THE DEMAND WIZARD

by James Craig Green

How Free Trade Increases Value

My friends and colleagues Paul Prentice and Penn Pfiffner are professional economists. They were both Senior Fellows at Colorado's Independence Institute when they developed their Free People, Free Markets courses several years ago. Paul, still a senior fellow in Colorado Springs, teaches a three hour version of the course, and Penn, in the Denver metro area (no longer affiliated with II) teaches a longer version.

I have taken both courses twice now, and learned something new each time. I last took Penn's course on two consecutive Saturdays in Longmont, Colorado in 2011, and originally took his 4-week course in 2007. I have also gone to Colorado Springs twice now to see Paul's "Three Hour Tour" (Independence Institute President Jon Caldara calls it the "One Night Stand").

One of the most interesting features of their courses is a segment called the Demand Wizard. It reveals an elegant insight into market economics most people never think about, even longtime advocates of free market economics. It can be a struggle to explain how markets work, especially to those who think government should heavily regulate them. The Demand Wizard makes it easier to understand.

As shown in the following YouTube video, Penn Pfiffner plays the part of the omniscient (all-knowing) Demand Wizard who attempts to allocate wealth to improve the economy. The demonstration begins with four food products (coke, chips, cookies and yogurt), each of which sells in stores for about the same price. The Wizard hands out one of these things to each student in the class. This unique demonstration illustrates the variation and importance of each person's subjective opinion of value and its contribution to an objective market value (about which too many economists haven't got a clue). If the links have changed, or otherwise don’t work, enter either “Penn Pfiffner Demand Wizard” into your search engine, or for Paul’s video (next page), “Paul Prentice Demand Wizard”.

https://www.youtube.com/watch?v=QBSn00GZunA

(Penn Pfiffner 4 minutes)

As the famous Austrian economist Ludwig von Mises pointed out in Human Action, each person places a subjective value on everything he wants or uses, which is unique to him and varies with time, place and conditions. For example, when you are at home, a glass of water costs you practically nothing, because your monthly water bill may be less than a penny per gallon. However, if you are at a sporting event or concert, you may pay two or three dollars for a small bottle of water. If you were extremely thirsty and a store was not convenient, you would gladly pay more. This concept is at the heart of millions of sales and purchases each day that comprise the American - and World – economies when prices are allowed to change with variable supplies and demands, as previously discussed in Chapters 2, 4 and 6.

Demand Wizard Results

As you can see from Penn's video, when the Demand Wizard selects which products each member of the class received, the total value of this mini-economy was 25 units, based on each class member assigning a relative value from 1 (least preferable) to 4 (most preferable) for each of the four products handed out. This ranking is done prior to the re-allocation of the same products based on free trade among class members (representing the dynamics of market economies) according to their different (subjective) individual preferences.

After class members were allowed to trade the items, the total value of the class economy almost doubled to 47 units. This is but a small, simple example of the awesome power of markets to satisfy people's desires without forcing other people to pay for them. It is important that this overall increase in total (subjective) value occurred without any new production of goods and services; only their more-efficient distribution by a voluntary market process from the Win-Win transactions between traders acting in their own self-interest.

Paul Prentice also presents the Demand Wizard exercise in his classes, with similar results, though the numbers vary from class to class. Please note this simple example involves only four products, contrasted with the large number of economic decisions people make every day. It was Paul who first brought the Demand Wizard concept to the FPFM classes. Also, the increased wealth from this example does not consider increased production and innovation from profit incentives and the freedom to pursue them – further market benefits not shown here.

In this three minute video…

https://www.youtube.com/watch?v=87-W7NO5E3E

(Paul Prentice 3 minutes)

…from a presentation at the Independence Institute, Dr. Prentice explains the connection between property rights and human liberty, which counters popular arguments that they are contrary to each other.
 

Objective (Market) Value from Individual Subjective Values

The Demand Wizard demonstrates an important principle that few people understand, including a lot of economists. From the subjective, individual, whimsical choices made by many people, a market develops - a voluntary collective in which each person trades by his own whims and temporary choices. But, the collective action of many such choices produces an objective value that is measurable and produces a permanent record that can be seen by anyone. That is the "market price" of any given product, service or commodity at any given time. The stock market is an example. So is a store that sells anything. When demand falls off, the store owner may lower the price, even below his cost if necessary to get rid of inventory that is not selling. When demand picks up, he may raise prices again. These prices are the objective value of something or things in a market, integrating hundreds or thousands of subjective individual decisions. They may remain constant for long periods of time, or they may vary each hour or day, depending on the changing supplies and demands that produce changing prices. Ebay auctions are excellent examples of rapidly-changing prices among many different bidders.

This is something no Commissar or other pretend Demand Wizard can possibly do, because no one has the complete knowledge necessary to make timely, self-interested decisions for someone else. However, politicians, lobbyists, regulatory agencies and other special interest groups daily make deals, supposedly in your interest, but always in their own. This process cannot possibly produce a better outcome than having individuals or voluntary groups make their own decisions each day about what to buy and what not to buy or trade with their own money or other resources.

Simply stated, the complex dynamics of individual economic choices cannot be modeled in all its complexity and uncertainty. This is why, though some economists have better track records than others, no one can predict future prices, supplies or demands without some error, due to the subjective nature of individual opinions of value. Although the collective results of these individual subjective opinions of value can be recorded and expressed as historical data, their repetition cannot be accurately predicted with reliable certainty. This is why the most successful investors, buyers and sellers of all goods and services must hedge their bets with contingency plans for altering projections based on comparing recorded historical results with actual performance, which may change rapidly. Businessmen and other free traders produce net positive wealth by making timely changes to their plans in response to market fluctuations.  Businessmen who fail to respond to these responses are more likely to fail.

Unfortunately, these choices are denied by government for its services, imposed on society by force of law and the threat of jail for non-compliance. It almost always results in less overall value than the individuals whose personal assets are at risk, such that they have an incentive for changing their opinions of value frequently to conform to post-transaction realities.

It is the denial of individual choices and the lack of personal involvement (risk of loss) in goods and services that creates the oppressive damage government does to economies in the name of the nebulous “public interest”. It is naive to believe that 1) politicians have your best interest as their primary goal and 2) that they and their so-called "experts" armed with Keynesian economics or other collective fantasies can know how to allocate goods and services with any precision, timeliness or accuracy. A lifetime of applied Keynesian theory by government has resulted in unprecedented, unsustainable public debt (including unfunded liabilities) between 50 and 120 Trillion Dollars, as discussed in Chapters 1-3.

