Seattle’s Minimum Wage Has Been a Disaster, as the City’s Own Study Confirms by Alex Tabarrok

The Seattle Minimum Wage Study, a study supported and funded in part by the Seattle city government, is out with a new NBER paper evaluating Seattle’s minimum wage increase to $13 an hour and it finds significant disemployment effects that on net reduce the incomes of minimum wage workers. I farm this one out to Jonathan Meer on FB.

This is the official study that was commissioned several years ago by the city of Seattle to study the impacts of raising the minimum wage, in a move that I applauded at the time as an honest and transparent attempt towards self-examination of a bold policy. It is the first study of a very high city-level minimum wage, with administrative data that has much more detail than is usually available. The first wave (examining the increase to $11/hr) last year was a mixed bag, with fairly imprecise estimates.

These findings, examining another year of data and including the increase to $13/hr, are unequivocal: the policy is an unmitigated disaster. The main findings:

– The numbers of hours worked by low-wage workers fell by *3.5 million hours per quarter*. This was reflected both in thousands of job losses and reductions in hours worked by those who retained their jobs.

– The losses were so dramatic that this increase “reduced income paid to low-wage employees of single-location Seattle businesses by roughly $120 million on an annual basis.” On average, low-wage workers *lost* $125 per month. The minimum wage has always been a lousy income transfer program, but at this level you’d come out ahead just setting a hundred million dollars a year on fire. And that’s before we get into who kept vs lost their jobs.

– Estimates of the response of labor demand are substantially higher than much of the previous research, which may have been expected given how much higher (and how localized) this minimum wage is relative to previously-studied ones.

– The impacts took some time to be reflected in the level of employment, as predicted by Meer and West (2016).

– The authors are able to replicate the results of other papers that find no impact on the restaurant industry with their own data by imposing the same limitations that other researchers have faced. This shows that those papers’ findings were likely driven by their data limitations. This is an important thing to remember as you see knee-jerk responses coming from the usual corners.

– You may also hear that the construction of the comparison group was flawed somehow, and that’s driving the results. I believe that the research team did as good of a job as possible, trying several approaches and presenting all of their findings extensively. There is no cherry-picking here. But more importantly, without getting too deep into the econometric weeds, my sense is that, given the evolution of the Seattle economy over the past two years, these results – if anything – *understate* the extent of the job losses.

This paper not only makes numerous valuable contributions to the economics literature, but should give serious pause to minimum wage advocates. Of course, that’s not what’s happening, to the extent that the mayor of Seattle commissioned *another* study, by an advocacy group at Berkeley whose previous work on the minimum wage is so consistently one-sided that you can set your watch by it, that unsurprisingly finds no effect. They deliberately timed its release for several days before this paper came out, and I find that whole affair abhorrent. Seattle politicians are so unwilling to accept reality that they’ll undermine their own researchers and waste taxpayer dollars on what is barely a cut above propaganda.

I don’t envy the backlash this team is going to face for daring to present results that will be seen as heresy. I know that so many people just desperately want to believe that the minimum wage is a free lunch. It’s not. These job losses will only get worse as the minimum wage climbs higher, and this team is working on linking to demographic data to examine who the losers from this policy are. I fully expect that these losses are borne most heavily by low-income and minority households.

Reprinted from Marginal Revolution

Alex Tabarrok

Alex Tabarrok

Alex Tabarrok is a professor of economics at George Mason University. He blogs at Marginal Revolution with Tyler Cowen.

RELATED ARTICLE: Congress’ Inaction on Trump’s Agenda Costs America Nearly 1,000 Jobs Per Day

Florida Ranks 33rd on Best Places to Make a Living List

Governor Rick Scott, the Florida Congressional delegation and the Florida legislature has been touting how many jobs have been created in the Sunshine state. As we have written jobs are not created by government, rather a job is created by one thing only, a profit. Allow companies to make a profit and that company will hire more people to meet demand. The question is are we creating jobs that allow our workers to make a living? A good living?

Government can help companies by cutting their taxes, reducing the regulatory burden on companies and get government out of the way of entrepreneurs.

But more is needed. New research gives Florida, and each state, an idea of the quality of jobs created in their state in 2017. Many of our contributors have argued that Florida needs to diversify its job market and attract high paying jobs. Florida’s job market is built on sand, with the majority of workers in service industries. Tourism, agriculture and construction are the top three job creators. What Florida lacks is high paying jobs in manufacturing, energy exploration, and high tech industries. A recent study shows why Florida must look beyond tourism, agriculture and construction.

Richard Barrington, Senior Financial Analyst MoneyRates.com, in an article titled, Best Places to Make a Living: MoneyRates.com Ranks the Top States wrote:

This nation has come a long way since the Great Recession, but some state economies are coming ahead farther than others. Unemployment nationally is down below 5 percent, and wages are finally starting to rise.

However, some states are grappling with unemployment rates more than twice as high as in others. The highest-paying states have median wages that are about $15,000 above those of the lowest-paying states. There are some areas where it’s not low wages that drag down the standard of living but expenses that drain savings accounts, as costs of living and/or state income tax rates are much higher than the national average. In still other cases, the risks are more tangible – a couple states have work-related health incident rates that are three times the national average.

Best and Worst States to Make a Living 2017

Best states are in blue, worst states in red.

All of these financial factors are especially important if you are thinking of moving to another state, or finding a way to jump-start your career. Are things likely to be tougher or easier if you relocate? To help you look before you leap, MoneyRates.com has assembled a list of the best and worst states to make a living.

This list is based on the following factors:

  • Cost of Living
  • Workplace safety
  • State tax burdens
  • Median wages
  • Unemployment rates

Based on a combination of the above five factors, these are the best and worst states to make a living in 2017:

Full Ranking of All 50 States

Rank State Cost of Living Index Median Income Tax Rate on Average Income Unemployment Rate Incidents/100 Workers
1 Washington 107.0 43,400 0.00% 4.7 6.6
2 Minnesota 99.8 40,100 4.15% 3.8 6.2
3 Illinois 95.2 38,270 3.54% 4.9 6.1
4 Texas 90.8 35,480 0.00% 5 7.1
5 Colorado 101.0 39,710 4.63% 2.6 6.3**
6 Wyoming 91.6 38,710 0.00% 4.5 15.5
7 Virginia 100.1 39,070 4.51% 3.8 5.4
8 Ohio 92.9 35,760 1.91% 5.1 6.8
9 Michigan 93.5 36,030 3.78% 5.1 6.5
10 Kansas 90.3 34,460 3.07% 3.8 7.6
11 Nebraska 91.2 34,890 3.19% 3.1 8.8
12 Indiana 88.8 33,790 3.13% 3.9 7.7
13 Utah 92.6 35,010 4.57% 3.1 6.7
14 Wisconsin 96.8 36,250 3.52% 3.4 7.2
15 Delaware 102.5 37,960 4.04% 4.5 4.6
16 North Dakota 94.0 39,160 0.81% 2.8 15.9**
17 Iowa 91.6 34,790 4.66% 3.1 7.8
18 Tennessee 89.7 32,800 0.00% 5.1 6.9
19 Missouri 90.7 34,230 3.86% 3.9 7.4
20 Massachusetts 127.4 46,690 4.62% 3.6 5.1
21 Arizona 98.6 35,470 2.25% 5 5.5
22 Oklahoma 88.5 33,140 3.32% 4.3 8.9**
23 Georgia 91.5 34,330 4.57% 5.1 7.4
24 Idaho 89.6 32,800 4.29% 3.5 8.2**
25 New Jersey 120.8 41,950 1.84% 4.2 5.3
26 North Carolina 94.0 33,920 4.08% 4.9 6.2
27 Alaska 131.5 47,170 0.00% 6.4 8.1
28 Pennsylvania 102.7 36,680 3.07% 4.8 6.6
29 Kentucky 90.7 33,190 4.81% 5 9.2
30 Connecticut 130.5 45,090 2.89% 4.8 6.1
31 Maryland 124.8 43,010 4.05% 4.3 5.6
32 Alabama 90.2 32,100 4.88% 5.8 6.7
33 Florida 98.3 32,790 0.00% 4.8 6.5**
34 New Hampshire 119.1 38,270 0.00% 2.8 6.1**
35 Nevada 104.4 34,510 0.00% 4.8 7.4
36 Rhode Island 122.0 39,730 2.59% 4.3 4.6**
37 Arkansas 88.4 30,130 3.56% 3.6 8.6
38 New Mexico 95.6 32,900 2.50% 6.7 7.6
39 Louisiana 94.3 32,080 2.66% 5.7 7.9
40 South Dakota 98.2 31,590 0.00% 2.8 8.3**
41 Mississippi 85.9 29,590 3.09% 5 10.2**
42 New York 130.1 42,760 4.45% 4.3 5.7
43 Maine 111.9 35,380 3.23% 3 7.4
44 South Carolina 99.4 32,140 3.19% 4.4 8.5
45 Oregon 115.3 37,990 7.82% 3.8 6.4
46 Vermont 122.3 37,920 2.58% 3 7.5
47 West Virginia 95.6 30,760 3.48% 4.9 8.4
48 Montana 100.7 32,750 3.73% 3.8 11.9
49 California 143.5 40,920 2.19% 4.9 6.0
50 Hawaii 167.1 40,030 5.80% 2.7 6.1

**Data was not available for these states for non-fatal work-related injuries and illnesses, per equivalent of 100 full-time workers so the average of all other states was used.

Government Does Not Belong in Our Showers by Daniel J. Mitchell

When I write about regulation, I usually focus on big-picture issues involving economic costs, living standards, and competitiveness.

Those are very important concerns, but the average person in American probably gets more irked by rules that impact the quality of life.

That’s a grim list, but it’s time to augment it.

Showering with Disapproval

Jeffrey Tucker of the Foundation for Economic Education explains that the government also has made showering a less pleasant experience. He starts by expressing envy about Brazilian showers.

…was shocked with delight at the shower in Brazil. …step into the shower and you have a glorious capitalist experience. Hot water, really hot, pours down on you like a mighty and unending waterfall… At least the socialists in Brazil knew better than to destroy such an essential of civilized life.

I know what he’s talking about.

I’m in a hotel (not in Brazil), and my shower this morning was a tedious experience because the water flow was so anemic.

Why would a hotel not want customers to have an enjoyable and quick shower?

The answer is government.

…here we’ve forgotten. We have long lived with regulated showers, plugged up with a stopper imposed by government controls imposed in 1992. There was no public announcement. It just happened gradually. After a few years, you couldn’t buy a decent shower head. They called it a flow restrictor and said it would increase efficiency. By efficiency, the government means “doesn’t work as well as it used to.” …You can see the evidence of the bureaucrat in your shower if you pull off the showerhead and look inside. It has all this complicated stuff inside, whereas it should just be an open hole, you know, so the water could get through. The flow stopper is mandated by the federal government.

The problem isn’t just the water coming out of the showerhead. It’s the water coming into your home.

It’s not just about the showerhead. The water pressure in our homes and apartments has been gradually getting worse for two decades, thanks to EPA mandates on state and local governments. This has meant that even with a good showerhead, the shower is not as good as it might be. It also means that less water is running through our pipes, causing lines to clog and homes to stink just slightly like the sewer. This problem is much more difficult to fix, especially because plumbers are forbidden by law from hacking your water pressure.

Bureaucratic Design

So why are politicians and bureaucrats imposing these rules?

Ostensibly for purposes of conservation.

…what about the need to conserve water? Well, the Department of the Interior says that domestic water use, which includes even the water you use on your lawn and flower beds, constitutes a mere 2% of the total, so this unrelenting misery spread by government regulations makes hardly a dent in the whole. In any case, what is the point of some vague sense of “conserving” when the whole purpose of modern appliances and indoor plumbing is to improve our lives and sanitation? (Free societies have a method for knowing how much of something to use or not use; it is called the signaling system of prices.)

Jeffrey is right. If there really is a water shortage (as there sometimes is in parts of the country and world), then prices are the best way of encouraging conservation.

Now let’s dig in the archives of the Wall Street Journal for a 2010 column on the showerhead issue.

Apparently bureaucrats are irked that builders and consumers used multiple showerheads to boost the quality of their daily showers.

Regulators are going after some of the luxury shower fixtures that took off in the housing boom. Many have multiple nozzles, cost thousands of dollars and emit as many as 12 gallons of water a minute. In May, the DOE stunned the plumbing-products industry when it said it would adopt a strict definition of the term “showerhead”…

A 1992 federal law says a showerhead can deliver no more than 2.5 gallons per minute at a flowing water pressure of 80 pounds per square inch. For years, the term “showerhead” in federal regulations was understood by many manufacturers to mean a device that directs water onto a bather. Each nozzle in a shower was considered separate and in compliance if it delivered no more than the 2.5-gallon maximum.

But in May, the DOE said a “showerhead” may incorporate “one or more sprays, nozzles or openings.” Under the new interpretation, all nozzles would count as a single showerhead and be deemed noncompliant if, taken together, they exceed the 2.5 gallons-a-minute maximum.

You’ve Got to Be Kidding

And here’s something that’s both amusing and depressing.

The regulations are so crazy that an entrepreneur didn’t think they were real.

