The Best Economic Stimulus is for the Government to Get Out of the Way

"If one understands that socialism is not a share-the-wealth programme, but is in reality a method to consolidate and control the wealth, then the seeming paradox of super-rich men promoting socialism becomes no paradox at all. Instead, it becomes logical, even the perfect tool of power-seeking megalomaniacs. Communism or, more accurately, socialism is not a movement of the downtrodden masses, but of the economic elite." - Gary Allen, None Dare Call It Conspiracy, Concord Press, 1971

Stimulus by Spending Cuts: Lessons from 1946

By Jason E. Taylor and Richard K. Vedder, Cato Institute
May/June 2010

Many, probably most, Americans are skeptical of the vast stimulus efforts the federal government has undertaken in an effort to alleviate the economic downturn. After all, through early 2010, employment has fallen by 8.4 million jobs despite passage of two stimulus bills totaling nearly one trillion dollars in early 2008 and 2009, passage of the $700 billion Troubled Asset Relief Program (TARP), and the extraordinary expansionary monetary actions by the Federal Reserve.

But now with serious anxiety regarding the impact of the nation's unprecedented deficits and a potential surge in inflation, a second concern is arising: would any nascent recovery be thwarted if the government was to withdraw the stimulus and return to a semblance of financial normalcy? There's good news on that point. Just as history tells us that stimulus packages are ineffective in bringing about recovery, so it also tells us that "de-stimulus" — moving in the direction of monetary and fiscal contraction — likewise need not have severe adverse effects on employment, income, stock prices, and other macroeconomic variables.

The Obama administration projects a $1.6 trillion budget deficit — almost 11 percent of our GDP — for the 2010 fiscal year. This deficit is the size of total federal spending just 13 years earlier (1997). And this follows a 2009 fiscal year deficit of over $1.4 trillion. At the same time the Federal Reserve has injected another $1.5 trillion in liquidity through various lending programs since the Great Recession began in late 2007. We might call this the "Great Stimulus," but those words are terribly misleading. It hasn't been much of a stimulus, given the rise in unemployment to double digits for only the second time since the 1930s and the general lack of confidence economic agents seem to have in the future economy (the conference board's "Present Situation Index" of consumer confidence hit its lowest level in 27 years in February 2010). Nor is it all that "great": when compared to the size of the economy, the recent stimulus does not even begin to approach that of World War II.

Between 1943 and 1945 government deficits ranged between 21 and 27 percent of GDP — in comparison to the size of today's economy this would be the equivalent of annual deficits of around $3 trillion to $4 trillion. During these three years, the national debt rose from 50 percent of GDP to over 120 percent. Furthermore, the United States Bureau of the Budget estimated that at the wartime peak, 45 percent of the nation's civilian labor supply was supported by government spending on the war effort while another 12 million citizens (18 percent of the total labor force) were employed directly by the military.

Of course it is often said that World War II provides the empirical proof that a Keynesian-style government stimulus can bring an ailing economy back to full employment. During the 1930s, the argument goes, government simply did not spend enough to end the Great Depression. After Pearl Harbor, policymakers finally put the stimulus pedal to the metal with massive deficit spending and highly expansionary monetary policy — the money supply doubled between 1941 and 1945 — to finance wartime production. Unemployment fell from nearly 20 percent in the late 1930s to 3.1 percent in 1942 and 1.2 percent in 1944. John Maynard Keynes himself implied that the return to full employment in the face of massive expansionary policy validated his theory, saying that economic "good may come out of evil" if we heeded the lessons of the wartime stimulus by using the same methods to combat downturns during peacetime.

But the real economic lesson to come out of the World War II era was not that the conscription of nearly a fifth of the labor force into grueling and dangerous working conditions abroad and the imposition of a command economy at home — complete with rationing, price controls, and government allocation of many aspects of life — could bring unemployment down. Soviet-style command economies had many problems, but unemployment was not typically one of them.

Instead, the true lesson from the period can be ascertained from the events of 1945-1947 when the largest economic "stimulus" in American history was dramatically and quickly unwound, months before most people anticipated it (because the atomic bomb brought a sudden unexpected end to the war). No other episode more clearly supports the notion that the best economic stimulus is for the government to get out of the way.

THE DEPRESSION OF 1946

Historically minded readers may be saying, "There was a Depression in 1946? I never heard about that." You never heard of it because it never happened. However, the "Depression of 1946" may be one of the most widely predicted events that never happened in American history.

As the war was winding down, leading Keynesian economists of the day argued, as Alvin Hansen did, that "the government cannot just disband the Army, close down munitions factories, stop building ships, and remove all economic controls." After all, the belief was that the only thing that finally ended the Great Depression of the 1930s was the dramatic increase in government involvement in the economy.

In fact, Hansen's advice went unheeded. Government canceled war contracts, and its spending fell from $84 billion in 1945 to under $30 billion in 1946. By 1947, the government was paying back its massive wartime debts by running a budget surplus of close to 6 percent of GDP. The military released around 10 million Americans back into civilian life. Most economic controls were lifted, and all were gone less than a year after V-J Day. In short, the economy underwent what the historian Jack Stokes Ballard refers to as the "shock of peace." From the economy's perspective, it was the "shock of de-stimulus."

If the wartime government stimulus had ended the Great Depression, its winding down would certainly lead to its return. At least that was the consensus of almost every economic forecaster, government and private. In August 1945, the Office of War Mobilization and Reconversion forecast that 8 million would be unemployed by the spring of 1946, which would have amounted to a 12 percent unemployment rate. In September 1945, Business Week predicted unemployment would peak at 9 million, or around 14 percent. And these were the optimistic predictions. Leo Cherne of the Research Institute of America and Boris Shishkin, an economist for the American Federation of Labor, forecast 19 and 20 million unemployed respectively — rates that would have been in excess of 35 percent!

What happened? Labor markets adjusted quickly and efficiently once they were finally unfettered — neither the Hoover nor the Roosevelt administration gave labor markets a chance to adjust to economic shocks during the 1930s when dramatic labor market interventions (e.g., the National Industrial Recovery Act, the National Labor Relations Act, the Fair Labor Standards Act, among others) were pursued. Most economists today acknowledge that these interventionist polices extended the length and depth of the Great Depression. After the Second World War, unemployment rates, artificially low because of wartime conscription, rose a bit, but remained under 4.5 percent in the first three postwar years — below the long-run average rate of unemployment during the 20th century. Some workers voluntarily withdrew from the labor force, choosing to go to school or return to prewar duties as housewives.

But, more importantly to the purpose here, many who lost government-supported jobs in the military or in munitions plants found employment as civilian industries expanded production — in fact civilian employment grew, on net, by over 4 million between 1945 and 1947 when so many pundits were predicting economic Armageddon.

Household consumption, business investment, and net exports all boomed as government spending receded. The postwar era provides a classic illustration of how government spending "crowds out" private sector spending and how the economy can thrive when the government's shadow is dramatically reduced.

Employment is closely related to the productivity-adjusted real wage. When the labor costs of making a widget fall, employers find it profitable to make more widgets and hire more widget-makers. Those costs fall when productivity rises (more widgets produced per hour of work), when the price of widgets rises (increasing the margin between revenues received and cost of production), or when money wages fall. In the immediate postwar era, prices and productivity were generally rising, more than offsetting modest increases in money wages.

The data today suggest that the self-correcting and healing forces of markets are beginning to work again. Worker productivity is generally increasing, and money wages are stagnant or rising less than the rate of inflation, meaning real wages are falling. In a productivity-adjusted sense, the wage decline appears to be substantial.

After a lag to be sure this trend is real and sustaining, this should lead to an upsurge in new hiring. In other words, unemployment will start falling not because of the stimulus spending, but in spite of it. And just as the stimulus money created few if any new jobs, its withdrawal will destroy few if any jobs. To be sure, some specific jobs will be lost, but others will be gained as the negative effects of government borrowing are eased somewhat. To better illustrate the crowding out effect of government spending, economists often refer to Frédéric Bastiat’s 1848, "What Is Seen and What Is Not Seen."

The illusion that new employment results from the stimulus package is understandable because the jobs created by it are visible, whereas jobs lost due to the stimulus are much less transparent. When several hundred million dollars are spent building a 79-mile per hour railroad from Cleveland to Cincinnati, we will see workers improving railroad track, building new rail cars, and so on. In fact, we can directly count the number of jobs supported by stimulus dollars and report them on a website (www.recovery.gov currently reports that 608,317 workers received stimulus monies in the 4th quarter of 2009). At the same time, however, the federal spending invisibly crowds out private spending.

This happens regardless of how higher federal spending is financed. Tax financing (not done in this case) reduces the after-tax return to workers and investors, leading them to reduce the resources they provide. Deficit-financing (borrowing) tends to push up interest rates and, more generally, eats up dollars that would otherwise have gone toward private lending and investment. Inflationary financing (roughly the Fed printing money — a fear in this situation) reduces investor confidence, lowers the real value of some financial assets, and leads to falling investment. Of course we do not register these "job losses" on the mainstream statistical radar because they are jobs that would have been created, absent the government spending, but never were — hence their invisibility.

There are no free lunches in the world. Stimulus efforts of modern times, perhaps most notably that of Japan during the 1990s, which actually led to reduced economic growth and long-term higher unemployment, show the futility of the Obama administration's current approach. Furthermore, a recent study by Claudia Sahm, Matthew Shapiro, and Joel Slemrod shows that the Bush stimulus policies in 2001 and 2008 ad no significant impact on the economy. Other recent work by Robert Barro and Charles Redlick examines long-term macroeconomic data and confirms the notion that government spending crowds out that of the private sector. Barro predicts that the long-term effect of the current stimulus will be negative.

DERAILING RECOVERY

Markets, by contrast, have marvelous healing properties. If unemployment is too high, declines in the productivityadjusted real wage make it attractive to hire workers again, lessening the problem. If investors are slow in borrowing, falling interest rates entice them to take on credit.

