Economy
Return to Common Sense
July 11, 2010
Section:
Domestic – Economy
“Despite the
mainstream media attempts to spin the economy for political advantage,
unimpeded free market capitalism is the key to continued American growth and
opportunity.”
“Government's view
of the economy could be summed up in a few short phrases: If it moves, tax it.
If it keeps moving, regulate it. And if it stops moving, subsidize it.”
Ronald Reagan.
Philosophy
(Background, Issues, Objectives):
An open, competitive, market economy
is the most efficient.
- Interactions are
voluntary and occur only when both parties stand to benefit by the
exchange.
- Profit is the
ultimate market incentive.
o Government
intervention usually results in a form of price controls.
o Price
controls tend to interfere with supply and demand.
- Performance
based pay encourages increased productivity and increased company profits.
Federal Reserve setting interest rates seeks to
manage the money supply.
- The Federal Reserve is not the first
central bank with the exclusive right to issue currency.
o
The
first Bank of the United States was started in 1791 and operated until 1811.
o
The
second Bank of the United States operated from 1816 to 1836.
o
Both
predecessors were privately owned and operated.
o
The
first two central banks had only limited ability to adjust the money supply and
couldn't step in when banks got into trouble.
o
Both
banks were given 20-year charters by Congress and were successful, but they
weren't renewed for fears a central bank would concentrate power among the
banking elite.
o
The
current Federal Reserve is the country's third central bank.
·
Congress created the Fed in 1913 with the
presumption that it would be "independent" from the rest of
government, aloof from regular politics and deliberately shielded from the hot
breath of voters or the grasping appetites of private interests--with one
powerful exception: the bankers.
o
The Fed was designed as a unique hybrid in which
government would share its powers with the private banking industry.
o
The implemented plan was to pool the small reserves
of the nation's banks into one large reserve so that all banks were/are
motivated to follow the same loan-to-deposit ratios.
o
Banks are the "shareholders" who
ostensibly own the twelve regional Federal Reserve banks.
o
Bankers sit on the boards of directors, proposing
interest-rate changes for Fed governors in Washington to decide.
o
Bankers also have a special advisory council that
meets privately with governors to critique monetary policy and management of
the economy.
o
Sometimes, the Fed pretends to be a private
organization.
- Availability of
savings should determine the cost of borrowing money.
- Artificially low
interest rates results in individuals incurring greater amounts of debt.
- Artificially low
interest rates allow businesses overextend and grow without productivity
gains.
- Increasing money
supply by printing money devalues savings and purchasing power.
Supply side economics has been shown to stimulate
growth better than other approaches.
- Supply side economics includes low tax rates and low spending to
GDP ratios.
- Faster economic growth generated rapid increase in government
revenue.
- Supply-side approach has delivered higher employment growth.
- Supply side approach has delivered increase discretionary income
The New Deal is regarded by Keynesians as the ur-program of government stimulus of the economy.
- The GDP did not
return to the 1929 level until 1940.
- Unemployment
rose from 3.2% in 1929 to 24.9% in 1933, and did not go below 15% until 1941.
- From a surplus
in 1929, the federal budget went into deficit for the entire 1930s peaking
out at 4% of GNP in 1941
- The money supply
(M2) was allowed by the Fed to contract to 31% between 1929 and 1933,
which turned the ordinary recession into the Great Depression.
Mainstream Media spins the state of the
economy for partisan advantage.
- Economy grew
steadily from 2002 to 2007, but was reported as anemic and underperforming.
o
Job growth is also growing, both household based
and payroll based.
o
Productivity has improved 14.3%.
o
Overall employee compensation has
expanded 4% a year, and exhibiting mobility between quintiles.
§
Income comparisons omit non-cash benefits such as
healthcare, employer pensions contributions,
vacations, and sick leave.
§
Income data does not account for taxes paid, which
affects net income.
§
Income data does not account for transfer payments
such as Medicare, Medicaid, food stamps, housing vouchers, and the Earned
Income Tax Credit.
§
Nearly 58% of filers who were in the poorest income
group in 1996 had moved into a higher income category by 2005.
§
Nearly 25% of filers jumped into the middle or
upper-middle income groups.
§
Nearly 5.3% of filers made it all the way to the
highest quintile.
§
Of those in the second lowest income quintile,
nearly 50% moved into the middle quintile or higher, and only 17% moved down.
§ Between 1994 and 2007, the rich have gotten richer, the middle
class has gotten richer, and the poor have gotten richer, all at about the same
rate.
