”And: “He will always prefer a food-stamp economy to a paycheckeconomy.”

In one town-hall appearance in New Hampshire, Gingrich saidhe would be happy to address a convention of the NationalAssociation for the Advancement of Colored People to explainthat “the African American community should demand paychecks andnot be satisfied with food stamps.”
The resulting furor has highlighted what Gingrich gotwrong. But Gingrich isn’t wrong to be troubled by theextraordinary growth of the federal food-stamp program.
Liberals have taken Gingrich to be promoting and exploitingracist sentiments. In their view, he is insinuating to whitevoters that a black president is handing out money to idleblacks because he is hostile to working for a living.
I may be naive, or just biased because I’m a conservative,but I’m inclined to take a more charitable view. Gingrich hadbeen making the paychecks-versus-food-stamps contrast for monthswithout referring to race. He may have been -- clumsily --making the point that policies that weaken the private sectorand encourage dependency on government harm blacks more thanother Americans. That view may or may not be sound, but it isn’tbased on racial animosity.

Stretching the Truth

Gingrich is, however, stretching the truth when he says“the fact is that more people have been put on food stamps byBarack Obama than any president in American history.” The numberof people on food stamps -- the program is now officially calledthe Supplemental Nutrition Assistance Program, which makes foran easy abbreviation -- rose by roughly 14.7 million underGeorge W. Bush’s administration and has risen an additional 14.2million under Obama. (In recent months, the number has beenfalling.)
Neither administration “put” all those people on foodstamps. The sharp recession and weak recovery are responsiblefor much of the increase. Gingrich, presumably, blames Obama forprolonging the economic pain and thus for indirectly increasingthe food-stamp numbers; but that’s not the same thing as sayinghe directly put people on the program.
Economic weakness, though, isn’t the whole story. For muchof the last decade, and with bipartisan support, governments atall levels have sought to reduce the stigma of food stamps andencourage people who are eligible for it to sign up. (“Nutritionis a SNAP!”)
A more troubling reason for the increase is that stategovernments have found it easy to get their constituents federalmoney -- that is, money mostly raised from current and futuretaxpayers in other states -- by making more people eligible forfood stamps. According to a mid-2010 report from the GovernmentAccountability Office, 35 states have no limit on the amount ofassets a food-stamp recipient can possess. More and more states-- the count was 36 at the time of the report -- are providing“categorical eligibility” for food stamps to anyone who receiveswelfare services. Merely getting an informational brochure fromthe Temporary Assistance for Needy Families program counts asreceiving a service.
Another way that states and localities can get federalmoney flowing to them is by providing token amounts ofassistance with home heating bills. Even a dollar of energysubsidies can make someone eligible for food stamps, or increasethe benefit level for someone already on SNAP. Vermont, forexample, sends $5 checks to public-housing residents, eventhough their subsidized rent already covers heating, to qualifythem for food stamps. Liberal activists call this strategy forgetting federal money “heat and eat.”

Change the Rules

It’s hard to blame cash-strapped jurisdictions for usingthe rules of the program to get what they can for their people.But the rules ought to change. Allowing state officials to raisefederal spending at will is a recipe for trouble.
Able-bodied adults on the main welfare program (TANF again)have to abide by work requirements -- they have to work, or lookfor work, or train to work to receive benefits. This seems likea reasonable condition to apply to the food-stamp program, aswell. Some congressional Republicans have advocated this policy,but the Obama administration hasn’t been interested.
Gingrich’s hyperbole, and the reaction to it, shouldn’tobscure the need to reform the food-stamp program as the economyimproves. The program ought to be focused on people in real need-- not people who are taking no steps to find work, or whohappen to have had minimal contact with the welfare bureaucracy.And changes to the program ought to be accompanied by reforms toprograms that raise the price of food. We know that ethanolsubsidies boost food prices significantly, for example, even ifthe exact amount is disputed. Federal dairy policies raise theprice of milk: They are designed to do so.
Gingrich promises to be “the best paycheck president inAmerican history” if elected. We could use a “cheaper-foodpresident,” too: one who would stand up to the farm lobby.

Poll: Obama 48% - Paul 46%, CNN Baffled, Asks College Students Why Ron P...

2012-01-30T23:54:00.000-07:00

Palin: It’s Now the GOP Establishment vs. the Tea Party

2012-01-30T23:17:00.002-07:00

We have witnessed something very disturbing this week. The Republican establishment which fought Ronald Reagan in the 1970s and which continues to fight the grassroots Tea Party movement today has adopted the tactics of the left in using the media and the politics of personal destruction to attack an opponent.
We will look back on this week and realize that something changed. I have given numerous interviews wherein I espoused the benefits of thorough vetting during aggressive contested primary elections, but this week’s tactics aren’t what I meant. Those who claim allegiance to Ronald Reagan’s 11th Commandment should stop and think about where we are today. Ronald Reagan and Barry Goldwater, the fathers of the modern conservative movement, would be ashamed of us in this primary. Let me make clear that I have no problem with the routine rough and tumble of a heated campaign. As I said at the first Tea Party convention two years ago, I am in favor of contested primaries and healthy, pointed debate. They help focus candidates and the electorate. I have fought in tough and heated contested primaries myself. But what we have seen in Florida this week is beyond the pale. It was unprecedented in GOP primaries. I’ve seen it before – heck, I lived it before – but not in a GOP primary race.
I am sadly too familiar with these tactics because they were used against the GOP ticket in 2008. The left seeks to single someone out and destroy his or her record and reputation and family using the media as a channel to dump handpicked and half-baked campaign opposition research on the public. The difference in 2008 was that I was largely unknown to the American public, so they had no way of differentiating between the lies and the truth. All of it came at them at once as “facts” about me. But Newt Gingrich is known to us – both the good and the bad.
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Obama’s Low-Ball Vision: Tax Success, Tax Growth

2012-01-30T23:03:00.000-07:00

By Larry Kudlow

You would think that with one of the weakest economic recoveries on record, President Barack Obama would be desperately searching for ways to promote economic growth. It is, after all, an election year. Most pundit and pollsters agree that it’s the economy stupid.

