Free Markets, Free People

Dale Franks

Dale Franks’ QandO posts

Observations: The QandO Podcast for 16 Dec 12

This week, Bruce, Michael, and Dale discuss the Newtown shootings.

The direct link to the podcast can be found here.

Observations

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What’s happening to us?

I‘m just sick about today. It’s really incomprehensible, isn’t it? Sure, it was the act of a lunatic, and lunatics are, almost by definition, incomprehensible. So, I can’t even begin to get my mind into the sort of space where you massacre children. It’s just been a day of grief and depression.

These kinds of shootings seem to be coming ever faster, and I honestly don’t know what we can do about them. I’m sure that we’ll be spending a lot of time talking about gun control for the foreseeable future, but…well…that’s not really going to solve anything. Quite apart from anything else, there’s 300 million guns floating around in the US. Good luck rounding them all up.

Besides, that’s not really the root of the problem.

I just can’t escape the sense that we are watching our society and culture slouching towards collapse, and that what happened today is a symptom of that. There’s a streak of mad decadence in American culture; a streak of anger, and a lack of civility, and a surfeit of selfishness that can’t sustain a functional civil society.

Our politics are so angry that otherwise sane men physically attack other men, and scream at them like angry children for holding a different political opinion. Our popular media is drenched in sex and violence. Our news media are little more than mouthpieces for socialist pieties. Traditional religion is belittled and reviled in popular entertainment as New Wave beliefs are treated with credulity. Individual responsibility is ignored, while victimization is fetishized.

The litany is depressing, and none of it indicates a confident, forward-looking culture. And it puts out a vibe of craziness and violence that even lunatics can pick up. Maybe they could always pick up on it, but, at least prior to the 1970s, we could lock lunatics up through involuntary commitment. Since then, of course, we’ve ensured that we can only lock up lunatics after they violently act out. So there are a lot of them lurking about, now, many of them homeless, walking the streets.

I honestly have no idea how to fix this. Clearly, government isn’t the answer. A government that can’t even do what is obviously necessary to balance—or even produce—a budget certainly isn’t going to effect any useful cultural change. Besides in a democratic system, the government reflects the culture, not the reverse. Our government is increasingly one that is characterized simultaneously by arrogance and incompetence. Those would be incompatible characteristics in a rational culture, but they accurately describe our culture, the government that reflects it.

We’ve had it so good in this country, for so long, that I’m afraid the culture has internalized the idea that it’ll always be that way. There’ll always be second chances if you screw up, and someone will always be there to keep the machinery running. What problems we do have are First World problems: the free in-flight wi-fi doesn’t work; Starbucks ran out of Pumpkin Spice. We go into debt getting our degrees in Gender Studies, and we expect a lucrative job as a reward. Our kids come in last place in their soccer league, but they’ll always get their trophy for participation.

We’re living off the financial, moral, and intellectual capital of people who opened a continent-wide frontier, defeated horrific foreign tyrannies, and then sent men to the moon. We, of course, will do none of those things.

Quite apart from anything else, we couldn’t afford to. We’ve spent the last thirty years going ever deeper into debt to defer ever making any hard choices. Instead, everybody got everything they wanted. I mean, we got our Great Society, and our Cold War military build-up; Medicare Part D, and No Child Left Behind; wars in the Mideast, and subsidized college loans. We’ve denied ourselves nothing that we wanted, and now that the bill is coming due, all we can figure out how to do is raise taxes, and have the Fed buy back some bonds so we can keep the party going on longer, and stretch out the time that we’re allowed to go ever deeper into debt.

But, not only can we not afford to, we don’t want to embark on some great cultural mission whose rewards will be enjoyed by our children instead of ourselves. We just want to pull up some porn on our iPads, and watch Netflix after we finish.

The founders of the Republic understood that democratic self-governance is only suited to a moral, responsible people. A people who cannot strive to create a polity where ethics and responsibility are primary principles are a people who are not capable of governing themselves. And I no longer see us as a people who can create that kind of polity.

Some of my libertarian friends think that a financial or societal collapse will lead to a better understanding of the importance of freedom, and that a new flowering of liberty will bloom in the aftermath.

