The solution is to talk

The following 3 minute video is from a question and answer session with Milton Friedman at Cornell University in 1978:

Milton defines the problem as follows:

Everyone wants to cut down government provided that those things that he has in interest in are maintained.

His solution:

The solution is for people like you and me to talk, to ourselves and our fellows and to try to persuade our fellow men to be of like mind, to change the climate of opinion in these respects, to try to correct the political structure...

Just say no to a national internet sales tax

A national sales tax on internet transactions is a very destructive idea.  Act now to stop this legislation.  Click on the link below to send an email message expressing your opposition to your Congressional Representatives:

http://taxeswithoutborders.com/

Gone with the wind

The following article appears in the Spring 2013 issue of "Regulation", a quarterly publication from the Cato Institute.

The High Cost of Low-Value Wind Power

Subsidized wind generates the least amount of power when it is most needed.
By Jonathan A. Lesser

The entire article can be found here:

http://www.cato.org/sites/cato.org/files/serials/files/regulation/2013/3/v36n1-8.pdf

The conclusions are as follows:

Continued subsidies for wind generation, both in the form of tax credits and mandatory renewable portfolio standards (RPS), represent bad economics and bad energy policy, for at least three reasons.

First and foremost, wind generation’s production pattern is not only volatile and unpredictable, it also has low economic value. Rather than displacing high variable-cost fossil generating resources used to meet peak demand, wind generation’s availability peaks when electricity demand is lowest. As a result, wind generation tends to displace low variable cost generation or simply forces baseload generators to pay greater amounts to inject power onto the grid because the units cannot be turned off and on cost-effectively. Thus, consumers and taxpayers are forced to subsidize low-value electricity.

Second, subsidized wind generation, like all subsidies, distorts electricity markets by artificially lowering electricity prices in the short run, but leads to higher prices in the long run. This imposes economic harm on competitive generators and consumers. Subsidies drive out competitors and increase financial uncertainty, thus raising the cost of capital for new investment in generation. In the long run, the impact of subsidies is electricity prices that are higher than what would prevail in a fully competitive market.

Third, subsidized wind generation results in additional social costs that are borne by consumers. Those costs include billions of dollars that must be spend on additional high-voltage transmission lines, which have their own adverse societal impacts, as well as additional costs that are incurred to integrate variable and intermittent wind generation onto the grid. In other words, wind generation imposes external costs on other market participants.

After 35 years of direct and indirect subsidies, there is no economic rationale for continued subsidization of wind generation. At the federal level, direct subsidies such as the federal production tax credit (PTC) should be ended immediately. Similarly, state-level subsidies, whether feed-in tariffs established by state regulators or statutory renewable portfolio standards (RPS) mandates, exacerbate market distortions and raise electricity prices, again to the detriment of consumers. These state subsidies should also be eliminated. Ultimately, continued subsidization of wind generation simply rewards a few niche generation companies and their suppliers, at the expense of the many. Given the massive federal debt and anemic U.S. economic recovery, this type of pernicious wealth redistribution cannot be justified.

Funding Government by the Minute

Please take 4 minutes to watch this very well made video from LearnLiberty.org.  You have seen and heard other discussions of our current Federal budget crisis but this video is extremely compelling.

http://www.youtube.com/watch?v=p0RkWqyn1y4&feature=youtu.be

Your Money or Your Life

“Taxation is theft, purely and simply.”
Murray N. Rothbard
The Ethics of Liberty

“Some experts have declared that it is necessary to tax the people until it hurts. I disagree with these sadists.”
Ludwig von Mises
Defense, Controls, and Inflation

“One thing is clear: The Founding Fathers never intended a nation where citizens would pay nearly half of everything they earn to the government.”
Ron Paul

This article appears in Mises Daily: Monday, April 15, 2013 by Llewellyn H. Rockwell Jr.

April 15th is a horrible day, because it sums up all the wealth destruction called taxation that we are subjected to all year long.