Altmans Products, a U.S. unit of Grupo Helvex of Mexico City, says it got a letter from the DOE in January and has stopped selling several popular models, including the Shower Rose, which delivers 12 gallons of water a minute. Pedro Mier, the firm’s vice president, says his customers “just like to feel they’re getting a lot of water.” Until getting the DOE letter, his firm didn’t know U.S. law limited showerhead water usage, Mr. Mier says. “At first, I thought it was a scam.”

Unsurprisingly, California is “leading” the way. Here are some passages from an article in the L.A. Times from almost two years ago.

The flow of water from showerheads and bathroom faucets in California will be sharply reduced under strict new limits approved Wednesday by the state Energy Commission. Current rules, established in 1994 at the federal level, allow a maximum flow of 2.5 gallons per minute from a shower head. Effective next July, the limit will fall to 2.0 gallons per minute and will be reduced again in July 2018, to 1.8 gallons, giving California the toughest standard of any U.S. state.

Though “toughest standard” is the wrong way to describe what’s happening. It’s actually the “worst shower” of any state.

P.S. I forget the quality of shower I experienced in South Korea, but I was very impressed (see postscript) by the toilet.

Reprinted from International Liberty.

Federal Debt is Killing Middle America by Jim Ley

For the last 10 years of my career as a public administrator, I preached fiscal responsibility for two reasons.

First, I was concerned that we were approaching a cyclical recession and I wanted to build reserves so that service levels could be maintained and property tax increases could be avoided during a challenging financial period.

Second, I was fully aware that, at best, the intertwined fiscal and monetary policies of the federal government were devaluing the purchasing price of the dollar, affecting not only municipalities’ purchasing power, but that of the taxpayer. I was concerned that municipalities’ labor forces, facing this reality, would demand more wages and that the taxpayer would be hurt even worse through increased property taxes.

Little did I know that the inevitable recession would be the worst since the Great Depression and the fiscal policies would devalue the purchasing dollar even further.

Debt machinations boil away buying power

I often wonder if we as taxpayers are clueless.

We have been conditioned to look at the ever growing federal debt number as meaningless because nothing bad seems to be happening in any visible fashion that we can translate into our lives. And we believe the politicians who spin the same stories so that they don’t have to do their real job, because it is what we want to hear.

But whether a frog is boiled to death by being immersed in boiling water, or whether it is boiled to death as the temperature is slowly increased to boiling — the frog is still dead. At least in the former case, the frog is at least incentivized to jump out of the boiling water, as opposed to adapting to the increasing but eventually deadly temperature in almost total ignorance of its imminent demise.

We have gone through a period of time where the lower and middle class in this country has seen the value, the purchasing power of their paycheck, decreased by as much as 20 percent. Retirees have seen their retirement funds sit stagnant, while the lack of return on their savings accounts permits inflation to eat into the value of their savings. They can buy less and less.

Anyone with a simple understanding of economics should be able to see what is happening. With a trillion dollar deficit each year, the federal government has to borrow roughly $83 billion a month. How does it do that?

From a little office in Washington, D.C. it auctions off that debt to bankers and governments around the world. As long as things stay relatively depressed economically, and given the good faith and credit of the United States, the interest payment demanded is kept low — thank God.

Irresponsibility will bring it to a crash

The debt doesn’t always sell, or a concern arises that too much of our debt is owned by a foreign power, possibly giving them an economic weapon.

So who buys it then? The U.S. Treasury Department looks to the Federal Reserve, which it funds through the printing of dollars, to buy the remaining debt. So more money is printed to buy the debt. The Fed now owns about $4.5 trillion in U.S. Treasury Bonds on its balance sheet. To control the supply of money in circulation, the Fed promulgates a spider’s web of regulation and control requiring banks to reserve large sums of money to cover the risk associated with future obligations.

Exploring this system of controls, and the impacts the system has had on our financial well being, would require way more space to explain than I have here.

Everyone knows that China owns a huge chunk of our debt — $5 trillion. And of course, there is the debt the Fed owns. But who do you think, what entity do you think, also owns a huge chunk of the federal debt? It is the Social Security and Medicare trust funds with $2.8 trillion. Rather than investing these funds in instruments that could return more to their trust funds, thus ensuring their long-term solvency, these funds are used by the federal government to lower the overall cost of borrowing.

If nothing else, it is a fiduciary conflict of interest. But Congress does not require itself or the federal government to operate under the same rules with which private and nonprofit fiduciaries must comply.

Too bad for all the rest of us.

Because all of these machinations combine to diminish the purchasing power of the dollar, severely impacting the working middle class.

ABOUT JIM LEY

Jim Ley has more than 35 years in public service, the last 25 of which were in top level administrative positions in two of the more dynamic counties in the U.S. Jim served two terms as President of the National Association of County administrators and was a leading “small government” voice in the profession. His administrative focus has been on financial sustainability and accountability to the taxpayer.

EDITORS NOTE: This column originally appeared in The Revolutionary Act.

Why Some Cryptocurrencies Fail and Some Don’t by Larry White

A well-known obstacle to the greater popularity of Bitcoin as a medium of payment is the high volatility of its exchange value. This volatility results from its built-in quantity commitment: because the number of Bitcoins in existence stays on a programmed path, variations in the real demand to hold Bitcoin must be accommodated entirely by variations in its unit value. When demand goes up, there is no quantity increase to dampen the rise in price; and vice-versa for a fall in demand.

Not surprisingly, several cryptocurrency developers have thought of creating a cryptocurrency with a price commitment — namely a pegged exchange rate with the US dollar — rather than a quantity commitment, in hopes of greater popularity. The aim is to create a system in which dollar-denominated payments can be made with the ease, security, and low cost of Bitcoin payments, but without the exchange-rate risk.

The development of “Blockchain 2.0” platforms has enabled the launching of a variety of new digital assets, including such dollar-pegged (and euro-pegged and gold-pegged) currencies. As we will see, the histories of early (2014-2016) dollar-pegged cryptocurrencies show a series of flops. But one project, Tether, has become a late-blooming success. Tether had $55 million in circulation as of March 29, 2017, making it the #13 largest cryptocurrency. To keep this size in perspective, a brick-and-mortar US institution with $55 million in deposits is a tiny bank or a mid-size credit union, and Tether is currently only 1/300th the size of Bitcoin.

The Tether white paper explains in more detail the motivation for developing a dollar-pegged cryptocurrency by listing advantages to individuals using it for dollar-denominated transactions rather than using dollars held in “legacy bank” accounts:

  • Transact in USD/fiat value, pseudonymously, without any middlemen/intermediaries
  •  Cold store USD/fiat value by securing one’s own private keys
  • Avoid the risk of storing fiat on [cryptocurrency] exchanges ­– move crypto­fiat in and out of exchanges easily
  • Avoid having to open a fiat bank account to store fiat value

In sum, “Anything one can do with Bitcoin as an individual one can also do with” a dollar-pegged cryptocurrency, namely, “avoid credit card [or debit card] fees,” maintain greater privacy, “remit payments globally” more cheaply, and access blockchain financial services.

But what is the claimed advantage over using Bitcoin? It is the expectation of wider acceptance in payments, because of the advantages to merchants of accepting a dollar-pegged cryptocurrency over accepting Bitcoin in a US-dollar-dominated economy:

  • Price goods in USD/fiat value rather than Bitcoin (no moving conversion rates/purchase windows)
  • Avoid conversion from Bitcoin to USD/fiat and associated fees and processes 

The Flops

First, we consider the projects that have flopped. Three projects were launched in September 2014: CoinoUSD, NuBits, and BitUSD. Their pegging mechanisms were different, and are difficult to describe briefly (partly because they were not all entirely transparent), but two common features are important to note.

  1. The rate-pegging mechanisms were not programmed into a source code, like Bitcoin’s quantity commitment, but relied on non-programmed policy actions by a trusted central authority.
  2. None used the traditional currency pegging method of having the issuer hold reserves in physical dollars or dollar-denominated debt securities. (On the NuBits mechanism see this critique by a BitUSD promoter. On the BitUSD mechanism see this critique by the CoinoUSD developer.)

We can examine the fortunes of each project by looking at its price and “market capitalization” (value-in-circulation) history on the cryptocurrency tracking site CoinMarketCap.com.

CoinoUSD

CoinoUSD, which began trading in December 2014, was developed by a for-profit payments firm called Coinomat and built on the blockchain of the NXT cryptocurrency. (In November 2014 NXT was the #6 cryptocurrency with a market cap of $19 million; currently it ranks #38 with a market cap around $13 million.) CoinoUSD reached a market cap plateau of $2.7 million in early 2016, but shut down in early 2016, due to a “payout glitch” that flooded customers with free CoinoUSD units, making it impossible to maintain the exchange value at $1. Coinomat announced a reboot in which the erroneous payout would be reversed and said, “NXTUSD will replace CoinoUSD completely, and enhance it,” but this appears not to have happened. Since then it has had a market cap of zero, and its webpage at the Coinomat site declares it “disabled until further notice.”

NuBits

The history of NuBits, also a for-profit enterprise, shows that it gained only a similarly small market foothold. Its market cap plateaued early on below $2.5 million, and since April 2015 has remained below $1 million. In June 2016 NuBits had a devaluation crisis, with the price falling to 20 cents. Its rate-pegging intervention mechanism, despite claiming many layers of reinforcement, was not robust and failed. Although the price later returned to par, today NuBits shows very little market activity. Since January 2017 the market cap has hovered around only $135,000, with daily trading volume in the neighborhood of $2000.

BitUSD

BitUSD is built on the blockchain platform of the cryptocurrency BitSharesX. Its highest market cap plateau was around $1 million soon after introduction, but it fell to below $200,000 in April 2015 and is currently less than $110,000.

BitUSD uses a novel pegging system that so far has proven robust. A piece promoting BitUSD emphasizes that “the bitUSD is an asset that is not backed by real dollar in someone’s bank account.” (It claims this a virtue: “We cannot trust anyone to hold and secure a physical asset so that people can redeem it eventually. History has repeatedly shown: It doesn’t work!” In fact, history shows the major banks in unhampered banking systems routinely justifying the public’s trust by redeeming their liabilities on demand for decades. Paypal works on the same supposedly non-working model, backed by Paypal’s dollar deposits at Wells Fargo Bank.) By contrast, BitUSD are created through collateralized forward currency contracts. The network provides an escrow service that credibly ensures repurchase (or “redemption”) of the BitUSD at or near par. Someone who wants to acquire BitUSD, say in order to buy from a seller who prefers a dollar-denominated medium of exchange, offers a contract: so many BitShares (hereafter BTS) for a certain amount of new BitUSD. Under the BitShare network rules, the acquirer must not only pay at the outset in BTS but also agree to post collateral in BTS equal to the value of the bid. If the bid is accepted by another network participant, explains the BitUSD white paper, “the collateral and purchase price are held by the network until the BitUSD is redeemed” by some third party repurchasing it. The acquirer of BitUSD thus puts 200% collateral into a contract “that only allows access to these BTS when the BitUSD are paid back.” In effect the acquirer is shorting the dollar price of BTS.

Note that the new BitUSD units are initially 200% collateralized not in dollar-denominated assets, but in BTS. If BTS fall 25% or more against the dollar, such that the value of the BTS collateral declines to 150% or less of the value to be repaid, under the network rules redemption can be compelled by any BitShares miner who “enforces a margin call.” (It should be noted that to enforce the collateral rules, the BitShares network relies on trusted human agents to inform it about the current $ price of BTS.) The system then “uses the backing BitShares to repurchase the BitUSD…thereby redeeming it.” Conversion back into dollars is thus not always at the initiative of the holder, as it is for a holder of ordinary demandable bank liabilities. Instead a BitUSD holder faces a risk of “forced settlement.” If the value of BTS falls so quickly “that the margin is insufficient, then the market price of the BitUSD may fall slightly below parity for a short time if there is insufficient demand for BitUSD relative to the supply of sellers.”

The white paper concludes: “The critical thing to understand is that BitUSD is an asset used to hedge a position in BitShares against changes in the price of USD and is not supposed to have an exact 1:1 exchange rate with USD.” A close look at the chart indeed shows that the price of 1BitUSD has not been exactly $1. It has vibrated around $1 but has not experienced any lasting devaluation. Nonetheless its clientele has declined and is currently small. No doubt this reflects in part the declining popularity of BTS, its market cap having fallen from more than $60 million in September 2014 to around $15 million today.

The Success: Tether

Now to the success story. Tether was launched in February 2015. In contrast to the previous contenders, as the chart shows, it started slowly and has grown in market cap. The series of discrete steps in its market cap path indicates that there have been a series of large purchases. The most recent step, on Wednesday, March 29, 2017, raised the value in circulation to $55 million from $45 million. Logically these are not speculative position-takings, because there are no capital gains to be had so long as the price per tether remains solidly pegged (or “tethered”) to $1. And Tether has in fact successfully maintained a steady peg throughout its history with only one small and brief blip. The steps are presumably big acquisitions for transaction use. Transactions volume in recent weeks has been running mostly in the neighborhood of at $20-40 million per day.

