Author Archives: Tom Mullen

Austrian Economics Is Scientific (Keynesianism Is Not)

Ronpaul1 On February 9th, Rep. Ron Paul of Texas chaired his first meeting of the House Monetary Policy Subcommittee he now leads due to the Republican victories in last November’s congressional elections. Congressman Paul invited several expert witnesses to testify on monetary policy. Among these were Austrian economist Tom Dilorenzo.

Much has been made of Rep. Lacy Clay’s attack on Dilorenzo’s credibility due to Dilorenzo’s alleged association with a “politically incorrect” group called the League of the South. However, Clay also attacked the Austrian school of economics itself, calling the Austrian deductive method “a non-rigorous scientific method.” According to Clay this is because the Austrian theory is not based upon “an empirical method to study economics.” He further states the Austrian school does not recognize the Keynesian theoretical models or the aggregate data that those models rely upon to “prove” their theories scientifically.

As Robert Wenzel observed, Nobel Prize winner F.A. Hayek already addressed this criticism, arguing economists should indeed use the deductive method, rather than an empirical one, to understand economic principles. Wenzel even suggests Robert Rubin would likely agree with Hayek’s argument, because of what Rubin called “the very nature of reality–its complexity and ambiguity.”

It is somewhat futile to try to win this argument with entrenched government policy makers. The Keynesian school advocates massive government intervention into the economy to protect us from the supposed shortcomings of the free market. When crises in the economy occur, the Keynesians recommend even greater intervention in the form of increased government spending, regulation, and monetary expansion.

The Austrian school advocates no government intervention into the economy at all. They argue monumental crises are actually caused by intervention, so their cure is to cease whatever intervention has brought on the crisis, to relax regulations that impede adjustment in the labor market, and to allow the economy to rebalance itself through natural market forces.

Therefore, governments are not likely to reject Keynesianism, which grants them enormous power, and listen to the Austrians, who would strip it all away. One is reminded of the medieval governments which refused to acknowledge the world was round and called upon appointed court scientists to legitimize their assertion it was flat.

However, it is important for investors to understand which theory within the “dismal science” truly passes scientific muster. If you cannot dissuade the government from basing their policies on the wrong theory, you can at least choose the right one yourself to protect your own wealth and economic viability.

Anyone who has taken a basic chemistry class in high school remembers how you prove or disprove a theory. You conduct experiments to determine whether the predictions the theory makes are correct. For example, your theory might predict that mixing two colorless chemicals in a test tube will result in the mixture turning blue. To prove it, you must not only conduct the experiment once, but over and over again, each time yielding the same result. If your test tube turns blue under the same conditions every time, you have proven your theory. If not, your theory is considered invalid and a new one must be formulated.

Austrian economists like F.A. Hayek predicted the Great Depression when the Keynesians said that the economy was fine. Once the crisis hit, the Austrians argued that the Keynesian policies prescribed to cure it would fail, as they were merely repetition and expansion of the interventions that caused the crisis in the first place. When massive government spending and devaluation of the currency failed to pull America out of the Depression, the Keynesians argued more spending and inflation to underwrite WWII would finally do the trick. But the Depression lasted throughout the war and only subsided after massive post-war cuts in government spending, consistent with the predictions of the Austrians.

The Keynesian answer to this anomaly? Ignore the results and just state that Keynesian policies did cure the Depression, regardless of verifiable facts to the contrary. This is science?

The Keynesians were also explicit that high unemployment and price inflation could never coexist together. The Austrians made no such claims, as they recognized that monetary expansion causes both price inflation and the malinvestment that leads to unemployment. In the 1970’s, Austrian theory was again proven correct and Keynesian theory proven wrong.

Most recently, the Keynesians argued that the technology and housing bubbles were not bubbles at all, but sustainable increases in wealth caused by their wise stewardship of the economy. If you listened to them, you were either wiped out by the NASDAQ crash, left owning a house with an underwater mortgage, or both. If you listened to the Austrians, you got rid of your technology stocks early, during the formation of the bubble, and avoided buying houses whose prices had been bid to unsustainable levels by the combination of monetary expansion and government intervention.

Even after all of this proof is in, the Keynesians are still employing the only defense they have left that their theory is sound. Deny, deny, deny. With government and consumer debt threatening to cause cataclysmic economic collapse, the Keynesians are encouraging government and consumers to borrow and spend more. The Austrians advise consumers to pay down their debts and investors to avoid the next bubble. They urge investors to protect their wealth in gold and other commodities, as they have for the past decade. Those that have listened to them have turned huge profits during this historic economic calamity.

Imagine that you are back in your high school chemistry class lab, conducting experiments. In the row behind you, an Austrian economist is testing his theory. The test tube turns blue one time after another, just as he predicted it would. In the row ahead, a Keynesian economist is testing his theory. His test tube turns a different color every time and then finally explodes, lighting his beard on fire. Which one would you deem the better scientist? Which one would you bet your life savings upon in the next experiment? If you wish to take the scientific approach, listen to the Austrians.

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Release the Kraken

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Titans_Kraken I prefer the 1981 film version of Clash of the Titans for many reasons. Among them is its nuanced portrayal of Zeus’ decision to release the Kraken upon the city of Joppa. He clearly does this reluctantly due to the immense power and possible unforeseen consequences of letting loose this uncontrollable force. When Poseidon opens the undersea gate and watches the creature emerge, he is clearly awestruck by the size and destructive potential of the beast. One can imagine what question must have been preeminent on his mind. “How am I going to get this thing back into the cage?”