HOW SUBJECTIVE VALUE BECOMES OBJECTIVE VALUE

by James Craig Green

Alternative title "Adventures of the Demand Wizard?"

The value that every person places on a particular transaction or decision not to transact is completely subjective, as the great Austrian Economist Ludwig von Mises said. Also, it is very fleeting. Before explaining this however, I'd like to introduce you to two of my kindred spirits.

My friends Paul Prentice and Penn Pfiffner, both Senior Fellows at the Independence Institute, teach classes to students for which this blog was named. These classes are called Free People, Free Markets, emphasizing the importance of markets in producing useful goods and services, which led to an email list of alumni of those classes. This blog was created to encourage discussion of issues among course alumni and others, but so far, it has been a place for me to expound on my free market views.

One of the most interesting features in Paul's and Penn's classes is their presentation of the Demand Wizard.

Paul and Penn dress up like a wizard, complete with hat and magic wand, and bestow generous benefits on each member of the class. Four items are available, like chips, soft drinks, cookies or bottled water, which comprise a sample economy.


Step 1 - The Wizard Allocates

The wizard, in his infinite wisdom, hands out one item to each person. This begins a process in which the overall value of the items is increased without adding or subtracting any of them from the economy.

Each member of the class is asked to value the four items available on a scale of 1 through 4. For example, you assign a value of 1 to the item you would least like to have, 2 to the next least valuable item, 3 for the next  get a bag of cookies, but you would prefer to have any of the other items than the cookies, then you assign it a value of 1. If

Step 2 - The Market Allocates

If you are hungry for sweets, you would value the cookies or soft drink over the chips. However, if you were thirsty, you might make another choice, maybe bottled water. So, von Mises' subjective value not only varies from person to person, but from minute to minute within thee person. This may be profound, but is only half the story.

From the subjective, individual, whimsical choices by many people in contact with each other, you begin to have a market - a voluntary collective in which each person trades by his own whims, but the collective action of many such choices produces an OBJECTIVE value. That is the "market price" of any given commodity at any given time. The stock market is an example. So is a store that sells anything. When demand falls off, the store owner lowers the price, even below his cost if necessary to get rid of inventory that is not moving. When demand picks up, he may rise the prices again. These prices are the objective value of some thing or things in a market. They may remain constant for long periods of time, or they may vary each day, depending on the supplies and demands that produce changing prices.

This connection between subjective, even whimsical, fleeting value for a person creates an objective value, which is the integration of many transactions.

Value, in its various forms, is the essence of markets and the freedom they produce, along with the protection they can provide if people take seriously their responsibility to make decisions. Government "freebies," as well as restrictions, reduce the need to make decisions; producing sloth, dependency, lack of initiative and defense of the status quo.

This is just as true for "justice" or "law" as it is for the price of widgets.

JUNKIE NATION

By James Craig Green

 

America is addicted to Government - and it's debt - like a junkie to heroin.

Bankers create unlimited new money for loans to "stimulate" the economy. Deceptively-labeled "anti-drug" laws finance an out-of-control gang and illegal drug culture, like Prohibition financed Al Capone. Americans today worship the false gods of prosperity without effort, endless “free” benefits at the expense of everyone else and the upside-down idea that you are responsible for everyone else, but not yourself. More and more, once-productive businesses have become wards of the State, hoping to exploit bailouts while foisting their losses off on the public.

A 2008 article in the Denver Post titled Big Government Benefits the West, clearly showed what is wrong with America today. Attempting - but failing - to make the case that the West gets many benefits from Washington, the authors completely ignored the fact that these benefits are funded mostly by escalating and unsustainable public debt - the most dangerous narcotic in America's history. Furthermore, since 1995, my state (Colorado) has paid more to the federal government than it has received. This is a net loss, not a gain. I continue to be astounded by the sloppy thinking and lack of honest accounting when it comes to promoting government benefits to the public, which magically seem to be "free." As you can see in the Wikipedia article below (scroll to table) in 2007, Colorado - A Net Loser - paid $45.4 billion in federal taxes, while collecting only $34.8 billion in federal spending.

See: FED TAXES VS SPENDING IN COLORADO 

The American Republic was created from the 1787 U.S. Constitution, as modified in 1791 by an elegant Bill of Rights. It strove to protect individuals from the democratic tyranny of the mob, but tragically during the twentieth century succumbed to the most politically successful idea of all time – the seductive scourge of the “public interest.” Since its founding, the federal government of the United States has continually usurped and expanded the limited powers granted to it by the Constitution. From the Civil War, to the New Deal, to today’s unprecedented monetary inflation and military adventurism, the narcotic of easy government money has corrupted business and American society with a seemingly endless free lunch mentality.

See PRIVATE PROPERTY PUBLIC PLUNDER

America's military spends more than the next 13 countries combined. By what insane logic is this called "defense?"

See: US MILITARY SPENDING

America is addicted to government, growing out of control. Government spending, like any narcotic, feels good at first, but the pain of withdrawal doesn't come until later, as during the 2008-2009 financial collapse, from which our economy has yet to recover. Although many people think those evil free markets are the culprits, government has massively escalated both control of and subsidies to private business interests for more than a century. Every war, skirmish, depression and recession in living memory has been an excuse for government to grow, without admitting its enabling (and destructive) role. Big government is big "business," but not the entrepreneurial kind sustained by markets. No, this kind of "business" supports a bloated (mostly non-defensive) military-industrial complex about which President - formerly General - Eisenhower warned us, along with other corporate welfare and fantasy-based entitlement programs. Some popular pundits, including our economically - and reality - challenged President, call this the "private sector." What part of "tax, control, subsidize and confiscate" do they not understand?

By subsidizing and controlling industries while promising Americans prosperity with little or no effort, the U.S. Government was already worse than broke before the recent meltdown - and the current President. The recent housing crisis was largely caused by the expansion of credit by the Federal Reserve, the 1977 Community Reinvestment Act and Congress' aggressive arm-twisting of bankers to loan money to people who couldn't pay it back. Government-created companies Fannie Mae and Freddie Mac contributed to the illusion that "easy" credit was somehow sustainable. This was powerfully documented - and refuted - in Thomas Sowell's 2009 bestseller, "The Housing Boom and Bust."