Tether transfers are executed using the Bitcoin blockchain. Tether’s pegging mechanism is also not programmed into a source code, but it is the traditional one: the issuer holds dollar-denominated reserve assets and pledges to redeem Tethers on demand. (Euro-Tethers have recently been introduced, but I focus here on dollar-Tethers.) According to the official FAQ, “Tether Platform currencies are 100% backed by actual fiat currency assets in our reserve account. Tethers are redeemable and exchangeable pursuant to Tether Limited’s terms of service. The conversion rate is 1 tether USD₮ equals 1 USD.”

The parent Tether firm, in other words, operates like a currency board: It holds 100%+ dollar-asset backing, and passively swaps Tethers for dollars and back again. Like a currency board, it can earn interest income by holding some of its dollar-denominated assets in interest-bearing form. The Tether white paper reveals that Tether’s dollar reserves are currently held in accounts at two major Taiwanese commercial banks: Cathay United Bank and Hwatai Bank. (Why these particular banks? “They also provide banking services to some of the largest Bitcoin exchanges globally,” they are okay with Tether’s business model, and they are experienced at compliance with Know-Your-Customer and Anti-Money-Laundering regulations.)  It adds that “additional banking partners are being established in other jurisdictions” to reduce political risk of the accounts being frozen. Tether is thus not a “100% reserve” institution in the sense of a money warehouse holding 100% literal cash reserves (which would mean Federal Reserve notes in a vault).

How does a potential purchaser of Tether verify the 100% backing claim? The website declares: “Our reserve holdings are published daily and subject to frequent professional audits. All tethers in circulation always match our reserves.” A webpage does give dollar values for assets and liabilities, but does not identify the auditors or provide copies of the audit reports, so the claim of being “fully transparent” is somewhat exaggerated. The transparency is as great as that of historical note-issuing banks, however. And perhaps the important test of trustworthiness is that Tethers have in practice been redeemed every day at par for about two years.

Dollar-pegged cryptocurrencies, by contrast to Bitcoin, separate blockchain-secured payments from the speculative holding of an irredeemable private currency. Thus they provide a potential window for learning how much of the demand for cryptocurrencies is transactional, and how much is speculative. The competition among dollar-pegged cryptocurrencies provides something of a market referendum on the relative credibility of alternative pegging arrangements. The much larger size achieved by Tether suggests (though not definitively, because other factors are also in play) a popular verdict that its pegging mechanism is more credible than those of CoinoUSD, Nubits, or BitUSD. It will be interesting to watch Tether’s progress from this point on, and to observe whether its model is copied by other entrants.

Article originally appeared in Alt-M.

Larry White

Larry White

Lawrence H. White is a senior fellow at the Cato Institute, and professor of economics at George Mason University since 2009. An expert on banking and monetary policy, he is the author of The Clash of Economic Ideas (Cambridge University Press, 2012), The Theory of Monetary Institutions (Basil Blackwell, 1999), Free Banking in Britain (2nd ed., Institute of Economic Affairs, 1995), and Competition and Currency (NYU Press, 1989).

Cut Subsidies, Get Rich by David Boaz

Ever since President Trump and budget director Mick Mulvaney released a proposed federal budget that includes cuts in some programs, the Washington Post has been full of articles and letters about current and former officials and program beneficiaries who don’t want their budgets cut. Not exactly breaking news, you’d think. And not exactly a balanced discussion of pros and cons, costs and benefits. Consider just today’s examples:

[O]ver 100,000 former Fulbright scholars, among them several members of Congress, are being asked to lobby for not only full funding but also a small increase.

As a former Federal Aviation Administration senior executive with more than 30 years of experience in air traffic control, I believe it is a very big mistake to privatize such an important government function.

On Thursday, all seven former Senate-confirmed heads of the Energy Department’s renewables office — including three former Republican administration officials – told Congress and the Trump administration that the deep budget cut proposed for that office would cripple its ability to function.

This is nothing new. Every time a president proposes to cut anything in the $4 trillion federal budget — up from $1.8 trillion in Bill Clinton’s last budget — reporters race to find “victims.” And of course no one wants to lose his or her job or subsidy, so there are plenty of people ready to defend the value of each and every government check. As I wrote at the Britannica Blog in 2011, when one very small program was being vigorously defended:

Every government program is “well worth the money” to its beneficiaries. And the beneficiaries are typically the ones who lobby to create, expand, and protect it. When a program is threatened with cuts, newspapers go out and ask the people “who will be most affected” by the possible cut. They interview farmers about whether farm programs should be cut, library patrons about library cutbacks, train riders about rail subsidy cuts. And guess what: all the beneficiaries oppose cuts to the programs that benefit them. You could write those stories without going out in the August heat to do the actual interviews.

Economists call this the problem of concentrated benefits and diffuse costs. The benefits of any government program — Medicare, teachers’ pensions, a new highway, a tariff — are concentrated on a relatively small number of people. But the costs are diffused over millions of consumers or taxpayers. So the beneficiaries, who stand to gain a great deal from a new program or lose a great deal from the elimination of a program, have a strong incentive to monitor the news, write their legislator, make political contributions, attend town halls, and otherwise work to protect the program. But each taxpayer, who pays little for each program, has much less incentive to get involved in the political process or even to vote.

A $4 trillion annual budget is about $12,500 for every man, woman, and child in the United States. If the budget could be cut by, say, $1 trillion — taking it back to the 2008 level — how much good could that money do in the hands of families and businesses? How many jobs could be created? How many families could afford a new car, a better school, a down payment on a home? Reporters should ask those questions when they ask subsidy recipients, How do you feel about losing your subsidy?

Republished from Cato Institute.

David Boaz

David Boaz

David Boaz is the executive vice president of the Cato Institute and the author of The Libertarian Mind: A Manifesto for Freedom and the editor of The Libertarian Reader.

The Politically Hopeless, Completely Incoherent, and Totally Lame Economic Agenda of the Democratic Party by John Tamny

n a column from December of 2015, the Wall Street Journal’s Mary O’Grady unveiled an inconvenient fact that poverty warriors on the American left and right would perhaps prefer remain hidden: from 1980 to 2000, when the U.S. economy boomed, the number of Mexican arrivals into the U.S. grew from 2.2 million in 1980 to 9.4 million in 2000. The previous number is a clear market signal that the U.S. is where poverty has always been cured, as opposed to a condition that requires specific U.S. policy fixes.

O’Grady’s statistics came to mind while reading a recent New York Times column by Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities. He writes that a “highly progressive agenda [from Democratic scholars and politicians] has been coming together in recent months, one with the potential to unite both the Hillary and Bernie wings of the party, to go beyond both Clintonomics and Obamanomics.”The problem is that the agenda that’s got Bernstein so giddy has nothing to do with the very economic growth that is always the source of rising economic opportunity for the poor, middle and rich.

More Welfare

Up front, Bernstein expresses excitement about a $190 billion (annually) program that he describes as a “universal child allowance.” The allowance would amount to annual federal checks sent to low-income families of $3,000/child. It all sounds so compassionate on its face to those who think it kind for Congress to spend the money of others, but given a second look even the mildly sentient will understand that economic opportunity never springs from a forcible shift of money from one pocket to another. If it were, theft would be both legal and encouraged.

The very economic growth in the U.S. that has long proven a magnet for the world’s poorest springs not from wealth redistribution, but instead from precious capital being matched with entrepreneurs eager to transform ideas into reality. Just as the U.S. economy wouldn’t advance if Americans with odd-numbered addresses stealthily ‘lifted’ $3,000 each from those with even-numbered addresses, neither will it grow if the federal government is the one taking from some, only to give to others.

Economic progress always and everywhere springs from investment, yet Bernstein is arguing with a straight face that the U.S.’s poorest will be better off if the feds extract $190 billion of precious capital from the investment pool. As readers can probably imagine, he doesn’t stop there.

Government Jobs

Interesting is that Bernstein’s next naïve suggestion involves “direct job creation policies, meaning either jobs created by the government or publicly subsidized private employment.” Ok, but all jobs are a function of private wealth creation as Bernstein unwittingly acknowledges given his call for resource extraction from the private sector in order to create them.

This begs the obvious question why economic opportunity would be enhanced if the entrepreneurial and business sectors had less in the way of funds to innovate with. But that’s exactly what Bernstein is seeking through his $190 billion “universal child allowance,” not to mention his call for more “jobs created by the government.”Stating what’s obvious even to Bernstein, government can’t create any work absent private sector wealth, so why not leave precious resources in the hands of the true wealth creators? Precisely because they’re wealth focused, funds kept in their control will be invested in ways that foster much greater opportunity than can politicians consuming wealth created by others.

Contradictions Abound

Still, Bernstein plainly can’t see just how contradictory his proposals are; proposals that explicitly acknowledge where all opportunity emerges from. Instead, he calls for more government programs. Specifically, he’s proposing a $1 trillion expansion of the “earned-income tax credit” meant to pay Americans to go to work.

As he suggests, the $1 trillion of funds extracted from the productive parts of the economy would lead to family of four tax credits of $6,000 in place of the “current benefit of about $2,000.” Ok, but what goes unexplained here is why we need to pay those residing in the U.S. to work in the first place.

What gives life to the above question is the previously mentioned influx of Mexican strivers into the U.S. during the U.S. boom of the 80s and 90s. What the latter indicated clearly is that economic growth itself is the greatest enemy poverty has ever known. It also indicated that work is available to those who seek it, and even better, the work available is quite a bit more remunerative than one could find anywhere else in the world.

Rest assured that the U.S. hasn’t historically experienced beautiful floods of immigration because opportunity stateside was limited. People come here because the U.S. is once again the country in which the impoverished can gradually erase their poverty thanks to abundant work opportunities. If Mexicans who frequently don’t speak English can improve their economic situations in the U.S., why on earth would the political class pay natives who do speak the language to pursue the very work that is the envy of much of the rest of the world?Put rather simply, those who require payment above and beyond their wage to get up and go in the morning have problems that have nothing to do with a lack of work, and everything to do with a lack of initiative. Importantly, handouts from Washington logically won’t fix what is a problem of limp ambition. At best, they’ll exacerbate what Bernstein claims to want to fix.

Inequality Hurts No One

Most comical is Bernstein’s assertion that the tax credits will allegedly mitigate “the damage done to low- and moderate-wage earners by the forces of inequality that have steered growth away from them” in modern times. What could he possibly mean? The U.S. has long been very unequal economically, yet the world’s poorest have consistently risked their lives to get here precisely because wealth gaps most correlate with opportunity.

Translated, investment abundantly flows to societies where individuals are free to pursue what most elevates their talents (yes, pursuit of what makes them unequal), and with investment comes work options for everyone. Doubters need only travel to Seattle and Silicon Valley, where the world’s five most valuable companies are headquartered, to see up close why the latter is true.

Similarly glossed over by this confused economist is that rising inequality is the surest sign of a shrinking lifestyle inequality between the rich and poor. We work in order to get, and thanks to rich entrepreneurs more and more Americans have instant access at incessantly falling prices to the computers, mobile phones, televisions, clothing and food that were once solely the preserve of the rich.Just once it would be nice if Bernstein and the other class warriors he runs with would explain how individual achievement that leads to wealth harms those who aren’t rich. What he would find were he to replace emotion with rationality is that in capitalist societies, people generally get rich by virtue of producing abundance for everyone. In short, we need more inequality, not less, if the goal is to improve the living standards of those who presently earn less.

Remarkably, Bernstein describes the ideas presented as “bold” and “progressive,” but in truth, they’re the same lame-brained policies of redistribution that the left have been promoting for decades. And as they’re anti-capital formation by Bernstein’s very own admission, they’re also inimical to the very prosperity that has long made the U.S. the country where poverty is cured. To be clear, if this is the best the Democrats have, they’ll long remain in the minority.

John Tamny

John Tamny

John Tamny is a Forbes contributor, editor of RealClearMarkets, a senior fellow in economics at Reason, and a senior economic adviser to Toreador Research & Trading. He’s the author of the 2016 book Who Needs the Fed? (Encounter), along with Popular Economics (Regnery Publishing, 2015).

15 Faceless Bureaucrats Will Decide what Health Care You’re Allowed to Have by Eric Peters

President Trump and congressional Republicans have a second chance to take a whack at the Obamacare piñata – and the beauty of it is that this time, Democrats may want to take a swing at it, too.

“It” being the Independent Payment Advisory Board (IPAB), a.k.a the death panel that was much in the news during the debate over passage of the Affordable Care Act but which then quietly faded away. For the time being.

And for good reason – especially as far as Democrats are concerned.The IPAB/death panel is to be composed of 15 bureaucrats appointed to six-year terms by the President. Future tense because the 15 bureaucrats haven’t been appointed yet. Because the IPAB hasn’t been “constituted” yet. Thankfully.

It is, however, slated by statute to come online once Medicare spending reaches a certain threshold relative to the Consumer Price Index. Kind of like an alarm clock you hope never goes off.

Given the continued rise in health care costs, especially Medicare costs (the “Affordable” Care Act’s easy promises of reduced costs notwithstanding), this could happen as early as next year. As soon as the actuary for Medicare/Medicaid Services issues a report – already overdue for 2017 – that the “targets” have been exceeded, the IPAB automatically rises to life – in order to dispense death.

And that is what has Democrats worried.

