The Orwellian Department of Human Resources

Polls show that unemployment is the issue of greatest concern to the voters today, but most fail to notice how dramatically the institution of employment has changed in ways that contribute to the problem.

Many years ago, the hiring manager controlled the complete employee selection process, and then when he found someone he wanted to hire, he would give their name and rate of pay to the payroll department.

Around WWII, employers began offering tax-free health and retirement benefits, because of government wage and price controls that made it difficult for employers to compete for the best people. This ultimately destroyed the open market for health care and led to the high costs we have today. People no longer saw the costs of their health care, or could benefit from any inclination to economize. The “price signals” were removed from health care. It is as if you shopped for food or clothing with a food and clothing card with a $10 co-pay, no matter how expensive your purchases. You can see how in time the cost of food and clothing would have no pressure to be economical and costs would skyrocket. This is where we find ourselves today in healthcare, and more government control is not part of the solution, it is the principal source of the problem.

Then the civil rights movement led to a steady progression of legal steps first toward desegregation, then anti-discrimination, equal employment opportunity, and unequal affirmative action. “Movements” are often begun to address important issues, to right wrongs and remake society for the better. The trouble is that a movement gives power to its leaders, and humans are fallible and easily corrupted by power. It is rare for the leader of a movement to finally declare that their ends have been met, that the cause for which they were formed no longer exists, and that they will therefore disband their organization and put down the power they've gathered to themselves. Other than George Washington, I cannot think of a single example.

As labor law became more and more complex, it became very difficult for employers to be sure they were in compliance with the constantly increasing requirements. This led to a transfer of power within companies from functional management to whole new departments; Payroll morphed into “Personnel,” which then evolved into the department of "Human Resources." Out of self-defense, company leadership transferred more and more of the responsibility for hiring to this new organization. Companies learned that their functional managers outside of HR could get the company into expensive trouble with just the mere questions they asked in an interview. The more people they interviewed, the more risk of the wrong things being said. HR organizations in turn grew larger and more powerful, necessarily mirroring the growth in complexity of the legal environment they faced.

Along the way, an insidious thing began to happen. These Human Resources organizations are not trained in the other functional areas of their companies; they are not doctors, or engineers, or securities traders, or marketing managers. An HR professional is trained principally in compliance with labor and benefits law, which has become so complex as to constitute an entire career in itself. If an HR person is going to screen candidates for, say, computer engineering, they must get a list of objective criteria from the computer engineering functional manager. As the rate of unemployment becomes larger, the number of candidate applications increases, and the HR department grows this list of objective requirements for a prospective candidate, requiring more education, longer years of experience, more specific objective skills, etc. At the same time, the internet has allowed HR to set up online application processes and automated pre-screening whereby keyword searches can score applicant resumes without being read by a human.

The biggest trouble with this process is that if I am the owner of a company wanting to hire a key employee, I care far more about the intangible "human" factors than a candidate’s objective data. For example, I may want to find an employee who is a strong creative problem solver, who brings an entrepreneurial spirit to their work, and most of all who has a demonstrated integrity and character that will represent my company well. None of these things are easily reduced to objective measures. An HR person not skilled in a functional area cannot judge those human factors for that function as well as the hiring manager. Many of the detailed objective criteria upon which HR has become focused, are almost irrelevant and are actually learned on the job. Employers once depended much more on referrals and recommendations to find key employees, but many HR departments today specifically disallow any of this outside influence on their screening process, ostensibly to break up what was once viewed as the "good old boy network," or discriminatory preference systems. A moral judgment has been made that objective criteria are “more morally valid” grounds for selecting an employee, and intangible human factors are “suspect of being discriminatory on their face.” Employers once had to invest more in grooming and training their employees, and consequently cared more about earning their loyalty and keeping them around for long careers.

In today's employment market, the name "Human Resources" has become an “Orwellian” label. HR is not involved in measuring the "human factors" which make an employee a valuable resource, because these criteria are not easily reduced to objective measurement. Human factors are best judged through relationships. HR has reduced people virtually to the status of objectified "parts," where the resume has become a data sheet of the part specifications. It is only once the HR department has screened a large pool of candidates down to a relatively few applicants, that the functional manager is allowed to get into the process.

Any breeder knows that if you select almost exclusively for one set of criteria to the exclusion of others, over time you can do great harm. HR is literally "breeding" a work force that is viewed as objects and not human beings, and that will take a toll.

This vastly expanded legal framework surrounding labor has also had unintended consequences in another way. There is now much more liability attached to hiring an employee. If you make a mistake and need to let someone go, you will have the ongoing costs associated with unemployment benefits, and you might even get sued for wrongful discharge, or some violation of equal opportunity or affirmative action laws. While these laws were well-intended, they have led employers to be less willing to take a chance on an employee. Employers frequently hire temporary contractors or outsource many jobs as a result.

The monopoly on labor which the government has allowed unions to acquire has further harmed the employer-employee relationship, making it inevitably more adversarial and less competitive.

My prescription for these ills is terribly politically incorrect, and unlikely, but here it is:

I would strip away all of this government intrusion into the workplace. If an employer wants to discriminate, even based on race, let him. He will hurt himself by artificially limiting the pool of good labor he draws from. Ultimately anti-discrimination laws do not eliminate discrimination. Discrimination ends when people have a change of heart; not something that has ever happened by force of law. Most people today have no appetite for racial discrimination, but this took time and activists are impatient.

Employment should be a voluntary contract in all respects between the person hiring and person being hired. If conditions in an industry are too objectionable, voluntary collective bargaining would still have the corrective power to change things, but workers would not subject themselves to union dues and strikes unless the working conditions truly merit it.

Employers would be more willing to take chances on an applicant that seemed to have some interesting quality or potential, knowing they could easily let them go if they were wrong, and HR would disappear as an organization saving vast amounts of company resources. Hiring and firing would be returned to the hands of the functional managers who are in the best position to judge what constitutes the best employee. The best managers would be rewarded for their excellent selection of employees, and for how well their people were treated. Poor managers and company owners likewise would reap what they sow.

All of this has become an even more acute problem today because we are facing such severe long term unemployment. Many people do not realize how difficult it has become to find work today, and we are in national denial about how high the true rate of unemployment is. Many economists agree that if we estimated unemployment today the way we did in the past, we would say we are facing 18-20% unemployment or more. If we simply take the percentage of the population who would be part of the work force during good economic times, and compare that to the percentage of people who are part of the work force today, you arrive at numbers like this. In recent years the government has created a system for estimating unemployment through the census bureau, under the administrative control of the White House. This system excludes some categories of unemployed individuals from their estimate, people which in the past we would have counted. The White House has a strong incentive to under-estimate unemployment when it is at these high rates, especially to keep it under the rhetorically-charged “double digit unemployment.” So, unsurprisingly, we’ve seen the officially reported unemployment rate bump along at 9+% with no end in sight. While many experts routinely agree that the true rate is about twice that number.

To put this in some historical context, this “true” number is well within the range of unemployment in the 1930s when we saw widespread public scenes of the desperately unemployed. When a business posted a “Help Wanted” sign, there would be lines of applicants out into the street. Often those lines would persist all day and night for days or weeks at a time even on the rumor of available jobs. Scenes of soup lines for the unemployed were commonplace. We don’t see these scenes today because the employment application process has transferred almost entirely to the internet and become invisible to those who are not intimately involved. Most companies today will not even accept a printed resume handed in at their offices, but insist that you apply online. Those who are employed frequently have no idea of how difficult it has become for some to find work. It is not just workers displaced without enough training either. There are many with college educations, and years of experience who have applied for many hundreds of jobs, often looking for a year or two, without a single interview because their resume could not get through the HR screen; because they are overqualified, underqualified, or just not perfectly matched.

Friends often send emails saying “I hear that “XYZ” company is hiring; not realizing how little help this is today. One can easily find many job openings with excellent online tools. “XYZ” may have six jobs listed on their web site, but they probably receive hundreds of applicants for each of these positions. Unless one can honestly draft a resume that is a near mirror-image of the objective criteria specified by HR for one of these jobs, there is no possible chance of even getting an interview. HR managers often say they have trouble finding “qualified candidates.” Conventional wisdom in the recruitment and career counseling industry has become that employees must “specialize,” and indeed narrow specialization is what the current HR screening process inevitably seeks. But many senior workers have a few decades of experience that has not followed a narrow linear career path, and their education may not exactly match much of their career history. The hard truth is that today’s HR will never list a job which will fit that person’s resume. In the past, when employment was a more personal process, a senior worker with breadth of experience was often viewed much more positively, and their broad network of references was a large asset. It is not that narrowly-focused workers are truly more valuable today, but merely that the common HR applicant screening process is structured for narrow specialization, and often precludes any consideration of personal relationships until the very final stages of applicant screening. In truth, personal references have become one of the least important considerations to an HR screening process when they used to be one of the most important, and senior workers often struggle to get interviews.

The single direct cause that links all of these issues is a government which has become addicted to interference in the free market capitalism which made our nation the freest and most prosperous in the world. It is intrusion into the voluntary economic choices of a free people. This intrusion, literally with the “liberty” our founding fathers fought so dearly for, is almost always intended for some good cause, but invariably has unintended consequences that are more far-reaching, and often more devastating than the evil they originally sought to cure. We clearly need to roll back this cancerous growth in the size and scope of government, and yet this is very difficult for any elected official to accomplish. Around every new bend in the political path of our nation comes some new “cause du jour” which quickly becomes the next government mandate, which in turn leads to new entitlement spending to entice voter support, which ultimately consolidates someone’s political power. It ever has been thus, and will only change if “We the People” can learn to become more self-reliant and stop looking to the government for solutions to our problems. An expanding government can never make us better people, only less free, and less prosperous.

A Disturbing Conversation at Breakfast:

I had breakfast this morning sitting at a lunch counter next to a kindly senior citizen who obviously wanted to engage in conversation. He is apparently retired on a union pension. As political subjects came up in our conversation, he began to make it clear that he will not support any Republican.

I tried to engage him in discussion about a return to our founders vision for the constitution, but he was having none of it. He was not concerned about the growth of the size of government, he said we are not taxed enough, he had no idea where jobs come from, thought there was no limit to how much taxes rich people should pay. There seemed to be no substantive issue which drove him to his decision to support democrats, he just repeated every dogmatic tag line he had ever heard. He had no ability to defend any of those with reason, and just changed to the next tag line if challenged.

My breakfast companion finally made some comment in passing about the "best" president of his lifetime being Jimmy Carter! (Gasp!) After catching my breath, I asked what made him admire Jimmy Carter and he said "Oh, he was a great president! That man sent me a $1000 dollar check and an autographed picture."