There is no better metaphor for the United States and its government since the turn of the 20th century. It was at that time that government was released from its chains – and it has been on a rampage ever since.
In his seminal book, The New Freedom, Woodrow Wilson wrote,

“We used to say that the ideal of government was for every man to be left alone and not interfered with, except when he interfered with somebody else; and that the best government was the government that did as little governing as possible. That was the idea that obtained in Jefferson’s time. But we are coming now to realize that life is so complicated that we are not dealing with the old conditions, and that the law has to step in and create new conditions under which we may live, the conditions which will make it tolerable for us to live.”

While Wilson’s unqualified dismissal of America’s founding principle of government might startle 21st century readers, the reasoning he employs to justify it is even more incredible. Just a few pages after declaring that Jefferson’s system is no longer viable, he goes on to say that the Americans of his time are actually living under Alexander Hamilton’s system. He is to a great extent correct on this. By 1912, the Republican Party, philosophical descendants of Hamilton’s Federalists, had indeed made great strides in establishing the Hamilton platform of corporate welfare, protectionism, and a large and adventurous military establishment.

However, this system was completely antithetical to Jefferson’s truly free market, whereby the government merely enforced contracts and protected individuals from aggression against their rights. Here, Wilson has made a colossal non sequitur – that Jefferson’s system should be scrapped because Hamilton’s system isn’t working. The confusion – between crony capitalism and truly free markets – persists to this day.

Thus, we have not only released the Kraken, but we have done so for completely illogical reasons. It has been rampaging over our lives, liberties, and properties now for over a century and shows no signs of tiring. It is time to either get it back in its cage or find a man on a flying horse to save us.

Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Orlando Sentinel Op Ed: Vitriol Has Been a Proud Tradition

But I Paid Into It…

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The left criticizes Tea Party activists who oppose President Obama’s “socialism” as hypocritical because they do not oppose Social Security for themselves. The most common rebuttal is something along the lines of Social Security being fundamentally different because the recipients pay into it. This is no different than arguing for a right to steal your younger neighbor’s car because an older neighbor stole yours.

Most people are aware Social Security has begun paying out more in benefits than it collects in payroll taxes. However, it had run surpluses for decades that most beneficiaries honestly believe is funding the shortfall until the demographic imbalance caused by the baby boom evens out. Since they “paid into it all of their lives,” supporters of Social Security distinguish it from Aid to Dependent Children or other wealth transfer programs. Inherent in this thinking is both factual inaccuracy and flawed logic.

First, even if those surpluses had gone into a “trust fund,” no one disputes Social Security has always been a predominantly “pay-as-you-go” program. The overwhelming majority of the money collected from payroll taxes went to fund benefits for current beneficiaries. Thus, payroll taxes were taken from one group of people and paid out to another, just like public welfare.

One might argue the surpluses generated previously mean at least part of the money being paid to current beneficiaries is their own money, held in trust for their retirement. This is also completely untrue. The surpluses have not been held in cash since 1939. Instead, when the program runs a surplus, the government is legally obligated to use the money to purchase U.S. Treasury bonds, which are securities documenting you have loaned the federal government money. So, by law, any surplus collected in payroll taxes for Social Security must be lent to the federal government, which immediately spends it on operating expenses. In return, Treasury Bonds are put into the trust fund.

For those who decry this 1939 change as a betrayal, remember the FDR administration had also taken the U.S. off the gold standard (domestically). Had the government continued to merely hold reserves in cash, those reserves would have been outstripped by inflation by the time the benefits were payable to most beneficiaries.

Most people think of the treasury bond arrangement as the government putting their money into a “secure investment” which will pay them interest with very little risk. This is absurd. Treasury bonds are not “an investment.” An investment is a loan or advance of capital made in the hopes of earning interest from a producer of goods or services. The fundamental question anyone asks before risking their money with a bond issued by a private business is “How are you going to pay me back?”

The private sector business answer would be, “By using the capital you have loaned us, we are going to expand our productive capacity. With the new products we will produce and sell, we will be able to pay back your investment with interest and still make a profit.” Thus, if you purchase a bond issued by a computer manufacturer (i.e. lend it money), then the computer manufacturer repays you with interest from sales of the new computers it produced using the money borrowed from you.

But the federal government doesn’t produce computers. The federal government doesn’t produce anything. How does it answer the question, “How will you pay me back?” There is only one possible answer: “We will tax people in the future to pay back your loan principle and interest.”

Thus, even the so-called “trust fund” does not represent a store of your own money, held in trust for your retirement. 100% of your money was spent the moment the government received it. Most went to underwrite current beneficiaries’ benefits. The rest was spent on other government boondoggles and replaced by promises to repay you by taxing other people. Not one dime of current benefits represents a “payback” of one’s own money. Social Security is every bit as “socialist” as Aid to Dependent Children, Medicaid, Medicare, or any other government transfer of wealth. Where do you think it got its name?

There is a bit of irony here that probably also escapes most Americans. While the federal government’s modus operandi for many years now has been to merely pay off the interest on its debt and issue new debt to cover the principal as bonds come due, let’s consider what would happen if they actually started repaying the principal on their bonds.

