Mark Hendrickson

Mark Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Value, and

Wednesday, 16 December 2015 10:54

Hendrickson's View

Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Value, and

The Democrats Are in Denial Over Their Spending Addiction

A primary meme of the Democratic Party in 2013 is that the federal government doesn't have a spending problem. That is what President Obama reportedly said to House Speaker John Boehner (R-Ohio) in their January budget negotiations. Acting on that assumption, Obama's State of the Union address signaled his desire to scuttle the 2011 sequestration deal that appears to be the American people's last best hope to trim federal spending.

The president's partisan allies have rushed to take up the cause. Two days after the State of the Union, Iowa Senator Tom Harkin (D-Iowa) stated, "I want to disagree with those who say we have a spending problem." Over the weekend, House Minority Leader Nancy Pelosi (D-Calif.) took up the refrain, telling Chris Wallace on Fox News, "It is almost a false argument to say that we have a spending problem."

With these statements, the political battle lines for 2013 have been drawn. The Democrats don't even want to talk about spending cuts. For them, the only desirable option is to continue what Washington has been doing for decades regardless of which party was in power - spend more.

With apologies to anyone struggling with alcoholism, a U.S. senator earnestly insisting that he and his colleagues don't have a spending problem is like an alcoholic denying that he has a drinking problem. While the problem is obvious to some, the senator is stubbornly in denial, not yet ready to face the unpleasant reality.

Harkin's fellow Congressman, House Minority Whip Steny Hoyer (D-MD), recently articulated his party's agenda, declaring, "The country has a paying-for problem," not a spending problem; in other words, full speed ahead with spending while we look for more tax revenues.

Nobody, however, believes that Congress will raise taxes enough to pay for all the spending that is forthcoming, sequestration or no sequestration. Instead, Washington will continue to spend more today while sticking future taxpayers with the bill by borrowing to cover the deficit.

The spendaholics charge ahead because they know they can borrow whatever they need. If Uncle Sam didn't have the power to tax, it would be considered a lousy credit risk. Taking into consideration over $16 trillion of "official debt," several trillions more of off-budget indebtedness, and perhaps as much as $200 trillion of unfunded liabilities, the risk premium attached to a borrower with negative net worth and insufficient revenues would result in interest rates far higher than today's abnormally low rates.

By cramming down interest rates, the Federal Reserve has become the federal spendaholics' enabler. Like many homeowners during the housing bubble last decade - who paid more for their houses than their income could support, only because creative financing enabled them to "tote the note" for a while - so, too, is the federal government able to borrow enough to avoid its day of reckoning: the universal recognition that it can't possibly make good on its obligations - because of the Fed's financial engineering.

Why? Here's one reason: power. Spending equals power.

All this government spending makes our society poorer, because such spending is "acatallactic" (a fancy economic word that means government spending withdraws scarce economic resources from the free markets and diverts them into the public sector, where they will be directed by political decisions into less-valued uses). The evidence that Big Government leads to economic anemia is overwhelming, whether in the extreme cases of socialistic governments that have commandeered entire economies to democratic interventionist states or where the dose of statist poison is smaller, but the positive correlation between size of government and slowness of economic growth remains.

How can the spendaholics get away with policies that don't make economic sense? Because they make great political sense. Democrats have seen how Europeans have taken to the streets to protest any and all budget cuts by Europe's broke governments, and they know that tens of millions of Americans are more concerned about continuing to receive federal benefits today than some potential financial Armageddon tomorrow.

Think of how George W. Bush and a Republican Congress acted like spendaholics when they were in power. This shows how difficult it will be for federal spending ever to be curbed. The fundamental problem isn't so much partisan as it is systemic. In a democratic system, politicians win elections by doing what attracts the most votes. Since voters like to receive benefits from government, but don't like to be taxed to pay for all those benefits, all the incentives are for politicians to adopt policies that increase spending faster than revenues.

This will all end badly some day when "the market" asserts itself and sweeps aside the rotten debris of spendaholic policies abetted by a compliant central bank. Until that day, though, the spendaholic binge will continue.

Obama's State of the Union Was Well Designed to Gull the Gullible

There is good news and bad news: The good news is that President Obama is consistent; the bad news is that he is consistently wrong. Once again - as he has before - he filled his State of the Union address with rhetoric designed to gull the gullible by saying things that sound compassionate and wise and reasonable to those who don't bother to pause and reflect on what he said.

Clearly bent on breaking the 2011 sequester agreement that would cut federal spending, the president warned that "These sudden, harsh, arbitrary cuts . . . would slow our recovery, and . . . are a really bad idea." This is - ahem - inaccurate. How could such cuts be considered "sudden" or "arbitrary" if Congress and the president have had nearly a year and a half to prepare for such an eventuality? When the president goes on to say a few paragraphs later, "we can't just cut our way to prosperity," the implicit message is that a society needs Big Government in order to prosper economically, when the entire history of the 20th century proves the opposite.

The president's earnest assertion that Medicare requires "modest reforms" is as disingenuous as his statements over the past few years that the key to our trillion-dollar budget deficits is to get the rich to pay "a little more." Sorry, but the numbers don't add up. In both cases, the problems cited by the president will require far more significant action than the president is willing to admit.

Indeed, the president strayed into dreamland when he proposed to lower healthcare costs by having patients billed based on "quality of care" (How many lawyers will it take to figure out how you measure that?) than by objective measures, e.g., which procedures were performed or how many days a patient spends in a hospital. I imagine every hospital administrator in the country is depressed tonight.

In his typical pull-the-rug-out-from-under-us style, the president recited some good news on the energy front, particularly increased domestic production of oil and gas, only to say "but" and going on to warn us that he will bypass Congress and take "executive actions" to speed the transition away from reliable and abundant fossil fuels in the quixotic quest to save the world from the global warming bugaboo. In support of this policy, he stated, "the 12 hottest years on record have all come in the last 15" - a whopper that ought to keep all the fact-checkers busy. (Another dubious assertion was his claim that "study after study shows that the sooner a child begins learning, the better he or she does down the road," when, in fact, the definitive study of Head Start - one of the rare federal programs to actually have its effectiveness evaluated - shows that there are no measurable long-term benefits to children who participated in that program.)

The president offered his customary plans for government to redistribute wealth according to his vision, e.g., planning to "reward schools" (monetarily, of course) "that develop partnerships with colleges and employers;" promising that "states with the best ideas to create jobs and lower energy bills by constructing more efficient buildings will receive federal support;" and proposing that "affordability" influence "which colleges receive certain types of federal aid" (which sounds like a deal by which colleges that reduce tuition the most might get the largest federal subsidies).

The president once again revealed that he is still in thrall to Marx's fallacious labor theory of value when he called for legislation to guarantee that women "earn a living equal to their efforts." In a market economy, it isn't effort that counts, but productivity. There are the studies, such as those cited by Kay Hymowitz in The Wall Street Journal (on April 26, 2012) showing that women's aggregate per capita pay is lower than men's because, in total, they work fewer hours, and that "childless 20-something women do earn more than their male peers."

The rest of Obama's economic ideas read like nothing more than a Big Labor wish list, asking for another increase in the minimum wage and calling for heavy spending (the earlier pious pronouncements about reducing the deficit having already been forgotten) on various construction projects. Same old, same old.

Near the end of his speech, the president asserted, "As long as I'm Commander-in-Chief, we will do whatever we must to protect those who serve their country abroad." In light of the Benghazi fiasco, how can anyone believe this?

The conclusion that I take from Barack Obama's 2013 SOTU address is that this country will continue to remain divided between those who believe this president's pronouncements, and those who distrust them.

Erasing Ronald Reagan: The Illiberal War on Truth

The prospect of four more years of Barack Obama in the White House has caused several conservative voices (among them, The Wall Street Journal's Daniel Henninger, Fox News commentator Charles Krauthammer, and noted Ronald Reagan scholar Paul Kengor) to opine that President Obama's second term portends the passing of the Reagan era, the reversal of his pro-growth policies and the attempted burial of Reagan's credo, "government is the problem."

None of this is news. It is a given that Obama and his fellow progressives reject Reagan's values and philosophy. They will continue to try to expand government.

There is, however, a more sinister dimension to the progressive agenda: Rush Limbaugh asserted that Obama wants to "erase every trace of Reagan from America" - not just to repeal and reverse Reagan's policies, but to engage in wholesale historical revisionism by obfuscating Reagan's record and reshaping public opinion about him. It serves the progressives' interests if they can obscure the fact that Reagan's policies of lower tax rates, a sound dollar, and reductions in governmental regulatory micromanagement enhanced prosperity and raised standards of living. Those of us who lived through the Reagan years remember the resulting economic growth, but nobody under the age of 30 has first-hand knowledge of those years.

Is it really possible that the left could rewrite the history of the Reagan presidency? Absolutely. They've already perverted the record of earlier Republican presidents. Take, as Exhibit A, Warren G. Harding - the president who always appears at the bottom of presidential rankings.

Yes, I know there were a couple of crooks in Harding's cabinet. Those odious men betrayed the trust of both a president and a nation. But while they gained a few hundred thousand dollars, Harding's policies enriched the American people by billions. Harding entered office in the midst of the Depression of 1920-'21 - a downturn as rapid and severe as any in American history, with GNP contracting 24 percent and unemployment more than doubling to 11.7 percent.

Harding's policy response was to get government out of the way and let free markets make the necessary adjustments. He induced Congress to slash federal spending by 40 percent in two years and lower the top marginal tax rate from 73 percent to 56 percent (on its way down to 25 percent under his successor, Calvin Coolidge). Demonstrating the fallacy of the Keynesian dogma that government should increase spending and deficits to cure recessions, the Harding spending cuts yielded large surpluses (used to pay down World War I indebtedness), and yet, by 1922, GDP was rising and unemployment falling, plummeting to a minuscule 2.4 percent by 1923. Maybe Harding wasn't the best judge of character, but his economic program was arguably the most successful of any president in the 20th century. A "terrible" president? Absurd.

Another example of historical revisionism, progressive-style, involves Herbert Hoover. Today's students are routinely taught that Hoover was the last of the "laissez faire" presidents. Last year, progressives produced a "take back the American dream" special edition of "The Big Picture" during which the host denigrated the alleged laissez faire trio of Harding, Coolidge, and Hoover, contrasting them with the great economic savior, Franklin Roosevelt. Part of the error is simple partisan bias - i.e., Republicans are bad and Democrats are good - but party aside, Hoover should have been lumped with FDR, not with his two predecessors. Harding and Coolidge truly were sympathetic to free markets. Hoover was not. He disdained and distrusted the laissez faire philosophy, and was almost as much of an interventionist as Roosevelt. Indeed, FDR's own advisers recorded in their memoirs that the true originator of the New Deal was Hoover. It is political propaganda, not historical verisimilitude, which paints Hoover as a clone of his predecessors rather than of his successor.

The lesson is clear: If those who understood and approved of Reagan's policies fail to reiterate Reagan's beliefs and policies, Reagan's progressive opponents will distort his history, and he eventually will be as misunderstood as Harding and Hoover are today. (For the record, I did not vote for Reagan either time - although I would have if I had thought that he needed my vote to spare us from the incompetent Carter or the robotically statist Mondale - because Reagan was too big a spender for my taste. How much of that was due to Reagan himself, how much to Tip O'Neill's Democratic House, and how much to the popular thought of the day, is another debate.)

The progressive war against historical accuracy should concern all American citizens. When those in power mutilate truth, the welfare of the people is at risk. Think of what all the illiberal movements - whether fascist, socialist, Communist, environmentalist, or progressive - have in common. All exalt state power at the expense of the individual rights of liberty, property, and ultimately life itself. In the effort to attain that power, they also commit depredations on truth, as George Orwell warned in 1984. Watch to see how often Team Obama employs the Big Lie technique in attempting to revise Reagan's record.

The Bible says, "Ye shall know the truth, and the truth shall make you free." A corollary would be that if we, the people, do not know the truth, there's a good chance we won't be free. Whether we agree or disagree with what Ronald Reagan did, we shouldn't let anyone lie about it. Falsehood is the enemy of human progress.

Brent Musburger, Phil Mickelson and Me: Encounters with Political Correctness

What do television sports announcer Brent Musburger, world-class golfer Phil Mickelson, and yours truly have in common? We've all had pointed encounters with political correctness - the efforts by zealots on the left to discomfit and intimidate, if not censor and silence, those who utter ideas that depart from their ideological orthodoxy.

Musburger drew the ire of the PC brigades during the telecast of the Alabama-Notre Dame football championship a few weeks ago. His offense? He dared to call Miss Alabama, a friend of the Alabama quarterback who was being shown to millions of viewers in a close-up camera shot, a "lovely lady," following it up with a corny comment about how it seems that quarterbacks "get all the good-looking women."

It is positively weird that the self-anointed, PC-language police remain silent about the vulgar crudities and disrespectful references to women as "hot chicks" or "babes" on primetime television, and then go ballistic over a few innocuous words. Had Musburger described Miss Alabama lewdly, lecherously, or in crude terms comparable to the customary swill on television, then a rebuke would have been appropriate, but what is so objectionable about the respectful compliment "lovely" lady?

Perhaps the PC crowd is protesting nature for being cruelly unfair, because some people are more handsome and attractive than others, and so they denounced Musburger for committing the sin of anti-egalitarian heresy by calling attention to humans' individual differences? Or could it be that the presumed fault here is heterosexuality - that for a man to say aloud that a woman is lovely is an atavistic instinct appropriate for Neanderthal man, but disgraceful in a modern male?

Another example of the obnoxious aggressiveness of the PC mob was the mini-firestorm that erupted when one of America's top golfers, Phil Mickelson, mentioned that he was thinking of moving out of California due to the increasingly heavy tax burden there. This should have been an uncontroversial statement. After all, it's a time-honored tradition for Americans to grouse about their taxes, and lots of people already have fled California's high taxes. (Indeed, when someone asked Tiger Woods about Mickelson's remarks, Tiger said he understood why Mickelson might relocate to a low-tax state, because Tiger himself already had done so.)

Alas, Mickelson wasn't aware that in a politically correct world, rich people aren't supposed to complain about taxes. According to the PC-speech police, it's fine for a Warren Buffett to state that taxes on the rich should rise, but unacceptable for Mickelson or other rich Americans to express the opposite opinion. Even one of's bloggers scolded Mickelson, asserting that, because he earns millions of dollars annually, he has no business stating his dislike of the fact that Big Government perennially takes millions of his earnings and is coming after more. The implicit message: "Shut up, Phil, you're lucky the government isn't taking it all."

My own brush with political correctness is not as public as what Musburger and Mickelson were subjected to. In that way, it actually was more insidious. Before he would publish an article I wrote about the weaknesses of the manmade global warming theory, the editor of a major national newspaper said he had to ask me if I ever had received compensation from a fossil-fuel company.

The answer, in my case, is "no," but the very question is an insult, and it shows how political correctness already has infiltrated the mainstream media. The question insinuates that anyone who has received money from an oil company is venal and untrustworthy. When I asked the editor if he was required to ask pro-global warming writers whether they have received government funding, the answer was "no." This is a rather peculiar double standard, since government has poured vastly more money into the climate change issue than have energy companies. The PC notion that anyone whose funding comes from government is immune from conflicts of interest and is unbiased is logically ludicrous and brazenly bigoted.

The implications of what Musburger, Mickelson, and I have experienced are plain. As the left aggressively pursues its economic, political, and cultural agenda, they are eager to denounce, discredit, hound, harass, vilify, abuse, and make life difficult for anyone who dares to contradict their catechism. And if we object to this treatment, we will be accused of incivility, intolerance, partisanship, and ideological rigidity. Such is the game plan of the peevish scolds of political correctness.

Obama Can Make His Own Reality, But Laws of the Universe Won't Necessarily Adhere

An oft-quoted adage is, "You are entitled to your own opinion, but you are not entitled to your own facts." A corollary to this is that you can't make your reality, and the laws of the universe won't change because you want them to. What's the point of me even writing such an obvious, even banal, truism? It's the fact that various ideologues, reformers, revolutionaries, utopians, and other political fanatics persist in the belief that our social problems are the fault of a lack of will, and that if we just insist on something vehemently enough, nothing can prevent the desired improvements from coming to pass. This belief is a dangerous, and often destructive, delusion.

An incident that the late Alexander Solzhenitsyn recounted in The Gulag Archipelago illustrates the tragic consequences of allowing ideological zealotry, hubris, and political fanaticism to lead one to deny and defy reality and the laws of the universe. Soviet officials wanted to transport larger loads of steel by railroad. They told some railroad engineers what they wanted to do, expecting the engineers to make it happen. When the engineers explained that the request was impossible because the heavier loads would exceed the capacity of the tracks and cause them to break down, the party officials had the engineers shot as saboteurs of progress. They then began to ship heavier, and, as the engineers had warned them, the tracks indeed broke down. The Communist Party had the power of life and death over Soviet citizens, but they were powerless to revise or repeal the laws of physics or the principles of engineering.

The progressives in Washington seem infected with zeal comparable to that which Solzhenitsyn described. These flights from reality manifest themselves in a variety of policy initiatives.

Take, for, example, the "reasoning" employed by the left when they pushed Obamacare through Congress nearly three years ago: Then-Speaker of the House Nancy Pelosi extolled the marvels of this new legislation that would, she believed, be of universal benefit by putting "a cap on your [health-care] costs, but no cap on your [health-care] benefits." Anybody with an elementary grasp of economics recognizes the Pelosi promise as a pipedream, and that the actual consequence of such a policy will be pronounced shortages necessitating rationing of health care as opposed to unlimited consumption thereof.

Another example of ideological zeal resulting in an absurd policy is Congress' astounding constellation of policies pertaining to cellulosic ethanol. Having decreed that energy companies had to buy stipulated quantities of cellulosic ethanol, it turned out that the inherently uneconomic realities of the production process for such ethanol were such that companies decided not to produce it so that they wouldn't suffer losses. This hasn't stopped Congress from madly insisting that energy companies pay fines for not purchasing as much American-produced cellulosic ethanol as Congress had mandated - even though the reason they aren't buying it is because it doesn't exist.

I can't help but think of such depressingly irrational behavior this week as I think of another four years with Barack Obama in the White House. Here is a man who pleases the crowd by using his inaugural address to pay lip service to working in a bipartisan fashion to reduce federal budget deficits, even after already having told Republicans that spending cuts are completely off the negotiating table. The president talks about creating a bright future for our posterity, even as he mortgages that future by amassing crushing debts that amount to tax increases on our children.

There are other signs that Obama, in his zeal to transform America, seems to believe that he and his fellow progressives can use government to alter the way the world works. Examples: He now speaks of gay marriage as essentially indistinguishable from heterosexual marriage (a quite different proposition from impartially protecting the rights of all Americans), thereby ignoring the span of human history and inescapable biological realities; proceeding as though taking more property from productive Americans and giving more to the unproductive is an economically or socially sustainable policy, which makes one wonder if Obama believes that he can reprogram human nature to produce "the new man" that the Soviets failed to mold; the belief that overall safety can be enhanced by more extensive gun regulations, despite abundant historical evidence to the contrary; feeding the notion that human beings can control earth's climate, which is perhaps today's ultimate utopian conceit.

This is not to say that Barack Obama is literally as oblivious to reality as the Soviet officials mentioned above, or even Nancy Pelosi. Indeed, there is a grimmer, more chilling possibility here: Obama is no dummy. He may be well aware that his policies will impoverish our future, and yet he will pursue them anyway, knowing the damage he is causing. You can decide for yourself what his motivation is. Maybe Obama's unsustainable deficit spending really is due to misguided idealism, but it also could be due to a desire to wreak revenge on America for past sins, imaginary and real (the Dinesh D'Souza theory); his adherence to a Marxian ideology; and the fact that he is a hard-core member of the "mean green" club that believes that Americans are guilty of having committed the sin of affluence; or maybe it's just a ruthless application of the Curley strategy designed to benefit him politically while inflicting heavy economic costs on the people.

