This essay first appeared on the digital edition of the Claremont Review of Books.
July 24, 2016 by Dan Mitchell
I periodically get asked who should be in the White House.
Since I’m a policy wonk rather than a political pundit, I generally sidestep the question.
Though it probably isn’t too hard to figure out my preference if you peruse what I’ve written about previous presidents.
And to further demonstrate my independence, it’s time for me to endorse another Democrat.
Yes, you read correctly. The person I want in the White House is….(drum roll, please)…the 22nd and 24th President of the United States, Grover Cleveland.
He’s mostly famous for being the only President to serve non-consecutive terms (he won in 1884, lost in 1888, and won again in 1992). And perhaps also for marrying a 21-year woman while in the White House.
But he should be remembered instead – and with great fondness – for his belief in classical liberal principles.
Let’s start with this blurb from his Wikipedia page.
Cleveland was the leader of the pro-business Bourbon Democrats who opposed high tariffs, Free Silver, inflation, imperialism, and subsidies to business, farmers, or veterans. His crusade for political reform and fiscal conservatism made him an icon for American conservatives of the era. Cleveland won praise for his honesty, self-reliance, integrity, and commitment to the principles of classical liberalism. He relentlessly fought political corruption, patronage, and bossism. …He also used his appointment powers to reduce the number of federal employees, as many departments had become bloated with political time-servers. …Cleveland used the veto far more often than any president up to that time.
Perhaps his most glorious moment came when he rejected the Texas Seed Bill.
After a drought had ruined crops in several Texas counties, Congress appropriated $10,000 to purchase seed grain for farmers there. Cleveland vetoed the expenditure. In his veto message, he espoused a theory of limited government:
I can find no warrant for such an appropriation in the Constitution, and I do not believe that the power and duty of the general government ought to be extended to the relief of individual suffering which is in no manner properly related to the public service or benefit. …the lesson should be constantly enforced that, though the people support the government, the government should not support the people. The friendliness and charity of our countrymen can always be relied upon to relieve their fellow-citizens in misfortune. This has been repeatedly and quite lately demonstrated. Federal aid in such cases encourages the expectation of paternal care on the part of the government and weakens the sturdiness of our national character, while it prevents the indulgence among our people of that kindly sentiment and conduct which strengthens the bonds of a common brotherhood.
Wow, can you imagine any President saying these words today?
President Cleveland’s steadfast behavior and sound principles have garnered him some well-deserved praise.
Writing for Investor’s Business Daily back in 2011, Paul Whitfield opined about Cleveland’s track record.
If free-market advocates could resurrect a U.S. president to deal with today’s problems, many would choose Grover Cleveland. …He vetoed hundreds of spending bills, refusing to succumb to political temptation whether it was wrapped in patriotism or sob stories. …Union military veterans had become a powerful special interest group. Expenditures on their pensions increased about 500% over 20 years… When Congress passed a bill granting pensions to veterans for injuries not caused by military service, he vetoed it. …He vetoed 414 bills during his eight years — 1885-89 and 1893-97 — in the White House, forcing Congress to curb its appetite for spending.
President Cleveland even had a libertarian approach to overseas entanglements.
Cleveland had a simple approach to foreign policy. He said America should “never get caught up in conflict with any foreign state unless attacked or otherwise provoked.”
Let’s go back even further in time. Here’s some of what Lawrence Reed wrote in 1996.
I give high marks to those presidents who actively sought to uphold the Constitution, and who worked to expand the frontiers of freedom. I’ll take a president who leaves us alone over one who can’t keep his hands out of other people’s pockets any day of the week. Honesty, frugality, candor, and a love for liberty are premium qualities in my kind of president. The one man among post-war presidents (post-Civil War, that is) who exemplified those qualities best was Grover Cleveland… Cleveland took a firm stand against a nascent welfare state. Frequent warnings against the redistributive nature of government were characteristic of his tenure. He regarded as a “serious danger” the notion that government should dispense favors and advantages to individuals or their businesses. …Disdainful of pork barrel politics, he felt that those who would use and gain from such projects should pay for them. …He rightly argued that tariffs stifle competition, raise prices, and violate the people’s freedom to patronize the sellers of their choice.
The article points out that Cleveland wasn’t perfect.
Indeed, the squalid Department of Agriculture was elevated to the Cabinet during his tenure.
But, on net, he pushed for liberty. Heck, look at this quote from President Cleveland, which Lawrence Reed shared in an article from 1999.
When more of the people’s sustenance is exacted through the form of taxation than is necessary to meet the just obligations of government and the expense of its economical administration, such exaction becomes ruthless extortion and a violation of the fundamental principles of a free government.
Wow. Taxation to fund beyond limited government equals “ruthless extortion.” That warms my libertarian heart!
Robert Higgs, the great economic historian, shared another great quote from President Cleveland.