The longest term bond is a 30-year Treasury note, which means you loan the government the money for 30 years. Suppose that in 1970, you were a 34-year-old, dutifully paying your Social Security taxes. Most of your money went to pay current beneficiaries, but a small portion (your share of the surplus) went into 30-year Treasury notes. In 2010, you are one year from retirement and ask the government, “Where are you going to get the money to pay back the principal and interest on that 30-year Treasury bond?” As bizarre as the answer might seem, the answer would be, “Why, from you, of course.”

However, the most socialist aspect of Social Security is not that it represents a transfer of wealth. It is that the program is mandatory. The only way for the government to accomplish a transfer of wealth from one party to another is to force people to participate. This is why George W. Bush’s proposal to “privatize” Social Security would not have made it any less “socialist.” People would still have been forced to participate; only they would now have the option of handing their money over to W’s tax-subsidized buddies on Wall Street rather than to the federal government. Imagine if he had been successful in implementing this in 2004.

Free market capitalism and socialism truly are opposites, but the fundamental difference is one of rights, not economics. True free market capitalism recognizes every individual’s right to keep the product of his labor and dispose of it as he sees fit. Social Security denies this right. It should be responsibly phased out and replaced with nothing. That prospect should scare no one at this point. With a government $14 trillion in debt and planning to borrow more every year for the foreseeable future, I would trust the most irresponsible individual I know before the federal government – with his retirement money and mine.

A Modest Proposal for Interposition

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So, the Tea Party Congress is seated and the “revolution” is underway. After voting to repeal Obamacare, a largely symbolic gesture that has no hope of passing in the Senate or overturning a presidential veto, the new Congress has outlined its plan to attack the federal deficit. The result: A proposal to cut $100 billion in “non-defense discretionary spending.” While that may sound like a lot of money to someone who hasn’t taken a gander at the federal budget in about 50 years, it amounts to a little under seven percent of this year’s deficit.

That’s right. Seven percent of the deficit, not the budget. In other words, the tea parties, the stormy town hall meetings, the supposed “mandate from the people” to cut the size and scope of the federal government will result in the government spending $1,380 billion more than it collects in taxes this year instead of $1,480 billion more. Worse yet, the same people who “stormed the Bastille” and threw the former bums out will defend this proposal with half-hearted panaceas like “you have to start somewhere.”

However, if history has taught us anything, it is that this isn’t “just the beginning,” with more substantial cuts to follow. This will be the high water mark as far as reduction in government spending is concerned. We should expect that by the time that this proposal goes through the process of back room deals and compromises with special interest-motivated committee members, that the $100 billion number will be reduced by at least half, perhaps more. They may even end up increasing federal spending. Would anyone honestly be surprised?

It has been obvious for at least a century that “throwing the bums out” doesn’t make a lick of difference in the behavior of our elected officials. Now we know that staging protests, waving signs, raising a ruckus at town hall meetings, and then throwing the bums out doesn’t make a difference either. Clearly, it is time to stop doing the same thing over and over again and expecting a different result.

The nullification movement has been decried by the left as right wing extremism at its most dangerous, despite the fact that it was conceived and introduced by Thomas Jefferson, the father of the Democratic Party. However, I have a proposal that I believe both conservative and liberal Americans would find very reasonable. There is a way to use the idea of state interposition to force the Congress to at least listen to its constituents. Let’s put the idea of interposition together with another of Jefferson’s ideas, drafted by him in a resolution of the Continental Congress in 1775 in response to Lord North’s Conciliatory Proposal.

“That this privilege of giving or of withholding our monies is an important barrier against the undue exertion of prerogative, which if left altogether without our control may be excercised to our great oppression; and all history shews how efficacious is its intercession for redress of greivances and reestablishment of rights, and how improvident it would be to part with so powerful a mediator.”

Let me be clear. As opposed as I am to all taxation, I am not suggesting that one dollar be cut from the existing tax schedule for 2011. What I am suggesting is that the people exercise their right to withhold their taxes until the Congress does what the people have clearly mandated them to do – balance the budget. A seven percent cut in the deficit just isn’t enough and we are running out of time. We can argue later about the role of government and the wars in the Middle East and Social Security and the rest. Right now we have to take away this Congress’ ability to borrow any more money or we’re going to be in the same boat as Greece.

I am not calling upon people to exercise civil disobedience or rebel. The stakes are high in either of those endeavors and we have other options. I am calling upon people to utilize their state legislatures to support them in withholding their taxes until a balanced budget is passed by Congress. As much as I’d personally like to see them withhold their tax money permanently, they would then release the funds to the federal government.

This would be accomplished in the same way as several other recent nullification/interposition efforts. The state legislatures would pass a law indicating that no person or business in their state could be prosecuted or fined by the federal government for failing to file an income tax return or failing to pay their quarterly payroll tax deposits, so long as said filings and payments were made within sixty days of the Congress passing a balanced federal budget. For those who still trust the people less than they do the government, a stipulation could be added that the funds go into escrow and be audited by the states, if necessary.

This would accomplish two things. First, it would reestablish exactly who works for who in this relationship. Obviously, elections have failed to do that. More importantly, it would work. The blind fear that would grip our legislators when they realize that the party is really over would at least scare them sober enough to balance what would still be an over $2 trillion budget. While it wouldn’t solve our long-term problems, that truly would be a start.

