Tag Archives: unemployment

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The usual chatter has begun following President Obama’s Sept. 8 call for a $417 billion government spending package designed to stimulate economic growth, create jobs, and improve the nation’s crumbling infrastructure. As always, the commentary, both pro and con, focuses on speculation about the potential results of the program.

Will this latest stimulus money actually reach “shovel-ready projects,” or will it again disappear down the black hole of state subsidies for Medicaid and education? How many jobs will the program actually create and what happens to those jobs when the program is over?
There is never any clear winner in debates like this. While the future is still unknown, Republicans will predict failure while Democrats will predict success. Once the program is over, Republicans will pronounce failure while Democrats will declare victory. The retrospective debate about the results of the program will go on until the media moves on to something else, only to be resurrected again at election time when Republicans will characterize the program as another “bridge to nowhere” while the Democrats will claim that it saved the economy.

There is rarely a definitive answer to questions about the results of government action, even after the fact. This may be one reason why most government programs never really end. The answers are much less ambiguous and elusive when the discussion is shifted from results to rights. To do that, we must answer a previous question.

What is a job?

One might assume everyone knows the answer to this apparently simple question, but I doubt it. In fact, judging by what politicians, media, and even friends and neighbors have to say about jobs and unemployment, I’m convinced almost no one in America today understands what a job really is.
As I’ve said before, a job is a transaction between a buyer and a seller. The employer is the buyer and the employee the seller, selling his services to the employer for a mutually agreed upon price. This is a voluntary transaction for both parties, just like the buying and selling of lawn mowers or breakfast cereal. The buyer offers to purchase services at the price he can afford. The seller decides whether to accept those terms or not. Both parties are free to decide not to go through with the sale at any time. Unless a specific term of employment has been agreed to, both parties are also free to cease doing business at any time. The employee can quit the job (refuse to continue selling the service) and the employer can terminate employment (refuse to continue purchasing the service).

There is only one way in which a purchaser of services can continue to employ people on an ongoing basis. The services provided by the sellers must produce products that make a profit. If the firm loses money, then the employer must increase his sales or lower his operating costs. The latter solution most often means purchasing fewer services (layoffs).

The voluntary association between buyer and seller of services (the employment contract) depends upon another voluntary association between the firm and its customers. The firm’s customers must choose to pay more for the firms products than the cost of producing them, including labor, material, rent, administration, and all other costs of production. It is that choice by customers that creates a market value for the products, for the market value is merely the amount of money the highest bidder will voluntarily pay. If no one was willing to buy the firm’s products at any price, then those products would have a market value of zero.

When the opportunity exists to sell products at a higher price than the cost of producing them, it typically attracts more than one firm, and those firms compete with each other for the customers willing to buy their products. Thus, employment opportunities become abundant in that particular industry, as more and more firms enter the market to take advantage of the opportunity.

Before the first product of any of these firms is produced, the owners must purchase the labor, materials, production facilities, equipment, and other capital goods necessary to make those first and all subsequent products. The owners purchase these capital goods and labor with savings – which are the result of consuming less than they produced over a period of time in the past. The only reason they choose to invest these savings into the venture is the opportunity for profits. Without that opportunity, they would consume their savings in the present or hold them for security against future misfortune instead of risking losing them by starting the new firm.

As long as there are customers willing to buy the products the firm produces, the model is self-sustaining and productive. From a societal view, both the owners and employees of the firm and the customers are adding more goods and services to society. Remember, the customers are only able to buy the firm’s products because of the products they’ve produced and sold to their customers, including employers. Just like the firm, they must produce products other people are willing to buy voluntarily. This is what gives them their purchasing power.

There is one word that sums up the entire process of economic growth and job creation: choice. The market price of products, the wage levels that can be sustained in the production of those products, the number of people that can be employed, and the quantity of products that can be produced all depend upon the ability for economic agents to make rational choices in their own self-interest. Without freedom of choice, there can be no market, no division of labor, no prices, and ultimately no jobs. It is the degree to which all economic agents are free to make the best choices they can that determines how productive, efficient, and prosperous an economy will be.

