Economic Stimulus Checks: Bread and Circuses

As the ideals of the Roman republic were eroded and displaced by the politics and tyrannical rule of the Caesars, governing parties realized that an oppressed citizenry could be pacified with food and entertainment. Thus, the government became the provider of bread and circuses (panem et circenses), an ancient Roman metaphor for people choosing food and fun over freedom.

 

The issuing of Economic Stimulus Checks is a straightforward application of the bread and circuses philosophy. Yet curiously, I haven’t heard much dissent regarding this approach. It seems there should be quite a bit of outrage.

 

First, if our elected officials see fit to “give back” some money, why did they take it in the first place? If they believe returning money to the citizens will help the economy, then it’s reasonable to suggest that taking it was harmful to the economy. (It’s a pretty twisted scenario where someone creates a problem so they can fix it, but that’s one of the essential illusions of government: create a problem so you can put forward your party and your policies as the solution.)

 

Second, where is the money coming from? We hear constantly of the ballooning federal debt and the lack of funding for government programs. How can an organization constantly in need of money afford to hand out $600 to every qualified taxpayer?

 

In the best Keynesian tradition, our government has either decided to borrow more to encourage spending, or to authorized its central bank (the Federal Reserve) to print more money. Either way, taxpaying citizens get stuck with the bill; in one scenario, the federal deficit grows larger, in the other, the value of the currency gets smaller. Thus, your $600 “rebate” results in higher taxes or less spending power.

 

Furthermore, government officials have the temerity to tell us how to spend it! They didn’t want us to use to pay off debt, or put it savings. No, they told us the best thing we could do was to spend it! The truly patriotic would use their “windfall” to buy a plasma TV, take a weekend ski trip, make a down payment on an new car, or visit the Caribbean. (It was a nice, benevolent touch when President Bush finally acknowledged it would be okay to spend the checks on necessities as well; you know, things like rent and gasoline.)

 

It’s absurd. They take your money, expect your gratitude for giving a fraction of it back – and then they want to tell you how to spend it! The arrogance is breathtaking. But nary a soul is demanding accountability for these actions – because they’re getting a check back! Not that you should sent your check back. From a purely pragmatic point of view, any money in your hands is better than leaving it under government control.

 

But instead of just accepting the scraps, why isn’t someone asking for more? Americans have become a docile populace, conned into believing that dependency on government hand-outs and consumer debt are necessary for survival. The collective mindset has such low expectations that many can’t imagine anything better than watching “American Idol” on a new TV (courtesy of your congressman!) Bread and circuses, indeed.

 

 

“I, Pencil” – A Free-Market Classic

The inspiration for this post comes from a December 9, 2006 “Evenings with FEE” speech,  by author George Gilder. FEE, the Foundation for Economic Education, posts “classics” in the sidebars of its daily “In Brief” commentaries on current events.

As prologue to his speech, Gilder made reference to the writing that most influenced him to embrace libertarianism and Austrian economics. It was I, Pencil, written by Leonard Read.

Gilder called this short work of fiction about the making of a pencil “the single most important essay of liberty ever written,” and “an inoculation against Socialism.” He added that once you read I, Pencil “you just can’t believe in massive government planning…it becomes evident that people who imagine that whole economies can be planned are just imbeciles.”

Gilder is right. I, Pencil is a brilliant piece of writing. The logic is tight, and so are the conclusions.

For a short, yet effective dose of free-market clarity to counter the fog of government-think, click to here to retrieve I, Pencil from our reading room.

In the End, Socialism Breeds Barbarians

(Note: As I mentioned in the previous post, the Wall Street Journal is a newspaper for adults. Thus, some of what follows is Rated PG-13, at least)

I mentioned I often find good reading in old Wall Street Journals. In one of my “reading binges” to clear out the backlog in my office, I came across a book review about a topic so powerful that it has stayed with me since I read it more than a month ago. The review also convinced me I will never buy the book.