·
American economy has a booming industrial
sector, despite MSM assertions to the contrary.
o
In 2006 manufacturing output and Return
on Equity reached an all time high.
o
In 2006 manufacturing revenue and
profit reached an all time high.
o
In 2006 value of U.S. manufacturing
exports reached an all time high.
o
U.S. leads world in labor productivity at $63,885
of wealth per year, or $35.63 per hour.
·
Media coverage of economy is ill
informed, at best, and partisan, at worst.
o
Despite predictions of increased deficits, the
share of GDP has decreased.
o
Media continues to portray economy as broken and
underperforming.
o
Media portrays economy as stalled and in need of a
jump start!
o
Media still believes New Deal helped,
rather than sustained and elongated the Depression.
o
Small businesses have created between 60%-80% of
all new jobs in the past decade and can create private sector jobs in the
future.
- Obama Recession recovery is slow to unfold and is a jobless
recovery.
o
Economic stimulus promised a max unemployment of
8%, but has delivered 9.8%.
Most young people know little of government and
base opinions on irrational biases.
- Anti-market bias
against free market trade and profit and win-win exchanges.
- Anti-foreign
bias against prosperity based on global trade exchanges.
- Make-work and
pessimistic bias that protects jobs against progress and innovation.
- Communist
attempts at centralized market control have proven its inefficiency.
o
Through the inevitable mismanagement of resources
and goods at the disposal of the state, all forms of collectivism lead
eventually to tyranny.
o
The failure of central planning would be perceived
by some in the public as an absence of sufficient power by the
state to implement an otherwise good idea.
o
This would lead the public to vote more power to
the state, assisting in the rise of a "strong man" perceived to be
capable of getting the job done.
o
Following these developments, a country will be
driven into outright totalitarianism.
o
This journey, inadvertently
set upon by central planning, ends in the destruction of all individual
economic and personal freedoms.
o
There is a clear inverse relationship between government
spending and prosperity, represented by GDP per capita - as government spending
and tax revenue increase beyond an "optimum" level, GDP per capita
declines.
Principles:
Index of Economic Freedom correlates to
economic factors with per capita income:
- Property rights
protection.
- Tax rates.
- Government
intervention in the economy.
- Monetary policy.
- Fiscal policy.
- Trade policy.
- Business
freedom.
Different market sectors have different economic
characteristics.
- Avoid
micromanaging economy to avoid unintended consequences.
- Government intervention disturbs, and sometimes aborts natural
economic flows.
Corporate Power Truths:
- From the days of
earliest settlement,
- The Revolution
resisted government interference with free markets, not the power of big
business.
- The famous depradations of the so-called “robber
barons” involved governmental, not business, abuses.
- The eras of
greatest corporate influence weren’t nightmarish periods of
oppression and retreat, but rather golden epochs of prosperity, progress,
and growing American power.
- The rise of big
business never impoverished and always enhanced the living standards of
ordinary working Americans.
- The
industrialization that drives prosperity rescues rather than enslaves the
workers it employs.
- Corporations
don’t deserve blame for “putting profits over people,”
since profits inevitably benefit people.
- There’s no
logical reason to favor small businesses over big business.
- Corruption is
more a problem for big government than big corporations.
Economic propositions:
- The market
economy is the most efficient of all economic systems.
- Free trade helps
economic development.
- Good
institutions help development.
- The best measure
of a good economy is its growth.
- Creative
destruction is the engine of economic growth.
- Monetary
stability, too, is necessary for growth: inflation is always harmful.
- Unemployment
among unskilled workers is largely determined by how much labor costs.
- While the
welfare state is necessary in some form, it isn’t always effective.
- The creation of
complex financial markets has brought about economic progress.
- Competition is
usually desirable.
Our wealth is not the product of capitalism,
it is capitalism!
·
Free markets.
·
Private property.
·
Spirit of entrepreneurialism.
·
Conviction that the fruits of our labors are our
own.
Honest capitalism requires the
following:
·
Free-market clarity.
·
Monetary integrity.
·
Financial validity.
·
Regulatory responsibility.
·
Entrepreneurial opportunity.
Monetarist balanced principles:
·
Balanced Monetary Growth – steady growing
money supply, sufficient to prevent deflation, but no so fast to cause
inflation.
·
Balanced Budgets – relatively balanced
budgets so as not crowd-out private investment or leave huge government debt to
future generations.
·
Balanced Trade – relatively balanced so as
not to lose production jobs or leave huge national debt to future generations..
Recommendations:
Short
Term, Emphasize free market capitalism as
the basis for the American economy.
- Audit Federal Reserve.