All of this goes out the window the minute one begins talking about the government “creating jobs.” By definition, nothing the government does allows any individual freedom of choice. This is where most people get confused, because they imagine the government to be a wealthy benefactor with money of its own. This misconception is reinforced when President Obama (and neither he nor the Democrats are by any means alone on this) refer to government spending programs as “investment.” It all sounds very prudent and morally sound until one considers what is really going on.

Whenever the government “invests” in a particular industry, whether it is producing “green” cars, bridges, buildings or roads, it is overriding the choices made by customers in the past. What customers and what choices? The choice by taxpayers not to purchase that car, bridge, building or road. As we’ve seen, when there are people willing to buy products at a price higher than the cost of producing them, there are entrepreneurs ready to take advantage of that opportunity and the products get produced. They do not choose to do this in order to help society, but to help themselves. Nevertheless, they do help society by producing the needed or wanted products and employing the people necessary for that production.

Not only are taxpayers forced to purchase products they have previously chosen not to buy, but the entire nature of the employment contract is fundamentally changed. No longer does an employer purchase services from an employee for the sole purpose of realizing a return on his capital investment. Now, the taxpayer is forced to purchase the services of the employee, with no hope of a return. The best he can hope for is somewhere a bridge, building or road he had previously chosen not to purchase gets built. Meanwhile, the employer is able to make profits that would otherwise be unavailable to him, because the government has forced taxpayers to pay at least part of his operating costs.

While society does get a new car, bridge, building or road, the value of those products is lower than the cost of producing them. This is why government-created jobs end as soon as the government stimulus money is removed. If the products produced and the jobs related to producing them were economically viable, entrepreneurs would already be creating them. Therefore, government-created jobs actually make society poorer, because they result in products worth less than the cost of producing them. Ironically, politicians will often boast that they created more jobs than their opponents, which actually means they created more poverty than their opponents.

By definition, all government spending comes from savings, because it is wealth produced by economic agents but not consumed. Therefore, government-created jobs actually destroy capital, as no self-sustaining production or profits result from that capital investment. Not only is that capital wasted and destroyed on the unproductive temporary jobs, but it is no longer available to create other jobs producing products people would voluntarily buy. In terms of the economic harm caused by government stimulus, this is only the tip of the iceberg. For more, read Peter Schiff’s testimony to Congress on this subject as well as one of his primary sources, Bastiat’s That Which is Seen and That Which is Not Seen.

Once you understand what a job really is, a lot of what you hear about jobs from politicians and the media sounds completely outlandish. You may hear it stated that everyone has a right to a job, but that can’t be true. How can anyone have a right to force other people to buy their products? If such a right existed, then no company would ever go bankrupt. Whenever it began losing money, it would simply appeal to the government to protect its right to force people to buy from it.

More often you will hear that everyone has a right to “a living wage,” but this makes no more sense. The price of any product in a free society is the result of mutual agreement between the buyer and the seller. Either party has the right not to make an exchange if they are not satisfied with the price. Government interventions like minimum wages interfere with this right. In fact, it is the seller of services (employee) whose rights are more infringed by minimum wages laws, which prevent him from selling his services below a certain price even if he wishes to. That anyone believes the government has a legitimate authority to set an arbitrary price level and then forcibly prohibit people from selling their services at a lower price speaks volumes about how little we value freedom in the land of the free.

No, the supposed right to a job or the right to forcibly fix the price of a job are not real rights. They both involve initiating the use of force against other people and no one has a right to do that. In fact, the true rights at issue with this program are the rights of the unwilling buyers of these services, the taxpayers. They have a right not to be forced to buy goods or services against their will. Yet violating this right is the only way any government can ever create a single job. That the only debate between either major party is over how the government can create jobs, rather than whether the government should attempt to create jobs, reinforces that liberty is not even a consideration in the formulation of federal government policy.

Yet, it is its own colossal trampling of liberty in a thousand other ways that has created the economic malaise the government is attempting to respond to right now. If we ever want to see those unemployed people get back to work, we have to understand what a job is and how and why jobs are created. Then, the government’s part in the solution becomes clear: start securing our rights instead of violating them and stop wasting our money in the misguided attempt to create jobs.

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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>Central Banking Doesn’t Work – Just Ask the Fed!