Cleveland believed in keeping government expenditure at the minimum required to carry out essential constitutional functions. “When a man in office lays out a dollar in extravagance,” declared Cleveland, “he acts immorally by the people.”
Let’s begin to wrap up with some wisdom from Burton Folsom, who wrote about President Cleveland for the Freeman back in 2004.
For a U.S. president, one test of this courage is the willingness to veto bad bills— bills that spend too much money or that contradict Article I, Section 8, of the Constitution. In that test of character, perhaps no president passed more convincingly than Grover Cleveland… During Cleveland’s first term (1885–1889), he vetoed 414 bills, more than twice the total vetoed by all previous presidents. …Over half of Cleveland’s vetoes involved pensions to Civil War veterans. Congressmen, especially Republicans, were increasingly trying to funnel taxpayer dollars to unqualified veterans in hopes of capturing “the soldier vote.”
Sadly, politicians today not only go after the “soldier vote,” but also the “farmer vote,” the “elderly vote,” the “urban vote,” etc, etc, etc.
And we don’t have principled leaders like Grover Cleveland with a veto pen.
Let’s look at some historical budget data to understand how truly lucky the nation was during Cleveland’s era. During the 1880s, in his first term, total primary spending (which is total outlays minus expenditures for net interest) averaged just 1.7 percent of GDP.
And this was before the income tax was enacted. After all, there was no need to have a punitive levy when the fiscal burden of government was so small.
P.S. Barton Folsom was the narrator of the superb video from Prager University on government-controlled investment.
Folks on the left may get excited by whether we travel 60 mph in the wrong direction or 90 mph in the wrong direction, but this seems like a Hobson’s choice for those of us who would prefer that America become more like Hong Kong or Singapore.
Consider the issue of taxation. Clinton and Sanders both agree that they want to raise tax rates on investors, entrepreneurs, small business owners, and other “rich” taxpayers. The only difference is how high and how quickly.
Scott Winship of the Manhattan Institute has a must-read column on this topic in today’s Wall Street Journal.
Here is a question to ask Hillary Clinton and Bernie Sanders: What is the best tax rate to impose on high-income earners…? Perhaps they think it is 83%, a rate that economists Thomas Piketty and Emmanuel Saez hypothesized in 2014… Or maybe it is 90%, which Sen. Sanders told CNBC last May was not out of the question.
He then points out that there were very high tax rates in America between World War II and the Reagan era.
…the U.S. had such rates in the past. From 1936 to 1980, the highest federal income-tax rate was never below 70%, and the top rate exceeded 90% from 1951 to 1963. …The discussion of these rates can easily create the impression that the federal government collected far more money from “the rich” before the Reagan administration.
But rich people aren’t fatted calves awaiting slaughter. They generally are smart enough to figure out ways to avoid high tax rates. And if they’re not smart enough, they know to hire bright lawyers, lobbyists, and accountants who figure out ways to protect their income.
Which is exactly what happened.
The effective tax rates actually paid by the highest income earners during the 1950s and early ’60s were far lower than the highest marginal rates. …In the 1960s, for example, the average rate paid by the top 0.1% of tax filers—the top 10th of the top 1%—ranged from 26.5% to 29.5%, according to a 2007 study by Messrs. Piketty and Saez. Even during the 20 years after the Reagan tax cuts, the top 10th of the top 1% paid an average rate of 23.7% to 33%—essentially the same as in the 1960s.
Gee, sounds like Hauser’s Law – a limit on how much governments can tax – is true, at least for upper-income taxpayers.
And Winship provides some data showing that high tax rate are not the way to collect more revenue.
When average tax rates went up from 27.6% in 1965 to 34% in 1975, revenues went down, from 0.6% to 0.5% of the sum of GDP plus capital gains. When average tax rates declined to 23.7% over the second half of the 1970s and the ’80s, tax revenues from the top went up, reaching 0.8% of GDP plus capital gains in 1990. …in the early 1990s, Presidents George H.W. Bush and Bill Clinton raised average tax rates at the top, and revenue from the top 0.1% eventually skyrocketed. But the flood of revenue overwhelmingly reflected not the increase in rates but the stock market’s takeoff… Consider: If the higher top tax rates had caused the growth in revenue, then revenues should have fallen when Mr. Clinton cut the top tax rate on capital gains to 20% from 28% in 1997. But revenues from the top 0.1% kept pouring in.
And if you want more detail, check out the IRS data from the 1980s, which shows that rich taxpayers paid a lot more tax when the top rate was dropped from 70 percent to 28 percent.
That was a case of the Laffer Curve on steroids!
No wonder some leftists admit that spite is their real reason for supporting confiscatory tax rates on the rich, not revenue.
But what if the high tax rates are imposed on a much bigger share of the population, not just the traditional target of the “top 1 percent”?
Well, even hardcore statists who favor punitive tax policy admit that this would be a recipe for economic calamity.