See THE HOUSING BOOM-BUST


ENTER OCCUPY AMERICA 

It is ironic that those most concerned with the sustainability of the planet ignore or eschew the sustainability of the private economy that provides the wealth that supports us all, including ALL government jobs and programs. In short, without a competitive, robust private sector based on market-driven economics, government could not exist. Similarly, those who publicly claim to support free markets are too often interested in government contracts, subsidies and protection from competition, rather than market risk and true sustainability. The real strength of markets, beside their innovation, adaptability and productivity, is their ruthless, indiscriminate risk of failure. When government provides banks, insurance, mortgage, auto and other companies with (combined) trillion dollar bailouts, free markets should be the last thing to blame. Unfortunately, the media - among the worst junkies of all - rarely make this link. To anyone with half a brain, this shouldn't be surprising.

Instead of being worshipped like rock stars and courted for freebies, politicians should be constrained, mistrusted and carefully watched by everyone, because their job is to spend other people's money taken by force. This LEGAL kind of crime is far more destructive than other "criminal" elements, who seem like amateurs by comparison to this political class. They should be held to a much higher standard than any private citizen, because No One (with rare exceptions) can be trusted with political power. Throughout history, such power, in each and every form and government, has been continually expanded and abused by almost everyone who held it. I had hoped that America was better than that, but the exponential growth of government during our lifetimes is nothing less than depressing. The junkies are in charge of the rehab center. For these reasons, an important reform would be to limit members of Congress to one term at a time - in other words, no re-election of ANY member - ever, without sitting out at least one term before running again. Career politicians are the problem; not the solution. Of course, this would take a constitutional amendment - which means most Americans would have to want it. Perhaps the next Depression will provide ample incentives...

See SUBORDINATE ACTS

Despite constitutional checks and balances including the Bill of Rights, the federal government has broken the chains that used to bind it repeatedly since its founding. Long ago, businessmen learned they could make more money - with less risk - by creating government-supported businesses than suffering the risk of loss in the marketplace. Government-business partnerships bring out the worst in both public and private sectors - demanding more public spending while reducing the productive incentive of businesses with government contracts.

The U.S. Constitution - even after 27 amendments - STILL describes a government limited to a few tasks, with none of the massive government interventions taking place today. The "general welfare" clause - the subject of many Supreme Court cases - has morphed into the specific welfare of well-connected groups (like banks, unions and auto companies) and away from the American Republic's founding principles limited only to policies that benefit all. Only by reducing the size and influence of the consuming public (government) sector and freeing up the productive (private) sector without subsidy, while emphasizing freedom and private property rights protection, can American government begin to find its rightful place again.

I'm not going to hold my breath...

Make government what it ought to be, and it will support itself –Thomas Paine

 

THE PROBLEM WITH GOVERNMENT

Revised 12-8-2012

by James Craig Green

“Government is the great fiction through which everybody endeavors to live at the expense of everybody else.” – Frederic Bastiat

Throughout history, governments of the world have often ruled their citizens with an iron hand, using plunder, extortion and every conceivable kind of murder to keep them in line. Apparently, millions of people today think that “democratic” governments, in which a minority of citizens is allowed to vote for a few government “leaders,” have grown beyond the obvious and destructive tyranny that characterized monarchies and other forms of totalitarian dictatorship in the past.

Nothing could be further from the truth.

SEE: THE TRAGEDY OF AMERICAN DEMOCRACY

Just about everybody, at one time or another, complains about government. But, almost no one understands what the REAL problem with all government is, and why, on balance, government always creates more (and worse) problems than it solves. This can never be changed by politics - the ongoing charade that people are in control of those who enslave them.

The main problem with government is that it is based on aggressive force - like the Mafia - except the Mafia doesn’t pretend to represent everyone, least of all the majority who never gave its consent to be governed. Today's governments are world champions of plunder, extortion, and destruction (PED). As legal organized crime, government makes the Mafia look like amateurs by comparison. Sadly, too many believe that because a handful of government officials are elected “democratically,” their plunder, extortion and destruction are excused, or at least necessary. The most common - and fraudulent - phrase to convey these excuses is the “Public Interest.”

The “Public Interest” is the magic phrase, like “Open Sesame,” that allows virtually anyone in a democracy to become a special interest, supposedly deserving of some freebie from the government at the expense of everyone else. Anyone can run to a legislator, with a self-interested proposition disguised to be in the “public interest,” to easily inflict any manner of tyranny on his fellow citizens. This often includes government subsidies to business (promoted by chambers of commerce, government contractors and unions). These special interests, who are "more equal than others," enjoy government benefits and the ability to influence and regulate the nonviolent lifestyles of others and inflict their prohibition of anything they deem to be offensive.

Multiple election frauds recently committed by Obamites in blue states are Exhibit A. When 5-8 percent more votes are cast than registered voters in some precincts, and you hear nothing on the national news... you can be pretty sure the American Republic is dead.

SEE:  PRIVATE PROPERTY PUBLIC PLUNDER

The second biggest problem with government (arguably for some, the first) is that it bestows billions of dollars of benefits on people who do not deserve them. No one who receives or is assigned to allocate money, property or other resources belonging to others will ever spend that money as carefully or as thoughtfully as those who earn it or benefit from its investment. If your investment broker constantly skims money from your account, without higher gains, you can fire him by switching investment companies. But with government, your complaints will put you on lists with terrorists and other criminals, as a danger to the state. Bureaucrats who lose, malinvest or waste taxpayers' money almost never lose their jobs. Such waste is too often a recipe for increased taxpayer funding next year. So, the perverse incentive is to continue it, with little risk to the incompetents, thieves and parasites who maintain the fraudulent idea of "public service." 

Because it is based on PED, government cannot act responsibly with other people’s money. I didn’t say will not, may not, would not or should not - I said CANNOT. This is because it pretends to represent them, when only a small minority of them voted for the political winners in the electoral charade. In other words, a majority of citizens is never directly represented... at least not at the national level, where dollars are printed with abandon to keep incumbents in office.

SEE: THE PROBLEM WITH DEMOCRACY

Neither can anyone else represent such a diverse collective, but there are practical limits on private abuses that don’t apply to government. The lack of real, practical limits on government power, abuse of that power, corruption, fraud and tyranny all derive from one simple, undeniable fact:

GOVERNMENT IS FUNDED - AND ITS RULES IMPLEMENTED - BY FORCE

Worst of all, this legalized theft and tyranny is condoned, justified, apologized for and patriotically promoted by the vast majority of people who have been brainwashed into believing that government, on balance, produces positive benefits in the creation of wealth.

It doesn’t - and never has.

It has always been a drain on society, for a privileged few. Modern democracies have simply replaced the divine right of kings with the divine right of mobs, where your neighbors can become tyrants with enough savvy manipulation of the system. No one voted for the vast armies of unelected bureaucrats who enjoy guaranteed lifetime jobs and generous pensions at the expense of the taxpayer. Nor, can they be fired for incompetence or sloth in most cases.

