An Honest Money Proposal (updated 17jun09)

George Rebane

A trillion here, a trillion there – to an innumerate citizenry all these zeros mean nothing.  They are told that it is all needed for an economic ‘stimulus’ whose workings no one knows or will attempt to explain.  The only thing you need to know about the stimulus is that it is “necessary”, to which the President adds that we shouldn’t quibble about the “details” to delay its passage.  (see ‘Exactly How Does the Stimulus Work?’ by Henninger today)  And he may be right since the main purpose of the stimulus is to assuage that something is being done.  But what about the trillions?

Well, the trillions don’t really matter that much any more because it isn’t denominated in real money.  It’s really going to be paid off in what is known as fiat money – Monopoly money that only has value as long as we keep pretending.  And a lot of folks these days are beginning to see the light.  Indiana last month introduced a revolutionary bill – ‘Indiana Honest Money Act’ (SB453 here) – that the MSM carefully ignored.  The bill would allow Indiana residents to conduct all state business in a “medium of currency based on gold and silver”.  People in other states (e.g. Virginia, New Hampshire) are beginning to make similar moves.

The US Constitution is specific about what our legal tender should be – gold and silver (Art 1, Sec 10, Cl 1 here).  The Founders were all aware of the historical consequences of governments that start debasing the public’s currency with play money, and wrote a prohibition against that into our Constitution.  Almost all states’ constitutions echo that prescription.  Then came the Federal Reserve System and soon the Constitution took another body blow to our wallets.

Today Judy Shelton writes a provocative article - ‘Capitalism Needs a Sound-Money Foundation’ - in the WSJ suggesting that we should return to the roots of capitalism and have competing monies in the marketplace – let the people decide what they will accept for payment.  Today our fiat Federal Reserve Notes, backed only by religious fervor, is the only money declared as legal tender – i.e. the only money that our legal system will recognize as a store of value, payment of debts, and measure of accounts.  Imagine what would happen to our economy if honest money again became the medium of exchange.

I don’t think that the swindlers in Washington will allow their funny money to suffer competition any time soon – after all, where then would all those stimulating trillions come from?  But I have an idea for a half-way step that perhaps will start us on the road back to an honest monetary system.  Please hear me out.

I propose that we start writing into our contracts, loan agreements, purchase agreements, etc. that the accounts will be cleared in dollar amounts based on the spot price of, say, gold (or another suitable commodity) on the date the account is due.  In other words, we would still use the legal tender funny money – excuse me, Federal Reserve Notes – to pay our accounts, but the amount of the legal tender would be based on the reference amount of the commodity on the date of the contract.  Doing this would only require adding a statement that all payments are to be calculated in, say, ‘gold dollars’ or ‘Audollars’ (pronounced ‘Oh-dollars’) – my suggested symbol would be A$u – with the day’s conversion price cited.  This, by agreement, may be the day’s spot price (e.g. ‘12feb09 @ $900/oz = A$u900/oz’) that becomes part of the contract.  The account would be cleared by the payment of regular dollars that convert to the contracted A$u amount based on the then price of gold.  This still keeps all transactions in terms of the government supported legal tender, and allows the contracts to maintain the same simplicity, with regard to future payments stated in A$u, as they do now in regular dollars.

An example may help.  Suppose I want to borrow $10,000 today, and promise to pay it back a year from now.  The lender will charge me 5% per annum but requires that the loan agreement be in A$u.  So it is written that I borrow A$u10,000, which today equals $10,000 (‘12feb09 @ $900/oz = A$u900/oz’), and on 12 February 2010 I promise to pay back A$u10,500.  When that day arrives the spot price of gold is, say, $1,000/oz which still equals A$u900/oz.  But now my payment of A$u10,500 converts to (1,000/900)*10,500 regular dollars or $11,666.67.

When people actually start using A$u in business, you can bet that everyone will be interested in what the politicians are doing in Washington.  Everyone will know, up close and personal, that inflation is an assets tax that the government levies silently on an ignorant electorate. 

[update - a reader sent me an interesting link that may shed some light on the make up of the stimulus bill (at least the current House version of it) in a very graphic manner.  This still doesn't tell us how it will work, but it does show how it will probably be divided up.]

[17jun09 update - a half-way solution to Audollars may be GoldMoney.  It's worth considering.]   

Comments

[Wade]

I wonder if Gresham's Law comes into play?

It is unfortunate that in discussion of this stimulus package and the underlying financial crisis, the MSM (as you call it), has seen fit to deploy among those tasked with discussing it, fewer than 5% of the total people who could notionally be called "economists." The other 95% comprise of mostly Republican / conservative politicians / political operators who are themselves largely innumerate and whose economic understanding is limited to a fervent belief in latter day fairy tales such as "deficits are suddenly really, really important again" and "Reagan never raised taxes" and "supply side tax cuts raise revenue / reduce the deficit / create jobs / taste like candy" and "military spending is a magical sort of spending that doesn't cost real money but yet comes with a superior economic activity multiplier vs domestic infrastructure spending" and "tax cuts are the one true fiscal / monetary / economic policy, there is no need for anything else and in fact anything else is communism when Democrats do it (it's fine when Republicans do it)." This hardly serves the purpose of illuminating the public…

A good discussion of inflation vs. deflation, de-leveraging, etc. would be welcome indeed in this MSM. I am not, however, holding my breath.

[Mikey McD]

One of the best posts I have ever read. I am excited and relieved to see ‘Indiana Honest Money Act’ (SB453 here). I am a member of the Campaign for Liberty, I will continue to direct "Liberty Lovers" to your blog.