Mr. Piketty said, “I firmly believe, that imposing a 70% or 80% marginal rate on large segments of the population (say, 25% of the population, or even 10%, or even a few percentage points) would lead to an economic disaster.” In other words, sayonara increased tax revenue.
Heck, even the European governments with the biggest welfare states rarely impose tax rates at those levels.
Which is why the real difference in taxation between the United States and Europe isn’t the way the rich are taxed. Government is bigger in Europe because of higher tax burdens on the poor and middle class, specifically onerous value-added taxes and top income tax rates that take effect at relatively modest levels of income.
In other words, the rich already pay the lion’s share of tax in the United States. But not because we have 1970s-style tax rates, but because the tax burden is relatively modest for lower- and middle-income people.
Which brings us to Winship’s final point.
Proposals to soak the rich by raising their tax rates are unlikely to yield the revenue windfall that Mr. Sanders or Mrs. Clinton are dangling before voters. Leveling with the American people means…admitting that they will have to raise the money from tax hikes on middle-class voters.
Though he “buried the lede,” as they say in the journalism business. The most important takeaway from his column is that the redistribution agenda being advanced by Clinton and Sanders necessarily will require big tax hikes on the middle class.
Indeed, the “tax-the-rich” rhetoric they employ is simply a smokescreen to mask their real goals.
Which is why I included that argument in my video that provided five reasons why class-warfare taxation is a bad idea.
March 6, 2016 by Dan Mitchell
Of the 4,000-plus columns I’ve produced since starting International Liberty in 2009, two of the most popular posts involve semi-amusing stories that highlight the failure of socialism, redistributionism, and collectivism.
“The Tax System Explained in Beer” is the third-most-viewed post of all time, and “Does Socialism Work? A Classroom Experiment” is the fourth-most-viewed post. At the risk of oversimplifying, I think these columns are popular because they succinctly capture why it’s very shortsighted and misguided to have an economic system that punishes success and rewards sloth.
For those who want details, I have dozens of columns about real-world socialist failure, looking at both the totalitarian version in places like Cuba, China, Venezuela, and North Korea, as well as the majoritarian version in nations such as France, Italy, and Greece.
And for those that want to get technical, I even have several columns explaining that the pure version of socialism involves government ownership of the means of production (government factories, state farms, etc), whereas the “democratic socialism” in Europe is actually best viewed as extreme versions of redistributionism (while the pervasive interventionism favored by the left actually is a form of fascism).
Yet notwithstanding the horrible track record of every version of socialism, we actually have a presidential candidate in America who actually calls himself a socialist. Though, as pointed out by my colleague Marian Tupy in The Atlantic, he’s more of a redistributionist than a socialist.
Socialism was an economic system where the means of production (e.g., factories), capital (i.e., banks), and agricultural land (i.e., farms) were owned by the state. …Sanders is not a typical socialist. Sure, he believes in a highly regulated and heavily taxed private enterprise, but he does not seem to want the state to own banks and make cars. …Senator Sanders is not a proponent of socialism, and that is a good thing, for true socialism, whenever and wherever it has been tried, ended in disaster.
Here’s an article about real socialism by Mark Perry that’s more than 20 years old, but its analysis is just as accurate today as it was in 1995.
Socialism is the Big Lie of the twentieth century. While it promised prosperity, equality, and security, it delivered poverty, misery, and tyranny. Equality was achieved only in the sense that everyone was equal in his or her misery. …Socialism does not work because it is not consistent with fundamental principles of human behavior. …it is a system that ignores incentives. …A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail.
Ben Domenech, writing for Commentary, analyzes the current version of socialism, which – particularly in the (feeble) minds of young people – is simply more middle-class entitlements financed by high tax rates on evil rich people.
Sanders holds massive events populated by kids who think what he is preaching is very cool. …When did it become acceptable for Americans to back an avowed socialist? …For Americans today, the visible and unmistakable connection between socialism and totalitarianism has faded dramatically. …For America’s young, socialism’s definition isn’t to be found in the desperate, sad reality of peoples held captive by regimes that proudly declare themselves socialist. It’s more of a vague ideal… This makes it easier for someone like Sanders to say that socialism just means middle-class entitlements… It is…Barack Obama…that we have to thank for socialism’s rise in 2016. Republicans…have been describing President Obama’s domestic program as socialist… The takeaway for today’s younger voters seems to be: If everything Obama is trying to do is socialism, …then perhaps we need to go full socialist to actually get things done.
The final part of the excerpt is very insightful.
Heck, they don’t even understand the modern-day failure of socialism in Venezuela or North Korea.
To them, socialism is simply bigger government.
Which is very offensive to people who actually have suffered under socialism. Garry Kasparov, the chess champion turned Russian dissident, doesn’t mince words in his response to the Sanders crowd.
Let’s close with something amusing. Or at least ironic.
It’s the socialism version of this communism image.
And it’s something young people should think about because socialism fails every place it is tried. As Mark Perry explained, it’s grossly inconsistent with human nature.