As Murray Rothbard pointed out, taxation is the worst method of looting us. Inflation is destructive, of course, and it might make a loaf of bread cost $10. But at least you get a loaf of bread. With taxation, you get nothing—except theft and other violations of our civil liberties.

Society, as Mises noted, is divided into two competing classes by interventionist government: the taxpayers and the tax consumers. If you are a payer, you are automatically demonized as greedy. On the other hand, those who want the fruits of your labor involuntarily transferred to themselves and their favored pressure groups are the compassionate.

At the Mises Institute, we have a different view. You have a right to what you earn, and those who use the threat and reality of government violence to take it from you are muggers in expensive suits. As Murray said, the State is just a gang of thieves writ large.

The politicians blab about spending cuts, but it is all lying propaganda. They plan to increase spending, but use the specter of alleged spending cuts as another excuse to pick your pocket with more taxes. (Spending cuts? Please throw us in that briar patch, Br’er Government.)

Then there are the attacks on tax “loopholes,” when you are allowed to keep some of your own money. As Mises said, it is through these loopholes that capitalism breathes.

But centuries of pro-tax indoctrination has had its effect. Eighty percent of people, according to a Pew study, think it’s immoral to “underreport” one’s income. It’s as if the politicians own us, but generously let us keep some of our own earnings.

That Pew survey does provide one ray of hope: more and more young people dissent from the morality of coercive taxation. We saw the anti-tax passion of the Ron Paul movement, and we see it at the Mises Institute.

It’s true, more and more young people reject the notion of taxation. They want lower taxes. Most of all, they want no taxes. They think they should be able to keep their own earnings.

With our publications, classes, website, and conferences, we are reaching these young people about taxes and the rest of government.

The young don’t want to be sheared. And they are looking for the freedom answers, for example that private property should be inviolate, for moral and economic reasons. They understand, as did 16th-century economist Juan de Mariana, that the only free country is one where no one is afraid of the tax collector.

The Libertarian Plot

Why Austrian Economics Matters

The following essay is by Llewellyn H. Rockwell, Jr. the founder and president of the Ludwig von Mises Institute.  The entire essay can be read at this link:

http://mises.org/etexts/why_ae.pdf

Here are some of the highlights (emphasis added):

The Austrian School..... is not a field within economics, but an alternative way of looking at the entire science.  Whereas other schools rely primarily on idealized mathematical models of the economy, and suggest ways the government can make the world conform, Austrian theory is more realistic and thus more socially scientific.

Austrians view economics as a tool for understanding how people both cooperate and compete in the process of meeting needs, allocating resources, and discovering ways of building a prosperous social order. Austrians view entrepreneurship as a critical force in economic development, private property as essential to an efficient use of resources, and government intervention in the market process as always and everywhere destructive.

The proto-Austrian tradition dates from the 15th-century Spanish Scholastics, who first presented an individualist and subjectivist understanding of prices and wages. But the formal founding of the school dates from the 1871 publication of Carl Menger's "Principles of Economics", which changed economists' understanding of the valuing, economizing, and pricing of resources, overturning both the Classical and the Marxian view in the "marginal revolution."

Eugen von Böhm-Bawerk was the next important figure in the Austrian School. He showed that interest rates, when not manipulated by a central bank, are determined by the time horizons of the public, and that the rate of return on investment tends to equal the rate of time preference.


Böhm-Bawerk's greatest student was Ludwig von Mises, whose first major project was the development of a new theory of money. The Theory of Money and Credit, published in 1912, elaborated on Menger, showing not only that money had its origin in the market, but that there was no other way it could have come about. Mises also argued that money and banking ought to be left to the market, and that government intervention can only cause harm.

In that book, which remains a standard work today, Mises also sowed the seeds of his business-cycle theory. He argued that when the central bank artificially lowers interest rates, it causes distortions in the capital-goods sector of the structure of production. When malinvestments occur, an economic downturn is necessary to wash out bad investments.

At the time of the business-cycle debate, Mises and Hayek were also involved in a controversy over socialism. In 1920, Mises had written one of the most important articles of the century: "Economic Calculation in the Socialist Commonwealth," followed by his book, Socialism. Until then, there had been many critiques of socialism, but none had challenged socialists to explain how their economy would actually work absent free prices and private property.

