In my earlier post, A peek behind the mask: Austrian economics, I pointed to a general incoherence in ideological principles between the Friedman/Reagan/supply-side economics vision of society versus the Austrian economic model, but I didn’t go into detail regarding it. In this post, I will provide further detail, at least my view of it, because the effects of changing our minds regarding this point are too important to not completely understand them. Whether we like it or not, what we do with monetary policy does have profound effects on how our economic world works and feels and we need to know what they are before we choose what to believe and what actions to support, in addition to understanding what might happen if monetary policy is not in sync with the stance of public policy.

I call the Austrian vision the mattress-stuffer model, not to be spiteful, but for lack of any other words for it that are within the bounds of truth. In this model, one can take a dollar and put it anywhere where it is idle, whether it is stuffed in a mattress, buried in a box in the back yard, or is put in a cookie jar and stored on in the kitchen shelf and it will appreciate. You hear this in the propaganda: The dollar is a store of value; or when there is an excess demand to hold money it is because people want to increase their purchasing power. And these are just a few examples of the things being said that illustrate the point that the expectation is to profit from doing nothing with money at all and cash balances should be the safest investment there is.

Some things that come along with this model that are hidden from view when listening only to the associated anti-Fed, anti-inflation propaganda is that money is expected to be an interest bearing instrument by virtue of existence. In this model, money is not neutral and the expectation of appreciation is not free.  It is not a pro-growth model because in it, when money itself is wealth and/or explicit potential wealth and is accomplished by constraining money, the incentive for stuffing one’s mattress has profound effects on economic activity to where the entire concept of raising all boats by expanding the pie completely disappears and our economy truly becomes a less than a zero-sum game.

It is a model that makes the Robin Hood rhetoric of the left become true; when money is wealth, rich people hoard their money and profit from it at the expense of society, and therefore should be expropriated through the tax code to spread the wealth. Implementation of it would necessitate much higher direct taxation with acute progressivity, especially when there is an enormous amount of public debt already incurred.  It is not because I agree with the mentality of taking from some to give to others, but the expectation of appreciation of money in this model is only the reordering of that situation. The value of money achieved from doing nothing with it is not the reverse ideology of socialism.

There is an opportunity cost that comes with the mattress-stuffer model that I don’t believe is truly understood.  In the Friedman/Reagan model, there is really no rational need for a progressive tax code or high taxation to achieve a large degree of social welfare because the societal benefits from the disincentive to hoard and very mild inflation that comes with it foster productive investment as savings and a society of self-sufficiency.  It expands the economic pie at a steady or market-driven rate so everyone can have an opportunity at a slice if they are willing to work for it while investment in concepts and things builds real wealth.

In this regard, mild inflation is not inherently theft, at least not when compared to the alternative of full-blown socialism and the rather draconian measures resorted to in the absence of inflation or in the opposite condition.  If there is anything that is more likely to accelerate our movement toward the deplorable condition of draconian socialism, it would be the mattress-stuffer model once the opportunity cost becomes readily apparent.  At least the way things now stand, we have the free market investment and self-reliance arguments to stand up to it with. In that absence of the Freidman/Reagan model, I truly do not believe we would have any leg to stand on in the court of public opinion.

There are other things, too, that happen on the political economic front when the mattress-stuffer model is imposed that the propagandists aren’t saying. The effects of government doing things on the supply side are highly magnified because it consumes limited resources rather than producing. If you find any of what government does beneficial to society as a whole, we will certainly pay for it in real and immediate terms; it will hurt so badly that we ought not do it, any of it. There are some of us who are more of an inclination to abolish the entire regularity structure, financial regulation included, which I find to be the most damaging and the larger share of the real problem that needs to be solved than the monetary system in general. But there are even more who are not so radical, which I believe to make up the majority of public opinion for the time being.

Here is where I feel the truth about the impact of the mattress-stuffer model needs to come out because it appears that many are being convinced from the copious amounts of propaganda to buy into an arrangement of society to be implemented at the monetary level without understanding the true impact to ourselves and what we do with our votes. With Romney winning our party’s presidential nomination, the evidence that we want to keep a good portion of that stuff and ensure that it is managed in a more rational manner is quite clear to me.  The question in my mind though, is do we really understand what seems to be the prevailing attitude toward the monetary system, in favor of the mattress-stuffer model, means to us given the randomness of the effects of supply side intervention and its ability to accelerate destruction of our current standard of living.