Bureaucrats Directing Your Doctor

Nominally, the IPAB was created to control Medicare spending – supposedly by cutting red tape and so on. In practice, and notwithstanding assurance to the contrary, it would inevitably become a de facto price control/care-rationing body, cutting costs by unilaterally reducing “authorized” payments to doctors and other providers and by the simple expedient of declaring various treatments “not cost-effective,” thereby denying treatment outright.

To paraphrase Joe Stalin: No care, no problem.

It is Orwellian that the same Democrats who endlessly accuse Republicans of seeking to “deny care” to people have done exactly that by legislative and bureaucratic fiat.By statute, the IPAB is required to cut costs in line with arbitrary “targets” – regardless of the effect on care. There is no provision for judicial or administrative review. Even the President is powerless to remove IPAB bureaucrats, once they are appointed. The IPAB is effectively both omnipotent and unaccountable.

It is, in a very real sense, the not-yet-popped kernel of a UK-style single payer system in which neither you nor your doctor decide what care is needed, nor what care you’ll get. Instead, faceless bureaucrats – people neither you nor your doctor will ever meet or even talk with – would determine the care you’ll be allowed to get.

This, perhaps, is what former Speaker of the House Nancy Pelosi – an ardent backer of the Affordable Care Act – meant when she said, “You have to pass it in order to find out what’s in it.”

Well, surprise.

The Chance to End the IPAB Before It Happens

It’s no surprise that almost everyone who has found out – or will soon –  what the IPAB actually is either loathes it or is uneasy about defending it. Which presents a fantastic opportunity to do away with it.

Republicans have of course always objected in principle to the idea of empowering government bureaucrats to interpose themselves between patients and doctors and to the rationing of care – and to government death panels.

Democrats, on the other hand, are boxed into a corner. The whole point of Obamacare was to increase access to care – or so they claimed. But the ugly fact is that the IPAB will reduce access to care. Will ration care. Will deny people care. In particular, to older people – those dependent on Medicare.

This time, it won’t be hard-hearted insurance companies that pull the proverbial plug on grandma. It will be the much harder-hearted government. One can always change insurance policies. But there is no way to get away from government.

If the IPAB is ever “constituted,” it will be compulsory. You will not be allowed to say “no, thanks” to it. You will not even be asked. The 15 unelected bureaucrats will simply decree.

Democrats will have a tough time facing their constituents once they find out what the IPAB is all about.The good news – the huge news – is that it’s politically feasible to prevent the IPAB from ever being “constituted” if action is taken within the next couple of months. A provision was built into the arcana of the Affordable Care Act that makes it possible to hit the ”delete” button on the IPAB without broaching the broader issue of the ACA itself.

In other words, it is not necessary to repeal and replace Obamacare in order to get rid of the IPAB death panel. It’s an a la carte opportunity to nix a dangerous provision of Obamacare.

This must, however, be done by August 15, 2017 – just two months from now.

Republicans not only oppose the IPAB as a matter of principle, they very much need a legislative victory, particularly on the health care issue.

Democrats may not be particularly interested in helping them win one, of course. But they aren’t in a strong position to prevent one, either.

It will be very politically difficult for them to defend rationing health care – and denial of care outright – to their constituents. They may not smile and shake hands for the cameras over this, but it’s not likely they’ll mount a vigorous opposition, either. Democratic Sen. Ron Wyden of Oregon has already joined with Republican John Cornyn of Texas on bipartisan legislation to repeal the IPBA – and there is a companion repeal measure in the House that has 124 co-sponsors.

Republicans could easily jump-start the effort to get repeal and replace Obamacare by getting rid of it one piece at a time.

And with the help of Democrats this time.

Eric Peters

Eric Peters is an automotive journalist. Eric started out writing about cars for mainstream media outlets such as The Washington Times, Detroit News and Free Press, Investors Business Daily, The American Spectator, National Review, the Chicago Tribune and Wall Street Journal.

This State is on the Brink of Fiscal Meltdown by Daniel J. Mitchell

Illinois is a mess. Taxes and spending already are too high, and huge unfunded liabilities point to an even darker future.

Simply stated, politicians and government employee unions have created an unholy alliance to extract as much money as possible from the state’s beleaguered private sector.

That’s not a surprise. Indeed, it’s easily explained by the “stationary bandit” theory of government.

But while the bandit of government may be stationary, the victims are not. At least not in a nation with 50 different states.

Leaving Illinois

Indeed, Illinois Policy reports that a growing number of geese with golden eggs decided to fly away after a big tax hike in 2011.

Politicians enacted Illinois’ 2011 income-tax hike during a late-night legislative session in January 2011 and raised the state’s personal income-tax rate to 5 percent from 3 percent. This 67 percent income-tax hike lasted for four years, during which time Illinois experienced record wealth flight.

…The short-term increase in tax revenue gained from higher tax rates is offset by the long-term loss of substantial portions of Illinois’ tax base. The average income of taxpayers leaving Illinois rose to $77,000 per year in 2014, according to new income migration data released by the IRS. Meanwhile, the average income of people entering Illinois was only $57,000.

…During the four years of the full income-tax hike, prior to its partial sunset in 2015, Illinois lost $14 billion in annual adjusted gross income, or AGI, to other states, on net.

Illinois has always had an unfavorable ratio when comparing the incomes of immigrants and emigrants. But you can see from this chart that there was a radically unfavorable shift after the tax hike.

The Biggest Loser

Here’s a table from the article showing the 10-worst states.

Illinois leads this list of losers by a comfortable margin. Connecticut, meanwhile, has a strong hold on second place (which shouldn’t be a surprise).

The IP report observes that the states benefiting from internal migration have much better fiscal policy. In particular, most of them are on the admirable list of states that don’t impose income taxes.

…the top five states with favorable income differentials were Florida, Wyoming, Nevada, South Carolina and Texas. Notably, 4 of 5 of these states have no income tax, and none of them have a death tax.

It’s worth noting that the high-tax approach is not producing good results.

Instead, as reported by Bloomberg, the Land of Lincoln is the land of red ink.

Illinois had its bond rating downgraded to one step above junk by Moody’s Investors Service and S&P Global Ratings, the lowest ranking on record for a U.S. stateIllinois’s underfunded pensions and the record backlog of bills… are equivalent to about 40 percent of its operating budget… investors have demanded higher premiums for the risk of owning its debt. Moody’s called Illinois “an outlier among states” after suffering eight downgrades in as many years… like other states, has no ability to resort to bankruptcy to escape from its debts. A downgrade to junk, though, would add further financial pressure by increasing its borrowing costs.

Double Down

Amazing, in spite of this ongoing meltdown, the Democrats who control the state legislature are pushing hard to once again increase the income tax.

Heck, they want to increase all sorts of taxes. Including higher burdens on the financial industry.

Kristina Rasumussen, the President of Illinois Policy, warned in the Wall Street Journal that this was not a good recipe.

Proponents here call it the “privilege tax”… The Illinois bill would put a 20% levy on fees earned by investment advisers. It passed the state Senate in a 32-24 vote Tuesday, and backers are hoping to get it through the House before the legislative session ends May 31. The new tax is pitched as a way to squeeze more revenue – as much as $1.7 billion a year – from hedge funds and private-equity firms…

An earlier version of the Illinois proposal included a provision so that the 20% tax would take effect only if and when New York, New Jersey and Connecticut enacted similar measures. But the bill as written now would impose the tax regardless, and lawmakers will simply have to hope other states follow suit. Yet who says financiers can’t do their jobs just as well in Palm Beach, Fla. – or London, Zurich or Hong Kong? The progressives peddling this idea don’t understand that Chicago competes for these businesses not only with New York and Greenwich, Conn., but with anywhere that can offer cellphone service and an internet connection.

…Railing against supposed “fat cats” might satisfy progressive groups, but lawmakers shouldn’t be in the business of hounding the people who help connect capital with new opportunities for growth… Rather than focus on how to make everyone miserable together, policy makers should work to increase their states’ competitiveness. A start would be to rally against this proposed privilege tax and instead fix the spiraling pension costs and outdated labor rules that are dragging Illinois and other blue states down.

Let’s hope the governor continues to reject any and all tax increases.

If he does hold firm, he’ll have allies.

Including the Chicago Tribune, which recently editorialized about the state’s dire position,

Illinois legislators fumble repeated attempts to send a balanced budget to Gov. Bruce Rauner; while the stack of Illinois’ unpaid bills climbs by the minute; while our leaders prioritize politics over policy… Employers and other taxpayers are hopping over Illinois’ borders with alarming regularity.

…What an embarrassment. What a dereliction of duty… Illinois, boasting the lowest credit rating and the highest population loss of any state in the country, has doubled down. State government is in a full-blown crisis. Again. Since January, Democrats have discussed plans to raise income taxes and borrow money to pay down bills. They approved bills that would make Illinois a less attractive place to do business; under one proposal, Illinois would have the highest minimum wage of all its neighboring states.

This is some very sensible analysis from a newspaper that endorsed Obama in both 2008 and 2012.

Hope for the Future

Even more important, the state’s taxpayers are mostly on the correct side.

Illinoisans feel the strain of the state’s two-year budget impasse, but they are emphatic that tax hikes should not be part of any budget deal. These are the findings of a new poll of likely Illinois voters… Only 31 percent of survey respondents support raising the state income tax to end the budget impasse. An increase in the state sales tax is even more unpopular, with 76 percent of survey respondents opposed. Another key takeaway from the poll: A plurality (49 percent) of respondents who are directly affected by the state budget impasse prefer a cuts-only, no-tax-hike budget.

…Survey respondents were also asked what they think of political candidates who support raising taxes to end the budget impasse. The poll found that likely Illinois voters will be unforgiving of candidates for governor or the General Assembly who raise the state income tax or sales tax.

I suspect taxpayers realize that higher taxes will simply lead to more spending.

Indeed, a leftist in the state inadvertently admitted that the purpose of tax hikes is to enable more spending.

If there is to be any hope for the future in Illinois, Governor Rauner needs to hold firm. So long as Republicans in the state legislature hold firm, he can use his veto power to stop any tax hikes.

Or he can be Charlie Brown.

P.S. Illinois is invariably near the bottom in comparisons of state fiscal policy. The one saving grace is that the state has a flat tax. If the statists ever succeed in replacing that system with a so-called progressive tax, it will just be a matter of time before the state passes New York and California in the real race to the bottom.

Reprinted from International Liberty.

Daniel J. Mitchell

Daniel J. Mitchell

Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

The G-7’s Outrageous Hypocrisy by John Tamny

An article in Saturday’s Wall Street Journal about the European leg of President Trump’s first foreign trip came with the headline: “Leaders Confront US on Russia, Climate.” In particular, non-US G-7 leaders are all strongly in favor of the 2015 Paris climate agreement that would require participating countries to limit carbon emissions, among other restraints on economic activity.

Trump disagrees, thus the confrontation, owing to his correct belief that the climate deal would prove a barrier to economic growth.That Trump was in opposition to the other G-7 members apparently led to some tense discussion about the US’s desire to exit commitments made during the presidency of Barack Obama. German Chancellor Angela Merkel confirmed that opinions expressed about the withering climate accord “were exchanged very intensively.”

You Obey, We Ignore

Merkel and other G-7 leaders disappointed in the 45th president have no leg to stand on, and certainly aren’t in the position to confront any US president. Trump should make this plain without an ounce of regret. The latter would be true even if the Paris accord were a credible answer to the theory that says economic progress is a major threat to our existence.

Indeed, the Europeans talk a big game about the importance of commitments, and of how the alleged fight to save the earth “has to be a collective effort,” but they’ve shown no remorse about their own persistent failure to honor their NATO spending pledges.

Translated, these nations expect the United States to weaken its economy based on an unproven, but rather expensive theory about the effects of climate change. But when it comes to living up to a longstanding agreement among NATO members to share the costs of a mutual defense shield, they’ll let the US foot the bill.

More interesting here is that in their desperation to keep the US in the Paris fold, Merkel and others are implicitly saying that any agreement made among leading western European countries without the US isn’t worth the paper it’s printed on. With good reason.

So Much for Commitment

Consider non-NATO treaties like Maastricht, in which EU nations agreed to limit their deficit spending so that their debt/GDP ratios would always stay below 60%. Woops. As of 2015, Germany (74.4%), France (89.6%), and Italy (122.3%) were all well above what the G-7 countries committed to when they signed the treaty that led to the euro. As for their commitment to requiring euro member states to individually handle their debts, it too went out the window given the fear among EU members about what debt default would do to certain large banks.

Back to NATO, the European leaders so eager to guilt Trump into a climate commitment not his own have once again shown no commensurate guilt about their own safety being a function of US taxpayers and legislators regularly living up to commitments that they haven’t lived up to.

Mutual Defense

This is particularly galling when we remember that NATO’s mutual defense shield arguably has very little to do with US safety. Lest we forget, the US already has the strongest military in the world, and it’s also quite far from the world’s trouble spots. In short, the US has long stuck to an agreement that weakens it economically, and that has little to nothing to do with its ongoing existence.

Would Americans feel any less secure absent this pricey post-WWII arrangement? At the same time, could NATO survive and would Europeans still feel secure sans American support that gives NATO global relevance?The answer to the previous question explains why the Paris agreement will lose all meaning and relevance if the US backs out. We know this given the historical truth that non-US G-7 nations speak with a forked tongue.