That’s true whether we’re looking at the totalitarian version of the majoritarian version.
The latter version is preferable, of course, though the end result is still economic misery.
P.S. Here’s a very clever video that asks college kids whether they would like a socialist grading system. Unsurprisingly, they say no. Though the video was put together before Bernie Sanders attracted a cult-like following, so perhaps today’s students would answer differently.
P.P.S. Speaking of videos, I’m guessing this bit of satire won’t be very popular with Bernie’s supporters.
P.P.P.P.S. You can also use two cows to teach about socialism, as well as other theories.
February 15, 2016 by Dan Mitchell
This is a very strange political season. Some of the Senators running for the Republican presidential nomination are among the most principled advocates of smaller government in Washington.
Yet all of them have proposed tax plans that, while theoretically far better than the current system, have features that I find troublesome. Marco Rubio, for instance, leaves the top tax rate at 35 percent, seven-percentage points higher than when Ronald Reagan left town.
This has caused a kerfuffle in Washington, particularly among folks who normally are allies. To find common ground, the Heritage Foundation set up a panel to discuss this VAT controversy.
You can watch the entire hour-long program here, or you can just watch my portion below and learn why I want Senator Cruz to fix that part of his plan.
Allow me to elaborate on a couple of the points from my speech.
First, a good tax system is impossible in a nation with a big welfare state. If the public sector consumes 50 percent of economic output, that necessarily means very high marginal tax rates.
Second, all pro-growth tax reform plans tax income only one time, either when earned or when spent, which means those plans all are consumption-base taxes in the jargon of public finance economists. Which is also just another way of saying that these tax plans get rid of double taxation.
On this basis, a VAT is fine in theory. Moreover, it could even be good in reality (or, to be technical, far less destructive than the current system in reality) if all income taxes were totally abolished.
Third, since Cruz’s plan leave other taxes in place, I’m worried that future politicians would do exactly what happened in Europe – use the new revenue source to finance an expansion of the welfare state.
Proponents of the Cruz VAT correctly point out that the plan simultaneously will abolish both the corporate income and the payroll tax, which sort of addresses my concern.
But keep in mind this is only an acceptable swap if you think, 1) the plan will survive intact as it move through the legislative process, and 2) the VAT won’t raise more money than the taxes that are abolished.
I’m not sure either assumption is valid.
Last but not least, proponents of the Cruz VAT plan keep denying that the plan includes a VAT. If you recall from my remarks, I think this is silly. It is a VAT.
To bolster my argument, here’s what Alan Viard wrote for the American Enterprise Institute.
Cruz’s proposed VAT would have a 16 percent tax-inclusive rate, and Paul’s proposed VAT would have a 14.5 percent tax-inclusive rate. Both VATs would be administered through the subtraction method rather than the credit invoice method used by most countries with VATs. The use of the subtraction method would not alter the fundamental economic properties of the VAT. A VAT is equivalent to an employer payroll tax plus a business cash flow tax.
Let’s close by citing some very wise words from Professor Jeffrey Dorfman of the University of Georgia (Go Dawgs!). Here are the key parts of his column for Forbes.
Conservatives are worried about national consumption taxes for several reasons, principally: these taxes’ ability to raise large sums of revenue and the ease with which politicians can raise the rates. Because national consumption taxes are efficient and can be applied to a larger base than is typical of state and local sales taxes they can raise large sums of money. While liberals think this is a plus, conservatives are rightly wary of taxes that could supply government with more money. More importantly, conservatives are suspicious of the semi-hidden nature of consumption taxes and the ability to raise them incrementally.
The bottom line is that even if we decide to call the VAT by another name, it won’t alter the fact that some of us think it’s too risky to give politicians an additional revenue source.
January 21, 2016 by Dan Mitchell
Remember the cluster-you-know-what in New Orleans following Hurricane Katrina? Corrupt and incompetent politicians in both the city and at the state level acted passively, assuming that Uncle Sam somehow should be responsible for dealing with the storm.
And we’ve seen similar behavior from other state and local politicians before, during, and after other natural disasters.
The obvious lesson to be learned is that the federal government shouldn’t have any responsibility for dealing with natural disasters. All that does it create a wasteful layer of bureaucracy, while also inculcating a sense of learned helplessness on the part of state and local officials who should be responsible for dealing with storms and other local crises.
In other words, the answer is federalism. State and local governments should be solely responsible for state and local issues.
But not just because of some abstract principle. There’s a very strong practical argument that you get more sensible decisions when the public sector is limited (as Mark Steyn humorously explained) and there is clear responsibility and accountability at various levels of government.
And this is why the biggest lesson from the scandal of tainted water in Flint, Michigan, is that local politicians and bureaucrats should not be able to shift the blame either to the state or federal government. Which was my main point in this interview.
To be sure, it is outrageous that state and federal bureaucrats knew about the problem and didn’t make it public, so I surely don’t object to officials in Lansing and Washington getting fired.
