Saturday, March 07, 2009

“Change” Under Obama: From Dumb to Dumber and From Bad to Worse

A recent article in The New York Times quotes President Obama as saying, “I don’t buy the argument that providing workers with collective-bargaining rights somehow weakens the economy or worsens the business environment. If you’ve got workers who have decent pay and benefits, they’re also customers for business.” (March 2, 2009, p. B3.)

The President’s statement reveals a great deal about his understanding or, more correctly, lack of understanding of economics.

Collective bargaining is the joining together, typically through the instrumentality of a labor union, of all workers in a given occupation or industry for the purpose of acting as a single unit in seeking pay and benefits. It is an attempt to compel employers to deal with just one party—i.e., the labor union—and to come to terms agreeable to that party or to be unable to obtain labor.

The imposition and maintenance of collective bargaining necessarily depends on compulsion and coercion, i.e., on the use of physical force against both employers and unemployed workers. This coercion is necessitated, in substantial measure, precisely by the seeming success that collective bargaining can achieve.

That success is measured in terms of the rise in wage rates that it achieves. That rise in wage rates is all that labor union leaders and their ignorant supporters are aware of.

Precisely this “success,” however, is the cause of major problems. The first is that higher wage rates reduce the quantity of labor that any given amount of capital funds can employ. For example, at a wage of $20,000 per year, $1 million of payroll funds can employ 50 workers for a year. But at a wage of $25,000 per year, it can employ only 40 workers for a year. With every further rise in the wage, correspondingly fewer workers are able to be employed.

Higher wage rates also serve to raise costs of production and thus the selling prices of the products that the higher-paid workers are producing. These higher selling prices reduce the quantities of the products that buyers are able and willing to buy. And thus, whether as the result of the reduced purchasing power of capital funds in the face of higher wage rates or the reduced quantities of products demanded by customers in the face of higher product prices, the effect of collective bargaining is a reduced quantity of labor employed, i.e., unemployment.

It is shocking, indeed, frightening, that the President of the United States, whose main concern at the moment is supposedly with overcoming mass unemployment and preventing its getting worse, does not understand that any policy that drives up wage rates drives up unemployment.

The unemployment that collective bargaining causes is what explains why it is necessary to resort to coercion against wage earners in order to maintain the system. The self-interest of the unemployed is to find work, and to accept lower wage rates as the means of doing so. And taking advantage of that fact is to the self-interest of employers. Thus there are two parties, unemployed workers and employers, whose self-interest lies with a reduction in the higher wage rates achieved by collective bargaining.

If these parties are free to act in their self-interest, the system of collective bargaining must break down. How are they to be prevented from acting in their self-interest?

The answer is physical force. Stepping outside the system of collective bargaining must be made illegal if the system is not to break down. That means employers and unemployed workers must be threatened with fines or imprisonment for acting in their self-interest and withdrawing from the system of collective bargaining. In the last analysis, they must be threatened with the specter of armed officers ready to cart them off to jail if they disobey the requirements of the system, and to club and shoot them should they physically resist being carted off to jail. (It is not always necessary that the physical force that imposes and maintains collective bargaining come directly from the government. It can often come from labor unions that the government chooses not to prosecute when their members physically assault strikebreakers, surround factories and refuse to allow entry or exit, start fires, set off stink bombs, shoot out tires, and perform other acts of vandalism and intimidation.)

In saying, “I don’t buy the argument that providing workers with collective-bargaining rights somehow weakens the economy or worsens the business environment,” President Obama confesses to not knowing that collective bargaining raises prices and causes unemployment. He confesses to not knowing that it raises costs and prices not only through the imposition of artificially high wage rates, but also in imposing on employers the use of unnecessary labor, sometimes as many as four or five workers to do the job that just one could do.

(A classic example of this is the insistence on the use of a carpenter, plumber, electrician, tile setter, and drywaller to make a simple repair in a bathroom, merely because the separate labor unions involved claim each operation as belonging to their respective members exclusively, i.e., claim a monopoly on that type of operation.) He confesses to not knowing how the enormous difficulties that labor unions put in the way of firing incompetent workers are responsible for such phenomena as so-called Monday-morning automobiles. That is, automobiles poorly made for no other reason than because they happened to be made on a day when too few workers showed up, or too few showed up sober, to do the jobs they were paid to do. The automobiles companies were unable to fire such workers without precipitating a crippling strike, to which the system of compulsory collective bargaining gave them no alternative.

Collective bargaining, with its imposition of higher costs and prices and lower product quality, is at the root of the destruction of the American automobile industry and many other American industries. President Obama not only chooses not to know this, but selects union leaders as his companions, including the leader of the United Automobile Workers Union. (The Times article from which I quoted him is accompanied by a photograph that shows him, in what appears to be a round of golf, with Ron Gettelfinger, who is the president of the U.A.W., James Hoffa, who is the president of the Teamsters, and John Sweeney, who is the president of the A.F.L.-C.I.O. The article notes that “Mr. Sweeney has visited the White House at least once a week since Inauguration Day.”)

The reader should keep in mind the coercive nature of collective bargaining. Then he should consider Mr. Obama’s observation that “If you’ve got workers who have decent pay and benefits [as the alleged result of collective bargaining], they’re also customers for business.”
This statement makes about as much sense as declaring that people who are successful at sticking up gas stations are also customers of gas stations.

Moreover, the workers who are unemployed by collective bargaining are not customers of business, or not very good customers (they can’t afford to be). And the products offered by business to its customers are poorer and more expensive because of collective bargaining. This is something, it must be stressed, that reduces the buying power of the wages of workers throughout the economic system, i.e., reduces what economists call their “real wages.” Mr. Obama needs to forget the nonsense he believes about collective bargaining and paying extortionate wages somehow benefiting business and learn to understand how it harms wage earners, how it harms every wage earner who must pay more and get less as the result of legally enforced collective bargaining. He must learn to understand how it also harms every worker who must earn less as the result of being displaced by collective bargaining from the better paying jobs he could have had if wage rates in those lines had not been driven artificially still higher by collective bargaining and thus reduced the number of workers who could be employed in them and thereby forced those workers into lower paying jobs.

Unfortunately, it does not seem very likely that Mr. Obama will ever learn any of this. He appears to be so charmed by the use of compulsion and coercion that he and his supporters in Congress are ready to unleash a reign of outright mass intimidation against American workers.

In a bow to Orwell’s 1984 and its world filled with such slogans as “war is peace,” “freedom is slavery,” and “love is hate,” Obama and his henchmen are readying “the Employee Free Choice Act.” This is an act designed precisely to end employee free choice, by depriving workers of the benefit of a secret ballot in deciding whether or not they want to join a union. In the words of The Times article, this is “a bill that unions hope will add millions of new members by giving workers the right to union recognition as soon as a majority of employees at a workplace sign pro-union cards. The bill would take away management’s ability to insist on a secret ballot election.”

Here we have it. Obama is against the secret ballot. No, he’s not yet announced any opposition to the secret ballot in elections for public office. But there’s absolutely no difference in principle between being against the secret ballot in elections concerning whether or not to unionize and being against it in elections for public office. In both cases, it is a matter of subjecting people to intimidation if they express a choice that is opposed to the one that an organized, powerful group wants them to make. In this case, that group would be the union goons who would distribute the “pro-union cards” that workers would be asked to sign or refuse to sign in their presence. Are Obama and his followers really so naive as not to know that any worker who would reject joining a union in these circumstances would, at a minimum, be exposing himself to ostracism and the chance of substantial personal economic loss in the event the union gained recognition and he is on record as having opposed it?

Be assured, they are not so naive. They look forward to the intimidation. They look forward to it in the recognition that that is what is required to swell the ranks of the unions once again.

The wider principle here is the readiness of Obama and his associates to resort to intimidation to further their goals. It is the method of street thugs and of dictators. That is what is present in their attempt to deprive workers of the secret ballot in deciding whether or not to unionize.

The last occupant of the White House often gave the impression of having an inadequate command of the English language and of experiencing great difficulty in speaking in grammatical sentences and using words in accordance with their proper meaning. The present occupant of the White House speaks impeccable English, with crisp, clear pronunciation. Nevertheless, his actual knowledge—of economics, of the meaning of individual rights, and of the nature of government—appears to lag far behind that of his bumbling predecessor.

Furthermore, while Bush may be accused of disregarding the rights of foreign terrorists at war with the United States, Obama is out to disregard the rights of peaceful, productive American citizens. This is apparent not only in his readiness to deprive American workers of the secret ballot in union organizing elections, but also in his efforts to dramatically raise the taxes of everyone earning more than $250,000 per year, in an attempt to achieve a substantial redistribution of income. It is also evident in his policies on energy and healthcare as well.

In sum, the “change” that Obama promised his mesmerized supporters in the election campaign, and is now in process of actually delivering, is nothing more than change from dumb to dumber and from bad to worse.



Copyright © 2009, by George Reisman. George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. He is also a Senior Fellow at the Goldwater Institute. His web site is www.capitalism.net and his blog is www.georgereisman.com/blog/. A pdf replica of his book can be downloaded to the reader’s hard drive simply by clicking on the book’s title, above, and then saving the file when it appears on the screen. The book provides further, in-depth treatment of the substantive material discussed in this article and of practically all related aspects of economics.

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Sunday, November 30, 2008

Larry Summers: Heavyweight Centrist or Lightweight Leftist?

A recent New York Times article provides two significant pieces of information about Larry Summers, the man designated by President-Elect Obama to be head of the National Economic Council and, as such, according to The Times, “his lead economic adviser inside the White House.” (David Leonhardt, “The Return of Larry Summers,” November 26, 2008, p. B1.)