They talk grandly about honoring commitments, but their actions invariably belie their lofty rhetoric. Just as they’ve done with NATO, or with their own inter-European treaties, they want the US to abide the Paris agreement so that they don’t have to.

In that case, President Trump would be very unwise to lend US credibility to an agreement that history says G-7 members will eventually trample on. While the Paris accord surely can’t survive without Trump’s support, neither can his commitment to 3 percent growth survive more government meddling meant to placate shaky G-7 members, all based on a theory. Trump has an easy answer; his rejection of the Paris agreement one that checks the political, economic and rationality boxes.

Trump has an easy answer; his rejection of the Paris agreement one that checks the political, economic and rationality boxes.

John Tamny

John Tamny is a Forbes contributor, editor of RealClearMarkets, a senior fellow in economics at Reason, and a senior economic adviser to Toreador Research & Trading. He’s the author of the 2016 book Who Needs the Fed? (Encounter), along with Popular Economics (Regnery Publishing, 2015).

RELATED ARTICLES:

Poll: Overwhelming majority of Israelis prefer sovereignty in Jerusalem over peace deal

Read the Confidential David Brock Memo Outlining Plans to Attack Trump

EDITORS NOTE: Get trained for success by leading entrepreneurs.  Learn more at FEEcon.org

The Deficit Problem Is a Spending Problem by John Tamny

After 2008, the US economy has experienced relative stagnation. The  common refrain from the Left was that federal budget deficits weren’t big enough. Of the belief that government spending is what lifts economies out of slow-growth ruts, Paul Krugman, Lawrence Summers and other neo-Keynesians called for federal borrowing beyond what Treasury took in as a way of allegedly boosting the economy.

Who cares that excessive spending failed so impressively in the U.S. back in the 1930s, and who cares that massive increases in Japanese debt have failed to awaken its economy from its “lost decades?” The Keynesians most associated with America’s Left (they populate the Right too, but most who think this way don’t admit it, or know it) pointed to increased deficits as the certain source of our economic salvation.

This is interesting mainly because with the election of Donald Trump in 2016 in concert with promises of big tax cuts, the same left that cheered deficits as the path to recovery suddenly claimed they would hold the economy down. This requires mention as a reminder that budget deficits and national debt are political props, first and foremost.As for their economic implications, governments can only spend insofar as they tax or borrow from the private sector. Period. As such, and in a very real sense, all government spending is deficit spending; the deficits and national debt a bit of a distraction.

Spending Is What Matters

The level of government spending is what matters the most because the wealth we produce in the private sector is precious. The spending consumes capital that otherwise might reach innovators. Government spending is the worst kind of tax mainly because its horrors are mostly unseen.

Taxes we see and feel in each paycheck, devaluation of the dollars we earn (a tax like any other) we suffer through reduced work opportunity and spending power, but government spending represents the unseen; as in what would intrepid, innovative minds do with the expropriated capital if government weren’t consuming it?

How many Apple, Amazon and Microsoft equivalents haven’t, and will never emerge from start-up infancy thanks to government’s consumption of crucial resources, how long ago would cancer and heart disease have been cured; only for bright minds to train their genius on the erasure of other life-ending maladies, or the fulfillment of other market needs?

The Salsman View

All of the above at least partially explains why I approached Duke political economy professor Richard M. Salsman’s new book, The Political Economy of Public Debt: Three Centuries of Theory and Evidence, with some reservation.

Salsman’s genius and broad knowledge have long been evident, but e-mail exchanges over the years between author and reviewer revealed a friendly difference of opinion about budget deficits. Though no deficit “hawk,” Salsman views them as a problem in their present state, while I view government spending as the real problem. If given the choice between a balanced budget of $4 trillion, and annual deficits of $1.4 trillion on $1.5 trillion in spending, I would take the latter. In a heartbeat. It represents less government waste of precious capital to the tune of $2.5 trillion.

So while my views on what Salsman refers to as “public debt” haven’t changed much, Salsman’s book forced a very healthy rethink of the debt question, though for reasons different from the traditional critiques of deficit spending. And while this review will reveal some ongoing areas of disagreement with the author, none of the differences should be construed as a non-endorsement of what I’ll refer to going forward as “Public Debt.”Salsman has written something beyond special, a book dense with information and history that I’ll be referencing for years to come. It’s perhaps commonly thought that Carmen Reinhart and Kenneth Rogoff’s This Time Is Different is the definitive history of government debt, but Salsman’s Public Debt trumps their book by many miles. It’s quite simply spectacular, and informative in a way that few academic economics books (or, for that matter, any economics books) are.

To give readers a sense of how the book is constructed, it “examines three centuries of the most prominent political-economic theories of public debt.” Salsman addresses the debt through the eyes of some of the grandest names in economics, along with others who similarly deserve stature, but who have in a sense been forgotten. One of Salsman’s many triumphs is the staggering amount of research he conducted in order to explain to readers the myriad ways economists of different persuasions viewed government debt in the past, and how some do in the present.

Salsman divides up the economists of varying Schools into three groups. “Public debt pessimists” typically “argue that government provides no truly productive services,” that the “taxing and borrowing detract from the private economy, while unfairly burdening future generations,” plus they generally believe that government debts are “unsustainable and will likely bring national insolvency and perpetual economic stagnation.” David Hume, Adam Smith and Nobel Laureate James Buchanan were three public debt pessimists, and then the list today is endless: Niall Ferguson, Laurence Kotlikoff, David Stockman, etc. etc. To the debt pessimists, the world is seemingly always about to end.

“Public debt optimists” think “government provides not only productive services, such as infrastructure and social services,” but they also think deficit spending can lift economies out of “savings gluts, economic depressions, inflation, and secular stagnation.” Interesting about the optimists is that while they’re convinced of the wonders of deficits, they almost universally despise the creditors (the “rentier class”) who make deficits possible. Those who lend to governments in return for an income stream are almost invariably immoral financiers in the eyes of the optimists, and so the optimists fully support defaulting on those who provide government with the funds to waste.

Alvin Hansen and Abba Lerner are prominent in Public Debt as some of the old-style optimists, but the list of neo-optimists in today’s commentariat is similarly endless; think once again, Krugman, Summers, Alan Blinder, Christina Romer, etc. At book’s end, Salsman correctly points out that the “pessimists and optimists have more in common than is commonly realized – and each perpetuate long-established falsehoods.” Salsman was being kind….

The Realists

And then there are the “public debt realists.” They “contend that government can and should provide certain productive services,” but within strict limits. Realists neither whine all the time about world-ending government debts, nor do they claim that they can be essential sources of economic sustenance as the equally confused optimists believe.

Realists who favor “constitutionally limited government” don’t think public debt is “inevitably harmful” mainly because when government is limited, so will borrowing be. Alexander Hamilton was the most famous public debt realist. Of the moderns in our midst, Steve Forbes is a realist, so is George Gilder, and so of course is Salsman. More on your reviewer’s stance later.

Up front, public debt isn’t some recent concept reflecting the supposed immorality of the modern world whereby governments borrow today only to heartlessly pass the debt on to future generations. Salsman notes early on that public borrowing by governments such that the citizens were “ultimately responsible for servicing the debt” came about in the “late seventeenth century” through the issuance of “tangible securities traded in secondary, liquid markets with prices and yields visible on public exchanges.”People have long wanted a way to securely store wealth today in favor of future consumption tomorrow, governments have long looked for ways to borrow existing wealth, and financiers brought the two together. This isn’t to defend the public borrowing as much as it’s to say that it’s not something that arose in the 20th century.

The Founding

Going back to the U.S.’s founding, Salsman writes that “Alexander Hamilton and Thomas Jefferson differed pointedly over whether government should borrow at all, whether it should fully pay its debts (even when trading at a discount), whether the currency in which debts were to be repaid should be gold backed and of uniform consistency nationally or instead be cancelled, and whether private banking was legitimate. On all such questions Hamilton answered in the affirmative, Jefferson in the negative.” Based on Salsman’s analysis, Jefferson would be grouped with the pessimists, and Hamilton as mentioned with the realists.

Hamilton felt a national debt would be very additive to the U.S.’s early fortunes as a sign of the new country’s strength. Issuance of debt would “show the world the United States could and would pay its debts.” This was a particularly important signal to send to creditors analyzing what was again, a new country. Salsman is very clear that Hamilton wasn’t a “proto-Keynesian optimist” as much as the world was then, as it is now, uncertain. If the U.S. was seen as creditworthy, borrowing for national defense (defense spending a legitimate function of government in the eyes of realists) during times of war would be easier.

David Hume

At the same time the great philosopher David Hume said “sovereign borrowing breeds ‘poverty,’ national ‘impotence,’ and ‘subjection to foreign powers.'” Salsman classifies David Ricardo as a debt pessimist too, but acknowledges the differences within the group. Ricardo felt, like your reviewer, that “public spending itself constitutes the real economic burden, regardless of how funded, because it deprives private actors of the saving, capital accumulation, and productivity gains necessary for long-term prosperity.”  Absolutely. Government spending brings instantaneous injury to the economy for it depriving the productive of resources that would otherwise be put to higher use.

On the optimist side Robert Malthus believed in the impossible whereby supply could exceed demand, so he viewed deficit spending “as a ‘cure’ for gluts.” Interesting there is that Malthus apparently knew, like Ricardo, that the spending dissolved wealth, but still felt it was necessary “to dissipate ‘excess’ aggregate supply.” A.C. Pigou was more sanguine about British borrowing since so much of the debt was owed within Britain itself.And to show how much Pigou influences public debt optimists today, Salsman adds that he cheered deficit spending that would redistribute the wealth of the rich to the middle class and poor “because they save less.” As Pigou put it, “The bulk of this money is pretty sure to be expended on the purchase of consumption goods, and so indirectly in creating money income for producers of those goods.”

Ok, per Pigou, the rich should be fleeced, then paid back a percentage of what was taken from them through consumption. Naturally Pigou’s analysis ignored that his scenario included no production, and worse, no investment in future production; investment that would have been more likely had the rich been able to hold onto their wealth in the first place. Fear not, it gets worse.

Secular Stagnation

Lawrence Summers’ hero Alvin Hansen, he of “secular stagnation” fame, felt “prodigality may be the appropriate social virtue in a society in equilibrium at underemployment.” Forget that savings never sit idle, and also forget that no economy can progress without the savings that fund innovation, to Hansen government issuance of debt with an eye on spending was a “means of providing adequate liquidity in a growing economy.”

Abba Lerner felt debt was ok since “we owe it to ourselves,” plus the debt wasn’t burdensome in a broad sense because debt payments are “received by the citizens and government bondholders.” This is perhaps what helped inform Keynes’s line about the “fools” in the economics profession who were allegedly carrying the banner for his views. For an economist to presume no present burden when government is extracting capital from the private economy is the height of foolishness. Fear not, however, it gets even stupider.

Thomas Piketty loves wealth redistribution while bemoaning debt because “it usually has to be repaid.” Piketty would prefer to “tax the wealthy rather than borrow from them.” To this endlessly naïve economist, when governments sell debt to the rich, the rich grow wealthier through ownership of bonds and their income streams. You can’t make this up, except that you don’t need to. Never forget that Piketty isn’t a fan of private investment either because in the process of capitalizing companies (on the way to voluminous opportunity creation for individuals), investors are getting rich in the process if their courageous investments bear fruit. When they succeed, it’s the rich getting richer.

Misesian Fresh Air

On the other hand, Ludwig von Mises was a breath of fresh air. Mises all-too-correctly pointed out that “Keynesian economics and the political process are almost entirely focused on short-run demand-side concerns while largely ignoring the long-run importance of economic productivity.” Precisely. Along these lines, a few years ago Alan Blinder penned an op-ed for the Wall Street Journal in which he talked up the allegedly positive demand implications that would spring from increased government spending. What he missed is that demand is always and everywhere the result of production first, and production is more abundant the more that savings and investment power enhancements that boost individual productivity.

Yes, Keynesianism is all about short-term demand, all at the expense of much greater production (and much greater subsequent demand) in the long-term given the truth that savings author progress. Demand is the easy part, and it’s not something economists or politicians should spend any time worrying about. Much thanks go to Salsman for compiling countless opinions on the subject of spending and debt. There are more to come, but this review will only scratch the surface.

Back to government spending in a broad sense, Salsman adds that government borrowing was relatively cheap in the 18th and 19th century (“typically 3-6 percent”) because “most sovereigns were fiscally prudent.” Other than issuing larger sums of debt during war, Salsman indicates that they “otherwise eschewed chronic budget deficits.” Of greater importance is that governments used “various pre-commitment devices – sinking funds, annuities, and the gold standard – to assure creditors of timely repayment in money that would hold its value over time.”

There’s no real mystery here behind the government debt surge. Governments could borrow because investors trusted the quality of the debt securities paying out income streams in currencies backed by gold, but most important was that good money correlated with surging investment, and subsequent economic growth.

Debt doesn’t power growth as much countries with growing economies can issue lots of debt. Add to all that a theme that Salsman returns to throughout Public Debt: “Only a state can legally compel tax paying, which is crucial to its capacity for debt servicing.” Governments can borrow fairly easily precisely because they can ultimately use force to extract payment on their debt from others. Debt servicing is logically much easier if the people are flush. The latter is important with the book’s future direction in mind.