But I do object to the political finger pointing, with Democrats trying to blame the Republican Governor and Republicans trying to blame the Democratic President.
Nope, the problem is an incompetent local government that failed to fulfill a core responsibility.
The Wall Street Journal has the same perspective, opining that the mess in Flint is a failure of government.
…the real Flint story is a cascade of government failure, including the Environmental Protection Agency.
More specifically (and as I noted in the interview), we have a local government that became a fiefdom for a self-serving bureaucracy that was more concerned with its privileged status than in providing core government services.
…after decades of misrule: More than 40% of residents live in poverty; the population has fallen by half since the 1960s to about 100,000. Bloated pensions and retiree health care gobble up about 33 cents of every dollar in the general fund.
And the WSJ editorial also castigated the state and federal bureaucrats that wrote memos rather than warning citizens.
MDEQ and the EPA were chatting about Flint’s system as early as February. MDEQ said it wanted to test the water more before deciding on corrosion controls, though it isn’t clear that federal law allows this. …the region’s top EPA official, political appointee Susan Hedman, responded… “When the report has been revised and fully vetted by EPA management, the findings and recommendations will be shared with the City and MDEQ and MDEQ will be responsible for following up with the City.” She also noted over email that it’s “a preliminary draft” and it’d be “premature to draw any conclusions.” The EPA did not notify the public.
The lesson is that adding state and federal bureaucracy impedes effective and competent local government.
The broader lesson is that ladling on layers of bureaucracy doesn’t result in better oversight and safety. It sometimes lets agencies shirk responsibility for the basic public services like clean water that government is responsible for providing.
Here’s the bottom line.
Federalism is about getting better government by creating clear lines of responsibility and accountability in an environment that allows state and local governments to learn from each other on best practices.
The current system blurs responsibility and accountability, by contrast, while also imposing needless expense and bureaucracy. And we get Katrina and Flint with this dysfunctional approach.
November 17, 2015 by Dan Mitchell
So how are our benevolent and kind overseers in Washington responding?
Are they cutting back on red tape? No, they’re moving in the other direction.
Are they lowering taxes? With Obama in the White House, that’s not even a serious question.
But that doesn’t mean all the people in Washington is sitting on their collective hands. The folks at the Federal Reserve have been trying to goose the economy with an easy-money policy.
Unfortunately, as I argue in this recent interview, that’s not a recipe for success.
At best, an easy-money policy is ineffective, akin to “pushing on a string.” At worst, it creates bubbles and does serious damage.
Yet if you don’t like the Fed trying to manipulate the economy, you’re often perceived as a crank. And if you’re an elected official who questions the Fed’s actions, you’re often portrayed as some sort of uninformed demagogue.
I explored this issue today in The Federalist. In my column, I defended Senators Rand Paul and Ted Cruz.
Rand Paul and Ted Cruz…deserve credit for criticizing the Federal Reserve. …This irks some folks, who seem to think Fed critics are knuckle-dragging rubes and yahoos with a superstitious fealty to the gold standard.
This isn’t a debate over the gold standard, per se, but instead of fight over monetary Keynesianism vs. monetary rules.
The dispute isn’t really about a gold standard, but whether the Federal Reserve should have lots of discretionary power. …On one side are the advocates of…the monetary component of Keynesian economics. Proponents explicitly want the Fed to fine-tune and micromanage the economy. …On the other side are folks who believe in rules to limit the Fed’s powers…because they believe discretionary power is more likely to give us bad results such as higher price inflation, volatility in output and employment, and financial instability.
And the Joint Economic Committee is on the side of rules. Here’s an excerpt from a JEC report that I cited in my article.
Well-reasoned, stable and predictable monetary policy reduces economic volatility and promotes long-term economic growth and job creation. Generally, ‘rules-based’ policies reduce uncertainties and facilitate long-term planning and investment. …Conversely, activist, interventionist, and discretionary monetary policies have been historically associated with increased economic volatility and subpar economic performance.
I then mention various rules-based methods of limiting the Fed’s discretion and conclude by commenting on the legitimacy of those who want to curtail the Federal Reserve.
Paul and Cruz may not be experts on monetary policy, just as left-wing senators doubtlessly have no understanding of the intricacies of discretionary monetary policy. But the two senators are on very solid ground, with an illustrious intellectual lineage, when they assert that it would be a good idea to constrain the Fed.
Now let’s expand on two issues. First, I mention in my article the gold standard as a potential rule to constrain the Fed. I’ve previously shared some analysis by George Selgin on this topic. He’s concluded that governments won’t ever allow its return and probably couldn’t be trusted with such a system anyway, but that doesn’t mean it doesn’t work.
Here are some excerpts from a recent article by George. Read the entire thing, but here’s the part that matters most for this discussion.