ARRRGGGHHHHH!!!

I have to say the conversation just ruined an otherwise wonderful breakfast. I am so tired of the level of economic and political illiteracy among large numbers of the electorate. People who have benefitted their entire lives from the liberties that others fought hard to win for them, and who have lived in relative ease and comfort from the capitalist economy that made our nation wealthy and strong, and who have not the slightest clue where it all came from, or the great threat it faces today.

There are several things we MUST do NOW:

1) We MUST win majorities in this 2010 election cycle to hold the line against the progressive onslaught.

2) We MUST win the presidency in the next election cycle and hold on to the legislative gains.

3) But for the long term, we MUST eliminate the government stranglehold on education in this country. We MUST have a free market of education choice in primary and secondary schools! I believe this is the ONLY way we can ever hope to make and sustain long term progress back to the founding principles of this country. This republic cannot stand in the face of more generations of voters dumbed-down by government-controlled "progressive" indoctrination passing as "education."

Our higher education system is considered among the best in the world, and it operates as a free market. It would become even better if the quality of entering freshman was better, as they would be with better primary and secondary schools. There are a lot of leftist professors in our universities that would not be tolerated if more of our young people came equipped with the tools to take them on. A competitive market for primary and secondary education would create a more competitive marketplace for higher education.

Fight for School Choice for all our citizens, not just the wealthy elites who already have choices!

Twitter Archive - 10-09-2010

Can't wait: "They're Burning Your Money," Liz MacDonald, FBN next wk, on mis-spent stimulus. Don't miss it! #hhrs #tcot #teaparty #econ #nov

RT @AnyStreet: Ann's latest, featuring the inimitable Patty Murray. Unbelievable! http://fb.me/J5i81LjW #hhrs #tcot #teaparty #nov!

With thanks to @MelissaTweets - Talk about a "rogue's gallery" Howard Zinn and friends: http://bit.ly/aQywuH #hhrs #tcot #teaparty #nov

"Not In 25 Years, Social Security Is Bankrupt Now" Bill Frezza http://bit.ly/ckNcV0 #hhrs #tcot #teaparty #econ #nov

Bill Frezza with the FACTS about tax cuts and revenue: http://wapo.st/aZevrC #hhrs #teaparty #tcot #econ #nov #taxes

"Where the 'Shovel Ready' jobs are" by Elizabeth MacDonald, a short "rant" on Cavuto: http://bit.ly/bdkMCu #hhrs #tcot #teaparty #econ #nov

#ff @hughhewitt @Radioblogger @ghhewittblog @RedState @newtgingrich @Scot0149 @LynnMaudlin @dambisamoyo @Sideache @Mrs_ESTMR @ChargerJeff

#ff @ORlibertygal @LizzieViolet @CEJacksonLaw @VictoriaTaft @guypbenson @JMNR @mkhammer @HeyTammyBruce @secupp @Lileks

#ff @stephenfhayes @DavidLimbaugh @NRO @DanHannanMEP @HooverInst @arthurbrooks @tracybyrnes @CGasparino @AmbJohnBolton @uncknowledge

RT @stephenfhayes: Wow, Russ Feingold is making the case that he is the real Tea Party candidate in the WI Sen case. #Whatishesmoking?

Just a brief note to thank my followers for pushing me over 600. Cheers all! Thanks for the FFs, November is coming! Become an activist!

Thomas Sowell on Barney Frank, CRA, & "The Housing Boom & Bust" http://youtu.be/ih4Itl0PmaE #teaparty #econ #tcot #hhrs #nov

"Woe to the people who are incapable of limiting the sphere of action of the State. Liberty, [et al] depend upon this." Bastiat #econ #tcot

"We were told to vote for change we could believe in and found we had elected people who wanted to change what we believe." Jackie Cushman

RT @CEJacksonLaw Shows how unworkable #hcr is. #tcot Pity all the employers w/o McDonald's clout. #teaparty #hhrs #econ #nov

RT @jpodhoretz spin? What? "Plouffe says GOP faces "colossal failure" unless it takes House, Senate & "every major gov's race." Delusion?

RT @LizzieViolet: Honoring Gilad Shalit http://t.co/awd3B1P Please RT #SaveGilad #IDF a SON BROTHER FRIEND SOLDIER of #Israel #tcot #GOP

"Congress Can't Repeal Economics" by John Stossel: http://bit.ly/bbu75x #econ #teaparty #tcot #hhrs #nov

Here is the interview with Daniel Hannan from today: http://bit.ly/cl8PAM Get his book: http://amzn.to/cNuqfc #hhrs #econ #tcot #teaparty

Parliament Member Daniel Hannan w/ Neil Cavuto today: New book: "The New Road to Serfdom" http://amzn.to/cNuqfc #hhrs #econ #tcot #teaparty

"#Econ ignorance is the raw material of every govt'l extortion, every fallacy the precursor of an act of plunder." Bastiat #hhrs #teaparty

"To the left, both the ppl & the #CONUS are things 2 circumvent 4 their agenda."- Thomas Sowell http://bit.ly/dbbvVg #gold #econ #hhrs #nov

If you would reduce the offshoring of jobs, return to entirely voluntary collective bargaining of labor. #econ #tcot #teaparty #hhrs #nov!

#econ ignorance is the raw material of every [govt'l] extortion we suffer, every fallacy the precursor of an act of plunder." Bastiat #nov

Britt Hume on the corruption of the Obama Justice Department: http://fxn.ws/bIWn5t #hhrs #tcot #hhrs #teaparty #votingrights #Nov!

Steve Hayes whooped Juan Williams in debate over Dems failure to extend tax cuts: http://fxn.ws/btePID #tcot #hhrs #teaparty #nov #tax #econ

#POTUS calls for year round schools. Sure, but only when #edu is privatized and everyone has school choice, not just the elites. #teaparty

RT @CEJacksonLaw A preview of D'Souza's new book, one every American should read: http://bit.ly/d2p1tj #Obama #tcot #teaparty #hhrs #econ

RT @bridgettwagner @stephenfhayes POTUS silent @ UN on Iran arming, funding & training terrorists killing our soldiers in Afghan. #teaparty

RT @ORlibertygal We've had 30+ yrs of OR-DEMs: #1 in homelessness, #3 in unemployment & bottom 5% schools. Socialism sucks! #orcot #teaparty

RT @ORlibertygal The liberal trolls have nothing to say but profanity and slurs against those who try to help kids. Pray for them. / Amen!

Ann in her usual excellent form, correcting the record: http://bit.ly/aGBPE5 #hhrs #tcot #teaparty

RT @Huffman2010 It’s time to put Or back to work and do what’s best for USA, not just for party. http://tinyurl.com/25r4qxu #orsen #tcot

Paul Krugman gives up in debate w/ free marketers: http://bit.ly/a2Zk8z #econ #abouttime #tcot #hhrs #orcot #sowell #austrian

@bodiegroup Education quality doesn't need more money but simply a competitive market of school choice. #orcot #tcot #nov! @dudley2010

Britt Hume: "The tax cuts for the middle class" which Dems want to extend, were "tax cuts for the rich" a season ago. #econ #tcot #teaparty

RT @HeyTammyBruce: We *all* supported McCain, he was the nominee, no matter how much we didn't like him. The shoe is on other foot, NRSC?

RT @YoungCons Genius & funny. A very young Thomas Sowell on welfare.... http://bit.ly/9HEa3d / BRILLIANT! #econ #hhrs #tcot #teaparty #nov

Best slogan this season is still @Dudley2010 's "We don't need more taxes, we need more taxpayers." Think about it. #teaparty #econ #hhrs

There is a possibility which some in the #GOP have ignored. It could be that w/ more #teaparty candidates, turnout will skyrocket #tcot #nov

The party leadership needs to b reminded that they're supposed to take their lead from the voters, not the other way around. #teaparty #tcot

Specific candidates aside, not very happy with party elites that think they know better than the voters. They work for us. #econ #teaparty

RT @ConservativeLA @ladylibertas93 Let's include the GOP #tcot #hhrs Agreed, but it'll take even greater grassroots support to win in #Nov

Britt Hume points out that the "tax cuts for the middle class" which Dems want to extend, were "tax cuts for the rich" a season ago. #econ

OK Delaware tea partiers, the primary was the easy part, now close the sale. O'Donnell still has to win in #Nov! #Teaparty #tcot #hhrs

#Rejectedlicenseplatemottos OREGON: The Left-Most of the Leftist Coast.

RT @HeyTammyBruce Obama will have to hire someone (who lied to him) who will take all of his money putting his family in debt for 100 yrs

RT @HeyTammyBruce Then, he'll have to stop playing golf. And no more vacations. And no more being on TV. Then, at last...

RT @HeyTammyBruce Obama says he wants to 'feel our pain.' http://is.gd/f9BVB Okay, let's start w him losing his job // Yes!

Consider: The socialist who condemns the profits of capital, must then be willing to lend you his home for free. #econ #tcot #hhrs

Wealth does not pre-exist the act of a man to create it, its creation therefore cannot be the plunder of another. #econ

Is there a more human act than a father giving gifts to his children? Yet some will say that it is selfish if done upon his death. #econ

"If natural tendencies of mankind are so bad that it is not safe to allow them liberty, why r the tendencies of govt always good?" Bastiat

If the people can be trusted to elect govt, why can they not be trusted to enter into voluntary agreements without the nanny state? #econ

Dem-socialism is an insidious paradox: At election time, suffrage cannot be too broad, but once elected, govt commands all of life. #econ

@Radioblogger Any chance the excellent statements by John Mark Reynolds could be made publicly available? Sure like my pastor to listen.

RT @VoteSmartToday We are struggling with #UNEMPLOYMENT, lower #WAGES because the #GOVT IS LIVING TOO WELL! #hhrs #tcot #teaparty #econ

RT @OldSusanna @SooperMexican Michael Ramirez cartoon on Dems views of Americans http://bit.ly/9OIatH #hhrs #tcot #teaparty #nov! // True!

@GreatHairGuy I would vote for him in a heartbeat, but he may be entirely too clear-headed for American politics. #hhrs #tcot #GOP

@GreatHairGuy Amb Bolton was very careful to stress that first, it is critical we win in #nov! #hhrs #tcot #GOP

RT @FreedomChatter "You could become the greediest person in the world, and it will not raise your income 1 dime." TSowell #econ #tcot #hhrs

Former UN Amb. John Bolton announced this AM on Varney & Co., he is considering a run for the #potus in 2012! #hhrs #tcot #teaparty #gop

"Protectionism, socialism, and communism, which are one and the same plant, in three different periods of growth." Bastiat #econ #teaparty

For any hope of stimulating employment, we need brave leaders who will call for large cuts in size and scope of govt. #econ #Teaparty #tcot

RT @mishela1 Have a happy holiday & shana tova!! #peace upon #Israel, God help us.Remember #Gilad #Shalit in captivity & pray for him.