The article is “Witness to Horror,” by Omer Bartov. Published on January 22, 2008, it is a review of “The Unknown Black Book,” a compilation of eyewitness and survivor accounts of the Nazi genocide of the Jews in occupied portions of the Soviet Union. According to the article, “‘The Unknown Black Book’ is the first publications of materials excluded for political reasons from ‘The Black Book” a collection of survivors’ testimony that ran afoul of the Stalinist regime.” The Soviets suppressed the book because it revealed that in many cases Soviet citizens were enthusiastic and willing accomplices in the Nazis’ systematic extermination of the Jews.

Even the few excerpts briefly recounted in the article are hard to read.

“When the Germans began murdering Jews with gas vans, as extra entertainment ‘young women had their hair tied to the axles of the vehicles in such a way that they were dragged alive through the city’ while ‘the killing by gas of those who were inside the mobile vans was being carried out.’”

“Toward the end of the month, all the male Jews, numbering some 5,000, were first subjected to prolonged torture and humiliation and then murdered. ‘The earth on top of the pits was heaving the entire time, since many had been buried alive. For an entire week after this, blood burst from the pits like a fountain.’”

The review includes several other excerpts, equally as graphic. As Bartov says, the “few examples provide an inkling of the nature of the material.” For me, an inkling was enough.

“”The Unknown Black Book” records that while many Soviet citizens, and even German soldiers, were appalled by these atrocities, a substantial segment of the Soviet population participated side-by-side with their Nazi invaders, raping, killing and looting with gusto. Yet surprisingly, one group of Russians is recalled with almost uniform respect: the peasants. The poorest members of Stalin’s communist society were the ones most likely to offer sanctuary for hunted Jews.

Maybe it’s because I’m older (I have children and grandchildren), but even the brief descriptions of barbarity horrified me. I was almost physically ill by the time I finished the article. The cruelty and savagery were incomprehensible.

As I shook my head in disbelief, two questions came to mind:

1. How could human beings act this way toward other human beings, particularly non-combatants, and innocent women and children?

2. What can be done to keep history from repeating itself?

I think the first question is relatively easy to answer. There is evil in the world. And unrestrained, there is almost no limit to the depravity and cruelty of evil men. As Proverbs 25:26 says: “A righteous one who falters before the wicked is like a murky spring and a polluted well.” Absent the influence of righteous men and women, Nazi Germany and Soviet Russia were two regimes of unrestrained evil, and neither party recognized any moral authority other than the power of an almighty state. And their evil polluted entire generations.

The areas overrun by the Nazi in 1941 had already been brutalized by Stalin in the 1920s and 1930s. As a result, anyone with courage and a moral conscience – members of the clergy, party idealists, or private citizens – had been either purged or pummeled into servile obedience. The rest of the masses could see the price of resistance. Seeking to survive, they pragmatically chose to align with their oppressors. Thus, by the time the invading Germans arrived, the Soviet citizenry didn’t see them as true enemies, just new dictators. In this type of amoral environment, evil becomes commonplace, even exalted.

So how does one stop the spread of such evil? That’s a tougher question to answer.

There is an obvious need for moral instruction, teaching that argues right and wrong from an ethical perspective instead of a power perspective. Even for people who don’t want a “religion” forced upon them, the tenets of the Ten Commandments (especially the last five) are ones that most of us intuitively agree with. We know it’s wrong to steal, lie, cheat, murder and covet.

If the prevailing cultural norm defended its citizens from theft, murder, adultery, false witness and coveting – and the government provided enforcement – I’m pretty sure most citizens would refrain from evil. But beyond instilling a solid moral ethic in society (and hoping that some people become “true believers” instead of simply avoiding prosecution), I think there’s another element that must be present in order to keep evil from proliferating. I think it’s necessary to allow citizens personal and economic liberty.

Granting personal and economic liberty provides strong incentives for cooperative and peaceful behavior. The observance and execution of a strong moral code provides restraints and punishments for evil behavior, but personal and economic liberty offers rewards for productive “good” behaviors. When it is possible for individuals to lawfully become what they want, earn what they want, and live the way they want, they are less likely to resort to evil means.