It seems more appropriate to me that if we want to cap government that we should cap government with the political system instead of assuming that to be a logical effect of changing or capping how much money there can be in the monetary system without necessary acquiescence of the body politic. First we have to win the argument, and then we win the vote.  Then we can do what we need to do with the complicity and support of public opinion. Without doing that on honest terms, there really is not much difference in it than what the Democrats did with ObamaCare; it is a much larger imposition and demonstration of elitist arrogance in my opinion. If people do not understand the entirety of the options being presented to them, they cannot make a rational choice about how to proceed and it is not within our right to impose it when they do not know what they are supporting.

This is entirely why I am speaking out, here and now. I have heard enough of the propaganda from various sides, ultra-conservatives and the Federal Reserve apologist media, about “easy money” when none of it is true, at least not in this particular circumstance. We took trillions of dollars in losses from 2007 to now, $7T in real estate alone.  This is not just the sum of individual losses in real wealth because the financial instruments behind them were used as cash substitutes. They represented a part of the demand for money, the loss of which consisted in a nominal shock second only to that preceding the Great Depression.  The mattress-stuffer model says any and all inflation is bad, theft, or what have you, leave it alone, we want increased purchasing power. The Fed’s own policy rules show a need for the Federal Funds rate to be in the area of -6% to -4% to at least stabilize the situation. What’s happening is not very much in terms of the use of unconventional policy tools compared to what should be taking place for even stabilization of policy, but is being used in efforts to blunt the more damaging effects of monetary deflation in what we thought we understood as the physics of economics in the world as we knew it. The Fed is basically splitting the baby down the middle, and is in no small part responsible for the lack of recovery and financial volatility everywhere we look. There is certainly something to be angry with the Fed about, but inflation and/or “easy money” is not it.

Even more than this, my reasons for speaking out have to do also with the complete dysfunction and seemingly disconnection of the monetary system to the political system at large that incentivizes the implementation of policy toward the arrangement of society with economics in ways other than the political system has set out. There have been rather disingenuous statements made by Fed players, in congressional testimony no less, about the difference between what monetary policy can and is now actually accomplishing. There is indeed a more permanent benefit to employment from appropriate implementation of monetary policy when there is a huge output gap like there has been since the crash in 2008. This is macro econ 101, and my mouth gapes open when I hear congressional testimony to the opposite. Perhaps there is some truth to what is being testified toward, but it applies only to normal times, not after the next largest nominal shock known to man.

To me, a large part of what’s upsetting to public sensibilities is a dysfunction employment market, lack of opportunity, the high cost of safety net programs and the extraordinarily high number of people currently in them. Constraints on monetary policy under the conditions of the last few years that have been decided upon from somewhere as the appropriate course of action, as well as in the mattress-stuffer model,  does not solve any of them, but makes the problems more pronounced and lingering, in addition to causing instability in other institutions of politics and within society itself.  Occupy Wall Street, anyone?

People are saying things about gas/food price inflation as if it actually has something to do with demand side monetary stimulus, and therefore is the direct responsibility of the Federal Reserve. There is very little evidence of that given the current state of affairs and condition of broader statistics. What we are seeing, as I pointed out earlier, is the magnification of the effects of government on the supply side. It is not quite to the degree that would be inflicted on the economy in the mattress-stuffer model, but it is a glimpse into that kind of future while government is still doing what government does.  We are feeling how much it costs more acutely when monetary policy, and therefore income, is restrained. There is simply no way for ordinary folks to keep up with not only the prior condition of government, but also all the stuff that has been piled on during the Obama administration in this state.

I personally condone neither condition, the government going hog wild on the supply side in central planning and regulatory capacities, nor the mattress stuffing model that makes it hurt decidedly more. We absolutely need rationality in supply side issues, but we ought not to constrain monetary policy while these things are going on and then wonder in amazement at the real economic and social calamity of the conflicting policies. It doesn’t hurt government; it only hurts average working folks on a daily basis. It hurts our kids. And it likely will not produce the presumed effect of shrinking of government as a trade off.  To know for sure, we need to watch Europe closely as it has the same sort of monetary policy at present. I don’t really know how their elections are going to turn out, but it doesn’t look very favorable to have those sorts of policy conflicts foisted on voters who aren’t willing by having it come from sources other than leadership in the political system.