But instead, Obama used his State of the Union speech to rail on about fairness, inequality, and redistribution. The Obama strategy is simple: Tax the rich because they don’t pay enough.

The problem is, they do pay enough. According to the Tax Foundation, Americans making $1 million or more pay a 25 percent average tax rate. People in the $50,000 to $100,000 income category — call it the middle class — pay 7 to 8 percent.

But no, Obama’s one big idea in his Tuesday night speech was a 30 percent minimum tax on millionaires. This, by the way, is really a hike in the capital-gains tax. And this Obama penalty is aimed squarely at his likely election opponent, Mitt Romney. Talk about taxing success. Talk about taxing growth.

The capital-gains tax is the single most important economy-wide tax on wealth, risk-taking, and investment. It’s a tax on seed corn. What a brilliant idea, Mr. President.

I remember the late Jack Kemp always saying you can’t have successful capitalism without capital. But that wasn’t in the president’s State of the Union.

It’s not as though the economy is prepared to a take another tax hit. The fourth-quarter GDP report adjusted for inflation came in at a mediocre 2.8 percent. Wall Street promptly sold off on the news.

And we’re now ten quarters into the tepid Obama recovery, with its average quarterly growth rate of 2.4 percent annually.

Deep recessions are supposed to breed strong snap-back recoveries. But it’s not happening — even after an $800 billion government-spending package, a $2 trillion Federal Reserve balance-sheet expansion, a zero Fed interest rate (for three years and counting), and a whole bunch of temporary targeted tax cuts.

It’s the whole Keynesian bag of tricks, but it’s still a very subpar recovery.

Way back when, Ronald Reagan used the supply-side model, and rejected big-government Keynesianism. He permanently lowered marginal tax rates, deregulated the economy, went to a strong King Dollar that collapsed oil and gold prices, and limited domestic spending (as a share of GDP). After ten quarters of recovery, the Reagan growth rate was 6 percent.

Compare that to Obama’s 2.4 percent. Or compare Obama’s 2.4 percent to the 4.6 percent post-WWII average recovery rate after ten quarters. The average is twice as good as Obama. But Obama is only roughly a third of Reagan. That tells you something.

On top of all this, under current-law Obama policy, the vitally important capital-gains tax is going up, even without the millionaire’s minimum. Next year, the capital-gains tax will revert to 20 percent from today’s 15 percent. Then Obamacare will raise investment tax rates by 4 percent, bringing us up to 24 percent. That equals an 11 percent rollback of wealth and growth incentives.

But that’s not all, since the capital-gains tax is paid on top of the 35 percent corporate tax. So under Obama, a 24 percent cap-gains tax is really a 51 percent tax rate on capital.

As Mitt Romney found out, even today’s 15 percent cap-gains tax is really a 45 percent double tax on top of the corporate levy. But there’s a better way here: Slash the corporate tax rate, and leave the cap-gains rate alone until full-fledged tax reform can take place.

In other words, increase incentives to grow and invest. Make it pay more after tax to invest and take risks. That’s a growth prescription, the exact opposite of Obama’s redistributionism.

Why is it fair or equal to create a lower tide that pulls down all boats?

I interviewed Mitt Romney on CNBC, and it’s clear that he gets this. And as he aggressively argued in the Jacksonville, Fla., debate, he is proud of his success and doesn’t want to give it back to the tax man.

More important, Team Romney is cooking up a stronger tax-reform plan. Romney intends to broaden the base by getting rid of deductions, exemptions, and loopholes, and then bring down the rates. I asked him if the plan would be ready during the primary season. He said yes.

There is a growing consensus around the country for full-fledged reform of the personal and corporate tax codes. People yearn for simplicity, competitiveness, and new incentives. Obama’s great mistake in the State of the Union was his low-ball vision of class warfare and redistribution when the country wants growth measures.

This November we’ll see a great debate between a big-government entitlement society that emphasizes fairness and a smaller-government growth society based on free-market capitalism. Pro-growth tax reform is essential to this debate.

To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

David Malpass: Fed's Actions Will Kill US Dollar Read more: David Malpass: Fed's Actions Will Kill US Dollar Important: Can you afford to Retire? Shocking Poll Results

2012-01-30T23:00:00.001-07:00

By Julie Crawshaw

Encima Global president David Malpass says the actions of the Federal Reserve will boost inflation and harm the U.S. dollar.

"Dollar weakness doesn't work at all for economic well-being," Malpass writes in The Wall Street Journal. "The corollary to the Fed's policy of manipulating interest rates downward at the expense of savers is declining median incomes."

It's no coincidence that inflation-adjusted median incomes rose in the sound-money booms of the Reagan and Clinton administrations and fell in the weak-dollar busts during the Carter, Bush and Obama years, according to Malpass.

"When the currency weakens, the prices of staples rise faster than wages, hurting all but the rich who buy protection," he says.
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The economy and median incomes would do much better if the Fed said simply that it would set interest rates as best it could in order to keep the dollar's value strong and stable in coming decades, with the goal of attracting capital, maintaining price stability and encouraging full employment.

Obfuscation on the dollar works fine for Wall Street, which reaps billions in profits from the Fed's unstable dollar policy, says Malpass.

“It trades currencies and volatility, and makes a bundle protecting investors from the Fed by selling complex derivatives, interest-rate swaps, even triple-leveraged gold and currency funds pitched on television,” he says.

“After the Fed's statement, markets bid gold above $1,700 per ounce, the latest insult to the Founders' clear intent for the dollar's value to be strong and stable relative to gold and silver over the life of our republic.”

The Fed's status in Washington is unique and practically unassailable, Malpass notes.

“It alone is a colossal self-funder operating outside the congressional appropriations process. Even the CIA and Navy Seals don't enjoy the Fed's unlimited spending power, checked only by its handpicked board and senior leadership.”

Thestreet.com reports that gold prices have rallied almost 4 percent in two days after the Fed announced it will leave interest rates low through the end of 2014 and the door open to more bond buying.

As the Fed commits to a weak dollar policy, gold becomes attractive to investors as a wealth preserver.