[Mikey McD]

Fact: Tax cuts would do more stimulus than making gov bigger. Repubs and Dems are failing miserable in protecting American liberties (sound money being one). At the end of the day both parties are beholden to special interests (unions, corporations, etc). Mantra; government (repubs and dems) are the problem, not the solution.

[Wade]

Fact? 1 dollar of tax cuts generates something like 1.01 worth of economic activity while 1 dollar worth of infrastructure spending generates something like 1.58 of economic activity.

I wish you would include some evidence with your "facts," Mikey...

[Mikey McD]

Wade, I will agree to dis-agree with your "brown" numbers.
If I kept more of my earnings, I would spend it (stimulating). Rather, the government steals from me and spends it. Though I agree that my wife's spending habits can only be exceeded by government I will not concede that the government is more efficient at stimulating with the same dollar$.

George, could you give some thoughts on the campaign to draft Peter Schiff to run for Senate? info here http://www.schiff2010.com/. I will be contributing to his cause 2-21-09. Next we need to draft Brian Westbury of First Trust. Thanks.

[Russ]

Wade,

And, support for your factual numbers comes from where? "Something like" sound a little squishy to me. Do you have some hard facts and we can vet? Where did you get your numbers?

[Kasey]

I think Wade is getting caught up with semantics.

Wade, lets call the government "Joe" instead. The recovery and reinvestment act says that Joe should take a little bit of money from everyone and give it to himself to spend instead of us. You really think his spending will generate more economic activity than ours? Oh yea and Joe has a staff of hundreds of thousands.

[Account Deleted]

I wish at least a couple of folks such as Wade could state their position and back it up with facts and reason. There needs to be a dialogue between the "2 Americas". Sadly, the left is unable to do much more than spew a few morsels that they've been fed on Air America or KOS and then run off to tell their buddies that "I showed them Republicans!" Precisely who on the conservative side can you point to that ever wanted deficit spending? Intermixing Republican and conservative is no more honest than mixing socialist and Democrat. A good discussion of inflation vs. deflation wouldn't work in the MSM because they don't even understand the terms.
Please, Wade - try to name who these people that you invent and back up your assertions with at least a couple of facts. One of the best ways to spot a "modern" (vs. classical) liberal is to challenge them to a debate. Like J. Carter, they refuse to debate, and then claim no one ever wanted to debate them. Never wrestle with a pig, you just get muddy and the pig enjoys always likes it more than you.

[Account Deleted]

Sorry - I was pasting a quote and it apparently didn't come out correctly. "-and the pig likes it more than you."

[Wade]

I am fine with debate. I have had many on George's blog and continue to do so with enthusiasm. A few points:

1) The irony of me asking Mikey for facts is met with a demand for facts is a bit much, no?

2) It is not enough to just say the government sucks ergo tax cuts generate more economic activity than infrastructure spending.

3) Eh, what is a "brown" number?

4) As far as deficit spending, it matters little whether conservatives or Republicans claim they don't like it. What matters is whether or not they increase the deficit, which they do, in spades. The last 8 years being merely the most egregious, but not the only, example in modern times. There was not one peep about the deficit from the right wing during the entire 2 terms of the Bush admin. Now that Democrats are in control the shrieking begins.

5) As far as economic multipliers: Here is a good place to start. It discusses the comparative GDP multipliers of stimulus spending vs tax cuts, particularly corporate tax cuts. The author of the study is a former economic adviser to one John McCain. The study contains numbers.

http://money.cnn.com/2009/01/16/news/economy/stimulus_howto.fortune/

6) Refuse to debate? Please. My comments are all over this blog. I have had several interconnected debates with George that go back years. I have many times attempted to engage Mikey and others in an actual debate about supply side theory which they refer to as gospel but never back up with data. I am attempting to do this again. Here. Now.

7) Spare me the rather flaccid vitriol of things like "spew a few morsels that they've been fed on Air America or KOS." There is no point to such a characterization except to be rude.

[Wade]

Whoops. "1)" came out a little garbled…

[Wade]

…and, uh, "getting caught up with semantics?" Yeah, no. While referring to the government as "Joe" is a cute, if heavy handed, way to imply that I am stupid and / or childish, it changes not one whit of the underlying economic mechanisms. Honestly, it is easier for me to debate and understand these concepts if we call the government, you know, "the government" instead of "Joe."

[George Rebane]

Spending vs Tax Cuts. I guess the debate in this area should consider stimulus factors like magnitude, response time, sustainability, ... on the economy. Admittedly the data from studies is mixed and ideologically influenced (tainted?). Here's one from Heritage Foundation -
http://www.heritage.org/research/budget/bg2208.cfm

It seems to me that ultimately spending, funded by unlimited borrowing/printing, will create a massive burst of consumption as people seek to get rid of their rapidly inflating dollars. No one is really sure of what happens after that. What will our economy look like when government spending goes up from its current circa 26% to, say, 40%? I don't know, but countries with systemic high government participation levels in their GDP don't look like good role models.

Would love to hear more about how well we would do in that brave new world, or how the govt can (or will want to) pull in its horns at some future time.

[Mikey McD]

Wade, a book containing the problems/crisis/blunders generated by government (dems or repubs!) would have several volumes while a book about the successes of government would contain 2-3 progaganda paragraphs about hope and wars won. My argument has NEVER been which team (dems or repubs) on "team government" is better, rather, that we should refuse to give the team a field to play on. I always side with liberty. I am anti government (pro Republic).

Discussions regarding Gov's role should always start and finish on the topic of liberty. In the case of stimulus; Unions, public employees, uneducated/lazy, and politicians (read vote buyers) steal from taxpayers to reach "equitable" or philanthropic ends. In my opinion stealing as a means never justifies the ends. Our tax system is sinfully unfair to the wealth generators (the hand that feeds the country). I consider supply side econ to be liberty based and therefore morally right. Keynesian econ is immoral (see 10 commandments or even an atheist's accepted core values). Keynesian concepts steal from the wealth generators (via taxes paid) or anyone holding US Dollars (inflation/printing money devalues currency); everyone in society is a victim when Keynesian means are employed.