Mises argued that rational economic calculation requires a profit-and-loss test. If a firm makes a profit, it is using resources efficiently; if it makes a loss, it is not. Without such signals, the economic actor has no way to test the appropriateness of his decisions. He cannot assess the opportunity costs of this or that production decision. Prices and the profit and- loss corollary are essential. Mises also showed that private property in the means of production is necessary for these prices to be generated.

Socialism holds that the means of production should be in collective hands. This means no buying or selling of capital goods and thus no prices for them. Without prices, there is no profit and loss test. Without accounting for profit and loss, there can be no real economy. Should a new factory be built? Under socialism, there is no way to tell. Everything becomes guesswork.

Hayek used the occasion of the calculation debate to elaborate upon and broaden the Misesian argument into his own theory of the uses of knowledge in society. He argued that the knowledge generated by the market process was inaccessible to any single human mind, especially that of the central planner. The millions of decisions required for a prosperous economy are too complex for any one person to comprehend. This theory became the basis of a fuller theory of the social order that occupied Hayek for the rest of his academic life.


The Core of Austrian Theory 

The concepts of scarcity and choice lie at the heart of Austrian economics. Man is constantly faced with a wide array of choices. Every action implies forgone alternatives or costs. And every action, by definition, is designed to improve the actor's lot from his point of view. Moreover, every actor in the economy has a different set of values and preferences, different needs and desires, and different time schedules for the goals he intends to reach. The needs, tastes, desires, and time schedules of different people cannot be added to or subtracted from other people's. It is not possible to collapse tastes or time schedules onto one curve and call it consumer preference. Why? Because economic value is subjective to the individual.

Similarly, it is not possible to collapse the complexity of market arrangements into enormous aggregates. We cannot, for example, say the economy's capital stock is one big blob summarized by the letter K and put that into an equation and expect it to yield useful information. The capital stock is heterogeneous. Some capital may be intended to create goods for sale tomorrow and others for sale in ten years. The time schedules for capital use are as varied as the capital stock itself. Austrian theory sees competition as a process of discovering new and better ways to organize resources, one that is fraught with errors but that is constantly being improved.

This way of looking at the market is markedly different from every other school of thought. Since Keynes, economists have developed the habit of constructing parallel universes having nothing to do with the real world. In these universes, capital is homogeneous and competition is a static end state. There are the right number of sellers, prices reflect the costs of production, and there are no excess profits. Economic welfare is determined by adding up the utilities of all individuals in society. The passing of time is rarely accounted for, except in changing from one static state to another. Varying time schedules of producers and consumers are simply nonexistent. Instead we have aggregates that give us precious little information at all.

A conventional economist is quick to agree that these models are unrealistic, ideal types to be used as mere tools of analysis. But this is disingenuous, since these same economists use these models for policy recommendations.

One obvious example of basing policy on contrived models of the economy takes place at the Justice Department's antitrust division. There the bureaucrats pretend to know the proper structure of industry, what kind of mergers and acquisitions harm the economy, who has too much market share or too little, and what the relevant market is. This represents what Hayek called the pretense of knowledge. The correct relationship between competitors can only be worked out through buying and selling, not bureaucratic fiat. Austrian economists, in particular Rothbard, argue that the only real monopolies are created by government. Markets are too competitive to allow any monopolies to be sustained.

If the hallmark of conventional economics is unrealistic models, the hallmark of Austrian economics is a profound appreciation of the price system. Prices provide economic actors with critical information about the relative scarcity of goods and services. It is not necessary for consumers to know, for example, that a disease has swept the chicken population to know that they should economize on eggs. The price system, by making eggs more expensive, informs the public of the appropriate behavior. The price system tells producers when to enter and leave markets by relaying information about consumer preferences. And it tells producers the most efficient that is, the least costly way to assemble other resources to create goods. Apart from the price system, there is no way to know these things.

