The Broken Window Theory will Break Us

Fredric Bastiat, a French economist, came up with an economic fable called "The Broken Window" that goes something like this.

A young hoodlum heaves a brick throws a baker’s window. The shopkeeper rushes furiously out the door looking for the hooligan, but the boy is long gone. A crowd soon gathers around the shop, and begins to stare at the gaping hole and the shattered glass strewn over the bread and pastries.

After a while, a man in the crowd gets philosophical and reminds others there is bright side. It will make good business for the glass maker.

The philosopher goes on and says the glazier will now have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles.

The logical conclusion from all this would be, at least from the crowd's perspective, is that the hoodlum, far from being a public menace, is actually a public benefactor!

This parable is basis for all Keynesian economics that have existed in many U.S. government economic policies since FDR and is totally based on a fallacy.

On the surface, there seems to be an intuitive logic that proves you can stimulate the economy by "breaking windows" (creating an unwanted demand), leading to increased supply (the perfectly good window that's replaced).

The fallacy is that the crowd only sees the apparent positive effects of the broken window and not the unseen negative consequences (opportunity costs) caused by the broken window: the baker discards the glass-covered bread, the lost time and profit of discarding the bread, the wasted time cleaning up glass, the bakery closes until the window replaced, the $250 lost profit of fixing the window,  the $250 shoes the baker can no longer buy, the cobbler's $250 lost sale, the lost purchasing power of the cobbler, and so on.

Had the window never been broken, non of these unseen negative consequences would have occurred AND the baker would still have a window.

The problem with government "pump-priming" economic "stimulus" spending is that most is on useless projects the free-market would never, in 1 million years, waste money on.  To pay for these useless projects (broken windows), taxes are raised on consumers and corporations, which prevents that money from being spent more wisely on NECESSARY investments and expenditures such as: new plant and equipment, R & D, advertising, additional staff, new start-up companies, more factory workers, wide-screen TVs, vacations to Vegas, shoes, cars, jets, trucks, etc.

Even if higher taxes are postponed through debt financing, the debt eventually leads to paid plus these useless projects become even MORE expensive because of compounded interest on debt, taking even MORE money out the economy. 

Eventually excessive debt to pay for excessive government spending always (without exception) leads to bankruptcy: Ancient Greece, present-day Greece, ancient Rome,  modern-day Italy, the defunct U.S.S.R., North Korea, Cuba, Spain, Portugal, Japan and eventually America.

Throughout American history, every time (without exception) the government has tried to "stimulate" the economy through wasteful government spending and higher taxes, it has prolonged economic downturns: FDR's Great Depression Spending (prolonged almost 10 years) Jimmy Carter's Stagflation (prolonged 3 years), Obama's Great Recession ( prolonged ??? years).

Every time America has CUT taxes and CUT government spending economic downturns are over quickly 1919-1921 Depression: (over in 9 months)--President Harding CUT government budget 50% (imagine that) and lowered taxes from 71% to 24%.

Ronald Reagan cut taxes from 76% to 24% but was unsuccessful in cutting government spending due to a Democratic Senate and House.  Government spending doubled during the Reagan years, however, tax revenues actually DOUBLED under lower taxes because of the growing economy resulting from the tax cuts (Laffer Curve effect).

An interesting point of history is that Ronald Reagan tried to get the 28th  "Balanced Budget Amendment" added to the Constitution.  Because of the Democratic House and Senate, Ronald  Reagan was unsuccessful.  

Reagan's valiant effort to try and circumvent the U.S. Congress by getting 2/3rds of the STATE legislatures to support the Balanced Budget Amendment (100% Constitutional by the way) is one of the many reasons I loved Reagan.  He was my hero.

When Republicans finally took back control of the House and Senate in 1994 a Balanced Budget Amendment was again proposed and came within 1 vote, ONE VOTE!!!! from being passed....

America now has a $14 TRILLION national debt PLUS $109 TRILLION in unfunded liabilities because of the 1 lost vote on the Balanced Budget Amendment.

Imagine if that one Senator had voted differently.... 

Anyway, "stimulus" government spending never can and never will get a country out of a recession.  History has taught the lesson countless time in countless countries throughout history.