That’s a foolish and stupid idea.

What will actually happen is what happened when Rome fell: a period of barbarism and tyranny and darkness will sweep over us at worst, or at best, people will demand that a man on a white horse punish the appropriate scapegoats and make the trains run on time again. Sure, I hope I’m wrong, but history is on the side of pessimism. As nearly as I can tell, all we can do is hold on tight, because we’re getting ready to ride this puppy down in flames.

Still, Rome didn’t collapse in a day, and maybe we can manage to avoid a total collapse and ensuing Dark Age for another 30 years or so, until after I’m gone. Frankly, that’s about all the optimism I have left in me.

But, maybe, in 500 years or so, a confident, adventurous people will once again step onto the surface of the moon. No doubt they will be amazed to learn that the mythical figures of Buzz Aldrin, Alan Shepard, and their companions actually did exist, and set foot there once upon a time, and left behind six beautiful, red-striped banners, spangled with white stars on a field of blue.

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Dale Franks
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Economic Statistics for 14 Dec 12

The following US economic statistics were announced today:

The Fed reports that industrial production rose a strong 1.1% in November, while capacity utilization in the nation’s factories rose to 78.4%.

The Consumer Price Index fell -0.3% in November, but the core rate rose 0.1%. On a year-over-year basis, the CPI rose 1.8%, and the core rate rose 1.9%

The PMI Manufacturing Index Flash rose almost 2 points to 54.2 for the first half of December.

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Economic Statistics for 13 Dec 12

The following US economic statistics were announced today:

Initial jobless claims fell 29,000 last week, to 343,000. The 4-week moving average fell 27,000 to 381,500. Continuing claims fell 23,000 to 3.271 million.

The producer price index in November fell -0.8%. The core rate, which excludes both food and energy, rose 0.1%. On a year-over-year basis, the PPI is up 1.4%, while the core PPI is up 2.2%.

Retail sales rose 0.3% overall in November, while sales ex-autos were unchanged, and sales ex-autos and gas rose 0.7%.

Business Inventories rose 0.4% in October, but falling sales pushed the stock to sales ratio up to 1.29.

The Bloomberg Consumer Comfort Index fell another -0.7 points to -34.0.

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The flight of the ‘greedy rich’

France’s prime minister, Jean-Marc Ayrault, is hopping mad. In response to the French socialist government’s plan to significantly increase taxes on "the rich"—including a proposed 75% tax on incomes above €1 million—rich people are moving out of the country. This is intolerable to Mr. Ayrault.

"Those who are seeking exile abroad are not those who are scared of becoming poor," the prime minister declared after unveiling sweeping anti-poverty measures to help those hit by the economic crisis.

These individuals are leaving "because they want to get even richer," he said. "We cannot fight poverty if those with the most, and sometimes with a lot, do not show solidarity and a bit of generosity," he added.

It could be a scene right out of "Atlas Shrugged".

Mr. Ayrault is angry because rich Frenchmen are fleeing the country to keep their money, instead of handing it over to him. And he is joined by the baying of the other hounds in France’s left wing. Case in point, French actor Gerard Depardieu, whose announcement that he was moving to Belgium provoked responses such as:

Socialist MP Yann Galut called for the actor to be "stripped of his nationality" if he failed to pay his dues in his mother country, saying the law should be changed to enable such a punishment.

Benoît Hamon, the consumption minister, said the move amounted to giving France "the finger" and was "anti-patriotic".

In a stinging editorial, Libération, the left-leaning daily, called him a "drunken, obese petit-bourgeois reactionary".

They are owed this money, by God, and how dare you try and steal it away from them!

This is always the implicit argument of the Left: They have the first claim to your income, and you have a duty to honor that claim. No matter how you earned that money, they have the right to take as much of it as they please away from you, and if you dispute that right, you’re unpatriotic, and should be punished.

This is Leftism in a nutshell. You are not a free individual, but rather a serf of the state or some other politically-defined "larger community" that has an absolute claim on your property and income that you may not defy. This is no different in concept, or in practice, than the idea of ancient Babylon or Akkad that every subject is a slave of the king.