"... legal plunder, that takes the name of socialism." Frederic Bastiat, mid 1800s, #econ #tcot #teaparty #hhrs

"right to instruments of labor, gratuity of credit, etc., etc. All these plans taken as a whole, with what they have in common," Bastiat

"tariffs, protection, progressive taxation, free public education, right to work, right to profit, right to wages, right to assistance,"

"Now, legal plunder may be exercised in an infinite multitude of ways. Hence come an infinite multitude of plans for organization;" Bastiat

"The delusion of the day is to enrich all classes at the expense of each other; it is to generalize plunder under pretense of organizing it"

"Take care not to listen to this sophistry, for it is by the systematizing of these arguments that legal plunder becomes systemic" #econ

"for the state to be enriched, that it may spend the more, and thus shower down salaries upon the poor workmen." Bastiat #econ #tcot

“He will say that the state is bound to protect and encourage his industry, he will plead that it is a good thing…” Bastiat #econ #tcot

“No doubt the party benefitted will eclaim loudly; he will assert his acquired rights.” Bastiat #econ #tcot

“If you do not take care, the exceptional case will extednd, multiply, and become systematic,” Frederic Bastiat #econ #tcot #teaparty #hhrs

“Abolish this law without delay; it is not merely iniquity-it’s a fertile source of iniquities, for it invites reprisal” Bastiat #econ #tcot

“If a law plunders one citizen profit another, in a way that he could not without committing a crime, abolish it!” F. Bastiat #econ #tcot

The only salvation for education is a free market of privately organized schools. Govt ctl can only destroy edu” #hhrs #econ #tcot #teaparty

RT @jeffrejones A non-prediction

Paraphrasing Bastiat: "Socialism is despotism, in the name of presumed infallibility, born of ignorance." #hhrs #tcot #teaparty #econ #nov!

Has the Recovery Stalled? Megyn Kelly interviews Hugh Hewitt, at his very best: http://fxn.ws/9cAyc0 #hhrs #Teaparty #tcot #econ #nov!

"Obama's 'Chainsaw Massacre' of American jobs" http://fxn.ws/9d8Rdq #econ #Teaparty #tcot #hhrs #nov! #gop

Neal Cavuto talks w/ TJ Rogers, Cypress Semiconductor. "Obama admin is anti business" http://fxn.ws/dcBwM1 #tcot #Teaparty #econ #hhrs

The state hires a worker, creating one job, while depriving another, unseen, of a job, and gaining a vote to power. #tcot #Teaparty #econ

Favorite quote about mid-east peace: "There will be peace in the middle east when Muslims love their children more than they hate Jews."

"Those who support [govt stimulus] expose themselves to ridicule for mistaking displacement for gain" F. Bastiat #tcot #Teaparty #econ #econ

I am quoting this week from the famous essay "That which is seen, and that which is not seen" Frederic Bastiat #tcot #hhrs #econ #teaparty

"[They] consider an activity which is neither aided, nor regulated by govt, is an activity destroyed. We think just the contrary." Bastiat

The clearest message voters could send to Congress would be to turn over the majority in both houses to the GOP. #econ #Teaparty #tcot #hhrs

To the contrary, when we oppose govt support of a thing, it is often to protect the thing from govt meddling. #tcot #hhrs #teaparty #econ

"When we disapprove of govt support of a thing, we are supposed to disapprove of the thing itself." F. Bastiat #hhrs #econ #tcot #teaparty

RT @instmed Gilad Shalit - pray for his freedom! http://goo.gl/fb/t5n8e #hhrs #tcot #christ

RT @speakup4israel This Shabbat is Gilad Shalit's 24th Birthday, his 5th in a #Gaza prison http://goo.gl/b/QuTU #Israel #tcot #teaparty

Enough is enough! Straight talk about the GZ mosque: http://bit.ly/9J9vAZ #tcot #teaparty #hhrs #tlot #gop #israel #gzmosque #tbrs #islam

ABSOLUTELY STUNNING interview of Thomas Sowell! PLEASE listen to all 5 segments, esp #5! http://bit.ly/188o8i #hhrs #tcot #teaparty #econ

"The fall 2010 election is one of the most, if not THE most critical election we have ever had." Thomas Sowell #econ #hhrs #tcot #teaparty

"Because if [Obama] is not stopped, I don't know how he will ever be stopped." Thomas Sowell #hhrs #tcot #teparty #econ http://bit.ly/9dBhud

"You can reach a point of no return, but as Yogi Berra said, It's not over till its over" http://bit.ly/188o8i #nov! #tcot #teaparty #econ

"There was a time when most Americans wld have felt insulted to have it thought they wanted someone else to pay thr medical bills" T. Sowell

"To young ppl: If by some miracle we get through this, please take to heart what happens…" Sowell #tcot #hhrs #teaparty http://bit.ly/cs1KQw

"...when you vote on the basis of rhetoric and symbolism instead of using your mind." Sowell #tcot #hhrs #teaparty http://bit.ly/cs1KQw

P. Robinson to T. Sowell: Q:"If you could offer one sentence of counsel to the [POTUS], what would it be?" A:"Resign!" http://bit.ly/cs1KQw

RT @uncknowledge Thomas Sowell: the parallels betw the final days of the Roman Emp and USA today: http://ow.ly/2snxF // ALWAYS EXCELLENT!!!

Part 1 of 5, watch them all: Thomas Sowell interviewed by Peter Robinson @uncknowledge http://bit.ly/9ciTrX #hhrs #tcot #teaparty #Nov!

RT @KMcFar: It doesn't matter how smart you are, unless you stop and think- thomas sowell

RT @HeyTammyBruce: Nothing to see here, move along. Iran's first nuclear plant begins fueling http://is.gd/etInX

FF @JonathanHoenig @Lileks @Theblacksphere @uncknowledge @dudley2010 @LizzieViolet // I look for content-rich tweets, high signal-to-noise!

FF @LizzieViolet #FreeGiladSchalit #Israel #IDF RT @Jerusalem_Post

Enough is enough! Straight talk about the GZ mosque: http://bit.ly/9J9vAZ #tcot #teaparty #hhrs #tlot #gop #israel #gzmosque #tbrs #islam

Misuse of "liberal" is one of the things that most confuses foreigners when they look at USA politics. #hhrs #tcot #teaparty #tlot #econ

The Left loves to ctl language, so they can ctl terms of the argument. Don't let them! They are not "liberal." #tcot #teaparty #hhrs #tlot

Big-govt-socialism-leftism-statism-redistributionist-progressivism, do not maximize liberty, are not "LIBERAL!" #tcot #teaparty #econ #tlot

DO NOT CALL THE LEFT "LIBERAL" call them leftists, socialists, or big-govt statists, but not "liberal" #hhrs #tcot #teaparty #econ #tlot

FA Hayek, M Friedman, vonMises all used the term "liberal" to mean what we now call conservative, maximizing liberty. #hhrs #tcot #teaparty

Free mkt #econ omists called themselves "liberals." Milton Friedman used liberal this way in "Capitalism and Freedom" #tcot #teaparty #hhrs

Please don't honor the left by calling them "liberal." Classically liberal means those who support liberty! #teaparty #tcot #hhrs #gop #tlot

RT @JSLeFanu: Gloria Center: Can You Handle The Truth?: The Shocking Reality of Arab Public Opinion http://ff.im/p5VGL #tcot #teaparty #gop

RT @hughhewitt: Back-to-back "debates" moderated by @MegynKelly and @TavisSmiley can give you the television bends #hhrs #tcot

"Radical policies of Obama & Congress hv hampered natural resiliency of US #econ, artificially extending recession"-Gingrich #tcot #teaparty

RT @KatyinIndy State Department: "Taliban is not a terrorist organization." (Huhh?) http://is.gd/ecc9O #tcot #gop #hhrs #tlot #teaparty

"Are Americans Bigots? Attacking motives of those who disagree w/ elite opinion"- MCGURN http://bit.ly/cj4oyO #hhrs #tcot #teaparty #christ

RT @KatyinIndy Fed takes a cash advance from their MasterCard to pay the VISA bill ... http://is.gd/eca06 #tcot #gop #hhrs #teaparty #econ

RT @ThomasSowell "Wal-Mart has done more for poor people than any 10 liberals, 9 of whom are guaranteed to hate Wal-Mart." #hhrs #econ #tcot

RT @LizzieViolet @ThomasSowell Column: Cheering Immaturity http://bit.ly/cx2KTH // Excellent as always. #tcot #hhrs #econ #teaparty #liberty

"the substitution of compulsion for cooperation changes the amount of resources available." M. Friedman #hhrs #tcot #teaparty #econ #capital

RT @LizzieViolet Redistribution of wealth is evil- that's why so many people can't find a job. Wealth is to be INVESTED. // Amen! #econ

RT @DennisDMZ Pelosi's so two-faced, she has to pay for her plastic surgery twice. // ROFL

RT @lizwestbrook Americans must draw a line in the sand and demand: No victory mosque, no way, not happening. #tcot #nogzmosque

RT @hughhewittblog Hugh Hewitt: More On Prop 8 http://bit.ly/c24Be4 // read this!

"Justice Brennan's Footnote Gave Us Anchor Babies" - Ann #teaparty #tcot #hhrs #nov!

RT @ScottWGraves @LizzieViolet GOOD READ: The Prophet of the Ruling Class... http://bit.ly/d8Kgfh #tcot #p2 #teaparty #hhrs #nov!

RT @BiblicalTanakh: Jer 17:14 Heal me, O YHWH, and I shall be healed; save me, and I shall be saved: for thou [art] my praise.

RT @fsicomnet "One of the great mistakes is to judge policies and prgms by their intentions rather than their results." - M Friedman #tcot

RT @Mr_Fastbucks: Good heavens, @AmbJohnBolton is on Twitter! Worthy of an early #ff #hhrs #tcot #teaparty #gop

RT @DMashak The battle for liberty will be won or lost on education choice http://bit.ly/cGo7z9 #teaparty #tcot #hhrs #912 #christ #econ

RT @RBLevin The Web is killing the BlackBerry http://ping.fm/T35NT // this nails why I switched to a Droid X

Where the "Shovel Ready" Jobs are:

A short note to thank Elizabeth MacDonald for her short rant on the Fox Business "Cavuto" show panel, guest hosted by Charles Payne, Oct 8, 2010, 6:55pm ET:

“I’ll tell you where the ‘shovel ready jobs’ are, they’re in the White House Press Office!