Banks set to double crisis loans from ECB

2012-01-30T22:29:00.000-07:00

By Patrick Jenkins and David Oakley in London and Ralph Atkins in Frankfurt

European banks are preparing to tap the European Central Bank’s emergency funding scheme for up to twice as much as the ECB supplied in its debut €489bn auction last month, providing further evidence of the sector’s liquidity squeeze.
Several of the eurozone’s biggest banks have told the Financial Times that they could well double or triple their request for funds in the ECB’s three-year money auction on February 29.

“Banks are not going to be as shy second time round,” said the head of one eurozone bank at last week’s World Economic Forum in Davos. “We should have done more first time.”
Three bank chief executives, all of whom asked to remain anonymous, said they were planning to increase their participation twofold or threefold.
Goldman Sachs has told clients that banks could ask for twice as much in the February auction as in December when more than 500 lenders raised €489bn. “They could do another €1tn easily in February,” said one senior banker. “It could be way more than that if things get worse in the markets.”
The ECB, under new president Mario Draghi, launched its funding facility in December to avert a looming credit crunch, with €230bn of bank bonds coming due for repayment in the first quarter of 2012 while bond markets remained largely closed to new issuance.
Bankers credit Mr Draghi with helping to destigmatise the ECB’s funding operation by persuading as many institutions as possible to participate. Previously, banks had shied away from such support schemes for fear of appearing weak.
Bankers expect many more banks to take part in the February auction, encouraged by the widespread participation last time, as well as the promise of unlimited cheap money – the funds attract an interest rate of only 1 per cent.
Analysts suggest banks have used some of this money to invest in higher-yielding eurozone sovereign bonds, helping to drive down borrowing costs for several hard-pressed eurozone governments, including Italy, Spain, Ireland, and Greece.
But on Monday yields were mostly higher across the eurozone periphery amid concerns over the Greek rescue plan. Portuguese 10-year bond yields leapt more than 2 percentage points to 17.26 per cent, as investors increasingly expect the country to default.
The ECB’s decision to broaden the pool of collateral that banks can use to obtain its funds is also expected to encourage higher bidding. Mr Draghi has said he expects “substantial” appetite for the February allotment of three-year loans.
If demand extends anywhere near the €1tn figure, the scheme would be far bigger than the market broadly expects. A poll of traders by Reuters, published on Monday, predicted the ECB would allot a total of €325bn.
Italian banks dominated demand for the December money, according to data collated by Morgan Stanley.
Bankers at Spanish, French and German institutions said they were also big takers. Even Royal Bank of Scotland tapped the scheme for €5bn of liquidity, using its Dutch subsidiary as a conduit.

Hildebrand case puts spotlight on bank secrecy

2012-01-30T22:23:00.005-07:00

By Haig Simonian in Bern

Switzerland’s private banks, smarting under tax crackdowns in many neighbouring countries, could face new challenges after this week’s resignation of Philipp Hildebrand as central bank chairman again highlighted the dangers of data breaches.
Mr Hlidebrand stepped down after revelations that his wife engaged in controversial foreign exchange transactions, rather than any tax issues. But his departure makes him one of the highest profile victims of a data breach since 2008, when Klaus Zumwinkel resigned from his position as Deutsche Post chief executive after stolen data revealed he held undeclared accounts in Liechtenstein.
But with its much bigger banking sector and famed bank secrecy, it is Switzerland’s private banks that are now worried.

“What happened is the worst that can happen to a bank . . . but we have to live with this latent risk”, says Christoph Gloor, deputy chairman of Switzerland’s private bankers association and partner at Basel-based La Roche & Co.
“It is highly likely now that so-called “politically exposed persons” such as government officials and top business leaders, may become increasingly undesirable as clients for some banks”, says Ray Soudah, founder of Millenium Associates, a private banking specialist.
“These are names that can carry reputational risks in the case of disclosure”, he adds.
In recent months, Credit Suisse and Julius Baer have both suffered from data theft. The two Swiss banks paid the German authorities €150m and €50m respectively to settle investigations prompted after unknown thieves stolen hundreds of account details of clients with potentially undeclared holdings.
Earlier, HSBC, which has a big Geneva private banking operation, suffered similar embarrassment after information about more than 100,000 accounts was stolen by Hervé Falciani, an information technology employee. Mr Falciani passed the information to French investigators, who then transferred information about non-French account holders to other countries’ tax authorities.
Swiss private bankers are understandably reluctant to discuss the subject, as they fear publicity will undermine client confidence. Many have taken expensive steps to improve security.
“There are task forces now in almost every bank re-examining and improving internal security”, says Mr Soudah, whose company has been involved in many private bank mergers and acquisitions.
In spite of such efforts Swiss bankers recognise data breaches remain a powerful risk – especially when foreign tax authorities are willing to pay handsomely for information.
Mr Hildebrand’s example was politically, rather than financially, motivated. But the ease with which his account information reached third parties shows how easy it can be to fall foul of theft or leaks of data.
The Hildebrands’ account details were called up by a Sarasin IT support employee. The latter took three “screenshots”, with a mobile phone or camera, which he then gave to Switzerland’s ultranationalist People’s party, which had been waging a campaign against Mr Hildebrand over his monetary intervention policies at the SNB.
The employee, who has since been admitted to a psychiatric hospital, this week told three Swiss newspapers he had not wanted to create a political storm or bring down Mr Hildebrand, but just to shed light on the controversial foreign exchange trades.
Although exonerated from having broken SNB rules, Mr Hildebrand stepped down after being unable to demonstrate conclusively that the most controversial trade, made in the thick of the SNB’s attempts to hold down the Swiss franc, had been ordered by his wife without his knowledge. Mr Hildebrand maintains that he did not know about the large dollar purchase executed on August 15 until the following day.
However, as he conceded on Monday, documents released by the Swiss National Bank didn’t entirely support his version of events. In fact, they suggested the former central bank chairman played a more active role in steering his family’s foreign exchange exposure than implied.
An account of a conversation between Mr Hildebrand and his investment manager, Felix Scheuber, appears to show that on the very day of the transaction apparently carried out without his knowledge, Mr Hildebrand had discussed “increasing his USD [dollar] exposure but he would leave it up to his wife Kashya to so decide”.
Sarasin has launched legal action against the employee and unnamed others for breaching bank secrecy. Zurich prosecutors, who have taken up the case, are currently gathering evidence and interviewing those involved.
Although their inquiries are secret, lawyers close to the investigations say criminal proceedings are likely to be instituted soon.