Now, in cases of economics I always side on a free unregulated market. Yes, their will be bubbles/booms and busts. The intelligent will be fine, as for the risk seekers or idiots they get what the market dishes out (far more equitable then Keynesian).

A "brown number" is one pulled out of one's arse (or cited from another's arse).

[Kasey]

Wade,

My intent was not to imply that I think you are childish, it was to expose your believe that government spending will generate more positive economic activity than individual spending because somehow the government is really good at generating positive economic activity. I do not think you are stupid.

If your argument is: government spending will increase national GDP more than tax cuts, then you may be right (it depends on the confidence and economic position of those who receive the tax cuts). But is that the ultimate goal of our economy, to produce some amazing statistic? A rising GDP is meaningless if a major percentage of our citizens are in severe debt, most of our states are burdened with major debt, and the federal governments is not technically in debt but only because they are able to monetize its debt.

The study you referred to explains one reason why tax reductions might not raise national GDP as much as government spending and that is saving. So we don’t want people to “shore up the balance sheets of their households”? That is one of the reasons why the recession exists because our nation, at all levels is carrying too much debt. Consumers aren’t going to come out of hibernation until they pay off their debt, at least some of it. So while government spending might increase national GDP more than tax cuts it does little for the health of our economy and ultimately the economic health of individuals and families.

We need to save, pay of our debts and build an economy on wealth, not debt. Government spending, at this moment in time, will place more debt upon us.

[Mikey McD]

AP-The House has passed a $787 billion plan to resuscitate the economy, handing President Barack Obama a big victory. The measure was passed on a 246-183, with no Republican "yes" votes. It will now go to the Senate, where a vote is expected later Friday.

[Wade]

Mikey -

I understand the "liberty" or "moral" arguments for supply side. What I don't understand is the "economic" or "policy" arguments for supply side. I also fail to grasp the intense feelings of victimization involved, but that's another topic.

Typically (and correct me if I'm wrong) the "taxes are inherently bad all the time" faction likes big government in some areas: Iraq war, military, prisons, prohibition, etc. but not in others: healthcare, schools, mass transit, etc. The vast public infrastructure, both concrete and regulatory, that supports the accumulation of wealth is simply disregarded. The subsidization of all manners of economic activity -- real estate, energy extraction, aerospace, big agriculture, entire states like Alaska, is similarly disregarded. Capital formation is only legitimate in the idealized Randian individual. The question arises: how to pay for the supply siders' big government? The answer is always: tax cuts. The reality is always Keynesian deficit spending, whether it be Nixon, Ford, Reagan, Bush, or Bush, Gingrich, Hastert, DeLay, Armey, McConnell, or Boehner.

In general the arguments for supply side (which is, incidentally, an end rather than a means) are that it:

1) Pays for itself. Any examples would be welcome.

2) Creates jobs. Any examples using BLS (or similar) data would be welcome. These examples would, ideally, show job creation numbers superior to non-supply side policies.

3) Reduces the deficit because it generates so much revenue. Any examples would be welcome.

4) And, currently, that it is the most efficient and effective way to stimulate the economy which is in deep recession and financial sector crisis.

I disagree on all counts but as #4 is the issue of the day, let's take that. The article I linked to previously shows the GDP impact of tax cuts vs government spending on infrastructure. Republican economists from Moodys to the AEI weighed in on the efficacy of each using actual numbers and clearly indicate that stimulus spending is far more effective than tax cuts in this situation.

Can you or anyone else show me data supporting your argument, specifically the argument in which you state "Fact: Tax cuts would do more stimulus than making gov bigger.[?]" The one I took issue with? Can you support that with anything? In this case I'm assuming that by "making gov bigger" you mean "government stimulus spending." Please correct me if I'm wrong.

[Wade]

George -

Unsurprisingly I have a few issues with the Heritage Foundation article:

1) Comparing US to European unemployment rates is an old trick, beloved by the right wing but it is inherently deceptive. They are not measured using the same formula.

2) This bit is laughable: "Government spending fails to stimulate economic growth because every dollar Congress "injects" into the economy must first be taxed or borrowed out of the economy. Thus, gov­ernment spending "stimulus" merely redistributes existing income, doing nothing to increase produc­tivity or employment, and therefore nothing to cre­ate additional income."

Government spending comes from... money! Um, yes. This observation is not meaningful in the least. The private sector is ailing and it and the consumer cannot supply demand (ha) sufficient to pull the economy out of recession. Stimulus spending supplies additional demand. Stimulus spending, contrary to the author's unsupported assertion, is not merely moving a dollar from here to there. It generates more than a dollar in economic activity and GDP growth. It also increases employment which further increases demand which further increases employment, and so on…

"Doing nothing to increase productivity or employment." Throwing these two together is a half clever attempt to sow confusion. Stimulus spending is unrelated to "increasing productivity" and the author fails to mention in what way say, repairing 100 bridges, fails to impact employment. That bridge repair work is, de facto, work that did not exist before. This also ignores the part about getting a bridge out of the deal, a piece of infrastructure that supports economic activity.

"Spending-stimulus advocates typically respond that redistributing money from "savers" to "spend­ers" will lead to additional spending. That assumes that savers store their savings in their mattresses or elsewhere outside the economy. In reality, nearly all Americans either invest their savings by purchasing financial assets such as stocks and bonds (which finances business investment), or by purchasing non-financial assets such as real estate and collecti­bles, or they deposit it in banks (which quickly lend it to others to spend). The money is used regardless of whether people spend or save."