Bloated governments are imploding all over the world and ours is poised to do likewise for all of the same reasons. Now that we have seen what “extremism” really looks like in Greece, Egypt, and Tunisia, this proposal should strike any rational person as reasonable and moderate. We do not need a rebellion or violence to balance the federal budget – just a little adult supervision.

Check out Tom Mullen’s hit book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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You’re On Your Own

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There are no end of commentaries on the recent murders in Arizona, resulting in the usual debates. Pundits argue over whether there should be stricter gun laws, whether talk radio, the movies, or “extremism” contributed to the tragedy, and, most obtusely, what the government should do to prevent a similar incident from occurring again. What is lost is the fact that this tragedy provides yet more proof of something that has been demonstrated to Americans repeatedly over the past decade. The government cannot protect you from the harsh realities of life.

Most people are good people, most of the time. Under normal circumstances, most people would rather cooperate with their fellow human beings in order to achieve their goals rather than steal from them or kill them. However, some people, at least some of the time, do not “live and let live.” During every moment that we are alive, someone somewhere is committing a crime. Someone is experiencing hardship, whether due to their own bad judgment, laziness, or just plain bad luck. Worst of all, someone is planning to commit an act of violence. These truths are confirmed by all of human history.

What is unique about the time that we live in now is the extent to which people believe that the government can shield them from these challenges. Never has a society had such high expectations of their government to ensure their security – both personal and economic security. The early 21st century is truly a high-water mark in terms of belief in government to eliminate all risk from the game of life. Over and over, we are offered proof of how foolish this misplaced faith is.

On 9/11/2001, a group of insane fanatics defeated what was at the time the most sophisticated security apparatus in human history and perpetrated heinous crimes against thousands of innocent civilians. The government failed to prevent this crime. The one set of murderers that was not successful was thwarted by private citizens acting on their own. They did not save their own lives, but saved the lives of hundreds, possibly thousands, of others. Our response to this outcome was to give the government more power and private citizens less liberty and privacy.

A few years later, another unbalanced individual tried to blow up a plane with explosives concealed in his shoes. He, too, had defeated the by that time even more powerful government security apparatus and was thwarted by private citizens. Our reaction to that incident was identical.

Last year, the pattern repeated with the so-called “underwear bomber.” The government failed and private citizens thwarted the killer. Again, more power was given to the government and more liberty stolen from the people. We are now allowing ourselves to be photographed naked and physically violated by the government in the hopes that the next time the results will be different.

In 2002, a deranged man walked into the Appalachian School of Law and began shooting students and faculty. There were no police on hand when the shooting started. This is not meant as a criticism of the police. It is unreasonable to expect that there will be an officer present whenever a random act of violence occurs. In any case, when the shooting started, two private citizens ran to their cars and retrieved their firearms. They confronted the shooter, forced him to drop his weapon, and tackled him to the ground. He was eventually arrested and prosecuted.

However, the fact that private citizens bearing firearms had prevented further bloodshed was omitted in the media coverage of the incident. Following the familiar pattern, the government was given more power and private citizens lost more of their liberty. Stricter gun controls were enacted in Virginia. A few years later, with campuses forced by law to be “gun free zones,” the victims at Virginia Tech were powerless to resist.

Luckily, this latest incident in Arizona did not take place on a college campus, an army base, or any other “gun free zone.” The brave man who tackled the shooter in Arizona said that he was not afraid to do so “because I was armed.” More importantly, this was another example of private citizens defending themselves and their neighbors. The police arrived after the shooter was subdued and fulfilled their proper function in a free society – to arrest the person who had committed the crime.

The repeated failure of government to protect us from the uncertainties of life is not limited to violent crimes. Over and over again, we have looked to government to provide us with economic security and have been similarly disappointed. We sanctioned its war on poverty and got more poverty. We allowed its central bank to loot our wealth in the hopes that it would prevent recessions and inflation and we got more severe recessions and more rampant inflation. We let the government bail out corporations to save jobs and restore economic growth and we got higher unemployment and less new businesses.

As with personal security, our reaction is to reward these failures with more power for the government. More wealth redistribution. More power to the central bank (but I repeat myself). More bailouts. Consistent with the pattern, the only economic security we get comes from private individuals cooperating voluntarily with each other to create new products, new industries, and new opportunities for those seeking work.

In a free society, the government should never be charged with preventing anything. The very definition of the word “prevent,” when used in relation to government, is a repudiation of liberty. Since government is nothing more than the societal use of force, it cannot prevent anything without initiating force against the innocent. The whole idea that someone is “innocent until proven guilty” assumes that the government is not allowed to act until after a crime is committed. Force must be initiated by one party or the other. Until a criminal commits his crime, he is innocent. To apply force against him at that point is a crime itself. Moreover, since we do not know who will commit the next crime, the government can only attempt to prevent it by initiating force against everyone. This is the trap we fall into by relying on government to prevent hardship in our lives.

If liberty and the state can coexist, the state’s role must be a retrospective one. It must only be allowed to act when one human being has committed aggression against another. This applies to crime, economics, safety, and foreign policy. At one time, the United States did not go to war unless the president could convince Congress that direct aggression had already been committed against the United States. If you doubt that, read the requests for a declaration of war made by Madison, Polk, McKinley, Wilson, and Roosevelt. Read the subsequent resolutions by Congress to declare war. In each case, those documents demonstrate the principle that military action by the government is not justified until aggression has been committed by the other nation.