If there is want of information about how the ideas in the Friedman/Reagan model can be supported, likely without a huge inflationary spike, hyper inflation, or the crash of the dollar, you can check out theMoneyIllusion.com as a starting point. It is a blog site (unaffiliated with me) that is hosted by Dr. Scott Sumner who received his doctorate from the Chicago School of Economics and is a professor in economics at Bentley University. He has many links on his site to other sources of information on the topic of macro economics that represent a wide range of views. You shouldn’t take his word for it or mine, but you should at least have exposure to the other side of the story to make informed choices about the issue.

It isn’t what people think it is. It was established by some with an agenda to get rid of the Federal Reserve and is a means to an end, not an end in itself.  It is why they have no concrete plans to get from point A to point B and their theories are incomplete, no comprehension of supply/demand issues affecting prices, particularly that of money itself, for example.   I can’t say how many times I’ve asked Austrian economists how we get from what we have now to what they want without a lot of chaos and people getting caught with their assets hanging out and heard nothing but crickets. They can talk for hours about how evil the Federal Reserve is, but have little to say in specifics about what things would be like without it, how to get there, or what the process of getting there would be like for the economy as a whole.  To me, these things are important to know to be able to put some thought toward them before being able to judge it on its merits.

In the absence of a mapped vision, I’m left filling in the intellectual blanks; and from what I can tell, there is quite a bit of rhetoric and anti-Fed propaganda wrapped in libertarian principles to make it palatable. Perhaps the desire to get rid of the Fed is consistent with the purported political principles behind it, but the rhetoric produces some ideological paradoxes that leave me wondering whether there is a Trojan horse of ultra-conservative statism hiding in it.

Their tendency to oversimplify things to where every price change has something to do with the Federal Reserve, which simply is not true, cast some doubt in my mind about how serious they are about economic stability.  This is intellectual dishonesty that is detrimental in form,  getting the public angry about the wrong things and we can’t fix price issues in the broader economy that are caused by public policy/regulatory issues if the real causes of them are obscured by misdirection.  But even more than that, in a broader ideological sense, it’s the things they don’t say that are implied by what they do that need to be sorted through and scrutinized before buying the whole thing as gospel. They say things without saying them and get away with it pretty much scot free because people don’t seem to notice the ideological paradox created by the actual meanings.

One of the best examples of this I can think of is the Austrian assessment of the housing and mortgage crises. That was almost entirely a regulatory debacle. The government was incentivizing behavior that it couldn’t get out of the markets otherwise, yet they hound on interest rates and easy money as being the cause, as if people cannot be trusted to do with their own money and credit what they will.

Thinking about that deeper than the surface, who is to say that low interest rates and easy money don’t produce productive investments absent regulatory incentives into ‘irrational exuberance’? These are never things we hear about in the midst of a crisis and so it is impossible to weigh the bad versus the good, and they take advantage of that bias of information with the fallacy of composition. There is not one shred of evidence that easy money causes bad behavior when people are left to weigh all investments on equal footing, without government interference.

Even if people cannot be trusted to do the right things with their money, there is no way to do anything about that in a free society. Really, do the Austrians propose that we should replace the Fed with an investment Gestapo that is equipped to make value judgments for each individual investment? I think that would be worse than the Fed. Or maybe scarcity of money is best approach. If we don’t have it to throw around, we can’t do bad things with it. Either way, it is a violation of principle that suggests paternalism of a different stripe is better. The scarcity idea is even more of a loaded proposition if there is a desire to foster a society of self-sufficiency as a main goal because putting a cap on how much money there can be not only puts a cap on government, but it also puts a cap on the economy at large and there is an opportunity cost to doing that as opposed to allowing expansion at a steady rate through possibly NGDP level targeting; that leads to a market driven approach to expansion. There would have to be reform in the financial regulatory structure so that government can’t distort investment markets, and that would have to be done first, even if we took everything the Austrians say at face value.