If you think you can put a top spin on this [jobs] number... Sixty four thousand jobs? That just about fits in two small towns on Long Island. Sixty four thousand jobs, BIG DEAL! Sixty four thousand jobs is nothing! … We lost EIGHT MILLION jobs since the crisis began. And why aren’t jobs being created? Because businesses are afraid! They’re afraid of what’s coming out of Washington DC! They feel like they’re standing stranded in the middle of traffic with all the regulatory policies coming at them like a freight train. It’s really bad. When you talk to small business people like I have, they are scared.”

Setting aside the mixed metaphors, which can be forgiven in light of her frustration and angst, she nailed the feelings of all of us out here in small business America. Her emotion and plain-spoken truth on the subject are much appreciated by many of us!

I continue to find Elizabeth MacDonald to be one of the best informed, clearest thinking, and most interesting business analysts on television. I often have the Fox Business channel on in the background while I get computer work done, but I have gotten in the habit - whenever Elizabeth MacDonald rcomes on, to stop whatever I'm doing and really listen. I have yet to be disappointed by that habit.

Keep up the good work Lizzy Mac!

Why the Spike in M&A Activity?

Why are we seeing a spike in Merger & Acquisition activity, and what does it mean for the underlying economy?

Successful mature companies, especially larger companies, by definition, create large amounts of cash on their balance sheets. While a startup company struggles to fund their growth, a larger more mature company comes to a point where the cash problem flips from “how to get enough,” to “what to do with all this cash?”

If you are the CEO of a successful mature corporation, your most critical job is deciding what to do with the cash thrown off by a large profitable business. You don’t want to accumulate too much, because piles of liquid assets make your company a tempting “hostile takeover target.” Predatory suitors become tempted to buy you out, split up the pieces, and take the cash. Corporations are not intended to be “piggy banks” for the storage of cash, but investments that put cash to work for gain. If the CEO cannot figure out how to put cash to work for reasonable gain, someone will take it away who can.

There are generally only three, or maybe four things that a CEO will choose to do with this accumulating pile of cash:

1) Invest in the organic growth of the company: This is arguably the best use of cash. It is the reason companies initially sell stock and take on debt. The trouble is, as a company grows, it becomes increasingly challenging to manage all of the sprawling activities of a large company; which is to say that many attempts to select growth strategies result in wasted capital with insufficient return. It is mathematically easier to achieve a large rate of growth when a company is small, but becomes more difficult as the company becomes larger; creating a project that will add $10k to your balance sheet to grow from $100k into $110k is fundamentally a simpler task than creating a project that will return $100M to grow from $1B to $1.1B. The latter project is simply larger, with more moving parts, and thus more challenging to manage efficiently. CEOs are measured by their boards, industry analysts, and shareholders for their ability to create return on invested capital. It is not career enhancing to invest large amounts of capital in organic growth only to achieve little or no return. It takes real guts as the CEO of a large mature company to stick your neck out and invest large amounts of capital in an ambitious growth project. The larger the company, the riskier it is perceived to be to invest in organic growth.

2) Buy back stock: This is one of the most popular uses of cash. It is generally deemed “prudent” or at least “innocuous” by boards and market analysts, and therefore perceived as a “safe” move by a CEO. It has the effect, at least in the short term, of putting small upward pressure on the price of the stock, due to an improvement in the earnings per share of the stock. But EPS is not the only way stocks are valued, so in the end the upward pressure tends to evaporate with time, and the underlying market perception of the stock value due to PE ratio and other factors, takes hold. Buying back stock has become the CEOs way to “burn money” without attracting criticism. The announcement of stock buy-backs with accompanying positive “PR spin” has become a carefully finessed art. The problem with it becomes clearer when we remember why we sold stock in the first place: To fund the growth of the company. Buying your own stock back is akin to saying to the market: “You know that money we raised by selling shares in our company to you? Well, we’ve decided we cannot figure out any way to invest that money in the growth of our company that will return any better return than buying the ‘market,’ so we’ve decided to renege on that deal.” In short, it expresses a lack of confidence in the company, by the company’s own Board and CEO. This ought to be a signal to the market that perhaps this company has reached an inflection point in its growth which very likely portends flat or declining valuation in the long run. By admission and by definition, the company has become too large to be profitably managed, at least by the present executive management.

3) Invest in Mergers and Acquisitions: This is an extremely seductive use of cash for a large company. When a CEO is at the helm of a large company, it is a bit like being at the helm of an ocean-going super-tanker. The scale of things makes it difficult to see where you’re going. When one considers a strategic growth initiative, CEOs often have the experience that their internal divisions rarely achieve very satisfactory returns on investment for major strategic projects. This is largely a result of bureaucratic inefficiencies, internal group-think, and institutional aversion to even moderate risk-taking, all of which stifles true innovation. On the other hand, the executive staff may bring to the CEO an opportunity to invest in a smaller company who, partly by virtue of their earlier stage of growth, is achieving remarkable growth rates. The temptation is to believe that the larger company can fold that impressive rate of growth into its operations without destroying the success of the smaller piece. Such is rarely the case. The most common result is that in fairly short order the new acquisition begins to yield returns on investment more like the parent and less like the pre-acquisition smaller company. Bureaucracy and risk-aversion are aggressive contagions. Large companies tend to do what worked for them before with small tweaks, while smaller companies find it much easier to do what no one has done before. The vast majority of dramatic innovation comes from smaller companies, and a very few large companies who’ve learned the knack of managing innovation outside the shadow of their big-company bureaucracy. In most cases, the best outcome from an M&A is the reward to an experienced entrepreneur whose resulting exit-strategy may fund the growth of a new startup that will in turn create new market innovation.

4) Pay Shareholder Dividends: Some would argue that this is the proper use of all excess cash when a company has reached a size beyond which profitable growth becomes too difficult. It is understandably difficult for the leadership of a company to accept that the very size of their company has become an obstacle to further growth. Executives may not want to set ongoing market expectations of future dividends, and so prefer the other options in the short term while hoping that further growth will yet become possible. Dividends are generally associated with mature markets; while companies tend to want to see themselves as youthful and thriving.

In our present national economic climate, private-sector companies are piling up historic levels of cash. This has been largely a result of cost cutting reductions in labor, and fear of committing capital in the face of unprecedented market uncertainty. The already difficult risk an executive takes on when capital is committed, becomes untenable in the face of manic government interference through intractable regulation, and hyper-active, and even irresponsible fiscal and monetary policies.

That we see a spike in M&A activity at some point is absolutely predictable. While equity markets love the “action,” it can hardly be viewed as a sign of returning vigor to the underlying economy. If the market uncertainty remains at these unprecedented levels, the cash, while in a new “piggy bank,” is unlikely see much greater circulation in the broader economy. We’re just seeing consolidation of entrepreneurial companies into larger, and generally less efficient packages, while the well-compensated entrepreneur retires to the sideline to wait for a healthier climate before reentering the fray.

Do you quote the Bible without knowing it?

When I first read the complete Bible as an adult, it was as a non-believer. I had become aware of the tremendous literary legacy we owe to the Bible, and was a bit embarrassed to realize I had never read it fully. Considering myself relatively "well read" in many of the classics, I was a bit embarrassed to admit that I had never read the complete Bible. I thus read it initially as literature, though I must confess it did not take long for it to become more to me. I began at Matthew and read the complete New Testament first, and then began at Genesis and read the entire Old Testament. It took me about nine months, a few minutes at a time each morning at breakfast.

How many of these allusions to the Bible do you use without knowing their source?

“Apple of my eye” – Deuteronomy 32:10

“At wits’ end” – Psalm 107:27

“Blind leading the blind” – Matthew 15:14

“Can a leopard change its spots?” – Jeremiah 13:23

“Drop in a bucket” – Isaiah 40:15

“Eat and drink for tomorrow we die” – Isaiah 22:12-13

“Fat of the land” – Genesis 45:18

“Fight the good fight” – 1 Timothy 6:12

“Fly in the ointment” – Ecclesiastes 10:1

“Give up the ghost” – Acts 12:23

“How the mighty have fallen” – 2 Samuel 1:19

“Many are called but few are chosen” – Matthew 22:13-14

“No rest for the wicked” – Isaiah 57:20

“Physician, heal thyself” – Luke 4:23

“Rise and shine” – Isaiah 60:1

“Skin of my teeth” – Job 19:20

“Sour grapes” – Ezekiel 18:2

“Woe is me” – Job 10:15

“Writing on the wall” – Daniel 5:4-6

The "Ground-Zero" Rorschach

The “Ground-Zero” mosque controversy has served as a Rorschach test for how one views our enemy in the “war on terror,” and perhaps for how we view ourselves.


If the enemy is viewed as a loose collection of un-enlightened violent criminals, completely ignoring that group’s own descriptions of themselves, then any opposition to the Ground-Zero mosque is viewed as an equally un-enlightened racial prejudice.

If the enemy is viewed as an organized military and geo-political movement with only a loose and mostly illegitimate connection to Islam, then one may struggle with a difficult-to-justify discomfort over the mosque, invoking terms such as “sacred secular site” and suggest that even a Christian Church next to the site would be equally inappropriate.

But if the enemy in our war on terror is a militant theocratic geo-political wing of Islam, a “denomination” of Islam which has become associated with stoning and mutilation of women, honor killings, martyrdom, and severe dress-codes imposed by violent penalty, which seeks to reclaim Islam’s past glory through a fight to the death struggle against “the little satan” Israel, “the great satan” America, and all the institutions of liberty associated with Western civilization, then America is faced with an entirely new kind of enemy, and the Ground-Zero mosque raises entirely new questions which have yet to be asked or answered.

Preeminent among our American constitutional liberties are the first amendment guarantees: The prohibition against government infringement upon freedom of speech, freedom of religious expression, and a prohibition of government establishment of religion. In the almost two and a quarter centuries since our Constitution was written, the “establishment” clause has come to be expansively interpreted in ways that the signers of the Constitution would certainly not recognize as bearing any resemblance to their intent. The founders clearly did not want to see the creation of an American religious institution like they had left behind in Europe, wishing no establishment of a “Church of America” as had been established in England, nor “American Vatican.” But the language of their amendment has been interpreted through a succession of court decisions to something which approaches the removal of all things religious from every public space; the removal of the Ten Commandments, crosses, and prayers from parks, courtrooms, classrooms, and every other public space. Those endorsing this evolving understanding of the establishment clause will not be happy until the crosses are removed from Arlington National Cemetery.