Government appears to produce "freebies" without any (or little) cost, because their true costs are hidden and confused - jumbled up within a labyrinth of laws, regulations, promises and misunderstandings. We’ve all read and listened to media reports how reducing taxes hurts people, and how raising taxes produces all kinds of benefits. For business to operate this way, only gross revenues - but no costs - would be reported to shareholders and the public. This is normally called fraud, but not when done by government.

It is incredible and outrageous that so many people buy these stupid, erroneous, one-sided arguments, promoted constantly by government apologists everywhere. Perhaps the most confusing thing is that the most vocal of “anti-government” Republicans are not anti-government at all, as they usually benefit directly from ever-growing sums of government money. George Orwell (author of “1984" and “Animal Farm”), if he were alive to describe all this, might say something like, “Theft is freedom, taxes are profit and war is good for your children.” Of course, any politician who wants to get elected today must speak in such gibberish, so as to attract the maximum number of unthinking voters to his cause or candidacy.

Government always makes promises it can’t keep, as the political process demands it. The intoxication of lifetime benefits from taxpayers encourages legislators to promise things people want, while pretending it can produce the money to pay for such things without net cost, effort or loss. The myth of government is its naive perception as an endless wealth machine, which it is not. On the contrary, government in every society or country is the greatest enemy of its own people and the largest drain on their national wealth. But, because there are so many government programs offering freebies at the expense of freedom, a nation of junkies continues to allow - and even encourage it.

SEE: WHO BENEFITS AND PAYS FOR GOVERNMENT?

Today, the U.S. government chases its citizens to tax them all over the world, no matter in which country they make money or reside. However, other countries tax their citizens only for income made in those countries. This produces the worst of all worlds for the U.S. taxpayer - foreign visitors can make money here without being taxed by the U.S., but U.S. citizens cannot enjoy the same benefit for money made overseas. Some smart businessmen realize it may be better to become a citizen of another country, and just visit to do business in the U.S.

Ironically, the U.S. is a great tax haven for everyone but Americans! This is why raising taxes on rich Americans can never produce more than about 20-22 percent of GDP - and even then only for short periods. The rich can simply leave, retire or donate large portions of their wealth to charity instead of letting it be confiscated by government. This is why the maximum income tax rate in the year I was born (1945) was 94% and is now 35% - without materially affecting average revenue at 19% of GDP - as shown in the graphic below.


                   (CLICK GRAPH TO ENLARGE)



The rich have too many options, and are too smart to let government confiscate their wealth - which they can accomplish LEGALLY in most cases. The law has aways favored the wealthy - especially in the modern welfare state, which has always protected them first. The poor are driven into dependency, sloth and depression by fraudulent government promises of prosperity without effort. This magical thinking has produced generations of victims who chose the easy way out, which turns out to be the worst thing for them. Many will not survive the next, most severe economic downturn, which is now inevitable.

Just about anyone can be bought by government by throwing freebies at them, at taxpayer’s expense, and here’s the juicy part: you will not go to jail for accepting the government’s gifts to you. However, refuse to pay for someone else’s freebies, and you instantly become an enemy of the state, deserving all its criticism and brutality.

Sadly, the U.S. Constitution - elegantly designed to prevent the democratic free-for-all of American government that exists today - has been neutered, like an obnoxious dog, so it is no longer effective in protecting any minority, especially the individual, from the mob. The uncontrollable democratic tyranny of majority rule has replaced the limited Republic of James Madison, and is destroying the America we have known and loved with the dangerous narcotics of government freebies, dependency and public debt which have long passed sustainable levels.

SEE: UNCHAIN BUILDERS - MADISON  

Ironically, today’s neoliberals sell their brand of tyranny through the mantra of an ever-expanding welfare state. Just as ironic, today’s neoconservatives fight for every scrap of government handouts they can get, as everyone knows government is the very best client for business. It appears to have a stabilizing influence over the risky ventures of the marketplace, because it commands people to do things they would not voluntarily choose to do. This seems like a good idea when talking about controlling axe murderers and child molesters, but generations of government-educated idiots continue to promote the fantasy that government can produce prosperity or a net gain without effort. All it “produces” is hidden taxes, inflation and escalating debt that is, and will continue to be, foisted on our children, grandchildren and their descendents - until corrected by economic collapse.

Of course the collapse, as usual, will again be blamed on Laissez-Faire Capitalism - something absent from the U.S.for more than a lifetime.

SEE: CONFUSION ABOUT RIGHTS 

If neoliberals really believed their mantras, they would pass a law raising the minimum wage to one million dollars per year for everyone. However, if stated this bluntly, no one would take them seriously. Few seem to realize that the same silly logic and extreme consequences from this minimum wage law are the same as for current, more modest proposals. Only the numbers are different, while the poor and uneducated suffer from the unintended consequence of not qualifying for work because their skills are not worth the minimum wage. Of course, union members have long since used the minimum wage - which does not affect them - as a means of reducing competition for their labor.

I notice the spelling checker in this program has the word “neoconservative” in its database, but does not recognize the word “neoliberal.” How revealing: Too many folks seem to think that wonderful Latin word for freedom ("libertas") somehow still represents what the modern liberal wants, instead of the tyrannical democratic socialist welfare state s/he clamors for with every breath. No amount of government is too much government for a neoliberal. Tragically, neoconservatives are only slightly less tyrannical in their outlook, choosing corporate welfare instead of welfare to the poor. Both are destructive. Neoconservatives fall way behind neoliberals when it comes to personal freedom and alternative lifestyles that offend them, however. The ongoing destruction of the American Republic is big business for those politically connected, at the expense of others. After Roosevelt but before Obama, Republicans grew government faster than Democrats, as shown by the graphic below, which I researched and published in 2009:

                            (CLICK GRAPH TO ENLARGE)
 

Today of course, U.S. government debt exceeds $16 trillion, with ANNUAL deficits exceeding a trillion dollars in each of the last four years. Apparently, Obama's 2008 campaign promise to cut deficits in half was a joke, as they increased by more than half.