Is it possible that Obama designed his inaugural address rhetoric to make the left feel good, and that his actual intention is to govern closer to the center? From my perspective, indulging in such a fanciful belief could be as delusional as the leftist fanaticism of believing that one can alter reality through force of will. I'd love to be proven wrong, but leopards don't change their spots. Obama is who he is and believes what he believes, and I think that we are in for four years of hectoring, pounding, executive orders, end runs around Congress, increasingly heavy-handed regulatory control, and more suppression of liberty in the name of some mythical "justice." *

Wednesday, 16 December 2015 10:48

Hendrickson's View

Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Value, and

Economic Outlook for 2013: ZIRP, Zombies, and the Japanization of the American Economy

Forecasts for sluggish economic growth are common. Investment superstars and gurus such as Bill Gross of PIMCO and Jeremy Grantham of GMO, and researchers such as Dr. Robert Gordon of the National Bureau of Economic Research, all have predicted anemic growth for the next several years. With the caveat that when too many "expert" opinions agree, the resulting consensus can be spectacularly wrong, I agree with the pessimists.

The American economy is stuck in the molasses of unfathomably colossal debt. Team Obama will block any attempt to curtail the federal government's chronic overspending or to reform its unsustainable growth in entitlements. President Obama's regulators are ramping up costly, suffocating rules on massive scale. A compliant Federal Reserve continues to enable the destructive over-spending by further debasing the currency by aggressively increasing its supply. And don't be fooled by modest rises in the Consumer Price Index; the Federal Reserve Note's purchasing power is shrinking.

Looking ahead, I see no end to ZIRP - the Fed's zero interest rate policy. Besides depriving savers of an opportunity to earn a measurable return on their savings, I suspect that the Fed will do everything in its power to keep interest rates artificially low, whether that power has been explicitly authorized by enabling legislation or not. The Fed simply cannot permit interest rates to rise several percentage points above current rates, because the ensuing cost of servicing the federal debt would consume so much of Uncle Sam's tax revenue that the Fed would have to undertake a quantum increase in quantitative easing (raising it from a river to a flood of new monetary units) to provide enough liquidity to fund the government.

The continuation of ZIRP serves to keep large economic zombies - inefficient, dead-on-their-feet banks, corporations, and, of course, the grand-daddy of them all, Big Government - on life support. For healthy economic growth rates to return, these zombies need to be allowed to expire - that means bankruptcy for the private-sector zombies, and a massive down-sizing, if not the outright dissolution, of the federal leviathan - so that valuable economic resources can be reallocated to more rational, wealth-producing ventures.

If market forces were allowed to follow their natural course, the moribund, rickety structure of mistakes, mal-investments, and misguided government planning would be euthanized, clearing the way for renewed vigorous and sustainable economic progress. Both for ideological reasons (i.e., the progressives' preference for government planning over free markets) and pragmatic reasons (i.e., no politician, Democrat or Republican, wants to be blamed for a wrenching-but-healing reallocation of resources to their most valued economic uses) the powers-that-be will do everything possible to thwart market forces and preserve the sluggish status quo.

My suspicion is that we will take the route that Japan has been following since 1990. The Japanese political class has averted a full-fledged deflationary cleansing of their economy by engaging in endless rounds of Keynesian fiscal stimulus and loose monetary policy. One might expect near-zero interest rates to lead to an economic boom (i.e., bubble). Indeed, that is possible, but don't discount the possibility that Team Obama and Federal Reserve Chairman Ben Bernanke will, like their Japanese counterparts, manage to keep a lid on economic activity as they strive to prevent a surge in economic activity that would cause interest rates to rise significantly and unleash a government-insolvency-followed-by-central-bank-hyperinflation sequence.

Team Obama's army of regulators is prepared to restrict and subdue vigorous private-sector growth so that it won't compete with public-sector spending and push up interest rates. The financial regulators in particular, now that Dodd-Frank has given them great power to ration credit and direct it toward the public sector, will be able to deprive the private sector of the fuel it needs to pick up speed and push up interest rates. Indeed, Dodd-Frank, which does so much to centralize control of credit in the state, may well be Team Obama's greatest success in implementing Marx's 10-point platform.

I sure hope I'm wrong, folks, but it looks to me like 2013 will see a progressive Japanization of the American economy. Bernanke will persist in his ZIRP policy to prop up politically connected economic zombies, and official Washington will do everything possible to prevent a needed economic restructuring from taking place. The good news is that, against this unpromising backdrop, American ingenuity and creativity will find ways to prosper-but it won't be easy. Good luck.

Romney and Ryan Didn't Cut It in a Time for Radicalism

We live in radical times. How radical? Over $16 trillion of officially acknowledged debt - multiples of that if you count unfunded federal liabilities; a president with a Marxist-Leninist economic agenda; a Senate majority leader who refuses to pass a budget and will do his best to sabotage any meaningful restructuring of fiscally unsound federal entitlements, etc.

The Republicans don't know how to respond. Mitt Romney is a good man who probably would have made a great president in the 1950s, competently managing the executive branch at a time of balanced budgets. By temperament and philosophy, though, he was too moderate for the radical challenges facing us today. He had no radical plan to break our addiction to the deficit spending and entitlements that are bankrupting us.

Some thought Romney's selection of Paul Ryan hinted at radicalism, but the much-ballyhooed "Ryan Plan" wasn't radical. On the contrary, it was designed to shore up the entitlement state and still would add trillions more to the national debt. Ryan's plan to gradually reduce deficits over the course of a decade might have sounded reasonable on paper, but does anybody think that the American public has the self-discipline to adhere faithfully to a fiscal diet for 10 straight years? Dream on!

For decades, the Republicans have let the Democrats set the agenda, expanding the power and scope of the federal government and spending far beyond federal revenues. The Republicans have been reactive, agreeing to the basic premises of the transfer society while generally trying to slow the rate of growth in spending (although Nixon and Bush II took the line of least political resistance and spent as merrily as any Democrat not named Obama). The result is that Republicans are too stingy for liberals and too profligate for true conservatives and libertarians.

A truly radical alternative to Obama's Big Government radicalism might involve slashing over a trillion dollars of federal spending per year. Too radical? Then try these on for size:

Zero out of the advertising and grant-giving lines in the budget of every federal department and agency. Currently, they use our tax dollars to promote themselves and to give grants to special interest groups who then sue the government in the attempt to increase the regulatory chains they put on us.

Reduce federal employees' compensation packages to the same levels as their private-sector counterparts receive.

Liquidate one of the cabinet-level departments. Put it all on the auction block in a Thatcher-style privatization, and whatever useless bureaucratic pieces don't receive a bid from the private sector would simply be shut down. Taxpayers would quickly learn that the sun would still rise in the morning and the world could get along fine with less government.

Abolish OSHA - the Occupational Safety and Health Administration. Considering the epidemic explosion of Americans going onto permanent disability in the last few years, OSHA should be disbanded on the grounds of rank incompetence. Either that, or somebody needs to put the kibosh on the disability scam, because the American taxpayer shouldn't have to pay for both a safety bureaucracy and record numbers of workers on disability.

Here's a big one: Privatize Social Security. Not in the timid way clumsily proposed by George W. Bush, but if the government is going to remain in the pension business at all (a dubious proposition), set up a private account for each worker with his or her own name on it. Don't ever let contributions to workers enter the U.S. Treasury. Pay off accrued benefits with a combination of cash and tradable shares in U.S. government assets (e.g., land, oil, and gas leasing properties).

If Speaker of the House Boehner had a single radical bone in his body, he would at least argue that any tax increase should only be passed with an expiration date. Why should only tax cuts be scheduled ahead of time to expire, but not tax hikes? Why can't Boehner hold his ground against raising the tax rate on millionaires? Why can't he just say, A) I don't believe in discrimination, and B) They are Americans, too, and their property rights are just as important as any other American's - and just as entitled to the equal protection of the law under the 5th and 14th Amendments.

These are radical times, but there is only one party in Washington playing a radical game with radical rules, and that's why they are prevailing.

Don't Be Fooled, No Union Rights Were Lost in Right-to-Work Michigan

The passing of a right-to-work law in Michigan is a hugely significant development. In my mind, Michigan would have been the last state to pass legislation removing the requirement for workers to join a union as a condition of employment in unionized businesses.

As welcome as this new law is for those of us who recognize how economically pernicious and ethically debased compulsory union membership is, the reporting of the story has been marred by sloppy, inaccurate usage of a key word: "rights." Here's a typical example from Reuters: "Michigan weakens union rights in home of auto industry."

Americans greatly value rights. It's in our DNA. However, no rights - neither unions' nor anyone else's - have been lost by passage of this right-to-work law. What has changed is that unions can no longer compel a worker to pay dues to them as a condition of employment. That was never a "right," but a power - a power that had been bestowed on unions by prior legislation conferring upon them a privilege. Unions in Michigan have lost a privilege, not a right.

In fact, rather than infringing on anyone's rights, Michigan's right-to-work law restores a lost right to workers - the right of voluntary association. Our Declaration of Independence and the Constitution's 5th Amendment name liberty as an unalienable right; now workers in Michigan have the liberty to choose whether to join or not join a group as each one's conscience dictates.

American labor law has been out of whack for the last century. Unions have been given special powers and privileges that have trampled on the rights of their fellow citizens. Consider:

Do businesses have a right to block you from purchasing from their competitors? Do Kellogg employees have a right to stand in the cereal aisle of a grocery store and interfere with your right to buy a General Mills cereal? Of course not. Then what gives unions the "right" to prevent an employer from choosing to hire someone who doesn't happen to be a union member?

Unions behave monopolistically, suppressing competition. It's time to amend the Clayton Antitrust Act of 1914 by removing its explicit exemption for unions. What's sauce for the goose is sauce for the gander. Unions, like businesses, should not enjoy the privilege of being insulated from competition. Workers should be free either to refrain from joining a union or to join a competing union that they believe will better serve their interests.

Should anyone have the power to tell an American that he can't move to a particular state? That would violate the citizen's rights. Then what right does the National Labor Relations Board have to tell a private corporation that they can't move to a different state? Why does the NLRB have the power to infringe on the First Amendment right of free speech by forbidding employers from communicating key financial information to workers as an "unfair labor practice"? Why does the NLRB operate a separate, special judicial process outside of the laws and courts that govern non-union Americans and hold union members to a lower standard of accountability for extortion, racketeering, and acts of vandalism and violence? For all Americans to have equal rights, we must abolish the NLRB by repealing the 1935 Wagner Act that created it.

What American has a "right" to violate the life, liberty, or property of other Americans? Courtesy of the 5-4 Enmons Supreme Court decision in 1973, unions have enjoyed special privileges allowing them to inflict bodily harm, to prevent people from entering workplaces, and to destroy private property if it is "in the pursuit of legitimate union goals." Such violations of the rights of others can never be a "right" of unions or anyone else. To restore justice ("justice" means "equal protection of everyone's rights," not "we get what we want," as the unions seem to think) Congress should pass the Freedom from Union Violence Act.

Michigan's right-to-work law is an important step in restoring the unalienable rights of every American. We still have a long way to go, but If Big Labor's unjust power to infringe individual rights can be rolled back in Michigan, then there is hope that individual rights will be restored across the country.

Compromise or Gridlock in Washington: Unpalatable Alternatives

As soon as the elections were over, a wave of commentaries extolling the virtues of compromise appeared in the press. The common theme is that it is time for Democrats and Republicans alike to end partisan gridlock - to make compromises that will shrink federal deficits without driving us off "the fiscal cliff."

That said, gridlock has its defenders. They fondly remember "the good old days" in the 1990s when divided government (Democratic White House, GOP Congress) produced a gridlock that kept spending increases relatively modest and eliminated budget deficits.

Gridlock today, however, is not as benign as it was then. Also, the 1990s constituted a very special case that cannot be replicated today.

In the 1990s, gridlock kept the spigot of federal spending stuck at a relatively slow growth rate. Today's gridlock between the Boehner-led House and Team Obama has stuck the federal spigot in the wide-open position of perennial trillion-dollar deficits.

The 1990s are an inapt comparison for another reason: That decade featured a fiscal "perfect storm" to wash away red ink: The end of the Cold War led to defense spending cuts; the welfare reform of 1996 slashed welfare expenditures and increased the number of taxpaying workers; the Roth IRA legislation of 1997 induced millions of Americans to pay taxes on their private retirement funds up front; the "Greenspan put"-fueled stock-market bubble gave Uncle Sam a windfall of capital-gains revenue. In short, the propitious confluence of events that stanched the flow of red ink in the late 1990s was a one-off phenomenon.

So, we need compromise rather than gridlock, right? But what if compromise is not a viable option either? Compromise may be what fair, reasonable, mature, and enlightened people do; it may be the democratic way, but the problem is that there are limits to compromise, dictated by the immovable truths of economic realities.

We see this at the local level in school district contract negotiations with teachers' unions. The union asks for 10 percent annual pay increases; the school board offers 2 percent; they compromise at 6 percent. That may work for decades, but what happens when the local taxpayers go through a prolonged economic slowdown and the tax base in the district stagnates? There comes a breaking point where teacher compensation can't rise as much as it used to, if at all, and maybe even retirement benefits have to be cut back because taxpayers simply can't afford additional tax increases.

A similar dynamic plays out with the federal budget. The big spenders propose a large increase in spending (an increase above an assumed projected increase, i.e., the infamous "base line"); the opposition proposes a smaller increase; they compromise and spending continues on a relentless upward trajectory. There is a ratchet effect whereby total spending can only move in one direction: higher. But "trees don't grow to the sky," and eventually government spending produces so much accumulated debt that there isn't enough wealth to tax or borrow to finance spending, so the central bank steps in with "quantitative easing" and financial manipulations. Eventually, the debt burden and the inflation of the monetary unit proceed to the point where they threaten the financial viability of not only the government but the entire economy - the net result of a succession of well-meaning, "fair"-minded compromises.

The pickle we are in today is excruciating. In the first place, the big spenders clearly won't make any more than token compromises. President Obama came out of the election suddenly asking for tax hikes twice as large as he had requested earlier. Senate Majority Leader Harry Reid declared that Social Security was off the table. Since Reid has blown up Congress' constitutional budget-making process for several years already, we know he isn't bluffing. They are willing to drive off the fiscal cliff if necessary, because chaos and crisis provide them with the pretext for more government intervention and control, which is their ultimate goal.

If there is to be any meaningful compromise, the Republicans will be the ones who make it. Yet, if the GOP compromises by agreeing to raise taxes while not curbing runaway spending, the result will be slower economic growth and probably lower federal revenues. Nothing positive will have been accomplished and the government will continue careening toward an eventual financial crackup. We are told that reasonable people compromise, but if compromise leads to disaster, can it be a virtue?

Gridlock or compromise: Heads, Big Government wins; tails, "we, the people," lose. *

Saturday, 05 December 2015 05:14

Hendrickson's View

Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Value, and

An Open Letter to Mitt Romney

Dear Mitt,

I have awakened on November 7 to learn that your bid for the presidency was unsuccessful. In the midst of the disappointment that I share with you, I want to thank you for devoting years of your life to the wearisome task of running for president. Millions of Americans are grateful to you.

You have been one of my heroes for the past 48 years. I still recall vividly the valiant cross country race you ran at our Cranbrook Homecoming in October of 1964 - a race when you willed yourself to run faster than you ever had until, near the end, oxygen starvation set in, causing you first to stagger, then to collapse just 30 yards from the finish line. I can still see your face, ashen and contorted in pain, as you ignored the torture of the cinders on the track scraping against soft skin and began to crawl. Even though every other runner passed you, and you had nothing to gain - other than surcease of agony - from dragging yourself to the finish line, you refused to quit until you reached your goal. Your brave effort touched me deeply. That's when I learned that you were special - a man of character, commitment, heart and guts, someone who embodied the indomitable American spirit.

I also admired your exuberant joie de vivre. You loved life, and I can see that your great capacity for love found abundantly happy fulfillment in your life with your wife and sons. I also remember your friendship with Chester, our night watchman at Cranbrook. At prep school, there can be a tendency to disregard the support staff, to take them for granted like the furniture, but you reached out to that good, simple, kind, salt-of-the-earth security guard. (Just for the record, I befriended Chester, too, during my senior year, so I feel we share that bond.)

Nobody can doubt your love for our country. Whereas your opponent concentrated on lining up support from key special interest groups, your focus was more akin to the patriotic statesman than the opportunistic politician - it was so clear that you wanted to get our country back on track. As we can now see, that wasn't to be.

What occurs to me is that, by losing the election, you might have been spared a cruel fate. If elected, you would have inherited an economic mess. The problem isn't just the looming fiscal cliff and debt ceiling, but the overall financial situation of our government is clearly unsustainable and nonviable. Entitlement spending has mushroomed so that it - combined with interest on the national debt - now consumes virtually every dollar of tax revenue. That means that the various departments and agencies that we normally think of as "the federal government," from the Pentagon through the EPA and everything in between, is being run on borrowed (or "quantitatively eased") dollars. No president could trim entitlement spending or shut down enough of the government to stanch the flood of red ink. Government indebtedness will continue to balloon and our currency will continue to be debauched, and it would have been impossible for you, given the prevalent attitudes of the people, to halt that insidious process. You might have tried by firing Ben Bernanke and replacing him with someone who would stop quantitative easing, but that would have caused interest rates to rise and the federal government to become insolvent, triggering a crisis that would have made you a vilified president.

The presidency at this juncture in history strikes me as an impossible job. Both domestic and foreign policy seem to be Gordian knots that no mere mortal can cut. I know, though, that you would have valiantly been willing to give your all in the attempt to help your country at this difficult time. Your path as president would have been as excruciating as those last 30 yards of that cross country race you ran so long ago, but you would have addressed the challenge with the same determination and commitment as you did then. Now those awful burdens you would have been willing to shoulder fall on your opponent, and we'll see what kind of shoulders he has.

You gave years of your life for the chance to be of service to your country, Mitt, and you lived by our school motto, "Aim High." You did us proud.

The Great American Policy Divide, and the Democratic Temptation

Can Americans holding different opinions on political issues even talk to each other anymore? Sometimes it seems like liberals and conservatives, statists and libertarians, Democrats and Republicans inhabit parallel universes, each with its own "facts" or perception of reality. Examples of "the great divide" abound.

Recently, my colleague Paul Kengor wrote an article citing several examples of how teachers and professors in America present Communism in the classroom. One would think that we could at least agree that a political ideology that resulted in well over 100 million deaths in the 20th century is as repulsive as Nazism, but that isn't the case. Many teachers prefer to ignore the genocide and extol Communism's allegedly positive attributes.

Here are some other, less startling, examples:

* People on the left insist that voter ID laws are vicious plots to disenfranchise racial minorities. People on the right perceive them as prudent protections against fraudulent voting.
* Conservatives thought (for a while) that our invasion of Iraq was a worthwhile military adventure. Liberals thought (for a while) that Afghanistan was "the good war."
* Republicans want to balance the budget largely by cutting spending, not tax increases, whereas Democrats are gung-ho for more taxes.

American politics has spiraled into a Hegelian netherworld wherein the thesis and antithesis forever produce a synthesis that both sides find unsatisfactory.

As shrill and contentious as the partisan divide has become, the great divide in the American polity runs far deeper than the divide between the two major parties. Mitt Romney's problematical comment about the 47 percent notwithstanding, our polity seems to be coalescing into the two classes, or warring factions, called the "taxpayers" and "tax consumers." The champions of the tax consumers, such as President Obama, are seeking to achieve a permanent political majority. One wonders if they know what happened to the Roman Empire when the tax consumers prevailed.

The great divide that plagues America today was vividly described by Ayn Rand in her prescient 1957 opus, Atlas Shrugged. In Rand's dystopian novel, the American polity and society were divided between the producers who produced wealth, and the looters who parasitically lived off of the producers. As the looters extended their democratic majority and solidified political control, they progressively [double entendre] suffocated and stifled the productive members of society upon whom the economic well-being of all depended. The inevitable result, of course, was the decline and fall of that corrupt system.