History generally supports this observation. Dictators start wars and seize the resources of others. Free societies form economic and political alliances, and exchange resources in open trade. Oppressive governments literally imprison their citizens; not only do they restrict their travel, but many actively prevent them from leaving (think of the Berlin Wall). In contrast, free countries allow citizens great latitude in where they live, inside or outside their country of origin. Personal and economic liberty is a powerful agent for cultural stability and good behavior.

This is not to say that a strong moral code and individual liberty eradicates evil. Even in free societies there are plenty of incidences of evil. There are senseless acts of cruelty and violence. But in almost every instance, there are also individuals, groups or governing bodies that step in and say “stop it! You’ve gone too far, and you must be reined in or removed.” In both Germany and Russia, no one dared to say “stop it.”

In light of this idea that a strong moral code and individual liberty prevent the spread of maximum evil, it’s sobering to consider how the United States government has systematically restricted personal and economic freedom over the past century. Today’s US citizens enjoy far fewer liberties than an American at the beginning of the twentieth century. We are more taxed, more regulated, more compelled to be politically correct – supposedly for our own good.

In response to this diminished personal freedom, more and more citizens seek to use government as their “power tool” to get what they want; special legislation, favored status, tax breaks, grants, etc. Instead of cooperation, there is legislation.

And as our society becomes progressively less free, the power of the government assumes the mantle of the moral code as well. The determiner of right and wrong is what the government allows or disallows. As a result, there are already instances in our society when what most people would consider atrocities (such as partial-birth abortions) have become “legal,” and accepted. The United States may be freer than many societies and mightier than any, but the path we are traveling is still very much the “Road to Serfdom” articulated by Frederich Hayek 60 years ago.

When I look down the road, I don’t want my children and grandchildren to be either the victims or participants in genocide. Individually, I cannot change my government or my culture. But I can articulate the solution. All concerned individuals should constantly argue, vote and contend for strong individual and cultural morality, as well as personal and economic freedom. These are the only proven antidotes to evil.

The Road To Serfdom

Why You Need To Meet Murray Rothbard

Question #1. Ever heard of fractional banking?Question  #2.Did you know a bank can legally lend up to 10 times more money than it has in deposits?Question  #3. Did you receive a government-sponsored “public” education?(Best guess: If you answered “no” for Questions 1 and 2, you answered “yes” for 3. If you answered “no” to 1, 2 and 3, you probably over-paid for your private education.)

The ignorance of the general public about the negative economic impact of fractional reserve banking is enough to make one seriously consider whether public education isn’t some form of mind-control conspiracy. When what would be considered theft or fraud in any other business transaction is completely ignored simply because it bears the stamp of government approval, you have to wonder if the absence of outrage isn’t due in part to a deliberate campaign to obscure or hide the truth.

Which is why I love Murray Rothbard and his book The Case Against the Fed (Click here to purchase it). In 150 pages, Rothbard takes a subject (banking) that is almost unintelligible to the average American and makes the essential elements crystal clear. And when the scales drop from your eyes, two items stand out:

1. Fractional banking isn’t much different than counterfeiting. The government gives one institution (the central bank) the authority to print paper money – out of thin air – and then requires that it serve as “legal tender” for all financial transactions.

1. Governments cannot help but love fractional banking because it gives them economic power over the citizenry. The first party to obtain the use of counterfeit money is the government, and the government is the only party that benefits from the introduction of it into the economy. After that, all others suffer because the excess paper money creates an imbalance between the cost of goods and services and money that can be used to purchase them. This inflates prices. Real people, working for real money, must now pay more for the same loaf of bread or automobile.

 According to the bio on the back of his book, “Rothbard (1926-1995) was dean of the Austrian School of economics and America’s foremost scholar of central banking.”