Oh my. The whole crux of the crisis is that financial sector money is precisely NOT being used.

"Only in the rare instances where the private sector fails to provide these inputs in ade­quate amounts is government spending necessary."

Um, YES. EXACTLY.

The author focuses narrowly on "productivity," thus dispatching a strawman argument that no one is making. Obama is not making the case that the stimulus package will "increase productivity." No one is. He is making the case that the stimulus package will prop up demand, employment, etc. long enough to ease the economy out of recession and avoid depression. Similarly, no one is arguing that stimulus spending is the long term manner in which to "expand the economy."

"1. Taxes. Most government spending is financed by taxes, and high tax rates reduce incentives to work, save, and invest—resulting in a less motivated workforce as well as less business investment in new capital and technology. Few government expenditures raise productivity enough to offset the productivity lost due to taxes;
2. Incentives. Social spending often reduces in­centives for productivity by subsidizing leisure and unemployment. Combined with taxes, it is clear that taxing Peter to subsidize Paul reduces both of their incentives to be productive, since productivity no longer determines one's income"

Remember when Clinton raised taxes in '93 and everyone stopped working and productivity dropped and… Oh, that's right, me neither.

I agree that tax rebates are ineffective.

"In other words, highway spending merely transfers jobs and income from one part of the economy to another."

This assertion is quite simply ludicrous. And the Heritage Foundation quoting itself is similarly laughable. This notion he advances over and over again, that because government spending comes in the form of money that it is not only unproductive, but economically destructive on a dollar-for-dollar basis, is truly bizarre. It is "free-market" fundamentalism at its most extreme logical conclusion. I'm not a huge fan of highway spending in general but contending that it destroys jobs is truly weird.

He speaks of moral hazard involved in DC giving money to the States and local governments yet, curiously, is silent on the same for the financial industry. He ignores yet again, the tangible benefits of the completed local project list.

Lavishing praise on the growth of the '20s without a hint of what immediately followed is especially brazen given current circumstances.

He fails to address the fact that fiscal policy is front and center because monetary policy was abused by the previous administration to the point where it is broken.

Where are the hard data? I do not find much of this article convincing and the squirrelly use of footnotes referencing similar materials does not help.

Nowhere does he address the fact that the stimulus is an attempt to (somewhat) limit the impact of the laissez-faire, unregulated shadow banking world's collapse on the so-called "real economy."

[Wade]

Kasey -

Thanks for your clarification.

I do not believe that "somehow the government is really good at generating positive economic activity." Although there are interesting counter examples such as the Internet, I do not think that this is generally the case. Nor was I arguing that.

Mikey had asserted that "Fact: Tax cuts would do more stimulus than making gov bigger." and I replied that he was wrong. He is. What's missing in your critique is a point I just made to George -- neither I nor anyone else is making the argument that government stimulus is the new capitalism, merely that it is superior to tax cuts in the sense that it generates more positive economic activity, something in short supply in the context of the current recession / financial crisis.

I agree we should, as a nation, save more. However most economists agree that increasing savings rates in the sort of straits we're in now is counterproductive. Like it or not, we have an economy that is 70% consumer spending. While it would be wise to address that fact in the medium and long terms, it is a fact that probably shouldn't be ignored in the short term, which is what we're talking about in the context of a "stimulus" vs. "tax cuts" debate.

Moreover, I'm not a huge fan of either the bank bailout or the stimulus package although the bank bailout is far more harmful I believe. I am, in general, a deficit hawk (speaking of crowding the private sector out of capital markets…), but I find the newly rediscovered (by Republicans) fervor for same to be outlandishly disingenuous given their records over the last 8 years. That said, if there's any defensible time to increase the deficit, I'd guess it's now. If we can get desirable infrastructure (trains, domestic, green energy production, etc.) out of then so much the better.

As I mentioned previously, I'm interested in the supply side debate. This theory is much beloved by George's readers and I've engaged in a long-running effort to tease out hard data concerning its successes. It is specifically against that backdrop that I addressed the efficacy of additional tax cuts to stimulate the economy out of recession...

[George Rebane]

Wade, would still like to get a take on the questions in my previous comment.

And to, perhaps, shed light on this thread from another angle, is there any level and/or duration of stimulus through government 'spending' that in your mind might serve as a threshold beyond which govt should not go? I assume still that govt gets its monies only through taxing, printing, and borrowing (i.e. future taxing).

[Kasey]

Wade,

Saving IS positive economic activity. Its ridiculous to say "oh we can't do that because people will save". Tax reductions would allow for more saving and more spending. With government spending we get less savings (due to future tax burden) and more spending.

When is the best time to save? 20 years ago. When is the second best time? Today.

I don't think the government should lower taxes when it thinks it would be beneficial or to whom it think it would benefit. That allows government to use taxes as an oppressive tool that will let some people prosper more, when allowed. Taxes should be so low and so light a burden that tweaking them would have a much smaller impact.

Macro-economics is voodoo. You show me one set of data and I'll show you another set proving the opposite. There are far too many variables to account for. Desire for liberty is not though. And if left unchecked government will rob our liberty from us.

[Wade]

George -

Forgive me for ignoring your questions. Am I correct in paraphrasing them thusly:

1) What does the economy (or more broadly, the nation) look like if Federal spending is approximately half of GDP?

and

2) How to place a limit on the "stimulative" behavior of the federal government lest it become the "new capitalism?"

In answer to 1, I agree that that sort of percentage is undesirable outside of the short term. I don't think anyone involved on a policy level wants to see that sort of sustained government spending. Although as a reverse of "shrink government until you can drown it in the bathtub" approach, it has some promise.