These sorts of things are happening in the American economy today, but government-imposed shocks can derail any recovery. This happened in the Great Depression as the economy finally began to recover after a major slowdown in government interference in the labor market between mid 1935 and early 1937. However, these gains were reversed by the Supreme Court's surprise ruling (which followed Roosevelt's threat to pack the Court) upholding the constitutionality of the National Labor Relations Act. Real wage rates rose sharply in the months that followed. Unemployment, which had fallen to around 13 percent on the day of the court ruling, was back above 20 percent a year later.

When market processes lead us to see light at the end of the tunnel, the government sometimes adds more tunnel. Recent examples of this phenomenon can be seen in the newly passed health care legislation and the proposal for a cap-and-trade environmental regime. The new health care legislation will enormously increase labor costs, as would cap and trade. Nervous employers, wanting to avoid the possibility of taking on sharply rising labor expenses, demur in hiring workers that they would in a more neutral policy environment.

Furthermore, the multi trillion dollar deficits to finance the stimulus as well as government bailout money from TARP have to be financed, and the possibility that the Federal Reserve would engage in inflationary financing of this new federal debt has clearly unnerved many investors. Since the November 2008 election, the price of gold has risen 50 percent because of growing inflationary fears.

Yet another example is the government's continual extension of unemployment benefits beyond the customary maximum 26 weeks (most recently at the beginning of March). While most would agree that unemployment insurance provides short term relief to those who must seek new work, many studies confirm what common sense says we should expect — the longer the time frame people are eligible for such benefits, the longer it takes for unemployment rates to fall.

In 2009 the average duration of unemployment nearly doubled, and today, well over 40 percent of those unemployed have been out of work over six months. While the poor labor market is to blame for much of this jump in duration, there can be no doubt that incentives to obtain new employment have been, and will continue to be, tempered by governmental action which has extended unemployment insurance to many through the end of 2010.

Finally, it is clear that the government stimulus has not provided any kind of positive placebo-type effect on consumer and business confidence. As mentioned earlier, survey data show that such measures of confidence continue to linger around the lowest levels seen in a generation. In fact, a simple econometric model consisting of two explanatory variables — government spending as a percent of total output and the rate of inflation, can explain the vast majority of the changes in stock market prices in modern times — and stock market valuations are a good indicator of confidence.

Stock prices fall with growing government involvement in the economy or with rising inflation. The sharp rise in the government's share of output in the last decade and the threat of greater inflation in the next one are important factors behind the 30 percent decline in the inflation-adjusted Dow Jones Industrial Average since 2000. Eye-popping deficits of the past year have lowered optimism about the future, kept stock prices depressed, and reduced key elements in new investment spending. These negative side effects of the stimulus spending are certainly slowing down the recuperative process that market forces are attempting to generate.

CONCLUSION

The conversation has begun regarding the nation's exit strategy from the unsustainable fiscal and monetary stimulus of the last two years. Our soaring national debt will not only punish future generations but is also causing concern that our creditors may bring about a day of reckoning much sooner (the Chinese have recently become a net seller of U.S. government securities). There are fears that the Fed's policy of ultra-low interest rates may bring new asset bubbles and begin the cycle of boom and bust all over again.

And unless the Fed acts to withdraw some of the monetary stimulus, many fear a return of 1970s era double-digit inflation. On the other hand, there are widespread fears that if we remove the stimulus crutch, the feeble recovery may turn back toward that "precipice" from which President Obama has said the stimulus policies rescued us. History and economic theory tell us those fears are unfounded.

More than six decades ago, policymakers and, for the most part, the economic profession as a whole, erroneously concluded that Keynes was right — fiscal stimulus works to reduce unemployment. Keynesian- style stimulus policies became a staple of the government's response to economic downturns, particularly in the 1960s and 1970s.

While Keynesianism fell out of style during the 1980s and 1990s — recall that Bill Clinton's secretary of treasury Robert Rubin turned Keynesian economics completely on its head when he claimed that surpluses, not deficits, stimulate the economy — during the recessions of 2001 and 2007-09 Keynesianism has come back with a vengeance.

Both Presidents Bush and Obama, along with the Greenspan/Bernanke Federal Reserve, have instituted Keynesian-style stimulus policies — enhanced government spending (Obama's $787 billion package), tax cuts to put money in people's hands to increase consumption (the Bush tax "rebate" checks of 2001 and 2008), and loose monetary policy (the Federal Reserve's leaving its target interest rate below 2 percent for an extended period from 2001 to 2004 and cutting to near zero during the Great Recession of 2007-09 and its aftermath).

What did all of this get us? A decade far less successful economically than the two non- Keynesian ones that preceded it, with declining output growth and falling real capital valuations. History clearly shows the government that stimulates the best, taxes, spends, and intrudes the least. In particular, the lesson from 1945-47 is that a sharp reduction in government spending frees up assets for productive use and leads to renewed growth.

We Have Become a Nation of Takers, Dependent on the Government to Care for Us, and Perfectly Primed By the Elite to Willingly Accept Their One World Order

"If one understands that socialism is not a share-the-wealth programme, but is in reality a method to consolidate and control the wealth, then the seeming paradox of super-rich men promoting socialism becomes no paradox at all. Instead, it becomes logical, even the perfect tool of power-seeking megalomaniacs. Communism or, more accurately, socialism is not a movement of the downtrodden masses, but of the economic elite." - Gary Allen, None Dare Call It Conspiracy, Concord Press, 1971

The government does not create a traditional sellable product and thus produces no revenue outside of what it collects from taxpayers. As of 2008, the average federal salary was $119,982, compared with $59,909 for the average private sector employee. In other words, the average federal bureaucrat makes twice as much as the average working taxpayer. Add the value of benefits like health care and pensions, and the gap grows even bigger. The average federal employee’s benefits add $40,785 to his annual total compensation, whereas the average working taxpayer’s benefits increase his total compensation by only $9,881. In other words, federal workers are paid on average salaries that are twice as generous as those in the private sector, and they receive benefits that are four times greater. - Brandon Greife, The Public Sector Weight Around Taxpayers’ Necks, RedStates.com, May 4, 2010

We are Entering an America Where Government Employees Are the Elite and We Are the Little People: Under a 'One World Order,' We'll All Be Serfs Laboring for the 'State'

Gallup's Job Creation Index for April reveals significantly more hiring within the federal government than in the private sector. Both show a substantially more positive picture than state and local governments, where firing far eclipses hiring ... The federal government is a growth industry, while employment at state and local governments is shrinking. By almost a 2-to-1 margin, federal employees say their employer is hiring rather than firing ... Gallup's Job Creation Index clearly indicates that state and local governments are in the midst of significant downsizing, no doubt reflecting budgetary issues resulting from recessionary pressures on the tax (and other) revenue that funds these governments. Hiring at the federal level has apparently to date escaped these same fiscal pressures. Indeed, the federal government appears to be significantly outpacing the private sector in terms of the relative number of jobs created. [Gallup Poll, Federal Government Outpaces Private Sector in Job Creation, May 3, 2010]

Among the few sectors of the economy showing net employment growth over the past year is the federal government. The federal civil service is rapidly expanding as Obama increases the size of government, with 33,000 new positions being added in January alone. Only 9,000 of those new slots were for temporary census jobs. In other words, what we are seeing is good times for the public sector and the growing prospect of a continuing and perhaps even deepening recession for everybody else. [Recession Chugs on, Except in Government, Washington Examiner Editorial, February 8, 2010]

With about 2.0 million civilian employees, the Federal Government, excluding the Postal Service, is the Nation's largest employer. About 85 percent of Federal employees work outside the Washington, DC metropolitan area... Wage and salary employment in the Federal Government is projected to increase by 10 percent over the 2008-18 period. Federal employees working in the continental United States receive locality pay. The specific amount of locality pay is determined by survey comparisons of private sector wage rates and Federal wage rates in the relevant geographic area. At its highest level, locality pay led to an increase of as much as 34 percent above the base salary in 2009. [The Federal Government is the Nation's Largest Employer, Career Guide to Industries, Federal Government Section, 2010-11 Edition]

According to the Bureau of Labor Statistics, the national median wage was only $32,390 per year in 2008. Due to the recession, that number has probably fallen 5 to 7 percent since then. [For the 50 percent of families in the middle of the scale, household income ranges from $51,000 to $123,000 for a typical four-person, two-parent family. The median is about $81,000. Median income for a single-parent, two-child family is about $25,000.] In March 2009, the average earnings for full-time Federal employees were $74,403. [How to Gauge Your Middle-Class Status, The Economic Elite vs. the People of the United States of America & The Welfare States of America]

Last year, federal, state and local governments spent a massive $4.6 trillion, according to Michael Hodges’s Grandfather Economic Report. The gross domestic product of the U.S. is only $13.1 trillion. That means 35 percent of the economy now depends on government spending. Government employment has also bloomed, vastly outstripping population growth. Federal, state and local governments now employ one out of every seven workers in the country, according to the Daily Reckoning. That is more than any other sector of the national economy. In 1946, there were 2.3 state and local government employees per 100 citizens; today there are 6.4. If government today had the same proportion of employees with respect to its population as it did in 1946, there would be 12.2 million fewer government salaries that current taxpayers would have to pay. [Robert Morley, The United Welfare States of America, October 8, 2007]

Without record levels of welfare, unemployment and other government benefits as well as tax cuts last year, the income of U.S. households would have plunged by an astonishing $723 billion... Moreover, for the first time since the Great Depression, Americans took more aid from the government than they paid in taxes... While wages and other job-related income fell by a record $206 billion last year to $7.84 trillion, transfer payments from the government such as unemployment checks and Social Security burgeoned by $231 billion to $2.1 trillion. Meanwhile, the amount of taxes that individual Americans paid plummeted by $325 billion to $2.1 trillion as a result of middle-class tax cuts and because nearly 6 million people were thrown out of work and are no longer paying payroll taxes... While most of the government benefits — including Social Security, welfare, Medicaid, food stamps and regular unemployment benefits — are sent automatically to those who qualify, Congress is debating an extension of some benefits enacted as part of the stimulus package last year. Those include jobless benefits and health insurance subsidies for the unemployed... The massive shift into dependence on the government, while essential in promoting an economic revival last year, has postponed a reckoning for many consumers who went too far into debt to maintain their lifestyles during the boom years. [Patrice Hill, American Reliance on Government at All-Time High, The Washington Times, March 1, 2010]

