On Liberty and Government Shutdowns

As I write, the 16-day "shutdown" of the federal government in October 2013 is a distant memory, having quickly been overshadowed in the public mind by the complete catastrophe of the launch of the Affordable Care Act's insurance "exchange."  The shutdown is portrayed as having accomplished nothing. That's incorrect. Indeed, the shutdown demonstrated something those of us who love liberty should never forget: what an all-powerful government can do to you.

I think all of us heard that with the shutdown the federal government closed national parks.  Many of us also heard that the government went further than this and went out of its way to block access to parks that have no gates, fences, admission fee or restricted access, like the World War II Memorial on the National Mall, which is directly accessible from the street or sidewalk, 24 hours a day.

World War II Memorial on 17th Street, Washington, D.C.

In an act of pure spite, the Obama Administration made sure that access to this Memorial was blocked to World War II vets specially flown in (through the work of the Honor Flight Network) so that they could see their memorial, and to do so the Administration had to pay extra (while the government supposedly had no money and had to "shut down") to bring in barricades.

Park rangers and police blocking access to the WWII Memorial

WWII vets outside the barricaded WWII Memorial

In addition, the Administration put up barricades around the National Mall attempting to block sidewalks and the like.  

Pointless barricades on the National Mall, making a point nevertheless

These barricades were ridiculous, since one could just walk around them, and no one was enforcing the supposed "prohibition" on entering, but they made a point nevertheless: the area was under government control, and if the government chose it could keep you out.  Moreover, it could keep you out not because letting you in cost money, but because it wanted to make you feel the pain of its power--that is, so it could make you feel the government's displeasure at being deprived of your money.  That is the point of the barricades.

Indeed, most people don't realize this, but the Administration went further and closed streets and roads in Washington, D.C.  It closed Jefferson Drive and Madison Drive on the National Mall, Ohio Drive along the Potomac River, and Beach Drive in Rock Creek Park.  All of these streets serve not only the parks in which they are located but also regular city traffic. 

Ohio Drive, Washington, D.C., during the shutdown, empty of traffic

To me, closing these streets to the public represents the most threatening and most serious abuse of governmental power resulting from the shutdown, but it is the least mentioned.  Why most threatening?  Consider: we know that blocking access was not done to save money--rather, it cost money.  It was done to make us feel the pain of pushing back against government.  In other words, in its pique, the government went out of its way to deprive us of something to which we are entitled: to move about on the public way. In doing so it deprived us of a fundamental liberty. Indeed, without that liberty we couldn't earn our living, we couldn't buy our food, we couldn't exercise our freedom of religion.  Nearly all of our rights depend on the right to travel.  Without it, we die.

Yes, in this case the federal government shut down access to only a few streets over which it has jurisdiction.  But if the federal government can do that, and deprive us of the right to travel over those streets, what is to stop the state and local governments from blocking access to every street?  The principle is the same. If we deign to complain ever so slightly about the government's voracious appetite for our money, its answer is to close our streets, to imprison us in our homes, to deprive us of all liberty until we cave in. We become government's slaves rather than its masters.

So the shutdown accomplished a great deal.  It proved that when the Left runs the government, it does not do so to free us, it does so to enslave us. All of its lies to the contrary are now apparent.  Be warned.

  

Tax the Rich to Punish the Poor

Silicon Valley entrepreneur T.J. Rodgers published an op-ed in the Wall Street Journal yesterday, called Targeting the Wealthy Kills Jobs.  Mr. Rodgers makes the excellent point that punishing the "wealthy" (which really means those who work, create, innovate, invent, build, and invest successfully, to the benefit of us all) ends up really punishing the poor--those who need a job and can't find one.  He provides his own experience showing that private investment in small business creates more jobs per dollar invested than so-called "stimulus" programs, by a large margin.  But taxing those who would make those investments means those jobs are never created.  As he says:

This data squares with the broad numbers showing that private investment is more efficient than government spending in creating jobs. In other words: Every dollar that is taxed away from private investment and spent by government produces fewer jobs than the jobs destroyed by the loss of private investment.

Or as I might say it, government spending destroys wealth.

Here is his take-away point:

Yet the politics of envy, promoted most notably by President Obama himself, continuously stokes the idea that the wealthy are not paying their "fair share." This injured sense of unjust rewards was summed up on a radio show I heard the other day, when a caller said of the rich: "How much more do they need?"

How much more do I need? How many more jobs do you want?