First, The Times’ article informs its readers that Summers, a former Secretary of the Treasury under President Clinton, and later President of Harvard University, so impressed Henry Kissinger that years ago “Kissinger suggested that Mr. Summers be given a White House post in which he was charged with shooting down or fixing bad ideas. Mr. Summers’ loyal protégés — Timothy Geithner, who beat him out to become the next Treasury secretary; Peter Orszag, the next budget director; Sheryl Sandberg, the chief operating officer of Facebook; and others — say that Mr. Summers can make them smarter in ways that almost no else can.”

The second significant piece of information provided by The Times’ article describes the nature of Mr. Summers’ own ideas. It describes how “His favorite argument today…goes like this: To undo the rise in income inequality since the late ’70s, every household in the top 1 percent of the distribution, which makes $1.7 million on average, would need to write a check for $800,000. This money could then be pooled and used to send out a $10,000 check to every household in the bottom 80 percent of the distribution, those making less than $120,000. Only then would the country be as economically equal as it was three decades ago.”

The Times’ reporter has apparently known about Mr. Summers’ redistributionist ideas, as well as his closeness to Mr. Obama, for at least a year and a half. As a professional journalist, he had a moral obligation to share such important knowledge with the general public. But he, and many others, similarly so informed, did not bother to do so. Instead, even in the face of the substantial public upset in connection with the question about redistribution posed to Mr. Obama by the now famous “Joe the Plumber,” they chose to remain silent.

They personally favored the election of Mr. Obama and his ideas on the subject of redistribution. Badly lacking in professional standards and personal morals, they placed their own political agenda above their professional obligation to inform the public about a matter vital to an intelligent decision as to how to cast its ballots.


And now, when they openly describe the redistributionist egalitarianism of Mr. Summers and, implicitly, Mr. Obama, they try to make a far-left agenda more palatable by depicting these gentlemen as belonging to the “center” of the political spectrum.[1]

Summers apparently does not see, or if he does see, does not care, that in presenting his proposal for redistribution, what he is urging is armed robbery on a massive scale. That is the essence of any policy of “redistribution,” whether advocated by Summers and Obama or by Lenin, Stalin, or Mao.

For what is going to make each of the top 1 percent of income earners pay an extra $800,000 in taxes? The only thing that would make them pay it is fear of being arrested and imprisoned. And who will arrest and imprison them? Armed thugs wearing the uniforms and badges of officers of the United States Government, who would give them no other choice but to pay the money or be hauled off to jail and clubbed or shot if they resisted. (What a total perversion this would be of what the United States Government once stood for: a transformation from an institution designed for the protection of individual rights into a gang of bandits massively violating individual rights.)

How does this differ in any essential respect from those who are to receive the loot, in the form of $10,000 checks, taking matters into their own hands and simply robbing the homes and businesses of the top 1 percent of income earners to the extent of $10,000 each? They would give the homeowners and businessmen the same choice, of their money or their lives.

And why should it stop at $800,000 in extra taxes and $10,000 each for the looters? If the economic inequality represented by that $800,000 per capita of the top 1 percent of income earners must be done away with, why should not all economic inequality be done away with? Why not make everyone an equal owner and equal income recipient, i.e., why not go straight for communism? That’s the logic in what Summers is advocating.

Not only is Summers advocating the kind of evil committed by criminals, but he also displays a degree of lack of thought that is often found among criminals.

One of the implications of his proposal is that an individual who increased his earnings by just one dollar could be liable for an additional $800,000 in taxes. Based on the most recent available data, which are for 2006, an individual who increased his earnings from $388,806 to $388,807 would thereby be thrust into the top 1 percent of income earners and thus be made subject to the $800,000 of additional taxes urged by Summers. This, of course, would leave such an individual with an after-tax income of minus $411,193. (In addition, of course, all of the ordinary income taxes for which he would be liable at that level of income would also have to be subtracted, throwing him still further into Summers’ Alice-In-Wonderland world of negative after-tax income.)

Summers is probably unaware of this, because he appears to focus on the $1.7 million average income of the top 1 percent of income earners. This enables him to ignore all the below-average incomes of members of that group that would be rendered negative on an after-tax basis if his scheme were imposed.

A proposal this hare-brained makes Summers come across more as an intellectual lightweight than as any kind of brilliant thinker able to identify the errors in others’ thoughts.

There is actually a reason for Summers’ advocating a scheme that implies negative after-tax income for many upper income taxpayers. That’s the fact that that is what is necessary to make it appear that redistribution can constitute any kind of significant gain to large numbers of people. If one rules out taxes that imply negative after-tax income, and also taxes that serve to reduce the demand for labor or capital goods, it turns out that there is very little to “redistribute.”

First of all, all of the wealth of businessmen and capitalists that is in the form of capital (which in the case of large businessmen and capitalists, is almost all of their wealth) already benefits the entire population. It does so by virtue of serving to produce the goods and services that everyone buys and by virtue of constituting the source of the demand for the labor that wage earners sell.

The wealth of Exxon, General Motors, Dell, etc. is in the means of production that bring gasoline and heating oil, automobiles and SUVs, computers and monitors to the masses. Their wealth and that of all other firms is also the source of the demand for the labor that wage earners sell. Thus there is a twofold general benefit from privately owned means of production: the benefit to the buyers of products and to the sellers of labor.

Exactly the same is true of profit and interest income and of capital gains and inheritances to the extent that they are saved and invested, which, in the case of large incomes and inheritances is overwhelmingly the case as a rule. The only special benefit of the businessmen and capitalists, i.e., the only benefit that they obtain which the non-owners of the means of production do not obtain, is the additional personal consumption that their wealth makes possible, plus the satisfaction of knowing that if necessary they could consume their wealth.

The truly personal consumption of businessmen and capitalists is insignificant in the scheme of things. For Warren Buffet, the world’s richest man, it appears to be on the order of an extra ice-cream soda per billion dollars of additional capital accumulated, plus mosquito nets to fight malaria in Africa. The few dozen or even few hundred mansions, yachts, and personal jets of other very wealthy businessmen and capitalists, pale into insignificance alongside the tens of millions of ordinary homes, automobiles, refrigerators, freezers, washer-dryers, air-conditioners, television sets, and computers of the general population. A major, probably the greater part of the consumption of the leading businessmen and capitalists takes the form of the support of such institutions as universities, hospitals, opera companies, libraries, and the like. When all this is taken into account, it turns out that in the first place there is simply not very much to redistribute that the intended beneficiaries of the redistribution do not already have.

It also turns out that attempts to redistribute the wealth of businessmen and capitalists serve almost entirely to reduce the supply of means of production and the demand for labor. It is a self-destructive policy of eating the seed corn. Summers and Obama are ignorant of such facts. Never having studied the works of Mises, they have no way of knowing them. (For elaboration of these points, see the author’s Capitalism: A Treatise on Economics, pp. 297-303, 622-639.)

It speaks volumes that apparently no one to whom Summers presented his “favorite argument” had the ability to find any moral or practical flaws in it.

Summers should be fired. He’s too shallow and ignorant and his ideas too evil for him to serve in the United States Government in any capacity. Although generally viewed as a prominent professional economist, his actual knowledge of the subject is minimal. This conclusion follows from the fact that the essential subject matter of economics is capitalism. And Summers' ideas on redistribution reveal that he fails to understand the nature of the most essential feature of capitalism, namely, private ownership of the means of production and the indispensable role it plays in the standard of living of the average person.


His views may qualify him to be an economic advisor to Hugo Chavez of Venezuela or Robert Mugabe of Zimbabwe, but certainly not to be an economic advisor to the President of the United States. Before anyone assumes that position, he should know and understand the ideas of Ludwig von Mises, who is far and away the leading theorist of capitalism, and whose works explain its operation as it is has never before been explained. In the absence of extensive knowledge of Mises, one is, simply put, an economic ignoramus, irrespective of the degrees, awards, and public acclaim one may enjoy.

[1] These are the same kind of reporters who define laissez-faire capitalism in an equally bizarre way. Just as you supposedly can be an egalitarian and a Marxist and still be a centrist, so too you allegedly can have virtual economic fascism and it will still be laissez-faire capitalism. And it will be laissez-faire capitalism which is then blamed for all of the evils of economic fascism. Thus, irrespective of the present-day magnitude of taxation and government control over economic life, irrespective of the massive government intervention in the form of credit expansion and of laws compelling the making of loans to unqualified borrowers, which in fact caused our present financial crisis, laissez-faire, they say, still existed and it is what is responsible for the crisis. They claim that laissez faire existed because financial innovations were able to take place without their first being thoroughly understood by government bureaucrats and only then being allowed to occur. Never mind that the major flaw in the innovations was the mistaken belief, held almost universally, but first and foremost by government bureaucrats and by their allies in the media, that the Federal Reserve had made the existence of depressions impossible. (For elaboration on the attempt to blame the crisis on laissez-faire, see the author’s “The Myth that Laissez Faire Is Responsible for Our Financial Crisis.”)




Copyright © 2008, by George Reisman. George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. His web site is www.capitalism.net. A pdf replica of his book can be downloaded to the reader’s hard drive simply by clicking on the book’s title Capitalism: A Treatise on Economics and then saving the file when it appears on the screen.




