Tom Mullen as a guest on Mike Church’s Post Show Show to discuss Government default.
Tom Mullen on Mike Church Post Show Show 8-1-2011
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Category Archives: Economics
Why a Debt Default Would Be Wonderful
While it is likely the two parties in Congress will reach a deal before the August 2 deadline, I can’t help reflecting on how wonderful it would be if they didn’t. While Congressman Ron Paul has correctly pointed out the government has already defaulted at least three different times in its history, and continues to default every time it prints new money, it is not quite the same as an “on-the-books” failure to make a timely payment. That is exactly what America needs.
Politicians, mainstream economists, and the media tell us a U.S. government debt default would be catastrophic. Treasury bonds would be downgraded, interest rates would soar, and the massive government spending that has supposedly fueled the present (jobless) recovery would be severely curtailed, plunging the U.S. and possibly the world back into a deep recession.
Perhaps that is true. Nevertheless, a debt default by the federal government would still be a blessing, for several reasons.
First, one must remember that all government spending represents a redistribution of wealth (what we regular folks call “stealing”). The government forcibly confiscates money from those who have earned it and spends it for the benefit of someone else. The most insidious way the government does this is by borrowing. When it borrows, it is confiscating money from people in the future – some of whom are not yet even born – to hand out to special interest supporters today. To the extent it would prevent or decrease this, a default would result in a more just society.
However, even if one doesn’t care about justice or property rights, a default would help correct the malinvestment that has caused this crisis in the first place. As I’ve said before, the entire U.S. economy is really one, huge bubble of misallocated resources, caused by a century of government intervention. The government’s backing of mortgages, together with monetary inflation by the Federal Reserve, were the primary causes of the housing bubble. This same dynamic exists in almost every sector of the economy.
The government also backs student loans for college. Just like it did to the housing industry, this government guarantee has inflated prices in higher education far beyond what could be supported by real demand. That in turn has led to the creation of millions of jobs in the education sector that only exist because the government subsidizes them. When the government funds are no longer there, the price of education will plummet, just as housing prices did, and all of those people will be out of work.
Healthcare is another sector with all of the same intervention-related problems. Government subsidies create artificial demand, inflating the price and misallocating resources to the healthcare sector. The healthcare industry is not forced to innovate in terms of delivering its services in more efficient ways because customers are forced to buy its products,
If you doubt this, just withhold the Medicare portion of your payroll taxes and see what happens.
This also creates jobs in the healthcare sector which are not supported by natural market forces. When the government can no longer subsidize them, those jobs will go away, just as they did in housing and education.
Banking, research, agriculture, energy, automobile manufacturing – there is not one sector where government is not overriding the voluntary transactions market participants would otherwise engage in. Wherever the government is spending taxpayer money, it is overriding a previous choice by taxpayers not to purchase that product. As F.A. Hayek observed in The Road to Serfdom, the government has never and can never make better choices than millions of market participants acting in their own self-interest. They simply lack the information necessary to do so.
Therefore, wherever the government is spending money to try to boost some aggregate statistic, it is making a problem bigger. If government spending is creating jobs, they are not real jobs. A real job is a voluntary contract between a buyer of services (an employer) and a seller of services (an employee). If that job is created because of government spending, a third party is introduced into the transaction who is not acting voluntarily.
Government-created jobs force taxpayers to purchase services from employees because it is not profitable for the employers in that sector to purchase them. Forcing taxpayers to purchase them doesn’t make those jobs any more profitable. It just depletes the capital available to create profitable jobs elsewhere.
The prospect of tens of millions more people unemployed may seem frightening, but that day is coming regardless of what politicians do. Economic laws are like the laws of nature. They will assert themselves in the end. Any job that requires the government to borrow more money to subsidize it is also a job that depends upon the lenders continuing to lend. As we have seen in recent Treasury bond auctions, those days are coming to an end. Raising the statutory debt ceiling only allows more phony jobs to be created, setting up more employees for the painful correction.
The most important reason a debt default will be beneficial is a philosophic one. It will force a complete paradigm shift in the way Americans think about the role of government. For a century, there has been no area of life that some special interest has not appealed to government to manage or subsidize. From the way we conduct commerce to the way we make personal decisions on food or healthcare to the way we coexist with our neighbors in other countries, nothing has been off-limits.
Complacency about our liberty has been one reason. The other has been the perception of infinite financial resources. The great wealth the United States generated in freer days provided a tax base and borrowing collateral that has always been perceived as unlimited. A debt default would shatter that foolish perception.
The default would be a bucket of cold water in the faces of a drowsy and compliant populace. It would wake people up to the reality Thomas Paine was aware of over 200 years ago, when he wrote that government “is at best, a necessary evil.” People would realize the government doesn’t “have our back,” other than to stick a gun in it to loot our liberty and wealth. We would no longer hear that horrid refrain from media pundits after some new government incursion or heist: “Well, the government had to do something.”
Instead, we would hear the resigned chorus, “Well, the government couldn’t do anything.” And perhaps, in some glorious, enlightened future, we’ll hear “The government shouldn’t do anything.”
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.
Can Ron Paul Really Be Right About Everything?
I was in Jacksonville last Friday for an event called “Ron Paul on the River.” The Republican presidential candidate was supposed to speak there, but had to cancel at the last minute due to a Libya vote in the House scheduled on short notice. While it was disappointing that the congressman would not appear, the keynote speaker that appeared in his place was well worth the trip.
