Forbes Article: "Economic Forecast For A Libertarian President"

I'm amazed at the amount of mainstream press that Libertarian presidential candidates Governors Gary Johnson and William Weld are garnering. Here's a great recent example from Forbes which tries to predict the economic impact of a Gary Johnson administration: "Economic Forecast For A Libertarian President."

A few highlights:

• You can read the whole article here."In the long run, the economy will be better off with market-oriented reforms. [...] But getting from here to there depends on how the public perceives the new president."
• "Foreign military activity would certainly be reduced by a Libertarian president, making those defense cuts easier. But Congressional loyalty to military bases and defense contractors in their districts and states will prevent cuts from going too deep."
• "A President Gary Johnson would veto quite often. He used this power 200 times in his first six months as governor of New Mexico, earning the nickname 'Governor Veto.'"
• "Federal spending would fall under a Libertarian administration, but the president must spend appropriated money whether he wants to or not[.]"

You can read the whole article here.

Herbert Stein's Law

Gold, Guns and Drones

The bills continue to flow through the legislative sausage press in Des Moines. They range from atrocious to pretty good. Here are a few more that caught my eye.

Bad Bills:

Two of the bad bills, SF233 & HF 164, are "universal background check" bills. Remember: "Universal Background Checks= Gun Registration= Gun Confiscation."

Senate File 233: Iowa Gun Owners calls this Iowa's "Most Dangerous Anti-Gun Bill of 2013." Hidden among innocuous provisions of an "education" bill, this bill would mandate that virtually every firearm transfer in the state go through a licensed gun dealer so that a NICS check may be conducted. If you think the gun dealer will do that for you for free when you want to sell your old shotgun to your neighbor, I've got some beachfront property in Arizona to sell you.

Even more ominous, this bill would also require social workers, guidance counselors, physician's assistants and even nurses to report you to authorities if they think you're acting a little too weird to have Second Amendment rights. Obviously no one wants dangerous lunatics to have guns, but I don't want some busybody nurse or social worker being able to strip people of their rights.

House File 164: According to Iowa Firearms Coalition: "It would require background checks be conducted by an FFL on ALL private firearm transfers with no exceptions, and allows the dealer to collect fees in the process. HF 164 would also provide for limitless fees (taxes) for transfers in order to fuel this enormous bureaucratic process, and allow the Department of Public Safety (DPS) to create 'rules' as necessary on how to implement the system, which is just another form of universal registration."

House File 163: This would ban the sale and transfer of any ammunition feeding device that holds more than 10 rounds of ammo. This was introduced by Representative Bruce Hunter (D-34), the same guy who introduced HF164 above. What a douche!

Senate Study Bill 1165/ House Study Bill 91: These twin bills would circumvent Iowa's normal search warrant process and replace it with a phony-baloney rubberstamp process for allowing officials to plant GPS trackers on Iowans' vehicles. That is inconsistent with the constitutional requirements under the U.S. and Iowa constitutions governing searches. Click HERE to learn more and to contact the appropriate subcommittee members on this bill.

Good Bills:

House File 346: This bill would recognize gold and silver coin as legal tender in the state of Iowa. You may recognize that this is an authorized state power under the U.S. Constitution, Article I, Section 10. There are lot of good economic reasons for this as well as ones dealing with federalism. Caffeinated Thoughts had a great writeup on the bill you should check out for more details.

Senate File 276: This would place a moratorium on the use of surveillance drones by all state agencies in Iowa and strictly prohibit weaponized drone systems. It would allow the use of drones under several limited circumstances such as search and rescue operations or AMBER Alert searches. Anything that can slow the growth of the surveillance state that we more and more find ourselves living in is a good thing.

SF276 is currently stalled because the chairman of the Senate Judiciary Committee, Senator Robert Hogg (D- Cedar Rapids), is sitting on it. Please contact Hogg and ask him to give SF276 the consideration it deserves and schedule a hearing ASAP. (rob.hogg@legis.iowa.gov , 319-247-0223)

With all these bills please contact your state legislator and voice your support or opposition.

"Free Market Makes a Lot of Sense" Redux

In November I posted an excerpt and a link to a guest column I had in the Cedar Rapids Gazette. Since I'm not sure how long the Gazette will maintain that link on their website, I present the original unedited version of that article below:

By now it’s well-known that the Obama Administration’s “Manufacturing Czar” Ron Bloom raised a few eyebrows when he stated that “the free market is nonsense.” If the waning months of the Bush Administration are any indication, the leaders of both major parties now basically share this philosophy. That’s a pity.

Our “nonsensical” free (though increasingly regulated) market has given America one of the highest standards of living in the world. Even our poor people could have it much worse. According to the Heritage Foundation, of poor households in the United States: 46% own their own homes, 76% have air conditioning, nearly 75% own a vehicle (30% own two), 97% own a color television, 62% have cable or satellite television. 89% of poor families say they have enough to eat, while only 2% say they "often" do not have enough to eat. Imperfect, but not bad.

If we don’t have a free market economy, then we have a command economy wherein government regulators control wages, prices and production rates. (Sure, it’s a sliding scale between the two, but an administration that views one end as “nonsense” will obviously only let us slide one way.)

When I was young, the Soviet Union was the ultimate embodiment of a command economy. I spent some time there in the summer of 1991 as a “student ambassador.” A group of American students and I toured the country, seeing Moscow, Leningrad (now St. Petersburg) and the Estonian countryside. We stayed with some nice Russian families. Although my three weeks there certainly doesn’t make me an expert on all things Soviet, it was an eye-opening trip for a sixteen year old Iowa farm boy nonetheless.