America’s foremost scholar of central banking. There’s an obscure distinction. (Who would want to put “scholar of central banking” on their resume? The fact that we would ask that question is indicative of how little we know or understand about how central banking distorts every economic action in the United States.)

But read this brief comment from Rothbard:

“…if the public knew what was going on, if it was able to rip open the curtain covering the inscrutable Wizard of Oz, it would soon discover that the Fed (i.e., the Federal Reserve Bank, the central bank of the United States), far from being the indispensable solution to the problem of inflation, is itself the heart and cause of the problem.”

Got that? The Fed, now led by Ben Bernancke, formerly under the direction of Alan Greenspan, is the cause of inflation. And because the Fed is the cause of inflation – which progressively diminishes the purchasing power of our hard-earned dollars – it can never be the solution.

The irony is that 170 years ago, the citizens of the United States understood the impact of a central bank – and they voted to close it. The first “Fed” was called the First Bank of the United States (catchy title). It was authorized by Congress in 1791 and “retired” 20 years later when Congress declined to renew its authorization. A Second Bank of the United States was chartered in 1816, but 20 years later, its charter was not renewed either. From 1836 to 1913 the United States did not have a central bank.

A major plank of Andrew Jackson’s presidential campaign in 1832 was his opposition to the re-chartering of the Second Bank of the United States. Can you imagine a sound byte today from McCain or Obama or Hillary that promised to “rid us of the scourge of central banking?” (Hmmm…that sort of sounds like Ron Paul, doesn’t it?)

Two final comments:

Every citizen who cares about their financial future should understand fractional reserve banking and the role of the Federal Reserve in the economy. Rothbard’s book is a good place to start, but any education would be helpful.

The opposition to central banking and the economic abuses that result is not new. As far back as Biblical times, Solomon warned that “dishonest scales are an abomination to the Lord, but a just weight is His delight.” (Prov. 11:1). Government-authorized counterfeiting might be legal, but it is dishonest – every new piece of paper distorts the value of our work and our assets.

Not Yours To Give

Not Yours To Give

You can’t believe everything you read on the internet. (But even the lies and half-truths can provoke some interesting thoughts.) If you want to get the whole story here, take the time to read everything – because I saved the best for last.

On February 18, 2008, I received an e-mail about taxes, which included the following excerpt:

The next time you hear a politician use the word “billion” in a casual manner, think about whether you want the “politicians” spending YOUR tax money. A billion is a difficult number to comprehend, but one advertising agency did a good job of putting that figure into some perspective in one of its releases.

• A billion seconds ago it was 1959.
• A billion minutes ago Jesus was walking the streets of Jerusalem.
• A billion days ago no-one was around.
• A billion dollars ago was only 8 hours and 20 minutes, at the rate our government is spending it.

 While this thought is still fresh in our brain, let’s take a look at New Orleans. It’s amazing what you can learn with some simple division…

Louisiana Senator Mary Landrieu (D), is presently asking the Congress for $250 BILLION to rebuild New Orleans. Interesting number, what does it mean?

1. Well, if you are one of 484,674 residents of New Orleans (every man, woman, child), you each get $516,528.
2. Or, if you have one of the 188,251 homes in New Orleans , your home gets $1,329,787.
3. Or, if you are a family of four, your family gets $2,066,012.

Washington, D.C .. HELLO!!! … Are all your calculators broken??

Interesting statistics, right? They really help put the concept of “billion” in perspective. And wouldn’t it be nice to be a New Orleans family of four in line for more than $2 million in federal money. Except…

Senator Landrieu isn’t “presently asking Congress” for $250 billion. She asked for it in 2005, right in the midst of the all the “we’ve-got-to-do-something” hysteria about Katrina. After further review, it was fairly obvious the $250 billion figure was overkill. So while the billion info is interesting, the “outrage” is over something that didn’t happen.

However…

Skip the math. There’s another issue here. It’s the assumption that government should be involved in providing “relief” through disbursement of public funds. I know it may sound like a noble undertaking, but is there any rational economic or social justification for having FEMA or any other government disaster relief agency?

