Monday, October 25, 2010

Ron Paul: Government and Job Creation

Dr. Paul's latest Texas Straight Talk:

Ron PaulAs the current economic downturn shows no signs of lifting, we hear quite a lot of rhetoric from current and potential office-holders about what government can and will do to create more jobs. This is especially disconcerting to those who understand that the best thing government can do for job creation is to simply get out of the way.

Jobs are properly created by businesses. Government-created jobs are either fueled by fiat money and manipulated market conditions or directly funded by taxes paid by businesses and individuals who then have less to hire people for real wealth creation. Government-created jobs destroy wealth and sap potential from the economy. The several stimulus bills passed by Congress have done much to expand government but not much to keep money in the hands of real job creators – the entrepreneurs.

Keynesian economists don’t see things this way. They see government spending as a stop gap measure that tides us over through rough economic patches. But is this really the case?

Far from it. The reality is instead of sustaining us until the economy can catch up, government spending perpetuates the problems the bureaucrats and the politicians created. Maintaining a high level of employment is one of the main objectives of the Federal Reserve, which is just one reason it is ill-conceived at its very core: it legitimizes economic intervention which is always destructive. When unemployment rises after the bust of a Fed-created bubble, you can be sure Congress will attempt to rescue the economy through various policies that will always prolong the agony and expand the downturn.

In the late 90’s, it was thought that encouraging home ownership would have a stimulative effect that would ripple throughout the rest of the economy and create jobs. Various government policies favorable to home ownership were enacted and the Fed kept interest rates artificially low so everyone would be able to buy a home, whether or not they could really afford it. For awhile, it worked. The housing boom increased demand for realtors, mortgage lenders, and construction workers. However, as reality sank in, not only are we back to where we were when the bubble began, but we are actually worse off. For example, not only have we lost all of the one million extra construction jobs the bubble created, but we lost another one million on top of that! So not only did the artificial wealth evaporate, but real wealth has been destroyed as well.

Even more sinister are jobs created by war. Recent reports highlight the increasing dependence on contractors to support our war efforts in Afghanistan. Massive corruption is endemic to these highly lucrative positions. Almost half of the contracting companies we use are Afghan owned and include such business models as recruiting away the very same Afghan police force we are training at great expense to the American taxpayer. Meanwhile we have pledged not to leave until the police force reaches a certain level. We also bribe many Afghans to simply not attack us. We are in a proverbial hole in Afghanistan. Our leaders need to just stop digging.

Neither a Keynesian big spending program, nor the military-industrial complex can create long-lasting employment or economic prosperity for our country. The only way to restore both peace and prosperity is to draw down our overseas commitments, along with unconstitutional spending at home and return to the founders’ vision of a limited republic that neither straddles the globe, nor micromanages the domestic economy.

Monday, October 18, 2010

Ron Paul: More Inflation Fears

Dr. Paul's latest Texas Straight Talk:

Ron PaulInflation fears are heating up this week as Fed Chairman Ben Bernanke gave a speech in Boston on Friday, causing further frantic flight into gold by those fearful of the coming “quantitative easing” the Fed is set to deliver in November. Others who view gold as a short term investment engaged in immediate profit-taking after Bernanke's speech.

Gold is more correctly viewed as insurance against bad monetary policy decisions that erode the value of savings. Those bad decisions keep coming at an ever faster clip these days and we hear more and more talk of currency wars especially between the dollar, the Chinese yuan, the Japanese yen, the Australian dollar, and the Euro. As the economies of the world continue to stagnate or contract, monetary policy decisions become more relevant to people who once thought this topic arcane. We have several examples this week of major fumbles on the part of the US Central Bank:

· The Federal Reserve continues to insist that inflation is too low, even while the monetary base remains at record levels, and food and gas prices continue to climb.

· As the Fed continues to drive down the value of the dollar, the government accuses China of deliberately devaluing its currency, and the House has passed legislation aimed at punishing China for this alleged devaluation.

· Low returns on US bonds are driving investors into higher-performing foreign bonds. Some of these countries are responding by reinstituting capital controls to guard against hot money and the carry trade.

· The spat with China and reemergence of capital controls have led some to fear that we are in the first stages of an all-out currency war.

· The instability in the international monetary system, the decreasing value of the dollar, and the large amounts of new US debt could lead the IMF and countries such as China, Japan, Russia, India, and Brazil to abandon the dollar and adopt a new multinational currency.

While the big players in these currency games sort everything out, the people hurt the most are the savers, the workers, and those on fixed incomes as their money buys less and less. Make no mistake – the Fed and the Treasury Department are playing games with our money, especially in how they report statistics like unemployment and inflation. These games erode our standard of living and hide just how much damage their inflationary policies are doing.

Official core inflation for the US is only 1.14%, but that excludes such crucial day-to-day goods such as food and energy. Real inflation certainly is higher, maybe much higher. John Williams of Shadow Government Statistics calculates true inflation at a whopping 8.48%! But manipulated inflation statistics give the government cover when they again deny seniors a cost of living increase in their social security checks. They also serve to convince the public that further expansion of the money supply will boost the economy without causing any real pain, which has essentially been the core argument of Greenspan-Bernanke fed policy for the last 20 years.

