Sunday, December 30, 2012
William E. Simon was a U.S. Treasury Secretary, a very successful private investor, and author of a book that was endorsed by two Nobel Prize-winning economists, Milton Friedman and F. A. Hayek. Friedman called it a “brilliant and passionate book” that is “a profound analysis of the suicidal course on which our beloved country is proceeding.”
In 1976, Simon testified before Congress: “In the case of the federal government, we can print money to pay for our folly for a time. But we will just continue to debase our currency, and then we will have a financial collapse. This is the road we are on today. This is the direction in which 'humanitarians' are leading us. But there is nothing 'humanitarian' about the panic, the chaos, the riots, the starvation and death that will ensue. There is nothing 'humanitarian' about the dictatorship that must inevitably take over as terrified people cry out for leadership. There is nothing 'humanitarian' about the loss of freedom. That is why we must be concerned about the cancerous growth of government and its steady devouring of our citizens' productive energy. That is why we must be concerned about deficits and balancing the budget. The issue is not bookkeeping, it is not accounting. The issue is the liberty of the American people....
“I just wanted to put the real issue in focus. I can speak to the technicalities, and I will do so. But they obscure the real issues that face us in the country today. The problem is deficits, budget balancing, capital markets—all of these are important. But it is important, I think, to understand these are just early warning symptoms of a disease that threatens the very life of our body politic. And if we continue to move down this same path, that disease will become irreversible, and our liberty will be lost....I am leaving Washington next January. I am going home to New Jersey a very frightened man.”
Now, 36 years later, we have continued down that same path about which Simon was so alarmed. Our situation has gotten much more precarious, thanks to Obama, but we haven't yet reached the dire consequences Simon wrote about. But we will. The great economist Henry Hazlett, in a speech in 1964 on his 70th birthday, said, “If a government resorts to inflation, that is, creates money in order to cover its budget deficits or expands credit in order to stimulate business, then no power on earth, no gimmick, device, trick or even indexation can prevent its economic consequences.” Hazlett's classic book Economics in One Lesson, published 66 years ago, is still in the top twenty in current sales of economic books on Amazon.com. It continues to outsell Capitalism and Freedom, Milton Friedman's most popular book, written a quarter century later by the much better-known economist.
Obama's proposal to increase taxes for individuals and small businesses that make over $200,000 or, jointly, $250,000 a year makes no economic sense. And it belies Obama's claim of concern for the middle class, many of whom report their small-business income on their individual tax returns. According to the Congress' nonpartisan Joint Committee on Taxation, 3.5 percent of taxpayers with business income in 2013 would fall in the tax brackets that would rise under the president’s proposal—but those top earners generate 53 percent of all small-business income!
Federal Reserve data shows the top 5 percent of households save and invest 40 percent of their income. Middle income households save very little. Therefore, raising taxes to redistribute and consume income reduces the pool of savings for investment that would create economic growth with more jobs and rising incomes.
Sen. Rand Paul writes cogently: “Any notion that it matters whom you tax is simply a parlor game played by the class-warfare crowd. There are only two repositories of money—the private sector (which efficiently distributes goods) and the public sector (which doesn't distribute anything well). No central planner possesses the omniscience to assign fairness. The only guide to fairness of distribution that I can imagine is the minute-by minute vote of the most exacting and direct democracy ever known: the marketplace....Taking more money out of the private sector is injurious to economic growth....If you want to stimulate the economy, leave more money in the economy.”
The Obama administration has argued that government spending stimulates the economy as the money it spends is, in turn, spent over and over in the private sector. The administration used a multiplier of 1.5 to justify its stimulus spending, meaning that a dollar in government spending raises the gross domestic product by $1.5. In my new book The Impending Monetary Revolution, the Dollar and Gold, I point out, “If the multiplier really were larger than 1.0, the GDP would rise even more than government spending! The U.S., Greece and other spendthrift countries wouldn't be going broke—they 'd be getting richer the more they spent! The reality is that the multiplier is always less than 1.0. The money that is spent over and over in the private sector from the government programs is always less than the cost of the programs.” My book cites plenty of scientific research to support this. Moreover, “the research by Barro and Redlick found that if government spending is funded by taxes, the multiplier is minus 1.1. In other words, if government raises taxes by $100, the economy will shrink by $110.”
My book also points out: “Obama has learned nothing from the tax cuts by presidents Ronald Reagan and John Kennedy. In both cases, reductions in tax rates resulted in increased tax revenue for the government. When Reagan became president, he reduced the top marginal income tax rate to 28% from 70%, but when he left office, tax revenues had almost doubled. During this same period, the inflation rate fell to 4% from 13%, unemployment dropped to 5.3% from 7.5%, 17 million new jobs were created, and the longest peacetime boom in our history was underway. When Reagan took office in 1981, the top one percent of income earners paid 17.58% of all federal income taxes. Twenty-five years later, in 2005, that one percent paid 39.38% of all income taxes despite being taxed at a lower rate.