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Friday, November 28, 2008

Why We MUST Invoke Our Individual Rights—Now, By Gen LaGreca

America today is a nation in trouble. The great fortress of liberty, the country of the most productive, prosperous, and happy people in the world, is now in grave danger. America is under siege by the Dark Side, the forces of statism, while its Knights of Liberty are disarmed, demoralized, and suffering near-fatal wounds.

The country that once elected leaders whose ideas upheld liberty now elects leaders whose sweet-sounding platitudes and woozy promises are all that is required, and whose actual, dangerous ideas need not be examined until after Election Day.

The country that defended property rights now seizes 40-percent of our income in a myriad of taxes imposed by all levels of government—with even larger levies on incomes, profits, investments, and savings on the horizon.

The country that championed capitalism now vilifies our industries, cripples them with regulations, seizes their profits, then declares that the free market has failed and government must take over.

The country that made possible the great industrial titans—the Henry Fords, Thomas Edisons, and others whose productive genius moved mankind forward—now thinks that government can run things better, and that government should own, operate, and finance our corporations, deciding which will survive and which will die, creating a new kind of soup kitchen where emaciated companies stand in a bread-line waiting for their bailout.

The country that protected the individual now protects polar bears, spotted owls, caribou, and the wilderness at the expense of human life.

The country that fought a revolution to end the abuse of power now elects politicians who wallow in power like hippos in mud, such as members of congressional subcommittees who hold hearings threatening the prosperity or very existence of American business firms, and then let the hearings end with little or no result when the hapless firms make sufficient contributions to the reelection campaigns of the congressmen.

The country of the American eagle, flying proud and free, now pens its people up like chickens in a coop, waiting to feed at the welfare state’s trough.

America is a nation whose government is on the ascent and whose people, consequently, are on the descent.

What can explain our alarming plunge into statism? At the dawn of our country we held a powerful weapon to fight our first battle for liberty, an ideological weapon that emboldened an upstart group of colonists, against all odds, to topple the British Goliath and to ignite a firestorm of liberty that in time led to the abolition of slavery, the suffrage of women, and the spread of freedom around the globe. What ideal ushered in a glorious new age for mankind?

This year’s award-winning mini-series on HBO, “John Adams,” captures the answer. It portrays the moment when Adams reads the stirring document that is the soul of the new nation, the Declaration of Independence, and exclaims to its author, Thomas Jefferson: “This is not only a declaration of our independence, but of the rights of all men!”

The weapon that toppled a king and transformed the world, America’s shining sword, was the doctrine of individual rights.

Our Founding Fathers were imbued with the spirit of the Enlightenment, with the glory, power, and moral rightness of the individual unshackled and free. America’s great distinction is that it reined in government to unleash individual liberty.

The result was amazing. America triggered an explosion of scientific and industrial advancement and a standard of living unmatched in history. The American Dream became the worldwide symbol of boundless opportunity and achievement. A great civilization arose, a country of confident, resourceful, hard-working, wealth-creating, and life-loving people.

All of this rested on a bedrock of liberty—on a government that protected the rights of the individual.

But things changed. The doctrine of individual rights was not always expressed unambiguously or applied consistently in our founding. Cracks in our armor, such as clauses in the Constitution allowing Congress to regulate interstate commerce and to promote the general welfare, gave the Dark Side of Statism an opening to enlarge government far beyond its original purpose.

And our enemies on the Dark Side got stronger as Western thought turned its back on the individual and his right to exist unencumbered by the state. Later thinkers claimed that a person must serve a purpose allegedly higher than his own life and happiness, a purpose dictated by the government. This notion led to communism and fascism. Sadly, it has now spread across America.

Barack Obama states in the Chicago Reader, “[I]ndividual actions, individual dreams, are not sufficient. We must unite in collective action, build collective institutions and organizations.” John McCain urges in his speeches that Americans serve “a national purpose that is greater than our individual interests.” Is there any fundamental difference between these exhortations of the candidates of our two major parties and that of the Nazi Party’s “the common good before the individual good”?

Today America has dropped its saber of individual rights. We stand disarmed and vulnerable to what could be fatal wounds to our liberty. This is why we urgently need to rediscover the meaning of our rights and rekindle our devotion to them. Then we must define a strategy for picking up our sword again, sharpening it, shining it, and using it adroitly to win the most important battle of our age, the battle to rescue our lives and liberty from the Dark Side of Statism. So, let us begin.

The Meaning of Our Individual Rights

The Declaration of Independence proclaims that our rights include “life, liberty, and the pursuit of happiness,” or as described in one state document, the 1784 Constitution of New Hampshire, our rights include “enjoying and defending life and liberty; acquiring, possessing, and protecting property; and in a word, of seeking and obtaining happiness.” What does this really mean? The following are ten characteristics of individual rights.

1. Our Rights are Unalienable
They are inherent in our nature as human beings. No government gives us our rights, and no government can take them away. In Jefferson’s Summary View of the Rights of British America, he states that free people claim their rights “as derived from the laws of nature, and not as the gift of their Chief Magistrate.” Exercising our rights is like breathing. We need not ask the government’s permission to breathe, nor to exercise our rights.

Remember this when you the hear statists like Mr. Obama say in a speech in Roseburg, Oregon: “We can’t drive our SUVs and eat as much as we want and keep our homes on 72 degrees . . . and then just expect that other countries are going to say okay.” How can we claim our unalienable rights if we can be prevented by the state from enjoying a standard of living that somehow offends another country?

2. Our Rights are Rights to Take Action
They are not entitlements to the free goods and services of other people. In a letter to Isaac Tiffany, Jefferson defines liberty as “unobstructed action according to our will within limits drawn around us by the equal rights of others.” This means we may work for the things we want. We may earn money and buy a house, but we may not
expect the government to seize taxpayers’ money to provide us with a house for free.

As James Madison said on the floor of our country’s newly formed Congress: “I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.” According to the Father of the Constitution, charity is a private matter. You may spend your own money to help your fellow man, but the state cannot seize your money and force you to be charitable. How can we fail to conclude that today’s entire welfare state and the redistribution of wealth fueling it are illegitimate and must be stopped?

3. The Pursuit of One’s Own Happiness is a Right
A person is not a pawn in the service of the state’s aims. When Hillary Clinton, echoing her party’s platform, declares in a San Francisco speech, “We’re going to take things away from you on behalf of the public good,” how can this mean anything other than her intention to seize your property and infringe on your happiness so that she and her party’s voting base can pursue their happiness at your expense?

4. The Majority Cannot Violate the Rights of the Individual
Because individual rights are unalienable, they are not subject to any majority vote. Our Founders were as suspicious of democracy, or unlimited majority rule, as they were of monarchy. In a letter to P.S. Dupont de Nemours, Jefferson states: “[T]he majority oppressing an individual is guilty of a crime . . . and by acting on the law of the strongest breaks up the foundations of society.” If you have a bigger bank account than your neighbors, they cannot steal your money and redistribute it among themselves. By the doctrine of individual rights, neither can the government. If Congress votes to increase your taxes to pay for a prescription drug plan for seniors, or a mortgage bailout for homeowners, it is telling you that a majority can rob you of your rights. When a neighborhood gang steals your money, you can call the police; but when the perpetrator is Congress, who can you turn to for help?

5. There are No Rights of Groups
Rights belong to individuals. If pizza eaters lobby Congress for a “right” to a free pizza every Thursday, and if Congress, out of concern for their nourishment or their votes, grants their wish, it acts illegitimately. There are no special rights of seniors, workers, farmers, women, minorities, people with blue eyes, left-handed people, etc.

The Founders tried to protect the individual not only from the tyranny of a monarch, but also from the control of what they called “factions,” i.e., special interest groups seeking government privileges and entitlements to benefit their members at the expense of other citizens. In the Federalist Papers, Number 10, Madison addresses the danger of a democracy bringing factions into power: “[S]uch democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property . . .” How can we fail to see how today’s Godzilla-like factions have invaded our country, crushing the individual under their massive feet? How can we fail to realize that today we have a government of the factions, by the factions, and for the factions?

6. Our Rights Include the Right to Property
Without property rights, no rights are possible. If the state can seize the fruits of your labor, doesn’t that make you “a laborer legally bound to and obliged to serve a master,” which is the definition of a serf? And if you are a business owner, with the state now regulating virtually every aspect of your enterprise, doesn’t that make you “someone whose actions are controlled by the will of others,” which is the definition of a puppet?

Consider Mr. Obama’s answer to the now-famous Joe the Plumber, who questioned the senator’s plan to tax him: “I think when you spread the wealth around, it's good for everybody.” How can it be clearer that Mr. Obama intends to punish success, seize the money of productive people, and give it away to those who haven’t earned it?

Does a rich person have less of a right to property than a poor one? John Adams writes in A Defense of the Constitutions of Government of the United States, “[I]t must be remembered that the rich are people just as well as the poor; that they have rights as well as others; that they have as clear and as sacred a right to their large property as others have to theirs which is smaller; that oppression to them is as possible and as wicked as to others.” By the doctrine of individual rights, how must we rate the endless schemes of today’s politicians to “tax the rich”? Doesn’t this seem like a pack of wolves and a few lambs deciding what to have for lunch?

And what are we to make of the recent YouTube-captured lament by U.S. congressman Jim Moran of Virginia, who says, “[W]e have been guided by a Republican administration who believes in this simplistic notion that people who have wealth are entitled to keep it and they have an antipathy towards the means of redistributing wealth”? Isn’t the loot-and-plunder agenda of the statists becoming more blatant than ever before? Is this the civilized society in which people’s rights have Constitutional protection?

