Archive for July, 2011

Just as democrats and republicans set up final meetings to raise the debt limit, Judge Andrew Napolitano explains the problem of federal debt. He also points out why any comprise will turn to be a rotten compromise:

What they don’t tell you is that ‘significant cuts’ means reductions in increases in spending, not cuts in actual spending.


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The fundamental problem of governmental intervention is that it is based on coercion and it does not face any competition. Andrew Napolitano expands on that in yet another brilliant statement.

This is the problem with government. It can’t compete. It doesn’t produce wealth. It only consumes wealth. We can’t escape it. And the government knows that.

If the government had to perform in order to merit, to deserve our tax dollars and our fidelity, it would collapse. And if we had the right to reject it and purchase the so-called services it offers from other sources, it would go out of business.

And he concludes with the famous quotation from Thomas Jefferson:

When the people fear the government, there is tyranny. But when the government fears the people, there is liberty.

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This is my 100th post and I just wanted to express gratitude to all readers and commentators. I am looking forward to continuing writing and discussing. If you like to read about certain topics, just let me know.

For today, I just have a short video on U.S. history. Judge Andrew Napolitano again points out the importance of the U.S. constitution.

President Obama claimed the power to punish people even after a jury has found themĀ not guilty.

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All too often it is dizzying to listen to politicians. Being well educated, you often ask yourself what world they live in because the way they describe ‘reality’ simply does not fit your perceived ‘reality’. So, what is going on?

In two recent articles for the Jewish World Review, Thomas Sowell brilliantly describes this phenomenon:

It is hard to understand politics if you are hung up on reality. Politicians leave reality to others. What matters in politics is what you can get the voters to believe, whether it bears any resemblance to reality or not.

As he points out, the topic does not really matter. Whether it is about taxing the rich, a state-run medical system, new stimulus packages, rent controls, or gun controls, politicians often do not show the slightest interest in facts. Instead, they simply follow their beliefs / vision. Questions like the following would just confuse the agenda:

  • What effect does an increase in the top tax rate actually have?
  • Does it really increase federal revenues?
  • Is the additional tax really born by the top income group?
  • Why should government be more efficient in the provision of health care?
  • Which stimulus package has ever worked?
  • What is the actual effect of rent controls?
  • Do countries with strong gun control laws really have less crime?

The list could be continued forever. As I said before, the onus lies with the proponents of government action. But failure to provide evidence is one of the reasons why Sowell argues there is a whole ‘Vision of the Anointed‘. People no longer question their vision as well as their own moral and intellectual superiority.

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Whenever you hear politicians talking about ‘creating jobs’, you know at least one thing: they have no clue whatsoever about economics. Ideally, you should not pay too much attention to them. But since jabbering about new jobs is part of most politicians’ rhetorical equipment, the point deserves a brief review.

Whenever the government decides to ‘create jobs’, the decision implies rising government spending. The money needed is either borrowed or collected through taxes. In both cases, the same money is no longer available in the private sector. Thus, even if state-run programs create some new jobs, this is done at the expense of other, private-sector jobs. The net effect is almost certainly in the negative.

A simple example of this misleading policy can be found in Obama’s humongous stimulus package. Despite spending almost a trillion dollars, unemployment rates have remained very high. After a tiny drop of one percentage point, the rate is already increasing again.

US unemployment rate - 1950 to 2011 / US Bureau of Labor Statistics

Before some claim that without a stimulus package the rate would have reached 15 or 20%, well, this is an old trick. Whenever politicians’ favored programs fail, they try to justify their mistakes by arguing everything would have been far worse without the program. But just as in the courtroom, the onus lies with the spenders. They have actively (mis-)used coercion to get and spend other people’s money. They have to prove the net benefit.

And finally, for the Keynesians among us, two minutes of ingenuity on government spending:

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Recently, two Huffington Post articles by Robin Koerner got a lot of attention. He brilliantly describes the dilemma American voters will face in 2012. While Obama has brought nothing but a more lobbyism, a new illegal war and an ever growing debt crisis, the field of potential GOP candidates is rather disappointing. Except for one candidate, all of them are in favor of war and special privileges for their sponsors.

Giving this dismals situation, Koerner suggests disappointed Democrats to become “Blue Republicans“.

Again, this isn’t an endorsement of the Republican party or a claim that the Republican record is better than the Democrat on any of the issues discussed in this article. (It isn’t.) It is not even a statement that Dr. Paul is some kind of panacea of American politics. Rather, it is to recognize simply that the one potential Presidential candidate who wishes to stop killing innocent people in foreign wars and stop transferring the wealth of poor and working Americans to the corporate elites happens to be — this time around — a Republican.

In a second article, he expands on the idea of blue republicans.

Perhaps, then, the cause of the excitement about the “Blue Republican” idea is two-fold. First, the term has caught people’s imaginations because it subverts the paradigm that brought us here. Second, the stakes are high. In fact, they are the very highest stakes of all.

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Brilliant cartoon by Gary Varvel:

Madoff and Social Security

In case you want somebody to expand on this, here you find another video by Walter E. Williams:

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Another noteworthy comment by Walter E. Williams:

If you do it privately, you go to jail. But if you do it through government, you will be seen as a wonderful person.

Whether you like his remarks or not, you know his words are right. They highlight that all governmental redistribution is based on coercion. You might be fine with that. But at least you should call a spade a spade. So, the next time you talk about “let’s tax the rich”, say “let’s use force and coercion to steal money from those rich people”. And, please, provide a sound justification.

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Just as the US Federal Government is close to a default, I have found another great statement by Walter E. Williams talking about the federal debt.

For what I see, the rule for what they cut appears to be “look around and see who are the politically weak recipients”.

But without deep cuts in welfare and warfare spending, no balanced budget will be achieved. Total spending is about $3.5 trillion and welfare ($1,500 billion) and warfare ($700 billion) make up almost two thirds of all spending. Given that the other third can hardly be cut, the deficit of $1.3 trillion cannot be eliminated without severe cuts to both military and entitlement spending.

However, to some people -mainly democrats- increasing taxes might appear to be an alternative. Yet, over the last one hundred years, the US federal government has taken an ever greater share of national income. The result of growing government revenues has, in fact, not been a reduction in federal deficits. Thus, raising taxes will certainly imply more governmental waste but no reduction in deficits. The only way to keep government within its justified limits is to have a constitutional law restricting government spending to a certain percentage of GDP. Yet, as Williams points out, this has been attempted twice. Unfortunately, without success.

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Denying the significance of statistics on income distributions, you often get some complaints. In particular, the role of government to help the poor has been expressed over and over again. Many people claim more redistribution was needed to allow everyone to live in freedom. If some people have x times the income or wealth of other people, they say, society will divide.

First of all, this is an empirical question. And we do see that countries with very high Gini coefficients (i.e. very high inequality) tend to suffer from social unrest. However, in most cases an ill-defined role of government and misbehavior by incumbents causes this unequal distribution of wealth in the first place. The same holds true for today’s Western countries. In fact, back in 1978 Friedman already explained how government intervention creates the poverty that many politicians want to fight through new government programs.

First of all, the government doesn’t have any responsibility. People have responsibility. Second, the question is how can we as the people exercise our responsibility to our fellow men most effectively.

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