As for 2, I don't think it's useful to "quantify" this (as in "no more than 2 trillion dollars). I think we apply as much short-term stimulus as we need, but only if we deal with the insolvency of the financial industry, whether this entails nationalizing the banks, wiping out all the shareholders, or whatever. Continuing to pretend that the banks are worth more than the government has already given them will prove to be a disaster. Following the Swedish model, the nationalized banks are re-privatized in 5-10 years.

As for my earliest question. What do you think of Gresham's Law re: your "real money" proposal? In any case we have long been overdue for a new Bretton Woods compact. The petro-dollar is done...

[Mikey McD]

Wade, where to start.
1-"I understand the "liberty" or "moral" arguments for supply side." The discussion should stop here. One cannot say murder is immoral and then question whether to strangle or shoot their victim. If the action of Keynesian econ is immoral (anti-liberty) then the discussion needs to stop here.

2- "What I don't understand is the "economic" or "policy" arguments for supply side."" - I will assume that you delegate the responsibility of stimulating the economy to the government? Supply side is the only moral choice.- I don't understand the policy or economic arguments for Keynesian other than spending stolen funds(taxes) + leverage + tax + devalue currency = prosperity economics.

3- "I also fail to grasp the intense feelings of victimization involved"- It is immoral to force one citizen to pay 50% of his wages to "the cause" and require most others to pay zero to the same cause. Talk about class warfare! 50% of taxpayers pay 97% of ALL TAXES!!!!!!!! Where's the equality in that!? (http://www.ntu.org/main/page.php?PageID=6). I go to work to pay for another to stay home and watch CNN? I go to work to employ liberal professors at state institutions that I would not be caught dead attending? I will spare you how I really feel.

4"taxes are inherently bad all the time" faction likes big government in some areas: Iraq war, military, prisons, prohibition, etc. but not in others: healthcare, schools, mass transit, etc."- I will go on record again that I am against the Iraq War, military excesses (having soldiers in 140+ countries during peace times), prisons (am for less cushy prisons and death penalty usage), very limited prohibition (legalized pot-yes). I am also against government forced healthcare, school funding from fed dollars, and unprofitable transit. I am not a fan of big government. The problem with historical references to "supply side" means is that government continued to grow (increased spending) during decreased tax periods.

5-"supply side (which is, incidentally, an end rather than a means)"- Untrue. We are discussing stimulating the economy (the end) by supply side tactics (the means).

6- It would be much more beneficial and efficient to pick one thesis and debate it. "4) And, currently, that it is [supply side] the most efficient and effective way to stimulate the economy which is in deep recession and financial sector crisis." - 2001 taxes dropped via Economic Growth and Tax Relief Reconciliation Act of 2001"- GDP, which is an accepted barometer for the health of an economy soared (18.2% cumulative) from 2001-2008 (Source: World Bank World Development Indicators, International Financial Statistics of the IMF, Global Insight, and Oxford Economic Forecasting www.ers.usda.gov/Data/macroeconomics/Data/HistoricalRealGDPValues.xls). If we choose to use Unemployment as measuring stick for "stimulus" then look at unemployment at 6% in Dec 2002 dropping to a low of 4.4% in 2007 (thanks to 2001 tax cuts!!! http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS14000000)

[Account Deleted]

Hey - I'm back. We've had a power outage and now I get back online and read that Wade claims that he didn't hear "one peep" from the right over the deficit spending during last 8 years. Oh Wade - please! There was a steady stream of outrage over the sense of betrayal from the right concerning the sloppy and hypocritical spending by the Republican power base during the Bush administration. Bush took a heavy hit in the polls largely because the conservatives felt he had sold out to the DC pork club. You are quite correct that our economy is largely consumer spending. I could write a book on what I've observed in the last 40 years in this country and how we got fat, dumb, and happy. We can not any longer go down this road. We haven't had free market capitalism for decades, so I don't know how you can blame that for our problems. The law of supply and demand is as absolute as gravity. We have to have a free market of goods and labour or we will perish as a nation. A free market does not mean no govt. intervention. In fact, a free market needs a strong set of rules such as are found in our Constitution. We must be, as has been said often, a govt. of laws and not a govt. of men. Standards and rules are needed for enforceable contracts and conduct of commerce as are inalienable rights such as free speech and rights concerning private property. These rights are now under steady attack from the left. We need to get back to work and produce tangible goods and services that are freely desired by an educated and thrifty society. Savings is (and has been) punished in this land for decades. Profligate spending has been encouraged to the point of ruin. Printing money and handing it out to connected political cronies will not put us back on track. The "stimulus" bill voted on today by the House was not finalised until late yesterday and is over 1100 pages. It contains provisions that most of the folks who voted "Yea" never even read! Madness! God help us all. The government can "give" you nothing but slavery. It will take everything.

[Wade]

Scott -

OK, I didn't mean "not a peep" literally, but I think we can agree, whatever opposition from the right there was was pretty ineffectual. One notable exception in government I can think of was Oklahoma Senator, Tom Coburn. I would also disagree rather vigorously that Bush's dropping poll numbers were due to conservative dissatisfaction with his profligacy. That there are any number of House Republicans popping up out of the woodwork to profess their fiscal "conservatism" and concern for the deficit after themselves doubling it is high comedy.

I am extremely glad to read your description of "free markets" viz. "not... no govt. intervention." That at least means we're starting from the same basic understanding. Enforceable contracts are a particularly significant part of this, after all 90% of the business in our court system is one corporation vs another. Presumably this heavy use of important public infrastructure ought to be paid for by someone.

Free speech and property rights are "now under steady attack from the left." Can you explain? I'm not sure what you are referring to here.