I saw the blocks-long lines of people waiting for bread and other necessities. I toured GUM department store in Moscow. A great Soviet achievement, we were told it was the largest department store in the world. It’s shelves were bare.

Somewhere I got a small toy Soviet army tank. The price was stamped right into the steel bottom of it at the time of manufacture. (I forget what the price was. Let’s say two rubles.) That price, as well as the number to be produced, presumably, had been set by some panel of government planners months before the toy tank rolled off the production line.

What would the price have been if the toy tank had become the “must-have” toy for Russian kids, with demand quickly outstripping production? Two rubles, get in line! What would the price have been if it was sold in a store on the far side of Siberia, burning up 4,000 miles worth of fuel resources to get there? Two rubles. And if Russian kids hated the new toy and would rather play with a broken piece of cobblestone? Then they would gather dust on store shelves, available for the low, low price of… two rubles.

It’s easy to see that a market system based upon the logical decisions of bureaucrats a month or a week ago quickly becomes a system based upon no logic at all. This is the “sensible” system that the Manufacturing Czar and, by extension, his boss President Obama advocate?

Although I hope that we don’t follow the Soviet economic model, there’s at least one thing that the Soviets got right. They got rid of their czars.

Honey Creek Money Pit

In July I reported to you on Honey Creek Resort in southern Iowa. I pointed out at that time that, in addition to diverting funds (about $58 million) from other more legitimate government projects, the state was creating a taxpayer assisted entity that would directly compete with private industry. I argued that the jobs "created" at Honey Creek were actually jobs stolen from around the state.

Now the Cedar Rapids Gazette reports that in its first 9 months of operation the resort lost $900,000. A state audit showed that between September 2008 and June 2009 Honey Creek had revenues of $3.1 million but expenses of almost $4 million.

In a separate piece, Gazette columnist Todd Dorman, who visited the resort last summer, said, "Although some lawmakers are talking about pulling the plug on state ownership, I’m withholding judgment until I see how a fully completed resort does this year in a slightly more stable economy." True enough. Plenty of businesses lost money in the last year. Unfortunately I'd be opposed to government ownership of the resort even if it posted a tidy profit, for the philosophical reasons listed above.

Dorman also added the warning: "If the state’s going to own a resort, it needs to think more like a crafty entrepreneur than a drowsy bureaucrat." Here Dorman misses the point. Rather than trying to teach bureaucratic ducks to bark like entrepreneurial dogs*, why not just sell the thing to real entrepreneurs in the private market?

It might be hard to find willing buyers right now, however, since entrepreneurs tend to be more wise with their own money than the legislature is with ours.

*Not every metaphor I come up with can be a gem, people!

Business Bogeyman Du Jour: Payday Lenders

There appears to be some momentum in the upcoming Iowa legislative session to restrict payday loans in the state. Sometimes called a “payday advance,” payday loans are short-term (usually two-week) loans where the borrower issues a post-dated check to the lender.

According to the Community Financial Services Association of America (CFSA), the industry organization for payday lenders, the typical fee charged by payday lenders is $15 per $100 borrowed. So a customer wishing to borrow $100 would write a check to the lender for $115. The lender would then give the borrower $100 cash. Two weeks later the lender would cash the customer’s check, keeping the extra $15.

This simple arrangement has managed to stir the ire of legislators across the country, including Iowa. State Senator Joe Bolkcom, D-Iowa City, head of the Senate Ways and Means Committee, said, "The payday loan industry is our local counterpart to the crooks on Wall Street." Other critics, such as Tom Chapman, executive director of the Iowa Catholic Conference, point out that interest rates on payday loans can run as high 400 percent. "We believe these types of interest rates are unjust and should be outlawed," said Chapman. "Instead of promoting the financial stability of consumers, the system actually creates a financial incentive in the failure of Iowa families rather than their success."

But CFSA’s website points out: “The typical fee charged by payday lenders is $15 per $100 borrowed, or a simple 15 percent for a two-week duration. The only way to reach the triple digit APRs [annual percentage rates] quoted by critics is to roll the two-week loan over 26 times (a full year). This is unrealistic considering that many states do not even allow one rollover. In states that do permit rollovers, CFSA members limit rollovers to four or the state limit—whichever is less.”

If a payday loan customer somehow did carry his loan for a whole year, how would that APR compare to other alternatives to low-income consumers? Again from the CFSA:

$100 payday advance with a $15 fee = 391% APR
$100 bounced check with $54 NSF/merchant fees = 1,409% APR
$100 credit card balance with a $37 late fee = 965% APR
$100 utility bill with $46 late/reconnect fees = 1,203% APR.

So compared to these and other “quick cash” alternatives, like pawn shops, payday loans are not terribly out of line. If consumers with poor credit ratings could get small, quick loans elsewhere (such as conventional banks) they no doubt would. Since the payday lenders offer an apparently popular service that consumers can’t get elsewhere, why shouldn’t they be able to charge a premium price for it?

So, what is the problem? The words of State Representative Janet Petersen, D-Des Moines, head of the House Commerce Committee, who favors new restrictions on payday lenders, offer some clues. Petersen says that, by restricting payday loans, “lenders will be forced to take some responsibility for ensuring that Iowans don't end up in a vicious debt cycle." [Emphasis added.]

In the minds of people like Peterson, consumers are ignorant sacks of meat that mindlessly throw their money to greedy, unscrupulous businessmen (in this instance payday lenders). Without smart and benevolent legislators like Peterson and Bolkom to protect them every moment of the day, the people they represent are little more than sheep to be shorn by capitalist predators. If anyone is to "take some responsibility" for the lives of Iowans, it must be the lenders (and the legislators) who apparently draw from a more intelligent gene pool than mere citizens.