Doug Wead is a self-confessed former member of the Establishment. In addition to being a best-selling author and world-renowned speaker, Wead has worked as a special advisor to President George H.W. Bush and on the campaign of George W. Bush. According to Wikipedia, Time magazine called Wead “an insider in the Bush family orbit.”
A good portion of Wead’s speech in Jacksonville focused on issues on which he had formerly disagreed with Paul. At one point, he made the startling statement, “but now I agree with him on everything.” He encouraged Paul supporters to persevere through the difficulties of supporting an anti-Establishment candidate and to remember that “logic and the truth are on your side.”
It is not fashionable to admit that you agree with someone “on everything.” To say that you do is to invite the accusation of belonging to a personality cult whose members blindly follow their leader no matter what position he takes. Indeed, this criticism is leveled at Paul’s grassroots supporters, who are called “Paulites” by detractors, implying that they have a pseudo-religious devotion to Paul rather than informed positions on the issues.
In modern American political thought, where only the results of political action are considered rather than the rights of the parties involved, it is not considered reasonable to agree with anyone 100% of the time. For someone like Wead, whose living depends upon his credibility as an expert on those things he writes and speaks about, there is a certain amount of risk in making this statement. Yet he did it in Jacksonville without hesitation, emphasizing the words “on everything” to ensure that no one missed the point.
This immediately struck me, because it was the second time in as many weeks that I had heard a statement like this from someone who had something to lose by saying it. Appearing on The O’Reilly Factor, John Stossel answered O’Reilly’s assertion that Ron Paul hadn’t won the New Hampshire debate by saying, “But he’s right about everything and you’re wrong.” O’Reilly retorted, “Everything?” Stossel repeated, “Everything.” When O’Reilly pressed yet again with the same question, Stossel finally backed up to “Just about everything.”
Stossel is a television journalist, so credibility is arguably even more important to his living than it is to Wead’s. That is not all the two have in common. Stossel also admits that he regrets much of the first 20 years of his career when he attacked the free enterprise system and championed increased government regulation over business. Like Wead, Stossel was a member of the Establishment, albeit from the other side of its aisle. Now, despite the risk to his credibility, he says that Ron Paul is right about everything.
So is this some sort of quasi-religious devotion? Are Paul’s followers simply caught up in a mass hysteria over someone who is likeable and has demonstrated his integrity for so long that they abandon their reason to avoid critical examination of his positions? Isn’t it impossible for an intelligent person to agree with someone on everything?
The answer to all three of these questions is “no.” In fact, contrary to what conventional wisdom tells us, it is actually illogical to agree with Paul on some things and not others.[1] As I’ve said before, Paul is simply applying the central libertarian axiom to each issue. As long as he applies the axiom properly and does not make an error of logic, he is going to come out with a position that is consistent with libertarianism 100% of the time.
For those in the grip of this “conventional wisdom” that has led us to the brink of societal collapse, Paul’s answers are anything but consistent. On economic policy, he seems like a hardcore conservative, surpassing all other Republicans in his zeal to eliminate regulation and taxes. On foreign policy and social issues, he seems to be some sort of lefty hippie, arguing to legalize all drugs, allow homosexuals to marry if they wish to (he wants government out of marriage even at the state level), and to immediately order home every soldier stationed on a foreign base.
Those just learning about libertarianism might conclude that it is some sort of “compromise” between conservatism and progressivism/liberalism. This is untrue. Libertarianism evaluates political issues from a completely different perspective than either mainstream political philosophy. Sometimes, conservatives happen to agree with libertarians, but for different reasons. Sometimes, the same is true for progressives/liberals. Libertarians care not for who agrees/disagrees. They follow one simple principle and let the chips fall where they may.
Walter Block sums this up best in terms of understanding how libertarians like Paul formulate their positions.
“This is because libertarianism is solely a political philosophy. It asks one and only one question: Under what conditions is the use of violence justified? And it gives one and only one answer: violence can be used only in response, or reaction to, a prior violation of private property rights.”
In order to understand Ron Paul’s platform, there are two conclusions one must reach. The first is that libertarians are correct that violence is only justified in response or reaction to a prior violation of private property rights. Block does not limit the definition of “private property” to land ownership or even physical property in general. Instead, property includes all of one’s life, liberty, and justly acquired possessions. So, any murder, assault, theft, fraud, or coercion would be violation of a private property right. Based upon that understanding, ask anyone if they agree that violence should never be initiated, but instead only used in defense, and you will almost always get agreement. So far, so good.
The second thing that one must conclude in order to understand Ron Paul is that all government action is violent action. This is where it gets difficult for conservatives and liberals alike. While it is easy to see the government’s use of its military as an act of violence, it is harder for people to see that other government activities represent violence. How could providing healthcare, ensuring workplace safety, or licensing barbers be violent acts?
This is the great truth that hides in plain site under every human being’s nose. In order to recognize it, one must disengage the deep, emotional attachments that almost everyone has developed to some or all government activity. Once you get someone to that point and they are truly ready to reason, they will come to the libertarian conclusion every time. To the genuinely interested and rational person, only one question is necessary:
“What if you do not cooperate?”
I cannot count how many times I have asked this question and received in response a stare – not a blank stare, but a thoughtful one. You can see the wheels turning. Sometimes they will begin to speak, then stop themselves while they think some more. They are looking for a hole in the theory. They are unable to find one. They are genuinely interested in either proving or disproving your argument. By that time, you have won.