For another example, some of them have said that the economy of the 80’s was an illusion of prosperity, an inflation-filled, artificial boom. Oh really? In order to accept that premise, one has to agree to toss Milton Friedman, supply-side economics, and Reaganism under the bus for the frauds they are. Really, isn’t that what these Austrians are saying without actually saying it? Either Friedman and/or Reagan were full of crap or these Austrians are because both situations cannot be true simultaneously. Can’t tell you which is true beyond the shadow of a doubt, but there are plenty of inconsistencies in rhetoric on the part of the Austrians and not much in the way of empirical evidence to prove their points, while there is reams of evidence MV=PY and the AS/AD model are true.

From my perspective, it really is just much easier to tell the truth, not only about what is really being said, but what the intentions behind them really are. Because these ideas have been packaged the way they have been, couched in contradiction and bits of truth stretched like taffy, I really don’t put that much weight toward it. I would rather be content as I was in the 80s than throw that possibility away for things that I can already tell are probably not in our best interests.

This evening I was out driving with my son who is practicing for his driver test. It was lightly raining out of a partially cloudy sky as the sun was getting ready to set. To the east was one of the most beautiful scenes I think I have ever witnessed.  There was a bright double rainbow weaving in and out of the clouds which were very dark and laced around the edges with gray and bright white, and a few patches of sky were peaking through the entire collage. It looked a bit like something to be found in a fairytale picture book.

I pondered this pleasing scene for a moment and my thoughts wondered to a few verses in Genesis where it talks about the rainbow being God’s promise that he will never again destroy the earth with a flood. But along with that promise, He promises more than just that. And here is where Global Warming fear mongers invaded my thoughts and destroyed my peace.

The entire reading of it goes like this:

Genesis 8:20-22 (NASB)

20Then Noah built an altar to the LORD, and took of every clean animal and of every clean bird and offered burnt offerings on the altar. 21The LORD smelled the soothing aroma; and the LORD said to Himself, “I will never again curse the ground on account of man, for the intent of man’s heart is evil from his youth; and I will never again destroy every living thing, as I have done.

22“While the earth remains,
Seedtime and harvest,
And cold and heat,
And summer and winter,
And day and night
Shall not cease.”

It talks about the rainbow later, when He makes His promise to Noah, but it is interesting how here, in chapter 8, before He makes a declaration of the covenant with Noah, He has a discussion with Himself about what has taken place, and sees that it’s a rather harsh thing for the entirety of life on earth to disturb the seasons just to wipe out mankind. What He tells Himself He will do, or as I interpret it, what He will ensure, is loaded to handle multitudes of possibilities. He doesn’t just say, ‘I won’t do this again.’ He says, “While the earth remains…” it will be this way.

I am not quite a science denier. I think science has a place in explaining real phenomena, allowing us to manipulate our surroundings and accomplish great feats for mankind within the realm of possibilities. But, I believe that it has its limits because there are limits to our comprehension of all things physical. After all, we are only human, and anything mixed as heavily with taxpayer dollars, politics, and shaken vigorously with large doses of demagogy stirred in as the whole Global Warming theme has been should be monitored with intense scrutiny simply because of that.

In closing, I want to leave you with a highly applicable quote from Thomas Jefferson, Notes on Virginia, Query 17:

“It is error alone which needs the support of government. Truth can stand by itself. Subject opinion to coercion: whom will you make your inquisitors? Fallible men; men governed by bad passions, by private as well as public reasons.”… “ Introduce the bed of Procrustes then, and as there is danger that the large men may beat the small, make us all of a size, by lopping the former and stretching the latter.”

Here is private sector employment by the numbers (these are private sector jobs figures from the Bureau of Labor Statistics).
 

Between 2003 and 2007, we added 1,750,000 jobs per year or 7 million jobs over 4 years (average of 146k per month).