Experience in other states has shown that restrictions on payday lenders result in fewer of those lenders. This would obviously mean fewer payday loans available to Iowans. Therefore, restricting payday lenders might allow liberal lawmakers to slap each other on the back for helping the “little guy,” but without reducing the NEED for or providing some new alternative to payday loans, they have only succeeded in worsening the little guys’ circumstances.

"Free Market Makes a Lot of Sense"

Here's an excerpt from my column in today's Cedar Rapids Gazette:

"President Obama’s 'manufacturing czar,' Ron Bloom, raised a few eyebrows when he stated that 'the free market is nonsense.' If the waning months of the Bush administration are any indication, the leaders of both major parties now basically share this philosophy. That’s a pity.

"Our 'nonsensical' free (though increasingly regulated) market has given the U.S. one of the highest standards of living in the world. [...]

"If we don’t have a free-market economy, then we have a command economy wherein government regulators control wages, prices and production rates. (Sure, it’s a sliding scale between the two, but an administration that views one end as 'nonsense' will obviously only let us slide one way.)

"When I was young, the Soviet Union was the ultimate embodiment of a command economy.

"I spent some time there in the summer of 1991 as a student ambassador. My three weeks there don’t make me an expert on all things Soviet, but it was eye-opening for a 16-year-old Iowa farm boy.

"I saw the blocks-long lines of people waiting for bread and other necessities. I toured the GUM department store in Moscow. We were told it was the largest department store in the world. Its shelves were bare."

You can read the entire article here.

State Cuts 10%; Culver Fiddles

I couldn’t help but notice the irony in the title of O. Kay Henderson’s Radio Iowa report titled, “Agencies submit cuts; governor rides rails.” That sounds pretty similar to “Rome burns; Nero fiddles.”

I'm not saying that the current state budget cuts are as bad as Rome burning, of course. As far as I’m concerned they should cut the budget even more. But I do appreciate the irony in the fact that as current state services are being cut, Governor Culver is joyriding on a train, showing where he wants to dump even more taxpayer money to feed his railroad fetish.

Not wanting to prioritize, Culver made the 10% cut across-the-board. Cuts would include laying off 44 law enforcement officers (including 20 State Troopers, whose manpower was already at a 45 year low) and a fire inspector at the Dept. of Public Safety. The Quad City Times reports that the cuts will also have a “devastating impact” on the function of Iowa’s court system.

In terms of layoffs, the Department of Corrections will be the hardest hit with 515 jobs lost. "The impact will affect all departments in every level of service," said corrections officials. "A reduced workforce will create serious safety concerns for the public, staff and offenders within the maximum security facility. In line with the security concern is the closing of four towers."

Cops, courts and corrections sound like legitimate core functions of the state government to me. Should they really be cut at the exact same percentage as, say, the Department of Cultural Affairs or Iowa Public Television?

“The other neat thing we’re doing is we’ll be able to invest in the depots and modernize them,” Culver states in the Radio Iowa article. One such depot is the one in Osceola which is currently undergoing a $600,000 renovation. “And they’re bringing that historic place, you know, back to life,” said Culver.

Play your fiddle, Sir. Do you know "I’ve Been Working On the Railroad?"

Time To Wrap Iowa's Show Biz Giveaway

Just about everyone in Iowa knows that the Iowa Film Office (IFO) has been embroiled in scandal lately. The office issues tax credits to filmmakers who film in Iowa. By August, IFO had issued more than $31 million in such credits. Unfortunately, some filmmakers have used their money to buy themselves fancy cars, rather than hire Iowans, and the whole operation is shot through with accounting irregularities and poor record keeping.

The whole mess got so bad that Governor Culver actually had to put down his paddleball, amble over and fire somebody. Of course, Culver’s political rivals in the Republican Party are capitalizing on the scandal. They could run the IFO better, they contend. Other critics say that the IFO needs stricter oversight. But should IFO and other similar incentive programs exist at all?

There are nut-and-bolts reasons that indicate that they shouldn’t. A study by New Mexico State University found that for every dollar that N.M. spent on it’s film program, it got back 14 cents in tax revenue. (The state of N.M. claims it gets $1.50 back.) The Wisconsin Dept. of Commerce found that for every dollar that it invests in it’s film program, it gets back $1.70. For other economic development programs, the return on each dollar invested was said to be $161.

Victor Elias with the nonpartisan Child and Family Policy Center has studied Iowa’s film tax credit. He says that there is little evidence that the program does much of anything. “I couldn’t even figure out how many jobs this creates,” said Elias. “Whether they were full-time jobs or part-time jobs. And a film shoot only lasts for so long, so we’re not talking about permanent jobs.” $31 million is a lot of hard-earned taxpayer dollars to invest on hope alone.

Even if the incentive program was well-run and got a return on the investment, it (and special incentive programs for other industries) don’t really make sense. While it may now be customary for state and local governments to offer special goodies to get targeted businesses to relocate here, it comes at the expense of people and businesses who have already invested their time and money here.

According to Iowa’s Tax Education Foundation, Iowa has the highest corporate and personal income taxes among it’s neighboring states. Some have ranked Iowa as one of the worst states to start a business. Does it make sense to offer monetary incentives to get businesses to locate here, while simultaneously driving established businesses out?

It would make more sense to implement policies making the state attractive to new businesses and existing ones as well. Lowering state taxes and red tape would be conducive to all commerce in Iowa.

The bottom line is that there is no cash incentive that government can offer to new business that it didn’t first take away from the people and industry already here. The state needs to forget the bribes and just get out of the way.