This might prompt some to respond that in order to be free, we must relegate ourselves to being victims, or “sitting ducks,” able to act only after it is too late. This is a false assumption, rooted in a failure to recognize one undeniable fact of our existence. As far as the preservation and security of our lives is concerned, we are all on our own. No government, no matter how powerful, can assume the responsibility we each have to defend our lives and determine our own destinies. We can allow the government to rob us of our liberty, our property, and our privacy. We can create the kind of police state previously relegated to dystopian fantasies like 1984 or V for Vendetta. Even then, the government will fail – and then ask for more power as a reward for its failure. Must it come to that before we acknowledge the obvious?

Check out Tom Mullen’s book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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Jesus Christ, Libertarian

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“Then the scribes and the Pharisees brought a woman who had been caught in adultery and made her stand in the middle. They said to him, “Teacher, this woman was caught in the very act of committing adultery. Now in the law, Moses commanded us to stone such women. So what do you say?” They said this to test him, so that they could have some charge to bring against him. Jesus bent down and began to write on the ground with his finger. But when they continued asking him, he straightened up and said to them, “Let the one among you who is without sin be the first to throw a stone at her.” Again he bent down and wrote on the ground. And in response, they went away one by one, beginning with the elders. So he was left alone with the woman before him. Then Jesus straightened up and said to her, “Woman, where are they? Has no one condemned you?” She replied, “No one, sir.” Then Jesus said, “Neither do I condemn you. Go, (and) from now on do not sin anymore.” (John 8: 3-11)

As we approach the new year with conservatism again ascendant in the political sphere, this story of Jesus’ uncompromising libertarianism seems even more timely than stories of his birth, despite the approach of his celebrated birthday. Nowhere does Jesus admonish “social conservatives” more harshly.

There is an important distinction here. By “social conservative,” I do not mean anyone who disapproves of certain human behavior. The freedom to follow the dictates of one’s conscience was the first inalienable right recognized by the founders of our nation. If one truly believes that homosexuality, adultery, or other “non-conservative” behavior violates the laws of God, it is that person’s inalienable right to disapprove of it, even to voice his disapproval of it, regardless of the anguished cries of the political correctness lobby on the left.

However, no one has a right to use violence against those who engage in behavior that does not harm another person, regardless of whether or not that behavior violates the laws of God. Since all laws are enforced under the threat of violence (as this story illustrates wonderfully), Jesus makes it clear in this passage that it is not for men to enforce the laws of God. With the exception of cases in which one human being has done injury to another, the right to punish human behavior is reserved for God.

It is important to recognize that Jesus does not condone the sin that the anonymous woman has committed. When he has shamed away the mob who would have stoned her, Jesus commands her to sin no more. Neither does he insinuate that her behavior might not have consequences for her soul. With flawless libertarian reasoning, Jesus teaches us the true meaning of freedom: that God grants us the liberty to do as we wish, even to reject him and his laws, but that we also bear the full consequences of our actions. If we harm another person, then we are subject to the laws of men. However, it is otherwise left to each individual to determine the will of God according to his conscience and to choose whether to act accordingly or not. There never has been nor can there ever be any body of corruptible men who can save an individual’s soul.

Read the rest on LewRockwell.com…

Progressives Should Target the Real Robber Barons

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The political winds have shifted wildly over the past four years. After decisive defeats in both the 2006 and 2008 elections, the Republican Party’s prospects seemed dreary. There was widespread talk of how the party needed to “remake itself.” There was even speculation from some quarters that it would fade from influence permanently, as had its predecessors, the Whigs and Federalists. Certainly, the conservative movement needed a rallying point in order to regain a foothold upon public sentiment.

That rallying point was public aversion to the radically socialist agenda of Barack Obama and the Pelosi Congress. Regardless of whether the Republicans had any new ideas to offer, they were able to remake their image quickly by jumping aboard and partially co-opting the Tea Party phenomenon. Somehow, they have again established themselves in the minds of most Americans as the party of small government, free markets, and individual liberty, their consistent behavior while in power notwithstanding.

Now, it is the Democrats who find themselves on the wrong end of a one-sided mid-term election defeat, with more of the same looming over the 2012 presidential elections. As much as the 2008 elections were a repudiation of George W. Bush and all associated with his philosophy, 2012 will be a repudiation of Obama and all associated with his. If the modern “conservative” philosophy had been thoroughly discredited two years ago, the modern “liberal” philosophy has been annihilated this year. Nothing that Democrats won on in 2006 and 2008 is going to fly with voters right now. The left needs a rallying point that will resonate with voters and make them forget why they voted them out of office just two years earlier, just as those same voters forgot why they had voted the Republicans out merely two years before the 2010 mid-terms.

If they are not to completely abandon their image as champions of the poor, disadvantaged, and working class against the power of the wealthy elite, they must find a way to restore that perception in the minds of voters without associating themselves at all with socialism, which average Americans have quite obviously choked on and spit out over the past two years. They need their own avenue to tap into the Tea Party phenomenon, or a grass roots movement like it, and appear as the party fighting for the people against a federal government run amok. Their traditional anti-corporate, pro-welfare platform won’t work. For better or worse, Americans right now associate corporatism with the free market and aversion to welfare programs has never been more ascendant. However, there is a rallying point available to the left that is completely consistent with the modern progressive philosophy and which conservatives are completely ignoring.