At the most fundamental level, today's great divide is not political or even ideological, but moral. What is raising the political temperature, ripping our society apart, and grinding down our economy is the insidious belief that it is morally justified for the government to grant anyone the spurious privilege (erroneously called a "right") to live at the expense of others. Most Americans still acknowledge that it is morally wrong to enter their neighbor's house and take some of his property, but far too many have been seduced or brainwashed by the toxic notion that as long as the government does the taking on our behalf, then such taking is legitimate, even laudable.

This is what I call "the democratic temptation" - the debased belief that if a democratic majority takes wealth from A to give to B, then the taking is just and legitimate. There is nothing sacred about democracy. Democratic majorities are capable of great evil (e.g., the deaths of noble Socrates and the innocent Jesus) and when they use their numerical superiority to gang up on others and redistribute property, that obnoxious practice is nothing more than what Frederic Bastiat so aptly termed "legal plunder."

Social harmony cannot survive when the members of a society make war on the property of others. The democratic temptation divides us into economic enemies, tearing our society apart, and we are all poorer-economically, socially, and morally-for having succumbed to it.

The Unstoppable March Toward National Bankruptcy: Who's to Blame?

The opening line of the Beatles' iconic "Sergeant Pepper's" album is echoing in my thought: "It was 20 years ago today . . ." Well, not quite to the day, but 20 years ago I published an article titled, "$4 Trillion and Counting." In it, I despaired at the rapid increase in the national debt from its first-ever crossing of the $1 trillion mark during the Reagan presidency to four times that gargantuan amount in only a decade.

Today, a mere two decades later, we have quadrupled the national debt again, to $16 trillion. (That figure represents the official national debt, but if you add the many "off-budget" items and all the liabilities that are conveniently omitted from government "accounting," then it's multiples of the official number.)

Who is to blame?

Let's start by picking the low-hanging fruit: "progressives," a.k.a, Democrats. The Dems always want more federal spending, higher taxes, more government. Indeed, there is no major area of economic activity over which they want less control. Whether it's food, energy, housing, health care, retirement, finance, transportation, education, etc., they always want to expand the government's scope and power.

The Democrats have led the way toward bigger government. They always succeed in getting Republicans to blink every time the debt ceiling is reached, because whereas Republicans are ambivalent and divided about Big Government, progressives are united and utterly committed to it. They do not vacillate; the Republicans do, and so they buckle.

Surely, though, now that we are racing toward a jarring fiscal cliff, the government's credit rating is at risk, and major entitlement programs are on a collision course with insolvency, Democrats will compromise to fix these problems before it's too late, won't they?

The short answer, dear reader, is "No." On the contrary, the threat of insolvency is something that progressives welcome. They view it as a means to an end.

The key to understanding this dynamic is to recognize what progressives want. They want government control over economic matters, and so they adopt whatever strategies will further that goal. We saw this strategy in action with Fannie Mae and Freddie Mac. When the two mortgage giants were about to implode from insolvency, Congress simply nationalized them, making the taxpayers responsible for their financial obligations.

Do you think Barney Frank, Nancy Pelosi, and the other "progressives" were sad about that pair of nationalizations? It is more likely that they popped open champagne bottles and celebrated, for now they had achieved government control over the gigantic home mortgage business.

What do you suppose Democrats will propose on the day that funds run dry for Social Security or Medicare? They surely won't say, "Sorry, folks we're broke; end of program." Instead, in the case of Social Security, they will try to use the emergency as the pretext to nationalize private retirement accounts a la Argentina (they've already held congressional hearings about taking this step); in the case of Medicare, they will do what many of them already have stated they want to do - nationalize it.

It doesn't even matter to the Dems if the whole government goes bankrupt. Look at Senate Majority Leader Harry Reid's obstinate (and criminal) refusal to let the Senate vote on a federal budget. That indicates that the Dems have gone "all in" on their diabolical "bankruptcy as the road to nationalization" strategy. They will tell a scared public that the government will continue to take care of them, the Republicans will be afraid to oppose "a strong government response" to the fiscal emergency, and the government will take over large swaths of the private sector.

Now for some bipartisanship: The Republicans must share in the blame for the government's fiscal woes. Other than Ron Paul, what Republican has refused to vote for expansions of government into numerous areas not enumerated in the Constitution? Yes, Republicans generally have wanted to grow government at a slower rate than the Democrats, but they still have supported its continued growth. The most "conservative" long-term fiscal plan that has gained any traction in the Republican Party has been Rep. Paul Ryan's plan that would increase the national debt by "only" $4 or $5 trillion over the next decade. If that is the most "radical" "right-wing" "anti-government" plan on the table, then clearly the flood of red ink will continue to swell (that is, until the Federal Reserve Note tanks and the system cracks up).

Having blamed both Democrats and Republicans for our impending national bankruptcy, is there anyone else left to blame? Yes, indeed, now we come to the principal culprits: "We, the people." It's very convenient to blame politicians for our fiscal wreck, but the bottom line is that a lot of Americans want the government to do things for them, and so they elect big spenders. Perhaps Joseph de Maistre (1753-1821) was correct when he wrote, "Every country has the government it deserves."

The reason our government is broke is staring most Americans in the face whenever they look into a mirror. Too many of us have acquiesced to, if not agitated for, a corrupt political system. As I wrote in that article 20 years ago:

Americans must return to the traditional principle of respecting the property of others, rather than seek to obtain a portion of it through government. . . . Until then, 4 [now 16] trillion dollars is just another milestone on the way to economic ruin.

Whom should we blame for the nightmare of runaway spending and debt? The majority of Americans in both major political parties.

What the "Obama Phone" Tells Us About America's Health

Perhaps you saw the recent "Obama phone" video clip that has gone viral. In it, an Ohio woman picketing a Romney campaign event proclaimed her emphatic support for Obama's reelection. Why? Because of the "Obama phone" the president had given her and some of her friends.

That short, mundane, trivial, video clip is quite instructive:

First, it provides an example of how ill-informed many voters are. The free cell phones about which the woman enthused were the result of policies that predated the Obama presidency. That program was another "mess" inherited from Obama's old pal, George W. Bush. The ignorance that Jefferson believed would pose the greatest threat to the survival of liberty was on prominent display in the video.

Second, it indicates how little some citizens value their vote. Mistakenly thinking that she owes her free phone to the generosity of Barack Obama, the grateful woman - sounding like a child who delights in the box of cereal that includes a free toy - will vote for the incumbent in hopeful expectation of another free prize.

Third, the reaction to the video displayed the left's cynical manipulation of the topic of race for political gain. Their entirely predictable knee-jerk reaction was to denounce the video as "racist," because the woman it captures in a less-than-flattering light happens to be black.

The race of the woman is irrelevant. The video reminds me of an incident that happened early in Bill Clinton's presidency. The Clintons had profited handsomely from an allegedly shady real estate deal that became known as "the Whitewater scandal." At a public presidential appearance, a woman (white, as I recall) called out from a crowd, "Don't you worry about Whitewater, Bill, just keep our welfare checks coming!"

The significance of both of these little incidents is that the two women are typical of millions of Americans regardless of race. They don't care about any of the larger issues facing the country (if, indeed, they even know what those issues are); they don't even care if the president of the United States is a lawbreaker who has ripped off the American taxpayer - as long as the president will give them their little piece of something-for-nothing.

So, are the barbarians at the gate? It appears that they are within the gates. Are there enough Americans (even if not literally 47 percent) hell-bent on getting something for nothing such that the Republic is doomed? Perhaps. But it is important to realize that the millions of grasping, pathetic, demoralized Americans who think that "the government" is a never-ending cornucopia of goodies and that the president is Santa Claus are not the primary cause of the problem.

How can we really blame a poorly educated woman for wanting a free cell phone when lobbyists secure seven-, eight-, nine-, and ten-figure favors from their cronies in government? Why shouldn't they get a small piece of the action, when their own congressmen magically become millionaires by getting a tiny slice of the trillions of dollars of loot they parcel out each year? Moreover, who can blame poorly educated, ignorant people for believing that they are entitled to government largess when they have been told this repeatedly by those who should know better?

Indeed, the real culprits here aren't the poor people receiving government handouts, but their enablers - the thought leaders who have propagated the notion that political taking is not just acceptable, but a morally superior way to prosper; economic service to one's fellow man a lesser path to prosperity. These thought leaders include the educators who teach collectivist ethics, the writers and journalists who scorn property rights and assert that government must redistribute wealth in the name of "social justice," and the clergymen who confuse socialism with Christianity. All of these highly educated (which is different from "well educated") individuals provide the intellectual justification that enables demagogic politicians to pander to the poor and lead them down the seductive path of dependency. The manifold pied pipers of this ethical plague, not the mice they mislead, bear the primary responsibility for the culture of thievery that is corroding the fabric of our Republic.

Ralph Waldo Emerson once wrote, "A nation never falls but by suicide." If we don't find a way to extirpate the moral rot that is corrupting us from within, future historians may some day write of the American experiment that we ultimately committed suicide.

The Kind of Energy Policy the U.S. Needs

Earlier this year, President Obama has told us, "we can't just drill our way to lower gas prices." In one sense, he is correct: If he is re-elected, his administration will not allow oil companies to do the drilling that would reduce the price of gasoline. In that case, "we can't" means "we won't let you."

Absent political interference, of course we can drill our way to lower prices. We've already done it with natural gas. The price of natural gas is lower now than it has been in years, because drilling has increased the supply so dramatically. Could the same thing happen with oil and gasoline prices? Absolutely.

Over a year ago, I published an article titled, "The Global Energy Superpower," in which I included links showing the vast extent of U.S. reserves of fossil fuels. It turns out that the United States is not only "the Saudi Arabia of coal," as has been accepted for decades, but in light of recent developments, we have a chance to be the Saudi Arabia of natural gas and even the Saudi Arabia of oil.

That was the assessment a year-and-a-half ago. Since then, the Congressional Research Service has tabulated the totals and acknowledges that the United States currently has the largest known fossil fuel reserves in terms of total oil equivalent - almost three times as much as Saudi Arabia - and it seems that every month the news gets better: The reserves continue to swell.

The benefits to our country of allowing our superabundant energy resources to be developed are manifold. Let me try to explain them in terms that show why Democrats as well as Republicans should abandon Obama's anti-drilling policies:

1) Increased oil production will benefit all Americans economically, but especially those with lower incomes - the ones who have taken the brunt of the pain from high fuel prices in recent years. Team Obama and others on the left who oppose domestic oil production like to claim that they care about "the little guy." Well, prove it. Let the experts tap into our immense petroleum reserves, increase supplies, and push oil prices lower.

2) The more oil we produce domestically, whether for domestic consumption or for export, the more we will reduce the merchandise trade deficit. For years, politicians on the left and right have bemoaned our enormous trade deficit. In some years, imports of oil have accounted for more than half of that deficit, so one way to take a hammer to the trade deficit would be to crank up domestic production.

3) Cranking up domestic oil production would crank down the unemployment rate. After years of unemployment rates above 8 percent and masses of workers dropping out of the labor market, a boom in the oil patch would add large numbers of desperately needed, high-paying jobs. The true friends of American workers would be whichever president and Congress would reverse the current policy of suppressing job creation in the energy industry.

4) Starting to provide for our own energy needs would show more respect for other countries and win more respect for us. It has been pathetic that the president of the United States has traveled to Saudi Arabia and implored them to increase their production while we have refused to increase our own. Liberals are uncomfortable with American exceptionalism, but isn't it a form of exceptionalism when we expect the rest of the world to produce our energy for us?

5) Increasing domestic oil production would enhance national security. The more energy we produce at home, the less vulnerable we are to disruptions in politically unstable oil-exporting countries. By increasing supply and lowering the price of oil, less money would go into the treasuries of such problematical regimes as the House of Saud - the principal funder of intolerant Wahabbism - and Venezuela's Chavez.

6) The increased domestic economic activity would generate significant revenues to the government. It makes me uncomfortable to say this, because my primary goal is to shrink government, not to find ways to divert more wealth to government control. Still, as the lesser of evils, my own preferred way of balancing the budget would be through reductions in federal spending, but the additional tax revenues resulting from increased domestic energy production would shrink the deficit in a way that would be far less damaging than raising existing tax rates.

Obama likes to rail about the allegedly "obscene" profits of oil companies. Actually, there are dozens of industries (sometimes more than 100) that earn higher profit margins than oil's 7 or 8 percent. Doesn't Obama realize that by restricting the supply, he has raised the price and probably the profits of Big Oil? If he really wants to hack away at oil profits, he should turn them loose and let them produce oil to their hearts' content. Under the resulting competitive pressures, prices would fall, consumers would rejoice, and oil company profits would be squeezed.

Superabundant fossil fuels have the potential to help snap us out of our economic doldrums and invigorate the economy. What we need is a change of energy policy. It's time to reject Team Obama's central planning. The Obama policy has been to impede, restrict, harass, and attack producers of fossil fuels, while heavily subsidizing uneconomical renewable energies. An enlightened energy policy - one that I hope a President Romney would adopt - would be to replace government intervention with nonintervention and let the free market work. The United States would be "open for business" to energy companies, market prices would determine the economic winners and losers in that competition, and our energy woes would be alleviated. *

Saturday, 05 December 2015 05:12

Hendrickson's View

Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

A Book Review of Brian Sussman's Eco-Tyranny

Eco-Tyranny: How the Left's Green Agenda Will Dismantle America, by Brian Sussman. WND Books (April 17, 2012), 315 pp., List Price: $25.95

In Eco-Tyranny, author Brian Sussman sounds a timely and important warning: The radical "greens" are not in retreat. With the defeat of cap-and-trade legislation in 2010 and the increasingly discredited alarmist theory of anthropogenic global warming, the greens may have lowered their public profile; however, with the full cooperation of the Obama administration, they are forging ahead with their illiberal agenda of gaining ever more control over the American economy and people.

Sussman, a trained meteorologist and veteran San Francisco talk-show host, has followed up his 2010 demolition of the global warming quackery, Climategate, with a book that takes a big-picture view of the history, ideology, and goals of the anti-capitalist, anti-people green movement.

The event that drove Sussman to write Eco-Tyranny was a federal document to which a Department of Interior employee had alerted him. On October 5, 2009, President Obama signed an executive order titled, "Federal Leadership in Environmental, Energy, and Economic Performance." Although that title hints at the immense scope of the order, it understates the frightening extent to which it expands the power of the federal government and constricts the rights and liberty of private citizens. According to Sussman's Interior Department insider, the long-term goal of President Obama's "green team" is to "divide the country into sectors where all humans would be herded into urban hubs" while most of the land would be "returned to a natural state upon which humans would only be allowed to tread lightly." (The full text of the 14-page executive order is reproduced in the appendix of Eco-Tyranny.)

Far too few Americans are aware that environmentalism is one of the most virulent illiberal ideologies in the world. Sussman traces the history of illiberal environmentalism from the 1800s up to the present, and he includes a helpful summary of key dates in the appendix.

Remarkably, Sussman shows readers that such destructive figures as Marx, Lenin, and Hitler were intellectual and political forerunners of the modern illiberal green movement. Readers will be interested to learn of the four left-wingers who influenced and shaped the thinking of Rachel Carson, whose 1962 book, Silent Spring, marked the birth of the modern environmentalist movement.

Eco-Tyranny shows how closely the American left has worked to fulfill the United Nations' explicit plans to hamstring American prosperity, using hundreds of billions of our own tax dollars against us.

Yes, we the American taxpayers have financed the green elite's war against efficient energy sources. Sussman includes chapters devoted to the green attacks against nuclear energy and fossil fuels, with another chapter devoted to the wasteful, uneconomical boondoggles of wind and solar energy. It is with no little irony that Sussman retells the story of President Obama denouncing oil as an undesirable source of energy from the headquarters of the now-bankrupt solar energy firm, Solyndra.

After his "greens against cheap energy" chapters comes an excellent chapter tracing the greens' multi-decade campaign to limit Americans' access to water. What becomes clear from Sussman's "big-picture" view of the green movement is how monstrously misanthropic it is. The radical greens are committed to reforming life in America to make it less free and less prosperous.

The quibbles that I have with Eco-Tyranny are minor. There are silly errors of detail - the kind of mistakes that slip into books that are rushed into print (e.g., erroneously stating that the late Indian Prime Minister, Indira Gandhi, had been married to "the Gandhi," meaning the mahatma; writing that a man who was born in 1901 died at age 39 in 1939; calling ANWR the "Alaskan" rather than "Arctic National Wildlife Refuge"). My other gripe is the gratuitous use of derogatory or ideological adjectives - denigrating former President Carter as a "peanut farmer" and a tendency to label everyone who cares about environmental quality as "liberal" or "radical," when, in truth, many Americans who have been seduced by the green movement are not leftists, but simply decent people who value a clean environment.

The book's afterword contains a 12-point agenda for rolling back the greens' well-advanced, oppressive agenda. It includes abolishing the Environmental Protection Agency, Department of Energy and the Endangered Species Act; turning ownership of federal parks to the states; divesting federal lands to the private sector; reducing the multiple legislative and administrative barriers to the development of our nation's abundant fossil fuel resources and much more.

To say that such an agenda is dauntingly ambitious is an understatement. But the very fact that that the list covers so much ground indicates how far advanced the green agenda is. Indeed, the greens have spent decades putting into place their oppressive infrastructure of bureaucracies and regulations. When one looks at his own stated plans for the future, then one realizes that although undoing the mischief of decades will be a prodigious task, Sussman's pro-liberty, pro-prosperity, pro-human and, yes, pro-environment, agenda is imperative.

We need more knowledgeable people like Brian Sussman sounding the alarm - and more people heeding it.

Obama's Popularity with Young Voters

According to a recent USA Today/Gallup poll, Americans under the age of 30 favor President Barack Obama over Mitt Romney by almost a two-to-one margin. This is a startling statistic. What explains the lopsided support for President Obama among younger Americans?

I think the two main reasons are ideological and personal.

It's no revelation to say that young people tend to be more liberal about issues like the redistribution of wealth. You may have heard the old adage, Anyone who is not a socialist when he is 20, has no heart; anyone who is still a socialist when he is 30, has no mind. I lived that adage. I was a young socialist 40 years ago who voted for the likable-but-too-conservative George McGovern. Then, after emerging from the collegiate cocoon, weaning myself from financial dependency on others, and seeing the real-world devastation wrought by socialism, I embraced capitalism.

The fact of the matter is that our intellect develops more slowly than our feelings. In my case, my youthful concern for the poor never left me. I simply recognized that markets, however imperfect, are far more effective at reducing poverty than government programs and socialist dystopias. Likewise, today's youth generally have good intentions; they just don't always perceive the optimal means to attain their goals. When you combine that intellectual immaturity with the barrage of leftist indoctrination that many colleges inflict on them - plus their support of certain Obama social policies - it is no wonder that the under-30 segment of our population favors President Obama.

As significant as the ideological factor is for explaining the millennials' support for him, the president's personal attractiveness to them looms equally large. Indeed, the young are not unique in voting in response to a presidential candidate's likability. We have known at least since the Kennedy-Nixon race (JFK's fresh-faced handsomeness contrasted with Nixon's off-putting jowly, five o'clock shadow during their televised debates) that many Americans vote for a president on the basis of the wrapping rather than the contents of the package - the triumph of image over substance. This may not speak well for our country's political maturity, or perhaps even for democracy itself, but personality often trumps policy.

I have spoken to several under-30s recently, and I was struck by how often they referred to President Obama as cool or "hip." Indeed, he can be very winsome. He has that charismatic, incandescent smile; the ability to project gravitas and dignity in one moment and then to be disarmingly informal and down-home normal in the next; the talent for delivering a text in tones that are alternately inspiring, warm, soothing, or fired with passion; and a knack for coming across as level-headed, genuine, reasonable, quietly confident, and so very accessible in his well-crafted television commercials.