7. Our Rights Include the Right to Intellectual and Spiritual Independence
Our rights rest on the fundamental freedom of every person to use his own mind, think for himself, form his own beliefs, and the liberty to act on these judgments. Jefferson’s Act for Establishing Religious Freedom in Virginia was an achievement he valued so highly that he had it acknowledged on his tombstone. This bill stopped the government’s practice of paying clergy with public funds because, in Jefferson’s words, “to compel a man to furnish . . . money for the propagation of opinions which he disbelieves is sinful and tyrannical.”

Jefferson fought for a “wall of separation between church and state” and was “against all maneuvers to bring about a legal ascendancy of one sect over another.” By the doctrine of individual rights, what must we conclude about today’s faith-based initiatives, which allocate public funds to religious organizations, and the attempts by religious lobbyists and elected officials to dictate public policy based on their faith? What must we conclude about the America-damning Chicago pastor, Jeremiah Wright, who, according to Fox News, received $15 million in federal grants for his organization? Why should people who disagree with his vile preaching be taxed to support Jeremiah Wright, or any other person or organization—religious or secular—whose beliefs, values, and causes they do not share?

Our right to intellectual freedom extends to all beliefs, be they in science, art, philosophy, or any other field, including politics. In an address to the Danbury Baptist Association, Jefferson makes clear that “the legislative powers of government reach actions only, and not opinions.”

With our newly elected Democratic Congress already planning to pass a law that will suppress commentators on talk-radio who oppose them, how can we fail to see the emboldened, Hugo Chavez-like force now being unleashed in the halls of our government? How can we fail to see that the statists’ euphemistically named “Fairness Doctrine” is really a “Censorship in America Doctrine”? How can we fail to realize that this vile scheme must be defeated before it takes away the most potent weapon we have in our fight, our sacred right to freedom of speech?

8 Our Rights Rest on Reason
People are capable of self-government because they possess reason. Says Jefferson in a letter to Peter Carr: “Fix reason firmly to her seat and call to her tribunal every fact, every opinion.” Our Founders expected people to use their own minds to control their own lives. For example, Jefferson gently chastised his teenage daughter, Martha, when she relied on her teacher’s help to read an ancient Roman history text. He wrote her in a letter: “If you always lean on your master, you will never be able to proceed without him. It is part of the American character to consider nothing as desperate—to surmount every difficulty . . . ” Contrast this call for self-sufficiency to today’s welfare state, which destroys our capacity to think and act for ourselves and transforms us into helpless dependents.

9. Our Rights are Violated Only by Force
Only acts of physical force or fraud violate our rights. In Jefferson’s Notes on Virginia he states: “The legitimate powers of government extend to such acts only as are injurious to others.” If I pick your pocket, break your leg, or breach a contract with you, then I violate your rights and the government can and must stop me.

But if I draw a cartoon that offends you, I haven’t violated your rights. If I make a windfall profit on Wall Street, I do not violate the rights of people who didn’t invest as I did. If I offer you a job at a wage lower than you would prefer, I haven’t violated your rights. You are free to seek a better job. However, the government certainly violates my rights if it compels me to hire you on terms I don’t accept. The peaceful economic and personal activities of private persons exercising their liberty do not violate the rights of others and cannot be abridged by the state.

10. Government’s Sole Job is to Protect Individual Rights
Wise government, explains Jefferson in his First Inaugural Address, “shall restrain men from injuring one another . . . shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.” And that’s it. That’s the whole of the job of government.

Bear this in mind when you consider Mr. Obama’s views on American government, given in an uncharacteristically candid 2001 interview with WBEZ radio in Chicago. He expresses regret that the Supreme Court “never entered into the issues of redistribution of wealth” because it “didn’t break free from the essential constraints that were placed by the Founding Fathers in the Constitution.” However, Mr. Obama sees a way around these Constitutional constraints: “[O]ne of the, I think, tragedies of the civil-rights movement . . . was a tendency to lose track of the political and community organizing activities on the ground that are able to put together the actual coalitions of power through which you bring about redistributive change.” How are we to interpret this? Will pressure-group warfare and intimidation by community thugs be the means of bypassing the Constitution and bringing about the “major redistributive change” that Mr. Obama envisions? How can we not be alarmed by these statements? How can we not see that government today has become the greatest threat to our lives, liberty, and property?


Six Strategies for Using Individual Rights in the Fight for Freedom

To win the battle for freedom, we must invoke individual rights, and we must invoke them now, before it’s too late. The statists have become emboldened by their recent election victories; their ranks have degraded to include officials that talk like thugs; their attacks on our rights have become more open and virulent. This brings us to what could be a watershed moment in American history. We must invoke individual rights because they bring morality to our side, and the moral argument is the most powerful weapon of all. The person whose position stems from correct and compelling moral principles will win any argument, just as our Founders won their cause in establishing America. Let’s examine six strategies for employing individual rights in the fight for freedom. These six points will be formulated using the word RIGHTS, which, conveniently for us, contains six letters.

R = Reason with Moral Principles, Not Just Practicality
For example, consider the draft (and the same arguments would hold for other forms of obligatory “national service,” which Mr. Obama seems to be entertaining). When we periodically hear calls for a military draft, the friends of freedom often argue that a volunteer army is more efficient. This is true and definitely deserves to be said. However, giving only the bad consequence (the inefficiency) of an act of government usurpation without explaining why the policy is wrong in principle reduces the argument to a mere practical discussion of the effectiveness of different armies, with no pressing moral issue at stake to rally the public to one side or the other. If the statists can raise plausibility that the draft is efficient, then the friends of liberty have no leg to stand on.

Giving the practical argument from the inefficiency of a draft is like trying to walk with one leg. Adding the moral argument from individual rights gives us two legs—plus a spine. The argument from individual rights asserts that the draft is wrong because it represents involuntary servitude, i.e., it violates a person’s right to life and liberty. A person has the right to decide for himself what he wants to do with the precious years of his life. Government exists to protect that sacred right, not to violate it. A person is free to chose his employment, including a job with the government, especially one that could risk his life. It would be clearly tyrannical for the state to draft its public school teachers, police officers, or mail carriers against their will. How then can the government claim the power to compel someone to serve in the military?

Furthermore, the argument from rights strengthens the practical argument by giving the underlying reason why the draft is inefficient, namely, because people do not perform well when their rights are violated and they are working under compulsion.

The argument from rights deals a mortal blow to the statists. It elevates the issue from a technical matter of military efficiency to a moral issue involving nothing less than our fundamental Constitutional rights. The moral argument is unanswerable, unless you want to be on the side that violates individual rights. This is what we are aiming at—a moral crusade for the sanctity of individual rights as our answer to the statists.

I = Invoke Private Solutions to Life’s Problems
Living in a free society means that we citizens take care of ourselves, and we relish doing so. We’re Americans, the most resourceful people on earth. Each of us is master of our fate and captain of our soul, and that’s the glory of life. Because the nanny state destroys self-esteem and self-reliance, we need to help people discover that they can blow their noses without the nanny holding the handkerchief. Here are just a few self-help tips for living in a free society:

—If you don’t go to school and don’t work hard to get ahead, then don’t expect the same rewards as those who do. You haven’t earned them.

—If you default on a loan, lick your wounds and don’t make the same mistake again. But don’t expect the government to bail you out with money fleeced from taxpayers who pay their debts on time.

—If you want to develop a new enterprise, invention, or source of energy, then work for the removal of all government regulations standing in your way and convince private investors to support you, but don’t try to get a billion-dollar government boondoggle. Be an entrepreneur, not a leech.

—In short, don’t expect any free lunches. Everything worth having in life requires effort to obtain. And there are no guarantees. You can lose your job, your investments can fail, and your fiancé can leave you. Stop trying to use the government to shield you from life’s risks. Take the plunge and feel the tingle of life.

In fighting for freedom, hold people responsible for their own lives.

G = Get Behind Capitalism
We must defend the free market because it is the expression of our individual rights in the economic and material sphere of life. By pursuing profit, we further our lives and happiness. By engaging in economic activities unfettered by the government, we exercise our liberty. As Ayn Rand observed: “[A] free mind and a free market are corollaries.”

The Dark Side’s resentment of capitalism is unrelenting. Capitalism is to a socialist what a stake in the heart is to a vampire. It is the living proof of the power of freedom to create unlimited wealth and prosperity, without the need for power-hungry politicians to run things for us. This is why the Dark Side’s attacks on capitalism are so virulent, and why we must resoundingly defeat them.

For example, consider a CEO’s pay. The statists call for government to limit a CEO’s compensation. Friends of freedom explain that a company is unable to attract the best candidate for CEO with a salary lower than the person can obtain elsewhere. Furthermore, they explain, CEOs deserve their salaries because they bring additional revenue into the company that vastly surpasses their pay, revenue that expands the business, creates more jobs, increases wages of employees, and lowers prices for customers. This argument is crucial in educating the public on the remarkable benevolence of the free market and on its unmatched effectiveness in bringing prosperity to everyone. We need to disseminate this information in order to combat the countless misconceptions of capitalism and ignorance of economics that poison our culture.

But, we can’t stop there. We need to strengthen our case for capitalism by adding the argument from individual rights, which asserts the following: Any government regulation to cut a CEO’s pay sends a message to all Americans to beware. If you make too much, you’re no longer covered by the Constitution; your rights to your life and property are no longer protected; they’re subject to seizure by the police force of the state. Where would it stop? What about a baseball player, or a rock star, or a brilliant surgeon—are they too successful? Does their pay also need chopping by Congress? Will the government seize their livelihood and destroy the American Dream for them, too? CEOs are citizens, which means they have rights, including the right to accept any compensation offered to them. Would the government use its police power to cut the salary of a janitor? If the janitor is free to work for the highest possible salary he can get, then why would the Constitutional rights be different for a company executive? Why would the janitor’s rights be protected, but the CEO’s rights trampled?