But prices must be generated by the free market. They cannot be made up the way the Government Printing Office makes up the prices for its publications. They cannot be based on the costs of production in the manner of the Post Office. Those practices create distortions and inefficiencies. Rather, prices must grow out of the free actions of individuals in a juridical setting that respects private property. Free-floating prices simply cannot do their work apart from private property and concomitant freedom to contract. Austrian theory sees private property as the first principle of a sound economy. Economists in general neglect the subject, and when they mention it, it is to find a philosophical basis for its violation.

For Austrians, economic regulation is always destructive of prosperity because it misallocates resources and is extremely destructive of small business and entrepreneurship. Environmental regulation has been among the worst offenders in recent years. Nobody can calculate the extraordinary losses associated with the Clean Air Act or the absurdities associated with wetlands or endangered species policies. However, environmental policy can do what it is explicitly intended to do: lower standards of living. But antitrust policy, in contrast to its stated policy, does not generate competitiveness. Such bogeymen as predatory pricing still scare the bureaucrats at Justice, whereas simple economic analysis can refute the idea that a competitor can sell below his cost of production to take over the market and then sell at monopoly prices later. Any firm that attempts to sell below the costs of production will indefinitely suffer loses. The moment it attempts to raise prices, it invites competitors back into the market.

Redistributionism takes from property-owners and producers and gives, by definition, to non-owners and non-producers. This diminishes the value of the property that has been redistributed. Far from increasing total welfare, redistributionism diminishes it. By making property and its value less secure, income transfers lessen the benefits of ownership and production, and thus lower the incentives to both. Austrians reject the use of redistribution to stimulate the economy or otherwise manipulate the structure of economic activity. Increasing taxes, for example, can do nothing but harm. A shorthand for taxes is wealth destruction. They forcibly confiscate property that could otherwise be saved or invested, thus lowering the number of consumer options available. Moreover, there is no such thing as a strict consumer tax. All taxes decrease production.

Austrians do not go along with the view that deficits don't matter. In fact, the requirement that deficits be financed by the public or foreign bond holders drives up interest rates and thus crowds out potential private investment. Deficits also create the danger that they will be financed through central-bank inflation. Yet the answer to deficits is not to increase taxation, which is more destructive than deficits, but rather to balance the budget through necessary spending cuts. Where to cut? Anywhere and everywhere.

The ideal situation is not simply a balanced budget. Government spending itself, regardless of deficit or surplus, should be as small as possible. Why? Because such spending diverts resources from better uses in private markets.

Much of the Austrian critique of central banking centers around the Mises-Hayek business cycle theory. Both argued that the central bank, and not the market itself, is responsible for the cyclical behavior of business activity. To demonstrate the theory, Austrians have undertaken extensive studies of many historical periods of recession and recovery to show that each was preceded by central-bank machinations.
The theory argues that central-bank efforts to lower interest rates below their natural level causes borrowers in the capital goods industry to overinvest in their projects. A lower interest rate is normally a signal that consumers' savings are available to back up new production. That is, if a producer borrows to build a new building, there is enough savings for consumers to buy the goods and services that will be made in the building. Projects undertaken can be sustained. But artificially lowered interest rates lead businesses into undertaking unnecessary projects. This creates an artificial boom followed by a bust once it is clear that savings weren't high enough to justify the degree of expansion.

Key Concepts of Libertarianism

The key concepts of libertarianism have developed over many centuries. The first inklings of them can be found in ancient China, Greece, and Israel; they began to be developed into something resembling modern libertarian philosophy in the work of such seventeenth- and eighteenth-century thinkers as John Locke, David Hume, Adam Smith, Thomas Jefferson, and Thomas Paine.

Individualism. Libertarians see the individual as the basic unit of social analysis. Only individuals make choices and are responsible for their actions. Libertarian thought emphasizes the dignity of each individual, which entails both rights and responsibility. The progressive extension of dignity to more people — to women, to people of different religions and different races — is one of the great libertarian triumphs of the Western world.