- Ensure government accountability (annual audits using standard
accounting standards).
- Ensure program accountability (comparing expected vs. actual
results).
Eliminate government intervention from exercise of
free market capitalism.
- Phase out all subsidies.
- Eliminate tariffs.
- Eliminate corporate welfare.
- Expand Free Trade Agreements with as many countries as possible.
Measure overall economic health with a
combination of multiple metrics:
- Include “independent sector” (non profits) in all economic
health metrics.
- Gross Domestic
Product.
- Consumer Confidence.
- Balance of Trade.
- Individual Productivity.
- Job Creation (BLS Household and Payroll Survey).
- Unemployment Rate (BLS).
- Inflation Rate.
- Debt Ratio.
- Savings Rate.
- Include retirement savings into domestic savings rate.
Long
Term, Limit size and intrusion of government
(federal plus state plus local) to less than 25% of GDP.
Limit federal government to only that
role specifically enumerated in the Constitution.
- Ensure general
welfare clause is not interpreted as an enumerated power to expand
government.
- Enact the Enumerated Powers Act to link all legislation to
appropriate constitutional authority.
Privatize Federal Reserve banks returning
to Congress the constitutional authority over monetary policy and privatizing
the money supply.
- Re-link currency to an international commodity (gold).
References:
“The
Road to Serfdom” by Friedrich Hayek published by Routledge
Press, 1944.
“The
Forgotten Man” by Amity Schlaes published
by Harper Collins Publishers, 2007.
“Economic
Facts and Fallacies” by Thomas Sowell published by Basic Books, 2008.
“Steel:
The Other Side of the Story” by Brink Lindsey dated October 1998
published by The Cato Institute at http://www.cato.org/pubs/regulation/regv21n4/cols4-98.pdf .
“
“FDIC
Reform – Don’t Put Taxpayers Back at Risk” by George G.
Kaufman dated
“The
hoax of disappearing manufacturing” by Alan Reynolds dated
“Overrated
Economics” by Tom Adkins dated
“The
gift of economics” by Alan Reynolds dated
“Don’t
Try So Hard, Have Faith” by Brian Wesbury
dated
“Number
of Federal Subsidy Programs is Soaring” by Chris Edwards dated
October 2006 published by The Cato Institute, at http://www.cato.org/pubs/tbb/tbb_0611-41.pdf .
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dated
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Economic Mega-Worry” by Robert Samuelson dated
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& Goldilocks” by Larry Kudlow dated
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Dangerfield Economy” by Victor A. Canto dated
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Capitalism a Dirty Word?” by David Strom dated
“Global
capitalism now has no serious rivals. But it could destroy itself” by
Timothy Garton Ash dated
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Kind of Economy?” by James K. Galbraith dated
“Top 10
Most Economically Free Countries” dated
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Nonprofit Industrial Complex” by Gerard Alexander dates
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Politically Incorrect Guide to Capitalism” by Jamie Glazov dated
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Real Record on the Economy” dated
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Smith: Web Junkie” by P.J. O’Rourke dated
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dated
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is the Federal Reserve System?” by Allen Ide
dated
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Real Deal” by Amity Shlaes dated
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Income Inequity” by Alex Epstein dated
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Illiteracy” by John Stossel dated
“Still
No. 1” dated
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power blesses, not oppresses, the American people” by Michael Medved dated
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Sense of Income Inequality” by Diana Furchtgott-Roth
dated
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Onslaught From the Left, Part I: Fact vs. Fiction” by Arthur B. Laffer dated
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the Poor Getting Poorer?” by Walter Williams dated
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Supply-Side Solution” by Stephen Moore dated
“Movin’ On Up”
dated
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Great Supply Side Debate of 2007 Is Over” by Jerry Bowyer dated
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Real Key to Development” by Mary Anastasia O’Grady dated
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Planning Fallacy” by David Strom dated
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– Not Perfect, But Certainly the Best” by Nathan Tabor dated
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PER EARNER Has Actually Risen For All Groups, And Rose
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Myth that Laissez Faire Is Responsible for Our Present Crisis” by
George Reisman dated
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borrowing won’t solve our economic problems” by Raymond
Richman, Howard Richman, and Jesse Richman dated
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Is Complete Bunkum” by Bill Frezza dated
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dated February 19, 2009 published by American Thinker at http://www.americanthinker.com/2009/02/who_are_the_big_spenders.html .
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American Free Enterprise Can Meet Our Nation’s Job Challenge”
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.
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Did the New Deal Work Out?” by Greg Richards dated June 29, 2010
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.
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.
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.