   

"Law cannot organize labor and industry without organizing injustice."
– Frederic Bastiat

If neoconservatives really believed their bluster, they would immediately demand that the federal government be cut back to its constitutional limits. But wait! That would eliminate their sweet deals as government contractors – selling lots of overpriced, worthless stuff to governments who don’t have to worry about how to pay for it (since the Fed can just print more dollars). The irony of all ironies is that conservatives still fancy themselves as believing in free markets, which they haven't since long before President Roosevelt was elected in 1933. When bloated military budgets are called “defense” when their true purpose is war, and by subsidizing tyrants of every persuasion, anyone with a clear head would break down hysterically laughing, if the consequences of this stupidity were not so tragic. Egypt and Syria, of course - beneficiaries of billions of dollars in U.S. freebies - are such good friends to the U.S. that they contributed Osama Bin Laden and his insane terrorists who flew planes into buildings on 9/11/2001.  

There is nothing remotely related to freedom in any liberal or conservative political agenda today. Both groups of headless horsemen congratulate themselves on being in “control” of government, while deluding themselves into believing they will somehow be protected from the angry mob when the freebies stop flowing.

With record levels and escalating rates of public and private debt, it’s only a matter of time before the system of national government we know in the U.S. self destructs. If the poor think they are in bad shape today, wait until the freebies dry up.

Many otherwise reasonable people in democratic countries (like today's U.S.) sincerely believe that government produces positive good, and at worse is a necessary evil. This is because the benefits of government freebies appear obvious to all who can see them, but the costs are hidden or assigned to some other entity. For example, in 1913, the U.S. Congress created the Federal Reserve, a private banking cartel, and bestowed on it Congress’s constitutional power to regulate the nation’s money supply. This, and the creation of the income tax (previously declared unconstitutional by the Supreme Court) in the same year financed the U.S. to enter World War I, which had been fought to a stalemate by all sides. If ever there was a stupid war, it was World War I, the results of which almost demanded the rise of a dictator like Hitler to produce World War II, plus an oppressive welfare/warfare state thereafter.

The rest, as they say, is history...


"Giving money and power to government is like giving whiskey and car keys to teenage boys" - P.J. O'Rourke
 

NEW AMERICAN SOCIALISM

by Porter Stansberry
The S&A Digest
Stansberry and Associates Investment Research

11/18/2012

No one knows what to call it…

That's part of the problem. It's difficult to criticize something that doesn't yet have a proper name.

You can't just call our economic system "socialism." It's not. There's a profit motive and private ownership of nearly all assets. Socialism has neither of these. Besides, far too many people have become far too rich in our system to simply label it "socialism."

If you have ever traveled to an actual socialist country – with a power grid that never works, little public sanitation, petty graft at every turn, and endemic, horrifying poverty – you realize our system and real socialism aren't the same at all.

Our system isn't truly capitalism either, though. The State intervenes in almost every industry, often in a big and expensive way. With government at all levels making up more than 40% of GDP, it's fair to say we live in a State-dominated society.

And we share other, disturbing similarities with typical socialist states. Not all of them are economic. The most frightening similarity between the U.S. and classic totalitarian socialist states is the mutual investment in and appreciation of violent coercion. The U.S. has a huge standing army – by far the most powerful in the world. It fights aggressive foreign wars.

And it fights violent domestic wars: U.S. prisons are bulging with a large percentage of the population. But the overwhelming majority of U.S. prisoners have never committed a violent crime.

One hallmark of a totalitarian, socialist government is a large penal system. At its peak, prior to World War II, the Soviet Union's "gulag" system incarcerated roughly 800 out of every 100,000 residents. Today, the U.S. incarcerates roughly 743 people out of every 100,000 residents – a total of 2.3 million inmates.

Including people currently on parole, more than 7 million people are in the American criminal justice system – one out of 31 adults. Roughly 70% of federal prisoners are violent offenders. The number of drug-related prisoners has increased 12-fold since 1980. The U.S. has the world's largest prison population. Incarceration rates run seven times higher than in similar countries, like Canada, Australia, and the European Union nations.

Most of my readers probably aren't familiar with this violent side of America's culture. It's the poor who suffer the most from these aspects of American life. It is their children who are sent to foreign wars. It is their children who get sent to prison.

Likewise, as with all socialist experiments, it is the poor who suffer the worst economic outcomes, too. It is their cash savings that get wiped out by inflation. It is their jobs that disappear when regulations reduce capital investment or government debt crowds out private capital in the markets.

If the poor knew the first thing about economics, they wouldn't keep voting for socialist politicians and their programs. Alas, they don't even know the basics.

The poor in America, like the poor everywhere, still believe you can rob Peter to pay Paul. They still believe their "leaders" are trying to serve their best interests. It is a sad hoax. What has really happened is clear: Bamboozling the poor has become a way of life for American politicians. And the poor's willingness – even eagerness – to embrace the resulting economic slavery is the linchpin of our system.

But it's not only the poor who have become addicted to the system. Businessmen like Warren Buffett embrace it, too – despite its limitations and taxes. Buffett calls it the "American System." He says it's the greatest system for creating wealth the world has ever seen.

We're not so sure.

Yes, it certainly makes it easy for big businessmen like Buffett to become wealthy. But those same benefits don't accrue to the society at large. For example… even though the value of America's production has soared over the last 40 years and asset prices have risen considerably, our debts have grown even more.

When you adjust for debt and inflation, you discover America hasn't gotten richer at all. Yes, we have become more affluent. And yes, some individuals have gotten vastly richer. But taken as a whole, when you add back the debts we've racked up, the country hasn't gotten richer at all. Since the end of the gold standard in 1971, real after-tax wages, per capita, stagnated. On average, we haven't gotten any richer at all in 40 years…

What happened over the last 40 years?

Why did so many people rush so eagerly into debt? Why did they borrow more and more to buy the same things at ever-higher prices – again, and again, and again? And why do people in America continue to work, day after day, for jobs that offer no opportunity and declining real wages? Most important, how did a few people end up getting so rich from this merry-go-round economic system that never takes us anywhere?

To answer this question, we need only answer one core question: Who benefits?

Whose wealth and power increases with inflation? Whose stature in society grows alongside the government? Who profits from increased spending on wars, prisons, and social programs that are doomed to fail? And most of all… who profits from an explosion in debt?

A certain class of people has the power to not only protect itself from these policies but to profit as well. These people have used the last 40 years to produce massive amounts of paper wealth. And they are now desperately trying to convert those paper accounts into real wealth, which explains the exploding price of farmland and precious metals.

This explosion of wealth at the top of the "food chain" is the main feature of what I call New American Socialism. It's a system fueled by paper money, the constant expansion of debt, and a kind of corruption that's hard to police because it occurs within the boundaries of the law.