Individual Rights. Because individuals are moral agents, they have a right to be secure in their life, liberty, and property. These rights are not granted by government or by society; they are inherent in the nature of human beings. It is intuitively right that individuals enjoy the security of such rights; the burden of explanation should lie with those who would take rights away.

Spontaneous Order. A great degree of order in society is necessary for individuals to survive and flourish. It’s easy to assume that order must be imposed by a central authority, the way we impose order on a stamp collection or a football team. The great insight of libertarian social analysis is that order in society arises spontaneously, out of the actions of thousands or millions of individuals who coordinate their actions with those of others in order to achieve their purposes. Over human history, we have gradually opted for more freedom and yet managed to develop a complex society with intricate organization. The most important institutions in human society — language, law, money, and markets — all developed spontaneously, without central direction. Civil society — the complex network of associations and connections among people — is another example of spontaneous order; the associations within civil society are formed for a purpose, but civil society itself is not an organization and does not have a purpose of its own.

The Rule of Law. Libertarianism is not libertinism or hedonism. It is not a claim that “people can do anything they want to, and nobody else can say anything.” Rather, libertarianism proposes a society of liberty under law, in which individuals are free to pursue their own lives so long as they respect the equal rights of others. The rule of law means that individuals are governed by generally applicable and spontaneously developed legal rules, not by arbitrary commands; and that those rules should protect the freedom of individuals to pursue happiness in their own ways, not aim at any particular result or outcome.

Limited Government. To protect rights, individuals form governments. But government is a dangerous institution. Libertarians have a great antipathy to concentrated power, for as Lord Acton said, “Power tends to corrupt and absolute power corrupts absolutely.” Thus they want to divide and limit power, and that means especially to limit government, generally through a written constitution enumerating and limiting the powers that the people delegate to government. Limited government is the basic political implication of libertarianism, and libertarians point to the historical fact that it was the dispersion of power in Europe — more than other parts of the world — that led to individual liberty and sustained economic growth.

Free Markets. To survive and to flourish, individuals need to engage in economic activity. The right to property entails the right to exchange property by mutual agreement. Free markets are the economic system of free individuals, and they are necessary to create wealth. Libertarians believe that people will be both freer and more prosperous if government intervention in people’s economic choices is minimized.

The Virtue of Production. Much of the impetus for libertarianism in the seventeenth century was a reaction against monarchs and aristocrats who lived off the productive labor of other people. Libertarians defended the right of people to keep the fruits of their labor. This effort developed into a respect for the dignity of work and production and especially for the growing middle class, who were looked down upon by aristocrats. Libertarians developed a pre-Marxist class analysis that divided society into two basic classes: those who produced wealth and those who took it by force from others. Thomas Paine, for instance, wrote, “There are two distinct classes of men in the nation, those who pay taxes, and those who receive and live upon the taxes.” Similarly, Jefferson wrote in 1824, “We have more machinery of government than is necessary, too many parasites living on the labor of the industrious.” Modern libertarians defend the right of productive people to keep what they earn, against a new class of politicians and bureaucrats who would seize their earnings to transfer them to non-producers.

Natural Harmony of Interests. Libertarians believe that there is a natural harmony of interests among peaceful, productive people in a just society. One person’s individual plans — which may involve getting a job, starting a business, buying a house, and so on — may conflict with the plans of others, so the market makes many of us change our plans. But we all prosper from the operation of the free market, and there are no necessary conflicts between farmers and merchants, manufacturers and importers. Only when government begins to hand out rewards on the basis of political pressure do we find ourselves involved in group conflict, pushed to organize and contend with other groups for a piece of political power.
Peace. Libertarians have always battled the age-old scourge of war. They understood that war brought death and destruction on a grand scale, disrupted family and economic life, and put more power in the hands of the ruling class — which might explain why the rulers did not always share the popular sentiment for peace. Free men and women, of course, have often had to defend their own societies against foreign threats; but throughout history, war has usually been the common enemy of peaceful, productive people on all sides of the conflict.