Government spending merely diverts money from private projects to government projects. Governments create no wealth. They only move it around while taking a cut for their trouble. So any jobs created over here come at the expense of jobs that would have been created over there... Creating jobs is not difficult for government officials. Pharaohs created thousands of jobs by building pyramids. Our government could create jobs by paying people to dig holes and then fill them up. Would actual wealth be created? Of course not. It would be destroyed. [John Stossel, Green Jobs, September 10, 2008]

Though the plan to create 17,000 jobs in the green energy sector alone is promising, the plausibility of such a plan is puzzling. At least to some. At odds is whether Barack Obama's green jobs plan will work, if at all, against the backdrop of the country's worst recession since the 1930s. Skeptics challenged that the Obama administration is investing in green technologies unlikely to be profitable and, therefore, the investment would amount to unsustainable taxpayer-funded jobs at most. Obama late last week announced his plan to boost employment by providing 2.3 billion U.S. dollars in tax credits for the creation of green jobs. The president is also urging the Congress to approve investment of another $5 billion in over 180 green energy projects. The announcement caused a kerfuffle over figures, as arithmetic-minded critics divided the special fund into a $100,000+ annual salary for each of these 17,000 would-be job holders, way above the median annual household income in the country. [Xinhua, Will Obama's Green Jobs Plan Work?, January 18, 2010]

In 2010, the Obama administration says it intends to relieve the job shortage by creating "green jobs" in the sectors of wind and solar power and biofuels. It has announced a program that will cost $2.3 billion, costing approximately $135,000 per job. "Show me one other industry that requests and receives a nearly 30 percent taxpayer subsidy," says Thomas J. Pyle, president of the market-based Institute for Energy Research. "If the President really wants to create an environment that will foster economic growth and job creation, he need not look any further than the domestic oil, gas and coal industries." ... A large part of the administration’s $786 billion dollar stimulus bill was devoted to green or renewable energy projects, but the rate of unemployment continues to rise, the cost of gasoline and heating oil continues to rise in the face of the coldest winter on record in decades, and real jobs in energy industries are thwarted by Obama administration restrictions on the exploration and development of our national energy reserves... America, the home to centuries-worth of massive amounts of coal, has a President who has openly declared war on the coal industry that currently provides half of all the electricity used by Americans. By contrast, solar and wind provide just over one percent! When the President talks of "green jobs" he is lying to Americans who need real jobs. The stimulus bill was nothing more than a political "pork" bill and is providing no real surge in job creation. [Alan Caruba, The Lies About Green Jobs, January 10, 2010]

The welfare state, however good its intentions of creating material equality, can't help but make us dependent. That changes the psychology of society. According to the Tax Foundation, 60 percent of the population now gets more in government benefits than it pays in taxes. What does it say about a society in which more than half the people live at the expense of the rest? Worse, the dependent class is growing. The 60 percent will soon be 70 percent... If government relieves us of the responsibility of living by bailing us out, character will atrophy. [John Stossel, Do We Want a Culture of Takers or Makers?, February 10, 2010]

In 2010, before any of Obama's major policy initiatives—such as health care reform, cap and trade, and tax rate increases-are enacted, the bottom 60 percent of American families will as a group receive more in government spending than they pay in taxes. The lowest-income families will be targeted for $10.44 in spending for every dollar they pay in taxes. Remarkably, families in the middle-income group—who are the target of many Obama policies—already receive $1.15 for every dollar they pay in taxes. By contrast, the top 40 percent of families pay more in taxes as a group than they receive in government spending benefits... Obama's tax and spending policies will, as advertised, further shift the tax burden toward upper-income families and spending policies to lower- and middle-income families. Surprisingly, Obama's policies will increase the number of families who are net "receivers" of government spending (those who get more back than they pay in taxes). As a group, the bottom 70 percent of families will be net receivers of government spending under Obama policies, up from the 60 percent who are collectively net receivers under today's policies. Of course this means that the number of "givers" will collectively shrink from the top 40 percent of families to the top 30 percent. [Scott A. Hodge, Accounting for What Families Pay in Taxes and What They Receive in Government Spending, Tax Foundation, September 21, 2009]

Forty-seven percent of those filing federal income tax returns have either a zero or negative tax liability; that is, they pay nothing but still get a tax “refund.” [Bruce Bartlett, A Value-Added Tax and the Poor, Forbes, April 23, 2010]

Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it's simply somebody else's problem. About 47% will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability... In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax. [Nearly Half of U.S. Households Escape Federal Income Tax, Associated Press, April 7, 2010]

Federal workers owed the government more than $3 billion in back income taxes in 2008, just as federal tax revenues started to suffer from the recession. More than 276,000 federal employees and retirees owed back income taxes as of Sept. 30, 2008, according to data from the Internal Revenue Service. The $3.04 billion owed was up from $2.7 billion owed by federal employees and retirees in 2007... Most residents who owe back income taxes file returns but cannot pay the full amount at tax time, said IRS spokesman Anthony Burke. Others have their tax bills increased through audits and cannot pay the higher bill. The statistics on federal employees do not include those who are on payment plans. The IRS doesn't publicize the data, but makes it available upon request. [Federal Workers Owe More Than $3 Billion in Back Taxes, Associated Press, December 15, 2009]

For fifteen years, I owned a computer consulting and executive search firm for computer technology people. I've been published in the field and am considered rather knowledgeable. From time to time, we'd receive resumes from government employees who considered themselves to be "experts" in computer technology. Their salaries were quite high, being paid for by the private sector taxpayer. On the other hand, they virtually all considered themselves to be underpaid, having a very unrealistic view of what their equivalents made in the private sector... The question is, why should the private sector taxpayer pay big dollars and incredible pension/medical benefits to government employees who effectively can't be fired and who get raises based on longevity rather than performance. Are government employees simply parasites on the private sector taxpayer when most everything can be outsourced to private companies and government made smaller? [dublin9, Are Government Employees Overpaid Parasites?, SodaHead, March 11, 2010]

Jessica Urtubia knows that when she graduates from Rutgers University in May, she'll likely be entering the worst job market of the 21st century. That's why she was among about 1,000 people who attended Federal Jobs Career Day yesterday at Rutgers. "I always thought the government was a good place to go, considering if you have a job there, you're probably pretty secure," said Urtubia, a business administration and criminal justice major. Representatives from 48 federal agencies gathered at the Rutgers Student Center yesterday to speak to college students and graduates from throughout the state about federal employment opportunities. It was the fifth of six federal government-sponsored career days this year and the first such event to ever be held in New Jersey. [Erica Harbatkin, Students Look to Federal Government for Stable Jobs, MyCentralJersey.com, November 8, 2008]

TSA Pay Band	Minimum	Maximum
A	$17,083	$24,977
B	$19,570	$28,546
C	$22,167	$33,303
D	$25,518	$38,277
E	$29,302	$44,007
F	$33,627	$50,494
G	$39,358	$60,982
H	$48,007	$74,390
I	$58,495	$90,717
J	$71,364	$110,612
K	$85,311	$132,237
L	$101,962	$155,500
M	$120,236	$155,500

More Students Seek Public Sector Work

If you’re looking for job security, benefits, and a decent salary, consider working for the federal government. President Obama’s stimulus plan will create 200,000 new jobs over the next three years. Monster has a good overview of stimulus jobs, including who's hiring, where the jobs will be, and the types of jobs available. - Alison Doyle, Stimulus Jobs: Alison's Job Searching Blog, About.com Guide to Job Searching, March 25, 2009

DailyWildcat.com
April 5, 2011

College graduates are increasingly looking for degree paths to prepare them for public sector work, but the end of federal stimulus funds is putting those positions in jeopardy.

The number of college graduates working for the federal government increased 16 percent from 2008 to 2009, according to an analysis of the American Community Survey from the U.S. Census Bureau. Employment in nonprofit organizations also increased by 11 percent during the same time period.

Brint Milward, director of the School of Government and Public Policy, said the number of students interested in majors that prepare them for positions in the public sector has risen since the school's split from the Eller College of Management in April 2009.

Milward said that the number of public administration undergraduates has increased by more than 200 in the last two years, from 305 to more than 500 today, and the number of political science majors has also increased from 900 to 1,200. The number of graduate students working toward a master's in public administration almost doubled over the same time period, from close to 50 two years ago to 96 today.

"There's no doubt that more people are asking for the major," Milward said. "Whether there are more opportunities, I don't know."

According to Bill Ruggirello, assistant director of UA Career Services, more private sector companies tend to try and reach out to students via career fairs.

"We have a couple of government types that come (to career fairs), but it in no way compares to the private groups," he said.

Ruggirello does not know yet if this trend continued this year. The annual career services survey to determine where students received employment will occur two weeks before graduation for students and about a month or two after graduation for employers.

He said that the job market has tightened in both the public and private sectors during the last couple of years, a factor Milward also addressed.

"The numbers sound right," he said in reference to the survey. "But it is important to note that, that is looking backward, not forward."

Out of the top five employers in Southern Arizona, four either are public sector companies or private companies that derive revenue from public funds. Raytheon is Southern Arizona's largest employer, followed by three public sector companies: the University of Arizona, the state of Arizona and Davis-Monthan Air Force Base.

The college class of 2011 is going into a job market with a starting salary higher than its recent predecessors, according to the National Association of Colleges and Employers, a Pennsylvania-based nonprofit that connects career service departments to employers,.

"The Southern Arizona economy is dominated by the public sector," Milward said. "Would I rather work for the parks departments or work at Dillard's? I don't know. I've worked in universities and government and I thoroughly enjoyed it, but I think it depends on that individual."

Milward said federal stimulus funds, which allowed local governments to retain workers in the last two years, will soon end and that will affect whether or not those same public sector opportunities will still be available.

"It's really striking to see how the public sector employs Arizonans," he said, "but demand in the market going forward, that's a little hard to predict."

Communism in America — Alive & Kicking!

The ten planks of the communist manifesto and how to apply them

By Larry Warrick
September 26, 2008

The Communist Manifesto was created by a man named Moses Mordecai Levi under the alias Karl Marx. There are ten planks to the Communist party platform, each covering distinct areas of government and society and providing for a self-perpetuating, mindless system whereby no other possible alternatives are considered or tolerated.