Look, I'm not a particularly huge fan of the stimulus bill, either (except for the trains), but the Randian masters of the universe have deregulated, borrowed, and gambled themselves, their once venerable institutions, and the rest of us into economic oblivion (and for this they get bonuses?). One wonders how those private SS accounts would be faring right now(?). The demand side of the equation has fallen off a cliff. If demand supplied by government can stem unemployment and provide some needed infrastructure and investment, I will consider that a success. I would, however, be fine with doing nothing -- no bank bailouts, no stimulus spending though, given the choice of more tax cuts and the stimulus bill, there is no contest.

I agree about "[getting] back to work [producing] tangible goods and services." I also think that energy and ex / sub-urban development patterns need to be a big part of that picture. I don't see the private sector doing much here until such things as zoning and the swath of hidden subsidies for sprawl development are addressed. Cities that are not designed around cars cost far less in service and infrastructure which means lower taxes and this sort of thing should be in everyone's (right and left) interest...

Am I reading you correctly that you are not saying that more tax cuts get us out of this mess?

[Mikey McD]

"Free speech and property rights are "now under steady attack from the left." Can you explain? I'm not sure what you are referring to here." Wade, please read about the "fairness doctrine" being pushed by the US Fascist/Socialist party.

The Bastiat Triangle Alliance- (I'm a member). Bastiat (fellow liberty lover) and any reasonable human sees a need for basic laws to be designed for society. Much like a referee in a basketball game (ref enforces the same rules for each team). A referee should not be a philanthropist. Ref should no give points or fowls away unless earned.

As for Stimulus... http://www.youtube.com/watch?v=ogLjfTvblVk&eurl=http://www.campaignforliberty.com/user/ccaughey/&feature=player_embedded

It is difficult to debate when the question is not known... if your question is what should our government be doing now? - nothing, sooner. If your question is whether tax cuts or printing money is better for stimulus I would side with tax cuts every day of the week (moral reasons and GDP/employment facts).

Though it is an enjoyable (selfish) exercise to spew "I want trains" or "I want hydrogen cars" from the stimulus program each of these goals is better served by private enterprise spurred by demand- GOVERNMENT IS NOT A PHILANTHROPIC ORGANIZATION! Gov goal is to set some basic rules and get the hell out of the way.

Question to all, where is the most free market/liberty based system on the planet? Somewhere you would re-locate to?

[Wade]

Mikey -

1) No it doesn't end there. I said "understand," not "agree with." I understand that you feel unfairly taxed and that you feel that the level of government service you "use" is worth something far less than what you pay; that you feel unfairly squeezed for so many freeloaders. However that doesn't make the case for supply side tax policies. I do not agree that taxes are "immoral," I merely understand that you do.

2) "I will assume that you delegate the responsibility of stimulating the economy to the government? Supply side is the only moral choice.- I don't understand the policy or economic arguments for Keynesian other than spending stolen funds(taxes) + leverage + tax + devalue currency = prosperity economics. "

Why would you assume that? I believe the government is stepping in with stimulus here because no other entity is capable of doing so at this time. As I mentioned before, I'm comfortable with no stimulus bill provided there is no bank bailout either. And more tax cuts just run the deficit up with out getting anything out of it -- no trains, etc. It's not meant to be "prosperity economics," it's meant to be "crisis economics." No one is saying "this plan makes us rich," they're saying "this plan somewhat mitigates a legitimate disaster."

3) "50% of taxpayers pay 97% of ALL TAXES!!!!!!!!" Wow, that sounds unfair. But wait, are we talking just federal income tax? What percentage of the aggregate income is earned by that 50%? The table doesn't supply those data although presumably that would be pretty critical to gauging whether or not the system is "fair."

4) Do you oppose the War enough to vote against the people who architected it? Are prolonging it? Equate opposition to the tremendous waste of money to treason? That is why my party did not nominate Clinton. Some of us are trying to extend "opposition" to the point of not funding it anymore.

Legal pot is a good start. Do you support politicians who support this?

Why do people demand that public transit be always "profitable" when our hugely expensive system of highways and roads has never turned a profit? This makes no sense to me... We pour massive sums into road construction asking only for public utility in return, while mass transit must provide not only utility but an operating profit as well? It goes without saying the Police Department, Military, etc. aren't profitable either...

"The problem with historical references to "supply side" means is that government continued to grow (increased spending) during decreased tax periods."

Agreed. But that's sort of the whole point isn't it? It doesn't work.

What is "government forced healthcare?" That's a new term for me...

5) We are discussing supply side vs stimulus in the context of the current crisis. However supply side in general came about as an ex post facto rationalization for tax cuts for the wealthy. It is and end first, and a means only when used as (rather fanciful) rationale, notwithstanding that there is a whole generation of people and politicians ignorant of supply side's origin and simply believe that it actually works as advertised.

6) Ahh, numbers. Yay!

So, 18.2% cumulative gdp growth over 8 years. That sounds pretty good. Except it isn't. Here's how Bush stacks up against the other recent Presidents using annualized GDP growth.

Kennedy-Johnson -- 5.2%
Clinton -- 3.6%
Reagan -- 3.4%
Carter -- 3.4%
Nixon-Ford -- 2.7%
Eisenhower -- 2.3%
Truman -- 2.0%
G.H.W.Bush -- 1.9%
G.W.Bush -- 1.4%-2.2% (depending on revised '08 numbers which look horrible)

That's not "soaring" in my book, it's "sucking."

Unemployment over 2 Bush terms goes from 4.2% in Jan. '01 to 7.2% in Dec. '08. For comparison over Clinton's 2 terms unemployment goes from 8% in Jan. '93 to 4.0% in Dec. '00.