For those who do not immediately “see the light,” you can pick any government action and walk them through that reasoning process:
You: Suppose that I do not wish to participate in Medicare and withhold only that percentage of my payroll taxes that would otherwise go to fund it. In return, I agree not to make use of any of the Medicare benefits. What will happen to me?
Him/Her: You will be charged with income tax evasion.
You: What if I don’t answer the charge?
Him/Her: You will be arrested.
You: What if I do not agree to submit to the arrest?
Him/Her: You will be physically forced to submit.
You: And if I resist further?
Him/Her: (reluctantly) You will be killed.
You: So, you now agree that we are forced to participate in Medicare under the threat of violence, correct?
Him/Her: (Even more reluctantly) Yes.
You: Is there any government tax, law, or regulation that we are not similarly forced to participate in under the threat of violence? Are not all of these answers the same in relation to even the least significant government regulation, like a parking ticket?
Recall the final scenes in the 1999 movie, The Matrix. After Neo’s “resurrection,” he stands up to once again face the agents that had apparently killed him a moment before. However, when we see the matrix through Neo’s eyes, as he sees it now, the whole world is made up of lines of green code. Neo had been told early in the movie that the matrix is a computer-generated illusion. He heard it, but did not know it. He is now seeing that world as it really is for the first time. His mind has reasoned through and understood all of the implications of what Morpheus has told him. Once he truly understands, he is invincible.
This is a wonderful metaphor for the libertarian “conversion.” Once one has had the epiphany that all government action is violent action, there are only three choices. 1) You come to the same conclusions that Ron Paul does on every issue, 2) You disagree with Walter Block and conclude that it is morally justifiable to initiate violence against other people, or 3) You abandon logic and stop acknowledging reality. This is why Paul told the Today Show’s Matt Lauer that “economic liberty and personal liberty are one and the same and foreign policy that defends America and not police the world [sic] – that’s part of the package as well.”
Doug Wead, John Stossel, and millions of Paul’s supporters have had this revelation. This is why they agree with Paul without exception. They refuse to accept the other two choices available to them: to support the initiation of violence or to abandon logic and refuse to acknowledge reality. This is not fanaticism. It is the inevitable conclusion that one must come to if one employs logic and faces reality. That is why Doug Wead said, “logic and the truth are on your side.”
During his 2008 presidential campaign, Ron Paul lost the Washington state primaries by a considerable margin. However, he won big in Spokane. Why? Because that was the one part of Washington in which Paul’s campaign was able to schedule an appearance. During that campaign, Howard Stern remarked about his exposure to Paul’s message just as Wead, Stossel and millions of Paul supporters have: “I think I agreed with everything that dude just said.” Stern went on to say that he had never heard of Paul before and that it was a shame that the Republican Party was not taking him seriously.
Once a reasonable person hears the libertarian message, it is inevitable that they will not only agree, but agree completely and without exception. This is the antithesis of fanaticism. It is reason. It is recognizing the real world for what it truly is and applying logic to those observations. It is the consistent application to separate political issues of one undeniable principle, which can only lead to libertarian conclusions. It is actually illogical and fanatical to come to any others.
During the 2008 presidential campaign, the Establishment media had a strategy to combat this very troublesome dynamic: Don’t let the message be heard. That is no longer a viable strategy. Paul’s grassroots supporters have forced his platform into the mainstream. The media is simply unable to ignore Paul’s campaign this time around. The libertarian message will be heard. Whether or not Paul wins the presidency is secondary. Every day, more Americans are hearing the truth for the first time and its power is irresistible. The revolution is underway. Whether it takes a year, a decade, or longer, liberty is going to prevail.
© Thomas Mullen 2011
[1] This assumes that Paul continues to apply libertarian reasoning consistently. It is certainly possible to disagree with him if he misapplies the theory. There are also fine points of theory that libertarians would take Paul to task for, but not on his general positions on the domestic and foreign policy of the federal government.
Extremism Is the New Race Card
There was a time in American politics when the “race card” was an effective Establishment strategy against arguments it could not refute logically. Regardless of how unrelated an issue may have been to race, the Establishment would try to make a connection in order to avoid confronting the troublesome argument. Alternatively, they might completely ignore the issue at hand and simply present evidence that the proponent himself was racist. So distasteful is racism to most Americans that the mere suggestion that a politician might be racist was enough to condemn any idea, policy, or position he might take, whatever its merits.
Today, that is no longer true. While hardcore liberals still try to use the race card to discredit anyone who opposes their policy positions, it is apparent that it no longer resonates with average Americans. It was always a strategy with a limited shelf life. Besides, it is only effective for one half of the Establishment. If the race card sounds hollow and timeworn coming out of the mouths of liberals, it sounds downright ridiculous when employed by conservatives.
Besides, the entire ruling Establishment is in trouble. Their welfare-warfare state is coming apart at the seams. While the blue team and the red team will continue to fight with each other, they both realize that average Americans are becoming more open to hearing from people who refuse to put on either jersey. Something must be done to stifle any reasonable consideration of these unapproved ideas. The ruling class needs a new pocket ad hominem, one that can be used by conservatives or liberals.
Extremism has filled the void. “Extremist” is a word that elicits an immediate emotional response. Thanks to the all-out propaganda campaign against extremism, average Americans immediately associate the word with images of bomb-laden Muslim terrorists or McVeigh-like “militia types,” both apocalyptic threats to all of humanity. The moment an argument is made that departs from the status quo, the tag of extremism is applied to its author in the attempt to deflect attention away from the argument itself.