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>It is still a tiny minority who understand that central banking is a collectivist institution that is completely hostile to liberty. It is, by definition, an instrument of theft that purports to stabilize economic conditions for the collective by controlling the supply of money and credit. The fact that its only means to do so is to steal from savers to finance well-connected borrowers is a seldom-mentioned detail. That people only use the central bank’s currency because they are forced to do so by legal tender laws is spoken of even less. In this late stage of the Age of Government, the rights to liberty and property are expendable as our rulers “get the work of the American people done.”

Hopefully, the question of whether there should be a Federal Reserve will be on the table soon. However, once one concedes the existence of the Fed, there is a further question to ask: Can it do what it purports to do?

According to the Federal Reserve’s website, its mission is as follows:

Today, the Federal Reserve’s duties fall into four general areas:

• conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates

• supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers

• maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

• providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system[1]

Of these four stated goals, the first is the most expansive in its scope. Let us leave it until last. The second, to ensure the soundness of the banking system, seems to have been answered by history. Since the Fed’s launch in 1914, the nation has suffered banking crises in every generation that have dwarfed the Panic of 1907 or any of its predecessors. In addressing the Great Depression, the Savings and Loan Crisis, and the 2008 Meltdown, the Federal Reserve’s only answer has been, “Without the Fed, it would have been much worse.” History is not on the Fed’s side. Only a general ignorance of the facts allows the Fed to keep fooling most of the people most of the time.

Refuting the third stated goal is so easy it’s almost embarrassing. For those not trying to regain their seats after falling on the floor laughing, I need only to point out 30-1 leveraging, $60 trillion (or more?) in derivatives [2], or the subprime mortgage disaster. I believe that to go any farther would be, to borrow a football analogy, “piling on.”

In fact, Alan Greesnpan’s now famous (or infamous) mea culpa on the “flaw” in his beliefs about the self-regulating nature of financial markets effectively amounts to the Fed admitting that it has failed in goals two and three. If the “Maestro” himself doesn’t speak for the Federal Reserve, then who does?

Regarding that fourth goal, one is tempted to give this one to the Fed. The important objection would be of the “should they” rather than of the “can they” variety. The fact that the Fed provides these services with an exclusive monopoly and claims only that it will play a “major role,” rather than a positive one, makes this the least significant of the four.

That leaves the first goal, which is stable prices, full employment, and moderate long term interest rates. There can be no doubt that the promises of stable prices and full employment in particular are now the principle justifications for the existence of the Federal Reserve. Almost exclusively, when the subject of the Fed comes up, these two goals are discussed. Even the Fed chairmen themselves, when testifying before Congress, often state these two goals exclusively in describing the Fed’s overall mission.

It should not be forgotten that until the late 1970’s, full employment was not part of the Fed’s mandate. Even using the logic of central banking proponents, these two goals are mutually exclusive of one another. Since the only means the Fed has at its disposal to try to achieve full employment is expansion of the supply of money and credit, which puts upward pressure on prices, the Fed must balance these two goals to try to find the optimum level of money and credit where everyone is employed but prices remain stable.

Ironically, the best source of information on the Fed’s performance in terms of its principle goal for the first sixty years of its existence (price stability) is the Fed itself. Among the collections of historical data on the Federal Reserve of Minneapolis website, there can be found a table documenting price inflation rates for every year since 1800 (Appendix A of this article). There, one can see for oneself whether or not the Fed provided price stability during any period in its existence.

The first fact that jumps off of the page is the stark difference in the trends before and after the creation of the Fed. For the period from 1800-1913, the general price level (a statistic that Austrian economists object to) was cut almost in half. In other words, products that on average cost $100.00 in 1800 would only cost $58.10 in 1913 (Appendix A). While there were some years where prices rose, prices generally fell overall during the entire 19th century.

This would probably be a startling revelation to most modern Americans. There isn’t an American alive whose parents or grandparents haven’t remarked at current price levels and gone on to say, “When I was your age, I only paid a dime for that.” As unbelievable as it might seem, that conversation would have been exactly the opposite in 1890. Grandpa would instead be saying, “When I was your age, I had to pay a lot more for that.” Today, Americans resign themselves to constantly rising prices as a fact of life. However, that is a phenomenon that has only occurred since the creation of the Fed.