In this essay, I intend to show that though the cold war is indeed over, and with the United States of America still expending trillions of dollars a year to maintain its military industrial complex, Communism is still alive and well in the United States and is indeed thriving in the gradual implementation of the Ten Planks of Communism through Federal and State governments' social and industrial programs disguised as necessary or essential checks, balances and "fixes" on our "capitalist" society.

From the first steps toward the abolition of land ownership to the assumption of the parental responsibility of educating our children, this manifesto is being implemented before our very eyes, and the State-educated populace, through no fault of their own, is blind to these changes and in many cases, unwittingly accepts their political leaders' assurances as being righteous and necessary.

Let's consider each plank of this manifesto and consider how the designs of Communism are being achieved in the United States today.

First plank: "Abolition of all property and land ownership and the application of all rents for public purposes."

Property tax. The property owner has an equity position in real property (land) but is required to pay "rent" to the State or be forcibly deprived of the property in question by invocation of the fourth plank described later. Under this system, a person never really owns the property as he is required to pay the State to allow him to keep possession of it every year, thus implying that the State owns the property and allows the real owner to retain its utility upon payment of a yearly fee. This fee is then added to the general treasury funds and redistributed by government fiat to pay for other social, government and welfare* programs that the hapless property owner never sees and has no need or want of, including (this is not a misprint) the collection and enforcement of property taxes.

*Note that the word welfare, as used in this document, does not just refer to recipients of government welfare checks, but includes government funding of corporate welfare projects and enforcement of monopoly privilege or industry-specific restrictions (usually designed to eliminate open competition) used to repay political supporters, including the multi-trillion dollar military industrial complex.

Second plank: "Heavy progressive income tax."

Internal Revenue Service. The federal government and many States require each adult to fill out a personal income tax form and remit a considerable portion of their earnings each year, based on their success in profiting from their efforts. Failure to do so will invoke sanctions under the fourth plank described later.

Approximately 40% of the Federal Treasury income is derived from direct income taxation. These funds are then added to the general treasury and redistributed by government fiat to pay for Federal government enforcement ranging from social and welfare programs to maintaining an overseas empire, that the hapless taxpayer never sees and has no need or want of, including the collection and enforcement of direct income taxes (am I being redundant?). Interestingly enough, if the entire direct income system of taxation were abolished, Federal government receipts would still equal 1995 levels.

In the first two planks, we see that each property owning, working individual is required to pay taxes in order to retain ownership of personal property, as in the case of property taxes and maintain his personal liberty, as in the case of income taxes. Under this system, it is obvious that the State or Federal governments assume ownership of persons and their property, albeit on a partial basis. The average taxpayer works for approximately six months of the year in order to pay all of the required taxes and tariffs imposed by all branches of government, local and Federal. In other words, government assumes ownership of all that a person produces or owns and allows him to retain a government-designated portion of his property by fiat. Under a generous definition, we may call this theft; it is more properly described as slavery.

Third plank: "Abolition of all rights of inheritance."

Under the probate court system, the State assumes ownership of the estate, not the rightful heirs. A person who dies intestate (leaving no will or trust) effectively leaves his worldly possessions to be disposed by the State, which happily liquidates the assets and absorbs this income. The rightful heirs are then required to sue the State for possession of their rightful property, paying all fees and charges that in many cases are more than the value of the estate in question. If a person does leave a will, the State taxes the heirs based on the value of the estate before allowing transfer of assets. Once again, the State assumes ownership and allows transfer of a portion of rightfully owned property by fiat. In many cases, the heir is forced to sell off portions of the estate to pay the taxes.

Fourth plank: "Confiscation of property of all immigrants and rebels."

Tax rebels are routinely and methodically stripped of all rightful assets and deprived of their constitutional rights and personal liberty through the prison system. Those who challenge this system of taxation and imprisonment are subjected to lengthy and invasive inquiries and costly legal proceedings whereby they are given the impossible task of proving a negative, i.e., that they are guilty until proven otherwise. The proceeds are then added to the general treasury and used to fund, amongst many other things, (you guessed it) IRS actions against tax rebels.

Fifth plank: "Centralization of credit by the creation of a national bank."

The Federal Reserve System. Since the enactment of the Federal Reserve Act of 1913, debts of all descriptions are not paid in specie (gold or silver). The only legal tender is a fiat currency issued by the Federal Reserve Bank. Under this system, monetary policy is set by a cartel of central banking monopolists and implemented by government fiat. Money as we know it is simply created out of thin air by the use of the printing press or electronic transfer and the supply is then further inflated by a cartel of fractional reserve banks who create multiple simultaneous loans of the same funds and charge interest on money that they do not own and do not even have in their possession!

In this way, a single dollar created by the Federal Reserve is used to pyramid loans to the tune of ten thousand dollars in the marketplace (once again, not a misprint). Besides having a destabilizing effect on the market through mal-investments (entrepreneurs borrow based on artificially low interest rates) thus causing needless bankruptcies, monetary inflation causes a chronic rise in the general pricing structure (more money chasing the same amount of goods causes prices to rise over time).

Rising prices cause consumers to spend their earnings more quickly before the prices rise again, suppressing savings and artificially raising demand. In this way, through the central banking cartel, government controls and manipulates markets to its own ends and those of its political contributors, often to the detriment of the consumer, who is left with static wages and spiraling prices.

Sixth plank: "Centralization of the means of communication and transport in the hands of the State."

US Department of Transportation and State equivalents. Haulage trucks are routinely forced to drive in and out of DOT scales to provide proof that they are not carrying more goods than the government allows and that they are carrying goods approved of by the government. Failure to stop at a designated weigh station and submit to search results in sanctions under the fourth plank above (rebellious behavior will not be tolerated). Sanctions are brought against any trucker or trucking company found to be in violation of any of the literally thousands of DOT laws and arbitrary standards. The added expense to ensure DOT compliance for industry is incalculable but runs into the billions or trillions of dollars every year. This added cost is passed to the consumer in the form of higher prices in the marketplace.

Private vehicles are tagged with unique identifiers bearing the yearly rental fee sticker (car tax). A vehicle owner who refuses to pay the fee is deprived of his property (vehicle is towed) and disallowed from using the transportation system by having his license suspended until the tax is paid and all accompanying fees are satisfied, such as the towing and storage fee and license reinstatement fee. These taxes and fees are purportedly used for road maintenance and improvements, in practice, they are applied to the general treasury to await government fiat. Once again, honest people are burdened with a system of taxation that is to their detriment.

Seventh plank: "Government control of factories and the instruments of production owned by the State; the bringing into cultivation of wastelands and the improvement of the soil generally in accordance with a common plan."

The Bureau of Land Management, Department of Agriculture, Environmental Protection Agency, Food and Drug Administration, their individual State equivalents and many other government bureaus, agencies and authorities are all part of the ideology that government is responsible for approving the placement of factories, operation of mines, quantity and quality of production from agriculture, declaration and operation of National Parks, etc, etc, etc.

The list of examples of government interference in private enterprise under this plank is practically endless. For instance, the Department of Agriculture routinely pays farmers NOT to plant certain crops or even to leave the fields fallow in order to manipulate the commodities markets. More recently is the refusal of the United States Congress to allow oil exploration in the ANWAR region of Alaska because such activity may disturb a few moose!

By interfering in the sovereign right of individuals to dispose of their possessions (including land) as they see fit, government distorts the marketplace and damages the interests of both producers and consumers.

Eighth plank: "Equal obligation of all to work, establishment of industrial armies, especially for agriculture."

By implementing the first two planks of the Communist Manifesto, government takes great strides to ensuring that this eighth plank is implemented.

The requirement that taxes be paid on income, automobiles and real property each year has the effect of forcing many to work (if even part-time) simply to keep what they already own.

Under the fifth plank, steady inflation of the money supply causes the (now familiar and almost un-remarked) chronic rise in prices, forcing yet more to work simply to maintain their present standard of living as the value of their fixed income is systematically eroded. Since this plank was written, agricultural technology has improved to the extent that a single operator is capable of achieving the work of many hundreds of manual workers of the nineteenth century. However, with the implementation of agricultural mechanization, we have seen the gradual decline of the family run farm so typical of the American way of life in favor of huge corporate farming interests with enormous presence in the Congressional lobby. Through farming subsidies in the amount of billions of dollars and protective tariffs, these industrial farming interests manipulate markets to their own advantage and to the detriment of consumers.

Ninth plank: "A combination of agriculture with manufacturing industries, gradual abolition of the distinction between town and country by a more equitable distribution of population over the country."

The Federal Emergency Management Agency assumes the risk associated with living in less desirable, or more dangerous, regions of the country. Those parts of the country prone to natural disasters (such as wind, flood, earthquake, landslide, or other natural or man-made disaster) would be prohibitive to live in economically except that the federal government, through FEMA, assumes the risk for these natural occurrences, a function traditionally carried out by private insurance.

The existence of FEMA gives previously untenable, disaster-prone land the illusion of viability, thus redistributing the population more evenly over the entire country. Under these conditions, natural phenomena such as hurricane Katrina, that a hundred years ago would have only impacted the lives of several thousand people and caused limited collateral damage, today has impacted the lives of hundreds of thousands and cost billions of dollars in collateral damage.

It boggles the mind that after such an experience, the Federal government would not only provide financial and material support for those affected (a function much better left to private charity organizations), but encourages residents to rebuild on a hurricane-prone river delta that is slowly sinking further below sea level each year.

Tenth plank: "Free education for all children in public schools, abolition of children's factory labor in its present form and conform education to industrial productions."

On average, 75% of property taxes in any given State go to support the public school system. Parents are forced by law to tithe their children to the State education system or risk having them forcibly removed from the home by the State and placed in State-run foster homes, possibly never to be seen by their parents again!

Children who are home-schooled are required to take State designated tests at given intervals and those who fail to meet the State-specified standard are forced into the public school system, once again, against the parents' wishes. This system forces homeowners (who may or may not even have any school-aged children) to subsidize the State educational requirements of their neighbors, and even that of people they have never even met and likely don't know exist!