This re-construction of our First Amendment has left our government institutions impotent to make any public assertions whatever regarding religion. Any serious student of history knows that our founders had no such disability. Our founders had the intellectual courage and sophistication to strenuously respect and defend the religious liberty of others while at the same time acknowledging God’s hand in our nation’s journey and professing their individual faith from every public podium. They exercised their right as individuals to pray and study the Christian Bible in our Capital, in our courtrooms, and insisted that the same individual rights were necessary in our classrooms. American citizens of the 18th century understood that their secular institutions, and indeed the very Western civilization notion of individual liberty itself, had grown out of Judeo/Christian religious institutions melded with influences from secular Western philosophers all the way back to the Greeks.

If our founders had been faced with some militant theocratic geo-political religion that was existentially opposed to Western civilization and democratic liberty, who was associated with the mutilation of women, and who sought to gain glory through a death struggle against America, whom they called “the great satan,” do we really believe these founding fathers would have felt their hands were Constitutionally-bound from naming this religion as the enemy of our nation? Would they have believed that the establishment clause, written to prevent government from establishing a religious denomination, could be twisted to mean they could not oppose a religious denomination who was existentially committed to their destruction and the destruction of that same Constitution?

Our founders were too committed to reason, and what has come to be called American Exceptionalism, to allow any such national suicidal martyrdom.

What is happening within Islam today is very like what happened long ago within the Christian Church, with different factions each considering themselves the “true” religion, and denouncing all other claimants to be “no-religion-at-all.” Christianity eventually reached peaceful accommodation with numerous denominations along a variety of doctrinal divisions; some considering themselves very close “brothers and sisters in Christ,” others viewed as distant cousins, and a few rejected as apostate non-Christians, but with each peacefully and emphatically respecting the rights of the other. Islam has some recognized denominational division, such as between Sunni and Shia, sometimes peacefully, but no other religion in the modern age has been invoked by so many committed to such extremely violent struggle. Suicide bombings, justification of the killing of non-combatants, be-heading prisoners, calls for the complete annihilation of entire religious and ethnic groups; this is the posture of a large sub-segment of those who lay claim to be “the true Islam.” Muted claims by others within Islam, that theirs is a religion of peace, cannot erase the fact that many study the same book of teachings, invoke the same figures as holy, and yet arrive at some entirely opposite doctrinal imperatives.

Who decides which group can call itself Islam? The Church of Jesus Christ of Latter Day Saints, and Christian Scientists each invoke the name of Christ, but most Baptists or evangelicals would not consider those groups Christian, yet neither side takes prisoners or beheads anyone. The fact is that in every other case, we accept the label that a group chooses for itself even when we disagree with that group’s beliefs. We all need to come to grips with the simple fact that our enemy in the “war on terror” is a group that considers itself the only “true” Islam, that they view their struggle as an existential struggle for the glory and honor of their religion, in short that they are in a “religious war.” The West rightly shrinks from the notion of religious wars. The West has fought some terrible religious wars; not more terrible than the wars with atheists, but terrible enough. Like it or not, the West, once again finds itself, by no choice of its own, at war with a religion. To be sure, the enemy is not everyone who calls themselves Islamic, but we can be forgiven if we struggle to draw out these distinctions, when those within Islam itself have failed to come to grips with these differences.

There is a critical distinction between being “at war with a religion” versus being in a “religious war.” A religious war is a war between two religions, each motivated by their own religious doctrinal imperatives. In the war on terror, our enemy claims to be motivated by their religious beliefs (and who are we to dispute such a claim), but we are clearly motivated by a desire for peaceful accommodation through law and some reasonable facsimile of order which respects the rights of individuals. To repeat: We are not in a religious war, but we clearly are at war with a self-proclaimed religion.

Making matters more difficult is that this enemy does not see itself first as being members of a national group, but as an international religious group which would lay claim to the entire globe, by force if necessary. Infiltration into every continent and every nation, creating tentacles of violent struggle everywhere is a primary tactic of this enemy. We are not met on a battlefield with clearly demarked enemy lines. By design, this enemy hides behind non-combatants, daring us to attack, in order to use a naïve or complicit international press to attack our honor. We strive for super-human restraint to combat this evil, such as the world has never seen. This enemy historically celebrates their victories by building mosques in the place of former holy sites of their conquered enemies. The imam leading the group to build this mosque has at least equivocated when called upon to take sides against those who represent the violent denomination of Islam. Dissembling and subterfuge have been tactics employed by this enemy. They believe they have no moral imperative to honesty except to other fellow believers. David Horowitz has correctly pointed out that one way to distinguish which “Islam” you are dealing with is to ask their member to denounce Hamas and Hezbollah publicly as evil terrorists. Fellow believers whose sympathies are aligned with these violent extremists find it very difficult to make clear very public denunciations of their allies.

These are the inescapable facts of the so-called “ground-zero” mosque. As a point of precise distinction, the building in question, the former Burlington Coat factory, is not simply “close” to the site of the attack, but large parts of the aircraft-turned-missile on 9/11 crashed into this very building, doing a good deal of damage; it was within the immediate incident perimeter of the original 9/11 attack.

Even if we could be convinced that the group who seeks to build this mosque had no association whatever with the Islamists who perpetrated the attack on 9/11, construction of this mosque would be celebrated by those Islamist terrorists as yet a further twisting of the knife in America’s side that was 9/11. The very desire by any member of Islam to build a mosque in this location, knowing full well how it would be viewed by our enemy, is tantamount to an admission that they are not on our side in this struggle, but their true heartfelt sympathies lie with the terrorists. Even if they had no part in this attack on America, they are happy to “twist the knife.” Constructing this mosque in this site would be like some secret handshake, known only to fellow believers, which would celebrate this “victorious battlefield” in the war for global domination by Islam.

Setting aside our courtroom-crafted contemporary Constitutional precedents for the moment, any nation whose founding document precludes it from resisting the encroachment of an infiltrating enemy, or even of naming that enemy, is doomed. America cannot be allowed to be so doomed, we must honor the heritage handed to us by our founders, and correct if necessary the error that has crept into our own understanding of our founding documents, if indeed such creepage has brought us to a position where we cannot defend that heritage.

If we believe any of the words in our Declaration of Independence and our Constitution, this mosque must not be allowed to be built at this site!

Stuart Varney on Fox Business Channel, Interview with Peter Morici, Professor of Economics, University of Maryland

July 29, 2010; 9:54am ET


SV:   Professor thanks for coming back to us.

PM:   Nice to be with you.

SV:   Now sir, I know that you want to keep all of the Bush tax cuts in place. Right? You want to keep ‘em. Make your case for that will you?

PM:   This is a terrible time to increase taxes in the economy, the recovery is faltering, you know we talk about the rich, that includes a lot of small businesses, for example the luncheonette underneath your studio, that family, maybe two or three people working together have got a [IRS form] Schedule C, it generates income of more than two hundred and fifty thousand dollars. There’s one trillion dollars worth of taxable income like that from small businesses that this man is going to hike taxes on. And probably the problem is not taxes, it’s spending. This man [President Obama] spends too much! Let me tell you about that… the year before…

SV:   Well hold on, hold on a second, I’m sorry professor but look, over the past ten days we’ve interviewed three prominent academics, professors and lecturers from Harvard, UCLA, and Bard College. Each and every one of them has said “We must put up taxes on the rich because we’ve got to cut the deficit.” Each and every one of them has said “We must spend another trillion dollars now to get the economy going.” You’re an academic, what do you say, now give me your point on spending. They want to spend. I guess you don’t.

PM:   Well, I don’t think we should spend any more. Before the great recession in 2007, the deficit was one hundred and forty billion dollars. Our president is projecting, after the recession is over and the economy is growing at 4% per year, that the deficit will be one point four trillion dollars! What happened! The answer is: Barack Obama made a lot of spending, excluding the health care legislation, that was supposed to be stimulus, permanent. Government spending in 2012 and 2013 will be 25% of GDP according to the president’s estimates. When George Bush was president, it was 20% of GDP. He’s hiked the chunk that they want to take from you, and I don’t know what we’re getting for it. Can you see any appreciable improvement in the services your federal government provides you?

SV:   I guess their argument is, and I’ve heard this argument, that had we not spent all that money then things would be a whole lot worse. What do you make of that argument?

PM:   Well, the [idea] with stimulus spending, and what Barack Obama promised, something he’s always capable of walking away [from], is that it would be temporary. But he’s built these spending increases into the budget permanently, like for example his electric vehicle program which is going no place. The bottom line is, he’s built out the frontiers of government dramatically, and after the election’s over it’s not going to be just the rich. He cannot finance a government that is 25% larger as a share of GDP without putting terrible burdens on the middle class. You watch, this is the tip of the iceberg [not extending all the Bush Tax cuts], after this, it’s going to be a value added tax.

SV:   Okay, oh, huh, huh... I hate to leave it there…

PM:   Ah hah…

SV:   But we’d better leave it right there. Professor Peter Morici, thanks for joining us again sir, always appreciated. Thank you.

PM:   Take care, all the best.

The Missing Voice in the Debate over Taxes!

I keep hearing the debate over “extending the Bush tax cuts” (or not) framed in terms of only these two sides:

Left: "If Republicans are serious about deficit control they have to agree to let the Bush tax cuts expire for 'the wealthiest Americans.'"

Right: "In the midst of a serious recession, it would be irresponsible to let the Bush tax cuts expire, raising taxes on small businesses where most jobs come from."

My frustration is that no one is expanding the discussion beyond these narrow parameters. These two positions speak past one another, neither being responsive to the other. This is an ideal opportunity for an interviewer to guide and expand the discussion.

I certainly agree with extending the Bush tax cuts. The single most important business sector we need to cultivate for the health of the economy is startups and small businesses, especially those in the $250k to $2.5M range. This is the incubator for the innovation that has always been America’s strength.

The missing voice in this debate is a call to SHRINK THE SIZE AND SCOPE OF GOVERNMENT! This is clearly a core issue driving the Tea Party movement. Indeed, the very invocation of imagery from the original Boston Tea Party era is borne of a desire to move back in the direction of our original constitutionally limited republic. The founders never intended the vast expansion of federal government that we see today. One can only imagine the horror of our founders if they could have seen what would become of the limits to power and scope they worked so hard to craft. This is the over-arching theme that animates every Tea Party event:

“Cut Spending, Cut Taxes, and reduce the Size and Scope of government!”