In contrast to the century preceding the Fed, the century following has seen exactly the opposite result. Those same products whose average price had fallen from $100.00 in 1800 to $58.10 in 1913 rose to $1,265.14 in 2008. That is an increase of over 2,000%!

Without addressing the subject of which result is “better for society,” inflation or deflation, the data speak directly to the question of “price stability.” From 1800-1913, the average annual fluctuation in price was 3.4%. From 1914-2008, the average annual fluctuation in price was 4.5%, a 33% increase over the previous period. In fact, the numbers for the Fed would be far worse if the same methods used to calculate the price inflation rate were used for the entire period from 1914-2008. In the 1990’s, several changes were made to the methodology used to calculate the Consumer Price Index. They all have the effect of lowering the price inflation rate given a particular set of price data.

Regarding the goal of “full employment,” the Fed’s results are also poor. Similar to that of the CPI, the methodology for calculating the unemployment rate was also changed in the 1990’s. These changes in methodology, which include no longer counting “discouraged workers,” lower the unemployment rate from what it would be for the same data if calculated using the old methodology. Despite this handicap, the Fed still fails to achieve positive results. The average annual unemployment rate in the U.S. between 1948 and 1978 was 5.1% (see Appendix B). Even without compensating for the changes in methodology during the 1990’s, the average annual unemployment rate in the U.S. between 1979 and 2009 was 6.1%. So, unemployment was almost 20% higher during the period that the Fed actively tried to manage it than it was during the prior 30 years.

Once you undo the methodological changes in calculating price inflation and unemployment that were put in place in the 1990’s, the Fed’s results on price stability and unemployment get much uglier. Nevertheless, even after the Fed fudges its own numbers it still comes out a failure. Everyone can remember the ne’er-do-well from school that cheated on tests and still couldn’t pass. Would we want that kid managing the entire economy?

The arguments that the Fed makes to justify its existence are fraught with false assumptions. One is that “stable prices” are a good thing. Remember, the industrial revolution occurred amidst steadily falling prices. It was this period of steady deflation (gasp!) that saw the common people become the prime market for society’s output – for the first time in human history. It was this period that saw the United States transform itself in a matter of decades from an indebted hodgepodge of former colonies to a world economic power. The natural result of economic progress and increased productivity is falling prices. That is what raises the standard of living for the great majority of society.

However, the most absurd assumption underlying the arguments for the Fed is one common to all collectivist arguments: that there is some strange entity called “society” whose needs outweigh the rights of every individual that comprises it. Every citizen surrenders his right to liberty to legal tender laws because being forced to use the Fed’s worthless notes as currency supposedly benefits “society.” He surrenders his right to property in letting the Fed steal his savings through inflation for the same reason. In the end, however, the Fed fails to achieve its “societal” goals of full employment and stable prices, so he gives up his rights for nothing. Isn’t time he took them back? There is a way: End the Fed.

Appendix A – Price Inflation Rates 1800-2008 (Federal Reserve Bank of Minneapolis)

Appendix B – Unemployment Rate (Monthly) 1948-2009 (Bureau of Labor Statistics)

[1] https://www.federalreserve.gov/aboutthefed/mission.htm

[2] https://www.newsweek.com/id/164591

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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>Housing in the New America II: The Stage is Set

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>“Abolition of private property and the application of all rent to public purpose.”

– Karl Marx and Friedrich Engels (1848)[1]

Just after the abominable housing bill of this past July, I wrote an article about the very real prospect of the government getting into the property management business, due to the nationalization of the mortgage industry that effectively occurred when the government seized Fannie Mae and Freddie Mac. The scenario was admittedly conjectured, but unfortunately it seems to be playing out even worse than I could have imagined (and I can imagine pretty bad from our government). An article in the New York Times put one more piece of the puzzle in place.

Keep in mind that the real devastation of this economic crisis has not really occurred yet. We still don’t have double digit unemployment (at least using the government’s numbers), but that is inevitably what is coming. Right now, we have unemployment that is setting records for one-month growth, but we do not have tens of millions of Americans out of work. That makes today’s news all the more disturbing.