More and more, State education provides more emphasis on industry-driven content and less on the practical ability to solve issues of a moral or discerning nature. Ask any 5-year-old if it is wrong to steal and the majority will respond in the affirmative. Follow up and ask "why" and the waters get a little murkier. Some may say because Mommy or Daddy doesn't like it; some because the deprived party will get mad about it; some because the policeman will come and take you away; rarely will you hear that it is morally wrong to deprive someone of their rightful ownership and utility (natural law of property ownership).

Some may blame the parent for this lapse: Bear in mind that the school-aged child spends half of his waking life in the public school system, where the moral responsibilities of natural law are not on the curriculum.

Thus we see that the ten planks of the communist Manifesto are alive and doing well in the United States of America. The latest round of Congressional hand-wringing over whether the Federal government should provide in excess (and believe me, it will be well in excess) of one trillion dollars to bail out a financial system that, driven by pure greed, made trillions of dollars in bad loans (and a fat profit along the way) is a testament to the further growth and entrenchment of Communism in our political and economic system.

Under the supreme laws of our constitutional republic, each elected representative has sworn an oath to do nothing to help these greedy fools in any way. The founders who, in their benevolent wisdom, drafted, fought for and handed down our constitution are likely spinning in their graves to know that our elected representatives have even considered such a course.

NOTE: No Communists were killed or maimed in the production of this essay, though many in government are probably very pissed off now that their cover is blown

How Many People Work for the UK Government?

By Wat Tyler, Burning Our Money
November 25, 2009

Prompted by a comment on a recent BOM post, we've taken another look at how many are employed by the government.

We start with the official count published by the Office for National Statistics. It says that as of Q2 2009, public sector employment totalled 6.039 million, up from the 5.182 million Labour inherited in 1997 -- an increase of 17%* (and see here for some interesting longer-term material).

However, big though it is, that total excludes a number of groups who are not counted as being employed in the public sector, but who depend on the public sector for the vast bulk of their earnings:

• Higher and further education -- for arcane historical reasons, H&FE colleges are defined as being in the private sector, even though most of their funding comes from the taxpayer. When last sighted, they were employing some 530,000 staff.



• GPs -- they are counted as part of the NHS by the Department of Health, but most are excluded from the ONS count because they're technically private contractors. There are currently some 40,000 of them in the UK.



• Network Rail -- as we've blogged before, Network Rail is nationalised in all but name, but under an extraordinarily convoluted definitional fudge it's counted as part of the private sector. It currently employs 33,000.

Adding these groups back in takes the public sector employment total up to 6.7 million.

And then of course, there are all the people whose jobs have been privatised over the years, but who still work pretty well exclusively for the public sector -- i.e. hospital cleaners, dustmen, IT staff, etc etc. How many? We have no idea, but our guess is at least another quarter million, taking our public sector employment total up to around 7 million.

So, of the 28.9 million people currently in employment (see here), around one-quarter of them are employed by the government (aka the taxpayer).

And of course, there's another huge group of people who, while not employed by the government, are still dependent on taxpayers for their incomes.

To start with, there are now 5.8 million people of working age who are entirely dependent on welfare (see here), including 1.4m on Job Seeker's Allowance, 2.6m on incapacity benefits, and 0.7m on lone parent benefits. Actually those figures relate to May, and with increased unemployment, the overall total is now probably 6 million.

Adding them in as well, gives us an overall total of 13 million people dependent on taxpayers for their incomes.

And remember, these are people of working age. If we add in the 12.5 million older people now drawing state pensions, we get to a grand total of 25.5 million - 25.5 million people who are dependent on the taxpayer for most or all of their incomes.

Which is somewhat alarming. Because, on our calculation, we've only got 22 million people who are generating income from sources other than the taxpayer (i.e. 28.9m in employment less the 7m employed by the public sector). So each one of them has to earn the income to support him/herself plus 1.2 other adults... kind of idea.

Does that sound like it's sustainable?

Or is it time to dust off those dog-eared copies of Bacon and Eltis? (Britain’s Economic Problem: Too Few Producers by Bacon and Eltis (1976) is not online, but for quick flavour, see here, section 3.1).

*Footnote — although the ONS public sector employment numbers exclude college lecturers and GPs etc, they do now include the 235,000 staff employed by our nationalised banks — i.e. RBS, Lloyds, Northern Rock, and Bradford & Bingley.

Those Accustomed to Sucking Off the Government Teat Will Embrace the New World Order

Dependency starts at birth. The responsible will do the right thing and raise their child correctly. The irresponsible will allow the Government to raise that child -- it will learn to suck off the Government teat the rest of it's life, vote Democrat, and have a crappy life for the most part because they become functionally disabled with handouts and cannot succeed on their own… But the Dems have a bigger base that will always come back for more… Welfare has killed more lives than guns ever will. - Dustyluv, New Baby Boom Reveals Some Surprising Facts, March 19, 2009



The Economic Stimulus Plan is working, but not for America. The plan is working for Obama and his liberal cohorts to reshape America into a communist state and to accumulate total power over the American people. Obamas’s intentions are to change the free market system into a government-controlled market, and for individual freedoms and our way of life to be forfeited to the Government. Through job losses, instability in the Stock Market and financial institutions, and stoking fear into American lives, the failures to date of Obama’s so-called “Recovery Plans” will cause Americans to cry for more government intervention so that one day we will find ourselves under a total communist state. Make no mistake about it: Obama’s actions are not for the benefit of America and our way of life; it is all about Obama and his megalomania vision for Obama’s third world nation. - jamalagrinaolcom, Obama: Stimulus Bill Worked 'as Intended', Washington Times, July 12, 2009

"If one understands that socialism is not a share-the-wealth programme, but is in reality a method to consolidate and control the wealth, then the seeming paradox of super-rich men promoting socialism becomes no paradox at all. Instead, it becomes logical, even the perfect tool of power-seeking megalomaniacs. Communism or, more accurately, socialism is not a movement of the downtrodden masses, but of the economic elite." - Gary Allen, None Dare Call It Conspiracy, Concord Press, 1971

Amish Power or a Conservative Anarchist's Call for Shunning

By Ned Beaumont
© 2002

Call me a conservative anarchist.
Paradox at best? Pure nonsense at worst?
Not at all. For I remain true to both terms.

I am no “anarchist” in the sense that some weedy pencil-neck who breaks from hugging trees and eating organic tofu long enough to parade for socialism and do the dramaturgical work for the television cameras at every “World Trade Conference” is so labeled by the popular press.

Rather, I am an anarchist in the old-fashioned Nockian sense of hating the State because it allows the worst to exercise its passionate intensity, that “lust toward tyranny,” the lubido dominandi such as Sallust saw as the flaw deep in human nature.

Also, I am an anarchist in the even older sense of preferring persuasion to coercion. I remain deeply suspicious of organized interference with any man's “free judgment,” that same liberum arbitrium which Augustine knew made men truly human.

I am not “conservative” in the sense of modern American politics. Never classify me with the likes of William F. Buckley or Rush Limbaugh or any other wealthy softy whom you hate enough to substitute as the type-example of one eager for war — as long as he need not raise his expansive fundament from his easy chair long enough to fight — and even more eager to protect his expanding riches.

Rather, I remain conservative in the etymological sense of preserving the goods of life, the small and sincere joys of being human, against the assaults of social engineers and reformers-for-your-own-good, whether those controllers serve the State, corporations or mass society.

A Step Back to the Amish

The conservative quality of my innate anarchism is what drives my mind back in time when attacked by every new threat to liberty. The older I grow, the more strongly I stick to my conviction that the solutions to modern problems of living a free life may most often be found among old societies.

If, for example, Cicero, Lucan, and Juvenal could live free under the original Imperium, the model of State power for every despot since, then perhaps those old Romans have something to say to us today as we confront the latest empire. If, for another example, mass murderers from the Mongols to Mao could not quite kill off the Confucian society of old China, then maybe Kung and Mentse were on to something significant. Old ways have been tried; many have proven true. Wise people abandon those ways only after careful reflection.

Not so old as Confucius and Cicero, older at least than the United States, and able to teach a lesson to those with ears to hear, are the Amish. Pacifists though they are, the Amish offer a weapon to every anarchist in his war against the State — the weapon of shunning.

The Old Order

Most Americans know no more about the Old Order Amish (to grant the sect its full name, and to thoroughly distinguish it from the Mennonites) than they can recall from a drive through Pennsylvania Dutch Country, or from the movie Witness: Amish farms offer a colorful backdrop against which Harrison Ford fights bad guys; horses and buggies get in the way of SUVs on narrow country roads; Amish men wear beards and hats like those of Orthodox Jews, and Amish women dress like characters in a Thanksgiving school play; young Kelly McGillis had great eyes and a nice rack; etc. But there is more to Amish society than all that.

Named for their founder, Jacob Amman, the Amish broke away from the Swiss Mennonites during the 1690s because the Mennonites were lax in their faith by Amish standards. Finding refuge in America in 1728 — there was, of course, no US Government, no Justice Department, no FBI, no BATF to attack religions deemed politically incorrect — the Amish settled in several future states and Canadian provinces, including Pennsylvania.

The Ordnung (“rules”) of the Amish suggest several strategies for dealing with the invasive modern State. Strict separation from society, for example, strikes me as sound every autumn as the latest propaganda farces premier on TV (I mean the “news” more than sitcoms), and as political campaigns proceed. Likewise, the Amish refusal to go to war, swear oaths, or hold public offices makes sense. The dirt and manure of farm life, and all that churchgoing, however, would never do for a boozy urban anarchist. Besides, a wide-brimmed hat would never go with my silk ties and Italian loafers.

Shunning, though, is a part of the Old Order I take up and apply with glee. Shunning, it seems to me, remains the smartest way to strike at the State.

The Plight

The State nowadays invades the lives and murders the liberties of every American in more ways than the Romans or the Mongols or even the Communists of fifty years ago would have thought possible.

Technology facilitates the invasion. Computers number, sort, classify and catch those whom the State labels “criminal.” “Carnivore” reads email; “Echelon” intercepts phone conversations. Cameras at stop signs and on street corners snoop with unblinking eyes and keep us “safe.” What would Stalin or Genghis Khan or Domitian have given for such tools of surveillance?