The argument from rights shows how government tampering with anyone’s pay represents a tampering with the Constitution and bedrock of America.

H = Hammer the Government for Using Force Against Innocent Citizens
The more we unmask the use of force, the more people will see the thuggery involved in the regulated state.

During a Congressional hearing with oil company executives, Congresswoman Maxine Waters of California castigated them for the rise in gasoline price and threatened a complete government takeover of their industry. Based on this incident, can anyone fail to see the thin line that exists between the welfare state and the police state? The answer to Maxine Waters should be something like this:

The property rights of the millions of shareholders who own these corporations are guaranteed by the Constitution and are unalienable. That means there is never a situation in which you could expropriate that property, even if the price of gasoline hit $1,000 a gallon. This hearing should be adjourned and another one started to remove you from office because you are threatening a level of tyranny characteristic of communism, namely, a police-state seizure of an industry. The rights of every American are at risk with you in office.

If enlightened citizens speak out like this, maybe next time a company executive will have the courage.

T = Talk Straight and Unmask the Enemy’s Evasions
We must translate the honey-coated language of the Dark Side into plain English.

“Redistributive justice” means looting and plundering those who produce in order to give benefits to those who haven’t earned them.

“Government investments in new technology” means replacing real investments—private people taking careful risks with their own money and expecting results—with government squandering of taxpayers’ money in subsidies, grants, and boondoggles that need never turn a profit, that need never show results, with every special-interest group under the sun in line for the bounty.

The most honey-coated of all the statists’ expressions, their constant refrain, is: “We just want to help people.” The notion of government, the exclusive wielder of police force, as a helper in the peaceful affairs of citizens is absurd. Government intrusion necessitates the use of compulsion. As George Washington is reputed to have said: “Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master. Never for a moment should it be left to irresponsible action.”

When politicians say they just want to help people, they neglect to mention that they are garnering dangerous, unchecked powers for themselves and destroying our liberty in the process. We must not allow them the excuse of good intentions. No one can take away our rights, be their intentions good or bad.

For example, the daughter of a presidential candidate appears on television to say: “My dad is a wonderful man. He wants to give free healthcare to the people.” What’s the answer to this? What about giving their rightful freedom to the people? What about the freedom of doctors? Are they now excluded from the Constitution? Do they no longer have the liberty to practice their profession by their own judgment and conscience? Under state-run medicine, doctors lose this freedom and must take orders from bureaucrats.

Another scenario involves farm subsidies. I saw a kind and gentle Republican senator say on television: “We only wanted to help farmers.” She didn’t realize that ethanol mandates for gasoline would contribute to rising prices of gas and food and would lead to food riots in the world. We must translate her words into plain English for the good senator: You mean you only wanted to rob the taxpayer to pander to the farm vote. You wanted to pass regulations favorable to farmers but disastrous to other citizens. The Constitution does not give you the power to take money out of my pocket and put it into a farmer’s pocket. And the Constitution does not give you the power to meddle in somebody’s business, mandating what goes into a product.

We need to find principled public officials to defend our rights, rather than the typical Republicans, who accept the statists’ premises because they want to please everyone and never raise eyebrows. The first Americans had the courage to face the enemy musket to musket. The least that officials on our side can do is summon the courage to raise a few eyebrows.

S = Stand as One People Against the State, Not as Pressure Groups Against One Another
Today the vast majority of politicians are invested in their special interest groups, which means they are intensifying the welfare state and stifling our liberty. They are breaking us into warring tribes—pitting the seniors against the young, the patients against the doctors, the consumers against the oil companies, the home buyers against the mortgage companies—with more and more government regulation as the alleged answer to our woes. We must see beyond this scam. We must take up the sword as one people in one fight against statism.

Defending any person’s individual rights is scoring a point for all of us. Therefore, we need to be the one non-special interest group that places the individual in the center of the battle for liberty. In each instance in which we want to fight for freedom, we need to ask ourselves two questions:

—1. Whose individual rights are being violated?
—2. What can I say or do to defend them?

For example, instead of the typical practice of businesses lobbying for regulations favorable to their enterprises or detrimental to their competitors, imagine if a consortium of companies banned together in a massive media campaign addressed to the public, not to the legislators, asserting the individual rights of each of them to operate without government interference. How shocking it would be to learn that business owners have Constitutional rights and they are asserting them! The consortium must risk vehement denunciations by the Dark Side and hold its ground. Such a battle would refocus the American people on the true meaning of rights, educate the young (who apparently never learned of America’s greatest legacy in school), and eventually win the country. Wouldn’t that be a better way to spend millions of dollars than to obtain some range-of-the-moment concession from the statists while reinforcing their system of political pull?

And in education, instead of parents’ groups fighting each other over what curriculum should be taught in public schools, what if the enlightened among them banned together to fight for the right and responsibility of every parent to control his child’s education? This would be a fight to privatize schools and establish a free marketplace of education. Such a fight would rescue the precious minds of the young from the control of the state.

We have now refreshed our understanding of individual rights, the only doctrine that stands between us and tyranny and that makes a civilized society possible.

There is much concern that we are losing our distinctive American values, and we are right to feel this concern, because we are losing them. However, the exact nature of the values that made us the greatest country in the world often eludes us. Let us always remember with pride that our unique American values are: a respect for individual rights and all that implies—i.e., limited government, personal liberty, and laissez faire capitalism.

We have established six strategies for asserting and defending our rights in the battle for freedom. These six strategies can be condensed into a single battlecry: Argue from individual rights. In your letters to the editor, op-eds, articles, calls to radio talk-shows, e-mails to television news shows, discussions with your town councils, neighbors, family, and friends, argue from individual rights. For those holding or seeking public office, in your campaign speeches, in the positions you take, and in your presentations in the halls of government, argue from individual rights. It is the only way to win the battle for freedom. It is the only way to rescue our lives and country. And may the force of this powerful and noble weapon be with you.


Copyright © 2008 by Genevieve LaGreca.
Gen LaGreca is the author of Noble Vision, a ForeWord magazine Book-of-the-Year award-winning novel about liberty. Permission is given to post or publish this article with attribution to the author and to
www.georgereisman.com/blog/.


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Saturday, August 30, 2008

Barack Obama and Sarah Palin on Taxing Oil Companies and Giving the Money to Others

From the website of Barack Obama:

• Immediately Provide Emergency Energy Rebate. Barack Obama will require oil companies to take a reasonable share of their record‐breaking windfall profits and use it to provide direct relief worth $500 for an individual and $1,000 for a married couple. The relief would be delivered as quickly as possible to help families cope with the rising price of gasoline, food and other necessities. The rebates would be fully paid for with five years of a windfall profits tax on record oil company profits. This relief would be a down payment on Obama’s long‐term plan to provide middle‐class families with at least $1,000 per year in permanent tax relief. The Obama energy rebates will: offset the entire increase in gas prices for a working family over the next four months; or pay for the entire increase in winter heating bills for a typical family in a cold‐weather state.
From “Sarah Palin, an Outsider Who Charms” (The New York Times, August 30, 2008):
One of her most significant accomplishments as governor was passing a major tax increase on state oil production, angering oil companies but raising billions of dollars in new revenue. She said the oil companies had previously bribed legislators to keep the taxes low. She subsequently championed legislation that would give some of that money back to Alaskans: Soon, every Alaskan will receive a $1,200 check.

Comment by George Reisman: On this fundamental issue, not just of oil and energy, but, wider, of morality and economics in general, there is no difference in principle between these two. Both advocate legalized theft, in the expectation of doing good.

Obama thinks he can do good to the oil companies’ customers by depriving the oil companies of the means to expand production, which expansion they would quickly undertake and achieve if not prevented year after year by his leftist, environmentalist cronies in Congress and the courts. It is that gang of cronies that is responsible for the high price of oil and, indirectly, for the very high profits of the oil companies. The more they restrict the supply of oil, and of competing forms of energy, such as atomic power, the higher they drive its price and thus the profits of its producers. Whoever is unhappy about the high price of oil and oil products should blame the leftist/environmentalist bloc in Congress and in the courts, and the environmental movement behind it. These are the parties actually responsible.

Obama also fails to see another major aspect of the absurdity of his proposal. Namely, that more money placed in the hands of poor buyers of gasoline and heating oil will serve simply to drive the prices of the limited supplies of gasoline and heating oil presently available still higher. This will make it impossible for people a little higher up on the economic ladder to afford them. Obama does not, perhaps will not, perhaps cannot, see that only more production can enable anyone to have more oil and oil products without others having less.

The first of the criticisms I just made of Obama’s plan applies equally to that of Sarah Palin. The two plans differ somewhat in the extent of their destructiveness. The destructiveness of Palin’s plan is limited by the fact that it can be applied only within the confines of the State of Alaska. But within the State of Alaska, it gives away more money to the individual recipient than does Obama’s plan: $1,200 versus $500.

A major consequence that both Obama’s and Palin’s plans overlook is that even insofar as the oil companies are presently prevented by drilling restrictions from using their funds for expanding oil production, their funds still perform a valuable economic function. Namely, they provide the capital for carrying on production elsewhere in the economic system. To the extent that the oil companies simply put their funds in the bank, buy Treasury bills, repurchase their own stock, or pay out extraordinary dividends, those funds are then available in the financial markets, all of which are interconnected. Their presence makes it easier for other businesses to obtain loans or sell stock and thereby have the funds to carry on their business activities.