If you have any experience with rental properties, as either a landlord or a renter, you know that when a rental property goes into foreclosure, the tenants are routinely evicted. It is much easier to sell a foreclosure property without tenants, among other reasons because choosing tenants is one of the skills that separate successful landlords from unsuccessful ones. Good landlords also usually want to do some renovation to the property, which is at least inconvenient and to some extent virtually impossible with the property already occupied. The justification for the eviction is, of course, that the property now lawfully belongs to someone else (the bank), who never consented to the rental agreement and has every right to refuse to honor it.

Or do they? According to the Charles Duhigg of the Times, Fannie Mae announced today that it would “sign new leases with renters living in foreclosed properties owned by the company.” Of course “owned by the company” is an ironic choice of words, because “the company” is none other than the U.S. government. While my previous article envisioned Section 8 as the possible vehicle for converting large percentages of the (former) middle class into government tenants, this new policy today goes one step farther. Section 8 uses public funds to subsidize rent payments to private owners of rental properties. This policy represents renters making rent payments directly to the U.S. government, for the “privilege” of living in government-owned[2] homes. While the numbers for homes owned outright by Fannie Mae are small at the moment, it is no less a watershed moment.

Of course the policies of Fannie Mae are not binding upon the so-called “private sector” (is there still one?), at least not yet. As the Duhigg reports,

““We’re not in the business of managing rental properties, and we’re not in the business of being a landlord,” said Thomas Kelly, a spokesman for JPMorgan Chase, which owns about two million loans. “Clearly the renter is caught in the middle in cases like this. When a property is in foreclosure, we follow the law.”[3]

It is somewhat amusing that a representative of J.P. Morgan Chase would speak so reverently about the law, as if it were some bastion of property rights and justice. Having been the beneficiary of the lion’s share of the largesse during the financial sector bailouts, this bank should know better than anyone that the law and justice no longer have much to do with each other. If property rights get in the way of some new government theft, a law is simply passed to eliminate the obstacle. Having eschewed the concept of republican government in exchange for “democracy,” there are now no rights that cannot be violated, as long as a sufficient number of votes can be raised among elected representatives. Indeed, our government does not really recognize “rights,” which transcend government. It grants privileges and erroneously refers to them as rights.

I doubt that private sector banks will retain the privilege of evicting tenants from the properties they acquire in foreclosure for very long, once the new presidential administration and Congress take office. Already, the cries for “fairness” are beginning to be heard. As the Times article reports,

“Some lawmakers and housing advocates say such policies are unjust.
“If your loan is owned by Fannie Mae, you get to stay in your home. If your loan is owned by someone else, you’re on the street,” said Mr. Taylor of the National Community Reinvestment Coalition. “These banks need to realize they’re in the property management business now, whether they like it or not.”[4]

Note the use of 21st century coercion-euphemisms. Any statement beginning with “You need to…” is one that could just as well start with “I ORDER you to…” At least the tyrants in centuries past made such statements with swords drawn and pointed at their victims. Today’s authoritarianism with a smile is actually more horrifying.[5]

With all of the travesties of justice taking place during this blackest of years in our history, one might argue that insisting that banks retain the right to put renters out on the street represents confused priorities. Perhaps so. However, one thing is certain. The line was already blurred regarding the right to own property before this, as the government could seize it from you merely for being unable to pay its property taxes. Now that the banks (and soon anyone buying properties in foreclosure) have no say over who lives in the house that they just bought, that line has become a smudge at best. In reality, there really is no such thing as homeownership. Government merely grants the privilege of stewardship over ITS homes. This latest farce merely makes that fact clearer.

So much for the moral considerations on this issue. I seem to have been far less efficient in confronting them than the government, which breezed right on by them. Who says it can’t get things done quickly?

As far as unintended consequences, this latest bit of idiocy is so ripe with them that it is hard to know where to begin. I am not sure who truly manages these properties, now that they are the property of the government but still occupied. Who does the tenant call when the sink starts leaking? If you think you see a program like Medicare or Medicaid coming, you’re not alone. We could always use another network of overpaid providers rendering sub-par service at a cost of hundreds of billions of dollars to taxpayers. Worse yet, as more and more average Americans wind up in government-owned or subsidized homes, the program to pay handymen to do repairs could grow into an institution, just like the aforementioned medical programs. Among other negative consequences, this will tend to push the prices for these repairs through the roof for everyone, just as government-provided medical care and student loans push up the cost of healthcare and tuition for everyone. Let’s hope the government doesn’t start providing beer – we can’t afford bubble prices for that in times like these!