The shame of living in a corrupt country

2012-01-30T22:21:00.003-07:00

This has reference to the article, “Caught in web of corruption” (January 20) by Arindam Chaudhuri. A high GDP growth is critical for our country from a purely economic point of view as it creates a positive atmosphere for the domestic and foreign investors. But at the same time, we should be seriously worried about our pathetic ranking in the Corruption Perception Index.
This ranking is directly proportional to the sentiments of foreign investors. One the one hand the investors are aware that India is an emerging economy and it is the country to be doing business in at this juncture. But on the other hand they are apprehensive and develop cold feat when they know that nothing moves in India if palms are not greased properly.

And, with fiscal deficit at an alarming level in the country it is all the more essential to change the perception that India is a corrupt nation, by bringing in revolutionary changes in the way things function here. The Global Financial Integrity’s finding in its report sums up the issue of how hundreds of crores of rupees in black are flowing out of country with ease and our Government is not able to control it, leave alone name the guilty and act against them. Should we then assume that our Government is incapable or is there is more to it than meets the eye?
Whatever be the case, we should be ashamed of the image that our country has developed because of corruption. The sooner we do something about it the better it will be for all of us. If we do not act soon, the double-digit growth that we talk about and can achieve, will remain a dream on paper. After all, sustainable growth and prosperity to all citizens of the country is just not possible with corruption eating away into the vitals of the economy.

Mitt Romney's Bermuda (tax) holiday

2012-01-30T22:20:00.001-07:00

Romney exploited perfectly legal tax loopholes with Bain Capital, the author writes. | AP Photo

By DIETLIND LERNER and E.J. FAGAN | 1/20/12 4:33 AM EST

Mitt Romney’s direction of Bain Capital’s tax avoidance activities now threaten to become a major campaign issue. But how questionable are his actions? We need to ask: “What would I do if I could legally avoid paying income tax?”

In taking advantage of tax regulation for personal gain, Romney followed a legal strategy likely used by countless other businessmen and politicians. But since he is running for office, maybe we need to establish some safe-guards so that such problematic choices are not legally condoned.

A plausible scenario plays out like this: I hire an accountant. Doing her job, my accountant tells me that if I sign a few legal documents and route my money through a small Caribbean island, I could keep more of my paycheck and pay a lower tax rate. I may have earned my money in the United States, but legally I can claim that it was, in fact, earned in a tax haven.

If it is entirely legal, which your accountant later assures you is the case, then what’s the problem? Well, this loop-hole, so beneficial to you, deprives the government of cash to help fund, for example, public libraries, or new trucks for fire departments or subsidized heating for the elderly. .
This is more or less what happens when wealthy people and corporations shelter their money in Bermuda — or another of some 60-odd tax havens available around the globe. It’s essentially what Romney did with Bain Capital.
According to a 2007 Los Angeles Times article, under Romney’s leadership, Bain Capital set up a shell corporation called Sankaty High Yield Asset Investors Ltd, based in Bermuda. It has no documented staff or actual office in Bermuda. Without breaking any laws, Bain Capital could avoid paying corporate tax in the United States
Bain was in total accordance with the law by using these offshore arrangements. It was just taking advantage of a serious problem in our tax code, which allows well-off companies and individuals to shift money out of the economy to avoid paying their fair share of tax.
It’s difficult even to estimate exactly how much tax money the U.S. government is deprived of each year through what is now-legal tax avoidance. Companies don’t have to report money invested in offshore vehicles. The use of these vehicles is now common practice in the finance industry. Consider that Sen. Carl Levin (D-Mich.) estimates that we lose approximately $100 billion per year in illegal tax evasion – which is more risky than mere tax avoidance. This number must be far higher.
As international financial crises threaten governments in Europe and Africa, and Occupy Wall Street protests continue in cities around the country, the measure of a future president should not be that he took advantage of a great business deal. Rather should be that, if elected, he could be trusted to put an end to this entire process of legally sanctioned tax avoidance which is so harmful to our country.
Certainly, with greater transparency, we wouldn’t need estimates and imagination to understand the damage being done.
Dietlind Lerner is the communications director of the Task Force on Financial Integrity and Economic Development. E.J. Fagan is new media / advocacy coordinator for the organization.

Mexico Hemorrhages US$872 Billion to Crime, Corruption, Tax Evasion from 1970-2010

2012-01-30T22:17:00.002-07:00

Illicit Financial Outflows Average Over 5% of GDP, Driven by Underground Economy, Spiked in Wake of NAFTA

MEXICO CITY / WASHINGTON, DC – Crime, corruption and tax evasion cost the Mexican economy US$872 billion between 1970 and 2010 according to a new report from Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization. The illicit financial outflows, which averaged a massive 5.2% of GDP, grew significantly over the 41-year period studied from just US$1 billion in 1970 to US$68.5 billion in 2010.

“This is a devastatingly large amount of money for any developing country to lose,” said Raymond W. Baker, director of GFI. “$872 billion is gone, which could have been used to develop the Mexican economy, to invest in education, to build roads, or to fight the drug cartels. The negative ramifications are huge for everyday Mexicans.”
The study, which was authored by Dr. Dev Kar, GFI lead economist, saw illicit outflows explode from an annual average of US$3.0 billion in the 1970s, to US$10.4 billion in the 1980s, to US$17.4 billion in the 1990s, and US$49.6 billion in the decade ending 2009.

Underground Economy

Moreover, illicit outflows were found to drive the domestic underground economy, which includes—among other things—drug smuggling, arms trafficking and human trafficking. Thus, illegal capital flight was found to contribute to a deterioration in governance. Likewise, growth in the underground economy was also shown to drive illicit flows, creating “a snowballing effect whereby both the underground economy and illicit flows continue to grow at an increasing rate unless policy measures and institutions intervene,” according to Dr. Kar, who worked as a senior economist at the International Monetary Fund before joining GFI.