The most discouraging aspect of this new slur tactic is its effectiveness. Not only is it employed by both conservatives and liberals, but it is immediately given credence by both sides as well. Recall any discussion you’ve had on a political issue. If a position is taken that is outside of the Mitt Romney-Hillary Clinton continuum, it is inevitable that someone in the room will allege extremism. Heads will immediately nod in agreement, as if merely uttering the word makes the allegation true. It is also assumed without question that any “extremist” position must be wrong. The result? The discussion goes back to the continuum. So it goes in millions of households and hundreds of millions of minds.
But what does the word “extremism” mean? Merriam-Webster defines it (in the most relevant of several definitions) as “going to extreme lengths.” Often, extremism is characterized as “too much of a good thing.” For example, one might agree that too many carbohydrates in one’s diet is not healthy, but consider eating no carbohydrates at all as “extreme.”
However, what does the word mean when applied to politics? If politics is the pursuit of justice, can any position be accurately characterized as “extremist?” Can there ever be too much justice?
Read the rest at LewRockwell.com…
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.
What’s So Hard to Understand About Ron Paul?
This time things are going to be different for Ron Paul’s presidential run. After correctly predicting the collapse of the housing bubble and the resulting financial and economic crisis, Paul has become a mainstay on business talk shows, especially on the conservatively-oriented Fox News. One can almost sense the resignation in the voices of talk show hosts and reporters as they acknowledge that Paul will not be ignored by the media this time around – which is ironic because it is these same people who ignored him in 2008.
However, while supporters will rejoice at the increased quantity of coverage of Paul’s campaign, they should be realistic about the quality of the coverage. Namely, supporters should expect that conservatives will agree with him on most of his economic positions, including cutting down the welfare state and rolling back government regulations, but disagree with him on foreign policy.
Similarly, supporters should expect that liberals will agree with Paul on foreign policy (although somewhat reservedly while there is a Democrat running the empire) and civil liberties, but disagree with him on economic policy, especially when it comes to Paul’s positions on responsibly ending Social Security and Medicare.
Watching Paul’s appearance on The View, one could already see this dynamic in action. While the ladies on the show were very gracious to the congressman, Whoopi Goldberg took the lead in asking some policy questions and demonstrated the liberal take on Paul perfectly. She first stated that she agreed that she would like to see the wars end, but wanted to know how Paul could get us out of them (a concern that never would have arisen with a Republican running the empire). After Paul gave his customary answer, “we marched right in there, we can march right out,” Goldberg then challenged Paul on his position that healthcare is not a right. She truly looked baffled that any politician could be both anti-war and anti-entitlement.
On the conservative side, media figures have been doing the opposite routine with Ron Paul for years. Glenn Beck (pre-blackboard) routinely had Paul on during the economic crisis and always emphasized his agreement with Ron Paul’s economic positions and his disagreement on foreign policy. Ann Coulter has also weighed in on Paul in this way, as have countless other media figures.
Neither conservatives nor liberals agree with Ron Paul that the Federal Reserve should be abolished.
Conservatives believe that along with what they would call “free market capitalism” (their version including privileges and subsidies for big business), one must support a large military establishment and an aggressive foreign policy. For conservatives, it is just inconceivable that anyone could support one and not the other. This is not a position that can be supported by reason. Rather, it is closer to an article of faith to which conservatives have developed a deep emotional attachment. The conservative philosophy still has its roots in the “ancien regime,” whereby the king/executive and a wealthy elite control commerce and support a large, active military establishment, both for the aggrandizement of the empire.
Liberals believe this, too. They share the mistaken perception of conservatives that free market capitalism is dependent upon an imperialistic foreign policy. However, instead of wholly supporting it, they wholly oppose it, confusing the state capitalism supported by conservatives with a truly free market. Therefore, liberals oppose imperialism and free markets as if one cannot exist without the other and cannot conceive of anyone who could disagree. As with conservatives, their positions are not reasonable. They are likewise articles of faith, rooted in the ideals of ancient democracies in which the majority had unlimited power over the life and property of individuals, taken to new extremes by Marx and other socialists in the modern era.
Ron Paul’s positions do not fit into either one of these belief systems, nor does he seem to “compromise” between the two. Conservatives accuse him of being too liberal. Liberals accuse him of being too conservative. For both groups, many of his positions seem completely unexplainable.
To his supporters, Paul’s positions are so obviously consistent that they often attribute genuine confusion about them to some sort of media conspiracy. Paul bases all of his positions on what we today call “the non-aggression axiom,” which Thomas Jefferson and his supporters called “the law of nature.” This is a very simple principle which states that because we are all created equal, no one individual or group has the right to initiate force against another. Consistently applied, this principle prohibits the government from running welfare programs, regulating commerce beyond prohibiting aggression, or waging war unless the nation is actually attacked.
Paul insists that the military only be used after a declaration of war because in order for Congress to issue this declaration, the president has to cite the overt acts of war committed by the other nation against the United States. The Congress then deliberates and votes to determine whether or not a state of war already exists. That process binds the government’s use of the military to the law of nature. That is the way the declaration of war power has been exercised in every case in American history.
The main reason that conservatives and liberals do not understand Paul’s reasoning is that they have never heard of the non-aggression axiom. Despite the fact that it was the founding principle of the United States, it is not taught in schools. It is not discussed in the media. Instead, 100% of political debate revolves around results. “If the government does A, will B or C be the result?” Conservatives argue B, liberals C. Neither discusses the rights of the parties involved. Paul bases all of his positions upon these rights, which is how all political decisions should be made.