If young Americans want to vote for President Obama because he is cooler than Romney, that is their right and privilege. It is sad, though, that they seem oblivious to the high price they are paying for "coolness." Underneath the hip, attractive surface is a president who says many of the "right" things about helping America move forward, and then cynically acts in ways that hamper progress. Many young Americans (and not a few older ones) who find Obama attractive have a hard time connecting the dots and comprehending just how harmful his policies have been for young Americans.

Do the under-30s really want a president who has tried and succeeded in raising the price of electricity and gasoline; who has hastened the day of Social Security's insolvency by cutting the revenues to that program; who has raised future taxes on young Americans through the reckless addition of trillions of dollars to the national debt; whose policies have pushed food prices higher; who has tried to keep home prices from falling to levels that would make them affordable to younger Americans?

Do they want four more years of an aggressively anti-business, hyper-regulatory administration that has squelched job growth and employment opportunities?

Do they want to continue down the path to a European-style welfare state like Spain, where close to half of young adults are unemployed?

I think not, but that is the kind of country they may vote for. Too many young Americans don't connect the current economic stagnation with the president's policies. They are charmed by his personality while being harmed by his policies. Because I too was once young, I understand that President Obama is like the Pied Piper wooing, attracting and seducing the young, who merrily and blindly follow his bewitching tune. I hope they veer off this path before it reaches its inevitable tragic end, a future they don't want to experience. *

Saturday, 05 December 2015 05:10

Hendrickson's View

Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

The Question of More or Less Government

Theoretically, the elemental political choice in a democratic system is between more government or less - more government control over our lives and livelihood, or less; more government spending and programs than the year before, or less; more government power, or less.

In practice, for as long as I can remember, the choice for Americans has been between the party that wants more government (the Democrats, or the party of Big Government) and the party that still wants more government, but a little bit less more (the Republicans, or the party of Big Government Lite). There never really seems to be a choice between a presidential candidate who unequivocally wants Uncle Sam to spend more money next year and one who wants the federal government to spend less; that is, "less" as in not a smaller increase, not a phantom D.C.-style budget "cut" from baseline projections, but a real, honest-to-goodness decrease in the actual number of dollars flying out of the U.S. Treasury.

I thought of this not long ago when I attended a conference and heard some of Ron Paul's supporters wonder how Mitt Romney could appeal to them. Here's a suggestion: Offer them a genuine opportunity to vote for less government.

This proposal might strike some as radical, since it is outside the realm of the experience of living voters, but we face an unprecedented set of conditions today that make such a fundamental change of direction conceivable, though admittedly not likely.

Romney already has proposed cutting numerous federal agencies and programs that waste federal tax dollars more egregiously than your typical run-of-the-mill federal bureaucracy. Why not attach a dollar figure to his budget cutting? How about campaigning on a nice round number? E.g., "My first annual budget will cap federal spending at $3 trillion."

I don't know about you, but $3 trillion for the wasteful, economy-crushing federal leviathan sounds to me like way too much money, but at least it's a step - a significant step - in the right direction.

The case for such a cut is simple: Under President Obama, we have fallen into a fiscal rut of adding at least $1.2 trillion to the federal debt every year. Does anybody other than an economic illiterate think we can afford such massive floods of red ink? Even if we achieved the ambitious target of cutting federal spending to $3 trillion a year, we still would have an annual deficit larger than any deficit in history before the panic-induced TARP bailout in 2008-9. If those who are on the conservative side of economic issues think it's "too radical" to propose an annual budget deficit of "only" half a trillion dollars, then perhaps we need to redefine "conservative."

There is another strong point to be made in support of capping the next fiscal year's spending at $3 trillion: What were the benefits of Obama's quantum increase in federal spending? Did it stimulate the economy? Did it bring us prosperity? What did we get for adding $5 trillion more debt during these last three years? Is there a Henry Morgenthau (FDR's Treasury Secretary) in the Democrats' ranks today with the candor to admit, as Morgenthau did in 1939, that all the administration's extra spending hasn't helped, but has saddled us with a massive debt burden? Romney should forcefully make the case that deficit spending is both wrong and dangerous, and that it's time for Uncle Sam to live within taxpayers' means.

Obama talked about various "resets" earlier in his presidency. Well, let's reset federal spending to what it was when Obama took office and engineered the worst fiscal nightmare in nearly 80 years. For the first time in seemingly forever, voters would have a real choice between voting for more government and voting for less government. That would give the Ron Paul supporters a meaningful stake in this year's election. It should also appeal to the long-suffering taxpayers who get stuck with the tab for federal profligacy.

One of the Democrats' greatest political strengths is their unity. They know what they want. They want more, as in, more government. There is no end to how much more government the "progressives" among them want, although most are too cagey to admit that openly. Just ask them where they want government spending to shrink (except on national defense), and you'll find the list either to be empty or to include a couple inconsequential token cuts offered only as a fiscal fig leaf.

Will the Republican Party ever coalesce around the principle of steadily working for less government as strongly as the Democrats have coalesced around the principle of more? Perhaps not, but I'd sure like to see Gov. Romney surprise everyone and move the GOP in that direction in this prodigiously momentous election year. Give us a real choice, Mitt: More or less?

The Euro Is a Frankenstein Currency

What do Dr. Victor Frankenstein and the architects of the euro currency have in common? Answer: They both created monsters.

The euro is not "money" any more than the monster created by Dr. Frankenstein was a man. Whatever resemblances there may be to the genuine article are merely superficial. Nor is government needed to create money, any more than government is needed to create another human being. These things happen naturally.

In the case of money, it develops in the marketplace in response to the need for a medium of exchange for economic goods. Prices are ratios that communicate the degree to which individuals value the marginal (next) unit of the finite supply of economic goods.

Historically, societies around the world frequently found gold and silver to be the most suitable commodities to serve as money. Why? First, people value gold and silver whether they are used as a medium of exchange or not. Second, those metals have the natural advantages of being durable, divisible and portable. Third, it is easy to standardize the quality of each unit.

A government's perpetual tendency to amass more power impels government leaders to establish a monopoly over money. To facilitate increases in government spending, sovereign powers replace genuine money with fiat money - that is, paper money or, in the digital age, unseen binary data bytes. In doing so, governments and their central banks divorce money from its organic origin as the most marketable commodity in a society.

Commodity money is like a giant oak tree, firmly rooted in the soil of everyday voluntary economic choices. It is an organic, natural part of the economic ecosystem. When governments remove the commodity backing from money, people may continue to use it as a medium of exchange out of habit. Usually, though, legal tender laws compel them to keep using the fiat currency as their "money." On the surface, everything initially appears as it did before. Beneath the surface, however, the metaphorical oak tree that symbolized money has been separated from its roots. From the time real money is replaced by its fiat counterfeit, it starts to die from within. Eventually it collapses under the stress of some financial or political storm.

The euro is more abominable and more dangerous than your typical fiat currency. Today's Federal Reserve note (i.e., a "dollar") is like a giant oak tree that has become a hollow shell. Most of its substance has been eaten away by the inflationary creation of far too many units of fiat currency (all needed to finance government's insatiable appetite for spending). It still manages to stand, to serve in its weakened and brittle state as the medium of exchange, because it still has the "full faith and credit" of the U.S. government supporting it.

But as pathetic as Federal Reserve notes are, the euro is even worse, because there is no entity whose "full faith and credit" lies behind the euro currency. Each more hopelessly indebted than the other, 17 countries use the euro. Which of their governments can command sufficient economic resources to bail out zombie banks and bankrupt sovereign treasuries?

Returning to the tree metaphor, the euro was grafted together from pieces of 17 (so far) dying fiat currency trees of different species. The euro has had no roots from day one. It did not evolve naturally from market forces. Its trunk was stitched together from pieces of the deutsche mark, French franc and Italian lira fiat currencies, with its main branches from the peseta, the punt, the Dutch guilder and its minor branches from remnants of the fiat currencies of smaller economies, such as the Greek drachma and Portuguese escudo. The sutures that stitched together those decaying fiat currencies consisted of nothing more substantial than lies and empty promises. These were solemn pledges that debts and deficits would never, ever reach levels that were long ago exceeded. The experts who devised the euro currency were naive to have believed that democratic politicians would have the honor or capacity to maintain fiscal discipline.

The euro is a monstrosity doomed to be rent asunder by economic gale-force winds. Like characters in Jean-Paul Sartre's grim play, "No Exit," the people who use the euro currency are trapped. Either member countries will abandon the euro, in which case banks, governments, businesses and individuals go through a wrenching period of defaults, write-downs, "haircuts," and bankruptcies, or they lurch onward toward an unviable fiscal union in which Germany, Finland, and the few relatively solvent economies are crushed under the unsupportable weight of being expected to bail out the relatively bankrupt countries.

How much longer can the macabre dance of the EU's Frankenstein currency last? Europeans are paying an awful price for having adopted a Frankenstein currency instead of the real thing.

Mitt and Me: Romney at Cranbrook - a Personal Glimpse

What interesting timing. I had recently planned a column on my observations about Mitt Romney at Cranbrook. Why? Not because of anything in the news related to Cranbrook - at least not yet - but because our careers there (mine and Mitt's) overlapped. Then The Washington Post released its story about the young, alleged bully, Mitt Romney. Now my Romney article is twice as long as it would have been a week ago.

First, some background: I was a freshman in Stevens Hall, Mitt's dorm, during his senior year. At Cranbrook, freshmen watched seniors, but didn't hang around with them, so we didn't know each other. I doubt that he would remember me from Cranbrook (although we did meet briefly prior to the Salt Lake City Olympic Games as a result of my daughter having written the torch relay song for that Olympiad.)

Now, to the current issue: did Romney cut John Lauber's hair? I have no personal knowledge of the incident; in fact, I can't even remember John. But when men like Mitt's classmates, Tom Buford and Matt Friedemann, say publicly that it happened, then it happened. "Kraut," as we affectionately called Friedemann in those pre-political correctness days, was the prefect on my hall, and very kind to this freshman. I knew Tom, another prefect. I'd trust those two any day.

Was Mitt homophobic? The real question should be: Is the adult Mitt Romney homophobic? Cranbrook in the 1960s had a culture that probably would be considered "homophobic" today, but was the norm then. I don't know anybody there who actually hated or wanted to hurt homosexuals, but you sure didn't want to be called one. We were a bunch of adolescent boys with macho complexes, trying to live up to what we thought "real men" should be like. In the 1960s, that meant being masculine and heterosexual.

Did the school administration let Mitt get away with stuff because his dad was governor? Possibly, although seniors generally were a privileged class. As long as they didn't set the dorm on fire, the adults pretty much left them alone to do their thing.

Just as we made mistakes in the classroom and then (sometimes) learned from those mistakes, so we learned by trial and error outside of the classroom. For example, several of the guys who helped Mitt administer the unwanted haircut have stated that the incident bothered them. They learned something important about themselves: It didn't feel right to engage in unprovoked aggression against another human being. I'll bet they never did it again. Maybe Mitt learned the same lesson.

Was Mitt a bully? By today's standards, what Mitt did would be classified as bullying. By the standards of the 1960s, though, "bullying" seems like too harsh a term. The bullies I knew as a kid were pathetically antisocial boys who derived perverse pleasure from inflicting pain on kids who were clearly weaker than they were.

Mitt was anything but antisocial. After reading about this incident, I went back to my 1965 yearbook, both to see if I recognized John Lauber (I didn't) and to reminisce about Romney, Friedemann, Buford, and other guys I knew. There was Mitt in the Glee Club picture; as head of the Key Club; Mitt in the Pep Club; Mitt in "the Forum," a student group that studied geopolitical events; Mitt the chairman of the Homecoming Committee. Here's a guy who loved his school and gave much of himself - hardly the profile of the antisocial bully.

A bully's primary goal would have been to hurt John Lauber. I think Mitt was motivated by a too-ardent desire to uphold the school's unwritten cultural code, under the standards of which he thought John's bleached, styled hair to be effeminate, and thus disrespectful to the school and its student body. Does that make what he did right? Of course not.

On the other hand, if, in order to be president, someone has to have had a spotless, mistake-free youth - no lapses in judgment and not having committed a single embarrassing deed-then the office will have to remain vacant. The Washington Post reported one strange incident that may have been taken out of its social, cultural, and temporal context.

In the interest of doing my little bit to flesh out Mitt Romney's character, let me share a couple of first-hand observations of Romney at Cranbrook:

The one quality about Mitt Romney that stood out more than the others was his abundant joy. He was one of the happiest guys I've ever seen, although he had his serious side, too. His love for life was palpable.

I'd surmise that Mitt's joy stemmed from his happy family life. When the demagogues sneer that he was born with a silver spoon in his mouth, they are right, but not in the way they mean. Mitt's good fortune wasn't his father's money, but that his parents imparted to him great emotional wealth. He had to have a lot of emotional security and self-knowledge to be able to enter into such a successful, enduring marriage at such a young age, and I think that was George and Lenore Romney's truly valuable bequest to him.

Romney's joy is no mere trivial factoid. It has relevance for this presidential race. I would prefer POTUS to be a happy, secure individual, and one who has loved and been grateful for his country all his life.

Let me share another vignette with you, one that speaks to Romney's character: At Homecoming of his senior year, a couple of the regular runners on Cranbrook's cross country team couldn't compete that week. That meant that Mitt, who was further down the depth chart of a very strong team, would finally get to run in a varsity race. When the runners burst into view on the far side of the football field during halftime, Mitt astounded everyone by being near the lead. He had pushed himself to run the race of his life. But then, about 100-150 yards from the finish line, he reached his physical limit. Starved for oxygen, his legs started to shut down. His stride gave way to an unsteady stagger. Runners started to race past him. Then, winded and ashen, his face contorted in acute distress, he collapsed on the track some 30 yards from the finish line.

He could have quit and stopped the agony. He had nothing to gain, it seemed, for every other runner had passed him, but still he didn't give up. Instead, he literally crawled and dragged himself yard after yard on the cinder track, until finally he crossed the finish line and received some first aid. It was a heroic effort.

Lesson: When Mitt Romney is committed to something, he gives it his all.

President Obama and his supporters in government and the media have their work cut out for them. The president's record is weak, so he can't run for reelection on that. The logical Plan B is to turn Romney into a monster. That could prove to be a major strategic error.

I haven't had the privilege of knowing Mitt Romney, the adult. Others will have to tell us about his adult conduct. All I can tell you is that I saw a lot of potential for a life of positive accomplishments in that lanky teen in Stevens Hall. *

Saturday, 05 December 2015 05:08

Hendrickson's View

Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

Yo-Yo Economics?

President Obama recently referred to free-market economics as "you're-on-your-own economics." It's a catchy phrase - rhythmic, alliterative, clever. Too bad it's bunk.

The only genuine "you're on your own economics" - let's call it "yo-yo economics," for short - is known as "Robinson Crusoe economics." It applies only to those who really are on their own, like sole inhabitants of islands or hermits. Apart from those oddities, human beings don't live in solitude, but are interdependently connected in a social division of labor.

In a free-market economy, individuals typically prosper to the extent that they contribute economic value to others. Those who earn high incomes are generally producing more of what people value than those earning lower incomes. To President Obama and his ideological kindred, social justice consists of government overseeing a compulsory redistribution of property from the productive to the less productive. Disdaining free markets as "yo-yo economics," Obama advocates a radically different agenda - what we might call "we'll always take care of you" economics, or, to use another child's toy as an acronym, "BB economics" (as in "Big Brother economics").

We may concede to the president that, in a free market, some people will be in need. These include children, the sick and disabled, and even some healthy, involuntarily unemployed adults. It is a non sequitur, though, to conclude that the federal government must provide economic support to those people. Relatives, friends, neighbors, churches, voluntary community organizations, etc., can address those needs at far less cost and with a much more personal touch than can federal bureaucracies. Even if one believes that government must be involved, local, county, and state governments are closer to the situation than Uncle Sam.

The declaration that federal programs are not essential is anathema to the president's belief in BB economics. According to him, yo-yo economics

. . . has been tried in history and it hasn't worked. It didn't work when we tried it in the decade before the Great Depression. It didn't work when we tried it in the last decade.

Wrong, wrong, and wrong. Let's correct those errors with facts.

1) What the president belittles as "yo-yo economics" - that is, a system characterized by voluntary economic transactions - predominated for the first 125 years of our history. The glaring and regrettable exception, of course, was slavery. The salient historical fact here is that during the period of yo-yo economics, the United States developed into the richest country in the world. Contrary to the president's counterfactual statement, "yo-yo economics" did work.

2) Later in our history, in the 1920s and 1930s, the superiority of the free-market/yo-yo over the government-intervention/BB model was clearly demonstrated. The depression of 1920-21 was as severe and rapid an economic contraction as any in U.S. history. Unlike the contraction in 1929-30 that eventually persisted for 12 years, the severe depression in the early 1920s ended in 1922. By 1923, the economy was firing on all cylinders. Why?

The policy response of the Harding-Coolidge administration was to cut tax rates and slash government spending - basically to get government out of the way to let free markets make the necessary price adjustments. In the 1920s, yo-yo economics was an indisputable success. Obama's insistence that "it didn't work when we tried it in the decade before the Great Depression" is patently untrue.

In stark contrast to the successful policy response in the early 1920s, Presidents Hoover and Roosevelt opted for BB economics: massive tax increases, government spending, new regulations. The result was the 12 years of made-in-Washington misery that became known as the Great Depression. Ignoring that grim historical lesson, Obama has persisted in pushing 1930s-style, debt-financed, "stimulus" spending, and a huge expansion of government power over economic activity.

3) President Obama's third historical inaccuracy was that "we tried [yo-yo economics] in the last decade" under George W. Bush and "it didn't work." Here, the president is half-right. It's true that the last decade's overall economic performance was inferior. The problem with the president's statement is that George W. Bush's policies were the antithesis of yo-yo economics-everything from the addition of a new federal entitlement (Medicare Part D), to Wall Street bailouts, to expanding the annual federal budget from $2 to $3 trillion per year in only eight years.

The president's aggressive historical revisionism is no mere academic debate. We're not dealing here with inconsequential trivia like his 2008 gaffe about having visited 57 states. The stakes are much greater. Obama has contrived a historical narrative that justifies the kinds of economic policies that retard rather than promote prosperity.

The truth will make us free - and falsehood will make us less free.

The GOP: A Party in Flux

With Rick Santorum having dropped out of the race, Mitt Romney is apparently the Republican nominee for POTUS, barring a "black swan" event swooping down out of nowhere.

Why has the Republican Party taken so long to decide upon its presidential nominee? The two most common explanations given have been the structure of the primaries and the absence of an "ideal" candidate. Those are valid reasons, but there is one more that generally has been overlooked: The Republican Party itself is in a state of flux, and its new identity has not yet gelled.

The Tea Party message of smaller government has been dominant in the GOP primaries. However, even though the old guard, moderate, country club, establishment -choose whichever clich you prefer - wing of the party was eclipsed in the nominating process, it remains a formidable force in Washington. This was evident in the recent Senate vote on repealing all subsidies to all private energy companies (conventional and renewable): 19 Republicans voted with every single Democrat against abolishing the subsidies. Also, the very fact that the most conservative budget proposal put forth in Congress by Paul Ryan (R-Wis.) - a plan that, while obviously superior to the Obama alternative, will increase federal spending and debt - shows the present limits of the Tea Party's influence.

The Republican Party may indeed be evolving into a truly conservative party, but the transformation is far from complete. Many rank-and-file Republicans have been becoming more conservative at different rates, so it is not surprising that the candidates struggled to find the "sweet spot" where one could establish himself as the ideal 2012 Republican.

Although many Republicans were dismayed and disheartened as the primary race dragged on, there is an excellent chance that this sense of malaise will quickly dissipate now that the race is essentially over.