Like the European and totalitarian socialism of the last 100 years, New American Socialism harnesses the power of the State to grow and maintain production. Like in traditional socialism, the poor pay the costs of New American Socialism. But unlike socialist systems of the past, this new American version has one critical improvement…

In the New American Socialism, the power of the system produces private profits. In this way, it provides a huge incentive to entrepreneurs and politicians to work together on behalf of the system. This is what keeps the system going. This is what keeps it from collapsing upon itself. And this, unfortunately, is why the imbalances in the world economy will continue to grow until the entire global monetary system itself implodes…

New American Socialism began with the policies of President Franklin Delano Roosevelt. In 1933, FDR seized all the privately held gold in the U.S. and began creating the massive government programs necessary to implement socialism. To give you some idea of how much the federal government grew during FDR's reign, remember federal spending made up 3% of GDP in 1930 – a level that had been fairly consistent for most of America's history. Almost immediately after his election, he tripled federal spending to more than 10% of GDP. And by the time he died in office, federal spending reached 44% of GDP – an all-time high.

As everyone should know by now, the promises of socialism aren't affordable. Robbing Peter to pay Paul is inefficient and kills Peter's incentives. The result is usually economic stagnation, depression, and eventually a crisis that frees people from the government's confiscatory repression. Because America was the only large economy standing after World War II, it took much longer than usual for the problems of socialism to appear in our economy. Also, the government scaled back many of FDR's policies during the post-war boom. In winning the war, we also won a generation of economic spoils.

All this changed in the 1960s. Lyndon Johnson had delusions of government-led grandeur. His ideas of a "Great Society" and "Model Cities," along with an expensive foreign war (Vietnam), were a recipe for massive new debts and an increasing role for government in all aspects of American life.

These policies led to an acute funding problem in 1971 because the debts of socialism couldn't be financed with gold-backed money. It was far too expensive. And so we began a new kind of socialism… the New American Socialism.

What happened in 1971? The size of America's government deficits forced us to abandon gold. After World War II, the U.S. dollar became the world's reserve currency. In exchange for placing the dollar at the center of the world's economy, we made a solemn promise to always exchange the U.S. dollar for gold at $35 an ounce. Nixon broke that promise, calling our creditors "global speculators" and telling them to go pound sand.

This move away from gold severed the fundamental tie between our economy and our money. Without the link to gold, bank reserves could be created by fiat. And they were. This led to a huge expansion of our money supply and our debts.

The power to use this debt and to control the creation of new money is the most powerful factor in our economy. The government can now create unlimited amounts of credit to control the U.S. economy. This bestows favored status on certain companies – notably banks. This lies at the core of our economy's structure. It is how fiat money privatizes the benefits of New American Socialism.

Most Americans simply don't understand how our historic tie to gold made it impossible for the banking system to grow beyond clear boundaries. Gold limited the amount of currency in circulation, which, in turn, restricted how much money banks could lend. Under the gold standard, the maximum total debt-to-GDP ratio was limited to around 150%. But as soon as we broke the tie to gold, our total debt-to-GDP ratio began to grow. It's now close to 400%.

Without the tie to gold, the amount of economic mischief our government could engineer became practically limitless. No social goal was too absurd… no war too expensive… and no government insurance scheme too patently self-serving not to finance.

Today, New American Socialism has spread like a cancer throughout our country, afflicting industry after industry. Like a cancer, once it infects an industry, it metastasizes from company to company in that sector. Suddenly, businesses cannot function without massive government aid. These corporate wards of the State weigh down the rest of our economy… making us weaker and less competitive and dragging us further into debt.

Keep in mind, this New American Socialism I'm talking about isn't called socialism at all. It goes by many names. It's been called "compassionate conservatism." It's been called "joint public-private enterprise." It's been called "government insurance."

I've been studying it for many years – finding it in one company after another. I've actually preferred having it in many of the stocks I've recommended over the years because it tends to be good for investors. That's the most insidious thing about New American Socialism: It's a form of socialism that leaves the profit motive in place.

That's why the New American Socialism has grown decade after decade. That's why it continues to be heavily promoted by almost every mainstream media outlet and both political parties. It leads to a kind of corruption I believe will be impossible to stop without a full-scale economic collapse…

Socialism always destroys the poor because it robs them of social mobility and makes it impossible for them to protect themselves from the predations of the powerful. Historically, its damage has been limited because eventually socialism so disrupts an economy that even the rich and the powerful suffer. That's what's so dangerous about this New American Socialism. It doesn't subject the rich to any depravation at all. It does just the opposite. The New American Socialism retains the profit motive for the rich and the well connected. In this new model, only the poor suffer. The rich are always protected.

It's capitalism for the rich, without any risks… and socialism for the poor, without any rights.

Regards,

Porter Stansberry

OBAMA'S PRETZEL LOGIC

On April 5, 2012, Peter Schiff wrote an excellent article explaining why President Obama is so confused, befuddled and so completely WRONG about how economies work. While spouting leftist dogma that resonates with most Democrats and many Republicans, the President continues to display his ignorance of economics shared by many, if not most, Americans. It's called OBAMA'S PRETZEL LOGIC.

Here's an excerpt:


While it is true that the American middle class rose in tandem with her economic might, it was the success of the country’s industrialists that allowed the middle class to arise. Capitalism unleashed the productive capacity of entrepreneurs and workers, which brought down the cost of goods to the point that high levels of consumption were possible for a wider cross section of individuals. While Henry Ford, as Obama noted, paid his workers well enough to buy Ford cars, those high wages would never have been possible, or his products affordable, if not for the personal innovation he, and other American industrialists, brought to the table in the first place.


The economists that Obama follows believe that business will only create jobs once they know consumers have the money to buy their products. But just as wet sidewalks don’t cause rain, consumption does not lead to production. Rather, production leads to consumption. Something must be produced before it can be consumed.

 
Once again, I encourage you to read Peter Schiff's excellent article in its entirety, OBAMA'S PRETZEL LOGIC.
 
I hope you enjoy reading it as much as I did, because it is spot on.


You can also buy Peter's recent book, HOW AN ECONOMY GROWS AND WHY IT CRASHES (which I have recommended here before) on Amazon.com. Earlier this year the book stimulated a multi-week discussion on market economics in my friends Ari Armstrong and Amanda Muell's LIBERTY IN THE BOOKS monthly discussion group in Denver (scroll down to see Peter's book).

Yours in Liberty,

Craig

ECONOMIC CONTRIBUTION OF THE INTERNET

Whiskey & Gunpowder
by Jeffrey Tucker
March 23, 2012
Auburn, Alabama, U.S.A.



Can We Quantify the Economic Contribution of the Internet?