On May 5, Paul will participate in the first debate among candidates seeking the Republican nomination for president. One should not expect the objections to his positions to be substantively different than they were in 2008. While he may get more respect and stage time from the media, conservatives will still try to attack Paul’s foreign policy positions. The most that supporters should expect is the grudging admission that he may be right on economic policy, but that his foreign policy would be some sort of disaster. This follows logically from the fact that conservatives apply the tenets of their political faith and Paul follows the law of nature. He may be right, but don’t expect most conservatives or liberals to have caught up with him yet.
Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.
Why Progressives Will Enjoy Atlas Shrugged, Part I
I had the opportunity to see Atlas Shrugged, Part I on Saturday in the only theater in which it is being shown in Tampa, FL. It is running at Cinebistro, a specialty theater where you can enjoy a high-end meal and fine wine served at your seat, which is very similar to a first class airline seat. Admittedly, it is just the kind of venue that progressives might associate with an elitist gathering of selfish capitalists. However, the movie itself tells quite a different story than they might expect if their understanding of Rand is limited to her interviews with Phil Donahue or Mike Wallace.
Like libertarians, Rand’s Objectivist economic theory was rooted in what we today call “the non-aggression axiom,” which Thomas Jefferson and the liberal faction of America’s founders called “the law of nature.” According to this philosophy, each individual has an inalienable right to keep the product of his labor and to dispose of it as he sees fit. The non-aggression axiom forbids any individual or group from using force to take away the justly acquired property of another. Neither does it allow for anyone to interfere with voluntary contracts, as long as those contracts do not involve the initiation of force against anyone else.
This prohibits the government, which is by definition the societal use of force, from redistributing wealth or enacting laws which go beyond prohibiting aggression. Establishment media figures who interviewed Rand immediately focused on the implications of her philosophy for social safety net programs, charging that Rand’s philosophy would not allow for programs for the poor or handicapped. While this is true, it obscures the most important implications of Rand’s philosophy for economic policy in the United States.
What would likely startle progressives watching the film is its emphasis on the evils of what free market proponents would call “crony capitalism.” This is completely consistent with the novel, which demonstrates that the beneficiaries of government regulation supposedly enacted for “the common good” or “the benefit of society” are really the super-rich. Indeed, the film never criticizes the beneficiaries of social programs. Instead, it spends all of its time demonstrating the difference between those “capitalists” who acquire their wealth through government privileges and those true capitalists who acquire their wealth by producing products that consumers voluntarily buy.
This is a crucial distinction that has eluded progressives from Woodrow Wilson to Michael Moore. After seeing Moore’s film, Capitalism: A Love Story, I pointed out in my review of that film that there was very little that libertarians would disagree with. All of Moore’s criticisms of what he calls capitalism are really the result of crony capitalism. The biggest culprit in the economic collapse of the last decade was the Federal Reserve, a central planning/wealth redistribution institution that Rand explicitly condemns in her novel. Unfortunately, Moore incorrectly concludes that the economic distortions, inequitable distribution of wealth, and widespread harm to middle and lower income Americans were the result of a free market.
Rand would agree completely with progressives on the injustice of today’s American corporate state. That might also surprise progressives who probably assume that Rand would have supported the mainstream Republican policies of George W. Bush. Not only would Rand have condemned Bush’s version of state capitalism, but she was openly critical of Republican hero Ronald Reagan. When asked by Phil Donahue about Reagan during his administration, Rand said in so many words that he should have stuck to acting.
The only opportunity that progressives might have to disagree with anything in the film is the portrayal of the labor union official who tries to sabotage Dagny Taggarts launch of a new railroad line. This encounter takes all of about 3 minutes of the 113 minute film and is not a condemnation of labor unions in principle, but rather the illegitimate power that corrupt union officials can wield because of government privileges.
However, the true villains in the film are not union officials, beneficiaries of entitlement programs, or any other group associated with progressive philosophy. The villains are exclusively corporate executives and the government officials they get in bed with to illegitimately acquire wealth. The heroes are those who acquire their wealth by productive achievement and voluntary exchange. If one had to sum the film up in one sentence, it is an effective demonstration of the evils of crony capitalism and its difference from a truly free market.
I encourage progressives to see this film and to read Rand’s novel. If there is one thing that I hope they take away, it is that even great wealth can be acquired legitimately, when it is the result of human beings trading the products of their labor with the mutual, voluntary consent of all parties. Once progressives begin making the distinction between legitimately acquired wealth and wealth acquired because of government privilege, they will find libertarians and all other proponents of truly free markets standing by their side, fighting the evil corporate state.
Corporations and Labor Unions: Great Ideas Corrupted By Government
There are no two institutions in American society more associated with the struggle between right and left than corporations and labor unions. Outside of foreign policy, there is nothing liberals are more hostile towards than corporations, nor anything conservatives are more hostile towards than labor unions. For most Americans, corporations and labor unions lie at opposite ends of the socio-economic spectrum. Corporations are “conservative and capitalist,” while labor unions are “liberal and socialist.”
This is an illusion. In all but the most superficial respects, corporations and labor unions are virtually identical to each other. They are both voluntary associations formed by individuals to achieve an economic goal. They would both provide enormous economic benefits to society if they were not completely corrupted by government.