The bickering between the candidates was unpleasant and cast a pall over the nominating process, but that was a passing phenomenon that will soon be forgotten. Mitt Romney, Rick Santorum, and Newt Gingrich took turns pointing out each other's past flirtations with interventionist government, while trying to outdo each other in professing to repent of those earlier missteps, and emerging as the one genuine, born-again, true-blue conservative.

Ron Paul, meanwhile, who remained unnominateable due to his noninterventionist foreign policy (and perhaps even his uncompromising free-market principles), must feel vindicated that his three opponents (in some cases) staked out positions much closer to his consistent, constitutionalist, limited-government philosophy than would have been conceivable four years ago.

The Republican program in 2012 became clear even before Romney emerged as the standard-bearer. The last four men in the primary race - Romney, Paul, Gingrich, and Santorum - all agreed: The federal government is too big, the country is in deep trouble, and the presidency of Barack Obama has been disastrous. All four advocated less federal involvement in education, effective control of national borders, lower taxes, fewer bureaucracies, repealing Obamacare, greater freedom to develop domestic energy resources, less social engineering by Washington, etc.

Choosing between Romney, Gingrich, and Santorum was, for many, like choosing between vanilla, chocolate, and strawberry ice cream. Their personalities, pasts, and priorities had different flavors, but their philosophies were of the same general type. The presidential election campaign will generate far more enthusiasm among Republicans than the primary race did, because voters will now have a clear-cut choice between Republican ice cream or another helping of Barack Obama's spinach.

Barack Obama has already laid the groundwork for a very challenging economic environment in 2013. Whoever is president will have to cope with a bruising debt-ceiling battle, the scheduled expiration of the Bush tax cuts, a weak job market, unresolved systemic problems with Social Security and Medicare, a badly deteriorated power grid, and degraded military capabilities - not to mention possible complications resulting from Obama's feckless foreign policy.

Frankly, I don't think there is a person on earth who is completely prepared for all the challenges that will confront us during the next four years. I am convinced, though, that if Romney is elected, he will devote himself unreservedly to trying to solve those problems, while Obama would just make them worse. Tea Partiers, moderate Republicans, independents, and anyone else hoping for a change of direction in our country, can either unite behind Mitt Romney or concede defeat to Barack Obama. That is the choice before us.

Reflections on the French Election

The election of Socialist Party candidate Francois Hollande to the presidency of France epitomizes the sorry state of contemporary democracy. By that, I don't mean to imply that the French people should have voted for the incumbent, Nicolas Sarkozy. Neither would be capable of solving France's intractable problems in a way acceptable to French voters, nor are the problems with democracy unique to France. To varying degrees they exist throughout Europe as well as here in the United States.

The first problem is: widespread economic illiteracy. Hollande campaigned on a platform of economic growth and expanded job creation, to be accomplished by raising taxes on the rich and increasing government spending. Well, good luck with that one. Even Lord Keynes himself advocated lowering taxes rather than raising them to stimulate economic activity. And the record of net job creation via government stimulus is one of dismal failure. Hollande's program can't work, and yet a majority of the French electorate voted for it. How sad.

The second problem is the utter cynicism of today's politics. One wonders whether Hollande himself truly believes his own campaign rhetoric. One senses that he knows that his socialistic policies would drive France's struggling economy into the ditch: According to the World Socialist Web Site ( - who were cheerleaders for Hollande's campaign promises of more tax and spending - Hollande's team has told Reuters that he is going to change course and "carry out reactionary policies . . . and intensify social cuts."

The third problem is that people sometimes believe in fairy tales. Who knows what Hollande believes or understands about economics, but let's give him credit for being politically astute. He understood that the key to electoral success is to tell voters what they want to hear. In France's case (as in the recent elections in Greece and northern Germany) most people are opposed to "austerity." Hollande sized up the public mood and won the presidency on the theme of, "You don't want austerity, and under me, you won't have it." That's bunk. There is going to be "austerity" (in France and elsewhere) whether the people want it or not.

The fourth problem is that the public is in denial about reality. What is commonly called "austerity" is more accurately termed "sobriety." For years, people in the democracies have been voting themselves economic freebies and subsidies - getting high on the drug of government wealth transfers. They became addicted to politicians who promised and voted more and more monetary fixes for their present and future desires. That means that politicians who indulge voters' fantasies and play along with the delusion that the government is a bottomless cornucopia of goodies will have the electoral advantage over those who are courageous enough to tell people the truth about the hard choices that must be made.

What the voters didn't reckon on - and what they are still in denial about - is that just as a feel-good drug addiction eventually brings one to the point where additional fixes could prove fatal, so the democratic Santa Claus state has neared the breaking point. Either the binge stops - that is, government spending and promises of future benefits are trimmed back - or the system breaks down. The ineluctable fact is that there simply isn't enough real wealth in existence to make good on all these government promises. The penalty for not facing up to this painful economic truth will be either a market rejection of sovereign debt or a central bank "quantitative easing to infinity" that debases the currency, either of which will convulse markets horribly.

The biggest problem underscored by the French election is the degenerate state of modern democracy (with apologies to Aristotle and our Founding Fathers, who would consider "degenerate democracy" a redundancy). Democracy today is both childish and cannibalistic. It is childish in the sense that masses of people believe that if they want something, all they need to do is vote for it and they will get it - as if economic reality can be transformed by a mere act of will, and government can conjure desired benefits out of thin air. It is cannibalistic in that so many have fallen into a state of moral depravity and pathetic impotence in which they believe that the only way they can have the comfortable life is for government to take other people's wealth and give it to them.

Many people believe that government is the answer to their problems. They are about to learn the painful lesson that government isn't the answer. I doubt many of them will recognize that their pain will be self-inflicted. As H. L. Mencken once put it, "Democracy is the theory that the common people know what they want and deserve to get it good and hard." The French, the Greeks, and a lot of other people living in democracies are about to get a jolt of economic reality and sobriety "good and hard."

The Tax Rate Scandal

When Republican presidential candidate Mitt Romney casually estimated that his effective tax rate is around 15 percent, progressives immediately pounced on the issue. To this ideological minority with its Ahab-like obsession on class warfare, a rich American paying an effective tax rate of "only" 15 percent is, a priori, a scandal of the first order.

Yes, this story is a scandal (actually, a series of scandals) but not the one that progressives think it is.

It is scandalous that so many journalists and commentators have gotten their basic facts wrong. They have conflated average "effective" tax rates with statutory rates. Under our complex and convoluted tax code, no American pays an effective rate that is as high as his top marginal rate (the statutory rate on the last dollar of income). As it turns out, Romney's effective tax rate of 15 percent is higher than the effective tax rate of approximately 97 percent of taxpayers.

An even greater scandal is that Romney's tax rate is as high as it is. Most of Romney's income comes from his investments, i.e., from capital. Of course, those still influenced by the defunct labor theory of value and Marxian class envy think that taxing capital makes sense. They deride investment income as "unearned" income, as if capital doesn't contribute anything of value to economic production, when, in fact, we owe our wealth almost entirely to capital.

Capital, far from being the cruel exploiter of labor, is labor's major benefactor. Human labor and natural resources are found around the world, but the rich countries are the ones in which the productivity of human labor (and therefore wages and standards of living) have been multiplied by capital.

Americans' relatively high standard of living exists because, according to the opponents of capitalism, greedy capitalists have "exploited" us more than people in poor countries. Well, we should be thankful for this type of so-called "exploitation." Taxing capital diminishes its supply, thereby crimping labor's productivity and lowering workers' standards of living. Any tax on capital above zero percent is scandalously stupid and perversely anti-labor.

A third scandalous aspect of the Romney tax-rate story is that the very people making the tired, tedious complaints that America's income tax code is "unfair" are those who are primarily responsible for the unfairness. Fairness, or justice, means equal treatment before the law. In taxation, that presents two options: Either tax everyone the same amount or tax everyone at the same percentage rate. There is no principle that defines the "right" degree of progressivity in tax rates; such rates are essentially arbitrary, determined by who holds political power - a "might makes right" calculus devoid of ethical content.

Finally, the most egregious scandal in the story about Mitt Romney's tax rate is that the discussion about taxation is distracting us from what is, by far, the major problem our elected officials in Washington need to address: out-of-control federal spending. Granted, a flat tax, if not a consumption tax, would be a huge improvement over the current monstrosity that is our 72,000-plus-page tax code. However, we can survive our flawed tax code for decades, whereas runaway federal spending threatens our country's financial viability in the short run.

Uncle Sam is racing toward a fiscal train wreck that requires a massive cutback of the 75 percent increase in federal spending that has been added over the past dozen years, but neither party is talking along those lines. The Republicans are willing to trim around the edges, whereas the Democrats are digging in their heels against even those token cuts.

Here's an experiment you can try: Ask any candidate running for federal office this year how he or she would cut $1 trillion in spending. They won't have a clue. That's the real scandal of Election Year 2012.

Economics: The Cheerful Science

Chances are, you've heard economics referred to as "the dismal science." That unflattering description is glib and catchy; it is also 100 percent wrong. Let me set the record straight and explain why economics - far from being dismal - is cause for hope, joy, cheer, and optimism.

Thomas Carlyle, a 19th-century Scottish essayist, coined the phrase "the dismal science." Carlyle was reacting to grim predictions made by the classical economists David Ricardo (1772-1823) and Thomas Malthus (1766-1834). Ricardo posited an "iron law of wages" that sentenced laborers to a life of poverty at the margin of survival. Malthus became the intellectual forebear of today's gloomy environmentalists by asserting that the human population tended to increase geometrically while the means of sustenance would grow only arithmetically, thereby, like Ricardo, condemning humankind to a poor, tenuous life.

Yes, those theories were dismal. Thankfully, though, they were utterly demolished by subsequent events. In country after country, populations and standards of living have multiplied since the days of Ricardo and Malthus. The classical economists failed to foresee such future phenomena as widespread middle-class affluence and people being defined as "poor" despite having cars, air conditioners, and cell phones (not to mention indoor plumbing, a reliable supply of clean water, and other conveniences that most people lacked in 1800).

Let's not be too harsh in judging Ricardo and Malthus for their lack of foresight. Who, in 1800, could have foreseen the marvelous growth of productivity and wealth that would transform the world over the next two centuries? To do so would have been to envision a state of affairs without precedent, entirely outside their scope of experience.

What was "dismal" to Carlyle was not economic science, but economic error. Would it be fair to dub aeronautics a "dismal science" on the basis of the many failed attempts at manned flight in the pre-Wright brothers era?

The fact is that "economics," as a distinct science, was still in its embryonic stage when Carlyle wrote. Economics had not emerged as a distinct field of study, and there were no "economists." Adam Smith was a professor of moral philosophy. Ricardo was a businessman, investor, and politician. Malthus was a preacher. The first chair in "political economy" (notice: NOT even "economics" yet) wasn't established until 1825 at Oxford University.

The classical economists contributed greatly to our understanding of markets, the coordinating function of prices (the "invisible hand"), the division of labor, the need for freedom, and a very light hand for government - but they still hadn't discovered the foundational principles of economics. They were still in the thrall of such persistent errors as "the labor theory of value."

"Economics" as a modern science wasn't "born" until the 1870s, when the neoclassical school emerged as a result of finally figuring out what "value" was. There is no "economic science" without understanding value any more than you can have chemical science without understanding valences, or valid arithmetic without zero.

Since Carl Menger's brilliant discovery and articulation of the "subjective theory of value" in 1871, economic science has flourished, culminating logically in Ludwig von Mises' general theory of human action, called praxeology. Mises used the science of economics/praxeology to prove a priori that socialism literally could not be viable, and that if the goal of a wealthy society is one's goal, then private property, limited government, and free markets are the means to achieve that goal. In the decades since Mises explained how the world works, history has confirmed the validity of his theories.

Mises' economic science has unlocked the secrets of wealth creation. We know which policies work and which are counterproductive. We now have the economic knowledge to unlock humankind's potential for eliminating chronic poverty and coexisting and collaborating in a world characterized by peace and abundance.

Why, then, is there so much "dismal" news on the economic front today? Because political agendas and powerful special interests trample economic principles for their own selfish purposes, thereby thwarting the amazing economic potential that economic science makes available to us.

Since 1995, the Heritage Foundation and Wall Street Journal have published an Index of Economic Freedom, an examination of 10 political conditions that affect wealth creation. More freedom, as measured by this index, correlates significantly with economic growth. The recently released 2012 edition shows that the United States has fallen to the 10th-freest economy in the world. It is no coincidence that our economic growth has stagnated as economic activity has become less free.

This bad news has a silver lining: We know what we need to do to return to prosperity. Economic science will work in our favor-if only we adhere to its inexorable principles and get the oppressive burden of Big Government and failed political ideologies off our backs.

The dismal clouds on today's horizon are a toxic mixture of moral corruption, political power-grabbing, and economic error. Economic truth is the sunlight that illuminates the way to a bright and glorious future. Thank God for this cheerful science. *

Saturday, 05 December 2015 05:04

Hendrickson's View

Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

China's "Superior" Economic Model?

In a recent piece for the Wall Street Journal, Andy Stern, an Obama insider and one of organized labor's more aggressive personalities, praised what he called "China's superior economic model."

Does China have a superior economic model? That depends: Superior to what?

Mr. Stern, who headed the Service Employees International Union, cited Andy Grove, founder and chairman of Intel, who concedes the 20th century's "decisive victory of free-market principles over planned economies." That is true. However, both Stern and Grove proceed to assert that some unspecified degree of government economic planning will generate more prosperity than free markets. Stern writes that the "free-market fundamentalist" model that made America prosperous "is being thrown onto the trash heap of history in the 21st century." He argues that we should jettison our "empirically failing free-market extremism."

Really? Pardon my candor, but what planet does Mr. Stern inhabit? For something to be "empirically failing," it must first exist. Where in America is this supposed extreme "free market" system that Stern disdains?

In the United States today, government has largely nationalized the home mortgage market; cartelized the financial system; partially commandeered the auto industry; begun to take over the energy industry; plays the dominant role in the retirement, education, and health care of most Americans; has a leviathan bureaucracy that does everything from shutting down the development of domestic energy, to telling corporations which states they can operate in, to blowing taxpayers' money on boondoggles. As for the boondoggles, they are both great (ethanol and solar energy) and small ($2.6 million to study whether alcohol increases a Chinese prostitute's chances of contracting AIDS).

That said, I share Mr. Stern's dissatisfaction with our sluggish economic growth, and agree that we should not be too proud to observe and learn from competitors like China. In fact, there are two important lessons we can learn from China right now:

First, China's impressive economic growth rates prove rather than disprove the need for free markets. While China's leaders dictate certain economic priorities and parameters, and insist upon loyalty to the Communist Party's political monopoly, they often practice a policy of benign neglect toward provincial and regional entrepreneurs, giving them considerable latitude in a free-wheeling, wild west scramble to find ways to create as much wealth as they can.

A second important lesson from the Chinese, and one that helps to explain why their growth rate is higher than ours, is that we are drowning in debt while they are awash in savings.

Before we jump to the conclusion that China's economic model is the way of the future, we should remember that we have heard similar projections before. In the late 1980s, commentators raved about the Japanese economic model. Predictions abounded that the Japanese economy was so powerful and unstoppable that it would soon surpass our own and be the wealthiest in the world. Like the Chinese state today, the Japanese government worked closely with businesses to forge an industrial policy that (allegedly) would prove far superior to a free-market model. Then the wheels fell off and the bubble burst. Since then, Japan has struggled with economic stagnation and malaise.

China, of course, has a much larger population than Japan, and it certainly is possible that it eventually will have the largest GDP in the world, but to the extent that the Chinese government calls the economic shots and tries to pick winners and losers, China runs the risk of ending up like every other country (including our own) that has squelched free markets - broke and stagnant.

It is ironic that the former head of a major American labor union is enamored with a political system and economic model in which workers earn low wages and are not represented by independent labor unions. The precarious state of individual rights and liberty in China doesn't seem a great concern to Andy Stern. Instead, he is eager to sign on to a system that (according to Professor Ralph Reiland in an Investor's Business Daily commentary) enables the sons of China's top Communist Party leaders to buy $400,000 Ferraris and $32-million mansions.

China's hard-working people and high savings rate are impelling China's rapid economic development, and for that China deserves our respect. But the political system of crony capitalism run by the Chinese politburo is antidemocratic and elitist to the core. For Andy Stern to claim that such a model is superior to freedom and free enterprise . . . well, you can draw your own conclusions.

When Clarence Thomas Came for a Visit

On Tuesday, November 15, Supreme Court Justice Clarence Thomas visited Grove City College. I had a choice to make - whether to meet him or attend to the tons of work I had to finish before several looming deadlines.

I don't share our society's fascination with famous people. I never go out of my way to meet them, and when I do meet them, I don't ask them for their autographs like some starry-eyed teenager. The father of a close friend once told me that every man, regardless of how important a position he may hold, puts his pants on one leg at a time. A person and the position that he or she holds are two different things, and the office does not automatically confer greatness.

I decided to set aside everything to meet Justice Thomas. This man has bravely and heroically defended the U.S. Constitution for the last two decades, and for this alone, he has earned my gratitude. It would have been selfish of me not to have taken a couple of hours out of my schedule to express my appreciation to him for his valiant efforts - especially since I would probably never have another opportunity to do so.

I arrived early at a private luncheon for the Grove City faculty and Justice Thomas. He arrived early, too, and since I was the only one there at the moment, he came up to me and we introduced ourselves. That was the beginning of an uplifting, inspiring day for me.

I can attest that Clarence Thomas is a warm, down-to-earth, personable man. The first question he asked me, when I told him that I taught economics, was whether I was familiar with the work of Ludwig von Mises. When I replied that I had earned my doctorate under Hans Sennholz, who had earned his under Mises, we were off to the races.

Besides economics, we compared notes about our upbringing. I had read part of Justice Thomas' autobiography and was amazed at some of the uncanny parallels in our lives. Both of us were raised not by our fathers but by older, stern male relatives who practiced "tough love" and even kicked us out of the house during our rebellious, angry, cheap-wine-drinking, socialist-leaning college years. As young men, we both had our Christian reawakenings. I should mention that my youth was not nearly as challenging as his, because he had to deal with the cruel racism that permeated the Deep South when he was a boy - an awful burden that he has transcended, largely through the Christian grace of forgiving those who had done wrong.

Justice Thomas is one of the most amazing people I have ever met. Indeed, I am groping for words that do full justice to the impact that Justice Thomas had on those of us who listened to him in the intimate setting of small classrooms and other occasions. I wish you could have seen the way our students' faces lit up while listening to him. We have very mature, attentive students at Grove City College, but I have never seen them as rapt as when Justice Thomas was speaking with them. He shared wisdom, personal vignettes, historical perspective, and helpful insights, but there was another level of communication going on that transcended his words:

It may sound corny to say this in this cynical day and age, but we were blown away by the sheer goodness and virtue of this man. I truly found Clarence Thomas to be the epitome of humility, integrity, public service, and faithfulness - both to God and to the solemn responsibilities of his important office. In regard to the latter, Justice Thomas was always discreet, carefully withholding his personal opinions whenever a question was asked about an issue that the Supreme Court would be adjudicating. He reiterated that his job was not to make rules for the rest of us - to presume to judge whether a law or application of a law was good or bad, wise or imprudent - but simply to determine whether it was constitutional.

Before meeting Justice Thomas, I respected him immensely. After meeting him, my admiration grew exponentially. Again, call me corny, but I was affected in a spiritual way - like I was a better person for having been in the presence of this good man. I don't feel that way often.

Godspeed, Justice Thomas. And thank you not only for what you are doing but also for who you are.

Barry and the Babe

Barry Bonds' Dec. 16 sentencing for obstruction of justice is an anticlimactic addendum to a sterling, though marred, baseball career.

Without a doubt, Bonds was a great hitter who didn't need performance-enhancing drugs to put up Hall of Fame numbers. Bonds had dedication and self-discipline. He worked hard for many years to stay in shape, prolong his career, and be the best he could be. Unfortunately for his reputation, the consensus is that he went too far.