The left’s political dominance during the 20th century all began with the early progressive movement, which was given its first life under Republican presidents Teddy Roosevelt and William Howard Taft. However, it was the “new freedom” promised by Woodrow Wilson which established and defined the progressive platform, subsequently advanced in great strides by FDR and Lyndon B. Johnson. A core tenet of this philosophy was the need to protect “the little guy” against the robber barons of capitalism – which the progressives successfully defined in the minds of voters as anyone of great wealth, whether they have achieved that wealth legitimately or not.

Indeed, the tragic aspect of the early progressive movement was that they lumped together all successful business people as plunderers and exploiters of the working class, thus discrediting free market capitalism along with the crony capitalism that was as rampant at the time as it is now. Along with corrupt railroad companies that soaked the people for corporate welfare, only to deliver shoddily constructed railroads that all went bankrupt, the early progressives also targeted companies whose success was due to superior products and lower prices, with their profits earned from consumers voluntarily choosing to buy their products.

John D. Rockerfeller’s Standard Oil was one such example. His company was dismantled by the government after more than two decades of offering the public higher quality oil at lower and lower prices. Instead of holding him up as an example of what a truly free market could achieve for the common man, the left attacked Rockerfeller as the definitive robber baron, regardless of facts to the contrary. With his company dismantled by the government, Rockerfeller abandoned the free market and became the robber baron he was wrongly accused of being. He decided to get into banking.

This is not to repeat the mistake of early progressives. All bankers in the 19th and early 20th century were not robber barons, nor is banking a de facto dishonest profession. Like any other business, it offers a service of great value to the public when that service is voluntarily purchased by consumers. When consumers choose to store their savings in a bank or allow the bank to invest their savings by loaning it out at interest, the banks that most conscientiously and wisely protect their depositors’ interests will prosper the most. Those that make good loan decisions will be able to pay higher interest rates to depositors and provide more stability. In a truly free market, they will win, because they benefit average Americans – the political base of the progressives – the most.

However, this is not the banking model that John D. Rockerfeller helped found in 1913. Rockerfeller was no longer interested in competing on a level playing field and relying on talent and hard work to make his fortune. He had already done that successfully and had been plundered by the government for his trouble. He was not interested in being victimized again. This time, he would be the plunderer. Along with J.P. Morgan, Rockerfeller sent a delegation of men to Jekyll Island in 1913 to devise the mother of all robber baron schemes – the Federal Reserve System.

The Federal Reserve System is the most ingenious fraud in human history. It appeals to the right because it is seen as an institution of capitalism. It appeals to the left because it is seen as a regulator of the financial system that protects the little guy from the supposedly violent machinations of unregulated capitalism. In the meantime, it funnels trillions of dollars of plundered wealth to politically-connected corporations at the expense of average Americans and those corporations which still actually prosper because they offer superior benefits to the public.

Without getting into what really goes on behind the scenes at the Fed, let us consider what the Fed purports to try to do. Ninety-seven years of results notwithstanding, the Fed supposedly regulates the market by maintaining both full employment and price stability. The left supports this agenda because its constituency depends upon jobs and affordable consumer goods in order to survive. They never stop to think about how the Fed attempts to accomplish these goals.

The Fed attempts to maintain full employment through inflation. Inflation is properly defined as an increase in the supply of money and credit, not an increase in consumer prices (more on that in a moment). During periods when unemployment is higher and overall economic growth is lower, the Fed attempts to stimulate investment in new business ventures or expansion of existing ventures by “lowering interest rates.”

However, Mr. Bernanke cannot lower interest rates with a fiat command. Instead, the Fed manipulates the interest rate by buying large quantities of U.S. Treasury bonds from its member banks. This artificially increases the demand and lowers the supply of U.S. Treasuries. It also artificially increases the supply of money available to be lent in the market. With more money available to be lent, banks offer loans at lower rates than they would if money were in shorter supply. With lower rates, more businesses take out loans with which to expand or start new ventures. At the end of this chain of events, more average Americans supposedly get hired in order to support the new business activity that has been “stimulated” by the Fed’s monetary expansion.

Taking the Fed at its word, there is still a rub to this story. The magic described above and in the Fed’s press releases does not come without a cost. The money and credit infused into the economy during this process does not come from any “reserve” that is held by the public or by the privately-owned Federal Reserve. It is created out of thin air by the Fed, which enjoys this privilege as a result of legal tender laws and the Federal Reserve Act. By increasing the overall supply of dollars in the economy, this monetary inflation drives up the price of consumer goods.

It also causes capital to be misallocated, meaning that working people are hired for projects that are not ultimately going to succeed. This inevitably happens much more frequently when banks are able to loan “free money.” When they must convince depositors to invest their own money in loans the bank wishes to make, they are forced to make much wiser choices with that capital than when the money is simply created out of thin air and handed to them, with more fiat money forthcoming if they should make a mistake. In fact, a true understanding of the economics behind monetary inflation reveals that misallocation – economic booms and busts – are inevitable when monetary inflation is allowed to take place.

Progressives should automatically be suspicious of this whole charade simply because Wall Street loves it. Whenever the Fed makes an announcement that it will attempt to lower interest rates, the stock market immediately goes up. Of course it does. Cheap money hitting the market allows investors to get in on ground floor companies and pump up their stock value with newly-created money, subsequently bailing out long before the bust occurs. When the reality hits the market that half of these new companies had no viable business plan, the stock prices collapse and the ventures go out of business and lay off their employees. This is a recession. Average Americans are unemployed while the sharks who gobbled up the cheap money to pump and dump the stocks are sitting on a beach, enjoying the fruits of their heist.