Credit Worthy

Indeed, rich countries can borrow with ease. Poorer ones struggle to borrow, if at all. If readers doubt this, they need only pull up lists of the nations with the most debt versus the ones with very little. The big debtor nations are predictably the richest countries, while the ones with little debt are almost invariably the poorest. It’s worth repeating that this isn’t to say that deficits and debt power economies forward. Of course they don’t.

Government spending amounts to politicians misallocating precious resources that would otherwise be directed to their highest use by the profit motivated. Government spending is a huge tax on progress.

At the same time, politicians exist to spend. And if we don’t provide them with enough of our earnings, they’re happy to borrow against our future earnings. It’s much easier for them to borrow if investors feel the future earnings of the citizenry will be abundant, and easily taxable. Just as rich individuals and companies can borrow with ease, so can politicians who rule countries populated by the rich.The above truth brings us to one of many myths slayed by Salsman in his excellent book. Reinhart and Rogoff’s alleged insight that countries tip toward decline once their debt to GDP ratios move beyond 90 percent is accepted wisdom within the commentariat. Except that it’s not true. As Salsman reveals throughout Public Debt, England’s debt/GDP ratio reached the 261 percent mark in 1819, but far from it foretelling the country’s long decline, England was on the verge of a century of staggering growth. Considering the U.S., its debt/GDP ratio blew past 120 percent during World War II, only for the U.S. to experience pretty impressive post-war prosperity.

What To Do?

What all of this speaks to is that while debt isn’t on its own the source of country decline, socialistic responses to heavy debt loads are. High levels of taxation are what cause stagnation, and so do efforts by politicians to reduce their debt burdens sans payment. In pressing the previous point with great regularity, Salsman began to soften my broad dismissal of deficits. To me, they still don’t matter in a normal sense simply because the spending is the problem.

Bolstering the previous point for this reviewer, Salsman brings countless economic names from the past back from obscurity, including Italian aristocrat De Viti De Marco who asserted crucially that “the purchase of a public bond is voluntary, hence open to a self-interested, utility-maximizing calculus, while the payment of a tax is compulsory.” De Marco’s observation is one I’ve often made; as in it’s better if governments pay for the right to waste money than it is for them to take it from the productive without compensation. Again, deficits don’t matter. It’s the spending that does. That’s the tax, how the money is raised immaterial.

At the same time, Salsman’s exhaustive discussion of debt once again forced a rethink, and caused me to partially change my mind. No doubt spending is the real tax, but the problem with deficits is that while the borrowing is an act of government expropriating precious capital in order to waste it, we don’t feel it right then. No doubt we do soon enough, no doubt the waste leads to reduced innovation and lower pay, but it’s not seen as quickly and intimately as a direct tax. In that case, wouldn’t taxation meant to pay for all government spending free of borrowing force more prudence on politicians whose spending would fleece voters with tangible immediacy?

Along the same lines, the way in which public debt optimists have long dismissed the creditors, and worse, called for default on creditors (see Piketty), was a reminder of another horror of deficits; as in how politicians dispose of them.

Enter Keynes

Indeed, as one can imagine in a book about government debt, Salsman writes about how politicians go about shrinking it; albeit on the sly. This brings us to John Maynard Keynes. Though Salsman is very critical of the British economist, he indicates that “arguments for perpetual deficit spending and public debt accumulation come not from Keynes but Keynesians.” Those “fools” once again. While Keynes was in no way a public debt pessimist, “he never counseled unmitigated deficit spending.” More notable about Keynes is that while he had no problem with debt per se, he loathed creditors and sought “the euthanasia of the rentier” class.

Most important about Keynes from a public debt perspective is that in describing ways for governments to shrink their debt, he invariably offered up false solutions the harm of which would extend well beyond the supposedly “immoral” creditors.

Explaining Keynes’s suggested ways to default on debt, Salsman said governments could do so “explicitly (by a repudiation, or deliberate non-payment), implicitly (by inflation), and by a taking (levy on rentiers).” Governments have regularly employed the first two, and did so long before Keynes was prominent. Yet here’s the problem with deficits and debt: while government debt is an effect of the wealth produced by the citizenry, governments often respond the wrong way, thus adding insult to the wasteful borrowing/spending injury.

First up is repudiation or deliberate non-payment. To show just how delusional and contradictory are Keynesian debt optimists, they love the extra government spending that debt enables, but loathe the creditors who make the debt possible. Their position is impossible.

At the same time, I’ve long liked the idea of debt “haircuts” or repudiation not out of dislike for the creditors as much as maybe one or the other will cause creditors to skip buying government debt altogether. Arguably the latter would be more prevalent today if institutions like the IMF weren’t so ready to bail out governments, which has long been a way for governments to bail out banks and other creditors with high exposure to government debt.

Devaluation

Of course the much more problematic form of debt default or repudiation is devaluation of the income streams that debt securities pay out. Amazingly, Keynes well understood the horrid implications of devaluation, yet his dislike of creditors trumped the pain experienced by everyone thanks to devaluation. As Keynes so correctly put it, devaluation “is the form of taxation which the public find hardest to evade.”

While there are myriad ways for the citizenry to get around excessive headline rates of taxation, when governments repudiate debt through currency devaluation, everyone suffers. People earn dollars, pounds, euros, yen, and all manner of other currencies, which means devaluations meant to reduce government debt mean everyone suffers a shrinking paycheck. Much worse, the devaluation is a repellent to the very investors and savers whose capital commitments author economic progress to begin with.The point of all this is that deficits in isolation trump direct taxation as a way for governments to raise funds simply because they’re paying for the right to consume precious capital, as opposed to expropriating it without compensation for those fleeced. The problem is that deficits don’t occur in isolation. Or they don’t always. Precisely because governments want to borrow and spend sans the long-term implications of doing just that, we all frequently suffer the cruel tax that is devaluation so that wasteful governments can shrink what they owe.

To those who think the U.S. has never defaulted, think again. Even Reinhart and Rogoff described FDR’s 1933 decision to devalue the dollar from 1/20th of an ounce of gold to 1/35th as a debt default, and looked at in terms of the dollar since then, it’s apparent that the U.S. Treasury has been rampantly defaulting ever since. As of this writing a dollar buys 1/1200th of a gold ounce. America’s creditors have long suffered defaults, and the American people have had to accept the slower growth that is the tautological result of “implicit,” or “stealth” default. The seen is that despite Treasury’s horrid oversight of the dollar the U.S. remains the richest, most dynamic country in the world. But imagine the unseen. Imagine where the U.S. economy would be today absent the serial dollar devaluations that have needlessly shrunk investment that would have otherwise been directed to mass experimentation ahead of stunning advance.

Why Deficits are Bad

So, at risk of being repetitive, Salsman has me convinced of the horrors of deficits, but not for the reasons that compel most. Spending remains the problem. The problem with deficits is once again the socialistic responses of governments whereby they make everyone pay the massive, economy-sapping tax that is devaluation as a way of shrinking what they owe.

All of this speaks to another area of disagreement with Salsman ahead of the ones that will conclude this review. He correctly notes that the Keynesian “demand-side model was so discredited in the 1970s” in concert with vindication for supply-side economics, which “delivered such positive financial-economic results in the 1980s and 1990s.”

There’s no dispute that supply side won precisely because the latter is a tautology: when the tax, regulatory, tariff, and debased money barriers to production are shrunk, booming economic growth is the result. Supply side makes perfect sense, but it’s arguable that supply-siders have become ridiculous to the point that their policies have become self-suffocating. Indeed, supply siders, in their worship of the rising revenue implications of tax cuts, have forgotten that government spending is the biggest tax of all.

And in ignoring rising government spending, they’ve allowed the genius of their tax cut, deregulation, free trade, good money policy mix to be neutered. Figure that the posthumous John F. Kennedy tax cuts were great for economic growth, and as a result, gifted Treasury with a revenue surge in 1965. The latter gave Congress the means to for instance introduce Medicare; a program that was initially funded with $3 billion. The problem modernly is that a program which once cost $3 billion is projected to cost $1 trillion by 2025. Taking nothing away from the good of supply side policies, if not met with spending cuts, they’re not nearly as effective as they otherwise would be.

The Supply Side Problem

The problem with supply siders isn’t their belief that deficits don’t matter, but it’s a major problem their belief that government spending doesn’t matter. This reviewer wishes Salsman had spent more time on this point. As a deficit realist, Salsman plainly doesn’t like government expanding beyond strict constitutional limits. Ok, but rising federal revenues have enabled just that, not to mention that it’s much easier for governments to issue new debt if incoming tax revenues are abundant.Moving on from this quibble, Public Debt is wildly informative, and once again a magisterial myth slayer. Salsman spends a lot of time on Nobel Laureate James Buchanan’s contributions to the debt story, contributions that were important. He showed the “public choice” side of this whereby politicians act in what they deem their self-interest which is to spend with abandon.

At the same time, the public debt pessimist in Buchanan presumed to know a number, or a “critical threshold” after which government debt would cause economic decline. Buchanan offered a “moral case” for repudiation that supports Salsman’s wondrous contention previously mentioned that the pessimists and optimists are more alike than they know. Both sides endorse clipping the creditors who make all the waste possible.

As to magisterial myths slayed, through England and the U.S. Salsman as previously mentioned shows that if governments don’t respond to major debt with excessive socialism, it’s not an economy killer as Reinhart and Rogoff contend, and as did Buchanan. While England once again had a debt that was 261 percent of GDP as of 1819, by 1914, amid booming economic growth, the number had declined to roughly 35 percent.

The U.S. ratio as previously mentioned grew beyond 120 percent during World War II, but it shank to 35 percent by 1982. Japan presently has a debt/GDP ratio of over 225 percent. That it does exposes the absurdity of Krugman’s contention that deficit spending boosts growth, but at the same time it exposes as faulty the Reinhart/Rogoff magic number. Though not booming as it once did, Japan remains a very rich country. Rich countries can easily borrow. The problem is, as always, the spending. Imagine how much more advanced Japan’s economy would be today had its political class not responded to the country’s early 1990s recession with so much waste.

Deficits and Interest

Regarding the wildly popular view that deficit spending drives up interest rates, Salsman makes a mockery of what’s plainly absurd. Tracking the deficit spending of G-7 nations, Salsman finds that amid average debt/GDP ratios of 37.7 percent in 1980, the average interest rate on 10-year government bonds paid by those countries was 11.9 percent. Fast forward to 2000 when the debt/GDP ratio for those same countries was 74.5 percent, the average rate was 5 percent. In 2015, with the debt/GDP ratio having surged to 116 percent, the average 10-year government bond coupon was 1.3 percent. Though it’s common to say that rising deficits correlate with rising rates to service those deficits, there’s no evidence that the latter is true. Salsman’s book is beyond valuable, yet at the same time his statistics unearth another quibble.

On the same page that he provides the above numbers, Salsman contends that central banks “now also act as lenders of last resort to profligate governments,” and that the “reach of central banking expands virtually without limit.” Salsman’s explicit contention is that politicians created central banks to enable their borrowing given his oft-stated view that there’s “no effective limit on central banks’ power and willingness to create fiat money.”

This is not compelling. Sure enough, in communications with Salsman he’s acknowledged that most vastly overstate the power of the Fed, and central banks in general. How then could that which interacts with increasingly neutered banks have so much economic influence, let alone enable broad debt issuance by governments? My view here is that Salsman reverses causation. Central banks that buy a lot of government debt are a certain effect of an otherwise powerful economy, as opposed to an enabler of government debt issuance.

My evidence is Salsman’s very own mention of England’s adoption of a gold standard after the Glorious Revolution. Once a desperately poor country, the issuance of good money authored an economic surge that enabled borrowing that subsequently enabled England’s wars, and its colonization of one quarter of the world’s land mass.

In Salsman’s case, he cites the establishment of Britain’s Bank of England in 1694 as the facilitator of Britain’s “financing yet another war with France.” Ok, but if all it took for France to fight toe to toe with England was a central bank, then it could have mimicked Britain’s establishment of one. In truth, what enabled England’s warring was economic growth that gifted its politicians with abundant revenues, not a supposed lender of last resort to governments. Salsman himself references central bank independence as “a mere shibboleth,” which reminds us that any purchasing of debt amounts to one government entity buying from another.

Reducing all of this to the absurd, if central banks could truly enable reckless spending, the central banks of Nigeria and Bahamas could theoretically monetize massive government growth, as could the creation of a central bank in Haiti. But nothing like the latter would materialize simply because central banks can’t alter economic reality. If a government is “desperate for funds,” why the need for a central bank in the first place? What could a central bank do?

Going back to his assertion that there’s “no effective limit on central banks’ power to and willingness to create fiat money,” Salsman is making somewhat of a Keynesian statement himself (in fairness, members of the Austrian School regularly commit the same error) in presuming that central banks, for being central banks, can fix the alleged problem of credit scarcity. But they can’t. Individuals, businesses and governments seek access to “central bank notes” not to stare at the money, but instead do so because of what “money” can be exchanged for.