Those technologies ought to trouble us only a little, though. After all, they are operated by bureaucrats and cops — both of whom tend to have the brains of turtles. When cops and bureaucrats succeed in oppressing free people, they usually do so by accident, or by sheer weight of numbers, or by sheer weight (for fatness is one characteristic of those who derive their nutrition from the tax teat).

No — it is that tax teat itself; it is the State's power to tax, that remains the most severe threat to human freedom in the modern world. Tyrants always have sought the power to tax. Once they have the power, tyrants take more and more in taxes, until formerly free people become slaves of the State: either accomplices to theft-through-taxation as welfare wards or government “workers;” or productive workers compelled to give up to the government an ever larger part of the results of their labor.

Or both.

For you must understand that the real innovation of the modern State — that combination of capitalist corporations cooperating with the grasping government, business for the State and the State for business, Feel-Good Fascism — has been to turn most Americans into bee-busy drones who simultaneously depend on the State and work harder and longer to pay the taxes which fund the “programs” on which they depend.

The populus Americanus wants it all: military “defense” (that doesn't defend), police “protection” (that doesn't protect), Social Security, Medicaid, FDIC-insured bank accounts, student loans, et alia ad infinitum. As much as many Americans claim to mistrust the US Government, they know deep down to their fatty hearts that they in fact depend on all those “programs” to maintain their respectable, comfortable, bourgeois ways of life.

Who among us is really willing to “shoot the bastards” — not only now, but ever? Taking up arms, then, is not only unlikely, but also foolish and wrong. Two of those ancient virtues — prudence and justice — that would have been important either to Cicero or to Confucius, argue against violence and in favor of shunning.

Begin with justice. As much as any anarchist's visceral reaction to agents of the State is liable to be double-ought buckshot, shooting is the just response only in extreme cases. Self-defense, of course, is always justified. Otherwise, as much as we hate them, police and bureaucrats rarely threaten our lives; instead, they frequently attack both property and dignity in petty ways, and they do so out of ignorance.

Creatures who suck off the tax teat surrender their self-respect along with at least a portion of their humanity. They turn from individuals into mass-men of the lowest order. Decades ago, Albert Jay Nock realized that such mass-men are not “psychically human:” They lack both reason and knowledge. We can no more justly hold them responsible for their actions than we can hold responsible animals or retards. Bill Clinton and George W. Bush — mass-men if there ever were ones — may take pride in presiding over the executions of the retarded, but honest people ought not.

Examine your conscience. Reform your life. Refuse to nurse in any way at the tax teat offered by the State. Then shun those who do. That can be great fun.

Now, prudence. Start with an understanding of the ancient idea that just wars are ones you have a realistic chance of winning: Since the State invariably outguns any individual anarchist, he cannot win a shooting war, and therefore should not fight one. Despite a certain Romantic charm to the picture of falling while fighting against an overwhelming enemy, such a fight can never be prudent. Next, appreciate that to fire upon every piglet at the tax teat is to shoot some of those close to us — and, perhaps, to shoot ourselves. Internecine wars also are never prudent. Finally, fighting is, by nature, chaotic and costly, Clausewitz's “province of uncertainty.” The wars that we seem certain to win can still be lost; even winners pay a price in blood and treasure, and in pleasure. Every anarchist is in part a hedonist and wants to enjoy his freedom. Fighting is too likely to interfere with that enjoyment.

Even if you are not as pacific as the Amish, then, it always makes less sense to shoot those at the tax teat than to shun them.

THE PRICE

Shunning, however, comes with a price.

The Amish only shun a true excommunicate. Before the entire community, including family members, cease working with, talking to, and noticing another Amish person, the shunned one must not only be a baptized member of the church, but must also be an adult who has made a public commitment to follow the regulations of the church — and then reneged. Those who live among the Amish, but never formally joined the church and stray from its teachings, are never shunned.

The lesson for the anarchist, then, is not to shun those who cannot understand the enmity between human freedom and the State. Before one can shun, one must at least try to educate.

Consider the case of an anarchist I knew who was out to dinner with a friend. The friend introduced the anarchist to a fellow diner who was employed by the municipal government and was running for office. “So,” said the anarchist, “you're a double parasite?”

Rude? Perhaps. Truth is often impolite. Beyond good and bad manners, the anarchist did his duty. He seized the opportunity to enlighten: Maybe — just maybe — he got both his friend and the parasite thinking about the nature of the State. If either were offended by the anarchist's question ...well, then, who needs friends so stupid?

Shunning properly applied is a penalty reserved for those hypocrites who claim to hate the State but nonetheless continue to suck off the tax teat: the congressman who gets elected by criticizing “welfare queens,” then votes more “pork” for his district; the cop fuming at “porch monkeys” as he cashes his paycheck paid in money stolen from the same citizens he ostensibly “serves and protects;” the “conservative” career Army officer who lets the State pay for his education, support him for twenty years, then, while continuing to draw a pension, transfers his skills to “the private sector;” the “anarchist” firebrand who rats out private enemies to the “legitimate authorities.”

Physical shortcomings and Reichian inadequacies compel the cops to desire leather belts, handcuffs, a baton, and a gun, and to gain them all by sucking at the tax teat.

Shunning and the education that precedes it cut closer to the bone when they begin — as they should for every honest anarchist — with a look in the mirror. Start with yourself. Look at your own life and determine how much you may be at fault.

Do you pay for your college education with federal student loans?
Do you send your children to public schools?
Do you cash a Social Security check?
Do you visit doctors at the VA hospital?
Do you do business with an FDIC bank?

Those are only a few ways in which seemingly innocuous people participate in the crimes of the State. If any (or any like them) apply to you, then repent! Before you shun others you must shun every enticement offered by the State.

It is not easy. It demands sacrifice. Sacrifice for the sake of freedom, however, can be its own reward. The teacher who eschews the bloated paycheck from a public school may end up poorer in a monetary sense, but he will be richer in self-respect after he need never bow down to the petty satraps who plague State-sponsored schools. The contractor who refuses work on courthouses, post offices, and housing projects loses some coin in the short run, but he gains the incalculable wealth of bending to fewer bureaucrats, rules, and regulations. The man who exacts his own just penalty for wrongs done against him, instead of fleeing to courts of law, can always say that he is, in fact, a man.

Examine your conscience. Reform your life. Refuse to nurse in any way at the tax teat offered by the State. Then shun those who do.

That can be great fun.

It's Fun to Shun!
Imagine all the possibilities...

Honest Tradesman, barkeep or deli-owner, serves every customer — except for the meter-reader, alderman, and cop who stop. As far as Honest Tradesman is concerned, those flunkies for the State do not exist. He shuns them. “Hey, what am I? Invisible?” shouts cop or alderman or meter-reader, little realizing that he is.

Or, consider Honest Shopkeeper, who must dump the slop bucket he uses to clean the scum from the floor of his store every morning. Why does the filthy water splash upon the bureaucrat's car parked outside? Because, to Honest Shopkeeper's shunning eyes, the vehicle is not there. How could it be? The owner does not exist.

Likewise, Honest Waitress cannot serve — because she cannot see — the city workers who have wedged their suety frames into a booth at her restaurant. She's shunning such as suck off the tax teat, you see.

Beyond the farm and into the city, there is precedent for just such community-wide shunning of the servitors of the State. Citizens living in Mafia neighborhoods used to employ just such tactics when the FBI undertook surveillance. Feds were unwelcome because the gangsters kept their own streets free from muggings and offered outlawed services, such as gambling and cut-rate shopping for swag. As Mafiosi now rat on each other, such neighborhood solidarity, outside of a few streets in backward places like Brooklyn and Buffalo, is as dead as the old omerta. The possibilities for shunning, however, remain alive.

Let's take shunning farther — as far as our imaginations and senses of humor will go. Let's hit the State where it hurts — in the puny nads of its armed representatives.

Attractive Woman shines at the bar. Every man there speaks his line, buys her drinks, lights her cigarettes, and tries to pick her up. Secure in the power of her beauty, Attractive Woman responds as her own interests dictate; but she always lets down the losers easy — except for cops. To them she does not respond; them she never acknowledges. How can she? She's shunning — and cops do not exist in the gems of her eyes.

Thus, the same physical shortcomings and Reichian inadequacies that compelled the cops to desire leather belts, handcuffs, a baton, and a gun, and to gain them all by sucking at the tax teat, are all confirmed. Attractive Woman makes the cops know and feel deep down that those doubts about their manhood are well justified.

Is there any penalty more punishing?

Again, there's precedent for such shunning. When the Germans occupied France and Belgium and Holland and Denmark and such during World War Two, that's precisely how the patriotic women of the occupied countries treated the enemy. America 2001 is an occupied country, occupied by a predatory State, and shunning of the enemy is one way to drive him away.

Ned Beaumont is the author of The Policeman Is Your Friend and Other Lies, Everything's a Racket, and several other books.

The Consumer Spending Surge is a Giant Mirage

"If one understands that socialism is not a share-the-wealth programme, but is in reality a method to consolidate and control the wealth, then the seeming paradox of super-rich men promoting socialism becomes no paradox at all. Instead, it becomes logical, even the perfect tool of power-seeking megalomaniacs. Communism or, more accurately, socialism is not a movement of the downtrodden masses, but of the economic elite." - Gary Allen, None Dare Call It Conspiracy, Concord Press, 1971

Is America’s Economic Recovery on the Whole Based on a Rotten Sham?

By Justice Litle, Daily Markets
April 20, 2010

The economic “recovery” we are now witnessing is based on theft, greed and deceit. It’s a giant rip-off, a rotten sham. In this sleazy imitation of a free market economy, liars, cheats and deadbeats are the ones getting rewarded.

And as for the savers, the hard workers, the ones who chose to honor their debts and live within their means? Nothing but a bunch of suckers. (They’re the ones paying for it all.)

If you’re one of those “suckers,” at least you’ve got company. I’m a sucker too.

All this time, I thought working hard for my money and staying debt free was wise. I thought sticking with one credit card -- paying down the balance every month, no exceptions -- was prudent. I thought driving a five-year-old car -- fully paid off, nothing flashy -- was a sensible thing to do.