How much does the Internet contribute to our economic life? A lot, yes. But what if we tried to put a number on it?

We love numbers, right? We imagine that we can slice and dice the world and look at everything on a spreadsheet, click a button and make it a pie chart and click another button and put the results in colorful bars.

That works for a single sector of the economy, like butter or shoes. We can add that up and compare it with other sectors. But what about technology? The truly life-transforming technologies benefit everyone and everything simply because most everyone uses them and everything is connected in a gigantic and cooperative globe of productivity.

Still, that's not enough for some people. So this headline was probably inevitable: "Internet Accounts for 4.7% of U.S. Economy." Now, that sounds scientific, precise, contained, empirical. CNN ran this as a report on a new study by the Boston Consulting Group. The study then compares the Internet economy with other sectors and finds it already bigger than education, construction and agriculture.

Impressive, but the methodology is all wrong. In fact, a hint is provided in this laughable sentence that is part of the report on the study: "By way of comparison, the federal government, contributed $625 billion, or 4.3%, to the nation's output." In other words, the study narrowly concluded that the thing that makes life grand contributes slightly more than the thing that makes life hell.

In what sense has the federal government contributed anything to the nation's output? The last I checked, the federal government sucked $2.5 trillion out of the private sector last year, and that doesn't include the gigantic regulatory state that thwarts progress at every turn. This is sheer wealth destruction, which we can know for sure because the money is taken by force, meaning that the people who once owned that money would rather have done something else with it besides cough it up to the public sector.

Of course, the method of calculation rests fundamentally on the idea of the gross domestic product, which attempts to quantify economic production. The problem is that it doesn't quantify economic destruction, much less any of the unseen dimensions of wealth. If an earthquake hits Los Angeles and the city is rebuilt, the rebuilding counts as productivity and the GDP goes up. Reflect on this fact and then comprehend how it is that government's activities are recorded as productivity.

But let's return to this idea that you can segregate a sector called "the Internet" and account for its productivity. Nothing in business today takes place without the use of digits. Financial transactions are processed through the Internet. No inventory is ordered without it. Accounting takes place with software distributed through the Internet. All of human life is progressively passing through digital gates.

That the Internet has vastly increased productivity is the understatement of the century. The Internet has given birth to products and services that had never before existed -- search engines, online advertising, video games, Web-based music services, online garage sales, global video communications. Moreover, the main beneficiaries have been old-line industries that seem to have nothing to do with the Internet.

The most difficult-to-quantity aspect of digital media has been its contribution to the sharing of ideas and communication throughout the world. This has permitted sharing and learning as never before, and this might be the single most productive activity in which a person can participate. The acquisition of information is the precondition for all investing, entrepreneurship, rational consumption, division of labor and trade.

Step back and consider what a revolution this truly is. From the beginning of history until the 19th century, information could travel only as fast as we could run, walk or sail. There were also smoke signals, carrier pigeons, putting notes in bottles, waving lanterns in windows and the like. Finally, in the 1830s -- extremely late in a vast and grueling history in which humanity languished in poverty and sickness without knowledge broader than the immediate surroundings -- we saw the beginnings of modern communication with the glorious invention of the telegraph.

Here we had, for the first time, the emergence of geographically noncontiguous communication. People could find out more about what was going on in the world beyond their immediate vicinity, and that has had amazing implications for everyone engaged in the grand project of uplifting humanity. What could people then share? Cures, technologies, resource availability, experiences and information of all sorts.

This is also the period when we saw the first signs of the modern world as we know it, with a rising global population, extended lives, lower infant mortality and the creation and rapid increase of the middle class. Communication is what signaled people about new possibilities. From there, we saw huge advances in metallurgy, medicine, sanitation and industry. Then followed expansions of income; the division of labor; transportation via railroads; and, eventually, more of the thing that really matters: ever-better ways to share information and learn from others through telephones, radios and televisions.

But then 1995 represented the gigantic turning point in history. This was the year when the Web browser became widely available and the Internet opened for commercial purposes. It's remarkable to think that this was only 17 years ago. Unimaginable progress has taken place since then, with whole worlds being created by the day, all through the wondrous, spontaneous order of global human interaction in an atmosphere of relative laissez-faire. This was the beginning of what is called the digital age, the period of global enlightenment in which we find ourselves today.

And what gave it to us? What made it possible? This much we know for sure: The government did not make this possible. The forces of the marketplace caused it to come into being. It was the creation of human hands through the forces of cooperation, competition and emulation.

This alone refutes the common lie that the free market is all about private gain, the enrichment of the few. All these technologies and changes have liberated billions of people around the world. We are all being showered with blessings every hour of the day. Yes, some people have gotten rich -- and good for them! -- but all the private gain in the world pales in comparison with what digital commerce has done for the common good.

Yes, of course, we take it all for granted. In one sense, it has all happened too fast for us to truly come to terms with this new world. There is also this strange penchant human beings have for absorbing and processing the new and wonderful and then asking just as quickly, "What's next?"

No amount of empirical work can possibly encapsulate the contribution of the Internet to our lives today. No supercomputer could add it all up, account for every benefit, every increase in efficiency, every new thing learned that has been turned to a force for good. Still, people will try. You will know about their claims thanks only to the glorious technology that has finally achieved that hope for which humankind has struggled mightily since the dawn of time.


Regards,

Jeffrey Tucker
Executive editor, Laissez Faire Books

THE END OF AMERICA

Introduction by James Craig Green

I have subscribed to several of Porter Stansberry's investment newsletters for years. During the last half decade, Porter has consistently predicted major economic trends, including the collapse of General Motors, Fannie Mae, Freddie Mac and several other projections that lost him thousands of subscribers.

As you will see below, this important article has been released from copyright by Porter to anyone who wants to reproduce and distribute it. I encourage you to learn more about Porter's work and take seriously what this man has to say. He crystalizes the fundamental economic problems of America that have been caused by decades, even lifetimes, of uncontrolled government growth at the expense of the freedom and prosperity upon which this country was built.

You will also notice that Porter, like me, blames both Democrats and Republicans for today's sorry state of affairs. In December 2011, I reproduced Porter's earlier piece on the END of AMERICA, also released without copyright for the widest possible distribution.

You may also like to read some of my blog posts over the last year, revealing how bad the economy is and why no politician is likely to do anything about it. The two most relevant to this post are linked below Porter's December article.