Trade Mispricing and NAFTA

The report concluded that policymakers should focus on measures to curtail trade mispricing, a form of trade based money-laundering, which skyrocketed in the years after NAFTA came into effect and which was shown to account for 73.7% of total illicit financial outflows over the 41-year time period.
The study recommends three policy measures to reduce trade mispricing:

· Require the utilization of computer software to detect export and import prices that are clearly out of line with international norms; (49)
· Require that the parties conducting a sale of goods or services in a cross-border transaction sign a statement in the commercial invoice certifying that no trade mispricing has taken place in an attempt to avoid duties or taxes and that the transaction is priced using the OECD arms-length principle; (51) and
· Undertake additional measures to curb abusive transfer pricing. (51)

Further Policy Recommendations

In addition to recommending policies to curtail trade mispricing, the report recommends four additional policy actions to reduce illegal capital flight from Mexico:
· Expand double tax avoidance agreements with other jurisdictions; (53)
· Require automatic cross-border exchange of tax information with other jurisdictions on personal and business accounts; (54)
· Maintain macroeconomic stability, which includes maintaining low budget deficits, low external debt levels, and low and stable inflation rates; (56) and
· Take steps to reign in the role of offshore financial centers (OFCs) and banks. (59)

Destination of Illicit Outflows

While the report cannot specifically breakdown into which jurisdictions illicit outflows from Mexico are deposited, the study does indicate that a majority of Mexican capital outflows, which include both licit and illicit capital, end up in U.S. banks. The large spike in illicit outflows following the implementation of NAFTA would imply that much of those outflows were indeed headed for the United States. This suggests that U.S. policymakers have a significant role to play in curtailing the flow of illicit money out of their southern neighbor.

In addition to the U.S., tax havens in the Caribbean and Europe were the second and third largest recipients of Mexican capital outflows.

Drug Cartels and National Security Risk

A large portion of drug cartel activity is conducted in cash, and none of those cash transactions are detected in GFI’s data, which is one of the reasons why the organization believes its figures to be extremely conservative. That said, drug cartels like many criminal enterprises also utilize legitimate commercial transactions to launder their profits. In fact, the Los Angeles Times reported last month that Mexican drug cartels were utilizing trade-based money laundering techniques to move their money across the U.S.-Mexico border. Those kinds of business transactions would show up in the organizations data, however it cannot be determined exactly how much of the trade mispricing in GFI’s report is attributable to the activities of drug cartels.
As such, the organization believes that this has serious implications for national security.
“The ease with which money can be laundered across the U.S.-Mexico border via trade mispricing poses a major national security risk to both the United States and Mexico,” said Mr. Baker. “Drug traffickers, like kleptocrats, terrorists and tax dodgers, all gain from anonymous shell companies, tax haven secrecy, and nefarious trade mispricing tactics. Taking steps to address these issues would curtail a number of societal ills.”

Unattainable Government Goals

2012-01-30T22:10:00.004-07:00

By Bill Bonner

Baltimore, Maryland – Yesterday, investors digested the big news from Wednesday…the Fed’s announcement that it would continue handing out money, asking nothing in return, for the next three years.

Stocks went down. Oil stayed under $100. The yield on the 10-year note fell under 2%. And gold just kept going up.
The New York Times reported:

The Fed said that it now planned to keep short-term interest rates near zero until late 2014, continuing the transformation of a policy that began as shock therapy in the winter of 2008 into a six-year campaign to increase spending by rewarding borrowers and punishing savers.

“What did we learn today? Things are bad, and they’re not improving at the rate that they want them to improve,” said Kevin Logan, chief United States economist at HSBC. “That’s what they concluded — ‘We’ve eased policy a lot, but we haven’t eased it enough.’”

The new forecast showed that the Fed expects to hit its inflation target over the next three years, but to fall well short of its goals for unemployment. The Fed projected that unemployment would drop no lower than 8.2 percent this year, just slightly below the current rate of 8.5 percent, and no lower than 7.4 percent by the end of next year. By the end of 2014, the Fed still expects that at least 6.7 percent of people actively interested in working would not be able to find jobs.

How do you like that, dear reader? The Fed has goals for unemployment and inflation. Targets. And it moves its policies around in order to achieve its goals.
Of course, it doesn’t necessarily hit its goals. Still, we’re supposed to believe that by trying to hit them it somehow encourages them in the right direction…
Most people believe they are successful. Which makes us wonder. Maybe the Fed should set goals for other things? Weight-loss goals, for example.
The idea is that by changing interest rate and banking policies the Fed actually influences inflation and employment. So, there’s a logic to thinking that the Fed should set targets and try to hit them. Trouble is, if it could really change things for the better, why does it put up with an 8.5% unemployment rate now — four years after the subprime crisis began? Why doesn’t it exercise its magic to bring the rate down…?
Well, we all know the answer. It can’t. Once you’ve taken interest rates down to zero…and announced that you’ll leave them there for the next three years…what more can you do? Drop money from helicopters? Right!
But no point in getting ahead of ourselves. Right now, interest rate policy doesn’t work. Because the money supply is expanded by retail and commercial bank lending, not central bank lending. The Fed lends money to the money-center banks. They’re happy to take the Fed’s money. But that doesn’t mean they will multiply it out by risking it in the economy.
So, for the moment, they might as well set a fat goal…too…
Excuse us as we pause in admiration and shock…
We had a sneaking suspicion that Alan Greenspan, former Fed chief, was not as dumb as he pretended to be. When he was on the job he could barely say a straight sentence. Probably because he didn’t really believe what he was saying.
Since he’s been unemployed, he’s begun to speak more clearly. In yesterday’s Financial Times he has an opinion on capitalism which is actually among the best in the series. In it, he makes a good point. Anti-capitalists are not really annoyed at capitalism. What bothers them is “crony capitalism:”

“Crony capitalism abounds when government leaders, usually in exchange for political support, routinely bestow favors on private individuals or business. That is not capitalism. It is called corruption.”