A corporation is a group of people agreeing to pool their capital to create a larger venture than any of them could launch individually. The stockholders agree that none of their personal assets will be put at risk if the venture fails – only the assets of the corporation.
The stockholders also make these terms with the corporation’s creditors, customers, and other parties. In this way, the stockholders can cooperatively take more risk than they would if their personal assets were at stake. With greater risk comes greater reward. Thus corporations are able to innovate, produce, and expand more rapidly than smaller partnerships or sole-owner proprietorships. This benefits consumers by offering them more choice and higher quality products at lower prices.
The benefits of corporations are derived from the voluntary nature of every transaction. The stockholders, creditors, and customers all consent to doing business with the corporation, knowing the risks and the limited liability of the stockholders. All parties are exercising a natural right to associate and exchange their property as they see fit. One can never harm another merely by exercising one’s natural rights.
The prospect of the corporation becoming “too large” or dominant in a particular industry is countered by the equal right of all other members of society to form their own corporations and compete with the dominant one. In fact, it is this natural market occurrence – new competitors entering the market when there is an opportunity to offer consumers the same or better products at lower prices – that drives explosive innovation and growth and confers enormous benefits on the rest of society.
All of the associations necessary to realize these benefits can be achieved by voluntary contract. There is no reason that a government must enact a body of laws indicating how these corporations should be formed or how they should operate. Neither is there any reason why the government must create an “artificial legal person” in order to insulate stockholders from liability. That can be achieved by voluntary contract as well. All that is necessary is that the various contracts made between parties be enforced. However, voluntary association is not the government’s purpose in enacting corporate laws. [i]
The government corrupts the entire nature of corporations in virtually every way. First, it grants the corporation limited liability that applies not only to those who have consented to it, but to everyone. This completely skews a natural risk/reward balance and enables the corporation to commit torts against third parties without consequences to the stockholders. It overrides the right of individuals who did not voluntarily release the corporation from liability to pursue compensation for damages. It also has the effect of encouraging corporations to take more risk than they would if the stockholders’ personal assets were at risk with respect to these third parties.
Second, the enormous body of regulations constructed around corporations harms both the stockholders and the rest of society. The stockholders have the right to form and operate their corporation any way they see fit, as long as they do not invade the life or property of non-contracted parties. Regulations override their decisions and force them to operate the way the government tells them to, regardless of whether it is the best way or not. This adds tremendous costs to operating the corporation, which is then passed on to consumers.
Worst of all, these unnaturally high operating costs create impediments to the rest of society in exercising its most important right in this area: to form new corporations and compete with existing firms. This inevitably results in a few companies dominating each sector of the economy. Not only are consumers punished with higher prices and less choice than they could expect in a free market, but when these government-protected corporations get into financial trouble, those same consumers are often punished again when the government bails the corporations out with taxpayer funds. Without easy entry into the market for competitors, any corporation providing a service for which there is high demand becomes “too big to fail.”
Thanks to the corrupting hand of government, corporations are motivated to do exactly the opposite of what they would do if that artificial force were absent. Instead of trying to produce better products at lower prices, the corporation has an incentive to lobby the government for higher tariffs which keep out foreign competition. This allows them to keep operating inefficiently and charging higher prices than they could if they had to compete with the true market prices offered by those competing firms.
They also benefit by lobbying for more regulations that drive up their own operating costs. Why would they do something so illogical? They do it because those higher costs provide an entry barrier to new competitors. The established firm can pass those higher costs on to consumers, while the new competitor is either unable to start-up at all or unable to compete until it can match the established firms’ economies of scale. In the long run, government involvement with corporations results in lower quality, higher prices, and less choice for consumers than would occur in a free market.
The dynamics at play in regard to labor unions are virtually identical. Just like the stockholders of a corporation, the members of a labor union are exercising a natural right to enter into agreements with each other in order to achieve results that they would not be able to achieve individually. They form a partnership wherein all members agree not to accept compensation below a certain agreed upon amount. Compensation can take the form of any combination of wages, benefits, or working conditions.
It is important to recognize that the relationship between employee and employer is a buyer/seller relationship, with the employer being the buyer who purchases services from the employee. Like all buyer/seller relationships, both parties benefit when the transaction is voluntary. The seller benefits by getting the very highest price for his product that the market will bear. The buyer benefits by getting the highest quality product that he is able to obtain for the money he is willing and able to spend. If either party in any buyer/seller transaction does not believe that he is benefitting from the transaction, he can refuse to go through with it.
In the case of labor unions and employers, the union members benefit by higher compensation for their services. By bargaining collectively, they can control the supply of a particular type of labor demanded by employers and thus drive up the price. However, the employers actually benefit as well. As they are free to choose to hire people outside the union, the union must ensure that their product (labor) is superior enough in quality to persuade the employer to pay more for union employees than for cheaper, non-union employees. Such are the incentives in a free market, where all transactions are voluntary.
Under these conditions, labor unions would have an incentive to offer continuing education or training courses, to monitor the productivity of their members, to set minimum standards for entry into the union and to establish criteria for expelling non-productive employees. All of this would drive up quality, productivity, and profitability, further encouraging employers to pay more for union employees as a wise investment in more profitable products.
As with corporations, the benefits conferred upon society by labor unions depends upon contracts being enforced and all transactions between parties being voluntary. However, just as it does with corporations, government completely corrupts the nature of labor unions, eliminating many of the benefits they would otherwise provide. With interventions like the National Labor Relations Act of 1935 and subsequent legislation, the government destroys the voluntary nature of the employment contract, in many cases forcing employers to hire union workers. This violates the rights of employers to purchase services from whomever they wish and eliminates competition for the labor unions, encouraging them to behave in a manner completely contrary to how they would behave in a free market.