Judge Napolitano: "Everything the Gov't Runs is Bankrupt!"

Privatize Honey Creek Resort

We libertarians are sometimes criticized as having all these "big ideas" about limited government and personal freedom but lacking small, practical steps to implement them. Here's one idea that I think fits the bill: Privatize Iowa's Honey Creek Resort State Park.

Billed as Iowa's first "destination park," Honey Creek Resort opened for business last September. The luxury resort, located on Iowa's Rathun Lake, was built and is owned by the Iowa Dept. of Natural Resources. The resort boasts 105 spacious rooms in its "great lodge," 28 resort cabins, a pirate-themed indoor water park, an 18-hole golf course, 50-boat slips, boat launch, fishing pier, conference center, RV park, and a full-service restaurant and lounge. Whew!

The resort park has about 138 employees, making it one of Appanoose Countys largest employers, impacting the economy of southern Iowa. This is of course why the state government built the place, for the economic impact.

But what is this impact? Economist Henry Hazlitt teaches: "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." We need to look beyond 138 employed persons in southern Iowa and any immediate tax revenues of the resort.

What is the resort's impact on other similar businesses in the area? A quick Google search identified 10 hotels, 4 golf courses, 3 RV parks and 4 private campgrounds near Moravia Iowa (where the resort was built). The state has created a tax-payer subsidized business to compete directly with them.

This impact stretches much further since the resort obviously hopes to draw tourists from all over the state as well as from out of state. A day a family stays at the resort is a day that they don't stay in a bed and breakfast in Dubuque or a day they don't spend shopping at Coral Ridge Mall or enjoying Arnold's Park or Adventureland Park, making those enterprises less profitable. The state has not "created" 138 jobs and a new revenue stream, it has merely borrowed them from private businesses throughout the state.

This is only the direct impact. More jobs and money will be sucked from elsewhere in the state via taxes. The state of Iowa has pumped atleast $8 million directly into the project. In 2008, Senator Chuck Grassley requested an additional $7.1 million in federal funds for projects around Rathbun Lake. In true government fashion, delays and cost overruns were frequent. Construction of the golf course alone went 150% over budget.

The project also racked up about $33 million in public revenue bonds to pay for construction. These will have to be paid back. Early projections from 2007 (before the economy tanked) showed that the resort should be showing a small profit by the third year of operation (2011). Since the resort will make the bond payments out of it's net income, every year that the resort doesn't break even the Iowa taxpayer will have to make the bond payments.

All this tax money is perhaps diverted from more needful government projects at a time when the state is having difficulty paying the bills. But the money was originally diverted from its rightful owners: the people of Iowa. Every dollar taken from us to fund frivolous projects is a dollar not spent or invested in our own communities to create jobs and build dreams.

So when we see the "massive mosaic fireplace" of Honey Creek's "great lodge," before we marvel at its grandeur, let us take Hazlitt's advice and use our mind's eye to see "the possibilities that have never been allowed to come into existence. [Let us] see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. [...] What has happened is merely that one thing has been created instead of others."

Honey Creek Resort is already built. Iowa should sell it to private investors. Let them assume the debt and compete against Iowa's other businesses on equal footing, without the coercive and confiscatory power of government tipping the scales in the resort's favor.

Cap & Tax Won't Save The Earth

Today the U.S. House of Representatives passed the "American Clean Energy and Security Act," known as a "cap and trade" system. It now goes to the Senate where it's fate is unclear. Opponents charge that the bill is too costly and will hurt the faltering economy, while doing little to improve the environment. Here is a quick video from the Heritage Foundation dealing with subject.

Clean Sweep!

All 5 of Iowa's U.S. Representatives Co-Sponsor Ron Paul's "Audit the Fed" Bill.

On June 11, U.S. Representative Bruce Braley became the final member of Iowa's U.S. House delegation to co-sponsor HR 1207, the “Federal Reserve Transparency Act of 2009.″ Iowa's three Democrat and two Republican representatives have all now co-sponsored this important legislation.

The bill merely calls for the Comptroller General (America's chief financial inspector and head of the Government Accountability Office [GAO]) to conduct an audit of the Federal Reserve System by the end of 2010 and report the findings to Congress.

The Federal Reserve (or "Fed") is America's central banking system. It is a a quasi-public and quasi-private organization (an unholy union of government and private interests). It was signed in 1913 by President Woodrow Wilson, who supposedly later lamented, "I am a most unhappy man. I have unwittingly ruined my country. [...] The growth of the nation, therefore, and all our activities are in the hands of a few men. [...] No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men."

According to its website, the Federal Reserve's duties fall into four general areas:

1. Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.
2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers.
3. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.
4. Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system.

You would think that an institution with so much responsibility to and power in the U.S. economy would be run openly and transparently. Not so. To understand why the audit of the Fed is necessary, here are the words of the bill's author Congressman Ron Paul, when he arose to introduce the bill to Congress:

"I rise to introduce the Federal Reserve Transparency Act. Throughout its nearly 100-year history, the Federal Reserve has presided over the near-complete destruction of the United States dollar. Since 1913 the dollar has lost over 95% of its purchasing power, aided and abetted by the Federal Reserve’s loose monetary policy. How long will we as a Congress stand idly by while hard-working Americans see their savings eaten away by inflation? Only big-spending politicians and politically favored bankers benefit from inflation. [...]

"Since its inception, the Federal Reserve has always operated in the shadows, without sufficient scrutiny or oversight of its operations. [...] The Federal Reserve has, on the one hand, many of the privileges of government agencies, while retaining benefits of private organizations, such as being insulated from Freedom of Information Act requests.