…the gold standard was hardly perfect, and gold bugs themselves sometimes make silly claims about their favorite former monetary standard. …the classical gold standard worked remarkably well (while it lasted). …it certainly did contribute both to the general abundance of goods of all sorts, to the ease with which goods and capital flowed from nation to nation, and, especially, to the sense of a state of affairs that was “normal, certain, and permanent.” The gold standard achieved these things mainly by securing a degree of price-level and exchange rate stability and predictability that has never been matched since.
And Norbert Michel of the Heritage Foundation touches on some of the same issues in a new column for Forbes.
Several candidates suggested the gold standard was a good system, and they’re all getting flak for talking about gold.
But here’s the most fascinating revelation from Norbert’s column. It turns out that even Ben Bernanke agrees with George Selgin that the classical gold standard worked very well. Norbert quotes this passage from Bernanke.
The gold standard appeared to be highly successful from about 1870 to the beginning of World War I in 1914. During the so-called “classical” gold standard period, international trade and capital flows expanded markedly, and central banks experienced relatively few problems ensuring that their currencies retained their legal value.
Both Norbert’s article and George’s article have lots of good (but depressing) analysis of how governments went off the gold standard because of World War I and then put in place a hopelessly weak and impractical version of a gold standard after the war (the politicians didn’t want to be constrained by an effective system).
So here’s Norbert’s bottom line, which is very similar to the conclusion in my column for The Federalist.
Many who favor the gold standard recognize that it provided a nominal anchor as opposed to the discretionary fiat system we have now. Maybe the gold standard isn’t the best way to achieve that nominal anchor, but we shouldn’t just dismiss the whole notion.
The second issue worth mentioning is that the best way to deal with bad monetary policy may be to have no monetary policy.
At least not a monetary policy from government. This video explains the merits of this approach.
Gee, maybe Friedrich Hayek was right and private markets produce better results than government monopolies.
On September 25, 1794, US President George Washington issued a proclamation authorizing the use of military force against a group of defiant citizens.
It had all started a few years before when a handful of politicians had succeeded in passing an excise tax on liquor, something that became known as the Whiskey Tax.
The Whiskey Tax was the brainchild of Treasury Secretary Alexander Hamilton, who was under pressure to pay off the government’s debts from the Revolutionary War.
The thing is, much of the debt had been originally owed to soldiers who fought in the war. They had been paid in IOUs, many of which had been scooped up by bankers in New York for pennies on the dollar.
Hamilton had family connections to prominent New York banks– the first example of Wall Street infiltrating the Treasury Department. It wouldn’t be the last.
(Over 200 years later, the American taxpayer would again be on the hook to bail out banks.)
Back then the Whiskey Tax was a big deal. America was a ‘whiskey nation’.
Whiskey was such a prevalent part of American culture in the 1790s, in fact, that it was even commonly used as a medium of exchange in parts of the country.
So you can imagine that the government’s intent to tax whiskey distillation was met with pockets of staunch opposition, especially once people found out that the entire reason for the tax was to pay back the New York bankers.
In some cases the opposition was militant. Parts of Pennsylvania, Maryland, and Virginia swelled with local resistance to the point that people began physically assaulting federal tax collectors and forming rebel militias.
Washington eventually had to dispatch federal troops (which he personally commanded) to put down the insurrection.
The rebels lost. But this conflict between government and the taxpayer continued to run deep.
It still exists to this day. It’s ingrained in the DNA of the nation, and in every free individual around the world.
At its core, taxation is an elaborate form of theft based on deeply flawed premises that we all have a claim on each others’ earnings, and that the government knows how to spend your own money better than you do.
There are certainly some places where people do receive value for the taxes that they pay.
Norwegians are commonly cited as tolerating their incredibly high levels of taxation because they receive relatively good quality medical care, education, etc. in return.
But for most people in the West, taxes fund wars, debt, dropping bombs on brown people by remote control, and yes, bailing out banks.
It’s perfectly natural to be enraged at such immoral waste, and people deal with it in different ways.
Some take the approach that if we’re going to be screwed then we should all be screwed together, equally.
They throw childish temper tantrums when anyone uses perfectly legal means to reduce their taxes, labeling them ‘tax dodgers’.
Usually this is an emotion grounded in petty jealousy and ignorance, wanting everyone to be equally miserable, and failing to realize that tax mitigation solutions are open to everyone.
Right now there’s actually an entire town in Wales called Crickhowell that is ‘protesting’ how big businesses use the tax code to slash what they owe.
They’re angered that Facebook, Google, Amazon, etc. pay very little tax.
And to voice their frustration, the butcher, the baker, and candlestick maker decided to employ the exact same tax strategies used by big companies to reduce their own tax burdens.
As the proprietor of the local smokery put it, the plan is “jolly clever.”
Clever indeed. Because they’ll soon realize the tremendous power and freedom of using completely legal solutions to keep more of what you’ve earned.
Doing this is not immoral or unpatriotic.