A Keynesian Proof that Government Spending Makes Us Poorer

James Taranto, a daily online columnist for the Wall Street Journal, recently posted a piece making a point I have attempted to prove: that to the extent government spending is merely redistribution of wealth, or is devoted to things that are not "public goods" whose expense is less than their benefit, it has the same economic effect as stealing, and it therefore makes us all poorer by destroying wealth.  Here is his piece:

Bloomberg View's Matthew Klein offers an amusing application of Keynesian logic. He notes a New York Post story about a ritzy Park Avenue apartment building that has been the target of several burglaries. While conceding that "crime is destructive to the social order and discourages people from making long-term investments," Klein argues that the short-term effect of large-dollar property crimes is stimulative for the economy: 

When the thief fences $10,000 or $100,000 in jewelry from an heir who barely knows what he owns, the thief will feel much richer and spend most of that money. Maybe he will buy a new car, or go on a bender at strip clubs, or rent a villa in a beleaguered European country. The heir might be somewhat upset, but it's hard to believe that he will suddenly cut back on his spending because he needs to recoup a relatively small loss. In fact, the heir might end up spending more money as he tries to make his apartment safer from future robberies. 

Klein acknowledges the argument isn't original. He quotes the economist John Cochrane, who in 2009 made essentially the same argument with respect to a massive fraud: "If you believe the Keynesian argument for stimulus, you should think Bernie Madoff is a hero. He took money from people who were saving it, and gave it to people who most assuredly were going to spend it." This is all somewhat tongue-in-cheek, but Klein's conclusion seems serious:

Cochrane writes as if our moral revulsion at Madoff's fraud will overwhelm the logic of his interpretation of Keynes. I can't help but wonder whether redistributing a little bit of wealth from those who have more money than they know what to do with to those who are eager to spend whatever they can get would make the rest of us better off--at least temporarily. Maybe we could accomplish the same sort of effect by tweaking the tax code. At least that way we could avoid rewarding people who break the law.

Behold, a Keynesian proof that taxation is theft.

Of course, theft does not stimulate the economy, but depresses it: The value of what is stolen is much less to the thief than to the victim, so the net result of the "transaction" is negative. But it is ironic that some who promote redistribution as "stimulative" essentially recognize it is theft, even as they fail to recognize that proving it is theft proves that their claim of "stimulation" is false.  Indeed, to say that thievery boosts the economy so defies common sense that only an economist could say it.

Support from None Other than Milton Friedman

Faithful readers will know that I have attempted, over several blog posts, to make a few points about economics, most of which I know are not original to me, but for which I have not provided citation to authority.  I now have found some excellent authority for some points, but still no authority for a very important point, and I'm starting to think it is original to me.  I'm happy to be proven wrong.

On several occasions I have posited that "trade creates wealth," or that voluntary transactions in a fair market make both traders better off, thereby increasing the wealth of the whole economy over what it was prior to the trade. Milton Friedman notes it is an "elementary--yet frequently denied--proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed." (Milton Friedman, Capitalism and Freedom at 13 (Univ. Chicago Press 2002) (originally published in 1962)).  An interesting website for the teaching of economics provides a video demonstration of trade creating wealth in a classroom exercise.

"Profit" is therefore nothing but the wealth created from trading (or from work, investment or invention). If you profit from trade, then so did those with whom you traded. Profits are not evil, but are the product of wealth creation, which is the opposite of poverty. Just as trade creates wealth, trade destroys poverty.

Friedman also supports my larger point that liberty and prosperity are tied to each other and symbiotically enhance each other. As he says, "The kind of economic organization that provides economic freedom directly, namely, competitive capitalism, also promotes political freedom because it separates economic power from political power and in this way enables the one to offset the other.  Historical evidence speaks with a single voice on the relation between political freedom and a free market."  (Id. at 9).  From this, Friedman concludes that capitalism is a necessary, although not sufficient, condition for political freedom.  (Id. at 10). If so (and I agree it is), then the political freedoms guaranteed by our Constitution must include the right to economic freedom, as the former cannot exist without the latter.  The Declaration of Independence begins with the proposition that all men are endowed by their Creator with the rights to life, liberty and the pursuit of happiness, and the Fifth Amendment to the Constitution prohibits the government from depriving anyone of "life, liberty or property" without due process of law.  "Liberty" entails economic freedom. We have a Constitutional right to it, which means the government has no right to impose socialism or other restrictions on that freedom.  Since the New Deal, however, the Supreme Court has consistently treated the right to economic freedom as non-existent. We are now seeing the injury to our political freedom as a consequence.

The link between economic freedom and political freedom leads me to another observation, which is that although politicians and commentators (including talk-radio and cable hosts) know a great deal about political rights and constitutional protections for them, they know next to nothing about economics.  They cannot explain why free market capitalism isn't evil, but is in fact a tremendous good that has destroyed more poverty and done more to enhance the quality of life of billions of people than any other economic activity in history.  We will not return to prosperity until members of the political class learn to advocate free market capitalism as the system that maximizes wealth for all elements of society and act to restore economic freedom by reducing governmental restrictions and activity to a bare minimum.