You can dress it up in high-sounding phrases like "solidarity" or "social justice", "helping the poor" all you want, and it still amounts to nothing but the simple declaration that the state owns you.

The people who believe in this idea are the enemies of freedom, and should be treated as such.

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Economic Statistics for 12 Dec 12 (Updated)

The following US economic statistics were announced today:

The MBA reports that mortgage applications rose 6.2% last week, with purchases up 1.0% and refinancings up 8.0%.

Export prices fell -0.7% in November, but are up 0.7% over last year. Import prices fell -0.9% for the month, and are down -1.6% Year-over-year.

The Fed announced after the FOMC meeting this afternoon that short-term interest rates would remain close to 0% unless unemployment declines to 6.5%. They also said that the $85 billion a month in bond buys would continue. Gold rose more than $6.00 immediately after the announcement. Crude oil futures rose as well.

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Economic Statistics for 11 Dec 12

Following a quiescent Monday, the us economic calendar kicks off this week with the following statistics:

In weekly retail sales, Redbook reports a 2.2% increase from the previous year. ICSC-Goldman reports a weekly sales decline of -0.7%, and a 2.5% increase on a year-over-year basis. Sales growth has been slow for two straight weeks, and analysts say consumers are awaiting the final round of pre-holiday bargains before buying.

The U.S. international trade gap in October widened to $-42.2billion as exports declined.

The NFIB Small Business Optimism Index in November fell a steep 5.6 points to 87.5, going deeper into recessionary territory.

Wholesale inventories rose 0.6% in October, with an unexpected -1.2% drop in sales, leaving a stock-to-sales ratio at a troubling 1.22.

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Economic Statistics for 7 Dec 12

The following US economic statistics were announced today:

The Monster Employment index rose 2 points to 158 in November.

The Reuter’s/University of Michigan’s consumer sentiment index a very steep 8.2 points to 74.5.

Nonfarm payroll employment in November increased by a lackluster 146,000 new jobs. Average hourly earnings increased by 0.2%. The average workweek was unchanged at 34.4 hours. Turning to the household survey, the unemployment rate fell to 7.7%, as 350,000 workers left the labor force, bringing the labor force participation rate back down to 63.6. At the historical rate of labor participation, the unemployment rate would actually have jumped by 0.2% to 11.4%. In all, the labor market remains moribund, as job creation remains weak and labor force participation remains at historic lows.

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Taxes, Spending, and the Fate of the Republic

The direction the country is taking bothers me. Increasingly, I see little hope for a bright prosperous future. Frankly, things cannot continue going in the direction they’re heading without a disastrous result.

Mark Steyn wrote earlier this week:

Generally speaking, functioning societies make good-faith efforts to raise what they spend, subject to fluctuations in economic fortune: Government spending in Australia is 33.1 percent of GDP, and tax revenues are 27.1 percent. Likewise, government spending in Norway is 46.4 percent, and revenues are 41 percent – a shortfall but in the ballpark. Government spending in the United States is 42.2 percent, but revenues are 24 percent – the widest spending/taxing gulf in any major economy.

This is unsupportable, by any measure, and should be seen to be so by anyone with common sense, irrespective of political party, but apparently is not. And it’s important to recognize that the reason revenues are at a historically high 24% of GDP—the historical average is around 18%—is that GDP growth for the last 4 years has been atrociously bad, and well below the 3% historical trend rate of growth.

In a rational world, we would make a decision to settle on a continuum somewhere between cutting government spending to 24% of GDP, and raising taxes to 42.2% of GDP, which would necessarily imply massive tax increases on the middle and, yes, even the lower class.

At the moment, however, it is impossible to cut spending to 24% of GDP. Not just politically impossible, though that appears to be true also, but I mean impossible impossible. The reason it is impossible is that 24% of current GDP will not cover the cost of mandatory entitlement spending and service on the national debt. More than 62% of government spending is mandatory spending on essentially social security and Medicare. Another 6% is interest on the national debt, and it’s only that low because 1) the Fed has been buying massive amounts of US treasury bonds, and 2) interest rates are historically low.

In other words, 68% of the federal budget is taken up by entitlements and debt service, alone. We could eliminate the entirety of the rest of the federal government and, at current rates of taxation, would still run a deficit.