It's interesting to reflect on how far people will go to gain an edge. Movie and TV stars "cheat" on what nature gives them - some with plastic surgery, others with breast augmentations, perhaps some even with steroids. Like them, Bonds tried to give the public what they were looking for - in his case, the ability to hit a baseball an awe-inspiring distance. In sports, though, cheating to gain an unfair advantage offends most Americans' sense of fair play.

At this unhappy time for baseball, let's look back at a player to whom Bonds was frequently compared - the game's greatest icon: Babe Ruth. When Bonds surpassed Ruth's career homerun total, he remarked that we shouldn't have to hear about the Babe any more. It's sad that he resented being spoken of in the same breath as the Babe. He should have felt honored.

Babe Ruth was sui generis - one of a kind. He occupies an irreplaceable and unmatchable spot in American sports history. In fact, you can make the case that he single-handedly elevated professional sports to national prominence.

Ruth became a legend by virtue of his prodigious athletic feats and his larger-than-life character. Where Bonds was sometimes reserved and cool toward reporters and the public, the Babe was gregarious and sunny. The fun-loving Babe led a colorful life, and he gladly made numerous visits to children in hospitals. He loved people, and people in turn loved him.

As a slugger, Ruth has no equal. Only 35 times in major league history has a player achieved a season slugging percentage of at least .700. Ruth did it nine times. Bonds did it four times, all after bulking up late in his career. Ruth hit at that level much longer, compiling an incredible cumulative slugging percentage of .711 for his 15-year career with the Yankees.

Bonds' highest slugging percentage, in 2001, was an astounding 127 points above the runner-up, Sammy Sosa (another slugger who tested positive for steroids). That is dominance! But Ruth's highest slugging percentage, in 1920, was even more impressive. The runner-up, Hall of Famer George Sisler, batted an eye-popping .420, was second in the league in doubles, triples, and homers-yet had a slugging percentage 215 points lower than the Babe. The next year, Ruth's slugging percentage was 240 points higher than the runner-up, Hall of Fame outfielder Harry Heilmann, who batted .394.

The bulked-up Barry Bonds smashed some long home runs, but never did he hit a 500-foot homer. Ruth hit dozens of homers over 500 feet, set the distance mark in every American League park, and hit the longest verifiable home run in major league history in Detroit in 1921 - at least 570 feet on the fly. Bonds' power was concentrated in four seasons. Babe hit his last 500-foot home run 18 years after his first. It's scary to think what Babe would have accomplished if he had half of Barry Bonds' commitment to training.

Babe's preternatural power was such that he occasionally reached second base before an infielder would catch one of his pop-ups. (Showing his fun-loving personality, he hit one pop-up so high that the infielder lost sight of it, so Babe caught it himself in his bare hands.) Another news account tells of Babe hitting a screaming line drive that nearly hit the pitcher's head before sailing over the centerfielder and hitting the centerfield wall 500 feet away (yes, some of those early ballparks were that deep in center field) on one bounce.

The greatness of Ruth would not be complete if we did not acknowledge several other dimensions of his baseball skills. Tris Speaker, Hall of Fame outfielder, testified that Ruth was one of the five or six greatest outfielders he ever saw. The Babe stole home 10 times in his career. As a pitcher, Ruth won over 100 games; still has the 17th-lowest career ERA and the fourth-lowest World Series ERA; had a winning record in head-to-head match-ups with the great Walter Johnson; and pitched complete game victories in 1930, after not pitching for a decade, and again in 1933 after an additional three-year hiatus. He also played on seven World Series winners (three in Boston, four in New York).

I wish Barry Bonds peace. Meanwhile, baseball fans, let us rejoice in the baseball miracle that was Babe Ruth. *

Saturday, 05 December 2015 04:55

Hendrickson's View

Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

The Election-Year Politics of Energy

Realizing that his popularity may decline as the price of gasoline rises, President Obama is barnstorming the country, emphatically insisting that drilling for more oil isn't the cure for high gas prices and that wind and solar energy represent our energy future.

Republican presidential candidate Newt Gingrich recently challenged Obama, claiming that gas prices would fall to $2.50 per gallon or lower if he were president. Many Americans believe Gingrich when he says that repealing Obama's anti-drilling policies would increase the supply of oil and push gas prices lower. In his weekly address on March 10, Obama disputed Gingrich's assertion, arguing, "With only 2 percent of the world's oil reserves, we can't just drill our way to lower gas prices."

One wonders how the president can make such a claim, given that natural gas companies are currently hurting because, in fact, they have drilled their way to lower natural gas prices. Surely this president does not believe that the law of supply and demand doesn't apply to oil, too.

To the contrary, Obama concedes just that when he considers dipping into the Strategic Petroleum Reserve for no other reason than to lower gas prices in an election year.

When you think about President Obama's antipathy for oil companies' profits, you would think that he would be one of the most vocal supporters of more drilling. After all, increased production of oil would drive down prices and shrink profits. How deliciously ironic that Obama's own anti-drilling policies are handing windfall profits to the very oil companies he rails against.

The president's statement about America having only 2 percent of oil reserves is misleading. The size of our reserve is actually quite vast, but the percent of the world's oil we have is far less important than the amount we produce. The United States accounts for at least 6 percent of global production of petroleum - a figure that would be significantly higher had President Obama's party not been impeding and restricting domestic petroleum production for years.

On March 14, the president ramped up his anti-drilling argument. He employed hyperbole, asserting, "If we drilled every square inch of this country . . . we would still have only two percent of the world's known oil reserves." To assert that a massive increase in drilling would result in no increase of oil defies logic and experience. The reality is that reserves have grown year after year, decade after decade, precisely because the more we drill, the more oil we find.

The president resorted to a "straw man" subterfuge to disparage Republicans who aren't on the "green" energy bandwagon, snidely proclaiming that they "probably would have agreed with one of the pioneers of the radio who said, 'Television won't last,' or the Henry Ford associate who argued that 'the automobile is only a fad.'" First, the comparison is inapt. Neither radio nor the Ford automobile needed government subsidies, whereas "renewable energies" have received them for years, even decades, and they still aren't cost-effective. Second, I don't know anyone - Republican, Democrat, or Martian - who would oppose clean, renewable, cost-effective energy. Nobody is against "green" energy per se. The objection is to costly, taxpayer-financed government subsidies to the politically connected, and to mandates that compel Americans to purchase uneconomical forms of energy.

The Wall Street Journal recently reported that the Democrat-controlled Senate defeated Sen. Jim DeMint's (R-SC) budget amendment to eliminate every federal subsidy and tax credit to all energy companies, whether they produce fossil fuels, renewables, batteries, or nuclear power. By voting with all Democrat senators (yes, every single one) to defeat DeMint's amendment, 19 Republicans showed that the GOP is not yet a free-market party. What chutzpah Vice President Biden showed by denouncing Republicans as the party of privilege during the very week when his own party voted unanimously to retain expensive taxpayer-subsidized privileges to corporate America.

The Obama/Biden tandem's overstated rhetoric may backfire on them. When people don't have the facts on their side, their attempts to ridicule others can end up making themselves look ridiculous. Apparently, the president and vice-president are betting that enough voters believe so fervently in hope, change, and other good things that facts, basic economic knowledge, and common sense won't burst their bubble.

Upheavals in American Education: The Start of Something Big?

Reform in America's public schools occurs with seemingly glacial slowness. In the private sector, businesses (including schools) that provide a lousy product quickly lose customers. They either correct their deficiencies or they eventually close. Similarly, if the problem is poor performance by a private enterprise's workers, then either the employees start doing a better job or management replaces them to save the company.

These market-based, pro-consumer forces are largely absent from taxpayer-supported schools, because public schools have captive "customers." Young residents of a public-school district are legally required to attend school, and in areas where those schools lack meaningful, affordable competitors, the youngsters are trapped by a virtual monopoly. The school can do a poor job year after year, and teaching jobs can become sinecures for the mediocre, the burned out, and the indifferent, protected by powerful unions that exist to serve teachers and not the pupils with whose education they have been entrusted.

It is in that context that I was glad to hear the news out of Chicago that Democratic Mayor Rahm Emanuel has announced plans to close 17 of the city's worst-performing schools. This seems like one of those Nixon-in-China moments when only a politician from the party normally allied with unions would dare to implement a policy that is so hated by the teachers' union. Indeed, the mayor's courageous decision brought upon him the ire of Jesse Jackson and the Chicago Teachers Union, but I salute Mayor Emanuel for challenging a status quo that protects failed, dysfunctional schools.

I can attest from first-hand experience that some schools are so dysfunctional that they simply cannot be reformed. Early in my career, I did some substitute teaching in innercity Phoenix. While there were several schools that were pathetic, one particular middle school sticks in my memory.

The windows in the classrooms had been smashed so often that the decision was made to brick them up, depriving the rooms of any natural light. A favorite pastime was to turn off the light switch when the teacher wasn't looking. That was a signal for books to be thrown through the air. Everyone, including the teacher, would take cover, because in the total darkness, everyone was at risk of injury, while it was nearly impossible to know who had thrown the particular book that hit somebody.

At that same school, kids would tear pages out of books to get out of doing assignments. At least a dozen seventh-grade girls were pregnant at any given time. A fulltime teacher there (a former college linebacker) told me that a good day was when nobody got hurt. The priority at that school was safety, not education. That school should have been euthanized and something else done in an attempt to salvage a decent education for those children.

Similar to Mayor Emanuel's decision to pull the plug on a few failed schools in Chicago, there are similar moves afoot in California, where a majority of parents could sign a petition that triggers a major reform of an unsatisfactory public school, up to and including shutting it down if it can't be reformed or restructured satisfactorily.

That is the good news. The bad news is that union operatives and allies, some from outside the area, used a combination of intimidation and lies against parents who had signed petitions to trigger reforms, causing the petition to be rescinded. It remains for the courts to determine whether the original petition is valid or not, but in the interim, reform is being blocked. This may be a short-term victory for the teachers' union, but in the long run, they may find (as in Wisconsin) that their aggressiveness may turn people against them.

In New York City, teacher evaluations were made public at the instigation of The Wall Street Journal and other media organizations. This is problematical, and I'm not sure I agree with it. Yes, without a doubt, teachers should be held accountable for their performance and irremediably ineffective teachers should be canned. But can't this be done without making public spectacles of inferior teachers? Perhaps a small committee of parents could be allowed to see the evaluations on the condition of confidentiality being maintained as long as the school district acts to replace bad teachers. In short, remove them, but don't make them wear a scarlet letter.

There are signs that significant upheavals are beginning to occur in public education. Let's hope they gain traction and momentum. We owe it to our young people. A decent education is an integral part of the American Dream.

People Say the Darnedest Things

Those of you past a certain age may remember the old Art Linkletter show "Kids Say the Darndest [sic] Things." The one I still remember was when Linkletter asked a little boy if he looked like his daddy. "No," replied the boy innocently, "I look like the mailman."

Well, adults say the darnedest things, too. Sometimes they give us a window into their egos or their ignorance. Sometimes their comments contain important truths. Other times, they don't even make sense. Let me give you an example of each kind of statement, starting with an example of the latter.

Many journalists have dutifully reported that the latest Greek bailout will reduce Greece's national debt to a "sustainable" level of 120 percent of GDP (from over 164 percent today) by the year 2020. The problem is, they never explain how Greece will be sustained through the next eight years of "unsustainable" debt levels until the level supposedly becomes sustainable. Sustaining the unsustainable for eight years is quite a trick!

At the opposite pole from such unthinking fatuity is a statement of blazing clarity made by Rick Santorum during a recent GOP debate. With refreshing candor, Santorum stated to a nationwide audience:

I voted for that [No Child Left Behind Act]; it was against the principles I believe in . . . and I made a mistake.

Politics is known as a business where principles routinely fall by the wayside, but rare indeed is the politician who admits to compromising principles.

As an example of a statement that displays a disturbing ignorance of elementary economic rationality, President Obama's friend and adviser, Valerie Jarrett, recently asserted that unemployment payments are economically beneficial, because

. . . people who receive that unemployment check go out and spend it and help stimulate the economy.

Those who advance this theory never explain how prosperity can improve from putting more money into circulation without any additional goods or services being produced. If the key to economic progress is more money in circulation, then let Federal Reserve Board Chairman Ben Bernanke rain money down on us from the figurative helicopter to which he once alluded. In real life, boosting prosperity is not that simple.

It's scary when one realizes how many members of Team Obama, including the leader himself, share Jarrett's faith in tossing money at a problem. Apparently, they really believe in the mysticism that economist John Maynard Keynes preached when he wrote in 1943 that increasing credit (or money) performed the "miracle . . . of turning a stone into bread."

Finally, if you want a supreme example of how a statement can provide a revealing glimpse of a person's ego, consider the president's speech at the National Prayer Breakfast last month. In it, he attempted to justify tax increases and government redistribution of wealth by citing Jesus' statement, "unto whom much is given, much shall be required."

I agree 100 percent with what the Lord said, but President Obama tore it out of context and twisted its meaning. The statement, which is the punch line in Jesus' parable of the talents, reminds us that it is God (not government) Who has blessed humans with the gifts of life and talent, and that we owe it to God (not government) to use those gifts productively for His (God's, not government's nor Obama's) glory and purposes. For a human being, even one as powerful as the president of the United States, to seek to usurp the place and prerogatives of the Creator takes hubris to the highest degree.

Yep, people do say the darnedest things. And those things can be quite illuminating when we pay attention.

Sports, Concussions, and Contemporary American Culture

If you follow professional sports, and especially if you are a football or hockey fan, you undoubtedly are aware of the rash of concussions that have rendered players unfit to play. Now there's a rash of lawsuits being filed against the National Football League, the latest of which includes a group of 106 retired football players, all alleging that the NFL should have done more to protect them from known risks.

We here in western Pennsylvania are acutely aware of this phenomenon. The Pittsburgh Steelers' linebacker, James Harrison, was suspended for a game after concussing Colt McCoy with a helmet-to-helmet hit on the defenseless Cleveland quarterback. On December 13, I attended my first hockey game in years, watching the Detroit Red Wings beat the Pittsburgh Penguins, 4-1. It was an exciting, well-played hockey game that I enjoyed, but would have enjoyed more if two Penguins' stars, Sidney Crosby and Kris Letang, had not been sidelined by concussions.

The question has arisen: Should the NFL and National Hockey League tighten the rules to protect players from concussions? Opponents argue that these sports are inherently risky and violent, and that to curtail the action in any way would diminish, if not ruin, the game. I respectfully disagree.

It's time for the owners and commissioners to exercise leadership and take decisive action to reduce the incidence of concussions.

Let me offer the Detroit-Pittsburgh hockey game as Exhibit A in support of my case. I wish you could have been there. The game was a magnificent display of athletic skill and intense competition. The players' wizardry on skates was accompanied by hard checks, collisions, and knockdowns on open ice, against the boards, and in the goalmouth. In other words, it was a clean game - tough, physical, without a whiff of wimpiness, but also without a single cheap shot.

This game was hockey as it was meant to be - artistic, fast-paced, and rugged. The play-making skill of Henrik Zetterberg, the power and precision of Evgeni Malkin's booming shot, the magician-like stick of Pavel Datsyuk, the acrobatics of goalie Marc-Andre Fleury, were a wonder to behold.

Such displays of skill make hockey a great spectator sport - not goon-like thuggery where a player takes a shot at an opponent's head. The hockey game I saw was physical enough to satisfy anyone other than a macho sadist. It had "manliness" without crossing a line where players' lives were at risk from gratuitous and dangerous head hunting.

I'm sure the commissioners and team owners are currently calculating whether the potential premature end of the careers of a sport's marquee superstars (and the tens of millions of dollars that owners have invested in them) are worth risking to appease an appetite for mayhem. Even fans must think it would be a shame if the best players' careers were abbreviated by brain damage. But the discussion needs to go beyond the welfare of star players. Every professional athlete, even a rookie just called up from the minors to make his major league debut, is a precious human being. None of these athletes should have to go through life brain-damaged because the leagues are unwilling to police headshots.

A sickness has crept into our culture. Some sports fanatics think that cheap shots that can result in brain injuries are a legitimate part of sports. This warped mentality brings to mind James Caan's 1975 movie, "Rollerball." In that futuristic world, the powers-that-be kept loosening the rules of the fictitious sport rollerball until players eventually were allowed to kill their opponents, so that victory would go to the team that survived - literally.

We seem ominously close to starting down the same senseless slippery slope as dramatized in "Rollerball." In pagan societies, life is cheap and individuals are expendable. Think of the blood-thirsty Roman crowds in the Coliseum who derived perverse pleasure from seeing gladiators not just defeated, but destroyed.

Call me a wimp, if you wish, but it's time for the owners, players, commissioners, etc., to rein in the headshots. It's one thing in sports to want to physically dominate an opponent and "whup 'em." It's something totally different to inflict brain damage on another human being for life.

A Whiff of Privatization

Three decades ago, Prime Minister Margaret Thatcher implemented a policy called "privatization" to rejuvenate the moribund economy of the United Kingdom.

Like the United States today, the cost of a too-large government was sapping the vitality of the U.K.'s economy. The private sector was staggering under the heavy tax burden needed to fund the public sector. In fact, despite very high tax rates, taxation could not keep up with government spending, so the Bank of England (the U.K.'s central bank) created more money (what we euphemistically call "quantitative easing" today) to make up the difference.

Prime Minister Thatcher's solution to this untenable situation was brilliant and elegantly simple: She decided to divest the government of its nationalized businesses by selling them to private investors - i.e., privatization. This shrank the budget deficit dramatically, first, by shrinking expenditures, since the government would no longer have to fund those businesses, and second, by increasing revenue. Revenue was increased both immediately, via the price paid by private investors for government assets, and on an ongoing basis, as private firms and their employees became net taxpayers.

A whiff of privatization is in the air here in the United States, and at the federal level. (Privatization has been widely practiced by American states and local governments during the past two decades.) A bill called the Civilian Property Realignment Act (H.R. 1734) is "in play" in the House of Representatives. Its objective, according to Congressman Mike Kelly's press release, is to

. . . save billions of taxpayer dollars by selling or redeveloping high value federal properties, consolidating federal space, maximizing the utilization rates of space, and streamlining the disposal of unneeded assets. . . . If passed into law, the Office of Management and Budget (OMB) estimates that H.R. 1734 could generate $15 billion in revenue from property sales, in addition to the billions more generated from future cost avoidance from simply owning less property.

Given the federal government's gargantuan debt and deficits, H.R. 1734 should be a no-brainer, a slam-dunk. One would expect any member of Congress who professes any concern for fiscal responsibility to vote for this bill. Nevertheless, the bill is flawed.

Selling properties outright is a great idea, but is "redeveloping . . . properties and consolidating . . . space" a great idea? Sorry, but I have no confidence in Washington's ability to manage resources efficiently. Just sell the stuff and let private-sector experts in property management figure out how to make economic use of those properties.

Hopefully, H.R. 1734 would be a first step in a much larger privatization process. While the United States doesn't have a large inventory of nationalized industries to privatize like the U.K. did in the 1980s, there are many assets that Uncle Sam could sell to the private sector to start reducing the national debt.

First, Uncle Sam could divest itself of vast swaths of federally owned land. Surely, the government needs nowhere near the 30 percent of our national territory that it owns.

Second, privatize AmTrak; privatize the Post Office and rescind its monopoly privilege; and completely privatize government-sponsored enterprises, so the taxpayer doesn't get stuck with any more Fannies and Freddies.

Third, privatize the Government Printing Office and any other federal agency or office that unfairly competes with unsubsidized private companies.

Fourth, privatize any government activity that profits private businesses: energy research, the Export-Import Bank, the advertising programs in the Department of Commerce, etc. At a time when many large American corporations are sitting on record amounts of cash, we don't need to increase the national debt to subsidize them.