I have not been able to find authoritative support for the reverse of the proposition that "voluntary transactions create wealth," which is that involuntary transactions destroy wealth.  I presented an explanation here why I think this must be true, but so far I don't see it postulated elsewhere.  Wealth redistribution is the clearest example of wealth destruction, but any taxation to pay for government spending that does not pay for a public good (defense, fire stations, needed bridges) that makes us as a group better off than without it also takes more wealth than it creates.  Such government spending therefore never can operate as a "stimulus" to the economy. If this is correct, nearly everything government does to "help" us instead hurts us. We are failing to realize prosperity precisely because the government is spending so much to make it happen. Only voluntary transactions create wealth, and the government cannot create it by robbing Peter (or Peter's grandchildren) to pay Paul; in fact it destroys wealth by doing so.  I would be very pleased to be told of an authoritative analysis that backs me up.

Dow 15,000: What's the big deal?

Yesterday's job report said only 165,000 jobs were added in April -- anemic by historical standards but more than "expected," so woohoo!, the stock market celebrated by sending the Dow Jones Industrial Average over 15,000.  (Briefly; it closed at a record high of 14,973.96.)  Commentators seemed to find this significant, as if the DJIA's touching the dizzying height of 15,000 was proof of renewed economic prosperity.

But is it?  Is Dow 15,000 "high" in the history of that index?  Or is it what would be "expected" at this point in time, given how the index has grown in the past, or is it even "low."  If that level is only "expected," then the index's hitting 15,000 is not really news, and certainly not an indication that the government's economic policies are doing anything special.  But if it is "low," the news is that the economy is still under-performing, despite years and years of billions of dollars of funny money being pumped into the markets by the Fed, and despite so-called "stimulus" deficit-spending by the government.

So, let's look at that history.  Do you remember where the DJIA stood the month before Ronald Reagan was elected?  4000?  2000? 1000?  Nope, lower than that.  It was 950, in a range it had been for years before. Looking at the index each year (October) after that, we see it dropped in 1981, but in 1982 it went up to 987, a 17.8% increase from the prior year. In 1983 it went to the dizzying height of 1264, a jump of 28%.  By the end of the Reagan-Bush years, in 1992, the index stood at a mind-blowing 3240, an increase of 241%, or an average of 18.5% per year.

As everyone knows that level of growth just isn't sustainable -- but it was even better throughout the Clinton years. From 1993 to 1999 the DJIA clocked regular, and huge, increases, and by October 2000 it stood at 10,192.  That was an increase of 215% from 1992, or an average of 23.8% per year.

After 2000, the DJIA practically hit a brick wall. In 2005 it was still around 10,200, and by 2008, following the financial crisis spawned by loose credit and the asset bubble that resulted, it had fallen to 9325. That is where it stood when Obama was elected.

I have my theories as to why the pro-growth policies of Reagan-Bush continued to pay dividends despite the Clinton tax hikes -- in general, even after Reagan-Bush, we continued to enjoy less regulation, less hostility to business and investment, more encouragement of research and technology development, and economic stability fostered by national and international security (in turn fostered by our military might) -- and why some anti-growth policies of the Clinton years began to be felt in 2000, before George W. Bush took office.  But that's beside the point. My focus here is on what the DJIA could be today if the growth it  enjoyed from 1980 to 2000 -- or even just in the Reagan-Bush years -- continued to 2013, as the prosperity, wealth creation and improved standard of living we all enjoyed during that period is the "normal" we still aspire to.

As it happens, however you dice the numbers, the Dow should be way above 15,000 now.  Here is a graph of the DJIA from 1980 to 2013 (using an October close as a proxy for the year):

Average annual growth in the index, as noted above, was 18.5% during Reagan-Bush, and 23.8% during Clinton.  What if we just took that lower figure and assumed that rate of growth continued after Reagan-Bush (as, in fact, it did during Clinton)?  Here is where we would be now:

Yes, we would be at Dow 115,000.  Your 401(k) would be a 4001(k), ten times bigger than it is.  You would be looking forward to an early retirement, not looking to work until you're 75.  You would be looking at a second home, a new car every few years, comfortably paying for college, paint for your house, a real vacation now and then.  At a minimum you would not be scrimping to get by and not constantly worried about how you were going to pay your bills.  That is "normal."

As the graph illustrates, an annual 18.5% growth rate was not "unsustainable" from 1992 to 2000.  There is no reason to assert it was unsustainable thereafter.

But let's say it was.  Let's say despite 20 years of 18-23% annual growth, only half of the Reagan-Bush growth rate continued post-2000.  Here is where we would be now:

Thus, we would be at Dow 35,000. Dow 15,000 is not even half of where we could be in this scenario.