Of course, the glaring weakness in this latest move has to do with the central issue – selling the foreclosed properties. The whole reason behind lenders taking possession of a property when the borrower defaults is to sell that property and recover some of the losses on the loan. This new policy of Fannie Mae’s, which will almost certainly become a law sometime during the next Congressional term, will only prolong the time that these properties are on the market. Far less buyers will be willing to acquire properties if they are forced to take their chances on a tenant that they haven’t personally vetted, and on a property where their options are limited in terms of what they can do with it after they acquire it. This fits the FDR pattern of intervening into the markets and preventing a needed correction perfectly. The market is trying to liquidate these properties and allow them to be sold at more reasonable prices to more viable customers. The government policy will arrest that process, causing the crisis to take longer resolve itself, if it is allowed to resolve itself at all.[6]

It also goes without saying that the landlords who will buy the homes are more likely to be poorer landlords, as they are by definition landlords who care less about who they rent to. This tends to manifest itself in the appearance and upkeep of the properties, affecting property values throughout the entire neighborhood. Add to that the poor service and quality of work that comes with the government or banks providing the property management and you have the recipe for some scary neighborhoods. Collateral damage certainly isn’t just a military term, once our federal government gets rolling.

So where does this all lead us? I said at the beginning that one of the most disturbing aspects of this story was that an idea like this has been born before the real crisis gets rolling. We have had a market crash and ensuing credit crunch, but everyone seems to be in denial over what inevitably comes next – massive unemployment. Once that starts really manifesting itself (probably as early as next summer), the “state of emergency” mindset will kick in with our government and things could really deteriorate quickly. Right now, loan defaulters are being evicted from the property that they borrowed against and are finding homes in the abundant rental market. However, when the vast majority of them are unemployed, they will need the government to help them, too. It is certainly not hard to imagine a scenario where unemployed loan defaulters are evicted from their homes in foreclosure, only to be “placed” into rental properties that the government owns (but cannot sell), or even into another property that the same bank that just seized their home acquired in foreclosure on somebody else!

For those properties owned by the government, the renters would pay the government directly (eventually it may even be a standard payroll deduction). For those properties owned by a private bank, the Section 8 program will provide the rent subsidies, which the government is now obligated to pay the bank/landlords because they forced them to get into the property management business in the first place. Alternatively, the government may just start buying the houses from the bank, in order to “stablilize” the housing market and because it now has an incentive to grow its new program. The government will certainly have an incentive to put people into the houses that it already owns and cannot sell. This program could realistically feed itself until tens of millions of Americans are in government housing.

On the brighter side, at least this will further solidify the close relationship between our banking institutions and the federal government. We could always use more tight collusion between government and big business. There is no sense in repeating the worst mistakes of the past century without throwing in a little more fascism.

However, the fascist model is more the Republican brand of socialism, at least in this century. The Democrats seems to favor the Marxist variety, as evidenced by their increasingly Marxist rhetoric and their choice of a presidential candidate. Make no mistake, government-provided housing is right in their proverbial wheel house, and you can expect them to jump on the “opportunity” next year’s emergency will afford them to hit this one out of the stadium. The Carter years might look like an economic golden age before this is over. Let’s hope that it is apparent to most Americans in four years that the medicine is killing the patient. Medicare may not be around to cover the catastrophic care needed by 2016.