There is a voting majority today that is long past the notion that “entitlement spending” is some sort of untouchable “third rail” of government spending. We are anxious to have a debate with EVERYTHING on the table. The way to frame this is to take the original constitutional limits as the lower limit, and the present state as the upper limit, and work for something somewhere between these two limits.

I cannot remember when I last heard a single interviewer expand the discussion about tax cuts to include corresponding spending cuts when the Left tries to raise the spurious bogey man of deficits; you never hear the word deficits cross their lips when the Left is voting to add $Ts in new legislation.

Cut spending... cut spending... cut spending... Are you listening inside the beltway?

CUT SPENDING!!!

Twitter Archive

What does the left believe rich people do with their money that doesn't help the economy? #econ #hhrs #tcot #teaparty #tax

They advocate "social justice," "minimum wage," and "universal health care." Who are they? http://bit.ly/9czUIe #hhrs #tcot #teaparty #econ

Everything a wealthy person does with income creates economic expansion, compared to horded cash. #hhrs #tcot #teaparty #econ #tax

The poor keep a larger % of their income in cash than the wealthy. The wealthy use banks, invest, and spend. #tcot #teaparty #hhrs #econ

RT @gscottoliver: Wait: "left think"? You know better than that! // Okay, perhaps "feel" would be a better word there.

What does the left think rich people do with their money that doesn't help the economy? #econ #hhrs #tcot #teaparty

RT @DebbieSchlussel #Christian May Get Life in US Prison 4 Self-Defense from #Muslim Mob http://is.gd/dCkNj #tcot #jcot #islam #immigration

RT @ORlibertygal Travesty! You can thank the democrat elitists who won't allow school choice! http://shar.es/mVMo0 #teaparty #hhrs #tcot

RT @Heritage The next Govt takeover? National #education standards. #edreform http://herit.ag/bth #tcot #hhrs #teaparty #econ #killUSDE #gop

And this is precisely the goal of the Fabian, revolution by slippery slope. #hhrs #tcot #teaparty

This leaves some reluctant to call the progressives socialist, because each step seems less than total capitulation. #tcot #teaparty #hhrs

The progressives are Fabian Socialists. They believe in gradual socialist change rather than revolutionary change #tcot #teaparty #hhrs #gop

Democratic socialism was not created for the elevation of individual liberty, but for it's enslavement to the group. #hhrs #tcot #teaparty

Limited and decentralized govt, free trade & mkts, maximized individual liberty, these are the conditions for liberty. #hhrs #tcot #teaparty

He explains that the left appropriated the label in the supreme, if unintended compliment. #hhrs #tcot #teaparty #ClassicalLiberal #econ

On page 5 of Milton Friedman's "Capitalism and Freedom" he explains why "liberal" is the wrong label for the left. #tcot #hhrs #teaparty

RT @ORlibertygal: @Huffman2010 Go Jim! http://bit.ly/bLLJ3R #orcot #tcot #teaparty #conus #founders #econ

@tamij There is now, and ever shall be, only one "Tribble Princess" - The inimitable bright and shining @Tamij #hhrs

RT @BrendaHilliard2: If you put the fed govt in charge of the Sahara, in 5 yrs there'd be a shortage of sand." ~M. Friedman #tcot #econ #gop

RT @Luigi1492: In the spirit of Hayek, the rd to fin ruin is paved by grand govt intent w/ unintended long term consequences #econ #teaparty

RT @ORlibertygal @Theblacksphere "loved the book" http://bit.ly/ay06tT #orcot // It's on my list.

#FF @Theblacksphere @ORlibertygal @LizzieViolet @mkhammer @RedState @Lileks @exposeliberals @VictoriaTaft @hughhewittblog #tcot #teaparty

#Fauxbama "Now European leaders don't even like me." http://bit.ly/bokX2i #hhrs #teaparty #tcot

#Fauxbama "I just wanted us to be like Eur, now Eur isn't even like Eur. It's like trying to do Woodstock 3 days & finding the trash pile."

#fauxbama "I told you I would 'restore' America to its rightful place in the world, & we're more like Jimmy Carter's USA everyday" #teaparty

Keith Olberman loses ownership of his own domain name! Oh darn! Three Cheers for Tucker Carlson! http://bit.ly/alMHo4 #hhrs #tcot #teaparty

#GOP needs to run on 4 R's: Remove Dem's, Repeal their bills, Replace w/ mkt reforms, Restore #conus ltd Govt! #Nov! #tcot #teaparty #econ

#Fauxbama Disney movie title: "Honey I shrunk 'The People'!" #tcot #teaparty #gop #hhrs #conus

#Fauxbama "Oh well, those 'small businesses' only create 'small jobs' anyway. We're focused on growing BIG BUSINESS, and BIG GOVERNMENT!"

#Fauxbama: "Business thrives on uncertainty! ... or was it the other way 'round? Whichever..., but.., We're Headed in the right direction!

RT @johnboehner Thomas Sowell: "Obama succeeded only in creating uncertainty" http://bit.ly/b1VT0o #econ #business #teaparty #tcot #hhrs

Ann Coulter with some clear thinking about the Constitution and the Supreme Court. http://bit.ly/abUwEO #tcot #teaparty #hhrs #conus #scotus

Frank-n-Dodd Financial bill gives unions trojan horse into boards of all publicly traded co's. http://politi.co/blv0IW #business #econ #tcot

#Gipper: Recession is your neighbor losing his job, Depression is your job lost, Recovery is Reid/Pelosi/Obama lose their jobs! #tcot #hhrs

UKs Daniel Hannan, the best reason to allow non-citizens to run for USA president http://bit.ly/bVEZUg #hhrs #tcot #teaparty #econ

Let me get this str8, exactly which Islamic nation does Obama think needs NASA's help w/ ICBM capability? #hhrs #teaparty #tcot #nov #israel

RT @foundingfather: There is nothing so likely to produce peace as to be well prepared to meet an enemy. #tcot #teaparty #hhrs #mil

Thomas Sowell, MUST READ! #Econ #Stimulus #Inflation Velocity of money #liquidity #Gold http://t.co/UTDuAt8 #tcot #hhrs #teaparty #business

RT @redostoneage President of New Black Panther Party Admits Plan to Intimidate Voters http://bit.ly/93uODR #teaparty #hhrs #tcot #gop #nov!

Hayek et al had it exactly right, and Keynes quite wrong. Original 1932 op ed letters http://bit.ly/cbFkJK #econ #teaparty #tcot #nov! #hhrs

RT @redostoneage http://bit.ly/dpj2jR Majority of Likely Voters: 'Socialist' Accurately Describes Obama #teaparty #hhrs #tcot #econ #nov!

I do not believe there has ever been an administration more disconnected from economic reality. #econ #teaparty #business #tcot #nov! #hhrs

Rahm Emanuel: "Biz ldrs should be grateful for Obama's support of biz." !? http://bit.ly/9BeJlc #econ #teaparty #business #tcot #nov! #hhrs

FBN Video report about new 1099 tax regs for ALL PURCHASES over $600! http://bit.ly/9XsCrg #econ #teaparty #business #tcot #gop #nov! #hhrs

RT @fleckman: Prez here: Remember I sd I'm 4 small business? Yeah, I'm a liar. http://bit.ly/dphucl HT @FVHayek #tcot #p2 // Yes indeed!

New 1099 regs for purchases over $600 will be a reporting nightmare, costs will be inflationary! #econ #business #tcot #gop #nov! #hhrs

New IRS regs will require 1099 filing not only for services, but ALL PURCHASES over $600! Nightmare for SB! #business #econ #tcot #gop #irs

Full text story FBN's Elizabeth MacDonald: Deutsche Bank internal report on the Frank-n-Dodd bill: http://bit.ly/8XFNKK #econ #tcot #hhrs

This steel plant has created more "clean energy" than all the solar panels ever deployed. http://bit.ly/97ZcbU #econ #tcot #gop #teaparty

"Tell the federal govt to GO AND SIT IN A CORNER AND LEAVE THE ECONOMY ALONE!" - John Bolton on Varney & Co., FBN #tcot #teaparty #econ #gop

Very interesting video "10 ways to be your own boss" - Fred Wilson http://bit.ly/bSFCP9 #entrepreneur #unemployed #tcot #hhrs #econ #create

Video: "Deutsche Bank Rips Into the Frank-n-Dodd "Financial Reform"" [sic] http://bit.ly/ak89wi #hhrs #tcot #gop #teaparty #econ

"Tell the federal govt to GO AND SIT IN A CORNER AND LEAVE THE ECONOMY ALONE!" - John Bolton on Varney & Co., FBN #tcot #teaparty #econ #gop

Full text story FBN's Elizabeth MacDonald: Deutsche Bank internal report on the Frank-n-Dodd bill: http://bit.ly/8XFNKK #econ #tcot #hhrs

Thanks to Elizabeth MacDonald for the Deutsche Bank "Financial Reform" story: http://bit.ly/ak89wi // #hhrs #tcot #gop #teaparty #hhrs

Deutsche Bank Rips Into the Frank-n-Dodd "Financial Reform" [sic] http://bit.ly/ak89wi // A DISASTER!!! #hhrs #tcot #gop #teaparty #hhrs

Twitter Archive

An archive of some of my recent tweets:


Video preview of Thomas Sowell's "The Housing Boom and Bust" http://bit.ly/c2aGjQ Must Read! #hhrs #tcot #teaparty #gop

Thomas Sowell demolishes several common #econ fallacies of the left. http://bit.ly/aBO8F9 Wonderful stuff! #tcot #teaparty #hhrs #gop

RT @save_america1st Thomas Sowell: http://bit.ly/9Ih6yH just read it and RT it! #teaparty #tcot #gop #hhrs // The gr8st living #econ today!

RT @levanrami: Keynes vs. Hayek: The Great Debate Continues (Commentary) http://is.gd/djucI // Excellent! #tcot #teaparty #hhrs #econ #gop

RT @GreatHairGuy MARK YOUR CALENDAR: Tuesday, November 2, 2010 - National "Take Out The Trash Day"! #tcot #hhrs #teaparty #gop #nov!