At the current rate of spending, we can expect to add over $12 trillion dollars in debt over the next decade. To combat this, the president has requested an additional 1.6 trillion in new revenue, which he expects to gain by increasing tax rates on only the upper class. Even assuming, arguendo, that such a taxation plan would actually result in that much additional revenue—which it likely would not—we would still add an additional $10 trillion in debt.

And that, of course, assumes interest rates would not rise from their current low levels. A rise to the historical rates of interest would increase debt service costs from $250 billion per year to $650 billion per year, or approximately 15% of the budget.

Neither Congress nor the President are proposing a serious plan to balance the budget, which would require a politically impossible mix of massive budget/entitlement cuts, and/or massive tax increases on the middle and lower classes.

Absent such a plan, we will inevitably default on our debt, or hyperinflate our way out of it, both of which are merely two sides of the same coin. In either case, the dollar will lose its status as the world’s reserve currency, and the life savings of every single person in the country—except, perhaps, those embodied in some classes of hard asset—will be rendered worthless. There will be massive unemployment, and a high possibility of civil strife. Imported goods will essentially be unobtainable, and I’m not just talking about BMWs and Land Rovers, but everyday things we never even think about, like fresh fruit from Chile in the winter, or clothes from Singapore and Taiwan at any time.

The least damaging course of action would be a massive reduction in government spending. A more damaging course would be a massive increase in taxation. The most damaging course would be to do nothing but nibble at the edges of spending and taxation until we default, either formally, or de facto through hyperinflation. So far, we are set on the third course.

We are set on a path to completely destroy the currency and economic life of the Republic, and we will inevitably do so without massive tax increases, massive spending cuts, or some mixture of the two.

Meanwhile, in Washington, DC, the Fiscal Cliff negotiations—by which I mean "farce"—continue. Personally, I’m a charter member of the Let It Burn club. The Democrats have set up a narrative in which, no matter what happens, Republicans will get the blame. And yet, 18 months ago, what we’re now calling the Fiscal Cliff was unilaterally hailed as a wise, bipartisan, and far-seeing compromise that would set the country on the road to financial rectitude. And quite frankly, the president is giving every indication that he wants to go over the Fiscal Cliff, and that he can weather the political and economic fallout from it.

OK. Then let’s test that theory.

This is not a risk-free strategy. As Ace of Spades points out:

The Walk Away/Let It Burn option is growing on people. One cautionary note, though: This will provoke a serious constitutional crisis and may undo the Republic. So a soft Let it Burn could turn into a genuine collapse of the Republic.

Obama is a tyrant. If Republicans do not lift the debt ceiling, it is perfectly obvious what he will do, as he’s argued for it before: Like Putin, he will begin unilaterally asserting power he doesn’t have.

And what will be the recourse? Court, I suppose. Impeachment, sure, but Democrats will block conviction. So whether or not the President can suddenly assert sweeping power over the purse — sweeping aside the last real check on his power granted to the House of Representatives — will depend on the vote of Justice Go Along to Get Along Roberts.

President Obama has already asked for it. It’s that one exception I mentioned before: He is asking for unilateral power to raise the debt ceiling and no president should ever have that power.

Our constitution is clear that the money bills must originate in the house. Equally clear is the principle of Congressional supremacy, in that Congress may pass laws even over a presidential veto.  The debt ceiling is clearly a Congressional, not a presidential prerogative.

Congress, of course, has already amended the Constitution’s strictures in practice. For instance, the Senate takes House bills, say, for building a dam, and strips the original language, then loads it up with budgetary items. The House accepts them in conference. Additionally, we have operated without a federal budget—though one is required annually by law—since 2009. This is a…constitutional novelty.

But giving unilateral budgetary power to the president goes far beyond novelty. In my view, granting this power to any president will mark the end of the Republic, just as surely as the creation of the First Triumvirate marked the death knell of the Roman Republic.

The American people elected President Obama. It is only right that they should reap the full measure of the consequences of that decision. Ace is right. Going over the Fiscal Cliff may undo the Republic. But if that is true, then I’m entirely unconvinced that the Republic should be saved.

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