Between 12/2008 and 12/2010, 7 million jobs were lost (avg. 292k per month)

In 2008, 1 million jobs were lost (avg. 83k per month)

In 2009, 5 million jobs were lost (avg. 417k per month)

In 2010, 1 million jobs were lost (avg. 83k per month)

In 2011, 2 million jobs were added (avg. 166k per month)

In January 2012, 800,000 jobs were lost

In February 2012, 400,000 jobs were added

Net LOSS for 2012 is 400,000 jobs (avg. 200k per month)

In 2012, should the last two months be a reflection of things to come, we will have lost 2.4 million private sector jobs.  There is probably some statistical noise in there; looking at fresh data over a recent 2 month period can be challenging. As it stands, however, it is roughly half the rate of private sector job loss in 2009, yet we have rosy reports of an improving jobs picture blaring from every cable news and business channel. I don’t know what planet the media live on, but it sure isn’t planet Earth. Maybe it’s called “The Re-elect Obama” planet.

It doesn’t really matter what lie is told, however, it’s still a lie because we know what it felt like when we were adding private sector jobs at a rate of 146k per month. These numbers, the only ones we have, just don’t show any broad picture of a jobs recovery. If we could extrapolate any kind of thesis from them, the last 5 months of 2011 was just a bright spot in an otherwise gloomy experience, complete with flat to faltering growth in GDP. The only way to have real jobs growth is to have real GDP growth, and unless we see growth in GDP to match, it’s all just lipstick on the pig.

I’ve attached a graph I made from data I sucked down from the Bureau of Labor Statistics and have the appropriate data labeled so you can get a visual of the private sector employment situation. These are all the official numbers, and I focus on private sector jobs numbers because I don’t believe it is appropriate for government to start hiring when we encounter economic troubles and then call it a recovery because it isn’t a recovery – it’s make work to get reelected at taxpayer expense.

Data for Jan & Feb 2012 is not included on this graph and is as follows:
Jan 2012: 108436
Feb 2012: 108854

I am ecstatic because after months of media and establishment conditioning of the base, and the hasty calls for allowing Romney to wrap it up quickly, I was very concerned we’d end up with the grandfather of ObamaCare and a believer in Keynesian style command and control economic planning as our nominee.

Gingrich wasn’t my first choice. My first choice didn’t even run. He wasn’t my second choice either, Perry was. Though, to me, it seemed like his heart wasn’t in it. I don’t think he is stupid or even inarticulate. A three-term governor of Texas could never be those things; Texans are too proud and intelligent to keep sending back a guy like that to run their State. He just wasn’t focused, and I was concerned about that because priority number one after being nominated is to beat Obama, going up against a billion dollars worth of everything Obama has to shovel out. Whoever our nominee will be has to focus on that like a laser beam, and fight that battle like the future of our country depends on it because it does, and I kept getting the vibes from Perry that he really doesn’t want to be President. I could be wrong, but that is the impression I got.

And so I went to Gingrich for lack of anyone better who has the ‘fire in the belly’ that it will take to do the very first job after being nominated. He does have baggage, and it isn’t that I don’t care about that stuff. I do. But comparing Gingrich’s baggage and accomplishments to Obama’s baggage and lack of accomplishment, Gingrich still comes out miles ahead. Some bring up the Fannie/Freddie consulting gig and say Gingrich is sunk in the general election because of that, but they forget that Obama took more money from F&F while in office, surpassing the amount given to politicians who had been in Congress for decades with only a partial term in the Senate under his belt – even more than Chris Dodd and Barney Frank. He’s also been shoveling hundreds of billions in tax dollars into F&F ever since he took office, and hasn’t gotten around to reforming them, which seems strange since they were at the epicenter of the housing crisis. Obama has 10x more skeletons in his closet, built up over a very brief political career in which he has accomplished nothing but mounting disaster; he makes anything that might stick to Newt look like a minor infraction, in a political sense of course.

Newt is not perfect, it’s true. He wasn’t my first choice, or even my second. But I am not concerned about nominating him.

With the debate raging over the who is the ‘true conservative’ in the presidential race, it seems like we may be missing the point that some bit of importance in solving the pressing issues of the day is a matter of political approach that could have a subsequent impact upon the implementation of conservative ideas in the realm of government and politics. The atmosphere surrounding this primary season is lacking almost entirely an explanation of how do we do it and survive politically to keep doing it if we win.