RT @dkuroda: "Opportunity is missed by most people because it is dressed in overalls and looks like work." - Thomas A. Edison #hhrs #tcot

RT @dkuroda: "We have too many high sounding words, and too few actions that correspond with them" -Abigail Adams #in #teaparty #tcot #hhrs

@LizzieViolet Interesting discussion (first 5-10 min) contrib. of Jewish society to pre-war Vienna intellectual society http://bit.ly/duZazx

Friedrich August von Hayek: A wonderful interview, fascinating. Time very well spent. http://bit.ly/duZazx #econ #teaparty #tcot #gop #hhrs

To asses the effectiveness of an #econ system, look for unfettered price signals between producers and consumers. #hhrs #tcot #teaparty #gop

RT @FriedrichHayek: Hayek on Keynes, Britain & deflation during the British Depression of the 20s & 30s. http://hayekcenter.org/?p=3144

Americans: Federal government wastes fifty cents out of every dollar it spends. http://bit.ly/cM9s4M #hhrs #tcot #teaparty #econ #gop

"Tell the federal govt to GO AND SIT IN A CORNER AND LEAVE THE ECONOMY ALONE!" - John Bolton on Varney & Co., FBN #tcot #teaparty #econ #gop

To those who say an attack on Iran's nuke capab would be destabilizing, how would you rank it with a nuke in Tel Aviv? #tcot #israel #hhrs

Will any lefty admit that BP drilled in 5k ft because the eco-left won't let us drill on land or shallow water? #econ #tcot #teaparty #gop

Michael Steele: PLEASE STEP DOWN, this weekend, as leader of the GOP! Too many stupid mistakes! #tcot #gop #teaparty #RNC #NRSC #NRCC

What about inflation, are we seeing inflation or deflation? What's going on? http://bit.ly/aqXbiB #hhrs #tcot #teaparty #gop #econ

Does history agree that the recession would have been worse without Obama's stimulus spending? No! http://bit.ly/9TwWR2 #tcot #teaparty #gop

RT @VisedMonk: As we celebrate our freedom, please pray for Gilad Shalit's freedom; captive for 1,468 days now. #tcot #israel #christ #gop

Remarkable similarities between today and May 1930. You need to see this. http://bit.ly/dxtn5C


Financial reform in 1933 = 23 pages, in 2010 = 2300 pages. Does anyone believe lawmakers have become 100x smarter?

To those who say an attack on Iran's nuke capab would be destabilizing, how would you rank it with a nuke in Tel Aviv?

Bailouts are not medicine but cancer. We need to shrink size & scope of govt, spending, and taxes.

"The Whitehouse is like a Junior Achievement Project ... They really simply don't know what they're doing!" - Peter Morici

CBO says that the public debt will be more than 60% of GDP by year end due to fed spending.

The Frank-n-Dodd financial reform "monstrosity" is 1000's of pgs of legislated #econ uncertainty: http://bit.ly/90IRFK

We don't need more govt spending "aggregate demand" but more private sector "creative innovation" http://bit.ly/acnL3A

Ask yourself how govt spending could "create" an iPod4, an iPad, a cellphone or a Model T? http://bit.ly/acnL3A

"Conservatives divide the world in terms of good and evil while liberals do it in terms of the rich and poor." – Dennis Prager

"We get a 'do-over' when you fire all these people, so come November let's [clean house]!" Dave Ramsey

Rather than extend #unemployment: cut govt spending 50%, cut capgaintax 50%, and pass flat tax. I'd like my odds for employment.

A prescient conservative in Europe speaks out: http://bit.ly/cMSOuM - Thanks to Charles Payne.

Will any lefty admit that BP drilled in 5k ft because the eco-left won't let us drill on land or shallow water?

What about inflation? Why are we seeing deflation?

What is really happening with the money supply? Conventional wisdom says that huge deficits lead to inflation. On the other hand, so far, we have not seen inflation, but some sign of deflation. So what's going on with the money supply?

The government is printing dollars (and borrowing) like crazy to pay for their frenzied spending spree, but we aren't seeing inflation because businesses and households are hording dollars (gasp: "Savings"? What's that?). Business is holding more cash than at anytime in my lifetime, over $1.8 trillion: http://bit.ly/b91TFE  The household savings rate is up to 4%, while it had been negative in recent years past. This would be great if it represented a permanent change in American savings psychology, but unfortunately what it seems to reflect short term uncertainty about the economy.

We could really use a long-term psychology that said saving for a rainy day is the responsible thing to do, rather than expanding public safety nets like unemployment insurance and so on. Individuals would be infinitely more responsible about providing for their own emergency needs than any government program can ever be. Unfortunately there is no reason to believe that this is what has happened.

Despite the massive printing of dollars, we're actually seeing deflation due to the currency being withheld from circulation. When individuals cannot keep up with their debts, they face debt judgements, wage garnishment, and loss of savings. In these extreme circumstances, people hold more cash as security. With less cash in circulation, prices tend to come down.Many key prices are actually in decline; gasoline, housing, cars, wages, etc.

Once business and consumers regain confidence, the great likelihood is that all of this horded currency will flush into the economy very quickly, causing a huge spike of inflation. This cycle of deflation pressure followed by an inflationary spike is quite classic and historic.

This will cause the Fed to raise interest rates to try to contract the money supply, but they will find it very difficult to control the expansion because the cash is already pre-positioned in the market. As interest rates go up, perhaps sharply, the debt service cost goes way up, and we could very easily see another bout of stagflation like we had under Carter. With rising interest rates you get another whole round of credit defaults because all this debt is still sitting out there, but now the debt service becomes MUCH more expensive and can't be afforded. Both government debt and personal debt service sucks up a great deal more income and we're right back in recession.

With it's debt service costs rising, the government debt becomes more and more difficult. There are two opposite instincts about how to deal with this on the political Left and the Right. The Left only sees tax increases, because cuts to spending represent cuts to their patronage power base. The Right knows that cuts to the size and scope of government are the only real solution.

The real question becomes, where can we find conservative politicians with the will and the rhetorical skills to champion the severe cuts to government spending and enttitlement programs that are desparately needed?

For now, investing in real estate is a real good bargain if you can qualify for a fixed 30yr mortgage at 4.5% and if you buy a bank-owned at a 30% discount. Gold is at least safe against inflation. Most dollar-denominated assets will go up in price under inflation, but they'll be declining while we're under deflation. Equities are tempting because with inflation their prices will go up, but it is hard to know how long we'll be in deflationary pressure and this severe market uncertainty.

Many entrepreneurs would love to start a business about now. Many creative people have become unemployed, and risk-taking becomes easier when you don't see many other choices, but you'd have to get your head examined to want to dive into this tax and regulation environment with a startup.

The uncertainty we keep hearing about is not misplaced. It would appear we're in for quite a wild ride.

Would the recession have been worse without the stimulus bill?

The Obama administration and the Left have repeatedly claimed that their trillion dollar stimulus spending has prevented the recession from being worse than it would have been without it.

The simple fact is, there is absolutely no evidence to support this claim, and all historical evidence would suggest the opposite.

1)  The Left points to the fact that the recession was worse in the beginning than it is now as evidence that their stimulus efforts have worked.

2)  The truth is that all recessions, even when you do nothing at all, have a cycle to them. The market tends to recover through its own feedback mechanisms, and the history of recessions is that on average, this recession and the great depression have been the slowest recoveries in all the history of recessions.

3)  History suggests that when you do nothing at all, most recessions begin to recover in twelve to eighteen months. For all Obama's claims that the recession would have been worse had we not passed his stimulus bill, history suggests to the contrary that we are either about on track or recovering more slowly than would be expected with no stimulus spending.

3)  The two longest recessions in history have both been examples where the Government took up the Keynesian mantle of being "The Spender of Last Resort." The Great Depression lasted for more than a decade, and the most optimistic estimates now suggest that this recession will last at least four or five years more before unemployment has recovered. Some now fear a second dip as happened in the 1930s, which could foretell a similar length to the great depression.

4)  Some of the shortest recoveries for severe recessions have occurred when the government did exactly the opposite of Keynesian government spending. In the 1920s and 1980s the government made sharp cutbacks in the size and scope of government, and government regulation, getting out of the way of the market to let it work more efficiently. Measured for initial severity, ultimate duration, and strength of recovery, these recessions represent two of the most successful recession recoveries in history.

There is NO evidence that Keynesian stimulus spending works, and very strong evidence that it makes matters worse.

Stuart Varney Interview with Peter Morici, July 1, 2010

Peter Morici, University of Maryland Professor of Economics:

Stuart Varney: “Are you predicting that the economy is going to fall off a cliff?”

PM: “Well, if we have a double dip, if we turn into a second recession, the economy won’t recover. The definition of a depression is a recession from which you cannot recover. The economy has natural resuscitative qualities, due to the inventory cycle, things of that nature; we’ve used that up this time around. If we take a second dip that won’t be present. What we’ve seen is the Obama administration is incapable of crafting economic policies that have permanent positive effects on the economy; its attack on the private sector from cap-in-trade, to higher marginal taxes, higher health care costs and so forth, all of these little things are adding up. What’s more, as we have discussed so many times in recent years Stuart, they are not addressing the fundamental problems; the trade deficit with China, the huge hole in demand for US Goods and services, and the bank reforms do nothing for the regional banks, those eight thousand banks don’t have cash to lend. Obama worries about Wall Street, not main street, finance not manufacturing, that’s why this could happen.

SV: Okay, now bring us up to date, and bring us up to speed on the big debate. I’m saying that the great debate is: Do we spend more and stimulate more with government money now, or do we cut back on spending and concentrate on deficit reduction now? Where do you stand in that debate?

PM: We certainly don’t spend more, I would not take back the remaining stimulus money, I would let it work itself through the system. However, I would at this time take very strong steps to address the trade deficit with China.

SV: Yeah but, but okay ...

PM: I would have a policy that …

SV: I know that’s your point …

PM: Hold on, hold on ...

SV: I know that’s your point …

PM: If you do that ...

SV: But, but …

PM: If you do that, if you do that, then you can cut spending.

SV: Okay.

PM: Because the increased demand that you’ll create that way for domestic goods and services permits you to cut spending. It permits you to lower the deficits in the United States, in Europe, if you do that.

SV: Am I right in saying that you’re looking for, overall, a loss of 150,000 jobs tomorrow morning?

PM: Yes I am. We’re essentially going to lose 200,000 census jobs, in round numbers, it’s very hard to get a fix on that even though they give us data. And so the question is: How many jobs are created net of that? Last month it was about 30,000, maybe this month it will be 50,000, that’s hardly enough to sustain this recovery.

SV: Okay. Professor Morici, it’s always a pleasure. Thanks very much for joining us again sir, appreciate it.

PM: Take care.

The Frank-n-Dodd financial reform "monstrosity"!