As Winston Churchill once said, "If we fail to learn from history, we are bound to repeat it." and yet here we go again...

America will either learn this painful lesson or cease to exist trying to prove it wrong.

There is a Time and a Place for Everything

Dear Obama-san:

Now is not the time to:

-Play Mr. Union Activist--and keep the Jones Act in play (1920's Port Union Protectionist bill) which prevents specialized foreign oil-cleaning ships from 13 countries to assist in clean up operations .  It's time to protect U.S. citizens in the Gulf not your Union comrades.

-Play Mr. Lawyer--and evaluate legal precedents and arcane maritime laws to maximize punitive liabilities against BP, which will only ultimately be paid for by consumers in higher gas prices, higher insurance premiums, higher product prices and losses to portfolio investments.

-Play Mr. Environmental Wako--and use the oil spill crisis as an opportunity to pass ridiculous Cap & Trade legislation, which will cause energy costs to skyrocket.

-Play Mr. Professor--and set up 4 different Blue-Ribbon panels of scientists with little or now oil-spill expertise to study how evil oil companies could let this happen.

-Play Mr. Bureaucrat-- and set up 17 different competing government agencies and departments with conflicting goals and directives to totally mismanage operations.

-Play Mr. Liberal--and use the crisis to spend $billions ($trillions?) on expensive, inefficient, uncompetitive, job killing alternative energy sources like solar and wind.

-Play Mr. Politician--and blame others for your own failures.

No sir. 

Now is the time to BE Mr. President and LEAD our great country out of this disaster.

What's the Difference Between a Democracy and a Republic?

Our Founding Fathers hated democracies.  They extensively studied historic democratic governments and found that they always lead to tyranny and eventually fail.

The fatal flaw of democracies is that they will eventually passes so many laws and regulations and raises taxes to such an extent that the people will be oppressed, the economy will fail and then the country will eventually collapses.

In a Democracy, there is no limit to the size and scope the central government.  If there is a perceived need, laws and taxes can be created to meet them.

In a Republic, Congress can only pass laws and generate taxes for a specific list of enumerated powers and responsibilities.  Any Congressional powers or responsibilities not specifically enumerated fall on to the States or individuals to meet. (Constitutional Amendment #9 and #10)

The biggest power grab by Congress was to purposefully misinterpret Article I/Section 8/Clause 2 (The Commerce Clause) to give Congress broad general powers to basically pass any law and increase government spending to any level they want.

The Founding Fathers only put the Commerce Clause in the Constitution to give Congress the power to allow free trade between States.  That's it. 

Before the Constitution, we had the Article of Confederation, which killed inter-State commerce because of protective tariffs established by States.  The Commerce Clause was only added to prevent this from happening.  That's it. Period.

Article I/Section 8/Clause 17 does give Congress the power to pass laws and raise taxes ONLY in running the various Government Departments that are specified in the Constitution:


Department of Treasury

Department of Commerce

Department of Immigration

Department of Post Office

Department of Pattents

Department of Civil Justice

Department of Military Justice

Department of War

Department of State

Department of Navy

Department of Army

Department of Militia

Department of Transportation

Department of  Internal Revenue

Department of Indian Affairs

Department of the Interior

Department of Maritime Affairs


Look at the list of Departments we currently have and then at the above list.  Any Federal agencies that currently exist that are not granted under the Constitution are unconstitutional and should not exist without an amendment to the Constitution.

We need to restore America back to a Republic.  All departments that exist today must either be disbanned, or a Constitutional amendment be made to justify the Department (like Deptment of Air Force) or the responsibility must be returned to the States or to the individual.

Only by doing this can America have any hope of survival. 















 

Progressive's Message to Business: Don't be Successful..or else

Why do Progressive U.S. regimes always insist upon punishing successful businesses rahter than encouraging and supporting them?

Strong and growing companies create jobs, develop exciting innovations and produce products and services at cheaper prices.

Government probes, regulations and taxes: cut jobs, decrease innovation, increases corporate legal costs, diverts attention from growing the business to legal proceedings and make goods and services more expensive....

Government's message to business: If you become too successful, we'll bury you!!