We all have our ideal view of what the world should look like, but we need to be able to effect change on the real world as it is in a way that does not bring about a premature end to our ability to do that and we end up losing far more than we gain. Currently we are suffering from an episode of far left radicals shoving their utopian view on the country with attitude of, “If it doesn’t fit, shove it, at least we get what we want and everyone will have to learn to live with it.” They forget completely that life in a (mostly) free society really isn’t so simple and have politically damaged the institutions of their party in immeasurable ways. It is likely the source of major political dysfunction, as they continue to refuse any compromise  or even soften their approach and I think there is a valuable lesson from this that we can learn as conservatives. Their problem is not just that their ideology is bankrupt, they cannot close the sale and do not care.

Reagan showed us that we can compromise with Democrats without compromising principle. He was not able to complete all the reforms he wanted because he was working with a Democrat congress (which by itself says something about how far he got) and his main strength in achievement was that he brought the American people with him into battle. He recognized that the limiting effect on what is possible is not just Democrats in congress, but more importantly, the interests of where the real political power in the country lies, with the people. We need not and should not compromise the farm. But if we fail to recognize when we do not have the support of the mass majority of the people behind our individual objectives, we will be met with resistance and have very little likelihood of enduring success.

From my own perspective, I would prefer a classical liberal approach to public policy, but I would be completely deluding myself if I thought that one election would be enough to get as close to unbridled and completely free markets for nearly everything as I believe would be optimal. Reality dictates that it simply cannot be done over night without causing more chaos than we currently have. It is something we must evolve toward because the how to do it is just as important as the what to get anywhere at all with lasting effect.

This is just something I’m throwing out here. It’s an interview by Jim Puplava with former commodities broker Ann Barnhardt who closed up shop after the MF Global collapse. She explains why she closed down, not because of financial difficulties as a result of MF Global, but severe dysfunction of the market that emanates from the regulatory bodies. Her account will likely raise the hair on the back of your neck about what kind of calamity we might be confronting, it did for me.

If there is anyone here who knows something about the commodities futures market, I’d really appreciate a comment.

This is a downloadable MP3. I haven’t found a website link yet; I am still looking. It’s about 20 minutes long, but you don’t have to listen that far to get the meat of what she says.

Robert Higgs of the Independent Institute asked this question yesterday in regard to the push back he receives when he attempts to correct the historical record of widespread inconsistencies. The short answer is that people are skeptical of accounts that contradict a prevailing view, even if true. Of course I can’t really say why, when confronted with what certainly could be the truth, some people attack the messenger rather than engage in internal reasoning and studying of the facts.

From a personal perspective, I was once as much in the dark about our history as every other person whose education is the product of the public school system where each pupil receives only a smattering of American history, enough to have a rough idea of where we came from, but leaves complete gray areas about why or how, or the purpose. The moments at which we realize the rather thick haze surrounding what we think to be true come at different points for each person, if they ever notice it.

I realized the thick haze surrounding what I thought to be true shortly after 9/11. Being confronted with the extreme incompetence and ineffectiveness of the many (perhaps too many) agencies within our Federal government that were established in the name of safety and security, I acquired an insatiable curiosity about how government can be so expensive and fail so miserably at its most basic of duties. It was the day I lost a rather innocent and naïve trust in government to do the right things for the right reasons, and embarked on a years-long course of study, although rather meandering at first, to find those answers.

Finding the truth about what our government is when one is well into adulthood isn’t such an easy task, and for me it was especially so when pop culture throughout my lifetime supported and reinforced the innocent trust in government. No one, at least as far as I could tell, was questioning the very basic foundation of government, calling out the incompetence and failure as a symptom of that it was – lack of focus.

I started out studying modern history looking for something, anything that could be a clue to what was wrong. Surely, whatever it was to have gone wrong happened within the last few decades, I thought.  I found myself enclosed in a pile of books from covering topics from J. Edgar Hoover, to Nixon, Carter, Reagan, and onward. I spent days and weeks sifting through them trying to find some logical golden thread that would lead me straight to the problem. I found nothing. Frustrated to the point of nearly giving up, I thought of something that never occurred to me before.  Perhaps it would be easier to find out what our government was intended to be and then work my way from there. I cracked open a copy of “The Federalist” someone had given me as a gift several years prior, that I had never read.  I was shocked and amazed at the differences between what Hamilton, Jay, and Madison had told the founding generation the Federal Government would be versus what it is today.