Furthermore, while monetary inflation causes prices of consumer goods to rise for everyone, it is really average Americans and the poor who are most affected by it. When the price of gasoline rises to seven dollars per gallon, the Wall Street elite have lost purchasing power in terms of the dollars they hold, but they more than make up for it during the economic booms. Millionaires become billionaires, negating the effects of a further devalued money supply, while average Americans living paycheck-to-paycheck start looking for second jobs just to pay their rent and fill up their gas tanks to get to work.

However, the most compelling reason for progressives to oppose the Federal Reserve System is because of what it openly admits it represents. Taking the Fed and its supporters at their word, the Fed is nothing more than a subtler, more devious version of “trickle-down economics,” whereby large corporations receive huge sums of money in the hopes that they will then create jobs for the little guys. There is absolutely no difference between this argument and the “Reaganomics” of the 1980’s. Any self-respecting progressive who opposed Reaganomics must oppose the Federal Reserve System. If they are not strictly opposed to government redistribution of wealth, they certainly are opposed to redistributing from the middle class and poor to Wall Street. That was the whole principle upon which the movement was founded.

There is no reason that the left should concede the Tea Party movement to conservatives. It is not fundamentally a Republican phenomenon. It is just that the Republicans are the only party that has been able to adapt their rhetoric to what the Tea Party demands to hear. The Tea Party is rediscovering America’s founding principles. However, their perceptions are being skewed toward the conservative founding philosophy that advocated corporate welfare, a large military establishment, and a central bank to provide the necessary capital – plundered from average Americans. They quote Jefferson but are deceived into supporting policies consistent with his political arch-enemy, Hamilton. They need to hear from the left on what they are missing, instead of being vilified by the left as kooks.

The true American philosophy of free enterprise as expressed by the liberal Jefferson was completely opposed to the central bank of the time, recognizing it as incompatible with the free market and wholly a vehicle for big business to plunder the people. These ideas have been dead and buried for an entire century while the Fed has been allowed to wreak its havoc with impunity. They are ripe for rebirth within the Tea Party, which would embrace Jefferson’s ideas about the dangers of central banking as readily as they do his warnings about big government. There is a strong populist undercurrent in the Tea Party. Progressives are ignoring it at their peril.

Never in its existence has the Fed been under such scrutiny in the media as it is now, nor the subject of so much public opposition. It is a grassroots fire smoldering beneath the surface, waiting for someone to strike a match. To liberals and progressives everywhere, don’t let the conservatives snatch this opportunity out from under your noses. Take up your fight against the real robber barons – the Federal Reserve System and all of its beneficiaries.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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Tom Mullen Speaks at Nullify Now Orlando, Florida Oct. 10, 2010

The Government Can’t Create Jobs (And It Shouldn’t Try To)

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As the November elections approach, politicians are doing what politicians do best: making promises. President Obama’s anti-business image, justified or not, will not score points with voters this year as unemployment continues to court 10% on the government’s math and 20% in the real world. With these figures virtually unchanged since he took office, the president has been unable to sell the idea that his economic policies have created any jobs. So, he is doing the best he can with the hand that he has dealt himself and trumpeting the millions of jobs his policies have “created or saved.” In addition, he has rolled out yet another boondoggle from the Keynsian toolbox in the form of a $50 billion infrastructure package designed to stimulate the economy and finally create some actual jobs.

Meanwhile, the Republicans are gearing up for what should amount to shooting fish in a barrel in the coming mid-term elections, getting incredible traction on criticizing Obama policies which largely mirror those of George W. Bush, for which he and the Republicans were tossed out of office just two years ago. They correctly point out that Obama’s policies haven’t created a single job. Americans must put them back into office or face economic Armageddon. Polls show that Americans are largely buying what the Republicans are selling, having apparently forgotten the “jobless recovery” of the early part of the last decade, which occurred while the Republicans controlled the White House and both houses of Congress.

The truth is that neither the Republicans’ “supply-side economics” nor the Democrats “demand-side economics” have ever really created any jobs. Certainly, the housing boom successfully put some people to work in the homebuilding industry for a few years. However, when that bubble popped there was nowhere for those people to go. The Democrats’ success seems to have been limited to the 600,000 or so people that took jobs with the census bureau. Unfortunately, the demand for people counting won’t sustain a census-driven recovery. Obama’s latest act of political desperation isn’t getting much traction with anyone – even liberal talking heads are finding it hard to get behind another supposed “infrastructure” program, especially one that pales in comparison (in terms of dollars) to the American Recovery and Reinvestment Act, which was long on investment and short on recovery.

So, if neither supply-side nor demand-side economics work, if neither the Republicans nor the Democrats have a program that will actually create jobs that will outlast the average car loan, where else can we look for an answer?

Perhaps we should reconsider exactly what it is that we are asking the government to do. People of all political persuasions talk about “creating jobs” as if there were no question that the government should be trying to create them, the only question being what program will create the most jobs, the highest paying jobs, or the longest lasting jobs. This is just another in an endless series of false dichotomies that accompany every election year, when voters are served up a “debate” that is framed to include two undesirable alternatives, with no acknowledgment that there may be a third. On job creation, that third alternative is this: the government can’t create jobs, regardless of whether conservatives or liberals are at the controls, and moreoever, it shouldn’t try to create jobs.