Fifth, whether you can find a bidder or not, quit funding the PR and grant-bestowing desks in federal agencies. Their main function often is to use our tax dollars to promote their own expansion. If federal employees want to toot their own horn or give money to non-profits who will do their lobbying for them, let them do it on their dollar, not ours.

Finally, don't waste time trying to reform bureaucracies or make them more efficient. Only the profit-and-loss calculus in competitive markets can do that. Put any federal agency on the block if it is performing a function that conceivably could earn a profit, and sell it to the highest bidder. (If there are no bidders, you're looking at an economically unviable operation, so axe it - unless our lives depend on it.) If an agency isn't fulfilling its purpose, and its primary function seems to be to provide well-paying jobs to otherwise unemployable holders of undergraduate and law degrees, then just pull the plug and abolish it.

Let's hope that the whiff of privatization leads to far more than selling a few unused properties, and that there's real movement toward shrinking the federal government by privatizing many of its properties and activities.

The Tax Rate Scandal

When Republican presidential candidate Mitt Romney casually estimated that his effective tax rate is around 15 percent, progressives immediately pounced on the issue. To this ideological minority with its Ahab-like obsession on class warfare, a rich American paying an effective tax rate of "only" 15 percent is, a priori, a scandal of the first order.

Yes, this story is a scandal (actually, a series of scandals) but not the one that progressives think it is.

It is scandalous that so many journalists and commentators have gotten their basic facts wrong. They have conflated average "effective" tax rates with statutory rates. Under our complex and convoluted tax code, no American pays an effective rate that is as high as his top marginal rate (the statutory rate on the last dollar of income). As it turns out, Romney's effective tax rate of 15 percent is higher than the effective tax rate of approximately 97 percent of taxpayers.

An even greater scandal is that Romney's tax rate is as high as it is. Most of Romney's income comes from his investments, i.e., from capital. Of course, those still influenced by the defunct labor theory of value and Marxian class envy think that taxing capital makes sense. They deride investment income as "unearned" income, as if capital doesn't contribute anything of value to economic production, when, in fact, we owe our wealth almost entirely to capital.

Capital, far from being the cruel exploiter of labor, is labor's major benefactor. Human labor and natural resources are found around the world, but the rich countries are the ones in which the productivity of human labor (and therefore wages and standards of living) have been multiplied by capital.

Americans' relatively high standard of living exists because, according to the opponents of capitalism, greedy capitalists have "exploited" us more than people in poor countries. Well, we should be thankful for this type of so-called "exploitation." Taxing capital diminishes its supply, thereby crimping labor's productivity and lowering workers' standards of living. Any tax on capital above zero percent is scandalously stupid and perversely anti-labor.

A third scandalous aspect of the Romney tax-rate story is that the very people making the tired, tedious complaints that America's income tax code is "unfair" are those who are primarily responsible for the unfairness. Fairness, or justice, means equal treatment before the law. In taxation, that presents two options: Either tax everyone the same amount or tax everyone at the same percentage rate. There is no principle that defines the "right" degree of progressivity in tax rates; such rates are essentially arbitrary, determined by who holds political power - a "might makes right" calculus devoid of ethical content.

Finally, the most egregious scandal in the story about Mitt Romney's tax rate is that the discussion about taxation is distracting us from what is, by far, the major problem our elected officials in Washington need to address: out-of-control federal spending. Granted, a flat tax, if not a consumption tax, would be a huge improvement over the current monstrosity that is our 72,000-plus-page tax code. However, we can survive our flawed tax code for decades, whereas runaway federal spending threatens our country's financial viability in the short run.

Uncle Sam is racing toward a fiscal train wreck that requires a massive cutback of the 75-percent increase in federal spending that has been added over the past dozen years, but neither party is talking along those lines. The Republicans are willing to trim around the edges, whereas the Democrats are digging in their heels against even those token cuts.

Here's an experiment you can try: Ask any candidate running for federal office this year how he or she would cut $1 trillion in spending. They won't have a clue. That's the real scandal of Election Year 2012. *

Saturday, 05 December 2015 04:47

Hendrickson's View

Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

Green Fiascoes and Boondoggles

A barrage of news headlines on the Solyndra scandal continue to remind us that President Obama made green jobs one of his administration's priorities. Those headlines also reveal this initiative to have been a costly mistake.

The bankruptcy of Solyndra, the solar-panel manufacturer that has collapsed despite receiving half a billion dollars from the federal government, is only the tip of the iceberg. The Wall Street Journal recently reported that several other green companies that received generous federal aid are teetering on the brink.

Ener1, whose subsidiary EnerDel received a $118 million federal grant, lost $165 million in fiscal 2010 and has dim prospects. According to the Journal, Ener1 had "lost its bid to supply batteries to Fisker Automotive, a battery-powered car maker which received a $529 million U.S. taxpayer-backed federal loan guarantee in 2010," when "Fisker chose to buy its batteries from a company called A123 Systems, itself the recipient of a $249 million U.S. Department of Energy grant."

Great! First Team Obama extends taxpayer dollars to green companies, then it torpedoes them by giving larger grants to their competitors. Meanwhile, Fisker, itself a recipient of over a half-billion dollar handout from Uncle Sam, is making its cars in Finland.

Team Obama's record on creating green jobs is no more confidence inspiring than its record in mid-wifing a viable electric car industry.

A recent study by the Labor Department's Inspector General examined what became of $162.8 million of Obama stimulus money funneled to the Employment and Training Administration. Set up to "train and prepare individuals for careers in 'green jobs,'" the score is this: 53,000 individuals were trained, 8,035 got jobs, and only 1,033 trainees still held those jobs after six months.

There are at least four important reasons why we should stop funding "green" government programs:

First lesson: government-appointed experts are incompetent economic planners - a fact of life that any intelligent adult should know after the spectacular failure of central economic planning in the socialist experiments of the 20th century. No matter how brilliant and how well-intentioned government planners may be, they do not and cannot know what consumers want and how much they are willing to pay for it. Only free markets can solve this challenge. If electric cars are to be a viable industry, private companies will make them so.

Second lesson: The government's involvement in Solyndra raises troubling questions about possible corruption. While I think the Solyndra deal stinks to high heaven, I wonder whether any laws have been broken. Where is the dividing line between influence peddling, legitimate lobbying, political deal-making, and actual crime? Many farm-state Republicans have supported the uneconomical ethanol boondoggle for decades in exchange for generous support of their electoral campaigns, so the practice is bipartisan.

Third lesson: Government job programs are a blatant failure. They have never been economically beneficial. In the 1930s, Franklin Delano Roosevelt had the department of agriculture hire 100,000 Americans to monitor how much acreage American farmers were cultivating. These federal jobs produced no wealth. Their jobs made no more economic sense than paying people to dig holes and then fill them up.

Today's green workers are economically nonsensical, too. True, they sometimes produce something, but the economic value is invariably less than the amount of tax dollars needed to subsidize their job. In other words, federal jobs make us poorer.

Fourth lesson: Finally, we simply can't afford these green boondoggles. Uncle Sam's official debt is now $15 trillion, and when you include off-budget items and unfunded liabilities, the situation is far worse. Given this fiscal reality, it is the height of irresponsibility to throw taxpayer dollars at any special interest, and it is particularly egregious to subsidize enterprises that are plainly uneconomical.

I am not opposed to green industries. What we need is for the government to get out of the way and let green technologies prove themselves in the competitive marketplace. It's time for change and an end to economic foolishness. Let's get the burden of green boondoggles off the taxpayers' back.

Veterans: What Is Seen and What Is Not Seen

In economics, the first lesson I teach my pupils is the lesson of things that are seen and things that are not seen. Actions have some effects that are readily apparent and others are overlooked or not perceived.

It's the same with our military veterans. We see the obvious price they've paid - the time they spent far away from home and some of the physical injuries, such as lost limbs. What we don't see are their psychological wounds. Sadly, these are more numerous than physical injuries, and they often cause greater suffering.

It took me many years to understand this. The uncle who raised me was as tough and fearless as any man I've ever known, yet even he struggled with deeply disturbing memories from World War II more than half a century later.

He tried to keep those memories bottled up deep inside, but after a few stiff drinks at night, those memories would issue forth in long soliloquies. Many times the uncle I called "Pop" recounted an incident that happened on the aircraft carrier Essex. He was in charge of making the planes flightworthy. One day, a fighter plane returned from its mission intact, except that when Pop checked the belly gunner's turret, he encountered a gory sight: the belly gunner's head had been blown off and the turret was a bloody mess.

As soon as he learned of the situation, the captain of the Essex wanted to know if the aircraft could fly again. Pop sent a message back via the ship's chaplain: Yes, the plane could fly, but all that blood would smell horribly in the tropical heat. Pop recommended confirming the identity of the dead man, administering last rites, then burying the man at sea in the plane in which he had given his life for his country. The captain signaled "thumbs-up" from the bridge, and so the plane became a coffin that was pushed off the flight deck into the Pacific.

Pop had seen much death and destruction in the war, but he couldn't shake the memory of this particularly vivid incident. Many times I had sat silently while Pop retold the story, doing my best to be a supportive listener. One night, while listening to this story for the umpteenth time, it dawned on me that Pop was haunted by that horrific image, and it seemed right to try to ease his torment. I decided to reason with him the way he had reasoned with me when I was growing up. "Pop," I said, " that belly gunner was no more dead than all the other soldiers and sailors killed in the war, and his death may have been more merciful than most, because it happened before he knew what hit him."

My statements hit home. Pop snapped out of his dreamy, far off, reverie. His eyes took on a clear, focused look. "I suppose that's so," he acknowledged, and he then turned the conversation to less intense subjects. I sat with Pop during many more nights when he drank and reminisced before his passing a year later. Never again did he tell that story. That nightmarish memory had ceased to haunt him. He had finally processed it and moved on.

Every veteran close to me has wrestled with disturbing memories to varying degrees. In some cases, it took years, even decades, before they were ready or able to talk about the traumatic events that have haunted them.

Our veterans have far more scars than meet the eye. For most of them, thank God, the love of their families, their many happy memories, and their personal courage to push ahead with satisfying and productive lives enable them to cope with the ugly memories of war.

How can we help them? That isn't an easy question, but as we pause to recognize and honor their service to our country on Veterans Day, let us resolve to do what we can. Let us be steadfastly supportive friends and family members.

If our veterans need to talk, let us be patient and compassionate listeners.

If they prefer not to talk about their military service and are getting on with their lives, then let us respect their wishes and let sleeping dogs lie.

If their military memories continue to hurt them today, perhaps we need to help them find professional help.

If nothing else, let us look for opportunities to express our gratitude for their sacrifices and pray that each precious one of them may find peace from haunting memories.

Looking Ahead to 2012, 2013, and 2014

Whoever takes the oath of office as President of the United States in January of 2013 will inherit an economy facing multiple challenges:

Undoubtedly, still-escalating federal spending will have the government bumping up against the debt ceiling again. By then, total federal debt will be larger than our GDP.

Unemployment is likely to remain high.

The supply and reliability of our power-generating infrastructure will be stressed and at risk due to President Obama's anti-energy policies.

Social Security and Medicare will still need to be reformed significantly to address long-term fiscal imbalances.

And the economy will encounter new headwinds as the landmines of tax increases with which Obama has salted the economic landscape are detonated. These include new taxes for Obamacare, the scheduled expiration of the Bush tax cuts, and the end of Obama's temporary reduction in Social Security withholding.

Obama has shown no indication of modifying his policies or agenda. Presumably, any of the Republican candidates would favor change on these issues (although perhaps not on Social Security and Medicare), but would he or she actually be able to solve these problems, even if there were a veto-proof Republican Congress?

The big political question for election year 2012 is: How much change would Republicans want? Would they downsize government as much as Obama upsized it? Will Republicans nominate a safe, moderate candidate (think: Ford, Bush, and Dole) - a technocratic tinkerer who accepts the entrenched paradigm of Big Government, and seeks to manage Leviathan better than Democrats would? Or will they opt for an unabashed conservative, a major reformer with a radical vision for smaller government?

That question wasn't even conceivable a year ago, but the tectonic plates in the American political landscape may be starting to shift. Whiffs of radical reform are in the air.

Herman Cain, who favors a three-step plan to replace the income tax with a national sales tax and the privatization of Social Security, has risen in the polls since his impressive victory in the Sept. 24 Florida straw poll.

On Sept. 27, Newt Gingrich unveiled his "21st Century Contract With America," proposing to replace such venerable bureaucracies as the National Labor Relations Board and the Environmental Protection Agency. In doing so, Gingrich dared to challenge two of the most powerful Democratic special interest groups in America, environmentalists and labor unions (the strangest political bedfellows in our country, since hardcore greens would eliminate jobs in industry if they could).

It is possible that the bold proposals of Cain and Gingrich are just so much noise - red meat offered by dark horse candidates designed to excite passionate conservatives, but that are anathema to Republicans who believe that a more centrist nominee would be more electable?

Another possibility is that a majority of Republicans will regard the 2012 election as an existential crossroad for our country, a last chance to change direction before we end up like Greece - financially bankrupt, economically moribund, and politically convulsed. In this scenario, just as the Democrats in 2008 nominated a man of the left, Obama, rather than a more centrist candidate, so the GOP will nominate an anti-Obama, a true-blue conservative as committed to a radical swing to the right, just as Obama pushed a radical swing to the left.

If the political pendulum swings far enough to the right to produce a 2012 conservative electoral landslide, and then Republicans follow through with bold cuts in federal spending and power, the years 2013 and 2014 will be crucial. If conservative policies revive the economy quickly, then Republicans could hold on to their 2012 gains in the 2014 mid-term elections. If not, or if they step on too many toes, then there could be an anti-Republican backlash for moving too far to the right, just as voters punished Democrats in the 2010 elections for moving too far to the left.

If a sizable Republican majority were elected in 2012, would they "roll the dice" and risk political suicide by instituting major reforms? I imagine there is some serious soul-searching going on now. I wonder how many of them are grappling with the dilemma that must confront every office-seeker in a democratic electoral system: Should I do what will get me elected or re-elected, even if I know that the policies I support will weaken our country, or should I vote for what I know will help the country, even if it costs me my political career?

These next few years will be fascinating.

Short-Lived Euphoria in Europe

Thursday, Oct. 27, 2011, was a giddy day for European politicians and global investors. European Union officials announced a plan for addressing the EU's worst financial problems. There would be a partial write-down of Greek sovereign debt - a 50 percent haircut for private bondholders, but no haircut for governmental creditors (the political class looks after its own). In addition, EU officials unveiled a one-trillion euro (approximately $1.4 trillion) bailout fund purportedly to recapitalize European banks and insure against sovereign defaults.

Stock markets on both sides of the Atlantic soared on this news. Euphoria reigned - for a few days, that is. Just three trading days later, markets gave up all of the previous Thursday's gains and pessimism returned.

Two events in particular have precipitated this manic mood shift: Prime Minister George Papandreou announced that he will submit the EU bailout plan to a national referendum, and the financial firm MF Global Holdings, which had placed a heavy bet on European government bonds, has declared bankruptcy.

Even if these two Halloween surprises hadn't spooked the markets, the viability of the EU bailout plan was in doubt anyhow.

Europe's financial problems are immense and intractable. Greece is the focus of attention, but when you realize that Greece's national debt is around 350 billion euros - its entire GDP is only about 225 billion euros, which shows how hopelessly broke the Greek government is - and the announced bailout fund was for one trillion euros, you can see that most of the bailout fund isn't for Greece.

Spain and Italy combined are almost three trillion euros in debt and run chronic budget deficits. Significantly, since the bailout plan was announced, interest rates on sovereign Spanish and Italian debt have risen, indicating widespread skepticism that the bailout fund (if it materializes) would buy sufficient time for those governments to get their financial houses in order.

While detailed specifics about the bailout plan are vague, cautious skepticism is prudent - for two major reasons:

First, where will the vast sum of one trillion euros of bailout money come from? Certainly, no European government has that kind of money set aside for the proverbial rainy day. Even Germany, the undisputed economic leader of Europe, has a national debt of 70 percent of its GDP and is limping along with a one percent growth rate.

Bailout funds would have to come from a combination of creative forms of monetary inflation and clever financial and accounting engineering, much of it using more of the leveraged gimmicks that already have made both Europe's and the United States' financial systems so stressed and vulnerable.

Second, how realistic is it to expect all EU member states to finally start to abide by the terms of the Maastricht Treaty that they signed - the one in which they solemnly promised to keep sovereign debt and deficits far below current levels? How many of the electorates in these democracies will support government "austerity plans" - a significant reduction in the government handouts to which they have grown so addicted?

The modern welfare state is broke. As Herman Van Rompuy, the president of the European Council, has stated, "We can't finance our social model anymore." Government spending will have to be trimmed whether Europeans want it or not, but don't expect European voters to admit the inescapable economic facts and vote for belt-tightening.

It is because voters don't want to surrender government benefits that Papandreou's announcement of a referendum in Greece caused consternation and displeasure among the EU's political elite. The irony here is rich: How dare the leader of a democracy leave such an important decision to the people!

Personally, I think Papandreou did what he had to do. If he were to try to cram austerity down the throat of his compatriots, he would appear to be siding with foreign elites against his own people. The present simmering rebellion in Greece would increase, giving way to social chaos and the fall of Papandreou's government, thereby triggering the sovereign default that Europe's leaders understandably want to avoid.

If Greeks vote against the terms of the bailout, Greece will default. If they approve the plan, then a Greek sovereign default may be delayed (not eliminated - Greece is too far gone to rescue). Even if we remove Greece from the equation entirely, events in Spain, Italy, Portugal or Belgium might trigger the dreaded chain reaction of bank and sovereign bankruptcies.

Decades of government intervention into economic activity have produced economic distortions, sluggish growth, an unsupportable debt burden, and a rotten financial structure ready to collapse of its own dead weight. In spite of that record, most Europeans want more government. That's their choice. Like it or not, sooner or later, we reap what we sow.

We've Been ZIRPed

It isn't easy to earn interest income these days. Interest rates on government T-bills, banks' savings accounts, and certificates of deposit are microscopic. You can blame our government and central bank. They have "ZIRPed" millions of American savers. Here are the details:

According to the U.S. Treasury Department, the average interest rate paid on federal debt, as of July, was just under 2.4 percent, implying an annual interest expense on $14.5 trillion of debt of nearly $350 billion. (Net debt, subtracting intra-governmental debt is lower; actual debt, including off-budget items, is higher.) If the average interest rate rose to 5 percent, the annual debt burden would rise correspondingly to well over $700 billion and consume approximately one-third of total federal revenues.

At some point, higher interest rates would consume such a large portion of federal revenues that only massive dollar creation by the Federal Reserve could provide funding for government's myriad programs. Washington simply cannot afford interest rates to rise, and therefore, the Fed will keep them abnormally low for as long as possible. In essence, the Fed has declared an end to a free market in interest rates.

The market price of interest rises when demand increases relative to supply and falls when supply increases relative to demand. Today's record-low interest rates imply that the supply of money saved, i.e., capital, is abundant relative to the demand for capital. It isn't.

Today's low interest rates are not the result of superabundant capital, but are the result of massive intervention by the Federal Reserve System. In response to the financial panic in 2008, the Fed adopted what is known as ZIRP - a "zero interest rate policy." This August, Fed Chairman Ben Bernanke announced his intention to maintain this policy for two more years. Doubling down on this engineered low-interest-rate policy, on September 21 the Fed announced "Operation Twist" - its plan to force down long-term interest rates even more.

Without Fed intervention, the supply of savings - genuine capital - would not be sufficient to finance and refinance all of the world's debt. Interest rates are this low only because the Fed has been using its extraordinary powers to boost the supply of capital with "fiat capital" - money that nobody has earned and saved, but that the Fed conjures up ex nihilo.

As with the supply of capital, Federal Reserve interventions, along with various government interventions, have manipulated the demand for capital. If the U.S. Treasury had to compete with vigorous private demand for capital, interest rates would rise, so it has been necessary to squelch private demand.