May's unemployment figures: 95% of all new jobs were public sector jobs.

Conclusion:  Ok, Ok, we get the message!

Not a very good message with 10% unemployment and collasping stock market.

http://online.wsj.com/article/SB10001424052748703509404575301242754089172.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

AMERICA'S MAD DASH TO TYRANNY

I really hate to always be the bearer of bad news, but I've never seen a more "perfect storm" developing like America finds itself in now:

Do you realize that GW Bush's tax cuts expire on January 1st, 2011 so there will be massive tax increases from next year.

This is the last piece of the puzzle that snaps into place to create the perfect storm, which could possibly play out something like this:

1) Congress passes Financial Reform Bill in August, putting the Treasury in fiat control of roughly 70% of the U.S. economy should an economic crisis ensue.

2) Congress passes watered down version of American Power Act in September putting in place a massive "Carbon Tax" on an already struggling economy.

3) Congress "fails" to pass Amnesty bill assuring big Democratic losses in November but is very successful in creating angst among Latinos (the real purpose of the "failed" Amnesty bill).

4) As a backlash to Obama's Socialist reforms, Republicans win simple majorities in both the House and the Senate in November, but are unable to win super majorities necessary to pass legislation and are far from 67% required to repeal Obamacare, The Financial Reform Bill, the American Power Act and even to extend tax cuts.
5) Congress becomes gridlocked with neither party is able to pass any legislation to fix growing economic and social unrest.
6) Tax rate increases goes into effect from January 1st, 2011 (which always leads to decreased tax revenue--Laffer Curve effect (look it up))
7) Historic budget deficit spending continues ($1 TRILLION/year budget deficits for next 8 years-Congressional Budget Office numbers, not mine) Total National Debt passed $13 Trillion last week and unfunded liabilities are $109 TRILLION (S.S., govt. pensions, Medicaid/Medicare, etc. (not a typo)) Deficits will explode once tax revenues decline from next year.
8) As the U.S. National debt explodes, so U.S. debt holders (China, Japan and EU) will demand higher interest rates on U.S. debt due to increased risk.
9) As interest on National Debt increases, U.S. budget deficits accelerate, creating pressure to raise taxes and freezing credit markets.
10) With falling corporate profits and tight, companies are forced to cut capital spending and to layoff employees.
11) As Unemployment rises, unemployment benefits and other entitlement spending spirals out of control.
12) A ripple effect ensues and EU and Asian economies are on the verge of collapse.
13) World Stock Markets collapse.
14) The Treasury Department exercises powers created in the Financial Reform Bill and starts taking over companies in financial trouble.
15) U.S. Government quickly goes through remaining TARP II funds trying to "rescue" failing companies and tries to secure additional debt to meet growing financial demands.
16) China, Japan and Europe are also strapped for cash and refuse to finance additional U.S. debt and actually call-in existing U.S. loans.
17) America refuses and technically goes into default.
18) U.S. retaliates with a trade war against China and China reciprocates.
19) U.S. labor unions sense chaos and instigate bloody riots. Huge riots in Europe are also orgainzed.
20) With a gridlocked Congress and chaos in the streets, Obama blames capitalism for the economic collapse and declares Martial Law.
21) With a gridlocked Congress, and worldwide economic and social chaos, numerous Executive Orders are issued and perhaps the 2012 presidential election is "postponed" for the "good of the nation."
22) With expanding Executive powers and the powers granted under the Financial Reform Bill, the U.S. Treasury basically takes control over 70% of U.S. economy.
23) Obama puts in left-wing supporters to "temporarily" run the companies taken over. The U.S. officially becomes a "temporary" Socialist state similar to Venezuela and the end-game is complete.
24) Most of the Bill or Rights are "temporarily" suspended under Martial law and Presidential power is secured by additional Executive Orders.
25) Left-wing organizations around the world instigate various international crisis: attacks on Israel, union riots throughout EU, North/South Korean problems escalate, Kashmir conflict escalates, African war-lords run amok, Iran develops nuclear weapons, etc.)
26) With escalating world crisis, Obama is forced to extend "temporary" powers until world order is reestablished.
27) Tyrannical Socialist governments are established around the globe and a move towards global governance (not a global government) is established through the U.N. and financed by an International Carbon Tax via the Chicago Carbon Exchange (Estimated to be $10 Trillion in carbon tax revenues by 2020 if Cap & Trade legislation is passed in EU, Asia and the U.S.