… It may be appropriate to acknowledge at this point the reader’s likely suspicion that libertarianism seems to be just the standard framework of modern thought — individualism, private property, capitalism, equality under the law. Indeed, after centuries of intellectual, political, and sometimes violent struggle, these core libertarian principles have become the basic structure of modern political thought and of modern government, at least in the West and increasingly in other parts of the world.

However, three additional points need to be made: first, libertarianism is not just these broad liberal principles. Libertarianism applies these principles fully and consistently, far more so than most modern thinkers and certainly more so than any modern government. Second, while our society remains generally based on equal rights and capitalism, every day new exceptions to those principles are carved out in Washington and in Albany, Sacramento, and Austin (not to mention London, Bonn, Tokyo, and elsewhere). Each new government directive takes a little bit of our freedom, and we should think carefully before giving up any liberty. Third, liberal society is resilient; it can withstand many burdens and continue to flourish; but it is not infinitely resilient. Those who claim to believe in liberal principles but advocate more and more confiscation of the wealth created by productive people, more and more restrictions on voluntary interaction, more and more exceptions to property rights and the rule of law, more and more transfer of power from society to state, are unwittingly engaged in the ultimately deadly undermining of civilization.

From Chapter 1, “The Coming Libertarian Age,” Libertarianism: A Primer, by David Boaz (New York: The Free Press, 1998). See also www.libertarianism.org.

New Year’s Resolutions

1. I resolve to sell liberty by appealing to the self-interest of each prospect, rather than preaching to people and expecting them to suddenly adopt my ideas of right and wrong.

2. I resolve to keep from being drawn into arguments or debates. My purpose is to inspire people to want liberty — not to prove that they’re wrong.

3. I resolve to listen when people tell me of their wants and needs, so I can help them see how a free society will satisfy those needs.

4. I resolve to identify myself, when appropriate, with the social goals someone may seek — a cleaner environment, more help for the poor, a less divisive society — and try to show him that those goals can never be achieved by government, but will be well served in a free society.

5. I resolve to be compassionate and respectful of the beliefs and needs that lead people to seek government help. I don’t have to approve of their subsidies or policies — but if I don’t acknowledge their needs, I have no hope of helping them find a better way to solve their problems.

6. No matter what the issue, I resolve to keep returning to the central point: how much better off the individual will be in a free society.

7. I resolve to focus on the ways America could be so much better with a very small government — not to dwell on all the wrongs that exist today.

8. I resolve to cleanse myself of hate, resentment, and bitterness. Such things steal time and attention from the work that must be done.

9. I resolve not to raise my voice in any discussion. In a shouting match, no one wins, no one changes his mind, and no one will be inspired to join our quest for a free society.

10. I resolve to be civil to my opponents, and treat them with respect. However anyone chooses to treat me, it’s important that I be a better person than my enemies.

Death spiral states

Forbes magazine published the following article on 11/25/12:

http://www.forbes.com/sites/baldwin/2012/11/25/do-you-live-in-a-death-spiral-state/

The highlights of this article are as follows:

Don’t buy a house in a state where private sector workers are outnumbered by folks dependent on government.  Thinking about buying a house? Or a municipal bond? Be careful where you put your capital. Don’t put it in a state at high risk of a fiscal tailspin.

Two factors determine whether a state makes this elite list of fiscal hellholes. The first is whether it has more takers than makers. A taker is someone who draws money from the government, as an employee, pensioner or welfare recipient. A maker is someone gainfully employed in the private sector.

The taker count is the number of state and local government workers plus the number of people on Medicaid plus 1 for each $100,000 of unfunded pension liabilities.

The second element in the death spiral list is a scorecard of state credit-worthiness done by Conning & Co., a money manager known for its measures of risk in insurance company portfolios.

A state qualifies for the Forbes death spiral list if its taker/maker ratio exceeds 1.0 and it resides in the bottom half of Conning’s ranking.

The list of states in a death spiral:

New Mexico

Mississippi

California

Alabama

Maine

New York

South Carolina

Kentucky

Illinois

Hawaii

Ohio