Amidst the noise surrounding an election year, it is easy to forget the obvious. Before deciding what to do about unemployment, let’s answer a few fundamental questions. The first one is, “What is a job?”

A job is an agreement between a buyer and a seller that involves an exchange of private property. The buyer is the employer, the seller, the employee. The two parties reach an agreement wherein the buyer will purchase a specific service from the seller at a mutually agreed upon price. This simple fact does not change whether the employee is selling his services as a brain surgeon or a custodian. In each case, the buyer has a need for the seller’s services and the seller is willing to sell those services to the buyer if the buyer is offering the market price or better. The most important aspect of this transaction is that it occurs with the mutual, voluntary consent of both buyer and seller. This is the only way in which a job can be created.

When people are perfectly free to dispose of their labor as they see fit, including their unconsumed labor in the past (their savings or capital), there is a natural coordination in the labor and capital markets that results in people and resources being used most efficiently to meet the demand of consumers. People are not employed to produce products that consumers don’t want or can’t afford because employers are risking their own money and livelihoods and therefore must invest their capital (savings) in projects that will be profitable. Neither do most employers prefer to invest in temporary projects that will end in six months or a few years, because they would then have to take the risk of starting a whole new business. Neither employers nor employees are ever 100% correct, but for the most part they make the right choices because they stand to gain or lose personally based upon those choices. These natural market forces regulate the market, based entirely upon the voluntary choices of employers, employees, and the consumers who buy their products.

However, when the government attempts to create a job, all of these natural forces are removed. The market has produced no demand for the government-created job. In other words, no buyer has voluntarily agreed to purchase those services, because to do so under current market conditions would be unprofitable. Were it profitable to hire someone to do the government-created job, an employer would have done so voluntarily. So, the government steps in and forces the taxpayer to purchase those services against his will. In additional to violating the taxpayer’s rights, the entire coordination that existed between employer, employee, and consumer is disrupted.

A typical response to this argument from the left would probably revolve around how the profit motive and the greed of employers is what kept the person unemployed. However, this argument begs the question: Why were these greedy employers unable to make a profit from employing this person?

The answer is that the services of the employee were not demanded by employers because the products that would be produced as a result were not demanded by consumers. If consumers were willing and able to buy the products that the employer and employee would have produced together related to this job, then there would be no need for the government to create it. By overriding the choices of consumers and forcing them to purchase those services for the employer, the government not only engages in a theft, but causes vast resources to be devoted to producing products that no one will eventually buy. Thus, when the government “investment” in the job is spent, the job no longer exists. It generates no revenue on its own to allow it continue to exist.

To use one of the favorite buzz words of the progressive left, government-created jobs are unsustainable. They are all doomed to fail by their very nature because they attempt to set aside economic laws that cannot be set aside. Commerce cannot exist without voluntary choice. Government job programs attempt to override the choices of capitalists on what to invest in and the choices of consumers on what to consume. This is what produces millions of empty homes, food shortages born of miracle energy programs, and mass amounts of people unemployed. Worst of all, these programs destroy the capital that otherwise would have created real jobs that were demanded by the market. This is not because private investors are more noble creatures than government bureaucrats, but because their own livelihoods depend upon investing that capital wisely and profitably.

While it is easy to see how this argument applies to the government spending programs that are presently more associated with the Democrats, one should not forget that the Republicans’ ideas are no less wealth redistribution and no less destructive to the economy. Most arguments made by the Republicans involve targeted tax cuts that will either stimulate specific areas of the economy or merely leave more money in the hands of private investors in general. While this sounds like the exact opposite of what the Democrats are proposing, it is really just the same strategy dressed up in “free market clothes.”

In the present paradigm, where the supposedly free market is already distorted by a thousand government interventions and taxes are sky-high for everyone, decreasing taxes for a particular class of people is merely a back-door way to try to override the free choices of investors and consumers. If the cuts are targeted at specific industries, such as the oil industry, then more oil will be produced regardless of the true demand for oil by consumers. If the cuts are general in nature, then whatever that capital is invested in will be investment not by private decision but by government central planning.

One might ask, “How can this be?” Aren’t the investors spending their own money? Not really. The Republican plan never involves a reduction in spending to go along with reductions in taxes for the investor class. In fact, every Republican administration in the past forty years has increased government spending while cutting taxes, leading to large deficits that are funded by debt or inflation. This merely transfers the tax burden of that government spending to other taxpayers. In other words, the jobs “created” through supply-side economics are really funded by taxpayers – by present taxpayers through the loss of their purchasing power due to inflation or future taxpayers through government debt. This explains why the artificial booms accompanying Republican administrations never last either.

The only real answer to the economic malaise is to stop asking the government to create jobs in the first place. Real jobs can only be created by individuals agreeing to exchange their labor and capital by mutual, voluntary consent. The use of force cannot create a job any more than it can create freedom, either here or anywhere else in the world. Furthermore, it represents violation of the very rights that government exists to protect. Instead of voting for candidates that claim that they can create jobs, Americans should demand that government get completely out of the job-creating business in particular and central planning of the economy in general. Only a massive decrease in government spending, leaving capital in the hands of the people who earned it and allowing employers, employees, and consumers to make their own choices can stimulate true job creation. Anything else is just another government program that is destined to fail.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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