Or you could call it zombification…or geriatric capitalism…or, as Kurt Richebächer used to call it, “degenerate capitalism.” But it’s not real capitalism.
The ‘greed’ that preoccupies Occupy Wall Street demonstrators is not a feature of capitalism, Greenspan points out. It’s a feature of human nature. He might have pointed out that socialists are just as greedy as capitalists. They are just more corrupt. Rather than get their gains by honest deception, they get it by brute force — by using the police power of government to take it from others.
Greenspan provides an example of a corrupt system, designed to protect the wealthy from competition — immigration law. It keeps out qualified foreigners willing to work for less:
“The H1B program is in effect a subsidy for the wealthy, a policy that is anathema to the supporters of capitalism.”
He goes on to suggest that “improvements” to capitalism, such as those to be considered today in Davos, are not likely to be good ones.
Good on you, Alan.
*** “Hey Bill,” writes a Dear Reader, “How can you say America is going to Hell? We’re the most Christian country in the world.”
The trouble with Christians is that from time to time they render unto Caesar far more than he deserves…and lose sight of their own faith. Hardly had the martyrdoms stopped under Emperor Constantine than early Christians began pointing the figure, calling one another heretics…and then murdering each other.
Christian crusaders sacked the Christian city of Constantinople on their way to the Holy Land …where they did even worse mischief. In the 15th century, Lutherans under Charles V gave Rome a worse sack than the barbarians had a thousand years before. They raped nuns, murdered priests, and stole whatever they could carry off.
And now, once again, Christian mobs are calling for blood. Jon Utley, who we met Tuesday night, explains why America’s evangelical Christians are an ungodly bunch. Logically, they should support Ron Paul. He opposes abortion, gay marriage and promiscuity. He’s never been divorced. Two of his brothers are ministers. And he’s a Baptist. What more could they want?
What they want, Utley explains, is to live by the sword:

Why…are evangelical leaders now opting for Santorum, and before him Gingrich? The one big area of disagreement with Ron Paul is war; foreign wars and the domestic one against drugs. For this they oppose him. Santorum supports unending war in Afghanistan, backing Israel without limit and a new war against Iran.

Earlier there was a major far leftist candidate who supported all the issues that evangelicals oppose, and was a vocal proponent for expanding Israeli settlements on the West Bank and promoting the war on Iraq. He was overjoyed when open homosexuality became allowed in the military, he supports abortion, gay marriage and the leftist agenda for big, intrusive government; power to labor unions as well as expanded, unconstitutional police powers within the US. Evangelicals adore him and went all out to support him 2006, when he lost his primary race and ran as an independent for the Senate. He is Senator Joseph Lieberman of Connecticut.

All this shows how evangelical leaders put support for wars ahead of their social values. Their support includes every new law giving Washington ever greater police powers over American citizens, such as the Patriot Act, Military Commissions Act and the recent National Defense Authorization Act which tear asunder much of the Bill of Rights. Most also supported torture of prisoners of war (with the notable exception of Chuck Colson of Prison Fellowship). All this comes with their “social values.”

They loved George Bush. They were major supporters of the two wars against Iraq and the occupation of Afghanistan. Fear and ignorance of the outside world joins together with a belief that God uniquely favors America. Mostly poorer Southerners they also have strong affinity for the American military and its industrial complex. In addition, author Chris Hedges has written about how they are joined by many Northern blue collar families hurting from new technology, globalization, and poor schools in seeing government as out to undermine their communities and social values. Their solace is to hope for Armageddon.

Evangelicals like to quote a biblical text that God favors those who favor the Jews. However, for them they mean only Jews who make wars and contribute to chaos in the Middle East. Jewish peacemakers are cursed in their view. No tears were shed for Yitzak Rabin who negotiated peace with the Arabs until Israeli fanatics killed him. Indeed Pat Robertson said that Rabin was killed because he was trying to thwart God’s plans.

Herein lies their antipathy to Ron Paul, who in all other respects is a family values conservative. Indeed, most of them are Baptists who used to look upon Catholics with suspicion. Today they would prefer Senator Santorum or Newt Gingrich, both Catholics, to Ron Paul, who is Baptist. Santorum is no libertarian believer in limited government (he would use government to enforce his social values) and urges absolute support for Israel and the military industrial complex. These evangelicals don’t want peace because it would mean postponing Armageddon. That’s why their leaders oppose Ron Paul.

Jon Basil Utley is Associate Publisher of The American Conservative.

Regards,
Bill Bonner

Why Economic Growth Will Continue to Disappoint in 2012

2012-01-30T22:07:00.002-07:00

By Bill Bonner

01/30/12 Baltimore, Maryland – Tutto va bene…
That was what the crew told passengers on the Costa Concordia just before it sank.
And it was what the crew of the USS America — the biggest cruise ship of all — were telling passengers last week.
Tutto va bene.
Trouble was, tutto was not going as bene as they claimed. Instead, the ship is sinking.
Stocks sank on Friday. Oil slipped below $100. And the yield on a 10-year T-note dropped to 1.89%. Gold kept going up.

None of these are signs that the voyage is going well.
The US economy has come back to output levels of ’07. But this feeble rebound not only holds the title of “weakest post-war recovery ever,” it also shows that something else is going on. Most economists have no idea what. So, they just think this “recovery” is unusually slow. Ben Bernanke, for example, has pledged to hold down interest rates (at negative real levels) for another three years. He also let it be known that he has his finger on the trigger, ready to blast out some more QE at a moment’s notice.
Last week produced news that the economy expanded in the previous quarter. It went up at a 1.8% annual rate, far below the 3% consensus estimate of economists. That returned it to ’07 output levels, but at what cost? The feds have added $6 trillion in new debt to regain some $600 billion in annual output. Whoa!
And indications are that growth will be just as disappointing this year as it was last. Bloomberg has the story:

US economic growth may not top 2 percent this year and a third round of quantitative easing by the Federal Reserve would have little effect, said Martin Feldstein, a professor of economics at Harvard University.

“We’re going to have a hard time reaching 2 percent this coming year,” he said… The economy is still in a “danger zone,” Feldstein said, even as the recession risk “is less now than it was.”