“In the 1960s President Kennedy cut the highest income tax rate to 70% from 91% with a similar result.” In 1962 President Kennedy said, “It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.”
Why then is Obama so fixated on raising taxes for the top earners? The answer must lie somewhere beyond the economics, because the economics of what he proposes are so dreadful. All the taxes he proposes to collect from people making over $200,000 (or $250,000 jointly) would run the government for only eight days! How would he finance running the government the other 357 days? He is silent.
Dinesh D'Souza has a 25-year career as an author, scholar and former college president. He is the narrator, director and co-author of the movie “2016: Obama's America,” which is based on his earlier book The Roots of Obama's Rage. In both the book and the movie, D'Souza significantly points out that Obama's memoir Dreams from my father is not titled “Dreams of my father.” Rather, it is “Dreams from my father”—which means he has his father's dreams.
His father wrote a paper “Problems with our Socialism” that advocates 100% taxation of the rich. His mother was a communist sympathizer. Obama says, “The values she taught me continue to be my touchstone when it comes to how I go about the world of politics.” D'Souza says, “I would not normally hold Obama accountable for the views of either his father or his mother had he not written a book detailing how influential his father and also to some degree his mother have been on him. So I'm simply following Obama's story."
In RADICAL-IN-CHIEF: Barrack Obama and the Untold Story of American Socialism, author Stanley Kurtz documents —with over a thousand references—Obama's socialist past, his lies, and the socialist character of his administration. He writes: “Obama has made a concerted effort to hide his socialist convictions from the voters who put him in office. Had the American people known the truth, Obama would never have risen to the U.S. Senate, much less the presidency....In sum, the fears of Obama's harshest critics are justified. The president of the United States is a socialist.”
Kurtz says “the favorite strategies of community organizers are designed to push the country into socialism before the public can figure out what's happened.” Obama seeks to “transform America” by undermining capitalism through ever-expanding government controls and a metastasizing public sector.
A key element in Obama's plan to redistribute other people's wealth is the destruction of property rights. It assumes wealth belongs to society collectively, rather to individuals who have earned it through their labor in production and trade. It is to compel public acceptance of this collectivist doctrine that Obama is so insistent upon raising taxes on the rich. For if the rich have no right to their wealth, then neither does anyone else. Then all wealth belongs to the collective, and society collectively—that is, through government—will decide everything for everybody. Natural rights to life, liberty and property will be superseded by tens of thousand of laws and regulations administered by tens of thousands of bureaucrats and inspectors who tell people what they can or must buy or sell, manufacture, ingest, dispose of and in what manner, as well as how much of their earnings they are allowed to keep and how much they must turn over to the collective.
This approach has been tried before on a smaller scale. Obama is 400 years behind the times. He has failed to learn the lesson of the Pilgrims who landed at Plymouth Rock in 1620. Half of them died the first year. Though the Indians helped them survive, the colonists were chronically short of food, and their numbers continued to dwindle.
Under the Mayflower Compact, which governed the colony, “all profits and benefits that are got by trade, working, fishing or any other means” were community property in the “common stock” of the colony. And “all such persons as are of this colony are to have their meat, drink, apparel and all provisions out of this common stock.” People were required to put in everything they could—they were forbidden from growing their own food—and to take out only what they needed. It was a policy of “from each according to his ability, to each according to his need,” centuries before Karl Marx seduced millions of people with those words.
The communal system was such a failure that in the spring of 1623 the Pilgrims feared they would not survive another poor harvest. “So they began to think,” wrote the colony's governor William Bradford, “how they might raise as much corn as they could, and obtain a better crop than they had done, that they might not still thus languish in misery. At length, after much debate of things, the Governor (with the advice of the chiefest among them) gave way that they should set corn every man for his own particular, and in that regard trust to themselves....And so assigned to every family a parcel of land.....This had very good success; for it made all hands very industrious, so as much more corn was planted then otherwise would have been by any other means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content.”
Far from making the people “happy and flourishing,” the communal system, wrote Bradford, “was found to breed confusion and discontent, and retard much employment that would have been to their benefit and comfort.” Not surprisingly,“young men that were able and fit did repine [complain] that they should spend their time and strength to work for other men's wives and children, without recompense. The strong, or men of parts, had no more division of food, clothes, etc. than he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labor, and food, clothes, etc. with the meaner and younger sort, thought it some indignity and disrespect unto them.”
Under the circumstances, there was little incentive to produce food. Severe whippings were tried to induce greater production, but they did little more than increase discontent.
The social disharmony, along with the food shortages, disappeared once the concept of private property was introduced and people could keep whatever they produced, or trade it away as they saw fit. In 1647 Bradford was able to write “any general want or famine hath not been amongst them since to this day.” Such was the success of the new system that in 1624 the colonists began to export corn, trading it for beaver pelts, other furs, and meat.