Of course, the United States is not alone in its disastrous monetary policy decisions. These pressures are inherent in any fiat monetary system where money is created at will, for the benefit of the special interests. As all these currencies race to the bottom of the inflationary barrel, the only security to be had will be in honest money like gold as the system falls apart. My hope is that we can return to the wisdom of the Constitution and get back to sound, commodity-backed money before our dollar suffers a wholesale collapse.

Monday, October 11, 2010

Ron Paul's Texas Straight Talk 10/11/10: A Spooked Economy in October

Dr. Paul's latest Texas Straight Talk:

Ron PaulLast week we received worse than expected unemployment numbers, challenging recent claims that the recession has come and gone. Also, as the economy continues to suffer the after effects of the Federal Reserve-created bubbles of the last decade, there is renewed interest in gold. Fears that the Federal Reserve will pump even more money into the system had caused the price of gold to reach new highs. Also contributing to enthusiasm for gold is continued instability in the banking industry, symbolized this week by fraud allegations that have caused many banks to halt foreclosure proceedings, thus further destabilizing the housing market. Yes, October has a reputation for being a scary month economically and this month is shaping up to be frightening, as well.

The Fed has been wreaking havoc and devaluing our monetary unit steadily since 1913, and greatly accelerating it since the collapse of the Bretton Woods agreement in the 1970s. This severing of the dollar’s last tenuous link with gold allowed the Fed to create as much new money as it pleased, and it has taken full advantage of this opportunity.

In 1971, Gross Domestic Product (GDP) was $1.29 trillion. Today it is $14.6 trillion, nominally. But adjusted for all the inflating the Fed has been doing, it is only $2.73 trillion, which constitutes only a 1% real increase per year! So with all this extra money going around, we may appear nominally wealthier, but the reality is, we have barely moved at all. This is unfortunate especially for the prudent, conscientious savers, whose nest eggs are constantly being devalued. Unless of course, they have saved in something out of the Fed’s reach, like gold. While the economy has basically been in a holding pattern against the leeching of wealth by the Fed for 39 years, gold has seen an inflation adjusted increase in value of over 5% per year, if measured in 1971 dollars. This is due to the Fed’s ability to make dollars plentiful. And yet, this is the only tactic the Fed can come up with to rescue an economy already devastated by “quantitative easing”, as they call it.

The turmoil in the housing market demonstrates how disastrous it is to flood the economy with fiat money. Latest events with foreclosures are good examples of mistakes made in the market, in this case, by the banks, in the rush to soak up manipulated currency. This is why the truly free market depends on sound, honest money, free from false signals of artificially low interest rates.

The government finds ways to spend money even faster than the Fed can create it, bringing our national debt well past the point of the taxpayers ever being able to pay it off. Other nations who, in the past, have eagerly bought up any amount of debt we produced are now starting to resist. We are reaching a crucial point at which the dollar will no longer function, and in the absence of a functioning dollar, restoring sound money will be the only alternative.

The truly scary notion is that those in power might allow our system to collapse so chaotically to the detriment of so many people rather than simply obey the Constitution.

Saturday, October 2, 2010

Joe Sobran, The Reluctant Anarchist (1946-2010)

Joseph Sobran, one of the greatest and most eloquent conservative (and later libertarian) writers of our generation, died on September 30 at the young age of 64 from complications of diabetes. I credit his writings in the late 1990s for having a large part in my own conversion to conservatism and, eventually, libertarianism. In this article from 2002, Mr. Sobran talks about his own journey to a radical Rothbardian libertarianism:

My arrival (very recently) at philosophical anarchism has disturbed some of my conservative and Christian friends. In fact, it surprises me, going as it does against my own inclinations.

As a child I acquired a deep respect for authority and a horror of chaos. In my case the two things were blended by the uncertainty of my existence after my parents divorced and I bounced from one home to another for several years, often living with strangers. A stable authority was something I yearned for.

Meanwhile, my public-school education imbued me with the sort of patriotism encouraged in all children in those days. I grew up feeling that if there was one thing I could trust and rely on, it was my government. I knew it was strong and benign, even if I didn’t know much else about it. The idea that some people — Communists, for example — might want to overthrow the government filled me with horror.

G.K. Chesterton, with his usual gentle audacity, once criticized Rudyard Kipling for his “lack of patriotism.” Since Kipling was renowned for glorifying the British Empire, this might have seemed one of Chesterton’s “paradoxes”; but it was no such thing, except in the sense that it denied what most readers thought was obvious and incontrovertible.

Chesterton, himself a “Little Englander” and opponent of empire, explained what was wrong with Kipling’s view: “He admires England, but he does not love her; for we admire things with reasons, but love them without reason. He admires England because she is strong, not because she is English.” Which implies there would be nothing to love her for if she were weak.

Of course Chesterton was right. You love your country as you love your mother — simply because it is yours, not because of its superiority to others, particularly superiority of power.

This seems axiomatic to me now, but it startled me when I first read it. After all, I was an American, and American patriotism typically expresses itself in superlatives. America is the freest, the mightiest, the richest, in short the greatest country in the world, with the greatest form of government — the most democratic. Maybe the poor Finns or Peruvians love their countries too, but heaven knows why — they have so little to be proud of, so few “reasons.” America is also the most envied country in the world. Don’t all people secretly wish they were Americans?

Read the rest, and also see his hilarious primer on how to teach your children about the state.