"The Federal Reserve can enter into agreements with foreign central banks and foreign governments, and the GAO is prohibited from auditing or even seeing these agreements. Why should a government-established agency, whose police force has federal law enforcement powers, and whose notes have legal tender status in this country, be allowed to enter into agreements with foreign powers and foreign banking institutions with no oversight? [...]

"More importantly, the Fed’s funding facilities and its agreements with the Treasury should be reviewed. The Treasury’s supplementary financing accounts that fund Fed facilities allow the Treasury to funnel money to Wall Street without GAO or Congressional oversight. [...]

"The Federal Reserve Transparency Act would eliminate restrictions on GAO audits of the Federal Reserve and open Fed operations to enhanced scrutiny. We hear officials constantly lauding the benefits of transparency and especially bemoaning the opacity of the Fed, its monetary policy, and its funding facilities. By opening all Fed operations to a GAO audit and calling for such an audit to be completed by the end of 2010, the Federal Reserve Transparency Act would achieve much-needed transparency of the Federal Reserve. I urge my colleagues to support this bill."

And support it they have. HR 1207 currently has 223 co-sponsors in the House of Representatives, Republicans and Democrats alike. That is over half of all representatives. With that much support, it would appear likely that House leadership will allow the bill to be debated and voted on.

Attention now turns to the Senate where the bill's companion bill, S.604 (Federal Reserve Sunshine Act) has already been introduced. The Fed intends to hire a veteran lobbyist to urge Congress to vote against the audit. The people, therefore, need to urge them to vote FOR the bill. Contact information for Iowa's two U.S. Senators is below. Ask them to co-sponsor S.604.

Sen. Charles Grassley (R): Website Contact Page or Mail to 135 Hart Senate Office Building, District of Columbia 20510-1501 D.C. Office Phone: (202) 224-3744 Des Moines Office Phone: (515) 288-1145

Sen. Tom Harkin (D): Website Contact Page or Mail to 731 Hart Senate Office Building,District of Columbia 20510-1502 D.C. Office Phone: (202) 224-3254 Des Moines Office Phone: (515) 284-4574

Economic Wizardry

Growing up here in Iowa, my sister had a book that was a collection of the funny papers classic "The Wizard of Id." I remember one particular cartoon in that book. The wizard was standing knee-deep in the sea, his sleeves were rolled up and he had his arms pointed out to sea, furiously casting lightning bolts and cartoon magic at it. Behind him, on the beach, the king watched the wizard's hard work proudly with one of his underlings. The wizard could always get the tide to go out, the king explained to his subject, even if it took twelve hours to do so.

I recall looking down at that cartoon as blankly as if I'd just read the day's relative humidity in Scranton Pennsylvania. It was only after my older and wiser sister explained to me that, after twelve hours, the tide would have gone out by itself anyway, that I got the joke. The wizard was an absolute fraud, but he sure wasn't going to let his sugar daddy (the king) know it.

I'm reminded of that cartoon now as I watch our government's economic wizards work their best mojo to make the recession retreat. However, unlike the good wizard of Id, who merely cast his fake magic harmlessly out to sea, our federal wizards are casting their lightning bolts into a pre-existing economic tinderbox of their own making and mortgaging our children's future to fund the enterprise.

Market forces are remarkably resilient (but not indestructible). Some economists were predicting as early as January that the recession may have been bottoming out. If left alone, the recession would end eventually and would do so sooner without all the "help" from the government. A UCLA study of the Great Depression, for instance, concluded that New Deal programs to alleviate the depression actually added seven years to it. We can expect similar results from current "stimulus."

We already have $11 trillion in public debt and that is set to get much worse as the Social Security and Medicare promises that the federal government made to baby boomers (with no way to pay them) come due. By 2030 it will take half of all federal income tax dollars to fund just these two programs. According to the Congressional Budget Office, by mid-century Medicare and Medicaid will require the entire federal budget, leaving no money available for national defense, security or any other federal program. In order to keep Medicare and Medicaid and still fund the government's other functions, a middle-income family will have to pay two-thirds of its income in taxes. (Medicare/Medicaid figures are from John C. Goodman in the March 2009 "Imprimus.")

It's not hard to see that piling trillions of dollars in additional debt on top of these unfunded liabilities, to fund current stimulus of dubious usefulness, will not help our economy in the long term. But by the time the tide rolls back in, the wizards will be long gone with the kings gold.

Federal Stimulus Package: Part Two

As debate continues on the federal “stimulus package” in Congress, I continue to discuss four possible objections to it: 1) It won’t work. 2) We can’t afford it. 3) It will be rife with waste, fraud and abuse. 4) It will drive up inflation. In Part One, we saw the poor track record of Keynesian "stimulus." Let us continue:

2. We can’t afford it.

The Treasury currently lists the total public debt as $10.7 trillion. To clarify how much a trillion dollars is, keep in mind that it took from the founding of our country to 1987 for our government to accumulate ONE trillion in debt. Since 1987 we’ve added another 9.7 trillion.

And the pace is accelerating. We added about a trillion dollars to that debt in 2008 alone, and we’ll probably add almost TWO TRILLION of additional debt in 2009. With levels of debt like this, it’s amazing that Congress should need convincing to NOT add on almost another trillion of debt in a single bill, especially with the coming tsunamis in Social Security and Medicare spending as baby boomers retire.