Credit is always and everywhere created in the private sector; money just a measure that facilitates its exchange and its direction toward future wealth creation. In short, the limit on central banks is that governments, like individuals and businesses, want to exchange money for real things. None of this means that government always does a good job with money, but it does mean central banks are a sideshow contra Salsman and other central bank critics. Much as central bank critics might wish otherwise, and much as the very existence of central banks is an offense to common sense, governments themselves ultimately decide whether to issue good or bad money, not central banks as is so commonly assumed.

Democracy and Deficit

Salsman is not a friend of democracy, and with good reason. Like most reasonable thinkers, he prefers a constitutionally limited federal republic that has very little power; spending or otherwise. Unrestrained democracy is unquestionably bad simply because it empowers the mob to theoretically vote all manner of benefits to itself on the backs of others. Where we part ways somewhat is in his assertion that democracy is the source of excessive spending.

Politicians who exist to spend. If the money’s there, they’ll spend it. India is a democracy, but the size of its debt isn’t very notable. What ultimately powers spending and borrowing is the wealth of the citizenry that sadly gifts politicians with surging revenue streams that enable endless spending and borrowing. Rich countries can borrow, and they do. The fix is constitutionally limited government. Always.

Lastly, Salsman asserts that “political elites’ electoral incentive is to maximize spending, minimize taxation, and borrow or print money to plug the gap, while treating wealth minority groups and future generations as fiscal commons worth exploiting.” This doesn’t ring true.

Indeed, to separate direct taxation from borrowing and spending is to make a distinction without a difference. Either way, the damage done by government is immediate since government spending (even that which is constitutional) amounts to instantaneous mis-allocation of precious resources. As for the popular notion that deficits burden future generations, it’s accepted wisdom that is also utter nonsense. The burden isn’t debt that can easily be grown out of if government is limited.

More realistically, we all suffer government spending in the here and now thanks to greatly reduced progress wrought by government consuming the resources necessary for advance. As for future generations, the true burden of spending in the here and now is that experimentation and advance that would have otherwise taken place in the past, only to set the stage for greater advance in the future, hasn’t happened.

The burden we leave for those in the future is a world that is much less advanced than it otherwise would be. The spending burdens future generations with work and experimentation that would have otherwise already been completed, and that will detract from much more productive toil had government not previously wasted resources. Something tells me Salsman knows this, but the idea of debt as “someone else’s” burden is very much ingrained.

Still, the minor quibbles should in no way be taken as a reason for readers to not purchase The Political Economy of Public Debt. Richard Salsman has written an endlessly excellent book that expertly tells the story of debt and its implications. Readers will come away exponentially more knowledgeable, and with minds that have been changed at the very least a little, but most likely a lot.

Readers will come away exponentially more knowledgeable, and with minds that have been changed at the very least a little, but most likely a lot.

John Tamny

John Tamny is a Forbes contributor, editor of RealClearMarkets, a senior fellow in economics at Reason, and a senior economic adviser to Toreador Research & Trading. He’s the author of the 2016 book Who Needs the Fed? (Encounter), along with Popular Economics (Regnery Publishing, 2015).

EDITORS NOTE: Get trained for success by leading entrepreneurs.  Learn more at FEEcon.org

Dr. Carson Compassionately Spoke the Truth About Black Poverty

Dr. Ben Carson being under fire for saying “poverty is a state of mind” during an interview is a prime reason why black Americans should end their insane loyalty to Democrats. 

In essence, Dr. Carson compassionately gave his fellow blacks a crucial key to personal success and overcoming poverty. And yet, Democrat and Leftist self-proclaimed advocates for black empowerment rushed to silence him; beating the crap out of him in the media. As a black man, I am so frustrated.

Up until around age 9, I was raised in the Baltimore projects. My mom, dad, four younger siblings and I were so excited moving from our leaky roof ghetto into a brand new 11 story government high-rise.

In a very short time, the new building became a huge ghetto; elevators out-of-order much of the time due to vandalism. The stairwells smelled of urine and were dark due to busted light bulbs, perfect for muggings. After school walking up to our 6B apartment, the sound of me walking on broken wine bottles echoed off the concrete walls. A few residents kept their apartment nice. The majority had no pride in keeping their no-skin-in-the-game free housing nice.

At a very young age, I realized taking the poor out of the ghetto was not enough when their ghetto mindset was alive and well.

Despite free housing, food and health-care, the vibe of the projects was angry and violent. Thank God in 1952, my dad broke the color barrier to become a Baltimore City firefighter. Our family moved out of the projects into a black suburban community in Pumphrey, MD. Sadly, my cousins who lived in fatherless households stayed in the projects, enslaved to government. Government is a poor substitute for real daddies. And yes, I felt my cousin’s daddy envy. Their tragic lives were filled with drug and alcohol abuse, out-of-wedlock births, more poverty and AIDS.

Incredibly, most of my cousins died extremely young; never experiencing the joy of personal achievement or pursuing a dream. Insidiously, government provided just enough to get by and keep them voting for Democrats.

In major cites controlled by Democrats like Chicago, Baltimore and Washington DC, I see the same cycle of government dependency and poverty I witnessed while growing up, but far worse.

Meanwhile, Democrats and Leftists are doing the same thing to Dr Carson that they do to anyone who dares to compassionately offer real solutions to ending black poverty. Democrats and Leftists seek to silence and destroy this extraordinary black role model and advocate of real black empowerment.

Democrats and Leftists despise blacks who have achieved extraordinary success the old fashion way by earning it; businessman extraordinaire Herman Cain, Supreme Court Justice Clarence Thomas, world renowned retired neurosurgeon Dr Ben Carson and former secretary of State Condoleezza Rice to name a few.

These successful blacks expose the Democrats’ and Leftist’s lying narrative that America will always be a hellhole of racism for blacks in which blacks’ only hope is to continuously vote for Democrats to keep evil white racist Republicans and conservatives at bay. The Democrats’ and Leftist’s scheme is extremely destructive and evil.

Please, please, please Dr. Carson, continue telling the truth.

Yes, it is a Virtue to Reject Charity by Jeffrey A. Tucker

There is a moment I found a bit startling in the new Anne of Green Gables series on Netflix. The farm is in trouble and the bank is talking foreclosure. The family starts to panic. Anne suggests that many people will chip in and help the family through these hard times.

The mother reacts with firmness and conviction: “Absolutely not. We do not accept charity.”How old fashioned! The statement alone reveals we are talking about the past here. I vaguely recall people in my own extended family – at family reunions in West Texas, sitting around shelling peas – saying something similar. It was a matter of pride, even morality.

When was the last time you have heard that assertion? I personally can’t remember hearing that in many years.

Maybe it is time to bring back that ethos and ethic.

What we have here is a principle at work, a matter of character. Don’t live at other’s expense. Make your own way in this world. Keep your independence and retain your dignity.

Is there any virtue here? I would suggest so. It is a forgotten virtue, to be sure, but a virtue nonetheless.

Charity with Dignity

The family in the story truly needed help. Rather than beg, they gathered up many of their possessions and took them to town to sell them. Merchants had heard about the family’s need, so some actually overpaid as a way of helping without letting the family know what was going on.

This is a great way to be charitable without letting the person know about it, which is yet another expression of virtue. The Bible tells people to give unto others without letting the left hand know what the right hand is doing – which is to say, don’t congratulate yourself and likewise expect others to praise you for your generosity. This is what the neighbors did.

By the same token, the shame associated with begging is ever-present in the Bible. In the parable of the unrighteous steward, the guy complains that he is been released from his master, but he is too weak to dig and “too ashamed to beg.”

Ashamed! Can you imagine? Social welfare professionals have been trying to remove the stigma of welfare for a century. But let’s face: it will never entirely go away. That might even be a good thing.

Don’t Be a Beggar

The story of Anne is set in Canada, but the attitude behind it feels quintessentially American. It is fundamentally a character trait forged in a setting of freedom. You encounter this often in the Little House books too, this attitude that it represents something of a humiliation to accept charity from others.

Even when the opportunity is there, there once seemed to be a cultural commitment against dependency, against living off others. Think of the old term hobo. The hobo ethic was never to beg – that’s what bums do – but rather to completely avoid all forms of dependency, even the need for a comfortable bed and nice clothes, and to travel and work small jobs to get enough to live and then move on. The hobos believed that this was the only way to stay free.In the American spirit, the hobo was making a dignified choice. The bum? Never.

Even when the redistributionist state came along, the American spirit of individualism rebelled.

Rose Wilder Lane, the daughter of the author of those books, writing at the height of the New Deal, put it like this:

The spirit of individualism is still here. The number of us who have been out of work and facing actual hunger is not known; the largest estimate has been twelve million. Of this number, barely a third appeared on the reported relief rolls. Somewhere those millions in need of help, who were not helped, are still fighting through this depression on their own. Millions of farmers are still lords on their own land; they are not receiving checks from the public funds to which they contribute their increasing taxes.

Millions of men and women have quietly been paying debts from which they asked no release; millions have cut expenses to the barest necessities, spending every dime in fear that soon they will have nothing, and somehow being cheerful in the daytime and finding God knows what strength or weakness in themselves during the black nights.

Americans are still paying the price of individual liberty, which is individual responsibility and insecurity.

This view is of course routinely lampooned in the progressive press, overtly by socialists like Elizabeth Warren but implicitly in venues like the New York Times and National Public Radio. Their voices drip with disdain for what they say is the myth of “rugged individualism,” a phrase popularized at the end of the 19th century. It is the supposedly cruel and unrealistic idea that people should get by on their own wherewithal.

The idea behind this phrase is to celebrate individual achievement and to suggest that it is a compromise of your potential as a human being to expect others to care for you if it is not necessary.Too often the idea has been caricatured, at least since the New Deal sought to break down the social stigma of dependency on government. For example, maybe people associate this with selfishness. It’s not true. There is a paradox that the more independent you are, the more you are willing to step up and help others. As Lane says: “We are the kindest people on earth; kind every day to one another and sympathetically responsive to every rumor of distress. It is only in America that a passing car will stop to lend a stranded stranger a tire-tool.”

This is not living off others. This is benefitting from the kindness of others when it is necessary and helpful. You accept it because you would certainly do the same for them. And you don’t expect it from others. And you certainly don’t craft your life around the idea that everyone or anyone is morally obligated to help you when you encounter misfortune.

Help Yes, Dependency No

It’s not complicated: you accept help when necessary but don’t make a habit of it. My own mother, who comes from the stock and heritage that celebrated self-reliance, used to say to me, very simply: “never be beholden.” If you owe others, you have given up that most precious thing, your independence, which means giving up some of your freedom.

That includes owing debt. CNN reports: “Total household debt climbed to $12.58 trillion at the end of 2016, an increase of $266 billion from the third quarter, according to a report from the Federal Reserve Bank of New York.” Meanwhile, 44% of Americans don’t have $400 cash that they can throw at an emergency expense.

Private creditors are bad enough. It is surely worse to be beholden to government. Right now 43 million Americans are on food stamps. That is not a mark of national pride. And this is true even in times when groceries are absurdly cheap and available by any historical standard.

Once you accept the largesse, you have a political investment in continuing it. Your loyalties gradually change.

People justify this based on observing how much they are paying into the system. It pillages them with every paycheck, so they might as well get something back. No matter how much welfare they pay in, they can never take enough out to make the bargain work out equally. For most people, this is surely true.Once you accept the largesse, you have a political investment in continuing it. Your loyalties gradually change. The state becomes your benefactor. Your sense of self reliance is compromised.

Do you see the vicious cycle? You are forced to pay in, so you have no moral resistance about taking out when the time arises. Pretty soon you find yourself part of the Bastiatian calculus: the state becomes the great fiction by which everyone tries to live at everyone else’s expense.

In service of people’s dignity, programs like food stamps ought to be abolished, as much as that would upset the corporate agricultural interests that are forever lobbying for this racket to continue.

It seems that government does everything possible to rope people into the role of dependent these days. Whether it is student loans, Obamacare, or just guilt tripping us all to love the highways and glorious national defense we get for our tax dollars, we are supposed to feel forever on the hook, forever beholden. Forever indentured.

This is not the attitude of a free people.

A Word for Individualism

To hear about “rugged individualism” is a bit strange for us today. We have a vague sense that people used to believe this. We feel mischievous even to sense that there might be a grain of truth in it. The attitude built the world’s most prosperous economy. It gave us new inventions. It created the most dynamic, thriving, progressing society in history, and this became a model for the world.

To be sure, there is often a confusion over the phrase self-reliance. It does not mean to grow your own food, make your own furniture, and walk instead of drive. It has nothing to do with the technology you use, and there is a sense in which the market and the division of labor it creates makes us all deeply dependent on each other. That is a beautiful thing.

The point is that market dependency is rooted in exchange and mutual benefit. We go into every exchange with the freedom to change our minds, and we benefit from exchange as much as the other party. We aren’t doing favors for each other. We cooperate together in our own interest.Self-reliance really means something else. It means not being on the hook for a favor someone else did you or being expected to live in a constant state of owing others for some act of benevolence on their part. It certainly rejects forcing others through the state to be productive so that you can get a free ride.

Pay Your Debts

My mother is right. It’s not good to be beholden to others. This idea was once baked into our institutions. Government had no charity to offer anyone. Your debts had to be paid. Americans didn’t rush to create the cradle-to-grave welfare state. The thing existed in Europe long before it came to our shores. Even when we created the institutions, people were reluctant to use them.