Finally, even if you straight-line the trend from 1986 to 1999, so that the percentage growth each year is smaller than the year before, but the growth is constant, and extend that post-2000, we still should be above Dow 15,000:

No matter how you look at it, Dow 15,000 is low.  It is one-seventh of where it could be if the average growth of the Reagan-Bush years continued, and that is the "normal" we want. But even if growth had been pitifully slow, and just constant, we should be at Dow 17,000.

Dow 15,000? Big deal. Now excuse me while I go find some way to make money until I'm 75.

A Republican's Confession

So if the true reason the Democrats pushed to increase tax rates on the "rich" was to establish the precedent for making the government the ultimate judge of whether one's income is so high as to be "unfair," as a Democrat recently confessed, why did Republicans not make the case against that jaw-dropping proposition, one whose tenets are contrary to everything America has stood for since its founding? A Republican confesses the reason (or, to be more accurate, chides his own party for it) in a recent op-ed in the Richmond Times-Dispatch, saying that the issue isn't "tax cuts," per se, but ensuring liberty through limiting government:

Republicans forgot how to talk about what it means to be free. Freedom is rooted in the understanding that government is not the source of freedom and prosperity — those things belong to men and women as created beings and are actualized by their choices and hard work. If government is too big, if it taxes too much and over-regulates, then the people lose a portion of their freedom because they can no longer chart their own destiny and follow their dreams. 

Therefore, Republicans should be focused on reducing the size and reach of government. Voters need to understand that the battle is not about tax rates, it is about a government so big that it threatens their freedom. This will help redefine the debate as one about the relationship between the people and their government. If that is the debate, then conservative principles for preserving liberty can once again prevail.

Exactly.

A Democrat's Confession

The other day I posted that President Obama wasn't really interested in raising much revenue or in deficit reduction in his "Fiscal Cliff" brinksmanship. What he really wanted, I said, was merely to raise taxes on some portion of the population in the name of "fairness," and thereby set the precedent for the government's nosing through your finances to determine if what you earned or what you possessed was "fair," by the government's standard. The problem with that precedent, I said, isn't so much that it is bad  for prosperity (which of course it is), but that it is bad for liberty--it sets up the government as the final arbiter of who has too much and who has too little, depriving everyone of their liberty and making all of us serfs.

I now see that at least one Democrat, blogging at the Washington Post, admits that this was all along the true purpose of the charade we just witnessed. In his post, "Why Democrats insist on upper-income tax hikes", Jamelle Bouie (guest-blogging for Greg Sargent) confesses:

Rhetoric aside, there’s no doubt Democrats know that — barring a hike to pre-Reagan levels — there’s not much revenue to gain from restoring upper-income taxes to Clinton-era levels. And when it comes to deficit reduction, full employment — and robust growth — is the best solution. If upper-income tax hikes serve a purpose, it’s to slow the income gains of the wealthiest Americans, who — for the past decade — have reaped the lion’s share of gains from economic growth. 

If the presidential election did anything, it put inequality on the table as a national issue, and the fiscal cliff is one battle — albeit, by proxy — in a larger fight. And, unlike most issues in politics, the lines are clear — Republican disregard for inequality is matched by Democratic attempts to, however gently, apply the breaks [sic].

So the fiscal cliff battle was just part of a larger "fight" to "apply the brakes" to "the income gains of the wealthiest Americans." Democrats are not interested in economic recovery or deficit reduction. Rather, the election "put inequality on the table as a national issue."

All of this is Leftist code for "What's mine is mine, and what's yours is mine if I think it's fair." Left out of the discussion is any support for the notion that the "income gains of the wealthiest" come at the expense of anyone else--but that is the clear implication of the need for putting on the "brakes." What if the "income gains" came about because some people, for example, invented the iPod, and iTunes, and then the iPhone, and opened the door to hundreds of thousands of apps no one even thought of before, and thereby single-handedly revolutionized multiple industries while inventing others, creating a lot of wealth for themselves, but making the lives of millions and millions of people all over the planet exponentially better than before? Put the brakes on, please; we don't want all those people to have their lives bettered in ways they could not have imagined just 10 years ago because a few brilliant people might make some money.

To these Democrats, "equality" is a self-evident virtue to which all must aspire. Yet equality is not the principle upon which this country was founded. It was founded on the principle that all men are endowed by their Creator with the rights to life, liberty and the pursuit of happiness, rights which neither men nor governments can take away. Indeed, it is impossible for government to pursue "equality" without obliterating these rights. "Equality" therefore is the antithesis of Americanism.  It is the foundation of every impoverished, authoritarian Leftist dystopia on Earth and the first "principle" of every swindler who can't or won't succeed by doing, so seeks to succeed by taking. "Equality" is just envy, dressed up with false appeals to virtue. It is evil, and it is this evil that Republicans, and all Americans, should fight when opposing efforts to slow--to punish--anyone's "gains."

Let us pray we have more resolve for this fight in the next battle.