How much money is in this bill? Here are some factoids from the Heritage Foundation:

• The $900 billion Senate bill is equal in size to the entire economy of Australia. It is twice the size of oil-rich Saudi Arabia.
• That is enough money to provide every current high school Junior and Senior student a four-year education at a private university, and still have $150 billion to spare.
• The House spending bill last week of $819 billion is equivalent to borrowing $10,520 from every family in America. This borrowed money equals what the average family spends on food, clothing, and health care in an entire year.
• 2010 spending from this bill would more than double New Deal spending in 1936, in today’s dollars. Despite doubling federal spending, unemployment after the New Deal was enacted remained above 20 percent until World War II.

Whether you think the stimulus is a good idea or not, our children will be staggering under the weight of its debt into the foreseeable future.

3. It will be rife with waste, fraud and abuse.

Like most of the Senators and Representatives now voting on it, I have NOT read the stimulus bill. Nor do I need to in order to know that whatever version passes will be full of wasteful spending, dirty deals and political paybacks.

Wasteful spending? How about $88.6 million for new construction for Milwaukee Public Schools? Due to declining enrollment, MPS currently has 15 vacant schools and no plans to build more. I guess no one told Congress.

How about $650 million for the digital television converter box coupon program? Or $248 million for furniture at the new Homeland Security headquarters. Or $50 million for the National Endowment for the Arts. While American families and businesses are tightening their belts, Congress has taken theirs off. You can search the bill at http://readthestimulus.org

In this bill there will also be plenty of ways for Congress and President Obama to pay back those who helped them get elected. Some are speculating that, as the bill is currently written, groups that backed the Democrats, such as Association of Community Organizations for Reform Now (ACORN) and MoveOn.org could receive millions, if not billions of stimulus dollars. It’s easy to see that the Democrats are as concerned with “stimulating” their political fortunes as they are the economy.

4. It will drive up inflation.

Most of us don’t think much about inflation. It’s just kind of there, like gravity, death and taxes. We should think about it.

Inflation is not the yearly increase in prices. That is just the symptom. Inflation is the increase in the amount of money in circulation every year, causing the money itself to be worth less and less.

It’s not a hard idea to conceptualize. Imagine that you’re holding an authentic 1952 Mickey Mantle baseball card. Worth some dough, right? Now imagine that you wave a magic wand and create 820 billion more. Guess what happened to the value of each one.

Now imagine that you’re holding a dollar bill. Congress is going to wave its magic wand and conjure up 780 billion to 900 billion more just like it. Guess what happens to the value of each one. (I borrowed and paraphrased this analogy from Ron Paul, by the way.)

As this wave of new money washes across the economy it will be worth less and less. This aspect of the “stimulus” bill will hurt everyone in the country, but especially the poor who already have a hard time stretching their dollars without having them shrink more than usual.

Those of us in our 30’s or younger have never had to deal with the ungodly inflation that America had in the 1970’s and 80’s. We might want to prepare ourselves.

So, there are four possible objections to the stimulus package. It won’t work. We can’t afford it. It will be rife with waste, fraud and abuse. It will drive up inflation.

I thought about adding a fifth objection, that the stimulus bill is unconstitutional, that Article I, Section 8 gives Congress no authority to do most of what the bill spells out. But 10th Amendment federalism is already a dead letter. I’ll honor it’s memory by not disturbing it now.

Federal Stimulus Package: Part One

Debate continues on the federal “stimulus package.” The House passed an $820 billion package last week that ballooned to over $900 billion in the Senate. Currently it appears that that might get trimmed to a “svelte” $780 billion. Regardless of what the grand total ends up being, as I see it, there are four reasons not to like the stimulus package: 1) It won’t work. 2) We can’t afford it. 3) It will be rife with waste, fraud and abuse. 4) It will drive up inflation. Let’s consider each of these in turn.

1. It won’t work.

The history of Keynesian “stimulus” is not promising. Daniel J. Mitchell, a Senior Fellow at Cato Institute, lists numerous examples of Keynesian failures. For instance Herbert Hoover, at whose feet the Great Depression is popularly laid, was no free-market libertarian. He increased taxes, imposed protectionism, and increased regulation of private markets. Most importantly to this debate, he increased federal spending by 47% in four years. None of these big government policies kept the Depression from knocking at the door.

Hoover’s replacement was the Keynesian poster child Franklin Delano Roosevelt. The New Deal wrapped federal tentacles around every aspect of private business. The top tax rate was hiked to 79%. FDR boosted government spending by 106% from 1933 to 1940. Still unemployment remained high and economic output didn’t recover until we ramped up during World War II. A recent study by Lee E. Ohanian and Harold Cole of UCLA suggests that New Deal policies prolonged the Depression by 7 years.

The Keynesian idea of tax rebates, wherein people are given money taken from other people, to stimulate the economy has been tried several times. President Ford tried it during the 1970’s and President George W. Bush tried it in 2001 and 2008, all with lackluster results. Bush was also the biggest spending president since LBJ, but his prolific spending apparently hasn’t helped the economy.

Mitchell also uses the experience of Japan to illustrate the folly of stimulus through government spending. He writes: “[T]hroughout the 1990s [Japan] tried to use so-called stimulus packages in an effort to jump-start a stagnant economy. But the only thing that went up was Japan’s national debt, which more than doubled during the decade and is now even far more than Italy’s when measured as a share of GDP. The Japanese economy never recovered, and the 1990s are now known as the 'lost decade' in Japan.”

I already wrote about the fallacy of job “creation” by public works projects in “Rebuild Iowa Wisely,” using a favorite passage from Henry Hazlitt, so I won’t rehash it here.

All these reasons and more led a group of 300 of the nations’ top economist (including 3 Nobel laureates) to sign on to a full page ad in national newspapers, denouncing Democrat’s bloated stimulus package. (See ad at the right.)