Nope. Turns out those were sucker moves. What I should have done, to be in synch with this economy, was to have bought a 3,000-square-foot McMansion at the peak of the bubble… pulled out a cool hundred thousand in home equity loans… and then defaulted on the place.

That way I could have had the cash for a jet ski and a new convertible and a Hawaiian vacation ---- you know, the means of living in style -- without having to worry about a thing.

No Morals Is the New Normal

Apologies for my cranky tone today. I hope I’m not messing up your Monday. It’s just that, heading into the weekend, I read something that absolutely made me sick. More on that in a moment…

Two weeks ago your humble editor asked, “Did the Housing Bust Fuel the Consumer Spending Binge?” In that piece, it was explained step by step how the phenomenon of “strategic defaults,” i.e. homeowners walking away from their mortgages, may have fueled a surge in retail spending by way of freeing up cash.

As it turns out, it looks like the strategic default thesis was correct. And this helps show why those who were expecting a “new normal” got it wrong.

See, guys like Mohamed El-Erian at Pimco (and yours truly) at first thought the “new normal” meant consumers tightening up and living within their means. What we failed to realize is that “new normal” actually translated to “NO MORALS,” as in “deadbeats ripping off the banks with abandon” (while the banks in turn screw the taxpayers).

In the piece two weeks ago, I hat-tipped a blog called Credit Writedowns for helping me solve the strategic default puzzle. The main blogger there, Edward Harrison, continues to do solid investigative work. Below are some of the anecdotes he recently reported. After reading them, I think you’ll understand my mood:

My 25 year old niece had $10,000 of outstanding credit card debt. Recently, she told the bank she couldn’t pay. She is not unemployed so the ‘hardship’ is all relative. Nevertheless, the bank offered her a concession which she refused. They offered another concession, she refused again. Finally, they told her if she paid $150/month for 2 years (total of only $3600 with no interest), they would call it paid in full! She accepted in a heartbeat. It is less than a month later, and she celebrated her good fortune by going on a cruise to Hawaii.

A friend owns a small manufacturing co. He tells me of one of his female employees who was saddled with a $450,000 home she purchased almost five years ago with no down pmt. One year after her purchase she pulled $75,000 home equity and purchased ‘fun stuff’ including a boat. She recently walked away from the house (now saddled with $525K mortgage), purchased a new house for $200,000 (in her sister’s name) and kept all the goodies purchased from the home equity withdrawal. With the much lower mortgage payment she just bought a new car.

Almost everyone in my “survey” is aware of, or knows someone living rent free in their home for an extended period of time, having stopped paying their mortgage. Many of these free boarders are spending lavishly on non-essentials. My hard-working part-time assistant knows two different 35+ yr olds who have enjoyed over 9 months (one is up to month eleven) of rent-free living in very nice homes they purchased in 2004/2005! Both are employed and both enjoy a non-frugal lifestyle. My assistant wonders if he should do the same or have me pay him more so that he too can enjoy the ‘good life’.

My sister is a nurse with 25+ years on the job. She told me of a young couple that she is good friends with that both work at her hospital making a decent joint income. They didn’t like the fact that they grossly overpaid for their 3000 sq ft home in 2006. They stopped making hefty monthly payments six months ago and haven’t yet been contacted by the bank. They have decided to wait until contacted and then walk away. In the meantime, they just returned from NYC from a week vacation in the Big Apple.

My brother-in-law wanted to know if he should stop making payments on everything. He lives in Virginia and his carpentry skills are not as marketable as they were in the height of the boom. He and his wife’s best friend have lived close-by for many years. For the past 13 months since they strategically decided to stop paying their mortgage, they had yet to be contacted by their bank. Not even one letter! My brother-in-law doesn’t understand how they get to pocket the mortgage and spend carefree, including a 10-day Caribbean vacation.

Apparently there are lots more anecdotes of this type -- potentially “millions of similar stories across the country.”

I thought I was about as cynical as I could get. I thought that, after the initial outrage of the bailouts, my anger was all but spent. But this makes me feel righteously ticked off all over again.

The Revolutionary Rip-Off Machine

Why be furious? A few reasons.

First of all, because these happy-go-lucky knuckleheads spending strategic default “mad money” like water have the attitudes of fiscal dope fiends. They are likely going to go broke again en masse, or otherwise need bailing out, and someone else will have to pay. AGAIN.

Second of all, because it’s just damn disgusting that those people who scrimped and saved to own their homes and pay their debts -- i.e. the “suckers” who lived by a moral code of personal obligation and free market ethics -- have to see such blatant debauchery not just flaunted, but rewarded by the system. It’s a breakdown of ethics and common sense that threatens the future of the country as a whole.

And third, because even though the banks are the ones eating strategic default losses, they aren’t the ones getting screwed in this deal. TAXPAYERS and SAVERS are the ones getting shafted -- people like you and me. (Oh, and your kids too. They’re going to pay out the nose for all this. Big time.)

To understand why the banks don’t really care about strategic default losses -- why they can let defaulters go a year or more without so much as a slap on the wrist -- take a look at the following chart from Gluskin Sheff.

The chart shows the financial sector’s profits as a percentage of all corporate profits in total.

Before the crisis hit, the financial sector had worked its way up to more than a third of all corporate profits at the peak -- an obscene number in itself. Thirty-three cents out of every dollar earned by way of financial engineering? You don’t see that kind of imbalance in a healthy economy… only in a paper casino “phinance” economy, where the “ph” is for phony.

As the financial crisis took hold, the financial sector’s profits plummeted, which the chart shows. But then, post crisis, they bounced back with a vertical vengeance. See that rocket ride on the right side of the chart? It comes courtesy of the Federal Reserve and U.S. Treasury finding any way they can to shovel huge profits into Wall Street’s pockets. At the taxpayer’s and saver’s expense.

Here is how the revolutionary rip-off machine functions:

• Lavish-spending “strategic defaulters” feel justified in ripping off the banks.
• The lawless deadbeat culture spreads -- as sparked by the banks’ own example.
• The banks don’t care because they are in the rip-off game too, on a larger scale.
• The banks can ignore strategic defaults by way of taxpayer-funded profits.

The whole thing winds up being a backdoor political transfer. Washington pumps torrents of money into the rotten banks. The banks look the other way as strategic defaulters catch on that “the way to play the game” is to defraud, deny and spend. And politicians get to enjoy the illusion of recovery.

A License to Print

So how are the banks ripping off the taxpayer, you ask? By way of the record steep yield curve. In keeping short-term rates near zero, the Federal Reserve has given the banks a license to print money.

Thanks to Ben Bernanke, banks can borrow as much as they want for practically nothing… plow that cash into longer-dated U.S. Treasuries… and make perpetually huge profits with little to no risk. It’s like a permanent backdoor bailout subsidy.

Meanwhile, again, the powers that be, to the extent they truly know what is going on, are happy about the strategic default situation. They see the defaults and rampant spending binges as a good thing. Why? Because all that “mad money” creates the illusion of a healthy consumer!

All these jokers going out to buy new cars and Hawaiian vacations and whatnot are fueling a new spending surge, which in turn boosts corporate earnings, which in turn gets Wall Street cheering and the average citizen thinking “hey, things are okay.”

And as for the banks -- why should they trip over pennies on their way to dollars? The big banks have far more money coming in by way of the Federal Reserve’s magic gift (zero interest rate policy) than they do going out.

A Criminal Disaster

The whole thing is a criminal disaster. Here’s why:

• Zero interest rates are a cruel punishment for savers, especially elderly savers.



• Backdoor inflation (via the creation of excess reserves) is a means of rewarding profligate debtors and punishing savers harshly (making “suckers” of them).



• Businesses are gearing up based on the notion that this consumer spending surge is sustainable, when in actuality it’s a giant mirage.



• The massive profits being accrued by the banks are pooling disproportionately in the pockets of fat cats and deeply connected investment players (as usual).



• The real backbone of America’s economy -- small business -- is still being neglected. So are genuine savers.



• The up-and-coming generations -- the children that will inherit all the debt being created -- are in some ways the most voiceless victims of all in this scheme.

Small Business Pain

Meanwhile, even as corporate America rejoices, small business continues to starve. According to a recent survey from the National Federation of Independent Business (NFIB), the credit picture is worsening for small business now. Despite all the hoopla, the employers of more than half of America’s workforce have reason for pessimism, not optimism, in the quarters ahead.

But who cares, right? The economic recovery, or at least the illusion of it, will be carried on by the revolutionary rip-off machine. The Federal Reserve has found a neat new way to funnel cash into the hands of those who least deserve it, just as it did with AIG.

And taxpayers and savers -- the few of them left that is -- will just keep getting squeezed on both sides. An estimated 47% of Americans pay no taxes at all… and the fat cats at the top of the oligarchy ladder certainly get a lot more out of the system than they put in.

So that leaves the “suckers” in the middle (i.e. you and me) to pay the final tab. For all of it. The whole rotten thing.

To be honest, I don’t really know what to think of my country any more. This ridiculous, debauchery-ridden, quasi-socialist Ponzi-scheme of a recovery is going to end in absolute disaster. Crushing deflation, hyperinflation, heck, maybe even martial law… it could all be coming down the pike, in wave after debilitating wave, when the music finally stops.

Maybe we’re just fulfilling the old prophecy:

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

Insights Into America's Disneyland and Our "Neo-Feudalistic, Gulag Casino Economy"

Mike Krieger, formerly a macro analyst at Bernstein, and currently running his own fund, KAM LP, summarizies the pretend reality we are all caught in now, knowing full well America is set on a crash course with reality at some point, yet sticking our collective heads in the sand, as the collapse will be some time in the "indefinite" future. In the meantime, banks will continue to boost US GDP by peddling "financial innovation" and restructuring advice to countries like Greece... and nothing else. - Zero Hedge

'Goodbye Disneyland' by Mike Krieger
April 22, 2010

A government big enough to give you everything you want is a government big enough to take from you everything you have. - Thomas Jefferson

We Must Move to a Free Market and Shun the Welfare-Warfare State or all will be Lost

Unfortunately for all of us, the primary economic policy of the U.S. government, as well as many others around the world, is an 'extend and pretend' strategy that is economic suicide -- primarily in that it keeps the irresponsible in their assets and makes the responsible shudder and shun productive investments.