Now I'm certainly not saying that all these things are going to happen, but, what I am saying is that variations of all things have happened in history: U.S.S.R. (Stalin), China (Mao), Vietnam (Ho Chi Min), Cambodia (Pol Pot), North Korea (Kim), Venezuela (Chavez), Cuba (Castro), Italy (Mussolini) , Germany (Hitler).

I'm also not comparing Obama to any of these tyrants, but, history is very clear that Socialism always leads to tyranny. This is because Socialism is so inherently inefficient that it eventually pays people not to work through entitlement programs and penalizes companies so severely with taxes and regulations that are necessary to finance inefficient social programs that the whole system eventually collapses in on itself.

Initially, Socialism leads to modest living standards (shared misery) and numerous social "benefits", however, these can only be financed by massive national debt as social entitlements always exceed tax revenues because business growth is curtailed by ever increasing taxes and regulations.

The massive debt is always followed economic collapse, which leads to either severe rationing of goods, services and freedoms or a thankful return to capitalism and the reestablishment of personal freedoms through a Republic form of government (small central government/strong local government; what our Constitution originally established).

If the collapse is followed by a democracy (large central government/weak local government), the model is destined to go through another cycle of Socialism/collapse as politicians seek reelection through expanded entitlement programs and the people vote themselves more money. (see EU, Japan, Korea, America (now), Russia, Eastern Europe, etc.

So, were do we go from here? I have no idea. If America really wishes to keep its freedom and avoid tyranny it must do all of the following:

1) Adhere strictly to every single word of the Constitution (that's it, basically)
This will, however, logically lead to the following changes:
1) Pass a Constitutional Amendment limiting Federal spending to 8% of GDP and never allow debt financing unless 67% of both Houses agree to do so in case of an national or international emergency.
2) Pass a Constitutional Amendment for Senate and House term limits.
3) This will lead to:
a) a 50% reduction of Federal employees.
b) a massive shift of Federal responsibilities being returned to the states.
c) whole Departments and thousands of Federal agencies will be disolved i.e. if it ain't in the Constitution the agency cannot exist.
4) Phasing out Federal Social Security (if States want to try it, fine, people will vote with their feet.
5) Phasing out Federal Medicare and Medicaid (if States want to try it, fine, people will vote with their feet.)
6) Dissolve the Federal Reserve. Period!
7) Evaluate going back to the gold standard. (I can go either way on this)
8) Toss in the garbage can the 80,000 page Federal tax code and start a Federal 14% flat tax (Capital gains tax ZERO, Dividend Tax ZERO, Estate Tax Zero -- Yo! executives, you play games with these one, you go directly to jail; to general population no appeal no country-club correction facilities)
9) Tear down all country club correction facilities.
10) Pass Amendment where Congressmen and Senators must read every single word of every single bill they vote on. (you purger yourself on this one, see (#8) about jail time.
11) Pass Amendment disallowing all pork spending and bill riders. You want something for your State, you present it to the House and Senate for a vote. Period.
12) Build THE WALL and protect our southern border.

What can Americans do to avert disaster?

1) Get out and vote in November for Conservative Republicans or Democrats that revere the Constitution and never vote for any politician that thinks the Constitution is a "living/flawed/adaptive" document.
2) Call your Congressmen and Senators and tell them not to vote for the Financial Reform Bill or America Power Act and that you want them to build THE WALL to protect our borders and only allow legal immigration.
3) Go to a TEA party and see if that's interesting.
4) Go to Washington D.C. on August 28 to show solidarity to restore America. (Visit Glenn Beck homepage for details).
5) Get out of debt.
6) Learn about investments alternatives.
7) Read the Constitution http://www.usconstitution.net/const.txt
8) Get involved in politics.

Sorry for the long post, but I'm afraid America really doesn't have much time left to survive as our Founders envisioned if we continue on our path to certain tyranny.