This is not meant to be cold-hearted or mean-spirited. Helping those is need is certainly one of the primary virtues of a healthy society. But strong, logical arguments can be made against using government as an instrument of social mercy. In fact, the more likely by-product of government-sponsored social relief – even in emergency and disaster situations – is greed, corruption and waste.

Almost 20 years ago, a mentor gave me a booklet entitled “Not Yours To Give” which convincingly explains why charity should not come from government coffers. The story features an incident in the life of the legendary Davy Crockett during his service as a Congressman. To read the full story – and to fully understand why government should not be in the social relief business, clink on this link “Not Yours To Give”

A Bailout Seems Wrong…But The Precedent For it Goes Back A Long Ways

“The Bush administration is hardening its opposition to the chorus of Democrats, bankers, economists and consumer advocates calling for a big-money government rescue program for struggling homeowners.”

(to read the entire article, clink on this link:

http://www.smartmoney.com/bn/smw/index.cfm?story=20080228102127)

The business people I know are probably praising the Bush administration for holding the line. After all, why should people who took on foolish debt obligations be allowed to skip out on them? When irresponsible people don’t make good on their obligations it leaves the responsible people – both debt payers and debt holders – holding the bag. But based on some of my recent reading, I won’t be surprised if the end result of the sub-prime mortgage crisis is some form of wholesale debt cancellation.

On a principled level, the idea of canceling debts seems wrong (provided you believe some governing authority has the right to legalize fractional banking and paper money creation). But from a practical aspect, the lenders – and the government – may have no choice.

In a 1988 book (now out of print) titled “Usury, Destroyer of Nations,” author C.S. Mooney provides an interesting history of debt, from ancient to modern times. In general, Mooney notes that debt follows a regular cycle of expansion then bust. At the point where large segments of the population are destitute and can no longer pay their debts, governments are faced with the prospect of widespread social unrest. And lenders, having repossessed or collateralized every asset and wrung every possible payment from the borrowers, have little hope of squeezing more blood from the turnip. For everyone’s safety, a repudiation of debts solves everyone’s problems – and allows the process to start all over again. Politicians can rule, and lenders can lend because borrowers have some of their collateral restored.

Mooney mentions several ancient examples of debt repudiation, among them:

• The Biblical story of Nehemiah after the Jews had returned from Babylon (for the full story, see Nehemiah 5:1-13)

• The Greek ruler Solon who declared that “all persons enslaved or attached for debt were released, those sold into servitude abroad were reclaimed and freed.”

Some commentators think Solon’s efforts were not a full repudiation of debts, but rather a restructuring. In either event, the attitude of the ancient rulers was the same as today: To maintain order (and keep lenders in business), it may be necessary to occasionally “take a loss” to return things to their “natural state” (i.e., the masses are mollified, the lenders get rich, and the politicians stay in power).

When politicians and lenders fail to heed calls for debt relief it can be disastrous. An unsympathetic Marie Antoinette said “let them eat cake,” and the populace responded with “off with her head.” The ignorance of the czars eventually led to the Bolshevik revolution. The corruption of Batistista (including his acceptance of the Mafia, some of the toughest lenders on the planet) gave Castro the popular support to become a dictator/liberator.

Granted, not all of the reasons for these revolts were exclusively financial. But prosperous people don’t usually resort to civil protest. When financial oppression rises, so does the inclination to violence and revolution.

In addition, the ability of the contemporary governments to arbitrarily print more money makes a bail-out/debt forgiveness plan more likely because it can be disguised. If necessary, lenders can be “paid” worthless paper to project the illusion of solvency. The reality of course, is that no real value has been tendered as repayment; but then again, no real value was loaned by the banks either. In a twisted way, one sham transaction can appear to reconcile the other.

Politicians may not learn all the lessons of history, but they are smart enough to learn the ones they need to keep their positions. Bottom line: If a bail-out makes political sense, it will happen.