Feldstein, speaking before the GDP report was released, said last year’s growth in household spending was largely due to consumers drawing down their savings, which he said they won’t be able to maintain this year.

Another Bloomberg report tells that consumer spending is already weakening:

Spending at retailers lost momentum each month in the fourth quarter, slowing from a 0.7 percent gain in October to a 0.1 percent increase last month. Merchants including Macy’s Inc., Gap Inc. and Target Corp. cut prices to attract more business during the holiday shopping season…

Government agencies also struggled last quarter as they cut spending at a 4.6 percent annual rate, the fifth straight decline. For all of 2011, government spending dropped 2.1 percent, the biggest decline since 1971.

Our guess is that consumer spending will weaken further as the bear market in housing gets worse. December house sales were the worst in nearly half a century. AP is on the beat:

The Commerce Department said Thursday new-home sales fell 2.2 percent last month to a seasonally adjusted annual pace of 307,000. The pace is less than half the 700,000 that economists say must be sold in a healthy economy.

About 302,000 new homes were sold last year. That’s less than the 323,000 sold in 2010, making last year’s sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record.

The median sales prices for new homes dropped in December to $210,300. Builders continued to [slash prices] to stay competitive in the depressed market.

And guess what? The outlook for housing is still not improving. Business Insider explains why:

Michelle Meyer, the well-known housing analyst for BofA/ML, has some bad news: The housing crisis isn’t over.

In fact, in her 2012 outlook piece, she says it’s “far from over” and that prices still have another 7% to decline nationally.

The basic problem: There are still tons more foreclosures or “liquidations” yet to come…our securitized products research team estimates another eight million homes will be liquidated over the next four years, which adds to the six million homes that have already been liquidated since 2007. All told, we expect 14 million foreclosures or a quarter of all homeowners with a mortgage.

Ms. Meyer’s estimates seem rather optimistic to us. We’d guess that house prices will go down another 20%. Maybe more. Because, people have less money to spend on housing. Real disposable incomes are lower today than they were a year ago.
People who buy houses don’t really worry too much about the price. What concerns them is the monthly payment. They buy as much house as their monthly income will allow.
That was the real driver of the housing bubble of ’05-’07. Interest rates had been going down for 30 years, lowering monthly mortgage payments. That made it easier to pay a mortgage. Housing prices were going up steadily, giving the impression that houses were a good investment. And the mortgage industry would lend to anyone, solvent or insolvent, jobless or working, dead or alive. That put a lot of air into the housing market.
Now, interest rates are still going down, as near as we can tell. But with incomes going down and lenders much more cautious, the air has whooshed out of the market. It’s no longer pressure-packed. Now it’s vacuum-sealed.
Remember, household debt-to-income was only 70% at the beginning of the ’80s. Now, it’s 120%. In order to get it down, households need to unload debt — especially mortgage debt.
That is, they need to save. Savings rates have recently fallen…to 3.5% down from 5.7%. They will probably go back up as the Great Correction continues.
Which will mean…housing will fall, maybe by 20% more.
Let’s see, housing falling…incomes falling…consumers retrenching…negligible GDP growth…
Tutto va bene!
But back to why the US is going to hell…
The country has been at war in two out of three years since 1989. The interesting thing about it is that 1989 marked an historic juncture. It was the year that the US had no more worthy enemies. The Berlin Wall fell that year. The Soviet Union bit the dust. Francis Fukayama said it was maybe the “end of history.” Charles Krauthammer said it was the beginning of a new world, with only one superpower. He called in a “uni-polar world.”
But a country that has been taken over by its military industry cannot permit peace. It must make war — either against its own people or against some other people. Having no suitable enemies, the deficit-fatted pentagon, its rich lobbyists and the nation’s lard-butt patriots had to find some unsuitable ones.
One of our new, old-fashioned conservative friends explained what happened next:

They turned to the Mideast. Why? As enemies, the Arabs/Muslims have several advantages:

There are not many in the continental US; not enough to influence elections or run much of a counter-propaganda campaign

There’s oil in the Mideast; the oil companies contribute a lot of money to campaign coffers. And oil really is a strategic commodity

Americans don’t understand Arabs or Muslims…yahoo Christians don’t trust them. The Jews hate them.

They can’t really do us much harm. We can fight them forever…at huge expense and never win or lose.

It allows us to make common cause with Israel’s right-wingers…and brings in a lot campaign money from Jewish groups. That’s why all the Republican candidates — except Ron Paul — are pro-war.

Bill Bonner

First in Line for New Money | Douglas E. French

2012-01-30T20:42:00.000-07:00

GBTV: Predictions come true Part 2

2012-01-30T20:35:00.000-07:00

Ron Paul on CNBC The Kudlow Report 1/30/12

2012-01-30T20:34:00.000-07:00

Peter Schiff on Lou Dobbs Tonight 71211 Fox Business Channel

2012-01-30T19:52:00.000-07:00

American Exceptionalists Love Their Primitive Secular State Theocracy. by Scott Lazarowitz

2012-01-30T17:30:00.001-07:00

At a recent debate when Ron Paul mentioned the "Golden Rule," that we should treat foreigners as we should be treated, he was booed by a number of people in the audience. This happened at a previous debate. At that previous debate, Paul further questioned how we would like it if a foreign government invaded and occupied the U.S. and set up its military bases here.

How can so many people (and so many popular radio talk hosts and their listeners) condemn the suggestion that everyone must be equal under the rule of law?

The myth of American exceptionalism is that the U.S. is an example of moral progress, peace and prosperity for the rest of the world to follow. But that has not been the case during most of America’s existence.

Perhaps America was somewhat exceptional at its founding, when the ideas of the rights of the individual and private property were taken seriously. But when a Constitution, which limited the rights of the individual and empowered a centralized government, was written and ratified, that was really the end of such moral exceptionalism.

The Founders had the right idea, but the statists, centralists and fraudsters took control, and that was the end of that.

The societal and moral advancement that the Founders took from the Enlightenment has tended to regress backwards, as America’s federal government continually expanded in size and intrusiveness, and its actions overseas became more primitively aggressive.