Again, FAIL. Do we thank the tax cuts? Remember Clinton *raised* taxes on the wealthy... violating the most sacred rule of supply side. Bush followed supply side faithfully, far more faithfully than any other Republican president. The outcomes are right there in the numbers. And the numbers don't lie.

[Wade]

Kasey -

I'm not saying that saving is bad. I'm just saying that most economists point out that increased saving at a time like this will prolong the slump. Ask the Japanese.

That being said, I'm all for it long term.

"Taxes should be so low and so light a burden that tweaking them would have a much smaller impact."

I'm guessing you favor much less government "stuff?" Does his include the biggest ticket on our bill DOD / DHS spending?

"Macro-economics is voodoo."

This sounds like a bit of a cop-out to me. Macro is really, really complicated but I don't agree with throwing up one's hands. It is precisely because we have such a poor understanding of economics in general that we are in our current straits. The policy itself is not precise, but I require a higher level of precision than "taxes suck cuz the government sucks."

When everyone speaks of "liberty" here, I have the sneaking suspicion that the left vs. right, personal/social liberty vs. economic liberty dichotomy is in play. Not quite sure how to address this yet...

[Mikey McD]

Wade, My question to you- why does the government need to do anything? Check out 1920 (government corrected possible great depression by doing nothing!). I believe that the stimulus will not only fail, but, make matters much worse.

"50% of taxpayers pay 97% of ALL FEDERAL TAXES!!!!!!!!"- It is unfair. Period. But, as long as your not paying your fair share, who cares!?

If a referee sucks in officiating a basketball game one team (and the teams fans) think "this is great."= 50% of Americans that sold votes and don't pay taxes
However, the team that is getting penalized for no reason is living through an injustice.

Now that "stimulus #3" (first two failed) is done lets focus on the problems it will create:
Inflation tax (stealing) on all citizens (rich and poor)
Higher income taxes (more stealing) to pay for increase in size of government (35% of "new" jobs will be in government)
Inability for the market to cleanse the problems caused by Federal Reserve and Wall St. Greed which will lead to more moral hazard.

What is solved: Obama pays for voted just 1 month into office!

[George Rebane]

Wade, not sure that this will resolve anything in your mind about property rights and how property owners feel about such rights, but it's a starting point. http://www.cato.org/pubs/pas/pa404.pdf

As a property owner for the last forty some years, I tear up with a mixture of sadness and rage as to what I used to be able to do on and with my property, which today would brand me as a criminal.

I believe you own something only to the extent that you may dispose of it as you wish. By this measure, property rights have been and continue to be infringed through the governments power of the bayonet and the ease by which it can be evoked by your neighbor.

The infringement and restriction of free speech again is something that is obvious to at least half the country. We have all kinds of legal proscriptions on what can be said or even inferred these days. In a former day such things would not have invoked legal machinery - today it keeps another legion of lawyers well fed. The organizations that support such restrictions are overwhelmingly of the left. Is there a serious disconnect here between us?

The status of free speech and property rights are again issues on which it only takes one (side) to tango.

BTW, my own feelings on matters of rights and privileges is in this one page pdf. http://ncwatch.typepad.com/media/files/rightsprivs_5dec05.pdf

[Wade]

Mikey -

Really? Nothing to say about GDP?

Private enterprise will give us trains? Really? Will it give us highways as well?

Can you explain the stimulative effect of further tax cuts at this time? Both spending and tax cuts will increase the deficit but the economic multipliers are not the same. Nor are the tangible benefits such as infrastructure. Why is it that Democratic President's have better GDP / employment numbers?

Like I said before I would be comfortable trading in the stimulus package for nothing as long as the Bush / Paulson financial bailout went with it.

I still don't understand the rationale behind the argument that if you have 2 people, one making a billion per year, the other a dollar, that it is unfair that one be taxed more than the other.

One thing I'm curious about is the effect of inflation in what looks like a deflationary period. Any thoughts?

[Wade]

George -

Reading the pdf now. I am actually quite sympathetic to this cause. One of my interests is urban development and I see way too many local developer's plans get shot down or neutered for the flimsiest reasons. However the prevailing attitude is not one of anti-property rights but resistance to change. Frustrating nonetheless.

This seems primarily a local issue, no?

Just so we're clear: when you talk about free speech are you including the interpretation that money is speech as in campaign finance reform?

[Mikey McD]

WADE- "I still don't understand the rationale behind the argument that if you have 2 people, one making a billion per year, the other a dollar, that it is unfair that one be taxed more than the other." - I can't accept that each member of society is not equal. Discrimination is wrong unless it pushes the socialist agenda forward.

Why not tax people under 5'8" tall more? Why not tax American Irish more? Discrimination! I would add income level to the following list.

To be considered unlawful under the Human Rights Act, the discrimination must have happened because of one of the following reasons:

Race
Color
Creed
Religion
National Origin
Sex
Disability
Age
Sexual Orientation
*INCOME LEVEL (MY ADDITION)

[Mikey McD]

WADE-
-"Like I said before I would be comfortable trading in the stimulus package for nothing as long as the Bush / Paulson financial bailout went with it."- 100% AGREED
-"Private enterprise will give us trains? Really? Will it give us highways as well?"- YES.
-"Really? Nothing to say about GDP?" -GDP may have been negative without the 2001 tax cuts. The 2001 tax cuts stimulated the economy. That's my point.
-I don't trust BO or our "leaders" with MY money. The only thing that MY tax dollars (and printed $) will stimulate is socialism.