Instead of encouraging their members to be more productive, labor unions actually encourage lower productivity from their members. It is not uncommon for a union member to be threatened by his coworkers for working too fast or being too productive and skewing the lower expectations negotiated by the union in the interest of employing more dues-paying members to accomplish the same work. Instead of setting higher standards for entry into the union, the union actually forces new employees to join as a condition of taking the job.
Finally, with competition from non-union employees eliminated, the union has no incentive to control the price they are charging for their services. In a free market, there would be a price point at which the presumably lower-skilled non-union workers would be a more profitable buy for employers than the presumably higher-skilled union workers. However, once the government removes the ability of the employer to make this choice, there is no longer any control on the price of union labor. This is why unions played such a large role in the demise of the American auto industry and American manufacturing in general.
Despite the unnatural, corruptive influence of government, corporations and labor unions still manage to provide many benefits to society. Often overlooked is that all of the benefits they provide derive from the extent to which they are voluntary associations entering into consensual agreements with other parties. Conversely, all of the harm they cause and all of the animosity they and their supporters have for each other are the result of the coercive interference of government.
Instead of appealing to the government to assist them in invading each other’s rights, they should recognize that the government is their common enemy, preventing each from benefitting themselves and each other. If they wish to secure their rights and achieve positive results for themselves and society, they should kick the government out of their affairs and follow the law of nature.
[i] Special thanks to libertarian thinker and activist Steve LaBianca for his help in developing this analysis of the nature of corporations.
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.
Eliminate Non-Essential Government Now
In Friday’s last hour, a federal government “shutdown” was averted by a last-minute deal struck by House Democrats and Republicans to approve a federal budget for the remainder of the fiscal year. According to the Los Angeles Times, the Republicans achieved $39 billion in spending cuts out of a federal budget that will run an approximately $1,600 billion deficit this year alone. The Democrats were able to prevent defunding of Planned Parenthood and minor curbs on the power of the Environmental Protection Agency (EPA). As a result of the compromise, the 800,000 “non-essential” government employees that would have been laid off will be back at work on Monday, providing their non-essential services without interruption.
Politicians and media pundits ranged from frightened to hysterical at the prospect of this so-called shutdown lasting even a day, as if some epic blight would have consumed the land, marked by cars turned over and burning, wells dried up, and livestock lying dead at the side of the road.
Of course, no reduction in government spending can be discussed without the usual round of Keynesian economic gibberish. So, we also had to hear about how the economy would be devastated due to those 800,000 lost jobs, resulting in the loss of their own spending and the elimination of all of the money those employees help the government spend into the economy. Among the burning cars and dead livestock we would find shanty towns full of former Wall Street billionaires, wiped out by the sudden and devastating drop in demand for their products.
While even less exaggerated claims about the harm that would be caused if the shutdown had occurred are meritless, there is a much more important question to be asked that virtually every media outlet has been silent on. This is not surprising. Like all other political and economic debate in America today, the discussion is completely focused on results. To ask the most important question, we have to shift the discussion from results to rights. On that basis, the distinction made here in terms of essential vs. non-essential services provides a unique opportunity.
The shutdown would not affect the military, any core law enforcement functions, or any other federal government activity deemed “defense of life and property.” This assumes that our present bombing of Libyans is “defense of life and property,” although whose lives or properties are being defended while Libyan lives and property are being destroyed is an inquiry for another day.
The shutdown would not affect entitlement spending, which together with military spending makes up almost three quarters of the present $3.7 trillion budget. Social Security checks would still go out, Medicare and Medicaid claims would still be paid, and HUD landlords would still get their rent checks.
While the most important questions of rights actually revolve around this “welfare-warfare state,” it is not at issue in the so-called shutdown. Only those services deemed by the government itself as “non-essential” would cease. That begs the question:
Can even a democratically-elected government force its citizens to pay for services that everyone acknowledges are not needed?
One must remember that every dollar that the government spends, whether it is bombing some far-off nation, paying medical claims, or investigating the mating rituals of the Namibian Tiger Beetle, has been collected from taxpayers under the threat of violence if they do not pay. If you doubt this, just ask Wesley Snipes. There is a process that you can go through to get approved to visit him where he currently resides. All manner of propaganda is employed to distract the victims of taxation from this basic reality. However, any government, whether elected by the people or autocratically maintained by a military dictator, is invested with the power to force people to pay taxes.
It is this reality that inspires the occasional clear-thinking individual to suggest that there be some limit to what individuals can be forced to pay for, regardless of how their government is constituted. In other words, one must define what government spending is necessary and what is not. Proponents of different political philosophies define “necessary” in terms of government activity in different ways.
For founding fathers in Thomas Jefferson’s camp, individuals could only be forced to pay for the protection of their own life and property, which translates to national defense for the federal government. Their opponents, led by Alexander Hamilton, argued that individuals can and should be taxed for other activities that contributed to “national greatness,” including the building of infrastructure, the maintenance of a large military establishment, and the protection and subsidization of government-connected corporations.
Modern liberals or progressives go a step further, saying that in addition to Hamilton’s program, the government has the legitimate authority to tax individuals for the purposes of providing needed benefits to others, such as retirement benefits, medical care, housing, food, and clothing. Some conservatives argue that this is merely legitimized theft, as the government here is not providing services equally accessible to the whole tax base, but rather transferring wealth from some individuals to others.