All signs point to this stimulus as being not only a failure, but a damned expensive one.

Rebuild Iowa Wisely

As I noted previously, I just started reading the classic “Economics In One Lesson” by Henry Hazlitt. Although it was originally written in 1946, the subject matter seems to be torn from today’s headlines. Chief among these are the many “make-work” projects being advanced by the ruling Democrats.

Not to be outdone by President Obama’s national public works plan, our own Iowa Governor Chet Culver has trotted out his own $700 million infrastructure plan. "In an effort to stimulate economic growth during this recession, create good private sector jobs, and address unmet infrastructure needs, I propose the creation of the Rebuild Iowa Infrastructure Authority," Culver said in his recent Condition of the State speech. "But when I say infrastructure, I’m not just talking about bridges and roads. I mean all infrastructure: rail, trails, public buildings, water and sewer treatment facilities, the utility grid, and telecommunications, too."

After the 2008 floods and tornadoes, there is definitely no shortage of infrastructure that needs fixed. But what about the two primary goals, stimulating economic growth and creating jobs, that Culver listed even before “address[ing] unmet infrastructure needs?” Culver boasted that “for every $100 million spent on highway construction alone, more than 4,000 new jobs are created!” He predicts that if the legislature spends as much as he hopes, 28,000 jobs would be created.

Will any bill like this really “stimulate economic growth” and “create good private sector jobs?” Economist Hazlitt would say, “NO.”

In the chapter “Public Works Mean Taxes,” Hazlitt uses the erection of an otherwise unneeded bridge as his example of a typical government make-work project. He writes: “It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

“Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.”

In other words, if you need a bridge (or park or community building), then build it. But do so because you need it, not to “stimulate” the economy or create jobs. It will do neither.

The necessity of many of the projects covered in Culver’s plan is unquestionable. Iowa’s infrastructure took a pounding last year. But some of the projects should give taxpayers pause.

Mass transit projects such as “light rail” are often expensive boondoggles for governments that build them. (This fact was even lampooned in an episode of The Simpsons wherein an unscrupulous traveling salesman sells the gullible Springfielders on the idea of building a monorail.) I don’t know if Culver is referring to light rail when he mentions rail, but it wouldn’t surprise me. There's been talk about it.

Even Iowa Public Radio would get some of Culver’s $700 million largesse, as would the governor‘s residence.

Culver pointed out that “unlike the federal government, [Iowa] can’t deficit spend. And, we’re not going to tax our way out of this, like California or New York." Culver instead proposes to fund the $700 million by selling bonds. That means $700 million in state debt that will be need to be repaid over 20 years. So Culver does plan to “tax our way out of this,” although through delayed taxation rather than immediate taxation. Thanks, you Big Lug!

We have $620 million in “rainy day funds” and now is obviously a good time to use some of it. Governor Culver proposes taking $43 million from the fund: $20 million for property tax replacement, $10 million in "Jumpstart" assistance, $5 million in non-profit assistance, $5 million for individual unmet needs, $2 million for the Rebuild Iowa office and $1 million for skills training. Why not withdraw a little more and skip the bond debt?

I don’t doubt that Iowa needs to spend a lot of money to rebuild. I just hope that the Iowa legislature spends that money carefully and wisely.

Dr. Obama, First Do No Harm

Speaking about the failing economy, President-elect Obama coolly diagnosed, "We understand that we've got to provide a blood infusion to the patient right now to make sure that the patient is stabilized, and that means that we can't worry short-term about the deficit. We've got to make sure that the economic stimulus plan is large enough to get the economy moving." Since the “patient’s” infusion would come from the patient itself (through either taxes or debt), “Doctor” Obama’s treatment may be more like an old-fashioned bloodletting than a true cure.

Obama, like many in Washington (in both parties), is a devotee of Keynesian economics, the ideas of British economist John Maynard Keynes. His theories were first published in 1936 and were quickly adopted by America’s big government progressives, like President Franklin Delano Roosevelt. One of the key theories of Keynesian economics is that during economic downturns the government can “prime the pump” by increasing its spending. Since Keynes’ theories increase the size and power of government, it’s no wonder his ideas have always found so many acolytes in D.C.

Keynesian economics has many critics however. Notable detractors include economists Milton Friedman, Robert Lucas, Murray Rothbard, and Henry Hazlitt. Austrian economist Friedrich Hayek criticized the collectivist approach of Keynesian economics, which requires centralized planning, which Hayek argued leads to totalitarian abuses.

Besides its push for bigger, more authoritarian government, Keynesian economics just doesn’t seem to work. As the Cato Institute, a libertarian think tank, points out: “[T]he notion that bigger government leads to more growth is theoretically suspect: any money that the government ‘injects’ into the economy with new spending (or tax rebates) must first be borrowed and diverted from private use. The economic pie gets sliced differently, but it is not any bigger.”

Many argue that the Great Depression wouldn’t have been as long or severe if it wasn’t for the Keynesian “cures” employed by the Roosevelt Administration. Later examples of Keynesian policy in practice haven’t fared much better. “Huge increases in government spending under both Hoover and Roosevelt did not help the economy during the 1930s, and more recent Keynesian initiatives—Gerald Ford's rebates in the mid-1970s, Japan's stimulus efforts in the 1990s, and President Bush's rebates in 2001 and 2008—do not seem to have generated positive results,” states the Cato Institute.