The Frank-n-Dodd financial reform "monstrosity" is thousands of pages of legislated economic uncertainty:

"If you read the bill, it looks like it's a plan, ... for plans. It gives regulators all kinds of new charges and they're going to have to figure out how to do those. It's creating all kinds of new study commissions who will have to come up with new results. So, it leaves people in business with a lot of uncertainty [asking] 'just where are we going now?'" Robert Shiller, Yale Professor of Economics, author of "Animal Spirits" interviewed by Dagen McDowell on FBN today.

A Conservative in Europe

"The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest the republic become bankrupt, people should again learn to work instead of living on public assistance." Marcus Cicero 55BC, as reported by Charles Payne on FBN, June 28, 2010

The Sole Evil of Free Market Capitalism

The greatest & perhaps sole evil of free market capitalism is that it makes mankind so productive and wealthy that society can afford to support, and will tolerate, a class of idiot intellectuals who would destroy all that is good in society in the foolish pursuit of a nightmarish socialist utopian fantasy.

The Foolish Focus on Aggregate Demand

© June 24, 2010 – FV Hayek & Co. LLC

Economic Foolishness:
Listening to a business news show the other day, I heard a rather shocking comment by a guest whose byline was “Senior Economist” for the channel. This guest stated, and appeared to genuinely believe, that when the government hires a worker the income tax from that worker will increase net revenues to the government!

I was stunned and incredulous to hear such a ludicrous statement, which seems to me simply ignorant of economic reality and market operation, especially coming as it did from a supposed “Senior Economist.” How is it possible that such foolishness can pass for economic wisdom?

Aggregate Demand – The Keynesian “Knob”
The trouble with many so-called economic experts today is that they have drunk the “Kool-Aid” of Keynesian theory; a principle tenet of which is that measurement and manipulation of “aggregate demand” is the key to understanding and manipulating the economy. This seems inevitably to create a myopic focus on “spending” with too little regard for the source of the funds, or understanding of the target of the spending. Their logic is roughly equivalent to the foolish consumer who tries to feel better by running up their VISA credit card balance in a frenzied “buying spree,” and when the VISA bill comes, pretends to pay off the VISA by charging it to their MasterCard.

The Market is not the Keynesian’s Personal Toy!
The other major myopia from the Keynesians is to see markets as inanimate objects that they can mold freely without unintended consequences. They look at a sector of the market with $X flowing through it and think if they impose a tax of Y% they will receive $XY in new revenue. But markets are the aggregate of rational decisions by living breathing people who react to the changing economic climate around them. With a Y% negative impact on that activity they will generally look for other alternatives, perhaps not immediately, but ultimately.

The net effect, at some level of taxation, is a crippling of the economy in three ways; first they remove some of the profits which would otherwise find their way back into the economy at nearly a 100% rate of deployment, second, they cause a reduction in the activity which they taxed with its capital diverted to a use which is not as efficient as the initial use, and third, they create an environment of uncertainty which causes all businesses and investors to hesitate to put any capital to work which they can hoard or shelter for the rainy day which seems likely in light of ever larger government budget deficits.

Money vs Capital
Not all capital is “created equal.” When the government spends money, that spending can never represent increased wealth in the economy because it must come from the economy first and then the government usually burns up 50% to 70% of it in bureaucratic waste. The “government credit card” only has three sources of money, it either takes the funds out of the economy in taxes, or by inflationary devaluation of everyone’s dollars through expansion of the printed money supply, or by soaking up bond capital which otherwise would be available to invest in the private sector. There is no government “capital” tree; they can print dollars, but not wealth. The U.S. economy is worth precisely its net productive output just like the net profits of a company. The dollar’s value is just like the value of a share of stock in a company, if you print more stock, each share of stock is worth less.

Fiat Currency
The U.S. Dollar today is not backed by gold or any other “hard currency,” it represents literally the “full faith and credit of the United States.” The value of the dollar floats in relation to the value of the total U.S. economy. As our GDP increases, a given quantity of dollars in circulation become worth a larger share of that GDP. Conversely when the GDP shrinks, with the quantity of dollars in circulation held constant, each dollar becomes worth less. Of course, the government can print these pieces of paper at any rate they choose; ink and paper are relatively cheap. Since this simple relationship exists between the value of money and the GDP, increasing the supply of money has no effect on total wealth, but only the value of each dollar. If the government prints enough dollars to insure that the supply in circulation keeps pace with the growth of the national GDP, each dollar will “hold its value.” If they print too many dollars, each dollar will decline in value.

There is a “parlor trick” here that the government can use to its benefit. When the government first spends newly printed dollars which grow the money supply, these dollars are worth what they were before the new money supply expansion. It is only after the expanded circulation reaches a new value-equilibrium that the reduction in value is felt by others in the economy. Other things may also cause a delay in the inflationary effect of an expanded money supply; if widespread uncertainty causes people to hoard dollars, or turn them into illiquid assets like gold or other hard currency, taking money out of circulation, the existing dollar value equilibrium may not immediately exhibit any effect. As the uncertainty fades, and the hoarded savings is flushed back into circulation, it will create a sudden spike of inflationary devaluation.

The potential benefit of hard currency like gold is its relative stability. The supply of gold generally grows somewhat slowly, so those participating in the market know with a degree of confidence what their currency is worth. A responsible government can achieve the same effect with fiat money (printed dollars) by maintaining the circulating supply of dollars in relative balance with the growth of the nation’s GDP, but the temptation for government is to use their printing press as a personal money tree for government bureaucrats to enhance their political power.

The “Spender of Last Resort”?
With the Keynesian single-minded focus on “aggregate demand” as the economic control of choice, when the economy is in decline, they will often say that the government must become “the spender of last resort;” with a focus on “spending” as the key to growth and recovery in an ailing economy. The director of the Fed recently said, with regard to small business hiring and growth:

"Too slow a response on the small business side is one of the reasons that job creation is not as quick as we would like it to be, and I think it is important to try to remove the barriers and impediments for small business to expand. [With regard to tax policy], I agree that we want to make tax policy as small business friendly as possible to provide the right incentives to give them the opportunities to invest and hire; beyond that though, I think for them to do that, first they need demand, they need sales so we need to keep the economy growing, and the Federal Reserve is doing its part by maintaining supportive monetary policy, and we also need to be sure they get credit.” [bold emphasis added]
Ben Bernanke – June 9, 2010

Keynesian theory places a myopic focus on “aggregate demand” as both the surest indicator of economic conditions, and the panacea “knob to turn” to fix all that ails the economy. An economy is a closed system of countless interactions between supply and demand. You can always reach into this closed system and measure how things are going at any point in the cycle, and meddling with the system at various points will indeed produce effects on the system. In a closed system, any element may be viewed as both a cause and an effect; aggregate demand is just one of these cause/effect twins in the system. But there is a fundamental problem with the classic Keynesian exclusive focus on aggregate demand.

Creative Innovation: The Engine of Wealth Creation
The great strength of a capitalist economy is the creative invention that it fosters. Command economies have always failed utterly to compete with free-market capitalism, because they are failures at creative innovation. A focus on government spending to create “aggregate demand” can only focus on demand for yesterday’s “supply.” You cannot create an iPod by stimulating aggregate demand, nor a Ford Model T, a personal computer, or a cell phone. All innovations in the market are the result of creative deployment of excess capital to create a new kind of supply that has never before existed. Innovation leads to new supply for which there was no measureable demand before that innovation hits the market. The best possible antidote to a severely depressed market would be a flood of new products and market innovations which in turn creates its own expanded aggregate demand. Expanded aggregate demand is the effect of creative innovation-driven growth in the economy, not its cause.

Attempts to “steer” the market by direct artificial injections of aggregate demand cannot stimulate innovation, but can only create temporary, artificial, ultimately unsupportable demand for existing production. This stimulation of what would otherwise be excess demand sends the market off in a direction it would not go on its own, so when this artificial stimulus is removed, the market inevitably flounders again. We have seen this quite clearly recently in both the housing and automotive markets. Any attempt to steer the economy into recovery through government spending is akin to steering a car while looking in the rear view mirror; if you focus on where you’ve been you will surely end up off in the weeds somewhere. Free market economies thrive on creative destruction; old markets are constantly being replaced by new innovations. Command economies fail because they stifle the creative innovation that can only be discovered through market freedom.

Economic Capital, or Political Capital?
With due respect to Chairman Bernanke and the Keynesians, they could not be more wrong about what the economy needs to grow. The creative innovation for a startup business cannot begin with demand and sales, it must first begin with readily available excess capital to invest. But what Chairman Bernanke calls “supportive monetary policy” soaks up vast amounts of this excess capital, and then some. The first round of “stimulus spending” is never enough, because it cannot lead to real organic growth of the economy. It always leads to call for additional rounds of even more “stimulus spending” by the government. One might think that even dullard government bureaucrats might begin to question the wisdom of their policy, except that direct government spending is a political drug which produces the heady intoxication of increased political power. The very thing the Keynesians do to stimulate the economy, direct government spending to expand aggregate demand, starves the creative innovation in an economy by soaking up excess capital, but it can be very effective at buying votes.

To Stimulate the Economy, Stimulate Creative Innovation
What is needed when the market is depressed, are injections of excess capital in the hands of private investors across the entire economy to allow new innovations to come to the market. Government simply cannot create these through direct investment, because no one knows where the next iPod or Model T will come from, until the free market discovers it. In all the recorded history of economic activity, an examination of all the innovation which came from direct government design (?) is dwarfed in comparison to the creative innovations of individual entrepreneurs who created products and services for which there was no pre-existing aggregate demand.

There are really only two ways the government can stimulate the economy today. The best approach overwhelmingly is to dramatically cut the size, scope, and cost of government. Every conservative politician in the modern era needs to be aggressively running on this platform. It is consistent with the founding principles of constitutionally limited government which made America great, and the only responsible course going forward. The second best way to stimulate the economy is large reductions in taxes across the board. This still raises deficits, like excessive spending, but unlike spending, it actually reduces bureaucratic waste and it allows the market to pick winners and losers. If accompanied by wholesale re-vamping of our entire tax structure toward a dramatically flatter, fairer, and simpler tax system, it will reduce uncertainty in the market. Ideally, all of these things should be pursued together. The reason these work is that they can place vast new capital resources in the hands of entrepreneurs in the private sector to pursue creative innovation.

Startup businesses in particular cannot rely on bank loans. A true startup business cannot qualify for small business loans, they depend on the broader private capital market for investments of personal capital and friends-and-family investments. This private capital and the small startup businesses that depend on it, look at the brutish, clumsy government spending which has taken center stage, and rightly stand in the wings until this “oafish bully of big government” will get out of the way and give the market “stage” back to the “artists of free market creative innovation.”