In any case, none of those debates were in play in regards to the recently-avoided shutdown. Assuming that the arguments made by both conservatives and liberals are valid, and that all of the above services are necessary for a peaceful and just society, neither conservatives nor liberals would give up anything in a government shutdown. The only services that would be interrupted would be those that both conservatives and liberals agree are non-essential, i.e., UNECESSARY services.
Under what theory of government can individuals be forced to pay for unnecessary government services? They are not needed for individual or national security. They are not needed to ensure “social justice.” By the government’s own admission, they are not needed at all. If individuals can be taxed to underwrite even these services, is there anything at all that they cannot be forced to pay for?
There is a further philosophical question to be answered here in terms of the huge federal deficits that these unneeded services contribute to, which have resulted over the years in a $14 trillion national debt. It is not only present taxpayers’ rights that are in question, but the rights of people who are not even born yet. Even if you believe that the United States government is one “of the people, by the people, and for the people,” do “the people” have the right to force future American citizens to pay for unnecessary services provided to taxpayers today? Won’t those future taxpayers be people? Don’t they have any rights at all?
Looking at the founders again, Thomas Jefferson argued that future generations could not be legitimately forced to pay for any services provided to present taxpayers, not even “essential” services like national defense. His opponent Hamilton made no such philosophical distinction. In fact, he argued that the national debt would be a national blessing, as it would tie the corporate creditors to the government. His only qualification was that the debt not be “excessive.” Hamilton, the original American conservative, believed as conservatives do today that the greatness of the empire (the collective) outweighed the rights of the individual, even those individuals not yet born and therefore unable to give their “consent” via participation in the election process. Who was right, Jefferson or Hamilton?
Sooner or later, anyone truly interested in liberty has to come to the grips with the fact that any taxation, even taxation to provide defense of life and property, violates that natural law that no one should be forced to do anything or deprived of his property to pay for anything, as long as he is not harming others. Once this natural boundary is crossed, the limit of what one person or group can force another to do or pay for must be set artificially by men. Certainly, the most liberal limit on what citizens can be forced to pay for by their government is what the government itself deems as necessary. If government spending cannot be limited even to its own expansive definition of “essential services,” then what right is left to anyone to keep any of their own money? Why not just turn it all over to the government to spend as the government sees fit?
Obviously, if you believe that individuals have any rights at all, you must call for an immediate and permanent government shutdown of all “non-essential services.” This should be the bare minimum limit on government spending even if the government wasn’t running a deficit that represents theft from future generations.
But what of results? Fortunately, the idea that there is a choice to be made between individual rights and the “needs of society” is just another myth propagated by those who wish to extort your money for their own ends. There is no compromise or “balance” needed between individual rights and the benefits of these non-essential government services, because there are no benefits. The quality of life for Americans would be immediately and dramatically improved if they were eliminated.
Primarily, the present roster of 2.1 million federal employees, even in terms of percentage of population, is orders of magnitude larger than the “swarms of officers to harass the people and eat out their substance” sent by King George in the 18th century. Reducing this modern swarm of federal employees by roughly 40% would significantly reduce the amount of government meddling in Americans’ lives and overriding of their otherwise sound decisions about what to spend their money on, how to conduct their business, what to eat, what medical services to purchase, etc.
Assuming that this subset of federal government employees earns the overall average of approximately $100,000 in salary and benefits, this also would be an immediate reduction of $80 billion in government spending, twice the amount cut in the compromise between Republicans and Democrats to pass this year’s budget. That doesn’t count all of the spending associated with these people doing their jobs, which could be as much as $500 billion.
The somewhat popular services provided such as national parks would not cease to exist without the government providing them. In fact, there could be a two-fold benefit in eliminating these particular government services. First, the land and assets associated with them could be sold at public auction, enabling the government to make a huge payment on the existing national debt. Second, these services could be taken over by more competent private enterprises which would risk their own money to provide them. As they would be competing for customers with other amusements such as Disney World or Carribean cruises, they would provide these services with higher quality and at a lower overall cost than the government does. In addition, that cost would be paid voluntarily by those who actually use the services, rather than involuntarily by everyone.
Finally, there would be no loss of demand in the economy due to the wages of those 800,000 employees no longer being spent into the economy. Remember, those wages all represented demand that was forcefully taken away from taxpayers and paid out to those employees. Should those government jobs be eliminated, the money would merely be spent by its rightful owners on whatever they chose to spend it on, rather than spent by other people. Wealth created by productive activity is not increased when forcefully extorted from its rightful owners, and therefore does not decrease when returned to them.
In conclusion, Americans should not be apprehensive about the prospect of a “government shutdown” as defined in the recent budget crisis. They should demand it. Neither conservatives nor liberals would be compromising any of their values. Under even the most “extreme” interpretations of conservative or liberal philosophy, there is no legitimate authority for the government to tax individuals to pay for these services. Eliminating them would provide an immediate fiscal, economic, and social benefit to American society, and Americans would regain a tiny smattering of that liberty we all claim to cherish. New national elections are coming next year. Solving our biggest problems, like entitlement and military spending, will not be on the table. So, let’s set a more achievable goal and at least make this demand: No Non-Essential Government.
Austrian Economics Is Scientific (Keynesianism Is Not)
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.
But I Paid Into It…
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.
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.