Sarah Palin probably never thought of this when she dipped her hand into the oil companies’ till and withdrew $1,200 for every Alaskan. What she was actually doing in her ignorance was helping to make the credit crunch that the United States has been experiencing that much worse. She was helping to deprive businesses around the country of capital they would have had, if that capital had not been made available to be consumed to the extent of $1,200 for each and every Alaskan.

Obama and Palin are both obviously ignorant of economics. John McCain, who picked Palin to be his running mate, has admitted his own lack of knowledge of the subject. Knowing little or nothing of the subject himself, he could not be expected to realize that Palin knew nothing of the subject either. An examination of the record of Obama’s running mate, Senator Joseph Biden, would probably turn up a more extensive record of comparable ignorance of economics, given his greater number of years in public life as a leading spokesman for the Democratic Party.

This is certainly frightening. What is even more frightening is that the whole intellectual world, including the press and the media in general, the professors of economics, law, political philosophy, history, and all other fields directly or indirectly bearing on politics, all are overwhelmingly characterized by the same level of ignorance and thus unable to identify it in the candidates. We now apparently live in a society and culture that has become comparable in its level of economic knowledge to a pool table, on which mindless billiard balls randomly careen and collide and no knowledge or understanding of any kind is present.

*Copyright © 2008, by George Reisman. George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. His web site is www.capitalism.net and his blog is www.georgereisman.com/blog/. A pdf replica of his complete book can be downloaded to the reader’s hard drive simply by clicking on the book’s title Capitalism: A Treatise on Economics and then saving the file when it appears on the screen.

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Thursday, August 28, 2008

Anti-Obamanomics: Why Everyone Should Be in Favor of Tax Cuts for the “Rich”

Portions of this article are adapted from pp. 308-310 and 830-831 of the author’s Capitalism:A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996).


I

Are the American people being primed to elect as President of the United States a home-grown version of Hugo Chavez, in the person of Barack Obama? This is a question one can come away with after reading “Obamanomics,” the featured article in this last Sunday’s (August 24, 2008) New York Times Magazine. Written by Times’ columnist David Leonhardt, the article provides insight into Obama’s thinking on economics and the economic policies he would be likely to pursue if he were elected President.

The subject of this, present article of mine is essentially limited to an analysis and critique of a major aspect of the views on taxation attributed to Obama. That aspect, in the words of The Times’ article is that “Obama’s agenda starts not with raising taxes to reduce the deficit, as Clinton’s ended up doing, but with changing the tax code so that families making more than $250,000 a year pay more taxes and nearly everyone else pays less. That would begin to address inequality.” He will “use the tax code to spread the bounty from the market-based American economy to a far wider group of families.”

Obama’s agenda, we are told in more detail, includes “a $500 cut in the payroll tax for most workers” and major middle- and lower-income tax credits, to the point of simply handing out government money to those for whom the tax credits more than eliminate the taxes they would otherwise have to pay. “These tax cuts,” Leonhardt writes, “are really the essence of his market-oriented redistributionist philosophy (though he made it clear that he doesn’t like the word `redistributionist’). They are an attempt to address the middle-class squeeze by giving people a chunk of money to spend as they see fit.” (Of course, no mention is made of depriving anyone who is to be compelled to pay for this largesse, of the ability to spend the money he has earned as he sees fit. Obama’s concept of “market-oriented” works out to be that money is taken from some people at the point of a gun and then spent according to the free choice of those who are given the loot.)

The sums that are to be forcibly taken to make possible Obama’s largesse are described by Leonhardt as “raising taxes on the affluent to a point where they would eventually be slightly higher than they were under Clinton” and as raising taxes “for the top 0.1 percent of earners—those making an average of $9.1 million…by an average of $800,000 a year.”

Now these proposals, at least on their face, are not on the scale of the philosophically similar proposals imposed by Hugo Chavez as president of Venezuela and by other current Latin American leaders. But they are based on the same philosophy of law and economics, namely, that it is a legitimate function of government to take from the rich and give to the poor and that such policies are of economic benefit to the poor.

That philosophy is reinforced by the corollary conviction, clearly present in Obama’s case, that prosperity can be achieved by consuming the means of production, i.e., by “eating the seed corn,” so to speak. This belief is not only present implicitly in his and all other redistributionists’ views on taxation, but it is also present in open, public view on his website, in his proposal to “Enact a Windfall Profits Tax [on the oil companies] to Provide a $1,000 Emergency Energy Rebate to American Families.” (See http://my.barackobama.com/page/content/newenergy.) This is a proposal to take away funds that can be used in the discovery and development of new oil fields and the production and transportation of oil and oil products and give those funds to people to scramble for the limited supplies of oil and oil products presently available.

When Obama’s proposals are viewed not as isolated pronouncements but as instances of the application of the fundamental principles just described, it would be very foolish to expect that his application of those principles will by any means necessarily be confined within any sort of modest limits. Indeed, Obama has shown that he is not frightened by the prospect of making enormous changes. He’s called for a compulsory 80 percent reduction in carbon dioxide emissions in the US by 2050, in order to fight global warming. There’s no reason why he could not later on call for a vastly higher degree of redistribution than indicated in The Times’ article.

The kind of proposals made by Obama and all other redistributors need to be answered in terms of fundamental economic analysis, one clear and powerful enough to show, as the title of this article states, “Why Everyone Should Be in Favor of Tax Cuts for the `Rich.’” Understanding this conclusion should serve as a full and sufficient answer to proposals for increasing taxes for purposes of redistribution.

II

The progressive personal income tax, the corporate income tax, the inheritance tax, and the capital gains tax are all paid with funds that otherwise would have been saved and invested. All of them reduce the demand for labor by business firms in comparison with what it would otherwise have been, and thus either the wage rates or the volume of employment that business firms can offer. For they deprive business firms of the funds with which to pay wages.

By the same token, they deprive business firms of the funds with which to buy capital goods. This, together with the greater spending for consumers' goods emanating from the government, as it spends the tax proceeds, causes the production of capital goods to drop relative to the production of consumers' goods. This implies a reduction in the degree of capital intensiveness in the economic system and thus its ability to implement technological advances. The individual and corporate income taxes, and the capital gains tax, of course, also powerfully reduce the incentive to introduce new products and improve methods of production. In all these ways, these taxes undermine capital accumulation and the rise in the productivity of labor and real wages, and thus the standard of living of everyone, not just of those on whom the taxes are levied.

Two major impediments make it difficult for people to recognize the fact that everyone would benefit from reductions, or, better still, the total abolition of all of these taxes on the so‑called rich—made possible, of course, by equivalent reductions in government spending. The first is simply massive ignorance of economics, especially of the general benefit from private ownership of the means of production. People have not grasped the profound insight of Mises that, in a market economy, in order benefit from privately owned means of production, one does not have to be an owner of the means of production. This is because one benefits from other people’s means of production—every time one buys the products of those means of production.

One benefits from other people’s means of production not only in one’s capacity as a buyer of products but also as a seller of labor. Other people’s means of production, other people’s capital, are the source both of the supply of the goods one buys and of the demand for the labor one sells. The greater is other people’s accumulation of capital, the more abundant and less expensive are the products available for one to buy in the market and the greater is the demand for the labor one sells in the market and thus the higher the wages at which one can sell it. Abundant and growing capital in the hands of one’s suppliers and potential employers is the foundation of low and falling prices and of high and rising wages.

In contrast, the view of redistributionists, such as Obama, founded in the most complete and utter ignorance, is that the only wealth from which an individual can benefit is his own. This is a view that was not unreasonable in the ages before the rise of capitalism and its market economy. Until then, the only people who could in fact benefit from a given piece of land or a given barn or plow, or whatever, was the family that owned them and used them to produce for its own consumption. This is the view that the redistributionists continue to hold, centuries after it has lost its applicability. They have not yet awakened to the modern world. And it is on this basis that they support the redistribution of wealth. The redistribution of wealth is allegedly necessary to enable an individual who does not own the wealth presently owned by others to benefit from that wealth. Only as and when their property passes to him can he benefit from it, the redistributors believe. This is the kind of “largesse” Obama intends to practice. It is taking funds from those most prodigious at accumulating capital, capital that would benefit all, and then giving the funds to others to consume. Meeting the needs of the poor with the consumption of capital is Obama’s formula for prosperity.

The second impediment that stands in the way of people recognizing that everyone benefits from tax cuts for the rich is something closely related to redistributionism. This is collectivistic habits of thought inspired by Marxism and its doctrine of class interest. What I mean by this is that when it comes to matters of economics, most people tend to think of themselves essentially as members of the class of wage earners rather than as separate individual wage earners, and to think of their interests as indistinguishable from the interests of other wage earners.

Thus, an individual wage or salary earner knows that he would certainly be better off if his own taxes were reduced by some given amount than if the taxes of a millionaire or some large corporation were reduced by that same amount. As far as it relates just to himself, that conviction is absolutely correct. I, for example, would be much better off if my taxes were reduced by, say, a thousand dollars a year than if the taxes of some contemporary John D. Rockefeller or the taxes of General Motors were reduced by a thousand dollars a year. Where most wage earners go wrong is in generalizing from what is true of a reduction in their own, individual taxes, in comparison with an equal reduction in the taxes of businessmen and capitalists—the “rich”—to conclusions about the effects on them of reducing the taxes of other wage earners, in comparison with the same amount of reduction in taxes on businessmen and capitalists.