Since I had to squeeze my studies into free time, I had been reading during breaks at work. One of my colleagues inquired about the book I was reading, and I remember remaking to him that “The government is doing an awful lot of things it was never intended to do.” The next day, he had a copy of “The Federalist” and was reading during break too!

I have to admit, though, my response to Mr. Higgs was rather pointed and emotional, and he did not deserve it.  It was that way because my self-directed journey has been very long and arduous, and is far from complete. It has taken me from the Revolutionary era, through the 19^th century and into the 20^th where I have decided to take a breather. I have a difficult time studying the last 2/3rds of the 20^th century; picking up and forcing myself to read the works of Woodrow Wilson and others from the same line of reasoning disturbs me. Even though I am reluctant, I can say without a doubt, that is where we went wrong. It has everything to do with the dangers and battles we face in the present. In addition to that, Mr. Higgs’ complaint only highlights the immense amount of work we have in front of us in order to take that knowledge of the truth about history and transform it from being just documents and books sitting on a shelf collecting dust into the salvation of great nation.

Thomas Jefferson noted in a letter to James Madison on 18 October 1785 the condition of the poor in France. He had remarked about the king’s autumn retreat for hunting which was attended by foreign diplomats in order to possibly curry favor, but he did not have the personal means to attend and was therefore required to stay in Paris, some 40 miles away. During his stay in Paris while the king was at his retreat, he had occasion to walk with a member of the working poor in France and inquired about her condition. She told him how much it costs to live and how much she makes, and he noted the disparity between her income and cost of living (by today’s standards would be in the area of $700-$1000 per month), adding that she had no money to buy bread.

Mr. Jefferson noted that the majority of land suitable for food production in the area surrounding Paris had been reserved for the upper class for various uses, particularly leisure, and observed what he called inequality in the distribution of land had the effect of rendering large portions of the population unable to achieve basic subsistence.  He ventured that a remedy for such inequality could be a tax on property on a sliding scale depending on the quantity of land held to provide a disincentive for hording and an incentive to allow cultivation of the land by lower classes that would then have a better opportunity at self-subsistence.

While ideas of wealth redistribution have some root in this Jeffersonian line of thought, and there has been considerable changes that have occurred in society since his observations in Paris in 1785, he offered practical solutions to social issues of the day based on observations of finite resource utilization. In addition, he did not advocate direct confiscation and distribution of resources by government, only incentives to produce the desired effect of enabling each human being the ability to provide for one’s family when conditions demand it.

It is one matter to provide disincentive for hording of land in a country where starvation is rampant and an entirely different one concerning attempts at equal distribution of infinite resources such as income, which is the very essence of prosperity. Suppose that GDP is the consequence of incentive to produce, to improve one’s lot in life, and is a measurement of production of national prosperity as a result of that incentive.  This measure can either expand or contract depending upon the success of the national production of wealth in any given year; and creation of wealth out of raw materials is limited only by dynamic elements such as the availability of resources, desire to succeed, market conditions, and productivity technology.

As in Jefferson’s recommendation to incentivize more practical use of land and discourage wanton accumulation of it, government views the distribution of income nearly as much a problem and levies a tax on income or production, not wealth, in a attempt to discourage hording despite the obvious fallacy of hording money in the pursuit of one’s self-interest. As a consequence, it discourages production of prosperity beyond which is necessary for subsistence by those who have the desire to produce, and negatively impacts all possible production of national income, measured in GDP. We tax incentive to produce not some finite tangible object. The more products of production the government gobbles up, the smaller the pie becomes by dampening the incentive to produce.

This is an oversimplification of the effects of government attempts at more equal distribution of national income, as the application of well meaning policy to effect this end has been perverted in all manners of ways so that the intended end is no longer visible with immeasurable impact on potential national income due to depressed incentive to produce.  The reality of the application of these schemes has been the accumulation or expected accumulation of confiscated income in the coffers of government to dispose of as it pleases on any object of political necessity or largess. In addition, government, recognizing the fallacy of income redistribution, has provided backdoor provisions in the tax code that allow for the blunting of the effect of confiscation if the producer engages in activities government determines beneficial to society, any other elements of daily life government wishes to influence, or in the case of malfeasance (which appears to be rampant), to pass out favors to connected individuals by customizing tax incentives. This is the very purpose of high marginal income tax rates for individuals and corporations with deductions piled on, to provide government with the power to control the behavior of society by controlling the fate of national income.