In 1624 the Pilgrims took a further step in property rights. The system of assigning land “to every man for his own particular” had certainly increased the production of corn, but the assignment was drawn by lot yearly. Thus there was not much incentive for making improvements to one's tillage when someone else might draw that land next year. The men requested of the Governor “to have some portion of the land given them for continuance, and not by yearly lot....Which being well considered, their request was granted.”
Jamestown, the first permanent English colony in America, established in Virginia in 1607, had an experience similar to the Pilgrims at Plymouth. Early years of starvation were followed by converting to a system of property rights and a free market, which brought abundance. Under collectivism, less than half of every shipload of settlers survived the first twelve months at Jamestown. Most of the work was done by only one-fifth of the men, to whom the socialist system gave the same rations as to the others. During the winter 1609-10, called “The Starving Time,” the population fell from 500 to 60.
But when Jamestown converted to a free market, there was “plenty of food, which every man by his own industry may easily and doth procure,” wrote the colony secretary Ralph Hamor in 1614. Under the previous system, he said, “we reaped not so much corn from the labors of thirty men as three men have done for themselves now.”
We should not underestimate the significance of the experiences at Plymouth and Jamestown. Property rights and free markets were truly revolutionary and fundamental to capitalism. Without them, all the wealth, progress and human betterment that followed could not have occurred. According to Sartell Prentice, “In England, meanwhile, farming 'in common' continued to be the general practice for another hundred years. Not until the second decade of the seventeen hundreds did 'setting crops for their particular' begin to be slowly accepted in England—and decades were to pass before the new practice became sufficiently widespread to provide an adequate food supply for the population.”
There is no shortage of people who want a political system that gives them the fruits of other men's labors, as at Plymouth and Jamestown. And there is an abundance of politicians willing to accommodate them at the expense of other men's property. The result is repetition of the collectivist systems (socialism, fascism) that have failed in the past, and no end to the discontent and resentment they engender. But people can be seduced to try them again and again by lofty idealistic statements, eloquent messages of hope, and promises that can never be kept. All of which allow the covetousness of other people's property—whether for personal gain or altruistic, collectivist aims—to masquerade under noble-sounding phrases.
Once he was president, Obama came up with a health plan that would require everyone to buy health insurance—as though people's money was not theirs by right but, rather, was part of the “common stock” of community property, to be allocated by the leader for the collective good! And, just as at Plymouth, people who did not cooperate would be punished—not by severe whippings as was done there, but by the more civilized penalty of seizing their property (money) through fines if they refused to buy health insurance.
Contrast the government inflicting pain and penalty to force compliance compared to the benefit and satisfaction—even happiness—from market transactions, which people undertake without force or penalty in order to enhance their lives and are far more effective than socialistic distributions. Obama said, "We are fundamentally transforming the United States of America." He is indeed, wiping out the fundamental principles that allowed America to prosper.
Obama claimed, "This is our moment, this is our time to turn the page on the policies of the past, to offer a new direction." Yes, he is “turning the page on the policies” of property rights and free markets. But the direction he is offering is not new but old. It is the ancient system of four centuries ago, before property rights, those basic rights which are still denied in varying degrees in many countries that have never discovered free-market capitalism, much less embraced it—and whose standard of living reflects that fact.
"Generations from now,” Obama said, “we will be able to look back and tell our children that this was our time." Yes, and they will be the worse for it—and damn you for it!
Many supporters of Obama say he is not a socialist because he does not advocate government ownership of the means of production, and they deride those who claim otherwise. But it is the defenders of Obama who fail to understand the historical meaning of socialism. For example, as I point out in my new book The Impending Monetary Revolution, the Dollar and Gold, the 1926 Webster's New International Dictionary of the English Language (unabridged) defined socialism as “A political and economic theory of social reorganization, the essential feature of which is governmental control of economic activities, to the end that competition shall give way to cooperation and the opportunities of life and the rewards of labor shall be equitably apportioned....—opp. to individualism.” (Italics in the original). Notice there is no mention of government ownership, only “government control of economic activities.” That includes regulation.
After the abject failures of government ownership of production under communism, the advocates of socialism have attempted to distance themselves from those failures. Instead of government ownership, they strive to achieve the same end by regulation. In practice, there is no difference between the two. They are not opposites but twin forms of collectivism, both opposed to free markets and individual rights—including property rights. The collectivist twin of socialism is today better described as fascism. That term was coined by Benito Mussolini in 1919 and described his political movement which put him in power in Italy in 1922.
Barron's Business Dictionary says fascism involves “private economic ownership under rigid government control.” The New Dictionary of Cultural Literacy says, “Although both communism and fascism are forms of totalitarianism, fascism does not demand ownership of the means of production.”
The failures of socialist systems under the label of communism are well known, but few people today realize that Adoph Hitler's government was another failure of socialism. The word “Nazi” was short for National Socialist Workers Party of Germany, which was fascist like Mussolini's regime. Both governments exercised extensive controls—even provided state funding to failing private enterprises—but did not nationalize them. They controlled them without acquiring them.