In considering, for example, whether the taxes of businessmen and capitalists as a class should be reduced by some large sum, such as $100 billion, or whether the taxes of wage earners as a class should be reduced by that sum, almost everyone mistakenly assumes that the interest of the individual wage earner lies with the tax reduction going to the wage earners, as though all wage earners shared a common class interest against all capitalists. This, however, is a fallacy, which becomes apparent as soon as one objectively analyses the situation from the perspective of the individual wage earner. Then it becomes clear that much more is involved than the matter of a reduction in the taxes of the rich or an equal reduction in the individual wage earner's own taxes. For example, while it is certainly true that I gain more from my own taxes being cut by $1,000 rather than the taxes of a Henry Ford or a Bill Gates, it is absolutely false to believe that I gain more from the taxes of my random fellow wage earners—call them Henry Smiths and Bill Joneses—being cut by $1,000 each rather than the taxes of Ford and Gates being cut by $1,000 each.

What is actually involved in the question of a reduction in taxes on businessmen and capitalists as a class in the amount of $100 billion, versus an equal reduction in the taxes of wage earners as a class, is two separate, further questions, that represent distinct elements of this question. There is first the question of the benefit to an individual wage earner of his own taxes being cut by $1,000, versus the taxes of any businessman or capitalist being cut by $1,000. We know the answer to this question: it is more to the individual wage earner's interest that his own taxes be cut. But then there is a second question. Namely, which is more to an individual wage earner's self‑interest: a reduction in the taxes of businessmen and capitalists in the remaining amount of $99,999,999,000, or a reduction in the taxes of wage earners other than himself in the same remaining amount, that is, of 99,999,999 other individuals very much like himself perhaps, but not himself, each getting a reduction of $1,000?

In other words, put aside the question of a cut in the individual wage earner's own taxes of $1,000 versus a $1,000 cut in the taxes of businessmen or capitalists. Consider only the effect on his self‑interest of a cut in the taxes of all other wage earners besides himself—all of the Henry Smiths and Bill Jonses of the country—in the combined amount of $99,999,999,000, versus an equivalent cut in the taxes of businessmen and capitalists—all of the Henry Fords and Bill Gateses of the country. A $99‑billion‑plus cut in the taxes of all those other wage earners will make each of them better off, but what will it do for him, for the particular, individual wage earner we are focusing on? To what extent will his fellow wage earners save and invest their tax cut and so raise the demand for his labor? To what extent will his fellow wage earners increase the demand for capital goods and the rate of business innovation and thus bring about improvements in the quantity and quality of the products he buys and thereby increase the buying power of the wages he earns?

It is obvious that the individual wage earner benefits far more from tax reductions on businessmen and capitalists, the so‑called rich, than from equivalent tax reductions on his fellow wage earners, and that this is true of each and every individual wage earner, for any wage earner could take the place of the particular individual we have focused on. A tax reduction on businessmen and capitalists will promote capital accumulation, far, far more than a tax reduction on the mass of the individual wage earner's fellow wage earners. The average businessman and capitalist will save and invest the taxes he no longer has to pay, in far greater proportion than would the average wage earner. He will be induced to introduce more improvements in products and methods of production, which are also a major cause of capital accumulation, and is a process in which wage earners qua wage earners play little or no role. (This is not to say that wage earners are never responsible for innovations. They often are. But as soon as they are, they typically become businessmen. Fundamentally, it is always the prospect of higher profits that stimulates innovations, not the earning of higher wages. It is the prospect of higher profits that leads employers to offer incentives to wage earners to make innovations.) And the greater saving of the businessmen and capitalists will promote innovation by virtue of making the economic system more capital intensive. Thus the individual wage earner has far more to gain from the taxes of businessmen and capitalists being reduced than from the taxes of his fellow wage earners being reduced.

The gains from this aspect of the matter are so substantial that they almost certainly outweigh the fact that having them precludes the ability to have the benefit of one's own taxes being reduced by a sum such as a thousand dollars a year. This is merely to say that the gains to an individual wage earner of his own taxes being cut by a sum such as $1,000 a year are far less than the gains to him of the taxes of businessmen and capitalists being cut by an immensely larger sum such as a $100 billion a year—that is, by an amount that equals the potential $1,000 tax cuts of all the millions of other wage earners in the economic system, which, in the hands of those fellow wage earners, would have been of little or no value to him.

As I have shown, the individual wage earner gains from cutting the taxes of businessmen and capitalists in part because the effect of their sharply increased saving is significantly to raise the demand for labor and thus, quite possibly, significantly to raise his own wage income. (Even if the effect is not to raise wage rates, but, in raising the demand for labor, to reduce or eliminate unemployment, that too operates to increase the funds available to the average wage earner—by virtue of reducing what he must pay to support the unemployed.) But far more importantly, the effect of cutting the taxes of businessmen and capitalists rather than of wage earners will be a substantial rise in the demand for capital goods relative to the demand for consumers' goods and a substantial rise in the rate of innovation, including under the latter head the ability of upstart new firms to grow rapidly and thus to challenge old, established firms.

The effect of this combination is continuing capital accumulation and thus a continually rising productivity of labor. The effect of this, in turn, is a continually growing supply of consumers' goods relative to the supply of labor, and thus prices of consumers' goods that are progressively lower relative to the wages of labor, which means progressively rising real wage rates, so that in not too many years the average wage earner is far ahead of where he would have been on the strength of a cut in his own taxes.

Starting with tax cuts for the so‑called rich—based on equivalent reductions in government spending—is the only hope for the resumption of significant economic progress, indeed, for the avoidance of economic retrogression and growing impoverishment. Because of this, it is actually the quickest and surest road to any major reduction in the tax burden of the average wage earner. It holds out the prospect of the average wage earner being able to double his standard of living in a generation or less. The average standard of living would double in a single generation if economic progress at a rate of just 3 percent a year could be achieved. Such economic progress would also mean a halving of the average wage earner's tax burden in the same period of time—if government spending per capita in real terms were held fixed, for then he would have double the real income out of which to pay his present level of taxes. And then, of course, once all the taxes that most stood in the way of capital accumulation and economic progress were eliminated, further reductions in government spending and taxation could and should take place that would be of corresponding direct benefit to wage earners, that is, show up in the reduction of the taxes paid by them.

Ironically, an aspect of this approach exists in, of all places, Sweden! What has enabled Sweden to have one of the world's highest burdens of taxation and, at the same time, to remain a modern country, more or less advancing, is the fact that the tax burden in Sweden falls far more heavily on the average Swedish wage earner than it does on Swedish business, whose tax burden is actually less than that of business in many other Western countries. (For example, when allowance is made for the fact that Swedish companies can automatically deduct 50 percent of their profits as a tax‑free reserve for future investment, the effective corporate income tax rate in Sweden turns out to be below that in the United States: 26 percent versus 35 percent.) If Swedish business had had to bear the burden of taxation borne by Swedish wage earners, the Swedish economy would long since have been in ruins.

This is certainly not to argue for taxation of American workers at a level comparable to the taxation of Swedish workers, or for any increase in the taxes paid by American workers whatever. It is to argue for reductions in government spending sufficient both to eliminate the budget deficit and to make possible substantial tax cuts on businessmen and capitalists, the so‑called rich. It is to argue that as soon as the resulting economic progress begins to increase the real revenues of the government, further tax cuts of the same kind occur, in order further to accelerate economic progress. It is to argue for the achievement first of the total elimination of the inheritance tax, the capital gains tax, the corporate income tax, and the progressive portion of the personal income tax, all taken together, and then, once that has been achieved, for the continuing reduction in the remaining personal income tax, until the personal income tax is totally eliminated. The essential mechanism for achieving these results is a combination of economic progress and continuing reductions in government spending. This is how radically to reduce the taxes of everyone. It is the only way.


III

Several times, I’ve referred to tax reductions on the rich being accompanied by equivalent reductions in government spending. It should be clear that reducing taxes without reducing government spending cannot promote saving and capital formation, but must undermine them further, even if the funds no longer claimed by taxes are overwhelmingly saved. For in this case, the government must substitute a dollar of borrowing for a dollar of tax revenues. Each dollar borrowed by the government is a dollar less of savings available for the rest of the economic system. Thus even if a dollar less of taxes results in as much as ninety cents of additional saving, there is a significant net reduction in the supply of savings available for the rest of the economic system. In this instance, while ninety cents of additional saving takes place as the result of tax reductions, a full dollar less of savings is available to business and private consumers as the result of the government's borrowing, and thus there is a net reduction of ten cents of savings available for every dollar of such tax cuts based on increases in the government's deficit.

Tax cuts to promote saving and capital formation which are financed by deficit increases are thus simply contrary to purpose. The fact that they are contrary to purpose remains if, instead of being financed by borrowing, the resulting deficits are financed by the more rapid creation of money. In this case, all of the destructive effects inflation has on capital formation come into play.

By the same token, balancing the budget by means of raising taxes is destructive of saving and capital formation to the degree that the additional taxes fall on saving and the productive expenditure of business firms for labor and capital goods. Ironically, it is precisely taxes that fall heavily on saving and productive expenditure that today's advocates of balancing the budget through tax increases favor. This is because the taxes they wish to increase are precisely those which land on corporations and the so‑called rich.