[Mikey McD]

Wade- I think the biggest difference in our thinking stems from my belief that the market should be let to run its course, even if that means VERY tough economic times for Americans. That is how free markets should work. I think we got burned by far too much debt and we need to de-leverage our system- which should be painful. Instead, many are calling for the government to "stop the pain" before it cleanses our system of the cancer (debt). Trying to put a fire out by throwing gasoline on it.

The "solutions" presented can only be paid for by printing money (invisible tax on all citizens) or stealing (unfair/immoral tax system) from productive members to provide charity to unproductive members. Such solutions will only prolong the problem and multiply the pain in the next "correction".

I have not studied Japan enough, but, I would venture to say that the 90's pain left Japan healthier today than had the government propped them up thru government engineer "solutions."

I side with LIBERTY ever time.

[George Rebane]

Wade - not sure what utility you're trying to maximize when you refer to "resistance to change" re the property rights debate. Change to what, a condition of more liberty to less? But yes, resistance to change without a clear understanding of its intended benefit is definitely a sticking point for those of us trying to slow down the erosion of property rights.

Is it "primarily a local issue"? Not any more, not at least in California where federal and state strictures overwhelm local zoning and building ordnances. Now with the carbon calamity AB32 having become law in California (and soon to a state you may be living in), the local perogatives are dwindling literally to nothing. We primarily get to pick which potholes get filled in what order as the highlight of local control.

Spending money as free speech? I suppose it is, because you are really supporting the 'publishing' of ideas that you support and want others to hear. Limiting how to spend your dollars in such 'publishing' ventures is definitely limiting free speech, if not outright proscribing it. Therefore, I cannot complain how Obama left McCain in the dust on campaign contributions and their spending.

[Wade]

Both "resistance to change" and "primarily local issue" refer to my own experience as a witness to property rights being circumscribed in my own city. I have followed in detail a number of inner city developers' plans for infill and higher density mixed-use projects, many of which were thwarted outright or shrunk beyond recognition not by State, County, or City but by (to me) strangely powerful "Neighborhood Associations." The bizarre argument always put forth is that the proposed development does not "fit with" the existing neighborhood as it is; that being, of course, the entire point of doing higher density infill -- that it is, in fact, different from the current, less efficient, low density development patterns.

The meetings I have attended have all had a thick air of outright hostility to any change be it visual, social, commercial, what have you. I have not been able to reliably correlate this to the left-right political spectrum, but it is an infuriating argument to counter.

Like I said, I'm quite sympathetic to this cause and I find to be a matter of degree: No you can't put an asbestos factory next to the daycare center, but there should be wide latitude otherwise regarding right to develop properties. The neighborhoods I've seen first hand really turn around quickly via property development (in Brooklyn for example), have all had the benefit of the local authorities turning a consciously blind eye to zoning laws, allowing broad and multiple violations for live / work / retail / light manufacturing, etc. simultaneously, side by side in tight proximity. I totally agree, regulation here is way out of wack and highly detrimental, especially in the suburbs, where by law you cannot have retail, etc. within walking distance of peoples' homes… This is actually something I have discussed with my City Councilor and upon further research have discovered that, unintentionally, the City makes more tax revenue off of sprawl development and that this is a major consideration for it continuing, even while many profess a strong desire for smart, infill style, urban development. That combined with the NIMBY, anti-change crowd, is an incredibly strong force for status quo on property rights / developmental freedom. Here anyway...

[Wade]

Mikey -

Japan got caught with an popped real estate bubble and then negative real short term interest rates and high long term interest rates (like us). They lacked the political wherewithal to admit there banks were insolvent (like us) and either break them up or nationalize them (like us) and have been sputtering along for 15 years with minimal growth despite infrastructure spending, bank bailouts, etc. I don't have a problem with doing "nothing" as long as the 43 trillion in credit default swaps among the shadow banking system is accounted for and all the banks that are insolvent (all of them) are wiped out, shareholders and all, or nationalized in the short term a la Sweden in the early '90s. The amount of leverage in the shadow banking system is what plunged us into this disaster and the lack of asset-to-leverage ratio regulations such as apply to regular banks is a gaping hole that the free market was incapable of addressing.

The 2001 tax cuts "stimulated" the economy at enormous cost. There is a strong argument to be made that this was a horribly inefficient means of doing so. The gdp and employment numbers compare unfavorably to those of any post war President and therefore I am not convinced that supply side tax cuts are great economic policy. The argument that "it could have been worse" is not convincing. The outcome was in fact pretty poor at the cost of doubling the deficit.

OK, "everyone should pay the exact same amount of taxes regardless of income." I now understand this is your strongly held belief and I'm not sure we have anything to gain by continuing to discuss that particular point. By the way, what is my "fair share?"

[George Rebane]

Re "resistance to change", here locally we have the other side of the matter with primarily left-wing groups opposing all development that is not "smart growth" or high-density infill. We have land to burn (literally) in this sparsely populated county, but land owners are the last to determine to what future use their land is put in California. Agree with your observations here Wade.

[Wade]

Mikey -

Also re: Fairness Doctrine. I'm not sure where the hysteria regarding this is coming from. Obama opposes it. I think it's completely irrelevant these days. I've heard / seen rumors about a "revival," but can't seem to find any actual push for this. Do you know?

It may have played a reasonably constructive role in the days of one channel tv. I don't think anyone really cares that it's been gone forever. Media consolidation is a valid issue, but one that ought to be addressed through anti-trust laws. Remember those?

Anyway the "source" for this hilariously hysterical Fox News article [ http://www.foxnews.com/politics/2009/02/17/fairness-doctrine-used-police-internet/ ]about the supposed Democratic push for a new Fairness Doctrine is "a House energy committee staff member." Uhuh. Talking "off the record." To the American Spectator. Uhuh. Very plausible scenario. Got anything, you know, credibler than that?