Whether it be a homeowner that is subsidized to stay in a home that he cannot afford or a bank that doesn’t want to come clean on the extent of its bad assets, the result is the same -- complete economic inertia.

Now of course there has been a rebound in demand, but my argument has been and continues to be that this is the most unproductive rebound in aggregate demand that perhaps the world has ever seen. Whether it be in the U.S. or China, the demand is taking away spare capacity in many areas, indeed, but we must question the methods. This is where the whole idea of inflation comes into play.

The whole reason why printing a million dollars and giving it to everyone doesn’t work is because this “liquidity” is not created through a productive process. It is purely an injection of new dollars into the economy. The basic rule of supply/demand kicks in. In the average person’s pocket, this money is unlikely to be “invested” in productive capital endeavors; rather, the vast majority of it will simply be spent to consume the resources of that which can be supplied by the already existing capital stock.

So in many ways it isn’t that the creation of the money itself that is the biggest problem, it is the distribution channel of that money. Only a small percentage of the population that receives the million dollars has the ability, drive and discipline to invest the money into something that will create economic value for the society at large rather than just blow it on a flat screen television. This is the entire premise of why a free market economy works when it is allowed to work, which I would argue is not possible under the current Federal Reserve system.

The Fed is a socialist organization that SETS the most important price in the economy, the price of money. Even worse, when they set that price at say 0%, as is basically the case today, that 0% (or anything close to it) is not offered to all the small businessmen or potential entrepreneurs out there.

It might not even be so bad if the low interest rates weren’t simply being used to gamble or play a carry trade with treasuries. Of course, the banks, or anyone else for that matter, playing a spread by borrowing at near zero to buy long-term treasuries is doing irreparable harm to this nation. They are complicit in the gross misallocation of capital to the government, capital that can then be doled out at will to favored interests.

So all we have today is essentially a creation of money and credit out of thin air that is allocated to two major constituents. First, it has primarily been used to maintain the people of wealth, power and political connections (on both sides of the isle) before the crash entrenched in their socioeconomic roles. Second, is to pay off political favors. Those who supported the President in his campaign have been paid back handsomely and are today much more powerful and secure than before, whether we are talking unions or the oligopoly banks.

If we wish to have any hope of a sustainable recovery preventing the inevitable social unrest to come from truly getting dangerous, we must restore the free market and end the union of big business and government, which historically has presented an extremely dangerous situation.

For those that are in big business and think they have made a great move by joining forces with the state, I suggest you go back and read your history. You never will possess the ultimate power; you will be seduced into thinking you do; and then, when the time is right, government can eliminate you and your fortune with the stroke of a pen. Power is granted to you by this authority when you engage in this unholy union, and it can be taken away on whim and your wealth confiscated. Selling out freedom and your fellow citizens for some extra money or government contracts will come back to haunt you. Your legacy to the United States will be a neo-feudalistic, gulag casino economy that has already begun.

Here is a link to an excellent interview with Bill Moyers on PBS about our financial oligarchy (I believe many industries here are becoming oligarchies, but the financial one is the most powerful) and the need to stop its cancerous growth.

There Will be Surplus...In 2050!

The above paragraph is meant to reach those that are actually faced with important decisions every day which can have a meaningful impact on our future -- decisions on whether to sacrifice their country’s and their children’s futures for an extra buck or to stop the game, stand up for freedom and make a positive difference in this world.

This paragraph is meant for a much more broad based audience. Key to the entrenched elite strategy (whether in government or business) is to keep the public in an infantile state. What I mean by this is to keep the notion alive that big daddy government is going to be there to provide for you and protect you. Taking it one step further, they really want the public to believe the government’s existence is in fact necessary for the realization of all one’s hopes and dreams, whether it be economically or with regard to security.

If you remember from Orwell’s 1984, there is never-ending war in Oceania. Think about how useful a never ending “war on terrorism” is to those in positions of power. All this said, while I am a small government person, I am no anarchist. I think government can do a lot of good. I merely think government must be used a tool, a complement to the freedom, independence and individuality. Once the government becomes so big that it is the primary driver of capital and investment, we are in big trouble. This is where the individual’s economic creativity becomes stifled and things shut down.

One of the key strategies being used by insolvent governments around the world right now are fantasy long-term budget projections. They basically read something like, “Well we expect deficits to GDP to be elevated for the next several years, but there will be a surplus by 2020.” Sadly, many people actually believe this nonsense.

As I have said before, the biggest wealth destruction in the next 1-2 years will be, in my opinion, without a doubt, in the sovereign/municipal debt markets. Whether it be through inflation or deflation, this stuff can’t possibly be paid back in real money or anything close to it. The biggest fallacy I hear from people I know that own government or municipal paper is they say they are “comfortable just collecting the yield.” Ok, they may be comfortable with that now, but what if inflation escalates in a major way, which is, in my opinion, one of the more likely outcomes to all this. It means that clipping 3.7% per year on a 10-year note will not be so comforting.

The only reason people think it sounds good is because of what they just experienced in 2007-2009. Use some common sense and there is nothing comforting about it. In fact, it is downright scary. Here’s why. As inflation escalates, the overall price of these securities will trend lower and then, one day, whether in two months from now or a year from now, yields are really going to spike and you will be sitting on a pretty hefty capital loss. By the time an owner actually comes to the admission that there is big inflation in the system (remember the big holders of long-term treasuries will be the LAST to admit this) there will be a major principal loss on the securities, and the decision to sell or hold at that point will not be a pleasant one. Clipping the coupons wasn’t such a good idea after all…

Why Extending Unemployment Benefits is Inflationary and Why Food Stamps = Bread Lines

One theme I have focused on for years now is how the government and the establishment relies on disinformation and propaganda to keep this phony economy alive and to keepp the populace distracted with “bread and circuses” (as the Romans called it) or, as we can say in the modern United States, “food stamps and American Idol.”

Before I get into some of the “bread” tactics used by politicians on both sides of the isle, I want to make something clear. I am not saying we should get rid of food stamps and unemployment benefits. In the current world where we allow corporate oligarchies to control all aspects of the country, this would be unhelpful and immoral. However, I would be in favor of reducing them AFTER the oligarchy problem is dealt with. To do so before would lead to social chaos and would, as I said earlier, be entirely immoral.

Ok, so first with regard to food stamps. The latest data shows that 39.4 million Americans are receiving food stamps. One of the biggest spins you have heard on the media since 2008 is that this is nowhere near as bad as the Depression; after all, where are the bread lines? Well of course there are no bread lines, this is 2010. Food stamps are the modern equivalent. It is a convenient way to keep the suffering and plight of 13% of the American citizenry out of sight and out of mind. That way those that are benefitting from the corrupt crony capitalism of the current system can feel better about themselves. How about you join reality instead.

Next, there is the issue of unemployment benefit extensions. This situation is very similar to the simplistic scenario of printing money and giving it to everyone. Except this is worse. In that situation, at least some percent of those getting the money will be in a position to put that money to productive uses. Someone that is struggling with the severe trauma that is unemployed is going to basically use that money to pay the bills, pay down some debt, and if there is a little left over…well that IPAD sure looks nifty. All the while this is an unused asset of the economy.

This unutilized economic asset is consuming on the taxpayer dime while not adding to the productive capacity of the economy. This is pure inflation. Again, I want to reiterate that dealing with this problem is not the first order of business -- dismantling the oligarchies and restoring a free market is. Then the welfare issue can be dealt with.

Next, to those that continue along this irrational line of thinking -- that without wage inflation there is no inflation (2+2=5) -- I see the first signs of it appearing despite U6 employment at near 20%. Let me give you an example. Here in New York City we were just faced with a prospect of a doorman’s strike. At the last minute a deal was reached with the union which calls for a four year contract with a nearly 10% pay raise and no cuts in benefits for workers. First Wall Street bonuses rebound and now the unions. Entirely coincidental I am sure.

Say Goodbye to Disneyland

One of my old colleagues when I was at Bernstein, and who is from another country, described America to me with the following statement: “it’s like “Disneyland.” I never fully understood what he meant until the last couple of years. However, what I have also realized is this sense of delusional entitlement is extremely manifest in most other OECD nations as well. In case you missed it, earlier this week the European Union declared traveling a “human right” and is “launching a scheme to subsidize vacations with taxpayers’ dollars for those too poor to afford their own trips.”

A friend quipped to me after I sent him that article: “I just realized that there no longer exists any need for political parody. The Onion is a short.” Indeed.

Euro down on Greek jitters, banks dent U.S. stocks
Reuters - The euro fell and Greek debt came under intense pressure on April 26, 2010, on renewed jitters over Greece's bailout, while U.S. stocks mainly edged lower on fears that the financial reform making its way through Congress will curb bank profits.
Euro hits 1-year low on Greece, Portugal downgrade
Reuters - The euro hit a one-year low against the dollar on April 28, 2010, and some traders saw scope for a further drop in the near term, after downgrades of Greece and Portugal's credit ratings raised fears the euro zone's debt problems were spreading.
Battered euro, U.S. stocks get lift from Fed
Reuters - The euro rallied from one-year lows on April 28, 2010, and U.S. share prices gained after the U.S. Federal Reserve left interest rates near zero and gave an upbeat assessment of the U.S. economy.
Oil rises towards $86, up for third month on recovery
Reuters - Oil rose on April 30, 2010, heading for a third straight monthly gain, driven by expectations of global economic recovery and hopes of a bailout package to help Greece avoid debt default.
Consumers step up spending, bolstering growth
Reuters - The U.S. economy expanded at a 3.2 percent annual rate in the first quarter as consumers stepped up spending, the strongest sign yet a sustainable recovery is taking hold.
Instant View: U.S. economy grows 3.2 percent in 1Q 2010
Reuters - The U.S. economy grew at a slightly slower-than-expected pace in the first quarter of 2010, held back by inventories and exports, but resurgent consumer spending offered evidence of a sustainable recovery, a government report showed on April 30, 2010.
U.S. Economy Grew at a 3.2% Pace in First Quarter as Consumers Spent More
Bloomberg - The U.S. economy expanded at a 3.2 percent annual rate in the first quarter as households spent more freely, setting the stage for gains in employment that may help the recovery broaden and accelerate.