Since our public debt currently stands at about $10.6 trillion, and the government is already racking up record deficits this year and no doubt next year, can we really afford to increase spending on anything, particularly for economic “cures” that don’t generally work? (To put that $10.6 trillion figure in some kind of perspective, remember that it took America the time period from George Washington to Ronald Reagan to accumulate ONE trillion in debt. We’re now on pace to add that amount of debt this year alone. With the looming crisis in Social Security and Medicare, that number is sure to go up.)

Dr. Obama, your “patient” is hemorrhaging. Before you apply your Big Government leeches, you might want to pay heed to the medical dictum, “First, do no harm.”

Ron Paul & Senator Coburn On Economic "Bailout"

I would be remiss in my duties if I didn't write about the massive economic "bailout" that just passed through Congress. However, when I heard Senator Tom Coburn's (R-OK) speech I knew that he had put it more elequantly than I could. Rather than try to reinvent the wheel, here is Senator Coburn's speech:

Here is U.S. Representative Ron Paul's (R-TX) comments in the House:

October 3, 2008

"Madame Speaker, only in Washington could a bill demonstrably worse than its predecessor be brought back for another vote and actually expect to gain votes. That this bailout was initially defeated was a welcome surprise, but the power-brokers in Washington and on Wall Street could not allow that defeat to be permanent. It was most unfortunate that this monstrosity of a bill, loaded up with even more pork, was able to pass.

"The Federal Reserve has already injected hundreds of billions of dollars into US and world credit markets. The adjusted monetary base is up sharply, bank reserves have exploded, and the national debt is up almost half a trillion dollars over the past two weeks. Yet, we are still told that after all this intervention, all this inflation, that we still need an additional $700 billion bailout, otherwise the credit markets will seize and the economy will collapse. This is the same excuse that preceded previous bailouts, and undoubtedly we will hear it again in the future after this bailout fails.

"One of the most dangerous effects of this bailout is the incredibly elevated risk of moral hazard in the future. The worst performing financial services firms, even those who have been taken over by the government or have filed for bankruptcy, will find all of their poor decision-making rewarded. What incentive do Wall Street firms or any other large concerns have to make sound financial decisions, now that they see the federal government bailing out private companies to the tune of trillions of dollars? As Congress did with the legislation authorizing the Fannie and Freddie bailout, it proposes a solution that exacerbates and encourages the problematic behavior that led to this crisis in the first place.

"With deposit insurance increasing to $250,000 and banks able to set their reserves to zero, we will undoubtedly see future increases in unsound lending. No one in our society seems to understand that wealth is not created by government fiat, is not created by banks, and is not created through the manipulation of interest rates and provision of easy credit. A debt-based society cannot prosper and is doomed to fail, as debts must either be defaulted on or repaid, neither resolution of which presents this country with a pleasant view of the future. True wealth can only come about through savings, the deferral of present consumption in order to provide for a higher level of future consumption. Instead, our government through its own behavior and through its policies encourages us to live beyond our means, reducing existing capital and mortgaging our future to pay for present consumption.

"The money for this bailout does not just materialize out of thin air. The entire burden will be borne by the taxpayers, not now, because that is politically unacceptable, but in the future. This bailout will be paid for through the issuance of debt which we can only hope will be purchased by foreign creditors. The interest payments on that debt, which already take up a sizeable portion of federal expenditures, will rise, and our children and grandchildren will be burdened with increased taxes in order to pay that increased debt.

"As usual, Congress has show itself to be reactive rather than proactive. For years, many people have been warning about the housing bubble and the inevitable bust. Congress ignored the impending storm, and responded to this crisis with a poorly thought-out piece of legislation that will only further harm the economy. We ought to be ashamed."

Only Bob Barr Will CUT Federal Spending

As I write this, the U.S. Treasury lists the total public debt at $9.8 trillion. The amount held by the public (which means money the government owes to any entity outside the United States Government, such as individuals, corporations, state or local governments, or foreign governments) is $5.7 trillion. The Congressional Budget Office projects that number to increase to $7.9 trillion by the year 2018. These projections cannot predict every future war, natural disaster or economic "bailout" that could add further to the debt.

In short, the federal government is chin-deep in debt and sinking. What is needed now is bold action, forward-thinking leadership and tough decisions. Thankfully, both of the "big box" party candidates, Obama and McCain, are promising "change."

How do these two crafty politicos plan on getting the government out of this quicksand bed of debt? By increasing spending of course! A recent analysis of the spending proposals of the presidential candidates by the National Taxpayers Union (NTU) showed that McCain's proposals would boost federal spending by $92 billion per year. That IS a lot, but it's a paltry sum compared to Obama's planned $293 billion increase in annual spending.

Of the candidates researched by the NTU, only Libertarian Party candidate Bob Barr would actually CUT federal spending. A Barr presidency would cut annual spending by about $201 billion. The biggest savings would come from restructuring the mission of the military from imperial maintenance duties to actual national defense, closing many foreign bases while maintaining a strong military. The next largest savings would be from eliminating the federal Dept. of Education, putting education back in the hands of the states, localities and the people (as the Constitution stipulates).

"Both the McCain and Obama campaigns have tried to keep pace with the political issues of the day -- largely by responding with proposals for new programs and regulations that could reach deeper and deeper into taxpayers' pockets," NTU Foundation policy analyst Demian Brady said. "On the other side of the spectrum, Bob Barr's Libertarian philosophy is strongly reflected in a platform that is built upon cutting programs and slashing spending."

If you believe that during this fiscal crisis the federal government should be tightening its belt, rather than bellying up to the table for seconds, you need to vote for Bob Barr for president. When the spending increases of the two big box candidates necessitate tax increases down the road, hold on to your wallet! To avoid getting your pocket picked later, get your wallet out now and donate to Barr's campaign to close the book on the era of big government.