The only way that these advocates of balanced budgets through tax increases could proceed consistently with the goal of capital formation would be by increasing the taxes of the very people they claim to be concerned about, namely, the poor and the mass of wage and salary earners, who save relatively little. Indeed, the only way that greater saving and capital formation is possible in the absence of decreases in government spending, is by means not only of increasing such taxes to the point of balancing the budget, but also increasing them still further, to compensate for decreases in the kind of taxes that land more heavily on saving and productive expenditure. In essence, if one advocates greater saving and capital formation and yet refuses to support reductions in government spending, one is logically obliged to advocate increasing the taxes of wage and salary earners and of the “poor” in order both to balance the budget and to compensate for reductions in taxes on profits and interest and on the “rich.”

But there is absolutely no reason to advocate such a downright fascistic policy. (As I’ve shown, just such a policy has been pursued in Sweden, the model country of today's “liberals.”) Instead of sacrificing anyone to anyone, the simple, obvious solution is sharply to reduce the sacrificing that is already going on—namely, sharply to reduce and ultimately altogether eliminate pressure‑group plundering and the government spending that finances it at the sacrifice of everyone. (The ultimate, truly progressive long-range goal would be the elimination of virtually all government spending other than for defense against common criminals and foreign, aggressor governments. The first is the police function of state and local governments; the second is the national defense function of the Federal government.)

This analysis makes clear that an essential flaw of so‑called supply‑side economics—the policy both of the Reagan administration and of the present Bush administration—was the failure to face up to the need to reduce government spending. While the policy of reducing taxes by both administrations was perfectly correct, most of the potential benefit of the tax cuts was lost through the corresponding enlargement of federal budget deficits. Regrettably, both administrations and their supporters lacked the courage required to abolish government spending programs to make those tax cuts possible without deficits.

Their failure to have done so explains why the great mass of the American people have not benefitted from the tax cuts as they should have. The explanation is that, absent equivalent reductions in government spending, the tax cuts did not translate into increases in capital formation, but the opposite. Instead of there being more demand by business for labor and capital goods there was less; instead of more rapid economic progress and rising real wages, there has been economic stagnation or outright decline, along with stagnant or falling real wages.

Ever-growing government intervention, especially in the form of environmental legislation, has also worked against capital accumulation by requiring the use of more and more capital to achieve the same results, such as requiring gas stations, dry-cleaning establishments, and numerous other types of businesses to engage in costly capital investment for the sake of protecting the environment rather than for the production of goods and services.

In addition, capital accumulation has been enormously undermined by the Federal Reserve System’s policies of credit expansion and inflation, extending back to its inception. In the last decade, these policies were responsible first for the stock-market bubble and then for the housing bubble. In both cases, vast sums of capital were wasted through malinvestment and eaten away though overconsumption based on delusions of prosperity. Thus, for example, in the housing bubble, not only were the housing-construction and building supply industries greatly overexpanded and an enormous number of homes built that should not have been built, but millions of homeowners were led to greatly increase their consumption on the strength of no foundation other than the rise in house prices induced by inflation and credit expansion. Earlier in the decade, the same kind of overconsumption took place on the foundation of inflated stock prices and similar malinvestment took place in other industries, such as telecommunications.

Finally, it must be mentioned that the Fed’s inflation and credit expansion have also been responsible for a vast, artificial increase in economic inequality since the mid 1990s, just as they were during the 1920s. This economic inequality was built not on inequality of economic contribution, as is normally the case, but merely on new and additional money. This new and additional money created by the Fed and its client banking system, poured into the stock market and then the housing market. In the process, it created vast paper capital gains in terms of stock and housing prices—the same paper gains that brought about overconsumption. In the case of the stock market, the paper gains went overwhelmingly to the wealthy; they had the largest investments in stock and were more likely to be in a position know how to take advantage of the rising market. At the same time, the artificially low interest rates caused by the infusions of new and additional money encouraged an artificial lengthening of what “Austrian” economists call the structure of production. Such artificial lengthenings create a corresponding artificial increase in the magnitude of profits in the economic system.

This last point can be understood by recognizing that when taken in the aggregate, the funds business firms expend in paying wages and in buying capital goods (e.g., materials, components, supplies, advertising, lighting and heating, as well as machinery and plant) generate or, indeed, directly constitute the great bulk of business sales revenues in the economic system. In every year, the expenditure for capital goods constitutes equivalent sales revenues to the sellers of capital goods. In every year, the payment of wages enables wage earners to expend an approximately equivalent amount in buying consumers’ goods from business. Thus the total of business firms’ productive expenditures in any given year directly or indirectly show up as business sales revenues in the economic system, for all practical purposes within the same year. (The extent to which the wage earners of any given year might wish to defer the expenditure of some the wages paid to them in December into January, say, is counterbalanced by the same kind of choices made the year before.)

Now sooner or later, those same productive expenditures that underlie most of the sales revenues of business also show up as costs of production of business needing to be deducted from sales revenues in the computation of profits.

A key question is when do they show up as such costs of production? The same dollar amount of productive expenditure is capable of showing up as an equivalent amount of cost to be deducted from sales revenues within days or weeks or only over a period of months or years. For example, $1 million expended by grocery stores in buying produce at wholesale will show up as $1 million of such cost within days. However, $1 million expended in the construction of a new building with a depreciable life of forty years will show up as a cost of production to be deducted from sales revenues only after the building is fully completed, and then at the rate of just $25,000 per year, as per its forty-year depreciable life. Before $1 million of expenditure for the construction of such buildings could result in $1 million of depreciation cost being incurred each year, the process would have to be repeated for forty years, by which time forty such buildings would be in existence, each being depreciated at $25,000 per year.

The implication of this discussion is that shifts in the pattern of productive expenditure with respect to the time when the expenditures will show up as costs ready to be deducted from sales revenues, are capable of having a profound effect on business profits for a more or less considerable period of time. This is because while the sales revenues that result in any given year from any given amount of productive expenditure in the economic system remain the same, the costs to be deducted from those sales revenues that correspond to that given amount of productive expenditure are capable in varying degrees of being deferred to future years. Thus, for example, shifting $1 million of productive expenditure from the purchase of groceries at wholesale to the construction of a new building implies a reduction in the costs deducted from sales revenues in the economic system in the amount of $1 million in the current year. (The reduction is a full $1 million, because while the building is under construction it does not yet give rise even to the $25,000 per year depreciation cost that it will occasion when completed and brought on stream.) Thus, to the extent that the structure of production is lengthened and more and greater deferrals of cost accordingly take place in the face of sales revenues of any given amount, profits in the economic system are correspondingly increased. These are the profits of the boom period.

The Federal Reserve’s easy money, low-interest rate policy both puts new and additional money into the market that raises productive expenditures and sales revenues and simultaneously encourages the shifting of productive expenditures to points more remote from the time when they will show up as costs of production. Productive expenditures aimed at results further in the future are an inevitable accompaniment of lower interest rates. In this way, the policy of credit expansion brings about a systematic deferral of business costs in the face of any given volume of business sales revenues and a corresponding enlargement of business profits for which there is no sound underlying economic basis and which would not exist in the absence of credit expansion.

Thus, to the extent that it is not the result economic ignorance and/or sheer malicious envy, the left’s resentment of economic inequality turns out to be a resentment that logically should be directed against its own beloved policy of credit expansion.


IV

All of the left’s dissatisfaction and resentment should be directed against its own policies and against itself for its volitional, chosen economic ignorance. It knows nothing about the role of capital in production or what real wages and the standard of living actually depend on, or practically any other aspect of economics. It is intent on driving the machinery of government in a mental state comparable to the driver of a car or truck under the influence of alcohol or other, stronger drugs.

Its response to the growing destruction it causes as it proceeds along in its mental fog is to call again and again for “change.” It brings about one change after another, each time for the worse. It can neither tolerate the conditions its policies create nor find the courage to admit how profoundly wrong it has been in urging its policies, which might then permit its members to begin to learn the economics and political philosophy they need to know to urge rational policies. Instead, it is so fundamentally and profoundly wrong that it goes on upholding its ignorance as truth even in the face of the worldwide collapse of what for generations its members had expected to become a utopia, namely, socialism.

Instead of taking the failure of socialism as evidence of its own ignorance, it chooses to take it as a failure of human reason. And in consequence it has now turned on reason, science, and technology. Perhaps in implicit recognition of its own capacity for destruction and carnage, it has turned from a movement that only a few decades ago eagerly looked forward to the results of paralyzing the actions of individuals by means of “social engineering” to now seeking to paralyze the actions of individuals by means of more and more prohibiting engineering of any kind. What the left should want to stop are its own actions. Because they are truly dangerous, and on some level it knows this.

Of course, in a further display of their ignorance and blindness, members of the left will undoubtedly characterize the line of argument I’ve presented in this article as the “trickle‑down theory.” There is nothing trickle‑down about it. There is only the fact that capital accumulation and economic progress depend on saving and innovation and that these in turn depend on the freedom to make high profits and accumulate great wealth. The only alternative to improvement for all, through economic progress, achieved in this way, is the futile attempt of some men to gain at the expense of others by means of looting and plundering. This, the loot‑and‑plunder theory, is the alternative advocated by the redistributionist critics of the misnamed trickle‑down theory. The loot‑and‑plunder theory is the theory of Obama, of the Democratic Party, and of much of the Republican Party. It is time to supplant it with the sound economic theory developed by generations of intellectual giants ranging from Smith and Ricardo to Böhm-Bawerk and Mises.


Copyright © 2008, by George Reisman. George Reisman, Ph.D. is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. His web site is http://www.capitalism.net/ and his blog is www.georgereisman.com/blog/. A pdf replica of his complete book can be downloaded to the reader’s hard drive simply by clicking on the book’s title Capitalism: A Treatise on Economics and then saving the file when it appears on the screen.



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