In fact, if you believe that your government makes your country worse off and less free, then reducing the financial resources available to them is a highly effective expression of patriotism.
Rather than people whining about everyone else paying less tax, it would be a much better use of time to learn about ways to reduce their own taxes.
This is a far more powerful way of voicing your opposition to a government than standing in a voting booth. And you’ll be better off financially as well.
To be fair, most of these concepts aren’t far fetched or complicated.
How many of us have gone shopping at a duty-free store in order to save a few bucks from not paying taxes?
Plenty of people already incorporate businesses in no-tax states like Delaware. Or they’ll work in a place like Boston (high tax) but live nearby in New Hampshire (zero tax).
There are plenty of other solutions. US taxpayers who live on investment income can move down to the beach in Puerto Rico and pay 0% tax.
Or you can move abroad and earn over $100,000 per year (per spouse) tax free.
There are also more complicated solutions such as setting up captive insurance companies to reduce business profits tax, trust structures to eliminate estate tax, and much more.
These aren’t ‘loopholes’ where you need teams of lawyers to misuse or take advantage of some cryptic language in the tax code.
It’s all right there in black and white, part of the law.
Criticizing a very sensible, legal strategy to keep more of what you earn is like criticizing someone for driving the speed limit, claiming that it’s some sort of traffic ‘loophole’.
There are completely legal options out there for everyone. Taking advantage of them just makes sense.
I’ll admit that when I was a kid, I used to spend hours watching wrestling on television.
Hulk Hogan, the Macho Man Randy Savage… I loved all the old-school guys from the WWF, as they used to call it back in the 1980s.
It was mesmerizing, a bit like I’d imagined gladiator combat would be.
But I’ll never forget when the dream completely collapsed.
My father took me to a live match when they came to our town and we had great seats near the front row.
For the first time it was obvious to me, even from a young age, that it was all fake.
I was devastated. I had actually believed that there were good guys versus bad guys beating each other up in the ring.
It turned out to be a complete hoax, something that’s known today as “sports entertainment”.
In fact, it’s essentially the same with elections today, which I see as “political entertainment”.
Watching Hilary Clinton debate Bernie Sanders—or like yesterday evening, Jeb Bush against Donald Trump—doesn’t strike me as too different from when Hulk Hogan faced off against Andre the Giant in Wrestlemania.
It’s all fake. It’s sound bites, jabs and jibes, and pointless banter completely devoid of any real substance.
Having lunch yesterday with a good friend from the UK, he asked if I thought that any political candidate was worth it.
I told him that I’m sure they’re all very nice people. Many of them might even mean very well and have very good intentions.
I’ll also admit that occasionally they have decent ideas and that there are small steps in a positive direction.
But the truth is, none of it really matters.
As I explained to my friend, the United States objectively speaking is far past the point of no return.
The government’s own financial statements prove beyond all doubt that they are flat broke to the tune of more than $60 trillion, and that they lose hundreds of billions of dollars more every year.
In 2013, for example, the government lost $805 billion according to the Government Accountability Office.
Every major pension program is either already insolvent or desperately unfunded.
This isn’t Simon Black’s analysis; the Treasury Secretary of the United States of America himself tells us that the Social Security’s Trust Funds are nearly out of money.
The Federal Reserve is nearly insolvent, and on a mark to market basis is likely already insolvent.
The FDIC, which is supposed to support the entire US banking system, admits that it fails to meet the minimum capital requirements as required by law.
US banks are precariously illiquid and exposed to trillions of dollars worth of very high-risk assets. Something that even the Fed and the FDIC do not consider to be “sound”.
So to presume that a single individual is going to ride in on a white horse, wave a magic wand and fix all this is just a childish fantasy.
The hope is that “the right person” can at least start to steer the ship in the right direction.
This is the delusion every election cycle; people end up believing the entertainment is real, and that the right person can start to fix everything.
Then a few years later, they realize that the ‘right person’ is almost exactly like the last person.
Not to mention, ‘righting the ship’, mathematically speaking, is an impossibility.
The government now spends almost all of its tax revenue just to pay interest on the debt, and the mandatory programs, like Social Security and Medicare.
Both of which, by the way, are expenses that grow every year.
There is no way out. It’s like trying to change directions for a ship that’s already half-sunk.
At that point, it really doesn’t matter who’s the captain of the ship. All that matters is if you have a seat on a lifeboat.
This is not intended to be a downer.
It’s a little dose of reality, but in it there’s actually good news. Because all the tools and resources exist for you to build your own lifeboat.
You don’t need to rely on a government to fix the problems that they themselves created.
And with a little bit of planning, backed up by small, common sense action, you can ensure that you’re an amused spectator to this bizarre entertainment, rather than a victim of it.
November 9, 2015 by Dan Mitchell
Advocates of limited government favor a small public sector because more resources in the productive sector of the economy translates into faster growth, more job creation, and higher living standards.