The moral degeneracy of America escalated considerably when Honest Abe Lincoln waged a brutal and immoral war against civilians in order to compel the population into a life of enslavement by central planners. Woodrow Wilson unnecessarily extended World War I, which contributed to the rise of Hitler. FDR’s New Deal really was the final nail in the coffin for whatever freedom there was remaining in America.

In foreign affairs, for the past century the reality of American exceptionalism has been this: that our government may interfere in the internal affairs of foreign nations, may place its governmental apparatus and military bases on other peoples’ territories, may commit acts of aggression, murder, and property destruction, and get away with it through rationalization and propaganda – but other governments may not do that on our lands or do those things to our people.

American exceptionalism is the belief that our government need not be accountable under the rule of law, while we hold foreigners accountable.

Regarding the current "War on Terror," yes, real terrorists attacked America on September 11, 2001. But when our government then invades and destroys whole countries that had nothing to do with 9/11, then you should logically expect the targeted innocent foreigners to defend their territories.

One thing that America’s government-controlled schools (both public and private) have accomplished over the past century is the suppression of critical thinking skills. Instead, because the people have allowed the almighty State and its media stenographers and propagandists so much influence and intrusion into the entire education system, the result has been generations of people with an instilled unquestioned loyalty to the State theocracy.

Because of this, America has become increasingly authoritarian and restrictive in its liberty to the point of the police state and non-sustainable, bankrupting empire we currently suffer. Those who question The Powers That Be are themselves stigmatized and marginalized, and in some cases, punished and persecuted. Americans have been cheering their government’s illicit aggressions overseas, and booing those who stand for the Golden rule and the rule of law.

In fact, some of the same people who have been supporting the U.S. government’s immoral aggressions overseas have been those preaching the loudest about "Christian moral values." Sorry, but when one supports one’s government invading other countries that were of no threat to us, one’s preaching of Christian morality is just hypocrisy.

And when people assert Americans’ right to defend America against invaders, yet refer to foreigners who defend their own lands, their lives and their families from invaders and occupiers as "terrorists," no wonder Christianity and moral values have declined in America.

The narcissism of modern State worship is such that, when the exceptionalists assert that the U.S government must have a "presence" on foreign lands, it is as though they view those lands as theirs, just like a possessive child would do. It seems more like covetousness, if you ask me.

No, the narcissistic exceptionalists, who pray to the democratic god of the secular State, seem to believe that their government may commit acts of aggression against foreigners, but not the other way around. Praise the almighty State, as it can do no wrong.

Former Senator and current presidential candidate Rick Santorum seems to be one of those more outspoken worshipers of the State and its aggressive expansion overseas. Santorum even believes in the central planning of the almighty State domestically, in the social area.

Santorum wants to use the armed police apparatus of the State to impose his own personal social views onto the rest of the population, much like the Islamists that he ironically criticizes for wanting to impose their Sharia Law onto others.

If we don’t behave in our private lives as Santorum and his beloved almighty State order us to do, then we are infidels, apparently.

And I heard another American exceptionalist recently, Sean Hannity, express total cluelessness in his pushing the anti-Iran fear-mongering that is being used to start yet another unnecessary, counter-productive war. In arguing with a caller, Hannity was saying that (and I am paraphrasing) he merely wanted to prevent mass violence and bloodshed that could be prevented by forcibly removing Iran’s nuclear capability. Hannity was referring primarily to protecting Israel (despite the fact that Israel has a few hundred nuclear warheads and Iran knows this).

So regarding the possibility of mass bloodshed, Hannity has apparently been oblivious to the hundreds of thousands of dead Iraqis throughout the 1990s, killed by U.S. government violence and sanctions, and the further hundreds of thousands of dead Iraqis since the U.S. government’s 2003 invasion.

Because of reliance on mainstream news outlets and talk radio for their ~~brainwashing~~ information, most people don’t even know recent history, and they therefore don’t seem to understand Ron Paul’s point about "blowback."

When dissidents openly criticize the State, its intrusions and its violence, the faithful seem intensely threatened, as though they have been personally harmed. The dissidents must be booed and ostracized, even though here Ron Paul is the one with the sense of morality and he is the one who believes that our government must be accountable under the rule of law as others must be.

But as our society gradually degenerated over the past century in its abandonment of moral values and the rule of law, it should be of no surprise now that the exceptionalists have no problem with their primitive priests of the almighty State apprehending and detaining someone without charges, without even being required to show evidence against the accused, as agents in an advanced society would have to do. The exceptionalists have faith in their beloved State (until they find themselves falsely accused and unlawfully detained, of course).

The religion of State has shown its ugliness with the Bradley Manning whistleblower case. Many people have reacted emotionally to this case, and with much ignorance, that’s for sure. It is as though whistleblower critics have been on a medieval witch hunt with the Manning case.

This young soldier allegedly released "classified" information to WikiLeaks. But, if the chat logs are legitimate, Manning’s motivations were not on behalf of any foreign government, financial interest or any element hostile to America.

On the contrary, Manning’s motive was out of love for his country, and to expose the corruption of our government’s imbecilic bureaucrats and expose the military’s war crimes. If anything were un-American, it would be covering up those crimes.

And despite the government’s hysterical propaganda, the truth is that the release of the classified information probably could not have caused any harm to any U.S. soldier overseas or to any American at home.

Some critics of Manning and WikiLeaks’ Julian Assange have been calling for their imprisonment or death. That is because the critics’ loyalty just doesn’t seem to be as much to their country as it seems to be to the government, the almighty State.

That is what our sick culture has become: an authoritarian theocracy with total rule over us. The Total State seems to be what the primitive-thinking narcissists want, and that is why so many people cheer the State, cheer its wars and the deaths of foreigners, and that is why they boo the ideas of freedom, personal responsibility and accountability under the rule of law.

With our authoritarian culture now, we are definitely surrounded – not by Muslims, but by the almighty criminal State, by federal, state and local government Gestapo bureaucrats.

And we are doomed unless we reverse course – and that means chopping away at the many, many layers of Leviathan, the bureaucracies, the foreign bases and the domestic camps, chopping away until we finally are able to restore the freedom the founders envisioned when they created America.