Government and its central bank have suppressed demand for capital in several ways:

First, the torrent of anti-wealth policies unleashed by the Obama administration have produced the "turtle phenomenon" - many businesses have gone into shells, postponing plans to open or expand until the cloud of uncertainty and fear of arbitrary wealth-destroying policies blow over.

Second, the Fed has been paying interest (albeit a modest .25 percent) on banks' excess reserves, and that has reduced the incentive for banks to lend those funds.

Third, there is abundant anecdotal evidence that banks have been rationing credit so severely that even low-risk customers often are denied loans.

American savers are taking it on the chin. With interest rates on Treasury debt being ultra-low, when you factor in inflation and taxes, savers are paying the Treasury to hold their money instead of earning a positive and market rate of interest. By creating artificially low interest rates, the federal government benefits by making artificially low interest payments on its massive amount of debt. In effect, ZIRP is bailing out our bankrupt government at savers' expense. This is one way that wealth is being "spread around" in the age of Obama.

By ZIRPing us unrelentingly, the Fed is proving that it is no friend of the people. To paraphrase the Gettysburg Address, the Fed is a tool "of the [government], by the [government], for the [government]." One is tempted to add: [May it soon] "perish from the earth." *

Saturday, 05 December 2015 04:43

Hendrickson's View

Hendrickson's View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Values.

Gold's Meteoric Rise

The price of gold has gone on a tear this summer, from slightly under $1500 per ounce to well over $1800 per ounce, and it looks like it wants to go higher. What gives?

Well, if you bought gold last spring, you're looking pretty smart. And if you bought gold a decade ago at $300 per ounce, you're looking like a whiz. Imagine buying a stock 10 years ago, having it appreciate fairly steadily over the decade, and then watching its price increase in less than two months by more than your original purchase price. For a commodity to increase at such a rate is truly extraordinary, even portentous.

For an investor, gold is an insurance policy, a way to preserve some purchasing power regardless of what happens to the official currency or a country's banking system.

For a society, the rising price of gold is not a good thing. When investors flock to gold, it means they are not investing in wealth-creating enterprises. Money (which is what gold is once again becoming) is the oil that enables a country's economic engine to run smoothly. Gold can't make our country wealthier any more than engine oil by itself will get you from point A to point B, so while owning some gold may be individually prudent, it won't make our country more prosperous.

Gold is a barometer that warns of financial and political storms. When its price goes up as much as it has this summer, it is telling us that our country is in deep, deep trouble. "Gold's meteoric rise" is just another way of saying "the dollar's sickening plunge." Because the dollar is our normal frame of reference, we think more in terms of the price of gold rising than the value of our currency falling. Gold provides a mirror image to the dollar, and the golden mirror is telling us that the Federal Reserve Note is critically ill.

Actually, the dollar has been sick for a long time. Forty years ago this month, President Richard Nixon "closed the gold window" - that is, the United States defaulted - yes, "defaulted." Nixon broke our country's solemn promise to redeem our foreign trading partners' paper dollars for gold. There had been another default in 1933 when President Roosevelt "closed the gold window" domestically by refusing to let Americans exchange paper dollars for gold (Americans were free to own gold again without restrictions in 1975). Indeed, FDR even made it illegal for Americans to own gold, just as the Soviet Communists forbad Russians to have dollars. But August 15, 1971 was the day that the dollar's last link to gold was severed.

Nixon's decision to default began the slow death process that is the inevitable fate of fiat currencies. It also means that we have been engaged in a partial default on our debts for the last 40 years, for we have been repaying our debts with Federal Reserve Notes that have less purchasing power than what we borrowed.

The dollar has now begun its death throes. (Don't panic, the process could take years.) The perception of increased likelihood of U.S. default by monetary debasement, triggered by the pathetically ineffectual debt-ceiling agreement earlier this month, has shaken the confidence of millions, if not billions, of people in Federal Reserve Notes. People just don't believe that our government will get spending under control. They have doubts about the paper Federal Reserve Note and, by extension, the "faith and credit" of the government whose creditworthiness undergirds the Federal Reserve Note for better or for worse.

Some may argue that gold is irrelevant and that the dollar really hasn't taken a hit because its exchange value against a basket of foreign currencies has remained fairly steady this summer. This is hardly reassuring.

The currencies from smaller-GDP countries don't compete with the dollar. What is your average American or European going to do with South Korean won or Mexican pesos? The only two currencies that compete with U.S. dollars are the euro and the Japanese yen.

Europe is a mess, suffering multiple sovereign-debt crises. The E.U. is on life-support and the euro could implode, yet the dollar can't rise against it. This is a sign of incredible dollar weakness, not strength. The yen has been the strongest of the three, which is astounding, since Japan has a debt-to-GDP ratio more than twice as high as ours and has been devastated by March's massive natural/nuclear disaster. If Japan, with its massive economic problems, is deemed the strongest major currency in the world, then the world's fiat currencies are a joke, and it is no wonder that the price of gold is setting new record highs.

Buckle up, folks. Things are getting very interesting, and it isn't going to be fun.

The Limits to Bernanke's Power

As chairman of our country's central bank, the Federal Reserve Board, Ben Bernanke is expected to put the economy on a sound footing and foster strong economic growth. Unfortunately, Bernanke faces "mission impossible" - partly because the policies implemented by Congress, the president, and bureaucrats account for much of what happens to the economy, and partly because the Fed has already done most of what it can do.

The Fed's favorite policy for stimulating economic activity is to lower interest rates to encourage individuals and businesses to buy more things and hire more workers. The problem today is that the Fed has already lowered interest rates about as much as it can. Currently, interest rates for U.S. Treasury debt obligations of one-year and shorter durations are at zero percent, and 10-year debt instruments yield only 3.125 percent. Despite these historically low rates, economic activity remains sluggish.

At his June 22 press conference, Bernanke said: "We don't have a precise read on why this slower pace of growth is continuing." His critics have been merciless and vicious in heaping scorn and derision upon him. Some have labeled him an "idiot" or "evil."

While I am no fan of Ben Bernanke or the Federal Reserve System, the name-calling is revolting. Intellectuals can be blinded by their theories, and one of the blind spots that Keynesians like Bernanke have (one shared by many members of the Chicago monetarist school) is that rapid expansion of monetary reserves is crucial to counteracting a recession. As the quick recovery from the severe economic and monetary contraction of 1920 demonstrates, a falling money supply need not lead to prolonged economic stagnation if there is flexibility in prices and wages so that supply and demand can quickly rebalance.

Even if Bernanke doesn't personally grasp why his monetary stimulus hasn't revived the economy, the Fed has plenty of researchers who could supply him with truthful talking points, such as, "there is still a housing glut," "spending is muted because the economy is saturated with debt," and "the uncertainty caused by Obama's anti-business policies has discouraged entrepreneurial risk-taking."

The problem is: Bernanke can't say those things. Unelected central bankers aren't supposed to meddle in the legislative process. (To his credit, Bernanke did warn Congress last year that it needed to get its fiscal house in order before there is a calamity.)

A more charitable interpretation of Bernanke's statement is that it was "Fedspeak" for the honest admission that, "The Fed can't do anything more to stimulate economic growth."

Here is Bernanke's problem: As of June 30, the Fed's "Quantitative Easing Two" program ended. Under it, the Fed had purchased approximately $80 billion of federal government debt every month since last fall. If nothing else changes, the removal of $80 billion of demand for government debt means lower prices for bonds and consequently higher interest rates.

Higher interest rates could abort a sustainable economic recovery. According to former director of the National Economic Council Lawrence Lindsey, if interest rates were to rise merely to normal levels (heaven forbid they should go higher!) the federal government's interest expenses would increase $4.9 trillion over the next decade. Thus, interest payments alone would consume over a third of Uncle Sam's revenue from income taxes. Spending on everything else, from entitlements to national defense, would be squeezed. Austerity, anyone? In short, higher interest rates must be avoided at all costs.

There are only two ways to avert a painful rise in interest rates in the post-QE2 environment. One would be for the supply of treasuries to fall. In other words, Congress and the president would have to agree on spending $80 billion less per month. Think: "snowball in hell." The other option would be if other buyers lined up to replace the Fed. But who could take up so much slack? The Chinese, Russians, and others are already reducing their purchases of U.S. debt, and the Europeans are engulfed in their own sovereign debt crises.

I wonder if Bernanke and Elizabeth Warren's new super-regulatory creature, the Consumer Financial Protection Bureau, will use their political leverage over financial institutions to compel them to borrow short-term treasuries to buy long-term treasuries on the grounds that not to do so would create systemic risk. Could Bernanke make a deal with European banks and governments, with whom the Fed has already been cooperating: You buy our debt, we'll buy yours, and we'll figure out how to stick the taxpayers with the cost later on? These are speculative musings, not assertions. Bottom line: either massive new buying of federal debt appears or interest rates rise, plunging a dagger into the heart of economic recovery.

Bernanke and the other powers that be in Washington are almost out of tricks to paper over our government's bankruptcy. Whatever you think of Bernanke personally, be grateful that you aren't in his shoes. He is fated to be a very unpopular individual.

Big Deal or No Big Deal?

As the August 2 deadline for a debt-ceiling deal drew near, many expected a big deal that would significantly change the direction of federal fiscal policy. After weeks of tumultuous negotiations, partisan bickering, and impassioned histrionics, the agreement that finally emerged was, to put it bluntly, no big deal. Ironically, the most accurate assessment I read about it was Russian Prime Minister Vladimir Putin's comment that it "was not that great overall because it simply delayed the adoption of a more systemic solution."

In exchange for raising the debt ceiling by another $2.4 trillion, federal spending will be cut next year by all of $21 billion (that's from projected increases, not an actual cut) and $42 billion (ditto) in 2013. It will be business as usual in Washington. Political gridlock has preserved the status quo of rapidly escalating federal spending and debt. After an unprecedentedly emotional rendition of what I term "the debt-ceiling dance," the big spenders prevailed yet again.

Washington's failure to forge a big deal over the debt-ceiling issue is turning out to be a very big deal for the rest of us. In a year when we are on target to pay more than $500 billion (close to 40 percent of personal income-tax revenues) in interest on the existing federal debt, our elected leaders have authorized $2.4 trillion in additional debt over the next year-and-a-half.

Anyone who thought that a debt-ceiling deal would reassure markets was sorely mistaken. Stocks cratered. Gold, which has been warning of serious political / economic / monetary malfunctions since its price was much lower, has exploded to over $1800 per ounce, signifying a grave deterioration of conditions.

One outcome of the debt-ceiling agreement has been Standard & Poor's downgrade of federal debt from the highest rating, AAA, to the still very high rating of AA+. Standard & Poor's announcement has turned out to be a really big deal, triggering panics in financial markets around the globe and eliciting indignant denunciations from Democrats and Republicans alike.

Team Obama adopted a "kill the messenger" tactic. Treasury Secretary Geithner cited a hastily produced CBO (Congressional Budget Office) statement asserting that S&P had made a $2-trillion miscalculation. Defenders of S&P claim that CBO manufactured the discrepancy by using a different time frame. Regardless, in today's fantasy world, when Uncle Sam is on the hook for a total financial shortfall of $75, $150, or $200 trillion - depending on one's time frame and other assumptions - $2 trillion, though a colossal number, really doesn't alter the picture.

The Senate Banking Committee appears to be trying to intimidate S&P by raising the prospect of a senatorial investigation.

Even conservative Republican Steve Forbes has blasted S&P. While Forbes is technically correct that the United States can't default, because the Federal Reserve can always create more dollars, cheapening the dollar amounts to a stealth default. Furthermore, a downgrade to AA+ in no way suggests that there is an imminent danger of default, but for S&P not to look down the road and report the possibility that all federal debts may not be repaid in full would be a dereliction of duty.

What has happened since the debt-ceiling agreement is that people around the world have voted "thumbs down" on the current government policy of racing further into debt. The agreement, as per President Obama's insistence, was designed to schedule the next debt-ceiling debate for after the 2012 election so that it wouldn't be a big deal in next year's political campaign. That is astounding. There could hardly be a bigger deal for Americans than making the choice between spending ourselves into the poorhouse and shrinking the federal leviathan to forestall such an outcome.

I anticipate that the debate over federal spending will be the principal election issue regardless of when the next debt-ceiling dance begins. If a majority of Americans want to be the Western hemisphere's Greece, a banana republic suffering from the mass delusion that government can economically support everyone indefinitely, then the Democrats will prevail. On the other hand, if a majority of Americans truly want less government, they will vote Republican (assuming the GOP can convince enough voters that they really would slash spending).

I wonder whether the GOP really would significantly cut federal spending. Ultimately, it is the voters, not the political parties, who decide how much government we'll have. Polls may show that a majority of Americans favor less spending, but the real test will be whether a majority of Americans will support reforms that include cuts to programs that personally benefit them. I hope I'm wrong, but I don't think a majority of Americans want that kind of change.

Solutions for the "Tax Gap"

In 2010, there was a "tax gap" - i.e., the difference between federal taxes owed and those actually paid - of $410-$500 billion.

Some of the gap stems from the complexity of the tax code. Much of it, though, is deliberate: self-employed individuals working for cash, table-servers under-reporting tips, taxpayers claiming unauthorized credits and deductions. And don't forget the highly paid White House, congressional, and federal agency staff (including some at the Internal Revenue Service) who, according to reports last year, collectively underpaid their taxes by tens of millions of dollars.

Unpaid taxes are unfair to the millions of taxpayers who pay their full tax obligation. What can be done?

Some suggest beefing up the IRS's budget and manpower. Many oppose this out of concern that an enlarged IRS would be like the Transportation Security Administration, making life miserable for millions of law-abiding citizens.

President Obama estimates that increased enforcement would capture 10 percent of the tax gap. That sounds accurate. Completely eliminating the tax gap is no more possible than completely eliminating waste and fraud from Medicare. When systems become as gigantic and convoluted as our tax code and the Medicare system, all the king's horses and all the king's men can't extirpate fraud, waste, and loss.

Since the tax gap is so intractable, we should investigate alternatives to the reflex political "solution" of hiring more government workers. I do not condone breaking the law, but if millions of otherwise law-abiding Americans are defying a law, then maybe something is wrong with the law itself.

Millions of Americans despise our tax laws. They believe that taxes are excessive and that the tax regime is arbitrary, discriminatory, and oppressive. One potential reform is to adopt a low, flat tax rate, such as those that Russia and other erstwhile Communist countries now have. Low, flat taxes reduce the incentive to cheat. Fewer people risk criminal prosecution for 12 or 15 percent of their income than when 28 percent or more is at stake. In addition to greatly simplifying the tax code (which would also reduce the portion of the tax gap resulting from miscalculations), a flat tax lessens the rebellion fueled by discriminatory progressive taxes.

An even more effective way to eliminate the tax gap would be the appropriately labeled "fair tax," which would replace all federal taxes on income with a national tax on consumption. The fair tax would restore taxpayer privacy, save the colossal amount of time spent calculating (or miscalculating) one's tax liability, and would bring the vast underground economy above ground into the taxpaying realm.

Either a flat tax or a fair tax would be better than the existing tax code, but the problem underlying the tax gap goes beyond our crazy, convoluted tax code. The fundamental problem is the widespread perception that our political system itself is immoral, dishonest, and corrupt.

Is it any wonder that taxpayers are cynical and demoralized when politicians routinely break promises; the government's own accounting watchdogs refuse to vouch for the accuracy of government's official budget figures; rich people and businesses with expensive tax attorneys and accountants can legally avoid taxes; and well-funded, politically-connected special interests get billions in handouts and bailouts from government?

Citizens perceive that our democratic process has degenerated into what H. L. Mencken dubbed an "advance auction of stolen goods." Trillions of dollars per year are redistributed according to who has power, connections, and lobbyists. American politics has become a never-ending donnybrook in which nearly everyone wants the government to make somebody else pay for the benefits they receive.

In the moral lawlessness that characterizes a redistributionist state, respect for property rights atrophies. When politicians, intellectuals, clergymen, the media, etc. demagogically denounce "the rich" and have the effrontery to call income that they grudgingly let a taxpayer keep "a tax expenditure," it is not a good situation for property rights. In this "every man for himself," "grab what you can get" culture, many individuals will defy the law.

The root cause of our elaborate, confusing, costly, maddening, and unfair tax system - and of the tax gap - is our delusional belief that we are entitled to a free lunch and our morally bankrupt insistence that government subsidize our lifestyles with wealth from others. Until we correct those errors and quit worshiping at the altar of Big Government, the tax gap will not go away.

Bernanke and the Potemkin Economy

On July 11, The Center for Vision & Values posted my article decrying the insulting name-calling directed toward Federal Reserve Board Chairman Ben Bernanke. The very next day, Bernanke made me question my forbearance by telling Congress that a third round of "quantitative easing" or "QE3" could be a near-term option.

Now it's my turn to call Bernanke a name, but I'll use a clinical label, not a crude one. He is an inflationist, although he may prefer the label "anti-deflationist." He so fears a deflationary spiral that he will create however many dollars he believes necessary to avert deflation.

Bernanke's repeated attempts to patch over the nation's economic weakness, rottenness, and dead wood with newly created dollars remind me of the "Potemkin village" ruse. The Soviet Communists duped foreign visitors into thinking that Communism was a viable and prosperous system by steering them to sham factories, stores, villages, etc. that appeared productive, bustling, and attractive. In reality, Potemkin villages were like movie sets, built to disguise the widespread poverty and backwardness that characterized life in the "workers' paradise."

Official statistics insist that the Great Recession ended two years ago. Yet unemployment is creeping up, record numbers of workers are remaining unemployed for record lengths of time, income is down for small proprietors, and millions of people feel as though the recession never ended.

It is a maxim that statistics lie. One such statistic is the gross domestic product. GDP has risen modestly the last two years, supposedly indicating growth rather than recession. Here is the flaw in GDP: By definition, GDP=C+I+G. In other words, GDP equals the sum of consumer spending, private investment, and government spending. (There is also a problematical addendum of net exports, reflecting the mystical mercantilist notion that a country is richer if foreigners obtain more goods and services than domestic residents do, but let's omit that here.)

In the last few years, GDP has increased by approximately one-third of a trillion dollars, while the government component has risen by closer to a full trillion dollars. That means that the private sector (consumption and investment) has shrunk. Government has cannibalized private sector spending and jobs. GDP creates a Potemkin-like superficial appearance of economic growth, but the private sector, the heart of the economy, is suffocating. The private sector share of GDP has contracted to its 1998 level.

Another Potemkin-like aspect of our economy involves the chasm between the economic fortunes of Wall Street and Washington on the one side, and Main Street on the other. Chairman Bernanke's QE1 and QE2 policies helped to propel a huge advance in the stock market over the last two years. The political and financial elite has been prospering, but, relatively speaking, aside from potentially unrealized gains in his 401K, that Fed-generated glitter may not have helped Joe Six-pack.

Here is what we need to understand: Bernanke and Co. have immense powers, but they don't have the right power. They can control short-term interest rates; virtually dictate the policies and practices of American financial institutions; artificially boost asset prices by purchasing whatever quantity of them they choose; bail out politically connected enterprises; and do many other things by virtue of their power to create dollars without limit. Yet, the one thing that Bernanke and the Fed cannot do is generate prosperity and thereby raise standards of living. They can benefit some at the expense of others by deciding which assets to purchase and where to deploy new dollars - that is, they can redistribute wealth, but they can't create it.

Question: Are there any grownups who really believe that our country can get richer by printing more money? If so, why not just mail everybody a check for $20 million? Even better, why not give every household its own little printing press so that whenever someone gets laid off or isn't generating enough income, he can create the wealth he needs by printing it?

There is really only one way out of Ben Bernanke's Potemkin-like economy. It isn't to replace Bernanke with a supposedly "better" central banker. Rather, we need to abolish the central bank and foreswear the fiat money that enables the Fed to create the cruel faade of Potemkin-like illusions on the rest of us. *

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