Recently, President Obama has given talks and speeches about the disparity of income distribution as if there were some things, such as increased taxation, that can be done about it. Given the statistics regarding the distribution of tax burden, the top 10% pay 70% of all taxes collected, it would seem reasonable that if there were some magical formula government could employ for closing any perceived gap (another fallacy that will require another diary to explain), it certainly should have been on the way to being well compensated by now. Yet with every new generation of politicians, like Obama, over spans of decades, the complaint persists because not only is it impossible to redistribute infinite resources that arise from basic human desire for success without dragging down the prosperity of the entire nation, government fails to employ the proceeds it collects to appropriately meet that end. It is all smoke and mirrors. If government were a private charity with its efficiency rate of ~30% in social programs, it would have been dragged through the court of public opinion, tarred and feathered, flogged, with severe market discipline employed to clean up the problem. Yet many sit in awe as the president spews his demagogy based on fallacy, failing to be held accountable for the sorry condition of affairs; and they accept the same excuses that the current level of confiscation is simply not enough.

The City of Rochester, NY, has been corrupt ever since I moved to the area in 1994 (which is one of the reasons I do not live in the city proper). If there were ever a contest for the cronyism pin-up of the year, Rochester would surely be a contender. I have been monitoring the live stream from Occupy Rochester, and it seems most of their complaints have to do with local issues.  I agree with many of these in a general sense; about selling public land for $2 to be developed and dumping  millions in public funds into associated projects that always end up going bad. The city has been great at selling these projects to the public as a way to boost economic activity over the years, and Rochester sorely needs it, but failed project after failed project that leaves the taxpayers on the hook with nothing to show for it, and no one ending up in jail, gets real old after awhile.

They also discussed Rochester Gas and Electric (RG&E), which is the largest local energy provider. The gentleman conducting the stream explained to the folks sitting around him that the expensive and plain vanilla services provided by RG&E are because they operate on a solely profit motive, and something needs to be done to put the “public” back into public utilities. At this point I had to keep reminding myself that I was there to kibitz, not to try to pick a fight because I recall that one of the first things to be heavily regulated during first part of the progressive movement back in the early part of the 20^th century, after railroads, was utilities. The high prices and low level of services has very little to do with the profit motive and everything to do with lack of competition. A company such as this one would not be able to survive in an open market with the business model it has and would have been out of business long ago if not for the monopoly fostered by government.

I cannot logically connect the dots between putting the “public” back in public utilities and solving the problems created by regulated utilities monopolies under vague assumptions of “Climate Change” and environmentalism.  The problems go much deeper than that, though. If having a monopoly created by state regulation isn’t bad enough, we have the problem of regulatory overlap where each monopoly has multiple masters, state and Federal, making it extremely difficult to identify where inefficiencies are being created and little hope of holding anyone accountable for out of control utility rates.

Camping out in a park in the city isn’t going to have much mileage in coming up with an equitable solution to any of the mess government has created. It would be nice if we could take more of the “public” out of public utilities, put the competition and power of the consumer back into capitalism that regulatory regimes remove so “We the People” can correct these issues ourselves and bring some discipline to these markets that have been distorted by government.

About the cleanup of Occupy Oakland, they admitted that it had gotten out of control and the speaker voiced agreement with the need for the authorities to step in and clean it up. He then started talking about some of the things that happened at the Occupy Rochester camp at the beginning of the protest. According to him, there were some thugs who mixed in with the protest and there was at least one stabbing. He didn’t go into details about the stabbing. He moved on to talk about the agreement they made with the Mayor of Rochester so they could stay in the park after the outbreak of violence.

I have not made a visit to the park to see what is actually going on there (and I don’t want to, either). The details of the agreement are that they cannot have alcohol, generators, or heaters in tents, build fires, cannot bring in portable toilets, or impede anyone else from using the park, and they have to keep the area clean.  Minors participating in the protest must have written parental consent and the juvenile curfew still applies.  It is dated 11/11/11 and so only time will tell if it is an effective way to keep the protest under control.