Statists, by contrast, favor big government for two main reasons. First, many of them belong to well-connected interest groups that have their snouts in the federal trough. Second, some of them sincerely think government spending “stimulates” an economy and/or “helps” people.
I’ve learned over time that such voters generally don’t pay that much attention to economic arguments.
To the extent they sometimes favor small government, it’s because they think Washington wastes money. Indeed, I suspect a majority of voters would agree with P.J. O’Rourke that “giving money and power to government is like giving whiskey and car keys to teenage boys.”
Yet many of those voters (perhaps even including some of the ones that recognize that DC is riddled with waste, fraud, and abuse) can be persuaded to support bigger government. Having engaged in thousands of conversations with such people over several decades, I think they’re motivated by a desire to be part of a society that “cares.” So, regardless of Washington’s track record of exacerbating problems rather than solving them, these folks sometimes think more government is the right approach. Like second weddings, this is a triumph of hope over experience.
Today, at the risk of jumbling my analogies, let’s try to convince such people that you don’t want a second wedding if it means you’re getting hitched to an institution that is unavoidably wasteful and incompetent.
And we have some fresh eye-popping evidence. Here are some excerpts from an exposé published by the Washington Post.
…the government has spent more than $1 billion trying to replace its antiquated approach to managing immigration with a system of digitized records, online applications and a full suite of nearly 100 electronic forms. A decade in, all that officials have to show for the effort is a single form that’s now available for online applications and a single type of fee that immigrants pay electronically. The 94 other forms can be filed only with paper.
Amazing. After 10 years and $1 billion, the net result is a total cluster-you-know-what.
…officials at the Department of Homeland Security, which includes USCIS, were aware that the project was riddled with hundreds of critical software and other defects. …Only three of the agency’s scores of immigration forms have been digitized — and two of these were taken offline after they debuted because nearly all of the software and hardware from the original system had to be junked. ..A report last year from the DHS inspector general’s office said it sometimes took up to 150 clicks for employees to navigate the system’s various complex features and open documents.
So is the incompetent contractor (IBM) getting punished? Are any of the bureaucrats in charge of the project getting fired?
Of course not. This is government! So why you waste some money, that’s merely a prelude to wasting even more money.
This project, run by U.S. Citizenship and Immigration Services, was originally supposed to cost a half-billion dollars and be finished in 2013. Instead, it’s now projected to reach up to $3.1 billion and be done nearly four years from now.
By the way, the incompetence revealed in this story this is not an argument for immigration or against immigration.
My point is simply that governments have long track records of squandering other people’s money, with this story simply being another straw on the camel’s back.
Or maybe it would be better to describe it as another bit of dead weight financed by over-burdened taxpayers.
I don’t know if this will make anyone feel better, but other governments are similarly incompetent and foolish.
Here’s an example of government blundering from overseas. As reported by the UK-based Guardian, the European Commission just admitted that it has successfully process 0.00015 percent of refugees.
EU members states agreed in September to relocate 160,000 people in “clear need of international protection” through a scheme set up to relocate Syrian, Eritrean, and Iraqi refugees from the most affected EU states – such as Italy and Greece – to other EU member states. So far 116 people have been relocated, and only 1,418 places have been made available by 14 member states, according to data released on Tuesday by the European Commission.
Wow. It’s been a while since I was a student, but I remember that you need 70.0 percent for a C and 60.0 percent to avoid failing.
With that in mind, I wonder what sort of grade you get for 0.00015 percent? Is there such as thing as F-, though I guess Z- would be more appropriate.
Here’s a graphic from the article.
By the way, the EU’s incompetence at processing refugees is one issue. Another issue is whether European nations should be granting refugee status to hundreds of thousands (and eventually millions) of people from cultures that don’t assimilate very well.
And I imagine that refugee status in Europe means access to welfare, so the system presumably creates the same perverse incentives we find on the American refugee program.
But for today, I’m simply focused on the fact that government bureaucracies are spectacularly incompetent.
Yet there are still many people who want to give more power and money to politicians.
Let’s close with a serious point.
Unless you’re an anarcho-capitalist, there are some things you want government to do, and you want those things to be done well.
So how, given the natural incompetence of the public sector, can you get good (or at least acceptable) results?
The only feasible answer is to have small government, as Mark Steyn has explained with his usual dose of sarcasm. A bloated public sector guarantees slipshod performance everywhere. But if the federal government concentrates on just a few tasks, oversight and monitoring will be easier and it will be easier to weed out incompetence.
And this isn’t just theory. The European Central Bank has produced a measure of public sector efficiency and their research shows that smaller governments are much more competent at producing desired results.
P.S. Bizarrely, some folks acknowledge government incompetence but think the right solution is more power for government.
P.P.S. Some of this is common sense. What government do you think is more competent and effective, France with its big government or Switzerland with its medium-sized government? Where do you think government is more effective, Singapore with its small government or the United States with its medium-sized government?