Porter's December 2011 Corruption of America article

Craig's Contrasting Government and Market Incentives

Craig's introduction to Jeffrey Tucker's article  (click on graph to see how Republicans grow government faster than Democrats before Obama)


Porter Stansberry: These facts show the "End of America" is coming

Tuesday, February 07, 2012
From Porter Stansberry in the S&A Digest:


Most people still don't understand the risks we face as a nation because of our feckless leaders and their reckless ignorance of basic economics.

What follows are facts. Nothing in this essay will be conjecture or opinion. I will make no forecast – at least not in this essay. So please, stop the political name-calling... and grow up. The problems we face are ours. All of ours. It doesn't matter how we got here. It only matters that we begin to deal with these issues – soon. If we don't begin to solve these core financial problems, they will certainly destroy our country.

Today, our national federal debt far exceeds $15 trillion. This alone is not a serious problem. The interest we pay on these debts is small – thanks to the trust of our creditors, who, for the moment, continue to believe America is a safe bet.

So… what's the problem? The main problem is the amount of debt we owe continues to increase at a faster and faster pace. This is exceptionally dangerous for two simple reasons. First, there's simple math. When numbers compound, the result is geometric expansion. And that's happening right now with our national debt because we continue to borrow money to pay the interest. And we have done so for about 40 years. Think about it this way: How big would your debts be today if you'd been using credit cards to pay your mortgage for the last several decades?

Even worse, our debts are compounding at an accelerating pace because we lack the political ability to limit the federal government's spending. Please understand… I'm not pointing the finger at any politician or either political party. I'm simply pointing out a fact: This year's $3.6 trillion federal budget is 20% larger than the entire 2008 budget.

And while our government has grown at a record pace, our economy hasn't. It has hardly grown at all. Thus, this will be the fourth year in a row we set a record for deficit spending. Never before in peacetime has our government borrowed this much money. And now, it's borrowing record amounts every year.

This combination of borrowing record amounts of money (during peacetime) and continuing to borrow the money we need to pay the interest is setting the stage for a massive increase in total federal debt levels. Why is this happening? Don't our leaders realize they can't continue on this path?

Well… the problem isn't so simple to fix. What we face isn't a $15 trillion problem. It's actually much, much bigger…


The $15.3 trillion we owe today is really only a minor down payment on promises the federal government made to its most important creditors – the American people. Not yet included in our debt totals are the $15 trillion shortfall in Social Security (thanks to the Democrats), the $20 trillion unfunded prescription drug benefit (thanks to the Republicans), or the $115 trillion unfunded Medicare liability (thanks to the Democrats and Republicans).

Most people ignore these looming liabilities because they obviously will never be paid. In fact, the federal government's total obligations today – including all future obligations – is more than $1 million per taxpayer. And that's if you assume all 112 million taxpayers really count. (They don't. Only about 50 million people in the U.S. pay any substantial amount of federal income taxes.)

But here's the funny part… While everyone seems ready to ignore these obligations, we've already begun to pay them. Our spending on Medicare and Social Security already greatly exceeds the $800 billion in payroll taxes we're collecting to pay these benefits. (Total spending on Social Security and Medicare last year was more than $1.5 trillion.) And that means our actual debts will continue to compound faster and faster every year, assuming nothing is done to curtail these benefits.

I want to make sure you understand this fact: It doesn't matter how much (or how little) Congress chooses to cut its discretionary budget. The promises we've already made to Americans in the form of Social Security and Medicare guarantee that our debts will continue to compound faster and faster, every year. How do I know?


Once again… let's return to basic math. Right now, we're spending (at the federal level) $2.4 trillion per year on transfer payments and interest on our national debt. That doesn't include any of the other functions of the government – nothing else. Meanwhile, we are only collecting $2.3 trillion a year in income, payroll, and corporate taxes.

Let me make sure you understand this: Even if we cut every other government program – including the entire military budget – the federal revenue collected still wouldn't be enough to merely cover the costs of our direct transfer payments. Not even close. And every year, these payments will automatically grow.

Here's another way to look at the same basic numbers, but on a macro scale. Right now, total government spending in the U.S. equals $7 trillion per year. (That's federal, state, and local.) Total interest paid in the U.S. economy on all debts, public and private, equals $3.7 trillion. The size of our total economy is only $15 trillion. Thus, we are currently spending $10 trillion (out of $15 trillion) on our government and debt. This is unprecedented in all of American history. This financial structure is unsustainable – and extremely unstable, given our debt levels.

There's the bigger problem (yes, it gets worse). The political solution to our soaring deficits will most likely be higher taxes. Yes, technically that's a prediction… And I promised no predictions in this piece. But let's face it. You will never see the federal government make dramatic, meaningful cuts to its promised benefits – not when half the country pays no federal taxes and more than 40 million people are on food stamps. So it's not really a prediction – it's a political reality. Will higher taxes save us?

No. You cannot squeeze blood from a stone. The federal debt isn't the largest obligation we suffer under. Americans hold nearly $1 trillion in credit card debt. We hold nearly $1 trillion in student loans. Total personal debt in America is larger ($15.9 trillion) than all of the federal debt. In total – adding up all of our debts, public and private – Americans owe close to $700,000 per family. It is not possible to finance our federal government's spending via taxes because the American people are broke. Total debt levels in America are the highest – by far – of any developed nation.

Tax the rich, you say. Well, of course. But marginal rates in many places are already greater than 50%. Tax rates this high don't work… They actually reduce tax revenues as people move their economic activities elsewhere to avoid taxes… or even simply forgo working.

Don't forget, the very wealthy can simply leave. James Cameron – director of blockbuster movies Titanic and Avatar – recently did just that, buying a 2,500-acre farm in [New Zealand]. John Malone, chairman of Liberty Media, likewise told the Wall Street Journal that he bought a farm on the Canadian border specifically so that he could leave the country whenever he wanted. "We own 18 miles on the border, so we can cross. Anytime we want to, we can get away."


Think I'm exaggerating the risks of real capital flight from the U.S.? Well… let's look at the facts. According to the latest IRS report, the number of Americans renouncing their U.S. citizenship has increased ninefold since 2008.

How then will the government's spending be financed? Well, I promised no predictions. Not today. But I will remind you that since 2008, the Federal Reserve has expanded the monetary base from roughly $800 billion to nearly $3 trillion. That, again, is a fact. Feel free to draw your own conclusions about what the Federal Reserve is likely to do in the future if the U.S. Treasury is faced with a financial need that can't be met.

You may do whatever you'd like with [this essay]. Feel free to pass it around to your friends – or anyone else who may be interested in these ideas. Be prepared for lots of nonsense about making the rich pay their "fair share" and pie-in-the-sky projections about how the entitlement system could easily be reformed.