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[1] Mark, Karl and Engels, Friedrich Manifesto of the Communist Party (The Communist Manifesto) 1848. (This is Plank One of the famous Ten Planks of the Communist Manifesto)
[2] I suppose I should be grateful that the patronizing assertion that “the taxpayers” own Fannie Mae was not made in this particular article. That characterization has been an especially insulting aspect of our conversion to socialism. Ownership can only occur when you CHOOSE to own something, and when you have some control over its disposal. Moreover, it should be evident that even in the unlikely event that our government somehow makes money on this travesty, not one dollar will be coming back to taxpayers, nor should we accept it if it did.
[3] Duhigg, Charles “Fannie Mae Lets Renters Stay Despite Foreclosures” New York Times December 14, 2008
[4] Ibid
[5] Sadly, this expression has become ubiquitous in the private sector as well. Americans brought up under the yoke of coercion know no other way to deal with one another.
[6] Of course, this policy would not by any means be the only factor in houses not selling. Neither will it be the only action government will be taking to block the overall correction and make the depression worse.

>Life in the Post-5/7 America

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>We have spent the past seven years in a “post-9/11 world.” We started hearing this insidious slogan not long after the terrorist attacks occurred. To translate the slogan for anyone who has not realized what it means, it means this: Whatever was left of your personal liberty before the 9/11 attacks is no longer a privilege your government can afford to grant you (and make no mistake, your government considers liberty a privilege, not a right). It seems that personal liberty is something that was nice in the Old America, but is just impractical in a “post-9/11 world.”

Of course, the struggle for economic freedom was lost decades ago with the onset of public and corporate welfare, the abolition of the gold standard, and the emergence of the American Empire. However, as with the other “civil liberties,” some traces of the economic freedom of America’s former Republic have survived several decades into America’s post-WWII social democracy. Those last traces are about to disappear as well. The following is one way it could happen.

Why May 7th? There is no compelling reason for the exact day. However, it is the Thursday of the first full week after the next president’s first 100 days in office are completed. It may be just a coincidence, but cataclysms never seem to happen during those 100 days. Perhaps world market movers don’t do much until they get a feel for the new administration. Perhaps it is some kind of statist magic, left over from government sorcerers like Merlin or Morgan Le Fay. In any case, even the terrorists respected the first 100 days of George Bush’s administration before launching their attacks. So, I am going with the odds to say that the economic day of reckoning will not manifest itself until May 7, 2009 – the new “Black Thursday.”

Even if the American economy is already dead for all intents and purposes, an historic crash of the stock markets will officially signal the dawn of the new era. When it does, all pretense of the “possible moral hazard” accompanying massive government interventions into the marketplace will be dropped. We will be in a “post-5/7 economy,”[1] much like our “post-9/11 world,” and the last vestiges of your economic freedom will be lost, just as your personal liberty was lost after 9/11. Forgotten in debates regarding whether these interventions will be good or bad for “the economy” is the fact that each one amounts to stealing from someone – legal plunder because it is committed by government. Each new intervention, “unavoidable” because of the latest threat to the U.S./world economy, will cause three more problems for the government to solve with further interventions. Pointing out that the original problem was caused by a previous government intervention will be pointless. Free markets were a nice idea in the 20th century, but government control of the marketplace will be needed in a post-5/7 world.[2]

Despite the fact that government already treats the right to the fruits of your labor as a granted privilege, the small percentage Americans have been allowed to keep will seem relatively large compared to what they will be allowed after the big event. At that point, there will be a continual state of economic emergency that requires “Americans and Europeans to do more, not less,” as Barack Obama recently said in Berlin. There will be Housing in the New America and Universal Healthcare to be paid for, tens of millions of unemployed Americans to feed and clothe, and the “challenges of the 21st century (all created by government)” to meet.

Perhaps at that point it will occur to someone, somewhere, that none of this is necessary. Without the parasitic influence of a few thousand people, the other 300 million would naturally trade with each other to their mutual benefit, and would have little to fear from people thousands of miles away whom they would never think to bother themselves. It really is that easy. Americans can make a decision for freedom anytime they wish to, and rid themselves of the parasites once and for all. Hopefully, there will come a time when they will be easier to convince in the post-9/11, post-5/7 world.

[1] Whatever the actual date of the crash, simply insert it into the new government slogan and it works just as well.

[2] While it would be impossible in a Republic to enslave people with such nonsense as a market crash or a terrorist attack creating “a new world” where natural rights no longer exist, it is relatively easy in a Democracy, where only 51% of the people have to believe it for the scheme to work. This is just one reason why no politician refers to America as anything other than “a Democracy” anymore. Be suspicious of anyone who speaks likewise.

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