And it’s not just about the compromise of your individualism that you make when you accept welfare. It is also about the annoyance others feel when forced to pay for it. Both sides are degraded in this forced wealth transfer.

For our ancestors, it was a matter of personal character.

This is the underlying thinking behind the quote that Ayn Rand’s Atlas Shrugged worked to forge into a life doctrine: “I swear, by my life and my love of it, that I will never live for the sake of another man, nor ask another man to live for mine.”It’s best to think of that line, not as a hard religious doctrine but just very solid life advice, a good bedrock practice for how to think of yourself in relation to others. With that idea in place, all the rest of the virtues fall into place.

What Can We Do About It

The idea of rejecting charity means that you should take charge of your own life, regardless of pressures around you to do otherwise. This is possible even today. It’s true that you are forced to pay into the system. But no one is forcing anyone to take food stamps, to live on handouts, to be dependent on government programs. It’s not so easy to refuse them anymore. The struggle is real. Still, this is something you can control – unlike national politics.For our ancestors, it was a matter of personal character. It is always easier to take the more temporarily lucrative path and the safer route. Maybe you feel like a chump for turning down government money when it is so easily available. But if you relent, what are you giving up in the exchange?

We don’t need to bring back the shame that comes with living off others. Anyone who does that when it is not absolutely necessary knows in his or her heart that there is a better way. If we can choose the better path, we should.

If everyone did this, the welfare state would be de facto abolished overnight.

Jeffrey A. Tucker

Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

EDITORS NOTE: Get trained for success by leading entrepreneurs.  Learn more at FEEcon.org

President Trump’s ‘Taxpayer First’ Budget

President Trump’s first proposed budget shows respect for the people who pay the bills. The administration’s proposal reverses the damaging trends from previous administrations by putting our nation’s budget back into balance and reducing our debt through fiscally conservative principles, all the while delivering on President Trump’s campaign promise not to cut Social Security retirement or Medicare. The budget’s combination of regulatory, tax, and welfare reforms will provide opportunities for economic growth and creation. Get the facts about President Trump’s budget.

BALANCE & CUTTING SPENDING

Unlike any budget proposed by the previous administration, the Fiscal Year 2018 Budget achieves balance within the 10-year budget window and begins to reduce the national debt within that same window.

The policies in this Budget will drive down spending and grow the economy. By 2027, when the budget reaches balance, publicly held debt will be reduced to less than 60 percent of GDP, the lowest level since 2010.

NO CUTS TO MEDICARE & SOCIAL SECURITY

The President’s Budget does not cut core Social Security benefits. And the President is fulfilling his presidential campaign promise not to cut Medicare benefits.

SAVING TAXPAYERS MONEY

President Trump’s budget saves the American people billions of dollars through welfare, tax, and regulatory reform.

SUPPORTING OUR MILITARY

The President is requesting $54 billion, or 10 percent, more than the defense level President Obama signed into law for both the 2017 CR and the 2018 budget cap. This increase balances the need to rebuild the military with the need for disciplined, strategy-driven, executable growth.

KEEPING AMERICANS SAFE

The Budget includes over $2.6 billion in new infrastructure and technology investments in 2018 to give CBP frontline law enforcement officers the tools and technologies they need to deter, deny, identify, track, and resolve illegal activity along the border.

PUTTING AMERICAN FAMILIES FIRST

President Trump’s budget provides national paid family leave for the first time in the history of this country.

Find out more information about President Trump’s Taxpayer First Budget at WhiteHouse.gov/taxpayers-first.

Here are the 66 programs eliminated in President Trump’s budget:

Agriculture Department — $855 million

  • McGovern-Dole International Food for Education
  • Rural Business-Cooperative Service
  • Rural Water and Waste Disposal Program Account
  • Single Family Housing Direct Loans

Commerce Department — $633 million

  • Economic Development Administration
  • Manufacturing Extension Partnership
  • Minority Business Development Agency
  • National Oceanic and Atmospheric Administration Grants and Education

Education Department — $4.976 billion

  • 21st Century Community Learning Centers
  • Comprehensive Literacy Development Grants
  • Federal Supplemental Educational Opportunity Grants
  • Impact Aid Payments for Federal Property
  • International Education
  • Strengthening Institutions
  • Student Support and Academic Enrichment Grants
  • Supporting Effective Instruction State Grants
  • Teacher Quality Partnership

Energy Department — $398 million

  • Advanced Research Projects Agency—Energy
  • Advanced Technology Vehicle Manufacturing Loan Program and Title 17 Innovative Technology Loan Guarantee Program
  • Mixed Oxide Fuel Fabrication Facility

Health and Human Services — $4.834 billion

  • Agency for Healthcare Research and Quality
  • Community Services Block Grant
  • Health Professions and Nursing Training Programs
  • Low Income Home Energy Assistance Program

Homeland Security — $235 million

  • Flood Hazard Mapping and Risk Analysis Program
  • Transportation Security Administration Law Enforcement Grants

Housing and Urban Development — $4.123 billion

  • Choice Neighborhoods
  • Community Development Block
  • HOME Investment Partnerships Program
  • Self-Help and Assisted Homeownership Opportunity Program Account

Interior Department — $122 million

  • Abandoned Mine Land Grants
  • Heritage Partnership Program
  • National Wildlife Refuge Fund

Justice Department — $210 million

  • State Criminal Alien Assistance Program

Labor Department — $527 million

  • Migrant and Seasonal Farmworker Training
  • OSHA Training Grants
  • Senior Community Service Employment Program

State Department and USAID — $4.256 billion

  • Development Assistance

Earmarked Appropriations for Non-Profit Organizations

  • The Asia Foundation
  • East-West Center
  • P.L. 480 Title II Food Aid

State Department, USAID, and Treasury Department — $1.59 billion

  • Green Climate Fund and Global Climate Change Initiative

Transportation Department — $499 million

  • National Infrastructure Investments (TIGER)

Treasury Department — $43 million

  • Global Agriculture and Food Security Program

Environmental Protection Agency — $493 million

  • Energy Star and Voluntary Climate Programs
  • Geographic Programs

National Aeronautics and Space Administration — $269 million

  • Five Earth Science Missions
  • Office of Education

Other Independent Agencies — $2.683 billion

  • Chemical Safety Board
  • Corporation for National and Community Service
  • Corporation for Public Broadcasting
  • Institute of Museum and Library Services

International Development Foundations

  • African Development Foundation
  • Inter-American Foundation
  • Legal Services Corporation
  • National Endowment for the Arts
  • National Endowment for the Humanities
  • Neighborhood Reinvestment Corporation
  • Overseas Private Investment Corporation

Regional Commissions

  • Appalachian Regional Commission
  • Delta Regional Authority
  • Denali Commission
  • Northern Border Regional Commission
  • U.S. Institute of Peace
  • U.S. Trade and Development Agency
  • Woodrow Wilson International Center for Scholars

RELATED ARTICLES: 

Why Washington Hates Trump’s Budget

Finally, a Budget That Slashes Funding at Education Department

5 Things Congress Can Do to Get a Budget That Controls Spending

9 Key Takeaways From Trump’s First Budget

RELATED VIDEO: Romina Boccia joins CNBC’s “Closing Bell” to talk President Trump’s budget.

Globalism: Persuading the Individual to Stop Being an Individual

If society understood the reality of collectivism instead of the promise of collectivism then their support for collectivism would vanish.

The elite globalist leaders selling collectivism know this to be true and so they have had to rebrand collectivism as Globalism. Songs are written about globalism – John Lennon’s classic song “Imagine” is the globalist anthem. The successful marketing of collectivism requires the names to change from already rejected Communism and faltering Socialism (think Venezuela) to the promise of a New World Order renamed GLOBALISM that disingenuously pledges social justice and income equality.

Globalism is the new word for the old lie about collectivism – that surrendering individual rights and national sovereignty will deliver social justice and income equality.  

Philosopher Ayn Rand understood the sinister nature of collectivism and and wrote extensively about socialism/communism and how it persuades the individual to stop being an individual:

“Socialism is the doctrine that man has no right to exist for his own sake, that his life and his work do not belong to him, but belong to society, that the only justification of his existence is his service to society, and that society may dispose of him in any way it pleases for the sake of whatever it deems to be its own tribal, collective good.” 

The Islamization of Europe and the West demonstrates how mass social indoctrination toward collectivism leads to cultural suicide and the death of the individual.

Ayn Rand writes:

“When you consider socialism, do not fool yourself about its nature. Remember that there is no such dichotomy as “human rights” versus “property rights.” No human rights can exist without property rights. Since material goods are produced by the mind and effort of individual men, and are needed to sustain their lives, if the producer does not own the result of his effort, he does not own his life. To deny property rights means to turn men into property owned by the state. Whoever claims the “right” to “redistribute” the wealth produced by others is claiming the “right” to treat human beings as chattel.”

Europe’s surrender of its national sovereignty began after WWII with the 1957 Treaty of Rome that created the European Economic Committee (EEC) which eventually became the European Union(EU) of today. Internationalizing Europe’s sovereign nation states into the EU left the United States as the single greatest obstacle to one-world government.

Macron’s victory in France is a victory for collectivism at the expense of French sovereignty and French individualism represented by Marine Le Pen. It is a surrender to postmodern moral relativism, and historical revisionism designed to destroy democracy and its incomparable individual rights and freedoms. The question is WHO benefits from Macron’s victory?? The globalist elite of course. Socialism (total government control) is the death of democracy and is the prerequisite for internationalizing nation states and the imposition of one-world government Globalism. The greatest single obstacle to one-world government is the nation state. National sovereignty is to a country what individual sovereignty is to a human being.

The left-wing liberal agenda seeks to destroy the socio-political capitalist infrastructure of America and transform it into a dependent European-style socialist state with cradle to grave control by the government. Their strategy is to destroy American democracy by dismantling the supporting American institutions of family, religion, and education that promote independence, adulthood, individualism, and ego strength – the same qualities that made America great.

Ayn Rand warns us:

“Socialism is not a movement of the people. It is a movement of the intellectuals, originated, led and controlled by the intellectuals, carried by them out of their stuffy ivory towers into those bloody fields of practice where they unite with their allies and executors: the thugs.” 

American education, our elementary schools, middle schools, high schools, and universities, are a specific target and field of practice. The anarchists, socialists, and hippies of the 60s have become the teachers and professors now indoctrinating their students toward collectivism. The problem, of course, is that these narcissistic intellectuals have never lived under collectivist tyranny – they are armchair pundits living in subjective reality. Anyone interested in the objective reality of collectivism should be listening to those who have escaped from its tyrannical rule.

The entire narrative of the Left is designed to induce regression through educational indoctrination and the media – as Hillary Clinton famously remarked they need “an unaware compliant public.” Unaware and compliant are the hallmarks of childhood. The pitch might sound good to a childish mind who is seduced by candy from a stranger but the adult mind understands the sinister end-game. Once the public is entirely dependent on the government they lose all individual rights and national sovereignty as the socialized state becomes part of the internationalized one-world government. The doors of the car lock and there is no escape – only exploitation and enslavement.

One-world government is the big lie of the 21st century. It promises redistribution of wealth and social justice. What it delivers is unapologetically described in chilling detail by globalist elite English aristocrat Lord Bertrand Russell in his 1952 book The Impact of Science on Society.

The left-wing liberal lemmings are the useful idiots who are too arrogant to understand that they are participating in their own destruction. They have been indoctrinated to believe they are fighting for “social justice” when in fact they are helping to establish the dystopian nightmare of one-world government where there is no middle class, no upward mobility, no national sovereignty, and no individual freedoms. There is only the ruling elite and the enslaved population who service them.

The left-wing liberal lemmings in Europe and in America should take a break from marching and “resisting” and start reading Bertrand Russell’s The Impact of Science on Society written in 1952. They will learn that their script was written 65 years ago by the globalist elites who dreamed of one-world government – a binary socio-political system of masters and slaves.

The globalist elite’s New World Order was their self-serving answer to the Malthusian problem of the earth not having enough resources to sustain the population growth. Tavistock Institute was exported to America with the purpose of indoctrinating Americans via education and the media – particularly television – the greatest vehicle for mass social engineering ever invented. The Hollywood glitterati and the protesting hoards should take a pause and understand there is no place for them in the New World Order – they are simply useful idiots who will be destroyed.

The aristocratic Lord Bertrand Russell and the late David Rockefeller had no moral problem with eliminating the useless eaters any more than Hitler with exterminating Jews, Islamists with exterminating infidels, or the Chinese Emperors with burying their concubines alive to service them in the afterlife. The point is elitism is supremacist – there is no egalitarian respect for human life only the pretense of humanitarian considerations. The Left and the Islamists have common cause in trying to destroy America from within – but it is the globalist elites who finance and disingenuously facilitate both groups because the social chaos they each engender is a prerequisite for imposing globalist one-world government. For the globalist elite whether in Europe or in America, the Left and the Islamists are BOTH useful idiots.

Socialism will never provide social justice – it will only provide the pathway to one-world government where no individual rights or self-determination exist. Socialism strips the individual of his selfness and transforms that individual into property of the state. The individual who willingly forfeits his selfness for socialism has been successfully persuaded to stop being an individual. Socialism is not a free ride it is slavery.